77: Analyzing BlackRock’s Favorite Investment Themes (2024)

23:04This is building new factories or repurposing new factories. It has three acts since the beginning of 2020, meaning that these policies and these changes in corporate attitudes is really changing the landscape for manufacturing in the U.S. I think over the next 10 years, we're going to see a lot more output from the United States. We're going to see growth employment in manufacturing, more factories, and a lot more supply chains really being brought back to the U.S. Finally, to answer your question, Robert, how are people investing in this? You know, previously people have been looking at this as kind of like an industrial sector play, but the industrial sector itself is a lot more than manufacturing.

23:33You have business services, you have airlines in there, you have transportation in there. So if you really want to get granular on companies that are building things in the U.S., that's where we look at METF like made, one of my favorite tickers, if I can say so, because these are companies that are making things in the United States, whether it's an automobile company, whether it's a defense company, whether it's a consumer goods company, it really kind of runs the spectrum of builders in the United States. And, you know, just like we were talking about energy and how it's an energy mix, it's not any one source.

23:59I see that being the same in supply chains, right? It's not just going to be about the U.S. building everything. That doesn't make total sense. First of all, we don't have enough people. It's still very costly to build in the United States. So there is an importance of trade partners. And to your point around Mexico, it's close to the U.S., lower labor costs. In fact, labor costs can be one-tenth of the U.S. in the automobile segment. You have USMCA, which is a free trade agreement. You have good political relationships. You have a very large youthful population there. So it's a really attractive country for a lot of reasons from a nearshoring perspective.

24:28So what you're seeing is a lot of integration with Mexico, you know, in an area like automobiles, where you might do parts manufacturing in Mexico, ship the parts across the border, do final assembly in the United States. Maybe you're even getting some critical minerals and materials from Canada that would go into something like batteries, but it's really about kind of trade integration amongst neighbors. And Mexico has been a really big beneficiary of that. And before we get into the next question, I want to touch on one more kind of really important part of this exact conversation. And that is what is happening.

24:57We talked about geopolitical pressure. And I think one of the companies that's caught up in it the most, if I'm not mistaken, is Taiwan Semiconductor, because they're so incredibly important in this AI sector. Yet I feel like their stock in general is really just being held captive because of this geopolitical tension. And I don't know if we need to really go into it, but I just wanted to get that out there because that's one that I feel is stuck right in the crosshairs of this kind of situation between the U.S. and China and what's happening with Taiwan Semiconductor. Well, semiconductors more broadly have been identified as just a critical component of the U.S.

25:33economy going forward. I mean, you can't build a toaster anymore without having a semiconductor in it. So if you want to build stuff, you need access to semiconductors. And the U.S., you know, really is not a semiconductor manufacturing hub. It's a semiconductor design hub, which is great. There's a lot of value created in designing semiconductors. Like, you still have to build them. And to my point around 70, you know, borders being crossed with the semiconductor, there's a lot of risk reduction in the economy if you can build more in the United States. So you saw the Chips and Science Act come out a couple of years ago.

25:59You've seen some billion-dollar investments in factories and, you know, these semiconductor fabs being built in places like Arizona and Ohio. It's a long process. This isn't something that happens overnight. changing a supply chain as sophisticated as semiconductors, but the process is beginning. And in some ways, that's really positive for those semiconductor manufacturers because they get to be the beneficiaries of things like tax credits or interest-free loans from the government to be able to accelerate that supply chain shift. 100%. And so kind of moving forward now to the last question we had is talking about this idea of this major industry driver that are active ETFs, BlackRock now expects the global industry AUM to quadruple to$4 trillion by 2030.

26:40And this is also an increasingly important component for advisors and investors like the ones listening right now. So can you break down for the audience, one, what an active ETF is versus a passive ETF? And then two, touch on how BlackRock views the importance of active ETFs inside of investor portfolios. Absolutely. So, you know, I think historically, ETFs have been considered kind of synonymous with index investing, that when you're buying an ETF, what you're getting is an exchange traded vehicle that's providing you access to a, you know, maybe a broad index like the S &P 500. IVV is a very large ETF from BlackRock that does exactly that.

27:17While that's a very important use case for ETFs and continues to be used in the core of a lot of people's portfolios, one of the big innovations that's happening in the ETF space is really separating the meaning of ETFs from indexes. ETFs can be used to provide exposure to certain indexes, but they also can be used to provide access to some leading portfolio managers. And those portfolio managers aren't just tracking a broad asset class like U.S. large cap stocks, which the S &P 500 is doing. They can get much more granular or tactical within those baskets. For example, we have an ETF, BELT, BELT.

