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- [00:01]
State Farm Ad
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- [00:28]
Uber Ad
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- [00:54]
Austin Hankwitz
Hey everyone and welcome back to the Rich Habits Podcast brought to you by public.com a top 10 business podcast on Spotify. My name is Austin Hankwitz and I'm joined by my co host Robert Kroke. Robert is a seasoned entrepreneur in his 50s with lifetime revenues over 300 million and I'm an entrepreneur in my late 20s with a background in finance and economics. Since quitting my full time job in corporate finance a few years ago, I've built a seven figure media business and actively advise some of the most well known fintech companies around the world. As the show name might suggest, every episode we talk about Rich Habits as they relate to business, finance and mindset. However, we try and bring you two unique perspectives, one from an industry veteran which is Robert, and the other myself, someone who's still in the process of building wealth and figuring it all out. Robert, what are we going to be talking about in today's episode?
- [01:43]
Robert Kroke
In this episode of the Rich Habits Podcast, we're going to share our perspective on how to hedge against volatility and in 2025. As you all know, volatility was one of the key themes that we shared with you near the end of 2024 and unfortunately we were right. We've since experienced the Trump tariff tantrum, the debt downgrade from Moody's, and even a modest re acceleration of inflation. This has all caused the volatility index to spike to the highest levels in years, the markets to move down and now back up by more than 20%, and yields on U.S. treasuries to sit higher than we'd like. By the end of this epis, you'll have three new strategies in your tool belt to offset and hedge against market volatility, because we all know this ain't over.
- [02:29]
Austin Hankwitz
That's right, Robert. But before we jump into all this, I want to make sure we're completely on the same page as to what it means to hedge against volatility. When we say the word hedge, we want you to think about a life jacket keeping someone afloat despite them not swimming. We want you to think about keeping things up and pushed higher despite macro forces pulling things down. So when we talk about hedge, that means having a portion of our portfolio used that should stay in the green while everything else is in the red. That is what we're talking about when we say hedge, having a portion of our money moving higher if it's via bonds or some sort of option contract or whatever else we're going to talk about in this episode, but it's keeping our portfolio buoyed up while the rest of our portfolio is being brought down by the indices or whatever else is happening in the markets. Now, before we jump into what those three specific strategies are, we're actually joined by a special guest, Steven Sykes. Stephen is the COO of public.com and has a ton of insider data as it relates to how millions of investors on their platform are navigating this market volatility. Stephen, thank you so much for joining us for a quick little intro segment of the show.
- [03:38]
Steven Sykes
Yeah, thanks for having me.
- [03:39]
Austin Hankwitz
So let's jump into our first question which is from your perspective, how are retail investors navigating this volatility so far in 2025 we saw a nice smooth sailing for the first couple months and then we saw a 22% dive. A since V shaped recovery, the market's been all over the place. Have you seen behind the scenes?
- [03:58]
Steven Sykes
First of all, I've been doing this for about 10 years across a couple of platforms. I've seen the same trends in retail investors the whole time. One, buying the dip, the generation of investors that we serve, right? Digitally, native people that want to do their business on their phone or on the website, etc. Their entire lives, their financial lives have been lived through a full bull market. Every time the market has sold off, their buying has been reinforced because we're always at that new highs within, you know, a year or two or max. Three, even if we go back to the sort of financial crisis, regaining Those sort of 2007, 2008 highs didn't take as long as people think. And I think people that really bought through sort of all of 2008, 2009 were well rewarded. So even going back to Sort of the worst market environment that we've seen in our lives. The buying, the dip was rewarded. Now that doesn't last forever, right? As markets stay down and stay down for sort of months, et cetera, you see some of that dip buying wane. But the experience so far in 2025 has been sharp V after sharp V after sharp V. And I think that's the first thing that we see every time. Second thing, when there's volatility like this, we do see retail investors leaning into more speculative high beta names where they're going to play the swing as the sell off comes. You're going to see a segment that buys sort of the index and just dollar cost average over time. But you're also going to see a large segment of folks trying to play opportunistically and say, okay, if this is a dip, I'm buying. I really want to get multiples on my money as we go back up. The names there wouldn't surprise you. I think the last thing that in these sort of volatile times actually comes back to, you know, not the equities market or even the crypto market, it's the fixed income market. So at public we have the largest self directed, mobile, first fixed income platform so folks can invest in individual bonds, Treasuries in fractions, so $100 lot sizes. So we do see a lot of volume in the fixed income market. I think what we've seen in that market specifically is actually rates have risen through this volatility. And at each individual point we've seen sort of the market go from a place where I think maybe to start the year and maybe through, through the post election time we got down to the 10 year rate in like the high threes, very low 4% range. Now we're back at 4 and a half, 4.6, 4.7. Those are really, really attractive rates. As you start to look to corporate bonds, you're talking you're going to get 100, 200, 300 basis points more over that. So you're looking at 5, 6, 7% rates for sort of mid 3 to 5 year duration corporate debt, which is, you know, if you're going to earn 7% on a fixed income product, which is definitionally going to be lower risk than investing in sort of the equity product of the same issue or of the same company and you're getting 7% to hold that like that's many people's target return. And so through this market we've seen a lot of people diversify into fixed income And I think, you know, that's a, it's an interesting trend that probably goes undermentioned the buy the dip everyone talks about. We've seen dramatic buying the dip, but like diversifying into fixed income, like there's nothing sexy about it, but it works. And especially when folks have a sort of target return in mind and they can achieve that target return return with lower risk.
