Q&A: $325K in META, Budgeting For A Vacation Home, & Direct Indexing

22:18Robert Croak:So our next question comes from Skip H. Skip says, hey guys, I found your podcast yesterday and I love what you're doing. Let's go, Skip. Welcome to the show, my friend. Awesome to hear. Skip says, my entrepreneurial friends of mine say that scared money don't make no money, meaning that it takes money to make money. The frugal side of me says to invest, diversify and grow my money wisely. But I find that I might be too frugal. So here's my question. How do I find a balance between crazy business growth, throwing caution to the wind, and being so frugal that there is no business growth? We have$400 ,000 in investments.

22:54Robert Croak:We didn't start investing until I was 55 years old and I'm 63 now. So it's amazing how much we've accomplished in just eight years, hoping to retire before 85, but only time will tell. Thanks so much. Skip H. Robert, Skip is, I feel like he's definitely not a minority in asking this question. I think a lot of people, the majority of people hear this. I've heard this phrase, right? Scared money doesn't make money. So maybe explain what that phrase means and what it means to you.

23:21Austin Hankwitz:Yeah, scared money doesn't make money is generally the phrase that comes from your gambler friends that are always out there YOLOing every dollar. They have a lot of credit card debt and a lot of debt in general because they're trying to throw things at the wall and see what sticks. you seem to be on the other side of that spectrum where you're very cautious, you're very tactical and all of that. My takeaway for you is, yes, it makes some sense. You have to get out there and spend money to make money, but I would do a hybrid. Don't go crazy, don't go spending everything and stop investing in your future and maybe open up a little bit where you spend a little bit more, you try some new things, but you do it tactically like you've done your entire career because I think you will get there in a much better fashion because right now looking where you're at at 63 years old is a big difference than you being 23 or 33.

24:14Austin Hankwitz:I used to do the scared money doesn't make money tactic and I would go all in on projects back then but I would never do that now because you don't want to go back to zero because you took a risk that didn't work out so that's my take.

24:29Robert Croak:Yeah this this phrase scared money doesn't make money, I think is a excuse that people give themselves when they do something really foolish. And they're like, well, I had to do it or I'd never get rich, right? It's like, no, no one says that. So let's think through this for a second. When people say scared money doesn't make money, they're essentially saying, I need to put up capital to have some sort of big financial windfall in the future. What that financial windfall might be is profits of a business. Maybe it is, to Robert's point, gambling, right? Some people like to use that phrase in gambling.

25:03Robert Croak:Other people might use that as a phrase to trade stocks or trade options or be kind of risky in the stock market. Charlie Munger from Berkshire Hathaway, he unfortunately passed away, but you know him as Warren Buffett's partner. He says, smart men go broke from ladies, liquor and leverage. And I think that last L, the leverage part, is what's really scary. And it's something that I take to heart. And it's something I think Skip should also take to heart. It's okay, Skip, in my humble opinion, if you said, listen, guys, I've got 50 grand. I've been saving it for a while here. And I believe I'm going to make the best hot dog stand Broadway in Nashville has ever seen.

25:45Robert Croak:And I'm going to make so much money selling these hot dogs. And it's going to be an awesome business venture. And I'm really excited about it. And my name's Skip, and I'm saying scared money doesn't make money. And my 50 grand, I'm going to put it to work here on this business. Skip, that's awesome. I love that for anyone. Go try things and be as thoughtful about how you deploy capital as humanly possible. But the leverage part that Charlie Munger was alluding to is how people can really mess up. And I think that is sort of a synonym there with the scared money doesn't make money. People think, oh, I got to go get an SBA loan of$400 ,000.

26:18Robert Croak:I need to go take a HELOC out on my home. I need to go get a second mortgage. that's the money I'm going to use to go buy the car wash. That's the money I'm going to go use to double down on Amazon stock. That's the money I'm going to go use to make some of these like riskier type of investments or bets. Like no one wants to start business ownership in the hole, right? Where you, even if it goes belly up, you still owe money. Like that sucks, right? At least if you used cash or some money that you've saved for the last however many years, oh no, my hot dog stand didn't work out. I lost 30 grand.

