Rich Habits Podcast - 75: How the Fed's Rate Cuts Impact Your Money

Episode Date: July 29, 2024

In this episode of the Rich Habits Podcast, Robert Croak and Austin Hankwitz break down how the Federal Reserve's rate cuts will impact your money. Specifically they talk about the real estate market (both residential and commercial), the stock market, your high-interest debt, as well as your high yield savings accounts. ---👉 Register for our free angel investing / pre-IPO investing webinar, ⁠Click Here! ⁠---👉 Join over 43,000+ other investors who read the ⁠⁠⁠Rich Habits Newsletter!⁠⁠⁠ We're growing by +150 subscribers every day and can't wait for you to join us :)---👉 Track your net worth in real-time with Roi! You're able to track, trade, and grow your wealth with your existing accounts. ⁠Click Here!⁠ ---👉 Begin direct indexing the S&P 500 using Frec! We've already tax-loss harvested over $160 in only a few short weeks. Can't wait to see what this figure grows into! ---⭐ 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⭐ Get a $35 bonus when you start saving & investing with Acorns – ⁠⁠⁠⁠⁠⁠⁠⁠⁠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.

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Find your advisor at IG Private Wealth.com. Hey everyone and welcome back to the Rich Habits podcast, a top 10 business podcast on Spotify. My name is Austin Hank Wits 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. As the show name might suggest, every episode, we talk about rich habits as they relate to business, finance, and mindset.

However, we try and bring you two unique perspectives, one from an industry veteran, which is Robert and the other myself, someone who's still in the process of building wealth and figuring it all out. Robert, this episode's a really important one, and I hope a lot of people take notes and take action. But what are we going to be talking about? Yes, this is very important. So I am so excited for our listeners. And in this episode of the Rich Habits podcast, we're going to be sure. sharing our perspective on how the Federal Reserve cutting interest rates will impact your money. As you all know, the Federal Reserve is the Central Bank of the United States, setting the standard

for all other banks around the country and even the world. And in 2022, the Federal Reserve began raising interest rates at the fastest pace in over 40 years to combat rampant inflation. And this is so, so important because this caused the stock market to crash, the cost of borrowing to skyrocket and demand for automobiles, boats and other discretionary and recreational products to go into a free fall. And now that inflation has largely cooled, the Federal Reserve hasn't raised interest rates since July of 2023 an entire year ago. And now for the first time since the pandemic, the Fed is expected to cut interest rates. And with rate cut comes a lot of ripple effects that will impact every single one of you listening. And that impact is what this episode

is all about. We want to make sure that you're in the know as it relates to how the upcoming rate cuts by the Federal Reserve are going to impact your money, your investment portfolio, your mortgage, your debt, and perhaps even your future. So Robert, let's jump in to the first way rate cuts will impact our listeners. Yes, number one is housing, kicking things off with the first way the upcoming rate cuts will impact you and your money. As you all know, the housing market has been incredibly resilient since the pandemic and even after the Fed began raising rates. If you've tried to buy a house over the last few years, you've likely noticed that the interest rates on mortgages are at multi-decade highs and your buying power has gone down dramatically.

You see the higher rates, you see the higher payments, and it really just changes the game. But this tough reality might change sooner than you think. While the Fed does not directly control mortgage interest rates, they do control how they're inadvertently calculated. And when the Fed raises interest rates, making it more expensive for banks to borrow money, that expense is passed along you to the bank customer, i.e. borrowers, to buy a house. So mortgage lenders set their interest rates based upon expectations of inflation and future interest rates. And if the rates are coming down, then that's going to be reflected in their price. So if the Fed begins to cut rates in September like everyone is expecting, mortgage rates should

begin to come down as well. Very important part of this podcast is understanding how the Fed rate cuts affect mortgages and the correlation. Now, Robert, here's where things begin to get tricky for our listeners. Do you all remember what happened last time mortgage rates were so low? Everyone and their mother, their cousin, and their sister went out, borrowed as much as they could to buy as much houses they possibly could afford. This likely is going to happen again, causing the prices of these homes to be bit up higher and higher over time, right? So this is why Robert and I always say, if you're looking to buy a house, don't wait for this looming crash that you might see on Instagram or TikTok or Twitter or something, buy when you can actually afford to buy and then refinance your interest rate

later. Marry the home, date the rate. You've heard us say it probably countless times at this point. Now, additionally, Robert, this is going to positively impact the commercial real estate market, specifically the REITs, right? Real estate investment trust. We're already seeing that. positive impact to Realty Income Corporation and VICI's stock prices who are up 13% and 11% over just the last few weeks. As these companies can now begin to refinance their newer commercial properties that they've had to purchase over the last 12, 18, 24 months at these higher interest rates, as they can now refinance them at lower interest rates, more of those profits, company profits, will be kept for shareholders, which again is going to raise those stock

