Retirement savings: Lots of $, job prospects weak

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Topic Author
hungrypig
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Retirement savings: Lots of $, job prospects weak

Post by hungrypig »

Long story short: I quit college in my early 20s to pursue a career as a professional poker player. It proved to be a wise decision, at least in the short term, as I was able to put away $1 million in savings in five years (I've paid off all my student loans and have no debt).

Unfortunately, I have not been a winning player over the last 15 months and have decided to quit and return to school. That means I'll be making very modest income for the next three years (I'll continue to play low-limit poker) which will take me up to my 30th birthday.

I've been so hyperfocused on poker that I've done virtually nothing with retirement planning. I have a few small investments and nothing else, and doubt I'll ever work for anyone but myself in the future. I am engaged, do not own a home, and am unlikely to have kids for at least five years.

Meanwhile, I have $1 million sitting in the bank, basically doing nothing.

Any advice on how I should be allocating my money?

A sincere thanks for any advice that is offered. :happy
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StevieG72
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Re: Retirement savings: Lots of $, job prospects weak

Post by StevieG72 »

Go all in (100% equities) in a total market index fund with low fees.

VTSAX
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ff4930
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Re: Retirement savings: Lots of $, job prospects weak

Post by ff4930 »

Is that 1 mill all dedicated to investing? No plans to buy a home and settle down or use the money for your wedding?
jimmy123
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Re: Retirement savings: Lots of $, job prospects weak

Post by jimmy123 »

Put enough money for a modest house in a multi year CD ladder. Then pay cash for your future house.

Pay cash for college / living expenses during college. Look into whether you can put the cash in a 529 then pay out of that to save some state tax, should that be viable)

Put rest in the Vanguard target date retirement fund closest to your planned retirement date. At least while you are in school - seems little point in worrying about allocation and balancing while in school.
hancocd3
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Re: Retirement savings: Lots of $, job prospects weak

Post by hancocd3 »

While you are educating yourself on what to do investment wise, create an Ally.com bank account; 1.00% APY interest rate, calculated daily, no stupid requirements or loops to jump through.
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Wildebeest
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Re: Retirement savings: Lots of $, job prospects weak

Post by Wildebeest »

I would put it 100 % equities and try to see if you could put in Roth account or 401 K account.

Forget about it for the next 15 -20 years and you may be able celebrate an early retirement when you decide to cash in.

I would put it in index funds and slice and go for small value.
The Golden Rule: One should treat others as one would like others to treat oneself.
David Scubadiver
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Re: Retirement savings: Lots of $, job prospects weak

Post by David Scubadiver »

Wildebeest wrote:I would put it 100 % equities and try to see if you could put in Roth account or 401 K account.

Forget about it for the next 15 -20 years and you may be able celebrate an early retirement when you decide to cash in.

I would put it in index funds and slice and go for small value.
What does that mean, try to see if you can put in a Roth account or 401(k)? Curious to know what strategies there are for putting income earned over many years, into a retirement account after the fact.
DTSC
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Re: Retirement savings: Lots of $, job prospects weak

Post by DTSC »

You have enough to retire if you live frugally!

Check out Mr. Money Moustache's blog. http://www.mrmoneymustache.com/
junior
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Re: Retirement savings: Lots of $, job prospects weak

Post by junior »

I don't know if any credible investment advisor recommends 100% equities. Weird advice being given here. Read one or two of the recommended books on the Bogleheads wiki.
Topic Author
hungrypig
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Re: Retirement savings: Lots of $, job prospects weak

Post by hungrypig »

ff4930 wrote:Is that 1 mill all dedicated to investing? No plans to buy a home and settle down or use the money for your wedding?
It is 975k cash, 25k investments. No immediate plans to buy a house, but surely that will be in the cards within the next 3-5 years. Won't have any wedding costs (thankfully).
AlohaJoe
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Re: Retirement savings: Lots of $, job prospects weak

Post by AlohaJoe »

junior wrote:I don't know if any credible investment advisor recommends 100% equities. Weird advice being given here. Read one or two of the recommended books on the Bogleheads wiki.
Charles Ellis recommends 100% equities.

Even Vanguard recommends 90% equities for someone the age of the OP.
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hungrypig
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Re: Retirement savings: Lots of $, job prospects weak

Post by hungrypig »

It's dumb to say, because I know I'm in a great financial position right now, but I have never been more stressed about money as I have been this last week. I was less stressed when I had no money in college and had to double check my bank balance before a night out at the bars.

The reasons for my stress:

a) As noted in the OP, I have done a terrible job of investing/retirement planning. I feel like I'm way behind, and am wanting to catch up. Many of my friends have 401ks through work, and are constantly contributing, while I have done nothing and know virtually nothing. I feel completely and totally lost.

b) I am unlikely to earn much for the next few years. This has been difficult for me psychologically, since I've been used to earning high amounts for the last four to five years. It's also highly unlikely that I'll make anywhere close to what I've made in the past. I'll likely make 55k-65k/yearly when I return to working full time, which is roughly 25% of what I've been making yearly since leaving college.

c) The DOW is currently at an all-time high. I keep asking myself, "Is now a bad time to take the plunge, or should I wait?"

I will surely have to start reading (you guys can't be expected to hold my hand through this process, even though I wish you could :happy), but I can't overstate how clueless I am with regard to basically everything related to personal finance/investing. I'm wanting to invest anywhere between 100k to 150k, and would like to put it somewhere as soon as humanly possible so I can forget about it.

