Rich Habits Podcast - Q&A: Stock Lending, Power of Attorney, and Buying a Home in Cash

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Starting point is 00:00:26 Preferred. That was easy. Hey everyone, and welcome back to the Rich Habits Podcast question and answer edition. In these Thursday episodes, we sit down and answer your questions as if we were in your own shoes. Robert and I love answering our questions. We get dozens of questions every single day. So if you have a question, be sure to ask it either in the Rich Habits Network, link in the description below, email it to Rich Habitspodcast at gmail.com or send us a DM on Instagram

Starting point is 00:00:54 at Rich Habits Podcast. Also, Robert, we're crushing it on Instagram. We got the Instagram reels going, little clips here and there of the interviews, some cool static images of charts and graphs and all the fun things in between. And you guys know we love making some fun Instagram stories for you as we just navigate the week to week that Robert and I always do. So be sure to follow us on Instagram. We very much appreciate it. Yes, I'm having probably the most fun I've ever had on the internet, you know, through social media with everything that we're building for the Rich Habits Network. And I'm just so excited for the future.

Starting point is 00:01:27 we're growing so quickly, and I'm just so proud of the information we're putting out there and all of the educational tools and the things that we are doing to help each and every one of you that follows along on this journey with us so we can all do really, really well, even though it is September and the markets are a little rocky right now. And be sure to let us know about Monday's episode. We interviewed Paul Rable. We thought it was an awesome, awesome interview. He was just a wealth of knowledge as it relates to the intersection of sports, entertainment,

Starting point is 00:01:57 and money. And if you like us bringing on sort of these more high-profile guests that can talk about things that personally, I didn't know much about sports and money and entertainment and things like that, just let us know. Obviously, we always want to be introducing you all to the coolest people as it relates to not just analysis and the economy like Black Rock and things like that or Wynab, right? But also some pretty fun people like Paul Rable and others that will soon join us on the show. And before we jump into this week's episode, time might be running out to lock. in the 6.8% yield at public.com. Right now, bond yields are at their highest level since 2009, and you can take advantage of that with a bond account at public. But here's the thing. The Fed has

Starting point is 00:02:40 signaled potential rate cuts in September, and there will probably be more to come this year and into 2025. But the good news is that with a bond account on public, you can potentially lock in 6.8% yield on your money until 2028. And remember, when the Fed lowers interest rates, your yield remains the same. That's why we love these accounts. But you must act fast to take advantage of some of the highest bond yields in years and discover how you can lock in a 6.8% yield until 2028. The new bond account, only at public.com, front slash rich habits. And just so we're on the same page, Robert, a bond account is a self-directed brokerage account with public investing and they are a member FINRA and SIPC. Deposits into your bond account are used to purchase a set of 10 fraction

Starting point is 00:03:26 investment grade in high yield bonds. Now, the yield we're talking about represents a monthly average annualized rate of return before fees as of September 9, 2024. The yield is subject to change daily and the yield at the time of purchase may differ. All investing carries risk. This is not an investment recommendation. And please visit public.com to learn more. All right, everyone, our first question is coming from Paige Mitchell. Now, Paige, before we kick this off, just want to thank you for being such an awesome member of the Rich Habits Network. You've been a longtime follower of our podcast. We're always in the DMs. You're always in the live streams. We're super, super grateful that you're along for the journey with us, and we can't wait to answer your question. So Page asks this.

Starting point is 00:04:05 I have a CD worth $21,000 expiring on September 7th, and I'm unsure what to do with it. I could roll all $21,000, though, into a nine-month CD and earn 5%. I don't think I'm interested in the public bonds because I don't want to be tied up for three years. Am I better off putting all $21,000 dollars then in a bridge account with VOO, SPY, KKQAQI, and others, or is there something else you all recommend? For more context, I've built my base and I have my IRA maxed out for the year. Congratulations, Paige. You are rock star.

