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Rich Habits Podcast
Q&A: UPRO vs. VOO, Short-Term Rental Arbitrage, & Covered Calls in an Emergency Fund
00:45:25
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- [00:00]
A
Hey everyone and welcome back to the Rich Habits podcast, a top 10 business podcast on Spotify. This is our Question and Answer Edition episodes. They come out every Thursday. Today is not just a day that our episode comes out, but it's also Halloween. So happy Halloween to everyone listening. I decided to dress up as a football player and Robert decided to dress up as a multimillionaire uber successful entrepreneur by the name of Robert Croak. So I think he did a pretty good job. What do you think, Robert?
- [00:28]
B
I love it. Yes. I'm so sorry. I did not have anything here in Florida for a costume. Even went to a couple stores. They didn't really have anything left. So this is what you get. You get the real me. But just a quick heads up folks. Interest rates are falling, but you can still lock in 6% or higher yield with a bond account@public.com that's a pretty big deal because when rates drop, so can the interest you earn on your investment.
- [00:53]
A
Robert, I'm right there with you. A bond account allows you to lock in a 6% or higher yield with a diversified portfolio of high return and investment grade corporate bonds. So while while other people are watching their returns shrink as the Fed continues to cut interest rates, you can sit back with regular interest payments.
- [01:12]
B
Yes, but you might want to act fast because your yield is not locked in until you invest. The good news, it only takes a couple minutes to sign up@public.com and lock in that 6% or higher yield with a bond account only at public.com forward/rich habits.
- [01:29]
A
This was brought to you by Public Investing. They are a member of FINRA and SIPC. These numbers are as of October 28, 2024. The average annualized yield to worst across the bond account is greater than 6%. The yield to worse is not guaranteed. This is not an investment recommendation. All investing involves risk. Please visit public.comdisclosures Bond account for more information about those risks. All right, Robert, I'm really excited about this Q and A episode. We've got literally, I think seven or eight questions teed up here. And they're not just from the Rich Habits Network, which by the way, is the easiest way to get your questions answered, right? We have over 485 people inside the Rich Habits Network right now, sending us dms, joining our weekly live streams, watching the four hours of video coursework that we've created for them, adding continual modules over time. There's a ton of cool reasons why you should join the Rich Habits Network. And if you've not joined or wanted to even just check it out. This is a great opportunity to do so. So our first question from inside of the Rich Habits Network comes from Brock P. Brock says. Hey everyone, I've seen some people utilize Airbnb arbitrage. To me, this sounds like a great and affordable way to get into short term rentals. Now, assuming you can get the proper approv from the landlord, I'd love to hear everyone's experience or opinions on this. Robert, 1, explain what Airbnb arbitrage is so our listeners can understand that. Then two, give them your perspective on it.
- [02:51]
B
Love it. Great question, Brock, and I'm going to take a little bit of leeway here and really kind of explain this thoroughly. So what Airbnb arbitrage is is when you don't own the property, you actually go lease the property, then have a separate contract with the owner of the property for them to allow you to arbitrage the proper and rent it out to VRBO and Airbnb sites like that. So that's what arbitrage is. You would go lease this Property, say for $3,000 a month. You think it could be a good Airbnb. So then you decorate it, you put the furniture in it, you get it looking nice and fun, and then you go out and put it on these sites with the hopes that you can arbitrage the difference of the money. Say you bring in 6,000amonth, you're paying out 3,000. You would make a $3,000 net amount. So why do I not like this as much now as I did two, three years ago? A. The market is saturated. There are so many courses and so many gurus out there teaching this arbitrage strategy in Airbnb. So the markets are flooded. Number two, you have to be very, very careful and get in the know locally as to what the local governments are doing, maybe the hoa. There's all kinds of people you're going to have to report to and make sure that they even allow Airbnb, especially Arbitra, because at the drop of a hat they could be already in the process of changing their jurisdictional codes and not allowing it in, which then you'd be stuck with a long term lease on this property. You would have already purchased your furniture and all of your stuff, and then all of a sudden you have to go try to find somebody to lease it for more than what you're leasing it for, which is highly unlikely you'd be able to break even. So those are the good and the bads of it all. So I would say the best way to approach it, if you really like this model, find someone local that's an expert in the field, get with them, talk to them, because they're going to be in the know of what is going on from a jurisdictional standpoint, in a rules standpoint, to make sure that they're not going to outlaw it anytime soon. And then number two on that aspect is understand the numbers. Make sure you're using a site like Air DNA. So, you know, what is the average occupancy rate in that area for a home such as that? What is the average nightly rental for a home such as that? Because many times the numbers won't make sense like you think. And it's not all rainbows and unicorns. And the last thing you want to do is have another house payment that is draining your money instead of helping you build wealth.
