Rich Habits Podcast - 57: Diversification in 2024: Three Undiscovered Strategies

Episode Date: March 25, 2024

In this episode of the Rich Habits Podcast, Robert Croak and Austin Hankwitz share their three favorite strategies they use to achieve diversification in their own portfolios. By staying diversified, they're able to build wealth uncorrelated to the whims of the Federal Reserve and the stock market. ---⭐ Download our FREE Budgeting Template – click here⭐ Earn 5.1% 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]---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. My name is Austin Hankwitz and I'm joined by my co-host Robert Croke. Robert is a seasoned entrepreneur in his 50s with lifetime revenues of over $300 million 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 actively advise some of the most well-known fintech companies around the world. 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. 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 be talking about how we diversify our portfolios. You hear us talk all the time about how important diversification is, and we're going to share with you three diversification strategies that you can use for your own portfolios. These strategies keep passive income, capital appreciation, and fun in mind. Not all investments need to be black and white and serious. It's okay to have some gray in the middle and enjoy your money along the way. These three strategies are not only flying under their

are right now, but more and more of my wealthy peers are really beginning to talk about their importance as we see the markets get frothier and frothier in 2024. Now, this isn't me calling for some sort of market crash or major correction, but instead encouraging you all to spread your money far and wide in case we begin to see some volatility in this election year. I know the markets are expecting the Federal Reserve to start cutting interest rates sometime here in 2024, so that will definitely cause some volatility. And Robert, I'm excited to see what my alternative diversified investments are going to be doing during that volatility. Yeah, so that takes us into point number one, and we really love this one, and that is wine and whiskey. Everyone loves to drink wine and

whiskey, but no one is talking about it from an investment perspective. Over the last 120 years, wine has given investors a nine plus percentage historical annual average return. return. And over the last five years, the key market benchmark has grew over 15.2% compounded annually, which is just crazy. So also, let's keep going here. From 2015 to 2022, fine whiskey has averaged an annual return of 13.8% compounded annually. So which when you remember these numbers aren't tied to the stock market or bond market or any of the whims of the Federal Reserve, now you have this uncorrelated asset class that can materially tick your investment portfolio higher and higher over time. And like I said, you don't have to have every investment be this stuffy black and white.

You can have some fun here with your money and grow it in really, really great rates of return in some of these alternative assets. You know, and even Robert, I mean, some people, and we talk about this all the time, right, invest in what you know, invest in what you're excited about. I get excited about cybersecurity, dividend stocks, ETFs, things like that. Maybe some people get really excited about whiskeys and fine wines. And so they want to learn more about how to invest into those asset classes. Now, me personally, I love using Vino Vest and Vint for my own whiskey and wine investing. I invested into the Bordeaux collection on Vint about 18 or maybe 24 months now ago. And I even bought a whole cask on Vino Vest. Both of these investments are up about 35% over that same period of

time, which is just unbelievable, in my opinion. I mean, this is liquid that is going up in value. It's so cool. But here's a question, right? Am I betting the farm on these things? Absolutely not. But did this asset class keep me in the game during that sort of volatility pullback we saw in late 2023? For sure. Now, if you're looking to diversify your own portfolios and to find wine and whiskeys, be sure to check out the reports that Livex shares on a monthly basis. They've got their own index of a bunch of different types of wines and whiskeys and champains and things that they're tracking themselves. So it can really help you learn more about the industry and this asset class in general. They do a great job breaking all those things down. Highly recommend just Google Livex,

LIV dash EX, find some report, download it, read it, study up on it and figure out what category is right for you in your risk tolerance. Yeah, as you recall, I think maybe six, eight months ago, we talked about my predilection for collecting vintage Rolexes, omegas, and some of the other luxury brands. And I don't know what the returns would be. I would have to calculate on the ones that I've sold over the years. But it's just find what works for you and enjoy it because you think about these wines and whiskeys

and some of the other things we're going to talk about today in the episode. But you think about these vintage watches. I'm wearing one right now. And it's just really fun because I get to wear this watch every single day and many of the others, I can mix it up, yet I'm still getting really good returns if I want to flip these because they do go up in value over time. So we just really wanted to illustrate all the different ways you can think about money and alternative investment strategies that a lot of times still beat the markets and beat the S&P 500. And you know we love the S&P 500. Absolutely, Robert.

