Rich Habits Podcast: Detailed Summary of "Q&A: Forex Trading, Peer-to-Peer Lending, & Cashing-In on RSUs"

Release Date: January 23, 2025

In this engaging and informative episode of the Rich Habits Podcast, hosts Austin Hankwitz and Robert Croak delve into a series of listener-submitted questions, providing expert advice on a variety of financial topics. The episode covers everything from investment strategies and refinancing loans to career pivots and managing stock options. Below is a comprehensive summary of the key discussions, insights, and conclusions drawn from each question.

1. Investment Strategies: IUL vs. Roth IRA vs. Forex Trading

Question from Sakura

Sakura, a nurse new to the United States, seeks advice on optimizing her monthly investments. She currently maxes out her Roth IRA, contributes to her company's 403B, and invests in an Indexed Universal Life (IUL) account. With an extra $500 each month, she's contemplating whether to continue investing in her Roth IRA or venture into forex trading by opening a foreign currency account.

Key Insights:

• IUL Concerns: Both Austin and Robert strongly advise against continuing with the IUL due to high fees and commissions, which often outweigh the benefits. They highlight that IULs can consume more in fees than they generate in returns, especially in the initial years.

  Robert (03:59): "I would love to first and foremost get rid of the advisor and get rid of the IUL. IULs may or may not make 6, 7, 8% but it doesn't matter because the fees are so incredibly high."

  Austin (07:07): "Remember this, if you invest in the S&P 500 through a fund like Voo, if you stop investing, the money keeps growing. You own it, it's your money and it just keeps growing and compounding. If you stop making payments on the IUL, they keep all your money."

• Cryptocurrency Recommendation: Robert suggests allocating a portion of the portfolio to cryptocurrency, emphasizing its potential as part of a diversified investment strategy.

• Forex Trading Skepticism: Both hosts express reservations about forex trading, citing the unpredictability and high risks associated with currency markets. They recommend sticking to proven investment vehicles like index funds and ETFs.

• Actionable Advice: Focus the extra $500 on bolstering existing Roth IRA contributions and consider diversifying into cryptocurrency rather than exploring forex trading.

Conclusion: Sakura should eliminate the IUL, continue maximizing her Roth IRA contributions, and cautiously consider adding cryptocurrency to her investment portfolio instead of engaging in forex trading.

2. Peer-to-Peer Lending: Evaluating Opportunities

Question from Manuel R.

Manuel R., an immigrant investing in real estate, seeks guidance on peer-to-peer (P2P) lending platforms like Lending Club and Prosper, which offer seemingly attractive returns.

Key Insights:

• Risk Assessment: Both hosts caution about the inherent risks of P2P lending, emphasizing the uncertainty of returns and the potential for default, especially in economic downturns.

  Robert (08:46): "Peer to peer lending has been around for a long time. It can be highly lucrative. But I just want to make sure you understand there are risks there."

  Austin (09:30): "Peer to peer lending doesn't do that [provide liquidity]. Real estate doesn't do that."

• Liquidity Concerns: They highlight the importance of liquidity in investments, noting that P2P lending can tie up funds with limited access in emergencies.

• Alternative Recommendations: Instead of P2P lending, they advocate for traditional investment methods that offer greater security and liquidity, such as diversified index funds available on platforms like Public.com.

Conclusion: Manuel should steer clear of P2P lending platforms due to their high risk and lack of liquidity, opting instead for more secure and liquid investment options.

3. Career Pivot to Financial Advising

Question from Anna S.

Anna S., an independent contractor in the film industry, has successfully grown her investment portfolio but is considering a career shift to become a financial advisor. She inquires about the viability and opportunities within this field.

Key Insights:

• Challenges of Pivoting: Robert and Austin outline the significant challenges Anna may face, including the difficulty of building a client base from scratch and the time-consuming nature of becoming fully licensed.

  Robert (19:20): "Pivoting to be a financial advisor, if you've had no prior experience in the field, people do not know you in any way... building a book is going to be the hardest thing you do."

  Austin (21:28): "I would also argue that it's a dying industry... more people want to begin self-managing, flat fee, you know, pay me by the hour type."

• Industry Trends: They note a shift towards self-managed financial solutions and flat-fee advisory services, suggesting that traditional financial advising roles may be less lucrative and more challenging to enter.

• Alternative Pathways: Austin mentions the potential of selling term life insurance as a more accessible entry point into the financial sector, which may offer quicker returns through commissions.

Conclusion: While Anna is passionate about finance, the hosts advise caution, highlighting the substantial effort required to establish herself as a financial advisor and suggesting alternative roles within the financial industry that may offer more immediate benefits.

4. Selling Pre-IPO Stock: Maximizing Returns

Question from Katrina H.

Katrina H. contemplates selling a portion of her pre-IPO stock holdings in her tech startup. She is considering selling 1,000 shares at a significant profit and seeks advice on whether to proceed and how to utilize the proceeds.

Key Insights:

• Sell Strategy Endorsement: Both hosts strongly recommend selling the shares to realize the substantial gains, citing the unpredictability of IPO timelines and market conditions.

  Robert (24:09): "I love your situation and I think it's sell, sell, sell, because you have 100x return on this stock."

  Austin (26:24): "Just like what Robert said. Take the $63,000 or so of profit. ... it's okay to sell shares of stock that you got as compensation."

• Tax Considerations: They advise setting aside funds to cover potential tax liabilities resulting from the sale.