But need to figure out where to start.
LandOLakes
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Re: Retirement savings: Lots of $, job prospects weak

Post by LandOLakes »

I think your stress is misplaced, for what it's worth. Your friends who have been saving diligently in 401(k)s have the advantage of socking away some amount of money that will grow tax free until retirement, which is no small thing. But I bet they have nowhere near $1 mm in assets set saved up to this point. You will have to pay taxes on future investment gains on that $1 million, but even so, that's an excellent point to start from. And you can slowly build up tax advantaged savings going forward too.

I guess what I'm saying is that taxes aren't the end of the world. Better to pay less than more, all else equal. But when you have a million in the bank and your friends don't, there is plenty that isn't equal, I assure you.
ff4930
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Re: Retirement savings: Lots of $, job prospects weak

Post by ff4930 »

hungrypig wrote:It's dumb to say, because I know I'm in a great financial position right now, but I have never been more stressed about money as I have been this last week. I was less stressed when I had no money in college and had to double check my bank balance before a night out at the bars.

The reasons for my stress:

a) As noted in the OP, I have done a terrible job of investing/retirement planning. I feel like I'm way behind, and am wanting to catch up. Many of my friends have 401ks through work, and are constantly contributing, while I have done nothing and know virtually nothing. I feel completely and totally lost.

b) I am unlikely to earn much for the next few years. This has been difficult for me psychologically, since I've been used to earning high amounts for the last four to five years. It's also highly unlikely that I'll make anywhere close to what I've made in the past. I'll likely make 55k-65k/yearly when I return to working full time, which is roughly 25% of what I've been making yearly since leaving college.

c) The DOW is currently at an all-time high. I keep asking myself, "Is now a bad time to take the plunge, or should I wait?"

I will surely have to start reading (you guys can't be expected to hold my hand through this process, even though I wish you could :happy), but I can't overstate how clueless I am with regard to basically everything related to personal finance/investing. I'm wanting to invest anywhere between 100k to 150k, and would like to put it somewhere as soon as humanly possible so I can forget about it.

But need to figure out where to start.
a) As noted in the OP, I have done a terrible job of investing/retirement planning. I feel like I'm way behind, and am wanting to catch up. Many of my friends have 401ks through work, and are constantly contributing, while I have done nothing and know virtually nothing. I feel completely and totally lost.
You are way ahead. Many people spend years contributing to their retirement just to get close to a million dollars.
b) I am unlikely to earn much for the next few years. This has been difficult for me psychologically, since I've been used to earning high amounts for the last four to five years. It's also highly unlikely that I'll make anywhere close to what I've made in the past. I'll likely make 55k-65k/yearly when I return to working full time, which is roughly 25% of what I've been making yearly since leaving college.
It is a whole different profession, and you got to start somewhere. Many people wish to be in your shoes where you have a nest egg to fall on. Think of this as an opportunity to explore different profession until you find a job you enjoy just as much as poker.
c) The DOW is currently at an all-time high. I keep asking myself, "Is now a bad time to take the plunge, or should I wait?"

I will surely have to start reading (you guys can't be expected to hold my hand through this process, even though I wish you could :happy), but I can't overstate how clueless I am with regard to basically everything related to personal finance/investing. I'm wanting to invest anywhere between 100k to 150k, and would like to put it somewhere as soon as humanly possible so I can forget about it.
Perhaps a lazy portfolio would be good for you - https://www.bogleheads.org/wiki/Lazy_portfolios

Or if you really want to be hands off and forget it -- look into a roboadvisor such as Betterment/Wealthfront where you pay a fee and it does all the work for you. However it is easy to do this yourself, save the fees.
Topic Author
hungrypig
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Re: Retirement savings: Lots of $, job prospects weak

Post by hungrypig »

Thanks for the reassurance, LandOf and ff ...

Dumb question, but if I went the lazy portfolio route, is there a yearly max that I am allowed to contribute? I am currently maxing out my IRA, but since what you're suggesting is a taxable account, I assume the max is infinite (or at least considerably higher)?
Topic Author
hungrypig
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Re: Retirement savings: Lots of $, job prospects weak

Post by hungrypig »

Here is what Vanguard suggested (based on my desire to invest 100k):

48k VTSMX (total stock market)
32k VGTSX (total international stock index)
14k VBMFX (total bond market index)
6k VTIBX (total international bond index)

*We recommend a growth-oriented portfolio with a mix of stock and bond index funds that reflects both your tolerance for risk and the length of time you plan to invest (20+ years).
redrocker
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Re: Retirement savings: Lots of $, job prospects weak

Post by redrocker »

hungrypig wrote:I was less stressed when I had no money in college and had to double check my bank balance before a night out at the bars.

The reasons for my stress:

a) As noted in the OP, I have done a terrible job of investing/retirement planning. I feel like I'm way behind, and am wanting to catch up. Many of my friends have 401ks through work, and are constantly contributing, while I have done nothing and know virtually nothing. I feel completely and totally lost.

b) I am unlikely to earn much for the next few years. This has been difficult for me psychologically, since I've been used to earning high amounts for the last four to five years. It's also highly unlikely that I'll make anywhere close to what I've made in the past. I'll likely make 55k-65k/yearly when I return to working full time, which is roughly 25% of what I've been making yearly since leaving college.

c) The DOW is currently at an all-time high. I keep asking myself, "Is now a bad time to take the plunge, or should I wait?"