So talk to us about the second asset class that's going to keep these people excited to diversify their portfolios. Yes, our next asset class is land, specifically farmland and timberland. The annual returns of timberland since the index started in 1987 was 11% on average, including annual dividend payments. So this is a really, really great strategy. So let's dive into it a little bit. Timberland is a very simple investment to understand. Several hundred acres of land is used as a lot to grow commercial timber. So investors buy the land. cover the costs of ownership, then reap the rewards when it's time to cut down and sell the timber. And remember, all through COVID, into even now into 2024, even with all the ups and downs in the

real estate market, timber prices have been ridiculous. I went through that when we built the project in Denver, where we had our timber package figured out, COVID hit, and then by the time we got our timber, it was like 40% higher, so keep that in mind. The second part of this is farmland. This is another incredible way, an easy way to understand this investment strategy. By purchasing the farmland, you're making money in two ways. The value of the land increases over time, as well as making the cash flow from the farmers who rent it from you.

So you're making passive income while also getting capital appreciation that takes place on the back end. That's why we love farmland as well. And it's a really easy strategy to get a handle on. and understand where your money's going and how much you could make from that investment. You know, Robert, I think I saw in a headline maybe a year or so ago. I know I made a TikTok video about it, but it was Joe Burrow and some of these other, like, massive athlete, bagillionaires that were investing into different types of farmland around the country as a way to diversify their own portfolios.

And I think it was even a strategy or a fund that was backed by J.P. Morgan. It was pretty intense. But, you know, farmland, in my opinion, is still a major undiscovered, under the radar diversification strategy, right? One of my wealthiest friends swears by farmland and timberland is how he's preserving and growing his tens of millions of dollars. It's what he loves. It's what he's into. I don't ever give him flack for it. But it's pretty interesting to know what the wealthy people are really doing with their money, Robert. Now, you can invest in the strategy like I do with much less than tens of millions of dollars. I use a platform called Acre Trader to do this. And they have minimum

investments anywhere between $10,000 to $20,000, all the way up to $100,000 minimum investments. If you're into that really, really big kind of double down on a specific strategy. Bet in the farm on farmland there, Robert. Tata ting. But for me, $10 to $20,000 is all I need to be investing sort of in farmland. And I even saw an Acre trader's website that they had some recent exit investments that delivered 15 to 25% IRR over a three to five year period. So I am telling y'all, do not sleep on farmland.

Go check out Acre trader. Maybe, you know, as we think about building our base of $50 to $100,000, then diversifying a bit into different types of asset classes, like this whole episode's about, maybe once you have that $100, $150, $200,000 invested, you're like, man, I really want to get out of stocks and bonds and know these more traditional asset classes and move into more fun, longstanding. I mean, they're not making more land, Robert, right? So like, acre trader is a great resource to go check that out. It's the only way that I'm investing into farmland, timberland, things like that. So again, check out their website and go learn about that. this stuff. It's not just about, you know, listening to what Robert and I say, but it's also taking the time to learn about it, to look at the historical returns, look at case studies, things of that nature so you can set yourself up for predictable success in the future. Yeah, it's interesting with my move to Florida last year. You introduced me to AcreTrader, and we've done well with it. And so I really love the platform and this kind of asset class, because it's one I'd never really considered before. I owned property, but I never looked at it as

raw land. It was usually a building. or somewhere where I could build something in a cityscape. But then it's so strange how life works. I was at the pool right when I moved in last year in Florida and a gentleman sat down next to me and asked me about TikTok and all this stuff and he recognized me. And he does this for a living. He literally flips land for a living.

