Q&A: Hedging Against the “September Slump,” LTC Insurance, & Taxes on Worldwide Income

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0:57hey everyone and welcome back to the rich habits podcast question and answer edition these are our thursday episodes where we answer your questions in real time off the dome just robert and i chatting it up and hopefully providing some value to you all don't forget starting august 1st it's a friday It's going to be an awesome Friday. Robert and I are introducing our third weekly episode. These new Friday episodes will be covering the biggest headlines and happenings that are impacting you and your money. If it's something to do with an IPO, an economic report, something to do with inflation or an earnings call or something either that Robert and I just think is cool, we're going to be talking about it on these new Friday episodes.

1:37So be sure to tune in starting August 1st for those new episodes. I'm so excited for the new episodes because I feel like they will be so topical and in the now and super, super fresh relative to what's happening right then and there in the markets. So I think it'll really be impactful for people because they see these headlines, but they're not sure how to take them, what's real, what's not real. How do they react? How does it affect their money? And I think that is what is going to be so special about the Friday episodes. I couldn't agree more. Now, before we jump into this episode, got to give a quick shout out to public.com.

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2:47And for a limited time, you can earn a 1 % match on all IRA deposits, IRA transfers, and 401k rollovers. Let me say that again, a 1 % match on all IRA deposits, transfers, and 401k rollovers. Fund your account in five minutes or less at public.com forward slash rich habits paid for by public investing. Full disclosures in the podcast description. Full disclosures in the podcast description. Go check out the podcast description, not just for the disclosures, but also for links to all of the cool partnerships. We have a bunch of free resources, including the Rich Habits Real Estate Hacks PDF. That's a really good one.

3:28And you'll also find the 2025 Financial Planning Workbook in the description if you've not yet downloaded that. That's completely free as well. So our first question comes from Shaiho N. I think I said that correctly. Shaiho N via email. Shaiho says, Hi, Austin and Robert. I enjoy listening to your podcast, and I really appreciate your advice. You mentioned a brilliant idea the other day, and I would love to follow up on it. I've not been able to make contributions to a Roth IRA based on the income threshold that I've earned over the last couple of years. I have a traditional IRA with a rolled over balance from previous employers.

4:03And because of that, I did not get to take advantage of the backdoor Roth IRA, which, just to remind everyone, makes total sense. Backdoor Roth IRA, you contribute it to the traditional IRA in cash. You convert it to a Roth IRA, then you invest that cash via the Roth IRA, but you can't convert it unless you have no other balances in traditional IRA accounts. So Shaiho definitely was in a little predicament here. Shaiho says, I would love to move all of these funds that are in my traditional IRA to my current employer's 401k so I don't have to worry about tax consequences and I can start taking advantage of that back to a Roth IRA.

4:38My employer's 401k does allow this, and it has performed better than my traditional IRA that I have with Morgan Stanley, which I think they even charge me high fees for, unfortunately. My question is, how do I actually move the funds? Do you have to liquidate all the funds at once and then send the cash to a 401k? I think that's their instructions, but I'm not too sure how to move this large amount of money at once. Any advice you guys have is great. I'll go first here, Robert. So essentially, Shaiho really wants to move the money out of their traditional IRA into their current 401k. And again, making sure we're on the same page about that, they want to participate in a backdoor Roth IRA, which anyone can do no matter your income.

5:18But the only way you're able to do that is by making sure there's no other money sitting in a traditional IRA elsewhere. if it's a SEP IRA, if it's a rollover 401k, like nothing elsewhere pre-tax can exist when you do the backdoor Roth IRA. So this definitely solves Shaiho's problem. In my experience, when I moved money from different brokerages and things of that nature, yes, you can do cash. That's totally fine. I think what is most important to consider here is that you're not trying to move over Morgan Stanley specific mutual funds or Morgan Stanley specific strategies and investment products into a 401k that doesn't support those strategies and products, right?

