Q&A: Lump Sum vs. DCA Investing, Losing $25K in Meme Stocks, & Mid-Term Rentals

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0:42Because Marshalls believes everyone deserves access to the good stuff. Visit a Marshalls store near you or shop online at marshalls.com. Hey, everyone, and welcome back to the Rich Habits Podcast question and answer edition. In these Thursday episodes, Robert and I sit down and we answer your questions. You ask us questions inside of the Rich Habits Network. You also ask us questions inside of Instagram DMs at richhabitspodcast, or you email us questions at richhabitspodcast at gmail.com. Y 'all always figure out a way to get in touch with us, as you should, and you do a pretty good job of it.

1:19We've got, I think, eight questions this episode, Robert, to answer. A ton of them came through emails. A ton of them came through DMs and others are also from inside the Rich Habits Network. We can't wait to dive into some of these. And Robert, how are you feeling, man? It's the second to last real week inside of December. Have you started making your New Year's resolutions yet? What is on the horizon for you for the next couple of weeks? Wow. I would say for me, the best part about, let's call it this holiday season, the Christmas season for me is that I feel like why everyone else is winding down, I can play catch up.

1:54And that's one of the best parts because everyone kind of like starts to wind down, spend time with the family, do their Christmas shopping. And for me, it's all about getting that mental clarity ready for the new year, because we have tens and tens of thousands of people that count on us for the best information and guidance out there in what's happening in the markets, what's happening in the economy, what to do with their business in the new year. So for me, I get really excited about this two, three week period of downtime because I feel like I can really get ahead of the curve to figure things out for the new year.

2:27So I'm super stoked. I'm right there with you. I think it's a cool time to allow us the ability to reflect and think about what's happened throughout the year. What do we want to change? What do we like? What did we not like? And more importantly too, we were talking about doing a portfolio performance review. This is a great time to do that. I mean, if you're someone who has that call it seven to 10 days of downtime here in the holiday season, spend 2448 hours of that sitting down and actually looking through your portfolio, if that's inside the 401k, your bridge account, maybe your crypto, maybe your real estate, maybe your alternative investments, there's a ton of different portfolios that we know you all have, sit down and do the homework, compare it, benchmark it, see what's working, what's not, and make the changes necessary so that you can start 2025 off on the right foot.

3:13I love that. And it really comes down to, and we've been talking about this a lot lately of knowing where you're at, is it time to take profits and really doing that thorough research on everything you're invested in to see where you're at. And I really like what you said about like having that year end inventory. And I just spoke to one of the people in our Rich Habits Network this morning who DM me and said, I'm up 230 % on my Palantir. I'm thinking about taking some profits. What do you think? And I was like, I totally agree. It all depends on your risk tolerance and your thesis for that individual stock.

3:49And so I think it is just a great time to reflect on all of our bounties, all that went well, the things that didn't go well, and then start off the new year with real defined guidance of what you wanna do. Because so many people make these New Year's resolutions that lasts about two weeks. That's why the gyms are so busy in the beginning of the year. And then by March or April, they're back to normal. And so I just think it's really smart for everyone to just dial in, really take a look at their money. And then they have an overview and an understanding of exactly where they're at going into the new year.

4:23And the last thing I want to encourage people to do during this downtime is, Robert, we all make the monthly budget. We all see, okay, I've got this much for the month. Here's how much I'm spending. Here's what I'm allocating to specific categories. But something I also like to do is look back at my annual budget, right? I like to sit down for a couple hours and say, I understand what I made every single month. I understand what I spent every single month because I use the honest budget link in the show notes below. I understand the categories, how much was invested. Look back and now look and review your annual budget.

4:55How much did you invest in 2024? How much did you spend on groceries in 2024? Eating out and, you know, splurging. How much was that in 2024? How much did you make in 2024? How much of that was side hustle money or maybe your earned income, right? There's a ton of different things to review and it really puts in perspective, Robert. Sometimes I remember in 2022, I was very upset with myself for not investing what I thought I had invested. I looked and I was like, wait, I only invested that much. And so in 2023, that's when I've turned on the gas and said, I'm gonna start building this investment portfolio from scratch publicly so people can hold me accountable.

