Investing Poker Winnings

[theBruiser500]

Here is my situation. I am 19 and go to UMass Amherst which costs about $14k a year. So far I've taken out a sallie mae loan though which is interest free and which I can repay in low monthly payments when I graduate. This upcoming year I could pay tuition with my poker wnnings or just take out more loans, I see no reason not to just take out more loans and invest my poker winnings.

I'm up about 25k now and guess I need to start paying taxes. Every thread I've glanced over on 2+2 says there is no way to avoid paying taxes and it is not a good idea to get in trouble with the IRS. I have no idea where to start with this, what should I do? Are there any tax breaks I can get, like maybe money I use to pay for college is not taxed? That sounds like something that might exist.

I plan on making a lot of money at poker over the upcoming years and I want to start investing it. I will be using a lot of my money to just enjoy but using it to have fun with may be 1/2 a year from now or whatever so I can invest it in the meantime. Also I want to save money for when I'm out of college for a place to live, food, car, whatever. And money for the long term. Not sure where to start with all of this either. Should I just put it into an etrade accoutn and start investing, any specific types of investing I should look into? I heard IRA's are good because they are tax free.

I want to get good with the stock market. How should I learn about it, what should I read. Any good book recommendations, or just walls treet journal or what?

thanks

[moondogg]

If you're not going to pay interest on the loans, pay them off as slow as possible.

As far as taxes, go to a tax accountant, preferably one with some experience with gambling winnings. With your winnings, you can afford one. You can search the forums for a whole lot of discussions on the topic, but most of the advice and opinions (mine included) are not expert opinions. Pay for an expert.

Book wise, I would say to read "The Millionaire Next Door" and "The Only Investment Guide You'll Ever Need". Despite the title of the latter, you'll need a lot more books eventually, but they do give you a good overview of saving and investing. The investment guide is kind of a WLLH for personal investing. After that, you'll probably just be investing in index funds. If you want to get deeper into the stock market (or get start getting tempted into "active trading"), read "The Intelligent Investor" by Benjamin Graham. It's a little dull, but most good advice is dull.

An IRA is a great investment, as long as you don't need the money for a few decades. If you're going to get a "real" job when graduate, make the maximum contribution to your 401(k). If you're not getting a job, open either a traditional IRA or a Roth (you may not qualify for a Roth). In the meantime, make sure you have a year's worth of living expenses saved in cash or near-cash (get an savings account from ING Direct or a money market from Netbank).

[playerfl]

you need to keep 4 things in mind:

1. in the stock market, you are a total fish.

2. the stock market is very risky right now, even for experts.

3. you will not stop playing poker and you will eventually have a losing streak.

4. I suggest you simply spend some of the money. You should get some kind of real world present moment benefit and not just look at it as game credits.

[theBruiser500]

playerf, i will spend some of the money as i said, but i also want to invest some of it. i know i am new to the stock market (alhtough i have invested before, went broke once, made a lot when the stock market boomed, then lost my profits, then made some back and cashed out). i am not averse to a risy investment, in fact i do not want to invest all of my money conservatively. i am willing to get in there and gamble with my money. what about real estate or foreign currencies? granted i knwo nothing about them, i am willing to learn and don't mind losing some of my money in the process.

[playerfl]

I am guessing that you play something like $10/$20 in poker.
when you first started out in poker, did you play $10/$20 right off the bat ? Probably not.

The way to start out in the market is not by jumping straight into speculation. You should learn the fundamentals of investing in stocks, bonds, and mutual funds. If you want to gamble, do it in a live casino where at least you will have fun and free drinks.

If you insist on gambling on the market, i recommend www.tradesports.com. (http://www.tradesports.com.) You can bet on indexes, currencies, commoddities, sports, etc. and it works like a futures market. See how it takes you to lose $1,000 and then decide if you want to trade for real.

[element00]

easily solved invest in real estate ... and enjoy tax freedom from that and start building up a corporation(might seem impossible but hardly)

Anyway, go to www.richdadpoordad.com (http://www.richdadpoordad.com) or go to the local book store and get rich dad poor dad. it's an excellent book. live out the dream... you wont need a job after college if you read that and invest : ).. but you'll probably want one to keep busy.

[lu_hawk]

The stock market is a lot like poker. You need to put your money in situations that have a positive EV. When you say you are willing to gamble, you make it seem like you want to put your money in spots where you don't even know what the odds are. Fish can go on runs in poker, if you invest this way any money you make will be from short term luck but over the long term you will not do very well. Learn what you're doing, start small, if you are smart enough to make good money at poker then you are probably smart enough to make money in the stock market, but you need to educate yourself. The poster who said to read 'Intelligent Investor' is right on, there are some others but start out with that.

