Rich Habits Podcast - 79: 3 Additional Ways to Generate Passive Income (2024)

Episode Date: August 26, 2024

⭐️ Join the ⁠Rich Habits Network⁠ before September 1st to lock in your price!---In this episode of the Rich Habits Podcast, Robert Croak and Austin Hankwitz share three additional ways to generate yield inside of your portfolio -- especially as the Fed is now expected to begin cutting rates. ---⭐️ Open an account with ⁠Frec⁠ to begin direct indexing countless indices and automatically tax-loss harvest!---👉 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 :)---⭐ 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.

Hey everyone and welcome back to the Rich Habits podcast, a top 10 business podcast on Spotify. My name is Austin Hankwitz and I'm joined by my co-host Robert Croke. Robert is a seasoned entrepreneur in his 50s with lifetime revenue of over $300 million 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 built a seven-figure media business and actively advise some of the most well-known fintech companies around the world. Now, as the show, they 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. So, Robert, what are we going to be talking about in today's episode? Yes, in this episode of the Rich Habits podcast, we're going to share three additional ways anyone listening right now can generate yield inside of their portfolio. The reason we're introducing additional ways is because, as everyone likely knows, the Federal Reserve is expected to begin cutting rates in September. The underlying theme of these three additional waste is to generate passive income in a lower interest rate environment, as a lot of things can change when the Fed cuts rates. Yeah, to Robert's point, we pride ourselves in ensuring all of you are informed and you can make educated decisions with your money. And the Fed has been raising interest rates now since March of 2022. again expected to begin cutting them in September. So that's not only a massive shift with your money

as we covered in episode 75, but also your investments. So in this episode, we're going to introduce three additional ways that you can generate yield in your portfolio in a low interest rate environment from the Federal Reserve, as well as explain why we think these new ways deserve a specific mention on a podcast episode. Yeah, I'm definitely excited because we always talk about diversity and diversifying these investments. And that can change over time, too, as far as what makes the most sense based on the current economic environment. And that's why I think this episode is really telling for what we're looking at in the next six, eight, 12, 18 months. So I'm super excited to dig in. All right, Robert, what is the first new additional way that people

can begin generating yield inside of their portfolios? Yes, real estate investment trust, reits. You all know we've talked about REITs in the past, but they haven't been as important to a well-diversified portfolio as they are today. As you all might remember, a real estate investment trust is a company that owns, operates, and sometimes even finances real estate to generate income for their shareholders. Similar to stocks, REITs trade on exchanges like the NASDAQ or the New York Stock Exchange, but unlike stocks, REITs by law have to pay out 90% of their annual profit to shareholders in the form of dividends, offering some very attractive yields depending on the reet. There are different types of reits for just about anything you can think of, hotels, casinos,

cell towers, data centers, and even golf courses. If it's related to real estate, there's probably a reet for it. Now here's why we're revisiting the reit investment idea. As you all know, the only way these reits are able to pay their investors dividends is by collecting rents from their tenants and then passing the up. money through to their investors. The only way these dividends rise over time is by purchasing more real estate or by raising rents or doing both. Now over the last two plus years, interest rates have risen dramatically, especially for real estate, which also means the cost to borrow money

and purchase these massive real estate deals has also risen dramatically. Now these costs bring down the profits for these reits, which can lead to a decrease or sort of flatlining of the dividends they pay to their shareholders because profits are decreased or flat because of higher interest rates. However, now that interest rates are expected to come down, these reeds can borrow more money for less, allowing their deals to be even more profitable. More money is now expected to make its way down to their profit lines, which would cause them to be able to raise their dividends even more. This is why we've seen some of our favorite reits, like Realty Income Corporation, Bricksmore Property Group and VICI Properties stock prices trade up over the last few weeks as investors are now expecting more and more profits caused by the lower interest rates around the corner.

