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- [00:02]
Red Bull Announcer
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- [00:28]
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- [00:57]
Austin
Hey everyone and welcome back to the Rich Habits Podcast Question and Answer Edition brought to you by public.com these are our Thursday episodes where every Thursday we sit down and we answer your questions that you send us on Instagram at Rich Habits Podcast or email us@richhabitspodcastmail.com we've got 78 questions something like that that we're going to get through in this episode. All over the place. So so much fun and I'm excited to dig in.
- [01:25]
Robert
Robert Personal Finances Personal in these episodes the people just love them because it's real time, it's what's happening in people's lives and we just give our best insights and value to help people figure it all out. So I love these episodes.
- [01:41]
Austin
Now as a reminder before we jump in, this episode is brought to you by Public, the investing platform for those who take investing as seriously as we do. On this podcast on Public, you can build a multi asset portfolio of stocks, bonds, options, cryptocurrency and now generated assets which allow you to turn any idea you might have into an investable index using AI.
- [02:07]
Robert
And it all starts with your prompt. From renewable energy companies with high free cash flow to semiconductor suppliers growing revenue over 20% year over year, you can literally type any prompt and put the AI to work. It screens thousands of stocks, builds a one of a kind index and even lets you back test it against the S&P 500, all with just a few clicks.
- [02:28]
Austin
Generated assets can be thought of as ETFs but with infinite possibilities. They're completely customizable and they're based on your thesis, not someone else's. So go to public.com rich habits and earn an uncapped 1% bonus when you transfer your portfolio. That's public.com rich habits paid for by Public Investing.
- [02:47]
Robert
Full disclosure in the podcast description and
- [02:50]
Austin
Robert what's really exciting is announced last week. Public now has unlocked cryptocurrency for their AI agents on their platform. So we had Yannick Malig on the show couple weeks ago, a couple months ago, whenever they unveiled their AI agent product. Essentially you can now use AI agents to trade and execute investments and things like that on your behalf inside of Public. But it was only for stocks. Now you can use crypto and the crypto is not just crypto in your normal brokerage account, but they've unlocked crypto in your ira. So you can buy Bitcoin directly through your ira, your, you know, retirement accounts. You can buy Bitcoin, Ethereum, Solana through your retirement accounts. Really, really cool product here. Steven Sykes did a great job breaking it down on X. I'll be sure to leave the video kind of explaining how crypto AI agents work now inside of Public in the description of this episode. So go check that out. Major shout out to Public. We are huge fans of what you've built.
- [03:44]
Robert
They always, I mean, Public just comes out with all the best tools. It's like they can read our minds on what the retail investors and people like us really want to have access to. So they just do such an incred job.
- [03:58]
Austin
So our first question here comes from Brett B. From Gmail. Right? So this is again, Rich Habits podcast gmail.com Brett says first off, great show. I listen every week. Thanks Brett. Brett says I have a small amount of cash sitting in a savings account. I'd like to invest it into dividend ETFs, hoping that they perform better than the interest I earn on my savings account. What dividend ETFs should I invest my savings in? By the way, I'll invest it through Public. Thanks guys. Good question, Brett. So let's make sure we're on the same page as to what people should be thinking about as it relates to savings. Robert and I for years now have said that everyone needs to have that emergency fund. Three to six months of expenses. So if your household expenses are $5,000, a $15,000 emergency fund, three months of spending is going to be just fine. You can park that emergency fund inside of a high yield savings account, a high yield cash account, whatever you want to do there. You can go to wealthfront public SoFi, earn yourself about 3 1/2, 4% APY on your money. But the purpose of an emergency fund, Robert, is so that when an emergency comes, you do not have to sell your investments to fund your lifestyle. You, you are protecting. It's insurance against your existing investment so that they can stay invested. Because we know the stock market, as we've seen in Q1 so far of 20, 26, goes up, down, left, right, and in circles all the time. So, Brett, I would challenge you to think what happens if you put your thousand dollars of savings here, Maybe dividend ETF like schd, and for whatever reason, you had an emergency take place and the price of SCHD was down that day or the week or whatever compared to your cost basis, and now you're selling at a loss for some sort of emergency. Right. So, like, the biggest encouragement I can ever give anyone listening to the show is to treat your emergency fund as insurance against your existing investments. Yes, you can go earn more by having it parked different places and invested or whatever, but that's not an emergency fund. Your emergency fund is not an investment. It is insurance. It's insurance that you earn a couple percentage points on every single year. Your investments that stay invested during market turmoil, that is what actually earns and builds wealth over time, not your emergency fund.
- [06:12]
Robert
I love this breakdown, and I'm just going to add a little bit to it. Brett, we like the enthusiasm, but you're putting the cart out of the horse trying to figure out which dividend ETFs and getting all fancy here. You have to build the emergency fund just like Austin laid it out. Once you get that built, then we can move on to getting the Roth IRA set up, get that basket of ETFs up and running and invested in every single month and stay consistent. And then maybe down the road, we can then start adding these dividend ETFs. But that's not where you want to start. You want to start with growth because we assume you're younger and that's what we want you to do with your money. So that would be my little addition to Austin's breakdown.