I will surely have to start reading..
The reasons you've described are no reason to stress. What you might be feeling is newly discovered urge to protect your assets. You wouldn't have had this stress when you had to check your bank account to see if there was money because you didn't have assets to protect.

If that's what your feeling, it's healthy and beneficial if you harness it and do your research. Others have pointed out that your friends with 401k/etc have likely been unable to save as much as much you have. I was making low 6 figures for the last 8 years and still didn't quite save a million (yet) and you're 5-6 years younger than me. You have a huge leg up relative to the average individual your age. So be kind to yourself.

As for acknowledging the state of the stock market, there's been a lot of posts here lately speculating what will happen next. The good thing is that if you invest for the long term (buy and hold) and get into low cost, low turnover index funds, thirty years from now it won't matter at all whether the stock market took a dip in 2017, or 2018, etc. You're much better off trying not to time the market, choose an asset allocation, buy and hold, and go about your life while your money does the work for you.

I recommend you read Bernstein's "If You Can" (it's available in a pdf form posted throughout this forum if you search for it), then strongly consider investing at least 2/3's of your money now (saving the rest as emergency funds and possible house purchase) after you read up a bit on the appropriate asset allocation for yourself and index investing.

You've got a winning hand as long as you play it right and don't get reckless.
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BL
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Re: Retirement savings: Lots of $, job prospects weak

Post by BL »

I suggest you don't invest anything you may need within the next 5 years, so that it is there when you want it.

This may include at least a 20% down payment on house, car, college costs, etc.
Consider 1% savings account, CD ladder, 10k/yr I-Bonds, etc.

You say "weak job prospects". Will you have a decent salary when you finish college? Could you work in something closer to your field while in college to get some experience? Perhaps working as an intern would be a big help. Get to know your college placement office early.

Do some reading in Wiki, etc.
Here is a great little pdf:
https://www.etf.com/docs/IfYouCan.pdf
r
Bonds could go into munis when you get into higher tax brackets. There is also a tax-managed balanced fund that might be worthwhile when you are in higher bracket.
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hungrypig
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Re: Retirement savings: Lots of $, job prospects weak

Post by hungrypig »

BL wrote:I suggest you don't invest anything you may need within the next 5 years, so that it is there when you want it.

This may include at least a 20% down payment on house, car, college costs, etc.
Consider 1% savings account, CD ladder, 10k/yr I-Bonds, etc.

You say "weak job prospects". Will you have a decent salary when you finish college? Could you work in something closer to your field while in college to get some experience? Perhaps working as an intern would be a big help. Get to know your college placement office early.

Do some reading in Wiki, etc.
Here is a great little pdf:
https://www.etf.com/docs/IfYouCan.pdf
r
Bonds could go into munis when you get into higher tax brackets. There is also a tax-managed balanced fund that might be worthwhile when you are in higher bracket.
Thanks for the PDF. Looks very useful. Will definitely read (and hopefully twice as suggested).

I am likely to earn 55k to 65k/yearly when I finish college. There won't be tremendous upside in what I'll be doing, but I'll enjoy it and look forward to going to work every day, which is what I value above all else.
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BL
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Re: Retirement savings: Lots of $, job prospects weak

Post by BL »

That sounds good. Best of luck to you in your new endeavor.
Rainmaker41
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Re: Retirement savings: Lots of $, job prospects weak

Post by Rainmaker41 »

Welcome. You've come to the right place to learn.

The way I see it, you have a big pile of cash but are uncertain about the future. Most people can only say the second part when they start out, but that is no reason to get cocky :) . I agree with comments suggesting that you:

1. Leave the cash where it is / put some or all in 1% online savings while you educate yourself and decide on a sensible plan.
2. Figure you what you need for the next ~5 years (school tuition and living expenses, house, emergency, etc.) and keep that in cash / short term bonds / CD ladders as you see fit.
3. Invest the remainder for retirement in the most tax efficient way possible in a sensible asset allocation.

For what it is worth, I'm mid-20's and this is about what I'd do if I had a large windfall myself for whatever reason.

Good luck.
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hungrypig
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Re: Retirement savings: Lots of $, job prospects weak

Post by hungrypig »

I doubt this will change much, but tuition is going to be a fairly minimal expense, and I have already set aside the money (it was not included in the aforementioned $1 million in savings). Many of my credits should still be valid, and since I'll be attending an in-state school (the same school I left previously), the cost should be on the low side. I'm guessing I'll finish in two years rather than three, but you never know, maybe I'll rediscover the off-campus party scene. :happy

I live in a high-cost state, but I keep expenses low and live like I'm homeless in many ways. My car is the same one I had in high school, I cook every meal, and I keep a log of all my spending. So, despite my lack of investing knowledge, I'm not someone who is going to put myself in a bad situation via reckless spending.

I'm not suggesting this is the best course of action for me to take, but if push came to shove, would the aforementioned breakdown (100k investment, i.e., 10% of net worth) be a net negative for me?

