Q&A: How to Invest $700K, Bogleheads Strategy, and Diversifying Away from Real Estate

0:28Shopping is hard, right? and welcome back to the Rich Habits Podcast, a top 10 business podcast on Spotify. Today's episode is our question and answer edition, which means we take your questions from Instagram or from our email, richhabitspodcast at gmail.com, and we answer them. We give you our candid feedback, our real-time thoughts, and just our perspectives in general. If you wanna ask us a question, you can always DM our Instagram account, richhabitspodcast, or again, send us an email at richhabitspodcast at gmail.com. With that being said, I'm eager to jump into this episode, Robert. Yes, but before we jump into this episode, I want to personally thank each and every one of you that attended the webinar the other week.

1:09We had over 700 people join us live and another 1 ,000 people who watched the replay. And if you haven't yet watched the replay, there's a link in the podcast description below. And now back by popular demand, we're going to host another webinar on April 24th at 4 p.m. Eastern Standard Time. This webinar is going to be all about the tricky subject matter no one is talking about, direct indexing. Essentially, direct indexing allows investors to wholly own the underlying companies of the index funds we all know and love. For example, to directly index into the S &P 500, you would own shares of all 500 companies in your portfolio.

1:52The reason people do this is for tax loss harvesting, allowing you to save a lot of money come tax season. We'll cover all of this and more in our webinar, so be sure to use the link in the description below to register. Tax loss harvesting is a way that a lot of people, specifically the rich, are able to save on taxes. And we actually found a company that's going to help all of us do this very simply, easily, and automatically. it's a company that I've been researching and working with now for a while. So they're going to be joining us as sort of these experts on direct indexing. I'm not going to pretend I'm an expert on this subject matter.

2:30Robert, I'm sure knows more than I do. But bringing in these industry experts to talk about the subject matter that no one's really talking about is why we value the Rich Habits podcast so much to talk about these specific strategies that can all help us learn more about building wealth and hopefully saving a bit on taxes. So be sure to use the link in the description below to register. Learn more, do all the fun stuff for the webinar, and we look forward to hanging out with you guys just like we did last time on April 24 at 4 p.m. Eastern. Now, we always talk about it's not what you make, it's what you keep.

3:01This is so incredibly important, and that's what defines what the rich people do better than others, is understanding these advanced strategies to help you keep more of the money you make, and we'll be covering that in the webinar. Dude, I am so, so excited. Like, I'm so pumped we're gonna be able to talk about this from a educated perspective, right? Like I've always thought about different ways of tax loss harvesting, but this is the real deal and it's going to be a lot of fun. Now, if you're an option trader, however, I need you to listen to what I'm saying right now, because I want to talk to you a little bit about public.com.

3:32But first, have you actually ever thought about all the fees you're paying to trade options? Aside from the regulatory fees, there are commissions and most platforms charge per contract fees as well. But that's what makes today's sponsor, public.com, so interesting? Public doesn't charge commissions or per contract fees on your trades. In an industry first, they offer a rebate of up to 18 cents per option contract traded. So keep that in mind. No one else is doing that. So check it out. If you trade a thousand option contracts on public, you'll get up to$180 in rebates. If you trade 10 ,000 contracts, you would earn almost 2 ,000 bucks.

4:08So more importantly, the rebate means you can maximize your profits and minimize your losses using public. So to give everyone a quick recap, Robert, there's no commissions, there's no per contract trades, and up to 18 cents on every contract traded is the rebate you could expect. So see why NerdWallet recently awarded public five stars for options trading. And to start earning up to 18 cents per contract traded yourself, head on over to public.com. This was paid for by public investing. Options are not suitable for all investors and they do carry significant risk. If you want to read the full disclosure, that's going to be below in the podcast description.

4:44And this is for US members only. Yes, you know, Austin and I love public, not just because we work with them, just because they have so many great tools within the platform. So I love being involved and working with public and they just do a great job for everyone listening. Same here, man. I've been a public user since I think it was April of 2020 and I never looked back. It is incredible. All right, so our first question comes from Ditov D. He says, hey guys, I love the podcast and I'm eager to ask you all my first question. I'm 45 years old and I recently inherited my childhood home in San Diego.

