Q&A: Side Hustle for Students, Too Many Stocks, & a $330K Inheritence

Summary

Rich Habits Podcast: Q&A Episode Summary Episode Title: Q&A: Side Hustle for Students, Too Many Stocks, & a $330K Inheritance
Release Date: February 20, 2025
Hosts: Austin Hankwitz and Robert Croak

Welcome to the Rich Habits Podcast’s special Q&A edition, where hosts Austin Hankwitz and Robert Croak dive deep into listener questions, offering actionable insights on personal finance and investment strategies. This episode covers an array of topics, including stock portfolio management, real estate investment strategies, optimizing large inheritances, life insurance choices, debt repayment versus investing, and skill development for students. Below is a comprehensive summary of the key discussions, enriched with notable quotes and timestamps for reference.

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1. Managing an Over-Diversified Stock Portfolio

Listener: James D.
Timestamp: [03:12] – [07:50]

Question: James inquires about the optimal number of stocks in his portfolio, expressing concern that his current investments may be too fragmented to make a significant impact.

Discussion Highlights:

• Nicholas’s Insight: Nicholas emphasizes that the average investor should aim for 10 to 20 individual stocks to maintain manageability and allow for "letting winners win." He warns against overextending into too many stocks, which can dilute potential gains.
  “I think 10 to 20 is a great sweet spot because you don't want to have so many that you can't let your winners win.”
  (04:57)

• Robert’s Agreement: Robert concurs, highlighting the pitfalls of managing a vast number of stocks, such as missing out on tracking performance against benchmarks like the S&P 500. He advises a balanced approach, integrating index funds with targeted individual stock investments.
  “The only reason you should own any single stock in your portfolio is because you believe the performance of that stock... will be better than the S&P 500.”
  (05:47)

• Strategy for Diversification: Both hosts recommend setting clear targets for each stock's weight in the portfolio (e.g., no more than 3%) and maintaining discipline in reallocating funds to prevent any single stock from disproportionately affecting overall performance.

Notable Quote: "How do you prevent your portfolio from being too fragmented to gain any significant advantage?" — James D.
(03:47)

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2. Balancing Real Estate Investments with Diversification

Listener: Nicholas G. (Nicholas G.)
Timestamp: [07:50] – [13:40]

Question: Nicholas seeks advice on whether to continue investing heavily in real estate or to diversify into other investment vehicles, given his substantial equity in rental properties and a desire to focus on carbon-neutral investing.

Discussion Highlights:

• Nicholas’s Recommendation: Emphasizes building a liquid investment base before scaling real estate holdings further. He advises reaching a portfolio value of $200,000 to $250,000 in liquid assets to ensure adequate diversification.
  “I would maybe get that to 200,000, 250,000, then reinvigorate and buy more real estate.”
  (09:15)

• Robert’s Perspective: Stresses the importance of not being overly concentrated in real estate to mitigate risks associated with market downturns. He suggests balancing investments between real estate and liquid assets to maintain financial stability.
  “You have no debt. Which is cool. But on the same token, you are way over indexed to real estate.”
  (10:44)

• Risk of Over-Concentration: Both hosts caution against excessive reliance on real estate, citing historical market crashes (e.g., 2009 housing market crash) as examples of how lack of diversification can lead to significant financial setbacks.
  “People... got wiped out and it took them a decade to recover.”
  (12:35)

Notable Quote: "Diversification is key... a lot of your equity is dead money essentially right now until you sell the property." — Robert
(10:44)

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3. Optimizing a $330K Inheritance for Investment Growth

Listener: Patrick O.
Timestamp: [13:40] – [24:06]

Question: Patrick and his wife are set to inherit $330,000 and seek guidance on effectively scaling this inheritance to maximize growth while addressing existing debts and investment strategies.

Discussion Highlights:

• Debt Repayment Priority: Robert advises prioritizing the repayment of medical school debt at 5.5% interest, suggesting that eliminating this debt will free up significant monthly cash flow for future investments.
  “The first thing I would want to do is to clean up the medical school debt.”
  (21:34)

• Investment Strategy: Nicholas recommends dollar-cost averaging the inheritance over six months to mitigate market volatility risks. He also suggests diversifying investments beyond traditional markets, including potential real estate investments for tax benefits.
  “I would probably break it over six months and do a chunk every month so you can really get some dollar cost averaging in.”
  (22:38)

• Bridge Account Utilization: Robert underscores the importance of a bridge account to provide liquidity and flexibility, enabling the couple to capitalize on future investment opportunities without incurring penalties.
  “Beefing up that bridge account will give you the flexibility to have that scale in over time.”
  (22:38)

• Diversification and Future Planning: Emphasis on building a well-rounded investment portfolio that balances real estate with liquid assets to safeguard against potential market fluctuations.
  “You should have that bridge account. So you have all of your money working for you, but you also have autonomy over that money.”
  (23:37)

Notable Quote: "Paul, you are going to be multi, multi millionaires in retirement." — Robert
(24:06)

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4. Choosing Between Term and Permanent Life Insurance

Listener: Kevin
Timestamp: [24:06] – [31:46]

Question: Kevin, a high-income earner in the medical field, is evaluating whether to continue with term life insurance or switch to permanent life insurance, which was presented as having similar tax benefits to a Roth IRA without contribution limits.