- [06:54]
Robert Kroke
So yeah, I love this and I feel like Austin and I really nailed it on the head because in late 2024 we were talking about all of this volatility, more diversification, active management. And I think that's another thing that no one is talking about. All of these advisors and all of these Companies in these 401ks think you can set it and forget it. And you're just leaving too much money on the table when you do that. So I love your response. You killed it. And it's so important for people to understand diversity, especially in tougher. And so I really, really appreciate that answer. And that leads me into kind of a two part question. What can you offer advice wise to our listeners that are intimidated by this volatility? And what are you and your team seeing sophisticated investors do during these difficult times? I know you talked on it a little bit, but let's go about that a little bit further. What are the big boys doing, what are the sophisticated people doing and how are they implementing these strategies into their day to day investing?
- [07:54]
Steven Sykes
One of the things we've seen from our more sophisticated and active trading invest is buying protection in the form of puts, right? You could buy individual index puts, so you know, buy puts on spy. You got to be thoughtful about, hey, what are the strikes, how are you, how much are you paying, what are the premiums, what's the volatility that's priced. But we're seeing a lot of sort of out of the money put buying to protect a sort of broadly diversified portfolio. Again, doing that on the indices is probably, you know, the, the spies. The Q's is the most common strategy we've seen. But also fading the rallies or buying the dips and using options to really sort of crank up sort of the protection or the leverage that you can get in that. You see some high flyers hit the market, really rally through, you know, one of these V shaped bottoms fading, not with a put. You know, you can get a little better value depending on exactly where you are and exactly what, what the strategy you're taking. So you know, I think again finding those places to pick spots where hey, maybe I'm a little bit bearish or I want to get protection, thinking about, do I want to protect via, you know, the index as a whole where volatility is going to be a little more muted, or do I want to make a bet where there's a lot more leverage but potentially a lot more protection on the downside? Because we do see a lot of stuff in this market is correlated. Those sort of betas have become persistent and so being thoughtful about, hey, where is this thing that's trading way beyond its fundamentals, responding to this dip buying, responding to some, you know, real crazy retail flows or something like that, and fading those again, I think as we talk to our most sophisticated members, that's their preferred protection strategy.
- [09:18]
Austin Hankwitz
Stephen, thank you so much for joining us on this quick little intro segment. As we dig into the volatility that's happened so far in 2025, it seems like a lot of your investors are buying the dip. They're getting some of those high beta stocks, but they're also being smart enough to buy some put option contracts to offset that volatility. I appreciate you joining us, my friend, and we look forward to having you back.
- [09:37]
Steven Sykes
Awesome. Thanks, guys.
- [09:38]
Robert Kroke
Thanks, Stephen.
- [09:39]
Austin Hankwitz
What an awesome conversation with Stephen. I am just always so thrilled when people from public join us and can give us a little inside scoop as to what the millions of users they have are doing with their money.