5:18It was appraised at$800 ,000 and is entirely paid off. I have great tenants living there today who are paying me$3 ,400 a month. However, I'm worried about all this dead equity. I'd love to retire in the next 10 to 15 years and I'm wondering if I should sell the home and take all the proceeds, which would be most of the$800 ,000 given the step-up cost basis with inheritance and invest it into index funds. At the moment, 80 % of my net worth is tied up in real estate. I'd love to hear your feedback. Robert, you want to kick this one off? I would love to. I think this is a great question and congratulations on the 800K.

5:52That is awesome. So here's my takeaways. You have options. You could sell the property today. The markets are pretty high right now, especially in San Diego. You could take that money and make a lot more gains with it in the markets with the VOOs and QQQs, maybe some cryptocurrencies using these more traditional equities markets. Or you could take your chances in four, six, eight months when interest rates come down. But the only thing there is with us being in such a really good market space right now, not only with the S &P 500, crypto markets and all of that, I just feel you'd be leaving money on the table.

6:27So if it were me, I'd sell it right now because it's the best of both worlds. We have a strong market right now and you have a strong housing market as far as pricing goes. That's what I would do. But if you're unsure, you could always wait, see what happens and see if you get more capital appreciation once the interest rates come down. That would be my take on it. Either way, it's a win-win for you. You just have to look at it that for the$3 ,400 a month, that makes you about$40 ,000 a year in revenue. But if you were to take that same$800 ,000 and put it in the markets and even make only 10%, you would make$80K.

7:01So you're doubling right out of the gate with very little risk or concern. So those are my takeaways on this question. Yeah, I think it's even something that he mentioned, which gets me even more excited than what you talked about, Robert, which was the step-up basis with this inheritance, right? because it was an inherited property and the step-up cost basis there, you know, he could sell this$800 ,000 and his cost basis, quote unquote, is$800 ,000. So he wouldn't exactly have to pay taxes on these inherited assets, which is really, really exciting. So here's my perspective, right? It seems like you like this$3 ,400 a month.

7:37That's cool. If you want to feel like a landlord, if you want to get that passive income and really expect those rent checks to hit every single month, You could, one, sell the property and take$300 ,000 of this$800 ,000, put it into the ETFs we talk about in our last episode, QQQI and SPYI. That$300 ,000 would generate for you about$3 ,500 a month. That$3 ,500 would be much more tax efficient than just this ordinary income you're getting from your tenants at the moment. Plus, you would have another$500 ,000 to do what Robert said. Put it into the VOOs, the VGTs, the QQQs, these index funds that over a long period of time we know double in value every seven years.

8:22So if your goal here is to retire in let's call it 15 years, that$500 ,000 would double to a million in seven years on average and then double again to$2 million on average at year 14. So you would have$2 million at that, call it 14, 15 year time horizon, as well as an asset that's paying you$3 ,500 a month, which are these ETFs we talked about. So kind of the best of all the different worlds, man. I mean, you can really set yourself up here, DTAV, for a healthy and prosperous retirement. Now, our next question comes from Hutch. Hutch says, what's up, Austin and Robert? My name's Hutch. I'm 20 years old and I love the podcast.

8:58I just began my investing journey after a few months of research and I couldn't be more excited. I managed to save$5 ,800 to start, and it's invested across large cap, small cap, immediate US treasuries, and international equity securities. I left roughly 5 % of my initial investment to put into Bitcoin, which I'm a firm believer in. Currently, I'm in college and I work a part-time job, which pays my rent and other expenses. I bring in$700 to$1 ,000 per month, and I plan to save about$100 a month of what I earn. So here's my question. What do I do moving forward? I want to continue to grow my portfolio, but I'm unsure if I should be buying more shares of these current ETFs or buying new ETFs.

9:37And if they are new, what should I get? Should I also be buying individual stocks? I just don't know what to do. What a good question by Hutch. Okay, let me kick this one off, Robert. First off, shout out to you, man. You're 20 years old and you're trying to build wealth. That is incredible. $5 ,800 is a great place to start. And having 5 % of that in Bitcoin and cryptocurrency is also incredible. I didn't see you mention the Roth IRA here. You might already be doing that automatically, but if it is just in a normal taxable brokerage account, I want you to move that to a Roth IRA. We wanna have our Roth IRA maxed out every single year.

