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Rich Habits Podcast
Q&A: $4M in SpaceX Stock, Buying an Airbnb with Family, & Losing $70K from Annuities
00:47:24
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- [00:00]
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- [01:00]
Austin
Hey everyone, and welcome back to the Rich Habits Podcast Question and Answer Edition. These are our Thursday episodes where Robert and myself answer your questions as if we were in your shoes. We've got a ton of awesome questions and we read through a few of them and I feel like we're going to have to give some tough love in this episode. It's coming from a good place. We want you guys to win with money. We want you guys to be in a wonderful financial situation in the future, which means someone's got to look you in the eyes and talk to you like an adult and let you know that you might be in a weird situation, but you can change it. That's what's so cool about the stock market. Money. Everything. It's controllable, right? We are able to control our controllables and we can change our futures.
- [01:39]
Robert
I love these episodes, and this one is going to be about tough love because I think one of the biggest misnomers or misunderstandings out there is so many people think if they have a lot of cool stuff, it means that they have money. But many times that's not the case. And we see it every single day where people just have a ton of debt. And when you have the car payment and you have the house payment and you have the appliance payment and you have the solar payment, all these payments, that doesn't mean you're rich. It just means that you have a lot of overhead. And we're here to always help you understand how to put aside money for retirement, how much you should be putting aside and where it should go. That is why these episodes are so special.
- [02:20]
Austin
And don't forget, we've already kicked off our Friday episodes. So last Friday we had an awesome episode all about Meta and Microsoft spending $150 billion on capital expenditures. And we also talked about the boring company and the tunnels under Nashville. And this Friday's episode, you got to tune in to find out. So be sure to come back tomorrow to listen to this week's Friday episode. And remember, these Friday episodes are all about the biggest headlines and happenings that are impacting you and your money. So if you want to know what's going on around the world, specifically with your portfolio, tune in every single Friday. Now, when it comes to investing, one of the most important things to consider when it comes to choosing a brokerage platform is if they have stocks, bonds, options, crypto, and more, they're not just one or the other. That's why we like Public.com, public.com is an investing platform for those who take it seriously, and Public's artificial intelligence isn't just a feature built into the platform, it's woven into the entire experience. From portfolio insights to earnings call recaps, Public gives you smarter context at every touch point of your investing journey.
- [03:25]
Robert
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- [03:50]
Austin
All right, Robert, let's now jump into our first question. This one came via email, so if you have a question for us, you can either DM it to us on Instagram at Rich Habits Podcast or email it to us at rich habits podcast gmail.com so our first question comes from an anonymous F demand. They want to stay anonymous and we respect that. They say hi Austin and Robert First, I want to say I'm a huge fan of your show and I recently started listening a few weeks ago and I've already learned a ton. Your invaluable insights on what ETFs to invest in has been a game changer for my personal portfolio. A little more About Me I'm in my late 30s. I'm a medical professional who just separated from the army after close to 13 years in service. I have no debt about $150,000 in a Roth IRA, 350,000 in a traditional brokerage account and another 315,000 in my thrift savings. My new job in the private sector will pay me $160,000 a year for working about 30 hours a week. And I'll also be able to collect an extra $30,000 a year non taxed in disability income from the military. My question is I will not be able to invest in my new jobs 401k for the first 6 months. So I want to know what retirement investment options are out there that I should consider to reduce my overall taxable income. Thank you for your awesome expertise and I look forward to your response. Robert, I'll let you kick this one off, but I want to preface your answer with I don't know why this person wants to reduce their taxable income at 160,000 a year. Like don't get me wrong, that's a lot of money to make and you are certainly paying taxes. But why do you think they might want to do that?
- [05:22]
Robert
I think it is quite prevalent in society that a lot of people put the cart before the horse. They start making money and immediately instead of focusing on building that money into wealth, they're worrying about where are all the shortcuts, what are all the hacks? And to help me make more money and pay less taxes. And I think that comes from a societal message that the IRS is the boogeyman and it's bad to pay taxes. You and I don't agree with that. We believe that the tax bill, all of the tax books are there for us to learn from and utilize to our best advantage. I think this happens more frequently than we believe and I just don't understand it. Like you always say, Austin, we pay the tax bill, pay the tax man, do what you can to make sure that you're using it to your most benefit. But it doesn't mean you should be trying to escape taxes. They're there for a reason. And if you really understand the advantages and how to take advantage of them, everyone wins. So I don't quite get it either. And in this instance, you know, $160,000 a year is a lot of money. But I wouldn't be concerned with how do I beat the tax man out of a little bit of money at this point in my career.