27:49It's a long-term equity ETF where you're seeing really concentrated positions in about 20 to 25 holdings. So this is not a broad asset class. This is really granular trying to pick the portfolio manager's favorite stocks, mostly in the United States for long term buy and hold positions. So we're seeing growth in this active ETF space because one, it's a really efficient vehicle for investors to access these portfolio managers. Again, you can buy it on a brokerage account and have it sit next to your other ETFs, just like we were talking about with the digital asset ETFs. There can be some tax efficiencies with the ETF structure over mutual fund.

28:19And really, it's about kind of democratizing that access to a wide range of portfolio managers in both the equity and fixed income space. So we see this as a really big structural tailwind for the ETF industry. And we think it's going to be increasingly important for investors as well. I think if you take a step back, you know, the last 10 years or so have been a tremendous time for just what we would call kind of beta-fueled rallies. What we mean by that is markets went up a lot, generally, broadly. And just investing in something like the S &P 500 was a really good investment for a lot of investors over those 10 years.

28:49Now, we don't have a crystal ball, but that trend line that we saw over the last 10 years is unlikely to really continue forever. There's likely to be a period where broad indexes are not going to deliver the same returns that they did over those 10 years. And being able to outperform an index because of an active manager could be an important return driver for investors that are trying to save for retirement or achieve other goals. So we do think that active managers are going to be more important for our investors going forward. And I think we're reminded of that in these volatile time periods, again, where you're seeing some really pretty wild swings in prices in the market, where if an active manager can really tease out where the value is, that value can ultimately be delivered to investors.

29:27Very interesting. I had not heard that perspective yet about the idea that, of course, over the last 10 years, we've seen this 70, 80, 90 % total return in the S &P. But, you know, as we forecast for the next decade, it's sort of like, yeah, maybe though, right? We're not sure. But, you know, we were thinking that sort of the active ETF route is smarter. And it's interesting. I'm looking at some of the holdings here inbuilt. And yeah, they make sense. They definitely make sense. And I'd like to add to that, you know, one of the biggest topics I think that Austin and I put out there over the last year and a half of working together with the Rich Habits podcast is the importance of active management.

30:04You know, we talk all the time about target date funds, set it and forget it managers and tools, and we just don't agree with it because they just don't take into consideration all of the factors that go into day and day market and where to find that additional growth so you can achieve better than benchmark returns. And so I really like what you said about that, of working with these active managers that really have their finger on the pulse rather than working on their whiskey collection or their golf game. And I think that's so important moving forward because you might be right. You know, we might not see this, set it and forget it, put your money in, you know, just one of these S &P 500 funds and not worry about it for 10 years.

30:48So I really like that strategy. Look, I think ultimately the answer is going to be a blend that people will still want kind of that low cost, tax efficient, broad exposure in their core. And then to supplement that with active managers around that core that can provide some additional alpha and help, you know, with risk management or help without performing the index, you know, whatever your investment objective is. A lot of people like to paint this as either or. I think this is really an answer of both index and active living together and the efficiency of the ETF vehicle for both of those different strategies.

31:14I really like that perspective, Jay. Thank you so much for joining us on this week's episode. and other Rich Habits podcasts to break down these two mega trends and really give some tactical perspectives and ideas as to how some of our listeners can be able to learn more about your ETFs and the ones that we had talked about here. So this was great. Thanks so much for joining us, man. Always a pleasure to be on. Thanks for having me. Wow, that was a mind-bending episode. Talk about getting into the weeds. I'm so excited for everyone following along and listening because this is one everyone definitely needs to take notes and take action because there's a lot to think about.

31:50There's so much happening in the markets right now and I'm just so glad we get to cover it and bring on such amazing guests like Jay Jacobs from BlackRock and just really dig into it and cover it all. That was amazing. I wish this podcast existed when I was in college and just starting to really get into some of these investments and finance as a whole, right? Because it's so cool that we can connect our listeners with these heavy hitters at these multi-trillion dollar companies, right? Like BlackRock has hundreds of billions, if not trillions of dollars of assets under management being invested all over the place.

32:22And they're the smart investors, right? They're the smart money. And they're seeing, yes, AI is doing this, but how you should think about it is like this, right? Or they're saying manufacturing like this. So think about it like this and that. Like I love that we get to get that unique perspective from Jay and his entire team. So major shout out to them for organizing and allowing us to host Jay again on the podcast. And y 'all let us know if you like it when we interview some of these heavy hitters and bring them onto the show. Because again, that's what we want to do. We want to connect our listeners with sort of the access that Robert and I get as investors and just like people in these spaces, right?