26:47Robert Croak:I tried. I gave it my best, but it didn't work out versus I owe the bank 80 ,000 and I don't have a hot dog stand, right? Like it's just, so that's the perspective I can share here is like when it comes to business ownership and making moves and things like that, you hear scared money doesn't make money, which is true. But a lot of that comes from leverage. And I think is a very, very, very bad way to think about building wealth is like truly going into leverage and debt and trying to lever up and like do whatever you can. Now, when it comes to investing, very different here, let's talk about that.

27:19Robert Croak:We believe people should have this portfolio structure of core satellite, right? 65 to 85 % of a portfolio should be made up of the index funds and ETFs that we know and love, the blue chip VOOs, QQQs, Dow Jones Industrial Average that go up into the right over a long period of time. The other 15 to 35 % could be diversified into real estate, precious metals, maybe some cryptocurrencies, some artwork, some wine and whiskey, some other alternatives that makes sense for you and your risk profile. Which means, again, if your risk profile is like, hey, 60-40 portfolio and you've got 80 % cash, then like, yeah, maybe you should be a little bit more invested in the markets, right?

27:56Robert Croak:You're 63. You got another 10, 20 years ahead of you. But when it comes to actually like buying a business or like trying to do that, going into leverage to invest, going into leverage to start something, that to me is too risky. And I don't really encourage anyone to do things like that.

28:10Austin Hankwitz:That's a great call out because I think a lot of people get it twisted, that they think investing in these tried and true index funds that we talk about that just churn out money year over year versus taking a high risk bet later in life in your career to try and get ahead and YOLO your money. It's two totally different things. So I agree with you tactically 100%. We love this for you, Skip. Keep rocking and rolling. Maybe find a hybrid where you take a little more risk to build that business higher, but also not so much risk that you could go back to zero. We don't want to see anyone do that.

28:46Robert Croak:Yeah. Let's, I want to talk about that a little more, Robert, because I see Instagram and TikToks about open up these four credit cards and you'll get 40 ,000 of business funding overnight and it's 0 % interest for eight months or like whatever it might be. And I think people hear the word funding and forget that funding is debt and forget that in eight months, your debt is going to be 26%. And so like, whenever you think about and Robert, you're an entrepreneur business owner, I'm an entrepreneur business owner, I've been doing this for a lot of, you know, years now, and I've invested a lot of money back into my business, you know, to start this podcast, we had to come up with a lot of money to just like build it out.

29:24Robert Croak:And you know, there's a lot of things that I've had to say, cool, I'm going to take 10s of 1000s of dollars and like, go invest it to hopefully see a return on that in the future because it's back into a business or something that I have control over. And the advice I can give you if you find yourself in that situation, and this could be Skip or anyone else listening, is like be as calculated as you possibly can. What dollar for dollar are you investing and what are you getting in return? Is it software? Is it equipment? Is it inventory for your business? Take the rosy glasses off. What is that actually going to be?

29:56Robert Croak:Take your base case and cut it in half, right? So it's like, oh, I'm going to go spend$4 ,000 on this new software for my business as a CRM tool or something, or I'm going to go purchase this new equipment because I think it's going to speed up production in my junk removal business or whatever it might be, right? What's the actual ROI on that? And if you don't know the answer, like talk to AI, talk to chat, talk to Gemini, talk to Claude, like they're going to help you think through it. But I really want everyone to not just think and jump into, oh, I could go buy an excavator for$30 ,000 and that's going to help my, you know, junk removal business by, I mean, it has to, right?

30:29Robert Croak:I'll be able to move so much more money. Like that's a no brainer. And then you forget about like, well, what's the interest rate? What's the monthly loan amount? Is that loan amount absolutely going to be covered by the increase of efficiency? Like you have to be thoughtful about how you're investing money back into a business. If that skip is in this situation for you or anyone else listening, because you want to see a direct ROI that can also mean employees, right? So Robert, I mean, talk about that for a second.