- [09:50]
Robert Kroke
Yeah, what a great conversation and I love, like you said, getting insight from these people that are seeing hundreds and hundreds of thousands of people, what their habits are, what's happening in the markets and really just having the boots on the ground in all of the these topics that are so important to us for personal finance. So now let's jump into the three strategies and how to hedge against volatility in 2025. Number one, probably one of my favorites you hear me talk about it all the time is precious metals, specifically gold, silver and platinum. Austin and I have been raving about these for many years now and I've been an investor in gold and silver for over a decade. But the original reason we started talking about this has been portfolio diversification. You hear us talk about it all the time. Very, very important. And over the last couple years, now that diversification into these precious metals has really paid off since the start of 2024. I want to give you guys some numbers because it's important to really understand why this diversification is so critical for your portfolios. Gold has returned 59.5% and silver has returned 37.9% year to date. Gold, silver and platinum have all performed incredibly well and allowed investors to offset this market volatility in a meaningful way. It's never been more timely to have precious metals like this in your portfolio. We always talk about maybe 10 to 15% having that hedge and that diversity. So, Austin, explain to our listeners what is the catalyst that could help propel some of these names higher in the coming years.
- [11:27]
Austin Hankwitz
So, as you guys have probably seen, the big beautiful bill was passed by the House and it's now onto the Senate and then to the President to be signed. And if you guys read the bill, you will probably realize, realize that there are a lot of cuts, but also a ton more spending that's happening behind the scenes, which is causing people to speculate that if this bill passes, will add an additional $500 billion to the deficit over the next year and an additional $3 trillion to the deficit over the coming years, which is an opportunity for the United States to issue more Treasuries, AKA debt. For example, if we are on a clear path of revenue coming in via taxes and other things of that nature, and then revenue being spe via expenses, and then we have more spending beyond the money that we are generating as a country, that more spending is the deficit. And the way that we fund the deficit is by issuing treasuries, right? This is debt. And so when we issue these Treasuries and they flood the markets, this has historically been a good opportunity for precious metals and Bitcoin. When real rates are pressured and government spending runs hot. Precious metals like gold, silver, and sometimes platinum tend to do well as well as the cryptocurrency bitcoin. So if you want to start investing into some of these precious metals, what we talk about, you can hold them physically or you can invest into their ETF counterparts. We do both. But I think ETFs are easiest. Gold's ETF is GLD, Silver's ETF is SLV, and Platinum's ETF is PLTM. And as you guys know, you can go buy Bitcoin on public or Coinbase or anywhere else, but if you want to have it in a stock portfolio via an etf, you can purchase BTCI or IBIT as the easiest ways to gain exposure to that cryptocurrency. And back to what Robert said, I just want to re emphasize we're not saying to sell your portfolio and go all in on gold, silver, platinum and Bitcoin. Not at all. We are saying to have a small portion, 5 to 15% of your portfolio used as A way to hedge against the volatility that we've since experienced so far this year via precious metals and some bitcoin. Bitcoin at time of recording is up about 15% year to date compared to the S&P 500's up 1% year to date. And gold is up like I think it was 29 or 30%. Silver is 15%. Platinum is a bunch too. So it's really cool to keep tabs on these different types of asset classes and have them be a part of our portfolios.
- [13:49]
Robert Kroke
Yeah, I think the big takeaway for me is you said the word hedge. We're always talking about diversification and so many people don't understand the importance of it. And then when you look at the numbers and you say, well, the S and P has been flat all year long, even down a little bit, yet gold, silver and some of these other diversifying asset classes we talk about are doing really well. It just really bolsters what we're trying to share with all of you. And that is it's always good to be, be diversified throughout your portfolio so you can weather any storm, I guess is the best way to look at it. And we've seen a lot of volatility this year and that's why I think this episode is so incredibly important to kind of lay out the groundwork of what we do, what the sophisticated investors do and what you should be looking at for you to do with your own money.
- [14:37]
Austin Hankwitz
Speaking of hedge, Robert, let's go to strategy number two, which are hedged ETFs, specifically QQQH and SpyH. We've talked about QQQH a ago as a way to hedge against volatility in the NASDAQ 100. But since Stephen Sykes talked about buying put option contracts to offset market downturns, this is now an even better opportunity for us to reaffirm and reintroduce this strategy to you all this market beating strategy. QQQH and SPYH are NEOS funds, which means they're awesome. You guys know we love NEOS funds and shout out Troy and Garrett over there. QQQH is very similar now to the award winning QQQI ETF NEOs funds offers. But instead all of that monthly premium to their investors. They use a small portion of that premium, that cash, to buy a put option contract on the underlying index that the ETF tracks, giving investors a true hedge against downside volatility. So for example, let's use some real numbers here. February 19th is when the NASDAQ had its recent all time high. It was the peak in the markets. So from February 19th when we peaked in the markets down to about April 19th two months later, QQQH experienced a 9.7% drawdown when you include the dividends that they paid you, whereas qqq experienced a 17.7% drawdown. That is an 8% difference of outperformance during the same period of time that 8% was derived from QQQH buying a put option contract to offset volatility in the markets. And since we've now experienced this bounce back in the markets, QQQH is very keeping up with the Nasdaq up 1.6% total return this year so far in 2025 compared to the Nasdaq's 2.1%. It's kind of crazy how this fund can actually protect against 8% of downside during times of volatility and then flip back bullish and give you nearly all of the upside in real time. Like QQQH is really cool.