Starting point is 00:04:37 She's crushing it. So, Robert, here's my perspective. I would not keep rolling this, you know, CD money into more and more CDs, 5%, 4%, 6%, whatever you're earning. Like, don't get me wrong, it's great to earn that money and have some of that guaranteed yield on your money, right? We want to diversify our portfolio into different sort of yield-bearing assets. I totally agree with that. But having $21,000 tied up, even after you've built your base like that, I just, I wouldn't do it. So personally, I would roll it to that bridge account. And though,

Starting point is 00:05:05 if you are looking for a consistent income, it could be worth considering putting that money into, like what you mentioned, SPYI or QQQQI to get paid a monthly distribution. Make sure, though, that you have your emergency fund completely funded up to six months of spending. as well as being completely out of high interest debt before doing so. Yes, I love this answer. And Paige, you know, you hear us talk about diversity all the time. I'm with Austin, though. I don't think you should roll it over back into the CD.

Starting point is 00:05:34 I think there's just better places to put your money. And I really love the idea of the SPYI and QQQI that you mentioned. These are two Nios funds that Austin and I both own and like. And so I think it's a good idea. And then that way you can set yourself up for better gains and still get some income out of it. So I'm with you on this one. Our next question comes from Sylvia and Kayla R.

Starting point is 00:05:56 Their question is this. What is the best way to pass down assets to your children without a large tax implication? Additionally, I want to know the differences between power of attorney, will, and a trust. When should one be used over the other? I'm just starting to think about this for the first time and I'm excited to learn more.

Starting point is 00:06:14 Robert, I'm going to let you just roll with this. Yes, we could spend hours on this question, but let me take a shot at it and try to keep it succinct. This is a great question, and it really starts by having proper structure in your assets long before retirement, and then not having to worry about passing down the assets. You're on the right track by wanting to learn more about trust, wills, and power of attorneys, and here's why.

Starting point is 00:06:39 Let's start with the trust. In my opinion, the trust is the most important aspect of the three mentioned, because a trust is a legal document that governs your wishes as to how, you want to transfer your assets upon death. This is very important. And the reason being is you don't want to leave any assets just in a will or even worse without a will because all of those assets will be subject to probate court, which can be very lengthy and very costly for anyone that's ever gone through it. They know what I'm talking about. So I would check with an attorney or your financial advisor, get with them, and have them look at your estate planning to make sure you have the

Starting point is 00:07:18 proper trust structure set up for your situation. Because remember, personal finance is personal and everyone is different and you need to understand these differences between a revocable trust, an irrevocable trust, and so on and so on. Number two comes the will. A will is a legal document simply that shows how you want your property and other assets distributed after your death. And as a reminder, a will does not keep your assets out of probate so you make sure you have the as well. And wills are important to spell out the details and distributions of any assets and can be used as a pour over account with the above mentioned trust. So what does this mean? This means that let's say we're talking about a parent and they have their trust set up. They're doing great, but there are some

Starting point is 00:08:06 additional assets that never made it into the trust, but they're in the will. You can then make those use the will as the pour over into the trust to help you avoid that probate court that we talked about. And number three, the power of attorney. This is just an authorization to represent or act on someone's behalf in private business and other matters of legal nature. Although this can be important to make sure you have someone to act on your behalf or your parents' behalf, the power of attorney is definitely, in my opinion, one of the least important aspects if you're the direct beneficiary. So keep that in mind. All three of these are important when you're thinking about retirement and protection, because I assure you to any of the same.

Starting point is 00:08:47 listening, you don't want to end up in probate. I ended up in that situation with one of my parents. It was ugly. It took forever and it was very costly. So just be careful and make sure anyone listening is thinking ahead on this too because you don't want to wait till the last minute and then not be able to facilitate these options to protect those assets. So I guess a quick question for me, Robert, is back to your example with the parents having the additional assets, not included in the trust, but like their wishes are shared in the will, why wouldn't the parent just, like, edit the trust, right? Why don't they just, like, write them in? Can you do that with a trust? Yeah, I don't know. I would ask an attorney on that one if you could just make an edit, but it goes

Starting point is 00:09:27 back to the same thing, Austin, if you think about it. How many people just get busy living life and forget to update their wills? It happens all the time. Maybe you go through a divorce and you update the will, but then things happen over a five, 10 year period and you forget or you come into a lot of money and you start to really make a lot more and have a lot more assets, you forget to do those updates and sometimes that can be very, very bad later on. Got it. Got it. Well, with all that being said, here are the best ways to pass down assets to your children without those large tax implications. For starters, you and your spouse can each pass down $13.6 million to your children without taxes getting involved. Inheriting a home is not a taxable event. When the property is inherited to your children,