30:52Austin Hankwitz:Yeah, I have a great story exactly on that point. You are on fire today. And this was a construction company that was a friend of mine, the founder of my construction company, but also a competitor. He came to a job site where we were building out these apartments. And he said to me one day, he goes, man, he goes, why do you have all those older trucks and trailers? And I looked over at his team and they had all brand new trucks, brand new equipment, brand new trailers. I said, well, the reason I do that is because I own all of those. I have no debt and no payments. I said, what is your monthly nut just for your trucks and trailers and equipment?

31:27Austin Hankwitz:It was$26 ,000 a month. He thought he was so cool because he had all these newer trucks. I had my older trucks and they were all the same. And so literally within a year and a half of that, he filed bankruptcy because the market dried up during COVID. He couldn't withstand the pressure because they had all that overhead. We didn't miss a beat because I didn't have any overhead. So I think it's a great call out, Austin, that so many people get caught up in, I'm going to grow, grow, grow. They take out all this levered debt. And then they find out as soon as they go through this bump in the road for a few months or something happens with their company that they can't withstand it and they go back to zero.

32:06Austin Hankwitz:So I think it is a tremendous call out. And when you said that, it immediately brought me to that story of here. This guy's making fun of my equipment, which does the job. Meanwhile, he has all this levered debt. So great, great call out.

32:19Robert Croak:Now, before we jump to our final question from Arturo, got to give a shout out to public.com again for those generated assets. I'm telling y 'all, if you are still on the fence, you're like, listen, guys, you talk about generated assets on the show. I get it. Whatever doesn't apply to me. You don't know that. Go log into public, click the generated assets button and say, I want to invest into companies that are going to profit from peptides. I want to invest into companies that will profit from looks maxing. I want to invest in companies that are going to profit from, I don't know, meta overtaking Google with their ad revenue, right?

32:55Robert Croak:We talked about that on a radar episode recently. I want to invest in companies that are going to profit from people traveling to Japan. And that's like a new fun thing that people are doing for the last couple years now, right? Like, I don't know, but come up with any idea that sounds interesting to you. Talk to it, tell it what you're interested in, why you're interested in it, and it's going to find new stocks that align with that. And then generated assets will back test that strategy against the S &P 500. So you can see if it's a historical winning strategy or not. Literally, it's so cool.

33:27Robert Croak:I'm in there all the time, every day, I feel like I'm just coming up with new stuff. And it's like, oh, and then you can just like invest into whatever it is like automatically. It's super simple. You don't have to go find the stocks. It'll just build an index for you. It's plug and play. It's like building your own ETF from scratch. It's really, really cool. Generated Assets is the name of it. Go to public.com slash rich habits. Get a 1 % bonus when you transfer a portfolio to public using our referral. Go check out Public and the Generated Assets product. It is really, really cool.

33:53Austin Hankwitz:We have been working with public.com for a very long time. And in my opinion, they have the coolest tools. They simplify everything. And generated assets is one of those things. You have to go in. It doesn't cost you anything. Set up your account, check out generated assets, because we all have different strategies that we want to implement in investing. And I think public makes it easy for people that are just getting started.

34:17Robert Croak:Our final question comes from Arturo C. Arturo says, Hey guys, thank you so much for the amazing content. Here's my question. With direct indexing available on public.com, should I move away from the usual ETFs like VOO and QQQ and instead go direct index their underlying components? Like just do direct indexing instead. Could you please tell me why or when this would be a good idea? Or the opposite. Why or when direct indexing is not as smart as just buying shares of the ETFs? I'm steadily approaching$100 ,000 base being built. I continue to dollar cost average into the markets. My monthly investments into bridge accounts range from about$2 ,000, sometimes up to even$5 ,000 or$6 ,000 depending on my income.

34:59Robert Croak:I've invested into VOO, QQQI, VDE, and VYMI. Thanks so much. Good question. So let's talk about this. We've got a lot of cool products available to us as retail investors now that weren't available to our parents 20, 30, 40 years ago, right? Robert, I can only imagine how hard it was to place a trade back when you were 30 years old, my age probably had to pick up a pay phone or click some buttons or talk to a broker and hey, buy this ETF. Hey, ETFs don't really exist, right? What are you talking about ETF? Like just buy a stock or an index or mutual fund or whatever, who knows? So it's really cool to know that we've got so many products out there and public does a really good job of like helping us use those products, understand them and make it accessible for the everyday investor.