- [05:24]
A
Robert, what an awesome and thorough breakdown. The only experience I have with the short term rental Airbnb arbitrage here is being a customer. It was so weird, actually, which is maybe a deterrent for people who want to try it. Your customers don't really have that great of an experience. I was going to the Bitcoin conference in Miami a couple of years ago, and to our surprise, it was actually inside of an apartment complex. And to get the key, I kid you not, it was the weirdest process. You know how normally you check into an Airbnb, they got the little lockbox or something you can click on and you walk right in. This key to this apartment was on a bike lock, like, three blocks down from the apartment. It was so weird. So I had to find the right lock box, I had to type in the code, and I had to walk back to the apartment. Then I had to go in, get questioned by security. Hey, what are you guys doing here? Do you live here? We're like, maybe. Yeah. I don't know. Like, we're just trying to figure it out. So I'll tell you what, man, if you want to get in the Airbnb game, in my opinion, it's probably a better idea to own the entire process yourself, where you can really get rid of those discrepancies and the unpredictability that comes with the arbitrage, you know, specifically if you have an apartment now, maybe if you, you know, leasing a house or something, you might have a little bit more autonomy there. But from a customer experience perspective, it's not something that I enjoy doing, but really, really great breakdown there from Robert. Now our next question comes from Victoria F. Victoria says, when figuring out how much life insurance to purchase, what are the specific factors that I should consider? So this question is super, super simple, Victoria, and I love that you asked it because it's a very easy concept for a lot of people to understand, but they have to be sort of shown how to think about the math here. So if we take a step back and think about why do we have term life insurance at all? It's to provide income to our beneficiaries in case we die. So, for example, if you are a family of four and your household income is $150,000 and the breadwinner of that family died, and now no one is making any money but that breadwinner had a term life insurance policy on them, you would then take the death benefit of that life insurance policy, invest it into the S&P 500, and then withdraw a annual 4, 5, 6% off of that to supplement income for the household. So in this examp, if you wanted to generate $150,000 of annual income at a 5% withdrawal rate, your portfolio would need to be about $3 million in value. So that's sort of how I like to think about it. So let's call it 15 to 20 times your annual income. You take that out as the death benefit amount for the policy, and then after that gets paid to your beneficiaries, the beneficiary would then take that money, invest it in the S&P 500, and withdraw 4, 5, 6% if they need to, annually on that to supplement and generate that income for you. So only factor to really consider is how much you're making as a household that will need to be replaced in case of death in the family, whatever that number is, multiply it by 15, maybe 20, and then that is how much life insurance you need to take out.
- [08:26]
B
Yeah, that's a great explanation. And I think my only ad here is understanding what type of policy you're getting and understanding why you want to get it. Because there are a lot of people out there pushing these Iuls and whole life policies and all these different gimmicky types of policies right now. So understand why you need it, what the benefits are, and make sure that you get with a reputable firm to give you the options within your buy box of what you're looking to do. Because the most important thing is understanding the costs related to owning that policy and the benefits to make sure it's the right fit for you. That's all I can really add to this.
- [09:05]
A
No, I love that and if you've not yet done this and you're someone who's married and someone you know, there are people in your family that depend on your income for their livelihood. Go check out the link in the show notes below. Shuriance is our preferred provider of life insurance. They are crushing it right now. Russ McBride's a really great guy, so definitely go check them out in the show notes below. Victoria, we wish you the best of luck. Now our next question comes from Esperanza M. Esperanza says, does anyone have recommendations for home renovations and tips on getting the best deals? I need to redo both my front and my backyard and these are major expenses I want to handle wisely. I'd appreciate any advice on finding reputable contractors or just different ways to save on such a big project. Robert, you want to kick this one off?