10:12Like that's the goal because we wanna have that nice, prosperous, comfortable retirement. And 5 ,800 bucks is a great start toward that 7 ,000 that you can contribute every single year now. So congrats Hutch on that one. The second thing, don't get me wrong. large cap, small cap, international equities, U.S. Treasury, all this fun stuff. Cool, man. Like, sounds to me like you've done your research. In my humble opinion, I believe that 95 % of people can just stick to the index funds we talk about and will outperform whatever you've got going on right here. And here's why. When you begin to look at the performance of some of these international securities, small cap indices, U.S.

10:50Treasury, sure, you can have some treasuries, but also like, why do you need that? You're 20 years old. This money is invested for the next 40 years. You don't need to keep it in cash. You don't need that. You want growth for the next 40 years. You don't care about cash. So what I'm trying to say here is if you look at the historical performance of some of these subcategories in your portfolio, they're trash. You can look at VT, which is a great indicator, sort of ETF their index funds of the international markets. It's underperformed the S &P by over 100 % in the last 10 years. Small cap. We all saw what happened to the Russell 2000 in 2023, and it's underperforming still in 2024.

11:24So that's your small cap portfolio right there. I guess I'm trying to get at, Hutch, is you may have like overcomplicated things. Not in a bad way. Good for you for doing the research and trying to understand this stuff. I love that for you. But it's a lot simpler than you might think. So what ETFs would we recommend? The same ones we've been talking about for the last 87 episodes now. VOO, QQQ, VGT, VTI, and MOAT. Those are the top five ETFs that anyone can just grab in their portfolio. It's got a little bit of all that stuff in there for you. And it's going to outperform, in my humble opinion, what you've created yourself here.

11:58And again, that's because we want to be tracking and outperforming the markets. MOAT is an ETF that's outperformed the S &P 500 for the last 10 years, not like your international fund that's underperformed by 100%. QQQ is the NASDAQ 100 that outperformed the S &P and tends to over a long period of time, right? We want to put our money in funds that are going to do really, really well into the future. Maybe not so much of these like diversification, you know, US treasuries. I need to be all over the place. Like, sure, we love diversification, but when it comes to stocks, I want the S &P 500. Like that's really what I want.

12:33So for me, I did a bet. Hutch, great job getting where you're at today. And I love seeing Austin go down this rabbit hole of nerdiness. And he's right. I coined this little phrase last week in a bet that I told this, let's call him fake financial guru, that I could outperform him and 95 % of all the gurus and financial advisors out there with five stocks, five ETFs, and five cryptocurrencies. And I bet him$10 ,000 that over the next year I could outperform him. And what does that mean relative to this question? It means sometimes keep it simple, stupid. You don't have to get so crazy. You know, we talk about when in doubt, zoom out.

13:13And in this instance, you want to zoom out and compare all of these other asset classes and funds against what we talk about each and every day. The goal here is to optimize your gains over a long period of time. So you don't want to be so spread out that you're not optimizing your money. You literally can do all of this with the five index funds that we talk about, five stocks and five cryptos. So Hutch, I think it's amazing you're at where you are at 20 years old, but don't overcomplicate it. Don't think it has to be this endorphin filled ride filled with complexity. You can keep it simple and still crush the markets.

13:52And I think Hutch mentioned something pretty interesting, which is like, what do I think about single stocks, right? Should I own individual stocks? Now you guys have probably heard us say phrases like own the companies you know and love. And we believe in that, right? We want to make it really easy for as many people as possible to do those things, including Hutch. That's why we recommend Griffin. Griffin is an app that allows you to turn your real-time spending into real investments. Every time you swipe your card somewhere, call it Starbucks, Target, Walmart, Amazon, Spotify, Netflix, whatever, Griffin will automatically take$1 from your bank account and invest it into that individual stock.

14:29So Hutch, if you're thinking what individual stocks do I need to be buying? If I were you, I would just download the Griffin app and let them figure it out for you. Yeah, I love the app. And whether it's your buying groceries, your Spotify subscription, an Amazon order, or any other purchase from a publicly traded company, Griffin will automatically invest$1 into the company you're shopping at. You hear us talk about this all the time and Griffin really nails it of giving us a platform to be able to do this. And the main point is you wanna be shifting your approach from a consumer-based mindset to an investor-based mindset.

