Rich Habits Podcast - 119: What Your Financial Advisor Won’t Tell You

Episode Date: May 26, 2025

Check out Sammi's new podcast Social Currency on Spotify, click here!---In this week's episode of the Rich Habits Podcast, Robert Croak and Austin Hankwitz uncover the secrets of Financial Advisors, specifically, what they don't tell you!---🎨 Skip the waitlist and invest in blue-chip art for the very first time by signing up for ⁠⁠⁠Masterworks⁠⁠⁠: ⁠⁠⁠https://www.masterworks.art/richhabits⁠⁠⁠Invest in shares in great masterpieces from artists like Pablo Picasso, Banksy, Warhol, and more.---🔥 Ready to start earning a 1% match on your Roth IRA? Get started today with Public, click here!---🚀 Sign up for the Rich Habits Network so you don't miss out on the next big investment opportunity,⁠⁠⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠click here!⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠---⭐ Download our FREE Budgeting Template –⁠⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠click here⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⭐ Earn 4.1% on your savings with a High-Yield Cash Account –⁠⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠click here⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⭐ Trade stocks, options, music royalties and crypto on Public –⁠⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠click here⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⭐ Automatically buy stock where you shop with Grifin –⁠⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠click here⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⭐ Protect your family with term life insurance from Suriance –⁠⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠click here⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⭐ Use code “Spotify” for 15% off our 4-module video course –⁠⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠click here⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⭐ Optimize your portfolio with Seeking Alpha –⁠⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠click here⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠👤 Explore everything Austin does –⁠⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠click here ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠👤 Explore everything Robert does –⁠⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠click here⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠❓ Ask us questions for our Q&A episodes – @richhabitspodcast on Instagram📬 Inquire about working together – [e-mail]: A Bond Account is a self-directed brokerage account with Public Investing, member FINRA/SIPC. Deposits into this account are used to purchase 10 investment-grade and high-yield bonds. As of 12/19/24, the average, annualized yield to worst (YTW) across the Bond Account is greater than 6%. A bond’s yield is a function of its market price, which can fluctuate; therefore, a bond’s YTW is not “locked in” until the bond is purchased, and your yield at time of purchase may be different from the yield shown here. The “locked in” YTW is not guaranteed; you may receive less than the YTW of the bonds in the Bond Account if you sell any of the bonds before maturity or if the issuer defaults on the bond. Public Investing charges a markup on each bond trade. See our⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠⁠⁠Fee Schedule⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Bond Accounts are not recommendations of individual bonds or default allocations. The bonds in the Bond Account have not been selected based on your needs or risk profile. See⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠⁠⁠https://public.com/disclosures/bond-account⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ to learn more.Content creator (the “Endorser”) receives cash compensation from Masterworks, LLC (“Masterworks”). Endorser is not a client of Masterworks. Invest in shares in great masterpieces from artists like Pablo Picasso, Banksy, Warhol, and more. For further disclosure on Regulation A Offerings, Risks of Investing, Performance Metrics, Art Market Data, and more visit the offering documents filed with the SEC and Important Disclosures at masterworks.com/cd.---Hankwitz Group LLC has an existing business relationship with NEOS Investment Management LLC. The opinions expressed are those of the author, and the author owns several NEOS ETFs.

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Visitactivia.ca for more details. Hey everyone and welcome back to the Rich Habits Podcast, a top 10 business podcast on Spotify, brought to you by public.com. Before we jump into the normal intro of the show, I want to give a quick shout out to our friend Sammy Cohen, who recently launched her own podcast, called Social Currency with Sammy Cohen. Essentially what she does is unpack stories at the intersection of culture and money and business and trends and everything like that. So go give her podcast a listen. They just did an awesome episode with Brian Kelly, who's the points guy.

