← Rich Habits Podcast
Rich Habits Podcast
Q&A: Buying Bitcoin at $100K, When to Close a Business, & HSA vs. Roth IRA
00:40:40
Loading summary
Transcript39 lines
- [00:00]
Austin
Hey everyone and welcome back to the Rich Habits Podcast, Question and Answer Edition. Robert, we are almost there. 2025 is right around the corner. I'm so excited to sit down and build some New Year's resolutions, reflect upon all the cool stuff that happened in 2024 and rebalance my portfolio. So 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, kind of make that re, maybe cut some of those laggards out of your portfolio, or maybe add some new single stocks or ETFs to your portfolio. And Robert, just to remind everyone too, on November 18th of 2024 we published episode 91, how to conduct a Portfolio Performance Review where we talk about all the fun stuff as it relates to looking at these numbers and figuring out am I performing with the markets? Am I not performing well as it relates to the markets and everything else that Austin and Robert talk about. So give that episode a listen if you've not listened just yet. And just to give you guys a quick break, I like to look at my personal portfolio every three months. This allows me to have real active management, but I'm a little bit on the nerdy side, so maybe every six months or 12 months is a good time for you. All you have to do is sit down, listen to that episode and follow the instructions we share.
- [01:18]
Robert
And I'll be honest, I do a lot of this type of work when no one's around. So I do it on flights. I do it late at night. I just do it when I have good alone time so I can really focus and not have all the distractions so I can really dig in and understand what is best for me in my future. So before we jump into the episode, I just wanted to give you guys a quick heads up. Interest rates are falling, but you can still lock in a 6% or higher yield with a bond account@public.com that's a pretty big deal because when rates drop, so can the interest you earn on your investment.
- [01:51]
Austin
A bond account from public.com allows you to lock in a 6% or higher yield with a diversified portfolio of high yield and investment grade corporate bonds. So while other people are are watching their returns shrink and their high yield savings accounts, you can sit back with regular interest payments from a bond account on public.com but you might want to.
- [02:11]
Robert
Act fast because your yield is not locked in until you actually invest. The good news it only takes a couple minutes to sign up@public.com lock in a 6% or higher yield with a bond account only at public.com forward/rich habits.
- [02:27]
Austin
This is brought to you by Public Investing member FINRA and SIPC. This is as of December 2, 2024, the average annual yield to worst across the bond account is greater than that 6% yield to worst is not guaranteed. This is not an investment recommendation. All investing involves risk. Please visit public.comdisclosures Bond account for more information. Yes, bond accounts super super important and public is the best way to get access to these investment grade corporate bonds to allow you to smooth out the volatility that we might see in 2025 in our portfolios. Now our first question I think is an awesome one Robert. It comes from Marie from Inside the Rich Habits Network and she says Is anyone still Dollar Cost Averaging into cryptocurrency at these Prices? I asked this question recently during the live stream that Robert Nelson hosted and I thought their answers were really interesting. So I wanted to ask it again to see if anything has changed. Now that XRP is close to $3, now that Bitcoin is close to a hundred thousand dollars, I'm just trying to understand, 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? Would you be buying something as blue chip and large as bitcoin or maybe roll something a little bit more speculative and at what prices would you stop buying? Robert I think that's a really interesting question by Maria, so I'll let you take the first stab at it.
- [03:46]
Robert
Yes, the answer is yes, you should always be dollar cost averaging. And for me I don't really care what the day to day prices are in an asset that I'm invested in or investing in for the long term. 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. So many people and trust me, I get DMs at least 50 of them a month that say hey, I just came into $1,000, 5,100 thousand or $1,000,000. Should I sit on the sidelines and wait for the drawdown, wait for a pullback before I start investing this lump sum of money? And the answer is always no. No one can time the market. Can you look at the news cycles and maybe you know, right before the election did it make sense to hold off for a week to see who won? That's a different story. But in most instances Dollar cost averaging is your best strategy. So in this instance and in this question, the answer is yes, I would be dollar cost averaging that thousand dollars a month and just have a well balanced portfolio because at the end of the day, no one can time the market and it is better to always have your money working rather than trying to sit on the sidelines figuring out when there's going to be a dip.
- [05:00]
Austin
I love that answer. Robert Marie, to answer your question very simply, I think dollar cost averaging at these prices makes sense. But 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, pay my taxes and reinvest them into the S&P 500, maybe Amazon or Google or other big wonderful trillion dollar companies that are going to be here for 10, 15, 20, 25 years where we don't know what the next meme coin is going to do in the next six months.
