Rich Habits Podcast - Q&A: Mortgage Rates, Dividend Investing, and Small Biz Funding

Episode Date: November 16, 2023

In this episode of the Rich Habits Podcast, Robert Croak and Austin Hankwitz answer your questions! We collect questions from Instagram (@richhabitspodcast), email ([e-mail]), as well as our Discord community. Be sure to ask us a question for next week's episode!---Be sure to check out Public's new ⁠High Yield Cash Account paying 5.1% APY.⁠ This is higher than anything else on the market and is FDIC insured up to $5M. ---Earn 5.1% APY using a Public HYCA, ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠click here!⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Opt-in and share your email, ⁠⁠⁠⁠click here!⁠⁠⁠⁠Learn more about our ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠4-module video course!⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Download our FREE Budget Template, ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠click here!⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠To learn more about Robert: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://stan.store/RobertJCroak⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠To learn more about Austin: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://stan.store/austinhankwitz⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Contact: [e-mail] ---Hankwitz Group LLC has an existing business relationship with NEOS Investment Management LLC. The opinions expressed are those of the author, and the author owns several NEOS ETFs.

Hey everyone and welcome back to the Rich Habits podcast. It is Thursday. So you know what that means. Question and answered. Now, Robert and I had a very exciting week. On Monday, we rang the opening bell at the New York Stock Exchange. Literally the New York Stock Exchange, we were there with iShares and a bunch of our influencer friends, helping them launch a new suite of ETFs that you will learn much more about very soon. We had a really nice recorded interview episode that's coming out here soon with. their head of ETFs. I think her name was Rachel Aguirre. Robert, am I correct? That is correct. Yeah, she was awesome. She killed it. So definitely keeping out for that one, but it's Thursday, which means question and answer. So Robert, our first question, it's a good one, I think, and we might

even have some debate back and forth on it, but I'm going to kick this off with Sam S. And by the way, Sam asked us this question on Instagram at Rich Habits Podcast. If you have a question to ask us as well, head over to our Instagram account, shoot us a DM. We'll try our best to back to you. Now, Sam S asks, I know you all talk about FHA loans a lot and they're three and a half percent down requirement. I have the desire to purchase a $400,000 house and I have money to put down as much as 30 percent on this house. The interest rate on my mortgage that I qualify for is 8 percent. How much percent down should I put on this house? This is a really good question, Robert, right? Because my head goes, okay, on one side, you have the opportunity cost of not investing

let's say he put 20% down, right? You have the opportunity cost of not investing that money into the markets, making that, call it 8, 10, 12%, but when you adjust for inflation, it is about that 8 or 9% and that's the interest rate he also has on his loan. So it's like kind of a weird mixture here to think about it. It really just, I guess, comes down to personal preference. But Robert, I want to hear your perspective on this. Yeah, I'm going to take a different approach to this because I look at our returns right now. While so many people are sitting on the sidelines, my personal account counts right now at around 19% for the year for gains. And I know yours are about the same. So for me, it's really hard to think about putting down 80K on this $400,000 home versus, let's say,

40K if you did the 10% because I always lean towards having the cash for opportunity costs. And right now the markets are ripping. Crypto is really getting all this great news. A lot of our stuff is skyrocketing. So it's really hard for me to lean towards the 20 or 20, 5% down because once you do that, yes, your payment goes down, but that money is tied up forever unless you do a cash out refi. So this is a really, really tough question. And it really does come down to individual preference and risk tolerance. I'm always going to push towards if there's a higher interest rate loan, I'm going to still beat that even though 8%'s pretty high. But this is a tough one and I think it's just personal preference. Take away from my side here. Put down the 10%. Make sure that when you put

down that 10% your monthly mortgage payment doesn't make up more than call it 33 to 36% of your after-tax take-home pay. If you can put down maybe the 10% and that monthly mortgage payment is around the call it 30-ish percent range, that's a pretty decent spot to be in, as well as, I know you mentioned you have a really good savings blanket. I'm all here for that because Robert and I, we heard from a lot of experts actually on Monday at the New York Stock Exchange and they're all saying, well, wait a second, you know, we're not in a recession here totally, but unemployment it's ticking up a little bit. ISM data is not looking that great, right? A lot of specific callouts around the economy are looking a little bit more bearish. I like the 10% rule here. It's just a personal