5:27So there's a bunch of different things that we encourage people to do around here. First and foremost is get control of your money. You're listening to the Rich Habits podcast because you want to do that. And we're answering your questions because you guys have questions from that. So, Robert, let's jump into the episode. Definitely. Well, heads up, folks, interest rates are falling, but you can still lock in a 6 % or higher yield with a bond account at public.com. It's a pretty big deal because when rates drop, so can the interest you earn on your investment. A bond account allows you to lock in a 6 % or higher yield with a diversified portfolio of high yield and investment grade corporate bonds.

6:04So while other people are watching their returns shrink, you can sit back and collect regular interest payments. But you might want to act fast because your yield is not locked in until you actually invest. That is a key point here. The good news, it only takes a couple of minutes to sign up at public.com, lock in the 6 % or higher yield with a bond account. only at public.com forward slash rich habits. This advertisement was brought to you by Public Investing, member FINRA and SIPC. As of December 9, 2024, the average annualized yield to worse across the bond account is greater than 6%. Yield to worst is not guaranteed.

6:42This is not an investment recommendation. All investing involves risk. Please visit public.com slash disclosures slash bond dash account for more information. All right, Robert, our first question comes from James L. James says, in January, I plan to roll over a traditional IRA from Edward Jones, which has been underperforming the market to no surprise, into a new IRA where I will have full autonomy over my investments. I plan to invest the money into VTI, QQQ, VUG, and IBIT, and maybe a little bit into ETHA. My thought is to deploy the first$25 ,000 immediately into these ETFs, And then dollar cost average$2 ,500 per week or$10 ,000 a month throughout the remainder, which should have me fully invested in about six or seven months time.

7:30The money not invested into those index funds and ETFs will be earning 4 % while parked in T-bills. Now, with the equity in crypto markets being where they are today, I think I prefer this dollar cost average approach so I can buy the ups and the downs. But Robert and Austin, would you all think differently? Should I just lump sum this all in January? Would love to get your perspective. Wow, James, I love this question. It is, in my opinion, spot on. I personally never lump sum invest unless it's something like an angel investment where I'm required to. I just love the dollar cost averaging strategy and I will fight anyone on any hill about it because none of us can time the market.

8:11And so when you dollar cost average, and I love that you pinpointed like the six months window, because you don't know what's going to happen in the markets. We don't know where they're going on a day to day or a week to week basis. So I don't really see a reason to just lump some all of this into the market, because the biggest thing is, what if you did that? And then there was this, you know, downgrade in the markets and we saw some pullback for two, three, four months. And then you happened to do it right at the top. That's why we like dollar cost averaging. Spread it out, even it out to make sure you're not buying at the top and you can really, really get that cost basis where you want it.

8:49I couldn't agree more, Robert. I think what's really important about this is to understand sort of that mechanism, the difference, the true number where it's like you can lump sum versus you should not lump sum. And for me personally, if it is worth more than 15 % of my net worth, I don't want to lump sum. I want a dollar cost average, right? So for example, my net worth is between one and two million dollars. Thank you, cryptocurrency for that, right? All over the place over the last couple of weeks here. But let's say my net worth was between one and two million dollars. If I'm investing now 100 to$200 ,000, like that's really the cutoff for me where it's like, I really should be thinking about dollar cost averaging this money.

9:30Now, if I had$12 ,000 to invest, sure, I'll throw that in the markets in one day. I'm not worried about that because I'm young, I have a long period of time, and it's a small section of my net worth. But if it starts getting up between that 10, 15, 20 % of my net worth, I just don't want that type of negative exposure that could happen to my net worth by accidentally buying the top because again, no one can time the markets. So I love how you're approaching this, James. I would also add VOO to the ETFs and index funds you're talking about here. I don't see that included. So absolutely add that.

10:03And again, we encourage you to have sort of this core satellite portfolio approach when it comes to investing, which essentially means you want to have the vast majority of this money invested into the index funds and ETFs we know and love. Think the S &P 500. Think the total stock market. Think the NASDAQ, right? These big, longstanding blue chip investments that have been around for decades and decades. And then the other, call it 10, 15-ish percent into the more speculative things like you alluded to VUG, IBIT, and ETHA. VUG is a bunch of growth stocks, so they're very volatile. So just know what you're getting yourself into there.