Discussion Highlights:

• Nicholas’s Warning Against Permanent Life Insurance: Nicholas strongly advises against permanent life insurance (e.g., IUL policies), citing high fees and commissions that can erode investment gains. He highlights that these policies often underperform compared to traditional investment vehicles like the S&P 500.
  “They have very, very expensive fees. Whenever you get approached by anyone selling you whole life, especially IUL policies, ask them this one question and it will change your mind.”
  (25:14)

• Robert’s Breakdown of Policy Differences: Robert contrasts term life and permanent life insurance, underscoring the straightforward nature and affordability of term life insurance. He critiques the investment component of permanent policies, explaining how they can limit access and reduce overall returns.
  “Term life insurance is very straightforward... you pay, you get coverage. Permanent life insurance is ten times more expensive and not truly yours to begin with.”
  (27:34)

• Emphasis on Term Life Insurance Benefits: Both hosts promote term life insurance for its cost-effectiveness and clear benefits, allowing beneficiaries to invest the death benefit independently and achieve potentially greater financial security.
  “Life insurance exists to supplement the income of the survivors.”
  (28:07)

• Public.com Promotion: The episode includes a brief promotion of Public.com, highlighting its high-yield bond accounts as an alternative investment strategy.
  “Lock in a 6% or higher yield with a diversified portfolio of high yield and investment grade corporate bonds.”
  (31:14)

Notable Quote: "I think it is important that these policies should not be referred to as investment vehicles because they're just not." — Nicholas
(30:06)

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5. Investing vs. Saving for a Future Home Purchase

Listener: Hunter C.
Timestamp: [31:46] – [36:54]

Question: Hunter and his wife, who plan to buy a home in their 50s, seek advice on whether to invest $40,000 annually in the stock market or keep it in a high-yield savings account, considering potential tax implications upon purchasing a home.

Discussion Highlights:

• Nicholas’s Investment Advocate: Nicholas recommends allocating a portion of the annual savings to high-yield savings for emergencies while investing the majority in index funds like VOO or QQQ to harness higher returns over time.
  “Put the rest I would definitely get invested in the funds like we talk about Voo, QQQ, VGT, VTI, funds like that.”
  (32:40)

• Robert’s Counterpoint on Interest Rates and Home Ownership: Robert warns against assuming that high-yield savings rates will remain consistently high and encourages early home ownership to lock in rental costs against future rental inflation.
  “High yield savings accounts will always pay 5% over the next 25 years. News flash, they do not.”
  (33:56)

• Alternative Strategies: Nicholas suggests purchasing a condo as an investment property that can serve as a future residence, providing both tax benefits and capital appreciation while offering flexibility.
  “You could always look to buy something... to own and have free and clear just in case.”
  (35:44)

Notable Quote: "Rents always go up... whereas if you got mortgage and it was, let's call it $2,000 or $2,500 a month, you're paying that for the next 30 years." — Robert
(33:56)

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6. Paying Off High-Interest Debt vs. Investing

Listener: Caleb P.
Timestamp: [36:54] – [40:36]

Question: Caleb, a 24-year-old earning $60,000 annually, seeks advice on whether to halt contributions to his Roth TSP to accelerate repayment of high-interest credit card debt.

Discussion Highlights:

• Robert’s Strong Stance on Debt Repayment: Robert reiterates the principle that you cannot out-invest high-interest debt, emphasizing that the returns from investments typically do not surpass the interest rates on such debts.
  “You cannot out invest high interest debt. The math does not math right?”
  (39:27)

• Nicholas’s Reinforcement: Nicholas supports the strategy of prioritizing debt repayment, highlighting that eliminating high-interest debt frees up more resources for future investments and avoids the negative impact of high-interest payments on overall financial health.
  “You cannot out invest high interest debt. Now maybe you get lucky for a few months here and there... but that is not consistent and it will not work long term.”
  (40:36)

Notable Quote: "You have to make sure your money is always working as hard for you as you work to get it." — Nicholas
(07:50)

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7. Developing Remote Skills for Financial Growth

Listener: Claire H.
Timestamp: [40:36] – [45:32]

Question: Claire, a 20-year-old chemical engineering student with limited funds, is seeking advice on which remote skills to learn that offer high upside potential, specifically in web and graphic design.

Discussion Highlights:

• Nicholas’s Emphasis on AI Integration: Nicholas advises Claire to focus on AI-enhanced web and graphic design skills, as artificial intelligence is revolutionizing these fields. Mastery of AI tools can set her apart in the market and create lucrative side hustles or full-time opportunities.
  “Focus on really, really learning AI and becoming good at it as it relates to web and graphic design.”
  (42:17)

• Robert’s Recommendations on Side Hustles: Robert suggests exploring platforms like TikTok Shop and automating business processes for small businesses as viable side hustles. He encourages leveraging emerging technologies and staying ahead of market trends to maximize earning potential.
  “Building automations for restaurants, for barbershops, for small business owners... these types of automations is what we're talking about.”
  (43:40)

• Educational Focus: Robert underscores the importance of academic performance and career advancement, advising students to prioritize their studies and internships, which will yield significant returns in terms of future income and financial stability.
  “You should worry about getting the best grades possible to set yourself up for a wonderful career out of college.”
  (44:17)

Notable Quote: "Don't worry about having to make all the money at 20 or 19 or 21. The money will come." — Robert
(42:55)

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Conclusion and Closing Remarks

Timestamp: [45:32] – [46:53]

As the episode wraps up, Austin and Robert encourage listeners to engage with the Rich Habits Network for ongoing support and community interaction. They also announce their upcoming live event, the Grit Money Summit in Toronto, offering attendees an opportunity to learn from a variety of financial experts.

Notable Quote: "If you are as serious about investing as we think you are, you need to know about public.com." — Nicholas
(02:03)

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Final Thoughts: This episode of the Rich Habits Podcast provides valuable insights across a spectrum of personal finance topics. From optimizing stock portfolios and balancing real estate investments to making informed decisions on life insurance and debt repayment, Austin and Robert deliver expert advice tailored to diverse financial situations. Whether you're a student, a professional with high-income potential, or someone managing significant inheritances, this Q&A session offers actionable strategies to enhance your financial literacy and investment success.

For continued learning and community support, consider joining the Rich Habits Network and stay tuned for future episodes that delve deeper into building wealth and financial independence.

Transcript

[Austin]

I can say to my new Samsung Galaxy S25 Ultra, hey, find a keto.

[Robert]

Friendly restaurant nearby and text it to Beth and Steve. And it does without me lifting a.

[Austin]

Finger so I can get in more.

[Robert]

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[Nicholas]

4 Galaxy S25 Ultra the AI companion.

[Robert]

That does the heavy lifting so you can do. You get [e-mail] compatible with select apps. Requires Google Gemini account. Results may vary based on input. Check responses for accuracy this is a.

