172: APPRECIATING vs. DEPRECIATING Assets

20:45Robert Croak:What did I do? I said, Okay, let me go get a four and a half percent, five and a half percent margin against my portfolio, take out the$90 ,000, use that to buy the boat didn't have to sell my investments have to do anything. And over the coming two, three, four, five months, I put that money back into my portfolio. So I didn't have to come up with all this cash at once, I borrowed it from my investments, I never sold my investments. If you guys remember summer of 2025, the markets ripped, all my investments continue to go up in value. I put the money back into my portfolio, so I'm not in margin anymore.

21:18Robert Croak:And that's how I finance this boat while simultaneously paying cash. It is incredible. And there's so many instances of that. And you're like, Austin, that's 4.5%, 5%. Yeah, but I paid it off in a couple of months. Versus coming up in long-term capital gain tax or this, this, that, and the other. It's better. I can't even put it in words, Robert, but it's like wealthier people that have access to liquidity and capital and margin and just they have a portfolio, they're able to do these things. It truly is a game changer compared to those people that one, don't know these techniques exist, but also two, are literally person A who goes and buys the$60 ,000 car with a$900 payment.

21:59Robert Croak:And at the end of it, they look over and they're like, I've got this crappy car and no investment portfolio.

22:04Austin Hankwitz:Yeah, this really goes back to one of the best things you say that means so much. And I think it's really smart to say it right now. And that is wealthy people forecast, broke people react. And I feel this is really important because so many people go, I want to get a boat and go to my buddy's lake and go fishing and all that. Great. If you can afford the boat, go get the boat. But at the end of the day, you need to prepare and understand what you're buying. Is it an appreciating asset or is it an appreciating asset? And as long as you understand the buy box that you're in and what that means for your finances, I'm fine with it because we all like nice things, but you have to prepare for it accordingly.

22:44Austin Hankwitz:So let's break down the practical rules here. Let's give everyone the playbook here so they can apply it starting today. Rule number one, if it appreciates, consider using leverage. Real estate, business acquisitions, certain investment strategies, These are situations where smart, affordable debt can amplify your returns and help you build wealth. The key word is affordable. The debt payments need to be comfortably serviceable and the expected returns need to exceed the cost of borrowing. Rule number two, if it depreciates, use cash or minimize your financing term. If you absolutely must finance a car, keep the term as short as possible.

23:25Austin Hankwitz:36 months max is great and put as much money down as you can. The goal is to minimize the time you're paying interest on something that's losing value. Better yet, buy used and pay cash. Let someone else eat the first two years of depreciation. I've done that many times. I remember friends tease me when I bought a one-year-old Aston Martin DB9. It was my dream car, and I think I saved $105 ,000 by buying it used a year later. This was back in 2011 and it only had 1800 miles on it. And it was just a smart way to do it.

24:02Robert Croak:Dude. Yeah. My boat, again, I keep coming back to this boat example. I bought it in 2025. It's a 2022. So it's a three-year-old boat when I bought it. And I think the MSRP was like 190, 200. And I bought it for 50 % off that because I waited three years and I didn't want to buy a brand new boat. If it's going to be a depreciating asset, wait a year two or three and let the other person get that depreciation hit. Talking about rules here, Robert, rule three, never use high interest debt for any type of asset. Credit card debt here at 24 % interest, don't do it. Appreciating, depreciating, I don't care.

24:36Robert Croak:It's wealth destruction. Pay off your high interest debt full stop before doing anything else. Rule four, if you're not sure whether something appreciates or depreciates, it's probably going to depreciate. The test is simple. Will this be worth more or less in five years from now? If you cannot confidently say more, treat it like a depreciating asset and buy it with cash. And finally, rule five, rich people lease depreciating assets and own appreciating assets. There's a reason why you see wealthy people lease these luxury brand new cars instead of buying them to Robert's point. They understand that tying up$250 ,000 of capital to go buy a brand new Rolls Royce or whatever it might be into this depreciating asset that's going to fall off a cliff in value, that is opportunity cost.

25:24Robert Croak:That$250 ,000 sitting in some sort of Rolls Royce could be earning 10 % per year in the stock market if instead invested. So they lease it for$1 ,000,$2 ,000 a month, whatever it might be to keep their capital invested, swap it out after a couple of years without having to deal with that depreciation.

