Hey everyone, and welcome back to the Rich Habits Podcast
Question and Answer edition. These are our Thursday episodes,
which in my opinion, one of my favorite episodes of the week,
Robert, where we get to answer your questions as if we were
going through whatever you're going through with you,
alongside you in your shoes. Robert and I are off the Dome
here just kind of talking about in real time through everything
that you might have to share with us.
If you have a question you want to ask us, you can e-mail us at
Rich Habits Podcast at gmail.com, or you can DM us on
Instagram at Rich Habits Podcast.
Before we jump to the episode, I think this is a really, really
cool thing we're doing, Robert. We are hosting A webinar
alongside Publix COO Steven Sykes all about their new AI
agents. A lot of people have been
saying, hey, I just got off the wait list.
I'm on Publix AI agent access, but I don't know how to build 1.
I don't know what strategies to use.
I don't know what it is capable that's not capable of.
Can you guys please share some of your own AI agents?
I mean, how you guys are thinking about this?
And we've done a pretty good job of sharing some ideas inside the
Rich Habits Network, but we wanted to open this up to every
single person that listens to the Rich Habits podcast.
So join us Friday, July 10 at noon Eastern Time.
There's going to be a link in the show notes below and it's
going to be a lot of fun there. And join us to get all your
questions answered. Join us to get off the wait
list. If you're still on the wait
list, join us to build your own AI agent in real time.
We'll have Steven create agents from prompts that you submit to
us in the chat. We're going to walk through baby
Publix. Even most compelling pre built
agents to to hedge against inflation or repositioning with
what the the the feds deciding or reinvesting dividends or
whatever. Right.
Like this is going to be a workshop.
This is going to be the master class.
This is going to be the coolest webinar we've hosted today
because we're literally going to be building these agents, these
AI trading agents and investing agents on public.com right in
front of you in real time. So come again, Friday, July 10
at noon Eastern Time. There's going to be a link in
the show notes below here or it's going to be everywhere.
So just you'll find some information about it.
You're going to join us. It's going to be a blast.
You've got me hyped, but if there was ever a day to skip
going to get the Poke Bowl, Friday, July 10th, noon Eastern,
we are going to be building these lines right before your
eyes with Steven from Public An. It's free.
You're going to get all the sauce.
Like Austin said, it's going to be incredible.
It's free, so put it in your calendars.
Now, July 10th, we're super excited and we want to teach all
of you what all the talk is about these AI
agentsthroughpublic.com and we're super excited about this
one. So make sure you're there.
Speaking of public, got to give a shout out to Public, the
investing platform for those who take investing as seriously as
we do here on the Rich Habits podcast.
Because on public you can build a multi asset portfolio of
stocks, bonds, options, cryptocurrency and now they've
also got generated assets. That's which allow you to turn
any idea you have into an investable index using AI.
And it all starts with your prompt.
From renewable energy companies with high free cash flow to
semiconductor suppliers growing revenue over 20% year over year,
you can literally type any prompt and put the AI to work.
It screens thousands of stocks, builds a one-of-a-kind index,
and even let you back test it against the S&P 500, all with
just a few clicks. Generated assets can be thought
of as ETFs, but with infinite disabilities.
They're completely customizable. They're based on your thesis,
not someone else's. So go to public.com/rich Habits
and transfer your portfolio to publicthatspublic.com/rich
Habits and transfer your portfolio.
Paid for by public investing. Full disclosure in the podcast
description. As you can tell, Public is a
very AI forward company. They've got their AI generated
assets, their AI agents, they all things AI Public is doing.
They're doing a really good job of building out an awesome
product and they're super excited to be hosting again this
webinar with their COO, Steven Sykes on July 10 at noon Eastern
all about AI agents. Now our first question comes
from Calvin S via e-mail. Calvin says, Hey Austin and
Robert would love to have you guys give your feedback on this
situation. I'm 21 years old.
I'm working a blue collar job making 65,000 a year.
I didn't discover you guys before making the decision but I
currently own A4 unit property in Pittsburgh PA and living in
one of the units. When it's all said and done it
cash flows about 170 a month. I've been maxing out my Roth IRA
for years and I currently have $55,000 in there.
Into the ETFs you guys talk about.
That's crazy. First off, pause 55,000 in a
Roth IRA at 21 is wild. Good for you.
Holy smokes. He says.
I also have 66,000 in an individual brokerage account
saying he got lucky on a few individual trades but have since
rolled into the ETFs you guys talk about.
I've also got 20,000 in an emergency fund high yield
savings and another combined high yield savings with my
fiance where we've got 20,000 in there that we're saving up for
our property together. All right, we get it.
You are loaded here at 21 years old.
Congratulations Calvin, that is awesome.
So Calvin says my fiance is graduating her undergrad in the
winter time then we'll move to a different state for her grad
program the following school year, which is why we're saving
for another place. But the only issue is we don't
know where we're going to end up.
Meaning I don't know what the markets going to look like
because I don't know where I'm going.
