Rich Habits Podcast - 13: How to Become a Millionaire in a Recession, Angel Investing, and Credit Cards

Episode Date: May 23, 2023

In this episode of the Rich Habits Podcast, Robert Croak & Austin Hankwitz go deep into the essential mindset shifts needed to ensure investors are able to stay disciplined during a recession -- allowing them to build wealth in every economic cycle. ---Be sure to check out Public's new ⁠⁠⁠High Yield Cash Account paying 5.1% APY.⁠⁠⁠ This is higher than anything else on the market and is FDIC insured up to $5M. ---Earn 5.1% APY using a Public HYCA, ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠click here!⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Opt-in and share your email, ⁠⁠⁠⁠⁠⁠click here!⁠⁠⁠⁠⁠⁠Learn more about our ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠4-module video course!⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Download our FREE Budget Template, ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠click here!⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠To learn more about Robert: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://stan.store/RobertJCroak⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠To learn more about Austin: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://stan.store/austinhankwitz⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Contact: [e-mail] ---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.

Hey everyone and welcome back to the Rich Habits podcast. My name is Austin Hankwitz and I'm joined by my co-host Robert Crock. Robert is a seasoned entrepreneur in his 50s with more than 200 million in company exits under his belt. And I'm an entrepreneur in 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 advised some of the most well-known fintech companies around the world. 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, Robert, and the other myself, someone who's still in the process of building wealth and figuring it all out. Robert, what are we going to be talking about

in today's episode? In this episode, we're going to be talking about mindset and how today's millionaires were made in the last recession, specifically making that mindset shift, how to take advantage of the potential recession on the horizon, as well as what we think you should be investing your money into to ensure long-term success. I love that this episode leans into the mindset side of business, finance, and mindset. We haven't done one of these episodes in a while, so I'm really eager to hear your perspective, Robert. Let's kick things off with making that mindset shift. Robert, walk me through how that mindset shift happens, why it's so important in how it tees people up to become millionaires in the current recession.

Yeah, you know, we talk about analysis paralysis a lot. And when we're going into or in the middle of a recession, that's really prevalent, I think, in a lot of people's minds and their activities revolving around investing and maximizing their portfolios. So I think that there are just people who are scared and there are people who are disciplined. And those who are constantly investing during every market cycle,

including recessions, are just going to benefit the most. Because remember, I always talk about it. Time in the market, not timing the market. You only get hurt on a roller coaster when you get off halfway through. And those who are scared and sell off all their investments during market turmoil never build wealth because they have nothing growing in value over time for them. And this is just really, really important.

That's why we always preach to dollar cost average through the good times and the bad times, because it's time in the market, not timing the market. That is probably one of my favorite quotes besides the you can't out invest high interest consumer debt. That's a really good one over there. But yes, time in the market, not timing the market. And so exactly what we mean here is if you kind of rewind back to 2008 or even the crazy collapse we saw in 2020 in the stock market, people who are scared and not disciplined were buying and selling left and right, They were trying to time the market.

And don't get me wrong, it is absolutely so much fun to buy stocks and sell stocks and try and make a buck and have some fun with that. I get it. It's cool. I do the same thing. But when it relates to building long-term wealth for my retirement, I'm not jumping in and out of the markets. I get aggressive when the stock market is red. I get excited when we have a recession or some sort of bear market because that is an opportunity for me to begin investing toward my future at a discount, right? everyone gets so excited when you go to Amazon or Walmart or Home Depot and things are on a 10, 20, 30 percent discount, they're rushing to go buy it.

But when stocks and the stock market is at a 10, 20, 30 percent discount, people get scared. They think, oh my gosh, my money is losing value. The companies that are so great and have been great and will continue to be great are less in value. Therefore, maybe they're not doing too well, right? there's just the psychology around this and that mindset shift that people have to make is so incredibly important, Robert, so I'm loving that we're talking about this now. And before we move on to our next topic, I just really want to make sure we all understand that when we say today's millionaires were made in the last recession, people who are rich today, if you rewind, call it, I don't know,

12, 13, 14, 15 years ago when the markets were very volatile during the great financial crisis. Those were the people who said, you know what, I'm going to invest $200 a month, $400 a month, $600 a month toward the S&P 500 or any other ideas they might have had. And that turned into long-term success for them instead of saying, whoa, whoa, whoa, I'm scared, I'm selling everything. I'm going to hold on to my money tight. No, no, no. Today's millionaires were excited. They were aggressive and disciplined with their investing habits. And to become that in the future, you have to keep the same mentality in the looming recession coming toward us. So, Robert, Let's talk tactically here about how people can begin investing during a recession.