prices back up. So housing absolutely is the first way that the Fed's rate cuts are going to be impacting you, not just yourself, but your portfolio here a little bit if you are an investor into REITs or even on Fundrise. Yes, we've been talking a lot about small cap stocks, reits, and all of these rebounding as the Fed cuts rates and money becomes cheaper for people to borrow, very excited to see what happens in the REIT market coming up and then also the small cap market. And that leads us into point number two today, and that is the stock market. As we talk about stock prices, let's talk about how the Fed cutting interest rates might impact the stock market. As we know, the Fed raising rates in 2022 cause the stock market to crash, and does that mean Fed cutting in 2024 and 2025 will cause

the stock market to climb even higher? Well, maybe, but it's not so cut and dry. And the reason being, it always comes back to the economy. Remember, the stock market and the economy are not the same thing. Please take a note on this because so many people think that they're correlated, they operate separately, and it's very important to understand that. Now, the reason why the Fed hike rates so quickly in 2022 was because the economy was fiery hot in 2021 as everyone was spending their COVID money, causing inflation to climb to record highs. Now that inflation is back to normal and the economy is cooling, the Fed thinks it's likely time to add a little bit of fuel to the fire. So, Austin, this is such an important factor. This entire episode gives me goosebumps because how important

this is for us to navigate the waters of the economy and the markets in the coming months and into 2025. So break it down for our listeners because I think this is absolutely crucial. Yeah, so let's all remember that the Fed adding fuel to the fire is not a bullish indicator. Right. The Fed cuts rates to fuel economic growth when the economy can't grow on its own. So if our economy isn't going to grow on its own, as showed now with GDP only up 1% during Q1 of this year, then isn't that bearish for stocks? Well, yeah, that is bearish, which is why it's hard to answer this question, Robert. It's not so cut and dry. So lower interest rates are inherently good for stocks from a math perspective, a valuation perspective, because that means more profits for

shareholders. But the reason behind cutting interest rates is inherently bearish as a slower economy is not good for the stock market. Now, to help break all of this down for us, we are joined by Troy Cates from Neo's investments. Troy is the mastermind behind multi-billion dollar ETFs and has been working on Wall Street for decades. So Robert, kick us off with our first question for Troy. So Troy, explain the Fed cutting interest rates why it might be both bullish and bearish for the stock market because I think it's so important for our listeners to understand what all of these things mean moving forward because, you know, we hear this in the news every single day, what's happening with the rate cuts, what's it going to do to the bond market, what's it going to do the stock

market. So break it down in your opinion of what you see happening moving forward. Sure. Well, thanks for having me, guys. It's always a pleasure to come back and be here with you. I think when you're thinking about what is going to happen over the next six months or potentially a year and a half or so looking into 25 on what's going on with the interest rates is we're in this very interesting part of the market. We've seen interest rates go much higher from a basically zero. We were looking at interest rates close to zero a few years ago. And the Fed had to fight inflation because of everything from the stimulus that they were giving from COVID money in 21 and what was going on in the markets and people starting to travel again. And you just saw the inflation kind of, you know, blow up in a sense.

And they wanted to bring it back down to that kind of 2% threshold where they like to see it. And so they started raising rates. And obviously with that, we had a sell-off in the market. And then eventually we've had this big rally over the past year and we've watched the, you know, call it Magnificent Seven, we watch these mega cap stocks explode not only in their growth but their revenue, their earnings and continue to grow larger in the market compared to the rest of the market. And so when you're thinking about, you know, we're looking at rate cuts potentially now in September and into the end of the year, we have to think about a few things. How big are those rate cuts?

How many will we get? How much of an impact will it have on the market, which is really important. And when you're thinking about, will this be bullish, will this be bearish for the market? I think, you know, it's good for the market in a sense that we're looking at it and saying, you know, is the Fed saying, yes, we've kind of got inflation to a place where we think we want it and we could start bringing rates back down. And rates back down is good for a number of things. It's good for real estate. It's good for small companies that have to borrow money to continue to grow. It's good for the end retail investor who is looking to buy their first home or, you know, maybe has some debt on a credit card and those rates.

rates will come down a little. So it's good for the individual investor in the end to have rates lower than where they currently are because they're thinking about it for years. Everybody was used to very, very low interest rates. And then over the past couple of years, it's skyrocketed. And their minds to, hey, it's going to cost seven, eight percent to get that mortgage now where it was close to three percent of a couple of years ago. So I think it's bullish for the economy when you think about it from that perspective. How the stock market will do is a different perspective. you might see a rotation from these large mega caps into more small caps. Because as rates come down, these smaller companies that rely on debt to finance their growth

and finance their businesses will have lower interest rates and can grow faster and quicker. So there's definitely a number of things that will play into it on how the economy looks at it, but also how the stock market will look at it. And I want to piggyback off of my first question about those mega cap, about the magnificent seven these big tech stocks. Do you see AI slowing down at all for these tech stocks and the growth? And should people be weary of keeping their positions in the Navidias, in the metas, and the Googles and the AMDs of the world? Or do you still think it's business as usual for them?