So again, just to get a real recap here, these companies pay out 90% of their profits to their shareholders in the form of dividends. These profits are essentially just the rents that they collect from their tenants. Now they've gone out and they continue to buy big major real estate deals. But as we know, Robert, interest rates on mortgages and these money, massive loans have gone up to four, five, six, seven, eight, nine, ten percent depending on the deal. The higher the interest rate means that these companies are paying more money to the banks every single month and more money to the banks means less money paid to the shareholders. But as interest rates come down, they can refinance these loans, which they likely will do,

allowing them to keep more money for themselves and pay more money to us, the shareholders. Yeah, and I think that is a really great takeaway because so many people, Austin, you and I, even two, three years ago, when we first met, we were talking about some of these reits and then they took a really long breather where they like you said flatlined and that was because of the cost of money you hear us say all the time when we're looking at real estate deals that sometimes they don't pencil and that is because of mortgage rates interest rates and where we're at in this economic condition so i think it's very important for everyone to understand that with diversification comes the shifting and that's why we believe everyone should be actively managing or have someone

and help them actively manage their portfolios, whether it's in real estate, REITs, or individual stocks, or cryptocurrency. So very important point and very well highlighted, Austin, that was great. And in case you're kind of weary to pick a specific REIT or you don't understand the management team and you just want to invest into a basket of REITs like an ETF, you can check out VNQ. That's the ticker for the Vanguard Real Estate Index Fund ETF.

And inside of their ETF is Realty Income Corporation, like I had mentioned. There's also public storage, Simon Property Group, Well Tower, American Tower Corporation, and a bunch others, right? So if you're not someone who wants to pick a specific REIT, you don't know what's going on behind the scene, you instead want just some exposure to REITs. This is an ETF that'll allow you to do that. And Robert, the ETF's up about 9.5% over the last six months, 5% over the last month alone. So that's pretty cool to see.

Yeah, the REITs are definitely moving again. I'm excited. You know, we don't sell in these down, you know, turns. And so I'm really excited for this category and this episode because it really just enlightens people to the movements. We're telling them, you know, that we like to do and giving those educational kind of aspirations of what to do in certain market conditions. So I really enjoy it. Well, speaking of movements, let's now move to the second idea, which are corporate bonds. Now, this one is very important for people who are just obsessed with that consistent yield in your portfolio.

As you all know, public.com introduced their treasury bill product last year, allowing anyone to buy T-bills directly from their platform. It became incredibly popular. However, with the Fed cutting interest rates in September and going forward, the yields on these T-bills are expected to fall and sort of cut as well, from 5% to maybe 4% or even 3%. These yields move up and down with the federal funds rate, so if the Fed cuts, the yields are going to be cut to. So knowing that people love a good yield, public introduced their corporate bond account.

last week, putting investor money into now 10 different corporate bonds paying a blended yield of 7.3%. Here's how it works. You open up a corporate bond account inside of public, you deposit a minimum of $1,000 into this account, then public will automatically purchase the corporate bonds needed to reach that 7.3%. The bonds have a maturity of 4 years, which means you're locking in this yield of 7.3% for 4 entire years. Every month, you're going to get paid a dividend that equates again to that 7.3% annual yield. Now, again, you earn this yield even if the Fed cuts rates. That's not the same as T-bills. Treasury bill yields move with the federal funds rate. Corporate bonds, you can lock those in for a long period of time. The first maturity on the bond account isn't until 2028. Four years

from now, allowing you to lock in that high yield on your money until then. Yeah, and the fees are straightforward. For every thousand dollars worth of bonds you buy, public charges you $5. It's pretty simple straightforward and for those of you who might not know how bonds work they're simple you give someone money they pay you a yield against the money throughout the duration of the bond and then they give you all of your money back at the end of that period that is it straightforward the corporate bonds that public are buying are include for they include warner media and many more now here to quickly explain the corporate bond product is sam knafzinger the GM of public's brokerage operations so Sam, thank you so much for joining us. Now, let's just jump right into it. Who's the type of investor

that might want to lock in yields like this inside of their investment account? Well, I think it's applicable for a lot of different types of investors. The corporate bond account, you know, does take on a little bit of additional risk in the term of credit risk. And so by credit risk, what do we mean by this? We say, hey, right, if we guarantee that the U.S. government is paying us back, we're not so sure that company A is as highly rated as the U.S. government. So we're going to, you know, want a little bit more in yield from that company in case they run into trouble. So you can earn a little bit more yield while taking a little bit more risk. But we think, you know, given the environment and given where, you know, rates are headed,

