13: How to Become a Millionaire in a Recession, Angel Investing, and Credit Cards

0:28Americans told Washington what they want. The holidays mean more travel, more shopping, more time online, and more personal info in more places that could expose you more to identity theft. But LifeLock monitors millions of data points per second. If your identity is stolen, our U.S.-based restoration specialists will fix it, guaranteed, or your money back. Don't face drained accounts, fraudulent loans, or financial losses alone. Get more holiday fun and less holiday worry with LifeLock. Save up to 40 % your first year. Visit LifeLock.com slash podcast. Terms apply. Hey everyone and welcome back to the Rich Habits Podcast.

1:03My 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've built a seven-figure media business and 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. However, we try and bring you two unique perspectives.

1:36One from an industry veteran, Robert, and the other myself, someone who's still in the process of building wealth and figuring it all out. Robert, what are we going to be talking about in today's episode? In this episode, we're going to be talking about mindset and how today's millionaires were made in the last recession, specifically making that mindset shift, how to take advantage of the potential recession on the horizon, as well as what we think you should be investing your money into to ensure long-term success. I love that this episode leans into the mindset side of business, finance, and mindset.

2:12We haven't done one of these episodes in a while, so I'm really eager to hear your perspective, Robert. Let's kick things off with making that mindset shift. Robert, walk me through how that mindset shift happens, why it's so important, and how it tees people up to become millionaires in the current recession. Yeah, you know, we talk about analysis paralysis a lot. And when we're going into or in the middle of a recession, that's really prevalent, I think, in a lot of people's minds and their activities revolving around investing and maximizing their portfolios. So I think that there are just people who are scared and there are people who are disciplined.

2:50And those who are constantly investing during every market cycle, including recessions, are just going to benefit the most. Because remember, I always talk about it, time in the market, not timing the market. You only get hurt on a roller coaster when you get off halfway through. And those who are scared and sell off all their investments during market turmoil never build wealth because they have nothing growing in value over time for them. And this is just really, really important. That's why we always preach to dollar cost average through the good times and the bad times, because it's time in the market, not timing the market.

3:29That is probably one of my favorite quotes, besides the you can't out invest high interest consumer debt. That's a really good one over there. But yes, time in the market, not timing the market. And so exactly what we mean here is if you kind of rewind back to 2008 or even the crazy collapse we saw in 2020 in the stock market, people who are scared and not disciplined were buying and selling left and right. They were trying to time the market. And don't get me wrong, it is absolutely so much fun to buy stocks and sell stocks and try and make a buck and have some fun with that. I get it. It's cool.

4:03I do the same thing. But when it relates to building long-term wealth for my retirement, I'm not jumping in and out of the markets. I get aggressive when the stock market is red. I get excited when we have a recession or some sort of bear market because that is an opportunity for me to begin investing toward my future at a discount, right? Everyone gets so excited when you go to Amazon or Walmart or Home Depot and things are on a 10, 20, 30 % discount, they're rushing to go buy it. But when stocks and the stock market is at a 10, 20, 30 % discount, people get scared. They think, oh my gosh my money is losing value the companies that were so great and have been great and will continue to be great are less in value therefore maybe they're not doing too well right there's just the psychology around this and that mindset shift that people have to make is so incredibly important Robert so I'm loving that we're talking about this now and before we move on to our next topic I just really want to make sure we all understand that when we say today's millionaires were made in the last recession people who are rich today if you rewind call it I don't know 12 12, 13, 14, 15 years ago when the markets were very volatile during the great financial crisis, those were the people who said, you know what, I'm going to invest$200 a month,$400 a month, $600 a month toward the S &P 500 or any other ideas they might have had.

5:24And that turned into long-term success for them instead of saying, whoa, whoa, whoa, I'm scared. I'm selling everything. I'm going to hold onto my money tight. No, no, no. Today's millionaires were excited. They were aggressive and disciplined with their investing habits. And to become that in the future, you have to keep the same mentality in the looming recession coming toward us. So Robert, let's talk tactically here about how people can begin investing during a recession. Walk me through how someone who's just getting started can begin making those first steps. Just so important for people to get started because you can't wait for the perfect time.

6:00It all comes down to everyone thinking they can time a market. And so when you're just getting started, investing is only hard if you make it hard. Because at the end of the day, right now, going into this recession, dealing with de-dollarization in the BRICS countries and all of these different scare tactics and fear-monger tactics, there's still money to be made. So I'm always, just like you, Asu, we're always telling people, get your brokerage account open, get your retirement set up, get your Roth IRA going. And at the very least, deposit$100,$500,$1 ,000 a month, whatever you can, into this Roth IRA and buy the VOO, the QQQ, and the BTIs of the world.

