Rich Habits Podcast - 42: How We're Introducing Bonds to Our Portfolios in 2024

Episode Date: December 11, 2023

In this episode of the Rich Habits Podcast, Robert Croak and Austin Hankwitz introduce bonds -- specifically the bond ETF (BNDI) they're investing into throughout 2024 and 2025. ---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, a top five business podcast on Spotify. Before we get started in today's episode, we have to announce our winners of the Amazon gift card giveaway we did in relation to the survey, right? We had 964 of you fill out this questionnaire survey. It was about a dozen questions that we had shared. I think it was during the Thanksgiving week, so a couple weeks ago, because we want to better understand our audience. We want to better understand our listeners. We want to understand where you all are from. We want to understand your interest, if you have debt or not, just your whole background so we can create the best possible content in 2024. So with that being said, Robert, are you ready to give away the first $500 worth

of these Amazon gift cards? I am so ready and so excited. And we appreciate all of you for taking the time to fill out the questionnaires. It's only going to benefit you and us going into 2024 for because the more we know about you, the more we can tailor our information to help you grow in your financial journey. So I'm super excited and Austin had a great idea today. We are going to use a random number generator to do this right, do it legit, and give away this money. Okay. So I'm on Google's random number generator here. We have a minimum number of one and a maximum number of 95 because that's how many of you actually filled this out, which is astonishing to us. So I'm going to generate the first number, 907.

So our first winner is J.Movato at gmail.com out of Pennsylvania. We're going to send you an email with the gift card right after this. Congratulations on winning. Let's check in on number two. Now our second winner is number 355, whose email address is Ling Chan 5 at yahoo.com. We'll send you an email right after this. Thank you so much for filling out the questionnaire. Time for number three.

Email address number two is a winner for number three here. which actually is Ashley Northover at Live.com out of Jamaica. Thank you so much, Ashley, for tuning in from all the way over there to The Rich Habits Podcast. You have now won $100. Now, our fourth winner is number 705, which is William S. Kristen at mac.com, chiming in from Chicago. Thank you so much, William, for chiming in.

Now, our final winner that we're going to announce today, and the next five are going to be announced next episode, so be sure to tune into that one. Our final winner for today is lucky number 421. Their email address is a little hard to say, but it's Tinkai BNA at Gmail. So we're going to send an email with all the instructions to claim your gift card. Thank you all so much for tuning in to the Rich Abbott's podcast and sharing your perspectives on everything that interests you, what you are, what you're into, what you're not into, more importantly. And we can't wait to announce the next five winners. We are so excited for this giveaway and we will get these out just in time for the holidays.

So stay tuned and come back next week. With that being said, let's jump into this week's episode of the podcast. We have a super, super special guest that's going to be talking to us about why bonds could be a very good idea to have in your portfolio in 2024. For the last few years, bonds in general have been a bad investment. We saw TLT trade down from 150 to only $80 while the stock market traded up to all-time highs. However, we think this might be changing in 2024 and 2025. The three reasons why we believe this are number one, slower economic growth, number two, cooling inflation, and number three, the central banks reversing rate hikes.

So joining us on today's episode is Troy Cates. Troy is the co-founder and managing partner of NEOS funds. He has decades of experience and is going to help us break things down for you all today so everyone can make educated decisions for their portfolios. Troy, thanks so much for joining us. Thanks for having me today. Happy to be here. So just to kind of set the playing field, right? Robert, I think we do a pretty good job of making sure that all of our listeners have full information. We tell them what we're doing with our index funds and our money and how we're investing

and how we're trying to build wealth and we're sharing the ups and the downs and the left and the rights. And one of our business partners, Christian, came to us about, you know, call it mid to early October saying, hey, guys, you need to do an episode on bonds because there's a lot of stuff going on in the headlines as it relates to bonds in 2024 and 2025. And Robert, you know, you're one of these JPMorgan private bankers here. And they sent out a report, I think it was last week, essentially saying that despite the potential catalysts for bonds, the amount of people invested into bonds as a percentage of their portfolio has stayed the same from 2021 to 2022 and out of

2023. So we thought it was appropriate to bring an expert onto this episode, break down what the bonds are. Further explain where they might fit inside to someone's portfolio, better understand why they might or might not be a good investment for you in your specific situation. So that's this episode. We really want to make sure that everyone has full information and that they're learning and understanding why we're excited about bonds and kind of where we're coming from here. So Troy, can you explain to us what happened over the last couple of years with bonds and why are bonds now beginning to make sort of a comeback in their value? Sure. I think, you know, like you said, The sell-off and bond started in the summer of 2020.

