Need Some Investing Help/Advice...How to Maximize Gain

[Jeffage]

Hey Everyone,

Here's my situation. I'm 25 and have a job where I make decent money for my age (mid 5 figures). But I also have been doing really well at poker and have made more annually at that than my job. This year, I've already surpassed my salary. So I have some money to invest. So far, I'm maxing out my 401k (500 a pay check). Is that smart? Or should I be putting all this money into my Merryl Lynch Acct (I have some mutual funds from an inheritance...decent amt, but not a ton). Any other advice appreciated...I want to not work my whole life.

Jeff

[midas]

Jeff:

You should always max your 401K since the gov't is paying for a chunk and your employer may match (free money). The 401K max I thought was $12K+ now so you are technically not maxed out but your employer may limit your deduction as a % of your income. For investments - I would make it easy and buy SPY (S&P 500) and MDY (S&P mid cap index) in equal amounts each month or find a mutual fund family like Vanguard that has low cost funds that replicate these index stocks.

[Talex]

[ QUOTE ]

You should always max your 401K since the gov't is paying for a chunk and your employer may match (free money). The 401K max I thought was $12K+ now so you are technically not maxed out but your employer may limit your deduction as a % of your income. For investments - I would make it easy and buy SPY (S&P 500) and MDY (S&P mid cap index) in equal amounts each month or find a mutual fund family like Vanguard that has low cost funds that replicate these index stocks.

[/ QUOTE ]

This depends on what your tax liability will be at retirement. It may be better for you to set 401k to whatever is matched by employer, then max a Roth IRA and see where you're at from there. At this point your tax liability may well be lower than what it's going to be at retirement. Once you've max'd the Roth if you're still looking for investment oppourtunities then turning again to the 401k is certainly a possibility. Do you own property yet? A home may easily be the best place to put your money.

-Tim

[Jeffage]

So are you saying that if your employer doesn't match, you wouldn't do the 401k? Mine doesn't match, but there is a pension program. About the house...I'm thinking about it, but it might be in a warmer climate (like Vegas). I need a year.

Jeff

[Jeffage]

For my Merryl Lynch Acct, I have all mutual funds and they seem to be doing pretty well. Should I simply write a check to them and tell them to distribute it in what thy see fit?

Jeff

[Talex]

[ QUOTE ]
So are you saying that if your employer doesn't match, you wouldn't do the 401k? Mine doesn't match, but there is a pension program. About the house...I'm thinking about it, but it might be in a warmer climate (like Vegas). I need a year.

[/ QUOTE ]

If the employer did no matching I'd at least take a look around at other vehicles. Given that you're making what sounds like a good wage + poker, and you're not even in your prime earning years the benefits of being able to grow an investment tax free and not be liable for taxes on the back end is pretty attractive, hence my recommending the Roth. I think a house, and a Roth may be your best bet at the moment.

Buying a house has a lot of advantage in terms of tax sheltering that aren't talked about. Interest on the mortgage will be deductible, and so you'll find it attractive to itemize if you aren't already. For a poker player, given the way the US taxes gambling winnings, being able to itemize can be a big advantage. Real estate is pricey right now, but as long as you're not buying into the most expensive boom markets you should probably be fine.

The other thing to consider is how much liquid capital do you have available in the event of emergency? When doing retirement investing you want time on your side, and you don't want to dip into that money if you can avoid it. Give yourself a buffer in the event of losing a job, or getting hurt. It's always good to have some liquidity in case something unforeseen comes up. It's even more important once you own property since there are so many vaguaries than can oocur (i.e. CRAP! The basement flooded and the roof leaks, we need 10k for repairs!)

So, I'd look hard at a Roth, set aside some money for emergencies, and get yourself into a house. If you have stuff to invest after that there are a lot of options and the 401k is certainly one of them. Generally though a 401k's single largest benefit is employer matching. Without that it acts much like a standard IRA. There are benefits there, but only if your tax liability at retirement will be less than your tax liability now.

Frankly, it sounds like you're thinking about all the right things, and that puts you ahead of the game in a lot of ways.

-Tim

P.S.- I'm not an investment advisor, just for the sake of disclosure.

[ScottTheFish]

Since you're so young you should really look at 401k up to the match, and then max out a Roth IRA (4K this year, 5K next I think)

The beauty of the Roth is, even though it's after-tax money you're putting in, it will be in there growing a long time, and you NEVER have to pay any taxes on the growth, which will be triple your contributions or more by the time you retire.

With a traditional IRA or 401k, you contribute with pre-tax dollars, but pay taxes on everything when you take it out. The advanteage of the 401k is that the contribution limits are much higher.

Also make sure you're paying taxes on your poker winnings, it's not worth the risk.

BTW you are extremely smart to be thinking about all this at 25. Stay smart and you will be very rich in 25 years.

[Dan Mezick]

Find yourself a good financial planner and focus on poker.

The planner will set you up with a good plan.

Stick to what you know.

[Talex]

[ QUOTE ]
Find yourself a good financial planner and focus on poker.
The planner will set you up with a good plan.
Stick to what you know.

[/ QUOTE ]

This is sound, but the problem is that there are a lot of bad financial planners. It's useful for him to be informed about his options if only to help evaluate the planner's pitch.

-Tim

[Jeffage]

How do you select a financial planner. Is my Merryl Lynch guy automatically my financial planner or do I hire someone else? I did a web search and have no clue how to evaluate someone. Obv., being a gambler I must keep lots of cash liquid...but I feel like I can invest tons right now. So much info...I don't even know how Roth's work really or understand the tax benes (my bank has been tryin to sell me on this stuff). Any benefit to just dumping money in my Merryl Lynch acct. and having my guy spread it around to the diff funds as he sees fit? Tax implications?

Also...anyone know if gambling will make it hard to get a mortgage even if you still have another job? I feel like it will be looked at as a credit risk, but I've paid taxes on the gains for a few years now? How much will they ask me about this? I def want to buy property...in Vegas, condos by Bellagio start for a quarter mil...VACATION HOME AND INVESTMENT. I currently pay a grand a month in rent.



Jeff