Rich Habits Podcast - 77: Analyzing BlackRock’s Favorite Investment Themes (2024)

Episode Date: August 12, 2024

In this episode of the Rich Habits Podcast, Robert Croak and Austin Hankwitz and joined by Jay Jacobs -- Head of Active and Thematic ETFs at BlackRock. Jay recently published his mid-year report for 2024, and you're not going to want to miss it. Here's a link to the report in case you haven't read it yet. In his report, Jay details two major investment themes -- AI and manufacturing. The purpose of this episode is for our listeners to learn about investment opportunities surrounding these themes straight from the horse's mouth!---👉 Register for our free angel investing / pre-IPO investing webinar, ⁠⁠⁠Click Here! ⁠⁠⁠---👉 Join over 44,000+ 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 :)---👉 In our opinion, income-focused ETFs, like the ones developed by NEOS Investments, are a great way to offset volatility in your portfolio. SPYI, QQQI, and IWMI for indices + CSHI and BNDI for cash and bonds. ---👉 See exactly what Robert is invested into using the social investing app, Blossom!---⭐ 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 guys, Robert Croke here, and I'm so excited about this week's episode. We had Jay Jacobs from BlackRock back on. He is the head of thematic and active ETFs, and he is so knowledgeable. And in this episode, we'll be talking about his mid-year update and what that means for all of you following along. Specifically, Jay has identified two major investment themes, and we want you to hear right from the horse's mouth as we break it down. And also, don't forget this Thursday, August 15th at 4 p.m. Eastern, we have our next webinar. It is going to be incredible. We're going to be

talking about pre-IPO investing, angel investing, and how you can do it right alongside of us through the Rich Habits Network. So we have a ton of great stuff happening for all of you, and I couldn't be more excited. All right, let's jump into the episode. So Jay, thanks for joining us. Robert Austin, thanks for having me back. We are super excited for this episode. We've got a ton of questions teed up here for you. And before we jump into our first question, Jay, do you mind introducing yourself a little bit here for the people who might not remember you or maybe they didn't listen to that last episode? Absolutely.

So I oversee several different I shares product segments, including our active ETF business, our digital assets business, as well as our thematic business. So I think the commonality across a lot of these different products is really helping people achieve their financial goals. Maybe that's using a portfolio manager who's going to be making active decisions around what stocks to buy and sell around economic shifts. Maybe it's about allocating to specific long-term structural themes like AI or geopolitics, as you mentioned.

And maybe it's about looking at new nascent asset classes like digital assets from Bitcoin to Ethereum to see how it fits in a portfolio. But I'm responsible for these different product segments and excited to chat with you both about what's going on in this world. We can't wait to jump in and we're definitely going to be talking about those things. But I know Robert has a pretty important question to kick this episode off with. Yeah, I'm super excited about this episode because obviously with the action in markets in the last couple weeks. You know, everyone's on the edge of their seat. What do I do?

Knee jerk reactions are everywhere. And I think this episode is going to be really, really awesome to get everyone to kind of usa and chill out and relax and let us break it down for them and help them understand that it's business as usual. And these types of pullbacks happen all the time, you know, and we just have all of this kind of news everywhere. So I'm excited to break it down in this episode. and that leads me to our first question. You know, we pride ourselves on this show as being as evergreen as possible, meaning that you could listen to this episode next week, next month, or even next year, and it would still be relevant to our listeners.

However, we've got to start with what all of our listeners want us to talk about at this time as we're in early August. What is Black Rock's view on what's going on in the markets in the last few weeks? Most of the major indices are in a corrective phase, down double digits from recent all-time highs. Do you believe this is a typical healthy pullback from a market that got overextended? Or do you see some macro changes in the market

as alluded to by the rise in the unemployment rate? So a couple of things here. First, volatility in the markets is completely normal. Markets don't just go up. You are rewarded for the risk you are taking as an investor and the risk is just as much to the upside as it is to the downside. So I think this is an important reminder for all investors. That risk exists in markets and it's a healthy.

part of markets to see price discovery, both to be upside and the downside. I think the second thing that's really important for investors to remember, whether it's this week or 10 years from now, is that you need to start with what is your financial objectives and stick to that financial objective no matter what's happening in the markets. We like to say it's not about timing the market, it's about time in market. I care a lot more about have you been invested for 20 years than what did you do over the last couple of days to try to position your portfolio around this volatility. I think one of the advantages that investors who are millennials or Gen Xers in particular have is we can take a long-term view. If you're saving for retirement, retirement's a long time away.

It doesn't really matter what's happening today or tomorrow. It's staying invested and sticking to that financial plan over the long term. Now, more specifically to this volatile environment, you know, what's happening behind the scenes. I think the reality is that there's some smaller indicators around the economy that could indicate that we're under a landscape shift right now. You've seen some weakening job growth numbers. You've seen some indications that there might be a slowdown, a slowdown, still growth, but a slowdown in the U.S. economy. There's been some more technical shifts like with the rise of interest rates in Japan versus an expectation of more interest rate cuts coming in the United States, which is sloshing some money around the global financial system and creating some volatility there. But this isn't a major landscape shift.