[Austin]

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[Robert]

Welcome back to the Rich Habits Podcast Question and Answer Edition. As you guys know, these are our Thursday morning episodes. In these episodes, Robert and I answer your questions as if we were in your shoes. You can send us questions on Instagram Rich Habits Podcast or email us [e-mail] or if you're part of the Rich Habits Network, not only do you always get your questions answered, but you get to join us every Tuesday evening for a live stream. Robert, I'm excited about this episode. We've got a ton of really good questions. We're talking about stocks, talking about a big inheritance, investing for nieces and nephews, even one of your favorite topics, permanent life insurance. So this will be one of those fun episodes.

[Nicholas]

Yeah, I'm definitely excited. We are just getting so many great questions each and every day throughout all of our social channels. And that's why this episode is so important, because we just do it live right off the dome and really try to help people like you said, as if we're in their shoes. Because personal finance is personal and everyone's situation is different. So I'm excited to dig in.

[Robert]

Well, before we dig in, let's take a moment to hear from this episode sponsor public.com because if you're as serious about investing as we think you are, you need to know about public.com. on public, you can invest in everything stocks, options, bonds, and cryptocurrency. They even offer some of the highest yields in the industry, like their bond account that pays a 6% or higher yield and remains locked even if the Fed continues to cut interest rates. Now what sets Public apart is how they can give you the tools you need to make informed investment decisions with your money. They have a built in AI tool called Alpha that doesn't just tell you if an asset is moving, it tells you why the asset is moving so you can actually understand what's driving your portfolio's performance every day, week and month.

[Nicholas]

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[Robert]

Right Robert, this first question comes from James D. It's a very common question and I'm excited to answer it. James says hi Robert and Austin and the rest of the Rich Habits Network. I want to say thank you for all the videos and podcasts you put up. I've been listening for a few months now and I've really enjoyed them. Now I've been doing some research on investing and I'm trying to figure out how many different stocks in my portfolio is too many. I want a dollar cost average into a lot of blue chip single stocks, but I feel like with the amount of money I'm investing every month, I'm not really investing that much into anything. What are your thoughts Robert? You kick this one off.

[Nicholas]

I would love to because this one should literally be in the frequently asked questions on the Rich Habits Podcast website because so many people just have no clue. They either had a broker that had them in 45 different stocks or or they had an uncle that told them they should be day trading or swing trading and people just don't know. In my opinion. And what I do is I think for the average person, until you get much further along and much more enhanced in your understanding of single stocks and well versed, I think 10 to 20 is a great sweet spot because you don't want to have so many that you can't let your winners win because you have 20 $200 in 20 stocks and four of them really perform well. But you're not taking advantage of this. Austin and I talk about it all the time that you have to let your winners win and so you want to really be able to catch the fire when you have a really good stock like Nvidia's been or Palantir on running or some of these. So in my opinion, if you're, you're beginning stages of purchasing individual stocks or even the middle stages, I think 10 to 20 stocks is a great sweet spot.

[Robert]

I'm right there with you, Robert. I think in the beginning, a lot of people make the mistake, including myself, of saying, whoa, shiny ball syndrome. That stock went up a bunch. I want it. Oh, someone said, this stock's going to go up a bunch too. I'm going to buy that. Oh, these guys talked about it on Twitter. This person told me to buy this one. You quickly realize if you've got 50, 75, 100 stocks in your portfolio, not only is that overwhelming, but. But nine times out of ten, you're not even keeping up with the performance of the s and P500. So want to just remind everyone, the only reason you should own any single stock in your portfolio is because you believe the performance of that stock over the next 1, 3, 5, 10 years will be better than the S&P 500 or whatever benchmark index you want to index it against. So we like to say, okay, why do I own Amazon stock? Well, I own it because I think Amazon's going to outperform the markets over the next 1, 3, 5, 10 years. And so if you're thinking about building a portfolio from scratch, I totally hear where you're coming from. It kind of feels weird to like, you know, I'm buying 20 bucks of this stock and $14 of this one and whatever, because you want to make sure your weightings aren't weird. A strategy that I've used in the past is I say, okay, great, I've got all this money invested into index funds and ETFs. I feel good about that. It's time to diversify. And one at a time, I'm now going to start dollar cost averaging into a specific company until the weighting of that single stock hits my target. Right? And so that target for me again, Robert, I don't want any of these names to make up more than 3% of my portfolio. Because if you've got 10, 20, 30, 40% of your portfolio in a single stock, what happens when the Stock goes down 20, 30% because they had a bad earnings? Your portfolio crashes. And we don't want to do any of that. So I have a target. Call it 1, 2, 3% of my portfolio. I will allocate new capital to that every single week or month until I hit that target. And then I'm on to the next one. So James, really great question and we hope this helps.

[Nicholas]

I want to add one more piece to this. I really like where you're at on this strategy and that is getting people to understand. Also, if you do own a lot of stocks, you have to always maintain and understand your opportunity cost when you're letting the losers lose. Because so many people I'll look at their portfolios and they will have 6, 8, 10, 12 stocks that have been losing for a year, two or three years, but they never get rid of them and they always think, well it's going to come back because Bill or Larry said it's going to come back. Well guess what? That is not an investment strategy. When you have a loser and maybe your thesis has changed on that loser, get rid of it. Tax loss, harvest the losses and use that money elsewhere. Because you have to make sure your money is always working as hard for you as you work to get it. So keep that in mind as well as a caveat that you don't want to just let the losers sit because you hope they're going to come back. That is not a good investment strategy.

[Robert]

I love that feedback Robert Our next question comes from Nicholas G. Nicholas says hey Robert Nauson. Just wanted to say I am super grateful for you two and all you've taught me over the last few years since I found your podcast. My Name's Nick, I'm 27 years old and I'm married. I just barely passed the six figure mark at my day job. Plus I've got a side hustle that generates $600 a month and I help my wife with her cleaning business that generates another 1200amonth after taxes. I currently have 65,000 invested into index funds in my retirement accounts and a small amount in cryptocurrency as well as some real est. We have $250,000 of equity across three rental properties and our primary residence that we've built up by house hacking. All the rental properties are break even but they appreciate very well because we live in a state with a very strong economy. I love real estate and would love to invest full time once I build up my portfolio focusing on carbon neutral investing. My question for you is this. As personal finance experts and entrepreneurs, should I still be fairly conservative by investing in index funds in crypto or instead of going all in on those and letting rental properties kind of just do their thing, should I flip the script and go all in on acquiring more rental properties and diversifying more into real estate? Until I've built up a wonderful portfolio. I'm pretty close to my Investment base of 100,000 like you recommend, but pulled money out for our last down payment. And I'm just wondering what you think that I should be doing with all this real estate. Robert, I'll let you kick this one off.

