Rich Habits Podcast: Q&A Episode Summary Episode: Q&A: Texas Stock Exchange, International Stocks, & Investing While in School
Release Date: November 21, 2024
Hosts: Austin Hankwitz and Robert Croak

Introduction

In this engaging Q&A edition of the Rich Habits Podcast, hosts Austin Hankwitz and Robert Croak address a diverse array of listener questions, providing expert insights into various financial topics. From the emerging Texas Stock Exchange to strategies for investing while pursuing higher education, this episode delivers valuable advice for listeners at all stages of their financial journeys.

1. The Texas Stock Exchange and Its Impact on the Market

Listener Question: How will the Texas Stock Exchange affect the overall stock market?
Timestamp: [06:33]

Discussion:

Robert Croak introduces the Texas Stock Exchange (TSE), a planned exchange set to launch in Dallas, Texas, aiming to compete with established giants like the New York Stock Exchange and Nasdaq. With significant investments totaling approximately $120 million from prominent backers such as BlackRock and Citadel Securities, the TSE is poised to create a more business-friendly environment.

Notable Quotes:

• Robert Croak: "Whenever you can add competition to a market that is as big as the New York Stock Exchange and Nasdaq, I think it is great and it's long overdue."

• Austin Hankwitz: "I think it's really cool. It's a great idea for innovation... allowing us to have this more business-friendly environment."

Insights:

• Competitive Advantages: The TSE seeks to reduce compliance costs and offer more flexible listing rules, potentially attracting tech companies and fostering increased IPO activity.

• Economic Significance: Texas boasts more Fortune 500 companies than any other state, underscoring its status as an economic powerhouse and a strategic location for the new exchange.

• Challenges: Success hinges on achieving substantial trading volume and market acceptance to effectively compete with established exchanges.

2. Diversifying Beyond U.S. Stocks

Listener Question: Should I diversify my portfolio to include international stocks, and what do you think about an 80:20 split between stocks and bonds?
*From: Donna M.
Timestamp: [09:38]

Discussion:

Robert emphasizes the importance of focusing on where the majority of growth occurs, pointing out that international stocks have underperformed the S&P 500 by approximately 50% over the past five years. He advocates for a portfolio heavily weighted in U.S. stocks to capitalize on better performance.

Notable Quotes:

• Robert Croak: "The numbers really don't lie. If you look at the last five years of worldwide performance versus the S&P 500, it has underperformed by 50%."

• Austin Hankwitz: "Unless you truly plan to sell all your stocks at 65 and live off cash, you should stay invested."

Insights:

• Risk Management: While diversification is key, over-diversifying into international stocks may dilute potential gains, especially when U.S. markets outperform globally.

• Portfolio Allocation: An 80:20 split between stocks and bonds is deemed healthy, particularly for individuals in their 50s and 60s approaching retirement.

• Long-Term Growth: Staying invested in a predominantly U.S.-focused portfolio can lead to significant compound growth, essential for a comfortable retirement.

3. Incorporating Cryptocurrency into Roth IRAs

Listener Question: How can I add cryptocurrency to my Roth IRA, and what are the best practices?
*From: Marie N.
Timestamp: [16:57]

Discussion:

Marie seeks advice on integrating a variety of cryptocurrencies into her Roth IRA. Robert suggests limiting crypto exposure to a modest percentage of the portfolio to mitigate risk, recommending primarily Bitcoin due to its established track record.

Notable Quotes:

• Robert Croak: "Having a little bit of Bitcoin in a Roth IRA is great. Call it 5 to 15%."

• Austin Hankwitz: "Don't think about having a 19 different crypto portfolio in your Roth IRA. Keep it simple."

Insights:

• Risk Limitation: It's advisable to allocate only a small portion (5-15%) of the Roth IRA to cryptocurrencies to balance potential high returns with inherent volatility.

• Simplicity and Diversification: Focus on major cryptocurrencies like Bitcoin and Ethereum rather than a broad array of smaller, less stable coins.

• Investment Strategy: Utilize dollar-cost averaging and avoid overcomplicating investment structures to maintain a balanced and manageable portfolio.

4. Rolling Over a Traditional 401(k) to a Roth IRA

Listener Question: Should I roll over my traditional 401(k) from my old company into a Roth IRA, and what are the tax implications?
*From: Danielle E.
Timestamp: [22:00]

Discussion:

Danielle contemplates transferring her $50,000 traditional 401(k) into a Roth IRA despite the immediate tax liability. Robert and Austin recommend rolling over to a Roth IRA to benefit from tax-free growth, especially if she can manage the tax payments incurred.

Notable Quotes:

• Robert Croak: "Roll it over to the Roth if you can afford it. Make sure you are doing this in such a way..."

• Austin Hankwitz: "Unless you plan to cash out everything at 65, you should stay invested."

Insights:

• Tax Strategy: Converting a traditional 401(k) to a Roth IRA involves paying taxes now, which can be advantageous if tax rates increase in the future.