- [06:48]
Austin
Yeah. The most important thing to remember here, Brett, is that you need to separate emergency fund from investments and maybe even separate emergency fund from investments from sinking fund. If you are someone who's saving for a down payment on a house or an engagement ring or a vacation, or insert something that's a foreseen expense here, that's called a sinking fund. Your sinking fund should also sit, in my humble opinion, assuming the expenses within the next 18 months in a high yield savings account paying you 3 to 4%. Now, if it's a down payment, you're going to be saving for the next seven or 10 years. Yeah, go throw it in the S and P. Go through it in whatever dividend fund you want to here and earn some interest, move up with the markets over the next, you know, several years. But if you have a foreseen expense that's around the corner. For example, we're filming this episode on May 8, 2026. I get married on May 8, 2027. So that's kind of exciting for me here. But I have all of my wedding savings sitting in a high yield savings account earning like 3 1/2 percent. I'm not worried about what the markets are going to do. I' worried about the interest. I'm not getting the compound growth because it's not invested in the S and P. I've got a foreseen expense coming up pretty soon, and I want to make sure that that money is going to be there. It's going to be exactly what it is today or more here because of interest. And I don't have to worry about a Trump tariff tantrum taking place in Q1 of next year. So our next question comes from Esther. Esther says, hey, guys, I have $1.3 million plus in my IRA, which in 2026, I must take my first required minimum distribution. Should I roll over the money IRA to my Roth IRA? At the moment, my Roth IRA only has $179,000 in it, which I want to leave to my son after myself and my husband have passed away. I'm concerned with taxes as my husband and I are both in the 24% tax bracket. Also, since my son's partner will be a doctor beginning August of 2026, I believe they will be in a higher tax bracket than ourselves. They have a lot of student loan debt. What do you guys suggest? So, Robert, why don't you kick us off?
- [08:56]
Robert
Yeah. What a great situation. Esther, you've done a tremendous yourself here, and I really like that you're thinking way ahead for everyone else to make sure you're taking care of them as well. So I'm going to take a shot at this, and then, Austin, you can kind of fill in the gaps. I think it's a great idea. You have to take this required minimum distribution. So what I would do with that is you have to pull that out and pay the taxes on it. You can't just simply roll that over into the Roth ira. So I would pull that out, pay the taxes Put the remaining balance from them. Are those RMDs, if you don't need them, intra to your traditional brokerage account. And then if you're going start migrating over the IRA into the Roth, I would make sure you just consider that when you're doing this, you take only the amount that keeps you in that same tax bracket of 22 to 24%. That way you're not paying more on this and changing the actual tax bracket that you're in. But that would be my take on this. And if there's anything else, Austin, please fill in the gaps there. But that would be my understanding of probably how I would play it if I was in your situation. And I would do it gradually as well.
- [10:00]
Austin
Yeah, gradually I think is the key here. Right. So like if you're saying, hey, hey, I've got this traditional IRA and I have to take required minimum distributions of, let's call it $50,000 a year, which are going to pay ordinary income tax on, and maybe between your Social Security, maybe you got a pension, maybe you got a side hustle, whatever, you don't need the money. Yes. Putting it in a taxable brokerage account and you know, it's your money. Do whatever you want with it. You already paid taxes. It's all good. But then to the point of like, hey, should I think about rolling over and converting my traditional IRA into my Roth ira, which means Roth IRA contributions slash balances. You don't have to have required minimum distributions because you've already paid taxes on them. Because Uncle Sam always wants his money. He goes, oh, you got to do a little tax. Write off on that, on that traditional IRA throughout your life. Amazing. Well, we're not going to make it. So you have to pay us our taxes. We want that money. But not in a Roth ira, because you've already paid those taxes. So no required minimum distributions on those Roth IRAs. And I think the key here is what Robert said. If you want to convert it, you want to roll that money over, do all that fun stuff from traditional to Roth. Do it gradually as not to bump yourself up into a higher tax bracket than you need to be inside of. For example, you mentioned 20 to 24% tax bracket. Figure out the amount of money that makes sense to convert from that traditional IRA to a Roth ira so that as you're taxed at ordinary income, you're not converting $1.3 million. And literally half of this is taxed at 37%. Right. That's nuts. You're converting 150 200,000, whatever the number is for you and your situation, who knows? Go talk to a cpa. We're not financial advisors, we're not accountants. Please go work with a professional. And you figure out the amount of number there that has to be moved over over time. So you're optimizing your tax drag while also ensuring a ton of money is going to get put into an account where you don't have required minimum distributions. And as you think about legacy and you pass away, your son and their partner inherit your Roth ira. Withdraws on Roth IR that are inherited are generally tax free. Yes, they have to completely withdraw everything within about a 10 year period of time according to the Secure Act. But compare that to a traditional IRA inheritance where they have to empty it over that same 10 year period of time. They're already high income earners. Right. We're talking about 30 to 35, 37% tax on a lot of your estate here, where if you already put it in a Roth ira, generally tax free. I'm sure there's some nuances there. Again, work with the CPA on this one. But really like your situation and how you're thinking about this. And I hope everyone who has children, maybe they're themselves in their 60s or 70s and they're thinking about sort of their own legacy and estate planning. This is why it's so important to sit down and have these conversations with your children while you're still alive and ensuring that everyone knows everything. That's one of the coolest things my dad did before he died is he sat me down and he's like, hey, Austin, here's my, you know, power of attorney. This health thing, this, this is, this, this is what you have to do here. I mean, he literally had it all laid out. So when he died, I opened up a letter and it had every single thing that was important to his estate and his legacy made super simple for me. So highly encourage Esther and her husband here to do that as well.