But these smaller caps are going to start to see more positive futures because money is now cheaper. In my perspective, it's probably business as usual for those mega cap stocks. The interest rates changing. They don't usually finance things with debt. They have enough cash on the balance sheets. They have enough to grow their businesses. When you see this kind of what we talk about, this rotation to small caps because rates are potentially going to get cut, this is really just in a sense more trade people are trying to take an early stance on, yes, these small caps, which have been kind of not doing much over the past couple of years up until the past couple of weeks, want to take advantage of that and maybe take a ride higher with those small caps and see as rates are cut how far they could go. but I don't think there's going to be necessarily a slowdown in AI investment or growth. We've seen how it's grown so quickly over the past couple of years. And I think it's more of a catch-up trade, if you think about it from the small-cap perspective. It's you had this group of the Magnificent Seven or these top stocks really trade higher over the past number of years and kind of carry the market with it. It's really just a catch-up trade with all the other small cap and all smaller companies kind of catching up to that spot potentially.

Something I think is really important that this podcast does is we are as tactical and actionable as possible. So, Troy, from your perspective, what can investors do right now to take advantage of sort of this short-term tailwind that they might be experiencing in their portfolios if it's small caps, if it's bonds? Like, what can investors do today to position themselves for these rate cuts? You know, what we do here at Neos is we bring ETFs to the marketplace. And we have, you know, as you mentioned earlier, some of our larger ETFs, PII, QQQQI, which focus on that tech and growth and value areas of the market. But then we also have a newer ETF, IWMI, which is our Russell 2000 high income ETF. And that ETF owns the Russell 2000 as an underlying equity holding. And then it uses Russell 2000 index options to bring in additional income. So you can kind of get this growth of the Russell 2000 in this ETF while still bringing in real high income on a monthly basis from the option income that you get from the Russell

2000. So when we were looking at building out all these ETFs, we want to make sure that we were slicing up the pie. We have the value, the growth, and we wanted to make sure we had the small cap. And then on the fixed income side, whether it's looking at our enhanced income aggregate bond ETF, BNDI, where you have an aggregate bond portfolio, and then you're bringing in additional income from the SPX index option market. These are two spots I could see as rates start to get cut that might be a little bit more favorable in your portfolio. And Troy, for the people listening right now that might not have heard of the Russell 2000 index, I know it was launched back in 1984 by the Frank Russell Company, but, you know, add some additional color as to what the heck the Russell 2000 is. We all know what the S&P 500 is,

what the NASDAQ 100 is. What is a Russell 2000? So it's just like the S&P 500 is an index of 500 stocks that fit a certain specification from the S&P 500. This is 2,000 small cap names that fit within the Russell 2000s kind of parameters of what can be put into this index. If they get too big, they get kicked out. So it's really these small cap names that you hear about, but don't necessarily, you know, it's kind of hard when you're thinking about which one do I invest in. Do I invest in these three companies or these two and really do my research? Or do I just buy an index and hold all 2,000 of these specific stocks? So the Russell 2000 is a really good way to get access to that small cap environment without having to dig in and really dive in to do too much homework. Because, you know,

given the fact that there's 2,000 names in this index, there's a lot of homework you'd have to do there to figure out which ones might be the best ones to invest in. So to be able to get access to those, whether it's an ETF like ours that wants to bring in additional income through the option market or just straight pure play Russell 2000, there's different ways you could do that. Got it. So IWMI is your sort of suggestion here for some easy ways that investors can begin to position their portfolios to take advantage if they want that exposure to sort of those Russell 2000 small cap names as the Fed rate cuts theoretically, as we've seen actually so far, should positively impact those prices. Yeah. So the nice part about it is even while you're waiting if the Russell

2000 isn't moving up as much as maybe you had hoped as it did early part of July, you're still getting paid income from premiums we bring in from selling the latter short calls that are out of the money. So you're going to get some upside appreciation. But bring in that high monthly income from that call premium that gets distributed out. And I guess just a quick follow up there, Troy, is obviously you guys haven't announced a distribution yet. I'm sure you will by the time this episode comes out, but I'm assuming 12, 13, 14%, 14%, kind of like the other ETFs you have right now. Yes, so the kind of range for IWMI is that 12 to 15% range. And so it'll fall right in that

