129: How Reid Hoffman Built and Sold PayPal & LinkedIn for $27B

25:42And I think you really highlighted that well, Reed, because like I remember in my early days, I always had the big ideas, the big ideas. And I was early to the internet and I had some successes. And then when I pitched Silly Bands, which has now gone on to do almost 300 million in sales over the last 15 years, everyone in my office, including my mother was like, why don't you just stick to what you're doing? The real estate's working. This is what I'm like. I don't know. I really like it. The Livestrong bracelets worked. We did a few million. I did really well. And if I would have listened to everybody, I would have never done silly bands and I I shelved it for a few days and I'm like no I'm doing this I love this idea I love the trade ability the collectability I'm going for it and everyone was like all right here we go here's another one and then when it worked then all of a sudden everyone's like oh I love how your little idea worked and I love how that looked you know and that's why I love hearing stories that go back so far like even with you Reed because I went through it and people thought I was nuts And you've gone through it many, many times.

26:44And it has also helped mold you to help you pick and be able to select the right investments to make in those founders, in the quarterbacks, the jockeys like I talk about. I care less about talent and I care more about tenacity. And I think that speaks to that energy that you're talking about. So, so, so cool. Go ahead, Austin. I just wanted to get that out. Now, on the flip side here, Reid, we just talked about ambition. We talked about just being super, you know, all about it, like Max was in this example. Let's go to the other side. Is there like one weird thing that you notice all of these successful founders have?

27:18You mentioned like coding at 12 or something, right? Is there an unconventional signal that you look for when investing into a founder or an idea? Is it something just like, wait, that's always around for some reason, and it always seems to work? Well, I'll do two. One is kind of a, as it were, a founder characteristic, and one is a pitch characteristic. The founder characteristic is that there is both grit, resilience, you know, as part of this, but there's that persistence and that drive and belief, but also flexibility and learning. And it's this weird kind of yin and yang of putting together.

27:50So one of the things I do in a pitch meeting is I always push on the idea because I'm trying to measure this combination characteristic of, no, I've really thought about it. I really think it'll work. I think it'll work for the following reasons. But as you're bringing up questions and challenges, I'm actually grappling with them and thinking about them and thinking, do I need to modify? How do I measure? What would be the circumstance? How would I deal with that as a plan B, etc.? So that combination of kind of call it persistence and flexibility, that kind of grit and learning and adaptability, That characteristics together is, I think, very important and kind of generally true across every founder that I've seen who's had any success whatsoever.

28:32There's occasional luck, right? There's occasional just falls from the sky. But out of the kind of the without pure luck, always that characteristic. Then the second thing, which I already kind of mentioned a little bit, is if you're successful, did you transform an industry? And so, you know, we already talked about Airbnb a little bit. LinkedIn, obviously, in recruiting and sales. Part of the whole question was, do you have a public profile that says what it is? When LinkedIn started, that notion that you would have a public professional identity was considered anathema, possibly career limiting because your employers might not like it, et cetera, et cetera, which is not the world as it should be.

29:10Zynga, the world of casual games. Oh, no, it's console games. It's Grand Theft Auto and Halo and blah, blah, blah. No, no, no. So actually the whole world of casual games and how that plays out. And then obviously, most recently in AI, like open AI in terms of, well, it's a research project. How could that possibly amount to anything? It's like actually back the new technologies that change the world. You know, usually good to be around the hoop on those. I would totally agree with you. I guess back to your original sort of point here about that flexibility in the yin and the yang. it really reminds me of like, in my experience, what I've seen with successful founders is they are subject matter experts as to what they're building, but they also acknowledge what they don't know, right?

29:56They're not someone that's going to try and pretend they know something about an industry. It's like they know what they know. And they also say, hey, I don't know about that, but I'm eager to learn more and be flexible and figure out what that could look like when it comes to building my business. So I would largely agree with that. that's a really good call out. Well, I'd like to go into something that's kind of important for me and hopefully everyone listening. Have you ever had that moment where I totally missed that one from your early VC days? Mine was Uber. I was in an early round meeting with two other guys.