Starting point is 00:10:13 the cost basis on the property is stepped up to whatever fair market value is at the time. So with all that being said, if you have more than $10 million of an estate that needs to be figured out, go sit down with a licensed professional, go sit down with someone that can really hold your hand and walk you through every single matter, cross your T's dot your eyes, trust will, power of attorney, everything needs to get figured out. If you just have a couple hundred thousand dollars, then maybe this is something that you could do on your own. Yeah, definitely, and that's a great roundup for this, but I want to add one more thing. And that is retirement planning and wealth building is more than just picking stocks and index

Starting point is 00:10:49 funds and what crypto is to buy. There is a lot that goes into it. So please make sure that you do your own research. You get with a good professional and just have that extra help as you start to build your wealth to make sure that you're in the right place because there's nothing worse than getting up in years and then all of a sudden going backwards financially because you did not have the proper structure in place. So our next question comes from Hannah T. Hannah says, are a simple list or even a blueprint to follow when buying your first primary residence. I want to avoid overpaying and just making any mistakes in general. So Robert and I made our own list.

Starting point is 00:11:23 Robert, I'll let you show yours first. Yes, I am excited and we should probably make a blueprint of this because it is so, so important, but let's just go off of what we think is kind of mission critical. And that is, number one, understanding how much of your monthly take-home pay you can afford to allocate towards a mortgage. Do not be house poor for everyone listening. Don't buy the amount of house that you're allowed to buy. Buy the amount of house that you should buy based on your debt to income ratio and what money you have.

Starting point is 00:11:54 The sweet spot is kind of that 30 to 35 percent in our opinion. Number two, always get an inspection done, even if it seems like a waste of money and they tell you they've already done it and everything is great in rainbows and unicorns. Because guess what? You want to have an independent inspection to make sure that you're getting all the tea on this property. Has there been issues with the underground sewer lines? Has there been electrical upgrades that might not have been done correctly? You need to know this from a third party because remember, that real estate agent is not your friend. They're going to tell you they're your friend.

Starting point is 00:12:30 They're going to put some Costco cookies on the counter and maybe get you a bottle of wine with your name etched on the label or something like that, but they're not your friend. They are there to sell you a property. So they're going to, in most instances, tell you what you want to hear. So be careful. Get your own independent information. Number three, shop your rate aggressively. You have to be able to know and understand, just like with the real estate agent, the mortgage

Starting point is 00:12:55 agent is going to do their best to sell you on this amazing project. You have to be able to make sure that you're at least getting two or three estimates. To be sure, this just happened with a client of mine and a friend of mine. I helped them through it and it was crazy how much money we saved her by shopping around. And don't forget to look at rate buy downs with the seller either. This is a great way to be able to save money in that first two or three years of the home purchase. And then I would say my last thing would be to make sure you work with a local professional. So you completely understand the market conditions and the comps related to this house.

Starting point is 00:13:30 Because you do not want to overpay. You're excited. You want to get that first property. and you just want to make sure that you understand you make your money in real estate when you buy the house, not when you sell the house. I think it was a great breakdown, Robert. A couple points that come to mind for me. Try not to pay more than 1% of your total mortgage and fees to the bank that's lending you the money. Those loan origination fees.

Starting point is 00:13:54 I had a friend who recently bought a house that paid $6,000, $8,000 of loan origination fees. And I was just, no, don't do that, right? You probably pay half of that. Beef up your emergency fund by $5,000 to $10,000. homeownership is fun until it's not. That water heater or that dishwasher, Robert, right? You never know when that thing's going to just go out and just homeownership, man. Let me tell you.