- [16:43]
Robert Kroke
And the same really goes for SPYH because this fund has the same strategy except its benchmark against the S&P 500 instead of the NASDAQ. We're not saying people should sell their existing VOO and QQQ for these funds. We love those two funds. We're not saying that at all. But what we are saying is having some exposure to these funds with net new capital is always a good idea. As we continue to navigate a wild 2025. We've been talking about this for months and this episode is all about helping you hedge against this volatility. So now let's talk through some of the pros funds as it relates to hedging your portfolio. With funds like these specifically put option contracts, obviously you're sacrificing some of that monthly income to be used to buy those put options. So Instead of a 14% annual yield that you would get with like QQQI, you're only getting 8.5% annual yield with QQQH. But you do get that very important downside protection action. As Austin shared too, your upside can be capped during big bull market bounce backs like we've experienced this year. That's where that 1.6% return of QQQH compares to the 2.1% return of QQQ. But we're only talking about half a percentage point here, so it's not something to split hairs over. We just want to make sure you understand why you're making these hedges and the Pros and cons of both sides.
- [18:16]
Austin Hankwitz
100%. We want to make sure all of our listeners have full information before they make educated investment decisions. You don't need to be an expert with option contracts to implement hedging strategies into your own portfolio. By having QQQH and SPYH in your portfolio like myself and Robert, you're able to automate your hedging throughout 2025 while still participating in that upside potential as we have a rising market that we very much experienced over the last couple weeks here.
- [18:42]
Robert Kroke
So let's get into our strategy number three. And that is investment grade COR bonds. You've heard Austin and I talk about it for many months and Steven took the words right out of our mouths. Getting a 7.1% annualized return right now by parking some investable cash in Publix. Investment grade corporate bonds are a wonderful way to hit that mid single digit benchmark. Again, these are corporate bonds, which means you're getting paid by companies like Ford, Piedmont Real Estate and Vernado Real Estate. It's important to understand how these bonds work because though. So I want to break that down a little bit. Remember, purchasing a bond is the same thing as loaning money to who you're purchasing from. So if you buy $10,000 worth of bonds, that is a $10,000 loan to that company, the company now pays you coupon payments, AKA interest payments on your loan. Then after that maturity date they pay you back your original loan amount. So you get all of your money back plus your interest during that period of time. However. However, corporations can default on their debt. So unlike the United States treasury, there is indeed risk that comes with these types of bonds. So make sure you understand that. Which is why the yield is higher than say a 10 year treasury at only 4.5%.
- [20:00]
Austin Hankwitz
Right now we want to make sure we are super clear about that. This is not a freebie 7% for funsies, right? You are lending forward a $10,000amount of money. Money Ford is telling you, sure, we'll pay you back these interest payments and then at the end of the maturity, which is like four, five, six years, whatever it is in that specific instance will give you your money back. You're betting that Ford will not go bankrupt in 4, 5, 6 years period of time and that they will actually pay you your money back. Right? That is the risk you are incurring. And that risk has been properly readjusted as it relates to the yield in these bonds. That's why These yields are 7%. Seven and a half percent. I think they even got up to 8% recently, whereas the 10 year is paying for four and a half percent. We know the US is not going to default on their debt. To us as treasury holders, that is like Armageddon. But that is why the yield is now a little bit lower than maybe a Ford, for example, who has a 7% yield. So just understand how these work, do some research into corporate bonds, specifically investment grade corporate bonds, and get a better understanding of what's going on behind the scenes with those before you invest. As Robert said in our previous point, we always want to make sure our listeners have full information as to everything we're talking about. So there's never a misunderstanding as to any of our ideas or strategies that we are educating you all about. And as a reminder as well, Robert and I are only sharing strategies that we personally use ourselves. I've been a user of QQQH and now more recently spyh as well as Publix Bond account. They have T bills and unfortunately I didn't get into precious metals as early as Robert did several years ago, but I still believe in them. Specifically Bitcoin, that is the digital precious metal, Robert.
