133: How To Diversify Your Portfolio For Generational Wealth

0:00When it comes to what your family eats and drinks, you know your choices matter. You're the expert because you know what fits your life. And getting it right starts with good information. That's why America's beverage companies are sharing more information about our ingredients at GoodToKnowFacts.org. No spin, no judgments, just the facts straight from the experts for more than 140 beverage ingredients. Visit GoodToKnowFacts.org.

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1:16Now in this episode, we're going to explain exactly how to diversify your investment portfolio to ensure wealth for generations to come. My name is Austin Hankwitz, and I'm joined by my co-host, Robert Croak. Robert is a seasoned entrepreneur with lifetime revenues of over 300 million, and I'm a multimillionaire in my late 20s with a background in finance and economics. As the show name might suggest, every episode, we talk about rich habits as they relate to business, finance, and mindset. So Robert, what are we going to be talking about in today's episode? In this week's episode of the Rich Habits Podcast, we're going to lay out the blueprint for diversifying your portfolio no matter the size.

1:52We know so many of you are listening right now with portfolios of 100k, 500k. And I think we even answered a question the other week from someone with a$4 million portfolio. So no matter the size, the strategy remains the same. Now, remember, you shouldn't be focused on diversifying your portfolio until you have the 100k or more saved and invested in the stock market. You always hear us talking about building your base. That's what this means. The reason why we say this is because if you don't have at least 100k working and growing for you in the NASDAQ, in the S &P 500, and other index funds and ETFs we talk about, you'll never be able to consistently build wealth over your lifetime.

2:35You'll find yourself making a ton of money, maybe on a Figma IPO, cash it out and upgrade the car, then build up some more money, then cash it out to upgrade the kitchen. And this vicious cycle repeats. And that ends today with this episode. Now we're not discounting how hard it is to get your first $100 ,000 invested. We know that's very hard and it takes some time. On average, it takes seven years to accomplish this. But once it's invested and you're ready to diversify your portfolio, this episode is going to help you take your investments to the next level. So by the end of the episode, you'll know our step-by-step framework for building a well-diversified portfolio from scratch.

3:14So Robert, we've done this in a way where we broke it down by step one, step two, and step three. So if people listening right now follow these steps in order, they should have a pretty clear understanding of how to diversify that portfolio for generational wealth. So why don't you kick us off with step number one? Yes. Step number one is follow the core satellite portfolio strategy. You've heard us talk about this for years, and today we're going to take a deep dive into what it is and why it's important. Just like the name suggests, you're going to build a portfolio around two sections, a core section and a satellite section.

3:49The core section is defined as the main component of your portfolio. This main component usually makes up about 65 to 85 % of your entire portfolio's value. The satellite section is defined as other ideas and diversification measures. This section usually makes up the remaining 15 to 35 % of your portfolio. Using real numbers, your$1 million portfolio would have roughly$650 ,000 invested in the core section and$350 ,000 invested in the satellite section, just like we talked about. The magic to this strategy is that it follows percentages. That is key here, which means it doesn't matter if your portfolio is worth$1 million,$5 million, or even just$100 ,000.

4:37Maybe you're just getting started. you can follow this strategy and stay on track for wealth building. Well, heck, if you've got$100 ,000 invested, you're definitely not just getting started and you're doing a wonderful job. But I totally agree. No matter the size of your portfolio, this strategy is going to be able to work for you because it follows percentages. And that's what's really important. So just to reiterate what Robert said, 65 to 85 % of the portfolio is invested in this core component. The remaining 15 to 35 % is invested into the satellite component. Now we're going to walk through what that actually means for you and your money.

5:11So as it relates to the core holdings, the 65 to 85%, we want to ensure that the vast majority of our portfolios, right, the main core component here, is invested in the index funds and ETFs that we love and know have performed well over the last several decades. Think VOO, QQQ, VGT, VTI, and other well-performing funds that we've talked about on the show. Personally, I like to keep the S &P 500, so VOO, as the largest position in my own core section of my portfolio. But again, personal finance is personal. Risk tolerances are all different. Maybe you want QQQ as your largest position or VGT, right?