we think that a little bit more risk, you know, to get a little bit more yield in this environment, you know, may make sense for a lot of investors. And how did you select these specific corporate bonds? It seems like they're all highly triple B rated bonds. And just how did you select these? So when we wanted to offer a member of variety of yields and a lot of the corporate bond space, you know, yields are actually very, very low. So if you look at an Apple bond or other similarly AAA rated corporate bonds,

you know, they're yielding similar to cash. And we already have the, you know, similar yields on our offering, you know, that can support yields in the 5%, you know, 5 and a half percent. And so we said, hey, you know, how do we find yields that are a little bit more more than what we're currently seeing in a lot of the different parts in the market? You know, can we get a 6.5% yield? Can we get a 7% yield? And in order to do that, you know, you do unfortunately have to take a little bit more

credit risk, right? A little bit more risk in your portfolio. But you do see that pick up and yield. And so when we looked at it, you know, we didn't want to go too much into the high yield space, too into the junk space. you know, we didn't want to take that much risk because there is risk there, but we wanted still to earn that yield. And so we kind of, you know, balanced it, you know, hey, how do we differentiate the product from treasuries, get a really, really high yield, but not take on necessarily as much

risk as you might see in the junk market. I think that's a great explanation. And for those people listening, right, credit risk again, as Sam was explaining, I mean, this is debt that in these examples, Ford is taking on by issuing bonds. And so they have to pay their sort of bondholders back on the debt that was lent to them. And so if Ford goes bankrupt for whatever reason, right, they're not going to pay you back. And so that's the credit risk that Sam's trying to explain. And the correlation between the riskier the company is, maybe they have a bad balance sheet, maybe they're not growing anymore, right? That means a higher yield. So to compensate you for the risk, they're giving you a higher yield, which is why, to Sam's point, Apple or Microsoft or these

other massive technology companies that have hundreds of billions of dollars on their balance sheet, they're not going to give you a high yield. Because why should they? They're going to be around for a long time. Now, I just went to your website. I clicked on open a bond account. I opened the account. I put in $1,000. I mean, is it really that simple? It is that simple. We try to make it extremely easy for folks to access a variety of portfolio of bonds. Similarly, you can also open account and buy over 10,000 different individual bonds on our platform. So, you know, if these bonds aren't, you know, suitable for you or if you look at this portfolio, you say, hey, I want to take more risk or I want to take less risk, you know, you can construct, you know, any different type of,

you know, bond portfolio or you're on the platform and choose their own bonds if you That's awesome, man. Congrats on building such an easy product because I think at the end of the day, what you guys are doing is sort of bridging this separation between institutions for decades now have had bonds in their back pocket. They've been able to trade them. They got commodities. They got fractional ownership of all these crazy things that they can just do because they have the money. But the retail investor like myself and Robert, we haven't had that opportunity until now. And you guys are just bridging that gap and I just really want to commend you for it. I really appreciate the Austin. And the second part of that is education. You know, bonds are not easy. right you know stocks right by a share of apple stock not that hard you look at a bond page there's numbers everywhere what's going on so what we wanted to do is kind of combine it in the account and you know kind of hide away a lot of the complexity of it because at the end of the day these are just cash flows that are coming into your portfolio and that's all we really want you to take away from this is that this is a yield product it's another way to earn yield slightly higher right than some risk-free products out there but we think in this environment you know it's a good path forward for folks who still want to keep that yield train going and i think that's one of the key to success over the years for public is really taking more complex situations and making it simpler. When you and I first talked, Austin, about T-bills a couple of years ago, it was so hard going on to the Treasury website and it felt

like it was 1988 trying to buy a Treasury bill compared to Public's offering and making it so simple. And that's why I just love how you, Public.com, present these opportunities to the retail investor and the everyday person because you make it so much easier for them to understand. And the timing of this product is really, really quite remarkable. So why now for this bond product? And how long do you think this will be a good opportunity for people, given our future lens of where the rates are going to go, the Fed rates are going to go, and what the economy is going to do?