Starting point is 00:14:15 The next point to me is to make sure you fully understand the bylaws of your HOA and how they impact your wants or desires for renovations to the house. This was something that impacted me. I wanted to sort of build a gazebo outside of my house, sort of like attach it as like an overhang. But I realized, because the bylaws of the HOA, the ceiling of that sort of additional structure had to be removable. So we used this like cloth sunshade versus an actual overhang there as a ceiling. It was kind of weird, but I didn't understand that when I bought the house. And so only after that I was doing my research with the HOA bylaws did I realize that we had to scratch the original plans and do

Starting point is 00:14:50 something different. So if you're buying a house within an HOA community, one, be prepared, do your research, do what you can do. But more importantly, two, also know that those fees are going up every single year. When I bought my first house, the HOAs were 125. That same house has HOAs now of 186, a 50% increase in about five years. Now, the last thing I want to share is to shop your home owners insurance. This for me was major. I was paying $1,500 a year on that first house. It was actually $1,100, $1,100, bumped to $1,500. I was like, what the heck? Why is it so much money? It went up 50% in a year. That doesn't make any sense. I took the exact same policy. I shopped around, and now I have it from Allstate at $950 per year.

Starting point is 00:15:32 So shop your homeowners insurance. The first quote isn't always the best. And more importantly, and Robert, maybe you can touch on this. Share with Hannah what the homeowners insurance covers as it relates to disaster and destruction of a house. Yeah, that is a great call out. And I was just going to say two things. When talking about the homeowners insurance, make sure you're checking, especially like

Starting point is 00:15:54 in Florida and some of these waterfront areas, make sure you're not in a floodplain because you might have to have additional insurance. insurance for that like we do in Florida if you're near the water. And then make sure you understand what coverages you do have because you might want to look at additional insurance and umbrella policy or something else because not all insurances are created equal. And it's very important to understand that because you want to read through that really thick document to understand exactly what your coverages are now versus later. And I like what you called out on one of our other episodes. I like to go and renegotiate my insurance policies once a year because

Starting point is 00:16:29 as they go up, they're just like, yeah, we've got this person dialed in. Let's bump them up 10%, 20%, 30%. And then a lot of people just kind of accept it and go, oh, insurance prices are high and they don't fight back. Remember what I say all the time. You don't get what you deserve in life. You get what you negotiate for. So it's very important to keep that in mind. And then I want to wrap this question up, Hannah, by saying, understand for anyone listening, always understand the total ownership cost of any big ticket asset, whether it's a car, a boat or your primary home. So many people just look at the monthly payment, the insurance, the HOA, and maybe the PMI and a little bit of other fees. And they don't take into consideration grass maintenance or, you know, maybe you have to do the driveway every X amount of time in your

Starting point is 00:17:17 HOA or whatever it might be. So always try to flush out what the total ownership cost of that property or asset is going to be because most people are really far off from what the total ownership cost is and what they believe the ownership cost is. I love it, Robert. Our next question comes from Danish K. Danish says, with the S&P 500, we know we're betting on the top U.S. companies and the strength of American capitalism. But when it comes to Bitcoin, what are we actually investing in? I've got my money in crypto, but unlike the S&P, it's hard to actually win an argument on why it's a solid long-term bet. For those who've gone deeper, what's the real bet with crypto? What makes it worth investing in and how can we justify it for the long-term?

Starting point is 00:17:58 long term. I love this question and I want to take this and take the lead on this one. For me, the real bet with crypto is the disruption that it creates in all of our financial markets as well as the future adoption rate due to this disruption. So for instance, in Bitcoin's case, I believe the scarcity of it makes it a great hedge against inflation and is another alternative to preserve wealth like gold. So that's one of the major things for Bitcoin. As far as crypto in general, though, you have to look at all of the categories of our financial systems that are being disrupted. We're currently pivoting from the SWIFT payment system that's been around for decades to the ISO 22 payment system. Then you've got Solana and some of the problems it solves. You've got fractional

Starting point is 00:18:44 ownership for real estate and fine art that Austin and I talk about a lot on the blockchain. So there's just so much disruption. So that is why I believe that the biggest wealth transfer of our lifetimes will happen in the next three to 10 years and why I am invested in cryptocurrency because we are changing and making we're kind of leveling the playing field if you think about it Austin with blockchain and the associated cryptocurrency because even if you were to look at masterworks and buying fine art or some of these other fractional ownership companies people like everyday investors can now invest a thousand two thousand five thousand dollars and have fractional ownership in multi-million dollar assets where before blockchain and cryptocurrency, that was just