5:54Everyone's different, but I like to stick to the S &P 500 making up the largest portion of the core holdings in my own portfolio. Finally, let's talk about the 15 % to 35 % and how the satellite component is invested. This is my favorite part because it's all about diversification. That 15 to 35 % of your portfolio can now be diversified across different asset classes like real estate, pre-IPO companies, precious metals, cryptocurrency, and more. It can also be diversified into blue chip single stocks you're particularly bullish on. We talk about those all the time like NVIDIA. Or it can be diversified into thematic ETFs that follow and invest in a specific theme in the markets like nuclear, biotechnology, big tech, or something else you're excited about.

6:43For us, we like URA for nuclear. We like AIQ for artificial intelligence and grid for infrastructure and utilities. Here's where it all comes together. On one side, in your core holdings, you have the vast majority of your investments trending higher over time in the index funds and ETFs we love, like the S &P 500, the NASDAQ 100, and more. And on the other side, in your satellite holdings, you are opportunistically investing in different asset classes that offset market volatility, expose you to the themes in the market, and give you the diversification you need to outperform over long periods of time if you're choosing the right investments.

7:25If you need help choosing those investments, we highly recommend checking out the Rich Habits Network. It is now up to almost 700 people a part of it. We host weekly live streams where Robert and I uncover our own portfolios and what we are focused on for that week, month, and quarter. Now, here's something that's really important to understand. Portfolio rebalancing. Nod your head if you guys know what that means. Okay, here we go. If I had a$1 million portfolio, I would probably put about$700 ,000 or 70 % of it in the core holdings and the other 300 ,000 or 30 % of it in the satellite holdings.

8:03Now, that doesn't mean it's always going to stay at that 70-30 split. For example, if the 30 % is invested maybe aggressively, right, and I have a high risk tolerance, that 30 % might rise to make up 40 or 50 % of the total portfolio's value. Now, something I like to do twice per year is portfolio rebalancing, which essentially means every six months or so, I reevaluate my holdings, I track their performance, and I rebalance back to the original weightings that I choose for myself every single year, depending on my risk tolerance that year. So tactically speaking, that means, whoa, that$300 ,000 is now worth$500 ,000 because Bitcoin, precious metals, and AI just absolutely exploded during this period of time.

8:52I'm now going to take some profits, let's call it$200 ,000 of profits and redeploy that back into the core holding section of my portfolio. So bringing that back up to that 70%, bringing the 50 % back down to 30. And that's sort of how I like to rock and roll on an annualized basis when it comes to building wealth over a long period of time. The reason why this is so important, Robert, is a lot of people have those really cool one-off ideas of diversification. If it's a precious metal, if it's a stock, if it's, you know, something happened and it pops off like crazy. And then you look around, you're like, whoa, this one thing makes up 18 % of my net worth.

9:35It's a little risky, right? What happens if that goes away? 18 % of your net worth just evaporated. Now I'm not saying something's just going to go away, but you know, we've seen UnitedHealth Group, for example, drop by 40, 50 % in a couple months. Like what happens if you rode that wave up for the last 10, 15 years and it made up a substantial amount of your net worth. And now you just experienced a 50 % hit. So this is why Robert and I love to preach diversification, proper portfolio rebalancing, ensuring that not only are you growing wealth over several years and decades, but that wealth is going to be there when you're gone, allowing you to pass it on to the next generation.

10:12And diversification doesn't mean trying to time the market and chasing some meme stock or some stock tip that's a penny stock that, you know, Uncle Bill at the barbershop told you about. It means diversifying with a plan and sticking to that plan. That is why this episode is game changing for so many of you out there, because we just want to make sure you understand not to get fancy, not to have 35 different individual stocks, 55 different cryptos, because you have to let your winners win, but you also have to have a focused plan. And that is why diversification is so important to build and maintain wealth.

10:52I'm really glad you mentioned that, Robert. I want to double click. So a lot of people, to your point, they say, okay, my core holdings, maybe I've got three, five, seven different ETFs, right? That makes a lot of sense to me. Call it five or less is pretty good. It's a good number to have there in the core holdings. And then the satellite holdings. Again, maybe you've got a couple blue chip stocks you're excited about. Maybe it includes a couple of REITs, real estate investment trusts you like a lot. Maybe it's got three to five cryptocurrencies in there. Maybe you've got some precious metals like gold, silver, copper, or platinum, right?

