Q&A: $21M in Sales, Investing as a Widow, & $100K Invested at 23

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0:58Robert Croak:Hey everyone and welcome back to the Rich Habits Podcast question and answer edition. These are our Thursday episodes where every Thursday morning, Robert and I come at you answering your questions as if we were in your shoes. We answer your questions that you ask us via email at richhabitspodcast at gmail.com or via Instagram DM at richhabitspodcast on Instagram. My energy levels are low. I've been sick for a week now, but I'm powering through and I appreciate you guys and just being so cool with me not having the rigor and the excitement that I normally come to these episodes with. Hopefully I'm better by the next time we film an episode, Robert.

1:37Robert Croak:But I just wanted to share my gratitude that you guys are so flexible with us. We've been publishing these episodes nonstop since February 2023. The only time we took a break, it was for, I think, even just a week or so when my dad died last year. But we have just been at it for years now. And we're just so grateful that you continue to come back and support us because we like to come back and share the info and answer your questions.

2:02Austin Hankwitz:Well, I think it's a testament to your tenacity as a business owner and to the audience of the Rich Habits podcast and in the Rich Habits Network. because yeah, you have definitely been very, very sick. I actually had a pretty sprained back last week, but we powered through it. But I'm excited for today's episode. I'm feeling much better. And I'm definitely ready for you to feel much better as soon as possible.

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3:28Austin Hankwitz:Paid for by public investing and the full disclosure in the podcast description. So Austin, let's get into it. We have some awesome questions this week.

3:37Robert Croak:Our first question comes from an anonymous listener. Our anonymous listener says, Hey guys, I found your podcast in February and I've been binging your episodes like crazy. I love the breadth of information covered and the questions you answer. Our anonymous listener says, I have my family's Roth IRAs, traditional IRAs, and a taxable brokerage being managed by Empower at 0.79 % annual management fee. About half a million dollars is completely, totally invested across these accounts and being managed by Empower. Ultimately, I want to cut out the management fee by moving my accounts to a self-managed broker.

4:13Robert Croak:How do I then simplify the portfolio without selling positions and realizing hundreds of taxable events? Or am I better off just staying put with Empower? This is a big pivot for me and I'm trying to think about the move from every single angle. Robert, do you have any advice for our anonymous listeners that relates to leaving a robo-advisor and going full self-managed?

4:36Austin Hankwitz:Yeah, I do. First and foremost, you need to make sure if you're going to self-manage your account, no matter how much money you have, do you want that yoke on your shoulder? Do you want the pressure of maintaining and optimizing these accounts over time? That's the number one thing. How to manage that and how to migrate that is a different story. I don't think you have to worry as much about the taxable events as long as you do an account transfer and you don't sell everything off. That's pretty simple to do as long as you're using like a public.com or a Vanguard or one of the bigger platforms.

5:11Austin Hankwitz:So I wouldn't worry about that so much because I look at it from both sides because of Crow Capital. When I think of 79 basis points to manage someone's portfolio and all of things that go with it, I don't think that's that bad. But if you have the knowledge and want to do it on your own, go for it. Austin and I manage our own money. We're very good at it. We've been doing it for a long time, but just make sure you understand that you lose some of the ability to have others helping you along the way with that information by not having a broker manager helping you along the way like a wealth manager.

5:47Austin Hankwitz:So those would be my takeaways of what to do here, but I wouldn't worry about the taxable event because in almost every instance, you can do an account transfer. it's called UCATs. It's very simple to do with most platforms.

5:59Robert Croak:Yeah, totally agree there. And even if there are stuff that you can't transfer like mutual funds, of course, buying and selling inside of individual retirement accounts, none of that is a taxable event. The only taxable events that could be taking place here are actual transactions taking place in the taxable brokerage account that you said that your family sort of has here. You also mentioned, and I didn't mention the question that you're 33 years old, which tells me that you probably just want to have a set it and forget it mentality when it comes to your money. Perhaps there's a world where you just park it all into a VOO or a VTI and you just like let it go up into the rider over a long period of time.

6:35Robert Croak:Thinking about though that 80 basis point management fee on that$450 ,000 to$500 ,000, you know, we're talking about$5 ,000 a year or so of a management fee, which again, not bad, assuming you need the handholding. but you are locked in on that not needing that handholding you understand it you understand the risk perhaps you've got that internal dialogue and self-awareness that you can stomach the ups and downs that come with the markets because at the end of the day we know that the markets can be volatile any year but over a long period of time they go up into the right so the anonymous listener here i would definitely do a transfer that robert had talked about know that roth ira and traditional IRA transactions are not taxable.

7:18Robert Croak:And I would also, if I were you, have and create a portfolio that you stick to for a long period of time. By that, I mean, okay, before I move over any money, let me get out a pen and paper and write down what ETFs am I going to buy? What four or five ETFs do I want all this money to be invested into? Exactly how much into each one? why? What's my thesis around that? I need to backtest this portfolio. Let me go ask Gemini or chat or Claude to backtest this portfolio to see what the max drawdown would be and compare that to the S &P, right? Really do your research and your homework to ensure you, one, completely understand how this money is getting invested.