Starting point is 00:19:32 for the ultra wealthy people. So I think there's a lot we could talk about here, but that's my takeaway. So my perspective is Bitcoin's been around since 2009. It's 2024, which means there's 15 years of validity, 15 years of historical price action, and 15 years of trends as it relates to exchanges and holders and adoption and things to just observe from a data perspective that shows that, okay, if something was going to go wrong, I feel like it would go wrong by now. If someone was going to hack Bitcoin, I feel like they would have done it by now. And so in my opinion, I buy Bitcoin to own an asset class that has proven resilience and upward momentum. It's a new asset class, which is why I don't encourage anyone to just bet the farm on it,

Starting point is 00:20:22 But I don't see this asset class going away anytime soon. And it's a way to diversify my net worth into an uncorrelated asset class away from the stock exchange or gold or things like that. Now you might say, uh, that doesn't make sense. The stock exchange is down. So is Bitcoin, Austin? What the heck? They're very much correlated. Sure.

Starting point is 00:20:41 I mean, if you want to look at it like on a day to day, but if you zoom out and look at it over the last 10, 12, 15 years, the price action is very uncorrelated. It has a very low beta in relation to the S&P 500. Jay Jacobs talked about that when he was on the show a couple months ago. I think for me it's just a way, just like I've got real estate, just like I've got farmland or whiskey or whatever else to diversify my net worth. Owning Bitcoin specifically is a way that I've been able to diversify my net worth into an uncorrelated asset class with now 15 years of historical data, price trends, and resilience. That is a great take, and I really love that perspective. and I look at it this way, and this is why we get to enjoy this 30-year age gap between us, is I've been through all the ups and downs of all the different markets.

Starting point is 00:21:27 And if you take the Great Recession of 2009, I watch so many people that argued with me even back then about diversifying because I've always been diversified because I don't ever want to go broke and be homeless. And I saw people that had their lambos and their big portfolios of real estate all go broke because they were over leveraged and under-diversified. this is so important because some people are saying, you know, they're going to tell you, you should be all in on one thing. I just disagree with that. I think diversifying once you have your base built is the magic of being able to sustain the ups and downs of the markets, whether

Starting point is 00:22:01 it's in cryptocurrency, the stock market, or the real estate market. And that is why people like Austin and I talk about it and educate about it because it's so important to understand with diversity, you have that insulation that if any one sector goes bad for a couple of years, you're going to be okay and I think it's so important for everyone listening to understand that. And if you want to go down the rabbit hole of crypto, read the Bitcoin standard. Now before we jump to the next question, I got to give you guys a heads up. Time may be running out to lock in your 6.8% yield on public.com. When you invest in a bond account, you can lock in your rate until 2028. But with potential rate cuts on the horizon, you might want to act sooner than later. So discover how you can lock in

Starting point is 00:22:41 a 6.8% yield on your money until 2028 through the new bond account on public. com only at public.com forward slash rich habits and just so we're on the same page robert a bond account is a self-directed brokerage account with public investing and they are a member finra and sipc deposits into your bond account are used to purchase a set of 10 fractional investment grade in high yield bonds now the yield we're talking about represents a monthly average annualized rate of return before fees as of september 9th 2024 the yield is subject to change daily and the yield at the time of purchase may differ. All investing carries risk. This is not an investment recommendation, and please visit public.com to learn more. Our next question comes from Rebecca B. Rebecca says, this is my situation.

Starting point is 00:23:28 I'm 45, I'm debt free, I'm single, and I've got three children all in college full time. I'm an empty nester. I sold our family home and am building a new home at a great price considering the market. This is my downsizing. Now I have the profit from the home I sold sitting in a high-yield savings account. I'm also properly invested in my retirement accounts and have an emergency fund in place. I also have a small amount of investments in a bridge account. Should I pay for the house with cash? And if not, what should I do instead? I'm a travel nurse and I work by contract.