And prior to that, we'd really never had, we had back-to-back years where the bond market would decline, you know, with rising interest rates. But we never had this back-to-back-to-back decline. And so here we are, you know, three years later looking at what happened to this, to this market. And people in that 60-40 portfolio, you know, especially in 22, had their portfolios really damaged. They were looking at their 60 percent that was sitting in stocks. And we had a big drawdown in the stock market in 22.

And at the same time, their bond portfolio, that 40% of that that's how they were allocated, was coming in two. So it was a difficult year last year in 2022 for people in those portfolios. And we've started to see that sort of reverse in October. We had a little bit of a bottom in where the aggregate bond market was starting to turn around and hopefully come back. And I think a lot of that was as the Fed was starting to raise rates or indicating that they were to raise rates. You know, you have this sell-off in bonds. You have this rates go higher,

bonds go lower. So you have this market where you might be invested in a bond and you have this fixed coupon for a number of years, but your underlying principle might go lower over that time. Yes, if you hold it to maturity, you'll get that money back. But I think a lot of people get nervous or worried when they look at their overall portfolio and see these prices coming in. So just to kind of break things down for the layman listening right now, what Troy was alluding to here is that when interest rates rise, the prices and the value of bonds fall. Because think about it like this. If there was a bond issued that was maybe issued in 2022, and you could buy that bond

for $100 and that bond's going to pay you 3% interest every single year for the next five years, right? That bond is worth $100, right? You bought it. You pay for it, all that fun stuff. You get the interest payment, all the goodies. But now as interest rates rise even higher, and you can now issue bonds at $500. percent or buy bonds at five percent or five and a half percent. Why would someone want to own a bond paying three percent when they can own a bond paying five percent, right? And so that's what choice would have alluded to here is interest rates rise, the existing value of bonds and those two percent, three percent, four percent bonds fall in value. And that's why a lot of people's portfolios got wrecked in 2022 because bonds normally aren't these volatile assets. But the reason they fell so quickly is because we essentially had the fastest,

hike of interest rates in modern history, right? 40 years from essentially zero to 5 percent and about 12 to 14 months. So just as fast as interest rates rose, that's how fast prices of bonds fell. So Robert, I've shared a lot now about my perspective on bonds. I know you have some opinions as well. So feel free to jump in here. Yeah, I want to actually go back a little bit further, kind of to the basics, because so many people I feel out there just don't really understand what bonds are and the benefits of bonds in these kind of up and coming certain economic times. So, Troy, I'd like it if you could break down the difference between a treasury bond and a municipal bond because there are some differences and touch on the tax benefits of the municipal

bond versus the treasury bond. Sure. I think one thing to focus when you're talking about treasuries is there's a number of different treasuries. There's treasury bills, treasury bonds, treasury notes. And a lot of people can sometimes get it a little confused. And I think, when you're looking at it, when you think of the short end of the curve, you hear this a lot, you know, watching news and different news cycles. And when they're talking about T-bills, the short end of the curve, they're talking about anywhere from four to 52 weeks. And when you're buying a T-bill, these are purchased at a discount. So as Austin was mentioning before,

you're buying this bond at 100 at par. You're buying a T-bill below par. And what happens is, whether it's a four-week or a 52-week, you're buying it below par, and it matures over that time. and when it matures at that final date, you're getting $100. So you might get this, as people are talking about in the news, the short end of the curve, you're getting these five plus percent yields and T bills. Really, that's your buying this at a discount and it's maturing. A treasury bond is further out. You're talking about the long end.

So you're talking about 20 or 30-year bonds. And what that is, you're buying this bond to receive a coupon. And a coupon is just your interest payment. It's a fixed payment, hence the fixed income. and coupons are paid every six months. For treasury notes, those are kind of smack in the middle between T-bills and bonds, and those are anywhere from two, five, or ten years. And that's a similar type payout structure.