In BlackRock's eyes right now, this is not a panic moment. This is not the beginning of a recession. first and foremost, people need to stay invested and stick to the plan and, you know, keep monitoring what's happening in the economy if weakening continues. Maybe that results in some sort of shift. But right now we think the recent selloff is overblown. Yeah, I agree. And, you know, Austin and I use that term a lot as well. But we also tell people to just try to really sit back and look at the long term. And I think that is one of the most important factors. Every time people are focused on a drawdown, I always try to tell them, even if it's only a 5% correction, go to seeking out. for one of the sites, click on a stock or one of the ones you're worried about, and then click one year, five year, 10 year. That's how you should be looking at the markets and not let your thesis on the markets and on a particular investment change overnight just because there was a retraction in the market. So I love that breakdown. So I want to take question number two. I'm the crypto guy. I've been in crypto for 13 years now. And I really want to talk about it. Last time we

spoke, we were really kind of talking about iBit. And since then, Ibit has crossed the $20 billion mark in AUM. And in the past few weeks, BlackRock has rolled out the Ethereum ETF, which we're very, very excited about. So how do you view these milestones? And where do we go from here, both for BlackRock and the markets in general? Well, I think the success of Ibit and the early success we've seen with our Ethereum ETF, ETH, is really a strong endorsement from the market just around the appeal of the ETF structure. You know, Bitcoin's been around for 15 years. Ethereum's been around for, you know, for nine years. But in a lot of ways, getting access to these digital assets was still challenging for a lot of investors. You had to open an account on digital exchange. You had to

learn how to trade on those exchanges. In some cases, you had really wide-bit ask spreads. You had some complicated taxes. This had to sit separately from your other financial assets. So maybe you had one account over here with stocks and bonds and another whole account over here with digital assets. A lot of these challenges that I'm listing are really solved by the ETF, that you can own it next to your stocks and bonds in a traditional brokerage account. Really easy liquidity. We see, you know, Ibit trading with three basis point, four basis point spreads, which is really, really good liquidity. Taxation is simplified, a 1099, which is the tax form you get with, you know, almost all ETFs. So it's a simplifier. It allows access, it allows convenience, and it allows it from a

trusted brand like BlackRock, and you put that all together. And, you know, $20 billion have come into Ibit already to show its interest in this type of structure. Now, it's still days with our Ethereum ETF, but we've been really pleased with the trajectory in a lot of ways it's the same story as Ibit, that convenience, that access, that trust in the BlackRock brand to deliver that quality product to a digital asset. I think what's really interesting about Ibit, and this is just sort of some flows that I saw on X earlier by some random, you know, financial analysts. But of course, we saw a crazy sort of drawdown, right, in the first week of August here. And as you look now at the sort of net outflows of iBit and other Bitcoin ETFs, they didn't happen.

Right? So these people who are purchasing and investing into Bitcoin, they're sort of, you know, they're like, cool. Like, we're in it for the long run, right? We see the ups. We see the downs. It's part of the story here. And I think it was like, I don't know, net billions of dollars flew out of other ETFs and other, you know, stocks as market cap and things like that. But these Bitcoin ETFs, like, they're pretty resilient. So it's just really cool to see from an investor perspective, of how everyone else is like, no, we're going to stay, we're riding the wave, and we're going to see what happens. I think that's right. You know, remember that investors use ETS for a lot of different reasons, right? Or democratizing vehicle, meaning, institutions can buy them, end investors can buy them, financial advisors can buy them.

You know, what we've really focused on as we talk to our clients about digital assets is around education. Part of that education is understanding digital assets are risky. These are volatile assets. We see major sell-ops. We also see major rallies. And importantly, if you're trying to manage risk around that, it really lends itself to kind of a smaller position in one's portfolio. And I think that education has been really helpful for our clients because we've seen it. We've seen the volatility since these products have launched. But going in, understanding these are risky assets and, you know, may make sense and kind of smaller increments in a portfolio can really help people stick the course with what they're trying to achieve at that allocation. So I think part of the reason we haven't seen major outflows yet is because of that education and people understanding how to use this in a portfolio.

And I think this is an important key that I want to touch. John, because I deal with the one-on-one clients a lot more than Austin and with my lives. One of the number one things that I do see, and you just spoke on it that is so important, is even though crypto, Bitcoin's been around 14 years, Ethereum, nine years, and all of that, we're still so early on because a major portion of retail investors and institutional investors could not really get in because they didn't understand wallets, they didn't understand the platforms, they didn't know how to do it. And even today, the number one request I get is to create videos educating people on how

all the wallets work, what's cold storage, what's a hot wallet, should we leave money on platforms? So that is one of the biggest things that I explain to people as they're learning and educating themselves on how this works is the ETFs solve that. You mentioned simplified access, convenience, and tax strategies. And I think that's very important for everyone watching and listening to understand is that, yes, you're going to pay some small fees, but to have that protective mechanism wrapped up to be able to get into these, you know, great markets that we call crypto through Bitcoin and Ethereum and all that is awesome. And I think it's okay to really have that management in this instance until the educational process gets further along. And people can feel confident because even today in 2024 with all the incredible platforms, out there like Black Rock and others, people are still fearful when they're like, hey, what type of

account do I open? How does the Roth IRA work? And that is one of the most rewarding things that Austin and I get to do every single day is educate people on all of this because once we take the fear layer out of it, more and more people feel confident joining the markets and really doing more with their money. And that's why I get to wake up every day and do this. And it makes it so rewarding for me. I think that's right, Robert. I mean, every investor is kind of at a different stage of their educational journey on digital assets. There's people like you have been in it for 13 years, and there's people who really haven't considered the asset because they haven't had a way to access it until these ETS have come out. And in that instance, maybe they're only a few months into their journey. So it's important for us. It's important, you know, I think for the markets at large to really help with that education process.