range is what we have planned. And so given the market conditions, walk our listeners through, you know, rates are getting cut, we presume, people are going to start to maybe pull back a little bit from big tech and the market's going to round out a little bit more. Where do you see the weighting of something like IWMI or BNDI as a portion of people's portfolios, just so they can understand as we talk to them about repositioning some of their money, what does that weighting look like for those two categories, those two sectors? No, this is really important. I think we get this question a lot. And it really comes down. to the end client and what they're specifically looking for. If you're looking for some real small cap exposure but need that income or want that income for a specific reason, then IWMI really

fits into that portion of the portfolio. And it's really, you have to take a look at your whole portfolio. How are you positioned now? Where are you in your investing life cycle? Are you still wanting to take a lot of equity risk because you're younger or you're still looking for income or whatever that may be? And so a big portion of your portfolio might be in the, let's call it SPYI or QQQI realm of growth and value, but you want to take advantage of this potential rally in the small caps because of the future rate cuts. I think it really comes down to the end customer and the client. But for us, when we're looking at things, I want to make sure I have at least a portion of

my portfolio in all of these areas. I want to be able to take advantage of the income from the options, but I also want to make sure I have part of my portfolio in these small caps or in this growth area so that when the market does move higher in those areas, I want to be involved. Troy, thank you so much for breaking all that down for both us and our listeners. I learned so much from you here. So now that we're on the same page regarding what to expect with the stock market, Robert, over the coming 12 to 18 months, let's now move on to the last piece of the equation, right? The last piece of how the Fed cutting rates is going to impact your money, your portfolio, and your debt. Luckily, for some of you, lower interest rates from the Fed means your debt is going to begin to shrink. In case you forgot, interest rates on credit. credit cards climbed by 14% during the last two years, from 16 to 30%, making it incredibly expensive to borrow money. This increase in interest rates negatively impacted the borrower's ability

to pay down the debt as more and more of their monthly payments would be going towards interest, not principal. This increase in interest rates over the last few years has caused Americans' credit card debt to hit a record high of over $1 trillion. That's right. A tax. A tax. A tax credit card debt to hit a record dollars. That's right. A trillion dollars with a T. As the Fed cuts rates, these interest rates on revolving debt-like credit cards and HELOCs will start to drop giving you some breathing room if you're trying to pay these off. Don't forget it's always a good idea to refinance high-interest credit card debt with something like a personal loan or a debt consolidation loan. These interest rates are usually much lower and you're only working towards paying down a single monthly payment versus

multiple payments with high interest debt. And Robert, it's the same deal with vehicles. I know a lot of people are being forced to purchase used and new vehicles with some insanely high interest rates right now, even in the double digits. This will soon be a thing of the past when the Fed cuts interest rates, allowing the rates our local credit unions will charge us to drop as well. All forms of debt will become cheaper, giving borrowers the ability to have a lower monthly payment, assuming we don't buy more vehicle than we can afford.

It will also inherently inflate the prices, though, of everything around us that needs borrowed money to purchase, which includes, again, vehicles, boats, homes, etc. So again, we always tell you get out of high interest, credit card debt, high interest debt in general, and only buy it if you can afford it. Point blank, period. Now, Robert, before we wrap up this episode, you told me you actually had a pro tip, and I thought it was great. So let's just throw it in real quick. I know it's a point number four. We don't let me throw in these point number fours, but let's hear what it is. I know. We're changing up the cadence a little bit, but I just thought it was. so important that we think about and discuss high yield savings accounts. The only reason these accounts are able to pay three, four, five percent plus on your money is because they're taking your money and they're buying those T bills that we talk about all the time and they're keeping a few basis points for themselves and giving you the rest. So why this is important for everyone to understand that's watching and listening today is when the Fed cuts rates, T bills and bonds begin to fall. And as their yields fall, that's less and less they're going to pay you.

And this is so, so important because you, the savers, we just don't want you to be surprised when you see your high yield savings that have been so great for the past 18 months or so go from 5, 4, even 3% down to those rates in the next 12 to 18 months. And it's because the Fed is cutting rates. And we wanted all of you to understand the correlation of the prices going down in these bonds and in these high yield savings accounts and why they're doing so. Yeah, so if you are for some reason depending on your 5% APY high yield savings account interest on your emergency fund to pay for your monthly dinner out with your spouse or, you know,

whatever you're using that extra interest for and you're depending on it, just not letting it, you know, get reinvested, but you're using it for something. Be careful because it will begin to start coming down a little bit over the next six, 12, 18 months as the Fed cuts rate. As the Fed cuts rates, bond yields fall, bond prices rise, which is something that Troy talked a little bit about in our conversation. So maybe a little bit of BNDI is a good idea now as bond prices are expected to rise. Robert, what a great pro tip. I appreciate that. I totally forgot about that one. And what a great episode, right? I think, you know, the Fed cutting rates has been sort of this headline news topic for what feels like the last two years. When's the Fed going to cut? When's the Fed going to