- [21:41]
Robert Kroke
And the main takeaway for me, I guess would be make sure you understand what you're investing in. In these are our ideas, these are our concepts of how to hedge against volatility. But also understand in this world of these corporate bonds, we just want to make sure you're looking at it as maybe a 5 to 7% hedge. We don't want you going 20, 30, 40% of your portfolios into these corporate bonds. Just like we wouldn't want you to do that with your bitcoin or your crypto or your precious metals. This is all about hedging as a portion of portion of your total investable capital.
- [22:15]
Austin Hankwitz
Now before we jump into our Q A section of this episode, let's take a moment to hear from this episode sponsor, Blossom. You guys always ask us, what are you investing into right now? And you know, we don't like to gatekeep over here, but we also don't.
- [22:28]
Robert Kroke
Blast our portfolio all over the Internet either. You want to see it, you gotta follow us on Blossom. It's all right there.
- [22:35]
Austin Hankwitz
You guys know we've been big fans of the Blossom app for a while now. It's a free social investing platform where people actually show you what they're investing in, including Robert and myself.
- [22:44]
Robert Kroke
And just to clear, Blossom is not a brokerage. It's a social network for investors. So think Instagram meets investing.
- [22:51]
Austin Hankwitz
What we love is the transparency. You can literally see our portfolios, track those changes in real time and learn and discuss strategies with other real investors on Blossom. They have over 300,000 other investors that use the platform right now.
- [23:06]
Robert Kroke
And the best part is the community on Blossom is long term focused, not typical of what you see on other social platforms forms which tend to revolve around trading, FOMO and whatever's hype at the moment.
- [23:18]
Austin Hankwitz
So if you're curious about how we're building wealth or you just want to level up your own investing habits, download Blossom. It's completely free, it's easy and we're both on there. Just search at Austin Hankwitz in at Robert Croke Official and give us a follow.
- [23:31]
Robert Kroke
Hit the link in the show notes. Join us on Blossom and Let's Build Rich Habits together so our first question.
- [23:37]
Austin Hankwitz
On Instagram comes from Tori. And as a reminder, if you want to ask us a question on Instagram, just DM us at Rich Habits Podcast Podcast on Instagram Tori says, hey guys, I've been binging your podcast since my aunt told me about it a couple weeks ago. It's really making me think as my husband and I are about to combine our finances after our recent wedding. Congratulations on getting married. That's amazing. So Tori says, I have a 401k slash Roth 401k that I cannot roll over into my current company as they do not accept Roth 401k rollovers. What is your suggestion on what to do with that account? I can leave it where it's at, within power and pay minimal fees, but it's all invested into target date funds. Are there any fees associated in rolling that over into a traditional IRA and managing it on my own? What is the best option? And for a little more context, my husband and I are both high earners making over $700,000 a year, so rolling over into a Roth is not an option. I believe the account has a hundred k in traditional 401k and about 40k in a Roth 401k contribution. Thank you so much for the podcast. I've been binge listening since my aunt recommended it and I'm at episode 40 right now. That's amazing. Tori, congratulations on Married and we're really excited for you. We totally agree. Combining finances after marriage, assuming that there's no addiction or abuse or anything weird like that, is a wonderful way for people to build wealth over a long period of time. So a couple parts of your question are throwing us off because we think you might not have full information. So you mentioned you've got 100,000 in a traditional 401k and 40,000 in a Roth 401k and that the company you're working at right now doesn't accept. Accept 401k rollovers. That's fine. That's normally how it happens. I don't think I've ever like rolled a 401k over into another company when I started working there. So here's what you do. Just like what everyone else does. You go and open a traditional IRA or a Roth IRA on Public, on Schwab, on Vanguard, wherever you want and roll the hundred thousand dollar four hundred one K out of Empower and into this Vanguard traditional ira. You roll it from one custodian to the next. It never hits your bank account account. It is never anything that you are trading or doing like that. It is from the custodian to the other. They'll do it all for you automatically. Just make sure that they roll over cash to cash. That's some of the easiest way to do it. And for the Roth 401K, you had mentioned that rolling into a Roth is not an option. Contributing to a Roth is not an option. Rolling into a Roth is very much so an option. So make sure you know the difference there. Making that much money, you are above the income limit to contribute to a Roth ira, which is why you'd have to do a backdoor Roth ira. But that would be very difficult here in situation. So let's just pretend that you are not doing that. You're going to roll over that Roth 401K into a Roth IRA that you can open. You just can't contribute new money to it. You can roll money into it that already exists, but you can't contribute new money to it. So I would again open up a Roth IRA on Public. I'd roll that money on over. I'd get a bonus because they're doing a little portfolio bonus right now and rock and roll that way.