[Nicholas]

Yeah, I love this question from Nicholas and I think you've already answered the question. I think you need to build up your base further because you're not really well diversified. I think you're absolutely. You guys are crushing it, obviously at 27 years old. But I would do both. I would maybe pause the investing in the real estate right now or slow it down. At least I would invest more to get your base built up. You've got the 60, I think it was $65,000 right now. I'd maybe get that to 200,000, 250,000, then reinvigorate and buy more real estate. But I definitely like to see diversification. I've been around long enough to see many, many ups and downs in the real estate market, whereas even Austin or yourself have not. And so I would hate to be so fully immersed in real estate that if there were a big correction and let's say housing prices came down 15 or 20%, that a lot of your equity gets eaten up there. But also you have to look at it that that equity is dead money essentially right now until you sell the property. Now, you pointed out the great capital appreciation, really, really awesome. But you're not very liquid. And so I'd like to see you build up your base Further, get to 200, $250,000 if you find a real estate project in the meantime, great, go for it. But what I don't want to see you do is continually save and spend, save and spend, because you're never going to get that liquid base built up to give you the diversity that I think you need.

[Robert]

I'm right there with you, Robert. I think a mistake people make, and I see this a lot with people who are really excited to like pay off their home. They go, okay, I've got a couple hundred thousand invested in the markets, but I spent the last nine years paying off my $700,000 mortgage. Now I've got way more money in real estate than I do invested as it relates to my net worth. Let's say you have a million dollar net worth. You have $700,000 of equity in your home and $300,000 invested in retirement accounts and no debt. Well, congrats, you have no debt. Which is cool. But on the same token, you are way over indexed to real estate. I'm not saying Nicholas is in a bad spot by any stretch of the imagination. You wonderful for 27 years old to have all this money invested, all these properties, all this, like you're crushing it. But I agree to what Robert's saying in the sense that you've already got such a head start on the real estate side of the equation that it's time to begin to catch up a little bit on the investing. I'd love to see just as much as you have invested in real estate, this 250,000 invested in index funds. You're at 65 right now. What is the plan to go from 65 to 250. So your 5050 split asset wise, 50% real estate, 50% stocks over the next, let's call it three to five years and then really begin to say, okay, great, I've got my base built, I've got my index funds, I've got my dividend ETFs and my single stocks and my crypto and my emergency, all this fun stuff and I've got some cool real estate. I would hope the next logical step is to say, okay, how do I now either one, make the real estate I own at the moment start cash flowing, because I think that's very important, or two, how do I now focus more on cash flow real estate? Because to Robert's point, this $250,000 of equ is dead money. I mean, yeah, it's growing, don't get me wrong, it's wonderful, but you don't see it unless you sell the house. And that's a whole other, you know, four, six, sometimes nine month process depending on what markets you're in.

[Nicholas]

Yeah, I love that takeaway, Austin. And one more little quick story for Nicholas G's question. And that is I remember vividly back in 2009, 10 and 11 when the housing market really crashed. And I'm not saying that could happen again, but I'm just telling you a story, and that is, I had so many wealthy friends that as soon as that happened, they had to sell the Bentleys, sell the mansions, sell the boats. And then all of a sudden they were starting from zero again because all of that equity and all of that wealth that they thought they built through real estate evaporated. That's why we love to speak diversity. A lot of people call me out online and say, oh, you should go all in on one thing. And those people don't know what they're talking about because I will tell you, some of the most successful people I knew back then in 2009, 10, 11, 12 got wiped out and it took him a decade to recover. It happens all the time when you lack diversity. So everyone listening, everyone watching, please stay diversified. It is ultimately important to make sure you can sleep well at night and one sector having a correction cannot wipe you out.

[Robert]

So our next question comes from Patrick O. Patrick says hey Austin and Robert, I'm a huge fan of the show. Thank you so much for putting out all this helpful information. I didn't start learning about personal finance until I was in my mid-20s, specifically the power of compound interest. I don't have kids at the moment and I'm not sure I want to in the future. So my nieces and nephews are my focus. Ideally when they are ready and mature enough, I will have contributed for over a decade to some sort of brokerage account on their behalf. Austin, I believe you once referenced saving money for your own nieces and nephews. Do you find the UTMA account to be the best option or do you prefer the 529 account? I appreciate any insight. Thank you so much. Patrick, this is a great question. So let's break down the differences real quick between the 529 account and the UTMA account. The 529 account, just so we're on the same page, is an investment account. And by the way, we talked about this on Monday's episode, it's an investment account that parents and other people that have children or nieces and nephews can put money into, invest the money and use those profits tax free to pay for education specific type expenses. So think college tuition, think trade schools, think room and board, things like that, right? Education related expenses. So let's say you put in $50,000. Over the next decade, it grows to $100,000. You have $50,000 of profits. Now in this hundred thousand dollar account you can spend those $50,000 of profits completely tax free on education related expenses. That's the 529 account. Now what makes the 529 account cool, in my opinion, is once that kid turns 18, you can roll over up to $35,000 out of that account directly to the child's Roth IRA. So give them a really big jump start there on their retirement investing. Now how I understand it, on the contrary, is a UTMA account is also an investment account, but it's essentially like an account where you can contribute money toward it. You've got the profits, it's all the fun stuff, but the child can't touch it until they're a specific age. Think like 18 or 21 years old or something like that. Now, the flexibility that comes with the UTMA account is that whatever profits are generated in this account, you pay some taxes on it and you can spend the money on anything you'd like. So on one side of the equation it's education specific. On the other side it's I want to go buy a new iPhone. And in your question, you mentioned how you have a little bit of concern about them using this money and spending it frivolously. So if I were you, I would do the 529 account. Again, it is something you have full control over, full autonomy to be spent on education related expenses. I think it's a wonderful gift to set your nieces, nephews, children, people you care for, up for success in life by saying, hey, don't worry about student loans, hey, don't worry about that trade school. Don't worry about these expenses. I will cover that for you. I'll set you up on a really great, you know, take the right step forward with your own finances. And don't forget about that $35,000 rollover to the Roth IRA as well.