So I've learned so much in recent months. And the returns that he's making are over 30% as well. So please listen to what Austin said. Do your research. Don't sleep on this. I think it's a great category moving forward, especially with platforms like AcreTrader that do all the work for you. I love it, Robert. I couldn't have said it better myself. Now let's round off the episode by sharing our third diversification strategy with our listeners. Last but not least,

fine art. And no, we don't mean going to home goods or buying a bunch of NFTs. We're talking about Kusama, Basquiat, and even Banksy. I'm on the Masterworks website right now looking at some of the recent exits and Austin you have to see these numbers. I'm going to share it right now. 32% annualized return on a Banksy investment held for 378 days, 39% on a condo investment, and I don't mean where you live, I mean the artist condo held for 448 days and a 77% return on a Brown investment held for only 259 days. And these returns are all. net of fees paid to the platform. So if you're not yet diversifying and fine artwork as an uncorrelated class, this is a great place to start. And again, there's a little bit of flare and a little bit of

fun. You're investing in these. You can share your ownership fractionally with your friends and show them what you're doing. And it really just is a great way to beat benchmarks in the markets and have some fun with your money. I love this asset class as well. I'm right there with you, man. And And, you know, looking at my account right now, too, I've got two Basquiat artwork, fine art paintings here. One of them I'm up 36% on and the other I'm up 31%. So these, you know, mid 30% numbers that you were calling out, 77's pretty crazy. I'm not going to say that's going to happen again. But, you know, sort of these 30% numbers are pretty common, at least in my experience here on the platform as well.

I've been a user now for several years. And it's a platform I trust, right? There's always these new fly-by-night, you know, fine art investment companies that come out the wood, work every once in a while, but I don't use any of them. I trust Masterworks that are a multi-billion dollar company with a strong management team that's been around for a very long time. And to your point, Robert, they make it really easy to get started. You know, we talked about Acre Trader, these minimum investments of like 10 to 20,000. You know, Vino Vest and Vint. I think the minimum investments are closer to 1 to 2,000. I think Masterworks and minimum investments are closer to the $5,000 to $10,000

range. But what's so important about that is we're not talking about tying up all of your capital into something like $100,000 or $200,000, right? That is like, oh my gosh, that's a lot of freaking money. So if you want to start dipping your toes into alternative asset classes, if it's fine art, if it's fine wine and whiskey, if it's farmland or timberland, whatever that might be, you can actually really get started with these different platforms, $1,000, $5,000, and you're rocking and rolling now in these uncorrelated asset classes. That to your point, Robert, when you mentioned the Federal Reserve, who knows what they're going to do? Who knows when they're going to do it? But it doesn't matter to it.

West because we are invested into these uncorrelated asset classes that we know have these long, what do you say, 120 years of the fine wines averaging like 9%. Like that to me is really hard to argue against. Yeah. And, you know, it's just, I just love finding ways to have these high returns on my money and have fun along the way, you know, sitting here talking about Masterworks. I even think of when I go to these estate sales, you know, you can go to estatesales.net and peruse in your area and every time i see an estate sale that has like a lot of artwork or photography i'm always there first because you never know what that person over all those years collected and i remember like three four years ago i found this really cool oil painting of some spanish city skate i immediately took it

grabbed it went into a closet with this painting because i'm like this is really something special and it was for sale for like 20 dollars and i looked it up and the average price of that artist's paintings were between $8,2,200 each. So I bought every piece. There was three pieces from that artist that nobody knew. So I was like, and I never sold them. I kept them there in my collection. But there's so many ways to have fun when you're diversifying

and looking at these alternative asset classes. So yeah, don't sleep on estate sales either because you can find a lot of really cool stuff that has a lot of value. I love it, Robert. Now, before we jump into the Q&A section of this episode, let's take a moment to hear from this episode sponsor, Griffin. You've all heard us say phrases like own the companies you know and love, but many of you might not know that there's an app that we both use