So I think it's a great product now. I think a lot of folks are looking towards next month and the months and after that and say, hey, the Fed is going to drop rate. You know, this 5% interest rate I'm earning my cash, it's going to be 4.75, 4.5. next year, maybe four, maybe three and a half, who knows. And so I think in this product, you can say, all right, well, if I don't need this cash, right, you know, for the next, you know, six months, 12 months, a couple years, maybe there are better places for it. And so right now,

if you can earn, you know, almost 7% by, you know, essentially locking up your money, you know, for a couple of years, you know, if you trust these companies to pay you back over that timeframe. And I think even more so no one can time the market, right? Time of the bond market is just difficult at timing the stock market. But I think if you are nervous about the Fed dropping rates, right? And even more nervous than the market might be, it's an even better opportunity because you can, you know, take some of that risk off the table by locking up your money and guaranteeing yourself, you know, a certain rate of return, you know, for the coming years.

What we like to say is diversify your yield, right? You might want someone to hire your own cash account. You might want to summon some treasury bills. You might want some some corporate bonds. There's no reason you have to pick one or the other. You can have a mix of both to suit your needs. I think that's a great answer. Diversify your yield.

And that's, I mean, that's exactly what this whole episode's about, right? We talk about REITs. We talk about the corporate bonds and diversifying your yield. So no matter what happens in the stock. stock market, you're always making that passive income in your portfolio. Sam, thank you so much for joining us on this episode of The Rich Habits Podcast, and we can't wait to have you back again very soon. There you have it, folks, straight from the horse's mouth. So if you're looking for a cool way to add bonds to your portfolio, public has figured it out for you. Now, the last way that people can

generate yield and this sort of new additional idea that Robert and I have come up with are small cap companies, specifically the Russell 2000. As we shared a few weeks back with Troy from Neos Investments, The Russell 2000 is an index of the 2000 smallest companies inside of the Russell index. The average market cap for the Russell 2000 is just a hair over $2.7 billion, which means these are not the mega-cap technology companies that we all know and love. Instead, they are companies who are doing a few hundred million in revenue and maybe tens of millions in annual profits, which is why, Robert, interest rate cuts are so important for these companies. The debt they take on are at 7, 8, 9, 10%, but now with the Fed cutting rates, that debt can be refinanced for much lower, having an outsized, positive impact on their annual profits. This is why the Russell 2000 Index historically outperforms the S&P 500 Index during times of rate cuts.

And from a yield perspective, IWMI is our chosen ETF. It holds all of the constituents of the Russell 2000, as well as it pays a 12% percent. annual yield via covered call contracts. 12% yield while also having some upside potential sounds pretty good to me. So whether your portfolio is focused on growth stocks, big tech, dividend kings, or anywhere in between, these three new yield focused ideas will likely fit nicely inside of your portfolios, give you that diversification, and help you get through any of the bumpy roads we might see in the future. Robert, I love our podcast.

It is so much fun because every week we have the opportunity to share with people actual ideas that are timely. Right? Last week we talked about how to prepare for a recession because the som rule was triggered. We saw that the non-farm payroll jobs were just taken down by 800,000. So a lot of kind of recession fears are going around. We can immediately jump in and take charge of the conversation. Just like we did with episode 76, we had that crazy market crash with the Japanese yen carry trade on August 5th that pulled the markets down. we made an episode very quickly telling people what not to do when the markets crash. And again, we mentioned this on episode 75 here about how the Fed's interest rate cuts are going to impact you and your money.