What is this asset? How does it behave? How does it fit in a portfolio? What are some risks and concerns around this asset? All of this is really important for investors to consider before they even think about the, Does this make sense in my portfolio? And if so, how much should I allocate? So shifting gears now away from the crypto ETFs to the thematic ETFs. You guys released this awesome mid-year update. Again, there's a link to it in the show notes below. And you detailed opportunities about artificial intelligence and the sort of evolving trade relations. Walk us through these two megatrends step by step. What's going on? Well, to take a step back, you know, we talked about investing in markets, investing for the long term,

being able to weather some of the short term storms. One of the ways to stay invested for the long term is to think about what are the long term structural shifts that are happening in the economy. Now, you might think it's a little hypocritical to be thinking long term and then to put out a mid-year update. Our idea here is we're not thinking about this next six months. What we're looking at is what are the long-term structural changes that are changing their trajectory that maybe over the next 10 years is going to grow faster than we expected or grow in a different way than we expect it. So what's really evolved over the last six months to change our long-term expectations? Now, the two areas that have really, I think, moved the most in the last six months are artificial

intelligence and geopolitics and supply chains. In artificial intelligence, what we've seen is just such a broad appetite for AI. We've seen so much money invested in building out the infrastructure around AI that our focus is really on the, what we're calling the picks and shovels. We don't necessarily know who the winners of AI are going to be at the platform, whether it's Claude, whether it's chat GPT, or you name it, but what we do see is a common layer of infrastructure that's needed around AI. We need semiconductors, we need data centers, we need power, we need raw materials. No matter of who wins, the growth of AI is really going to drive a lot of demand in those segments. And then secondly, within geopolitics, what we're seeing is really a pretty significant change

in supply chains. So if we look around the world today, over half the world's population is voting for new leadership. It's not just a U.S. presidential election. We had elections in India, in Mexico, in Europe for the European Union. The list goes on. It represents about half the world's population. And the implications of that is that there's a lot of politics that are influencing things like supply chains. What are going to be the policies that stimulate production in the United States around critical industries like semiconductors. This is an area where we focus on kind of the rebirth of U.S. manufacturing. What is our trade relationship with our neighbors like with near-shoring,

how Mexico has now emerged as the biggest trade partner of the United States? And then finally, what are some new trade relationships that are emerging around the world? You know, might be referred to as French shoring, where you're seeing countries like India really benefit from increasing trade relations with the United States. So again, AI, massive landscape shift with growing demand and what that means for the infrastructure layer. And within geopolitics, how are supply chains? shifting around the political changes that we're seeing around the world today. Okay, so let's take that one trend out of time, starting with AI, talking about the picks and

the shovels and sort of the value chain, right? How can investors tactically capitalize on these opportunities? Is it the IUD ETF that I shares has with utilities? Is it specific semiconductor ETFs? Like, how are investors now going to be able to say, okay, I believe you, I recognize this trend, but how do I invest toward it? Sure. So this is really bad. getting granular with your exposures. If you're just looking at the tech sector, you're probably picking up some pretty big names, the Mag 7 names that are owned across a lot of ETSs that already have a lot of portfolio representation basically by owning any type of U.S. asset. It's really about getting more granular to specific areas that are going to benefit from this AI infrastructure idea.

One way to look at it is to invest across semiconductors. This is not just a story about the GPU manufacturers that are part of the Mag 7. This is a story about CPUs, central processing units. This is a story about high-speed memory. This is a story about data storage. There's a lot around the semiconductor ecosystem that's going to benefit from AI. So we have an ETF, a semiconductor ETF, SLOX, SOX, which provides exposure to the U.S. semiconductor landscape. Now, those semiconductors have to live somewhere.

People talk about the cloud, like it's an amorphous thing. It's actually a building somewhere in the desert usually. Those are data centers. And they require power. They require physical security. They require a lot of wiring. They require just a ton of electricity. And so this real estate has real value.

And so when we look at that infrastructure layer, we've launched an ETF IDGT that owns a bunch of data center and cell towers around the country. And then finally in the energy layer, when you look at energy demand growing in the United States, you have a real landscape shift happening here. Energy demand in the U.S. has been flat for the last 15 years. Even though we've had some population growth, we've had some economic growth. Basically, all of that growth has been offset by more energy efficiency and frankly a shift away from manufacturing in the U.S. into services, which is less electric intensive. Now that's starting to change. AI denters are incredibly power hungry. electric vehicles are power-hungry.

We're seeing a resurgence in U.S. manufacturing, which is power-hungry. And over the next 10 years, energy demand could really be growing at about 2% a year, which doesn't sound like a lot, but utilities don't see that kind of growth very often. A shift from 0% to 2% is a very big chain. And so one of the ways that we can look at that is you need more power generation, you need more power transmission, and you need more power storage. And the common denominator there is actually a very specific metal. That's copper, which is going to be in short supply.