Starting point is 00:24:00 There is plenty of work out there for me, but I do like to have a month or two off in between these three-month contracts. I'm tempted to pay my builder in cash so I have a minimum monthly expense because my end goal is to find financial freedom as soon as possible. Robert, I'll let you kick this one off. Rebecca, Rebecca, Rebecca. No, I don't think you should pay cash for the house. I just look at it this way.

Starting point is 00:24:23 If I can borrow money for less than what I can make with my own money, I'm always going to borrow. And that is why the wealthiest people in the world generally will have mortgages and payments on their yachts and all of the above, because even though they can pay for something 10 times over, they know that they can make more money with their money investing it than they can by borrowing. So in this instance, I get where you're at. You want to be financially free as soon as possible,

Starting point is 00:24:49 but I feel like the key part of this question is where you say I have a small amount of investments in my brokerage account. If you have a small amount, why are you considering paying cash for a home? You should take all of that cash you have, get it invested, make sure you have well-balanced portfolios, and then that way, you're going to make a lot more money with your money than just paying cash for a home. And then the other part that's problematic for this is by saying to pay the builder up front this contractor for the house, I wouldn't do that either. I mean, obviously there's going to be a draw structure of how you pay, but you have to look at it. If you started building the house right now and you secure a mortgage, by the time you're ready and the

Starting point is 00:25:33 house is finished, let's say it's finished in 18-19. months or two years, you're likely going to be in a situation where you can right away refinance to an even better rate than what you could get right now. So keep that in mind. I always want to keep my cash working for me rather than somebody else. That's my opinion. That's what I would do. I appreciate that perspective, Robert. And Rebecca, I have no idea what a small amount of investments in my brokerage account is. I agree, probably need to have that up, just grown. I'm also properly invested in my retirement. I don't know what that means. Maybe you have a lot in retirement. Maybe you have a little. Happy to hear it's properly invested, though, right? We don't want to be investing into underperforming funds. So maybe this is an opportunity to get even more money invested. Now, in my situation, I have hundreds of thousands of dollars invested into retirement accounts, brokerage accounts, everything in between cryptocurrency, whatever you want. And so I plan to pay off my mortgage early. In my situation, I think it makes sense. And here's the math behind that. My interest rate on this mortgage is 6.7%. My annual payment to live in this house is 30,000.

Starting point is 00:26:34 a year. That's how much leaves my bank account every single year to live in this house. I put down $90,000 to buy the house. First off, that was in August of 2022. If I had invested $90,000 in August of 2022, it would now be worth $150,000 because the markets have gone up. So opportunity cost number one. The second reason being is this $30,000 that I pay every year to live in this house. Let's say I kept the mortgage for 30 years. That would be $900,000 of cash taken from my bank over the the next, you know, call it 28 years or so in total to buy this $410,000 house. So if we take $30,000 a year and divide it by the $320,000 left that I have on the mortgage, that is a 9.4% cash on cash return annualized. And so what that means is by paying off my mortgage early, I will be making

Starting point is 00:27:25 9.4% on my $320,000 by saving that as an annualized mortgage payment. So Rebecca, I want you to think about it the same way. If I went out and I had to take out a mortgage or, you know, have this situation with the builder, one, how much of tens of thousands of dollars are you putting down as the down payment? For me, it was 90,000 for you. It might be less or more. I don't know. And then two, I want you to now think about, okay, if my monthly payment is $3,000 a month, that's $36,000 a year. If I have a $36,000 a year payment and the mortgage is $700,000, well, that's not too bad because that's only a 5% sort of cash on cash return if you would to pay off the mortgage early. I would keep the mortgage, right? Pay 5% or go earn 7, 10, 13% in the markets. But if it was a $250,000 mortgage and

Starting point is 00:28:16 you had that same $36,000 leaving your bank account every year, that would be a 14% cash on cash return by paying it off early. So there's a lot of ways that you can think about the mathematics around do I keep a mortgage payment, do I pay off the house early? Obviously, you said your goal is to find financial freedom as soon as possible. which means to not have the mortgage. So maybe you do want to pay it off anyway. But as Robert and I say, we just want to make sure you've got your ducks in a row from an in investing perspective.