5:59So let's say, for example, Morgan Stanley has a growth mutual fund. That's the Morgan Stanley Growth Fund. They probably charge you a bunch of fees, unfortunately. But what's specific about that fund is it's not an exchange traded fund, which means not everyone has access to it, just Morgan Stanley clients. And that specific product, those holdings, that money you have invested of Morgan Stanley Growth Fund can't just be sent to something else that it just doesn't compute. So if I were you, to your point, I would liquidate it, which is a non-taxable event where you can make trades all the time inside of these traditional IRAs or any sort of IRA without triggering a tax event.

6:36So I would probably liquidate out of those things. When you're ready to move the money, I would call up the 401k provider and make sure you say, hey, how do I move money into my 401k? I know you guys do this. Can you walk me through it? Then once you figure that out. You call up Morgan Stanley and say, hey, I want to move money out of it. This is the cash that's in this account. And then you connect the dots there. They coordinate with each other and they'll move the money on your behalf. It sometimes takes five to seven business days. So don't freak out when your Morgan Stanley balance is zero and you haven't seen the money show up yet in your 401k.

7:09The money's going to be there. You're fine. They're not just going to lose it. But it does take a little bit of time sometimes. And then once it's in the 401k, get it reinvested and you're back off to the races. That's an incredible breakdown. And the only thing that I will add of importance for everyone to remember, so many of you that I talk to on a regular basis, and I'm sure Austin does as well, you have these old 401k balances doing nothing. You didn't migrate them. You didn't roll them over. You did nothing with them. So I think the key here for me is remember, don't just leave that money sitting, get it rolled over, get it moved and get it optimized.

7:43but Austin, I love that breakdown and you covered everything that I could imagine of what to do here and the best strategy to do it. And now, Shaiho, that you've moved it over to your 401k, do the backdoor Roth IRA for 2025, right? Get after it. Time's on your side here. So our next question comes from Luke S. Luke says, Hey, Austin and Robert, I'm glad you guys are now doing Friday episodes answering more questions, especially about small business ownership. Here's my question. I'm a small business owner and I have my own cash pay physical therapy practice. I have a bunch of people that reach out to me because I have hundreds of exercise videos that involve stretching, strengthening, and stability in case someone hurts their back or any other part of their body.

8:24I know you guys have talked about Stand Store in the past. Do you think there's a way that I could upload these videos on Stand Store and begin to market myself and sell these videos? Say someone hurts their neck and they can go onto my Stand Store and purchase this specific video catalog and that's how everyone's happy. Do you think that's a marketable strategy? Thank you so much. Excited to hear your thoughts. Robert, you want to kick this one off? Yes, I love this one and Luke, congrats. I think you could definitely weave a stand store into this as a processor, as a funnel to get you started on this.

8:58But I love it because if you build your personal brand for your business around these videos, I could even see a world where you do a subscription agreement. Maybe it's$29.95 a month for people to join and then they get access to all of these modules and all of these videos that you have. You could sell them individually like a course as well, but I think you're definitely on the right track because I know for me, if I'm having back issues, I would definitely pay for it or anything fitness and wellness related. So I think you're on the right track. Stan is definitely an incredible platform. Austin and I both use it.

9:35And I think you definitely should really dig into this and figure out the best way to bring these into a platform and a way that you can make money from them, but also provide help for so many people out there. So I love this. Yeah, I think it's a great idea, Luke. So tactically speaking, here's what I would do. You have these hundreds of videos. I would make sure that one, you have all of them categorized internally as it relates to like, is it strength? Is it stability? Is it pain relief, right? Make sure that you're targeting the very specific outcomes that you're trying to achieve for these people.

10:10And so then when it comes to Stan, you have the opportunity now to upload video coursework, digital downloads. They have email flows. They even have communities inside of Stan now that you can host, right? So there's a lot of different ways that you can go and say, okay, I'm going to open up a Stan store for$29 a month. I'm going to upload all of my stability-focused videos onto Stand Store. And let's call it 10 hours of video coursework that you have uploaded on here now. And then you're now going to start marketing this as the Stability 101 course when it comes to stability in your elder age.

10:46Or maybe it's marketed to people in the 50s and 60s and 70s. Who knows, right? Or stability before you have kids. Or you gotta niche down and market a specific life event that I think people will be going through that I need to start thinking about their stability. And so that's how I do it. I have it all there. And then you start selling it for$39,$59,$199. And you now have this video course catalog. Someone goes to your stand store, your link in bio. They click it. They do the Stripe payment. You get paid. And then they get all the videos and they get to watch the videos at their own pace. And now you've got the strength one.