30:28I flew in for it. I walked away. They both wrote checks. I thought it was too far off and I didn't get in on the early round. Did you have one that was crazy that you missed the boat on and was like, what happened there? How did I miss it? Lots, right? Not, not, not, not one, many, you know, I'll give again, just kind of two examples to give different illustrations. One was Twitter. Now the thing I passed on was the right thing to pass on, which is called odd blog, audio blogging. Now that later became podcasting and so forth, but my accurate judgment was that this wasn't going to go anywhere, but actually, in fact, it was a very talented group at Williams, Jack Dorsey, et cetera, Biz Stone.

31:09And I should have stayed close to the group because again, it's almost like a different parallel to the Max Levgin point, which is the fact that Twitter emerged out of it. And I kind of missed the early round because of it, because I wasn't staying close to the talented people, even if passing on Oddblog, because if I hadn't just passed and checked out, I would have been able to be around the tables. Hey, I'd like to invest in this, as an instance, because Twitter was something that I got. Now, in a category of something I didn't get, I got pitched twice before the venture round of Pinterest by two guys that I really like and have since gotten to know pretty well, Ben Silverman, Paul Sciarra.

31:45And basically, I just didn't get it as a media type. I was like, a list of things? Because part of the thing about the new social networks and everything else is each of them almost has a media type to it. That's a little bit of a crude parallel. But I was like, I just didn't get it. And now part of it's because I wasn't a woman from the Midwest, which was all the early use of it. And so it didn't get it from that perspective. But it was like, you know, as soon as I started, saw it starting to work, I was like, no, I missed it. But, you know, and by the way, if you're not finding things that you're not making an active enough decision, like your Uber thing, where you're making both type one and type two errors, you're probably not investing intelligently and aggressively enough.

32:24Anyway, so it's a, yeah, and then there's, you know, there's the usual list of this, that, and the other too. As a quick follow-up read, you mentioned you're not investing aggressively or, you know, around that, like what's your strategy for building a portfolio of companies? I mean, I'm sure you've got some crazy flyers. You probably have some that might be like series C pre IPO. Like how do you kind of build that and think about it? One of the things about investing is you, there's a little bit like poker, right? If you can't spot the sucker, you are the sucker. And so you have to really know kind of what you're doing.

32:53Doesn't mean you're always right. That's knowing what you're doing. Doesn't mean you're always right. There's a, there's a probability curve on all this stuff. So I tend to do much less later stage investing because that takes like doing a bunch of financial analysis and everything else, which you can do. But I tune myself for early stage seed, series A, series B kind of investing. I very, very rarely invest in kind of later stages. Similarly, I also tend to invest mostly in software things. I understand software, whether it's social networks or marketplaces or artificial intelligence, that It tends to be what I do.

33:23Now, that being said, you know, when I kind of go, look, this is a great founder. They're doing something that's really interesting in the world as it should be that I will put in money. And it can range from doing fusion investments because it's kind of a way of doing climate change and all the rest, which, you know, pure extreme risk on the science side, you know, relative things to investing in boom aviation. Because it's like actually, in fact, we should have supersonic planes. It would completely transform, you know, kind of the network geography. If you could fly from San Francisco to Tokyo in four and a half hours, it would completely change the kind of the ability to do business and connect there.

34:03And they had a really good plan and a super ambitious founder. So it was like, OK, you know, I want to take a ride in the plane. I appreciate that answer. Thank you. So you once said starting a company is like jumping off a cliff and assembling an airplane on the way down. For aspiring founders and people starting companies out there right now, what are the tools that you think they should absolutely have in their toolkit before they make that leap? Because something that I always kind of piggyback along with this question is I am so glad to be living in this era right now because I talk about the early days when I was building a company and to build a shopping cart for a website was$15 ,000 or$20 ,000.

34:43to be able to do all the things back then were so expensive and you needed a lot of staff. Whereas now you can really start a company by yourself with a hundred bucks or less and have all these incredible, incredible tools. So what would you tell the early person that's just starting? They're a founder, they're up and running, or they're trying to get up and running. What are the tools that you think, whether it be hardware, software, or just inspirational tools for them, skill sets for them to get started successfully? Let's say three things in order of ease to more challenging. And I'm sure there's like a hundred.