preference again there, but 10% feels good to me. Yeah, I agree. I think that's a good safe spot. And we just have to always look, and everyone listening and following along, you hear us talk about it all the time, is just you have to consider the velocity on your money. Parked money is dead money. And that's why we're always trying to gain those advantages of positive arbitrage on our side. not the banks or the lenders really good question sam our next question comes from l ray t l ray t says i owe five thousand dollars on my credit card but my credit card apr is only three percent because i'm active duty military thank you so much for your service please stay safe i want to start a business but i'm struggling to find ways to fund it how do i find investors or get money in general to fund my new

business idea robert you've started more businesses than i have fingers and toes on my body so i'm going to let you take a first step at this one. Yes, I love these kind of questions and thank you for asking. So where I would start first and foremost is really do your research. Flush out the business opportunity, get as much information about the rest of the market, the sector, the type of business. Really flush all that out into a Google document or a notepad, whatever it may be, whatever your practice is. Then once you do that, I would start to put together what would be just called like a pitched, like a three or four page PDF that spells it out to a potential. investor of what you're trying to accomplish. And then from there, really try to do the research

further on how much money do you need to start, launch and have the runway for this business, let's say for the first year. So once you have all that information together, you've got a nice little document, you can get it done online through Fiverr or one of the graphic platforms very easy to do, then I would do what is called a friends and family raise. Go to all those people that know, like and trust you and say, hey, I've got this great business idea. Would you mind if I share a debt with you? I'm raising $100,000 in capital, $200,000, whatever the amount is. Go to those friends and family, spell it all out for them so it's easy for them to understand the opportunity and the business, but also the numbers, and then start there with a friends and family raise. You would be shocked

at how many people are willing to support someone they know like and trust if the investment makes sense. And a lot of times what you would do in this type of raise is make the minimum investment $5,000, $10,000, $20,000, depending on how much you need, and raise the money that way to start. Now, if you fall on your face a little bit here and you can't raise enough capital, you can also consider going to like a Chase bank, opening up the business bank account with the money that you do raise, seed some money, and then get a business line of credit through Chase after 30 days of seeding that money. They have some of the best programs in the business for small business owners. And you can also look at SBA loans. These are through the government. They have some very, very aggressive loan programs

that are great for startups and people building businesses like you wish to do. So those would be the options I would do and how I do it on a daily basis. Amazon presents Jeff versus Taco Truck Salsa, whether it's Verde, Roja, or the orange one. For Jeff, trying any salsa is like playing Russian roulette with a flamethrower. Luckily, Jeff saved with Amazon and stocked up on antacids, ginger tea, and milk. Habaniero? More like habanier, yes. Save the everyday with Amazon. There's something else here now. Something new.

From exclusively on Paramount Plus, it's the series Stephen King calls Scarious Hell. Everything here is impossible, but it's also real. Sci-fi vision calls it the best show streaming right now. We're running out of time and we still don't know the rules. Don't miss what the movie blog calls something you need to watch. Saving those children is how we all go home. From Binge All Episodes exclusively on Paramount Plus. Great answer. I didn't know some of that stuff there.

So something I think I'd really encourage him to think about too is like when I have friends, I mean, Robert, we've invested into countless businesses at this point, right? And a lot of the people that find those lead investors found them from a common similarity. Maybe they both went to Stanford or they both went to a specific college or they're both from a town or they both have an interest or a background or some sort of specialty. I wonder if maybe there's a specific company or organization out there that invests into small businesses owned by our veterans, right? That could be a really good place to start as well. And maybe assuming, that doesn't exist. I would just think about, like, you know, is there any sort of organizations or support from the town you're from, even from your state itself? There's just a lot of places to think about raising money that maybe you wouldn't have thought of, but it's a very particular specialty or a background or something. And I would imagine, you know, being active duty military, there's got to be something to support veteran small business owners. I agree. That's a great question. And keep us posted on your progress and get back to us where you end up.

So our next question comes from Aaron T. Aaron says, I have a 401k with my employer and I also have an app that does a pretty good job of showing me performance, fees, withdraws, things of that nature. However, I can't see where my dividends are reinvested and what happens to my bond returns. I contacted the investment company and all they told me to do was Google it. Not a great answer. Aaron over here is asking us if we have any perspective. So I would imagine that your four 401k company is reinvesting your returns same day automatically from a dividend and bond payout perspective, right? So for example, let's say you had SPYI, the income producing ETF that Robert and I both love in your portfolio. And it's paying out, call it the 12% per year, maybe you get a payment of $100 bucks one month. And that $100 payment, assuming you have like dividend reinvestment plan, the drip plan is what the acronym is there, turned on with your 401k.