- [09:49]
B
I would love to. And I'll just give you a breakdown of some of my favorite tips and tricks, hacks if you will, to make sure that you do it right and you get treated properly. Because contracting big or small can be a nightmare, especially if you don't have a friend or a trusted family member that's in the business. So number one for me is once you find that suitable contractor, make sure you work on a draw schedule. Don't fall for anything where they ask for half percent down. Let's say it's a $30,000 project and they say give us 15 down and then you're going to give us payments after a certain time. You want to make sure that you work on what's a draw schedule. You can google that and really figure out what is a fair and reasonable draw schedule. And all that means is on that thirty thousand dollar project is you might give five thousand dollars down. Then when they reach a certain milestone you give another five and so on and so on. Because the biggest problem in contracting is that people get these big deposits from people and then they don't show up for weeks at a time or they'll go get started and then run out of money because they're constantly working off of customer cash flow and they don't show up. So number two relative to that is stick to the draw schedule because once you get ahead of them, you will be in a situation like I alluded to, it's very tough to get them to come back unless you give them more money. Trust me on this, it happens every day and twice on Sunday in the contracting world. And then number three is make sure that you understand it's not always a good Idea for you to buy the materials. A lot of customers say, well, I'm going to buy all my materials. What's the labor going to be? And the problem there a lot of times is you end up paying more and then you have the headache and the heartache of you didn't get enough tile, then Home Depot ran out, and then you got to wait for more to come and all of these things come into play because you're trying to save a little bit of money. I look at it this way. Most reputable contractors get such a big discount on flooring and paint and lighting and all of the things they provide, landscaping materials, that it saves you all the headache of sourcing it and pricing it and trying to figure out how much you need. You know, how many truckloads of mulch do you need versus letting them handle it all? Because most contractors are going to have their markup on the materials, but that markup is going to still be able to save you money or be about the same cost wise. And you don't have to do all the work because you don't want to buy yourself another job just trying to save a little money. So one thing to go along with that would be also when you do your paint, if you're doing a lot of painting, don't buy all the paint at once. I promise you. What you want to do is pick, let's say, two or three paint colors that you love. Go buy a test sample. Go buy a pint or a quart of each color and paint them in neat little squares on three different walls or two different walls and see them in all different lighting. So many people will buy a paint color, put it on the brightest wall with the most sun, and be like, I love it. They buy it all, they paint it. And then on the walls that don't get direct light, it's very dark, or they don't like how the hue changes. So it's very important to understand, do samples first. It'll cost you an extra hour and maybe 30, 40 bucks, but you will get colors that you love and make sure that they work well with your house's lighting. And I would say the last couple things would be inventory. Many times what contractors will do when they're buying your materials, they will add extra materials in. It might just be an extra couple cases of caulk, it might be an extra 200 square foot of floor tile, et cetera, et cetera. It could be any mix of different materials. So keep an eye on your inventory and understand what you Need. Because what they'll do is they'll say, well, the tile to do the kitchen renovation is going to cost you $3,800. And you say, great, you approve it, they go buy the 3800, but they only needed 3200. They take the 600 of materials, they use it on another job, and you paid all the profits for another job for them. So keep an idea on your material, know your square footage, and that'll help you a lot in making sure that you maintain a budget that is actually your budget. Because, trust me, they all want to sneak in extra materials that they can load up their trucks with, and you won't know the difference. And then I would say lastly is don't skimp on big ticket items. So many people will do a kitchen or a bath renovation, and they'll think it's okay to go to Home Depot and buy their vanities, or they'll buy the cheapest vanity on Wayfair and wonder why that vanity doesn't last more than two or three years. So don't skimp on those items, because usually you can buy high quality items, whether it's vanities or flooring, tile or lighting. You can buy the higher quality versions that'll last forever for very little difference in money. So just keep an eye on that. And I would say those are the things that I think would help you the most on any project, big or small.
- [14:54]
A
You know, those are really great tips, Robert. And I mean, as someone who's made the mistake of working with people that I both found on Craigslist, in working with people, people that I'm, like, actually friends with, those are two very different people. Right. For example, I paid a guy I found on Craigslist to help paint some, you know, sort of outdoor gazebo that I have at my house here. He showed up. I paid him for half the amount of work he did, because he did do half the amount of work there. I had the paint and stuff hanging out myself. He did a pretty bad job on it. And then I said, hey, man, like, come back again tomorrow. And he never came back. Right. So luckily, he only got paid for half there, which was good. I didn't get scammed. But just make sure you're working with people that are actual, you know, vetted contractors, probably insured. Right. There's a lot of really cool things to look out there. Yelp reviews are a great place to start when it comes to finding really great people around you. Facebook groups, maybe, you know, check your neighborhood. Facebook group. I'm sure there's a lot of other people who've had contractors come and help them remodel their front yards or their backyards. Robert, do you have any perspective on how the payment gets sent? Do you think cash is the way to go? Do you do credit card? Do you do zelle? Like, how do you think in a perfect world someone should pay a contract?
- [16:01]
B
Yeah, you just want to have trackability. So you don't want to use cash because then they can say you didn't give it to them, you didn't do this. And for everything you do in this contractor world. And I've been a contractor, you know, on and off for 20 some years and I've seen it all. Even two weeks ago, I dealt with it after the hurricane. We hired a contractor to do the roof, signed the paperwork, even downloaded their app. It was so official. And then the price changed two different times. They didn't show up when they were supposed to. We got another contractor involved. They were super reputable. They came to me as a reference from a friend of mine. They didn't show up. So you have to understand that many of these contracting companies are not what they appear. They might have fancy trucks and fancy logos and nice polos, but at the end of the day there's still a small business that is always going to be strapped for cash flow. So just be careful with yours. That's why the draw schedule is important. Ask them how they like their payments to be made. Work off of a draw schedule. And like I said, if it's a thirty thousand dollar project, you don't want to give them half down. You maybe want to say, okay, when you show up, we'll give you X, Y or Z. It might be 5,000, it might be 7,500, I don't know. But just keep it as low as you can because you want to make sure that they actually show up with the materials. They start the work and they're moving it along quickly because what they'll do, a lot of them, they'll show up, do a chunk of work, get a chunk of money and then not come back for three weeks and then you're stuck holding the ball. So just keep in mind and be careful because they are usually very good salesmen and not necessarily as good at running their business as they are closing the deal. So be careful.