Walk me through how someone who's just getting started can begin making those first steps. Just so important for people to get started because you can't wait for the perfect time. It all comes down to everyone thinking they can time a market. And so when you're just getting started, investing is only hard if you make it hard. Because at the end of the day, right now, going into this recession, dealing with deals, dollarization in the BRICS countries and all of these different scaretactors and fearmonger tactics, there's still money to be made. So I'm always, just like you, also, we're always telling people, get your brokerage account open, get your retirement set up, get your Roth IRA going,

and at the very least, get, you know, deposit $100, $500, $1,000 a month, whatever you can, into this Roth IRA and buy the VO, the QQQ and the BTIs of the world, some of these accounts and index funds that we love, those index funds, those ETSs are averaging 8, 10, 11% a year, year over year for the past 60, 70 years. There's just a lot of different ways to make money even during a recession. And you just, you have to remember that you don't want your money sitting idly, because scared money doesn't make money. And one of the key takeaways,

especially with inflation as high as it is right now, would you rather be risking your money to try and make some really great gains or would you rather let it sit and lose 7% anyway? I personally, and I know Austin will agree with me, you're going to want to make those shots, take those shots, so your money is making money all the time.

And that's why we talk about these treasury bills. talk about high yield savings. We talk about VOO because guess what, there are still ways to make money right now today in the markets. And when we're coming in and out of these recessions like we're entering in part of right now, it just leads to so many more opportunities, especially through diversifying your investments. Now, Robert, I think this is a great segue into our final bullet point, which is diversifying your investments. I think what's really fun about a recession is sort of the kind of craziness that happens from the perspective of the market. Now, whenever there's a recession, investors discount companies that they think might not make it

out of the recession, right? Which, in my opinion, is an opportunity. As investors look around, they get scared and they say, wait a second, I don't want to have my money in Dutch Bros. Coffee or insert random tech growth company here. I'd rather have my money in Apple or Microsoft. or Google or Amazon because I know at the end of the day and when this recession blows over that those companies are still going to be around and they're going to be successful. Now, in my opinion, that's an opportunity to instead invest into the high growth speculative names. As you begin to invest and think about investing aggressively during a recession, find a couple companies that you understand very well,

that you have an investment thesis behind, and you want to kind of move a little bit of money into. Now, I'm not saying bet the farm, right? This might be 2% or 3% of your total portfolio. But these are opportunities that I think people forget about because when you don't make that mindset shift, you're kind of following the herd of, wait, let's get out of these speculative stocks and instead move to safety. When in actuality, the speculative stocks aren't always that speculative. Yeah, I love it. And, you know, one of the key takeaways from all of that, and that was a great breakdown, Austin. Thank you so much.

is to really think back to one of the kind of simplest of Warren Buffett's quotes. Be fearful when others are greedy and greedy when others are fearful. Most people get investing wrong. They wait till something skyrockets to the top and they're going, okay, now's my time to get in. It's finally going up, up, up. They buy at the top and then as soon as it correct, six months later, three months later, a year later, they sell.

Then it goes back up again and they buy back in again and they repeat this process over and over and over again. People just all think that there's some evil genius out there where you can figure out how to time the market. And guess what? The brightest hedge funds, the brightest investment minds of our time still lose tens, if not hundreds of millions of dollars because even they can't time the market.

And you cannot try to time it. You just have to go with the good companies that have the good balance sheets and just stick it out. It's just so important not trying to time the market. And every day I hear from clients where their broker friend or their financial advisor has them in 75% cash because the markets are too scary. And of all times, people should not be sitting in cash right now because there are so many great opportunities out there through all of the diversified alternative investment strategies that we talk about. This episode of Rich Habits podcast is brought to you by NEOS investments. Nios offers ETFs that aim to offer monthly income while provided core portfolio exposure

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neosfunds.com. Please read the prospectus carefully before you invest. Neos ETFs are distributed by Foreside Fund Services LLC. All right, Robert, now that we've talked about millionaire mindsets, how to invest in a very simple but efficient way during a recession, and also how to diversify your investments. Let's jump into our Q&A session. Our first question comes from Nathan G. Nathan says, I use a credit card for all of my purchases. I pay off my bill each month, and I mainly do it for the cash back.