7:59Robert Croak:Two, understand the volatility that's going to come with the specific investments that you've chosen. And three, have some sort of like backup plan where, oh my gosh, I don't like this. I need to go back and have a manager. Maybe you put it back within power. Maybe you've got someone that's close with you that isn't a fiduciary that can take this money over for you. I would definitely have some sort of backup plan because again, half a million dollars invested. I mean, 2022 happens and you get a 30 % correction. It's 150 grand that disappears and$150 ,000 out of your account makes people do some funny things, right?

8:37Robert Croak:Where if you had a financial advisor that's like doing this for you and encourage you, hey, it's okay. Ride the wave. Everything's cool. That could keep you in the game longer. So just really know here what you're getting yourself into. I love where your head's at. I believe in self-management, self-custody, especially if it's hundreds of thousands. But once you get up to the millions, then you really begin to want to work with more people. And the only other thing I'd add here is that Empower is just sort of the robo-advisor. If you were telling me you were going to move away from a fiduciary financial wealth planner, I would be like, why do you want to do that?

9:11Robert Croak:Because some of these wealth planners, they're not just investing your money, but they're helping you understand business structure. They could be helping you understand different types of tax strategies, things of that nature, where Empower is just saying, oh no, I'll tell you how to invest your money, which is cool in and of itself, which is fine. Just make sure you kind of understand those two differences.

9:28Austin Hankwitz:Yeah. I really, really like the last part of that because because a lot of people get it wrong. They're worried so much about the fee with a fiduciary, not a robo-advisor. They're worried so much about the fees, but they don't realize everything that comes with it when you're working with an actual wealth advisor, because that gets you into structure, tax strategies. How do you leave these things later on for your family? All of that, all wrapped up in that fee. So just make sure you understand the difference and understand what you get for your money if you're with a real fiduciary.

10:00Robert Croak:So our next question comes from Carlos. Carlos says, Hey guys, my name's Carlos and I really enjoy your show. I'm an NYPD detective that has fallen in love with investing. I recently opened up a UTMA account for my five-year-old son and he now has$12 ,000 in it. I know that legally I have to turn over the account to him by the age of 21. My question is when I hand it over to him, can I still contribute funds into this account? If I can't, because it becomes a regular brokerage account at that point, can I somehow set up a joint checking account with my son so that I can contribute to that said brokerage account?

10:35Robert Croak:Sorry for the complicated banking question. I just want to do right by my son, and I also want to educate him on how to be responsible with his finances. Let's go, Carlos. What a dad. What a dad. Dad of the year. This is what I'm talking about, dude. Let's go, Carlos. I love this. So let's walk through and answer this question, you know, step by step, Robert. The UTMA account is actually something we talked about on last Thursday's episode. It's a way for you to open up a brokerage account on behalf of a minor, contribute to it. But once they turn a specific age, we're in the state of New York here, it's 21 years old, your custodianship over this account, right?

11:10Robert Croak:Having control of what's invested into all that stuff, it goes away. And your son now at the age of 21 has everything about it, owns the money, choose what to do with it, cash it out, YOLO it, whatever they want to do, right? The account legally belongs to your son when your son turns 21. And to your point, it also typically converts into just a normal brokerage account in your son's name. So it'll just convert to public.com brokerage account, Carlos son, date of birth, whatever. So to answer your question is like, can you contribute to it at 21? Yes, you can. You of course can just, you know, like anyone can connect their bank account to a public or a Vanguard or Robinhood account, you just connect your bank account, you contribute $1 ,000 or 500 bucks or$200 or whatever it is.

11:54Robert Croak:But because you do not have custodianship over that account, you lose complete legal control over how the money is invested and spent. So just keep that in mind. And then the last thing to ensure that there's no extra paperwork when it comes to taxes, don't forget about the gift tax limits. If you personally are gifting your 21 year old son $1 ,000 a month. Well, that's$12 ,000 a year of a tax-free gift here to your son. But I think it's around like$18 ,000 or maybe$19 ,000 now with the annual gift tax exclusion, Robert, that someone can gift someone else without that person paying taxes that's receiving the gift.

12:34Robert Croak:So just make sure, Carlos, whenever you are gifting your son this money, when they are 21 years old here, so they're five, it's going to be for a while. I'm sure it's going to be different limits by then. But whenever you are doing that, just make sure you're not gifting them so much money that it turns into a weird tax situation.

12:49Austin Hankwitz:Yeah, the only thing I would add to that is look into a discretionary trust. Because if it's a good fit for you, instead of giving more money into this account that you have no control and no say in where the money goes, you don't want to teach your children bad habits. And for anyone out there that's thinking about doing this, look at that discretionary trust. because then you can still define how the money is spent, when is it spent and what it goes into while still allowing you to help your children long-term by investing for them and with them without them being able to YOLO the money whenever they want.