So major shout out to Sammy Cohen for her awesome new show. Love what they're doing over there. Now with that being said, my name's Austin. I'm joined by my co-host Robert Croke, and this is the Rich Habits podcast. Robert is a seasoned entrepreneur in his 50s with lifetime revenues of over 300 million, and I'm an entrepreneur at my late 20s with a background in finance and economics. Since quitting my full-time job in corporate finance a few years ago, I've built a seven-figure media business and actively advise some of the most well-known fintech companies around

the world. Now, as the show name might suggest, every episode, we talk about rich habits as they relate to business, finance, and mindset. However, we try and bring you two unique perspectives, one from an industry veteran, which is Robert, and the other myself, someone who's still in the process of building wealth and figuring it all out. So, Robert, what are we going to be talking about in today's episode? In this episode of the Rich Habits podcast, we're going to finally break down all the myths and misunderstandings of having a financial advisor. By the end of this episode, you'll have a complete understanding of what these people do,

how they make their money, and how you can avoid the most common pitfalls and traps that they use to extract hundreds of thousands of dollars from your investments over time, to line their own pockets. You know, I think everyone building wealth should have a financial advisor, and in this episode, is all about helping you understand the differences between a good one and the bad ones and the damage that can be done if you choose the wrong one.

So choose wisely. Choose wisely. This episode is going to be awesome, because we've talked about financial advisors a lot on the show, but we've never really took the time to walk everyone through what they do, how they make money, money, as well as what to avoid when choosing a financial advisor. So that's what we're going to be talking about in this episode.

Robert, kick us off with the first misunderstanding as it relates to financial advisors. The first misunderstanding is suitability versus fiduciary standards, and what does that mean? You know, many advisors, specifically those working for popular brokers like Morgan Stanley, Edward Jones, and many others, as well as big insurance companies, operate under what's called a suitability standard. And this means they must recommend financial products that are quote unquote suitable for their client's financial situation, goals and risk tolerances, but not necessarily the client's best option.

So remember that very, very important suitability. So for example, an advisor might recommend a high cost mutual fund with a 5% front loaded fee as an investment for you because it meets your basic suitability standards. even if a low-cost index fund like VO that Austin and I talk about all the time has a much lower expense ratio of 0.03 and performs better over time. This standard allows advisors to prioritize financial products that pay higher commissions to them or align with firm partnerships creating a conflict of interest for all of you. So make sure you guys are taking notes on this episode.

This is going to be a lot to digest, but very, very, very. important. On the other hand, fiduciary advisors are legally obligated to act in the client's best interest at all times. They must prioritize options that maximize the client's outcomes, disclose conflicts, and avoid recommendations that benefit them more than it benefits you. However, about only 15 to 20 percent of financial advisors are fiduciaries, so make sure if you're hunting around looking for a financial advisor, you understand what these terms. mean and you flush out if they're truly acting as a fiduciary. To find them, look for advisors with certified financial planner or registered investment

advisors designation in their title or on their website. Very easy to find. And if it's hard to find, it means they're not a fiduciary. So keep an eye out for that. So to summarize, you've got the suitability and the fiduciary. The suitability operates under the suitability standard, which means they recommend financial products that are suitable, but not always the best option, where the fiduciary advisors are legally obligated to act in their client's best interest at all times no matter what. So I appreciate

that breakdown, Robert. And I want to give you guys a few examples of some of these misaligned incentives, right? So advisors at banks, brokerages, or large firms, again, Morgan Stanley, Merrill Lynch, Edward Jones, they may be incentivized to recommend proprietary funds or products developed by their own employers. These products often carry higher fees like 1 to 1.5% expense ratio than a third-party alternative like what Robert and I talk about, like a Vanguard or a Fidelity ETF that is a 0.03 or 0.04 percent expense ratio. You're paying 10, 20, 30, 40, 50, 100 times more money in fees to invest in the same things.

That doesn't make any sense. So some of these firms like Morgan Stanley or Merrill Lynch or Edward Jones might set sales quotas for their financial advisors and maybe even offer bonuses for promoting these in-house products, which lead advisors to say, I think we instead should put our clients over here. You know, it's the same holdings, but the fees are a little bit higher or whatever. It'll be fine. That's not good. We do not like suitable.

We want fiduciary. Commission-based advisors can also earn payouts for selling products like annuities, life insurance, or some of those mutual funds that Robert alluded to that have a bunch of fees. A good example of this is annuities, right? Someone might go out and buy a $100,000 variable annuity, and that person that sold it to them, right, that financial advisor, would earn a 5 to 7% commission up front. That's thousands of dollars in fees right off the top.