- [05:28]
Robert
And I think that's a great takeaway because it's two sides of the fence. And the way I look at it is this, as long as you understand what your investment thesis is and you have a profit taking strategy, then you never fall victim to the person that wrote it up and wrote it back down and never took profits along the way. And that is something that is so important. And I know we've been talking about profit taking strategies a lot lately, but it's because we're in this bull run with cryptocurrency and I want to make sure, just like Austin, that all of you know what you're doing with all of this new found unrealized gains and know how to extract them over time the right way. Because one of the biggest things that hurts people as well in investing like these times is when they get in, they get super excited, they double their money, they get out and it keeps going because you don't want to be in a position. And I really want to make sure everyone understands this. Never look in the rearview mirror if you can avoid it. Because if you make money and you beat the benchmarks and you're crushing it with your Bitcoin or your Ethereum or your XRP and you're taking those profits along the way. You are beating 95% of the people out there that aren't listening, that aren't putting in the work, aren't following the Rich Habits podcast. So it's so important that you really do understand these strategies that we talk about.
- [06:44]
Austin
Yeah, I Mean, Robert, when you were talking about XRP just a month ago, it was about 45, 50 cents. Now it's $2.75. So that's a 5x return in a month. I mean, I hope people listening took profits or are taking profits or saying, okay, whoa, okay, hold on. My thousand dollars is now worth 7,000, $6,000. I'm gonna take 3,000 off the top and redeploy it into my Roth IRA or like, you know, maybe beef up my emergency fund some or, you know, whatever that might look like for you as an investor. But knowing that it's okay to take profits, the only way people got rich is if they took the profits. They didn't get greedy. So the phrase goes, Robert. Pigs get fat, hogs get slaughtered. We all wanna be fat pig pigs. I hope that happens to me. But I never want to get, you know, slaughtered as a hog because I'm getting too greedy.
- [07:29]
Robert
Yeah. And if you look back, Austin, even to the last bull run for you, I remember you telling a story about a year and a half ago about Chainlink, where you were up just a ton, but you didn't take any money off the top back then, and then it went back down and languished for years. Now, the good thing is we still both believe in Chainlink. You have a much bigger bag than me, but you had some opportunity cost lost there because you didn't take profits back in the day. So this is why we want to make sure everyone understands our profit taking strategies and why they're important over time.
- [08:00]
Austin
And I will never make that mistake again with any investment. And it takes every investor that three years of just hating yourself for not making that trade until you realize, I'll never do it again. We're all going to make mistakes as investors. Robert and I have made every mistake in the book. We just hope that us sharing the mistakes can help you all not make those. It just comes down to you listening to us or not.
- [08:22]
Robert
But that really illustrates why we are so incredibly qualified in sharing our stories and our experience and our learnings to be able to help other people learn from our mistakes and not make them themselves.
- [08:34]
Austin
So our next question comes from Darrell B. Darrell says. Hey, guys, I've been listening to the podcast for six months now and I love your show. You make things easy to understand and you give me the confidence to take action. I currently own two properties. The one I live in, which has a mortgage with a very low interest rate and a rental property that I have $400,000 of equity in. And it has a high interest rate, about 65% of my net worth in property. And I want to balance this out a little bit more though by selling my rental and then investing that $400,000 of equity into the ETFs, cryptocurrencies, precious metals and artwork that you guys talk about. My question is, how do I dollar cost average the $400,000 into these different asset classes? Do I split it into equal amounts and invest it all over a 12 month period? Do I dump it all in straight away to maximize my time in the market? Or maybe something in between? Robert, what's your perspect?
- [09:26]
Robert
I love this question, especially because it leads us right into what we just talked about. And the answer is yes, I. Unless there was something like we just discussed, like the election coming up or something like that, I think the next 12 months are going to be life changing for so many people that are taking notes and taking action. So I like your idea of putting $33,000 a month into these various investments and dollar cost averaging along the way. Because you can always change the thesis middle of the road. If you say, oh wow, there's this big event happening that I believe is going to cause XYZ action, then you can always put in more or put in less. But the number one thing is with dollar cost averaging is you take out the situation of buying at the top because no one knows where the top is or no one knows the bottom of the retraction. So here's how I would do it. If I were going to break it down over a year, I would put the first 33 in, but I would have the rest in a high yield cash account on public.com making that four and a half, 5%. And then each month you're taking from that and putting it into these other investments. That way you're double dipping and you're making money along the way. And not just having that money sit on the sidelines, but you're still dollar cost averaging, which then will benefit you over the long term.
