23 years old, need some guidance

[bdon22]

Hey everyone, I stumbled on this forum through one of the various money blogs that I follow. I'm hoping to learn some investing strategies that will help me reach my goals for the next few years. I have absolutely no experience in investing whatsoever and am totally lost on where to start...

I typed up this long story about myself but then I decided it was tl;dr. So here are the details:

MYSELF

• 23 years old
• Mechanical Engineering degree but don't use it
• Currently a small stakes professional poker player $80/hr (wage will increase as I get better, hopefully)

GOALS

• Split a down payment on a 2-bedroom condo with my gf in 3-4 years
• Be financially free by 30 and capable of retirement by 35

CURRENT FINANCIAL SITUATION

• No debt
• ~$10k in RRSP/mutual funds I invested from my previous job before I got laid off
• ~$22k sitting in an ING savings account
• ~$1k in a checking account for monthly expenses
• A completey seperate bankroll of ~$xxk which I use to play poker (money only comes out and never goes in, I will not touch this for investing either)
• I can live comfortably on $800/month since I live at home

QUESTIONS FOR THE EXPERIENCED PEOPLE

1. World Financial Group helped (read: pressured) me into investing my $10k because at the time I had no idea what I was doing. Now I've read many terrible testimonials about this company. What should I do so that I can feel safer about my money?
2. I feel like the money sitting in my ING account is just barely keeping up with inflation. What should I do with it? I have zero investing experience. What are some resources I can read? Despite being a professional gambler I am actually very hesitant to invest my money in something I know nothing about.
3. I bought a brand new car in 2006 which is probably the stupidest thing I have ever done financially (blew my life savings up to that point). My monthly insurance is $200/month and gas around $120 a month (it only takes 94 octane). The cost of my car accounts for almost 50% of my monthly bills. Should I just keep the car since it's paid off, or sell it?
4. Do my goals sound realistic?

Thanks for your time.

[plex]

As to your spending/saving, cannot really tell from the information you gave. How much do you make each month on average and can you list what you generally have to spend each month (is it 800/month even with the very expensive car)?

Do you think the poker income will be sustainable? I have certainly seen a number of posts from young people starting out doing poker and earning a decent amount, but pretty much none from people who have been doing poker for a significant number of years. Have you researched whether it is sustainable for 10-15 years as you plan? 35 sounds really great if you can feasibly pull it off though, my current goal is to retire by 40 (my calculations indicate 41 unless I figure out some sort of secondary income), but that is requiring me to work my butt off in a very technically difficult field as well as invest very intelligently.

You need to make use of a ROTH, I don't see one in your net assets. It is a good time to buy stocks right now as well. I would recommend some sort of low-cost total stock market fund, international fund and a small amount in a bond fund (absolutely make sure the bond fund is in the ROTH, way more tax-inefficient).

As for learning the basics of investing I recommend you read the boglehead's guide to investing. This site should also give you a quick run-down of the very basics: Investment Guide

As for your car, you are a mechanical engineer after all, so its possible that you REALLY love cars, so much so that you are willing to work an extra few years to have a nice car. For most people though, they end up regretting the costs, even if some of them don't realize what exactly they used all their money on. I would say that, the longer you spent planning for it, the better of a decision it was. If it was a spur of the moment decision you are regretting now, it is probably a good idea to sell it and get a car you would be comfortable with using for a long time. For me, I love computers, so I splurge somewhat on them, but I plan it out, so that when I buy it, there is no buyer's remorse.

Also, I don't like the sound of how you got into that World Group Fund. I get the distinct feeling that if someone needed to "pressure" you into it, then it was probably something bad. If someone is offering you a good investment and/or strategy, they wouldn't need to pressure you, they would just explain its benefits, only salesmen need to pressure someone to buy something. I am guessing this was a loaded, high-expense, actively managed fund (or something of that variety) and the only one really benefiting from it is the salesman. You should only choose a fund based on your own research and asset allocation needs (you should have a good idea of why you wanted to buy it).

[Coach]

bdon, I'd give serious thought to selling the car. Your monthly mileage is pretty low -- around 500 miles a month? If you sell it, spend only part of the proceeds on a pretty cheap used replacement and give up the collision and comprehensive insurance. You should save quite a bit.

Frankly, at this point I don't think having you money in a savings account is a terrible thing. You're planning a condo purchase before too long, and you need a cushion, an "emergency fund" anyway. And perhaps I'm wrong about this, but I'm guessing your current income is somewhat irregular.

You could think about buying a CD with some of your extra cash -- that would improve your rate of return a little.

Best of luck and welcome to the forum!