- [17:39]
A
Yeah, I'm right there with you. Back to this Craigslist guy. I mean, it was just so annoying. It just, it's crazy. Folks, listen up. Time could be running out to lock in that 6% or higher yield@public.com you can lock in that 6% or higher yield with a a bond account. Remember, your yield is not 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. Only at public.com rich habits Again, that is public.com forward slash rich habits. Now our next question comes from Charles J. Charles says hey Austin and Robert, I have a question about my Roth IRA strategy. For context, I'm a Realtor in Tennessee. Go Vols. I'm 27 years old and I have $120,000 worth of stocks and cryptocurrency in my bridge account. I have four rental units which I've slowly built up through house hacking, and about $16,000 in my Roth IRA which I'm maxing out every year. I also have a solid emergency fund equal to three months of expenses. Now my Roth IRA question is this. My allocation is being split between the five index funds you guys always talk about Voorhees, vgt, qqq, moat, and aiq, as well as two smaller allocations toward Bitcoin and Ethereum. My question is though, about VOO and maybe even upro. I know UPRO is a levered VOO position that you guys have spoken about in the past. Now since this is a Roth IRA account, I definitely won't be able to touch it for at least 30 years or until I'm 59 and a half years old. So wouldn't it be wise to just move all of my VOO into UPROAR just in my Roth account? I understand that this is riskier for a bridge account where I might want to move some of the money around before this 30 year time frame. But if our assumption is correct that The S&P 500 will continue to move up into the right for years to come, aren't I technically leaving money on the table with an allocation in VOO instead of upro? I have a very high risk tolerance, but for a 30 year time frame this doesn't even feel that risky to me. Any insight would be appreciated. I'm extremely grateful for the Rich Habits podcast and this awesome community that you guys have built. Robert, what a great question.
- [19:50]
B
Fantastic. I can't wait to dig into this one.
- [19:53]
A
So Charles, you're 100% correct. UPRO is a levered position on Voo, which means that the gains you see in Voo, right the S&P 500 on an annualized basis daily basis, weekly basis, they are magnified to the upside and magnified to the downside, no matter what happens. Right. So for example, the S&P 500 this year is up 22%, which means that upro is up 62%. Right. We're talking about a 3x leverage on the upside, but also that means 3x leverage on the downside. Another example of that was when we had that bear market in 2022. Upro shares fell by 65% compared to the S P 500's 20ish percent. Now, additionally, year to date, Upro has fallen 25% in some instances, which happened late July, early August when we sort of had that flash crash. So I mean, that is a 25% two week decline in your portfolio. Now, to your point, Charles, I understand what you're saying, Right. You think that as long as we assume that American capitalism is going to be here for the next 30 years, which is correct. And the S&P 500 should continue to trend up and to the right, which is correct, if we put leverage on that upside, we should have a bigger gain in our portfolio. That is a correct assumption. I mean, we've talked about this before on the podcast, Robert. I still can't find a way or figure out, you know, sort of even to steel man the opposite side of that as how to bet against Urpo. It's, I mean, it's a way to bet on American capitalism for a long period of time. The only reason this does not make sense, in which Charles, you know, alluded to here, which is if it's in a bridge account and you need that money for the next 30 years, but since it's tied up in a Roth IRA and Charles won't be able to touch it for at least 30 years. 30 years as well, a long enough time where, you know, whatever volatility UPRO experiences, I'm positive it's going to be higher in 30 years than it is today. Now, the only downside risk I could possibly think of right now with this upro ETF is that the ETF doesn't exist in 30 years. That's it. And let me explain that. Right, so with Voo, Voo is the Vanguard S&P 500 ETF. It is arguably the most popular S&P 500 ETF on the market. Has over $1.3 trillion of assets invested inside of it. Vanguard is never going to get rid of this ETF because remember, ETFs are a business. These companies have to have the listing fees they need management they need to make sure that the strategy is actually getting implemented. Compliance. There's a lot of things that go into making an ETF and they cost money every single year to run. Now upro only has $4 billion in assets under management. 4 billion. 1.3 trillion. Just think about the difference there. So is UPRO theoretically going to perform well over the next 30 years? Yeah, totally could and theoretically it should continue to perform very well. But will the ETF be here in 30 years? I don't know. Maybe it loses assets under management. Maybe it just doesn't make sense for them as a business to have it anymore. Maybe ProShares goes out of business, right? I have no idea. Maybe they get acquired, right, by someone else and they don't want upro. So I'm all for it. Charles, just be careful that UPRO is a ETF that maintains its integrity, its existence and that if it ever does get liquidated into cash, you immediately reinvest that cash back into your portfolio.