- [10:43]
Austin
That is exactly what I would do. I'd maybe even open a bond account on public to get that six and a half, seven and a half percent yield as well. And maybe that could be part of now your portfolio. Maybe you take a month's worth, right this $33,000 and you put it into a bond account on public to make 7%. You can invest this into cryptocur currency. You can certainly invest this into some single stocks if you want. Definitely the blue chips highly, highly recommend though Investing it into these big index funds and ETFs that we know and love, like Voo, VGT, Vti, Qqq, Dgro, Iai, V U G, Moat V U G. I mean, there's so many awesome ETFs that you can buy and put in your portfolio. And all these ETFs are one, positioned very well to continue to outperform the markets. But more importantly, two have outperformed the market markets over the last 5, 10 years. Look at Vug for example. Robert Vug's price over the last 10 years is up 291%. You compare that to the 185% that Voo has experienced in that total return and it is just staggering. So we highly recommend this dollar cost average approach. And don't forget to give our friends Masterworks a call. Say, hey guys, I want to invest 10,000 into artwork. What's my best strategy? Go check out fundrise, go put 10,000 over there. And don't forget about the precious metals. Right? Robert talks about silver and gold all the time. GL and SLV are two ETFs that track both of those precious metals prices. So adding some of that into your brokerage account is a great idea. At the end of the day, I love how you say, though you said 65% of my portfolio is in property and I want to balance this out. That's all Robert and I are trying to do is make sure everyone has a balanced portfolio. That one can weather a good storm, but more importantly two, perform well when the markets are ripping like they have been for the last call it two years now. The markets are up 65, 70% since the beginning of 2023. And Robert and I both agree that 2025 to be another good year. So we're really excited. We're rooting for you, Daryl, and we can't wait to see what you do, man.
- [12:39]
Robert
Yeah, I love this question, Daryl, and it really illustrates something that I've been talking about a lot with private clients and then also in the Rich Habits network is getting people to understand the mindset shift from being like a gambler investor to a true long term investor. Because right now you see all this euphoria in the markets and you're like, like, man, I'm going to pull all of my money out of my 401k or my bridge account, put it all into these high flying cryptos, just like everyone wanted to do last year. And I get asked all the time if you believe in AI so much because I talk about Nvidia and Palantir and all this, but then also crypto. Why are you not fully invested just in those few things? And the reason is, and you guys hear me talk about it, it's not being braggy, is I can't go broke because I don't break my own rules. I stay highly diversified because I would rather have some stuff over here making 10 or 15% and some stuff over here making 100, 200, because I know over time it balances me out and keeps me diversified so I never get in a bad position where I end up losing money in a bull market. So, so important. And I'm glad we got to touch on it. So thanks for the question, Daryl.
- [13:53]
Austin
So our next question comes from Jeanette R. From Inside the Rich Habits Network. Jeanette says, hey, guys, my employer, Tesla, gave me a bonus of $2,000. They said I can either vest it in their stock and have $2,000 more of Tesla stock, or I can have it as cash. If I take it out as cash, I will use all $2,000 and put it in my Roth IRA, allowing me to max it out for 2024. So what do you think? Do I take the Tesla stock in my brokerage account or do I take the cash and max out my Roth ira? Robert, what's your take?
- [14:23]
Robert
Oh, man. Normally I would say max out the Roth ira, but I think te so many people have been hating on Tesla for a year and a half, and I think it's going to be one of my biggest winners over the next three years. So in this instance, I think you can't bet against Elon, you can't bet against Humanoid Robotics and the taxi division and everything that's happening. So I would say take the stock, keep it, invest it, do your thing and worry about the Roth later in this instance, because I just love Tesla moving forward and I think it's a great stock to have.