15:01And that's why we love Griffin. All you have to do, download the Griffin app, connect a credit or debit card that you use to purchase things from different types of companies. And then it will begin passively investing into the companies that you are a customer of. They don't charge monthly fees. They don't have commissions. They don't do anything like that. And be sure to use the link in the description of this podcast episode because when you sign up and use the code HABITS, you will get an additional$5 of free stock. So Hutch, looking for that$5 right there? Come on, man. Pop it into whatever you're buying.

15:30If it's Amazon, if it's Netflix, that's how I think you should be thinking about individual stocks. Not so much of let me try and find the next NVIDIA or find the next Microsoft or whatever these little penny stock ideas you might have because you're in college. You're curious, man. You guys are talking to your friends and you're in the group chats and the discords. Leave it to the Griffin app. Just do what you're spending your money on. Put a little bit of money into those companies. And that is how you should have individual stock exposure in our humble opinions. So Hutch, you and anyone else listening or watching, just keep in mind that our friends at Public recently launched their own podcast called The Rundown.

16:04So if you're on your way to school, on your way to work, just finished up listening to one of your Rich Habits episodes, keep in mind. A new rich habit you can work into your daily routine is listening to The Rundown, Public's new financial podcast. It's only five minutes long and you'll walk away caught up on which stocks are making the biggest moves and the economic stories that matter most for your portfolio. So check out the rundown wherever you listen to podcasts. We'll be sure to share a link in the description below. But it's something I always used to do in college. Like you, Hutch, I was walking around campus.

16:36I was listening to my favorite podcast, some music, whatever, getting caught up. It is a really awesome habit that you can add into your daily routine. And we wouldn't share it with you if we didn't listen to it ourselves and think it provides great information and value to you each and every week. And Zayde Admani, the co-host, is a rock star. And he's pretty funny. So I think you guys are going to like him. All right, Robert, this next question is for you. You're going to love it. It's coming from Layla S. Layla says, I love the podcast. It is so helpful. I bought a house seven years ago. I've paid it off.

17:05And now I want to buy another. I got approved for a$400 ,000 loan. And I live in California. However, I've heard of tenant horror stories and I've heard about squatters. I am terrified of becoming a landlord. So instead, I'm thinking about building a 1 ,200 square foot ADU additional dwelling unit in my backyard. Something like this would cost me about$200 ,000. I could rent it out on Airbnb or even Peer Space for potential photo shoots and commercials. What do you think about this? Layla, absolutely love it. I think this is an incredible strategy and more people should do it. And one of the cool parts about your question and your situation is California just changed the laws quite a bit to the advantage of the homeowner putting ADUs in California properties.

17:50So it's really amazing. Just a few key pro tips here. Make sure you work with a professional that understands all the rules. What's the distance from the property line that you have to be? Make sure that you have parking on property parking because you can't have an ADU with street parking. There's just a few key rules like the size of it. You mentioned 1 ,200 square feet. You need to make sure that that's doable because I believe in California, the ADU can only be up to 50 % of the square footage of the primary home. But I love this strategy. Just make sure you know all the rules and regulations before you get started.

18:25And look, instead of building from scratch, look at some of these modular homes, look at some of these prefab companies, because then you can get this up and running much faster with a prefab because all of the regulations and all of the things you would normally have to deal with with inspections will be handled by them. So it's really important. So I think it's a great idea. I think PeerSpace is a great addition in case you don't have enough daily bookings. PeerSpace can be great. So I love all of this and I wish you the best of luck. And I think it's a great idea for long-term passive income.

18:59I think Layla, when Robert and I were talking about this beforehand, the only like red flag that went up in my brain was, I mean, you mentioned this is going to be in your backyard. So just like, Like, you know, be prepared to have people in your backyard and just get comfortable with that, right? Maybe during a photo shoot, they might knock on the door and ask for a bottle of water. Or, you know, maybe something, I mean, might happen with someone living there. Like your tenant or Airbnb person is, if something goes wrong, they're going to knock on your door, right? They're going to say, hey, this is wrong.