• Investment of Proceeds: Suggested uses for the proceeds include saving for a down payment on a house, reinvesting in diversified index funds, maxing out retirement accounts, or funding a personal vacation.

Conclusion: Katrina should proceed with selling her pre-IPO shares to lock in her impressive gains, ensure she accounts for taxes, and strategically invest or utilize the proceeds to further solidify her financial standing.

5. Auto Loan Refinancing: Is Now the Right Time?

Question from Brad K.

Brad K. is considering refinancing his $30,000 auto loan, which currently has an 8% interest rate. With rates purportedly dropping to around 6%, he wonders if refinancing now is advantageous or if he should wait for potentially lower rates in the future.

Key Insights:

• Pros and Cons Analysis: Austin and Robert discuss the benefits of lower monthly payments and interest rates but caution against extending the loan term, which could increase the total cost despite lower monthly payments.

  Robert (27:30): "The pros are lower payment... but you have to make sure you understand one thing before you sign the dotted line."

  Austin (30:58): "Make sure you totally understand the numbers and the total ownership cost over the life of the loan."

• Loan Fees and Total Cost: They emphasize the importance of factoring in loan origination fees and how these can diminish the benefits of a lower interest rate.

• Strategic Repayment: Instead of refinancing, they suggest accelerating loan repayments through double payments or side hustles to reduce interest costs without extending the loan term.

Conclusion: Brad should carefully evaluate the total cost of refinancing, including fees and potential loan term extensions. If the overall savings are significant and do not substantially extend the loan duration, refinancing could be beneficial. Otherwise, focusing on accelerating payments might be more advantageous.

6. Managing Personal Debt and Planning to Buy a House

Question from Henry C.

Henry C., a 30-year-old married father of three, seeks advice on managing his current debts and planning to purchase a home within the next two years through the NACA program. His financial profile includes existing debt and investments across various accounts.

Key Insights:

• Debt Repayment Priority: Both hosts stress the importance of eliminating high-interest personal loan debt as a foundational financial step before pursuing further investments or a home purchase.

  Austin (33:58): "First thing I want to do is get rid of that personal loan debt."

  Robert (35:06): "Be in a rush to set yourself up. Make sure your credit score is really good, make sure you have the base built."

• Building a Financial Base: They recommend increasing investments in index funds and ETFs to establish a solid financial foundation before committing to a home purchase.

• Emergency Fund Importance: Emphasize the necessity of maintaining an emergency fund to safeguard against unexpected financial setbacks, ensuring investments remain intact.

Conclusion: Henry should prioritize paying off his high-interest personal loan using available funds, temporarily reduce or pause retirement contributions to free up cash for debt repayment, and focus on building a robust investment portfolio and emergency fund before proceeding with purchasing a home through the NACA program.

7. S&P 500 Investing: Addressing Concerns of Overvaluation

Question from James W.

James W. raises concerns about the current valuation of the S&P 500, particularly the dominance of the "Magnificent Seven" stocks, and questions the sustainability of the average returns Austin and Robert advocate for.

Key Insights:

• Long-Term Perspective: Both hosts reaffirm their belief in the long-term growth potential of the S&P 500, citing historical averages of approximately 12% annual returns despite recent volatility.

  Robert (40:09): "The easiest way to get invested and grow your wealth over a long period of time is by owning American capitalism, aka the NASDAQ and the S&P 500."

  Austin (42:10): "Building their base... they start investing... Roth up and running, get the Voos and the QQQs of the world in their portfolios."

• Market Anomalies: They acknowledge recent years' exceptional gains and losses but maintain confidence in the market's resilience and continuous growth driven by innovation and economic activity.

  Austin (40:09): "There's always a way to make money in equities if you know where to look."

• Investment Strategy: Emphasize dollar-cost averaging and maintaining diversified exposure within the S&P 500 to mitigate risks associated with market fluctuations and sector dominance.

Conclusion: Despite current high valuations and market concentration among a few large-cap stocks, James should continue investing in the S&P 500 with a long-term horizon, utilizing strategies like dollar-cost averaging to benefit from the market's historical growth trends while remaining aware of short-term volatilities.

Final Thoughts and Takeaways

In this episode, Austin Hankwitz and Robert Croak provide candid and experience-based advice on a range of financial topics, emphasizing the importance of building a solid financial foundation, understanding the true costs of investment products, and adopting a long-term perspective in investment strategies. Their practical approach, combined with real-world examples and honest assessments, offers listeners actionable insights to enhance their financial literacy and decision-making.

Notable Quotes:

• Robert (03:59): "Keep that in mind. So your investments deserve a platform that takes them as seriously as you do."

• Austin (07:43): "Sophisticated people never invest in IULs."

• Austin (26:26): "The last two years were anomalies. The market doesn't go up 25% per year like that normally."

Recommendations for Listeners:

• Evaluate Investment Fees: Always assess the fees and commissions associated with any investment product to ensure they align with your financial goals.

• Prioritize Debt Repayment: High-interest debts should be addressed promptly to avoid eroding your investment returns.

• Maintain Liquidity: Ensure you have adequate liquid assets for emergencies before committing to long-term investments.

• Adopt a Long-Term View: Focus on sustained growth through diversified, low-cost investment options like index funds and ETFs.

• Stay Informed and Skeptical: Approach high-return investment opportunities with caution and conduct thorough research.

By following these principles, listeners can navigate the complexities of personal finance with greater confidence and effectiveness.

For more insights and detailed discussions, be sure to listen to the full episode of the Rich Habits Podcast on your preferred platform.