10:41And then we all know what Bitcoin and Ethereum is. Just don't bet the farm on those specific asset classes without understanding what you're getting yourself into there. The market at the moment is frothy. We know this, right? The PE ratio is above 22. Normally it's around this 18 to 19 range. Essentially the higher it is, the more expensive it means to be an investor, the lower it is, the less expensive. So back in 2022, it got down to 13 when we saw that sell off. And now we're back up to 22, which is right where it was before it sold off. The dot com bubble, we're at similar valuations, price to sales, price to book as we were back then as well.

11:18So I like this approach. And the only reason I'm telling you guys all this information is because it's of Robert and I's opinion that as we enter a new year, especially after the inauguration, expect volatility. I mean, we're still in this euphoria deregulation, American made AI, all these things are getting people still excited about the end of the year. And we think that's going to continue through the next several weeks here. But it's of my opinion and Robert's as well that as we begin to turn the corner into the Trump administration in the January, February and March segments here, we should experience a little bit of volatility.

11:54Yeah, I love it. And this really, that is a great, great breakdown. That was incredible. People really need to take note. One thing that I take away from that is you talk about the percentage of your total net worth as far as how you determine how much and when to dollar cost average. And I guess the two takeaways for me that are so important, I've been seeing a lot of people because we're in this crypto bull run right now saying that you shouldn't be investing in the S &P 500 and the NASDAQ and it's not worth your time to make 10, 12, 15 % a year. Please, please, please do not listen to those people because at the end of the day, you can't have everything in these highly volatile risk on assets.

12:37You wanna have that exposure to all the different markets that we talk about to give you the diversity, but also give you that stable base. Because guess what? That all sounds great when we're in a bull market and you're making 30, 40, 100 % on a cryptocurrency, but you still want to have your tried and true base like the VOO and the QQQs that we talk about to make sure that you're always growing your retirement funds. So just please be careful of that. And number two, really understand and research what dollar cost averaging means and implement it into your weekly, monthly investment strategy.

13:14So many people just kind of gloss over what dollar cost averaging means, and they don't really understand the importance of it long term. And it's really all about automating your investments as much as possible, because I see it every single day where people are really good for like six months or a year, a year and a half. But then something happens and they fall off the rails and they don't invest again for like two, three years because they're trying to time the market. The guy at the barbershop said that we're going to have a crash. You don't know what to do. don't do that that's why we like consistency dollar cost averaging because then that way you are not forced to try and figure out when to time the market because no one can do it not even us so our next question comes from res ari says my dad passed away about six and a half years ago and my family friends have been helping my mom out with the life insurance money she got putting it in various investments yielding high returns but not very liquid or generating frequent returns rather only after long periods of time.

14:13I started to review with her all the investments and working to get things more in her control. The biggest outlier I found was$60 ,000 sitting in a traditional savings account she is saving to help my youngest brother out when he's ready to buy his first home. This is quite a few years away. I got it transferred to Publix High Yield Cash account and it's earning interest now for the first time, but I was wondering her thoughts on if there's a better place to put it. She does want it to be liquid, but she doesn't want it to be invested into something risky, because she absolutely wants to ensure that it's around for when my brother is ready to purchase the home?

14:46This is a really great question and I'll take a first stab at this one. Robert and I always think when it comes to saving for a down payment or saving for a big purchase or whatever this might be, right? Saving money. If you plan to make the purchase in the next 18, maybe 24 months, high yield savings account all the way, right? Just grow it up, you'll be fine. It's really hard for us to predict what the stock market or any markets are going to do in 12, 18-ish months. But if you're going to make a purchase in five years, if you are on track to finally have this down payment ready or this new car, whatever you're trying to save up for, if you're on track to make that in five years from now, then it's a good idea to park it in the markets because we know, statistically speaking, that after five years' time, Robert, no matter where you bought, and especially if you continue to dollar-cost average saving more and more money, you're going to be in the green after the end of five years.

15:37That's just history. that's mathematics, that's just how the stock market has worked throughout its 10 years. So if this is a purchase that you think your brother's going to make in four, five, or six years, maybe encourage your mom to park it into a VTI or, you know, VOO or SPYI, right? Something that's going to consistently deliver returns and allow you to just ride the wave of the stock market up and to the right over that long period of time. Now, if this is a purchase your brother plans to make in 12, 18 months, leave it in the cash account, let it earn its 4.5%, 5 % interest, and have it be.