19:25I need you to come fix it. So just be prepared to have sort of that vulnerability when it comes to this. But if you can get over that hump and you think that you're ready for that, like this is a wonderful idea. I'm all about it. And maybe on this$200 ,000, you could generate an extra two, three,$4 ,000 a month in cash flow. That is a crazy cash on cash return of over 10, 15, 20%, depending on how profitable you can make this business, which is unbelievable. Great idea, Layla, and wishing you the best. Yeah, I love it. And keep in mind with Peerspace, a lot of times your day rate on Peerspace might be for four or six hours, and you're going to get two, three times the nightly rate for someone that would want to rent it for an Airbnb.

20:05So that's why I like that you're looking at both options here, because I think you can just crush the bottom line doing this strategy. And Robert, for the people listening, what is PeerSpace? PeerSpace is a site similar to like an Airbnb, but you can book it just like she mentioned for photo shoots. You can book it for studio time. You can book it for meetings and it might be four to six hour windows. And generally those events cost more money to book in PeerSpace than it would if you were just going to stay in the property. And something that a lot of people don't know, you can book peer space and not even allow people to stay in the property.

20:42So if you didn't want to use it as that additional dwelling unit for people to do short term rentals and come borrow water from you or coffee or sugar, peer space is great because they're not spending the night. They're literally using it for their allotted time during the day. And then they're gone. They're not using the bedrooms. They're not doing the wear and tear on the property. So a lot of options here. I love it all. Great question. Let's go, Layla. Our next question comes from Digital Nomad. He says, I'm 42 years old, single, have no kids, and my current net worth is negative$23 ,000. I own a fourplex that cash flows$3 ,500 per year.

21:18My mortgage on the property is$294 ,000. I also have a personal loan on this property with a balance of$7 ,500 at a 15 % interest rate, as well as$11 ,000 of credit card debt. Additionally, I have a$30 ,000 emergency fund,$27 ,000 in my 401k,$49 ,000 in a Roth IRA, and I make$154 ,000 per year. But the best part is I live on nearly nothing. I'm able to save and invest$7 ,800 a month. That's such great news. Okay. He said, I also have$135 ,000 in student loans. Wow. At 6.6 % interest rate. I'm not required to make payments on these loans right now, but next year I will and they will be gigantic.

22:01I have a plan and if all goes according to my plan, I should have a fully funded emergency fund and a paid off credit card by the end of June. After June, what should I do next? Should I pay off my student loans? Should I invest more money? Should I focus on buying my next investment property? I don't know what to do. All right, digital nomad, good news, bad news, my friend. Good news is you are a really good saver, allowing us to have a lot of flexibility with our options. Bad news is you're 42 and you're still in the hole. But that's okay. We all have to start somewhere. And I'm really glad that you're here listening to the podcast because we're going to get you out of this hole really, really quickly.

22:34Like really, really quickly. So here's what I'm thinking, right? You said your plan is to have a fully funded emergency fund and pay off your credit card debt by the end of June. Yes, do that. However, you didn't mention that you're going to pay off the personal loan with a balance of$7 ,500. You should also do that. So if you're saving$7 ,800 a month and this loan is for$7 ,500, then by the end of July, right? One more month of squirreling away the 7 ,800, use it to pay off the property loan at that 15 % interest rate. Congrats. You now have a fully funded emergency fund. You have no credit card debt and you have no personal loan.

23:08So you are now debt-free. There's no high interest debt. The only debt you have are the student loans and the mortgage. That's a really good place to be. Now, in my humble opinion, you don't have enough invested into the markets at your age, especially with this wonderful income. So until your student loans kick in next year, I want you focused, laser focused on taking$7 ,800 and just squirreling it into a Roth IRA or a public.com taxable brokerage account. You're going to max out that Roth IRA literally in one month's worth of investing, which is great. So everything beyond that, I want you putting it in public.com and I want you to be investing into the index funds that we talk about, VOO, VGT, VTI, QQQ, MOAT.

23:51I want you to just put as much as you possibly can into that up until your student loans start kicking in there. I mean, you need this first$100 ,000 invested desperately. You're 42, you're in the negative, we're gonna get you in the positive. I am so optimistic. Now, here's what I'm thinking, Robert, and we can walk through this together, but what I was thinking is once the student loan payments kick in next year, I would kind of do a half and half approach, right? You wanna be investing. I don't want it to be so black and white as Dave Ramsey puts it, where all of your thought and all of your money, all of your focus has to go toward paying off the student loans or all of your focus has to go to investing.