- [14:59]
Austin
I completely agree. I think Tesla is about to have this sort of chat GPT moment as it relates to Humanoid robotics in the next 12 to 24 months. Their Optimus robots are very, very smart. They're already being used on the Tesla assembly lines. I mean, these are autonomous robots that are free labor essentially, for the company. Think about what that's going to do to their margins, their profits, their cash flow, everything in between, and then how much money they'll start making when they're able to lease those to other companies. So I totally agree. I think it's hard, though, because, like, we are the biggest cheerleaders for the Roth ira, we are, we want people, we want everyone to max out the Roth every single year. But I would argue that Tesla is just one of those examples where it's like, I'd rather have the Tesla stock than have that $2,000 of VO. Comes back to this idea of why do we own single stocks to begin with, Robert? And that's because we believe the single stock is going to outperform the benchmark index that it is within. Right. So Tesla is this sort of benchmark to the S&P 500. It's a large, profitable company. It's a trillion dollars. So is the S&P 500 going to go up another 20 or 30% next year? It very well could. But I absolutely believe that Tesla is going to go up 20, 30, 40, 50% next year. Just considering everything that's been going in their way, especially after the election. Now there's so much to be excited about for the company and not just for next year. I mean, think about 2026, 2027. I mean, everything with Humanoid robotics. It's very exciting. So I think having $2,000 of Tesla stock is pretty cool. Cool. So our next question comes from Joshua W. Inside the Rich Habits Network. Joshua says, at the end of the year, I'm preparing to wrap up my first attempt at starting a small business. I started it on a whim, just to jump in and get my hands dirty instead of sitting around waiting for a good idea to come my way. But after being immersed in the project for six months now, I've realized that there's no market for what I'm trying to sell and I actually hate working on what I do. It's an online candle business. I'm a software engineer and I would much rather just work on tech than design another candle. During that time, I've come up with several other ideas I'm just much more excited about jumping into. So I've decided to close down the small candle business. And in this case, the choice seems obvious to me. But in the future, with something I'm more passionate about but might not be successful even after a long period of time, how do I know when to move on? I've heard tons of successful business owners talking about how many times they had to fail before they finally had their big business success. And tons more talk about how they should have never given up on the idea in the first place. So I'm really confused. Where do you draw the line? I would love to hear some criteria from those here that have had a field business and how they decided that it was time to move on. Robert, do you want to take this one?
- [17:32]
Robert
Yeah. Joshua, you are, you know, in a great place. You're understanding the failure in front of you with the candle business. Although I don't feel you should just simply close it down. I would at least try to sell it on Flippa or Biz buy, sell somewhere because someone might be willing to buy it because you do have some ip, I'm assuming you have a name, a logo, a website. The social media handles all of that. So there is some value that maybe you could recapture some of your investment from selling it. But to ask the question, when do you know that line in the sand of when to close a business down and move on? There is no line. I've been at this for 35 years. There is no line. You know, you just don't know. You could be one client, one meeting or one sale away from a totally different future for your business. But you're never going to know what that is. And you have to always, and this is a mistake I made earlier in my career, understand the opportunity cost of your time and your investment when it's time to let go of that business. Because so many people will just grind the business and grind the business for years and years, never really getting ahead. Whereas if they took their business elsewhere and their skills elsewhere, they could do much better. So just understand that it's a very, very difficult kind of decision to make of when to close it down. So exhaust every option. And in your situation, I feel like you've done that because you just don't want to do it anymore. That's why I would sell it, forget about it and move on. I've probably had 50 or 60 failed businesses over the last 30 years, but I've also generated hundreds of millions of dollars with the ones that have worked. So it's always good to get those at bats in because too many people get married to an investment or married to a business idea or a business in general. That's a bad idea because you don't want to ride it down, down, down, you'd be better off to have a job. So I hope that helps you, Joshua, and everyone else listening. And if you ever have a question relative to this, always DM me in the rich habits network.