- [06:36]
Austin
Yeah. So tactically speaking, if you really wanted to reduce your taxable income, that means that you would contribute toward your traditional IRA, your pre tax IRA. So you could write off that contribution of $7,000. You would contribute as well, to your HSA, about $4,300 there for self only coverage and 8,550 for family coverage. So I'm not sure if you're married or not. I'm not sure if you had mentioned that. But long story short, we're talking about $12,000, maybe 11 or $12,000 here of money that you can write to your taxable income. At 160,000. Your effective tax rate is probably in the low 20s, so you could probably save 2, maybe $2,500 in taxes, which is great. But remember, the money that you're saving today means that you have to pay in the future, right? The traditional IRA means that all the money you take out of it in the future is taxable. And who knows if you're going to be making more or less in your retirement age. But more importantly, who knows what those tax rates will be, right? As you remember, the big beautiful bill solidified the lowering of tax rates by about 2% per bracket there and increased the standard deduction, which essentially is going to allow middle class theoretically to have a, you know, more of their income stays in their pocket on an annualized basis. That's up for debate, of course, but at the end of the day, that was just because some flippant bill was signed into law, right? What happens in 30 years from now when another flippant bill is signed into law that says, no, we're actually going to raise the tax brackets and everyone's going to make, you know, oh, you have a, a bunch of money in your retirement accounts when I got to pay more on that money because I'm a politician and I say, what I say goes, right? So there's a lot of like, who knows what's going to be in the future. And for myself and Robert, we think that since we can't predict the future, we want to be able to know what we have to pay, which is zero in taxes on those Roth IRA profits. So if I were in your situation, I would use this as an opportunity to max out the Roth IRA and go that route. However, if you really want to lower your taxable income, traditional IRA and HSA are the best ways to do that.
- [08:45]
Robert
And I think the only other addition to what you broke down is open a business. If you start an LLC and you open a business and have a side hustle, that is one way to lower your tax burden because you will have automatic write offs from starting that business. You could get into real estate with short term rentals. There are some good programs there that'll help you have some write offs and some depreciation to help you lower your tax burden. But otherwise, everyone needs to understand to exploit the tax bills for why they're there and, and the rul. But don't ever break the law to try and save on taxes. That's a terrible strategy, but those are the goods. That's what you can do in this situation where you're a high earner but you're a W2 employee is do what Austin said to get the max benefits there, but then also look into real estate and look into opening a business.
- [09:36]
Austin
So our next question comes from Garrett. Garrett says. Hey guys, my Name's Garrett. I'm 37, married, and I have three kids. I work as a general manager for a fast food restaurant making roughly 145,000 a year before taxes. My wife makes 90,000 a a year before taxes. So our household income is $235,000 a year pre tax. We make good money, but I can't help but to feel behind. I want to retire at 55 years old, but I feel like I'm never going to get there. The breakdown of our finances are as follows. We haven't maintained $10,000 in our checking account. We have 40,500 in a joint brokerage account. We each have a Roth IRA with $28,000 in it. And now the ugly part is we have a mortgage with a very low interest rate and I'm in no rush to pay that off. But we do have a HELOC that we used to pay off high interest vehicle loans and credit card debt. The total for The HELOC is $175,000. That is all of our debt. We've been pushing anywhere between 6 to 10,000amonth toward the HELOC in hopes of knocking that out as soon as possible. And then after we pay off the heloc, the plan was to use that same amount of money, catch up on our investments, and hopefully retire early. Am I way out of left field thinking I can could possibly retire early? Thank you all so much for the help. Love your podcast, Garrett. Thank you so much for listening to the show. We are super grateful that you listen to our show and so many of you do. It's. It's really awesome. So you guys make a quarter million dollars a year and you're broke. That's the reality, right? We make $235,000 a year before taxes. About, I'd call it $14,000 a month after taxes. So about $170,000 a year. And you guys have, let's call it, you know, 60, about $100,000 invested. Now that's not a bad sum of money by any stretch of the imagination. Congratulations on getting $100,000 invested by 37. But man, what went wrong? Maybe you guys recently started earning this much money. Maybe you guys were in a very different situation up until a couple months or a couple years ago, which is why you have all this high interest vehicle loans and credit card debt that was, you know, the HELOC and things like that. Maybe you guys were completely different situation, but maybe you weren't. Maybe you've been high earners for all of your 30s and you guys just swiped the credit card and said, you know, what's the payment? Broke people ask, what's the payment? Rich people ask, what's the amount? Right? So it's like, what's that monthly payment? How can we fit it to the budget? Is it going to work? What are we going to figure this out? So here's what I would do. If you guys are actually trying to retire early and you actually can put aside, let's call it $8,000 a month, seven or $8,000 a month toward this HELOC, that's $75,000 divided by $7,000 is 25 months. So let's call it two years. So in two years of putting $7,000 a month toward this HELoc, you will have it paid off. So that's what I would do. I would spend the next two years putting $7,000 a month toward this HELOC, which is likely at 8 and a half to 9 and a half percent interest, which Robert and I would classify as high interest debt. You're not going to be able to invest that. So it makes more sense to really aggressively pay it off. However, during that period of time, Robert and I talked about this beforehand. You don't want to stop investing toward the Roth IRA. You want to continually to max out that Roth IRA for you and your wife, which will be about $1,000 a month, which gets you at 8,000. Now of that 14,000amonth that you are taking home, every month is getting invested to the Roth and using to pay off the HELOC. So you're going to live off of $6,000 a month. You're going to be fine, you're going to survive, right? 6,000amonth is a ton of money. That's how I'd approach this. And then now you're 39 years old, you guys have $100,000 invested you want to 55. So let's run some numbers. So 39, 55 is when we want to retire here. You already have $100,000 invested. You're going to be contributing. Let's say you just continue to max out your Roth IRAs every month and your average returns 10%. So at 55 you'll have about a million dollars, which hard to retire off of a million dollars with three kids. But the good news is by 65 that turns into $3 million. That is a healthy retirement. So maybe there's a world where you do retire early and you guys get really aggressive on this investing stuff and you know, who knows, right? I think you said you want to take that 7,000amonth and toss that toward investing. Right? You did that correctly, you'd really be able to have more than a million by 55. But it really comes down to behavior. I mean, you guys got yourself in this mess and I'm optimistic you can get out of it. But you got in a mess to begin with and sometimes you got some scar tissue that rolls over. And I don't know. I'm wishing you guys the best, but I'm eager to hear what Robert thinks.