11:18Now you've got the pain relief one. Maybe you want to start honing in a little bit more as it relates to different parts of the body or different types of pain relief or different things of that nature. So there's a bunch of ways to think about that. But tactically speaking, I would begin to categorize them and then niche down on that specific ones, probably starting with strength or stability. I would imagine those are probably the most common, but maybe pain relief for back, who knows? And then beyond that, there's other tools like their email flows, right? Every time you capture an email address from someone that buys one of your courses on Stan, you can then put their email address into an email flow, which means they'll get an automatic email after two hours, two days, a week, maybe you wanna upsell them on another course or maybe you wanna upsell them on coming into your practice physically and getting some one-on-one coaching, right?

12:03There's a whole business model around this that you could do where once you have someone's attention, it becomes now this sort of flywheel of content upselling and further value being provided to them considering you've got so much content and video coursework already. So really cool stuff, Luke. I'm super excited that you're excited for these Friday episodes. Robert and I love talking with small business owners and sharing what we've done as small business owners. And we're excited for you, man. And I think this goes for everyone out there that has a niche or an expertise. Please don't forget that your niche may be super specific, but still very worthwhile for people.

12:43So just keep in mind, whatever that niche may be, you can put it to work and you can start selling courses, selling digital downloads and all of that through a stand store. And maybe that's your side hustle that gets you to the next level of your finances. And Robert, speaking of niches, right? Literally any niche you want, like just go check out Stan's Instagram. They've got a ton of different examples of people that are doing some cool stuff over there, but it might be making sourdough bread. Maybe it's about woodworking. Maybe it's about manifestation, right? Whatever you are thinking of talking about on the internet, there's a tribe that exists out there that you can talk to and they're going to listen.

13:19And there's a world where you can provide enough value for a reasonable price, they will buy your product. So Luke, you're providing great value with your physical therapy practice. Now it's time to reach out to the online masses and we are rooting for you. Our next question comes from Sean M. Sean says, hey Austin and Robert, thank you for sharing your expertise with everyone through your podcast and weekly newsletter. I have a question about the chart of the week from your newsletter on June 26. You pointed out how over the past several years, July has been the best month of the year for the NASDAQ with an average return of 4%.

13:53But I couldn't help notice that September was in the red nearly every year after that for the past 16 years. Obviously, we can't predict what's going to happen in the markets, but with this data, would you recommend any action to hedge against the possibility of a September slump? And if so, what might that action look like? If you can predict a slump in the market, how would you prepare your portfolio? I know this is speculative, and the average loss over the last 16 years is only 0.3%, which isn't much, but I guess I'm just trying to better understand what actions you each might take if you did have a strong suspicion that the market was going to be in the red.

14:31Robert, you want to kick this one off? I would love to. Sean, I like the thought process. I like where your head's at. But the way I look at this is two part. Number one, if you have$100 million plus and you have a team of money managers, great. You can make those adjustments and you can try to manipulate the market with these ebbs and flows of these months that mathematically generally are slower or there's a slight downturn like you mentioned. But most people that listen to this podcast do not have that kind of money. And therefore, I think what you're doing is setting yourself up, chasing pennies, why dollars fly by.

15:08So in my opinion, part two of this is we don't like to see anyone try and time the market. At the end of the day, you want to get your money invested correctly. You want to have that diversification and stop worrying about the ebbs and flows of every headline, every month and every market move. because at the end of the day, over time, the markets go up and to the right. So for this question, I really do appreciate the process and your thoughts, but I don't think it's necessary to really dig that deep into the minutiae of how you can try to time a downturn. Now, if every September the market corrected 10%, then sure, maybe there would be a philosophy or a strategy that we could make work to take advantage of that, but I don't think this is the case.

15:54Now, let me answer that second part, which is I'm just trying to better understand what actions you each might take if you had a strong suspicion the market was going to be in the red. So as it relates to that, we had a very strong suspicion that in 2025, we would experience market volatility, right? That was a January 13 episode. It was our big market predictions for 2025. And unfortunately, we were right. The Trump tariff tantrum that happened in April caused the NASDAQ to fall 21%. and the market's been very volatile to say the least. So what did we do about it? We hedged our portfolios with some precious metals like gold and silver.

