ETF long term investing question

[fluff]

Can anyone tell me if this is a good approach?

I'm planning on pretty much doing this to the dot, with the exception that instead of $100/month (which amounts to 4% commision every month), I'm going to squirrel away $1000/month from my poker earnings.

Any modifications anyone would recommend? I am 29, and the money won't be needed for a long time as I have a regular job and do not need poker winnings for anything in the near future. Also, hopefully as poker winnings/bankroll increases, I am planning on investing even more.

Also, I am planning on learning a bit more about the whole stock market thing, but for now I would be very happy with a "set it and forget it" approach to just buy and hold stocks to just match the market.

Should I add a little more volatile ETF (I was thinking an emerging market ETF, such as EEM) to the mix?

Thanks for inputs!

[parttimepro]

That's a very good approach for someone who doesn't want to spend a lot of time researching stocks. I would recommend two changes:

1. Establish an IRA. IRA stands for Individual Retirement Account. It's a tax shelter that lets you invest without paying taxes on your gains. There are 2 kinds: traditional and Roth. Traditional IRAs give you an immediate deduction on your taxes, and tax deferred growth. So if you invest $3000 this year, you can claim a $3000 deduction, but you'll have to pay taxes when you eventually withdraw. A Roth IRA doesn't give you the immediate deduction, but you won't have to pay any taxes at all when you withdraw. Unless you're in a high tax bracket now, you probably want to go with the Roth. Whatever brokerage you go to will have more information. I recommend Scottrade, btw.

The catch with IRAs is that you can't withdraw the money before you're 59 or so without penalties. There are some exceptions (I think you can withdraw for a down payment on your first house, for example), but basically this is for a very long term investment.

2. Buy mutual funds instead of ETFs. This gets you the same basket of assets, and saves on commissions. Your brokerage will charge you each time you buy or sell an ETF. The $4 fee referenced in the article is actually pretty low. Scottrade charges $7, and most other brokerages charge $12-$20 for each trade. If you're buying more every month, that can get pretty expensive. If you buy mutual funds, there are no commissions*.

*All mutual funds and ETFs charge maintenance fees. If you buy index funds, which you should, the fees will be very small (0.18% per year for the Vanguard S&P 500 index, for example). Some mutual funds charge "loads," which are basically a trick played on naive investors. In addition to the maintenance fees, you have to pay them an additional fee (sometimes 5% or more) for the privilege of investing with them. There are plenty of good funds without loads, and you should never buy anything with a load.

[ QUOTE ]
Should I add a little more volatile ETF (I was thinking an emerging market ETF, such as EEM) to the mix?


[/ QUOTE ]
Yes. You're fairly young, so you can trade volatility for return.

Alternately, several companies will do the asset rebalancing the article described automatically. Vanguard for instance has "Retirement 2025" "Retirement 2035" etc. funds which choose a target asset balance based on acceptable risk for that retirement date. Then they rebalance to match those targets, and update the targets as retirement date approaches. If you're looking for a true "set it and forget it" plan, this might be the best option.

I've left out a lot, but please ask if you have other questions.

[dw9619]

i have been buying EEM for the past year. It has DEF worked for me. Just make sure u send orders to AMEX.

[TGoldman]

I think it's a solid approach long-term investing approach. For further reading on the topic, you should look into some of the books that the MSN Money article is based on: Asset Allocation: Balancing Financial Risk, and The Intelligent Asset Allocator.

As for the ETFs themselves, I'd recommend looking into:

IYM for commodities index
EFA for international index
LQD or AGG for a bonds index
IYR or RWR for a real-estate index
And then some combination of SPY, IJS, and/or IJH for large/small/medium cap stock exposure.

[fluff]

Thanks for the answer.

I've been reading up a bit on IRAs. If I understand correctly, there is a maximum contribution, so if I plan to put in a min of $1000/month, I would need at least two accounts, one IRA and one regular brokerage account (or a Vanguard account for index funds)?

Also, is an IRA account basically the same like a regular account (in the sense that within the account I can buy/sell whatever) but money can only go into the account until I'm 59 (or meet some other penalty exempting condition)?

[parttimepro]

[ QUOTE ]
If I understand correctly, there is a maximum contribution, so if I plan to put in a min of $1000/month, I would need at least two accounts, one IRA and one regular brokerage account (or a Vanguard account for index funds)?

[/ QUOTE ]
Yes. The limit for this year is $4000 and for last year is $3000. Contributions made before April 15 can be applied to last year's limits, so if you hurry, you can put $7000 into an IRA this year. Beyond that, you'll need a separate taxable brokerage or vanguard account. It's not that big of a hassle.

[ QUOTE ]
Also, is an IRA account basically the same like a regular account (in the sense that within the account I can buy/sell whatever) but money can only go into the account until I'm 59 (or meet some other penalty exempting condition)?

[/ QUOTE ]
Yes, you can buy basically any stocks, bonds, or funds. There are a few classes of assets you can't own through an IRA, but these are generally not good investments anyway (e.g. "collectibles" such as baseball cards or beanie babies). You can continue to contribute to the Roth IRA until you're 100, but you can't withdraw until you're 59.5 years old.

Exceptions and other rules are discussed more comprehensively here:
http://www.fool.com/money/allaboutiras/allaboutiras.htm

[player24]

I've never given this much thought before, but if you are a professional poker player you may be considered to be self-employed.?.in which case, you may be eligible for a SEP IRA.
(Are professional poker players considered to be self-employed? I dunno...)

The main distinction of a SEP IRA is that there are higher contribution limits (maxinum annual contribution 25% of your net income). If you are sure you are investing the money for the long term (i.e. retirement), you might want to look into this option.

SEP IRAs are just as simple to setup and manage as regular (individual)IRAs.

Congratulations on your decision to save part of your poker earnings! I think that many players would just add their discretionary income to their poker bankroll (and maybe go up in stakes).