[Nicholas]

Yeah, I love this and I just want to put some clarity out there for this question. And it's a great question. And that is you have no clue at a much younger age what this child, niece, nephew, whatever it is, how they're going to turn out at 18 or 21 years old. So you have to understand the cons of a utma and that is they have full autonomy to do whatever they want with the money at 18 or 21 years old, whichever time you have it set up for them to take over the account. And so if your goal is to set them up to have a paid for education, then you have to do the 529 account. If your goal is to try and trust the system and you want to do the UTMA account, there's more flexibility. There are some benefits to the UTMA account, but I personally would not do it unless you're just trying to set them up and give them an opportunity to have money when they turn 18 or 21. But the 529 is the clear leader if you want to see them get a good education and you feel that is the best step forward for them. And because of the Secure Act 2.0, you now can roll over these funds, if not used for education, into a Roth ira. And I really love that because then you're setting them up truly for their future and their retirement.

[Robert]

100% right. Because if it's in a UTMA account and they say I want to go on a exotic vacation and spend $15,000, that's their prerogative. Where if you've got it in a 529 account you can make sure that you're paying for their education and setting them up for retirement with this Roth IRA where they can't touch it till they're 59 and a half years old. Right? So it's what I prefer. It's what I'm doing and I think it's the best way to set up the future generation for success with money.

[Nicholas]

I agree 100%.

[Robert]

Alright, let's jump into our next question from Oliver. Oliver says hi Austin and Robert. I love the podcast and how it approaches building wealth from multiple facets Huge fan of the show. My wife and I make a combined $270,000 from our W2 jobs. I'm 32 and she's 31. She is still in residency to be a doctor after having taken some years in industry prior to medical school. So we expect our combined income to grow by about 150,000 after the next few years. When she wraps that up, we have about 630,000 in investments across several retirement accounts, our bridge accounts and crypto. We have 30,000 in a high yield savings account as an emergency fund. She has 75,000 in medical school debt remaining at around five and a half percent, but it is still in forbearance until October of this year. No other debts. We're expecting to inherit $330,000 in the coming months. We would eventually like to purchase a house, but probably not for the next few years since we will likely move after she finishes her residency. We do not plan on having kids. We are hoping to plan for an early but comfortable retirement sometime in our late 50s, which already seems possible given our current sit. My question is how should we approach scaling this inheritance into our investments to optimize our growth potential? I am planning to top up our emergency fund and then use this inheritance to offset W2 deductions in order to max out both our 401ks and backdoor Roth IRAs as well as make some payments against the student loan debt once that starts back up, but this still leaves a large amount of money that I will probably just park in a high yield savings account until I figure out what to do with it. Should we invest all of it via our bridge account and one Lump sum scale in over time or maybe even hold back to be able to rinse and repeat in multiple years, maxing out our 401ks to optimize for tax advantage accounts. Oh my goodness. Robert. First off, Oliver is a genius. Shout out to Oliver and his incredible wife.

[Nicholas]

Incredible. Geez, I wish more people would really take the time to continually learn and take action to get to this situation at 32 years old. Bravo. This is amazing. I love these kind of questions.

[Robert]

I do too. Well, I want to start this question with empathy. You're getting 330,000 because someone passed away that you love. So I'm sorry to hear about that and I pray for your peace and comfort over time. So the first thing I think I'd want to do is to clean up this medical school debt. She's got $75,000 left, which at this 5.5% interest rate is about $1,000 a month that they're paying on this payment once the forbearance kind of gets itself figured out in October. So you're talking about $12,000 a year, which could then be used for that. Early, you're talking about. So if you want to retire early, I think getting rid of those pesky monthly payments, especially at this, call it 5.5% interest rate, it's not so high where it's alarming, but it's also not, you know, 2, 3, 4%. It's right there in the sweet spot where it's. I don't want to keep this around that much longer. So that's probably the first thing I would do, is clean up the medical school debt. Robert, what do you think they should do, especially when it relates to maybe buying some real estate or diversifying? They've got a wonderful investment account, 630,000 across a lot of different accounts here, which is great. Do you have any tips for them to diversify?

[Nicholas]

Yeah, I love it. This is a great situation. And I definitely think with the lump sum, I would not let it sit in high yield savings. You need your emergency fund and that's it. I would get the rest of it invested, but I don't think I would just dump it all in the market in one day. I'd probably break it over six months and do a chunk every month so you can really get some dollar cost averaging in because right now with the markets being a little choppy, we don't know what's going to happen in the coming weeks and months. It's always best to dollar cost average because no one can truly time the market successfully. And I would consider and make sure you check with your tax attorney or your accountant. I would consider looking at investing in some real estate too to get some of these write offs. And so there's a lot you can do with this. But diversification is key here. Don't let the money sit in high yield savings. We're very, very happy and impressed that you at least have it in high yield savings because so many people let it sit in a regular checking or savings account making no money. So that's fantastic. But then I would also dollar cost average over time, maybe three, six, nine months.

[Robert]

And I also want to address, you know, they want to retire early, sometime in their late 50s, which is good because at 59 and a half you'll be able to touch your retirement money penalty free. But if you did want to begin to retire into those late 40s, early 50s, we're talking about 10 years or so where you can't touch these retirement accounts without some rig and penalties and very hard to work around situations. So beefing up that bridge account, Oliver, like you mentioned, investing this delta between the medical school debt and the inheritance via a bridge account and some retirement accounts, but majority bridge account will give you the flexibility to what Robert said, have that scale in over time, six month time horizon there while also not having to pay penalties and fees. When you want to cash out that money. Maybe you want to cash it out for that forever home you want to build in your 40s or maybe you want to cash it out for some early retirement. But regardless the reason, it's going to be there penalty and fee free.