16:29We hedged our portfolios with QQQH and SPYH, which are the hedged equity income ETFs offered by NEOS funds. And we also had Stephen Sykes on episode 120, which was published on June 2nd. And that episode was literally called How to Hedge Against Market Volatility in 2025. And in that episode, he talked about bonds that you can get on the Publix bond account paying like 7%, 8 % right now. Obviously, you could also buy put option contracts as a way to hedge against existing holdings, covered call option contracts to collect premiums. There's a ton of different ways that we encourage people to learn more about as it relates to hedging a portfolio if you have a strong suspicion of volatility.

17:13and we followed a lot of those strategies in the first half of this year to help buoy some of the downside risks that the markets were experiencing. But at the end of the day, what Robert and I don't want you guys to do is to always be planning for a black swan event. They're called black swan events for a reason. They don't happen often. You can't see them coming, right? We want you instead to be positioned for the other 85 % of the time, which is stocks go up and to the right over 1, 3, 5, 10, 15 year periods of times. And you need to have enough allocation to equities and stocks to ride that wave to the upside as well.

17:50And so Sean, I hear you. I want to reiterate what Robert said. I love where your head's at. It's a great way to be thinking, but I don't think in our opinion that this is a run for the hills. Let's all try and hedge our portfolios and overthink this. But if you wanted to get some precious metals or some of these hedged equity income ETFs from NEOS funds like QQQH or SPYH, knock yourself out. So our next question comes from Greg P. Greg says, Hey guys, I love the podcast and I really appreciate the practical advice you share. I'd love to hear your take on long-term care insurance. For many people, it seems like the decision hinges on net worth.

18:24Either one, you're below a certain threshold, so you might be able to rely on Medicaid or two, you're above a certain threshold and you can maybe afford to self-insure. But of course, it's not that simple. So how do you guys approach this question. Would you lean toward a traditional long-term care insurance policy or explore a hybrid or maybe an annuity-based product? Personally, I'm not a big fan of the annuity route. It feels more expensive and less transparent, and I like to keep things simple and straightforward when possible. Thanks again. Looking forward to hearing your thoughts if you decide to dig into this topic.

18:54Robert, you want to kick this one off? Yeah, Austin. I'll take this one because I have a very specific story of what happened with me. My mother's Medicaid ran out. We had to put her in hospice. I was in the consideration of long-term care insurance, but I never pulled the trigger. And unfortunately it was a very costly mistake for me. So I think the non-hybrid version is definitely the better way to go. I'm not an insurance expert, but we have worked with Sure-Ants and we can put a link in the show notes to give you the contact there. I think they do a wonderful job, but I think everyone should consider this, especially as your parents are getting elderly and there might be some health issues in question because you might not be able to count on Medicaid fully, especially moving forward as there are more and more issues that have been discussed of potential payouts from Medicaid and Social Security and some of these other funding mechanisms.

19:50So I would just really look into it and not worry so much about what your net worth is, but what it can do and what the cost is relative to what the cost could be if you went down the road of needing long-term care. Yeah. I also think Medicaid isn't like a solution for more than maybe like 10 or 15 % of people, seniors, right? I mean, I think the threshold is about 25 or$30 ,000 a year of income. And so if you're a senior that makes more than that, then like you can't qualify, which I imagine is a lot of people listening to the show. So my experience was starting earlier this year, I started paying about$4 ,000 a month for at-home caregivers to start coming over to my dad's house and be with him for six, seven, eight hours a day.

20:37And that was all out of pocket. Of course, I didn't have any sort of insurance that would cover any of that stuff. And he wasn't qualifying for Medicaid. He made about, I think like 40 or 50 ,000 a year or something like that. So he wouldn't qualify for Medicaid. I was paying for some of that stuff out of pocket. And so like the predicament that we were in was he needed more care than what was offered at home. So we needed to have to move into one of these sort of long-term care facilities for seniors, senior living facilities. And those were anywhere between, I think the cheapest one that we had found was about$4 ,500 plus another$1 ,000 or $1 ,500 for more care.