I would imagine that they're just alluding to the fact that that money is immediately, automatically, next, you know, trading, open or close invested back into your same holdings there. And that the numbers that you see on your screen, right, total performance year to date or over three, five, 10, 15 years, whatever it might be, already reflect what that automatic reinvestment is doing for you. That's my perspective. I've seen that actually happen. That's definitely pretty common, so I wouldn't get freaked out about it. But yeah, Google it.

What the heck of an answer is that? Yeah, great question. And Austin, you nailed it. And definitely you need to know that information. It's usually baked in and it's already in there and automated. But if you're still concerned with it, you could just go back to the provider, ask for a supervisor and say, look, I need to understand this better. I want to understand my money and this plan. And just really dig in and make them give you the answer and show you how it's calculated. Really good question, Aaron. Best of luck with figuring out where your money's invested. What the heck? Yes. So our next question comes from Annabella. Annabella says, I have both an individual brokerage account and a Roth IRA.

Within my individual brokerage account, I'm currently invested into QQ, SPI, VOO, and VTII. And in my Roth IRA, I'm invested only into FXAIX. Should I be diversifying the investments inside of my Roth IRA to reflect the same investments I have in my individual brokerage account? Robert, I have my perspective on this, and I'm sure we agree, but want to take a first step out of it? I will take a first stab at it. And the way I look at it is this and how we try to really look at it from a macro long-term level. We always try to tell people to be more aggressive with the Roth IRA. You're putting it in there depending on your age.

You really want to maximize the gains in the Roth IRA. Not that you don't in the traditional account, but I would just want to see the Roth IRA be more aggressive than the traditional account. But I love the holdings you have so far in the traditional account as well. So I think it's just a matter of definitely diversifying in the Roth. raising the risk tolerance on the Roth IRA and just keep piling in and maximizing it every single year that you can. I couldn't agree more. And I think, you know, when Robert says raise the risk tolerance, just we're on the same page.

We're investing in the S&P 500, right? There's no risk that's not really happening here, right? You're just index funds. And we're definitely going to encourage you to do the same thing from a increase the risk. That really just means QQQ, maybe VGT, maybe M-O-A-T, right? Some of these other index funds that we really like, kind of diversifying. having all of it in the S&P 500, we know the NASDAQQQ does really well. I mean, just for example here, the NASDAQ 100 is up 40 something percent near to date. The S&P is up about 16 or 18 percent,

so twice as much return by having a little bit more tech in your portfolio there. So Annabella, if I were you, I definitely would mirror the same positions in the Roth IRA as you do in the individual brokerage account. We love QQQQ, we love VTI. Maybe you want to add VGT as well to have a little bit more of that technology exposure. Really good question. And I'd like to add, too, let's throw in some AIQ in there. AIQ has done tremendously well this year. I think it's going to do great over the coming years, and it's more of a global artificial intelligence fund. And I think that would be a great one to add the portfolio to up that risk. Really good question, Annabella. Our next question comes from Marcus J. Marcus says, I absolutely love your podcast. Shout to Marcus. Really appreciate it, man. He's on episode five,

and the mention of dividends really caught his attention. His question really is, how do I get started with that? He says, I'm 43 years old, but he considers himself a preschooler when it comes to investing, but he's willing to learn. Marcus, everyone's got to start somewhere, man. I love that you are so open about that. I hope we teach you everything you need to know to start investing and retire with dignity. Robert, do you want to take first step at this with Marcus?

Sure, I would love to, Marcus. Thanks for following along, and we appreciate the kind words. So basically, everyone should have a portion of their portfolio. geared towards dividend investing, because what you want to look at is when you invest in, let's say, a dividend stock, whether it's Verizon or Home Depot or Coca-Cola or whoever it is. You have two ways to make money. You make money on the profits via your dividend payments, so they're paying you cash on their profits. Usually it's quarterly. And then you can also make money on the stock price if the stock goes up. But they're not directly correlated, which is great. And that's why it's so important to have a portion of your portfolios in dividend earning stocks, ETFs, or whatever it may be.