32:56Like we want you guys to hear it from the horse's mouth, just as we would, you know, Jay and I have been friends for years, right? So it's like, I want to make sure that everyone gets the same access that we do. And it's just so, so important. It just makes it so amazing to get up every single day and get to work with you and all these special guests and really give our audience the edge. That's all we want. Education, give them a little bit of an edge so they can all build wealth and live a really great life. And at the end of the day, it's so rewarding for both of us. And this was an amazing episode for sure.

33:27Now, before we jump into the Q &A section of this week's episode, as you all know, Robert and I have been investors for a really long time. And this episode's sponsor, Blossom, allows us to not only invest, but share those investments with all of you. Yes, Blossom is a social investing app built around transparency. Simply sign up for a free account, connect your existing brokerage account like Fidelity, Robinhood, Vanguard, or Charles Schwab, and get started. Unlike anonymous platforms like Reddit and Twitter, Blossom users link their existing brokerage account to the app so that all of their holdings portfolio is shared within the feed and are verified by actual data, leading to a richer discussion and decisions.

34:09It's never been easier to join a community of like-minded investors focused on building long-term wealth together. And what's really cool too is when I signed up for the app the other month, I chose to follow like the dividend, passive income and options communities for my feed. So I get those specific notifications and posts around things that I'm excited about, passive income, dividends, options, stuff like that, all on my feed. It's also a one-stop shop dashboard for tracking all of your investments. They've got a dividend tracker as well, a dividend forecaster, which is really cool. They've got sector breakdowns and a bunch more data about your portfolio.

34:42And keep in mind, Blossom is not an online broker. You're not investing into stocks on Blossom. They're simply a social app network for investors that want to connect with other investors. Did we mention they have over 120 ,000 active users across Canada and the US? So go sign up for Blossom using the link in the description of the show notes, and we'll see you over there. All right, let's jump into our first question. So our first question comes from Rhythm W. Rhythm says, I'm currently in college, and I'm two years away from completing my electrical engineering degree, and I'm already invested several thousand dollars into the markets and crypto, largely thanks to this awesome podcast called The Rich Habits Podcast.

35:22Now, one of my goals is to attend flight school to earn my private pilot's license as a hobby and maybe even a potential backup career. Additionally, I aim to rent, lease, or even buy an aircraft for recreational use eventually. Now, understanding the significant costs involved, particularly here in California, here's my question. How can I effectively save and plan for these expenses? What type of investment assets and timelines would you recommend? And how can I fund these costs when the time comes? I expect to pay$15 ,000 for flight school and another$200 ,000 to$1 million for a plane. Oh my goodness.

35:56Okay, I'll take this question first, Robert, and let you rally behind me here. So Rhythm, super excited for you. You're in college. You're getting a degree in something that's very, very useful. Electrical engineering. I love that. I hope that you begin to make$60 ,000,$70 ,000,$80 ,000 a year out of college. And even if you live in California, your salary might be even a little bit higher. Of course, I want you to be excited about buying a plane one day or becoming a pilot or these other different things, but I don't want that to rock you off your journey of building wealth as early as possible and by investing as much as possible early on, right?

36:30We always say invest early and often. And so Rhythm, in your case, I don't think that a plane is in your horizon until you've built your base, right? We want you to have at least$100 ,000 invested before you go out and buy this insanely fast depreciating asset called an airplane. It's like buying a boat, right? It's like any recreational thing. You called it actually for recreational use, right? So you don't buy a camper if you have a bunch of debt. You don't go out and buy a boat if you have a bunch of debt. Just like you don't go out and buy a plane if you have a bunch of debt. Now let's pretend we fast forward five to six years.

37:03You have your$100 ,000 base built, you're out of high interest debt, and you're excited to now go out and buy a plane. The first thing I would do is I would definitely check to see what the interest rates are. As of right now, interest rates on something like that, I'd imagine is north of 9, 10, 11%. So it would be considered high interest debt. So there's no reason to borrow for it. You would probably want to pay cash because the interest rate that you would have on your debt is more than the interest that you would earn in the stock market. So that's just one consideration. But if it was below, call it this 7 or 8%, then maybe borrowing money to go buy that plan could be a good idea.

37:38The thing though that I want to encourage you to do is to use websites like Barnstormer or I think there's one like Buy a Plane or whatever it's called. Like Robert and I, as we saw this, we were like, wait a second, are planes really a million dollars? Turns out they're not. They're anywhere between 40, 80 and$100 ,000, right? If you want a crazy cool plane, yeah, just like get a crazy cool boat or yacht, you can get it for a million dollars. But Rhythm, you're 20 years old, 21 years old. I don't think you need a million dollar plane at 30. Now, do you deserve maybe$100 ,000 or$120 ,000 plane?