So my main question is, do you guys think it makes sense to
keep saving money to this high yield savings account for
another house that we can house hack in, knowing that we're
going to move in a year, but not know where we're going to move?
Or should we just not purchase one of these altogether and do
something other than house hacking with this $20,000?
Long question, I know, but greatly appreciate your advice.
Robert, what's your take here? Because it seems like Calvin is
crushing it. Oh my goodness, this guy is just
printing money at 21 years old blue collar jobs, 65,000 a year,
65,000 a year. Like that's that's a solid
amount of money for a 21 year old.
So kick us off, Robert. Yeah, I think Calvin is crushing
it. It reminds me of me at 21 years
old because I was super focused and dialing in all of these
things while all my friends were going out and spending their
money on the weekends drinking and having fun.
So Calvin, if you weren't who you are, I would say don't buy
another property in house hack. But because you've proven
already that you know how to invest and you know how to be
diligent and stick to the plan. I absolutely love the idea.
Not ahead of the time. Get there, learn the lay of the
land. So if you're going to move out
of state, I would probably get a six month lease in the new area
where she's going to go to school and I would learn the lay
of the land, learn the areas, learn what neighborhoods are
best to buy in. And I would certainly then after
that six month or a year period and you know what you're doing,
then I would buy another property and house hack and do
it all over again. There's just so many great
programs out there for house hacking people to be able to
invest in these two 3-4 unit properties.
So I think you're spot on. It's exactly what I would do.
I just wouldn't do it ahead of moving there because then you
put yourself in a situation you might not like the neighborhood,
there might be barking dogs, there might be issues you don't
like. Get there, learn the lay of the
land, and then house hack again. I love that.
Keep the one in Pittsburgh. So since it's cash flowing,
probably doing pretty well for you and keep doing what you're
doing. Yeah, that's what's so
interesting about this is the four unit in Pittsburgh cash
flows 170 a month while they live in one of the units,
correct. So if they start renting out one
of the units for, I don't know, 2000 or 1500 bucks a month,
whatever it might be, that cash flow is going to skyrocket,
which is really, really cool. What advice do you have for
maybe like, you know, not Calvin because he's figured it out
right now, but maybe for someone who wants to start house
hacking. You mentioned barking dogs.
You mentioned, you know, living and, and being familiar with the
area. If someone wants to go and house
hack in a new area for the very first time, what are maybe like
3 things they need to always consider before they sign the
dotted line and close on their their first, you know, multi
unit property? I love this question because so
many people get it wrong. They tour these places, these
properties on a weekend. Everything is staged by the real
estate agent. They're in and out in 20
minutes. They're happy.
They got a cookie from the agent when they did the tour, whatever
it was. I like to tell people go there
during the week when everyone's home, when everyone's around,
when the companies in the neighborhood are up and running.
I remember we were getting ready to buy and this is two different
stories. I was getting ready to buy a
property one time. It was a four unit and we didn't
realize the neighboring property, property across the
alley was running an illegal kennel operation with all these
barking dogs and it was loud and we couldn't figure out why this
property sat on the market too long, so long.
And it was that. But another time I looked at a
property on a weekend. It was magical.
I went back during the week and this is what I always recommend.
Go to the property, sit in the neighborhood, whether you sit
outside, sit on the hood of your car for an hour or so and see
what's going on in the neighborhood and really take a
look. Look.
And we found out this property, and this was a waterfront
property was across the Bay from a machine plant.
So all day long you could hear this equipment hammering away
from 9:00 to 5:00 Monday through Friday.
And I wouldn't recommend living there for anyone.
So just always make sure you're not in a rush, especially if
you're buying out of state. You see all the fake gurus
talking about, oh, you can buy the property and do it remotely.
You don't even have to ever see the property.
That's ridiculous. Go see the property if you can
go look around or have somebody there that you trust that can
really check out all these things because you just want to
make sure it's really good for you.
And the other thing that's kind of long winded, but I'll keep it
short, is also understand if you're doing this for
investments, make sure you're finding a property that's near a
Starbucks, that's near a Target, that's near a Home Depot.
Because trust me, if you're renovating a house and you're
using subcontractors and the nearest Home Depot is 45 minutes
away, it's going to add thousands of thousands of
dollars to your labor and your bottom line when doing the
renovation because you can't get materials quickly.
So I hope that helps. Calvin, I love what you're
working on here. You obviously got your base
built right, 55,000 in your Roth IRA, 66,000 in a bridge account,
20,000 in an emergency high yield savings account.
You're crushing it at your age. I think the next big thing that
you need to consider, seriously consider is having those
conversations with your fiance now that you are obviously the
person maybe in the relationship ship who's really good with
money, who's been house hacking, who's, you know, diligent and it
is always being as responsible and forward thinking as possible
with their portfolio. Ensure your fiance is on the
same page with you on that one. That's the only advice I can
give you. Our next question comes from Ian
N Ian says, hey guys, my name is Ian.
I'm 40 years old and I recently left a long career and built up
a concentrated net worth position.
It totals $9 million and the majority is in a single long
term stock from a former employer.