6:46Some of these accounts and index funds that we love, those index funds, those ETFs are averaging 8%, 10%, 11 % a year, year over year for the past 60, 70 years. There's just a lot of different ways to make money, even during a recession. And you just you have to remember that you don't want your money sitting idly because scared money doesn't make money. And one of the key takeaways, especially with inflation as high as it is right now, would you rather be risking your money to try and make some really great gains? Or would you rather let it sit and lose 7 % anyway? I personally, and I know Austin will agree with me, you're gonna wanna make those shots, take those shots, so your money is making money all the time.

7:34And that's why we talk about these treasury bills. We talk about high-yield savings. We talk about VOO because guess what? There are still ways to make money right now, today in the markets. And when we're coming in and out of these recessions like we're entering and part of right now, it just leads to so many more opportunities, especially through diversifying your investments. Now, Robert, I think this is a great segue into our final bullet point, which is diversifying your investments. I think what's really fun about a recession is sort of the kind of craziness that happens from the perspective of the market.

8:14Now, whenever there's a recession, investors discount companies that they think might not make it out of the recession, right? Which in my opinion is an opportunity. As investors look around, they get scared and they say, wait a second, I don't want to have my money in Dutch Bros Coffee or insert random tech growth company here. I'd rather have my money in Apple or Microsoft or Google or Amazon because I know at the end of the day and when this recession blows over that those companies are still going to be around and they're going to be successful. Now in my opinion that's an opportunity to instead invest into the high growth speculative names.

8:55As you begin to invest and think about investing aggressively during a recession find a couple companies that you understand very well that you have an investment thesis behind and you want to kind of move a little bit of money into. Now I'm not saying bet the farm right, this might be 2 % or 3 % of your total portfolio. But these are opportunities that I think people forget about because when you don't make that mindset shift, you're kind of following the herd of, wait, let's get out of these speculative stocks and instead move to safety, when in actuality, the speculative stocks aren't always that speculative.

9:27Yeah, I love it. And one of the key takeaways from all of that, and that was a great breakdown, Austin, thank you so much, is to really think back to one of the kind of simplest of Warren Buffett's quotes, be fearful when others are greedy and greedy when others are fearful. Most people get investing wrong. They wait till something skyrockets to the top and they're going, okay, now's my time to get in. It's finally going up, up, up. They buy at the top. And then as soon as it corrects, six months later, three months later, a year later, they sell. Then it goes back up again and they buy back in again.

10:02And they repeat this process over and over and over again. people just all think that there's some evil genius out there where you can figure out how to time the market. And guess what? The brightest hedge funds, the brightest investment minds of our time still lose tens, if not hundreds of millions of dollars because even they can't time the market. And you cannot try to time it. You just have to go with the good companies that have the good balance sheets and just stick it out. It's just so important not trying to time the market. And every day I hear from clients where their broker friend or their financial advisor has them in 75 % cash because the markets are too scary.

10:46And of all times, people should not be sitting in cash right now because there are so many great opportunities out there through all of the diversified alternative investment strategies that we talk about. This episode of The New Switch Habits podcast is brought to you by Neos Investments. Neos offers ETFs that aim to offer monthly income while providing core portfolio exposure across equities, fixed income, and cash alternatives like T-bills. And you know we love those T-bills. Their ETFs may be particularly interesting for folks looking to generate passive income inside of their investment portfolio.

11:25They even offer an ETF that provides exposure to the S &P 500 index while aiming to offer high monthly income beyond what investors would receive from their plan exposure to the index. Their funds may serve as a compelling income-focused alternative or complement to many of the investments already in many investor portfolios. If you're looking to add passive income-focused ETFs to your portfolio, consider learning more about NEOS's ETFs at neosfunds.com. And as with all investments, investors should carefully consider their investment objectives, risks, charges, and expenses of NEOS exchange-traded funds before investing.

12:06Yes, very important to understand what you're investing in and why. So to obtain a prospectus containing this and other important information, please visit neosfunds.com. Please read the prospectus carefully before you invest. NEOS ETFs are distributed by Foreside Fund Services, LLC. All right, Robert, now that we've talked about millionaire mindsets, how to invest in a very simple but efficient way during a recession, and also how to diversify your investments, let's jump into our Q &A session. Our first question comes from Nathan G. Nathan says, I use a credit card for all of my purchases. I pay off my bill each month and I mainly do it for the cash back.

12:49Is this okay? Should I continue or strictly use a debit card? Now, Robert, I know you have some thoughts on this question, so I'll let you kick us off first. Yeah, I think it's a great strategy. You're maximizing the benefits of the credit card, which most people don't do. This is something I want to touch on soon, either in a podcast or on one of my lives, because so many people go out and buy and pay for an annual fee on a really cool credit card, and then they don't optimize it. And you guys know we're always talking about optimizing our money and our strategies. So I think Nathan G is doing it right.