38:10Sure. You're the one that knows that and you're the one that's going to be able to put yourself in a financial position to achieve that and make that sort of big purchase. And kind of back to our episode last week, making a big purchase like that, if you're saving for three, five, seven, 10 years, that money should be working for you in the markets and growing on your behalf. So it's not just parked in a checking or a savings account here. So yeah, I know that was kind of long winded here, man. But you've got a really unique situation. And I just don't want you to get your eye off the prize at such a young age and think that your end goal should be to buy this depreciating asset when in actuality, it's not that great of an idea.

38:47So I'm going to put a little bit of a ripple into this and I like your breakdown, Austin, but we need to back this train up a little bit. Like Austin said, first and foremost, build your base. Always build your base. Of course, we want everyone to live dreamy lives of being an electrical engineer, living on the beach, having a plane in the hangar nearby, having your cool little, you know, maybe classic convertible rolling up to your plane. That sounds amazing. But you need your base built first because you don't wanna be broke well into your 40s trying to fulfill this dream. So build the base, get the$100 ,000, put away, build it up, you're gonna have a great job.

39:24You're gonna be able to put away a lot of money, live very much under your means in the beginning of your career once you get out of college so you can work towards getting the plane. And here's what I would do to add one pro tip to that. I would live off of your electrical engineering career and save 20 % of that towards your base. Then I would get the pilot's license and take all of your revenue for being a private pilot and put that towards the plane fund. I would put that in a traditional brokerage account with a basket of funds and all of that money piles into there as if you're not even making it because you said, remember, recreationally.

40:01So just pretend that money doesn't exist. Put that towards the plane fund. Then buy the plane when you're ready and financially stable. I think that's a great strategy. Our mutual friend, Jacob's dad is a private pilot and he flies Justin Bieber and Ariana Grande and Garth Brooks and these really cool people around. And he does it for fun. He's like retired in his 50s or something. And this is like his encore career, right? So it's like a fun side hustle. So for Rhythm, I mean, yeah, get that pilot license and be a private pilot for some really cool people and take all the money you make from that and use that, to Robert's point, as the, I'm going to go buy a plane fund one day.

40:36Again, I just want you to know that I have got big dreams of big purchases one day, but I do know that one, delayed gratification is really important. And two, the only way I could imagine putting hundreds of thousands of dollars of my hard earned money in a depreciating asset, like a plane, like a boat, like a car, things like that is. I already have the same amount of money invested for me in the stock market. So even make that a rule for yourself. You're going to go spend$150 ,000 on a plane. Make sure you've got at least$150 ,000 also in the stock market. Great question. And we're wishing you luck here, Rhythm.

41:09Our next question comes from Jared. Jared says, hey guys, thank you all for your help with the podcast. It's been such a game changer for my wife and I. I'm sure this is a silly question, but can you guys explain when I have to pay taxes on a normal brokerage account? For example, I have VOO and I've been investing into this ETF for 15 years now. Do I need to pay taxes on the gains every year, which means I haven't been doing that, or when I sell it at the end of the 15 years? Additionally, I assume a dividend-paying ETF like SPYI would require yearly taxes because I'm being paid throughout the year.

41:42But what about the dividends I'm also making with VOO? I'm kind of confused. Any help that you guys could provide would be very much appreciated. So Robert, do you want to take this one? Yeah, I mean, the answer is no. You don't have to pay taxes on your gains unless you sell because unrealized gains are not gonna be taxed. And so you're in the clear, regardless if it's VOO or SPYI. So just understand that and realize that you can kick the can down the road as long as you want and you'll have to pay taxes at some point. But that's also why we're always pushing people in the initiative to max out that Roth IRA every year if you can, because then that's after tax.

42:20And it's just so much better for you in the long term. But other than that, Jay, you're fine. You're in the right vehicles. And we're very happy for you. But no, you don't have to pay taxes until you sell something. And then to answer your second question about the dividends, all dividend income is taxed. It is taxed in the calendar year that you receive it. And so if that is dividend income from VOO or SPYI or a single stock, it doesn't matter. It's all taxed. Now you have to get with your accountant and make sure that they can clarify for you if this income is a qualified dividend or if it's just an ordinary income dividend, right?