Starting point is 00:28:41 You are not going to make cash by paying off your house early. You're simply going to lower your monthly expenses. I'm already making cash by investing hundreds of thousands of dollars into the markets. That's why for me and my situation, personal finance is personal, I think it makes sense to pay off my mortgage early. I've got all the money invested already. I'm rocking and rolling. I don't have to worry about 300,000 here.

Starting point is 00:29:03 I've got so much more invested in the market's working for me. By paying it off early, I'll unlock the ability to invest more. For you, if you only have 50, 100, 100, 150,000 invested, you're only making 5, 10, 15,000 a year in your investments. Maybe it's a good idea to beef those up, right? So, again, personal finance is personal, but you now have the blueprint to make an educated decision with your money and our opinions. We need to get some promotional mic drops that we can just have on our desks.

Starting point is 00:29:30 Yeah, so we can do this. That was beautiful. We need to do that. I'm going to buy those. There's got to be something online. We can just drop on the desk. I love it. All right. Our next question comes from Jacob. Jacob says, what is your take on stock lending? I notice that this is an option now available to me on Robin Hood. Would love to hear your thoughts about it. Is it worth it? Okay, Robert gives it the thumbs down. I'm kind of indifferent, to be honest with you, Robert. So let's define what it is. Stock lending is exactly what it sounds like. You're letting Robin Hood lend your money out to. other traders on the platform. The reason other people want to borrow your stock is for short selling. When someone sells a stock short, essentially they're borrowing your share of Tesla stock at, let's say, $215 a share right now. They sell the stock on the open market for that $215. They wait for the stock price to go down to 200 and then they buy it back at 200 a share and they give you then that stock back that they borrowed from you. So they borrow it, they sell it for $215, they wait for the stock price to go down. They take that $215. They take 200 of it to go buy the stock back. They keep the $15 for themselves, and then they give you back the stock. You guys remember

Starting point is 00:30:37 what happened with GameStop and the hedge funds and the short selling? It's the exact same concept. So if you do want to lend out your stock on Robin Hood, here are some considerations. You can only lend out whole shares of Robin Hood stock. Fractional shares do not count. If your stock is lent out, you're paid monthly for the loan, a sort of way to earn some passive yield and sort of a risk-free way, considering Robin Hood does hold 100% collateral against your stock on your behalf, which is good. You can still trade your stock. It still looks the same in your account. You're going to trade it, buy it, sell it, it's all good. You don't have to worry about having to hold it longer. You can still collect dividends on your stock. The only thing you cannot do

Starting point is 00:31:15 is participate in shareholder voting. You will not have shareholder voting rights when your stock is lent out. So, Robert, I saw you give it the thumbs down. Why do you think stock lending is probably not something everyone needs to be participating in. Yeah, I think that's what I've been waiting to say is that I feel like so many people, and I love the question, Jacob, and the sentiment, but I think so many people listening try to get fancy early on in their investing careers. They're like, oh, I'm going to start options trading. I'm going to do this stock lending. I'm going to do this and this and this. And it's just really, for me, it's a little tricky. I would rather people earlier in their careers, let's say prior to having $250,000 to $500,000 working for them while they sleep,

Starting point is 00:31:58 I think they should focus more on keeping it simple in their investing like we talk about, having that basket of index funds, having the Roth, having the bridge account, maybe having a portion in crypto, but keep it simple and focus more on improving your skill set and making more money. So many people, I have it every single day that have $34,000 to their name, and they're asking me these super complex investment questions about, hey, I'm thinking about trading futures, or I want to stake my crypto on this site. It drives me nuts because they should be focused on getting the money, making more money, and getting more invested and not getting fancy with it out of the gate. So, Jacob, this isn't addressed just to you, but your question definitely opened the coffers of me thinking

Starting point is 00:32:42 about this. Don't get fancy in the beginning. If you can find a way to make more money with your money, great but make sure you understand it. But in the beginning and middle stages, your goal should be accumulation and diversification to get your money working for you as hard as you work to get it. I love that answer, Robert, and it kind of pulls us into our next question here from Carson. Carson says, my dad and I love the show when we listen to it every week. I'm a 19-year-old college student beginning my investment journey, and my first step was opening a Roth IRA and contributing to that every month using the ETFs you guys talk about. Was this the correct place to start. What would your first three steps be in my situation? Now, Robert, the reason why I thought