What I'm trying to better understand is how to think about
sequencing risk in situations like this, More specifically
when someone has a large appreciated concentrated
position and wants to diversify over time.
What frameworks do you use to balance tax efficiency versus
concentration risks versus behavioral factors like over
attachment or waiting for the right time to act?
In other words, how do you structure a transition plan so
it's disciplined and durable through market cycles rather
than reactive? Thanks for the podcast.
It's a daily ritual for me. Awesome to hear it.
Ian, thank you so much for tuning in.
I'll take this one off, Robert. I think the first realization
Ian has to come with, and this is I've done this, Robert's done
this. And I guarantee you anyone that
that's made a ton of money or had a position go up a ton, like
whatever it might be, also had to come to this conclusion,
which is I cannot time the market and the decision that I
make to diversify away from might not be the perfect
decision. Like a great example, I invested
a ton of money into some crypto currencies back in like 2017,
2019, and it made me hundreds of thousands of dollars.
I did not perfectly time anything with that that I'm
still very happy with the outcome, but I did not perfectly
time anything. And Ian, I would argue the same
thing is going to happen to you here.
Let's say 678 million of this $9 million is in a single stock.
You are going to have and figure out a framework that we'll share
with you here as to how I approach this and how Robert
would approach this. And you're going to act upon it.
And in 24 months from now, you're going to look back at
this and be like I just left $900,000 on the table.
I should have just held it or whatever, but like at the end of
the day, you have to come to the conclusion that there is no
right answer. You know, you've got to balance
this sleep well at night mentality with upside potential.
And the, the big, the keyword there is is potential because
potential's not guaranteed, whereas sleep well at night very
much is guaranteed. So here's how I'm approaching
this. There's a couple really
important things to consider with the framework.
I don't have a specific framework to build out, but we
can talk through it live here. The first consideration is tax
efficiency. I'm assuming a lot of this is
going to be tax efficient considering you probably have
held the stock for a long time, long term capital gains, things
like that. However, when we talk about
millions of dollars, you have to be very thoughtful now as to
what those long term capital gains look like.
Depending on how much income you're taking in on an
annualized basis, it might be between 15 or 20%.
Another thing to consider here is does that 5% actually matter
if the stock is moving up and down more than 5% on a weekly or
monthly basis? You might say to yourself, I'm
going to stagger out the sales so I'm not in that 20% tax
bracket and I keep it under the 15.
But maybe over the next half of many years, you do that, the
stock falls calls by more than 5% and now you just shot
yourself in the foot. Kind of goes back to my first
point of no matter what decision you choose here, it's going to
be the wrong 1. So it's just like come to that
conclusion. Ian, The other thing that I
think is a wonderful tool for people that are in your
situation that I've done myself is covered calls.
If you're able to say, hey, I've got thousands or 10s of
thousands of shares of this company's stock, I mean $9
million, who knows how many shares you have, I'm going to
start selling covered call options against it at a strike
price that I'm super comfortable selling at.
Even if that strike price is at or, you know, marginally below
where it's currently trading at. At least you're locking in now
premium income that yeah, you're going to have to pay taxes on.
But you can set that money aside and use that, all of that
premium income to help offset what your taxes might be on this
entire game itself. So you're kind of thinking about
this is like a way to say, let me sell some covered calls
against the specific stock position in My Portfolio, not as
a way to generate income or build wealth, but as a way to
help offset what the taxes might turn into on my position.
Here's my thing. I do not enjoy and then I'll
flip it over to Robert. Having a single stock make up
more than six, 1012% of my net worth.
Now I have exceptions. There are start-ups, privately
held multi billion dollar companies that make up 7 figures
of my net worth, which is exciting because I believe in
those companies and, and a lot of that is, is just
appreciation. And I also don't have the
liquidity to get out of that or I guess I would already start
doing that. But when it comes to publicly
traded single stocks, I don't like to have more than call it
six, 1012% of my net worth in one of those.
Because what could happen is you see Tesla, which is a great
example from 2023 throughout 2024, Tesla was trading in the,
you know, 200 ish range, one 80s, two 20s all around that.
Then it spiked up to 421 share. Then it spiked to $450 a share,
fell back to 260 a share. Now it's back to four O 9 a
share. I mean, that is a recipe for
emotional stress and disaster if you don't have the discipline
around it. Microsoft's another great
example. Microsoft has been trending up
and to the right was as low as 350 in April of 2020.
Five got as high as 550 in August of 2025.
Now it's 371. So like these single stocks go
all over the place. So the goal here is to diversify
away from them as it makes up a bulk of your net worth.
And now move a bulk of your net worth into index funds and big
ETFs that are operating in secular growth trends that we
all talk about and believe in. Not because you think they're
going to outperform the single stocks, but because they do you
yes, swing 1015%, but they don't have these violent 40% swings
like a Microsoft is down 38% from its recent all time highs.
In a matter of half a year, index funds will move and groove
up and to the right. That is a great way to preserve
that that net worth that you've made here concentration, you
know, helped you make the net worth index funds and
diversification helps you preserve your net worth.