- [23:19]
B
I love this question and your breakdown and the only thing that really comes to mind for me is diversity. People ask me all the time, you love bitcoin. Why are you not just all in on bitcoin? Take all of your money and put it on bitcoin. One side of me says I probably should do that because I believe one bitcoin will be worth 250 to $500,000 in the coming years. And it's the same thing when we talk about the S&P 500. You know, every single day you have to ask yourself the question, is this the best place to put my money? So in this instance, the only reason I don't love this strategy in question is I like to be diversified so I can never go broke. And my fear is if you go too heavy in this, and let's say The S&P 500 and JP Morgan Chase is right, and the S&P 500 does go flat for years and years. Because remember there was an article I think last week where they said the average return for the next 10 years was going to be 3%. Well then that would mean you would be only making what would that be? 9% on your money. While there would be better places to make more money. So I like it, I would do it with a small portion, I own it. But I wouldn't go all in on UPRO because you just don't want to be in a situation where there is two or three bad years and it wipes out 60% of your gains for the last 10 years, and then all of a sudden, that happens to be the time frame when you're getting your money out. So that's why I like diversity. I love you pro, but I would keep it a small percentage of your portfolio.
- [24:51]
A
Yeah, maybe there's a world, Robert, where, you know, Charles here could split it up 70, 30. Right. So let's say you have a, you know, $10,000 of that. I think it was 16,000 that he had mentioned here in his S&P 500. Let's say 10,000 of that was invested into V. Well, maybe here's an opportunity to put 7,000 in Voo and the other 3,000 in Upro. Right. It's sort of a 70, 30 split there, allowing you to have some of this upro upside as well as continue to have the Voo diversification that just comes with the S&P 500. So really great question, Charles, and thank you so much for being a part of the Rich Habits Network. Our next question comes from Hasina X. Hasina says I only have 300amonth to invest. However, some of the ETFs you guys talk about, like QQQ, cost more than 300. For example, QQQ almost cost $500. Now, how do I buy something that costs $500 with only $300? Robert, I'll let you answer this one.
- [25:45]
B
Yeah, that's a great question. And I get asked this a lot. And how it relates to Schwab is you'd have to look up in your Schwab account of how to buy slices. And what this is is exactly what you think it is. You're buying a slice of a total share, and you can buy up to 30 slices for as low as $5 per slice. So when you're looking at these high, like qqq, you can do it through the slice program. It's pretty simple. It's fractional. And you can do it that way to make sure that you can still achieve and buy what you want to buy within your budget.
- [26:22]
A
Something else I'd encourage you to think about, too, Hasina, is. I mean, Robinhood is $1 M1 finance is as little as $1. Right. So, you know, public is only a dollar. Right. So if Schwab is not your platform, there's a bunch of other platforms out there that'll allow you to invest into the index funds and ETFs we talk about with as little as $1 if you want to go that low. But I think $5 is a great solution here by Schwab. Our next Question comes from Kurt B. Kurt says hi Austin and Robert. I started listening to your podcast a few months ago and I am loving it. My wife and I are 53 years old with an annual income of $215,000. I have a 401k with $280,000 inside of it. My wife has one at 175,000. We also have a few annuities with total values of around $200,000. I started playing around with the ETFs you all recommended with about $50,000 in a bridge account and the returns I've seen so far. I also have a pension when I retire, which will be about $3,500 a month. We're currently investing 19% of our salaries each into our 401ks using the standard target date funds of 2035. We have three years left on a HELOC at $2,600 a month, but other than that we have no other loans. We both want to retire at 59 and a half years old. My question is, should we reduce our annual 401k contributions to the minimum 6% to get the match and then put the other 13% into a BR Bridge account, or do we just ride it out for a few more years? I wish I would have found you guys earlier. Thanks so much for the help. Robert, you want to kick this one off?
- [27:51]
B
Yeah, I think this is a great question and based on the one statement that we both want to retire at 59 and a half, I think it could go both ways in my opinion. You could do the bridge account and you'd have six and a half years to invest in it and have full autonomy and it. But you could also just keep riding out what you have if they're performing well enough, or make changes in the current portfolio depending on what you have for options to be able to achieve the same thing. Because Obviously with the 401ks, you'll be able to access that money at 59 and a half as well. So I think this is a tough one where it could go both ways. If we have a really good six and a half years in the economy moving forward and you invested correctly, I think your gains would surpass what would happen in the 401k. So if it's me with my risk tolerance, I'd do the bridge account. But in a normal situation where people want safety and they don't care about the autonomy, you could also leave it and do just fine.