- [19:36]
Austin
I like your answer there, Robert. And a couple additional things I wanted to mention or even highlight too that you had already mentioned was like one, if you're not happy with this business, like pack it up. I think that people start side hust they start these small businesses because it's a passion of theirs. Right. It's really fun for some people to make websites or make, you know, leather goods or candles or, you know, whatever else side hustle they have, right. So it makes them happy. It's a way that they can monetize their spare time. And I think that is like a very number one. Like, does your business still make you happy? Yes. No. If no, then do something else that does make you happy. Right? You said tech makes you happy. Go be happy in tech. Like that's wonderful. So that's the first thing. The second thing I'd want to call out too is if your business is not making money, it's not a business, it's a hobby. And I think a lot of people forget about that and they don't want to swallow that pill. And it's hard to realize that I've had failed businesses. I had a T shirt business that I made, you know, 10, $20,000 with when I was in high school and then in college, and then I reinvested all that inventory and then I sat on it. Cause I was like this. I just am not good at this. Right? So it's like people make business mistakes all the time. I'm not saying that that's something to ignore because. Because that happens. And. And it's not because the business idea was a bad idea, but because the person running the business didn't know what they were doing. That happens all the time. But that allows the person running the business that didn't know what they were doing to figure out now what to do instead the next time. And that's what all these at bats are about. Robert, you mentioned you had 50 or 60 of these at bats. I guarantee you you learned something unique at every single one every time that you were then able to apply to the next business. So one, when is it time to close a business? It's when you don't enjoy it at all anymore. Two, when it's not making any money. And three, if there's an opportunity for you then to then say very clearly, I spent six hours this week on the business. It didn't make any money. If I took that same six hours and flipped burgers at McDonald's at $15 an hour, I could have made X amount of dollars. Right. When the opportunity cost begins to build up on the business, that's when you know it's time to call it quits.
- [21:36]
Robert
And I want to add one more thing to this that you highlighted that is fantastic. And that Is understand this. When you're early on in your career or even in the middle and you're trying to get ahead and make money and build your net worth and become financially free, you don't have to be passionate about the business. You don't have to be passionate about the side hustle. You just have to understand what is the best use of my time to extract the most amount of profits. So many people, I think, early on in their career say, I want to own a candle business because I love candles and I think it's going to be fantastic. Or like your joke, Austin, about underwater basket weaving that we talk about all the time being kind of a funny anecdote. You don't have to be passionate, but you do have to make advancements, learn and make profit because otherwise it's a hobby. So I wanted to touch on that.
- [22:27]
Austin
Yeah, if you hate the business and you're not making money, right? I mean, golly, time to go now. If you hate the business and you're just caking like, dude, suck it up. You know that's right. Just keep making the money.
- [22:37]
Robert
Suck it up, buttercup. Yes, yes.
- [22:38]
Austin
But if you're not making any money and you hate it, like, go find something else. I totally agree. Is there an instance, Robert, where you close down one of these 60 businesses? Like, what was the line in the sand for you in a recent example that you can remember where it's like, you know, we did this, we tried this. What was an example?
- [22:55]
Robert
A lot of times when it's small businesses and they're brick and mortar, it can be out of your control. If a neighborhood, you know, over a five or ten year period, all of a sudden becomes undesirable. Let's say you have your barber shop there, you have your nail salon there, and everyone's going to the one across the bridge. That's what happened to me on some of my brick and mortar businesses. I had a thriving T shirt shop for 20 years. It made me really good money every single year. And then it started not making me money and it went down, down, down, right around 20, 15, 16, 17. And I decided to close it after all those years because it was just one of those things. I actually sold it off and then it closed because it just wasn't worth the amount of time I was putting into it any longer. But yes, a lot of times these businesses can fail and it might not be your fault, especially brick and mortar, but a lot of times they fail as well online because people think, well, I have a website, I have A product and I have a cool idea and that's enough. And it is not. At the end of the day, it's effort and marketing are more important than almost everything else. So I've had many instances. I had a restaurant that was doing so well for like two years and the road closed for 18 months. So our sales went down 70% because none of the people could get to us for those 18 months. And then by the time the road reopened it was too late. We had depleted our sales down so low and we never recovered to the pre road closure and we just couldn't make money. So I sold that restaurant. So. So it's not always the owner operator's fault. A lot of times it is. Sometimes it's just out of your control. And so it's just important to understand when to cut your losses.