48k VTSMX (total stock market)
32k VGTSX (total international stock index)
14k VBMFX (total bond market index)
6k VTIBX (total international bond index)

I'm sure I can do better, and a few months from now after reading religiously, I hope to have a better grasp of things. But for now, am just trying to lay a foundation and wrap my mind around a commonsense starting point - though I won't be investing until the summer, in all likelihood.
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BL
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Re: Retirement savings: Lots of $, job prospects weak

Post by BL »

You have the right idea. It should be fine.

Many of us would simplify and use just one bond fund rather than adding international (nothing wrong with it).

When you start your career, try to put most of your bonds in a 401k or IRA for tax-efficiency (or munis).
CFOKevin
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Re: Retirement savings: Lots of $, job prospects weak

Post by CFOKevin »

The suggestion you got for investing $100K now is very reasonable.

I'd suggest putting $100K to work in those funds right away to give you something to do now that is a step in the right long-term direction. It will give you some context to your learning between now and summer when you feel ready to make a long-term asset allocation.

What's your future career? You might be underestimating your future income.

Kevin
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Meg77
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Re: Retirement savings: Lots of $, job prospects weak

Post by Meg77 »

Congratulations on your giant head start in life as far as accumulating assets goes. I understand your stress, particularly since you don't have a clear vision of where your life/career/income is headed at this point. That's difficult psychologically. But financially, you do not have many problems right now - as long as you don't screw this up.

1. The single biggest thing you need to do is make your million dollar portfolio COMPLETELY OFF LIMITS when it comes to gambling. I realize you have been a "professional" gambler and have had success, but sometimes the worst thing that can happen to a gambler is to have early success. Many people spend the rest of their lives betting everything they have and then some once the tables have turned and their luck ran out. If you want to set aside $X per year or month for gambling and view it as a side hustle or hobby, that is fine, but make sure you never dip into the winnings you have now set aside.

2. Remember that you are an unemployed college student. Live like one; don't deplete your savings unnecessarily on living the high life like you still earn 6 figures a year. Reset your budget along with your income expectations so that you don't wake up in 5 years to find all your money gone. Earning $60K a year will feel great later on if you still have $1M growing in your portfolio. Earning $60K and having no other wealth or options will feel like crap if you blow this nest egg and have to start back over from scratch.

3. You say you've set aside enough cash to get you through college including living expenses. That is great. Round up by 20% and put that money in a checking account so you have peace of mind while you focus on your education. Take interesting classes that don't pertain to your major. Study abroad. Take an unpaid internship or two if you need to.

4. Volunteer and give some money away. This is important, as it will set you right psychologically and relieve your first world stress. I volunteered for a week internationally a few times with http://www.crossculturalsolutions.org, and the perspective shift was life changing. Don't just donate money from a distance; really get out into the trenches and see how most of the world lives - and how they live mostly happily - on far less.

5. Put the rest of your money at ally.com or some other high yield savings account for now. Keep in cash $100K in reserves at all times as well as whatever amount you think you'll spend on a home and car in the next five years. Never having a mortgage will keep you far ahead of the pack and allow you to invest more aggressively without fear of portfolio fluctuations.

6. Talk to a CPA about whether your gambling earnings from last year count as earned income. If they do, or if you've set it up where your gambling efforts are basically like a small business, you may be eligible to at least make a couple of (backdoor) Roth IRA contributions for 2016 and 2017. Perhaps even on an ongoing basis if you keep it up and have future winnings. Either way, make sure your tax situation is in order.

7. Once you are comfortable with investing principals, I would move the remainder of your portfolio slowly into your desired asset allocation - maybe a little bit each month for 12 months or something, given that this is your entire nest egg. This will reduce the likelihood of investing just before a major market correction. Vanguard or Fidelity index funds are ideal - cheap, easy, and tax efficient.

8. Once you graduate and establish a career, max out a 401k and Roth IRA and HSA every year - even if that means you have to take money out of your taxable account to do so. Don't stress about it right now if you don't have access to these accounts. You have plenty of time!

:sharebeer
"An investment in knowledge pays the best interest." - Benjamin Franklin
Topic Author
hungrypig
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Re: Retirement savings: Lots of $, job prospects weak

Post by hungrypig »

Meg77 wrote:Congratulations on your giant head start in life as far as accumulating assets goes. I understand your stress, particularly since you don't have a clear vision of where your life/career/income is headed at this point. That's difficult psychologically. But financially, you do not have many problems right now - as long as you don't screw this up.

1. The single biggest thing you need to do is make your million dollar portfolio COMPLETELY OFF LIMITS when it comes to gambling. I realize you have been a "professional" gambler and have had success, but sometimes the worst thing that can happen to a gambler is to have early success. Many people spend the rest of their lives betting everything they have and then some once the tables have turned and their luck ran out. If you want to set aside $X per year or month for gambling and view it as a side hustle or hobby, that is fine, but make sure you never dip into the winnings you have now set aside.

2. Remember that you are an unemployed college student. Live like one; don't deplete your savings unnecessarily on living the high life like you still earn 6 figures a year. Reset your budget along with your income expectations so that you don't wake up in 5 years to find all your money gone. Earning $60K a year will feel great later on if you still have $1M growing in your portfolio. Earning $60K and having no other wealth or options will feel like crap if you blow this nest egg and have to start back over from scratch.

3. You say you've set aside enough cash to get you through college including living expenses. That is great. Round up by 20% and put that money in a checking account so you have peace of mind while you focus on your education. Take interesting classes that don't pertain to your major. Study abroad. Take an unpaid internship or two if you need to.