You're getting this coupon every six months where you get this payout. And you're basically lending money to the U.S. government to get an interest rate back to you. And in the end, this is whether it's a T-bill, T-Bond, or a note, it's all guaranteed and backed by the U.S. government. So you know at the end, you'll get that $100 part. price. When you're talking about municipalities, you're lending money to a local municipality, whether it's your local state or your local town or government, and that's a little bit different. There's tax differences. Taxes for municipalities, you're exempt for certain taxes within your state, but then again, you do get some preferential tax treatment from buying treasury bonds and treasury bills. And it's definitely

something you should talk to your tax advisor about to understand how it fits in your portfolio. Should you be investing in unibonds, should you be looking at more treasury bonds and looking to lock in a rate for 20 or 30 years, depending on what your portfolio looks like? We talk about T-bills and the advantages a lot. And right now, looking into 2024, we assume there's going to be some slower economic growth. We assume that the central banks are going to reverse rate hikes. Inflation is going to cool. So with those things in mind, do you think it's a good idea for our listeners to maybe cut, back on their T bills and put more money towards these bonds? Or do you think it's okay? Where would you look at the waiting being between the two? Because I still believe people should be holding these T bills, but obviously bonds are looking more attractive going into 2024 and 2025. Sure. I think it's,

you know, it varies per client, per customer, what their portfolio looks like, what their goals are for their portfolio. You know, I always think there's room for T bills. There's room for bonds in a portfolio. And there's room for equity exposure in a portfolio, depending on who you are, how old you are, what your goals are for investing over that time frame. So it's something that I wouldn't go out and say that, yes, replace your T-Bill portfolio with a bond portfolio, but it's something we started to see not too long ago. And, you know, as we looked at people were talking about on the news, how the 10-year had touched 5%. And that was a big number where we were looking at 5% interest rates on holding a 10-year treasury note. And once it hit that 5%, we started to see that yield

come in as because people were going out and buying that and saying, you know, at 5% looks really attractive for a 10-year period at this point for my portfolio. And as you've seen that over the past few weeks, that 10-year is now down to 4-15, 4-20 or so. So that's people rushing out to buy that to lock in that 5% or that 4.9% or so and really see if they can. hold on to that for a 10-year period. But there's always a place for a T-bill in a portfolio, in our opinion. There's always a place for bonds and equities. So let's talk a little bit about BNDDI. Obviously, there are other ETFs out there that track the bond market. We have BND, which is the Vanguard aggregate bonds sort of ETF. We've got AGG, which is the I-Shares, you know, bond market index

ETF there. Can you talk about a little bit as to how BNDDI, your bond ETF, not only has those ETFs as major holdings, but also how you're able to generate just a little bit more extra, call it two to two and a half percent yield on top of the existing 3.3 percent yield, I believe that those ETFs are generating at the moment as well. So B&DI is our enhanced income aggregate bond ETF. And the goal with this product was how can we build an option portfolio on top of your core bond exposure and give you an enhanced yield on top of that and distribute that monthly? So as you were saying, the fund does hold B&D and HG and an equal weighting. And we wanted to buy those two ETS because they're both been around for a long time. They are massive an amount of

AUN they have, but they also give you an exposure to treasuries, to corporates. And if you look at their holdings, you're talking about holding tens of thousands of bonds in these ETF. So we wanted to get that core market, core aggregate exposure to the bond market. And what we do with our option portfolio is we use SPX index options. We use index options wherever we can in our products to get that preferential IRS Rule 1256 treatment, which says that no matter the holding period, they're being taxed at a 60, 40, long-term, short-term capital gains rate. So they're a little bit more tax-efficient than using ETF options or individual name options or any other type of option, whether it's a note or a swap. So we like to use the index options. And what we're doing with that portfolio is we employ a put spread

strategy. So we're selling put spreads to bring in income. We roll this strategy on a weekly basis to move with the S&P 500. And like you said, the goal is how can we provide an extra two to two and a half percent over whatever core bond is doing, but keep the volatility of the portfolio the same as your core aggregate bond portfolio. So we didn't want to increase the volatility of the portfolio by adding options. We want it to keep it the same and give you that incremental income on top of it. So while core aggregate bonds yielding just around 3.3%, as of now, B&I is yielding, you know, 5 and a quarter or a little higher. So thinking now to the retail investor who's got maybe their 6040 retirement portfolio or like,