cut. What's going to happen to our portfolios? What's going to happen to our money? What's going to happen to all the things around us? And it's kind of weird to think that a single central bank, one person, Jerome Powell, can impact so many millions, tens of millions of Americans and what they're able to do, borrow, spend, save with their money. But that's just the reality we live in. So I hope this episode was able to teach you guys something as it relates to how the Fed cutting rates will impact your portfolio and your money. And if you like the episode and you learn something from this episode, to share it with a friend, someone who follows the stock market like you, someone who's trying to save for that next new house, that next new boat, maybe they're paying off debt, right? This

episode will definitely give them a little bit of pointers and some additional context as to what to expect over the next six, 12 and 18 months with their money. And I think for me, the important takeaway of this episode is just taking the information that's out there for everybody, the news and what's happening with the Fed and interest rates and all this, and really helping them understand it through breaking it down into bite-sized nuggets because people hear all of these terms every day, but they don't necessarily understand how it affects their money. And I think that is one of the key parts of this episode is really breaking down these movements as the economy and the markets change based on some of these factors and what it means for them and us. And that's why I love what we

do each and every day here at the Rich Abbott's podcast. Now, Robert, before we jump into our Q&A section of the episode, want to do a check-in. Speaking of investments on our FREC direct indexing portfolio. As you guys know, Robert and I deposited $20,000 of our own money into freck.com. It's this awesome platform. We had a cool webinar with them all about direct indexing so that they could direct index the S&P 500 automatically on our behalf, allowing us to tax loss harvest against that. Now, what's really cool about this is it's all automatic.

Robert and I are up about three and a half, four percent since we've done it, so about $1,000 or so. But what's cool is we've seen now over $100 of tax loss harvesting happened behind the scenes to our portfolio. So just to put that in perspective, what's so cool, Robert, right, is like, we could then take that $100 as a net loss against any gains we have in the future. So I don't know about you, but my Bitcoin portfolio is up a lot. I'm definitely, whenever I end up selling that, going to use some of these losses to offset those gains, allowing me to save a lot of money on top.

taxes. Yeah, I love this strategy and something that I say a lot is it's not what you make, it's what you keep. And whenever we can find these new nuggets of how to tax loss harvest, it's just so incredible for our listeners because we can find these ways of different levels to help them save money over time because sometimes this is a great strategy to really offset your gains. And that's why I love FREC as well. Yeah, so I just logged into my account. And we are tax loss harvesting now $168.6. That's pretty cool. That is really, really cool. So be sure, everyone, if you've not yet opened up an account with Freck, deposit some money over there, start direct indexing the S&P 500, right? Just like you would buy V-O or just like you would buy

SPY or any of these other S&P 500 focused ETFs, you can do the exact same exposure on Freck, except they automatically save you money with taxes. It's the best of both worlds. Again, that's freck.com, F-R-E-C-com, and we're really excited to see where our $20,000 goes. So our first question comes from Don C. Don C says, my wife and I are assisting her single 75-year-old mother with selling her three-bedroom home and downsizing into a condominium. She owns your home outright and will pay cash for her new condo. My question to you is this.

What do we do with the approximately $60,000 in cash that she will earn in downsizing? She has no other money or any assets in her name. She has bad credit, but she has no debt and she is a hoarder. She collects about $900 a month in Social Security, has government assistance such as Medicare and food stamps. There's no other income and there's no long-term care plans in place or anything of that nature. My wife and I are financially fit, but we are planning for our own future so we don't want to have to pay for hers as well if we don't have to.

We are creating an irrevocable trust, and she's agreed to this, so that she does not have to spend the money in that her new home is protected. She was going to be eligible for health benefits in about five years. She's in decent health. She doesn't have any illnesses or anything like that. But given her age, most typical investment advice may not apply. So what do we do with the $60,000 to maybe aid in her monthly income while also protecting it? Oh man, this is a tough situation, Don.

And I really empathize with you. I'm sort of in a similar situation with my mom and my dad, which is kind of funny. So you're absolutely right. You guys are financially fit. And of course, you don't want to have to really be. be taking all that much money out of your own pockets every month to aid in your mother here, especially at 75 years old. It's just a really kind of frustrating situation. What I've been fortunate to do myself, and then I'll let Robert maybe give some advice, is I've been fortunate enough

to financially provide for both my mother and my father without negatively impacting my own financial journey. Again, this is because I'm more of a high earner and I can afford to do that. If that wasn't the case, I think what I would probably do is figure out a way to put this money to work in such a way where she could earn 5, 6, 7, 8% annually in a very stable bond fund or some sort of high-income fund, maybe like BNDI or SPYI, because that would then generate, call it $400 or $500 a month in income. There's a really tough situation to be in, though, but I'm glad that she is going to have some proceeds from her first house that she'll be able to use for her lifestyle. What do you think about