- [14:13]
Robert
This question in this situation really is all about what we discussed earlier. And that is people just keep buying stuff. They have to have the two new cars, they have to have the new iPhones, they have to have the new iPads, the big screen TVs, the jet skis, whatever it is. And this is a perfect situation where we have a high earning couple, a quarter of a million dollars a year, yet they have high interest debt. And that just doesn't make sense to me. And so I think it is some tough love. But the good thing, because they're high earners, they can fix this. I agree 100% with you that I would have a really, really tough love conversation with the family. I'd sit everyone down and say we're going to make some changes and here's why. It's short term, but we're going to fix this together and get everyone to understand we can't go out to eat five nights a week. We can't be doordashing. We can't be doing all of this because we have to chunk away on this debt as fast as possible. And if you want to retire early and enjoy your kids and have a wonderful life, you can do it. But you have to do the hard work now over the next two or three years. And I think, Austin, your plan that you laid out is perfect. Keep Maxing out the Roth because we want to make sure we have that after tax money towards retirement that's ready to rock and roll later on. But then the rest of it has to go to get rid of this. But in the meantime, you can't take on more high interest debt debt because you're chunking away at the heloc, because then it's going to be a perpetual cycle that you have to break. And this is for everyone listening. That is why we have the emergency fund and that is why we have a debt to income ratio and a budget. So you don't live beyond your means. Just because you have credit does not mean you should always be using it to buy things that are going to depreciate and that you don't need. I don't even have a new iPhone. I have the 15 Pro Max and the 15 Pro. I could go get a new iPhone tomorrow and get two new ones and upgrade. But why? These work perfectly fine. And I think this is something that is mostly mindset for people to get over and be able to overcome in their lives because you want to be able to build towards that lovely, you know, financially free retirement. The earlier you can start it, the better off. So I think this is a fixable situation. You know, we're sorry for the tough love, but we want to make sure you understand how to fix it and the right way to do it it.
- [16:27]
Austin
So really, really wishing you luck, Garrett. We really think you can get out of the situation. I truly believe that you are going to fast forward 20 years and thank yourself for all the hard work you put in when you were in your 30s and 40s and you will be able to retire early. It just comes down to making the conscious decision of am I going to continue to live beyond my means and am I going to continue to want to keep up with the Joneses or high interest? This credit card debt that like, like you gotta just say, I'm not doing that anymore. I make $14,000 a month, I'm gonna pay off this HELOC. I'm gonna invest in my Roth IRA. And then two years in the future, we're gonna live off of 6, 7, 8,000 of that 14. And the rest is gonna get invested. And you do that, you will have a couple million dollars by 55. But you gotta make sure, and this is not just for Garrett, because I know there's a hundred Garrett's listening right now that are in this situation of him in my 30s or my 40s and I live beyond my means. For a lot, you know, a lot of my life. And now I'm trying to catch up and I gotta feel like I gotta make some sacrifices. It's possible. It's absolutely possible. You just need to have the path forward and understand the steps to take. And I hope that you are able to listen and learn from what our answers were for Garrett here. And don't forget, you cannot out invest high interest debt. So our next question comes from Trenton B. Trenton says, hey Austin and Robert, I've been listening to the podcast for about a year and I love it. I just got done listening to the Friday episode and it was great. Thanks Trenton. We appreciate it. My friend Trenton says, I was wondering about a potential real estate opportunity. Here's some background. I'm 18 years old, I'm living at home. I've got about $35,000 between my Roth IRA, a high yield savings account and my checking account. I was recently presented the opportunity to get into real estate with my dad and my brother. I would be pitching in about $20,000 into a cash flowing Airbnb in my town. We'd be cutting costs by mowing and cleaning it ourselves. The passive income will cover the expenses and loan payments after the initial investment. Do you think it's a smart investment for me to dip my feet into real estate at such a young age or should I wait for a better real estate opportunity? Would love to hear your thoughts. Thank you. Robert, you're the real estate guy and I feel like you are also an 18, 20 something year old trying to figure out real estate. So I'll let you answer this one.
