Mar 30 2010

Smart Investing in Poker and Life

written by: John under Poker Comments: Comments Off

Here’s a post that’s not entirely about online poker, but it is applicable for those who have had a big score in a tournament, cash game, inheritance, etc. You never know when it could happen to you.

Let’s say you just pocketed a big win in poker, or maybe you just earned a nice sales bonus at work. No matter the source of cash – whether it is $1,000 or $50,000 – you now have the option to invest in your future or blow it all in a week in Jamaica. Putting immediate gratification aside, and thinking about one day being financially independent, let’s take a look at some ways to cultivate your stash in some short term investments.


If you are looking for liquidity (the ease and quickness with which your investments can be converted back into cash) plus a slightly higher yield that you can get at your bank or credit union, money market funds might meet your needs.

Money market funds are a particular type of mutual fund that is required by law to invest in low-risk, short term securities. Money market shares can be bought or sold at any time. They often come with check writing privileges. Money market funds try to keep their net asset value at a constant $1 a share, so that only the yield goes up and down. They are generally successful at this. However, money market funds are not guaranteed by any agency.

NOTE OF CAUTION: There are other short-term investments out there that are sometimes called money market funds but are not subject to the same requirements as true money market mutual funds. Usually, these investments are not registered with the US Securities and Exchange Commission (SEC). They are intended only for sophisticated investors or institutions, and a large minimum investment is required. They pay higher rates than true money market funds but also have a higher risk of loss of principal or of liquidity.


If you are looking for liquidity plus a greater yield than that offered by a Money market fund, a short-term bond fund may meet your needs. A bond fund pools money from many investors to buy individual bonds that meet the fund’s investment objective. Each bond fund is professionally managed and is categorized based on the type of bonds in which it invests. A typical short-term fund invests in bonds that will mature in two years or less.

While a short-term bond offers a higher potential yield than a money market fund, it also carries more risk. When you own a bond or a note from a credit worthy issuer yourself, you will eventually get the principal and interest rate you contracted for if you hold the bond or note until it is due. Investing in a bond fund does not work the same way.

If more investors are taking money out of the fund than are putting money in, the fund managers may have to sell bonds in the fund, even if it is not a good time to do so. The net asset value (NAV) of a share in a short-term bond fund can fluctuate depending on the value of the bonds owned by the fund. Shares in short-term bond funds tend to fluctuate less than shares in long-term bond funds, but even in a short-term bond there is no guarantee that you will get back at least the amount of money you put into the fund.

Bond funds are also subject to interest rate risk which is the risk that the market value of the bonds owned by a fund will fluctuate as interest rates go up and down. Bond funds are also subject to credit risk which is the risk that the bond issuer may default on its obligation to pay the bondholders. Additionally, they are subject to prepayment risk which is the risk that the issuers of the bonds owned by a fund will prepay them at a time when interest rates have declined.


If safety is more important than the amount you can earn on your money, you might put your money in an account at a financial institution that is insured by Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA).

A savings or money-market account at a bank or credit union will allow you instant access to your money. If you are willing to tie your money up for three months to a year, you can purchase a certificate of deposit (CD), which may earn a higher rate of interest. Generally, only the first $100,000 you invest will be insured.


Gold has been at amazing prices lately—over $1,100 an ounce! If you want to own gold, it is recommended putting 5 or 10% of your overall portfolio in a gold or precious metals exchange-traded fund (ETF). You buy ETFs exactly like you would a stock, preferably through a zero-commission broker, and you can sell them at any time. The fund stores the physical bars of gold at minimal cost to you, and then you can buy and sell at will, without worrying about getting clobbered on the spread. It’s good to know that it is better to own gold in an ETF rather than as physical bars; you actually pay double the tax when you sell at a profit if you own bullion verses owning an ETF.

A final thought. Online poker can be a very long game and patience is crucial. You may be getting bad hand after bad hand and be forced to watch for the most part of the game, but you have to be patient and wait for the right hand to play. Investing is also a long game and investors can lose sight of their long-term goals if they are not willing to wait. As an investor, you too, have to be patient with your investments and keep in mind that it can be a long-term process.

And one more piece of advice. If you’ve hit it big in the lottery or at the poker table, or you are planning on doing so, invest in your game, yes, but also invest in your future. Put your money to work for you, so someday, you won’t have to work.

If you want to read a good book on the subject, The Richest Man in Babylon is a great start. Also check out my friend Jim’s personal finance blog at

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