35:45Robert Croak:So what is direct indexing? The NASDAQ 100, the S &P 500, the Dow Jones Industrial Average, these are indices. These indices are essentially strategies that were created by companies, right? Investors that say, hey, for the S &P 500, we've got very specific terminology, we've got very specific parameters, but it's essentially the 500 largest, most profitable companies in the United States. So what we're going to go do is identify who those 500 companies are. Every quarter, we'll get rid of the losers, we'll add in the winners, and that's going to be the indexes strategy. So you can replicate that strategy by buying shares of the ETF VOO.

36:24Robert Croak:VOO will literally do exactly what the S &P 500 index does, and it will make it super simple for you to just own that index through a tax-efficient wrapper that is the ETF, right? ETF price goes up, ETF price goes down, follows the index. Direct indexing is a little bit different. You're still owning the index itself of the S &P 500, but instead of buying one share of an ETF, VOO, that's got that index, those basket of stocks, those 500 shares wrapped up inside of the ETF, that one share of ETF, you are individually buying all 500 shares of the S &P 500. So all 500 of the underlying components, constituents, those 500 stocks, you're buying shares of their company, one by one, 500 of them, right?

37:15Robert Croak:But you're doing it automatically with the help of public in the exact same proportion as you would if you bought VOO, because it's all market cap weighted. Hopefully you guys are following along here, right? So direct index, you're directly investing into the companies, you're going to buy all 500 shares of their stock versus ETF, you buy one share, moves up and down with the index. Austin, why on earth would I go out and buy 500 shares? That sounds like a headache. Well, one, public does it automatically, not that deep, super simple. But here's why you might wanna consider it. With direct indexing, you have the ability to do something called tax loss harvesting on every single name in the S &P 500, whereas you cannot do that when you only own one share of an ETF.

38:02Robert Croak:You could tax loss harvest that single ETF. If it goes down, you could sell it for a loss and, you know, roll those losses forward, whatever. Or on the flip side here, when you direct index, maybe you look at Atlassian or Unity Software or MongoDB who are all in the S &P 500 and their stocks are down 60, 50 and 40 % year to date. Technically speaking, what would happen is public would automatically tax loss harvest your position in MongoDB because, again, you're following the index. You have a position in MongoDB because it's in the S &P 500. They would sell it at a 40 % loss. You would book that loss in your brokerage account, use it to offset gains elsewhere in your brokerage account.

38:45Robert Croak:public would take the money it had invested in MongoDB, automatically invest it into another company that historically had a similar volatility index, beta is what it's called there, a similar volatility to MongoDB. So you're not losing out on gains in the future per se. And now you've got a booked loss that offsets gains elsewhere while also having essentially the same performance as everyone else in the S &P. I don't want to say it's free money by any stretch of the imagination, but this is the closest thing in my opinion to free money that I get in my own portfolio. I've got probably$50 ,000 now direct indexed against the S &P 500 and I get thousands of dollars of losses just handed to me because their tax loss harvesting automatically is super, super simple that I use then to go book thousands of dollars of profits elsewhere in my portfolio that I now don't have to pay taxes on because it's a profit that offset a loss.

39:41Robert Croak:It's really cool.

39:42Austin Hankwitz:I just want to click back on one thing. Arturo asked, should I move away from the usual ETFs like VOO and QQQ and do the entire direct indexing route? So I want to get your take on that because I don't believe they should because there are balances and things that are advantageous of the ETFs we talk about versus direct indexing because they both have their positives. Touch on that for a moment of why you think or don't think people should move away from having their basket of ETFs and just having the direct indexing.

