11: Apple's New HYSA, AI Investment Ideas, and Target Date Funds

0:00Hey, everyone, and welcome back to the Rich Habits Podcast. My name is Austin Hankwitz and I'm joined by my co-host Robert Croak. Robert is a seasoned entrepreneur in his 50s with more than 200 million in company exits under his belt and I'm an entrepreneur in my late 20s with a background in finance and economics. Since quitting my full-time job in corporate finance a few years ago, I built a seven-figure media business and actively advised some of the most well-known fintech companies around the world. As the show name might suggest, every episode we talk about rich habits as they relate to business, finance, and mindset.

0:33However, we try and bring you two unique perspectives. One from an industry veteran, Robert, and the other myself, someone who's still in the process of building wealth and figuring it all out. Before we jump into things, Robert, let's share with our listeners the exciting news. After an entire season of producing and distributing the Rich Habits podcast on our own, we're thrilled to announce that we now have a sponsor for the show. Neos Funds, spelled N-E-O-S. Neos Funds create ETFs for anyone to invest into. We chose to work with Neos Funds because we believe their ETFs deserve to be in everyone's portfolio, no matter where they are in their wealth building journey.

1:12If you're sitting on a bunch of cash in your brokerage account, their CSHI ETF, I think is perfect for you, generating more than 6 % yield right now. That's a whole two percentage points more than the Apple high yield savings accounts that we're going to be talking about here soon. And if you're trying to invest into the S &P 500 but have the desire to generate more yield, their SPYI ETF is perfect for you, now generating a 12 % yield. We're very excited to be working with Neos Funds and encourage everyone to visit their website at neospunds.com to learn more about their ETFs and find the one that's right for you.

1:50All right, Robert, are you ready to jump into things? What are we going to be talking about today? Let's do it. In this episode, we're going to open up with our thoughts about Apple's new high-yield savings account. We've been talking about that a lot. Then we'll discuss what's next in AI, including some of our favorite investments in the space. Then we're going to round off the episode with some Q &A from our favorite followers. Oh, my gosh. The Q &A is really good this go-around, too. We had, I want to say I counted 29 questions DM'd to us on Instagram. I mean, it is insane how engaged you guys are.

2:21So keep them coming. We love them. So let's kick things off with this high-yield savings account. Robert, I'm a fan of people saving their money. Period. Full stop. End of story. I want people to be doing that. However, the fact that you need to open an Apple credit card for you to have access to this high-yield savings account just doesn't seem right to me. It seems kind of weird. What are your thoughts on the situation? And is it something you think people should be taking advantage of? Let's look at the facts. Apple's not even paying as high as Wealthfront or some of the other ones we like.

2:50It's attached to a credit card. You have to remember, they're just not doing this out of the kindness of their heart. They're hoping that by tying this to a credit card, that you're going to put the money in the high-yield savings, get your 4.15%, and then you're going to use the credit card constantly, which then is going to give them the benefit of all that high-interest debt they're going to create with you. So I am not a big fan of it. there are many other better high yield savings accounts that don't have a soft pull on your credit and that also aren't attached to a credit card. Me, I'm not a fan of it.

3:22I get it. Apple has a big pull. They have a great marketing budget, the cachet of the Apple card. But in the end, our goal is to teach people rich habits on where to best put their money. And so the Apple high yield savings account is a no. Wow. Okay. Heard it here first, ladies and gentlemen, The Apple high yield savings account is a no. It doesn't make sense. I'm going to Wealthfront where they've got, what is it now? 4.65, 4.85 %? It's just a much better deal. Yeah, I like Wealthfront better. Marcus is better. There's just so many other better options. And I just think that people struggle with having good financial habits.

3:59And by having it tied to a credit card is just a scary temptation for me. So Austin, it might be a good idea for us to explain exactly how a high-yield savings account works and the benefits. Here are the benefits of the high-yield savings account. Traditionally speaking, all extra cash or all money you'd even have in a savings account at your local bank, for me, that's Bank of Tennessee, they're paying 0.15%. That is nothing. That is absolutely nothing on my money. Inflation's out of control. I am losing money by keeping it in cash here at Bank of Tennessee. Now, what a high yield savings account does is they allow you to deposit money into the specific bank account that you have to open through them.