I just love the podcast. Every week, we're able to bring real-time perspective, education, actionable ideas so that you can, one, get inspired, two, begin to educate yourself on what we're talking about. And three, take action if this is applicable to you. Yeah, it's important and it's also very rewarding for us because as we build the rich habits, network larger and larger, it's just great because we are always on that grind, always studying, always researching, and even like looking at the news of the last 24 hours that bankruptcies have hit an all-time high since Q2 of 2017. We are all over every single economic piece of data,

whether it's real estate or business-oriented or crypto or whatever, and then we share it all with everyone that follows along. So I love it too, because if we can give them even a little bit of an edge over the rest of the market, then we've done our jobs to help them build their personal financial well-being and get them to retirement in a much more meaningful and early way to do it. So I love it every day just like you do. Robert, can you believe now we have 240 people inside of the Rich Habits Network? 240 people. It feels like 17 times a day, someone's sending me a DM, having some perspective. Hey, Austin, can you look into this? Did you all mention this on the podcast yet? They might be asking a question inside the Q&A section or watching a live stream recording that we hosted, which by the way, Robert and I hosted our first weekly live stream exclusively for the Rich Habits Network last Tuesday night.

So if you want to start joining those live streams, ask your questions, get behind the scenes data on what we're doing with our money and how we're thinking about the economy, the Fed rate cuts, the jobless claims, everything in between. Join the Rich Habits Network. Prices will increase from 77 a month to 97 a month on September 1st. lock in 77 a month before then, and you'll get grandfathered in in perpetuity, and we can't wait to see you there. I love it. All right, before we jump into the Q&A section of this podcast, as you guys know, Robert and I took $20,000 of our own money and we invested it into FREC to do their direct indexing with

the S&P 500. So as you guys know, we give you once per month updates on that portfolio. So let me log into my FREC account here and show you where we're at. All right, Robert, here we go. That $20,000 we invested on June 6 is now worth $20,890.40.41. A 4.1% return. However, if you look at the total return, the adjusted return after you take out the cost basis lowering because we're doing some tax loss harvesting, it's now at 6.5%, which is outperformed

that same 4.9% total return the S&P 500 did on its own. So this is just so much fun, man. we get to see our money work hard for us, FREC, their direct indexing, and all this tax loss harvesting they're doing was completely behind the scenes. They've done $426 of tax loss harvesting on our behalf, and we didn't do anything. It's all automatic. But that's the beautiful thing of what we get to do every single day with the Rich Habits podcast is flushing out these new opportunities, being first to bring FREC to the masses,

bringing public's new bond product to the masses, and really helping people find the best possible strategies and gains out there because we're not just sitting back talking about a target date fund where it's you know there's no real gains and people just sit back and get into a target date fund for 20 years and underperform the markets we are always looking for the best of the best of what we can educate and share with our audience and that's why I love doing this every single day and what's so crazy too again is like we deposited $20,000 but our cost basis is $19,452 right so that $550 difference is now added to our total return because it's offset with our tax loss harvesting. It is incredible. I did not know they were doing this. It's so fun. So it allows us to even outperform

the indices that we are investing into. Now alongside that, they launched a few new strategies to direct index, including the Russell 2000, something we just mentioned in this episode. This new expansion increases FREC's total offering to nine indices, establishing it as the first in sole consumer investment platform providing a diverse range of direct indexing options. They also announced that they just crossed over a hundred million dollars in assets under management, which is really, really cool. Robert, we contribute 20,000 to that 100 million. Look at us go. Yeah, and I want to establish one other point, too, for everyone listening today. And that is the minimum investment in FREC, if I understand correctly, is $20,000. So keep that in mind. It's not something like

public or some of the other platforms where you can get in for $100. And with, this minimum, it's because they are indexing the S&P 500 in these other indices. So they need that amount of cash and capital to start with. So just keep that in mind. It's a great strategy. We're doing very well with it. But just keep in mind there is a $20,000 minimum investment. That is entirely correct. It is a $20,000 minimum. So if you're thinking about, well, I don't have $20,000, maybe you do. Maybe it's already sitting in your bridge account, in your public account. Maybe it's sitting somewhere else. And you want to then take that money that was already invested into the S&P 500 or the NASDAQ or the Russell or whatever index you're following,