Starting point is 00:33:24 it was a good sort of segue here is, Carson, do exactly what Robert just said. A lot of people, especially at 19 years old, they think that they can outsmart the best. They think they are the hedge fund. They find some guy on YouTube talking about options, futures trading with a billion X leverage and they were going to make it over and all these crazy things on Twitter or whatever else you find. Don't get me wrong. That stuff is cool. Go look it up. Go learn about it. I'm a student of the markets and I encourage everyone else to learn things, but at the end of the day, none of that stuff matters. What matters is, are you living on less than you make? What matters is, are you investing into index funds on a consistent basis? What matters is, are you being intentional with your money? Do you have a budget? Right,

Starting point is 00:34:02 these are the things that actually matter. So kind of tactically speaking here, you've already got the Roth IRA. That's great. I want you to keep that same energy. I want you to max it out every single year. However, the best way to build wealth, again, especially at a young age, is to have the ability to earn money to even invest. You got to get the internship. You got to work that summer job. You got to do what you can to actually earn money in college to invest it. Now, when you graduate, what's important is to have good grades so you can get that high paying job of 70, 80, 90, maybe $100,000 a year right out of the gates, and be responsible with your money every single month. Back to what I said about living below your means, do not go into high interest credit card debt. Do not go out and buy that new car. I made that mistake.

Starting point is 00:34:41 Do not go out and get the bottle service. Do not fall into the trap and go into the bars every there's a Friday, Saturday, and Sunday. You need to have a plan for yourself. You're 19 years old. You're very impressionable and we want an impression on you that consistency and intentionality is what's going to help you build wealth. The sooner you realize that, the better. 100%. Carson, great job getting to where you are now. So excited that you're here in the Rich Habits Network. You're following along. You're learning. And Austin nailed it. I will tell you for a fact, most people fall into a very vicious cycle that rarely ever ends. They start out early. They start saving and investing money. As soon as they get 20, 30 grand together, they go buy the motorcycle or the cool car or the jet skis. Then they drain their money.

Starting point is 00:35:25 Then they build it back up again and they get it to 50,000 and they go buy the luxury car. They drain it again. Then they build it back up and now they're in their 40s and they get it to 150,000 and they upgrade the house. It is a vicious cycle of never ever putting away enough money for your future and your future and your retirement so you don't have to work until you're 75 or 80 years old as a Walmart greeter. So Carson, follow along. Make sure to implement these strategies and you'll be way better off than all of your friends when you turn 25, 35, 35 or 45. I promise you. What a great episode. These questions are getting better and better. And I love it because, you know, I think back to the mistakes I made. I remember being so proud of myself saving every dime I could to buy my first

Starting point is 00:36:12 fourplex and it was a big achievement for me I grew up in a poor family I had no financial literacy or help and it was just I was so proud closing day I couldn't believe it I went over and it was a crappy property but I knew I could fix it up and make it great it worked out for me but I still shouldn't have save save save save for three years only to then put it all into one property I should have built my base first let that go for life because you don't want to borrow against your future for things now And I learned along the way, and that's why I love being an educator in this manner, because I can just take all of those references and go, yeah, that's where I screwed up and pass it along to all of you. So that's why I enjoy this so, so much every week. And everyone, don't forget, we have over 400 people now inside of the Rich Habits Network.

Starting point is 00:36:58 This is the place to get your questions answered, to join our weekly live streams, to watch six hours of video coursework, to connect with other avid listeners of the podcast. The Rich Habits Network is the place to be. It's exactly what it sounds like. It's a network. We can't wait to see you in there. And once you're in there, send me a DM and we'll chop it up. Well, thank you all for stopping by. And always remember, if you find value in what we talk about,

Starting point is 00:37:22 please share with a friend. Tell them about the podcast. Tell them about the Rich Habits Network. And bring them along as well because we are here to provide as much value as we can each and every week for all of you. Thanks, everyone. And have a great rest of your week.

Rich Habits Podcast - Q&A: Stock Lending, Power of Attorney, and Buying a Home in Cash

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