- [24:42]
Austin
I appreciate that. Our next question comes from Travis Z. Travis says, I often hear Austin talk about if you can predict the cash flow, you can predict the stock price when determining if you should invest in a stock. But how do you all evaluate some of these newer companies that are still with negative cash flow? I assume you look at quarter over quarter growth or year over year growth. But like, how do you even think about that? Really good question, Travis. So whenever I say follow the cash flow, I'm really talking about if you can predict what the free cash flow of a company is going to be over the next 12 to 18 months, you can likely predict where their stock price is headed as well. 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. So if a company has a free cash flow of 2 billion million, that means during the last 12 months, $2 billion of cash was deposited to their bank account. It's very simple. Or if It's a negative 2 billion, that means over the last 12 months, 2 billion of cash left their bank account at the end of the day. As investors, businesses exist for one reason and one reason only, and that's to provide cash to their shareholders. I believe cash is king, right? Profits, cash, cash after tax, cash. The more cash a company has, the more valuable it is to investors because it's making cash. And so if you can predict what that looks like, then you can predict where the stock prices go. What if it's a negative cash flow and the company is not yet profitable? There's two ways to think about this. If this is the case, you can look at free cash flow or you can look at operating cash Flow, they're both pretty important. And if they're both negative, it's very important to say, okay, one is revenue still growing by at least 30 to 40% because the only reason they'd be negative is if they were a unprofitable software company. If their revenue is growing by that 30, 40% range, then chances are they're going to grow toward that free cash flow profitability in the Next, call it 12 to 18 months. If it's not growing that fast, maybe it's not for you. But then another thing to keep an eye on too is the company's adjusted ebitda. Adjusted EBITDA is another fancy word for like pre tax profits, essentially. But those pre tax profits aren't the same as cash flow. Of course, cash flow is more important, but adjusted EBITDA is a little bit more lenient. So if their adjusted EBITDA is positive but the cash flow is negative, that's a good sign that the company is moving in the right direction toward free cash flow profitability. But yeah, free cash flow. I'm telling you guys, if you can predict where it's going, it's going to allow you to make a ton of money in the future.
- [27:19]
Robert
And I'm only going to add one thing. You crushed it. Travis, great question. When it comes to evaluating newer companies, another thing you can look at is tam total addressable market. And this can really help you understand where is this company going? Because they might be unprofitable now now, but how big is the market moving forward? So keep that in mind as well, because that's just another metric you can integrate into your research to be able to help you figure out what's good and what's bad moving forward.
- [27:48]
Austin
And I think another call out here too is really simple to kind of conceptualize, is like, does this company have a larger competitor that's a bit more mature than they are, and has that competitor reached free cash flow profitability? Palo Alto Networks and CrowdStrike are two great examples of this. Right? So Palo Alto Networks, a very free cash flow positive, it's a profitable company and they've been around for 25 years. CrowdStrike, it's a little bit less mature. It's been around for like 10 or 12 years and they recently hit free cash flow profitability. Right? So there's a ton of different ways that you can look at, you know, has a company done this that's similar in the past? How do we benchmark these performances over time? Then we're getting to the nitty gritty Robert and that's how you get to a nerd like me.
- [28:26]
Robert
It also comes back to and really illustrates what you're talking about is that you adapt or you die. So many people see a meta or an Amazon spending billions of a dollar to hunker down and really build out their future and they think it's a mistake so they sell the stock. And that might be okay for the short term, but you don't want to have a situation where you're BlackBerry or your Kodak and you refuse to adapt so you die. And that's just something everyone needs to understand as part of their analysis of these forward thinking moments. When you're investing is understanding what is the future going to look like for this sector and for a company that you're considering investing in?
- [29:05]
Austin
I'm right there with you. It's super important. Now I need you all to listen up. Time could be running out to lock in a 6% or higher yield at public.com you can lock in a 6% or higher yield with a bond account at public.com but remember, your yield is not locked in until you actually purchase it, so you might want to act fast because we don't know where bond prices are headed. Lock in a 6% or higher yield with a diversified portfolio of high yield and investment grade corporate bonds only@public top.com rich habits. That's public.com forward slash rich habits. So our next question comes from Daniel B. Daniel says hey Austin and Robert, in a recent episode of your podcast titled how to unlock Bitcoin's 27% annual dividend yield, you answered a question about investing in an HSA and compared it to a Roth ira, and I just wanted to follow up on your answer. I'm wondering if you could elaborate more on why you recommend maxing out the Roth IRA before maxing out the hsa. I received advice previously that the HSA is the priority, given that it is the most powerful saving vehicle that exists in terms of tax advantages. I understand that you pay taxes if it's spent on non health expenses after retirement, but I figure it's safe to assume that everyone's going to have extensive health expenses in