and you want to migrate it now into FREC because it cannot only just be invested into the exact same thing, but tax loss harvested against automatically, right? This is completely free money. I mean, it really is. When you think about it from a tax loss harvesting perspective, it's great. So freck.com, it's an incredible way to directly index the S&P 500 as well as other indices for yourself. If you want to get started, visit the link in the show notes below or visit freck.com directly. All right. Our first question is coming from Peter and Robert, want to remind everyone here, the questions we answer on the podcast are exclusively from the Rich Habits Network going forward. If you have a question and you want it answered on the podcast, join the network,

ask it in the Q&A section and we will either answer on the podcast or we'll type in an answer and we'll get back to you in the community. Peter says this. As someone who is turning 24 years old and looking to build their base of $100,000, I'm looking for some advice. Just to preface, I feel like I can tolerate a lot of risk as I have time on my side because I'm young. I've maxed out my Roth IRA for 2024 and I'm contributing up to the match in my company's 401k. All of that money is being invested into the ETFs that you guys talk about.

However, my individual brokerage account right now consists of 50% single stocks and 50% of ETFs. My single stocks are heavily weighted toward the Mag 7 and other tech cybersecurity stocks that I've heard you guys mention. The majority of my ETFs are in the S&P 500 and the NASDAQ. For the next few months, I would like to add single stocks like Alta, MasterCard, and Visa to my portfolio. I've already done a bunch of research, and I feel good about these companies. I also want to buy meta, AMD, Nvidia, Google, and some other companies that I already hold. But here's my question. Because I'm looking to be more aggressive, and I understand the risk involved, would it be smart to be buying these single stocks before building my base?

Robert, you want to answer this one? Well, you know the rules here. You've been following along, Peter, for a while. and we're always going to give you our opinion, and that is build the base first. Everyone thinks they can start out yolowing their money into single stocks and cryptocurrencies. I just don't agree with it. I think you should always start out and let the professionals do their thing with these low-cost ETFs that we talk about.

You've already purchased some of these stocks. I like the list that you have listed. So I think you've done a good job doing your research. But in my opinion, I would get the 100K built first, get that base built up and running. So then that way you know you're... safe and you've got this income while you sleep and then start putting some more money into the individual stocks. That's just my belief. I see too many people that try to bet on individual stocks and they think they've got it figured out. They lose a bunch of money and then they sit on the sidelines

for years because they feel the stock market is rigged against them. That's why we like to see you use these ETFs just because it's a lot better way to get started. Robert, I couldn't have said it better myself. And just to give sort of an example to Peter and everyone else listening, right? I was there. I tried to buy a bunch of cool single stocks. I was thinking if I could do this or do that in the beginning, go all in on, you know, in video. Well, who I wish I went all not in video. Me too. But all in on some stock I found on Twitter or, you know, something else. But, you know, it would be a good idea. And like, don't get me wrong. I have a bunch of single stocks in my portfolio now, but I've built my base, you know, 10 times over at this point. And so for Peter, a good example for you here to think

about is meta. Meta stock price declined 75% from its high in 2021 throughout late 2020, I believe. And during that same period of time, the S&P 500 only fell 15%. So if you have a major allocation towards something like meta or, you know, Google or AMD or Tesla beauty, Tesla, MasterCard, Visa, right? We can't predict how the management teams of these companies are going to do. We can't control these companies. They don't have the longstand track record that the S&P 500 rules-based index has. And so by over-allocating to these stocks, you've set yourself up for financial volatility and a ton of

turmoil if things go wrong. Indices tend to come back and correct by 10, 15, sometimes 20% during bear markets and recessions, where single stocks, I mean, think about all the companies that went bankrupt in 2008. Think about all the single stocks that declined by 60, 70, 80% in the last couple of recessions, right? That's what we're trying to make you understand. We love single stocks. I've got single stocks. People should have some exposure to them. I think it's a great idea. But not until they've built their base because that $100,000 invested is going to work for you for the rest of your life while meta or Alta Beauty or MasterCard, I have no idea what Alta Beauty is going to be like in 10 years, but I guarantee you the S&P 500 will be higher in 10 years than it is today.