that makes owning these companies super easy for the both of us. Griffin is an app that allows you to turn real-time spending into investing. Remember, we always want to own the stocks of the companies we know, love, and buy from. And Griffin makes that so easy. Whether it's buying groceries at Walmart, a Spotify subscription, a quick Amazon order, or any other purchases from a publicly traded company, Griffin will automatically invest $1 into the company you're shopping at. The main point for everyone to understand is we want you to be shifting your approach

from a consumer-based mindset to an investor-based mindset. We're going to be hammering that point home forever and ever. It's so important and Griffin does all the work. I'm personally an investor into this company. I've been a believer in them for years, Robert. I think I've got like $700 in my Griffin account by these little $1 transactions that have just gone up over time. because I'm buying the Lulu Lemon, I'm buying from Home Depot, I'm buying from Amazon and these other

places. So I am so excited that we now have a new partner that aligns perfectly with the show. You can simply download the Griffin app, connect your credit or debit card, whichever one you like to use, and then begin passively investing into the companies that you're actually a customer of. They don't charge monthly fees or any commissions either. Yes, so be sure to visit the link in the description of the video. And when you sign up, use the code habits, all uppercase. and you'll get an additional $5 a free stock from yours truly, us guys right here. And of course, let us know if you have any questions.

Again, that's all uppercase habits, like rich habits, is the little promo code there, and you will get $5 a free stock. I've already seen a couple hundred of you sign up for the app already, which is really exciting. I don't know. Sounds like y'all really enjoying it. So I'm really glad that you all align so much with the sponsors of our episodes. Now, with that being said, let's jump into our very first question of the Q&A segment from Charles J. Charles says, I haven't heard you all talk about health savings accounts. I heard,

however, that they're triple taxed advantage. Can you break this down for me? Good question, Charles, and you're absolutely right. We've never really talked about health savings accounts. So for those of you that might not know, a health savings account is exactly what it sounds like, right? A way for you to save money in an account that is specifically used for health expenses. Now, the way you save money in this account is you have to contribute money to the account. Now, the money that you contribute to this HSA or health savings account is a tax write-off, right? You get to write it off of your taxable income for that year. Now, what people don't know is that you can also take the amount that's inside of your HSA, if that's on Optum or however you're kind of doing that, whoever

the provider of the HSA is, and invest it into the S&P 500 or whatever mutual fund or index fund you want to invest it into, and the growth of that invested capital in your health savings account grows tax-free as well. Now, the best part when you talk about triple tax advantage, right, it was tax-free contributions, tax-free growth, and that third one is tax-free spending on qualified medical expenses. Now, what's important about this, Robert, is people can contribute $3,850 as an individual or $7,750 as a family in 2023, and these numbers increased to $4,000,000. 1.50 and 8300 in 2024. You have until mid-April to make that contribution for 2023 if you've not yet done it. So you still have some time. Now, what's cool to as employers

also contribute to their employee HSAs as like a benefit for working there. And so the average contribution according to Morgan Stanley in 2023 was $869. So be sure to save your receipts, though, if you want that tax-free payout because what's most interesting thing about this, Robert, is you can actually save your receipts for years, any of these qualified medical expenses. And let's say you're saving them for decades because you don't want to take money out of this compounding, you know, growing investment. You want it to compound over time and you don't want to ever take money out of that. So let's say that you're 35 years old right now. You're investing toward your health savings account. You're writing it off of your taxes. It's growing tax-free

invested into the markets. And now you're 65 years old. If you saved all of your receipts for those 30 years, Robert, you can literally take that money out as a chunk at 65 to pay yourself back for those lifetime expenses. And now because you're 65 years old, this account can be treated as a traditional IRA, which means the money inside of that does not even have to be spent toward medical expenses anymore. It can be taken out. You pay your taxes normal like a traditional IRA is. And you now have a second retirement account. It's really, really interesting stuff. Yeah, I love it. And we really should be talking about this more because if you really think about it in comparison to a 401k, you don't have forced distributions. That's awesome. You're making money all along the way. So it's kind of