- [13:12]
Robert
I think everyone should do it long before you get elderly or you get sick or something happens to you, because the last thing you want to do is leave a mess and end up having your house and your properties and your investments and all going through the court system. And probate, it's very expensive, it's very long term. Sometimes probate just for one property could take up to a year. So please get ahead of it. Make sure you speak with an advisor, somebody that can help guide you if you should be having a trust, a revocable trust. What type of Structure you should have so, so important because inevitably everyone dies and you just want to make that transition as smooth as possible for your family.
- [13:52]
Austin
Family 100 Robert now our next question comes from Charles G. On Instagram. They say hey Austin and Robert, longtime listener, thank you for all you two do. When major private companies like SpaceX and OpenAI eventually go public, how does the shift in capital due to supply and demand typically impact existing stocks and ETFs and which types of assets tend to be more resilient during that kind of capital rotation? It's a good question and we actually answered a similar question of this inside of the Rich Habits Network during a live stream we had last week. Robert Essentially the question is this, Austin. Robert, we got SpaceX raising how many tens of billions of dollars at a trillion something valuation? A potential open AI, a potential anthropic. We've got these major potential trillion dollar IPOs in the pipeline when they go public. Tens of billions of dollars, hundred billion, who knows, right? Lots of capital, lot of cash is going to go to these companies balance sheets as investors buy their stock for the first time in a public listing here. Where is that cash coming from? Are investors selling existing investments? Is you know, Austin, if you're going to go Invest in the SpaceX, are you telling me you're going to go sell your Amazon or your Tesla or you're selling some stock in Apple so you can shore up some liquidity to then deploy that into SpaceX? Are you selling the S and P with VOO or QQQ and deploying that into SpaceX? Or is it net new capital that you were going to deploy into a different company but instead of deploying it into the S p or the NASDAQ, you're setting it aside deployed into OpenAI or SpaceX, right? It's like how are you thinking about the capital and where does it come from? Helping me as an investor understand, Austin and Robert that if everyone's selling their Rocket Lab stock to go buy SpaceX stock, should I be short Rocket Lab? Should I get ahead of it? Should I get out of my Rocket Lab position ahead of this type of event? So Robert, now that we've set the table, kick us off.
- [15:43]
Robert
That is a great setup, Austin. And yes, please don't sell your rocket lab for SpaceX right now. But the way to look at it is this. There are several factors that are going to come into play. When a company goes from private to ipo, there's going to be dilution because when the IPO is launched, there's going to be new shares issued. So you may get diluted down some. That's just part of the game. There's also going to be tax consequences that come about once you figure out what you want to do with that investment. But also the best part about it, especially if you're a long term holder of these investments in these private companies, there is going to be a liquidity event finally. Sometimes it takes us a year, two, five, six, seven years to get to that liquidity event, but it allows you to finally capture some of that upside you've been hoping for within that investment. There's a lot that goes into this and you're just going to have to understand your buy box, where you're at in your investment journey at the time of that liquidity event. So you know, when is the right time for you. I've done this many, many times over the last couple decades and for me it's all about the timing of the ipo, the, the initial public offering and is it a good time to do. I think this company is going to really crush it after the ipo. So many factors come into play. So just make sure you do your research, understand where you're at in that journey. Is it a good time to sell and take some profits off the table? Should I hold this longer? There's just so many things that come into play, so I hope that helps.
- [17:15]
Austin
So to answer the question specifically, typically, how does the shift in capital typically impact existing stocks and ETFs? I don't think it does. I don't think that you're going to see The S&P 500 sell off in a major way as people try and reassure liquidity to invest in SpaceX. I don't think you're going to see companies have real sell offs as people try and dump their shares to go buy SpaceX. And then as a follow up, which types of assets tend to be more resilient during that kind of capital rotation? Assuming we do have capital rotation and there is true volatility and people are, you know, doing stuff here and you do see some real names sell off as people try and reshore some liquidity. I would imagine the most uncorrelated assets are probably going to be the most resilient. So think energy, think maybe utilities or, I don't know, things that are just super not even correlated to SpaceX. Because if I was a SpaceX person that was like, hey SpaceX IPO today I want to get in. What am I going to sell? I'm going to Sell names in my portfolio that are most similar to SpaceX that I don't think are going to win as much as SpaceX. So I might sell a Rocket Lab or I might sell something that's biotech or new or something volatile, something I can say I don't really care about this. Like I think this is the better opportunity. I think those are like the sort of apples to apples kind of comparisons that someone might, might make from a. The beta, right, the volatility of a stock. Obviously Space X is going to be volatile. We've seen that with Tesla, of course. So as you think about companies that might experience sell sell offs and what companies might not think about just like the beta of everything. But here's the, I think the more important story that no one's talking about and I saw this post yesterday on X and I want to share it. Everyone come look at the screen here on Spotify. Chris Powers Apparently 160 people in Austin, Texas may make a hundred million plus from the SpaceX IPO. 12 people will clear a billion from the SpaceX IPO. Don't sleep on Austin. That's a lot of capital formation very quickly. Really good post there by Chris. Some great insight. I don't know this person. I just saw it on X and I was like, hmm. So here's what I think. Interestingly enough, Robert, this SpaceX IPO is going to be the first. And again Tom Lee has talked about this on podcast too. So shout out to him and credit to him for this hypothesis as well. But this is going to be a major liquidity event for investors who have been on the sidelines because their capital has been tied up in SpaceX now for three, four, five, six, seven, eight years. You're telling me there's 160 people who are going to get $100 million cash deposited into their, their checking account. You don't think that money is just going to sit. You think that's going to get reinvested elsewhere, maybe into competitors, maybe into startups. Right? Like I mean, hey, they invested into SpaceX when it was a startup and now it's a trillion dollar company, that capital is going to get redeployed. And SpaceX is a hardware company. I'd imagine a lot of hardware companies in and around Austin or even in the country now. I think, I think this is going to be a very defining moment for the Saronics of the world, the ether fluxes of the world for a lot of these hardware first companies Chaos and Hac Havoc and these names where people are building hardware. And, you know, now that we have all this liquidity, 160 people are going to go have another 100 million, 12 people are going to make a billion. Like that's going to get redeployed elsewhere in a similar vein, in my opinion, because they're going to think they're geniuses because, hey, I got in SpaceX early. Why can't this be the next SpaceX or this or that? So I think that's the interesting play. Figure out where that, let's call it several billion dollars, tens of billions of dollars is then going to get redeployed to get ahead of that.