this situation, Robert? Yeah, it's a tough one. And I'm a little bit confused about why the irrevocable trust. I get it that it does, you know, give you advantages if you're trying to qualify for Medicaid. But you have to be careful because with an irrevocable trust, you can't make any changes and act as the trustee either. So you need to make sure that you understand that portion of the irrevocable trust because it's pretty set in stone and it's out of your hands once it's up and running. But there are advantages that could work in her favor. I personally would probably hire a lawyer that's a trust lawyer and really walk them through what your goal is here because this is a really difficult one and I don't want to be incorrect based on the information we have. I get bringing up the irrevocable

trust because it does minimize estate taxes. There are some other advantages. in this situation, but I don't know if it's the right fit for you. So my opinion is I would get an estate lawyer involved, run them by with more detail this situation to figure out the best way to go. Do you have any perspective on the $60,000? Yeah, I mean, I think you killed it with the $60,000. This is a situation because it's not a lot of money and it has to be preserved that I think you have to be very careful with it because when you're already functioning, without enough capital to be able to accomplish what you want to accomplish. It puts them in a very difficult spot because if you try to grow it too aggressively to make up for lost time and the

market shifts and you're wrong and you go backwards and see a 30% decline, that's bad. So I like your idea of potentially, you know, bond fund or something else safe where you're getting five, six percent maybe, but you're preserving it with less volatility. Because this is, is a difficult situation. And unfortunately for Don, they are likely going to have to step in and help with pay. I did with my mother. Her Social Security and Medicaid ran out. And she was in nursing care for quite a while and it was very, very expensive for me. But that's just something we have to do. So I like where Don's at, but I think there needs to be one more step to this and that is more information to be able to really flush out the best direction. Yeah, I think at the end of the day, Don,

Of course, there's no legal obligation for you to support your mother. When I was sort of mulling over this myself with my dad's and my mom's situation, you know, at the end of the day, these people took care of me my whole life. Like the least I can do is give them a couple hundred dollars, if not several hundred dollars per month and supplement things. But what I didn't hear, which is good, is I didn't hear your mother has nothing because she spent a lot irresponsibly or she did these vacations or like, I didn't hear any irresponsableness, which if that was the case, then I wouldn't give her money.

I'd send buy her things, like buy her groceries, you know, pay for her HOA, things that, like, clearly can help her. But I did not hear that, which is good. So again, Don, I think at the end of the day, it's going to come down to a conversation between you and her wife and, you know, how much can you afford to help if you do want to help? And again, back to the 60,000, maybe there's a way you could put that in a fund that can make four, five, six, seven, eight percent per year in reliable tax efficient income. The only way I'm thinking about that is BNDI and C-S-H-I and then also S-P-Y-I, maybe a mix of those three could really help you out there. And then maybe, you gift her a couple hundred dollars and now she's in that 1500 to 2,000 a month range.

But wishing you're the best man and thank you so much for the question. Now, if you're somebody that's listened to Rich Habits before, you know that we've mentioned the idea of tracking your net worth plenty of times. Net worth isn't just a phrase for the ultra wealthy people on the Forbes billionaire list. And being real with yourself and assessing the total picture of your finances is critical for every single person listening right now. That even applies if you have a bunch of loans and your net worth is negative. That's right, Austin.

and that's why we're really excited about one of the new partners of the Rich Abbott's podcast. It's called Roy, R-O-I, and it's the all-in-one investing platform to track trade and grow your wealth with your existing accounts. It's the first app that lets you not only track your investments, but trade across all existing accounts as well. Roy supports more than 10,000 different accounts where you have your money or investments. What's crazy is that Roy lets you track everything, and it's all in real. real time, whether it's cash, investments, real estate, crypto, loans, watches, bonds, company equity, collectibles, or anything in between, Roy always provides an insights dashboard to show you when your dividends are coming in and they're going to show you that built-in portfolio from

some of the biggest most famous investors like Nancy Pelosi and Ken Griffin. So you can monitor or even copy their portfolio trades directly with your existing brokerage accounts. We think you're all going to love Roy. And if you use the code habits, all caps, when you sign up, you can get your first month free. This is pretty awesome. And we've left the link to their site in the show notes, or you can visit them directly at get-r-o-i dot app. That's g-et-r-r-o-i-dot app.

And make sure you use the code habits if you sign up. I love track my net worth. I know Robert, we've talked about it for a while now. And, you know, it's something that I think everyone should be doing more of because if you're not tracking where you're headed, you're just drifting, right? And you're not really seeing any direction. so you have to be tracking these things.