like an insurance policy without the fees. And you have the autonomy to be able to do the investments in what you want to do for yourself. And I just love that. And you're right. We should be talking about this more. So thanks for bringing it up, Charles, because we do mention it from time to time. but I just think it's one of those strategies that a lot of people don't talk about. So we're going to add that more into our daily discussions and great question all in all. Totally. And I think we'll do a little bit more research on. I think there's some stipulations on who can contribute if you have like a high deductible or a low deductible plan. So we'll do a little bit more research. Robert, maybe we even make a whole episode about HSAs and sort of their tax

advantages and things like that. That could be pretty cool. So great question, Charles. Rolling now to Justin M. Justin says he's a big fan of the podcast and he recently created a new product that he believes is awesome. But he's been denied a provisional patent application. He comes with a couple questions. The first one is, are there any big items I might have missed? You know, did I go about this process incorrectly? Is the PPA drawings up to spec? How do I think about that? And does this idea have any legs to stand on in a real world application if I am granted a provisional patent? Robert, I know nothing. This is a foreign language to me. So I will let you answer all these questions. obviously this is right in my wheelhouse.

To keep it short, I'm going to go through this very quickly. I don't think you missed any big items. I know I can't share the product with the public here. One thing I would look at is rather than waiting on trying to achieve a provisional patent, I would go for a design patent much quicker and much less expensive. So that's very important. I thought your drawings were great. They were definitely robust enough.

And do I think this idea has legs? I do. And if you had the design patent while you're working on the provisional patent, I think that would give you enough protection to really make a go of this. So I'd like to talk to you further about this offline. So reach out to my team and we'll get a call set up. But one thing to consider here as well is, A, don't give up. If you believe in it, I believe in it.

I think it's a great product idea. You can get that design patent, get it to market, at least get it up and running so it's a viable business. You might need to bring in some capital. You didn't allude to the fact if you'd be self-funding or not. And then you could go after potential licensing to a larger company that's already in the industry and already has the shelf space. Because the one key takeaway of a product like this, you need premier shelf space in big box wherever all of these products are sold because of the fact that the age demographic for this product is going to be much older. And you're not going to be able to capture that audience through direct to consumer and social media marketing. So that's one of the downfalls of the demographic of this product.

But there are ways to do this. So email me. We'll cover it more. I think you're on the right track and don't get discouraged. Really look at that design patent idea to get you moving forward. And so everyone's probably like, what the heck? I'm kind of in the dark here. Justin sent us some really cool images to our email.

Rich Habitspodcast at gmail.com with his like application, some renderings, things like that. And for obvious reasons, we don't want to exactly share too much information. about it. But I hope if you are someone out there like Justin who is trying to go through sort of this invention process, building a product from scratch that Robert's advice and words here were helpful. So our last question comes from Caroline F. Caroline says, I love the podcast and I'm a long time listener. Now she says, we have a rental property that after everything's said and done, cash flow is about $900 per month. We're thinking about selling the house and using $100,000 of the proceeds to buy SPYI, allowing us to collect $1,000, $1,000,000.

per month in passive distributions. Do you think SPYI is too new of a strategy to consider investing this much into? Wow, what a good question, Caroline. I'll let Robert jump in here in a second, but I think there's two sort of ways you should think about this. The first way is, let's say you kept the house. You kept the house and you're making money $900 per month. I'm assuming you're putting away money beyond the $900. Like you're already putting money away for vacancies, repairs, things like that. And after that, you still have $900, which is really, really great. You kept the property, let's say maybe once every blue moon, you have to replace the roof or an appliance or something like that, which would, of course, eat into some of that 900 that you're sort of cash flowing.