While maybe recommending a low-cost index fund like VO would earn them nothing, so they're not going to recommend that. So just be careful. Make sure you understand the difference between the suitability standard and the fiduciary standard. Yeah, it's just so important. because I feel like so many people when they're looking for an advisor, they're trying to get wealth management, they just really worry about the person liking them or they got a reference from

somebody on this person and they kind of glean over the importance of understanding all of these terms and fee structures. And I always try to relate it to if you're going to the hospital for an important surgery, would you ever just take one reference, one opinion? I don't think you would. you would get two or three opinions, just like when you go buy a car. You're going to go to multiple dealerships. You're going to call around on multiple models. Yet people will take their entire life savings and dump it to a guy in an office on a corner without even understanding what is his performance been? What are the fees?

How do they make their money and asking all of the tough questions? And this comes up every day in my life when I'm helping people. And it's just so important to understand. Ask the tough questions. this person doesn't need to be somebody that's your best friend or your golfing buddy or a friend of the family. It is all about who is going to perform the best to help you grow your wealth. So let's now jump into the second misunderstanding about financial advisors, which Robert sort of alluded to here, and that is the fee structures in how these financial advisors actually make their money.

So there are three common fee structures when it comes to these advisors. And we're going to dig into each of them, starting with the first one, which is the most common, percent of assets under management. This is where an advisor would charge a percentage of a client's portfolio, typically one to two percent per year, in the form of a fee. Now, these fees are automatically deducted, monthly, quarterly, biannually, sometimes once a year, but they are invisible to the clients. Advisors may present this as the standard, but they rarely highlight how much it could compound over decades, significantly reducing returns. So here's an example. So here's an example. Just so we're on the same page about assets under management, if you had $500,000 invested with an

advisor at a 1% fee, you are paying that advisor $5,000 per year in the form of a fee to manage your money. So let's say you took the same $500,000 and it was going to get invested in the S&P 500 and earn 6%, conservatively speaking, over the next 20 years. With no fees, just invested into V-O-O, this grows to about $1.6 million, assuming compound interest, all the fun stuff that comes with the stock market. But with a 1% AUM fee, the effective rate drops from 6% to 5%, which means your $1.6 million is now only $1.33, which means you lose $270,000 to fees over that 20-year period of time. And that's assuming you invest into low-cost funds. Let's say that the advisor takes a 1% fee, and they put you in a a mutual fund that's also a 1% fee or a proprietary fund that's a 1% fee. Now you're paying

2% a year to have your money invested, which means that $270,000 can balloon to $400 or $450,000 over the same period of time, taking your $1.6 million sort of North Star down to $1.2 or $1.1 million, right? We're talking hundreds of thousands of dollars paid out in fees over a couple decades, when in actuality, if you just put your money in the S&P 500 on your own, you wouldn't have to pay these types of fees. So that sounds really bleak and really terrible when you think about how much the fees add up over a 20-year period. But I want to look at it from a different perspective

because I think the number one understanding everyone needs to have, if you took that 270,000 in fees over 20 years and you broke it down, it would be about $1,000 a month you'd be paying, hopefully to this fiduciary that's charging you 1% or less on your money, the assets under management, as Austin alluded to. So it's important to understand it sounds horrific. But at the end of the day, you have to ask yourself this very, very important question. Over that 20-year span to decide whether you should have this fiduciary, have this wealth advisor or not, are you going to make the time to learn, stay up on the markets, stay on top of your money, and make sure that you perform as well

as you would with help from a fiduciary. Because the assumption would be this fiduciary if doing their job correctly and not doing what a non-fiduciary would do, and that is putting you in good low-cost ETFs, putting you in the right products so you outperform the benchmarks of the market. So I want to make sure you understand that clearly.

I'm on both sides. I don't need a financial advisor. Austin doesn't need a financial advisor, but we do this every day for a living. For someone that has kids and hobbies, in a boat, in a lakehouse, and is busy, you might want to consider having a financial advisor. And that is why this episode could make or break your financial future, because we're breaking down every aspect of it to understand the importance of it.

Because you have to look at it this way. The more complex your life becomes, the more important it is to make sure that you have proper structure and that you work with a fiduciary if you choose to because you want to make the fees worth it. You want to make sure you're outperforming those benchmarks and they're helping you with all of your structures because that's one key thing a fiduciary should do. Teach you about trust. What's a revocable trust? What's an irrevocable trust?