We're seeing demand likely growing by about 20% over the next few years. and it's really the key to unlocking more electricity in the United States. So I would consider this a very tactical play. But if you believe in that energy infrastructure story, which we do, copper is really this just incredibly important ingredient that you can't see an energy renaissance around if you don't have access to copper. Wow. What a great breakdown. Okay, so just to summarize here, you mentioned the I shares U.S. digital infrastructure

and real estate ETF, I-D-G-T, and I'm looking at it here. You guys have actually launched this ETF back in 2001. but more recently it's been on its hair. And then you mentioned copper as sort of this underlying ingredient that has more electricity flows throughout the world because of AI and sort of this infrastructure we're building. The demand for copper is just going to increase according to you guys. So that is awesome. And you mentioned sort of utilities as well.

So does that mean ETFs like IUD and those underlying investments should also see an inflow? Or is it just the fact that that sort of 2% jump that you alluded to is enough to kind of give those some earnings growth perhaps over the next again five or ten years could definitely power the iShers utilities etTF as well and i fail to mention the copper taker which is i copicop icop icop icop which invests some copper miners around the world so if you're really kind of thinking about the entire ecosystem here copper miners are a key ingredient very cool very cool jay that was awesome lots of ideas floating around in my head let me throw in one little wrinkle to this because i think a lot of this makes absolute sense Where does solar fit into that?

You know, I've been into solar for a very long time. It's had good years. It's had bad years. Where do you see solar and nuclear power coming in moving forward in light of all of this power need in the future? Now, Jay, before you answer that question, let's take a moment to hear from this episode sponsor, Nios Investments. Because they just launched a new addition to their high-income ETF lineup that provides exposure to the 2000 small-cap stocks that make up the Russell 2000 index, while able to, to provide tax-efficient monthly income to their investors. Their ETFs may be especially interesting for investors looking to generate passive income

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I think we're going to see investment across the entire ecosystem. That's going to be in the form of renewables. That could be in the form of some fossil fuels as well, natural gas, probably being a beneficiary of additional electric generation as well. The key is a lot of electricity needs to come online in the United States in the next few years. And that's just not a situation that utilities have been accustomed to. So I think we're going to see a lot of build out. I think we're going to see hundreds of billions of dollars being spent to build out this energy infrastructure.

And it's not going to be specific to any one power generation source. This is really going to be a rising tide lifting several ships here. I love that. I love that. Yeah, this is great because we always talk about diversification. And one of the things I say a lot is you don't have to be first. You just have to be ahead of the curve. And that's why I love what we get to do on this podcast every single week, is giving people the best information we can to be ahead of that investment curve.

because we want to, like you said, rising tides, brings up all ships, and I really love that. So let's get into the next question. We touched on seeing this renaissance in U.S. manufacturing. So what's driving it? Besides MADE, how else are investors getting exposure to U.S. manufacturing right now? So one of the drivers here is really about shifting supply chains. You know, we were reminded during the pandemic that geopolitical risks, specifically geographic risks, can really play into supply chains. staff and I love is your average semiconductor crosses 70 borders before it ends up in your iPhone.

Wow, I had no idea. That's crazy. If you think about how many countries are involved in that, any piece of that supply chain breaking down, suddenly phones are hard to come by, right? And we saw that during the pandemic. It was automobiles being delayed. It was furniture being delayed, heavy appliances. And so the result of that has been really a rethink about supply chains. So if you look at the last 20 years, maybe the operating motto for a lot of companies was the cheapest possible supply chains. Let's build things in the places where we can get the lowest costs. Now there's really an emphasis on resilience. Where can we build things where we have more control over the supply chain?

In case trade relations change, in case there's a weather event, in case whatever, anything that could break down a supply chain. And so, you know, one of the popular ways of building resilience is just to bring it back home. If you can build it next to your end consumer, that's a shortening of a supply chain that reduces the risk. Now, on top of that, you've seen this isn't just been a corporate decision. This has been a government decision that if you look at the last eight years, various different acts across presidential periods have shown an increase in focus on U.S. manufacturing. We've seen a major infrastructure bill. We've seen a semiconductor bill.

We've seen an energy bill. We've seen changing trade relationships with different countries. And a lot of that has been driving towards building more in the United States. Now, I think the most important measure of all of this is construction spending on manufacturing in the U.S. This is building new factories or repurposing new factories. Has three acts since the beginning of 2020, meaning that these policies. and these changes and corporate attitudes is really changing the landscape for manufacturing in the U.S. I think over the next 10 years we're going to see a lot more output from the United States.

We're going to see growth in employment in manufacturing, more factories, and a lot more supply chain is really being brought back to the U.S. Finally, to answer your question, Robert, how are people investing in this? Previously, people have been looking at this as kind of like an industrial sector play. But the industrial sector itself is a lot more than manufacturing. You have business services, you have airlines in there, your transportation in there. So if you really want to get granular on companies that are building things, in the US. That's where we look at an ETF like made, one of my favorite tickers, if I can say so,

because these are companies that are making things in the United States, whether it's an automobile company, whether it's a defense company, whether it's a consumer goods company. It really kind of runs the spectrum of builders in the United States. And, you know, just like we were talking about energy and how it's an energy mix, it's not any one source. I see that being the same in supply chains, right? It's not just going to be about the U.S. building everything. That doesn't make total sense. First of all, we don't have enough people. It's still very costly to building the United States. So there is an importance of trade partners, and to your point around Mexico, it's close to the U.S., lower labor costs. In fact, labor costs can be one-tenth of the U.S. in the automobile segment.