- [18:40]
Robert
Yeah, well we have a message here in the Rich Habits Network and the Rich Habits Podcast. And that is we love to see everyone get to that hundred K base before they start diversifying into real estate and other investment opportunities. And it sounds like you don't want to do that. Is it right or is it wrong? Only the future knows that because you could do this first deal and that could lead to many more real estate deals and you could go on to make $50 million in real estate. Or you could do this first deal, use 75% of the money that you've done such a good job saving. It could go wrong. You could have infighting with your father and your brother. It could not cash flow. And then you have to come out of your pocket for whatever your pro rata share of the deal is. Assuming you do 33. 33, 33. Then you are on the hook for 33% of the losses every month. If There are loss, losses and so on and so on. So what would I do? I would love to see you stay in saving and investing a little longer, try to get to that 100k base. I get it, you're interested in real estate. That is a great thing. So don't take this the wrong way, but I think it's too soon to put all your eggs in one basket on one real estate property. That could not be the answer to your prayers financially. So. So I would stick with build the base first, wait a couple more years, maybe work with them on the project. So you're learning the ropes, you're learning how to do the renovations, you're learning how to do the management, you're learning the construction side while not being an owner. Because I'm sure if they're willing to split it with you and have you be an investor, you could just say, hey, pay me XYZ an hour and I'll help you guys with this project so I can learn. But I don't think it's the right time for me to invest just yet. So to give a reference, and this goes back a very long time, but I want to be fair to the audience. I bought my first piece of real estate was a 4 plex so I could live in one and rent the other three units. I bought that when I was 23, so very young. But I already had $65,000 invested in my brokerage account, which wasn't the 100k base. But I was able to do this while not, not depleting that entire $65,000. So I still had money working for me while I sleep. So I hope that helps all of you of what I would do in this situation.
- [21:08]
Austin
And my opinion, I'm right there with you. Right. So I'm worried about going into business with family and friends, especially like as a novice entrepreneur or business owner. I think once you are someone who has run a couple businesses in the past and you understand how to have conversations like that and, and navigate those challenges. But like say, for example, Trenton, that maybe there's a weird dynamic now between your dad and you because your dad is a business owner with you, right? You guys are partners on this. But. Hey, Trenton, I need you to go mow the lawn here. Oh, dad, you said you would mow it this week. No, I don't have time. I gotta go work over here. You gotta mow it. But you know, now your dad still wants to get paid the same amount that he's expected as a partner. And you know, maybe that might not feel right with you now you're gonna resent your dad. It's just, it's a weird dynamic. And so in my humble opinion, Trenton, I would pass on this deal. Deal. I would get my hundred thousand dollar base built and invested then. Yeah, if you want to get into some real estate stuff, be my guest. And this could be a really cool learning opportunity for you. You know, if your dad and your brother decide to go with this opportunity and they're just doing the Airbnb stuff and they're cash flowing, like it might feel weird in the moment that you're not like part of it, that's fine. But at the end of the day, you're going to learn so much from this experience that you'll be able to then use in the future. If that means finding your own partners, maybe it means you want to, you know, fund a deal entirely by your. There's a ton of different things to look forward to here, but a mistake people make is they go all in early. And I think this would be an all in bet for you, right? This is literally 60% of your net worth would be invested into this one opportunity. And to Robert's point, I've got a friend who has an Airbnb that doesn't cash flow like 9 out of the 12 months out of the year. It was the worst investment he ever made. And he has the pull 2, 3, 4, 5, $600 a month out of his checking account every month to pay the mortgage and the expenses and everything. The property management comes with it. I don't think you want to be in that situation, Tren, where if that did unfortunately happen to you guys, that you would want to be on the hook for that. And then maybe your dad would cover it for a couple months, but then he'd begin to resent you. And so like, don't do any of this stuff, man. Get your base built, max out the Roth, do your high yield savings, get your emergency fund, get some, you know, diversification when you're ready. But I would not move forward with this. I would focus on being an 18 year old who's investing and being smart and long term driven and learn from the experience and then take that to a real estate opportunity in five, seven, ten years from now.
- [23:32]
Robert
I love that you brought up the losing part because every time someone's ready to invest in a restaurant, a barber shop, a landscape company, or in this case an Airbnb, they never look at what is the downside. I see it happen every single day where someone's like, yeah, but I could make all this money. But they don't take into consideration when there is negative cash flow and the bills are due and they have to come out of pocket a thousand, $2,000 a month, month to be able to keep it alive. I saw a friend of mine who was way in over his head buying a pre construction condominium in downtown St. Petersburg and it was looked really good on paper but the carry cost was killing them because it didn't sell when it was finished and it took months and months to sell. And by the time they paid all the carry costs and loan fees and all of that, the HOA fees, they ended up losing money on this deal that they thought they were going to make a million dollars.
- [24:29]
Austin
So.
- [24:30]
Robert
So always consider the upside and the downside when you're considering a loan because it is very important to know the total numbers because most people only look at the positive aspects of a deal and not the what ifs if it goes bad. So Austin, I think it's a great breakdown and a, and a great lead in with your friend's story because just most people don't consider the downside.