16:13Yeah, I couldn't agree more. Great question. So cool to see you there helping, figuring it all out. And I agree with Austin. The way we look at it is this. You have to make your money work as hard for you as you work to get it. And in this instance, if you were to even look at gaining 5 % per annum in return by getting it out of that high yield savings account at 4%, and you were to get it to nine, 10, 11, 12 % over three, four, five years, which by you saying this is quite a few years away, to me sounds like it's probably five years away. You're leaving 25, 30, 40 % on the table by not having it invested in something like VOO, which is the US stock market.

16:56So keep that in mind. You wanna always make sure that your money is working hard for you. And I like that you did move it into a high yield savings account, but I think there's more money to be made, especially if it's years down the road. Yeah, I just said the math here, Robert, and that 5 % difference comes out to be about $20 ,000. So yeah, you could be talking about an extra$20 ,000 when it comes to your down payment here, assuming, right, you keep this into the S &P 500 versus a high yield savings account. And we're talking about four or five, six years down the road. So you have the playbook, now be sure to actually implement it.

17:30So our next question comes from Jared H. Jared says, on a recent episode of the podcast, Austin mentioned in his own IRA that he's investing 90 % of it into VOO and 10 % of it into iBit, aka Bitcoin. Would you all recommend something similar for us? And should we sell target date funds to reallocate to these funds instead? Robert, you want to take this one? Yes, I love this question. And it's just really, really good thinking and management of your money. You know that we don't really like target date funds many times. And by looking at your picture, you look very young. You're just going to underperform the market so badly over 5, 10, 15, 20, 30 years that these target date funds are going to really hurt your chances for that financial freedom that you desire.

18:19And that is why we tell people that we don't think target date funds are a great way to go for their retirement accounts. So in this instance, I'm not saying that you need to be all VOO and all Bitcoin in yours. That is Austin's choice. But he also has his bridge account and many other investment strategies all bundled into that. But I do think, and I know mathematically, you would outperform by a mile if you were to take the target date funds just versus VOO, the S &P 500, over a longer period of time. So I would definitely look at migrating it out. And if you're fearful of just having BOO and IBIT, you could always add some of the other funds in that we talk about to give you exposure to maybe the Russell 2000 or the NASDAQ or some of these other indices that we like and feel are great for your portfolio balance long term.

19:16I'm right there with you, Robert. Yeah. So the reason that I have 90 % into VOO and 10 % into IBIT, to Robert's point, is because I have hundreds of thousands of dollars invested into other single stocks and other ETFs and index funds and everything else across the broader portfolio that I have, right? If that's my solo 401k, if that's my SEP IRA, if that's my bridge account, if that's whatever else that exists. So for me, with the Roth IRA, it makes the most sense to have the S &P 500, right? Consistent 8 to 12 % long-term returns, as well as a little sprinkle, a little dash, if you might say, of Bitcoin on top for some moderate outperformance when you look at Bitcoin in years like we've seen in 23 and 24.

19:56I love it. So our next question comes from Elena S. Elena says, Hi, Austin and Robert. I found your podcast a couple weeks ago and I love it. Thank you so much for creating these episodes. I wanted to ask you a question as to what you'd recommend in my situation. My brother and I own a condo in Miami that my parents used to live in. We own it free and clear, and the market price is around$300 ,000. It's been sitting empty for the last few months, and we're paying HOA and taxes on the condo. It needs a full remodeling, which will cost at least$110 ,000. I'm trying to decide between remodeling it and living there myself, but if I did this, I'd have to buy my brother out of his 50 % of the condo, or try to sell it as is, and then invest my half of the money from the sale into the stock market.

20:44I'm in my 50s. I only have a little bit of money invested in a cryptocurrency in the S &P 500, and I'm renting right now. I don't own a home. And for the remodeling and giving my brother his part, I will need to take out a mortgage. Robert, what do you think about this situation, and what would you recommend to Alina? I would say, Alina, I would probably sell as is. Miami is a hot market. You're going to be able to sell it, and then you and your brother could do the split, however it's supposed to be 50-50 or whatever is determined that you're supposed to do. And then I would get that money invested right away so you're earning some income while you sleep, giving you a little more peace of mind going into retirement because at the end of the day, does it really make sense for you, especially given your age and the situation you're in financially is Miami is a very expensive market to live in.

