This guide will help you understand Health Savings Accounts (HSAs), and how they could work for you as an insurance plan.

As poker players, many of you are probably both:  1.  Self-employed  and  2. Young and in generally good health.

If you meet the 2 conditions above, an HSA is ideal for you.

An HSA is basically a savings plan where you receive tax benefits for funding your own health care.  This is bundled with a high-deductible health plan (HDHP).

An example is probably the best way to explain this, so here we go:

You sign up for an HSA plan through one of the many providers (Humana HSA Saver, United Health Care Golden Rule, etc).

Your monthly premium will be around $40-50 a month.  In return, you get:
- a $3000 deductible
- some include preventative care costs

Now, the basic idea is that if you're in a major accident, the most you'll be out of pocket is $5000.

What about smaller care?  Where does that money come from?

Every year, you can deposit a certain amount of money into your HSA.  This money can be deducted from your income at tax time, so you'll effectively get a 25% discount.

Each year, if you don't use this money, it rolls over to the next year.  That's right - you get to KEEP your money, rather than just spending $400 on a premium and losing it each month.

They then provide you with a normal insurance card, so when you go to the doctor or ER, you still provide a health insurance card and pay all of the normal insurance rates (which are typically lower than self-pay rates).


Overall, here are the benefits of using an HSA:
- tax advantages
- low premium cost
- you keep all of the money in your account - it's never lost
- you can visit ANY physician you want - not limited to a network
- you are protected against a catastrophic event with the HDHP

Anyone without health insurance should get something immediately.  An expensive surgery could bankrupt you quickly, and these plans only cost $40-$50 a month.

[401k (and 403b)]

This guide will help you understand how 401k's and IRA's work, and why they should be the first places you invest your money in.

401k (and 403b)

For those of you employed, this is a great option for retirement.  It basically works like this:

Your employer lets you deduct a certain percentage of your paycheck each week to invest.  The company usually gives you a choice of investments to pick from, including mutual funds, bonds, money market accounts, etc.  There are 2 major advantages to doing this vs. investing by yourself.

1.  Tax benefits - At the end of the year, any money invested into a 401k is deducted from your income, so you don't have to pay taxes on it.  This means that for every dollar you invest, you save around 25-30% right back in taxes!

2.  Matching - many companies offer to match a % of your money. This is essentially free money.  A typical employer might let you deduct 15% of your paycheck, and will match up to 50% of the first 8% you put in (read:  4% of your salary ).  This varies from employer to employer.

Example:  You are fresh out of college and working a job paying $55,000.  Your employer lets you deduct up to 15% of your salary and matches 50% up to 8%.

How much you will save:
If you max out your 401k, that means you invest 15% of 55k.  ($8250).
So, now your taxable income is only 55,000-8250 = $46,750

Right there, you saved roughly .25 * 8250 = $2062 in taxes that would have just been taken by the government

Next, your employer matches 50% up to the first 8% (4% total).  So, they give you a free .04 * 55000 = $2200

Overall, you are $2062 + $2200 = $4262 richer than if you had not used your 401k.  That's like getting an 8% salary increase.

Moral of the story:  USE your 401k !!


ROTH IRA's

Every year, the government allows you to invest a set amount of money for retirement.  An IRA is sort of the opposite of a 401k - that is, you are taxed NOW on the income, but at retirement you can take it out tax free.  Since most of us will be in a higher tax bracket when we are older, this typically makes the most sense.

In the past, $4000 was the limit, but it has been increased to $5000 a year for 2008.

Roth IRA's are setup just like normal mutual funds.  You can use Vanguard or Fidelity do to this quite easily.

I do not believe there are any limitations to what securities you can invest in, so you can continue to invest in mutual funds as described in my other guides.

How do I get started?

You can always go through a broker like Vanguard or Fidelity to manage it yourself.  For many people with large incomes though, it sometimes makes sense to get a financial planner.

This is perfectly acceptable, and as you get older they can help you plan your investments around life decisions.  Just be sure to insist on no-load index type funds and you'll be fine.

You can talk to an adviser / financial planner for free advice here: http://www.handcrawler.com/financial.php.  Just let them know your plans, and see if they are a right fit for you.

[What is a Mutual Fund?]

So,

You have some money sitting around, and you don't really know what to do with it.  This guide focuses on passive investing - primarily in mutual funds.

This article will attempt to cover the basics in the most simple way possible.  Further discussion can go into more detail, but I just want to get the general best practices across to everyone.

What is a Mutual Fund?
Think of a mutual fund as a collection of stocks, bonds, and other securities.  It is managed by a "fund manager" who trades on your behalf.

Rules of choosing a good mutual fund:

No-load Index Funds
- these funds track a general market (S&P, Russell 2000, etc). 
- they carry no extra fees for the fund manager
- low expense ratios - most of these are in the 0.15% - 0.3% range.  "Loaded" funds can be as high as 1-2%.

Diversification

I like to think about funds in three divisions:  domestic vs international, large cap vs small cap, and growth vs. value funds

Domestic - US based stocks
International - Funds like total international funds, emerging market funds, etc

Large Cap - These funds contain large corporations.  Risk is less, but growth is typically smaller
Small Cap - These funds contain small corporations, carry higher risk, but growth is better

Growth funds - These funds are typically higher risk, aggressive growth type funds
Value funds - These funds look more for a bargain using indicators like PE (price vs earnings, etc)

So, how should you distribute this into your portfolio?

General Advice:

1.  If you are younger (most of you are), you should take the highest risk and go for the most return.  That means opting for more small cap funds than large cap funds.  Historically small caps have returned around 2% higher annual returns than large caps.

2.  I prefer to focus on the value funds rather than the growth funds.

3.  Diversify domestic and international funds to reduce risk.

4.  Any money you don't invest should be kept in a high-interest bearing savings account or money market account ( like HSBC, GMAC, or others ).  Interest rates on these vary between 3-5% depending on market conditions.

5.  Money should be invested in this order:  401k up to matching, ROTH IRA, the rest of your 401k, then regular mutual fund accounts.  See the next sticky for explanations on 401k's and IRA's.

How should you diversify your portfolio?

This depends on how heavy you want to be in international funds, but a good mix might look something like this:

40% domestic small-cap value index funds
10% domestic large-cap value index funds
40% international value funds
10% international emerging-market funds

This is obviously simplified, and you can certainly add in some bond funds, RE funds, and other things to diversify.

How do I get started?

It's a LOT easier than you think.  I suggest finding someone you'll want to stay with for a while, and keeping most of your investments with one company, because it makes end-of-year tax accounting much simpler.

The big names are Vanguard and Fidelity, but there are other good options out there as well.
For many people with large incomes though, it sometimes makes sense to get a financial planner.

This is perfectly acceptable, and as you get older they can help you plan your investments around life decisions.  Just be sure to insist on no-load index type funds and you'll be fine.

You can talk to an adviser / financial planner for free advice here: http://www.handcrawler.com/financial.php.  Just let them know your plans, and see if they are a right fit for you.