[midas]

Bruiser:

You're 19, you play poker and you go to school - if you aren't a total loser you have a social life - so you are booked 24/7. You don't have time to manage real estate (unlikely you'll get a mortgage anyway) or watch over stocks(why bother with those returns when your crushing the tables). Pay off your student loans and get that monkey off your back. I'm shocked at the amount of debt that students incur for undergrad degrees and then complain that they can't find work. Being debt free after college will give you freedoms that your leveraged up friends won't be able to afford.

[namknils]

I like Midas' advice. Also you didn't mention anything about credit card debt, but make sure you get rid of any of that before you start investing.

If you want to start something small right now, open a Roth IRA and invest in some long term growth mutual funds. These are to buy and hold, you don't want to be constantly trading them. You pay taxes on the money now and can invest $3,000 a year (next year the limit goes up to $4,000) and it will be tax free when you take it out during retirment. If you start this now and keep it up, your retirement account will be in the millions, see "compound interest".

[moondogg]

[ QUOTE ]
I like Midas' advice. Also you didn't mention anything about credit card debt, but make sure you get rid of any of that before you start investing.

If you want to start something small right now, open a Roth IRA and invest in some long term growth mutual funds. These are to buy and hold, you don't want to be constantly trading them. You pay taxes on the money now and can invest $3,000 a year (next year the limit goes up to $4,000) and it will be tax free when you take it out during retirment. If you start this now and keep it up, your retirement account will be in the millions, see "compound interest".

[/ QUOTE ]

Be careful with a Roth, though. If you're playing a hell of a lot of poker and counting each winning session as a income and each losing session as a deductable loss, the Adjusted Gross Income on your taxes (which would include your wins but not include your losses) might be high enough to disqualify you from getting a Roth. There was some discussion somewhere around here about whether you would really get screwed like this, but I don't think anything intelligent came of it.

[Warren Whitmore]

"if you are smart borrowing money is unnessisary, if you are not it is poison" Warren Buffett

[moondogg]

[ QUOTE ]
"if you are smart borrowing money is unnessisary, if you are not it is poison" Warren Buffett

[/ QUOTE ]

F$^#ing great line.

[LondonBroil]

Read this (http://forumserver.twoplustwo.com/showflat.php?Cat=&Board=inet&Number=425623&fpart=& PHPSESSID=)

I have it saved in my favorite threads.

[GeorgeF]

Paying down debt is usually a good idea. The only case it is not is if there is a currency devaluation/inflation.

As to investing you might consider keeping things simple and choose some bond mutual funds from vanguard and pimco.

Making 25k at poker is not like makeing 25k working at a reuglar job as you have risked your own capital. Earning 25k at poker is more like 10k at a regular job. Keep this in mind as you plan for the future.

Since you are 19 your best investment is likely to be anything that increases you future earnings. Investing in yourself doing things like learning Chineese or something might turn out to be the smartest thing you could do. Over 40+ years you might be looking at millions of dollars gained at fairly low risk.

Also since you are young if an area of investment interests you you can just get entry level work in that field. Be it real estate of oil wells. If it looks like there is something working in that field thats your career.

[namknils]

[ QUOTE ]

Be careful with a Roth, though. If you're playing a hell of a lot of poker and counting each winning session as a income and each losing session as a deductable loss, the Adjusted Gross Income on your taxes (which would include your wins but not include your losses) might be high enough to disqualify you from getting a Roth. There was some discussion somewhere around here about whether you would really get screwed like this, but I don't think anything intelligent came of it.

[/ QUOTE ]

Crap, I never thought of it that way. A professional poker player can get screwed because of the way they make you report your winnings.

[moondogg]

[ QUOTE ]

Crap, I never thought of it that way. A professional poker player can get screwed because of the way they make you report your winnings.

[/ QUOTE ]

Yeah, this is my first year of poker income, and my first year that I would open a Roth. I'm going to hold off on the Roth until Jan/Feb just to see what shakes out. The bitch of it is, even if I lost back everything between now and 1/1/05, it wouldn't lower my AGI one cent. At least those bastards can't mess with my 401k.

[theBruiser500]

Thanks for all the responses, I will respond soon. Trying to stay off the internet as much as I can and enjoy summer with my old friends before going back to college /images/graemlins/smile.gif

[theBruiser500]

I don't have any debt now except my student loans. For people who have told me to pay off my student loans, why? I don't play on using all the money I have now, I will save it and it will be available to pay off the loans when I have to start paying them off. These are interest free loans, I see no reason to pay them.