- [20:47]
Robert
That is a great, great way. And I really appreciate that question and your take on it because people don't realize that, you know, you see these big investments in people like us that invest in these companies, it's illiquid for years and years. And then all of a sudden you get this big check and you've got to figure out, all right, where is this money going next? A lot of times it's right back into the same sectors that they're investing in. But I do love that breakdown. Austin.
- [21:13]
Austin
So our next question comes from Chris C. Via email. Chris says, gentlemen first, would love to say thank you for all your financial knowledge and sharing your expertise with the public. Listen, since episode one and the episodes have only become more valuable and impactful since. Thanks so much. Chris says, my question is in the seven Streams of Income episode, you discussed dividends as a stream of income and either using that stream of income or reinvesting it via Drip dividend reinvestment plan back into the stocks that paid them to you? Specific to that, when would you say that someone should reinvest the dividends into the stock they received the dividend from versus accumulating the dividends and buying something else. For example, taking dividends from Apple and using them to buy shares of SCHD for a higher dividend or vice versa for a growth opportunity. Love each and every episode. Keep up the great work. Robert, this is a really cool question from Chris. I'll let you kick us off.
- [22:06]
Robert
Yeah, we just talked about this the other day somewhere on an episode or in the live. And it really comes down to personal finances. Personal for this question because it depends on your age.
- [22:17]
Austin
Age.
- [22:17]
Robert
Are you trying to produce growth? Are you trying to produce income? If you're trying to produce income, I love this because you might not need the capital and you can then migrate it into SCHD or something of the like and be able to produce more dividends versus producing growth. If you're in your 30s, you might want the growth which then I would say I would take that money, put it into other growth sectors rather than migrating it over to more dividends. It all depends on what your outcome is of what you're trying to accomplish accomplish with this strategy. Everyone is different based on what their needs are at that time. Austin does a really good job of explaining this because he has a very big income producing portfolio with the NEOS funds. So it's just all about what you're trying to accomplish. Do you want growth or do you want income at that time in your journey?
- [23:08]
Austin
I think that's a great perspective. Robert, how I'm. I mean I don't have a framework. I don't think anyone has a framework. Personal finance is personal to the the biggest extent with this one. How I've approached it so far this year is I've got a ton of NEOS funds. You guys know this. I've like six figures of NEOS funds. I love those ETFs. They pay me every single month. It's incredible. It's so tax efficient. I've got them all. I'm so excited about it right now. I'm literally taking all the distributions from all of my NEOS funds and putting them into BTCI. Because I think Bitcoin here at 60, 70, $80,000 isn't going to be there forever, which means BTCI is going to go up as well. So if I can accumulate shares of BTCI here at the suppressed valuation and I think it's going to go up over the next 18, 36 months, then great. Right? So it's like it's not net new capital I'm investing into btc. I'm just redirecting the money that's paid to me. Instead of putting it back in the spyis and QQQIS of the world, I'm taking it and redirecting it into something that I think is undervalued. Another great shout out again, shout out, out public. But they've got their AI agents and Steven Sykes talked to us about how cool it is with the AI agents. You can program them to literally do this dividend reinvestment stuff that you're alluding to. Chris, any which way you want. So yes, you can say take all of my dividends and reinvest it back into the companies that paid them. Cool. That's not that novel. That's not exciting. Or with Publix AI agents, you can say take all of my dividends and only reinvest it back into companies in my portfolio that pay a dividend and are trading below the 200 day moving average. Or invest it only all into Nvidia or Micron or only invest it into the sector ETF that that company is operating inside of. You literally have so much customizability here. It is awesome shout out public and their AI agents. But Chris, I don't have a real framework. The only thing I think about is like what in my portfolio is undervalued historically speaking, in my opinion. I'm going to redirect some of those distributions toward that so I can accumulate some shares here as I believe it's undervalued Our next question comes from Carrie Ann W. Carrie Ann says hi Robert Nosten I have a question regarding aging parents. I'm in my early 30s with parents in their late 60s. My mom has entered in retirement last year and is receiving Social Security, but other than that my parents have not had any money saved for retirement. My mom currently nannies my toddlers and I've been paying her 800 to $1,000 a month to do so, which is saving me a ton of money and avoiding daycare costs. She definitely has not been comfortable taking the money, but it was a non negotiable for me. I wanted to compensate her for her time and also gave me a lot of peace of mind knowing that I could count on her to be available every day. In turn, she buys the kids new toys and clothes which they don't really need. I think it makes her feel better spending that money on them. I've recently been thinking maybe it could be a win win situation to open some sort of joint brokerage account to deposit this 800 to $1,000 a month into if she doesn't actually need the money that month. This could help them build a small nest egg over time and then when they eventually pass away the funds back to my kids, if there's anything left over at that time what are your thoughts on this idea? I'm a little bit lost on if I should be doing a joint brokerage account or just opening up her own account and depositing the money in there without my name on it. Maybe a trust? I. I really don't know. Thank you for your thoughts. I love the podcast. I love this idea. Robert what do you think?