4. Volunteer and give some money away. This is important, as it will set you right psychologically and relieve your first world stress. I volunteered for a week internationally a few times with http://www.crossculturalsolutions.org, and the perspective shift was life changing. Don't just donate money from a distance; really get out into the trenches and see how most of the world lives - and how they live mostly happily - on far less.

5. Put the rest of your money at ally.com or some other high yield savings account for now. Keep in cash $100K in reserves at all times as well as whatever amount you think you'll spend on a home and car in the next five years. Never having a mortgage will keep you far ahead of the pack and allow you to invest more aggressively without fear of portfolio fluctuations.

6. Talk to a CPA about whether your gambling earnings from last year count as earned income. If they do, or if you've set it up where your gambling efforts are basically like a small business, you may be eligible to at least make a couple of (backdoor) Roth IRA contributions for 2016 and 2017. Perhaps even on an ongoing basis if you keep it up and have future winnings. Either way, make sure your tax situation is in order.

7. Once you are comfortable with investing principals, I would move the remainder of your portfolio slowly into your desired asset allocation - maybe a little bit each month for 12 months or something, given that this is your entire nest egg. This will reduce the likelihood of investing just before a major market correction. Vanguard or Fidelity index funds are ideal - cheap, easy, and tax efficient.

8. Once you graduate and establish a career, max out a 401k and Roth IRA and HSA every year - even if that means you have to take money out of your taxable account to do so. Don't stress about it right now if you don't have access to these accounts. You have plenty of time!

:sharebeer
Thanks for this amazing reply.

Rest assured, I am not much of a gambler even though I have earned everything via gambling. I'm not the type of person who will sit down at a slot machine or play table games where the house has an obvious edge. Even in poker, where my edge was profound, I had a somewhat low tolerance for risk and stuck to games that I knew I could beat consistently. I didn't chase big jackpots, didn't enter WSOP events for the thrill, etc. I was a very disciplined player and evaluated myself constantly to track performance and edge and sustainability. Ultimately, I decided to walk away for that very reason. My success rates were slowing dramatically, the grind wore me out, and I've lost my passion for playing. All the while, I never had interest in other forms of gambling - not blackjack, not sports betting, not anything. All that to say, my gambling career is over.

Frugality has always been a strength rather than a weakness, and I don't see that changing. I've been tracking my expenses for several years and have been successful at staying below my budget. I will drive my crappy car until it takes its final purr.

A sincere thanks for the note on #4. That's terrific advice and exactly what I need. When I had no money, I didn't think about it, didn't care about it, and never felt like I was without something I needed. Now that I am in a good financial position (relatively speaking), it has become all consuming, and while reading these forums is helpful in terms of trying to gain knowledge - it adds to my stress in a way because I know there's literally dozens of different things I could have been doing, should be doing, or should do in the future.

Anyway, I'm really going to look into this. Thanks again.
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Meg77
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Re: Retirement savings: Lots of $, job prospects weak

Post by Meg77 »

hungrypig wrote:
Meg77 wrote:Congratulations on your giant head start in life as far as accumulating assets goes. I understand your stress, particularly since you don't have a clear vision of where your life/career/income is headed at this point. That's difficult psychologically. But financially, you do not have many problems right now - as long as you don't screw this up.

1. The single biggest thing you need to do is make your million dollar portfolio COMPLETELY OFF LIMITS when it comes to gambling. I realize you have been a "professional" gambler and have had success, but sometimes the worst thing that can happen to a gambler is to have early success. Many people spend the rest of their lives betting everything they have and then some once the tables have turned and their luck ran out. If you want to set aside $X per year or month for gambling and view it as a side hustle or hobby, that is fine, but make sure you never dip into the winnings you have now set aside.

2. Remember that you are an unemployed college student. Live like one; don't deplete your savings unnecessarily on living the high life like you still earn 6 figures a year. Reset your budget along with your income expectations so that you don't wake up in 5 years to find all your money gone. Earning $60K a year will feel great later on if you still have $1M growing in your portfolio. Earning $60K and having no other wealth or options will feel like crap if you blow this nest egg and have to start back over from scratch.

3. You say you've set aside enough cash to get you through college including living expenses. That is great. Round up by 20% and put that money in a checking account so you have peace of mind while you focus on your education. Take interesting classes that don't pertain to your major. Study abroad. Take an unpaid internship or two if you need to.

4. Volunteer and give some money away. This is important, as it will set you right psychologically and relieve your first world stress. I volunteered for a week internationally a few times with http://www.crossculturalsolutions.org, and the perspective shift was life changing. Don't just donate money from a distance; really get out into the trenches and see how most of the world lives - and how they live mostly happily - on far less.

5. Put the rest of your money at ally.com or some other high yield savings account for now. Keep in cash $100K in reserves at all times as well as whatever amount you think you'll spend on a home and car in the next five years. Never having a mortgage will keep you far ahead of the pack and allow you to invest more aggressively without fear of portfolio fluctuations.

6. Talk to a CPA about whether your gambling earnings from last year count as earned income. If they do, or if you've set it up where your gambling efforts are basically like a small business, you may be eligible to at least make a couple of (backdoor) Roth IRA contributions for 2016 and 2017. Perhaps even on an ongoing basis if you keep it up and have future winnings. Either way, make sure your tax situation is in order.