maybe they're a little bit more aggressive on the stock side, call it 7030, maybe 80, 20, right? But, you know, they might have 15, 20% of their portfolio, especially now with the sort of catalyst that we've talked about with 2024 and 2025 from a price appreciation perspective and a yield perspective on these products. Thinking about now, should they have BND, AGG, T bills, BND. Can you add a little bit more color as to why someone would want to choose BNDI over an AGG or over a BND, right? why they would want this extra income. You mentioned the tax efficiencies. You mentioned that there's little to no risk given the extra income that you're producing

for them. So just a little bit more color there for us. Yeah, I think if you're looking to expand your core bond holdings and you're looking at ETFs like B&D or AG, BNDI should fit in there nicely. One, because we do hold those ETS, but two, we're giving you that enhanced income through the option portfolio. And BNDIs really can slide into a couple of different portfolios for people. It could fit in that fixed income.

portfolio, but it could also fit in that, you know, alternative income generating side of your portfolio. A lot of people, yes, have traditionally been 60, 40, 70, 30, however you want to split it up depending on your age or your goals. But we've seen a lot of portfolios kind of morph into more of like a, call it a 50, 30, 20. And that 20 is alternatives. And alternatives could be a number of things. It could be products like BNDI or some of our other products here at Neos. It could be commodities. It could be a number of different areas. crypto, exactly. So the alternatives part of the portfolio where we have our option-based ETFs really slides well into that part of the portfolio, but can slide well into your income-generating

portfolio or whatever portion of that, whether that's equities or bonds. Okay, so I'm really glad you said that because for a lot of people listening right now, we're always sharing, right, you know, have your sort of core holdings, be in the S&P 500, be invested, but don't ignore the, you know, cryptocurrency, the, you know, cryptocurrency, the collectibles, the farmland, the real estate, all these other different sort of ways that we can diversify our portfolios. So it's cool to hear from you that you believe that BNDI is another one of these ways to diversify your portfolio out of just core equities. But even, you know, you have bonds, but now it's even a little bit different because you guys have this sort of

option contract strategy on top of that, making it more attractive, call it two to two and a half percent here than just the aggregate bond market. So I really like that perspective. I do too. And something that I want to ask because of the recent past with the bond market, why would someone not want bonds in their portfolio? Obviously, we've seen a massive drawdown in 2023. Is that going to happen again? Or do you feel similarly to what Austin and I feel that the bonds are going to become more and more attractive in the next two, three years just because of where we believe the economic conditions are going? So when we talk to clients or we talk to advisors allocating money for their clients, a lot of people that we know that aren't really interested in bonds in general and why they don't want them in the portfolio is because they just have different investing goals. They might want to take more equity risks. They might want to put more into some of those alternatives that Austin had mentioned. So we have other funds that we offer that can kind of fit that profile looking at the equity side with SPYI or T bills with CSHI. But I think it really really comes down to your investing goals and what you're looking for out of your portfolio.

Most people that don't want bonds are usually younger and they're investing career or life cycle and not thinking about so much a fixed income and I want to lock in a 5% rate over the next 10 years. They're looking to maximize their portfolios now while they can take the risk because if something doesn't work out, they always have the time to rebuild. So that's where we see it. And one more question I want to add on and discuss. We're always talking about price and yield. And what I would like to hear from either of you is what is the difference between price and yield? Because I feel so many people are confused by those terms. And I want everyone listening to really understand that because it goes the same with mortgage rates with the APR versus the actual

interest rate. So one of you please break down the difference between price and yield when investing. So I'll kick that off. You know, let's talk about bonds for a second. Let's say that there is a big project that the government wants to fund. So they're going to take on debt through bonds. And what that means is they're looking for investors to buy sort of these bond certificates. And you can buy a bond certificate for a minimum of $100. And they're in $100 allotment. So like each share of the bond, quote unquote, it's 100 bucks. And so you go out and you're buying all these bonds for $100, $100, $100, that's the sort of par value is what that's called, knowing that you're going to get a coupon payment, an interest, passive dividend, you can kind of think of it as paid to you as an investor. And

that can be paid every year, twice a year, but it normally has a begin date and an end date. And so you're going to give them the $100. They're going to pay you these coupon dividend payments. And then at the end of it, once you received all your payments, they're going to give you back your $100. So why the prices are changing and why things are different now is because the investors realized, wait a second, if the interest rates at the Federal Reserve are being raised so high and so quickly, I could buy a bond right now for $100.