11:23So it's like three, four, five of all of these little asset classes is totally normal, totally fine. But what's not normal and fine is when you have 38 different little stocks and 42 different cryptos and nine different, like that's when things get overwhelming, that is too much diversification. You're never really going to be able to take advantage of the moves of the market if you have it spread so thin across a bunch of different things. So that, I guess, can go back into this six-month portfolio rebalancing. If you find yourself as someone who likes to nibble on a bunch of different things, maybe every three, six, or nine months, you kind of cleanse the portfolio, specifically the diversified section of it, and ensure that you pick out the winners, you either take profits on them and reinvest those profits back into the core holdings, or then maybe you cut out the losers, you take what's left and you put that back into the core holdings as well.

12:13And when Austin speaks about rebalancing, please, please, please understand this is done with a reason and it is done strategically. Rebalancing does not mean you're trying to time the market. It doesn't mean you're trying to like figure out when it's going to go up and when it's going to go down and all of this. It means you're going to rebalance and you're going to analyze one by one how things have performed and do you still believe in that asset or that company to keep it for the long term. So please make sure that rebalancing is not trying to day trade, swing trade, or time the market. So critical for everyone listening to understand.

12:51So in summary, this is how you diversify your portfolio for generational wealth. You follow the core satellite portfolio strategy. That means 65 to 85 % of your portfolio is invested into the index funds and ETFs we talk about, making sure that over a long period of time you're going to move up with the markets and build wealth. The other 15 to 35 % of your portfolio is invested into blue chip single stocks, maybe some real estate, a couple cryptocurrencies, perhaps some precious metals, but things that you are excited about. Maybe it's a theme of the market, Maybe it's something that can offset market volatility, whatever makes sense for you and your risk tolerance.

13:29And then of course, over time, every six months is what I do, but personal finance is personal. You want to go in and rebalance. You want to take some profits, redeploy them elsewhere in the portfolio, and just make sure that you are always following and staying true to your own risk tolerance and that maybe a specific stock or asset class doesn't balloon in value so much inside your portfolio that you're overexposed to a event or an earnings call or something that could really knock down your net worth if something bad happened. Our main goal for this episode, because we see so many people get it backwards, when they first start investing, they take all this crazy risk.

14:07They're chasing meme stocks, they're chasing penny stocks, and they're not building their base. And I think if everyone could really focus in on that part of this episode to build the base first, so you're making money while you sleep. You always heard that term. It's a famous, famous quote from, I believe, Warren Buffett, but it's so critical to really implement. So I think that is my main goal and takeaway from this episode. Build the base first, then diversify, get the 100K put away so you're making that money while you sleep and wealth is inevitable. Now, before we jump into the Q &A section of this episode, we got to give a shout out to public.com, the investing platform for those who take it seriously.

14:48If you're serious about investing toward your financial future, it's time you learn more about public.com. On public, you can build a multi-asset portfolio of stocks, bonds, options, crypto, and more. Back to this idea of that core satellite strategy, public's going to help you do it. And that's not all. Public's artificial intelligence isn't just a feature built into the platform, it's woven into the entire experience. From portfolio insights to earnings call recaps, public gives you smarter context at every touchpoint of your investing journey. And for a limited time, you can earn a 1 % match on all IRA deposits, IRA transfers, and 401k rollovers.

15:24Let me say that again. 1 % match on all IRA deposits, transfers, and 401k rollovers. So fund your account in five minutes or less only at public.com forward slash rich habits. Paid for by public investing, full disclosure in the podcast description. All right, Robert, we have three awesome questions asked from our amazing listeners. I think all of these came via Instagram DMs. So if you have a question to ask us, be sure to DM us on Instagram at richhabitspodcast or email us at richhabitspodcast at gmail.com. So our first question is coming from Isaiah on Instagram. Isaiah says, Hi, Austin and Robert.