- [24:54]
Austin
And don't get me wrong, right? I want people to be optimistic and we want the show to show people how optimistic life can be and how investing is, is easy, it's fun, it's, it's optimistic. Right? We want to plan for the upside, right? Life is better when you have control of your money and you're able to plan accordingly and have hope and optimism. But as someone who's made stupid investments and as someone who's made stupid business deals and realist like everything like it happens and at 18 this is just the recipe for disaster trend. That's all we're trying to get after. We're not saying it couldn't be a really cool thing thing, we're just saying as a couple outsiders looking in, I'd love to see you have that base built first.
- [25:32]
Robert
And I only have one more thing to add to this and that is there is a world, Trenton, where you could go back to your father, brother and say, hey, I want to be involved at this but a smaller level and I don't want to put my cash up because I work so hard and really go after that sweat equity position. Maybe there's a world where they'll give you 5 or 10% sweat equity and you do all the work work and that would be a smarter play because then you keep your money but you're still learning and you still have equity on the upside for this deal, so that's something to think about as well.
- [26:06]
Austin
I love that. That's a. That's a great piece of advice. So our next question comes from gf. GF says. Hi, guys. First off, you all rock. Well. Thank you. Love the podcast. I've heard every episode since you started and you changed my way of investing. And I appreciate all you guys teach because my father was an investor but never taught us how to invest as kids. He just did his own thing and I tried to learn myself because I saw him do this. So I started later than he did. But I wish I knew as a kid and started earlier. Thank you for all your help. I'm a single mom and now I've learned so much from you guys. I want to set my son up the right way, but I feel like I'm investing too much for him and not thinking about my own retirement. I have $130,000 in a 401k. I've started my Roth IRA and invested in crypto. And I'm trying to diversify since listening to you guys. My income level is about 90,000 a year. Year. I have $20,000 of credit card debt and I usually have a cash difference per year of about $10,000 after all my expenses are paid. I'm currently trying to pay off my credit card debt as aggressively as possible. So I have a 529 for my son. I contribute $200 a month toward it, and it has $47,000 inside of it. The reason why he has so much money is because he does commercials. He earns anywhere between 4 to $12,000 per commercial. He's 7 years old. My question is, should I keep putting the commercial money in the 529 or how do I best diversify the funds him more and do I keep putting this $200 a month in there? Like, how do I just approach investing for his future while also taking care of mine? I'm truly confused on what to do. Warm regards, gf. What a wonderful mother you are. Mother of the year award to GF. Let's go. Are you kidding me? $47,000 and your son's 529. That's amazing. That is life changing. Like your son is going to be so grateful in 10 years from now when your son is 17, navigating college, has, has, you know, well over a hundred, $150,000 in this account and can go look around and say, oh my gosh, I have opportunity now because my amazing mother gave it to me. So Just hats off to ugf. We are so, so just like rooting for you. This is amazing. Now let's talk about your situation. So you've got $20,000 of credit card debt, you've got some crypto, you got some Roth IRA, you got 130000 in a 401K. Robert and I, we always say we can't out invest high interest debt. And the reason is like let's think about the math here for a second. Let's say you had a hundred thousand dollars in or let's just do this 20, $20,000 is, is the credit card debt you have right now the normal interest rate on a credit card is about 30%. So you're paying $6,000 a year in interest on this $20,000 of credit card debt. Now let's imagine you had the same $20,000 invested in the stock market earning 10%. That's $2,000 of interest earned in the stock market. So net negative $4,000, not cashing out the stocks and paying off the credit card debt. So here's what I would do in your situation. I'd cash out the crypto because it's not in a retirement account. Whatever amount of crypto you have up to that 20,000, I would cash it out and I'd pay off the credit card debt. Crypto is a volatile asset class. It could be up, down, left, right in circles in any given week. I have no idea if it's going to keep going up, if it's going to go down, how long it's going to take for it to go up. More like I don't know. But I do know that every month that you have credit card debt, you are paying $500 in on that credit card debt. So in my humble opinion, I'd cash out the crypto. Use as much as you possibly can there to pay off the 20,000 in credit card debt. I would stop contributing $200 a month toward the 529 because it's already up to $47,000 at 7 years old. It's amazing sum of money. I'd use that same 200amonth to start paying off more aggressively against the credit card debt. Assuming you didn't have 20,000 of crypto to pay it off with. And then finally you had mentioned that the 529 is managed by a wealth management company. They have Brandon Global Income Fund Class F and Percy Harris Global Equity Pool. Robert and I tried to look up what these things were. Unfortunately we couldn't find a Single thing. I mean, it was. It was pretty hard to understand this stuff. So here's what I would do. I would call up these super nice, fun financial wealth management people and say, hey, thank you so much for helping me navigate the 529 for the last seven years of my son. I want to move this money out from under you guys and into a Vanguard account. Austin has a Vanguard account, and he told me that his Vanguard account is invested 80% into the S&P 500. It's the Vanguard S&P 500 fund, and 20% into the US Growth Fund, which is similar to Vug. That's how I've got the 529 account for myself invested. It's got about $10,000 in it. I do about $150 to $200 a month myself. It just goes up and to the right. It's. It's a good way to invest here. Here. And the way that it's broken out, you said the Income fund, Class F and this global equity pool. Why are we investing in international stocks and income? Right. I mean, let's get it in the S P. Let's get some growth. You've got 10 more years of solid investing ahead of for your son here. So those are the changes I would make. But you are mom of the Year. Mom of the Year to gf.