[Nicholas]

Yeah, I love it. And it really speaks to one of the episodes we did about net worth millionaires. So many people, because they do not ever initiate a bridge account, put themselves in a difficult situation because they have all this equity in a home and then they have all these funds in a 401k but they don't have access to this money until 59 and a half. That is why we always want to make sure you have that bridge account. So you have all of your money working for you, but you also have autonomy over that money and can get to it anytime you need.

[Robert]

Congratulations on what you've built, Oliver. You guys are going to be multi, multi millionaires in retirement. All right, Robert, our next question comes from Kevin and this is all for you. Hi Robert and Austin, big fan of the show. I'm married and I have a three month old. So I'm looking to buy some life insurance. I was planning on buying Term life insurance. But I heard a presentation from a financial planner about permanent life insurance and it has me thinking that it could be a really good idea. A bit of my financial background is I work in the medical field and I take home about half a million a year. My 401k is fully funded by my employer and my IRA and HSA accounts are maxed out. I have $500,000 in my bridge account. I also have a home mortgage of 630,000 and another 50,000 in student loans. The way it was presented to me is that permanent life insurance has the same tax benefits as a Roth IRA except with no contribution limit and I can withdraw it at any time time. So if I have the extra disposable income, does it make sense to invest in a permanent life insurance plan? What are the downsides to such a plan? Should I just stick with term life instead? Robert, you want to kick this one off?

[Nicholas]

Oh, yes.

[Robert]

Let's not be mean to Kevin. Kevin is, I'm sure, just curious. He doesn't know.

[Nicholas]

We're not. We're not going to be mean. But Kevin and everyone else that gets pitched permanent life insurance. Iuls be careful because let me explain the most important factor of all of this. And that is if you invest in Voo in the S P500 for 10 years, the investment grows, it compounds, you're making money, you're growing your wealth and you stop investing in Voo in the S P500. Guess what? The money keeps growing. That is it. When you look at whole life, especially these IUL policies, if you have a lapse in payments, your money vaporizes, it's gone. So you have to realize it is not truly an investment in a way that if you said, oh, I can't afford these payments anymore, I'm just going to let that money ride. Well, guess what? The policy cancels. They keep your money and you're out that money. So that is the biggest thing that I do not like about these, and I don't believe it should even be legal that they're called investment vehicles because they're just not secondarily. They're very, very expensive. And that is the biggest drawback to permanent life insurance. The fees are astronomical. Whenever you get approached by anyone selling you whole life, especially IUL policies, ask them this one question and it will change your mind and change your life dramatically because you'll know to say no to it. And that is, what are the fees and commissions relative to the amount of money I put into this account? Because they're not going to want to tell you that in the first two, three years, the commissions can range up to 50% on your money. And if there's one thing that boils my blood is the person helping me with my money should not be making more with my money than I make. So, so important. So those are the two things that piss me off the most. Because these people, you know, you see all these guys on Instagram and Tick tock talking about how more millionaires are made being life insurance agents. Agents. Well, guess what? If you can sleep at night ripping people off on their money, then I feel sorry for you. Because at the end of the day, I want people to invest for their futures using the right vehicles so they can retire with dignity and peace.

[Robert]

Mic drop. I mean, I'm right there with you, Robert. Let's kind of break down real quick just so we're on the same page. The differences, the main differences between term life and permanent life. So term life insurance is very straightforward. It's what I have, I pay, I believe it's like $1,600 a year. I've got a couple million dollars. I've got Prudential, I think is who I have mine through. It's a 10 or 15 year policy. I'll have to check. But essentially what that means is if I die, my beneficiaries will receive this lump sum payment of let's call it $2 million. And they can take that 2 million and replace the income that I was creating with that 2 million by investing it in the markets and pulling out 4, 5, 6%, whatever they want to do. Life insurance exists to supplement the income of the survivors. Okay, now that's the term life insurance policy. After 10 or 15 years, whatever, if I don't die, cool, the money is gone. Yes, but like it's also very cheap. I think it's like 80 bucks a month is what I pay for it. It's pennies compared to the amount of money that my beneficiaries will get if something bad happens to me. Now, on the flip side of permanent life insurance, instead of 80 dol a month, it's $800 a month. And so you're still paying for that let's call it $2 million policy. But here over on the side is where it's the investment. They say, yeah, we'll take a little bit of this $800 and we're going to invest it for you and we're going to index it to, let's call it the s and P500, which in actuality, they index it at 4 or 5% or something. The S&P did 28% the other year. So get out of here. And it's indexed, it's growing a little bit and everything else. And then once that amount has grown a little bit and enjoy your investment, you now have to borrow it as debt and then pay it back before you die. Robert, I've never heard of an investment that I don't have. Therefore I've been paying into it though, but I can't touch it unless I have to borrow against it and then I got to pay it back. So it's not even mine to begin with. And it's ten times more expensive. Just think about how much extra money you could have if you just took that $800 or the difference. 800 minus the 80. So the 720amonth. And just invest that in the markets. Like you were saying, into the S and P over the next 10, 15, 20 years, you will have much, much more money.

[Nicholas]

Yeah. And as a reference high net worth client and friend of mine showed me their IUL policy that they purchased and have been paying on for years. And over the last three years, their average return on this so called investment was 2.6%.

[Robert]

Oh God.

[Nicholas]

So let's talk about that real quick. The s and P500, what did it do last year, Austin? Like 26%, 25 the year before, 21% percent. You're leaving so much money on the table in really one way that's really kind of comical about these accounts too is it's almost impossible to figure out what the fee structure is. And these companies do it intentionally. If you look at one of these contracts, it's like 35 pages long and it is very difficult. You would need to be a rocket scientist or possibly an accountant of 30 years to be able to even break it down and understand the fee structure. So. So we like to keep it simple, stupid. We like your money to grow and you have autonomy and understand what you're investing in. And whole life policies are not the answer.

[Robert]

So Kevin, here's what you do. You go get a term life insurance policy where the Death benefit is 8 to 12 times your current annual income. That will give you enough flexibility where your survivors will be able to invest the money. They will then be able to withdraw 4, 5, 6% out of it every year and replace your income income with this investment, lump sum.