Coach

[bdon22]

plex:
Right now I am withdrawing only enough to cover my monthly bills. The reason for this is that I expect to have a higher rate of return by leaving my additional winnings in my bankroll, where I can potentially move up to higher limits over time. However, I don't want to be doing this forever. I want to "diversify" my ways to make money, as my income stream from poker can be very irregular. And you are absolutely correct in that I don't know where this industry will be in 10-15 years. The only reason I am doing what I do right now is because I got laid off from my previous job last month. I've decided to pursue my hobby as a full time job until the new year, and if I'm not making a really serious amount of money by then (several hundred $ per hour) I'm going to start hunting for a real job.

The $800 a month includes my car.

I live in Canada so I think the ROTH is the equivalent of our RRSP (not 100% sure on this though).

My mom works for WFG and conned me into buying the product. I have no idea what it's about and she doesn't seem able to explain to me why it is good either. Very very frustrating and she has a high temper too, which is why I kinda just let her have her way (for now).

Coach:
You are right that my monthly mileage is low. I only use my car right now to drive to the gym and go out with friends on weekends. plex was right in assuming that I'm a gearhead. I'm part of a car club and I love my car to death. If I was going to sell it then I'd probably wait until the new year, when my poker gig is up and I have to figure out what I'm going to do with the rest of my life...

Not sure what a "CD" is either...



Thanks for the help guys.

[putty]

What is this "per hour" you keep quoting? It's meaningless. What can you expect to make each year? You can make a thousand dollars an hour but if you only work 30 minutes a week it isn't crap. Sorry to be harsh, but you gotta think long term man. I listen to Dave Ramsey a lot and you can tell the people who call in that are all screwed up when Dave asks them questions. "How much do you make each year?" Uh.....I think I get....like.......$8 an hour....or maybe $8.75...and then sometimes tips for like $10 a night.....It's painful. To be successful you have to think bigger picture.

Frankly 80 bucks an hour sounds like you spend a few hours Friday and Saturday night in some bar and walk away with $300 or $400. Because $80 an hour should be ($80 per hour)*(40 hours per week)*(50 weeks per year) = $160,000. Can you expect that much each year? Are you paying taxes on this poker money? Because you will certainly draw attention banking that kind of money.

As a fellow engineer, why aren't you working as an engineer? You said you got laid off last month, why? Because starting out as an engineer you will make about $25 or $30 per hour ($50k per year) starting out and if you are competent it's a much more stable career than poker. And I can tell you that with an engineering degree every month you go without a job (especially starting out) it gets significantly more difficult to get a job. Especially when you tell them you have been playing poker. I tried graduate school out for a few months and it was a significant strike against me (not that I quit grad school, but that I didn't have a job right away).

And retiring at 35 is pretty unrealistic given your situation, IMO. Do you have any idea how much you will have to have saved up? What can you expect your yearly expenses to be? Say $50k. Then to have $50k of income each year you need to have a sum of money such that you are withdrawing no more than 3% per year since you would retire very young. 50,000/0.03 = $1,666,666.67. Since you are 23 you have about 12 years to save, so you need to save ($1,666,666.67/12) = $138,888.89. And this excludes taxes. Can you do this?

[Abreutime]

Originally Posted by putty

snip

As a fellow engineer, why aren't you working as an engineer? You said you got laid off last month, why? Because starting out as an engineer you will make about $25 or $30 per hour ($50k per year) starting out and if you are competent it's a much more stable career than poker. And I can tell you that with an engineering degree every month you go without a job (especially starting out) it gets significantly more difficult to get a job. Especially when you tell them you have been playing poker. I tried graduate school out for a few months and it was a significant strike against me (not that I quit grad school, but that I didn't have a job right away).

Sup bro, welcome to the forum. I second this guy's advice. Unless you want to give up your engineering in favor of finance, it will be difficult to get a desirable job after an extended layoff playing poker. I would try to get a job, and play poker 15 hours/wk in evenings and weekends.

Also, Putty, he is probably 6-tabling online at $200 buyin games. Poker players typically quote hourly rates, because that is the industry standard for "base pay." With players not having uniform 40hr workweeks, that's the best way to compare. For practical purposes, he needs to evaluate how many hours he is likely to work.

bdon, what are your plans with respect to your gf? I think it's odd you plan on splitting a downpayment with her in 3-4 years. Do you plan on living at home for an extended time?

[Uncle Drew]

This poster reminds me of myself a few years ago. I too was bit by the poker bug. I was working full-time and moonlighting as a poker player. During one four month stretch, I was making more playing poker than I was making from the full-time employment.