and I could earn 2% on that bond as a 2% coupon rate that's sort of dividend to think about. Or I can wait six months or three months, depending on how quickly they raise rates, and I can buy that same bond paying 5%. Who wants to own a bond that pays 2% if you can own the exact same thing that pays 5%? So when those bonds that are issued paying the 3, 4, 5%, like what Troy was talking about, the 10 year, right, paying 5% there, there are bonds that are issued before that. And those bonds, the par value, the price of them have to drop well below $100 because no one wants to buy them. So to make them more like kind of attractive for investors, it's like, why would investor want a 2% bond when they can get the same bond for 5%.

So they have to drop the value in relation to that interest rate yield of the other bonds. So investors kind of feel whole like, okay, wait, this works. I can get my 2%, but I only paid 60 bucks for it, right, versus paying $100 for that 5%. Troy, do you have any color to add to that? No, listen, I think Austin explained it really well. I think what interests people to buy that 2% bond right now when yields are 4.5%, 5% is yes, they're fine taking that 2% coupon that fixed payment every six months or so. But they know when the bond finally matures, it's going to go back to par. They're going to get that $100 price. So they're okay buying it at a discount knowing that it'll finally get there. But they'll still earn that 2% in this example as a coupon payment during the time that they hold it. And this is very important for everyone following along and listening because you hear Austin and I every single day talking about maximizing your gains and having velocity on your money. And so it's always about looking for those edges where we have the positive arbitrage of our money going in our favor. And that's why I want everyone listening to understand the difference between price and yield and really learn all the subtleties so you can understand what are the best investment strategies for your own personal gains.

I couldn't have said it better myself, Robert. Troy, thank you so very much for coming in here as the expert, the financial markets guru, right? You've got 30 years now of experience doing this stuff. So we really appreciate it. Thank you for all the added color, all your information, and we can't wait to have you back. Thank you for having me today. I appreciate it. Man, what an incredible conversation with Troy Robert. I get so jazz when I hear this man speak because he is an expert, right? He's been in this industry for decades and he grew up doing this Wall Street stuff and now he's in his maybe 40s or 50s, but he is an absolute titan in the space. So every time he speaks, I learn something new and I'm really excited to be adding BNDI to my personal portfolio in 2024. What about you? Yeah, I love it and definitely learn some things and that's what the Rich Habits podcast really for me is all about is for us to be able to provide the best information to all of our listeners and followers throughout the podcast,

through our discord, our private lives, our public lives, just all of the information that we provide. I am really proud of because we do so much work to really dig in and not just follow the herd and come up with stuff that we've already seen or heard on TikTok or Instagram, but really dig in deep and find the information that will truly help people benefit for years to come. So it's very exciting. And definitely BNDI is something for everyone to look out for in 2024, as we believe Bonds will make a big comeback over the next couple of years. What a great synopsis, Robert. Well, with that being said, it's time to jump into everyone's favorite part of the podcast, our question and answer segment.

So our first question comes from Angie. She introduces herself as Angie from Florida. So Angie from Florida, I hope you're enjoying the weather. I know Roberts in Florida. He's loving it right now. Angie says I currently have an account with Weble. It's where I keep most of my investments. However, I want to open up a public.com account because I really like the platform.