4:37And all of the money that's being deposited then earns interest, high interest, right? High yield savings account. So that interest for a lot of people right now looks around four, four and a half percent. But the reason why Wealthfront and Robinhood and Betterment and Marcus and these very popular high-yield savings accounts are marketing their products so much is because they make money when you deposit that money. So here's how high-yield savings accounts work for the companies. So let's say that I am a person who deposits$20 ,000 into a high-yield savings account that pays me 4.5%. Well, right now, I could go and buy a six-month T-bill for 5%.

5:15So what these companies are doing is they're taking your$20 ,000, they're giving you a 4.5 % yield while they take the money and get a 5 % yield themselves. So they keep that 0.5 % arbitrage for themselves. And if they can get millions, tens of millions, hundreds of millions of dollars deposited into these accounts, that is a lot of money and arbitrage profits for them. Before we jump off to our next topic here, Robert, you're the veteran. When should people be thinking about actually saving money in a high yield savings account? Like let's say I'm sitting on$20 ,000 What are a couple maybe checkboxes I should be going through before I say, okay, I'm really comfortable now parking this money in a high-yield savings account?

5:53Where to get started for me is really paying off the high interest debt first and foremost. That's credit card debt, that's hospital bills, it might be taxes, it might be some student loan debt. And once you get that high interest debt off the books, then you can look and really start ramping up your high yield savings accounts, your treasury bills, and some of the other investment strategies we discuss. I totally agree. And I would even add on to that, I would want to ramp up my high yield savings account to that, call it three to six months of expenses, even before I begin to meaningfully invest money into the markets, right?

6:27I want to make sure that I've got my emergency fund set in case I lose my job, in case some of my family dies, or something tragic happens where I need to spend thousands of dollars on a whim here, I have that money set aside, where I don't then have to either, you know, take out a 401k loan or, you know, sell at a loss on an investment that I know is going to continue to do well over the future, right? So having your high interest debt paid off first, building up that big bulky high yield savings account, and then starting to invest, that's the playbook. You and I say this every day, all day, and that is you can't out-invest high interest debt.

6:59And that is just one of the best takeaways we've come up with to really help people understand the importance of paying off those debts first. So before we get into Q &A, we want to discuss artificial intelligence for a little bit, right? We've seen a ton of questions sent to the Rich Habits podcast Instagram account about AI, as well as Robert's TikTok labs get a ton of questions about it. So we want to clear the air a little bit. Robert, there's a lot of chatter and headlines about AI right now. Some people think they might know where the next investment is or how to be thinking about this trend.

7:31But where do you see AI headed? And do you have any ideas from the investment perspective as it relates to where people should be doing more research? AI is definitely a hot button topic right now. And I'm really on the fence, which is surprising for me because I generally have a handle on what I think is right or wrong for myself, my family, and then also the people that follow me looking for great advice. On one side of the fence, I think AI is great. I think it's going to make companies way more efficient. I think it's going to cut down on a lot of waste, and it's really just going to make so many companies skyrocket to a better place when it comes to profitability and efficiency.

8:12Now, the other side of that fence, and this is the one that's a little scarier, is what it's going to do to so many of the jobs that are out. I read an article the other day that said within the next five years, 83 million of these jobs would be wiped out by AI. So that's a shocking number to me. And so unfortunately, the struggle I have with being on this fence right now is, yes, I see a lot of good investment opportunities and we can touch on those. But I'm also fearful because if 80 million jobs are wiped out, where do those people go? How do they retool themselves to do another job if they don't adapt and keep up?

8:52Because remember, we went through this the same way with white collar positions in corporations when email and the internet started. The executives that did not learn email and did not learn the internet, they got sequestered and became outdated and gotten rid of just because of the fact that they didn't keep up. My number one takeaway for people listening is if you have a job where AI and the chat GPTs of the world can affect your position and your income, you need to get ahead of it. You need to learn and you need to figure out how you can be the expert in your company in this category, whether you're a 10 person company or a thousand person company.

9:34because if you're the go-to person for AI and the higher-ups lean on you for that knowledge and what to do and what's next, you're gonna be able to skyrocket in your company and be a leader in that technology. So yeah, I'm on the fence and I definitely go back and forth with it on a daily basis.