You have U.S.MCA, which is a free trade agreement. You have good political relationships. You have a very large youthful population there. So it's a really attractive country for a lot of reasons from a near-shoring perspective. So what you're seeing is a lot of integration with Mexico, you know, in an area like automobiles where you might do parts manufacturing in Mexico, ship the parts across the border, do final assembly in the United States. Maybe you're even getting some critical minerals and materials from Canada that would go into something like batteries. But it's really about kind of trade integration amongst neighbors. And Mexico has been a really big beneficiary of that.

And before we get into the next question, I want to touch on one more kind of really important part of this exact conversation. And that is what is happening. We talked about geopolitical pressure. And I think one of the companies that's caught up in it the most, if I'm not mistaken, is Taiwan semi-conflict. Because they're so incredibly important in this AI sector, yet I feel like their stock in general is really just being held captive because of this geopolitical tension. And I don't know if we need to really go into it, but I just wanted to get that out there because that's one that I feel is stuck right in the crosshairs of this kind of situation between the U.S.

and China and what's happening with Taiwan Semiconductor. Well, semiconductors more broadly have been identified as just a critical component of the U.S. economy going forward. I mean, you can't build a toaster anymore without having a semiconductor in it. So if you want to build stuff, you need access to semiconductors. And the U.S. really is not a semiconductor manufacturing hub. It's a semiconductor design hub, which is great. There's a lot of value created in designing semiconductors. Like, you still have to build them. And to my point, around 70, you know, borders being crossed with the semiconductor, there's a lot of risk reduction in the economy if you can build more in the United States. So you saw the Chips and Science Act come out a couple of years ago. You've

seen some billion dollar investments in factories and, you know, these semiconductor fabs being built in places like Arizona and Ohio. It's a long process. This isn't something that happens overnight, changing a supply chain as sophisticated as semiconductors, but the process is beginning. And in some ways, that's really positive for those semiconductor manufacturers because they get to be the beneficiaries of things like tax credits or interest-free loans from the government to be able to accelerate that supply chain shift.

100%. And so kind of moving forward now to the last question we had is talking about this idea of this major industry driver that are active ETFs, right? BlackRock now expects the global industry AUM to quadruple to $4 trillion by 2030, and this is also an increasingly important component for advisors and investors like the ones listening right now. So can you break down for the audience? One, what an active ETF is versus a passive ETF. And then two, touch on how BlackRock views the importance of active ETFs inside of investor portfolios. Absolutely. So, you know, I think historically,

ETFs have been considered kind of synonymous with index investing. That when you're buying an ETF, what you're getting is an exchange-traded vehicle that's providing you access to a, you know, maybe a broad index like the SMP 500. IVV is a very large ETF from BlackRoth that does exactly that. While that's a very important use case for ETFs and continues to be used in the core of a lot of people's portfolios, one of the big innovations that's happening in the ETF space is really separating the meaning of ETFs from indexes. ETFs can be used to provide exposure to certain indexes, but they also can be used. to provide access to some leading portfolio managers. And those portfolio managers aren't just tracking a broad asset class like U.S. large-cap stocks,

which the S&B-500 is doing, they can get much more granular or tactical within those baskets. For example, we have an ETF belt, BELT. It's a long-term equity ETF where you're seeing really concentrated positions in about 20 to 25 holdings. So this is not a broad asset class. This is really granular trying to pick the portfolio manager's favorite stocks, mostly in the United States for long-term buy-and-hauled positions. So we're seeing growth in this active ETF space because one, it's a really efficient vehicle for investors to access these portfolio managers. Again, you can buy it on a brokerage account and have it sit next to your other

ETFs, just like we were talking about with the digital asset ETFs. There can be some tax efficiencies with the ETF structure over mutual fund. And really it's about kind of democratizing that access to a wide range of portfolio managers in both the equity and fixed income space. So we see this as a really big structural tailwind for the ETF industry. And we we think it's going to be increasingly important for investors as well. I think if you take a step back, you know, the last 10 years or so have been a tremendous time for just what we would call kind of beta-fueled rallies. What we mean by that is markets win up a lot, generally, broadly. And just investing in something like the S&P 500 was a really good investment for a lot of investors over those 10 years.

Now, we don't have a crystal ball, but that trend line that we saw over the last 10 years is unlikely to really continue forever. There's likely to be a period where broad, indexes are not going to deliver the same returns that they did over those 10 years. And being able to outperform an index because of an active manager could be an important return driver for investors that are trying to save for retirement or achieve other goals. So we do think that active managers are going to be more important for our investors going forward. And I think we're reminded of that in these volatile time periods again where you're seeing some really pretty wild swings and prices in the market where if an active manager can really tease out where the value is, that value can ultimately be delivered

to investors. Very interesting. I had not heard that perspective yet about the idea that, of course, over the last 10 years, we've seen this 70, 80, 90 percent total return in the S&P. But, you know, as we forecast for the next decade, it's sort of like, yeah, maybe though, right? We're not sure. But, you know, we were thinking that sort of the active ETF route is martyr. And it's interesting. I'm looking at some of the holdings here inbuilt. And yeah, they make sense. It definitely makes sense. And I'd like to add to that, you know, one of the biggest topics, I think that Austin and I put out there over the last year and a half of working together with the Rich Habits podcast is the importance of active management.