So I like how you've kind of done this here, Ian, but those
covered calls might help a ton as you think about taxes.
Robert, did I miss. You didn't miss anything.
That was a master class for this situation.
But I'm just going to add a couple little doses of insight.
For me, hope is not a financial strategy.
And you mentioned that you have this, you know, risk behaviors
and all these things you're worried about over time here
because you have this high concentration in one stock and
you got here by doing that. But now you have to diversify.
You have to take it out of your mind that you're going to leave
money on the table or pay these taxes.
Because if you don't, you could find yourself in a really bad
place where let's say it goes down this stock over the next
year, 2 years goes down 50% and then you're going to to kick
yourself for not doing something.
So I think you're on the right track.
Everything Austin said is exactly what I would do.
You got to get out of it. You don't necessarily have to
sell it all at once. Whatever you want to sell down
to, to get the diversification, you could take it over 1-2,
three years. But just be careful there as
well because you don't know what the markets are going to do with
that individual stock over the next three years.
But the main thing is getting over what you said is the
behavioral factor, because right now you're operating more
emotional and less tactical because of the fact you're
fearful of leaving money on the table because you've built so
much wealth from this one stock. But remember, this is not real
gains until you do something with it.
This is unrealized gains. And you have to get that
diversification so you do have protection against one single
stock that could go down at any given time.
And I think I know another mental model here to think about
is I had a really good friend. I don't want to name his name
because he's very rich now, but he started a really cool company
in college and he got a, a windfall in his mid to late 20s
of 20, five, $30 million. And he looked at me and we
talked about this is like, wow, man, that's a lot of money.
Like, what are you going to do with it?
And he goes, I'm going to put it all in the index funds because
literally if I do nothing and American capitalism and need a
rule of 72, like all that stuff continues to happen, this will
be worth hundreds of millions over my lifetime versus I'm
going to get cute with it and buy some single stocks.
I'm going to get cute and try and do this venture investment.
I'm going to get cute and do whatever, whatever, just taking
this money in and saying after taxes, you have 6 million or
whatever the number is here. I don't know your, you said
9,000,000 total. Let's say it's $6 million after
taxes in seven years, that's 12 million.
In 14 years, that's $24 million, Ian, by just sitting in index
funds. And another way to think about
this, and this is actually a, a, a mental model that Dave Ramsey
popularized, which was every day that you own so much of the
single stock, you have to flip it on its head and ask yourself,
would you take $8 million today and buy that stock with it right
now at this price? Because that's what you're
doing. If whatever the stock price is
for this company, would you say I'm going to go take $8 million
and 92% of my net worth and buy this specific stock at this
specific price right now, today? If the answer is no, and you
would not do that and you're like, whoa, that's actually
crazy. I would not do that right now.
Then that's another kind of like flashing red, you know, red
light to say, maybe I should not be holding this position.
There's a lot of little different ways to think about
owning a very concentrated position that makes up a ton of
your net worth. And again, do some covered
calls, do what you can to help with the taxes there.
Oh, last point, Robert, maybe you can talk toward this.
Any financial advisor, any online guru, any anyone that's
going to say, let me take that. I can perfectly time the market
for you. I'll make sure you get out of
this with as much tax efficiency, as much upside
potential. You're going to have all those,
all they are lying to you. No one can time the market.
So please be weary of someone trying to take this 8,000,009
million from you and say put it in this whole life insurance
policy. You can then borrow from it here
and then you cannot pay taxes on the game here, which you're
going to say just be careful my friend.
Just be careful. I live this exact moment and to
this day, and this was 16 years ago, still is a defining moment
of my financial career and my life.
My cousin Tim walked in unannounced during the heat of
silly bands when everything was going crazy.
He walked in and I'm like do we have a meeting?
And I said he said no. I said what are you here for?
He goes, write me a check for $5,000,000 right now so I can
get it out of your mind and out of your coffers and I'm going to
put it into the S&P 500 and the NASDAQ and you're going to
forget about it so you never have to think about money again.
And I didn't do it. I gave him $1 million on the
spot. I think it was 1 million or 2
million. And that is this exact story.
You have to take money out of high concentrated risk and get
it somewhere else so you can let it grow and compound over time
without being in that high risk bucket any longer.
So, Austin, that's a great, great call out.
So our next this question comes from an anonymous listener.
They say, hey Robert and Austin, I love the show and I listen
every week. My wife and I in our mid 30s and
we invest 10% of our paychecks into our respective Roth 41 KS.
After all bills and expenses are paid, we have an additional
$2000 a month surplus and would love your breakdown as to how to
prioritize this extra cash across 5 competing options.
Option one is we have a car loan of about $39,000 at 7% interest.
Option 2 is we've got some short term debt of 5000 on a 0%
interest deferred until July of 2027.
Option 3 is retirement acceleration maxing out both of
our Roth IR as option 4 is a college savings fund.
We've got a couple kids we could do a 529 ages one and three or
option five, our low interest debt, which is our mortgage at a
beautiful 2 1/2 percent interest rate.