13:25I definitely like using it, paying it off, making sure it's optimized so it's best for your credit score, but also just really using it as best you can. Now, should you use your debit card? I don't think there's a problem using a debit card. Sometimes there's benefits to using a debit card, but I like your strategy, Nathan G, and love what you're doing. The only thing I would add to that is 78 % of folks who have the JPMorgan Chase Sapphire Reserve card, a preferred card, one of those two, don't pay it off on a monthly basis. And so if you think about it, the people who can afford to have that card, because I believe it has an annual fee that's north of$500, you would imagine that they could afford to pay it off, but they don't.

14:08So just make sure, Nathan, you're not falling victim to the, oh, I have a cool card, I'm spending on it, I'm getting my cash back, but oh gosh, wait, I overspent. Oh my gosh, I can't pay this off. I just don't fall victim to that trap. Yeah, we just talked about this last week, Austin, when we were talking about the Apple high-yield savings account that they just announced and how it's attached to the Apple card. And I think it's just a great, incredibly bait and switch kind of tactic because Apple knows by giving this high yield, awesome savings account, people are going to be tempted to use their credit card more often than they should.

14:43So, you know, a lot of these strategies can be really optimized as long as you follow the rules and keep it below 30 percent usage or pay it off every month and just make sure you make your payments on time. So great job, Nathan G. Two thumbs up from us, Nathan. Okay, our next question actually doesn't come, at least I didn't see their name. Their username, however, is Meaningful Vitality. So Meaningful Vitality asks, my household income is$210 ,000 a year and I end up with an extra$3 ,000 per month. What should I be doing with this? I already have a solid savings and I'm already investing into crypto and stocks and maybe a little bit of real estate, but any other cool ideas?

15:25So I'm actually gonna take a stab at this one first. Here's what I would do. Think about it like this. If you have$3 ,000 extra every single month, that's$36 ,000 a year. So I'm someone who's always thinking about how can I generate passive income, right? How can I build my income stream so when I'm sleeping, when I'm not doing anything, I'm making money. I would think about two other ways to now deploy this money. The first one is obviously real estate, actual real estate. This might be a single family property. This might be a duplex or something of that nature. Think about it. Three years of saving$3 ,000 a month is nearly $110 ,000.

16:05After three years time, if you can be patient and save$110 ,000 in cash, think about how incredible the rental properties that you would now be able to have the ability to purchase and all that rental income. If it's a single family, if it's a duplex, a triplex, a multifamily, whatever that might be, right? So the first thing I would really encourage you to think about with this extra money is how can I invest it into real estate? And if that's not your goal, or maybe you're already doing that, and you're really trying to think of new ideas, I bought a vending machine business myself about a year ago, I paid$40 ,000 for it.

16:37So about just over a year's worth of you saving money, you know, your extra income here of 3000 a month, I like it, it cash flows between 2000 and$2 ,500 per month, which is really cool. So I you know, I make my money back in a year's time easily. And so that's just another, and obviously it's not as passive, but it's fun. I really enjoy, my friend Steven and I pull it together and we like go do the, you know, our rounds and it's fun. We enjoy it. It's more of a hobby than it is a way to make money, but it's something that we like to do together. So I would just really encourage you to think outside the box with that.

17:09Robert, what do you have suggestions for our friend Meaningful Vitality as it relates to their extra$3 ,000 per month? This is a real good story about Bronx and his dad, Ryan, real United Airlines customers. We were returning home and one of the flight attendants asked Bronx if he wanted to see the flight deck and meet Captain Andrew. I got to sit in the driver's seat. I grew up in an aviation family and seeing Bronx kind of reminded me of myself when I was that age. That's Andrew, a real United pilot. These small interactions can shape a kid's future. It felt like I was the captain. Allowing my son to see the flight deck will stick with us forever.

17:43That's how good leads the way. Shopping is hard, right? But I found a better way. Stitch Fix online personal styling makes it easy. I just give my stylist my size, style, and budget preferences. I order boxes when I want and how I want. No subscription required. And he sends just for me pieces, plus outfit recommendations and styling tips. I keep what works and send back the rest. It's so easy. Make style easy. Get started today at stitchfix.com slash Spotify. That's stitchfix.com slash Spotify. Yeah, I like your twist on looking at buying some small businesses for additional income. But I also like the thought at this kind of yearly income for a household.

18:25I also like the thought of them looking at angel investing. investing in startups, established businesses, and other businesses that might be raising capital. Because I think angel investing is kind of the next step once you've covered cryptocurrency, your index funds, you have your Roth IRA maxed out every year, you've got some real estate going, and you've kind of got all your bases covered. Then I like to start teasing into angel investing into small businesses and startups. This can be writing smaller checks from$5 ,000 to$25 ,000 per investment. But I think it's a great strategy to really put your money to work and take some shots with your money.

