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Setting Aside Something

Put some poker winnings to work outside the poker economy

by Lee H. Jones |  Published: Jul 18, 2007

"Got my hands on a little bit of dough."

This is not a poker strategy or tactics piece. It's not even about poker, per se, but you'll quickly see its relevance to poker players.

This came up because I was talking to some young American players at European Poker Tour (EPT) events. A number of them were taking an extended European vacation wrapped around the latter portion of EPT season three, so we kept bumping into each other at the various events. They told me about the cool places they'd seen between tournaments; it was great fun.

As will happen in such discussions, the topic occasionally would turn to how their various bankrolls were doing. In particular, I remember a conversation in Warsaw with a handful of players, all of whom are about the age of my elder son (24).

"I just went through a $200,000 downswing in my bankroll," said one. I honestly don't remember the fellow's name, and even if I did, you know that I wouldn't be printing it here. Anyway, there was general sympathetic nodding among the group; it seemed that others had been through similar situations.

Now, I was the poker room manager at PokerStars for three-and-a-half years - and I guess I've seen it all in terms of bankroll swings and such. But it always amazes and saddens me when I hear these stories, because so often, the people going through these six-figure downswings have nothing set aside.

So, this column is a bit of a lecture. Maybe it's because I'm just so fundamentally risk-averse. Maybe it is because I have a son who's the same age as so many of the hot young guns of poker. In short: If you win a whole lot of money playing poker, set some of it aside for the future.

Let's look at an example. Suppose, for instance, that you play in the weekly Sunday Million tournament at PokerStars. Recently, the first prize in that tournament has been very near $200,000. In fact, recently, because it was an end-of-month $500 event, first prize was a whopping $264,000. So, let's suppose that you play extremely well, survive a couple of coin flips, and accidentally draw out with 7-7 versus J-J. Now you've won a quarter of a million dollars; what will you do?

If you replied with what you'd do with a quarter-million dollars, you fell for the trap - because the first thing you'd do is pay taxes on it. No less an authority on the subject of money than Doyle Brunson once said that you absolutely must pay taxes on your poker winnings. His point is that if you don't, you can't grow your money in legitimate instruments (for example, the stock market, real estate, and so on). There's also the bit about the IRS (or your national taxing authority, wherever it is) sending you to jail if it discovers that you haven't paid taxes. Whatever it takes, pay your taxes.

So, let's say that you have to set aside 30 percent of your winnings for taxes; that's $75,000. Now you've got $175,000. Let's further suppose that you're going to spend $50,000 on a new car or give yourself a $50,000 poker bankroll. I would argue that neither of those choices is a particularly wise thing to do with $50,000, but we'll get back to that at some other time. For now, you've got $125,000 left.

Here are two reasonable things that you might do with your $125,000:

Buy a house
Go buy a condo or house (depending on the market in which you want to live, and your lifestyle). There are many places in the U.S. where you could buy a perfectly nice condo for $125,000. And with the exception of a few markets (for example, New York City or the San Francisco Bay Area), $125,000 would represent a huge down payment on a very nice home. For much less than you're probably paying for rent now, you'd be building equity in your own home. As an example, if you used the entire amount to make a down payment on a $200,000 house, you'd have a $75,000 mortgage. The payment on that mortgage would be about $450 per month (given a 30-year loan at 6 percent). That's far less than rent for any reasonable place.

Just as importantly, you'd have established yourself in the real estate market at a much earlier age than most people. If you talk to most people who have "serious" money, you'll discover that they either got started in real estate or moved into real estate to leverage their money. The place you start that is by owning a home to live in.

Invest in the stock market
By this, I do not mean get a random tip from somebody and plow $125,000 into "The Next Big Thing on Wall Street." If you are the type of person who enjoys studying financial markets and using your poker skills to determine good investments, great. In fact, two well-known young poker players, Doug Kim and Jason Strasser, have taken jobs in the financial industry; no doubt, their serious poker backgrounds will help them make intelligent, calculated decisions even when there are millions of dollars at stake.

But if you're not the type who wants to pore over quarterly earnings reports, there are still good investment vehicles. For instance, an index fund that tracks the Standard and Poors (S&P) 500 is a pain-free way to participate in the stock market. Over the last 70-80 years, the S&P 500 has averaged an 11 percent return annually. If you compound 11 percent for 20 years, you get eight-times growth. So, let's say that you're my son's age, 24, and you invest $125,000 in an S&P index fund. And let's further assume that the S&P 500 manages to maintain that 11 percent growth rate. Then, when you're 44 and your kids are thinking about college, your fund will have one million dollars in it.

Obviously, buying a house and/or investing in the S&P 500 are not the only two good ways to invest $125,000. And even those two techniques are not guaranteed. The point, though, is to put that money to work for you outside the poker economy.

I know that when you're winning at poker, it seems like a guaranteed income for life; why would you worry about something silly like saving some for a rainy day? Also, I know that when you're 24, pretty much the last thing you think about is being 44. But believe me, (1) very few people can make a long-term career of playing poker, and many who can eventually choose not to, and (2) you will, almost certainly, be 44 someday. If you have been both fortunate enough to come into some serious money from poker and wise enough to sock a bunch of it away, you will be very glad, indeed.

Drop me a card in 20 years - to let me know how that investment went.

"We had it made in the shade like a ball through a hoop."

Lee Jones is the author of the best-selling book Winning Low Limit Hold'em.