HOw do I find someone to do my taxes for me? Is there a preferred company for this that I should go to or what?

I plan to be cautious in terms of investing, ease into it slowly and start with the lower risk stuff. And when I say "gamble" I don't mean put it on 50/50 [censored], but I would be willing to invest it speculatively if I felt it was a good investment. Whoever said I should learn chinese or invest it in myself... I agree completely with that, I always used to spend a lot of money on books (though now I just use the library), I really like making that sort of investment in myself.

[JellyFishy]

"I don't have any debt now except my student loans."

Don't worry about the debt, shame to sound cheap but when I was in school I tried to get as much student loan as possible when I don't really need it just because it is such a good deal...zero real interest....no downside risk i.e. legal action, bankruptcy if I screwed up....and spare cashflow for my businesses, even sticking the loan into a bank will yield quite a lot annual compounded over a lifetime at that age.

"How do I find someone to do my taxes for me?"

If you want to get into business, ask an accountant for tax avoidance techniques, for free advice call up the IRS. Why are you worrying about tax when you are 19?
I totally evade paying any tax when I was still in school, there's almost no way they will waste time to audit you.

"I plan to be cautious in terms of investing, ease into it slowly and start with the lower risk stuff. And when I say "gamble" I don't mean put it on 50/50 [censored], but I would be willing to invest it speculatively if I felt it was a good investment."

Cool, smart move. Got to get an edge before you gear it up, otherwise you're gambling.

"Whoever said I should learn chinese or invest it in myself... I agree completely with that, I always used to spend a lot of money on books (though now I just use the library), I really like making that sort of investment in myself."

Learn what is useful for you, otherwise it is leisure not investment. Chinese is very difficult language, usually that means huge cost of time, effort, why do you need Chinese? Even if you need it, will it not be cheaper to outsource?

If you really like the challenge then I recommend Mandarin since it is official national language but the most economically active areas, South China, Hong Kong, Macau, etc speaks Cantonese which is extremely difficult language, luckily it is one of my first languages. If you need help ask me at my homesite forum.

I can help you with many other languages since I live in Europe and like to chase foreign girls, I pretty much can get a basic conversation going in most popular languages.

[Kopefire]

First, get yourself a stock broker. You don't need a full service account, but get someplace where you can get good information on the funds you want to invest in.

Get yourself started putting money away monthly in a couple of good funds. You're young, so high risk is ok, but keep at least 20% of your money in slow-growth/bond type funds for a stable base.

Get yourself an IRA. Make the max deposit every year.

Start researching one area of the stock market. It doesn't matter what -- it can be manufacturing, textiles, whatever. Just pick a sector that you find interesting and start reading about the companies in that area. This isn't an "all at once" type thing -- basically, just make a habit of reading about those companies when you go to the library for school. Each time you go in, grab the business papers/journals and scan for articles about your sector.

After a year or so of that sort of light research, you'll know which companies are the winners and which ones are the long shots. Pick a few winners and a few longs shots and go buy a couple of shares of each. Make it a habit to follow those companies, and buy shares in them every couple of months (read about dollar cost averaging).

Think about opening something like a sharebuilder account so that you can buy partial shares with low overhead.

Investing is neither hard nor time-consuming. It's also not nearly the gamble some people make it out to be. If you do your research you'll pick companies that are long term winners, and your speculations will pay off enough to make up for any losses.

Yes, you'll have the occassional down-turn, but all in all, it beats working as a way to make money.

[icetonez]

There have been some good posts for you Bruiser. Let me try to help as I was in a similar situation last year. Right now you should be a defensive investor. You don't need a broker and your not yet ready to pick stocks. Open up a roth IRA with an online cheapie like E-trade. Like many have said max 3k this year and 4k there after. What to do with your contributions? Put it all in the Vanguard 500 Index Fund (VFINX). Now you can begin to learn to pick stocks (like I'm doing now) as your finances are in order. You're long term tax free growth will be great come retirment with that fund. I agree with what others have said in that you should begin with The Intelligent Investor. Graham's part is boring and dated so you really only need to read Jason Zweig's chapter summaries. He has great insight. Hope this helps, best of luck.