- [26:30]
Robert
I think it is awesome and more people should think like this, especially if their parents aren't prepared for a comfortable retirement. I love love love this. Carrie Anne I would do a joint account that access to it you can decide what the money goes into, how it's invested, and really set it up. Well, I don't think at this stage you need a irrevocable trust or even a revocable trust unless they have property that would then get passed on to you. But I love this joint bank account idea. It's super simple for you. And I would give them that thousand dollars a month, tell them, hey, please, we don't need any more toys, we don't need any more clothes. You're doing a service for us. I would love to be able to pay you this money. Here's what I want to do. I'm going to invest it in some things that are going to be safe and less volatile for you to build you that little nest egg over the next few years. I love this idea. It's super simple. You could sit down with her, do it in a few minutes, maybe 10 or 15 minutes, get it up and running, and then really set them up. It might not grow to a ton of money over the next two, three, four, five, six years, but it's definitely going to be better than them wasting it on toys and clothes because she feels guilty taking the money from you. I love this idea.
- [27:43]
Austin
I do, too. And heck, put it into like SPYI and qqqi because, you know, you're talking about Social Security, no nest egg, no income, things like that. $1,000 a month, $800 a month, whatever it is, let's just call it 900, $900 a month over the course of 12 months is about $11,000, which will then begin to pay about $100 a month of income from Neo's funds into that brokerage account. Now, a hundred dollars a month isn't like crazy, but you do that for four, five, six years. Years grows over time. Maybe you reinvest it, whatever. You now have some sort of vehicle that's paying you 500, 700, maybe a thousand dollars a month, depending on how much money is eventually in here that could really help your mother in her retirement. So I listen, I love this now as it relates, Robert, to the having your name on it. I think you should have your name on it so you have access to deposit stuff. And you know, it's not. If you want to call up public and say, hey, public, I want to deposit. Oh, you're not. Your name's not on the account. I don't know if we can do anything like just, you know, joint. Joint brokerage sounds cool to me here, but no, I really commend you Carrie Ann, for thinking about this. It's so kind of you and I. I love that, you know, you're thinking about not just helping your mom, but also helping your children. I mean, this is, is a really, really cool thing.
- [28:52]
Robert
Yeah. And if you think about it, Austin, they're In their late 60s, people are living longer, assume they're healthy, and maybe they get another 20, 30 years. And the investments stop in five or six years maybe because the, the children are old enough and they're off to school. Then that money just keeps growing and compounding for another 10, 20 years. Years. Then it's a huge nest egg that passes directly on to the kids and could go into the custodial Roths right from that brokerage account once the parents were to pass away. So I love this. Any remaining funds could go right to the kids and it's going to be growing and growing over time.
- [29:27]
Austin
Now, before we jump to our next question, Robert, I just have to shout out public. I feel like I've shot them out three times this episode, but they are the title spot of these Friday episodes and y' all definitely need to be trying them out. We talked about the generated asset stuff, and I want to make sure we're on the same page about what that is, is you literally go to like your chat GPTs, your clods, and you like, prompt it with a question. You do the exact same thing here in public. You say, hey, I want to invest into companies that are going to profit from the rise of Peptides. I think Peptides are going to be super popular. How can I invest in companies that are going to profit from Peptides? Public will go in with a generated asset strategy, identify all the companies that could profit from peptides. Think supply chain, think suppliers, think compound pharmacies. Like, whatever. They'll identify all that stuff. They'll tell you the names and then you can just Click Invest, deposit $1,000 into the strategy they just built for you, and it's automated and you're off to the races. Like, that's how easy it is. I want to invest into airline stocks that, that are going to benefit most from Spirit Airlines being shut down. I don't know if that's a real strategy to consider, but it could be right. And the cool part too, Robert, is it back tested against the S&P 500 to tell you if it's, historically speaking, a good investment strategy or not.
- [30:40]
Robert
We've never been in a better place in the history of investing to be able to keep an eye on our money and control how it's invested and the outcomes using these AI tools@Public.com I think it's incredible. I play around with it all the time. And for any of you that have been on the fence of joining the Rich Habits Network, you should really consider trying the seven day free trial because we have all kinds of different things inside of the Rich Habits Network around these prompts and how to use these tools. And I think it's a really good way to get more access to Austin and I rather than just the podcast episodes. So check that out because Public is doing a really good job and there's a ton of good prompts and information about it within the Rich Habits Network.