7. Once you are comfortable with investing principals, I would move the remainder of your portfolio slowly into your desired asset allocation - maybe a little bit each month for 12 months or something, given that this is your entire nest egg. This will reduce the likelihood of investing just before a major market correction. Vanguard or Fidelity index funds are ideal - cheap, easy, and tax efficient.

8. Once you graduate and establish a career, max out a 401k and Roth IRA and HSA every year - even if that means you have to take money out of your taxable account to do so. Don't stress about it right now if you don't have access to these accounts. You have plenty of time!

:sharebeer
Thanks for this amazing reply.

Rest assured, I am not much of a gambler even though I have earned everything via gambling. I'm not the type of person who will sit down at a slot machine or play table games where the house has an obvious edge. Even in poker, where my edge was profound, I had a somewhat low tolerance for risk and stuck to games that I knew I could beat consistently. I didn't chase big jackpots, didn't enter WSOP events for the thrill, etc. I was a very disciplined player and evaluated myself constantly to track performance and edge and sustainability. Ultimately, I decided to walk away for that very reason. My success rates were slowing dramatically, the grind wore me out, and I've lost my passion for playing. All the while, I never had interest in other forms of gambling - not blackjack, not sports betting, not anything. All that to say, my gambling career is over.

Frugality has always been a strength rather than a weakness, and I don't see that changing. I've been tracking my expenses for several years and have been successful at staying below my budget. I will drive my crappy car until it takes its final purr.

A sincere thanks for the note on #4. That's terrific advice and exactly what I need. When I had no money, I didn't think about it, didn't care about it, and never felt like I was without something I needed. Now that I am in a good financial position (relatively speaking), it has become all consuming, and while reading these forums is helpful in terms of trying to gain knowledge - it adds to my stress in a way because I know there's literally dozens of different things I could have been doing, should be doing, or should do in the future.

Anyway, I'm really going to look into this. Thanks again.
I totally relate. The more money I have accumulated, the more I obsess and stress about it. Also, the harder it is to maintain the sense of progress and accomplishment that is so important to me psychologically. Mo money, mo problems, as they say. It really is true that it doesn't make you happier, but of course no one short on funds ever wants to hear that (rightfully so). I think that's why forums like this can be so valuable.

It's great that you haven't gotten used to a lavish lifestyle. It really might perk you up to read some of the FIRE blogs out there. It's sort of trendy now for 30-somethings with just over a million invested to "extreme early retire" and blog about it. If your annual expenses are less than $40K a year then it's technically do-able. But even though I personally want to spend more than that each year so I'm still working, it's nice to know that I COULD be fine pretty much indefinitely if I never earned another dollar.

The flip side of that is - what the heck am I supposed to do with the rest of my life? What really matters? Does anything really matter...I can get into my head real fast and get anxious about those existential questions once money is no object. Which is why I need to continually hear my advice regarding #4 as well! It's been years since I have done a trip like that (not since I've married), but of course there are ways to give back locally too.

Good luck to you. Don't worry about what you could have done to optimize your investments in the past. You are discovering these things decades sooner than many folks, and you've been busy optimizing your savings rate instead - which overall is much more valuable than tax strategies, fees or asset allocation!
"An investment in knowledge pays the best interest." - Benjamin Franklin
aristotelian
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Re: Retirement savings: Lots of $, job prospects weak

Post by aristotelian »

What at interesting situation. That must have been quite a roll you were on! Good for you for amassing a small fortune at a young age, and for getting out while you were still ahead. Most gamblers who have experienced success are not so smart. Make sure you apply the same discipline to your investments and do not get swept away by the highs and lows.

You have definitely come to the right place if you are looking into a different philosophy regarding money. I would suggest doing some searches here on the difference between "speculation" and "investment". It is a very fine line, and for people who might be prone to gambling issues it can be especially blurry.

Since you have some near-term expenses (college, possibly house), you should put a chunk in a low risk liquid account. At least enough to get you through the next 2-3 years, maybe $300k.

As for the rest, I would invest most, if not all, in a Total Stock Market Index. You might also set some aside in a Total Bond Market Fund. This can be used not only as a cushion but also as a reserve fund to rebalance when stocks have gone down.

You should start an IRA. Roth IRA would be perfect while you are a student. The catch is that you do have to have earned income, i.e. a job. Then you can contribute up to $5,500 per year, invest in whatever you want, and then you never have to pay taxes on any of the gains. Since you are paying taxes on the contribution now, it is ideal when you are in a low tax bracket. Once you are in a higher tax bracket, then a Traditional IRA is a better option. In that case, you get a tax deduction now in return for paying taxes on the contribution and the gains in the future.

Do not stress about your friends' 401k's. They are probably jealous for your $1M sitting in the bank! The important thing is to make a plan for yourself.

Also you mention a fiancee. What are her finances like?
aristotelian
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Re: Retirement savings: Lots of $, job prospects weak

Post by aristotelian »

Meg77 wrote: 6. Talk to a CPA about whether your gambling earnings from last year count as earned income. If they do, or if you've set it up where your gambling efforts are basically like a small business, you may be eligible to at least make a couple of (backdoor) Roth IRA contributions for 2016 and 2017. Perhaps even on an ongoing basis if you keep it up and have future winnings. Either way, make sure your tax situation is in order.