Mathematically, the 7% car loan and the 0% deferred interest
deadline seem urgent, but we want to balance aggressive debt
pay off with building wealth. How would you rank these 5
buckets? Good question.
So I kind of want to start over because it all comes back to our
phrase of match beats Roth, beats taxable.
So up to the match with your 4 O1 Ki, think you guys are going
above that. I don't know if your 4-O1K is
giving you a 10% match. So up to the match, which in
your case is probably 3-4, maybe 5% if you're lucky.
Then you Max out the Roth IRA because you have complete
autonomy over it and you can make sure it's invested into the
right things like VOO or QQQ and then back to that four O 1K.
If you have autonomy in that and you want to put more money into
those retirement accounts and get a lot more invested, and
then if you even have more money, that's when the bridge
account comes into play. So I would have reimagined how
you're prioritizing your Roth IRA.
The third thing there, retirement acceleration, maxing
out both of our Roth IR as I want to make sure that's done.
You guys have $2000 more a month.
Like figure out where that fits into the equation because you
guys both need to Max out these Roth IR as that is a great,
great, great idea. However, you mentioned high
interest debt of a car loan here at 7%.
Now I would argue that 7% is right on that cusp of.
It's not high interest credit card at 28%, but it's also not a
low interest mortgage at 2 1/2%. So I'm not mad about wanting to
get rid of that car loan. But there is another thing
jumping out at me that's a little scary, which is the short
term 5000 home remodel loan. I can appreciate the 0% interest
deferred until July 2027, but I got a funny feeling that this
might be on a throw credit card, 0% whatever that after 18 months
is going to jump to 27 1/2 percent or whatever is going on
and you're going to be up to your eyeballs and high interest
debt now from this home remodel. So let's do this.
Let's figure out how to start putting five $600 a month toward
this Roth IRA of this $2000. So you're maxing it out now on
an annualized basis going forward.
Let's also figure out how to get rid of this home remodel loan as
quickly as possible, but absolutely before this July 2027
number kicks out. And then, you know, I'm not mad
about the car loan. I'm not trying to pay it off
aggressively per SE. I'd like to see, you know, a
couple 100 bucks maybe into funding that 529 account.
You can do this on Vanguard. That's what I do for my nieces
and nephews. I think it's like 200 or 250 a
month I put in there. It's already worth like $20,000
and I've been doing it for like 3 years.
It's just, it just sits in the S&P and it grows.
It's, it's really, really cool. So go do that.
And then if you really got some extra here and you want to get,
you know, aggressive on the car, be my guest.
But don't touch that mortgage. That's the last thing.
Don't touch it. Don't touch it.
Yeah, I love that breakdown.
And it's really this simple. Max out the 2, Ross, that's
$12150 a month. Take the $750 a month that's
leftover after that and you're going to take that and put that
towards that $5000 short term debt even though there's zero
interest because you don't want to wait till June of next year.
And then all of a sudden you're like, Oh no, we forgot.
We got to come up with five grand all of a sudden and you're
pulling it out of something that's making money.
You're going to do those two things to get the Roth maxed
out, get that ahead of it so you can pay it off.
And then the rest you can put somewhere else into your
traditional brokerage account or whatever.
But you guys are crushing it. You just need to make a couple
little adjustments here, like Austin said, and you'll do just
fine. Hey, and you mentioned the kids,
ages one and three. I love this 529, but don't
forget too about that Invest America account, the Trump
accounts going on right now through the Treasury.
I think they get funded here in the next couple weeks.
I think it's on July 4. The $1000 gets dropped in there.
Plus depending on your zip code, you get an extra 250 from
billionaire Michael Dell. I was also talking to my fiance
and some of the companies, for example, the company that she
works at, iHeartMedia, they offer a contribution.
So like figure out if where you work at is a perk to get a
contribution to the Invest America account.
This is free money that your kids are going to be able to
take and now use. It flips into a Traditional IRA
by the time they're 18. It's really cool stuff.
Go check out those Trump accounts, the Invest America
accounts. They're really, really
important, especially from a free money perspective.
Now before we jump to our next question from Joseph, got to
give a shout out to Equable Shares and their hedged equity
ETF ticker HEDG. If you've been thinking about
how to balance market exposure with a discipline risk approach,
HEDG could be the right fit for you.
It's an actively managed ETF that combines large cap U.S.
equity exposure with an options hedging strategy that seeks to
mitigate your downside risk with a partial put spread and covered
call writing. So in plain terms, as an equity
strategy that just doesn't sit there hoping the markets go up,
it is built in tools that seek to manage risk and create more
disciplined low volatility strategy for long term
investors. To learn more about Equable
shares Hedge equity ETFHEDG, visit equableshares.com/fund/H
EDG and. As with all investments,
investors should carefully consider their investment
objectives, risk charges, and expenses before investing.
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LLCHEDG could be an interesting alternative for our friend Ian
to consider who has now that $9 million net worth.
So Ian, maybe that's something to to check out.
Also don't forget we've got that public.com AI agent webinar July
10. It's a Friday at noon Eastern.
You guys are going to want to definitely sign up and be there.