[Nicholas]

So speaking of making more money than 2.6%, listen up folks. 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 right now. 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 of high yield and investment grade corporate bonds. [e-mail] Rich Habits all right, Robert, our.

[Robert]

Next question comes from Hunter C. Hunter says, hey, Robert Nauson, my wife is 28 and I'm 25 and we've agreed upon not owning a house until we're in our 50s because we move a lot and enjoy apartment living since we don't have to pay for the cost of maintenance. I've budgeted myself to save $40,000 a year year. And my father told me to keep putting that $40,000 in a high Yield Savings account every single year so it can grow. However, you guys say that I should invest the 40,000 into the index funds that track the S&P 500. However, you guys suggest I should be investing the 40,000 every year in the S&P 500. Now, my father thinks that eventually when I do want to buy a house, all the money I have invested, I'm going to have to pay a ton of taxes on it. Where if it was in a High Yield Savings Account, I wouldn't have to. Which one is the best strategy? Robert, I'll let you just quickly answer this one.

[Nicholas]

I love this question and I really appreciate your father giving you this advice, but let's work the math a little bit. 5% on a high yield savings is great, but 22%, 25%, 14% is better. I would say you do both. You leave an emergency fund in the High Yield Savings Account. So if you're going to do 40,000 a year year, I'd probably leave 10,000 a year in the high yield savings, 5,000 a year in the High Yield Savings and let it grow. And then the rest I would definitely get invested in the funds like we talk about Voo, QQQ, VGT, VTI, funds like that. Because if you average even 10% a year, you have an additional 5% of this money growing in your favor, compounding over time. And you have a long ways to go because you're 28 and 25 years old old. And you don't want to be leaving 3, 4, 5, 10% on the table year in and year out for decades because you'll be leaving millions of dollars of money on the table. So the takeaway is yes, keep the high Yield savings. Put the rest invested into the Roth IRA and the rest into your bridge account. Build that money, diversify and make sure that that money is working as hard for you as you work.

[Robert]

To what I would add, Robert, are there are a couple things that was not understood, in my opinion by your father and you in this situation. The first assumption that you guys are kind of going into this situation with is that high yield savings accounts will always pay 5% over the next 25 years. News flash, they do not. High yield savings accounts right now pay 4% because the Fed has cut interest rates, the short term interest rates, and I think now public is paying like 4.1 compared to like the 5.2 they were paying last year. Right. Because the Fed has cut rates, we cannot predict what the Federal Reserve is going to do with interest rates over the next 25 years. So all of this is assuming it's going to be at that 5%. It's not. The other thing I wanted to call out is you guys said that you don't want to own a home until you're in your 50s. I think that's not that great of an idea. I really, really firmly believe that everyone should have this underlying conviction and dream of owning a home whenever they can afford it. Slash as early as possible. I understand the idea of like maintenance cost and travel and like you really enjoy apartment living. But if there's one thing, one thing that I know is true in this world, it's that rents always go up. So right now you guys might be paying $1500 a month or $2000 a month in rent. Well, adjusted for inflation, in 25 years you could be paying $6000 a month in rent. Whereas if you got mortgage and it was, let's call it $2,000 or $2,500 a month, you're paying that for the next 30 years. Okay, so those are the two things I'd like to add. Right. Is like one, interest rates don't always stay the same. And two, you should probably own a home sooner than 50 or so if you can afford it.

[Nicholas]

Yeah, I like this idea. And I'm going to put a third option in here. You could always look to buy something. It doesn't have to be your forever home once you're 55 years old. Sold. You could look to buy a condo in an area that you would love to have later on, maybe make it a rental for now because then you get some advantages there tax wise and then you would own that and over the next 20, 30 years let's say the payment on that condo is $2,000 a month and you're breaking even but you're getting the tax benefits, you're getting the capital appreciation. Then you would have that home ready for you to go and, and possibly and close to being paid off off 20, 30 years down the road. So that's another option. I have that option right now. I have a paid off home in Ohio that is awesome. We're renovating it right now. I don't really need it right now. It's functioning as a rental right now. But that is my little safekeeping of having a home for when I go back to my hometown in Ohio to be able to own and have free and clear just in case. Because it's a good feeling, especially when you're getting older, to know that you have a home and you're not going to have a payment until you die. So keep that in mind as well.

[Robert]

I totally agree with you, Robert. Having a home base that is going up in value over time with a fixed monthly cost is very, very smart. Our next question comes from Caleb P. Caleb says. Hey Austin and Robert, I appreciate Yalls podcast. I've been listening for about five months now. I could use some advice. I'm 24 years old, I make 60,000 a year and when I started listening I had $20,000 in credit cards debt. Now I've paid it down to only $12,000. Let's go Caleb. Congratulations. That's awesome. Caleb says I have roughly $4,000 in my Roth TSP and it's getting the company match. Should I stop contributing to this account so I have more money every month in my paychecks to pay down my credit card debt quicker. I know you all preach that I can't out invest high interest debt, but I'm afraid if I pause my investing, I'll get left behind. Robert, I'll kick this one off. I am the biggest believer all time. You cannot out invest high interest debt. You guys just can't do it. The math does not math right? We've had two awesome years in the stock market, don't get me wrong. But these have been anomalies. You cannot consistently predict 20, 25, 30% annualized returns in the S&P 500. It just doesn't happen. So I'm afraid people are seeing these great returns. They're saying, well my interest rate's only 18%. I could get 25 in the markets. No you cannot. Do not assume. That's a terrible assumption. You should assume 8 to 12% per year in the markets and if your interest rate is within even spinning distance around that, it's time to pay off the debt, especially if it's high interest rate debt at 18, 25, 30% interest in some of these cases. So let me just, yes, you are going to have to stop the contributions, pay off the debt. That's my answer. But let me just kind of ease your mind here on this. I'll get left behind. We're talking about a season of your life life where you will be aggressively paying off this credit card debt like you have been for the last five months. In five months you've paid off $8,000 of credit card debt. That means in the next five months. Now with this extra money in your paycheck, I bet you can pay off this remaining 12. You will not retire broke because you didn't invest for five months. I promise you that Caleb, putting yourself in a season of hard work and debt pay payoff to make sure that you're setting yourself up for financial success in the future is always worth it. So yes, pause the investing, pay off the high interest credit card debt and then once it's paid off, just turn it back on, just start investing again and you're off into the races.