A small note on this. If the gambling earnings were earned, then he would be in a high tax bracket, probably 35% or 39%. In that case, he would want to do a Traditional IRA and take a deduction for 2016. Then open a Roth for 2017.
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HomerJ
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Re: Retirement savings: Lots of $, job prospects weak

Post by HomerJ »

AlohaJoe wrote:
junior wrote:I don't know if any credible investment advisor recommends 100% equities. Weird advice being given here. Read one or two of the recommended books on the Bogleheads wiki.
Charles Ellis recommends 100% equities.

Even Vanguard recommends 90% equities for someone the age of the OP.
This is crazy. This isn't your typical 30-year old with a job and income.

Yes, if all $1 million is earmarked for retirement, then yes you could go 90/10 at the age of 30.

But he's probably going to want to access at least some of it for living expenses, maybe college tuition, and possibly a house.

OP, you are in great shape for your age... I'd put $500k away for long-term retirement, and 100% Total Stock Market Index Fund would be fine for that for now. But the other $500k, I'd probably keep it mostly in bonds and CDs and cash for now until you get a feel for what your new future will entail.
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hungrypig
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Re: Retirement savings: Lots of $, job prospects weak

Post by hungrypig »

HomerJ wrote:
AlohaJoe wrote:
junior wrote:I don't know if any credible investment advisor recommends 100% equities. Weird advice being given here. Read one or two of the recommended books on the Bogleheads wiki.
Charles Ellis recommends 100% equities.

Even Vanguard recommends 90% equities for someone the age of the OP.
This is crazy. This isn't your typical 30-year old with a job and income.

Yes, if all $1 million is earmarked for retirement, then yes you could go 90/10 at the age of 30.

But he's probably going to want to access at least some of it for living expenses, maybe college tuition, and possibly a house.

OP, you are in great shape for your age... I'd put $500k away for long-term retirement, and 100% Total Stock Market Index Fund would be fine for that for now. But the other $500k, I'd probably keep it mostly in bonds and CDs and cash for now until you get a feel for what your new future will entail.
Thanks to you, and everyone, for the replies.

If I were to do as you suggest (put 500k toward a total stock market index fund in Vanguard), how would you suggest I do this? Deposit 10k at a time, over five years? Deposit 20k per month until I hit 500k (roughly two years?) Or just do it all at once?
aristotelian
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Re: Retirement savings: Lots of $, job prospects weak

Post by aristotelian »

hungrypig wrote:
Thanks to you, and everyone, for the replies.

If I were to do as you suggest (put 500k toward a total stock market index fund in Vanguard), how would you suggest I do this? Deposit 10k at a time, over five years? Deposit 20k per month until I hit 500k (roughly two years?) Or just do it all at once?
There is no real way to answer the question without being able to know the future. If the market continues to go up, you should have invested it all today. If it goes down, you should wait until it hits bottom. If you invest it over time, you are sure not to get burned too much one way or the other. There is no reason to do it one way or the other since the market is priced at its current level based on all known information about the future.

Personally I think there is a correction coming in the near future, but that is no reason to keep from getting started, so your 20k per month option sounds pretty good.
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Meg77
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Re: Retirement savings: Lots of $, job prospects weak

Post by Meg77 »

aristotelian wrote:
Meg77 wrote: 6. Talk to a CPA about whether your gambling earnings from last year count as earned income. If they do, or if you've set it up where your gambling efforts are basically like a small business, you may be eligible to at least make a couple of (backdoor) Roth IRA contributions for 2016 and 2017. Perhaps even on an ongoing basis if you keep it up and have future winnings. Either way, make sure your tax situation is in order.

A small note on this. If the gambling earnings were earned, then he would be in a high tax bracket, probably 35% or 39%. In that case, he would want to do a Traditional IRA and take a deduction for 2016. Then open a Roth for 2017.
If that's the case then he would make too much to be allowed to deduct a Traditional IRA contribution; he may even exceed Roth limitations and be forced to do a "backdoor Roth" contribution.
aristotelian wrote:
hungrypig wrote:
Thanks to you, and everyone, for the replies.

If I were to do as you suggest (put 500k toward a total stock market index fund in Vanguard), how would you suggest I do this? Deposit 10k at a time, over five years? Deposit 20k per month until I hit 500k (roughly two years?) Or just do it all at once?
There is no real way to answer the question without being able to know the future. If the market continues to go up, you should have invested it all today. If it goes down, you should wait until it hits bottom. If you invest it over time, you are sure not to get burned too much one way or the other. There is no reason to do it one way or the other since the market is priced at its current level based on all known information about the future.

Personally I think there is a correction coming in the near future, but that is no reason to keep from getting started, so your 20k per month option sounds pretty good.
I agree. Statistically speaking you should come out ahead by investing a lump sum of cash all at once into the market. Something like 80% of the time, you end up with more money this way - since roughly 80% of the time, markets go up during a given year. There are lots of studies on this, and lots of opinions both ways (google "lump sum investing vs dollar cost averaging" on this forum or any other for endless conversations). But the fact is that it's still a very emotional decision, and it DOES feel statistically more likely that you might be investing toward the tail end of a bull market run, since we are in the midst of one of the longest ones in history.