You know, we talk all the time about target date funds, set it and forget it managers and tools. And we just don't agree with it because they just don't take into consideration all of the factors that go into the day and day market and where to find that additional growth so you can achieve better than benchmark returns. And so I really like what you said about that of working with these active managers that really have their finger on the pulse rather than working on their whiskey collection or their golf game. And I think that's so important moving forward because you might be right. You know, we might not see this set it and forget it.

Put your money in, you know, just one of these S&P 500 funds and not worry about it for 10 years. So I really like that strategy. Look, I think ultimately the answer is going to be in blend that people will still want kind of that low cost, tax efficient, broad exposure in their core. and then to supplement that with active managers around that core that can provide some additional alpha and help, you know, with risk management or help without performing the index, you know, whatever your investment objective is. A lot of people like to pay this as either, or I think this is really an answer of both index and active living together and the efficiency of the

ETF vehicle for both of those different strategies. I really like that perspective, Jay. Thank you so much for joining us on this week's episode, Other Rich Habits podcast, to break down these two mega trends and really give some tactical perspectives and ideas as to how some of our listeners can be able to learn more about your ETFs and the ones that we had talked about here. So this was great. Thanks so much for joining us, man. Always a pleasure to be on. Thanks for having me. Wow, that was a mind-bending episode. Talk about getting into the weeds. I'm so excited for everyone following along and listening because this is one. Everyone definitely needs to take notes and take action because there's a lot to think about. There's so much happening in the markets right now

and I'm just so glad we get to cover it and bring on such amazing guests like Jay Jacobs from BlackRock and just really dig into it and cover it all. That was amazing. I wish this podcast existed when I was in college and like just starting to really get into some of these investments and, you know, finance as a whole, right? Because it's so cool that we can connect our listeners with these heavy hitters at these multi-trillion dollar companies, right? Like BlackRock has hundreds of billions, if not trillions of dollars of assets under

management being invested all over the place. And they're the smart investors, right? They're the smart money. And they're seeing, yes, AI is doing this, but how you should think about it is like this, right? Or they're saying manufacturing like this, so think about it like this and that. Like, I love that we get to get that unique perspective from Jay and his entire team. So major shout out to them for organizing and allowing us to host Jay again on the podcast. And y'all, let us know if you like it when we interview some of these heavy hitters and bring them on to the show because, again, that's what we want to do. We want to connect our listeners with sort of the access that Robert and I get as investors and just like people in these spaces, right? Like we want you guys to hear it from the horse's mouth just as we would.

You know, Jay and I have been friends for years, right? So it's like I want to make sure that everyone gets the same access that we do and it's just so, so important. It just makes it so amazing to get up every single day and get to work with you and all these special guests and really give our audience the edge. That's all we want. education, give them a little bit of an edge so they can all build wealth and live a really great life. And at the end of the day, it's so rewarding for both of us. And this was an amazing episode for sure. Now before we jump into the Q&A section of this week's episode, as you all know, Robert and I have been investors for a really long time.

And this episode's sponsor Blossom allows us to not only invest, but share those investments with all of you. Yes, Blossom is a social investing app built around transparency. Simply sign up for a free account, connect your existing brokerage account like Fidelity, Robin Hood, Vanguard, or Charles Schwab, and get started. Unlike anonymous platforms like Reddit and Twitter, Blossom users link their existing brokerage account to the app so that all of their holdings portfolio is shared within the feed and are verified by actual data. Leading to a richer discussion and decisions, it's never been easier to join a community of like-minded investors focused on building long. long-term wealth together. And what's really cool, too, is when I signed up for the app the other month, I chose to follow, like, the dividend, passive income and options communities for my feed.

So I get those specific notifications and post around things that I'm excited about, passive income, dividends, options, stuff like that, all on my feed. It's also a one-stop shop dashboard for tracking all of your investments. They've got a dividend tracker as well, a dividend forecaster, which is really cool. They've got sector breakdowns and a bunch more data about your portfolio. And keep in mind, Blossom is not. an online broker. You're not investing into stocks on Blossom. They're simply a social app network for investors that want to connect with other investors. Did we mention they have over 120,000 active users

across Canada and the U.S. So go sign up for Blossom using the link in the description of the show notes and we'll see you over there. All right. Let's show up to our first question. So our first question comes from Rhythm W. Rhythm says, I'm currently in college and I'm two years away from completing my electrical engineering degree, and I'm already invested several thousand dollars into the markets and crypto largely thanks to this awesome podcast called The Rich Habits Podcast. Now, one of my goals is to attend flight school to earn my private pilots license as a hobby and maybe even a potential backup career. Additionally, I aim to rent, lease, or even buy an aircraft for recreational use eventually. Now, understanding the significant costs involved,

particularly here in California, here's my question. How can I effectively save and plan for the expenses? What type of investment assets and timelines would you recommend? And how can I fund these costs when the time comes? I expect to pay $15,000 for flight school and another $200,000 to $1 million for a plane. Oh my goodness. Okay, I'll take this question first, Robert, and let you rally behind me here. So Rhythm, super excited for you. You're in college, you're getting a degree in something that's very, very useful. Electrical engineering. I love that. I hope that you begin to make $60,000, $80,000 a year out of college. And even if you live in California, your salary, you're south. might be even a little bit higher. Of course, I want you to be excited about buying a plane one day

or becoming a pilot or these other different things, but I don't want that to rock you off your journey of building wealth as early as possible and by investing as much as possible early on. We always say invest early and often. And so rhythm in your case, I don't think that a plane is in your horizon until you've built your base, right? We want you to have at least $100,000 was invested before you go out and buy this insanely fast appreciating asset called an airplane. It's like buying a boat, right? It's like any recreational thing. You called it actually for recreational use, right?