- [31:12]
Robert
Yeah. I love this breakdown and just really congrats for thinking this way and setting up your chop Wild. But I agree with Austin. Whenever we look at an investment that we've never heard of and we have to go through 47 pages of legalese and we can't find out how it's invested, what are the fees, how does it work? That's normally a big red flag for me because it generally means they don't want you to know. That is why we want to see people invest in voo. It's the simplest thing on earth. You're betting on the 500 biggest companies in America, and it generally wins and does well year over year and decade. Over decades. Decade. Now, the second part of my kind of answer to this is you have to make sure that you understand as well, and you're onto it. You get it that you have to take care of yourself as well. You've done a tremendous job getting this set up. $47,000 at 7 years old. If that was left and utilized for a retirement account down the road, you'd have just a ton of money. We didn't do the math on it, but a lot of money. But you also have to look out for yourself. So just like Austin said, I would chunk away and figure out out how to get rid of the credit card debt immediately. I would take the additional funds that you have by not contributing any more to the 529 right now. I would get that in my Roth and my other accounts. Because you're right, you have to look out for yourself. And right now I feel like you've done a really great job for your son, but you're not focusing on your own retirement as well. So that is how I would add on to Austin's plan and I think you'll be all fine.
- [32:45]
Austin
Our next question comes from an anonymous listener. Our anonymous listener says hey guys, I've worked at SpaceX for the last years where my SpaceX stock has grown close to $1 million. It comprises of 75% of my wife and I's net worth. It's grown over 50% annually since I've started working there. And the latest forecast by credible venture firms projected to grow 40% annually at least until 2030. Even the most bearish cases are showing 30% annualized returns. Now conventional wisdom would say to diversify. But even if the bearish scenarios are showing triple of what the average stock market returns would be, why would I? For additional context, because the stock is private, it does not fluctuate by external factors like tariffs or even Trump and Elon's feud. While it isn't guaranteed, the company has consistently offered stock purchases twice a year for liquidity. As a 32 year old with a working wife who is soon to be a stay at home mom, I project I could retire in five years with with over $4 million from this one stock. And while it's risky, I think I would be able to stomach a 20% drop if that would happen. Which is very improbable since it's never dropped even 2% in its 20 year history. I've been really hesitant to sell any of my stock despite people close to me telling me I need to diversify. I don't have any debt and we don't have a mortgage. We have $170,000 in our 401ks between my wife and I and $150,000 in emergency savings and individual brokerage accounts. What would you suggest? I even stopped contributing to a 401k and a Roth IRA three years ago so I could contribute more to the SpaceX stock. And it has far outpaced anything that I would have done in a Roth IRA. As someone who wants to retire by 40 does it even make sense to diversify my funds over to a tax advantaged account that I wouldn't be able to withdraw from until I'm 59 and a half. Appreciate the to help an anonymous space Xer Robert and I talked about this one before the show. We normally don't talk about stuff before the show, but we talked about this one and I think we've got different sides of the of an answer here. So my answer to our anonymous SpaceXer. I feel like every person once in their life will have an opportunity to make an asymmetric bet in the sense of if this bet goes right, my life has changed. If this bet goes wrong, yeah, it went wrong long, but I'm not in a manic state, I'm not homeless, I'm not. I didn't lose everything, right? It was an asymmetric bet. The upside was way more than what the downside would have been for our anonymous SpaceXer. I think this is your once in a lifetime asymmetric bet. I would keep the stock, I would ride the wave for another 1, 2, 3, 4, 5 years and then once it hit 2 million, 3 million $4 million I would cash out 80 to 95% of it. I would diversify it across the normal ETFs and index funds we talk about and I retire early. That is a perfect situation. That's everything goes right now. What happens if it doesn't? Your million dollars could be worth a million, it could be worth half a million, it could be worth, you know, less in two, three, four, five years from now. The opportunity cost of that could be hundreds of thousands, if not millions of dollars. Considering you could have cash all this million out right now, invest in the markets and it'd probably be worth a million and a half or 2 million in five years. So there's definite opportunity cost that comes with this. But in my opinion the opportunity cost of a couple hundred thousand versus three million is asymmetric. Right? And that asymmetric bet could allow our anonymous SpaceXer here to retire early and truly live a life that is, you know, something everyone dreams of by 35, 36, 37. I made that asymmetric bet when I was younger. I invested about $15,000 into a cryptocurrency. It's now worth 3, 4, $500,000. And, and even if I stayed my normal 9 to 5 job or whatever, never became an entrepreneur and was making my normal 80, 90, 100, 110,000 a year, that would still be life changing money, right? So like asymmetric bets. I feel like everyone gets one of them in their life. You take advantage of it especially. Here's what, here's another reason why you already have $300,000 invested, right? This could go to zero. And you guys are still going to retire millionaires. You don't have debt, you don't have a mortgage, right? You've got all these, these like things that are saying no, like everything can go wrong and you're still going to be fine. I would stay invested. I'd ride the wave. Two million, three million, three and a half, four, who knows? But I would have a very systematic approach to getting out of it. I would not get greedy. I would say, here's my number, I'm selling at this number. Wife, make sure you hold me accountable to sell at this number. Here's what I'm doing after, right? Have a plan. Don't just go into this with let's get greedy. Make some money. Those blow up in your face. If this bet's going to work, you got to have a plan. That's what I would do.