Is this okay? Should I continue or strictly use a debit card? Now, Robert, I know you have some thoughts on this question, so I'll let you. You kick us off first. Yeah, I think it's a great strategy. You're maximizing the benefits of the credit card, which most people don't do. This is something I want to touch on soon, either in a podcast or on one of my lives, because so many people go out and buy and pay for an annual fee on a really cool credit

card, and then they don't optimize it. And you guys know we're always talking about optimizing our money and our strategies. So I think Nathan G. is doing it right. I definitely like using it, paying it off, making sure it's optimized so it's best for your credit score, but also just really using it as best you can. Now, should you use your debit card? I don't think there's a problem using a debit card. Sometimes there's benefits to using a debit card, but I like your strategy, Nathan G, and love what you're doing. The only thing I would add to that is 78% of folks who have the J.P. Morgan Chase Sapphire Reserve card,

a preferred card, one of those two, don't pay it off on a monthly basis. And so if you think about it, the people who can afford to have that card, because I believe it has an annual fee, that's north of $500, you would imagine that they could afford to pay it off, but they don't. So just make sure, Nathan, you're not falling victim to the, oh, I have a cool card, I'm spending on it, I'm getting my cash back, but, oh gosh, wait, I overspent. Oh my gosh, I can't pay this off. I just don't fall victim to that trap. Yeah, we just talked about this last week, awesome, when we were talking about the Apple high yield savings account that they just announced and how it's attached to the Apple card. And I think it's just a great, incredibly bait and switch kind of tactic because Apple

knows by giving this high yield awesome savings account, people are going to be tempted to use their credit card more often than they should. So, you know, a lot of these strategies can be really optimized as long as you follow the rules and keep it below 30% usage or pay it off every month and just make sure you make your payments on time. So great job, Nathan G. Two thumbs up from us, Nathan. Okay, our next question actually doesn't come. At least I didn't see their name. Their username, however, is meaningful vitality. So meaningful vitality asks, my household income is $210,000 a year, and I end up with an extra $3,000 per month. What should I be doing with this? I already have a solid savings and I'm already investing into crypto and stocks and maybe a little bit of real estate,

but any other cool ideas. So I'm actually going to take a stab at this one first. Here's what I would do. Think about it like this. If you have $3,000 extra every single month, that's $36,000 a year. So I am someone who's always thinking about how can I generate passive income, right? How can I build my income stream? So when I'm sleeping, when I'm not doing anything, I'm making money. I would think about two other ways to now deploy this money. The first one is obviously real estate, actual real estate. This might be a single family property. This might be a duplex or something of that nature. Think about it. Three years of saving $3,000 a month is nearly $110,000. After three years time, if you can be patient and save $110,000 in cash, think about how incredible the rental properties

that you would now be able to have the ability to purchase and all that rental income, if it's a single family, if it's a duplex, a triplex, a multifamily, whatever that might be, right? So the first thing I would really encourage you to think about with this extra money is how can I invest it into real estate. And if that's not your goal, or maybe you're already doing that and you're really trying to think of new ideas, I bought a vending machine business myself about a year ago. I paid $40,000 for it, so about just over a year's worth of you saving money, you know, your extra income here for $3,000 a month. I like it. It cash flows between $2,500 and $2,500 per month, which is really cool. So I make my money back in a year's time easily. And so that's

just another, and obviously it's not as passive, but it's fun. I really enjoy my friend Stephen and I pull it together and we like go to the, you know, our rounds. And it's fun. We enjoy it. It's more of a hobby than it is a way to make money. But it's something that we like to do together. So I would just really encourage you to think outside the box with that. Robert, what do you have suggestions for our friend, meaningful vitality as it relates to their extra $3,000 per month? Yeah, I like your, your twist on looking at buying some small businesses for additional income. But I also like the thought at this kind of yearly income for a household. I also like the thought of them looking at angel investing, investing in startups, established businesses, and other businesses that might

be raising capital. Because I think angel investing is kind of the next step once you covered cryptocurrency, your index funds, you have your Roth IRA maxed out every year. you've got some real estate going, and you kind of got all your bases covered. Then I like to start teasing into Angel investing into small businesses and startups. This can be writing smaller checks from $5,000 to $25,000 per investment. But I think it's a great strategy to really put your money to work and take some shots with your money. Because once you have all your bases covered and you know you're going to have this passive income as you speak of Austin, then I think it's great to take some shots where you can maybe 50x or 30x your money on some shots.