35:23We'll just do three. So first is my very first book, Startup Review, is the advice I give entrepreneurs refactored to individuals. Kind of like, you know, what do you do with, you know, kind of having an A, B, Z plan? your plan A, plans B, plan Z? How do you deal with your network? What is the kind of experimentation, you know, being a permanent beta mindset? All of that is kind of the software of mindset for things. And I think it's, you know, I think the book is held up. I think it's even more true for everybody, founders, but also people who are not founding companies from before. Two is, you know, one of the things to use kind of like AI as a co-pilot on is if you have ideas, use AI in the chatbots.

36:08And this will generally speaking, be the best frontier models that you're using, whether it's ChatGPT or Copilot or Gemini or Claude or, you know, anything else. And ask what's wrong with your idea, what the challenges of the idea, what problems you need to solve as, as how to kind of play that through. And I think that is a similar kind of what you should be asking people in your network about, you know, what do you think about this idea and everything else? Now, I know that most people are thinking of my saying AI is, you know, powering your business, which of course is something you should do, you know, help with marketing, help with ideation, positive ideation as well, but using it also not just for as a, because AI is always trying to be helpful.

36:47And this is, you know, the memes that went around a couple of months ago, but, you know, that being sycophants is, you know, they're trying to be helpful. So it's like, oh, you need encouragement. Yes, that's a great idea. You should go do it. It's like, well, that's not helpful to you. Right. You know, what's what's helpful to you is what's what is a slalom course? What are the minefields? What are the things to possibly do? Because, you know, there's a reason a lot of businesses fail. And then the last is I think we'll have a whole bunch of memes around solopreneurs because of the power that you're getting from AI.

37:17And I don't think that the vast majority of people are well set up to being solo entrepreneurs. I think it's still kind of focusing on what like maybe a smaller group, a smaller company. But like, for example, I think the thing that's most, I think, useful is if you really can figure out like one or more co-founders, it's really helpful. Working with people is really useful. That doesn't mean you won't have this massive amplification through these tools. And it's not just the AI tools. It's like, you know, part of what if you look at the arc of what's happening with internet tools, generally, those internet tools are, you know, kind of like Airbnb, there's entrepreneurs of like, you know, like, what's one of the great ways to make a whole bunch, you know, to make another good income stream, build a treehouse in your backyard, and and rent out the treehouse treehouses, at least when I was on the board of Airbnb had a nine month waiting list, right for being able to go, I don't know if that's still true, but that was true back then.

38:16So anyway, so those would be parts of the toolkits, which is both somewhat the traditional ones, but also new tools as well. So it sort of reminds me back to this idea that you had mentioned there about the, it's okay to have co-founders. You don't have to be the solopreneur that can use nine different AI tools to achieve these different things. I 100 % agree with that because I think a lot of people, you should be self-aware enough to know if you are a founder or someone building a business of what you're good at and what you're not good at. And I'm self-aware enough to know that I'm good at these ideas and, and, you know, strategies, things like that, but I'm not good at calendars.

38:51I'm not good at organization. Like that's not my thing. So I found a co-founder that's wonderfully organized. His name's Christian, and he helps me so much with growing the business that we have. And so I completely agree. Like it's sexy right now to be a solopreneur using nine different AI bots and all these different things. But at the end of the day, you don't have to be these things that essentially society is telling you to do. Like if you need a co-founder that bodes to your weaknesses, like that's cool too. I totally agree. And part of the mistake frequently is don't try to work with other people who cover your weaknesses versus try to just build up, you know, you should play to your strengths and have other people teamwork, cover your weaknesses.

39:31It's one of the reasons why I think I started a, what is now a very general trend in Silicon Valley, which is having a chief of staff. When I first hired a chief of staff, basically I had VCs say, who do you think you are? The president? This is stupid. And I was like, no, actually I'm hiring a person to cover a bunch of things that I'm fairly weak at so that I am stronger overall because of this. That's exactly what I'm doing. I think it's one of the biggest weaknesses I've seen in the last 25, 30 years of my career is too many people trying to build these empires. They hire yes men and women.

40:05They hire people that like them. They're going to tell them how smart they are, how great they are instead of hiring to their weaknesses. I always, in every project, I want someone opposing to me that is really good at what I'm not good at. And it has worked wonders for me. So I'm so glad both of you really amplify that sentiment of how important it is. Now, Reed, before we go to the next question, what are we sipping on right now? Is this a vitamin drink? What is this? It's hoplark. which you can get at hoplark.com. I am not a shareholder. I'm not advertising. And actually, super entertainingly, it's called breakfast beer.