retirement, so there doesn't seem to be much risk of overfunding the hsa, but I'm wondering if I'm missing something and making an unwise decision to take it a step farther. I've also been told not to use the HSA for health expenses right now. Now in order to maximize taking advantage of that tax free growth. Is it Wrong to be paying for health expenses out of pocket right now, even though there's lots of money in my hsa. Really good question. To answer the second part of your question first, you're doing the right thing. You want to allow your HSA to grow in size throughout your life. Do not take money out of it, but keep all the receipts. Keep spending out of pocket. Save all those receipts. Maybe you have $80,000 of receipts over the next 40 years and then maybe in 20, 30 years you can say, great, I've got this $80,000 of receipts and proof of expenses. I can now take $80,000 of tax free out of the account and put it into my checking account to reimburse myself for that spending. You absolutely can do that. That is what you should do. And I've seen a lot of people follow that playbook to a nth degree and they do a really good job of it. So thumbs up for me there. Now, as it relates to overfunding the hsa, it's a really good question. Can you overfund the hsa? I'm sure you can, right? I'm sure some people have overfunded the hsa. I don't know if you will overfund the hsa, but what I do think people make the mistake of funding the Roth ira. People make the mistake all the time of not maxing out the Roth ira. And I would argue it's much more important to have this nest egg waiting for you at 65 years old of tax free retirement income than having an only health expense focused account that, yeah, you can spend it after 65, but you have to pay taxes on it. Like, there's a lot of like, nuances to it. But I think people make the mistake again, Robert, of like underfunding the Roth IRA and not putting enough money into it throughout their lives. And if you're someone who can do both, like, yeah, do both, like, dude, that's what I do, right? Roth ira, hsa, have a good time. But if you're someone who can only afford one, I highly recommend the Roth IRA instead of the hsa because you need to have money in retirement. You need to have something when you're 65 to say, great, I now have this tax free way that I can supplement my life now. Yeah, sure, when you're 65, you can have the same sort of, you know, opportunity afforded to you with the hsa, but it's not tax free. And so if you're funding it with $4,000 a year and maybe say it's a million or a million five when you're 65 and you want to take out 300,000 to go buy something or go somewhere or spend or whatever, you got to pay taxes on that. It's not going to be the same with the Roth ira. So again, do both. It's a wonderful idea. Always max out the Roth ira. It's going to allow you to have that financial security in retirement, your 60s and 70s. And the HSA, again, it's not going to provide that.
- [33:00]
Robert
Yeah, I agree and I think you killed it. I'll just add a little bit to this. And that is, I think the reason I prefer the Roth over the HSA is when you look at the hsa, you just really, I think are leaving too much money on the table. But you also have to. Let's backtrack this for a second. You have to look at what does your life look like. If you're healthy and you're making money and you can afford to eat good food and you have all the right medicine and supplements that you need, you're likely going to need an HSA a lot less than somebody that is not living a healthy lifestyle. So in that instance, I think you're leaving too much money on the table over time. Time by not maxing out the Roth if it's an either or, an or. But I agree with Austin that it should be both because I look at it that the HSA can be a great vehicle, but I think the Roth IRA overall is better long term. And the way to look at the HSA in my opinion is if you already have medical issues and you're in your 30s or 40s, then maybe the HSA is the way to go because it's going to help you right now. So for me, I just prefer the Roth. Although they might both perform the same. There are limitations to the use of the funds in the HSA that if you don't have those health issues that I talked about, could hurt you over time by not being able to optimize those funds.
- [34:22]
Austin
And I totally hear what Daniel's saying, right? He's like, I assume that everyone's going to have, you know, health expenses, major health expenses in retirement. And you're probably right. You are going to be right, right? We're all going to have health expenses in retirement. I'm right there with you. But I just think that I can't imagine spending a million some dollars on health expenses from 65 to 80 or whenever I die. Right. That 15 year period. But I absolutely could imagine enjoying $1 million that's in this Roth IRA nest egg of mine. On travel, on this, on that, whatever. I want to do lifestyle supplementation, whatever in a tax free manner. So again, do both if you can afford it. If you can only afford one, I still lean toward the Roth. Maybe there's a way you can do both there. But don't ever forget to max out that Roth IRA every year. Our last question comes from Alan R. Alen says. Hey guys, I've been following the podcast for a while and I love it. Can you explain how investing on margin works? What are the fees, what are the brokers that offer it, are there any tax implications, etc. Thanks so much, Robert. You want to take this one?
- [35:21]
Robert
I don't know enough about the fees to really speak on the fees. I just don't use margin and I don't think anyone should because you're basically gambling that you're going to be rushing, right? And all of these sites want you to do that. And you have to understand 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. So for me, I don't personally use margin unless I find something in the middle of the night and, or I don't have immediate funds available that next morning to make a trade when the market's opening. Otherwise I just don't use margin. So I'm definitely, definitely not an expert at it.