- [28:52]
A
So to kind of walk through some math Here, you're right. $215,000 salary. You said you're investing 19% into your 401ks every year. So you're looking at about $41,000 a year. If you continue to do that for the next, let's call it seven years here, here you're looking at a total contribution amount of about $286,000. You then add to that the $280,000 you already have invested in yours and the 175,000 invested in your wife's. That is 740 ish thousand dollars in these accounts. But that doesn't account for any growth. We all know the S&P 500 doubles every seven years. You're in a target date fund, so you might not experience that same performance. So let's just say instead of 100% return over the next six and a half, seven years, you guys experience a 65 or 70% return. So assuming a 65% return over the next seven and a half years, which I think is pretty reasonable, you're looking at about $1.2 million combined inside of your 401ks that I think you guys could totally live off of. Now, assuming you pay off this heloc, which it said you would, and you have no other debt, you all are sitting pretty. Now to Robert's point though, about sort of this autonomy, right? That's the only differentiator that we're talking about, being able to then say, instead of contributing this 40,000 to my 401ks that are parked in these target date funds, do I want to take, let's call 30,000 of that every year and park it into a bridge account that I can then invest into maybe the S&P 500 directly or you know, NASDAQ or things like that, considering your age, I would imagine you probably don't want to be too aggressive, right? So I understand why you have these target date funds, but. But on the flip side of that, you are only 53 and I'd imagine you're going to live at least for another 30 years till 83 years old. Back to Charles. Question about sort of this 30 year time horizon, right? That's a long time where you could be aggressive and grow your money. So to me, I'm right on the fence of both. If you want to have that bridge account and you want to be aggressive with this money and you have a longer term time horizon of, let's call it 7, 10, 15, 20 years inside of that to let the money grow, be my guest. But on the other side of that, if you Want to lean more towards security. If you want to lean more toward predictability and having a little bit more of the fixed income figured out, putting this money in these 2035 target date funds are going to do that for you automatically leaving you again with this, let's call it $1.2 million at 59 and a half years old. Now the real question is how do you continue to invest that money once you're in retirement? Robert and I highly recommend you getting with a very smart fiduciary investment advisor that can help you sort of weigh those risk toler tolerances and figure out what those timelines look like, your monthly needs for income. You mentioned you have this pension at 3,500amonth. So there's a lot of things to consider here. But the last thing I want to mention, and it's something that's very, very important, is you guys are doing great. You're going to have over a million dollars invested in retirement accounts by the time you're 59 and a half. You got this awesome pension waiting on you. No debt, no mortgage, no nothing. You guys are going to be enjoying your retirement to the fullest and we're super, super excited for you.
- [31:58]
B
I love it. And yes, this is just one of those questions where it can go both ways. You have a lot of options and we just like that you're thinking through what all of those options are so you can maximize your retirement accounts in the next six and a half years. So I like it.
- [32:13]
A
So our next question comes from Mike G. Mike says hi, Austin and Robert. I've been a fan of the show since day one. Thank you both for all you do. Here's my question. I've been saving up a down payment for my first house and I currently have $83,000 in Publix High yield savings account. However, I hate seeing that sum of money sit idle compared to the rest of my portfolio. What are your thoughts on using a portion of the $83,000 to buy its shares in Tesla stock and then sell covered calls against them? I plan to buy a house in the next two years and this seems like a reasonable way to boost my savings rate without incurring too much risk. For context, I'm 31 years old. I make 150,000 a year. I have $105,000 in my 401k, 90,000 in my Roth IRA and $20,000 in real estate investment trusts in cryptocurrency. I have no debt asides my credit card bill that I pay in full every Single month. What a really cool question from Mike. All right, Mike. Yeah, don't do that. That's not a good idea, my friend. I do not believe that if someone is trying to save money that will be used in the next 18 to 24 months that they should be at all aggressive with this money, right? Having it be making 3, 4, 4 and a half percent in a high yield savings account or with a bond account or, you know, t bills, whatever. They're like, that's totally cool. That is you being aggressive with your money, right? That's making sure that inflation is not eating away at your purchasing power. But happens if Tesla stock goes down. What happens if you can't roll it forward and you are, you know, you get assigned or all these bad things could always happen when it comes to investing your money, right? Investing involves risk, and we say that all the time. If you are someone who's literally saying, I want to save up for a house and buy it in the next two years, then do that. Save up for a house and buy the next two years. If you feel bad about your money not working for you, open up your 401k balance and say, oh, cool, I'm up $20,000 this year. Or open up your Roth IRA and say, oh, cool, I'm up $15,000 this year. Or you' REITs in crypto and say, oh, cool,I'm up another 7,000. Right? You're already invested. You shouldn't feel bad for being on the sidelines because you're not. You already have. Now, let's call it $200,000 invested at 31 years old, which is incredible for your age. So do not feel like you're, you know, sitting idle or your money's not working for you. It definitely is, because you're going to take this money to go buy a house that will then go up by 3, 4, 5% per year, as well as offer a very stable living condition for yourself, yourself and your family in the future. So really proud of you here, Mike. But I do not think that you need to take any of this 83,000 and roll the dice by putting it into single stocks and trying to sell covered calls against them to make more income.