[TStoneMBD]

I'd like to say that I am not very experienced with investing as I too am only 19 years old. However, I have read numerous books concerning investing and one thing that you may not know is you are not going to get rich quick playing the stock market. Compounding interest is a very powerful weapon, but you can only expect to gain 20% at most on your investment returns annually. With a 25k bankroll you would be lucky to earn 5k in a year, and in order to manage a return of this magnitude you would have to remain highly active in reading up on your market trends, whisper numbers, quarterly earnings, just to name a few. Even financial advisors have difficulty returning 20% and that is why mutual funds are so low. Educating yourself is the most important advice I can offer you, but you should know that even if you were the best investor in the world, investing on your bankroll is not going to get you anywhere. Leverage is the only way you can accomplish anything.

As far as real estate goes, I have read the entire series of Rich Dad Poor Dad, and while the books are inspiring again the same dilemna occurs; You can't get rich on your 25k bankroll. In order to succeed in real estate you once again need to use leverage. You can become extremely wealthy if you learn the techniques of investing through leverage, but once again your 25k bankroll just isn't going to get you anywhere fast.

Getting annual returns on your bankroll is sound advice, just don't expect it to carry you very far. You could read a million books on investing, but it just isn't going to get you anywhere unless you are interested in using the power of leverage. Personally, I would recommend picking up a book or 2 on mutual funds and pick one that best attends to your goals. The time spent learning on investing would be better used elsewhere unless you are truly fascinated with this matter.

As a few side notes: if you decide to travel a different route than my advice, I would highly recommend practicing on one of the fantasy stock markets online for at least 3-6 months before risking any actual dollars.

Investing in Real Estate is probably the most effective vehicle to real wealth, but if you plan on purchasing properties with cold cash you are going nowhere but backwards. Your annual return on investing in cash might be 7% if your lucky. The only reason why real estate works is bank loans.

The Warren Buffet quote seems a little silly to me as it is probably being used out of context without its entire paragraph. If you are going to tell me that Warren Buffet earned his wealth without using leverage you're lying to yourself. He owns his own mutual fund for crying out loud. If that isn't leverage at its finest than I don't know what is. Granted, this may not be quite the same as borrowing, but it holds the same principles when investing.

As far as your student loans are concerned, it makes no sense to pay them back any sooner than you can. If you want to attain real wealth you are going to have to risk debt, or grind it out for the next 30 years.

[ddollevoet]

My two cents.

Use the money as a down payment on a duplex on or near your college campus. Live there. Rent out the other side to pay most or all of the mortgage payments. Write off the interest. Write off the depreciation. Cash in on the appreciation after you graduate.

Read "Rich Dad, Poor Dad" by Robert Kiyosaki.

[Nemesis]

i have to say yes to the above poster, very sound advice.

[lu_hawk]

Who says there will be appreciation? Nothing ever moves in one direction and real estate has been going straight up for awhile now. When a leveraged investment goes down you are in a lot of trouble.

[mmcd]

You are completely under the IRS's radar. You'd be best off keeping it that way. Just avoid large transactions at financial institutions etc. that would trigger reporting requirements. If you start making lots of money get a safe deposit box.

[ddollevoet]

[ QUOTE ]
Who says there will be appreciation? Nothing ever moves in one direction and real estate has been going straight up for awhile now. When a leveraged investment goes down you are in a lot of trouble.

[/ QUOTE ]

If the value of the property drops, he could rent the other side after he graduates, pay a property management company to manage it for him and have extra cash flow each month until the market recovers.

[moondogg]

[ QUOTE ]
You are completely under the IRS's radar. You'd be best off keeping it that way. Just avoid large transactions at financial institutions etc. that would trigger reporting requirements. If you start making lots of money get a safe deposit box.

[/ QUOTE ]

/images/graemlins/confused.gif

Conversely, I suggest that you absolutely DO NOT start off your adult career with blatent tax fraud. Just my opinion, though.

[lu_hawk]

It's not that simple. If the housing market falls then his rental income will also fall but his mortgage debt and his payments are still the same. Want to sell the house? Too bad because if you were leveraged enough then you are upside down and you lose all your equity and now you have to pay the bank just to sell it.

Leveraging yourself into any asset class that has been going straight up is probably the most risky thing you can do with your money.

[Nemesis]

I think that leveraging yourself into a house that you can get passive income out of like RE is a smart move. Even though the market is hot right now, it probably won't be in the next 5-10 years, but what does that mean? It means buy SMART if you buy property that has a positive cashflow NOW, then in 5 years when your properties value starts coming down, rent will be up from inflation and other market forces (probably high interest which is causing the market values to decline). You will still be able to cover your monthly debt service and make a small chunk of change while growing equity with which you can purchase more RE /images/graemlins/smile.gif