Rich Habits Podcast Summary Episode: Q&A: Our Favorite Nuclear Stocks, Deferred Compensation, & $203K in SPYI
Hosts: Austin Hankwitz and Robert Croak
Release Date: October 24, 2024

Introduction

In this special Q&A edition of the Rich Habits Podcast, hosts Austin Hankwitz and Robert Croak dive into listener-submitted questions, offering their expert insights on a range of financial topics. The episode, lasting approximately 38 minutes, covers investment strategies, loan options for franchising, the nuclear energy sector, deferred compensation plans, and the age-old debate of investing versus paying off a mortgage early.

1. Franchising Loans: SBA Loan vs. Pledged Asset Line of Credit

Listener Question:
John B. asks whether to opt for a small business SBA loan or take a loan against his investment portfolio (a pledged asset line of credit) when financing a franchise.

Robert’s Insights ([04:51]):
Robert advises caution when selecting a franchise, emphasizing the importance of due diligence in site selection and ensuring adequate operating capital. He points out that SBA loans currently carry high interest rates (13-15%), which could burden the business with expensive debt. Instead, he suggests considering lower-interest options such as hard money loans or platforms like On Deck, which may offer better terms based on creditworthiness and business history.

Austin’s Perspective ([08:31]):
Austin echoes Robert’s sentiment, highlighting the drawbacks of high-interest debt and the risks of underfunding a new business. He underscores the importance of not overestimating short-term profits and warns against the trap of accumulating credit card debt to sustain the business.

Notable Quote:

Austin ([06:54]): "Have expectations of the business to do well, but don't overestimate how much you'll make in the short term... living off credit cards to help the business grow."

2. Investing in the Nuclear Energy Sector

Listener Question:
Brandy S. inquires about favorite nuclear stocks and ETFs, particularly interested in how Big Tech is influencing the sector.

Robert’s Insights ([10:50]):
Robert expresses enthusiasm for the nuclear sector, citing its critical role in supporting burgeoning infrastructure and energy demands from companies like Tesla, Amazon, and FedEx. He recommends ETFs such as URA and URNM, and individual stocks like Constellation Energy Group (CEG) and Vistra (VST), emphasizing their potential for growth as nuclear energy becomes more decentralized and integrated with modern energy needs.

Austin’s Take ([13:26]):
Austin prefers broad-based investments over single stocks for new sectors. He outlines his strategy of investing in ETFs like URA and URNM to gain diversified exposure to the nuclear industry, alongside holding stocks from major tech companies investing in the sector.

Notable Quote:

Robert ([10:50]): "Nuclear is going to be completely different this time... Microsoft, Amazon, and Google are all investing heavily into the sector."

3. Deferred Compensation Plans: To Participate or Not

Listener Question:
Key S. contemplates continuing a deferred compensation plan offered by her company, which currently invests in limited options tracking the S&P 500.

Austin’s Analysis ([16:45]):
Austin explains the structure of deferred compensation plans, comparing qualified plans (like 401ks) with non-qualified ones. He advises that if Key has other retirement vehicles like a Roth IRA and a Bridge Account (BRID), she might benefit from diversifying her investments beyond the limited options of the deferred comp plan.

Robert’s Perspective ([17:46]):
Robert cautions that for those not earning millions annually, the limited investment options and future tax implications might make deferred compensation plans less attractive. He recommends considering alternative investment avenues like Roth IRAs for greater control and potential for higher returns.

Notable Quote:

Austin ([17:46]): "Deferred compensation plans are pretty interesting, especially if you are one of those high earners... but in this situation, Key seems like you're setting yourself up for success."

4. Investing vs. Paying Off Mortgage Early

Listener Question:
Andrew G. weighs the decision between paying an extra $500 monthly towards his mortgage or investing that amount, projecting significant long-term gains from investments.

Robert’s Insights ([24:59]):
Robert advocates for investing the extra funds rather than paying down the mortgage, especially with a low interest rate of 3.5%. He argues that investments have the potential to yield higher returns (10-15% annually) compared to the savings from mortgage interest. He emphasizes the opportunity cost of reducing liquidity by accelerating mortgage payments.

Austin’s Support ([26:42]):
Austin reinforces Robert’s stance, sharing his personal preference to invest rather than pay off low-interest debt. He highlights the benefits of compound interest, especially over a long investment horizon, and the flexibility that comes with maintaining an investment portfolio.

Notable Quote:

Robert ([24:59]): "if the debt you're taking on is completely covered by your assets... your stocks can continue to go up and to the right."

5. House Down Payment vs. Building Passive Income

Listener Question:
Jake asks whether to allocate $140,000 towards a house down payment or invest it in ETFs (QQQI and SPYI) to generate passive income.

Robert’s Advice ([32:15]):
Robert discourages tying up the entire $140,000 in a down payment, suggesting instead investing a portion to maintain liquidity and financial flexibility. He highlights the potential higher returns from investments compared to the benefits of a larger down payment.

Austin’s Perspective ([33:44]):
Austin supports the idea of investing, noting the advantages of having accessible funds while working towards a future home purchase. He advises maintaining a balanced approach, ensuring that monthly expenses remain manageable and not becoming "house broke."

Notable Quote:

Austin ([36:34]): "Allowing you to make $2,000 or $2,200 per month... you could keep some of this monthly income paid to you that you could use to supplement your lifestyle."

Conclusion

Austin and Robert wrap up the episode by encouraging listeners to submit their questions and engage with the Rich Habits Network community. They reiterate the importance of making informed financial decisions, leveraging investment opportunities, and maintaining a diversified portfolio to achieve long-term financial freedom.

Final Notable Quote:

Robert ([37:57]): "Everyone has their pain points in their business or in their personal finances, we're here to help."

Key Takeaways

1. Franchising Loans: Opt for lower-interest loan options and ensure adequate funding and operating capital to prevent financial strain.
2. Nuclear Investments: Consider diversified ETFs and established companies within the nuclear sector, especially as Big Tech invests in energy infrastructure.
3. Deferred Compensation: Evaluate the benefits against alternative investment options like Roth IRAs, especially if investment choices are limited.
4. Investing vs. Mortgage: Generally, investing extra funds can yield higher returns than paying down low-interest mortgages early.
5. House Down Payment vs. Passive Income: Maintaining liquidity through investments can provide greater financial flexibility and potential passive income streams compared to tying up funds in real estate.

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This summary captures the core discussions and insights from the Rich Habits Podcast's Q&A session, offering actionable advice for listeners seeking to optimize their financial strategies.