- [34:48]
B
So I'm going to take the other side of the fence on this because I remember how aggressive I was at 31 years old. I was making a lot of money, and I was very aggressive. I agree with Austin. I wouldn't buy the single stocks. I wouldn't do the covered call strategies, but I would consider taking the 83,000, maybe leaving, you know, 33,000 of it in the high yield savings on public and then taking 50 of it and putting it into something safer like a VOO or something like that. Or flip that around and leave 50 and put the 33 into Voo to get some more gains. Because the only thing you have to concern yourself with here is what if you happen to choose a time, time when the stock market is down for two straight years and you put yourself at risk and you ended up going backwards with your $83,000. Now, generally that's not going to happen, but you could consider using some of these funds to be a little more aggressive than the 4 or 5% you're going to make in the high yield savings and putting it into something like Voo to earn some additional gains over the next 24 months. I like Austin's approach. Approach, I'm more aggressive, so I'd probably use some of it because it's hard to watch yourself make 3 or 4%, even though you're doing better than most because it is active and is earning money. But I would consider both strategies.
- [36:11]
A
And so to dive into that more. Right. Let's say that he took the 33,000 and he put it into Voo in the longstanding returns of Voo over a long period of time, let's call it 10% per year, you're 30,000 over two years. Years would be worth $36,000. So we're talking about taking on the risk for an extra $6,000, which in my conservative brain is like if you're trying to save for a house, like $6,000. I don't think is going to be a needle mover either way. So I again, that's kind of like where I'm coming from. But I guess on the other side of the equation, you know, maybe that $6,000 helps you buy the next tier house. I don't know.
- [36:48]
B
Yeah, I mean, either way, these are great questions because they're so in depth and nuanced. And it just really lets us explore our brain and our experiences of what we would do given it was our situation.
- [37:00]
A
So our next question comes from Carson D. And Carson says. Hi, Austin and Robert. I want to get your thoughts on an opportunity that I'm considering. I'm single, 22 years old, and I'm a college student graduating this spring. I'm fortunate enough to have a solid financial position with a net worth of about $225,000 that is mostly held in a taxable brokerage account. A Significant portion of this came from the acquisition of a company I had a very small stake in. I expect to receive an additional $250,000 when the company goes public, which could happen in the next several years. My current internship will transition into a full time job after graduation. Over the past year I've been able to save about $1,000 per month after expenses. I recently started contributing to a Roth 401k through my employer and they're matching my contributions. Here's where I'd specifically like your input. I work at a financial firm with a strong private equity division. Employees who qualify as accredited investors, which I hope to meet through professional credentials, can invest alongside the general partners fee free. The firm's track record is impressive, ranking highly among growth private equity funds, and I expect a new fund to open shortly after I go full time. I'm excited about the potential for strong compounded growth so early in my 20s, but the investment would likely be locked up for five to eight years. I'll be living with my parents initially out of college, so my expenses will continue to be low. While I'm comfortable with taking some high conviction concentrated bets, I don't want to overextend myself at a young age. Keep in mind the commitment is called over several years. I'd really appreciate any advice or thoughts you have on how much to commit as well as how to approach this opportunity and just anything you have to share about this. Thanks Austin and Robert, can't wait to hear your thoughts. You want to kick this one off? Robert?
- [38:41]
B
I love it. Carson. Great job. I love to see young people crushing it that understand, you know, you have to put in the work, you have to have the knowledge, you have to really, you know, dig in and get dirty to build wealth, especially at an early age. So I love this, all of it. Here's what I would say and you alluded to it. Keep in mind that any of these venture investments you're going to make through private equity are going to be tied up for a very long time. You already know that. So as long as you understand whatever portion of your investable capital that is going into these deals is likely going to be tied up for that five, six, seven years, then I'm okay with it. Otherwise, I would say I would wait a little bit longer, get your net worth up a little bit higher. I don't like to see people doing private equity deals, you know, with, you know, a net worth of less than one or two million dollars, but I'm okay with it. Because you're smart you understand the platform and that aspect of investing and you already have a really good base built. And I would look at it that maybe your buy box for these private equity deals is only 20% of your net investable capital. You know, I spoke to a friend yesterday, I believe he's 28 years old. He's all in right now on crypto and one venture deal. And I think that's scary because if this startup doesn't work, then 50, 60% of his net worth that he's been working towards over the past few years is going to be gone. Because a lot of startups and private equity deals do go to zero. So just keep that in mind. I love where your head's at and I am totally all about you doing it. But just make sure you understand that it's illiquid and the time frame around it so you don't get yourself put into a cash situation where your cash broke and you can't get to enough money you need for other opportunities.