I agree totally. So that's the takeaway for you, Peter. We're not mad at you for buying some individual stocks, but for the whole audience, it's just really important to understand unless you're going to do it full time and you're going to spend your days understanding PE ratios and earnings reports and all of that to know how to select these individual stocks, we believe that. it's better to build your base, how we've discussed, and then move on from there with diversification. Our next question comes from Joanna. Joanna says my employer recently added the ability to invest into a Roth 401k. For the past 11 years, I've been investing into the pre-tax option, and I'm currently contributing 15% of my paycheck, which maxes it out every year by about November.

There is no match, however, for my employer. Should I begin contributing all of my 15% to this new Roth 401k option or should I continue with the pre-tax option? And if I do choose to contribute it all to the Roth, do I just let the existing pre-tax account ride off into the sunset or do I need to make any changes to that account? I'll take a first step of this one, Robert. So Joanna, congrats. That's a really cool thing. I love it when employers offer Roth 401ks because as you know, Robert and I are massive fans of the Roth variation of this retirement account because we cannot predict the future. I think Kamala Harris's administration just talked about capital gains to like 45% or something and then a unrealized capital gains on centi-millionaires, which I'm not a

centi-millionaire, so I have no perspective on that. But the raising a capital gains of 45%, like, that's the stuff we're talking about. You would have to pay higher taxes in the future if stuff like that was passed. And so what we're trying to say is if you choose the Roth version, right, this after-tax version that guarantees you no taxes in the future, then you don't have to worry about public policy or who's president or what's going to happen in 30 years when you finally want to retire. So really cool that you've got this Roth variant. In my opinion, I would start doing all 15% toward that Roth 401k variant, assuming that you are able to choose the investments inside of it. You are choosing the index funds we talk about. You're not choosing cash or bonds or any of these

international stocks or target date funds that underperform the markets. Right, we want you invested into American capitalism, assuming you have a 10, 15, 15,000. 20, 25 year time horizon until you retire. Now, what to do with the existing pre-tax account? In my opinion, I would do the exact same thing. I would make sure that all of the money inside of it is properly invested into the index funds we talk about and make sure that it is rock and roll in American capitalism. Going to ride you off into the sunset that way. Let it be, let it grow over time. It will definitely grow. It'll be just fine. And then the new money that you're contributing in the Roth variant, make sure that's invested properly as well. And then you just rock and roll.

Joanna, you're at 15% of your paycheck. That is. is unreal. So proud of you. Yeah, I don't think I have anything really to add. You nailed it. Joanna congrats, Austin, and a great answer and really, really good guidance. So our next question comes from Darlene. Darleen says, I have a concern and I'd appreciate your suggestions or even some guidance on it. I have a paid off house in Puerto Rico and I'm considering using a helac or a mortgage to pull out the equity. My plan would be to use this money to buy another investment property or maybe even put it in a stock market. The house is currently being rented. So that payment could cover the mortgage payments if I went and took out a mortgage, but I'm unsure about the risks or other factors that I should be considering.

What do you all think that I should do with the homes equity? Do I just let it ride? Do I borrow against it? I need some direction. Robert, why don't you start answering this one first about the risks and other factors Darlene should consider if she wanted to go out and take out a helock or even a mortgage against this paid off house? Yeah, this is a tricky situation because we don't know the value of the house. we don't know the rent and what that is, but to give a crack at this, I would say the he lock is a little bit risky right now because assuming you're going to pay 8.5% interest on that helot, that would

be what we would consider high interest debt. So that puts you in a tough situation because unless you have some sort of investment that you know you're going to be guaranteed 15 or 20% return on that investment, 8.5 is just a lot to really pay. And you also have to be in a situation where if you pull the equity out for this HELOC, and let's say something happens with your job or your earnings, and all of a sudden you can't pay this HELOC, then you risk losing a property that right now is completely debt-free. So it's a really, really tricky situation. And then you also have to look at the totality of the situation. What is the capital appreciation on this property every year?

And what are the right-offs that you can use for this property as a rental against your earn income? So it's a really difficult one in a lot of different ways to look at what is the best opportunity. But I'd like to hear your thoughts, Austin. Yeah, I think kind of coming back to the risks and other factors to consider the risks are pretty simple. You take out a loan against the equity of this house. And the first risk that's blaring is your tenant does not pay you. They lose their job. You remember what happened during COVID?