21:14So you're looking at about$5 ,000 to$7 ,000 average is kind of what we were seeing. I looked at three different places around Nashville. And so if you didn't have some sort of mechanism to pay for that, you were pretty much SOL, right? And so if I were to do it all over again, I guess there's like, there's two ways to solve this problem. And everyone listening needs to take this very seriously as someone whose dad just died last week and had a crazy six-month experience trying to figure out all of the ebbs and flows of, you know, care at end of life, end of life care. The first way you do this is to self-insure, which is what Greg was alluding to.

21:49That essentially just means that you are paying for this$4 ,000,$5 ,000,$6 ,000,$7 ,000 a month of care out of your assets. That might be you sell your home because you no longer need to live in that home. You're living in a facility and you tap into the equity of that. Maybe that means you have some retirement accounts that you're paying for this out of. Maybe that means that you've got some sort of pension or Social Security and things that you're using to pay for this. So you're paying for it out of your own assets. You're self-insured. And the way that you become self-insured is you're setting aside$300,$400,$500,$600 a month and investing it for 20 years while you're in your 40s, 50s, and 60s, allowing this nest egg to grow so you have money to pay for this type of care when you're older.

22:30The other way is you actually go and you buy long-term care insurance. And long-term care insurance, how I understand it, I'm no expert. Go talk to our friends over at Sherriance. Russ McBride's great at this type of stuff. But how I understand it is you're paying a monthly premium of$400,$500,$600,$700 a month. And in exchange of that, whenever you need long-term care insurance in the future, you have up to$7 ,000,$10 ,000,$12 ,000 a month in perpetuity that they will provide you over a, it's either perpetual or maybe a specific period of time. There's a lot of nuances there, but I guess what I'm saying is you pay a monthly premium so that in the future you have guaranteed income coming from this contract that will allow you to offset your living expenses as a senior.

23:13If you were paying three, four, 500 bucks a month throughout your 40s, 50s, and 60s into this insurance contract, and then on the flip side, let's say at 71, you now need to start taking out 12 ,000 a month for the next 10 years. That's$1.4 million that this contract will have paid you over that 10-year period of time. Maybe$1.4 million you wouldn't have had from putting that same$300 a month into the market. So you have to do the math and figure out timelines and things like that. It's a lot. Please go talk to a professional about this. But one, it's important. Everyone here needs to be thinking about it.

23:45If it's with your parents, if it's with you, like I would go back 100 times and pay for my dad's care,$4 ,000 a month. No problem. I'm in all the time. I love that man. But on the same token, I know that it felt weird for him for me to like pay for his care. And it felt like he didn't want me to, but he kind of needed me to. So have those conversations with people. Do the planning necessary. Everyone's going to die. We're all going to get older, right? There's going to be a point where we can't take care of ourselves if it's in our 70s or 80s or whatever else. And, you know, as someone who wants to be self-sufficient as long as I can, I don't want to feel like I'm a burden to other people.

24:19So there's a lot of things to consider there. But, Greg, really, really great question. I want to add one more thing because it kind of spelled it out really well a couple weeks ago. Ray Dalio did an interview, and he was talking about what he calls the midlife squeeze. And I think you just covered it, but I really like that term. and he was talking about this exact topic where so many people, when they get into their 40s, their mid 40s and getting into their 50s, the kids are getting expensive and the parents are elderly. And you get in that situation where you're not prepared for the additional expense of, let's say the kids need college help or they need help with the down payment on a home, but then the parents might need long-term care help.

25:00So be prepared, like Austin said, get ahead of it. Don't wait until it's too late or find yourself caught off guard in a situation where it might cost you$4 ,000,$5 ,000,$6 ,000,$8 ,000 a month for that care. And you can do all of that ahead of time by proper planning. So before we get into our next question, listen up, folks. You can lock in a 6 % or higher yield with a bond account. But remember, your yield isn't locked in until the time of purchase, so you might want to act fast. Lock in a 6 % or higher yield with a diversified portfolio of high yield and investment grade corporate bonds. only at public.com forward slash rich habits.