40:45But part of what I love about this is it's zero calories, zero alcohol, and caffeinated. It's like the perfect breakfast beer. And it tastes like breakfast beer. There we go. Okay. I'm doing that. I love that. Maybe we need to become investors, Reed. Yes. It is an awesome product. So this is the last question for me. And I know Robert has one more after this as well. But my last question comes back to this idea of leadership. You've invested into countless founders who turned out to be wonderful leaders. You've led companies to a$26 billion exit. I'm still learning how to be a leader in my own company.

41:18What advice do you have for people right now who are leading a team, if it's a small team, a large team, anything of that nature to be a successful leader? Well, two things. One is, you know, kind of, I think, traits that all leaders have and then also figure out the second one will be what you as a leader mean, because not all leaders are the same. It's a little bit like, you know, one of the pieces of apocryphal, you know, kind of aphoristic wisdom for Silicon Valley is, you know, always hire type A's because A's hire A's, but B's hire C's. And that's generally true. But one of the things is mistakes is like not all A's work at all companies.

41:56It depends on culture and fit and teamwork and team play. And that's part of a similar thing to the to the leadership side, which is, you know, what kind of org are you leading? What kind of leader are you? Some leaders, visionary, some leaders, you know, kind of tactical and sergeant, you know, like there's different parts of leader, different parts of the organization where you fit in as matters. Now, generally speaking, I'd say the question is, like I would say as a general is, you want to hire people that in a, ideally in a different world, like if they had created the business you would work for.

42:30Like, because if they're that like strong and capable, they're good partners. They're adding a whole bunch of management bandwidth to it. It's part of like the co-founder-ish kind of thing, you know, as ways of doing it. So I think that kind of the internal test and thinking about like who you're hiring and you're learning from them, et cetera. And that's part of, I think, like a really key thing. And then being the person that they would want to have as a leader, right? Because you're looking for the best from the two of you playing as a team or the five of you playing as a team. That's what you're looking for, not the kind of the self-aggrandizement.

43:08That would be a general comment in all cases. And then a way to find kind of where you are as a specific leader yourself. If this goes back to like the strengths and weaknesses, like we're talking about with the chief staff and everyone else, it's like, which areas do you really play into? Because you want to be amplifying your strengths as a leader. People aren't trying to avoid weaknesses. They're trying to find things that really help them that they follow and then configure the working environment so that your weaknesses are buttressed by the team and chiefs of staff or anything else. but what your specifics are.

43:43So for example, for me, I'm a creative problem solver. I'm not a trains run on time person. And so part of what I look for is because by the way, organizations need trains running on time, you know, is, is to be supplemented in that way and to be constructive to the organization that way and not undermining it by my normal creative problem solving. Now, before we ask Reed our final question, you guys ask us all the time, what are you guys investing in right now? And you know, we don't like to gatekeep anything on this show. But we also don't blast our portfolios all over the internet either. You want to see it, you got to follow us on Blossom.

44:17You guys know we've been big fans of the Blossom app for a while now. It's a free social investing platform where people can actually show you what they're investing in. And just to be clear, Blossom is not a brokerage. It's a social network for investors. Think Instagram meets investing. And what we love is the transparency. You can literally see our portfolios, track changes in real time, and learn or discuss different strategies with other retail investors on the platform. And the best part is the community on Blossom is long-term focused, not typical of what you see on other social platforms, which tend to revolve around trading, FOMO, and whatever's hype at the moment.

44:54So if you're curious about how we're building our wealth or you want to just level up your own investing habits, be sure to download Blossom. It's free. It's easy. We're both on there. Just search at Austin Hankwitz or at Robert Croak official. And huge news, as highly requested, Blossom is now available on desktop. So you can head to BlossomSocial.com to join the investing community that everyone's talking about, now on the big screen, and of course, still totally free. So click the link in the show notes below to join us on Blossom, or head to www.BlossomSocial.com so you can build rich habits alongside Robert and myself.