It's going to be so much fun. We've already got a couple 100
people that are signed up just from inside the Rich Habits
Network. So be sure to get your seats
live, live, live. It's going to be so much fun.
We can't wait to have y'all. There's a link in the show notes
below. Be sure to go check that out.
Now Robert, let's jump to our question from Joseph.
Joseph P says, hey guys, I hope you're doing well.
I got a question. I recently got engaged.
Now my fiance and I are going to start saving for a wedding.
Where do you recommend we put our cash, the stock market or
high yield savings? Robert, what's your take?
Well, it depends on when the wedding is.
If they're saving for a wedding that's in the next, let's call
it two years, then I would definitely go to public.com, the
sponsor of this show. I would open up that high yield
cash account and I would rock'n'roll there, get it up and
running right away. I think that'd be a great place
to start. The only way I would go
elsewhere and put it in the market, the stock market, is if
you say we're not going to get married for three or four years,
we're just trying to get ahead of this.
Then I might, you know, say that you could do 50% in some of
these ETFs we talked about like VOO and QQQ and 50% in high
yield savings. You just want to make sure
you're not trying to time the market because the worst thing
that could happen is you're getting married in two years.
There's a down market cycle in 18 months and all the money you
saved is down 30% when you need it.
That is why you need to look at it from a long term perspective.
So that would be my breakdown. If it's two years, around 2
years, do the high yield savings, save yourself all the
stress, make that three 4% and you'll be good to go.
Couldn't agree more. I'm getting married May of 2027
and it's all in a high yield savings.
It's about one year away from here sitting in a high yield
savings. I'm making my 3 1/2% whatever it
is every single month paid to me and interest and it's just
rolling and having a good time. So totally agree Robert, what a
great breakdown. Our next question comes from
Jeff B Jeff says I'm a new listener as of a couple weeks
ago and I'm eating your podcast up.
Thanks Jeff. Appreciate it man.
Jeff says I've been listening non-stop.
Love the advice and topics and really appreciate the Q&A.
So here's my scenario. My wife and I are both 41 years
old. We own and four rental
properties that net US 20 to $25,000 per year and have about
600,000 in equity all together across the four of them.
I'm AW2 employee making a salary of 135 a year and I get up 30 to
$40,000 bonus per year as well. I'm also a real estate agent on
the side and manage our own properties and another one.
My wife owns a small business. It's projected to net 200,000
this year and growing. We have 650,000 in invested
retirement assets, 80% of that in the S&P, 520% in big tech
stocks. So my question is how do you
factor real estate into your net worth in terms of being prepared
for retirement with their incomes increasing?
We intend to keep investing in real estate to help with the tax
benefits and such, but how do you think about investing in
real estate and calculating that as it relates to early
retirement? Really good question.
So Robert and I have been talking about the 4% rule in the
Trinity study for quite some. All that means is a couple
decades ago at Trinity University, there was a study
that took place that essentially said if you have 60% of your
money invested into equities and 40% of your money invested into
bonds, that portfolio, it is fine in quotation marks here to
withdraw 4% of that portfolio's value every single year.
And if you do that, history tells us that you shouldn't run
out of money for about 30 years. And so that has been sort of the
way and the the kind of cookie cutter retirement portfolio for
a lot of people as they get closer to retirement age, 606570
years old. So they do the 6040 equity to
bonds, they withdraw 4% of that and then they cross their
fingers and hope that they don't run out of money for decades to
come. As it relates to calculating
your freedom number, we had a whole episode about this.
Highly recommend going back and finding that or maybe just
Google rich Habits podcast freedom item number.
But essentially what the episode does is it breaks down.
What do you have today in your retirement accounts?
What do you spend today? What do you think you're going
to spend in retirement? What's the difference there?
How do we make sure that your retirement spending is now
inflation adjusted? And then how much money do you
need invested into your, you know, stock market, whatever it
might be there. So that 4% of that figure in
that portfolio reflects the inflation adjusted annual
spending you plan to have in retirement.
Inflation's been hot lately, call it 3 percent, 4%.
So a lot of people's, you know, 4% withdraws had to go up a
little bit because of this inflation spending.
So here's how I personally would think about this and maybe
Robert has a different take on it.
I would include that 20 to 25,000 per year in your
portfolio income as it relates to what you need in that
retirement because that's what you're spending.
So this is a real number, $75,000 of after tax money spent
today in 2026, that same buying power assuming 3% inflation.
Remember we're at 4.2 right now and have been as low as like
2.62 point 7 recently. But let's call it 3% inflation
in 25 years when our friend Jeff is let's call it 66 years old.
To have the same buying power in 25 years as $75,000 is today,
Jeff is going to have to spend $157,000 a year.
So now Jeff has to ask himself, I need if I want to spend
$75,000 a year as in 2026 money, and I want to have that exact
same buying power in the future. Assuming a 3% inflation, I
that's going to be 157,000 in future money that I'm going to
have to spend every single year. What amount of portfolio size do
I need to be able to afford 4 percent, $3,925,000.
So just take that number, multiply it by 25.