- [31:25]
Austin
Robert, while you were talking, I literally went to Generated Assets in my public account and I typed in word for word, I want to profit from the rise of peptides. It's doing its thing right now and it automatically has pulled up Novo Nordisk, Altimune, Eli Lilly, Ironwood Pharma, Viking Therapeutics. Like, there's just a bunch of names in here I've never heard of, but they align well by about, yeah, 259 different stocks that they're like cross reference. It's crazy. It's crazy stuff. So if you have an idea, any idea you have, go to Generated Assets, prompt it, say, hey, I want to learn about this. How do I invest in this? Tell me more about it and it will pop up and I'll show you everything. So our next question comes from Thomas P. Thomas says, hi. I found the podcast this January and listen to you guys every time I'm in the car or I'm walking, which means every single day. Thanks, Thomas. Keep your eyes on the road. You're driving right now if you're wearing a seatbelt. Thomas says, I'm going to be 68. I found a contract job four years ago when I retired from my high stress job and I've been making 220,000 a year for the last four years. I have two pensions totaling $2,100 a month. My wife and my Social Security total now $5,100 a month. I have made $600,000 this past year through what I've called called Wild West Investing. I understand it's not recommended, but it's worked for me. I have a total of 1.7 million between my 401k and my Roth IRA, another 16,000 in a high yield savings and 30,000 in an emergency fund. So I've managed my funds my entire life. In the last five years, I've made anywhere between 10 and 40% above the S&P 500. My question is, should I turn $1.5 million to a finance company to manage it at 1.25% annual fee or continue managing my funds myself? Have to admit I can make money, but don't fully understand the best way to handle taxes. I do not intend on taking any withdrawals on the 1.7 million until I stop working in about six months from now. Please give me some advice. Thomas. Love the question. Love that you've done some wild west investing and you've been able, I'm not gonna call it investing, Wild west trading. And you've been able to figure out some cool stuff that works for you. That's awesome. If I were in your situation, I would pay for a fee only. Fiduciary advisor. The easiest way to find them is on hello nectarine.com Shout out Jeremy Schneider. He's on the podcast friend of the pod. He created hello nectarine.com where you pay like an hourly fee of like a hundred bucks or 200 bucks an hour to meet with fiduciary advisors in your state that will sit down with you and help you craft a strategy, a formula. They'll look at your taxes, they'll look at your whole picture, I'm sure, and figure out the best way to go forward without paying 1.25% of assets under management. You're 68 years old, which means you should be in the capital preservation time of your life, not just accumulation. So you'll I'm sure you're going to get diversified here recommended by some of these fiduciaries to diversify into some, you know, cash equivalents, some interest bearing, you know, bonds, some international, you know, some large index funds and ETFs. Nothing too crazy here, right? Capital preservation. So I would imagine do some of that stuff. But keeping that, I mean you kind of just need a plan. And once you have the plan, it's very set it and forget it. Maybe you rebalance once every six months, which is pretty simple to do on your own. And you can always go work with the same advisor I guess you worked with that recommend the plan to you. That's going to help you think about the tax situation. But long story to say, I don't think you should go pay 1.25% a year for a finance company to manage your money. I mean, let's just put in perspective what that looks like, Robert. $1.5 million dollars at 1.25% is $17,000 for them to Invest it into stuff that you probably already know about, and then also, like, rebalance it and maybe help you navigate taxes. So you want to pay someone fourteen hundred dollars a month. Like, that's. Don't get me wrong, financial advisors are great, but I think they're more so for people who need, like, a holistic picture with estate planning, a lot more goes into it versus, like, hey, I feel pretty good about investing myself, myself, but they want me to pay a fee so I can feel more, like, legit. I don't know. What do you think, Robert?
- [35:41]
Robert
I think you covered one of the most important parts of all of this for Thomas, and that is capital preservation. He's lived in the wild, wild west. He's done all these crazy things to get here. Now he needs to preserve it. And I think you nailed it. I would go spend $2,500 on one of these advisors, paying them hourly, say, hey, here's where I'm at. I want to get out of the wild, wild west, and I want to be more of a lakefront guy now. And what should I be doing with this money to preserve it? Here's the goals that I have and the outcomes I'd like to achieve, and then the only other money I would spend, because obviously you understand enough of what you're doing to be able to handle this on your own and not give up so much money. The only other thing I would do is I would probably then engage a local estate attorney to say, okay, here's my plan. I'm going to spend 1500, $2000 with that estate attorney and have him sit, set up anything that you need, whether it's a revocable trust, whatever you need to do, because we don't know your entire family situation, and that is it. And then I would just keep rocking and rolling with that plan. Keep doing what you're doing because you've done a great job and now you need to take the risk out of it and start getting into that capital preservation stage. So I think, Austin, you covered it well. Hire somebody to help you. Don't give away all that money. Or if you're going to, and you want somebody to take that yoke off your shoulders, find a place, place that will do it for a lot less than 1.25%. That's too much, given the amount of money. I think you could find somebody for under a percent, but that's what I would do. And follow Austin's blueprint and then add the lawyer in. You'll spend probably five grand total. But you'll have the entire plan, all the documents you need, and you'll be up and running.