Should you have a holding company for your real estate? All of these things come into play if you have a good fiduciary advisor. So just make sure you understand the fees and why it is important to either have or not have with a fiduciary because these fees can, eat you alive if it's not worth it. So I hope this helps break it down. Yeah, if you're going to be investing into low-cost index funds and ETFs for 10, 15, 20, 30 years and you are in your wealth building journey, building your base and trying to become a millionaire, you probably don't need any sort of financial advisor to take a percent of assets under management, assuming you're just going to do the bare minimum and ride the wave of the stock market. But to Robert's point, if you're a small

business owner, you've got some rental properties, you need a CPA, you need all these other different things figured out, then working with the right fiduciary financial advisor could be really beneficial. And speaking of commissions, Robert, that's actually the next point here I wanted to make, which were some of these commission-based fees. Because there are advisors out there that are earning commissions by selling you specific financial products. They have relationships with the mutual funds. They've got relationships with the annuities and the insurance policies. For example, a mutual fund might carry a 5% front-end loaded fee, which means, again, $100,000 invested into this great mutual fund that your financial advisor put you in could mean a $5,000 fee right off the top

before your money is even invested. This model is really common among advisors tied to brokerages or insurance companies. So think Merrill Lynch, Morgan Stanley, Edward Jones, things of that nature. Now, the best way to pay a financial advisor, in my opinion, are the flat fees and the hourly fees. These advisors are out here charging a fixed rate, if it's 1,000 or 5,000 or 10,000 for a financial plan or an hourly rate at $100 or $250 or $400 an hour. And they do this because it's a lot more transparent. They're not actual custodians of your assets, right? They're just literally telling you what to do with your money because they are certified and they can give you that advice. They're not taking your money and investing it on your behalf. They're not doing

any of that, but they're giving you the play-by-play as to what you should be doing. And we actually have a friend, Jeremy Schneider, he started Hello Nectarine. It's a flat fee financial advisor platform. You just type in the advice you're looking for and how much you want to pay per hour, connects you with real financial fiduciary advisors all around the country to give you that advice. If you don't want to actually have your money invested with someone, but just looking for some advice or financial plan for what to do in your specific situation. Yeah, and I love the flat fee hourly fee structure for a lot of people, especially if they have smaller portfolios and just getting started out and may not qualify to get a full fiduciary backing and sign up with someone. Because

they can do that, they can find somebody that charges $150, $175 an hour to help guide them through some of the more difficult topics that they might be facing while building their wealth. So I really like the structure because a lot of people will just rely on some random person or they'll hire a lawyer to what to do. And most lawyers just aren't very good with money and aren't very knowledgeable unless they're financially based lawyers. So just be careful where you get your advice from because there's a lot of bad advice out there. You understand that or you wouldn't be following the Rich Habits podcast. That's why you're here. And we are here to break all this down to help you make better decisions. So let's get into misunderstanding. Number three, types of investment products

pushed by advisors, aka what you're actually investing in. And this is where it gets really ugly for people that don't understand what they're getting themselves into and the fact that these advisors don't have their best interest in mind with these products.

There's a handful of investment types. So if you have an advisor you're working with right now, I need you to take out your pen and paper, write these down, and make sure you're not participating in these. Actively manage mutual funds. These funds aim to outperform the markets

through active stock picking or market timing, and you know how Austin and I feel about anyone trying to time the market. These do come with a very high expense ratio, typically 1 to 2% annually, and according to the S&P's global report, 80 to 90%, 80% of actively managed funds underperform their benchmarks over a 10-year period, meaning that these clients, possibly you,

pay more for worse returns. So make sure you understand. this please please take notes you always hear austin and i say it's better off to just go out and buy these low-cost funds like v o o qq you know v ug stuff like that over these crazy high-fee funds that generally underperform the markets and advisors might push these funds because they generate higher commissions or revenue sharing agreements with the fund operators themselves oh my gosh that just makes me sick Robert. Me too. Something else that makes me sick are these annuities. I see people buying annuities as if they need them. It's crazy stuff. So these are insurance-based products that promise a guaranteed income, often marketed as a solution for retirement security. However, they carry high fees, normally 2 to 3% per year. They have very complex terms, and they have surrender charges, which means you pay a 5 to 10% fee if you withdraw within the first 7 to 10 years of your investment. Variable annuities in particular, tie returns to market performance while layering on these additional costs like mortality and