So you don't buy a camper if you have a bunch of debt. You don't go out and buy a boat if you have a bunch of debt. Just like you don't go out and buy a plane if you have a bunch of debt. Now, let's pretend we fast forward five to six years. You have your $100,000 base built. You're out of high interest debt and you're excited to now go out and buy a plane. The first thing I would do is I would definitely check to see what the interest rates are. As of right now, interest rates on something like that, and imagine is north of 9, 10, 11%.

So it would be considered high interest debt. So there's no reason to borrow for it. You would probably want to pay cash because the interest rate that you would have on your debt is more than the interest that you would earn in the stock market. So that's just one consideration. But if it was below, call it this 7 or 8%, then maybe borrowing money to go buy that plan could be a good idea. The thing, though, that I want to encourage you to do is to use websites like Barnstormer or I think there's one like buy a plane or whatever it's called. Like Robert and I, as we saw this, we're like, wait a second, our plane's really a million dollars?

Turns out they're not. They're anywhere between $40, $80, and $100,000, right? If you want a crazy cool plane, yeah, just like get a crazy cool boat or yacht, you can get it for a million dollars. But rhythm, you're 20 years old, 21 years old. I don't think you need a million dollar plane at 30. Now, do you deserve maybe $100,000 or $120,000 plane? Sure. You're the one that knows that and you're the one that's going to be able to put yourself in a financial position to achieve that and make that sort of big purchase. And kind of back to our episode last week, making a big purchase like that if you're saving for three, five, seven, 10 years, that money should be working for you in the markets and growing on your behalf. So it's not just parked in a checking or a savings account here. So yeah, I know that was kind of longwinded here, man, but you've got a really unique situation. situation and I just don't want you to get your, you know, eye off the prize at such a young age

and think that your end goal should be to buy this depreciating asset when in actuality it's not that great of an idea. So I'm going to put a little bit of a ripple into this and I like your breakdown, Austin, but we need to back this train up a little bit. Like Austin said, first and foremost, build your base. Always build your base. Of course we want everyone to live dreamy lives of being an electrical engineer, living on the beach, having a plane in the hangar nearby, having your cool little, you know, maybe classic convertible rolling up to your plane. That sounds amazing. But you need your base built first because you don't want to be broke well into your 40s trying to fulfill this dream. So build the base, get the $100,000 put away,

build it up. You're going to have a great job. You're going to be able to put away a lot of money, live very much under your means in the beginning of your career once you get out of college so you can work towards getting the plane. And here's what I would do to add one, pro tip to that. I would live off of your electrical engineering career and save 20% of that towards your base. Then I would get the pilot's license and take all of your revenue for being a private pilot and put that towards the plane fund. I would put that in a traditional brokerage account with a basket of funds and all of that money piles into there as if you're not even making it because you said remember recreationally. So just pretend that money doesn't exist. Put that towards the

plane fund, then buy the plane when you're ready and financially stable. I think that's a great strategy. Our mutual friend, Jacobs' dad is a private pilot and he flies Justin Bieber and Ariana Grande and Garth Brooks and these really cool people around. And he does it for fun. He's like retired in his 50s or something and this is like his encore career, right? So it's like a fun side hustle. So for Rhythm, I mean, yeah, get that pilot license and be a private pilot for some really

cool people and take all the money you make from that and use that to Robert's point as the I'm going to go buy a plane fund one day. Again, I just want you to know that I have got big dreams of big purchases one day, but I do know that one, delayed gratification is really important. And two, the only way I could imagine putting hundreds of thousands of dollars of my hard-earned money in a depreciating asset like a plane, like a boat, like a car, things like that, is I already have the same amount of money invested for me in the stock market. So even make that a rule for yourself.

You're going to go spend $150,000 on a plane. make sure you've got at least $150,000 also in the stock market. Great question, and we're wishing you luck here, rhythm. Our next question comes from Jared. Jared says, hey, guys, thank you all for your help with the podcast. It's been such a game changer for my wife and I. I'm sure this is a silly question, but can you guys explain when I have to pay taxes on a normal brokerage account?

For example, I have VO, and I've been investing into this ETF for 15 years now. Do I need to pay taxes on the gains every year, which means I haven't been doing that, or when I sell it at the end of the 15 years. Additionally, I assume a dividend-paying ETF like SPYI would require yearly taxes because I'm being paid throughout the year. But what about the dividends I'm also making with V-O-O? I'm kind of confused. Any help that you guys could provide would be very much appreciated.