16:01My name's Isaiah. I'm 23 and I'm from Toledo, Ohio. I've been argling out construction as a superintendent and project engineer and I've been saving up my money for a while. I have$50 ,000 of total assets,$10 ,000 in a Roth IRA,$20 ,000 in a brokerage, $5 ,000 in crypto and the rest is in my high yield savings or my checking account. I have no debt besides a very cheap car and a house that I just bought. I'm also about to get married, which I'm super excited about, but she's coming into the marriage with$85 ,000 of student loan debt. Now my question is, I really want to flip houses on this side.

16:35I know the process of buying a home, but I don't know where to begin to buy additional homes to flip and sell or what the best approach would be. I'd love to get some advice on what you guys would think the best thing for me to do is because I'm young, I'm hungry. I've got some construction knowledge, a little bit of cash, a little bit of debt, but I'm ready to get to work. I admire the no BS approach you guys take, and I'd be super grateful for any wisdom or resources you could share. Thanks for what you do. Your podcast is changing mindsets like mine. P.S. I love the new Friday episodes and PPS, Robert, if you ever need help on any of your home flips, I'm in the area and I would love to help you out.

17:09Robert, this is your question. It is an Isaiah. You shot your shot and your life is about to change. We always need help for Ohio projects and we're so excited and you and I will link up in the coming days, see what you're all about and see if we can put you into the mix and maybe you can help us out on some of our flips and learn along the way. But to answer your question, how do you do it? Well, first and foremost, you have to pick kind of your buy box. What price range are you looking to be in? For me, it kind of varies, but some of the best flips from or percentage of profit for me are buying homes for$50 ,000,$60 ,000,$80 ,000, putting$20 ,000 or $30 ,000 into them and selling them for$150 ,000,$170 ,000.

17:54Now, you can go through all different price ranges, but I think the key for you is start small, try to do a family and friends raise so you can get the capital put together for this first project and really make sure to understand, can Can you do it as a side hustle? I absolutely think you can. Because as long as you can find some good workers to help you and you can get entrenched and know what things should cost, who to have work for you, and all of that, I think you can crush it because you already have construction experience. Too many people want to get into house flipping because they hear it's easy.

18:27It is not easy for anyone out there. If you're not from the construction trades and you're thinking about house flipping, find an operating partner that has experience in the game. Other options you can look at if you don't want to do a friends and family round is find maybe something where you can do owner financing. Maybe you find a home that needs a total renovation. The person is moving, selling, whatever. You go in and you offer them a 10 % down payment. You get payments over time, maybe for five years, and then have a balloon at the end. This is a great way to get started as well. It's what I did to get started because I didn't qualify for a loan back at that time.

19:06But those are the keys that I would say you could follow to really crush it in flipping homes. And you happen to be in one of the best markets in America, according to Wall Street Journal, for flipping homes and buying investment property. So I wish you the best of luck, Isaiah. Make sure you DM me on Instagram and we can link up and talk about how we can get you in the mix and you can help me out on my flips. Oh, I want to piggyback on this and dig a little bit deeper into some of the margins, some of the numbers. So in Toledo, you know, you're flipping a couple homes right now. They are incredibly affordable.

19:40Can you walk us through like a recent flip you did, how much you paid for the home, total cost of materials, total cost of labor, what you plan to sell it for and what that return looks like on that time period? So my goal is usually to try and do a flip in a hundred days from purchase to end. That's what I try to do. And we have multiple flips going at all times. So it's not like you're doing one flip waiting and then have to buy another flip because you'd have too much downtime. But the margins I would like to see in Toledo in the price range that I do, our goal is have a 22 to 25 % net margin to myself.

20:15And if there's investors, them as well. Some of these flips, like one of them we're doing right now, I believe is going to bring us more of a 30 % margin, but we'll see what the market does because interest rates are high. So it's not like there's a lot of bidding wars right now. But I believe that in this market in Toledo and through my experience is if I'm going to buy a home for say, I did one a couple of years ago, I bought it for$95 ,000. I put in, I think it was$35 ,000. So we were all in for$130 ,000 plus some fees. And I think we were all in for$137 ,000. So let's call it$140 ,000 and we sold it for$179 ,000.