expense fees and things like that guys advisors are going to be earning commissions of five, six, seven percent up front on these products and these annuities. So this incentivizes them to recommend them even when there are simpler options out there like what Robert and I talk about a well diversified portfolio that's going to go up and down and to the right over a long period of time. And if you're someone who is in retirement and you're looking for some of this fixed in work with a fiduciary advisor that's going to help you build a diversified portfolio from scratch with bonds and stocks and dividend, all the other ETFs we talk about in different specific equities that are going to allow you to ride the wave without too much volatility,

which is why you'd buy an annuity in the first place. So now let's get into our last one, proprietary funds. These are a joke as well, in my opinion. Some advisors, especially those tied to large banks or brokerages, push these in-house funds created by their firm, and these funds often have higher fees, sometimes up to 1.5% expense ratios and may lack the performance or diversification of a broader market index fund like Austin and I talk about all the time. So, for example, a proprietary fund might focus on a narrow sector, increasing risk, while also charging more than a low-cost ETF, like the Vanguard Total Bond Market Fund ETF, which has an expense ratio of zero. So these funds benefit the firm's bottom line, but again, may not serve you the client's long-term goals correctly.

I looked at someone's portfolio yesterday. They asked me to take a peruse around it, and I couldn't believe, and I'm not going to name names. Very big company had them 35% of their portfolio in bonds. And anyone that knows anything would think that is ridiculous. and right next to it, they had 32% of this person's portfolio in international funds, which again have underperformed the U.S. markets by a mile over the last five to 10 years. And that is why you need to understand what are you investing in, what are the fee structures, and really ask all the hard questions with these people,

because we want to make sure you're in the right place, you pick the right fiduciary, and your money is working as hard for you as you work to get it. I'm just looking over here, Robert, I came up with the idea, speaking of proprietary funds, of a JP Morgan growth fund. I bet they have one. I googled it. They do. It's called the JP Morgan Large Cap Growth Fund.

And the expense ratio is 0.75% per year. Instead of putting your money into something that's going to charge you nearly 1% as a fee every single year, go put it instead in VUG and pay 0.04% instead for very similar performance. Right? That's what we're talking about. putting your money into a proprietary, yeah, welcome to the JP Morgan or the whatever the heck fund, right? Like, it's wild. Okay. So proprietary funds, they exist. It's a crazy world out there. But listen, guys, understanding all of the nuances as it relates to financial advisors, how they make

money, where they put your money, the different types of obligations they have between the suitability standard, the fiduciary standard, everything in between is how you can win with money. I want to make sure everyone listening understands that we don't hate financial advisors. we actually think you should be working with them in a proper, responsible way, but you need to understand how the fees are going to impact you over your lifetime. And if those fees are even necessary in the first place, because you want to just put your money in the S&P 500. Make sure that you're making the right choices for yourself.

And the easiest way to do that is by having full information, which is what we try and do with this podcast. Yeah, 100%. We are just here to lay out the groundwork and make sure all of you are getting as much of the money in your pockets. and not someone else's. Now, before we jump into our Q&A section of the episode, let's take a moment to hear from our sponsor, Masterworks.

Robert, we're in a really weird place. Tariffs and trade deals are still being worked out. The S&P 500 is now flat for the year, and it kind of feels like we're floating and not in a good way. I was looking at some research, and I saw a report from State Street a few days ago that caught my eye. It actually lines up with a lot of stuff we're talking about, specifically as it relates to alternative assets.

It said that half of financial advisors, very timely for this episode, are now allocating to alternative investment strategies to manage portfolio risk for their clients. And over two-thirds of millennials are now investing into alternatives. That's over 66%. Now, these advisors are saying they're diversifying with alternatives because they want to reduce exposure to public markets and find alternative sources of returns. Now, when it comes to alternative assets, there's a ton of investment options out there, but why don't you tell them about something that we've been using for a while? Yes, definitely Masterworks. And obviously we're not art experts, but that's kind of the point.