I seriously considered the switch to playing poker full-time. I took some vacation time and worked part-time to ease into it. After about 3 months of this, I "woke up" at a poker table in Sparks, NV and looked around me. All of the regulars that lived on a poker living there didn't look healthy. I don't know if it was the sitting for long hours or the financial stress caused by the ups and downs, but people my age looked 10 years older than they should have in my opinion.

Another concern I ended up having was that the most profitable games were Thursday, Friday and Saturday nights. The girlfriend at the time didn't much like the fact that I would rarely want to go out to social events during this time because that is when I would have to make my living.

I also found that when I started "having" to play poker to make a living, the game lost a lot of it's fun. It felt more like work, and I found that I started to resent playing.

That's when I decide to keep the full-time gig, play poker as a part-time income supplement for RE or paid-off toys/vacations. The joy of the game has returned and my hourly "rake" has improved.

Like someone else posted, be concerned about being out of the workforce playing poker and expecting to jump back into the corporate world at a moment's notice after a sizeable absence.

[Milton]

Originally Posted by bdon22

I don't want to be doing this forever.... my income stream from poker can be very irregular.... I don't know where this industry will be in 10-15 years. The only reason I am doing what I do right now is because I got laid off from my previous job last month. I've decided to pursue my hobby as a full time job until the new year, and if I'm not making a really serious amount of money by then (several hundred $ per hour) I'm going to start hunting for a real job.

Fair enough. However, those significant caveats make it impossible to provide meaningful longterm advice. I also question whether you will be able or willing to "live at home" (essentially rent free?) for the next three or four years.

Originally Posted by bdon22

I live in Canada so I think the ROTH is the equivalent of our RRSP (not 100% sure on this though).

Not quite. The US equivalent of the RRSP is their traditional_IRA. The Roth_IRA is roughly similar to Canada's new Tax Free Savings Account , which is scheduled to become available next January. Note that the TSFA is significantly more flexible than a Roth IRA.

Originally Posted by bdon22

My mom works for WFG and conned me into buying the product. I have no idea what it's about and she doesn't seem able to explain to me why it is good either. Very very frustrating and she has a high temper too, which is why I kinda just let her have her way (for now).

I have never heard of WFG and have no opinion whether the organization or its products are worthwhile. FWIW, a quick Google search turned up these two threads: RedFlagDeals.com - World Financial Group; Support Forums: World Financial Group. Good luck.

Originally Posted by bdon22

Not sure what a "CD" is either.

It's shorthand for Certificate of Deposit. The Canadian equivalent would be a Guaranteed Investment Certificate (GIC).

[bdon22]

Thanks again for the replies.

Yes it is true that I play 6-8 tables of $200 buyin. Glad that there is another player on this board that understands. The reason I am playing poker right now is because I got laid off. It wasn't my choice. I decided to play for a month and see where it brought me, to see if I could turn my hobby into a full time job.

Things aren't going so well for me right now though. I am starting to put in less and less hours and I'm really missing having human interaction and meeting new friends.

SO.... yesterday I applied to some engineering jobs. Today I contacted the recruiter at my last job to see if there are any other positions available.

My mutual funds in my RRSP have dropped 27% since I invested them (down 2.73k as of yesterday). Everyone is telling me to hold onto them though.

As for the moving out thing, yes I do plan on living at home for the next 3-4 years to save money on rent. It just makes the most sense in my eyes.

[John23]

-About investing, I got bit by the trading bug at age 20 in 1998 (similar to the poker explosion in the last few years).

Paper traded, did all kinds of things. Followed a bunch of theories and systems (subscribed to thestreet.com, and some other services). It was exciting, sort of like poker (I was trading options). Made $2k on my best day, in April of 1999, I only had $10 k to trade with, so it was amazing.

But eventually I cashed out at $16 k, I realized I didn't know what I was doing.

The market was changing, and it took some years, but I finally wised up, and read a lot more, and got much better educated.

23 and no expenses living at home, that's a great opportunity. That free time is a real luxury.

I would jump on more poker books, more tourneyments, improving your play. Keep it as a side job.

-World Financial Group. I don't know them, but, the investment world is littered with scams and shady companies.

Wade Cook was a big stock guru from the late 90's. If you were trading then, you probably had heard of him. He had all these systems, courses, and eventually flamed out.

There's so many scams, there's too many to list. Unlike poker, or card games, where everyone knows what the rules are, many firms sell you worthless or dubious games (they're the only winners). Many funds have high fees that eat into returns. There's too much to list, but you have to be careful about the fees you're paying, if you're letting someone else invest your money.

-Don't sign up for anything if you're pressured.

Right now though, I'd be saving like crazy living at home. Keep expenses to a minimum. And what's left over I'd use productively.