45:29Let's now jump back to our interview with Reid Hoffman. This interview is so much fun. I'm so grateful that you joined us. Robert, round us off here with your final question. Yeah, this is the big, big one that I've been waiting all day to talk about. And that is you've had a front row seat to so many tech revolutions. When you look at what's happening today in AI right now, what are the habits? How do people get ahead of AI rather than being scared of it? Because everyone that's not in the know thinks AI is going to take their job. It's going to ruin the world. all of this, how can people get ahead of AI and future-proof it in their careers moving forward?

46:07And then I'd like to add one, if you'll go with it, is, and where are you most excited to be investing in AI as a sector over the next two, three, four, five years? Well, so not surprising, the first answer is also AI. Part of the advice that I give people is to say, if you're not experimenting with AI to make it useful to you, not just like, what can I make for lunch out of my refrigerator? Or can you craft a birthday sonnet for my kid, brother, wife, you know, et cetera, you know, as, as ways of doing this, all that great to do, but like useful to you, like fundamentally making a difference in your life and your work.

46:45And if you're not finding it, you're not trying hard enough. It doesn't mean it'll be useful for everything. Like there will be negative lessons. Like, like AI is not useful to me making investment decisions right now. It is useful for thinking about due diligence, analysis of an area, et cetera, et cetera. So So it's like, you know, where is it useful? Where is it not useful doing that? In terms of me investing in AI, you know, we at Greylock are investing in a whole bunch of like, you know, kind of workflow, productivity, cybersecurity, a bunch of other things where AI is bringing that that's kind of Greylock strengths.

47:14I try to always kind of go to an area where I think most people aren't going to. And so one of the things that I co-founded, you know, last year and we announced early this year is ManSAI, which is trying to cure cancer through accelerating drug discovery, because it takes a new approach. It isn't either a pure software approach or a pure biological approach. And so it takes this fusion of these two things together. And so when I get to kind of where am I in, I'm supporting a whole bunch of Greylock investments, but where am I investing in AI personally? It's the areas where it could be industry transformational, where it's not where what everybody with a computer science degree, you know, is thinking about doing, right?

47:55So it's kind of that kind of area of intersection. And I've co-founded a couple of those companies. Those are the usual, the meetings that I most often take when pitched on them because it's like, okay, that's different than, well, I have a way of optimizing your e-commerce funnel with AI. It's like, great. That's a very good thing to do. There's a bunch of them. You should go talk to partner X, Y, and Z. I'll support them, but that's not the kind of thing I'm doing. Do you have a perspective on humanoid robots? Obviously, Brett Adcock with Figure, he's doing all his crazy fun stuff with humanoids.

48:27Aptronic as well. You're obviously really in the weeds here, so I'm curious if you have a perspective there. I know that Microsoft is a happy investor in Figure, so I've heard good things there. If I were doing robots, which I haven't yet, because so many people are doing humanoid robots, I would be tending to look at non-humanoid robots. That's kind of an instinct of, is there a potentially really interesting thing here? Like, should robots actually, in fact, be more like centaurs or spiders, you know, in these things? And, you know, the thesis for humanoid robots tends to be we've designed our whole life and world around humans, you know, factories and warehouses and stores.

49:04So humanoid robots most naturally fit in. And so that's the thesis in positive. Now, on the other hand, the challenge is lots of people are going for humanoid robots. Not only do we have a number of them here in the U.S., but I've lost count of the number in China, you know, as instances of this, which have a supply chain and all the rest. So it's kind of like it's a complicated area, I think, but obviously one that, you know, we will, of course, have humanoid robots. So it's a it will be part of the future. Reed, thank you so much for joining us on this week's episode of the Rich Habits podcast.

49:35I am, again, super grateful. I learned so much in this conversation, as I'm sure Robert did as well. and love to have you back anytime in the future. If that's ever on your calendar, be super grateful for that. Anything that you want to tell the audience before you head out, where can they find you? What are you excited about? Just all things Reid Hoffman. The probable thing for the audience, as I imagine it, is the startup of you, even though I published it over a decade ago, is still useful to you. Probably just that. I love it. I love it. Well, thank you, Reid. We appreciate it so, so much.

50:04I hope you enjoyed your time with us. And we look forward to seeing you again. And thank you so much. Great. Thank you. All right. To give everyone a quick little rundown here, we just wrapped up our episode with Reid Hoffman. And weirdly enough, Reid's Wi-Fi was cutting in and out. So we actually are now filming this recap the following day. So that's why I'm wearing a different shirt. Robert was actually able to do laundry much faster than I was. So he got his old shirt on. But I was not able to fool anyone here. So I'm wearing a different shirt than I was in the interview. But Robert, what an awesome conversation with Reid Hoffman.