Should I transfer out my investments, which are both ETFs and single stocks, into public, or leave my investments, open up a public account, and just start investing there instead. Angie, if it were me, I would probably transfer them from Weble to public just because I don't like to have a bunch of different brokerage accounts and apps and platforms if I don't need them. I already have so many, right, because we use them off for diversification. So Angie, I would transfer them, but just be aware, I think a lot of people make the mistake of when they think about transferring stocks, they sell the stocks, which is a taxable event, they withdraw the money to their checking account, and then they deposit that same amount of money into the new platform, right? Don't do that. That's not how you transfer stuff. That is a taxable event and Uncle Sam is going to send you a letter in the mail saying, hey, you owe us all this money in taxes. What to do instead is, to your point, the actual transfer of the stocks. Weble is going to call public and say, hey, one of our customers wants to transfer their assets to your platform. Can you send me your address to transfer to? They'll be like, yeah, sure, send it our way. And so then Weeble is

going to press a button. All your stocks are going to go to the public account. Your public account's going be auto populated with these stocks and it's going to be perfect. The only thing that I want to call out is I'm not sure fractional shares can be transferred. So if you have fractional shares, you might have to sell those or just keep them in Weble, whatever you want to do there. But that's what I would do. That's my perspective. I know Robert probably has his own as well. Yeah, I'm going to have a little bit of a different take because as Austin alluded to, we have a lot of different platforms and apps that we use. And I think it's okay to have multiple ones, but you definitely, if it's unnecessary, don't do it. So in this instance, I would say if it's all transferable, sure, go ahead. We love public,

as you know. But if there's any problems at all, don't worry about keeping Weble and then just opening the public account and depositing the future money into public and growing that account more so. We both definitely use public more than Weble, but Webo's great. I've had it for years. That would be my opinion, but definitely check in to make sure you can do a full migration and transfer and not a sale because with a sale it will be a taxable event. So that would be my opinion. And, you know, someone asked the other day how many platforms I actually use. And I had to count because I have so many of them. The reason for that is having that diversity, but also for me, it's a little bit of comfort too, not having all my eggs in one basket. That's just me. I like to know that if one thing

went wrong with one site or one crypto site, I'm not sunk. And so for me, I don't mind having those multiple platforms, but just take a look, see if it's fully migratable and transferable without the sale. And if it's not, keep the Weibo account and just open the public account and make your deposits from there. And kind of as a pro tip, Angie, think about it this way. If you do the migration to public.com, I would set a reminder maybe every month or every quarter in your calendar just to peek in on the Weebo account because many times what people do, out of sight, out of mind, you're on to the next account, you're really excited and focused on public. And you may leave yourself invested in some products that might not be great in the long run in the Weebel account. That's why we like to see

that active management where you're always checking in. And I'm not saying every day, but once a month or once a quarter is fine to make sure those assets and those investments are still moving in the right direction. So that would be my final takeaway on your question. Great question, Angie, from Florida. So our next question comes from a user named Duck City USA. Love the name. Duck City USA asks, years ago, I received a large inheritance. I used this money to buy two income producing rental properties in Ventura, California. Both properties have made substantial capital appreciation. I bought the properties in cash because that was the only way I could have won this deal. I want to pull my equity out of these properties, but with HELOC rates being so high, it's going

to prevent cash flow in the first place, making it sort of a silly decision. What are y'all's perspectives? Robert, you know more about real estate than I do. Want to hear your thoughts on this first. Duck City, welcome to the podcast. This is a tough, tough situation. First and foremost, you're putting us into a pickle here because you used all that cash to pay cash for these two properties, therefore tying up all of your growth potential and your opportunity cost and having all of your cash tied up. So it's a difficult one. Secondly, right now, you're absolutely correct with heloc rates being so high along with everything else. Now I do think they're going to cool soon, but right now they're pretty high.

So my opinion on this would be, and there's a lot of different ways we can look at this. My opinion is keep the two properties as is. Don't get the helock right now. I would say take all the money that you're making and building up if you're making some now. And I would put that towards equities, crypto, et cetera, to be earning a good gain on those for now. And I would play a little bit of the waiting game because even if you do the HELOC, let's say you can get the HELOC right now for seven and a half or eight percent. That's kind of high interest debt. So it's hard to out earn that, although the S&P 500 is at I think 17% for the year,

but we don't know what that's going to be in 2024. So it's a little bit of a tricky, bad timing, bad situation kind of deal right now. So Duck City, I would leave the properties, take your other money, invested into equities in crypto. In a year from now, revisit this question. We'll revisit it with you if you'd like. And I would consider then either selling one of the properties when interest rates come down, maybe do a 1031 exchange, take that money in the capital appreciation you made on the property, maybe buy two more properties.