- [26:43]
Robert Kroke
I think it's a great breakdown, Austin. Just congratulations. You have solved the hardest part of building wealth and that is making a lot of money. Now you just dialed in, get all your information right, follow along, catch up on all of our episodes and maybe think about joining the Rich Habits network where you can stay in touch with all of this information on a weekly basis so you guys can keep crushing it. And to touch on Empower for a moment, they do have high FEES, sometimes upward of 1% of the assets under management you have with them, but also These target date funds, we have limited information because I don't know your age, but these target date funds generally Underperform the markets by 3,4%. So that is another red flag for me. So I love what Austin said. I agree with it 100%. Get that money rolled over. Get it really, really working hard for you and keep crushing it.
- [27:34]
Austin Hankwitz
Yeah, I just googled it here. Right. Empower Retirement Managed account program. Annual fee based on asset value. It's half a percent for the first hundred thousand dollars. You're probably paying half a percent right now in fees, $500 a year just to have your money parked with them. No reason to do that. Let's move it out. Let's get it to these low cost index funds like vo, vti, Vug, qqq, things of that nature and have that money grow for you over a long period of time. So our next question comes from Linda. Linda says, My husband is 37 and has $100,000 in his 401k. He wants to take out that money and either one, use it to pay our house off. We have $60,000 left on the mortgage at 3%. Two, pay off his truck of $28,000 at 8%. Three, pay off his credit card debt of $16,000 at 19%. Or four, use the money to remodel our kitchen and our living room. None of this makes sense to me. I think he shouldn't touch his 401k at all. Can you please give us some advice? I love this podcast. It's fantastic. With so much information about growing wealth that I never knew about and I'm in a pickle and I need Yalls help. Robert, you want to kick this one off?
- [28:42]
Robert Kroke
I think the first thing you should do is go to 5 below, buy yourself one of those big nerf soft bats, and you should bang him on the head and tell him to watch a few of our episodes. Episodes. So there are four options here and unfortunately three of them are bad. So I'm gonna go with door number three, though that is the only option he should be considering. Maybe we need to get him on a call. We need to talk him through this. Because let's start with number one, paying off your house $60,000. You should never make extra payments on your mortgage when you have a 3% interest rate. I can blindly throw a dart at a wall and make 5, 6, 8, 10, 12% with my money. You always want the positive arbitrary. That extra money going in your pocket, not someone else's. Number two, pay off the truck. That's a little bit higher interest rate, but I would still not pay it off because right now you don't want to rob from your future to pay off your current debts because you already have that money building towards your retirement. And then number four, I wouldn't spend a bunch of money doing a remodel right now, especially if it's coming out of the 401k. Only thing I would spend do is to consider either paying off the credit cards because that is high interest debt, or find a side hustle that you two can do to make enough money to be able to not take money from the 401k and pay off the credit cards as soon as possible.
- [30:07]
Austin Hankwitz
Yeah, I'm going to go door number none because we're not going to do any of this stuff. And I'll tell you why. He's 37 years old. Listen, I am not ever going to make someone feel bad for wanting to pay off their credit card debt or like take care of their family. I love that. That's amazing. And I really commend your husband for wanting to do those things with the hard earned money that he's built. But I want to make sure everyone is on the same page here as to what your hundred thousand dollars right now at 37 will turn into over the next 30 years, when your husband is 67, assuming a 9% annualized return for the next 30 years, and your husband doesn't add any more money to this hundred thousand dollar 401k and it is invested in earning 9% a year in the S&P, the NASDAQ, you know, all the things we talk about, his $100,000 is worth one 1.5 million. So you cashing out your hundred thousand dollars, which by the way, you're going to pay a 10% penalty. So there goes 10,000 of it. And then you're going to go pay income taxes on that, which is another, let's call it 20%. So now 30,000 of your hundred thousand is gone. You now have 70,000 to work with. You're pretty much saying, do I borrow at 30% interest? The answer is no. That's a terrible idea. But back to Robert's point about borrowing from our future. This is a $1.5 million mistake. And I don't think your husband or you might understand that because, you know, you have to really think about the time value of money, the opportunity cost of cashing it out before it's really begun to mature as you're older. Simple math tells us that if this money is invested into the markets and it's growing by 9% per year, which, by the way, the average in the s and P500 since its inception in the early 1900s is 11.9%. So, you know, a 9% return over a long period of time, 30 years, is to be expected, adjusted for inflation. Inflation. And so we're talking about a $1.5 million mistake by cashing out this 401k early to do something like pay off a credit card, which I agree, get that paid off, but don't cash out the 401k to do it.