[Nicholas]

Let me try to add a little more texture to this. And Austin, great, great breakdown Caleb. It's this simple. In an average year, let's say you make 10% in the stock market. We're talking S&P 500, QQQ in the NASDAQ, whatever it might be, might be. But if you're paying 25 or 30% on your credit cards and you don't understand the positive correlation of having that positive arbitrage of money going into your pocket instead of paying off these credit cards, then we have to have you really study that and understand because if you're paying 25 and you're only making 10, then you're still 15% in the hole going backwards. Whereas if you get that paid off then you put yourself in a much better position because all of those funds, the positive arbitrage side of things is going to you. That is why we're always telling people if it's high interest debt, you cannot out invest it. Now maybe you get lucky for a few months here and there and maybe you know, you have a big run up on a stock or a cryptocurrency but that is not consistent and it will not work long term. That is why we want you to pay off this high interest debt then get right back at at IT investing.

[Robert]

So our final question comes from Claire H. Claire says Hi, I'm a 20 year old student studying chemical engineering. I really appreciate your knowledge of investing, but as a student I just don't have any money to invest. What remote skill should I learn to earn money? I'd be more eager to learn something that is no limit to its upside potential. And I've been interested in web and graphic design. What do you guys suggest I do? Robert, you want to kick this one off?

[Nicholas]

I love this question from Claire. Yes, I want to kick it off. Off. You're on the right track. I love the idea of web and graphic design but keep in mind AI is changing the game in this sector. But if you were to focus on really, really learning AI and becoming good at it as it relates to web and graphic design, you could crush it as a side hustle and even turn it into a full time career because everyone needs help. One of the biggest side hustles that I've shared over the last two, three years is telling people to learn AI and also all of the new tools surrounding AI and automation. Because small business owners like myself, it's very hard to keep up with the automation tools and be able to stack those tools in a way to make us more efficient. So I love this idea. I absolutely think you should do it. Don't focus on the old thought thought of web design because are people going to still use Shopify and WordPress? Yes, but the days of paying a graphic designer or a web designer $5,000 to build your website are almost over. So you just want to be at the forefront of this technology boom that we're seeing with AI and I love this sector for you.

[Robert]

I could not agree more Robert. I am the biggest fan right now of people. You know, I've got my friends, I've got people in the rich habits network. I've just got everyone's like awesome, Austin, what is the best side hustle right now? I tell them TikTok shop. You can go make crazy money over there right now. You can do lives, you can have videos, affiliates, all that stuff. And the second thing I tell them is to build automations for restaurants, for barbershops, for small business owners and by automations. Robert and I are saying scan this QR code, give us your information and we will automatically put you in an email newsletter and a drip campaign with our email newsletter and then text you once a week to remind you about our appetizer special. And then once per quarter we will send you a mailer of Our menu in the mail, like those types of automations is what we're talking about. There's a guy on Instagram called Hamza Automates. He's super, super into this stuff. I always tell my friends to go, you know, check it out. It's so funny, Robert. I've told probably half a dozen people about this guy's account and to go figure it out. No one's ever done it yet. I'm still waiting on someone to say, yeah, it's like, okay, cool, I could all make all this money, like thousands of dollars a month by setting this stuff up. But I'm not going to put in the work to figure it out or I'm not going to put in the work to sell it and stuff. So if that person, you're studying chemical engineering, you're very smart, put in some work and figure it out. The second thing I want to mention though about this, you do not need to worry about investing at 20 years old. You need to worry about getting the best grades possible to set yourself up for a wonderful career out of college. Because your biggest wealth building tool is going to be your income and your career potential. Right? So if you are flunking out of classes because you're spending too much time on a side hustle in the interim right now it might feel good to have a couple thousand in your bank account. But I promise you, when you could have got a 4.0 and a cool internship and be making 150,000 at 28 years old as a chemical engineer because you did these things right with your classes and you got good grades, that's going to feel a whole lot better coming from someone who's 28. And I wish I did better in school. I promise you guys do not worry about having to make all the money at 20 or 19 or 21. The money will come. You have the rest of your life to make the money money. What you should worry about in school is making good grades, making connections and just, you know, setting yourself up for the best career possible once you graduate.

[Nicholas]

Yeah, even at my level with all the employees and all the automation and our team with rich habits and rich habits network and all the stuff I do, we flew in one of our workers last weekend for kind of a Mastermind update with one person. That's how important it is to get automation and stay ahead of the game game. And his goal now working for me, with me is to master YouTube. We've been lacking on YouTube automation. We've been lacking on monetizing YouTube. So now his new job, his new additional role for me is mastering YouTube. Anyone that has a decent amount of intelligence level can find a side hustle and master it in a couple months and really be able to monetize. So I love this direction, Claire, and I think you should definitely do it, especially if you're interested in graphic design and web development.

[Robert]

Everyone, thank you so much for joining us for this week's episode of the Rich Habits podcast, Question and Answer Edition. If you have a question for next week, email [e-mail] Check your email inbox already because we've probably sent you this week's edition of the Rich Habits newsletter if you've not yet subscribed to that. We've got over 50,000 people that come back. I mean, I'm talking 60% open rates. It's pretty crazy how much you guys love this newsletter. They all come back every single week to read this newsletter. It's about market updates, headline news, earnings, the economy, everything in between. And if you've not yet checked out the Rich Habits Network, we highly recommend doing so.

[Nicholas]

I love it, Austin. And for those of you that find value in these podcasts, remember we do this every week for our private community in the Rich Habits Network. So please check it out in the link in our bio. It is an awesome community. We're very, very proud of it. And special announcement, We, Austin and I, are going to be live on stage in Toronto, but also virtually April 3rd for the grit Money Summit. And we're so excited about this. There are some incredible other speakers, so you don't want to miss this event. And the coolest part, it's free. So look at the link in the show notes, go to the link in our bio and make sure you either join virtually or in Toronto, Canada. We're excited to be there.

[Robert]

We appreciate you coming back every single week. Thank you all so much and have a great rest of your week.