40:14Robert Croak:So here's the first big call out. The first call out is you need a massive minimum investment to direct index the S &P or the NASDAQ, like tens of thousands of dollars. You don't need a massive investment to buy one share of VOO. You can fractionally buy one share of VOO for$10,$100, right? So like very different, very, very different from a minimum investment perspective. But I mean, listen, I've got hundreds of thousands of dollars in the ETFs we talk about, and I've got tens of thousands of dollars direct indexed into the exact same indices. So like, that's how I've approached it. I don't think there's any framework I can share.

40:53Robert Croak:I've got no rhyme or reason for it. I just I just like knowing that I got some direct index. I got some ETFs. I've got I got everything I kind of want here. I'm actively buying more direct index S &P, just like I'm actively buying more VTI and DIA, right? It's just like, for me, there's no rhyme or reason. There's no perfect answer here. I'm sure there can be an argument made around mathematics and returns and tax loss harvesting or drag on those returns with the difference of the beta and the reinvestment. I'm so sure someone can do a whole PhD paper on this. But at the end of the day, for me, a little bit of both is cool.

41:28Robert Croak:That's how I've done it. I've got some cool free money, quote unquote, from having some losses that offset gains elsewhere. Just like I've got some ETFs that go up in value that I can do some covered calls on if I want. It's totally up to you, but that's how I've approached it personally.

41:42Austin Hankwitz:The only thing I'll add to that is if you were to sell the VOO and the QQQs of the world, that is a taxable event if you were migrating that money. So I would keep rocketing and rolling in that standpoint, but also look at it this way because I don't think direct indexing makes sense in your retirement accounts as much as it does if it's in a taxable brokerage account because you want to be able to take advantage of that tax loss harvesting. So that's the only other thing I would mention here. In my opinion, I agree with Austin 100%. I do both. I don't have a rhyme or reason. I just want to make sure that I have some advantages with this tax loss harvesting, but also keep rocking and rolling with the VOOs and QQQs.

42:21Austin Hankwitz:They're low cost, easy to maintain, and you can just make so much money that way. That's how I do it.

42:27Robert Croak:Yep, 100%. This is only taxable brokerage because that's only where you pay taxes, right? On your taxable brokerage account, not in your retirement account on the trades, only on the trades and taxable brokerage account. So good call out there, Robert. And yes, if you've got$100 ,000 of VOO, that's up$30 ,000 of unrealized gains. There's no reason in the world to sell that, pay taxes on those gains just to redeploy it in the same thing through a different vehicle. Don't do that. So if you've got the money, let it roll in those ETFs and rise over time. But if you want to say, hey, I want to put 500 bucks a month net new capital into a S &P direct index or whatever makes sense for you, who knows what that minimum is.

43:05Robert Croak:But maybe that's what you want to do. Totally up to you here. No rhyme or reason. Want to just reiterate that for you, Arturo. Personal finance is personal, and that's how I've approached it. And again, I'm sure there's some crazy math we can get into and things like that. But it also goes back to, I had this conversation over the weekend, and then we'll wrap up the episode, Robert, there's always somehow some way that someone can optimize, you know, the 2 % perfect whatever in their portfolio to, oh, if I just did this, I'd have made an extra$1 ,100 last year. If I did this, my portfolio would be up 0.82 more percent or like whatever, right?

43:40Robert Croak:I can't time the market. I'm not trying to perfectly optimize every penny of my net worth. I think if I just continue to make broad stroke investments into the right things over a long period of time, my wealth will compound and multiply. And that's all we're trying to help you all understand is you don't have to perfectly know every little bit and piece of the perfect optimization strategy, buy, sell, whatever the heck going on. If you do three or four things right, if you get it like 80 % right, you are going to build wealth, tremendous wealth over your lifetime. Focus on the 80%, more so that perfect optimization of the other 20 % in your life.

44:22Austin Hankwitz:I agree with that 100%. What a great episode this was. So many incredible in-depth questions. Thank you all so much for bringing these questions, hitting us up in the DMs, Spotify, Instagram, wherever you can find us, LinkedIn, I don't care. Just get the questions off to us.

44:40Robert Croak:Thanks everyone again for a great episode and we'll see you tomorrow for our Rich Habits Radar.

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