- [32:05]
Robert Kroke
Yeah. And the only other way to look at this, and I agree with Austin, 100%, if you get rid of the high interest credit card debt at 19% and you still had the car payment and the mortgage, your blended interest rate between those two is five and a half percent percent, which is pretty good. And everyone that follows us already knows good debt can be very good for building wealth. And low interest debt is even better. Because the rule of thumb is if you can borrow money for less than what you can make with your own, you always borrow money. Everyone needs to understand that. That's why some of the wealthiest people in the United States have car payments, have yacht payments, have mortgages, because they can borrow the money so inexpensive, like you did for your house at 3%.
- [32:49]
Austin Hankwitz
Yeah, I just want to add a little bit more to that. Right. So, for example, gold is up 25% this year. 25% is what gold is up right now by paying off $60,000 at 3%. Theoretically, let's say the start of the year, you had 60k and you use it to pay off your mortgage. You would save now 3% per year of interest expense that you'd be paying versus you could have put it into something like gold. That is up 25%. That 22% difference. There is the arbitrage that Robert's talking now. Not everything is going to go up 25% a year. It's an anomaly right now. I get that. But 8, 10, 12, 15% is pretty common for some of the things we talk about here. So if you have some sort of debt payment that's at 3, 4, 5%, we're cool with that. Theoretically speaking, it's better to get that money invested than to use that money to pay off a 3% interest rate.
- [33:38]
Robert Kroke
100%. I could not agree more.
- [33:40]
Austin Hankwitz
And just as someone that doesn't have full context here, Linda, you guys are theoretically broke people. You have 16,000 of credit card debt $28,000 of depreciating asset debt at 8%. You guys don't need to remodel the kitchen, remodel the living room. You guys need to get out of debt. Right? We need to go work our faces off, get that side hustle, get that weekend job. Really dial back on the spending. You guys are not credit card people. You guys really need to figure this out. Credit card debt is the payday loan of the middle class, and it is eating you alive here. At 19%, you're paying $254 a month. Month just in interest. Every month you keep this around, that's $254 out. So please pay this off.
- [34:20]
Robert Kroke
Yeah. And this really illustrates something we talk about a lot, and that is, I think over 55% of US households making over $100,000 a year are living paycheck to paycheck. And I think the biggest issue is most American households believe that if they have a house, a big screen tv, nice cars, they have iPhones, that they're winning. But the problem is if you don't have any savings and you don't have your base built and you're not building towards retirement, all you are is living beyond your means. And you can't kick that can down the road forever and expect to ever be financially free. So I love this. Really flushing this out. We're not being hard on you. We're just being truthful. That's why you're here. And we want to help give you the ammunition to go back to your husband and say, hey, I've done the research. Research. Here's what I think we should do to get ourselves in a better position moving forward.
- [35:13]
Austin Hankwitz
You guys are going to win with money. We had a good feeling about it. Rich habits. That's what you got to start building right now for yourself. We're rooting for you. You guys are going to be awesome. So our final question comes from Martin. Martin says, hey, fellas, thank you for all the knowledge that you passed down from your podcast. My question is, after filing for Chapter 7 bankruptcy, what are the best practices for someone wanting to make the best financial decisions for obtaining a good credit score and investing over the long term? So I'll set the table here. Robert, Investing over the long term has nothing to do with your credit. Right? I think we should all just, like, agree to that. You should be able to put 100 bucks, 500 bucks, a thousand bucks a month into the stock market invested over a long period of time. You can have a 500 credit score. You can have an 850 credit score, it does not matter. You are investing and you're making money and that's, that's investing. Now the credit side of the equation, equation, that's a whole nother beast, right? You got a bankruptcy on your record. I'm assuming you went bankrupt because you might have not had a good relationship with money and therefore debt to begin with. So I'll let Robert talk a little bit about that. But it's really important to understand your credit score is not your brokerage account. Your credit score is not your net worth. Your credit score is none of that stuff. Just make sure you guys understand that.
