Rich Habits Podcast Summary
Episode: Q&A: Buying Bitcoin at $100K, When to Close a Business, & HSA vs. Roth IRA
Release Date: December 5, 2024

Introduction and Portfolio Rebalancing Reminder

In this special Q&A edition of the Rich Habits Podcast, hosts Austin Hankwitz and Robert Croak delve into a variety of pressing financial topics, offering actionable insights for listeners aiming to enhance their financial literacy and investment strategies.

Austin kicks off the episode with a timely reminder about the importance of portfolio rebalancing as 2025 approaches. He emphasizes the need to evaluate portfolio performance, identify high and low performers from 2024, and make informed adjustments to optimize future returns. Highlighting their prior episode on conducting a portfolio performance review, Austin encourages listeners to engage in regular portfolio assessments, suggesting a review cycle that suits individual investment styles—ranging from quarterly to annually.

Notable Quote:

Austin [00:00]: "This is everyone's annual reminder to sit down and rebalance your portfolio, understand what performed well in 2024, what didn't perform well in 2024..."

Audience Question 1: Dollar Cost Averaging into Cryptocurrency at High Prices

Question from Marie:
"Is anyone still Dollar Cost Averaging into cryptocurrency at these Prices? Now that XRP is close to $3, now that Bitcoin is close to a hundred thousand dollars, do we still buy at these prices? If you had a thousand dollars a month to invest in a cryptocurrency, how would you invest it today?"

Robert's Response:
Robert staunchly supports Dollar Cost Averaging (DCA) as a foundational investment strategy, regardless of current asset prices. He underscores that attempting to time the market often leads to missed opportunities and emphasizes consistent investment over speculative attempts to predict market movements.

Notable Quote:

Robert [03:45]: "Yes, you should always be dollar cost averaging. I know that's shocking to hear that coming from me, but that is the whole reason dollar cost averaging is so important and so critical for long term investing."

Austin's Response:
Austin concurs with Robert but adds the crucial element of profit-taking strategies. He advises setting target prices for selling investments to secure gains, pay taxes, and reinvest in more stable asset classes like the S&P 500 or established tech companies. This balanced approach helps mitigate the risks associated with highly volatile investments.

Notable Quote:

Austin [05:27]: "I would make sure that you have a number in mind that you say, I'm not buying at that number, I'm selling at that number and I'm going to take those profits..."

Key Takeaways:

• Consistency Over Timing: DCA remains effective irrespective of market highs.
• Profit-Taking: Establish clear targets to secure gains and reinvest prudently.
• Diversification: Balance high-risk investments with stable assets to maintain portfolio health.

Audience Question 2: Balancing Real Estate Investments by Selling a Rental Property

Question from Darrell B.:
"I currently own two properties—the one I live in with a low-interest mortgage and a rental property with $400,000 of equity at a high-interest rate, constituting about 65% of my net worth in property. I want to balance this by selling my rental and investing the equity into ETFs, cryptocurrencies, precious metals, and artwork. How should I dollar cost average the $400,000?"

Robert's Perspective:
Robert advocates for a structured DCA approach, suggesting spreading the investment of $400,000 over 12 months. He recommends allocating funds into a high-yield cash account (e.g., Public.com) to earn interim interest while gradually investing into diversified assets. This strategy not only mitigates the risk of market volatility but also leverages additional earnings during the investment period.

Notable Quote:

Robert [09:25]: "I like your idea of putting $33,000 a month into these various investments and dollar cost averaging along the way... That way you're double dipping and you're making money along the way."

Austin's Perspective:
Austin reinforces Robert's strategy, emphasizing the importance of investing in high-performing ETFs and maintaining diversification. He highlights specific ETFs like VOO, VGT, and others that have demonstrated robust performance over the past decade, underscoring their potential to outperform the broader market.

Notable Quote:

Austin [10:43]: "I highly recommend investing into these big index funds and ETFs that we know and love... these ETFs are positioned very well to continue to outperform the markets."

Key Takeaways:

• Gradual Investment: Spread large sums over time to reduce exposure to market volatility.
• High-Yield Accounts: Utilize platforms like Public.com to earn interest while planning investments.
• Diversified ETFs: Focus on established ETFs with strong historical performance to enhance portfolio resilience.

