Combating Bankroll Erosion

Like most businesses, if we cannot manage our money effectively as professional poker players, we are dead in the water. When compared to traditional professions, poker is clearly unique. We generally keep large amounts of our net worth in cash and it is one of the few professions where we can net a loss on a daily basis. As a result, conventional wisdom in regards to money management and asset allocation appears to be a poor fit for the professional poker player. If we follow the advice given by personal financial pundits without tailoring it to our needs as entrepreneurs we will face a few obstacles. If our goal is to maximize earning potential and grow our bankroll we will need to make a few adjustments.

Inflation is a silent killer when it comes to our poker finances. The average person can overcome this because they are expected to get periodic increases in pay as well as being able to invest in higher returning assets without being susceptible to the downside risk that a professional poker player might encounter if they take the same strategy. This presents a problem because inflation is constantly eroding the true value of our bankroll and hourly rate year after year. In addition, we probably will not see rake ever be lowered. This is a pretty crummy spot to be in. Fear not, there are a few things we can do to make best use of our current resources and combat the depreciation of capital.

It goes without saying that we want to keep a fair amount of readily available physical cash for operating. If we have a massive bankroll but cannot access it because it is illiquid we are essentially closed for business. However, we need not keep the entirety of our bankroll in cash. It’s easy to see that if we keep 300bbs (of whatever stake you primarily play) on hand that we will very likely see a situation in where we need to withdraw or liquidate funds from our other allocations. Sometimes this can take a while. Conversely, we should be able to understand why keeping 10000bbs cash on hand is unnecessary and even risky.  While our bankroll is young we should keep most if not all of our roll held where it is easily accessible and with virtually no volatility. This means a checking, savings, physical cash, or equivalent.

First things first, if we aren't getting any interest from our checking/savings accounts it's time to switch banks. We will not see a large ROI from these accounts given today's low-interest rates but it will help stave off some of the opportunity cost and depreciation inherent in keeping large amounts of cash. I personally keep a cash reserve in an Ally savings account. At the time of writing, Ally offers 1% interest, much higher than the national average. In addition to better than average interest, Ally also offers other great features such as no minimum balance and no fees. Do some research and see what suits your needs. The ratio of cash on hand to cash in a high-interest account is highly personal. I tend to keep about 40% of my working bankroll there. Since we can turn this into physical cash fairly quickly, we shouldn’t run into a spot where we go cash poor.

Like other businesses, we should focus on reinvesting our earnings to maximize profit before we think about allocating resources elsewhere. Since moving up stakes and achieving a higher hourly rate will likely beat alternative investment options over our lifetime, getting to our maximum achievable win rate should be our number one priority.

Once our bankroll becomes impervious to the weekly or monthly swings we can start to allocate a percentage of our bankroll into a more high-risk/high-reward segment, relatively speaking anyhow. I would probably look to purchase an ETF that diversifies between US equity and bonds. I probably wouldn’t allocate more than 20% of my bankroll to this area.

Personal finance is such a highly individualized topic that it is nearly impossible to provide a one size fits all strategy. This is merely a general outline. Poor money management has been the downfall of many professionals who may have otherwise been successful. A solid financial plan is the foundation to running any successful business. Poker is no different. It’s up to you as an entrepreneur to educate yourself and make sure that your plan is aligned with your goals and risk tolerance.