50:39I truly believe that not only is that probably the best conversation we've had on this podcast thus far, like ever from an interview perspective, but that someone somewhere that listened to that interview is going to go build something, change something, do something incredible because of what Reid just said. I mean, if it was about the ambition of these founders, if it's about the different frameworks he talked about, I mean, this interview truly was incredible. Yeah, I've been at this for 30 some years and it really reinforced for me that I am doing a lot of things really well and correctly.

51:20What a legend he is. And he was so open and forthright sharing so many of his like favorite hacks and stories and how he selects people to invest in and alongside of. And it was definitely mind bending for me and just really an important day in my career. And I'm so glad that we get to do it together in the Rich Habits podcast. I will say, I guess a couple of big takeaways. The first one was with Max from PayPal going to start a firm and now it's a publicly traded company. You always talk about like betting on the jockey, not so much the horse. And sometimes that jockey's idea, he talked about the how fine line of it is between genius and madness.

52:02And sometimes when it doesn't work, we just think it's madness when actually it could be genius. It just didn't execute the right way. And how Max just like brute force makes things work because he's so ambitious. And I think that's a really cool takeaway as an investor who's always trying to find that next big company. And then something else that really stuck out to me was being intentional with the meetings you take. Not so much guarded that you don't take meetings, but not taking them aimlessly, right? Making sure they're coming from a referral, making sure that if you make a referral, you make an intro that both people, if nothing happens from the meeting, that they're both excited to just know each other.

52:37That to me was a really important takeaway as well. I agree 100%. There's a line where people say it's not your net worth, it's your net work. And to me, some people get angry with me when I decline going to lunch because they say they want to pick my brain. But I have to be somewhat guarded with my time because it's so valuable and we have so much work to do for everything we're building with the Rich Habits podcast and the Rich Habits Network. So I'm always careful to make sure that I bring value to people I meet, but also that the people I meet that want to meet me bring value as well because there's too many people out there that are transactional.

53:13transactional. So if you can learn anything from this episode is to understand as you're leveling up in your journey, make sure you bring value to others and you're not always trying to be transactional with them because people that are ahead of you generally don't like that. And I've learned from my mistakes in that aspect as well to bring value and be authentic, I think is key. So our first question comes from Daniel B on Instagram. Daniel says, I don't have an emergency fund yet, but I do have roughly$40 ,000 invested into the markets and cryptocurrency, give or take the ups and downs. I have about$14 ,500 in public,$7 ,200 in Robinhood,$11 ,000 in Coinbase,$2 ,800 in my checking account,$2 ,500 in Betterment, and about$1 ,000 in Fundrise.

54:01Robinhood was the first trading account I opened back in 2020, and I don't have many solid investments on there. So should I clear this account up and use it as my emergency fund? And if so, where should I start to put my emergency fund? Do I take the money from somewhere else? What are your thoughts? Robert, you want to kick this one off? Yeah, I love this idea. And if you have kind of some sketchy things in this account, I really like the idea of moving that money into a high yield savings account. And you're already there with public.com. They have a great high yield savings account. I believe it's paying 4.1 % right now.

54:35So I would just move that money right into a high yield savings on public, start building it there for your emergency fund. And remember for this fund in case of emergency, remember emergency funds are not investments. They're in case of an emergency. You want to have three, four, five months of your total monthly bills in that account. So you never get in trouble and have to use credit cards for that emergency that might come up. Yeah. So what Robert and I like to really emphasize here is there are investments and there's insurance. The emergency fund is insurance. It ensures that if an emergency pops up, you don't have to cash in on your investments.

55:13Your investments can stay invested as they should. And so to your point, you've got $7 ,200 here in Robinhood. You mentioned they were invested into some random, not so solid investments, which tells me it's probably time cash those out. Take the$7 ,200, take it over to public.com's high yield cash account paying 4.1 % right now and use that as your emergency fund. It could be on the light side, which tells me you might need to cash in a little bit. Maybe that's already on public, maybe some that's already on Coinbase, whatever else, but I would get that emergency fund beefed up to 10, maybe$15 ,000, depending on what your monthly expenses are.