20:55So we made$39 ,000 on$140 ,000, and it was a really good return for myself. I didn't have any investors in that one. So that's kind of how the numbers work for me. And you can find homes where you have to spend less on a renovation. We call it a lipstick remodel, where maybe you're just painting and landscaping, maybe some new blinds and drapes. But generally, I like to find the actual fixer-uppers because it provides more margin, but it also, we can create really nice homes for people at an affordable price. Isaiah, we say this all the time on the show, but I think Robert just proved it. You are one DM, one coffee chat, one conference, one meeting, one whatever away from a completely different life.

21:39And hopefully you are now Robert's new project manager and construction superintendent as he flips three, four, five, six homes all the time. So congrats on that and wishing you all the best. Our next question comes from Duck City USA. Duck City USA says, Hello Austin and Robert. I'm a long-term follower and I'm grateful for what you guys do. My financial advisor, who is a fiduciary, underperformed the S &P this year by at least 10%. And then of course, I have to pay fees on top of that. I could have done substantially better had I just put the money in VOO. What are your thoughts here? So I'll kick this one off, Robert.

22:13You mentioned that your financial advisor is a fiduciary, which is a really good thing. That means that they have to act in your best interest, right? They're investing your money in your interest, not in their own. Which tells me if they underperform the S &P 500 by 10%, it tells me that you are either very risk averse and you do not like to take risk and that advisor might have you in a lot of bonds or perhaps in, you know, a lot of things that are pretty steady like treasury bills and things of that nature, which obviously do not appreciate in value like the S &P 500 does when Meta and Microsoft have stellar earnings, right?

22:51So it tells me that you either underperformed because you are truly risk averse and you like your money to be going up 4 % a year with treasury bills, or maybe you misunderstood their fiduciary obligations and they parked you in some stuff that was maybe some weird small caps that underperformed or international stuff that might underperform. Like I'm not too sure. What would I do in this situation? I would have a good conversation with them and say, hey, why is my portfolio underperforming the S &P over this period of time? They're either going to say one of two things. One, they're going to blab about how they've got you in the right stuff and it's going to be better next year and they want to keep you in, whatever.

23:27Or two, they're going to explain, well, remember when we first met, you said that you didn't want to take on that much risk. Therefore, we put you in things that were not risky and things that are not risky don't go up in value that much. They just pay a consistent distribution like a treasury bill or some sort of bond. And right now, treasury bills and bonds are doing 4%. The S &P went up by, in this instance, let's call it 14%. Therefore, you underperformed dramatically because you didn't want to take on the risk. That is fiduciary. That is totally normal. I mean, they're not scammers by any stretch of the imagination because they followed your instructions and were trying to invest with your best interest.

24:02Now, maybe your interests change over time and you need to be a little bit more communicative about that with them, but they're either going to do one of those two things. Hopefully it's the one where you're just risk adverse so you can maybe take on more risks next year. Yeah, I want to click it back on this. And I think that's a great breakdown because a fiduciary is a good thing, but it doesn't mean they're good at their job. And remember, they're supposed to have your best interest in mind, but it doesn't mean that their portfolio selection is necessarily good. And the way I look at finance and people having a wealth manager, we have Croke Capital.

24:34My family's been doing it for 40 years. We're a fiduciary, but we also are very in tune with making sure that they talk to every single client quarterly. They readjust like Austin always talks about, reevaluate what the performance is to make sure it's going in the right direction. And so I look at it this way. Most people will find somebody, a friend of a friend to handle their money, and they will literally hand off everything they own to some stranger. But you wouldn't do that if you were going to get eye surgery or heart surgery. you would get multiple opinions in most cases. This is the same for finance.

25:11Go get other opinions. Any real company that does this for a living is gonna give you a free consultation and help you figure out your risk tolerance, where you're missing out, why are you underperforming so well? But I think in this case, like Austin alluded to, it really starts by you having a real conversation. I'm not happy. I want this to be better. Can you make it better? If not, I'm going somewhere else. And then you move your money. Because remember, money is digital. It's literally an hour's worth of work to move from one fiduciary to another. It's all done online and it's a very simple process.