I use Roy, maybe you use an Excel spreadsheet, maybe you use personal capital. I don't know what you're doing, but I think it's super important for everyone to do that. Now, our next question comes from Ken O. Ken said, I heard about your podcast on another podcast, and I'm really glad I did because I've learned so much already

from the episodes I've heard over the last six weeks. So here's some background. I joined a new firm two and a half years ago. I'm 40 years old. I make $400,000 a year in total income between my base salary and my bonus. I'm married, and my wife makes $100,000. $120,000 a year. I've close to $300,000 in my 401k at my old employer, but it's in a target date

fund. I have $20,000 in a pension at another old employer and $98,000 with my current employer. Again, I've been here for about two and a half years. So should I do the following with my old 401k, or do you all suggest something else? One, roll it into my current employer's plan, transfer it instead to a Roth IRA, or transfer it instead to a traditional IRA. I don't have any IRA, Roth or traditional, but I plan to start one this year, of course, with a backdoor Roth IRA. My only other investments are a taxable brokerage account and a rental condo. I definitely regret not starting a Roth earlier. What a good question here by Ken and, man, congratulations on just being such a high earner,

$520,000 in income between you and your wife. What a great household income. The only thing I'm seeing here that's sort of alarming to me is you guys are 40 years old and unless you have a bunch in this taxable brokerage account, you only have $400,000 invested, which means maybe you're not as disciplined with your sort of savings rate per month. I would just imagine if I was making half a million a year, I would probably have more than, you know, not even one year's salary invested in the markets. You did mention a rental condo. Maybe that's worth a lot and you paid it off. I'm really not sure. And again, you could have a lot

more in a taxable brokerage account we're unaware of, but just want to encourage you, you know, being such a high earner to focus on investing. Now, to answer your question, $300,000 in my 401k and my old employer and a target date fund. I would definitely roll it over. I would not roll it into a current employer plan. I would then transfer it slash roll it over into a Roth IRA. I would also do the same with the pension if that's possible. And the reason why I'm saying this, despite it being hundreds of thousands of dollars,

you're going to have to now pay tax on, let's call it, you know, $60,000 of income tax that you're going to have to pay on this is because, one, you're already a high earner, which means that your tax bracket is already kind of maxed out there, right? So we're not going to try and finagle a little bit here or there. Like, you're going to be paying a lot in taxes. Like, add this to it. You'll be fine. Two, why it's really important is if you plan to be a high earner, I believe, into retirement,

this way, all the money, right? This, I think, call it $240,000 now that's going to be in your Roth IRA is going to grow tax-free. And if you're like me, I'm right there with you from an earnings perspective. I hate paying taxes. But now that I have a Roth IRA and these retirement accounts, that are tax advantage. I will not have to pay any taxes in retirement, especially, I mean, you're not going to retire for another 20 years. Who knows what the tax brackets are going to be like in 20 years? Wink, wink, wink, probably a lot higher. And yeah, Robert, maybe want to talk a little

bit about the Target Date Fund and why we don't like them and maybe encourage our friend Ken here as to what he should buy in his Roth IRA. Yeah, I love it. I think you broke it down perfectly, and I agree. Ken, with being such a high earner between you and your wife, it's so important that you've done a decent job getting to where you are, but you need to take it more seriously because so many people when they're high earners, they just assume the money is always going to be rolling in and it's going to be easy. And so what they don't do is they don't create a defined plan and they don't automate their investing. And I feel like that's probably what you guys are doing. I see it a lot with high earners. So I think by listening to what Austin's takeaways are, I would really get your

budget in order, figure out where you're at. calculate your debt to income ratio it's really easy just google how do i calculate my debt to income ratio get that dialed in and start automating your investments in these new accounts get them maxed out every year get yourself a basket of these ets that we talk about these index funds like v oo and vgt and qqq maybe you could look at bndi so you've got some income there and then you can start expanding out and diversifying into some other things. But Austin and I just don't like target date funds, especially for someone as young as you, because you're just leaving too much money on the table. And target date funds generally drastically underperform the markets. And so if you're making

4 or 5% with a target date fund while the rest of the broader markets are making 10, 11, 12%, you're just leaving too much money over the table over the next 10 or 20 years. So I would lose the target date fund, try to find something better like we discussed, and really get all of that money moved over because while you're young, you want to be able to optimize your earnings as much as possible. You know, what I always say that I think really rings true with most people is you have to make your money work as hard for you as you work to get it. And that's not the case if your money's in a target date fund. Yeah, I mean, Ken, I'm not trying to be rude here. But if you guys are taking home, let's call it 350,000 of that 520 that you're making, you could easily start investing

$100,000 of that per year, right? You're telling me you can't live off of a quarter million dollars a year. Like, come on, man, right? So make a plan to what Robert said to start investing $8,000, $9,000, $10,000 a month. And of course, you're going to feel like, well, how do I invest that, right? How do I do that in a tax advantage way? Of course, you want to go up to the match again with that 401K. We don't like target date funds and it seems like you're stuck in one here. So up to the match, get your free money, then max out the Roth, which is going to be really simple. You and your wife both can do that immediately. And then all the other funds begin funneling into an account on public.com and purchase V-O-O-O-V-G-T-Q-Q-Q-Q-Q-T-I-I, if you want to, maybe some M-O-A-T as well.