So I always think Angel investing is a good additional source to be investing in. That is such a great suggestion. I didn't even think about that. I don't know if you guys know this, but I also Angel Invest. I've invested into over now 25 different startups. I love doing it. I wouldn't say I'm addicted by any means. But the check sizes I write are between.

I think the smallest is about $15,000, sometimes. 10,000, but between 10 and 15,000 is the small end and the biggest check ever wrote was 75,000. So somewhere in that range, obviously this 3,000 per month, you save it for a year, you've got 36,000 in liquidity. You can write probably two checks with that. And if you're thinking meaningful vitality, how do I find the companies to invest into? Go to Y Combinator's website. They're this accelerator program for startups and all the biggest and best companies that have turned into incredible exit opportunities for investors normally come through Y Combinator. So if you're able to identify a couple that you really like, perhaps shoot your shot, cold email some of them and ask if you can participate in their seed round or their series A or whatever that might look like for them.

So I love that idea, Robert. I would also like to add in a little pro tip that you get on the Angel List email list because there's a lot of great deal flow that comes through there. So at least check that out, angelist.com, but you can get on their email list and get all of their deal flow. Our last question comes from Aaron B. Aaron says, I just started house hacking. And I know you all recommend duplexes and triplexes, but I actually went with a single family house and I'm actually just renting out the other rooms. However, I'm worried I'm not doing things right. Could you tell me what constitutes a good deal when you're house hacking?

Robert, I'm going to let you answer this one first. I think the key takeaways for this Aaron B, I think it's a great strategy you're trying to work with here. it's okay that you're renting rooms in your house, but you just have, you really have to go through a stringent process of selection. And once you do that, one of the key things to make sure you do, just like if you are doing a full home rental and lease, is to make sure you have a spelled out, you know, really good lease for that room that spells out the rules, the common areas, and everything. Because what you don't want to do when you're sharing your main home with other people that could be strangers, is not have all of the rules spelled out. So I would make sure that you get a really nice lease drafted, what the common areas include, what they don't include, what the house rules are, and really spell that out because what you want to do

is protect yourself in a way that if it doesn't work out with one of your renters, that you can legally and quickly get them removed from the house because you don't want to feel displaced in your own home. So I would just really make sure your selection process is great and that your lease agreement, even though it's for a single room in the common areas, is well done also. I couldn't have said it better myself. And the only perspective I have on this, Aaron B, is I've got a friend named Jack Selby. He might recognize him from the Ice Coffee Hour

podcast with Graham Steffen. And he also did this same strategy, right? He went to go buy a single family home and he rents out, I think, two of the other rooms to some of his friends. I think it's a great strategy. It just comes down to you now have roommates versus sort of like this idea of, you know, I live in one side of the house, you live in the other side, like, these are actual roommates now. But also when it comes down to the idea of what constitutes, like, what constitutes a good deal with house hacking is, are they paying your mortgage for you? Right? If your mortgage is, I don't know, $1,500 or $2,000, can you rent out those two other bedrooms for $750 to $1,000 and have them completely cover your mortgage? If you can do that, you are dandy.

Yeah, I love that, Austin. And Aaron B, I think you're on the right track. This is a a really good strategy to get you some passive income and, you know, have these guys help you pay for your mortgage or pay for the entire mortgage. So I think it's a great strategy and just follow those simple guidelines we spelled out. You'll be in great shape. I love it. Everyone, thank you so much for tuning into this week's episode of the Rich Habits podcast. Don't forget to leave us a five-star review on Spotify, Apple, or anywhere that you're listening to this podcast. Every single review helps. We're almost up to 250 five-star reviews now on Spotify. Can you believe that, Robert? This is crazy. Yeah, it's crazy. And Austin, tell the listeners a little bit because you guys

have been so supportive. Tell them about our meteoric rise and where we're at now. Because I was just informed by Austin the other day, I believe we're in the top 50 already. So this is amazing. We are. We are. We are in the top 50 now for Spotify's business podcasts. We have now over 8,500 weekly listeners, which is incredible, and we have cumulative downloads of 80,000. How insane is that? 80,000 plays. I'm just, I'm thrilled, man. I'm so excited. And season one here, we're just getting started. We're going to be hitting you guys every Monday morning with our rich habits and our ideas and our strategies and Robert's awesome perspective on building wealth, business, finance, and mindset, as always. So be sure to come back every week. Click the follow button, no matter

where you're listening to this podcast, and we will see you very, very soon. Love it. Thank you, Austin. And guys, talk soon. Thank you.