10:08So from the perspective of someone in their late 20s that is using AI on a daily basis to be more productive, I'm going to be very straightforward when I say this. I believe the unfortunate reality over the next five years, there will be millions of white collar jobs. I'm talking about the attorneys. I'm talking about the event planners. I'm talking about all these people who work making hundreds of thousands of dollars a year. Their incremental utility in relation to how much money they cost the business will no longer make sense. There will be a massive displacement of white collar jobs. There will be a massive displacement of people who did not decide right now today in May of 2023 to jump on and learn how to use artificial intelligence to be more productive in their job.

10:54And as more and more companies are now leveraging artificial intelligence and there's no apologies about it. If you are not using artificial intelligence every single day to be more productive alongside a larger team, your job will be displaced and you will not be able to provide adequate value to your company, period. You have to get with the program or you're going to get kicked to the curb. That's the real truth. But let's talk about the bright side right now. Where do I think we can be the shovels guys and make some money and really do some solid investing right now in this category and where I think we can find some true winners to invest in?

11:31Where can our listeners think about researching some AI investments? Yeah, I would start with ETFs. There's three ETFs that I've been buying right now and dollar cost averaging into that I really like. I think that their holdings are really, that cover very well throughout all of the artificial intelligence category. So those three ETFs are BOTZ, IRBO. And then if you want more of a world ETF that's investing around the world in the artificial intelligence category, AIQ. And then if we veer over the stocks a little bit, you know I've been talking about NVIDIA for a long time. I've owned it for years.

12:10People gave me a lot of crap about dollar cost averaging when it was going down 70 % last year. And I'm really glad I did it. So I love NVIDIA. I still like AMD a lot. And then also AI, which is C3-AI is the ticker symbol. So I would say the ETFs and stocks in that list are a very good place to start when someone is researching where to go and make money in artificial intelligence. So from my perspective here, I'm kind of doing a little pair trade strategy. I like Microsoft. We saw their open AI business accounts 10x quarter over quarter between Q4 and Q1. These accounts are coming from companies who might have not originally thought about being a customer of Microsoft in the first place, but because now Microsoft is an AI leader, they want to work with them.

12:58And now I'm going to pair that trade with Perion Networks, ticker symbol P-E-R-I. They're an advertising technology company. They're the ones that are behind the Bing search advertising. So, you know, Google search and Google search ads, Bing search, Bing search ads, a very similar business bottle there. However, Bing search now has a big tailwind behind it, and that is their open AI chat GPT4. I know that is a free feature now with Bing. Robert and I talked about that on his TikTok live last week. That's turning a lot of heads. That's getting millions of new users now to use Bing that were not using it to call it six months ago.

13:32The relation to peer on networks, however, is that when advertisers want to come in and advertise on Bing search, they have to do that through Perion networks. They have some cool strategic exclusive partnership. You can read about it in their earnings report. But essentially, as Bing search gains more traction, theoretically speaking, so should Perion network. Yeah, I agree with you. You've been talking about Perion a lot lately, and I've been researching it, putting some money in myself. And I also agree with Microsoft being one of the leaders in this category. So it's going to be an interesting ride.

14:02And I hope that all of our listeners definitely do their research on these two. Not financial advice, do your research always. All right, let's jump into question and answer. We got a question here from Madison H. She says, my husband and I own a business that nets out$240 ,000 per year. We're young and we want to start investing for retirement. What are the best accounts to open for our situation? And how much should each of us be contributing each month? So I'm going to go first here. Depending on your business structure, how many employees you have or lack thereof, I would consider opening up a SEP, S-E-P, SEP, IRA, Individual Retirement Account.

14:36I did that personally for my business a couple years ago, but today I now use something called a Mega Backdoor Roth Solo 401k, which allows me to invest, I think, up to$62 ,000 or$63 ,000 a year toward my retirement that I would have not been able to do with this Roth IRA or even a traditional IRA. So those are the accounts that I'm using as someone who's also a high earner and owns a business. Now that's$63 ,000 per year in my circumstance, and I'd encourage you to think the same way, is being invested into these index funds, right? This is a retirement account. I don't know what a single stock might be doing in 20 or 30 years, but I would imagine that the S &P 500 is going to continue to trend higher.

15:16So I'm investing into index funds like VOO, VTI, and also technology ETFs like VGT and QQQ. Now, Robert, walk me through your thought process here. You've covered the good stuff. You know, I really like looking at the SEP IRA and the Roth Solo 401k. You've already covered getting the tax structure part of this setup and making sure that they have the index funds and the ETS we like. So let's talk about diversification. I would look at them and say also without knowing their ages, but I would look at them and say, hey, we're in this kind of tricky market landscape right now. And I would want to look at T-bills paying 5 % right now.