So, Robert, do you want to take this one? Yeah, I mean, the answer is no. You don't have to pay taxes on your gains unless you sell because unrealized gains are not going to be taxed. And so you're in the clear, regardless of it's V-O-O or SPYI. So just understand that and realize that you can kick the can down the road as long as you want. You'll have to pay taxes at some point. But that's also why we're always pushing people in the initiative to max out that Roth IRA every year if you can because then that's after tax.

And it's just so much better for you in the long term. But other than that, Jay, you're fine. You're in the right vehicles. And, you know, we're very happy for you. but no, you don't have to pay taxes until you sell something. And then to answer your second question about the dividends, all dividend income is taxed. It is taxed in the calendar year that you receive it.

And so if that is dividend income from V-O-O or SPYI or a single stock, it doesn't matter. It's all taxed. Now you have to get with your accountant and make sure that they can clarify for you if this income is a qualified dividend or if it's just ordinary income dividend, right? It's tax as ordinary income. They'll be able to tell you that it depends on the stock. It depends on the ETF.

It depends. Like SPYI, it's a tax thing. It's crazy. But long story short, do understand that the dividends that you get paid every single month with SPY and every single quarter with VO are taxed in the same calendar year that you receive them. So our last question comes from Luke S. Luke says, hey guys, my name's Luke and I have been a longtime listener of the podcast, even back to when you guys first started. Thanks for all you do. I hope this makes the question and answer.

section as this is now my third attempt. Sorry, Luke, we get a ton of questions, but we're glad we finally got you a question, my friend. All right. Luke says, I'm 37 years old and I've maxed out my Roth IRA. It has $50,000 in it. I have a public account, thanks to you guys, and I've got $20,000 invested into ETFs that you guys mentioned and a little bit of crypto. I also have $5,000 in Fundrise and $5,000 in Masterworks, thanks to you guys as well. Luke, you're crushing it. Good job, man. Luke says I'm a small business owner with a cash pay physical therapy practice. You guys have mentioned opening a solo 401k through kerry.com as well as a 529 plan for my son here who is only a year and a half years old. I guess my dilemma though is if I open a solo 401k, how does that work out and how would I fund that along my other investments?

I currently have auto invest turned on for the Roth IRA and my public account. So if you guys can give me some color, that would be great. Thanks so much. And if you're ever in Denver and need some body work done, I'm your guy. All right. Thank you, Luke. I appreciate the offer, man. Actually, I lived in Denver for a couple years, and so did Robert. So, we really like Denver. So let me answer your question. You guys mentioned opening a solo 401k on Carrie, and how does that work with everything else? So I have a Roth solo 401k on carry.com, and it's done through my business. And because it's done through my business, it is sort of categorized as my 401K, just like if you worked at a 9 to 5 and they had a 401k, you can invest in to the 401k, right? That is fine, and you can do that alongside a Roth IRA. Now, what you cannot do is you cannot have two employer-sponsored retirement accounts at the same time. So that means you can't have a SEP IRA and a solo 401K and invest toward both of them at the same time. That's not how

things work. However, you can have the individual IRA, right, the IRA that you have your Roth IRA and you can have the employer-sponsored retirement account, the solo 401k, and you can run those at the same time. I've been doing that for years. It's a great way to invest literally like $70,000 a year toward retirement. It's awesome and we really recommend carry there. So yeah, highly recommend doing it. And then back to the 529. For me, it's just been a normal 529 on Vanguard. I started with $3,000. I invest $150 a month. It's worth like $6,000 and $1,000 now. It's invested, I think 80% into the S&P 500 and 20% into the NASDAQ, so just pretty normal stuff. And I won't need that money now for probably 15 or 20 years. Who knows? But that's how I've done it myself. And I think that strategy could work for you as well.

Yeah, I love it, Luke. You're doing a great job. Austin, great breakdown. I think it's great that you are diversified and have some money in Fundrise, have some money in Masterworks. Austin and I have done very well, both with Fundrise and Masterworks. So I think you're crushing it and keep up the good work. And where were you a year and a half ago when I blew my back out in Denver? Damn it. I didn't know you then. Oh, my goodness. Everyone, thanks so much for joining us on this week's episode of the Rich Habits

podcast. Major shout out to Black Rock and Jay Jacobs. What an awesome guy. Really intelligent perspective on a lot of cool investment themes for the year. And we're excited to be sort of the connector between these smart money investors and our awesome audience listeners like you all. Don't forget this Thursday, August 15 at 4 p.m. Eastern Time. We're hosting our webinar. We're going to be talking about angel investing,

pre-IPO investing, and how you can invest alongside of us through the Rich Habits Network. It's going to be so much fun. You guys are not going to want to miss it. We already have now 700 some people registered. And as always, hundreds of people come out in the last like 20 minutes before it starts and we can only get a thousand seats. So if you don't register and you don't get a seat, do not get mad at us. We've given you so much time as a heads up here. So we're going to see you then. We're going to have a blast. Thanks, everyone. And have a great start to your week. get for those of you that have been dragging your heels, sign up for the rich habits newsletter. Please.

So easy to find. It is becoming the biggest, the best newsletter in the country and you need to be part of it. It's free. There's great information. It comes out every single week. Make sure you do that. And when you share the podcast, if you enjoy the information, give us that five-star review, share it with a friend, share it with a relative.

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