But for now, I would sit tight, keep earning, keep building, and investing in other equities. The only thing I have to add is I'm not sure I would invest all of it into other equities. because if you're trying to save up to buy another property and we have a 2022 event where the markets crash by 30%, then what is that? Four months out of the year of your cash flow is now gone. So maybe think about like, you know, T bills and a high yield savings account for maybe half of that and the other half can be in equities. I agree there needs to be some velocity with your money here. It's something that Robert and I say a lot. So make sure you think about that whenever you're, you know, trying to allocate these funds toward growing your sort of honeypot to go buy the next property.

I love it, Duck City. Thanks for coming on. So our next question comes from Paul C. Paul says, I love the show and appreciate all the simple and actionable advice. Paul, we're really excited that you listen. And we appreciate the kind words. Paul says, my wife and I are 33 years old and we're saving consistently for retirement. Our first baby is due in December. And the last few months, we've been pausing our contributions to retirement to save up so we can

have money for the baby. I am praying for a happy, healthy baby. Congratulations. Now, Paul says, we plan to start contributions back up again. in January. If we have $800 per month to use for investing, how would you recommend we split that money up between our Roth IRAs and a 529 plan for our child? So, Paul, from my perspective here, I believe the number is like $580 or something every single month. If you invest that toward your Roth IRA throughout 2024, like it says you're going to start here in January, you will actually

max out your Roth IRA total contribution of $7,000 for the year. So that's $580. Now let's say you take the other 220 and you pop it into a 529 plan for your child. I mean, I'm personally doing 150 per month. Now, I'll tell you what, I did have to start with the $3,000 like minimum contribution, but that's just like how Vanguard does it. There's a bunch of different platforms that you can start with zero. Now, I started with $3,000. I do $150 a month. I'll have about $80,000 in this $529 plan invested into the S&P 500 right over the next 18 years for my niece or nephew here that I decide to give it to. that's just from 150. So you're 220, you might even outpace me,

just depends on how much you want to contribute there. But that's how I'd split it up. Robert, do you agree or disagree? No, I agree totally and I wouldn't change a thing. Max out the Roth IRA, put the balance into the 529, and I think it's a great, great strategy. And it's really awesome at 33 years old that you're thinking through this

and really putting these advanced strategies to work. You will inevitably find wealth and live financially free as you age just because you're getting started so young and have such good strategy. So congrats. And I want to remind you to Paul, and I'm sure you know this, but for everyone listening that might not, if your child decides not to go to college, which I feel like is going to become a trend here in the coming decades, they decide not to go to college and instead maybe pick up a trade or start their own business, you can actually roll over $35,000 inside of a $529 account to that child's Roth IRA. $35,000 invested from call it like 21 or 22, which is how long it's probably going to

take you to roll all that money over until 65 is just shy of a million dollars adjusted for inflation. That means your child is a guaranteed millionaire, essentially, right, by the time they retire because of the steps you're taking now at 33. I echo Roberts' congratulatory words. You are a rock star, and this is going to be really, really strong and great for changing your family tree. And building generational wealth. So congratulations. That is why we preach every single day throughout all of our channels here at the Rich Habits podcast and the Rich Habits brand. Between Austin and I is it's not about timing the market. It's time in the market. Letting compound interest do its job is a beautiful, beautiful thing over time so everyone can achieve financial freedom. Thanks everyone for listening to this

episode of the Rich Habits podcast. If you learn something, if you're excited about what you heard today, leave us a five-star review. And don't forget, share it with a friend, share it with your spouse, share it with your buddies out when you're drinking beer, having your cocktail hour. Holiday parties are happening this week. Robert, I need you to tell these people that if they go to a holiday party, give them a challenge to share the Rich Habits podcast with at least one person at that party. Yes, we would love that. Share the word, spread the word, and help us ring in this new year and keep us in that top five business and financial mindset podcast ranking. And we are so ready to go into 2024 with all of you and just crush it next year. We have a lot of really,

really exciting things planned. So stay tuned. Don't forget to follow along. Turn on those notifications. Follow us on Instagram at Rich Habits Podcast and keep your eyes peeled next week for those next five $100 Amazon gift card winners. Thanks, everyone, and have a great start to your week.