25:40Austin Hankwitz:Yeah. I just talked about this with one of my dearest friends and I explained to him, he's like, why do you lease these new cars? And I explained to him, I want a new car every two to three years. It's a depreciating asset. I don't want to own it. I want to use it. I want to borrow it. And then I want to give the keys back and pick up another one without any money out of pocket. So that's a great breakdown for rule number five. So Austin, let's recap what we covered today. Appreciating assets. Real estate, stocks, index funds, small businesses, certain private investments. These go up in value over time and many of them produce income along the way.

26:15Austin Hankwitz:Use strategic debt to buy these because leverage amplifies your upside and your wealth. Depreciating assets. Cars, electronics, boats, furniture, most consumer goods. Those lose value over time starting the day you buy them. Use cash for these and keep them modest until your appreciating assets are generating enough income to fund the lifestyle you desire. The gray areas, your primary home, education, collectibles, crypto. Understand what you're actually buying and don't fool yourself into thinking a depreciating asset is an investment just because you want it to be. So many people justify in this.

26:55Austin Hankwitz:And the framework here is borrow to buy things that go up, pay cash to buy things that go down. And if you follow this one rule consistently over the next 10, 20, or 30 years, you will build wealth, period. Inevitably, I promise you it'll all work out.

27:09Robert Croak:Especially if you do that example that Robert shared earlier, the$60 ,000,$900 car payment versus the$15 ,000 buy cash. Well, now the car is worth nothing six years later. But you took the same$900 a month car payment that Person A was doing. Now you've got a$95 ,000 portfolio, right? It's not just about pay cash for depreciating, borrow for appreciating. It's if you are going to pay cash for depreciating, you're being thoughtful about that depreciating asset. You're buying an asset that's already taken a hit, like my boat example, or like Robert's example with the DB9. You're buying something that's already taken the hit with cash, and you're using that difference and investing it.

27:49Robert Croak:And you're likely not doing any of this stuff unless you've already built your base. You've got hundreds of thousands of dollars in the markets, and everything is trending up and to the right. Every dollar you spend is a choice between funding your future wealth or funding your present comfort. I'm not saying never enjoy your money. I'm not saying that at all. But what I am saying is to be intentional about the order you spend it in. Build the assets first, then let those assets fund your lifestyle by throwing off those profits, by the portfolio income. We'd had a great episode, Robert, talking about our personal seven streams of income.

28:21Robert Croak:Please, if you're not yet listening to that one, it's a banger. Do not finance the lifestyle and hope the assets come later because they do not.

28:27Austin Hankwitz:They never do.

28:28Robert Croak:You have to build the assets. Then you get the depreciating assets.

28:32Austin Hankwitz:What a great episode. I know people are going to be mad at us. You guys don't want us to have fun. Man, I really want those new jet skis. We're not saying that. We're saying set yourself up first. I actually look at it in kind of a bucket format. If I say I want that new boat, I figure out how to pay for it out of an asset, not out of my money or by putting more debt on myself. So I hope you guys enjoyed this episode. I certainly did. Austin, I think this is going to be a very memorable one for so many people to have this clarity of understanding how it really works to use the right kind of debt and not be buying these depreciating assets over having assets first.

29:11Robert Croak:Totally agree with you, Robert. Now, before we jump to our Q &A section of this episode, got to give a shout out to Public.com, the investing platform for those who take it seriously. We've been talking about investing. We've been talking about taking that$900 a month car payment. Go put it in Public. On Public, you can build a multi-asset portfolio of stocks, bonds, options, cryptocurrency, and now generated assets, which allow you to turn any idea into an investable index using AI.

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30:00Robert Croak:Generated assets are like ETFs, but with infinite possibilities. They're completely customizable based on your thesis, not someone else's. So go to public.com slash rich habits and earn an uncapped 1 % bonus when you transfer your portfolio. Public.com slash rich habits to unlock your 1 % uncapped bonus.

30:20Austin Hankwitz:Free money. We love public and we love free money. Paid for by public investing. Full disclosure in the podcast description.