- [37:24]
Austin
Heck, go spend $14,000, $15,000 total. You're still right, not ahead. If you just do this once versus having it sit with someone for three, four, five. I mean, that's wild to think, Robert, because their money is going to grow over time. So the fee proportionally increases over time, too. After five or six years, you pay $100,000 to one of these firms, like 100 grand of your money. It's just, it's insane.
- [37:46]
Robert
Well, the way, the way to look at it, though, in defense of, let's call it my, my family's office, CRO Capital, in defense of those fees, keep in mind, if they're managing the money and they're beating the benchmarks and doing better with the person's money than the person could do on their own, let's say, say they're 3% better a year, but they take a percent, it's beneficial if they're giving you all of the tax planning, all of the estate planning, and giving you direction on everything else. If you're just giving it to them, this money, just to tell you what ETFs and stocks to buy, then it's not worth it. But if you're getting a true fiduciary, that's going to give you everything else, I think it's worth it. But you just have to find the right one.
- [38:28]
Austin
Yeah. Reminds me of this video I saw online where it was this kid that was at the subway in New York, and he was standing around, you know, the subway was coming in, and he like, pretended that he was slowing down the subway, like he was running next to it and, you know, pretend that he was the one slowing it down. People were walking in, so he just like, you know, over here, it showed them the door and then he started running next to the subway, like he was pushing it off. And the meme was when you're financial, when you pay a financial advisor 1% to put you in index funds, it's like, yeah, what are we doing? You can do that yourself.
- [39:02]
Robert
It's so true. And I mean, I come from that background and it's so true. But that's why you have to be careful. You have to make sure you're getting a true fiduciary, estate planning, all of the things you need to take that yolk off your shoulder. Otherwise you can do it on your own.
- [39:17]
Austin
So our last question here comes from Emma G. Emma says. Hey, Robert and Austin, longtime listener Hoping you can help me actualize your advice. The issue is nearly every episode you re force the importance of buying a multifamily home as your first home purchase purchase. But the math isn't making sense to my husband. Here's our background. My husband and I will live in different states for the next three years. He's in the army based temporarily out of state. Combined we pay three $500 a month in rent and nearly $5,000 in taxes due to no deductions for home ownership. Etc. We have $400,000 invested into the ETFs and index funds you talk about excluding our retirement funds. We are 30 years old first off. That's crazy. 400,000 in your bridge account at 30 is insane. Good for y'. All. The decision we have to make is I'd like to use 100,000 of that 400,000 as a down payment on a two unit home. So a duplex. I would live in one unit for the next three to four years. Then when my husband moves back he would join me. After a couple of years we would buy our own single family house. Then we'd keep the multifamily and rent out both units, making sure that the two units cover the cost of the mortgage. My husband thinks this is a poor use of $100,000 because it won't appreciate appreciate as much as the stock market. I tried to explain that the investment is not only the appreciation of the real estate but also compounded by all rental payments made toward the house by others. The return is appreciation plus rent plus the money that our renters are paying off of our own mortgage. He is so stressed about this and he thinks we need a professional financial advisor. It all seems pretty simple to me thanks to your podcast. But could you please break down this decision in a bit more detail to help us understand the pros of diversifying into multi family housing rather than renting and keeping everything in the stock market for another three years. Robert, I'll let you kick this one off.
- [41:08]
Robert
Emma, you are spot on. There are so many good pros to what you want to do here and let me dig in deeper and then Austin can kind of fill it in with the math. I think you're right on. If you were to put $100,000 down and let's say a traditional mortgage buying a duplex, you can buy a $500,000 duplex of that 20% down payment. So your spot is on there. Will it make more money in the stock market? Maybe, but I don't think the math Adds up here. And here's the difference. If you want to do this and kind of meet in the middle with your husband, maybe you consider that same $500,000 duplex and you use the Fannie Mae 5% down mortgage instead of a 20% down payment. That way you're not using that whole $100,000 and you can keep some of that in the stuff, the stock market. So that's one thing I would look at the Fannie Mae 5% down second, and one of the most powerful things of your thought process being correct is that you're going to have so many other advantages to doing this where you're house hacking. Not only are you going to have the long term capital appreciation, you're going to have a tenant paying, you know, most of this mortgage on this duplex while you live there, dramatically lowering the cost of your cost of living every single, single month during that period until you buy that primary home, that single family home. And you also have all of the other operating expenses right off depreciation deductions, you can write off mortgage interest. So there's so many other financial matters that go into this strategy that make more sense for you guys. So I think overall long term you would dramatically benefit from this strategy. Strategy over simply keeping the hundred thousand dollars in the stock market over time. So Austin, break down the math that we did for this question because I love this strategy because we think everyone should own real estate. And this is a really good example of how to look at it from a financial perspective of keeping in stock market which generally doubles every seven years versus investing in a property that gives you all these other advantages.