- [36:23]
Robert Kroke
I think that's one of the biggest misnomers around credit and building wealth. So many people think you have to have this 850 credit score, 810 credit score to be able to build wealth. They have nothing to do with each other. The good thing about having good credit if you're building wealth, is being able to leverage other people's money by borrowing money inexpensively to use it for things, you can make more money with it, like buying a business, building apartment buildings or anything like that. But in this instance, I think the number one thing is start slow, slow, start small. Because the assumption is you not having a good relationship with credit in the past is why you had to file bankruptcy. So that is the number one thing I would look at is where do I start Small. Maybe it's a guaranteed credit card to get you back in the game of credit. Maybe it is starting some credit lines if you own a business or you need materials for your job or something like that. But I wouldn't worry about the credit building as much as I would worry about about getting your base built and getting your money in order. That is the number one thing you need to be concerned with. Because moving forward, you have to think more long term to get your practices in order and get your money in order so you don't put yourself right back in this situation. Because a lot of people, let's be honest, there are many, many people that file bankruptcies more times than one in their careers. And we don't want to see you be one of those.
- [37:49]
Austin Hankwitz
And I will also mention too now, like, let's tactically speak toward how to build credit from scratch. Number one, get a secured credit card. You go to a local bank, a bank that you've got a relationship with, you put $500 down and you say, hey, this is my credit limit. Now you've got my money, I'm going To borrow against that in the future. You do that for several months, if not a couple of years. Now you have that being reported to the credit bureaus. Another thing you should be doing is like actually tracking your credit score. So you go to like a credit karma, you go to freecreditreport.com, you go to whatever websites that are out there that are legit, and you can begin to track what your scores are and what's getting reported to these different bureaus. And I guess the most important thing to think now as it relates to building your credit is to never forget the amount of pain that you went through because of this bankruptcy. So many parts, I'm sure of your financial life were flipped upside down because of this. So now going forward, as you think about swiping that credit card again, you don't do it as you think about taking on that boat loan, you don't do it. As you think about, you know, whatever that thing or several things that caused you to go bankrupt over, I'm sure, a longer period of time. You've learned from your mistakes. And everyone makes mistakes. We all make mistakes. We all know people who've gone bankrupt. We've all lost money, we've all been stupid with our money. It's called paying the stupid tax, right? But what's important is what you actually learn from those mistakes. And that, to me is the biggest takeaway from this, Martin, is to not feel bad about what happened with your bankruptcy, but to then learn from it so it doesn't happen again and so you can continue to build wealth and retire a multimillionaire.
- [39:20]
Robert Kroke
I see it every day. I do a lot of these one on one calls with people.
- [39:25]
State Farm Ad
People.
- [39:25]
Robert Kroke
I see it a lot in the rich habits network. People come to me and they DM me their situation. And these are households that are making good money. They should be living good lives. And they think because they have things that they're thriving. But they don't realize that without having that base built and being financially free at any given moment, it can all go away. And they end up in bankruptcy as well because they're not living according to what their budget should actually be. They have a high debt to income rate ratio and they're living beyond their means. I mean, let's face it, lifestyle creep is the killer of all financial dreams. And unless you get your affairs in order, at some point, you're gonna have to pay the piper. And that is why I preach to the mountaintops all the time. Live below your means. Make sure you understand your budget and don't use credit for things you shouldn't be buying at that time.
- [40:15]
Austin Hankwitz
Everyone, thank you so much for tuning in to this week's episode of the Rich Habits Podcast, how to Hedge against volatility in 2025. Major shout out to Steven, Sy and everyone over@public.com for always supporting the show and allowing us to interview awesome people that work at their company. If you learned something in this episode, please consider giving us a five star review. Share the episode with a friend and do not forget we have a newsletter. It's called the Rich Habits Newsletter. It comes out once a week every Thursday and we do a pretty good job of like a headlines roundup if you will as it relates to the stock market, the economy and everything happening behind the scenes. And then also consider joining the Rich Habits Network. It is Robert and I's community for our biggest fans. We offer a two hour weekly live stream where we answer your questions in real time. Right now we are running a seven day free trial. No money out of your pockets at all for the first seven days. Join a live stream, watch the video courses, ask us questions, whatever you want to do to feel fulfilled and then if you don't feel fulfilled, you don't like it. No questions asked, no hard feelings. You can just cancel and still be a supporter of the show. We hope. But with that being said everyone, thank you so much for joining us and have a great start to your week.