55:49And don't forget, you want to build your base into the index funds and ETFs we talk about first before diversifying into all these different types of assets and investing strategies that include crypto and real estate and all the other things are in here. So maybe this is a good kick in the butt to think about going all in now going forward on ETFs and index funds until you have that 50, 75, $100 ,000 saved and invested on public.com. Really appreciate your question, Daniel. So our next question comes from Frank N. Frank says, Hey, guys, I love the show. My question is, should my wife and I continue to contribute to our 401ks via Roth contributions despite being in the highest tax bracket of 37%.

56:32I'm a high earner and a great saver. I've saved roughly $500 ,000 per year. My thought is I want to maximize my Roth contributions over my lifetime. I'm only 37 years old, so I'm sort of paying my future self. Alternatively, I could contribute to a traditional 401k, which would save about$20 ,000 a year in taxes. But I feel like I'm saving and spending enough each year anyway. What do you guys think about this? So I'll kick this one off, Robert. Frank, I love where your head's at. You're over here thinking like, listen, I'm in this highest tax bracket. Should I be optimizing and doing some different tax strategies to try and ensure that my taxes at this super high tax bracket are as low as possible?

57:11Here's how I've approached it myself. I have a pre-tax retirement account and I also have post-tax Roth retirement accounts. How I've thought about it is in my, and this is again, personal finances, personal, how I've done it as a high earner myself is I have about a quarter million dollars invested into this post-tax Roth retirement account. It's my mega backdoor Roth solo 401k. And that money, if I don't add anything more to it, will grow into millions of dollars by the time I'm in my 60s and 70s. And so knowing that I've got my nest egg that's going to grow and be there for me, that I will not have to ever pay taxes on, not have to worry about anything because I paid those taxes up front, I can now maybe begin to think about, well, what accounts can I contribute to in the near term that can optimize for my taxes today, knowing that my nest egg is secure and going to continue to grow in this after-tax Roth retirement account.

58:07And so I have done things like SEP IRAs. I've done things like traditional IRAs, things like that in the past to bring down my taxable income. To your point, I'm also in the highest tax bracket. Congratulations on being in the highest tax bracket. I guess the thing is that I really want to encourage you to do is to not overthink it. I'm a big believer in just pay your taxes and do what you got to do. I think last year I paid about$120 ,000 in taxes. That was on whatever hundreds of thousands of dollars of income that I had made. And I pay my taxes. And then with the money that I have left, I invest it how I want, which in this instance is the mega backdoor Roth solo 401k and all the other different investments that I'm making.

58:44And like, I just let it grow that way. Yes, there's, there's different strategies and levers you can pull right now to, to your point, bring down your taxes by 10, 15, 20,$25 ,000 a year. But to your point, you're saving half a million. Is it a needle mover to increase that by about 5 % to 520 ,000? Not really. So, you know, again, don't overthink this, do what's most comfortable for you. If you feel like you want to do some of these different things and try and optimize for taxes today, like be my guest. I do a little bit of that myself, but make sure that you are not overly focused on optimizing for taxes, that you are doing the wrong strategies and you're not investing, right?

59:23Maybe you're throwing this money and you're using it to bonus depreciate a car or some equipment for your business that you don't need, or, you know, oil and gas that ends up going bubble up or, you know, whatever, right? So like there's a bunch of different things that people do to optimize for taxes that, in my opinion, aren't that smart. I'd much rather just, hey, I paid my 30 percent. The other 70 percent is mine. I'll do whatever I want to do with it. See you guys later. I love this breakdown. And the only thing I would add is I want to agree with Austin 100 percent. Don't overcomplicate it.

59:52I see so many people that put the cart before the horse. You've already handled the hardest part, and that is becoming a high earner. But also, even as being a high earner, you want to optimize your tax strategies without overcomplicating them, like Austin said. So definitely look at what real estate strategies can you implement into your portfolio to be able to help you offset some of these taxes that you're going to be paying because you're a high earner. But overall, don't overcomplicate it. Do what works well within your wheelhouse and continually diversify your investments. so that way you're also optimizing gains and not just worrying about optimizing taxes.