So now you have $3,925,000 that our friend Jeff needs to have
invested 6040 to peel off that 4%.
That's going to be that $157,000.
Now how I think about this, Jeff, is that 157 could be
supplemented by that 20 to 25,000 per year.
So now in this situation, just to kind of really dig into this,
Jeff right now is making 20 to 25% net per year with his
rentals. But let's call it in 25 years
from now, he's going to net maybe closer to 40 or $50,000
per year, about double. And so you can then take that
157 subtract, let's call it 45,000 per year net.
And now Jeff needs to come up with the other $112,000 per year
from his portfolio. So now Jeff, you'll need $2.8
million, assuming the 40 to 50,000 delta there came from
your investment portfolio. And that 2.8 is invested again
in the 6040 equities bond split with the 4% rule, withdrawal
rate, all that fun stuff. So you can kind of see how like
the portfolio is going to go do this, assuming you can also go
make a little bit here with your rental income.
You don't need as much portfolio income because you've got some
other rental income over here and they kind of offset each
other there. So that's how I would think
about it. But I think a lot of people,
Robert, and this is worth really harping on for a second, are not
thinking through how big their portfolios might need to be in
30-40 years from now. Like my age people, I just
turned 30 this year. I've got 30-5 more years till
I'm 65. We're talking about $200,000 of
spending power is equivalent to 75,000 today.
And don't get me wrong, 75,000 is a lot of money to spend, but
it's not as much as you might think.
And so like I just you should really think through if we have
a consistent 2 1/2 to 3% inflation for the next 10:15,
20-30 years, Robert, how does that impact my retirement
planning? I want to spend so much per
year. Do you have that actually
calculated in your own Trinity study?
4% withdrawal, They're like really do some research around
that. Yeah, that's a really good
breakdown. And I think there are a lot of
holes in people's strategies when trying to figure all of
this out. Because you think about this
situation here with Jeff and his wife in the four rental
properties. I guarantee you if they go in
front of their CPA or, you know, their local financial advisor,
he's going to give them all these glowing numbers from these
rental properties. But he's not going to take into
consideration real conservative moderate numbers of what the
capital appreciation is per year.
He's going to Google it and be like, yeah, these are going to
go up 8 percent a year forever. So you're going to have all this
extra equity and money to go towards retirement.
And generally that's a mistake. And it's also people need to
understand their total net worth versus their liquid net worth,
because a lot of people want to look at their net worth and
include their primary home. And I think a lot of times when
you're calculating to get to the Trinity study and what that 4%
rule is, you shouldn't include your primary home as an asset
because I think it gives you misleading numbers.
And then the last thing I'll add is people never put the numbers
in of what it actually cost to sell these properties 20-30
years down the road. For all the fees for closing
costs and commissions and all the things that go into, they
just say, OK, this house is going to be worth XYZ and we're
going to own this. But they forget about all that
money in that appreciation that's going to go out the door
in closing fees and other fees. So I think you did a really good
job, but there is always a lot to consider in this situation.
I personally think people should not use their primary home.
They should use their liquid net worth.
They should be moderate with their upside on numbers and
calculations for the long term over that 10 or 20 years because
we see market pull backs all the time.
The real estate market is up, down and sideways every 568
years. So that's how I would do it
because you want to make sure, like you said, people are living
longer, they're going to need more money than they think,
especially people your age, Austin.
So I think they need to be more conservative with what they're
saying things are going to be and what they actually need to
retire comfortably and maintain the lifestyle that they want.
Now here's the good news. Our friend here has $650,000
already invested in the markets, and that's going to continue to
double every seven years, assuming the S&P continues to
return about 10%. So like, everything's cool
there. You're going to have millions of
dollars in retirement. So like, don't even sweat this
stuff. This was more of a mental
exercise. I guessed a straw man the other
side of this against what I was saying.
You know, the, the 157,000 in 25 years, equivalent to 75,000 of
spend is and this is proven to be true as time goes on, things
become deflationary. Like there are things that are
deflationary in nature. And so not saying that that's
like going to be the exact kind of apples to apples comparison,
like groceries and fuel and like things absolutely go up in value
overtime, medical care, transportation, stuff like that.
But there are parts of the equation that do go down over
time. So like I, I'm not saying that
this 3%, like the 75 to 157 is going to be a linear line and
that's exactly how much you need like all of this is up for
grabs. That can be very different.
But the point of me sharing all that was so I don't want people
listening to this episode to say, OK, I spend $60,000 a year
or $5000 a month, and that means I need to come up with $5000 a
month and I can retire forever. Sure, you could retire in
today's money, but as inflation continues to trend up into the
right, as other things begin to happen, as the years and decades
tick by, that's when you have to say, wait a second, 5000 dollars
of 2026 is not $5000 of 2036. And I need to know how the
portfolio that can reflect that appreciation.
And you make sure I'm earning a little bit here, stashing away
stuff here. It's a very tricky thing and no
one has the right answer here. And I'm not pretending that we
do. But I do think it's very
important to think about that as you are doing your retirement
planning because inflation has reared its eyes a little head
back up. And we have a 4.2% inflation
rate right now. And the Fed, it's been 6 years,
55 or six years since inflation came in 2021, late 2020.