We've both been using Masterworks art investing platform to diversify our portfolios for five years or so now because it's easy to do and you don't need to have an art history degree or follow along what's trending in the art world right at that time and still do really well. That's right. Both of us invest with Masterworks, the sponsor of today's episode. And we've even interviewed their founder and CEO Scott Lynn on the show. With Masterworks, you don't. need to spend millions to invest in multi-million dollar art. They've offered investments in almost 500 works to date with over 1.2 billion in invested capital. They've also exited 23 works so far

with investors realizing annualized net returns including 17.6%, 17.8% and 21.5% on those works held longer than one year. So join over 1 million Masterworks users at masterworks.com. forward slash rich habits. Masterworks. dot art slash rich habits, which is also in the show notes of this episode. As with any investment, past performance is not indicative of future returns. Investing involves risk. Sell returns are not inclusive of unsold works. Important regulation A disclosures can be found at masterworks.com slash CD.

Shout out masterworks. We love their platform. All right. Let's jump to our first question coming from Anthony on Instagram. If you want to ask us a question, email us at rich habits podcast at gmail.com or DM us a question on Instagram at Rich Habits podcast. So Anthony says, hey guys, my name's Anthony. I'm 21 and I work in Citrus County, Florida as a utility technician for the county. I make $19.80 an hour and I work 40 hours every week. I'd love to start investing. I have an investment retirement account through the Florida retirement system as one of the employee benefits, but I would like to be more proactive about investing on my own. I'm currently struggling with saving money, but because of you all, I recently made an expense list and I cut out all of of the non-essential subscriptions that I don't use, and I've been working on a few other things to better my budgeting. After I finally get myself financially squared away, how would you guys

recommend I begin my investment journey? I love this question, Anthony. Thanks for submitting it. You're 21 years old. You're thinking like an investor. You're not thinking like a consumer. And that is the number one step in building financial freedom is getting that mindset shift. What I would do day one, you already have the Florida retirement system account. That is great. You can start investing in there when you get moving, but I would open an account with public.com, the sponsor of our show here today, because of the fact that they have all the best tools right inside a public account. You could start out by getting your Roth IRA set up, which you haven't mentioned that you have as of yet. I would do that and get some money

going to those low-cost funds we talk about like V-O-O-V-G-Q-Q-Q-Q-Q. Secondarily, I'd probably get some money, even if it was only $100 a month, invested in some cryptocurrency, like Bitcoin, Ethereum, maybe chain link and XRP, I would do that as well. But then also, as you get more and more money going, you could also have some money in their high yield savings account. It's called a high yield cash account on public. And right now it pays higher than almost all of these accounts in the industry. I think it's at 4.1% as of the filming of this show.

So that's where I would start for anyone out there that's just getting started. Get the public account set up, get the Roth IRA. set up, get some money into crypto, the low-cost index funds, and then build your emergency count in there as well. Keep it simple and just get whatever you can monthly and don't listen to the fake gurus, Anthony or anyone listening. Even if it's only $100 or $200 a month, it will just help you so, so much over time as long as you're consistent. I love your situation, Anthony. You're 21. You're really excited about your money and I think you are just prime for success. So step by step a couple things I would do to get in a great financial situation the first one is I'd

start working overtime assuming you can do that as a utility technician for the county making 1980 an hour you're only working 40 hours a week maybe there's a world where you could start working 50 55 or even 60 hours a week and get some of that time and a half I think no tax on tips just passed the Senate and I'm assuming no tax on overtime is pretty close behind which means you can start earning an extra $600 a month tax free if you you work an extra 20 hours a week at that time and a half rate, which would be a massive four-year investment accounts. Speaking of investment accounts, let's walk through how to think through that.

So the first thing you want to do is always make sure you're never going into high-interest debt. Stay away from the credit card debt. If you want to have a credit card so you can begin to build your credit, put some gas on it once a month or whatever, I'm down for that. It's a wonderful idea. But do not go into high-interest debt. First and foremost, it's a big trap people in their 20s fall into.