- [40:31]
A
Yeah, I'm right there with you, Robert. I would even go closer to 10% of this 225,000, you know, net worth, right. If you wanted to take 20 to 25,000 of your money, right. 10% and roll the dice, right? Because that's what this is doing. You're rolling the dice for five to years and maybe it turns into 100,000 or 150,000 because you know, this private equity growth fund was able to invest in some really cool startups like Congratulations, that's your down payment for a house when you're older or if it goes to zero, you know, you knew your risks. But I think to Robert's point, what's really important to consider here is you need to have a higher net worth before you really think about doing these types of things. You know, it's called an accredited investor credentials for a reason. You have to have a million dollar net worth to be an accredited investor or make a quarter million dollars a year for two years. Years. You're trying to go around this a little bit with your professional credentials, which just means you passed a couple tests and you know what you're talking about, which is true. But they make it so that you have to have a lot of money to participate because they know that if you make the wrong bet, you could lose a lot of money. So I'm right there with you, Robert. I think that, you know, this is a really cool situation to be in. If I was Carson, I would just rather Carson put a little bit less maybe than what he might have originally been thinking let's call it 20 to $25,000 dollars and then continue to invest the money you do have into long standing index funds and ETFs that we talk about. Do not make the mistake that Robert and I both made when we were much younger, which is going all in on a single stock or a cryptocurrency or a venture startup. Right? We've done those things and we've made those mistakes so that you don't have to do that. Right? I've talked about it all the time. I lost $75,000 of my hard earned money by investing a little too aggressive in the early days into a venture startup that ended up going to zero. Zero. It sucks. There's nothing worse than losing hard earned money, especially from a successful exit that you've already had, which is really cool. So just make sure you're doing everything right as it relates to your tax advantage accounts, thinking the Roth IRA, the HSA, the Roth 401K. And then also think about what you can do with that bridge account. It seems like you got a ton already in a taxable brokerage. When do you want to retire? Right? You've already, you know, done a really great job building your wealth. 40 year old retirement could be around the corner for you, Carson. You just have to think about what those goals might begin to look like. And then don't forget about real estate estate. You mentioned you're living with your parents. I've never met anyone with a quarter million dollar net worth that's living with their parents. My favorite saying is the eagle that never leaves the nest turns into a turkey. Do not turn into a turkey, Carson. Leave the nest eventually. Just go be on your own and live your own life.
- [43:01]
B
I've got one more quick takeaway and then we can sign off. For Carson and anyone else listening, the biggest lesson I learned in private equity and venture investing over the last 15 or 20 years of doing it is to write more check checks that are smaller than going all in on one or two deals because you just give yourself more opportunities to win because many of these investments are going to go to zero. And so that is the key that I would use is when you're thinking about this strategy, just write smaller checks over more investments because if you hit a big winner, it's going to be a great windfall anyway. That's how I do it. And it has worked so well for me over the years once I learned that.
- [43:41]
A
And what sucks too is I'm sure Carson's Kind of just like, oh, yeah, I'm 22. I'm investing into funds. I'm well on my way. Like, I'm doing this, I'm doing that. I had the exact same mindset. I was 24 when I invested in my first fund, 24 when I invested in my first startups. Right. I totally know what you're talking about, and it feels good to be young and doing these things. But, man, I feel like I would have felt better if I used that money to go buy a duplex. Or I would have felt better if I use that money to go, you know, see my first 250 or 300,000 in Voo. You know, buy my first one or two Bitcoin, you know, whole bitcoin. Right. So there's just. Just like, having that liquidity means a lot. And you don't realize you like it so much until you have it or until you don't have it. Right. And so just give yourself some perspective here, Carson. And we're rooting for you, man. You're doing a really great job. Just don't get ahead of yourself because you are at this position where if you make too many big investments or make the wrong investments, all of this 250,000, 220,000 that you've got right here could easily turn into 46,000 because you got too risky. And you are at a point where you can have tens of millions of dollars in retirement with this kind of money.
- [44:41]
B
I agree. Everyone, thank you so much for stopping by. Have a wonderful, wonderful spooktacular day. We just love that you guys are here week in and week out with us, giving us those five star reviews, helping us continue to grow. And if you haven't joined, make sure you check it out. I think it is one of the best communities newsletters and you get the private lives with Austin and I each and every week. So there's a ton of value there. But thank you all for stopping by.
- [45:10]
A
Thanks. Don't forget to share the episode with a friend. We love it when you share it with a friend. We have all these people that say, hey, I shared with my coworkers, I shared with my neighbor, my cousin. They all love it. So don't forget, share the episode with a friend. And with that being said, have a great Halloween night.