1:00:30So keep that in mind. I think Austin crushed it and that's the only thing I really have to add. So our final question comes from Adair P on Instagram. Adair P says, I have$20 ,000 that I would like to invest equally for my two children. They're 26 and 29. I've already opened individual Fidelity brokerage accounts for each of them and my goal is to invest this money in a way that it can grow steadily over time for the next 20 plus years without them needing to touch it. Ideally, it's very low maintenance. It's a long-term strategy, something that allows for money to compound through reinvested dividends.

1:01:03Whatever you guys have, I'm in. Thank you so much. Robert, I think it's time Adair P. learns about the S &P 500. See what I did there? That was pretty cool, right? Okay. Okay, so what is the S &P 500? The S &P 500, also known as the Standard & Poor's 500 Index, is essentially an investment strategy that you can participate in by purchasing shares of the ETF VOO. And that strategy essentially is we're going to go buy and own the 500 largest, most profitable companies in the United States. That's the strategy. Now, over time, what's so cool about this is you said for the next 20 years, not touch it, low maintenance, long-term strategy.

1:01:47What the S &P 500 does is it's self-cleansing, which means every three months, the S &P 500 will boot out the losers and include new winners. Coinbase, for example, is a company that just got included in the S &P 500, I think, a couple months ago. But very specific criteria has to take place before a company is invited to join the S &P 500, as well as if you don't meet that criteria anymore, you get booted out, which means that this strategy is always going to be changing. It's always going to have new companies, different companies, different sectors, like whatever, but it's always optimizing for the absolute best performance, which is why it's done 11 % on average compounded annually since its inception back in like the 1920s or 30s or whatever it was.

1:02:36So here's the criteria. It must be a US company, so United States. It must have a market cap of at least 14 and a half billion dollars, which means this company is a multi-billion dollar enterprise, right? These aren't just your little fly-by-night, couple hundred million dollar whatever's that decided to go public on the stock market and try and make it big. These are multi-billion dollar enterprises that are inside of this strategy. They also must have 50 % of their total shares outstanding open to the public, which means essentially the insiders can't be like doing anything weird with their stock and weird voting.

1:03:11So it's a publicly traded company. The public owns this. And finally, the company must be profitable in the most recent quarter and have positive profits for the last 12 months. So every company that's in the S &P 500, they're profitable, they're growing, they're huge multi-billion dollar corporations that trend up into the right over a long period of time. And if they're not, they get booted out of the index and get replaced with companies that actually meet that criteria. So if I were you, I would just take 10 ,000, 10 ,000, use it to buy$10 ,000 worth of VOO for your two children each, and then literally forget about it.

1:03:51That$10 ,000 should double on average every seven years for the next, let's call it 20 years here. So the$10 ,000 in each account will be worth about$80 ,000 in about 20 years from now. Yeah. I'm going to click it back that I think this is a great strategy. Too many people overcomplicate investing and it just isn't necessary. They think it's an action sports movie and they've got to constantly be in there making changes and doing all these fancy things. And there was a really famous interview of Warren Buffett. I think it was a couple of years ago. And he said, when he dies, he was telling his wife to invest all the money in the S and P 500 and treasury bills.

1:04:29When he says S and P 500, that's V O O. And when you have one of the greatest investors of our era of our lifetimes saying that the S &P 500 is the way to go, then you definitely want to listen. It isn't fancy. It's not something that's crazy, you know, informative. It's just simple and it works. Like Austin said, it has performed so incredibly well over the last 70, 80, 90 years. It is a great strategy for growth and set it and forget it like you want in this case. What a great episode. Make sure everyone shares this with a friend because it was just mind bending. great, great information. As always, everybody, thank you so much for tuning in to this week's episode of the Rich Habits podcast.

1:05:13We are super, super excited that on Friday, we published our first Rich Habits Radar new Friday episodes. If you've not yet listened to that, go listen to that Friday episode. We talked about Meta and Microsoft's capital expenditures exceeding like$150 billion combined. We talked about Jerome Powell keeping interest rates the same, as well as whatever the heck Elon Musk is doing here in downtown Nashville, trying to make some of these caves or whatever the boring company does to make, I don't know, this guy's crazy. But if he wants to get me to the airport faster, I'll take it. Thanks, everyone.

1:05:49And have a great start to your week.