21:34And I don't know where you live now, But I assume moving to Miami would increase your cost of living 10, 12, 15 % a year. So that also puts pressure on your retirement and your ability to get ahead looking into retirement. So for me, I would sell it as is, move on, take the money, get it invested, and you'll be in great shape. I love that, Robert. That's exactly what I would have said. Now, the only caveat I'm seeing about this is she mentioned that she is going to have to spend over$100 ,000 on a remodel. I'm assuming, and you probably know more about this than I do, Robert, the remodel she's alluding to likely means hurricane-proofing it and using cement and all these other different things so that next time Miami sees a meaningful storm like we saw this summer, it won't, you know, damage the condo.

22:25I know a lot of people that own condos that are kind of going through that process right now of like, I got to remodel this or it's not up to code, right? Or maybe the HOA fees are going up a lot. So like, do you think that plays us into this scenario at all? Do you think that that might hinder her ability to sell it? Yeah, it could because with the new rules in any of these waterfront areas in South Florida, there is a lot to be concerned with. I don't know the exact name of the new rule with regards to HOAs, but a lot of people are getting priced out because the building owners have to make the upgrades themselves on the building.

23:00And I believe that's probably the situation here. And she might be alluding to the fact that it's an older condo that hasn't been updated in 10, 20 years because her mother lived there. And so I think the way to look at it is either way, you don't want to be getting a mortgage, getting yourself into all of this unless you felt you wanted to be in Miami and you felt the upward trajectory of those condos was there. I don't see the math working out here. So for me, whether it is the exterior part making it bulletproof for the hurricanes, the interior part, or both, I just don't see a financial way that this makes sense for you right now.

23:39And I would take the money and run. And Robert, just like we talked about earlier with this dollar cost averaging, it seems like this$100 ,000 to$150 ,000 that Alina will receive is going to be a large portion of her net worth. Therefore, it'd be smart for her to dollar cost average that into the markets. Let's give her the quick playbook as to what we think. So as you know, we're big believers in the following process. Match beats Roth beats taxable. So Alina, if you have a 401k at your job, invest up to the match so you can get the free money. Once you do that, now it's time to max out the Roth IRA.

24:15Now what's interesting about the Roth IRA, it's the Roth individual retirement account. It's after tax dollars that get contributed here, which means when you're in retirement at 65 years old, you can take all the money out of it without paying taxes on it. And because it's invested, it's going to grow tremendously over the next 15 years for you. So what you want to do is you want to go to public.com or Vanguard or Fidelity and open a Roth individual retirement account, contribute$7 ,000 if you are doing this before April 15 to 2025, and make the contribution year B 2024. Then contribute another$7 ,000 into this account and select the contribution year of 2025.

24:57You now have$14 ,000 from this$130 ,000,$40 ,000,$50 ,000 from the sale of this property that has been contributed now inside of your Roth IRA. You should now go invest this money into VOO, VTI, QQQ, things of that nature. Just go listen to some old episodes. How to Build a Portfolio from scratch is a great one for you to listen to there. And then after you've done that, it's time to take the rest of your money, go to public.com, deposit it in there and begin dollar cost averaging 10, 12,$15 ,000 a month into the same index funds we just talked about. VOO, VTI, VGT, MOAT, things of that nature.

25:37So that's what you do play by play when you have all this money after the sale of the condo. I love that takeaway. And the only thing I want to add, and this is for Alina and anyone else watching or listening is you can't out-invest high-interest debt. So please make sure all of your high-interest debt is paid off in this process first because we wanna make sure you're not making the minimum payments on any of those student loans or high-interest credit card debt or maybe an auto loan that's high-interest. We gotta figure those out first because we wanna make sure that you're on stable grounds when you're building for retirement.

26:12So keep that in mind. So listen up, folks. time could be running out to lock in that 6 % or higher yield at public.com. You can lock in a 6 % or higher yield with a bond account right now. 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. So our next question comes from Dave R. Dave says, I have a question about cryptocurrency and diversification. I'm already dollar cost averaging into the S &P 500, and it's currently the only investment I have in my portfolio.