19:10Because once you have all your bases covered and you know you're going to have this passive income as you speak of Austin, then I think it's great to take some shots where you can maybe 50X or 30X your money on some shots. So I always think angel investing as a good additional source to be investing in. That is such a great suggestion. I didn't even think about that. I don't know if you guys know this, but I also angel invest. I've invested into over now 25 different startups. I love doing it. I wouldn't say I'm addicted by any means, but the check sizes I write are between, I think the smallest is about$15 ,000, sometimes$10 ,000, but between$10 ,000 and$15 ,000 is the smallest and the biggest check ever wrote was$75 ,000.

19:51So somewhere in that range, obviously this 3 ,000 per month you save it for a year you've got 36 ,000 in liquidity you can write probably two checks with that and if you're thinking meaningful vitality how do I find the companies to invest into go to Y Combinator's website they're this accelerator program for startups and all the biggest and best companies that have turned into incredible exit opportunities for investors normally come through Y Combinator so if you're able to identify a couple that you really like perhaps shoot your shot cold email some of them and ask if you can participate in their seed round or their series A or whatever that might look like for them.

20:24So I love that idea, Robert. I would also like to add in a little pro tip that you get on the AngelList email list because there's a lot of great deal flow that comes through there. So at least check that out, AngelList.com, but you can get on their email list and get all of their deal flow. Our last question comes from Aaron B. Aaron says, I just started house hacking and I know you all recommend duplexes and triplexes, but I actually went with a single family house and I'm actually just renting out the other rooms. However, I'm worried I'm not doing things right. Could you tell me what constitutes a good deal when you're house hacking?

21:01Robert, I'm gonna let you answer this one first. I think the key takeaways for this, Aaron B., I think it's a great strategy you're trying to work with here. It's okay that you're renting rooms in your house, but you just You really have to go through a stringent process of selection. And once you do that, one of the key things to make sure you do, just like if you were doing a full home rental and lease, is to make sure you have a spelled out, you know, really good lease for that room that spells out the rules, the common areas and everything. because what you don't want to do when you're sharing your main home with other people that could be strangers is not have all of the rules spelled out.

21:42So I would make sure that you get a really nice lease drafted, what the common areas include, what they don't include, what the house rules are, and really spell that out because what you want to do is protect yourself in a way that if it doesn't work out with one of your renters, that you can legally and quickly get them removed from the house because you don't want to feel displaced in your own home. So I would just really make sure your selection process is great and that your lease agreement, even though it's for a single room in the common areas, is well done also. I couldn't have said it better myself.

22:17And the only perspective I have on this, Aaron B., is I've got a friend named Jack Selby. You might recognize him from the Ice Coffee Hour podcast with Graham Stephan. And he also did the same strategy, right? He went to go buy a single family home and he rents out, I think, two of the other rooms to some of his friends. I think it's a great strategy. It just comes down to you now have roommates versus sort of like this idea of, you know, I live in one side of the house, you live in the other side. Like these are actual roommates now. But also when it comes down to the idea of what constitutes a good deal with house hacking is are they paying your mortgage for you, right?

22:51If your mortgage is, I don't know,$1 ,500 or$2 ,000, can you rent out those two other bedrooms for$750 to$1 ,000 and have them completely cover your mortgage. If you can do that, you are dandy. Yeah, I love that, Austin. And Aaron B., I think you're on the right track. This is a really good strategy to get you some passive income and have these guys help you pay for your mortgage or pay for the entire mortgage. So I think it's a great strategy. And just follow those simple guidelines we spelled out. You'll be in great shape. I love it. everyone thank you so much for tuning into this week's episode of the rich habits podcast don't forget to leave us a five-star review on spotify apple or anywhere that you're listening to this podcast every single review helps we're almost up to 250 five-star reviews now on spotify can you believe that robert this is crazy yeah it's crazy and austin tell the listeners a little bit because you guys have been so supportive.

23:49Tell them about our meteoric rise and where we're at now, because I was just informed by Austin the other day, I believe we're in the top 50 already. So this is amazing. We are. We are. We're in the top 50 now for Spotify's business podcasts. We have now over 8 ,500 weekly listeners, which is incredible. And we have cumulative downloads of 80 ,000. How insane is that 80 ,000 plays? I'm just, I'm thrilled, man. I'm so excited. And season one here, we're just getting started. We're going to be hitting you guys every Monday morning with our rich habits and our ideas and our strategies and Robert's awesome perspective on building wealth, business, finance, and mindset as always.

24:30So be sure to come back every week, click the follow button, no matter where you're listening to this podcast, and we will see you very, very soon. Love it. Thank you, Austin. And guys talk soon. Thank you.