30:27Robert Croak:Speaking of free money, Robert, we got this first question coming from Instagram from our friend Blake. Blake on Instagram. We have a question for us. You can DM us on Instagram at richhabitspodcast or email us at richhabitspodcast at gmail.com. Blake says, might be a silly question, but where does the compound interest come from when investing? Specifically in a set it and forget it mindset. The way I see it, I've got 10 shares of VOO that grows at 10%, but I still only have 10 shares after 40 years. Does that make sense? What am I missing here? Robert, I love this question, And I think this is a really good opportunity for us to simply explain what compound growth is.

31:12Robert Croak:So compound growth, compound interest, think about it like this. Let's say you have a share of stock and that stock goes up by 10 % every year, just like the S &P 500. And that share of stock right now when you buy it is$100 a share. So you are earning 10 % on your$100 per share every single year. So we're going to go to our calculators here. We're going to do this as a group. 100 times 1.1, right? That 10 % growth. Your$100 growing at 10 % per year there is now worth, after the first year,$110, right? $10 on that$100,$110, 10%. Now here's the compound growth. Your$100 investment is now worth$110, except you're now also earning that same 10 % growth.

32:05Robert Croak:So you now earn 10 % growth, not on the original 100, but on what it's worth today, which is 110. So now we're going to take 110, multiply it by that 1.1 % and it's now 121, which means in the first year you earned$10, but in the second year you earned$11. And now that 121 in the second year is now 133.1, which means you earned$12.10, right? So you see that, that's the compound, Robert. It goes from $10 to$11 to$12.10 to maybe$13.40. It just continues to go up. So it's not a linear scale of$10 a year. It's not linear. What you're earning compounds. Your growth earns more growth, earns more growth, and that is what it comes down to.

32:59Robert Croak:It's not how many shares you own. It's not anything like that. What it comes down to is at the end of the year, what grows has grown in value from the previous year. So if you earn 10 % on something that's more than what it was last year, that growth is just more mathematically.

33:15Austin Hankwitz:And to talk about the share count you mentioned, let's say you started with that one share. If you're reinvesting those dividends every single year, over time, you're buying more shares with the dividends and the profits you've made from the upside and the compound interest. That is why Warren Buffett said that compound interest is the eighth wonder of the world. Because if you do this long-term and you let it build on itself, you're just buying more shares of the asset like VOO over time. So eventually you're going to own a lot more shares over that 10, 20, or 30 years.

33:51Robert Croak:Robert, I love that call out because dividend reinvesting, here's what's really important people understand. The S &P 500, which we all know, right? 69 % of the S &P 500's total return since 1960 came from dividend reinvestment back into those stocks, right? So what does that mean? To Robert's point, 70 % of the, oh, I made money in my portfolio since 1960 by investing in the S &P 500 came from people reinvesting those dividends back in and buying more shares. Like that's what dividend reinvestment is. And that's why it's so important to have that turned on in your own portfolio. So Blake, great question.

34:29Robert Croak:Compound growth is definitely the eighth wonder of the world and free money, if you ask me. Our next question comes from Alex on Instagram. Alex says, Hi Austin and Robert. I hope you both are doing fantastic. I love your podcast. I listened to all your episodes. I actually started investing thanks to you all.

34:44Austin Hankwitz:Let's go, Alex. That's awesome.

34:45Robert Croak:I haven't seen much information regarding the 530A account, which is the Trump account. Do you all think that it's worth it for a 10-year-old? Can you talk about how it's going to work? Are there any reasons why I should not open this? Thank you so much, Alex. Robert, kick us off.

35:01Austin Hankwitz:Yeah, I think it's a great account because the first thousand dollars is coming from the government as long as you're eligible for any children born between 2025 and 2028. And there are some pros to it because you've got this free money. You've got no earned income requirement. You can do other matches with it. There's low fees. So that's really cool about it. And if you're looking for a long-term horizon, in this case, your child is 10 years old. It's a pretty good situation, but I want to talk about some of the cons. There is a lockup period where you can't get access to the money. So make sure you understand that if you're investing on top of the thousand dollars into this account, it is locked up in most cases, even if there's hardship up to the child's 18th birthday.