Another way to consider this, you know, you keep the property that $900 is taxed as ordinary income because you are making it as rental income, which is very different than how SPYI is taxed. So you keep the property, you're making a couple hundred bucks and you're rocking and rolling. You do have the unexpected sort of repairs and things that come up, which could definitely eat into your profits. But again, capital appreciation, real estate goes up over time, which is pretty awesome. Now, the other side of this equation, Robert, is Caroline sells her property. She has this $100,000. She puts it into SPYI, maybe also QQQI, allowing her to cash flow a thousand,

maybe $1,100 per month, and complete passive distributions. Now, this money is taxed, 60% long-term capital gains and 40% short-term capital gains. However, 96% of the distributions in 2023 were taxed as return of capital, which is a tax-free distribution. So you're really only paying taxes on 4% of that $12,000 that you would make or would have made in 2023, which is incredibly better than the 900 that you're being taxed on right now with your real estate. Now, of course, I'm not a tax professional. Look up return of capital. Consult with an accountant about how that is and how that fits into your long-term plan here. But if it were me, I would highly consider SPYI and QQQI as ways to generate tax-free income in my portfolio. And to answer your question,

is it too new of a strategy? I don't think so. SPYI has a billion dollars in assets under management. There are dozens upon dozens of funds and financial advisors and hedge funds and other sort of family offices that are invested into this strategy. And with a billion dollars in assets under management over just the last year, there's a lot of promise to be said about that momentum. So I don't think it's too new of a strategy and I think you're on the right track, Caroline. The ride that steals the spotlight every time it hits the road, that's the Volkswagen Tiguan. Its sleek exterior makes a first impression you can't ignore. Step inside to find available full leather seats and wood accents.

Under the hood, the available 201 turbocharged horse power engine gives it a fun to drive edge. The refined Tiguan, you deserve more style. Visit vw.ca to learn more. SUV, German engineered for all. Don't miss the Devil Wears Prada 2 in theaters. Merrill Street, Anne Hathaway, Emily Blunt, and Stanley Tucci are back. In light of the recent scandal, I'm here to restore your credibility. I did not hire you, and all I need to do is bide my time until you fail.

On May 1st, I'm going to make something of this job. Rain. Be the bridges I burn night my way. Forever. I just love my job. Get tickets now. The Devil Wears Prada 2 in theaters May 1st, directed by David Frankel. All right, so I'm going to go on the other.

side of the fence here and that's what makes us a good team. It does. I love it. Let's hear it. So Caroline, great question. How about this? There's a little known trick out there. Everyone's heard of the 1031 exchange. But guess what? Nobody ever talks about the split exchange. So what that means is you want to pull some money out to invest in other things. You could sell the property and buy a property through a 1031 exchange that is of lesser value to prevent from paying the capital gains tax. and that would be called a split exchange. So that way you still pull the $100K out, but then you buy a property that's less expensive

and pay no capital gains on the sale of the difference. So talk to your accountant or your tax attorney about this because that would be another way you could do this and really capitalize on that equity that you have without paying the taxes on it. That's pretty smart. I know Caroline mentioned how the $100,000 in proceeds is only going to be half of the amount of equity she has in the house.

So maybe she could do that. that split and, you know, take 100,000, get the best of both worlds, right? Stay invested in real estate. Maybe she finds a really cool property that she can cash flow as well as have some capital appreciation on, plus get some SPY, maybe some QQQI to supplement some income there. I love that. It's a really good perspective, Robert. That's why we do what we do. So yes, so exciting. This was an incredible episode. I want to take a moment, thank each and every one of you for following along the Rich Habits podcast and community every single week. We have tons and tons. of new great things coming down the pipeline. And we're so excited. And we thank all of you for

the five-star reviews, sharing with your friends and all of the above as we build this thing bigger and bigger and reach millions and millions of people that we can help on their personal finance journeys. With that being said, everyone, thank you so much for joining us on this episode of the Rich Habits podcast. We are so excited. We're back in the top 10, Robert. We're number four right now, I believe. Maybe we come back for that number one spot here pretty soon. But everyone, just thank you all so much. We are so, so grateful that you continue to come back every single week, all 70,000 of you, every single week, come back, listen to what we have to say, ask your questions, you send us the DMs, the emails, and we love interacting with you all. We are so

grateful for this opportunity to help guide you through your own wealth-building journeys, and we hope episodes like this continue to motivate you and keep you excited about investing for the long term. Thanks, everyone, and have a great start to your week.