So, Austin, why don't you break down a few of our favorites like SPYI or some of the other ones we use and just really help him understand in all of our listeners why dividend paying investment vehicles are so important. Okay, so Marcus, think about it like this. Let's say that you are a shareholder, right? You bought stock, you bought shares of Home Depot, right? And you shop at Home Depot. you love the company, you're a shareholder, it's great. Home Depot makes a profit every single quarter and they pay out a portion of their profits to their shareholders in the form of cash

dividends. So Marcus, you're getting cash deposited to your brokerage account, if that's public or Fidelity or M1 Finance or whoever you use, Robin Hood, who knows, you are getting cash deposited to your brokerage account that you can withdraw or reinvest back into that company to buy more stock if you'd like because you're a shareholder. Now, for me personally, I've been paid over five $500 this year in dividend payments to my brokerage account. And it's cool, right? I just either keep that and reinvest it, which is what I do, or I can withdraw it out and spend it as everyday cash, right? Who doesn't love an extra 500 bucks? Now, a couple names that I want to mention here for you, Marcus, that are really going to put you on the right path to optimizing your portfolio for

dividend income. First and foremost, SPY. SPY is an ETF that invests in the S&P 500. Right, we love the S&P 500, and they sell covered calls, which are essentially option contracts, against their holdings to generate 12% annual distribution yields. Personally speaking, SPYI is my largest dividend-focused investment. Now, another one that's on there, another good ETF is S-C-H-D. Now, what S-C-H-D does is they invest into dividend-paying companies who've been really growing their dividends year-over-year. Really, it's like 9-10, 12-percent dividend raises, like Microsoft just did. I think it was like a 12-per-s this year, which was great. Shout out to AI. But long story short, SCHD invests in the companies that grow their dividends a lot. So not only you're getting paid about a three and a half, four percent

yield on your money, but it's growing by about 10 percent per year, which is awesome. So those are my two favorite ETFs from a stock perspective. Like, you know, there's Home Depot, Coca-Cola, Verizon. Robert mentioned some really good ones there. Another couple stocks I like that are really good dividend payers, Visa, MasterCard. Broadcom, AVGO is a great one. Low. Kroger. I mean, I can go on and on, right? All these companies pay dividends. So if you optimize your portfolio for income through dividends, then like you'll be fine. This is great, right? This is how people make passive income while they sleep. And yes, we both own and love SPYI. And if you've not heard of it, go to neosfunds.com. Go under the ETF tab. Scroll down, click on it, and it'll

explain everything about the fund. It's a great fund. Really good question, Marcus. Our next question comes from Carr. It's a cool name. Carr asks, can married couples open separate IRAs? And what are the rules about them? So, as you know, we always recommend the Roth individual retirement account. And we also recommend the backdoor Roth IRA as well if you are over those income limits. But yes, can marry couples open separate IRAs? Absolutely, right?

Being married doesn't really impact anything besides what, I mean, I believe, right, taxes and like the FHA loan. I think that's something that you mentioned a lot too. IRA stands for individual retirement account, which means it's connected to an individual's social security number. And I also wanted to call out too. This is a mistake people make. Actually, this happened to my friend's century literally last week. She deposited her money on fidelity into the Roth IRA account, but she forgot to invest it.

So it was sitting there for like nine months, didn't get any of the gains from this year. She's like, oh yeah, I maxed up my Roth IRA this year because I did it like in January. You did, I guess, but you didn't invest the money, so you didn't make any money, right? So car, make sure that you're not making that mistake. Invest the money once it's deposited. And also, don't forget, you can also do a Roth IRA and a 401k at the same time, right? A 401K is employer-sponsored and a Roth IRA is an individual account. So, you know, it's two separate things. You can do two at the same time.

Yeah, that was a great takeaway and such a crazy thing that we deal with in trying to make sure people understand these vehicles. The Roth IRA is not an investment. It is a vehicle to invest through for tax savings. So everyone, please make sure you write that down and understand it and research it. Because so many people, I had this happen literally two months ago. A friend of mine, she was like, yeah, I've been putting money in my Roth IRA for three years now. I'm like, oh, that's awesome. Good for you.

She's in her early 30s. And I was like, what do you have it invested in the Roth IRA? And she's like, what do you mean? She goes, I just invested it all into the Roth IRA. I go, yeah, but you still have to invest it. She thought the Roth IRA was actually the investment. And so many people get this wrong. So Austin, that is a great.

great call out that you would think would be well known, but a lot of people make this mistake and literally just have the money sitting there not invested. So great call-up. Yeah, just so we're on the same page, make it crystal clear for anyone listening right now. You deposit the money into the account, just like you deposit something into a bank account or a savings account. But then once it's deposited, you need to go into your app and buy stuff with the money in the account and the stuff to buy V-O-O-Q-Q-Q-Q, V-G-T, and some AIQ. Right? We talk about that in every episode. That's what you got to do. Three-step Playbook. So easy. Yes, that's great.