35:47Austin Hankwitz:So make sure you understand that. Number two, very restricted of what you can do with the money in the account. It's not like a traditional Roth or something where you have all these options to invest in whatever you want to invest in. And one of the other pros though that I did forget is there are some tax benefits here because it's tax deferred growth, but just make sure you understand if you're gonna put a bunch of money in this, I would rather you do it a different way, maybe a custodial Roth or something that you can control because there are penalties for early withdrawal on this and there are a lot of restrictions.

36:20Austin Hankwitz:That's my take. Austin, did I miss anything here?

36:23Robert Croak:No, I don't think so. I mean, so let's make sure we're clear. the$1 ,000 seed deposit is only for U.S. citizens born between January 1st of 2025 and December 31st of 2028. So your 10-year-old is not going to be able to receive that since they were born somewhere in 2016, I'd imagine. You can still enroll your children born before 2025 up until they're aged 18, but those kids, again, do not get that$1 ,000 from the government. So now the question is, do I even want to open this up for my 10-year-old without the$1 ,000 seed money. So here's what you're actually getting. You're getting a tax-deferred account that must be invested in funds tracking a US stock index with no leverage and an expense ratio under 0.1%, which is just your VOOs of the world.

37:13Robert Croak:So yes, you can invest in VOO and these other S &P 500 low-cost index ones. We love that. You can invest up to$5 ,000 a year in after-tax contributions to this account, indexed to inflation starting in 2028. So employers can also chip in up to$2 ,500 of that without it counting as the kid's taxable income, which I think is pretty cool. There are no withdrawals until January 1 of the year the child turns 18, to Robert's point, it's kind of on that. At which point though, it can convert into a traditional IRA. You can also just convert it into a Roth IRA later if you'd want. Now this is a cool bonus.

37:52Robert Croak:Up to 25 million kids between the ages of 10 and younger qualify, depending on the zip code you live in, for a$250 charitable deposit from the Michael and Susan Dell Foundation. So definitely check out your zip code to see if you qualify for that extra$250 for your son. I think it's a good idea. I don't know why someone wouldn't want to do this. But it's also like you've got a bunch of different options, right? You can have this, you can have a custodial Roth. But the only reason your kid would be able to contribute money to the Roth is if they actually had earned income. So if they don't have earned income, they're 10, they probably don't.

38:30Robert Croak:This might be a better route. You also have the 529. 539 can convert to a Roth up to$35 ,000 at the age of 18 if they don't want to use it for education. There's a lot of ways to get this wealth building done. And the Trump account is one of the many different ways.

38:46Austin Hankwitz:Yeah, great, Austin. I knew there'd be some more nuggets in there somewhere. It's just a lot to cover. But like Austin said, plenty of ways to set your kids up early on to get them on the right path for when they turn 18. And we could talk about this. I think we did an episode a while back about that. And there's just a lot of really cool tools out there. So make sure you do the research.

39:05Robert Croak:Robert, before we answer a final question here from our audience, got to give a shout out to Neos Investments because Neos offers ETFs that seek high levels of monthly income with a keen focus on tax efficiency while providing core portfolio exposure across equities, fixed income, real estate, cryptocurrency, and cash alternatives like T-bills. Their ETFs may be especially interesting for investors looking to generate tax efficient monthly income inside of their investment portfolios. Their funds may serve as a compelling income-focused alternative or complement to many of the investments already in many investor portfolios.

39:40Austin Hankwitz:So if you're looking to add passive income-focused ETFs to your portfolio, consider learning more about NEOS ETFs at neosfunds.com. As with all investments, investors should carefully consider their investment objectives, risks, charges, and expenses of NEOS exchange-traded funds before investing. To obtain a prospectus containing this and other important information, please visit neosfunds.com. Please read the prospectus carefully before you invest. An investment in NEOS ETFs involves risk, including possible loss of principal, and there is no guarantee the NEOS ETFs will make monthly distributions and the amounts may fluctuate from month to month.

40:20Austin Hankwitz:Cryptocurrency is relatively new and the market has its own specific risks. Nios ETFs are distributed by Foresight Fund Services, LLC.