All these tenants were like, no, I'm just not going to pay anymore. And I think it was like federally mandated by some specific states or whatever. else that they didn't have to pay. So landlords were just done, right? It's like, okay, well, how do I pay my mortgage? My tenants aren't paying me. I don't know. I'm not saying that that's going to happen again, but like that was a possibility for some people. Like they just weren't collecting the income that they were supposed to on their properties. And so the first risk is your tenant just doesn't pay you, therefore you have to pay the mortgage or this HELOC payment out of your own pocket. And the second risk or even just factor here comes from the perspective of the cash flow, right? Your cash flow is going to

get cut dramatically because you now have a monthly payment. With that cash flow being cut, does that still allow you the ability to set enough money aside for vacancy, for repairs, for everything else that comes with owning rental property, right? So your cash flow is getting destroyed when you go out and you take on a loan like this. So if it were me, Robert, and I was sitting on a paid-for house in Puerto Rico, I'd do this. I would sit down and say, okay, how much am I renting this house for? Let's pretend it's $2,000 a month and I'm able to cash flow after setting aside $500 a month for vacancy and repairs, $1,500 a month for myself. I would then take that $1,500 a month.

I'd multiply it by $12,000, and that would be $18,000 or how much money I make per year in cash flow. I would then take that and divide it into the amount of equity I have in the house to get a cash on equity sort of return yield calculation there. Assuming you have $250,000 of equity in this house that you're considering borrowing against, that $18,000 divided into $250,000. $50,000 is about 7%. A 7% cash on cash return, I think is pretty cool, especially in real estate.

Because on top of that, and Robert mentioned this, appreciation happens. Puerto Rico had just pulled up their housing price index. It looks like it's gone up until the right for the last couple of years. I'm not saying it's going to do that forever, but maybe you add another 2 or 3% on top of that. Congrats. You're not doing 10% internal rate of return on this property. 7% paid out in cash, another 3% in appreciation. And then maybe, to Robert's point before 2, you can figure out some depreciation against

your taxes allowing you to save even. even more money. Maybe that brings up to 11, 12, 13% annual return. Now, you're in the same ballpark as the stock market or any other sort of investments that you would have come up with. And you're not taking on more risk. You're not taking on more debt. You're just holistically being a real estate investor. So that's how I would approach it if I were in your shoes. But Robert, talk to me a little bit more about some other risks. I know you just found something very important. Yeah, the other thing to consider that we hear a lot of on TikTok and Instagram and in the news right now is squatters. I read up a little bit on this when we saw the question about Puerto Rico and their squatters rights and their rules. And it seems that squatting is very, very prevalent in certain parts of Puerto Rico. And so that's another consideration. Let's say you get a

squatter in this property or your current tenant stops paying and becomes a squatter. And you have to pay that helock for a year, 18 months, why you fight to get them removed from the property. That's another consideration. So there are pros to owning the property. You know, I like having a paid off house because if you do, It's always a fallback plan that if everything were to go bad, you have a home, so you're never going to be displaced and be in a situation where you don't have a place to live. So just be very careful with this, Darlene. Consider all of the costs of the HELOC versus the equity you have in the home. And then make sure whatever you're going to use the capital for, that you're pretty damn sure that this is going to be very successful and have a greater return rate than what you're giving up by having that HELOC and what the HELOC is going to cost. you. Yeah, I just wouldn't do it. I just, that 8, 9, 10% helock, I just wouldn't do it. I mean,

there's so much risk that comes with that. You got a really cool situation having a paid for house, getting some cash flow right on that rental. That's really cool. And I would just use that money that you're cash flowing every single month, that $1,500 in this example, and just invest that to the stock market, right? That's $18,000 a year or even save it for two years and you have $36,000 now down to go put on your next property. I mean, that's incredible. There's a ton of different ways to think about this, but I think the way not to think about it is by going into 9% HELOC debt or even have a mortgage at 6.5, 7.5% and being to the mercy of your tenant not paying you, right? That's just not a good idea of building wealth. I agree. Everyone,

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