The second thing I'd want to see you do is build up an emergency fund. This is going to be the buffer between you and life. This means that when your car tire pops, when you got to go grab something, whatever, right? Like an emergency happens, which means it's necessary and it's important and it actually has to happen. You've got $3, $5,000, $10,000 now sitting in this high-yield cash account that Robert alluded to that you can use to offset that emergency, which means you don't have to cash out of your investments. Speaking of investments, we want to make sure those are growing for us. Robert mentioned the Roth IRA. I love that idea. There's a 1% match you can get right now on

public.com with your Roth IRA. You go open up the account. All contributions get a 1% match. So go do that. Get your $70 of free money on an annualized basis. You can contribute up to $7,000 a year. And to Robert's point, make sure it's invested in those low cost index funds and ETFs. V-O-O-O, V-G-V-G, V-TI, Mote, things of that nature. You're going to be able to put away thousands of dollars now, by the end of the year in this emergency fund, thousands of dollars by the end of this year in this Roth IRA, and you are setting yourself up for a lifetime of good financial habits. I love that breakdown.

I think you killed it. And, you know, great question, Anthony. And we appreciate you at a young age, really thinking like an investor because it makes all the difference in the world for people when they're thinking about how to get ahead financially rather than where to spend their money on the weekends. Our next question comes from Pablo C. Pablo says,

Hey Robert Nossin, I'm a huge fan of what you do. I started to listen to your podcast about a year ago, and I've learned so much. So thank you. I have a question regarding college funds for our four kids. My parents want to gift our kids' money toward their education of $20,000 per child. My parents have retired, and the money they're giving us has already been taxed. What is the best way to give this after-tax money to my children in a tax-efficient manner? We only know about the $529 account, but is there any other option?

Once invested, how can we maximize the returns by the time? they go to college. The first one is going to go to college in eight years. So Pablo, here's what you should do. Robert and I did a little bit of research. There's something called the annual gift tax exclusion. So in 2025, the IRS allows individuals, aka your parents, to gift up to $19,000 per person per year without incurring any gift tax or reporting requirements, which means your parent can gift your child $19,000 and they could do it via a 529 account if they'd like there's a way you could just deposit it straight there that'll work just fine and that gift of 19,000 doesn't have to do any reporting any taxes you are good to go and then next year in 2026 they can do the other 1,000

for a total of 20,000 make sure it's invested correctly in the 529 and they're off to the races do that with every single child and you're going to be just fine and then robert we also talked about before the show the direct payment so maybe we can talk about that a little bit yeah you can also do a direct payment for the education right to the university or whatever school it's going to be for. The only thing is, I don't like this option as much because even though you can do an unlimited amount there, the problem with that is you've got eight years before the first child's going. So that money is going to be sitting there making money for them instead of you. So I like the idea, as Austin laid it out, of using the 19,000 for year one and the 1,000

for year two because then it goes right in day one into the 529 account and starts growing and you get the benefits of the growth for that eight or nine years to your kids go to school. Let me also correct myself. I said 19,000 in this first year and 1,000 in the second year to have a total of 20. What you can also do is this 19,000 gift is per individual. So if your parents, aka your mom wants to gift 10,000 and your dad wants to gift 1,000, that's both still under that 19,000, per individual, right? So that's another way you could think about kind of splitting up the gifting there to ensure that you can get $38,000 per child per year, rocking and rolling up into the rights. That's really, really cool, Robert.

Yeah, I definitely love it. What a great question, and I love really complex questions like this, because it makes us put our thinking caps on and do some research ourselves sometimes to really make sure that we can dig up the best strategies for each question. How cool is it, though, that the IRS has made it so you can have unlimited tax-free gifts, if the money's paid directly to an educational institution for tuition. Like, that is really cool. Now, before we answer, our final question coming from Micah, let's take a moment to hear from our episode sponsor, public.com.

Because if you're looking for an online brokerage platform that was actually built during the century, you need to give public.com a try. On public, you can invest in almost anything. They've got stocks, bonds, crypto, options, and more. And if you're like us and you keep an emergency fund, you should be taking advantage of their 4.1% APY offered by their high-yield cash account.