40:30Robert Croak:Our final question comes from Luis on Instagram. Luis says, hey, I got a question. I bought a house in 2017 for$390 ,000, and now in 2026, it's worth$680 ,000. I do not want to refinance to get the money out because my interest rate is very low. But would it be wise to take out a HELOC to purchase a rental property? Robert, we just talked about this on the episode, using leverage in a responsible manner to buy an appreciating asset. And we even called out rental investment properties as a true real estate appreciating asset. So the question here for you, Louis, is that you need to say, okay, what do all the numbers mean?

41:14Robert Croak:Go talk to Claude, chat, GPT, Gemini, sit down and say, I want to buy this property. It's$410 ,000. I need to put X amount of dollars down. This is the county it's in. These are my property taxes. This will be the HOA. Here's what my insurance is going to be. Here's what I think I can rent it for. Here's what the maintenance might look like. Get all of the numbers spelled out and then say, okay, now if I borrowed that down payment of$100 ,000 or$50 ,000 or whatever it is from equity in my existing home, what's the interest rate I'm going to have to pay? What's that debt reservice payment? And at the end of it all, when you include the mortgage, the HELOC, the vacancy rates, the maintenance, everything, total cost, when you include every part of this, does it actually make money?

42:00Robert Croak:And if that answer is yes in a very definitive fashion, then sure, go for it. I generally lean toward no HELOC, no matter the circumstance, because the last thing I want to do is have my house get foreclosed upon somehow, some way, because of a tenant who lost their job for showing up to work late three days in a row and they can't get their rent or whatever's going on. So I generally don't like HELOCs, but Robert's used them in the past. He's been successful with them and they certainly work if you set them up in a very specific manner for a very specific purpose. But Robert, what's your take?

42:31Robert Croak:What'd I miss?

42:32Austin Hankwitz:Oh, you didn't miss anything. I think you nailed it. Understanding the numbers is key here. I personally don't like the idea, but I get where you're at. You have a lot of equity. It's tied up in this one property. So if you're going to do this and you're buying a property, this second property in a area that has a higher capital appreciation than average. I think right now the national average is like 3.7 % a year. That's not enough because when you look at the total numbers, let's say you, the HELOC is 7 % and your current interest rate on your mortgage is 3%. Let's say you said it's low. If you combine those and it's 10 % and you look at this property and go, okay, it is increasing in value in this neighborhood that I want to buy 8 % a year.

43:16Austin Hankwitz:So you have a 2 % negative balance of appreciation based on the interest rate, but then you have to consider everything else. Vacancy rates, property taxes, all of these other things. You just need to make sure you understand the totality of the numbers because you are going to have appreciation. You're going to have some tax benefits, all of the above, but you need to make sure that the numbers work long-term because like Austin said, you don't want to go into a whole to get the second property and then have negative cash flow month after month and sometimes year after year.

43:50Robert Croak:Everybody, thanks so much for tuning into this week's episode of the Rich Habits podcast. We are so grateful to have all of you come back every single week. Do us a favor, check out the new wallstreetfavorites.com, brand new, completely redid the landing page, a lot more information over there. If you're not yet checked out wallstreetfavorites.com, go do it because it's going to tell you what Wall Street thinks about your portfolio. And if you've not yet checked out the Rich Habits Network, this is our community for our biggest fans. We're hosting Tuesday night, two hour long Zoom call live streams over there.

44:22Robert Croak:We've got eight hours of video coursework now. We're answering your questions every single day in the DMs and in the posts. And we're investing in companies like SpaceX, which Robert, raise your hand if you're excited for that IPO. We have four different SPVs, I think, that we've done that have access to SpaceX. So we're so, so grateful, so excited for that. And if you want to get into the next cool big pre-IPO name, be sure to check out the Rich Habits Network. There'll be a link in the show notes below.

44:48Austin Hankwitz:I couldn't have said it any better myself. I am so proud of what we've built with the Rich Habits Podcast and the Rich Habits Network over the past few years. And if you're in that phase where you're trying to level up your knowledge, your income, your mindset, all of these things, definitely check out the Rich Habits Network seven-day free trial. you can come in, join us on a call, kick the tires, check out all of the cool stuff going on inside the network and you can do it for free for seven days so check it out.

45:14Robert Croak:Thanks everyone and we'll see you on Thursday.

45:35Thank you.