42:56It's taxes, ordinary income. They'll be able to tell you that. It depends on the stock. It depends on the ETF. It depends like SPYI. It's a tax thing. It's crazy. But long story short, do understand that the dividends that you get paid every single month with SPYI and every single quarter with VOO are taxed in the same calendar year that you receive them. So our last question comes from Luke S. Luke says, hey guys, my name's Luke and I have been a long time listener of the podcast even back to when you guys first started. Thanks for all you do. I hope this makes the question and answer section as this is now my third attempt.

43:30Sorry, Luke, we get a ton of questions, but we're glad we finally got your question, my friend. All right, Luke says, I'm 37 years old and I've maxed out my Roth IRA. It has$50 ,000 in it. I have a public account, thanks to you guys, and I've got$20 ,000 invested into ETFs that you guys mentioned and a little bit of crypto. I also have$5 ,000 in Fundrise and$5 ,000 in Masterworks, thanks to you guys as well. Luke, you're crushing it. Good job, man. Luke says, I'm a small business owner with a cash pay physical therapy practice. You guys have mentioned opening a solo 401k through carry.com, as well as a 529 plan for my son here who is only a year and a half years old.

44:06I guess my dilemma though is if I open a solo 401k, how does that work out and how would I fund that along my other investments? I currently have auto invest turned on for the Roth IRA and my public account. So if you guys can give me some color, that would be great. Thanks so much. And if you're ever in Denver and need some body work done, I'm your guy. All right. Thank you, Luke. I appreciate the offer, man. Actually, I lived in Denver for a couple of years and so did Robert. So I really like Denver. So let me answer your question. You guys mentioned opening a solo 401k on Keri and how does that work with everything else?

44:38So I have a Roth solo 401k on Keri.com and it's done through my business. And because it's done through my business, it is sort of categorized as my 401k. Just like if you worked at a nine to five and they had a 401k, you can invest into the 401k, right? That is fine. And you can do that alongside a Roth IRA. Now, what you cannot do is you cannot have two employer sponsored retirement accounts at the same time. So that means you can't have a SEP IRA and a solo 401k and, you know, invest toward both of them at the same time. That's not how things work. However, you can have the individual IRA, right?

45:21The IRA that you have, your Roth IRA, and you can have the employer-sponsored retirement account, the solo 401k, and you can run those at the same time. I've been doing that for years. It's a great way to invest literally like 70-something thousand dollars a year toward retirement. It's awesome, and we really recommend carry there. So yeah, highly recommend doing it. And then back to the 529. For me, it's just been a normal 529 on Vanguard. I started with 3 ,000. I invest 150 bucks a month. It's worth like 6 ,500 now. It's invested, I think, 80 % into the S &P 500 and 20 % into the NASDAQ. So just pretty normal stuff.

45:54And I won't need that money now for probably 15 or 20 years. Who knows? But that's how I've done it myself. And I think that strategy could work for you as well. Yeah, I love it, Luke. You're doing a great job, Austin. Great breakdown. I think it's great that you are diversified and have some money in Fundrise, have some money in Masterworks. Austin and I have done very well, both with Fundrise and Masterworks. So I think you're crushing it and keep up the good work. And where were you a year and a half ago when I blew my back out in Denver? Damn it. I didn't know you then. Oh, my goodness. Everyone, thanks so much for joining us on this week's episode of the Rich Habits podcast.

46:31Major shout out to BlackRock and Jay Jacobs. What an awesome guy. Really intelligent perspective on a lot of cool investment themes for the year. And we're excited to be sort of the connector between these smart money investors and our awesome audience listeners like you all. Don't forget this Thursday, August 15 at 4 p.m. Eastern time, we're hosting our webinar. We're going to be talking about angel investing, pre-IPO investing, and how you can invest alongside of us through the Rich Habits Network. It's going to be so much fun. You guys are not going to want to miss it. We already have now 700 some people registered.

47:03And as always, hundreds of people come out in the last like 20 minutes before it starts. And we can only get 1 ,000 seats. So if you don't register and you don't get a seat, do not get mad at us. We've given you so much time as a heads up here. So we're going to see you then. We're going to have a blast. Thanks everyone. And have a great start to your week. And don't forget, for those of you that have been dragging your heels, sign up for the Rich Habits newsletter, please. So easy to find. It is becoming the biggest, the best newsletter in the country. And you need to be part of it. It's free.

47:34There's great information. It comes out every single week. Make sure you do that. And when you share the podcast, if you enjoy the information, give us that five-star review, share it with a friend share it with a relative everyone has issues that they need to resolve in their financial situations and we are here for it this next one's for all you carmax shoppers who just want to buy a car your way want to check some cars out in person uh-huh want to look some more from your house okay want to pretend you know about engines nah i'll just chat with carmax online instead. Want to get pre-qualified from your couch?

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