If the market goes down 20% right after you invest, it won't be the end of the world since you won't be in 100% stocks - and since 10 years from now you should have much more growth overall - but in the short term it could negatively impact your willingness to invest or stick to an asset allocation. Long story short, in your case I'd DCA or dollar cost average a bit at a time over 6-12 months. I have never seen a recommendation to delay longer than that; most arguments are about whether to dump it all in at once or DCA over a relatively short period.
"An investment in knowledge pays the best interest." - Benjamin Franklin
jchris
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Re: Retirement savings: Lots of $, job prospects weak

Post by jchris »

Awesome story! It is good that you don't have any innate urge to gamble. I used to love to gamble when I was young and (relatively) poor. A buddy and I would take $40 flights on America West (no longer exists) from San Diego to Las Vegas, each with $400 in our pocket, and no hotel room reservation. We would play $5 blackjack and $2 craps all day and night until we ran out of money, then go to Denny's and drink coffee until time to fly home. Now that I actually have some money, when I go to Vegas (have to go sometimes for work), I have absolutely no desire to gamble. Somewhere along the way it completely lost its attraction (although I confess to occasionally having the random thought of putting $100K on 0 on the roulette wheel. Maybe that could be a retirement option for you? (kidding)).

Anyway, I think you've gotten some great advice above. If I were you, I would invest at least half of it in a total stock market index fund, averaging it in over probably a one or two-year period, and keep a smaller chunk in bonds, CDs, etc. The only other thing I could contribute would be - while you are considering what to do with your money, put the cash in a high-yield savings account (e.g., Ally Bank) where at least you'll get 1% or so on your money.
inbox788
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Re: Retirement savings: Lots of $, job prospects weak

Post by inbox788 »

AlohaJoe wrote:
junior wrote:I don't know if any credible investment advisor recommends 100% equities. Weird advice being given here. Read one or two of the recommended books on the Bogleheads wiki.
Charles Ellis recommends 100% equities.

Even Vanguard recommends 90% equities for someone the age of the OP.
There are a lot of variations and adjustments to AA that wind up similar, but looking at things differently.

Compare 3 months emergency fund (cash) and 80/20 to 6 month emergency fund and 90/10 vs 12 month emergency fund and 100% equities. This is particularly less relevant with younger folks (lots of time and sweat equity left).

A young fellow has 100% equities (say $200k) and rents (saved $100k in CD for down payment). You could say his AA is 66/33. A day later buys a home and his AA is 100%. Another fellow in similar boat takes the $100k in CD and decides to be a renter and puts it into bonds. His AA becomes 66/33 overnight. A third fellow has $200k and buys a home with zero down. If all else is equal, using AA alone isn't sufficient IMO. And if you consider the mortgage as a negative bond, you can get a different picture as well.

Another thing to consider is a pension, say a public servant 20-30 years service with full pension sufficient for retirement. Using 100% equities isn't the worst advice. (i.e. compare to buying a whole life insurance policy or an annuity or investing too convervatively)

https://www.bogleheads.org/wiki/Managing_a_windfall
RenoJay
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Re: Retirement savings: Lots of $, job prospects weak

Post by RenoJay »

hungrypig wrote:It's dumb to say, because I know I'm in a great financial position right now, but I have never been more stressed about money as I have been this last week. I was less stressed when I had no money in college and had to double check my bank balance before a night out at the bars.

The reasons for my stress:

a) As noted in the OP, I have done a terrible job of investing/retirement planning. I feel like I'm way behind, and am wanting to catch up. Many of my friends have 401ks through work, and are constantly contributing, while I have done nothing and know virtually nothing. I feel completely and totally lost.

b) I am unlikely to earn much for the next few years. This has been difficult for me psychologically, since I've been used to earning high amounts for the last four to five years. It's also highly unlikely that I'll make anywhere close to what I've made in the past. I'll likely make 55k-65k/yearly when I return to working full time, which is roughly 25% of what I've been making yearly since leaving college.

c) The DOW is currently at an all-time high. I keep asking myself, "Is now a bad time to take the plunge, or should I wait?"

I will surely have to start reading (you guys can't be expected to hold my hand through this process, even though I wish you could :happy), but I can't overstate how clueless I am with regard to basically everything related to personal finance/investing. I'm wanting to invest anywhere between 100k to 150k, and would like to put it somewhere as soon as humanly possible so I can forget about it.

But need to figure out where to start.
Don't beat yourself up with stress. When I was 30, I had done virtually no retirement planning or thinking. However, I had made a few big gobs of money from entrepreneurship and lucky timing with a home sale. The way I decided to look at it was, "My luck is likely at an end, but fortunately it brought me an amount of money higher than my smart friends who held normal jobs contributed to retirement accounts. So if I start behaving in a wise manner and investing for the future, I'll be ahead of the game." I think your poker skill/luck got you ahead of the pack, and now you can afford to take some time to learn about smart retirement planning. (As an FYI, a couple years later I hit an entrepreneurial gold mine and have been effectively financially independent since age 32, but hey, Bogleheads don't rely on luck!)
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SeeMoe
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Re: Retirement savings: Lots of $, job prospects weak

Post by SeeMoe »

How about joining the military for 3 years, and at ETS go to school free! All the while your $1 million is invested in, say, Vanguard total stock market and total international at 60/40 AA. Or do 20 years and have a small fortune , plus what you invested in the Gov. DCP programs. Then go to school free of charge,...Plan?

SeeMoe.. :idea:
"By gnawing through a dike, even a Rat can destroy a nation ." {Edmund Burke}
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