Really good question, Carr. So our last question comes from David H. David says, I have my Roth IRA with a brokerage account that doesn't allow for fractional investing. How can I dollar cost average with my current brokerage account? or do I have to switch to another brokerage account that allows for fractional investment? Thanks for all the information you provide. Have a great day. Thanks, David. I did have a good day.

I hope you have a great day too, my friend. Yeah. So what is David kind of talking about here, right? Dollar cost averaging is super simple. All that means is every single week or month or whatever cadence you want that you can afford, have a plan and set aside $10, $20, $50, $100 and always invest on like a Tuesday and do that every single week. take the emotion out, don't invest when it's up or down, just say, okay, I'm going to invest

once a month when I get paid or buy monthly, whatever it is there, and invest on a schedule, not on a motion, right? That's dollar cost averaging because you're buying the ups, you're buying the downs. It doesn't matter what the price is. You're just averaging into the markets. Now, with that being said, David, you might be on Vanguard because I also actually had a retirement account on Vanguard and they're like kind of weird about buying ETFs that aren't theirs. you have to buy them whole and newsflash. QQQ is $385 a share right now, right? So it's like, wait, I got to put that.

I mean, that's a lot of money, right? You have to save up 385, then you got to put it all into one. Maybe it goes up to $3.90. It's a terrible process. So what I've done personally, and I let Robert speak for himself here, is I've actually moved my Roth IRA and all of my retirement accounts, that is, out of Vanguard, and I've put them into M1 Finance. I had them in Betterment for a little bit,

but I moved from Betterment to Vanguard, then Vanguard to M1 Finance. And M1 Finance, I like because they allow me to sort of pick like a pie and have some slices inside of it. So like the slices are the individual ETFs and stocks that I want in my retirement account. And I can assign a sort of percentage to that. So make it simple, what I've done is I've done 25% VOO, 25% QQQ, 25% VGT and 25% MOAT. So it's a quarter for all of those. And all the money that I put into this account is automatically invested in that proportion, which means it's fractional whenever I want. So that's what I do to get around that sort of hump. I would say maybe do the same thing. Robert, what do you do? Yeah, I would just not even worry about having multiple brokerage accounts.

If you want to migrate away from Vanguard, that's totally fine. I use Schwab. They too, you can buy fractional shares. But there's a lot of platforms that allow it. And you just have to do what works for you. Anyone that's building wealth is going to have multiple platforms for their various types of investment vehicles. So don't even worry about that at all. Go with what works best for you and you feel the most comfortable. 100% right. And if you feel comfortable, dollar cost averaging with $385 ETFs and $500 ETFs, like be my guest. That's not me. Whenever I get paid, I'm like, oh, I can get 20 more dollars into QQQ or 20 more dollars into VGT. Like, I'm doing that. There's a bunch of different online brokerage accounts that are going to allow you to fracturally invest in your retirement.

account. So just go check that out. Go do some research. It's what I do. Robert does. It makes it really simple and really easy to dollar cost average for the long term. Everyone, thank you all so very much for hanging out with us on this episode of the Rich Habits podcast, Question and Answer Edition. We are super, super excited about the interview we had with Rachel Aguirre. So be sure to check that out when it comes out. And also, what did you always think about Ankir Nagpaw? The guy had a really good interview, some really good side hustler and small business tax and retirement investing hacks and tips. I hope you all learn something from that.

Major shout out to Ankur Nagpaw for hanging out with us for that episode. Maybe we'll have them back in 2024 when things change a little bit from a numerical perspective. Shout out to the IRS for always changing stuff. With that being said, if you have a question for us, you want to ask us a question, shoot us an email at rich habits podcast at gmail.com. Send us a direct message at Rich Habits Podcast on Instagram or click one of the links below to join the Discord group and there's a question and answer change.

and there as well. And as always, we thank you all from the bottom of our hearts for following along each and every week, keeping the Rich Habits podcast as the top five podcast and always moving this community forward so we can all just get rich together, live great lifestyles, and really learn and grow together over the coming years. So thank you all so much. Have a great rest of your week.