13:24Robert Croak:Our next question comes from Vincent R. Vincent says, my girlfriend's mother is a recent widow. Her husband passed away from cancer three years ago. It came up in conversation that he had a 401k worth half a million dollars, but it is no longer invested into anything. It's just sitting in cash. How do I bring up to her that she needs to start investing this money? She needs to roll over the 401k into perhaps a public traditional IRA. And if she agrees, what would that process be like? What kind of ETFs or index funds or bonds should she be investing into? Should she dollar cost average? And if so, how often should she be doing this?

14:00Robert Croak:I was gonna help her with it personally, but do you think it'd be better if she talked to a financial advisor? Yes, I do. I do think that this is one of those instances where like one, it's enough money where you need to go talk to an advisor about it, especially if two, a traumatic life event happened, like the passing of a husband. There's a lot of estate stuff, I'm sure. There's a lot of like accounts and legal things that have to get probably figured out if they've not already been figured out. It was spent three years ago here. Advice I like to give people when they come in with a lot of money is to act slow.

14:31Robert Croak:I think the opposite of that is when people win the lottery, they go out and they spend it. They figure out what they want to do with it immediately. Oh, my buddy Brian told me about this. Martha wants me to go do that. I can invest in this. I could buy this. Everyone's giving me advice. I love that it's already been a couple years, right? She's had time to grieve the passing of her husband. And I think that giving this money to a fiduciary financial advisor, again, go interview like six of them. Go sit down, talk with them, understand how they make their money, what funds they put people into, the performance of people that are in her shoes, how her money is projected to potentially grow, what other types of, you know, perhaps wealth building or tax saving strategies they offer, right?

15:13Robert Croak:Just go interview a ton of financial advisors that could be local or perhaps like statewide, avoid sort of the Edward Jones countrywide type things, right? Work with someone you actually go to their office and be nice to and, you know, go have breakfast with them later, whatever. But at the end of the day, in my opinion, this is a great example of someone who needs to speak with a financial advisor. I don't think she's in a position just with this question you gave to understand what it means to dollar cost average, to have a difference between stocks, bonds, ETFs, right? To like understand all this stuff.

15:47Robert Croak:That's saying she can't learn it. I hope she learns it. I want her to learn it. But to me, this seems like one of those situations where you need to do what someone you trust is telling you to do. And that person you trust is the fourth advisor you interviewed out of 12.

16:01Austin Hankwitz:The only thing I'll add to this is two key words, girlfriend's mother. If you really care about this girl, and I know you do, and you want to help her mother, that's fantastic. I would offer some suggestions like what Austin just laid out, but I would be very, very careful giving her financial advice because even though you have a good heart and you're trying to be in the right place, if something goes awry and she loses money on something you recommended, you're going to be in the frying pan with your girlfriend, her mother, and everyone else involved. So just be careful there. I would help her along the way, give her some suggestions like Austin alluded to, get her in front of some good advisors that can help her and get her started and on the right track.

16:42Austin Hankwitz:And then maybe later on, once you guys are married, if you get married, then you could jump in and say, hey, I want to help you a little bit more. But I would be very wary just in the girlfriend stage of getting right in the middle of her money.

16:54Robert Croak:Our next question comes from Chris L. Chris says I'm 41 years old, I'm married, and I have a household income of half a million dollars. Net worth breakdown is as follows. $475 ,000 in retirement accounts,$350 ,000 in a taxable brokerage account, $200 ,000 in a high yield savings, and we're relocating from St. Louis to Ohio to be closer to family, and we're buying a$1 million house in the process. We have enough liquidity to buy the new house without selling our current St. Louis home. The home is valued at$650 ,000. We have a$350 ,000 mortgage on it at 3.1%. Our all-in payment is$2 ,800 a month.

17:32Robert Croak:The St. Louis home will rent for about$4 ,000, roughly$1 ,000 a month in cash flow with renters paying down this 3.1 % mortgage. The alternative is we sell it after commissions and fees, net about a quarter million dollars, invest it, and simplify our lives. I already self-manage a lakefront Airbnb, which is a million dollar property. It's cashflow neutral, but it has some really strong tax benefits given how much money we earn with our W2 jobs. I've built my investment portfolio independently without an advisor, so I'm comfortable running another rental and confident I can deploy sale proceeds effectively either way.

18:07Robert Croak:So here's my question. Do we keep the St. Louis home, rent it out for$1 ,000 a month and have our renters pay down the 3.1 % rate? Or do we sell it, simplify and deploy the liquidity elsewhere in our portfolio. Robert, what is your play-by-play for Chris?

18:24Austin Hankwitz:Yeah, Chris, you're crushing it. So, so cool to see it. It's 41 years old, just an amazing situation you're in. And because of being a high earner and having yourself really dialed in and set up, I would keep it because assuming there's decent capital appreciation for this home, which it looks like there is, you owe half of what it's worth, which is nice. I would keep it, make that money, see what happens in the coming years and keep building along the way because it seems like you have the tenacity and the ability to self-manage more and more of your own money and property. So that's what I would do.

19:00Austin Hankwitz:I would keep it, keep rocking and rolling, make it a long term rental. And then that way you get some cashflow as well as the other advantages and just do what you're doing and just keep crushing it.

19:10Robert Croak:So what advice do you have for Chris as it relates to being a long distance landlord?