But by doing that, you're going to be deploying a lot more money into the markets, a lot more than it seems that you have for the last couple years here. So we're proud of you. You're crushing it, man, and yeah, we would transfer it to the Roth and just keep on moving forward, Ken. Now, our last question comes from Yvonne P. Yvonne says, my husband took out a loan against his 401k several years ago at a 6% interest rate, and he's paying back $1,100 per month as a result. However, his loan is broken up into two parts, and the first part will be completely repaid by the end of October of 2024, lowering his monthly payment to only $600.

then after September of 2025, the $600 payment will be complete as well. But here's my question. Should we continue to contribute this $500 a month toward his 401K to get the company match? Or do we use that $500 extra per month in our budget to start paying down our $30,000 in credit card debt? Robert, I think this answer is pretty straightforward, but I'll let you tell Yvonne what to do here. Yvonne, you can't out-invest high-interest debt. So this is an easy slam dunk to get you guys back on track.

Do not put the money once the other ones are paid off, the other loans are paid off into the 401k. Knock out this 30K credit card debt as soon as possible. Then what you're going to do, you're debt free, you got the loan pay back to the 401k, the credit card debt is gone. You are going to then pretend it still exists. You're going to get the $500 a month back in to the 401k up to the match. and anything over that you're going to want to put elsewhere into a traditional brokerage account or Roth IRA to buy, you know, a basket of those funds we talk about all the time.

But first and foremost, you've got to knock out that 30K and credit card debt because that will grow and grow and grow and eat you alive. Eat you alive. I mean, seriously, you are paying $9,000 a year in interest every year you keep that debt around. So if you just made your minimum payments, this time next year, that's going to be $39,000. thousand dollars in credit card debt that's almost a thousand dollars a month in credit card interest accrual robert which is just sickening so yeah pay off that 401k loan in october take that 500 dollar extra just like what robert said use it to start paying down that credit card debt and then in september once the 401k loan is completed take that 600 dollars and use that for the 30 000 in credit card debt you just can't be out investing high interest credit card debt just doesn't happen yeah i see this all the time

and we really got to hammer home this message that you can't out invest high interest debt because I see people every day that are like, yeah, I'm so excited. I'm putting $1,000 a month into Bitcoin. I'm putting $1,000 a month into VO. But then I'll be like, well, what's this $28,000? What's this $42,000 of credit card debt? What are you doing about that? And they're like, well, I'm trying to chip away at it. I'm like, no, that's not how it works. You have a guaranteed 30% you're paying on this debt you've got to get rid of because it's not the, 30% in your favor, so you have to pay it down first. So this is a very important message for everyone listening, write it down, tattoo it,

put it on a post-a-note on your refrigerator or at your desk. You can't out-invest high-interest debt. Everyone, thank you so much for tuning in to this week's episode of the Rich Habits podcast, all about how the Fed's rate cuts are going to be impacting your money. And don't forget to register for our free webinar taking place on now August 15th. We had to push it back a week. So August 15th at 4 p.m. Eastern Time. Robert and I are going to break down our playbook in the blueprint of how we do pre-IPO in Angel

investing. We've done a lot of it over the years here. And Robert has a funny story about not doing Uber, which is he's going to tell more about in the webinar. But be sure to check that out. And as part of that, too, we're going to show you how you can join us on our next big investment, invest right alongside of us. So be sure to check that out.

We only have 1,000 seats. 500 of them are already taken. and it's so funny. Thousands of people come out of the woodwork in the last like 24 hours before it starts. So don't be one of those people. Register. It's free. There's a link in the show notes below.

And in the coming weeks and months, you guys are going to see a lot about the Rich Habits Network. Nothing is changing with the Rich Habits Podcast. We are just expanding our offerings, and we will be branding that as the Rich Habits Network. We're so excited. There is a ton of great stuff happening behind the scenes. Hence why I'm in Nashville, Tennessee this week.

because I am going to be hunkered down with Austin, Elizabeth, Christian, and the entire team. We're going to be filming and writing and just doing a ton of great stuff, all for you guys, and we couldn't be more excited about the future. And if you want early access to the Rich Habits Network, all you have to do is send us an email at Rich Habitspodcast at gmail.com with the word network in the subject line. There's already been 116 of you that sent us that email, and so I'm trying my best to get back to everybody. But yeah, be sure to do that, and it's going to be great.

Everyone, thanks so much for tuning in to this week's episode of the podcast. And don't forget, share it with a friend. We might be seeing a little bit of turmoil here in the markets regarding the Fed rate cuts. And so if your friend's freaking out, send in this episode, they're going to love it. Thanks, everyone, and have a great start to the week.