Audience Question 3: Choosing Between Tesla Stock and Maximizing Roth IRA Contributions

Question from Jeanette R.:
"My employer, Tesla, offered me a $2,000 bonus to either invest in Tesla stock or receive it as cash. If I take it as cash, I can max out my Roth IRA for 2024. Should I opt for Tesla stock or the Roth IRA?"

Robert's Perspective:
Robert recommends taking the Tesla stock, bolstering his confidence in the company's future. He highlights Tesla's advancements in humanoid robotics and other innovative sectors, believing these developments will drive significant growth.

Notable Quote:

Robert [14:22]: "I think you can't bet against Elon, you can't bet against Humanoid Robotics and the taxi division... I think it's going to be one of my biggest winners over the next three years."

Austin's Perspective:
Austin agrees with Robert, elaborating on Tesla's upcoming innovations and potential market impacts. However, he balances this by stressing the importance of maximizing Roth IRA contributions, especially when feasible. Austin suggests a dual approach if possible but acknowledges situations where prioritizing high-growth stocks may be advantageous.

Notable Quote:

Austin [14:59]: "I can't imagine spending a million some dollars on health expenses from 65 to 80... But I absolutely could imagine enjoying $1 million that's in this Roth IRA nest egg of mine."

Key Takeaways:

• Company Confidence: Investing in high-potential stocks like Tesla can yield substantial returns.
• Retirement Contributions: Maxing out Roth IRA should be a priority for long-term financial security.
• Strategic Allocation: Balance high-growth investments with retirement savings to optimize financial outcomes.

Audience Question 4: Deciding When to Close a Business

Question from Joshua W.:
"I've realized there's no market for my online candle business, and I hate working on it. How do I know when to move on from a business idea, especially when future ventures might be more passionate but uncertain?"

Robert's Perspective:
Robert acknowledges the difficulty in pinpointing the exact moment to close a business. He advises evaluating the opportunity cost of continuing the venture versus redirecting efforts elsewhere. Robert shares his extensive experience with over 50 failed businesses, emphasizing that persistence is valuable but not at the expense of personal happiness and financial efficiency.

Notable Quote:

Robert [17:31]: "Understand the opportunity cost of your time and your investment when it's time to let go of that business."

Austin's Perspective:
Austin adds that personal fulfillment is crucial—if the business no longer brings joy, it's time to pivot. He differentiates between a profitable business and a hobby, recommending that ventures not contributing financially should be reconsidered. Austin highlights the importance of learning from each endeavor to inform future investments.

Notable Quote:

Austin [21:35]: "If you're not happy with this business, like pack it up... If no, then do something else that does make you happy."

Key Takeaways:

• Opportunity Cost: Assess the potential gains from alternative investments against the resources tied up in the current venture.
• Personal Satisfaction: Business pursuits should align with personal happiness to ensure sustained motivation and success.
• Learn and Pivot: Each business experience provides valuable lessons that can guide future endeavors.

Audience Question 5: Evaluating New Companies with Negative Cash Flow

Question from Travis Z.:
"How do you evaluate newer companies that are still with negative cash flow? What metrics do you prioritize?"

Austin's Response:
Austin emphasizes the importance of Free Cash Flow (FCF) as a predictor of a company's future stock performance. He explains FCF as the net cash generated or consumed over a period and advises investors to consider whether a company's revenue is growing significantly (e.g., 30-40%) to anticipate future profitability.

Notable Quote:

Austin [27:18]: "Free cash flow, very simply put, is defined as the net cash deposited or taken out of a company's bank account during a period of time."

Robert's Additions:
Robert supplements Austin's points by highlighting the significance of Total Addressable Market (TAM) and comparing newer companies to their more established competitors who have achieved FCF profitability. This approach helps in understanding the company's growth potential within its industry.

Notable Quote:

Robert [27:18]: "Another thing you can look at is tam total addressable market. And this can really help you understand where is this company going?"