And discover why NerdWallet gave public five stars for its ease of use and investment selection. Fund your account in five minutes or less and earn up to $10,000 when you transfer your investments over to public. And for a limited time, as we discussed, public is offering a 1% match on all IRA contributions. So if you're finally investing towards a Roth IRA this year, do it on public and earn an extra 1% match on all contributions, paid for by public investing, full disclosures in the podcast description. We love public.com. Go check them out. Open up your Roth IRA.

Go get that free 1% and let them know that we sent you. By going to public.com slash rich habits. So our last question is coming from Micah. Micah says, Hi, Austin and Robert. My husband and I have been listening to the podcast for a year

and it completely changed our lives. Thank you so much for putting this content out. We started investing for the first time less than a year ago because of you guys and we've already built our $100,000 base thanks to your advice. Let's go, Micah. Shout out to you and your husband

for getting invested, taking notes and taking action. I just get so jazzed about that. Okay, so Micah says here is our snapshot. We have 100,000 invested between our 401k, Roth IRA, and our bridge account on public. We have 30,000 in savings. I owe $3,000 on my car at a 5% interest rate. My husband owes $1,500 on his at a 3% interest rate, but I have $120,000 in student loans at 6%. We paid $396,000 for a home last year.

It's now worth $450,000. and our interest rate is 5.5%. We both work in tech. I earn $122,000 a year, and my husband earns between $180,000 and $200,000 depending on target bonuses. We're 34 and 35 years old. Here's my question. Now that we've built our base and our savings, should we begin to pay more on our student loans? The monthly payment is $1,350. Robert, what do you think about the situation? Yeah, you guys are crushing it. You're very, very young at 34 and 35. I think you absolutely need to sit figure out how you can chunk away at this student loan debt as fast as possible. Because at the end of the day, it's great you have your base built.

Now that is compounding. It's growing over time. The next step to financial freedom is getting rid of this student loan debt. And I think you're right on track. You already know the answer. Start setting aside as much as you can. Deploy some delayed gratification so you can really lump in some money and get these paid down. And then go from there because over time, will the government get in,

involved and maybe lower the interest rate or maybe get rid of some of this debt. It's possible, but not that likely, especially with the Trump presidency. So I think that is your next viable step to getting yourself financially free, and that is getting that knocked out because it's right on the verge at 6% of being high interest debt. And we just don't want to see that carry on for 10 or 20 years and eat you alive with interest. And let's remember we're doing that, not at the expense, though of maxing out our Roth IRAs and already investing, right? We want to make sure you're going up to the match, doing the Roth IRA, all the fun stuff. You guys can afford it. You're making a ton of money. You'll be fine. Think about it like this. Let's say you spend the next five years paying off

this 120,000 of student loan debt, which I think is incredibly doable. You guys totally can set aside $2,000 a month to pay this off. Once you have it paid off, let's say you take that same $1,350 payment from age 40 to 65 so that monthly student loan payment you are paying to the student loan lender that money 1350 from 40 to 65 every month if you invest it and the s and p 500 is 1.8 million dollars that's what your student loans are costing you so now that you've got your base built now that you got the money invested got something compounding for you over here get aggressive pay off those student loans and then make sure you take that same 1350 monthly payment and start investing it toward your future so you can now

have 1.8, maybe 2 million by the time you're 70. I love it. And this episode was absolutely needed. I'm so glad we finally took the time to write it out, spell it out, and share it with our audience because it is one of my biggest annoyances in what we do every single day sharing the message of personal finances, personal and financial freedom. Because so many people are confused on, do I need an advisor, do I not? Should I? Shouldn't I? But they also don't understand. understand the fees and the good, the bad, and the ugly of the financial world. So this episode means the world to me. I'm so happy that we flushed it out and did this podcast today. I'm 100% in agreeance with you, Robert. And if you are new around here, please be sure

to subscribe to the Rich Habits newsletter. It's our weekly newsletter where Robert and I take the biggest headline news and topics and break them down so you completely understand what's happening with the markets behind the scenes, as well as the rich habits network, our community. for our biggest podcast fans. Robert and I host two hour long weekly live streams over there answering your questions in real time. We also have eight hours of video coursework and invite you all to invest alongside of us into some of the coolest startups in pre-IPO companies. Thank you all so much for tuning into this week's episode of the Rich Habits podcast. And if you'll learn something, please consider sharing this episode of The Friend and leaving us a five-star review.

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