- [36:06]
Austin
Yeah, I don't use margin either, but to kind of break it down for you. So what are the fees? The fees you're paying on margin is the interest. Because this is debt. The brokerage is saying, oh cool, we got a couple hundred thousand in here. If you wanted an extra $50,000 of cash, we could loan it to you at a 9% interest rate or a 7% interest rate. Like we'd be happy to do that. You just pay us back the interest, you know, every single month, but you keep the total 50,000. So for example, I guess at the 7% hypothetical interest rate and if you borrowed 50, $50,000, you would have to pay back $290 a month to them to keep this 50,000 in your account to be trading with or investing with or whatever. Which means if you invested $50,000 into Tesla stock and it went up by 20% in a week, well, you more than offset that $290, you know, payment back to the broker that lent you the money, and then you can sell it all, pay back all the money, whatever. Congrats, you just made some money here. Holy crap, is that risky, though. What if Tesla goes down, right? What if Tesla doesn't go up? What if all these things happen because we know markets are crazy sometimes, and now they're saying, hey, whoa, you. You took our 50,000 and you bought Tesla stock with it. That 50,000 we lent you now, according to our records here, say it's only worth 42,000. And we need you to cough up $8,000 in the next 24 hours or we're going to liquidate this whole thing and sue you for the $8,000. Right, that's how that works as well. So please, please be careful with margin. Do not use margin. I do not use margin. If you do use mar, I've heard of people using it for a way to consolidate high interest debt elsewhere. Right? Go out and take a margin loan against, you know, $200,000 of their stocks. They say they want to borrow $20,000 at a 7% interest rate. They withdraw it to their checking account, use it to pay off their high interest debt credit cards at 30%, allowing them to now just owe 20,000 back to the broker at the 7% interest rate, which, who knows how that gets paid back or whatever, But I've heard of that. That makes sense to me. It's. It's like a debt consolidation loan. I get it. But at the end of the day, it's not a good idea to use margin. We highly rec not using margin. Just take your after tax dollars that you work hard to earn, invest it, and then grow it inside that Roth IRA or your bridge account or whatever else and become wealthy that way.
- [38:14]
Robert
Yeah. And I look at it, to wrap this up, I look at margin. If you're buying securities on margin, it's kind of like if you were using a credit card to buy cryptocurrency. Some people say, well, I'm gonna get a credit card and I'm gonna max out my credit card to buy cryptocurrency, you know, and you're paying 30% interest on that credit card. Could you make a profit in that transaction? Absolutely. Is it the right way to invest? Absolutely not. So that's the way I look at it. And I know margin is a lot less expensive to use than a credit card. And everyone thinks they're going to beat the market and beat the interest rate. But just be careful out there because Austin and I just don't agree. Using margin to build Your portfolio, everyone.
- [38:54]
Austin
Thanks so much for tuning into this week's episode of the Rich Habits Podcast. Don't forget to check out the Rich Habits Newsletter. This is our weekly newsletter that Robert and I co write that essentially is just a peer inside of our minds. Everything that we're looking at as it relates to the markets, the economy, data, headlines, anything that just catches our eye throughout the week that we think is worth sharing with you all, we publish it for free. Inside of the Rich Habits newsletter. There's about 50,000 of you that come back every single week and read the Rich Habits Newsletter, which we're really grateful for. But man, Robert, how cool would it be for us to hit a hundred thousand subscribers in 2025? That'd be amazing.
- [39:30]
Robert
I think we're going to get there. People are winning. People are loving the podcast. Everyone that reaches out to me is just so grateful and thankful for all the information we put out on a weekly and a daily basis in the Rich Habits Network. And so for me, I think it's going to be so cool to pass that milestone, and I think we're going to see it sooner than later just because people want to win and people are really waking up to the opportunities that are right in front of them. This podcast costs $0, and if you just watch them religiously, the amount of information you can gain and save and put into that notebook we talk about is just incredible to help you and your family for the future. So I'm super excited for 2025 and everything we're doing and what we're building, and just watching the Rich Habits Network grow has been just an incredible journey for both of us. So it's going to be a great year.
- [40:20]
Austin
Well, the Rich Habits Newsletter will not hit 100,000 subscribers unless the existing readers of it share it with their friends. So if you read the Rich Habits Newsletter, consider forwarding it to a friend that you think could benefit from the information we share on a weekly basis. And as always, thank you so much for joining us on this week's episode of the Rich Habits Podcast. We'll see you on Monday.