Key Takeaways:

• Free Cash Flow: Critical for assessing a company's financial health and future stock performance.
• Revenue Growth: High growth rates can signal a company's trajectory towards profitability.
• Market Potential: Evaluating TAM provides insight into a company's long-term viability and expansion capabilities.

Audience Question 6: Maxing Out Roth IRA vs. HSA Contributions

Question from Daniel B.:
"Why do you recommend maxing out the Roth IRA before the HSA? Is it unwise to prioritize the HSA given its tax advantages?"

Austin's Response:
Austin underscores the importance of maximizing Roth IRA contributions due to its role in providing tax-free income during retirement. He acknowledges the HSA's benefits but argues that Roth IRAs offer greater flexibility and long-term growth potential for a broader range of retirement needs beyond just healthcare expenses.

Notable Quote:

Austin [33:00]: "I just think that I can't imagine spending a million some dollars on health expenses from 65 to 80... But I absolutely could imagine enjoying $1 million that's in this Roth IRA nest egg of mine."

Robert's Additions:
Robert agrees with Austin, emphasizing that while HSAs are valuable, especially for those with current health expenses, Roth IRAs generally provide more comprehensive retirement benefits. He points out that HSAs may not fully capture the potential for tax-free growth and broader financial security that Roth IRAs offer.

Notable Quote:

Robert [34:21]: "I think you're leaving too much money on the table over time by not maxing out the Roth."

Key Takeaways:

• Roth IRA Priority: Offers extensive tax-free growth and flexibility for various retirement needs.
• HSA Benefits: Highly advantageous for current healthcare expenses but should be balanced with broader retirement savings.
• Strategic Funding: Ideal to max out Roth IRAs first, then prioritize HSAs to optimize overall retirement strategy.

Audience Question 7: Understanding Investing on Margin

Question from Alan R.:
"Can you explain how investing on margin works? What are the fees, what brokers offer it, and are there any tax implications?"

Robert's Response:
Robert advises against using margin investing, likening it to gambling. He explains the risks involved, including the possibility of margin calls that can significantly jeopardize one's financial standing. Robert shares his personal stance of avoiding margin unless absolutely necessary, such as bridging funds for urgent trades.

Notable Quote:

Robert [35:21]: "If you're wrong on a trade that you're in margin and they do a margin call against that trade because you're upside down, it's going to wreck your account and possibly take you below zero."

Austin's Response:
Austin elaborates on the mechanics of margin investing, highlighting the interest fees associated with borrowing funds. He cautions about the potential for significant losses if the borrowed investment depreciates, reinforcing the notion that margin is a high-risk strategy unsuitable for most investors.

Notable Quote:

Austin [36:05]: "Holy crap, is that risky, though. What if Tesla goes down... That 50,000 we lent you now, say it's only worth 42,000... that's how that works as well. So please, please be careful with margin."

Key Takeaways:

• High Risk: Margin investing can amplify both gains and losses, posing substantial financial risks.
• Interest Costs: Borrowed funds incur interest, which can erode investment returns.
• Cautious Approach: Generally discouraged for most investors due to the potential for significant losses.

Conclusion and Call to Action

As the episode wraps up, Austin and Robert encourage listeners to subscribe to the Rich Habits Newsletter, a weekly publication offering deeper insights into market trends, economic data, and actionable financial strategies. They express optimism for the podcast's growth and motivate current listeners to share the newsletter within their networks to help it reach a milestone of 100,000 subscribers.

Notable Quote:

Austin [38:13]: "Don't forget to check out the Rich Habits Newsletter... consider forwarding it to a friend that you think could benefit from the information we share on a weekly basis."

Robert echoes this sentiment, highlighting the community's positive response and the podcast's role in empowering listeners to achieve financial success.

Final Thoughts: The Rich Habits Podcast continues to serve as a valuable resource for individuals seeking to refine their financial strategies, offering expert advice, practical tips, and real-world experiences from seasoned investors. This episode, rich with diverse Q&A topics, reinforces the hosts' commitment to demystifying financial concepts and providing listeners with the tools necessary for financial empowerment.

For more insights and detailed financial strategies, subscribe to the Rich Habits Podcast and join the growing community dedicated to mastering money management and investment success.