• Long-Term Benefits: A Roth IRA offers tax-free growth and withdrawals in retirement, enhancing overall portfolio efficiency.

• Timing Considerations: Planning the rollover in a subsequent tax year can ease the immediate financial burden of the tax bill.

5. Transferring Funds from a Roth IRA to a 529 College Savings Plan

Listener Question: Can I transfer funds from my Roth IRA to a 529 plan without penalties?
*From: Austin G.
Timestamp: [25:15]

Discussion:

Austin seeks advice on moving $3,000 from his Roth IRA to a 529 plan to fund his child's education. Robert affirms that contributing to a 529 plan from a Roth IRA is possible without penalties, as Roth IRA contributions can be withdrawn tax and penalty-free.

Notable Quotes:

• Robert Croak: "If you want to take out the $3,000 out of your Roth IRA and put it into a 529 plan, go for it."

• Austin Hankwitz: "Don't look at your Roth IRA as a savings account. Treat it as your future."

Insights:

• Flexibility of Roth IRAs: Contributions (but not earnings) can be withdrawn anytime without penalties, providing flexibility for financial goals like education.

• Strategic Allocation: While feasible, it's crucial to ensure that withdrawing funds from a Roth IRA doesn't compromise long-term retirement goals.

• Mindset Shift: Maintaining the Roth IRA as a dedicated retirement vehicle ensures disciplined saving and investment towards long-term financial security.

6. Real Estate Strategy for High-Income Earners

Listener Question: Is it better to use equity from my current home to buy a new one, sell my current home, or keep it as an investment property?
*From: B.
Timestamp: [27:31]

Discussion:

A high-earning listener with substantial investments and real estate holdings seeks advice on purchasing a new $1.1 million home. Robert and Austin debate whether to sell the existing property to free up capital or retain it as a rental to generate passive income.

Notable Quotes:

• Austin Hankwitz: "You're making a conscious decision of taking that $500,000 and parking it in the markets."

• Robert Croak: "Sell the property, keep the first mortgage, pay off the second mortgage... and invest the rest."

Insights:

• Opportunity Cost: Selling the current home can free up significant capital for higher-yield investments, potentially yielding greater long-term returns compared to the modest rental income.

• Cash Flow Analysis: Retaining the property offers steady rental income but may result in lower overall returns compared to market investments.

• Market Timing: Considering current mortgage rates and market conditions is essential in making an informed decision about selling or holding property.

7. Investing While in Graduate School

Listener Question: How can I continue investing early and often while in grad school with limited income?
*From: Sonya.
Timestamp: [33:20]

Discussion:

Abby, a medical student with no current income, inquires about maintaining investment momentum during her studies. Robert and Austin encourage finding ways to contribute small, consistent amounts to investments, emphasizing the power of compound interest over time.

Notable Quotes:

• Austin Hankwitz: "Just invest, invest, invest $100 a month. You're in grad school, you're working hard."

• Robert Croak: "Consistency and letting compound interest do its job are the most important things to building wealth."

Insights:

• Start Small, Stay Consistent: Even modest monthly contributions can grow significantly over decades, highlighting the importance of starting early.

• Flexible Contributions: Grad students can integrate investing into their budgets by reallocating funds from part-time work or other income sources.

• Long-Term Perspective: Maintaining an investment habit during lower-earning periods sets the foundation for substantial financial growth in the future.

8. Managing a High-Interest Second Mortgage

Listener Question: Should I sell my property to pay off a second mortgage that has recently increased to 8%?
*From: Sonya.
Timestamp: [37:10]

Discussion:

Sonya faces a dilemma with a property valued at $500,000, encumbered by a second mortgage now at an 8% interest rate. Robert and Austin advise selling the property to eliminate the high-interest debt, retaining the favorable first mortgage rate, and investing the remaining funds.

Notable Quotes:

• Robert Croak: "Sell the property, pay off the second mortgage because it's creeping up to that high interest debt."

• Austin Hankwitz: "I would sell the property, pay off the second mortgage because to your point, it's creeping up now at that 8%, 9%."

Insights:

• Debt Management: High-interest debt can erode financial stability; eliminating such obligations frees up resources for more productive investments.

• Strategic Selling: Selling the property allows for debt repayment while preserving low-interest financing options, optimizing overall financial health.

• Investment Opportunities: Redirecting freed-up capital into higher-yield investments can enhance portfolio growth and financial resilience.

Conclusion

In this comprehensive Q&A episode, Austin Hankwitz and Robert Croak address a spectrum of financial concerns, offering strategic advice tailored to individual circumstances. Key takeaways include the importance of strategic diversification, the benefits and risks of incorporating cryptocurrency into retirement accounts, prudent real estate decisions, and the power of consistent investing. Whether you're navigating the complexities of new stock exchanges or balancing academic pursuits with financial growth, the Rich Habits Podcast provides actionable insights to help you achieve financial mastery.

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