And it's not really gone away, right?
Yeah, it was 9 or 8%. Now it's closer to 2, three, 4%.
But it's still much higher than that long term average of just
2%, which a lot of these retirement planners use that 2%
model in their own. So if you have a financial
advisor, ask them, Hey, with the stuff that you've shared me
recently, what's the inflation rate on this?
What are we assuming? Is it 2%, two and a half, three,
3 1/2? How can we how can we make sure
we have a buffer in this plan to assume that inflation might be
stickier for however many years like it was maybe in the the 70s
and 80s? Wow.
What a great call out. So our last question here is
coming from Freshwater Hustle on Instagram.
I love it. They're saying, hey Austin and
Robert, I discovered your podcast a few months ago after a
client randomly mentioned QQQI, thought they were speaking
gibberish. And I googled it and somehow
found your podcast and the show has completely changed my life.
That's cool to hear. If you Google QQQ maybe a
stumble upon in the rich habits podcast.
What a what an honor that would be right?
So cool to hear that they said. I just turned 40 and thanks to
you all. I'm currently building my base
aggressively from scratch with the goal to have 100,000
invested by the end of 2027. Right now my net worth's 50
grand and I've got about 8000 in checking, 12,000 in ETFs, 10,000
in a high yield savings, 2500 in a pension in 16,500 sitting in
my teaching retirement system pension from days teaching
public school. The TRS rate of return is very
low and I'd love to get this money out of there if it's
possible and into a Traditional IRA where I would have so much
more control over how it's invested.
I opened up a Roth and a Traditional IRA and I can do a
direct rollover, not partial rollovers.
But the problem is the amount of money that's in the TRS is above
the acceptable IRA contribution limit for me.
How should I think about rolling this money over?
Do I need to do something special here?
Am I forced to keep it in the TRS?
I'm not sure how to proceed. So, Robert, this is a great
opportunity for us to remind everyone the difference between
contribution limits and rollovers.
So all you got to think about here is when it comes to
contributions, this is net new dollars that you are
contributing from your checking account into this retirement
account. You can only contribute so many
net new dollars into retirement accounts every year.
Right now, the maximum you can contribute to a Roth IRA is
$7500. The maximum you can contribute
net new dollars into a Traditional IRA is $7500.
That's up from 7000 and it was like 6000 something a couple
years ago. But like it goes up a little bit
every year. But that's net new dollars that
you can contribute to these accounts.
Rollovers are very different because that's money you already
contributed in the past. It does not impact your
contribution limit. So you can roll over all of this
money into a Traditional IRA, all 16,500 and you're off to the
races. Everything's fine because it's
not a contribution, it's a rollover.
You've already attributed the money, you've already, you know,
done the stuff. Now it's just moving it from one
account to another. I recently did this with a Sep
IRA. I had about 8590 thousand
dollars sitting in a Sep IRA that I rolled over into a solo
pre tax 401K. I've also done this with other
accounts in the past. Like it's just you can move
money just fine. Roll over, roll over, roll over.
All good vibes and not have to worry about that contribution
limit because as it kind of sounds, you're not contributing
net new money to the account. You're simply rolling it over
from one account to another. Now I'm no expert when it comes
to the TRS, the teaching retirement system here, the
pension you've got so make sure you've you're following the
rules there. Make sure you do a little bit of
research on like what those rollovers look like you
mentioned you can do a no partial rollover so make sure
you're rolling over all of that amount.
Just make sure you're doing all the normal stuff there.
Don't want to get what weird tax bill or a penalty or something
weird without, so just do a little bit of research.
But regardless, I love how you're, you're thinking about
this. You're auditing your portfolio,
you're seeing some low returns in one spot and you want to get
it rolled over. Open up apublic.com account,
open up a Traditional IRA on public, roll it over into there.
You might even get a bonus if you're lucky.
And then with that money, get it working for you in the index
funds and ETF's we talked about like VOODIAQQQ and all the other
fun stuff. Austin what an incredible
episode. So many great questions and I
just wanted to give a quick, quick reminder.
July 10th, Friday noon, we are going to be building AI Agents
live with public.com. It's a free webinar.
Make sure you guys add it to your calendar.
It's in the show notes below. And one more call out that we
don't talk about enough is Wall Street favorites.com.
If you guys are trying to figure out what stocks you own, are
they the right stocks? Are are they performing as good
as Wall Street thinks they should?
All of the above. Make sure you guys check out
wallstreetfavorites.com. Yes, Wall Street favorites.
The easiest way to know what Wall Street thinks about your
own portfolio and to learn more about what Wall Street is buying
with their own money, wallstreetfavorites.com.
There's a ton of cool stuff over there.
Be sure to go check it out. Everyone, thanks so much for
joining us on this week's episode of the Rich Habits
Podcast Question and Answer Edition.
And we'll see you tomorrow on Friday for our episode episode
of the Rich Habits Radar.