- [43:18]
Austin
Yeah, so you mentioned that you guys renting at 3, 500amonth and you guys would continue to rent for four years and you'd buy your own single family home. And let's, let's literally pretend there's no duplex inside of this. So you continue to rent for four more years. So that's $3,500 a month times 12, so that's 42,000 a year. Rent goes up every year. But let's assume it doesn't here. So times four, that's $170,000. Just see you later. Bye. So you're now out $170,000, which means the hundred thousand dollars that you have invested in the stock market needs to at least cover that, which probably will, you know, 4, 4 years, 70% appreciation. That makes sense. So that, that's totally fine here. But let's now assume the opposite, which is what Robert was trying to explain here about the, the house hacking. You're not deciding between put $100,000 in stocks or put a hundred thousand in real estate. You're essentially saying, do I continue to rent for three or four years while keeping nearly all of that 100,000 invested or use $100,000 of my 400? Again, you already have so much money invested, it's incredible. To control a much larger apprecia, I have tenants helping me pay it down. So let's suppose that you buy a half a million dollar duplex, you put $100,000 down and you borrow 400,000. Your property is probably going to appreciate between 3 and 5% per year, depending on the location. That's important. Robert can talk about how important it is to find the right type of property in the right neighborhood, the right location that goes like, if you don't have that appreciation, then yeah, I could see how your husband's argument begins to kind of have some legs here. But you also now think the rent is covering most of the carry costs. Your tenants are paying down your mortgage every single month. So after let's call it five years of having this duplex, your duplex that you paid 500,000 for is now worth over $600,000. That's 100,000 of appreciation. And you only invested 100,000 of your capital. So essentially you've 2x your money cash on cash return there. So you compare that to the 100,000 that's invested in the markets, that's only up 70%. Like we've already jumped that mark. Now let's talk about this mortgage payment on average again, every number is different here, so give us some grace. But I would imagine your mortgage balance is being reduced by six, seven, $8,000 year. So five years of that, that's now $35,000 of tenants paying down your mortgage. So now that 110,000 of appreciation, you slap 35,000 more, you're not 140, 150,000 of equity now inside of this, which is awesome compared to again your husband's situation of let's call it, we continue to rent, we pay, pay, pay all this money, 160, 170, whatever it is in rent. And then our 100,000 that we stay invested continues to grow. So it was it really. I understand both sides of this equation. It really depends if you have this underlying desire to want to have some diversification into real estate via house hacking. If you do, the numbers can absolutely make sense in your situation. If you don't and you're like, guys, I don't want to live in a duplex. I don't want to have a roommate. I don't want to be a landlord. I don't want to do those things. That's not fun to me. Okay, that's cool. Go put your money in the market and let it grow. Like, that's fine too. I don't think it's so black and white as you both think. But I do think that as. As and Robert talk about this, right? The depreciation, the mortgage interest, the. I mean, there's so many things now that's not just saying equity and rent, but it's also, you mentioned it, less taxes, less this, less that. Like, you work with the right CPA and you're able to really take home some. Some big numbers here and really have some tax alpha on top of this. This. So, yeah, I could see where your husband's like, let's just have it invested. I don't want to be a landlord. That's fine. That's cool. Go make money. Yes. You're doing great. You guys have a ton of money. Very smart people. But also it's like, hey, if I want to get a little bit frisky here, do some house hacking, be a landlord, take advantage of some depreciation, some appreciation, some equity, you know, all this other stuff like that also is going to work in your favor.
- [47:13]
Robert
I love that. And one more thing I want to add to this. Painting the picture down the road. You said three or four years. Let's say you buy the duplex. Let's say you're not happy, you don't like being a property owner, and you want to go buy the primary home at that end of four years. Remember, there's still the Section 121 exclusion. So at the end of that, you're a married couple. You can write off a huge chunk of those capital gains to use that money then to go towards that primary residence. If you didn't want to keep the duplex and rent, both sides decides to offset the primary home mortgage, which is what I would do. I'd rather like to see you keep it. So they're just like Austin alluded to. There are so many benefits to help you better figure out the money here. And I hope this helps him have a better understanding so he can make the educated decision of what is best for you. Personal finances. Personal. I would do it. I would talk him into doing it, because I think it is the better play for you guys long term, especially if you decide to Keep this duper duplex after you get the primary home and you're done with this four year journey and you're back living together. That's what I would do, but either way, I think you can't go wrong.
- [48:23]
Austin
And finally, thank you for your service. Really appreciate that. Shout out to all of our our military. You guys are incredible. Everyone, thanks so much for tuning into this week's episode of the Rich Habits podcast, Question and answer edition. These are our Thursday episodes. We've got Friday episodes, we've got Monday episodes, we've got Tuesday night live streams Inside the Rich Habits Network. We're filming every Tuesday day, Robert. But we're having fun doing it and we're so grateful that 100,000 of you come back every single week to listen to our show and tune into the the live streams and everything what we're working on. We have tens of thousands of followers now on Instagram to the Rich Habits podcast. Instagram, which is so incredible. We get tens of thousands of questions over the years. It's just, it's so heartwarming. I get so fuzzy and excited thinking about that. We have such a strong base of people, of an audience that just is so, so excited, excited about building wealth throughout their lives and we're able to help point them in the right direction to do that.
- [49:15]
Robert
It is definitely so heartwarming for me as well because Yesterday I hit 750,000 followers on Instagram and it really means a lot because it shows that between the podcast and the network and all the things we do here, there are a large chunk of people that actually care about learning and leveling up their knowledge on finance, mindset, business, all the things we do here. And it just means the world to Austin and I because, because we don't want to be part of this clickbait world and comedy world and all this. We want to educate and bring value to everyone that needs it and wants it. And so it's so awesome that all of you guys follow along, share the podcast and just really take part in this journey with us because we are here to provide as much value as we possibly can.
- [50:01]
Austin
Thanks everyone and we'll see you tomorrow for our Friday episode called the Rich Habits Race Radar.