- [37:31]
Robert
All right, So I agree with that for the most part, but I'm going to give a slightly different approach. And it's based on one term. Bird in hand is better than two in the bush. And so in this situation, I would only change your outcome a little bit because of their age. I would wait until it gets to $2 million, because then $2 million at their age, assuming that happens in the next three, four, five years, that gets them to a point, by the time retirement happens, they're going to have millions and millions of dollars. They're going to be able to retire early and they're going to have a wonderful life. But I would still consider not just letting this ride in perpetuity because it is a high risk play, but they're also in a 1 in 10 million in person opportunity to be working there, be getting all of these stock certificates and being able to make all of this money that way. But I still would like to see them pull some off the top. So for me, the answer is at $2 million. That gives you enough with your current money and the money you're making and the stock options to be able to retire. I would start taking profits at that point, maybe pull off 25% a year, year over a four or five year period and then reevaluate after that.
- [38:51]
Austin
Because here's the thing too, and I remember I was telling my dad about this $15,000 crypto bet that I was going to make When I was younger and he said, do it because you have the rest of your life to make $15,000 back. Yeah. You know, now a million is way more than 15 grand. So I'm not, you know, let's be very transparent about that. But the million dollars, you know, it's not going to go down by 80% or something. You know, SpaceX isn't going to go away. It's a 400 billion dollar company. So yeah, I like your approach. Right. Don't get greedy. Have a number in mind, have a systematic exit for that number and retire your bloodline essentially with how much money you're going to have in 40 years, 30 years, when you are in your early 60s, you're going to have tens of millions of dollars. Now the other thing to consider too, nothing makes me happier than when publicly traded companies allow their employees to be invested in their own success as a company. A stat I read that I think just makes me, I'm thrilled to hear it. 78% of employees at Nvidia are millionaires. 78% of employees at Nvidia are millionaires because they bought the stock. They were there for 3, 5, 10, 15 years. The stock went up 10, 20, 30, 40x in value during that period of time. And now they are being rewarded for their hard work. And I think it's also about one in three Nvidia employees have at least a $10 million net worth or higher. There's also billionaires that work at Nvidia only because of the stock compensation they received over the last 10, 15, 25 years. And like that to me is so exciting. And I love it when companies, I worked for a publicly traded company out of college, they had the exact same thing, the employee stock purchase plan. You know, you buy it at like a 15% discount or something and if it does well over a long period of time, like, it's awesome. I remember sitting at a town hall once and that person was comfortable with him talking about this, but because our 401k match was matched in company stock and the stock went from 30 a share to 300 a share over that 3, 4, 5 year period time I was working there, which had nothing to do with me by the way, but because of that, that that employee became a millionaire in their 401k because of, you know, being able to have that, that match of the company stock. And I just, nothing makes me happier than giving people ownership in their outcomes. And if you work hard and you have a wonderful outcome, you deserve to see the upside for it. I'm the firmest believer of that. I love the idea of giving people ownership in equity in businesses because unless we own equity, unless we have skin in the game, what's all this for?
- [41:19]
Robert
You know, but we also at the flip side. So if you were somebody else in this situation and you worked for Astronomer and the CEO goes out and does something crazy and it just really wrecks the image and the future of the company and the fundraising capacity, you could be adversely affected by someone else within the company or the direction of how the company is run. So just make sure you understand the difference. Not all companies are built like SpaceX and not all companies are pretty bulletproof for long periods of time to remain profitable. So I just wanted to put that last little tidbit in because I think it's important. And before we go into our next question, just listen up folks. You can lock in a 6% or higher yield with a bond account on public, but remember, your yield isn't locked in until the time of purchase, so you might want to act fast. Lock in a 6% or higher yield with a diversified portfolio. Portfolio of high yield and investment grade corporate bonds only at public.com forward slash rich habits.