15:52I would want them to have a portion of their portfolio and their monthly savings being dollar cost average into cryptocurrency. And I'd also want them to have exposure to precious metals like gold and silver. I think this would be an important structure for them to really get that diversification in there so they're covered on all fronts during these tough economic times. Now, our next question here comes from Nathan T. Nathan asks, could you explain what a target date fund is? I don't know if I should have my retirement contributing to a target date fund or if I should just be investing it into index funds like VOO or VTI.

16:28Robert, you're smiling. I can see it because we talk about this all the time. This is one of your favorite topics to talk about. So, Robert, walk us through what a target date fund is as well as your thoughts here on this question. Yeah, this is one of those questions that I just love to tackle because I'm not a big fan of target date funds. Everybody knows that. And it's just because of the fact that these funds are so locked into one strategy, and that is don't lose and make sure that you get the person to the finish line. And to me, that is not an optimal strategy I want for my money or anyone that I am consulting with or helping friend or family.

17:03And the reason I dislike them is they just don't take into consideration all of the variables that could happen in a 10 or 20 or 30 year market cycle. Let's talk about COVID-19. Let's talk about recessions. Let's talk about potential wars. All of those things can shake the market. And a target date fund, although they seem to be steady, also don't take into consideration all the opportunities that come with recessions coming in and out of COVID-19. So I think there's just too much money being left on the table for someone to be in a target day fund for 20, 30, 40 years. And then to flip it to the other side of would I prefer Nathan to go into VOO and VTI?

17:48100 % that would be my side of the fence that I would be on. Let's face it, some of the brightest minds and wealthiest billionaires in the world own NVOO and VTI because they're low cost, high performance, and they're set it and forget it for the most part. So that would be my takeaway of why I'm not a fan of target date funds. So our next question comes from Rosie P. Rosie asks, I love the idea of house hacking, but how do I find a good renter? Without a good renter, you're likely losing money and your sanity. Rosie, I totally agree. And as someone who has rented plenty of houses in college and out of college, I take pride in being a good renter.

18:30So I've actually done two things, what I thought were kind of off the cuff, but you can be the judge. The first one is I had to get coffee with the guy to really show him, hey, I'm normal. It's okay. I'm not going to destroy your house and I'm good for the money. Right. So that was one thing I had to do. And then another instance, after I had graduated college and moved to Nashville, I had to have my credit score pulled. And it kind of took me for a surprise. And it makes a lot of sense, right, why a landlord would want to pull your credit score. They want to make sure they're financially stable, right?

18:58They're not missing payments on their credit cards. They're not missing payments on their car or other big financial obligations. So I totally understand from that perspective why they did that. Now, Robert, as someone who is a landlord and who has played the landlord role, how do you find good renters? Are there apps or their websites? What is the sort of find the renter and onboard the renter process from your perspective? 25, 30 years ago, before all of the advent of apps and everything we have access to now, we had to do that. Go meet somebody at a coffee shop. Go to lunch with them. Go do something to see what kind of person they are.

19:30What kind of car did they show up in? How did they dress? How did they present themselves? And now you can really automate a lot of this because everything is online, everything is captured, and there's just so much data. and two of the tenant screening apps that we've been using for a long time are eRenter and RentPrep. Those are two really good ones, both cost-effective and just really work well within the system so you know what you're getting from a tenant perspective, where they're at, have they paid their prior rents on time, et cetera, et cetera. So those are a couple of the apps we use and it's just come such a long way in the last 25 years.

20:06So it definitely makes it a lot easier. Everyone, thank you so much for asking us these questions on Instagram, be sure to follow us at richhabitspodcast on Instagram. And if you have a question, ask it because either I'm going to go in and reply to it myself, or we're going to answer it on the podcast live. And something else you guys have been asking for is sort of this like community group chat. I think you all would really benefit from meeting and talking, right, with other listeners of the Rich Habits Podcast. So we're working on something right now. It should be up and running live for the next week or two.

20:34So stay tuned for that. Thank you all for joining us again this week. We appreciate it. And if you enjoy the podcast, please give us that five-star review and help us keep climbing the ladder. See you all next Monday.