- [42:20]
Austin
Public.com forward slash rich habits. You heard it here first folks. Public.com go check them out. So our last question is coming from Michelle F. Michelle says hi, Austin and Robert. First of all, I would like to thank you all so much for your podcast. I'm so grateful that you all started it. The awareness that you guys are building around personal finance and investing is so awesome. Here's my question. I don't think I've heard any of your podcast episodes talk about annuities. My father is now 76 years old. He's a very smart man and he talked me into opening an annuity for my own retirement account. I left a company in 2019 after working there for 13 years as a registered nurse. And at the time I had 90,000 in that 401k. So I took his advice. I put all 90,000 into an annuity. The annuity contract ends in 2027 and after doing more research on them, I. I don't think an annuity for a retirement account is the right thing for me. Now that I have the knowledge and tools from your show, I think I can do better by just investing into the ETFs and index funds you guys have educated me about over the last couple years. The last statement I received on this annuity shows as follows. Guaranteed withdrawal balance of 155,000 death benefit of 137,000 and a guaranteed minimum death benefit of 91,000. I'm not sure what to do with all of this or what it even means. When the contract is up, can I take the money and invest it into something else without tax implications? What should. Should I do? Any advice would be greatly appreciated. So Robert and I did some quick math here. If instead of putting this $90,000 into your dad's annuity, you just put it in Voo, you just bought $90,000 worth of shares of Voo and you reinvested the dividends every year like we tell people to do, your 90,000 would be worth $221,000 today. So, yes, this annuity your dad told you to do cost you $70,000 over the last six years, or about 8,500 bucks a year of underperformance. No shame to your dad. He didn't know. I don't think he was malicious in this. Right. He wanted to help you. So, like, don't feel upset or anything like that, but it's good to know the facts. Every annuity is different. Every insurance policy is different. All this stuff is different. Here's what I would do. I would reach out to your annuity salesperson, insurance salesperson, because annuities are insurance, essentially. They're not really investments. I'd reach out to this person. I'd say, Hey, 2027 is when this is supposed to expire. How much money money will I be able to cash out from this annuity in 2027? Let me take all of it out. I want to pay as little penalties and fees and, you know, surrender charges or whatever it's called as possible. And I want out. I don't care what the taxes are, I don't care what I. I want out. And hopefully it's about 160, 70, 80,000. You can then park that 160, 70, 80,000 into the S&P 500, and it will grow for you over time, and you're going to retire just fine. You mentioned you're 43, you got a couple kids, hope to have millions in retirement because of the knowledge and tools that we appreciate it, and you guys are going to get there. One little mistake like this isn't going to inhibit your ability to retire wealthy. It just gave you a little bit of a setback, which is fine. You're totally good. Get this money invested, and then what's most important is going forward, you're investing up to the match with your 401k at your job. Today you're maxing out both your Roth IRAs. And if you have autonomy over that 401k, you're either investing more toward that or if you don't, you're investing toward your bridge account. But don't let this 180,000 in 2027 be the only money you have invested, right? You want to be investing 15, 25% of your monthly take home pay every single month toward your retirement accounts.
- [45:45]
Robert
My biggest thing here is, and great breakdown, Austin, is your money. You should always make more with your money than the people handling your money. And so it always bothers me because annuities were all the rage 20, 30 years ago and I just don't agree with them. They have high fees, they have a lot of hidden costs, they have up to 10% commissions for the person selling it to you. And I just don't agree with that. That's why we like to keep things simple and make sure that you have proper diversification, proper structure so you can retire comfortably. And in this situation, Austin is 100% correct, because it's just one of those things. I don't like to see people in these gadgets and these gimmicky things. Like right now, iuls are the biggest rage because they're not real investments and they're not what's best for you, but they are what's best for the company selling them to you. So like Austin alluded to, your father just didn't know any better. Maybe he's done well over the years, but this was a vehicle that he thought was a good one. But if you do the math and break it down like Austin did, you will find you're much better off keeping it simple, getting the money out as soon as you can, getting invested into the S&P 500, 500 and the other things that we talk about. And you'll be much better off and you'll actually understand. What are your gains, what are your fees? All of the above. Rather than all the crazy stuff that goes with these annuities, you just don't need it and you don't want it.
- [47:14]
Austin
Everyone, thank you so much for tuning in to this week's episode of the Rich Habits podcast, Question and Answer Edition. Don't forget to come back tomorrow for our Friday episode where we'll be talking about the biggest headlines and happenings impacting you and your money. If you learned something from this episode, please consider sharing it with a friend. Maybe your friend was on the episode. Go share it with them and say, yo, I heard you on a podcast. That's so cool. Maybe you work at SpaceX. Who knows? And as always, we're just so grateful that over 100,000 of you come back every single week to listen to our show. You guys continue to give us awesome reviews on Spotify and we cannot be more grateful.
- [47:49]
Robert
Yes. And don't forget, our newsletter is incredible. Austin and Christian do a great job with it every week, so if you haven't signed up for that either, it is totally free and one of the best newsletters, in my opinion, in the country. And we'd love to have you just.
- [48:04]
Austin
Type in the Rich Habits newsletter on Google. It should pop right back up. But yeah, like 60,000 people are subscribed to that right now. It's pretty cool. We're super grateful, right? We just have the best fan base in the world and you all deserve everything because of it. So we can't wait to continue to deliver awesome content now every single Friday in these Friday episodes. So be sure to come back tomorrow and we'll see you then.