Q&A: Max My 401(k) or Roth IRA? Making $110K in the Military, & Should I Sell My Stocks?

0:00Rinse takes your laundry and hand delivers it to your door. expertly cleaned and folded so you could take the time once spent folding and sorting and waiting to finally pursue a whole new version of you like tea time you or this tea time you or even this tea time you said you hear about Dave or even tea time tea time tea time you so update on Dave it's up to you we'll take the laundry rinse it's time to be great when you walk into a Burlington you're walking into amazing prices and great gifts that's main character energy because at burlington the holiday savings aren't the only things turning heads discover quality finds and perfect presents for everyone on your list even those who are hard to shop for toys and jewelry to new beauty brands and styles these gifts go seamlessly from our stores to under your tree seriously with these savings why shop anywhere else Hey everyone and welcome back to the Rich Habits Podcast question and answer edition.

1:05These episodes come out every single Thursday and they are exactly what they sound like. Robert and I sit down and we answer your questions. We collect questions from our Instagram DMs at richhabitspodcast on Instagram and we also collect them from our email address at richhabitspodcast at gmail.com. Do not forget to check your email this morning. You should have received an email from the Rich Habits newsletter, which is our weekly Thursday morning newsletter we send out. And it's very illustratively focused. We've got some really cool charts in there. We never want to bore you with crazy analysis or anything too in-depth.

1:40It's always fun. It's informative. And what we're trying to do is take a lot of the headline news chatter you see in the business realm for the week, and we condense it down to a very easy-to-read, digestible newsletter that's also actionable. Robert, what's your favorite thing so far about the Rich Habits newsletter? I think my favorite thing is just my excitement over what we built with the newsletter. You and Christian have really crushed it. You and I kind of penciled out what we wanted it to be and how we wanted it to be actionable because I'll be honest, you already hit the nail on the head.

2:17Most newsletters bore me and I'm a financial guy and a financial educator by nature and from my career, but they just put too much wording and too long. We break everything down in the newsletter, just like we do on the podcast and in our lives. And that is actionable snippets. And I think that's what excites me about the newsletter the most. And I honestly believe the newsletter is going to go on to become one of the greatest things I've ever been a part of and worked on because my goal is to make it the number one newsletter in the country for people that are learning personal finance, education, and investing just because we make it so actionable.

3:01So I'm super excited about it. I'm excited that it's growing so quickly, and I just can't wait for us to keep making it better and better every week. Yeah, it's pretty crazy. Already 4 ,000 people since we launched it about a month and a half ago have subscribed, right? We're at about 44 ,000, 45 ,000 total subscribers now, adding about 100 new people every single day. So go to Google and type in Rich Habits Newsletter. It's going to pop right up. It'll be right there. You click it. It's going to be my beautiful face next to Roberts, and you click subscribe, put in your little email address. It is the best.

3:32Now, before we jump into the episode, I got to shout out public.com. If you're looking for a simple yet sophisticated investing experience, you got to check out public. From stocks to options, bonds to crypto, it is all there. And you don't have to juggle or switch between different apps. Public lets you manage your entire portfolio all in one place. You can even earn 5.1 % APY on your cash with a high yield cash account. That's not just a good rate. It is literally an industry leading rate. The fact is millions of investors trust Public and for very good reason. Yeah, we definitely love Public.

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4:47Full disclosures in the podcast description.

5:12of my salary. My 401k has not been doing as great as I would have hoped. I've got roughly$250 ,000 in there. I'm 33 and my salary is about$100 ,000 a year. Do you think I should reduce my contribution to the minimum of 1 % into my 401k and instead try and max out my Roth IRA? I can't afford to do 6 % and max my Roth simultaneously, unfortunately, so I'm trying to figure out which one to choose. Robert, what do you think? So my opinion is here, Mike, and great question would be, I never want to see anyone max out the 401k. You want to go up to the company match. But even in that instance, what I'm hearing is it's not performing very well.

5:51So you definitely want to get that Roth maxed out. And then anything after that, you could then look back at putting it into the 401k, but you never want to go above the employee match, especially if it's underperforming. Yeah. Especially if you do not have autonomy and it's underperforming, like go get your match, get your 100 % return, and then ride it out somewhere else. I mean, at the end of the day, you have full autonomy at your Roth IRA, and you can use your Roth IRA as a way to really build your wealth, Mike, over the coming 10, 15, 25, 30 years before you have to retire. And then you can go look and say, wow, my 250 ,000, it did grow, but it didn't grow as much as my Roth IRA because I had autonomy and I put it inside of VOO, VGT, VTI, QQQ, and MOAT.

6:37So yeah, that's what I would do. And again, I mean, max out the Roth, but you can have a little bit of your 401k money working for you, especially if you can get that match, but you're making a right choice by focusing on what you have autonomy over, especially if it's been underperforming, like you said. Yeah, I couldn't agree more. I think that is definitely the takeaway and a really good strategy to maximize your earnings on your money and make sure that you just don't have something that's underperforming and really not kept up on like the 401k. That's why we always talk that you want to active management.

7:10So many people think a 401k is a retirement plan and it's set it and forget it. And you just leave hundreds of thousands of dollars over your career on the table by not maximizing your earnings with these strategies that we talk about. I know we talked about this, Robert, in a couple episodes ago, but I want to just say it again so our friend Mike here can really understand. My friend Chris, one of my childhood buddies, called me the other day and he was like, hey man, I think about selling my house, whatever. So we talk about it and I was trying to figure out, well, how much do you have invested?

7:38He's I think 30 years old now. And he's like, well, I've got$35 ,000 in my 401k. I was like, oh cool, what's it invested into? And he's like, what do you mean invested into? It's invested into my 401k. And I was like, no, dude, you have to know what the money's invested into. Unfortunately, he had all of it in a target date fund, and it underperformed the stock market for the last three years, literally by half. And so I was like, dude, if this was what you bought for the last, I think it was like five, six, seven years now that you've been investing into this, and you instead put it in the S &P 500 instead of all these bonds and international names and whatever else, you probably would have$70 ,000 or$80 ,000 in your 401k at this point, but you only have 35.

8:16So Mike, again, really want to encourage you to know what you're investing into and to have autonomy over your money. Our next question comes from Zen J. Zen says, Hey Austin and Robert, I love spending my Monday and Thursday mornings listening and learning from the Rich Habits podcast. Thanks for all you do with the newsletter, the webinars, and your Instagram posts, which by the way, follow us on Instagram if you haven't already. Shout out to Zen here for the reminder. Love that. Zen says, I'm helping my parents, especially my dad, with retirement accounts and thought maybe you could see if I'm doing okay or where I could even start doing a little bit better.

8:47They both started investing late in their 30s. My dad is 62 and plans to work until he's about 70 because he really loves his career. But his employer recently eliminated his 401k match and the company has some financial and growth struggles, which really concerns me. So earlier this year, we did a rollover of his traditional and Roth 401k funds into Robinhood's traditional IRA and Roth IRA accounts to get that 3 % match that they offered. That helped make up for the match loss that he had at work. Now, his invested funds in both accounts are 85 % into the index funds and ETFs you talk about, 15 % into Amazon, some Bitcoin, some NVIDIA, and even some Robinhood stock because why not?

9:28Now, the Roth IRA is fully invested, but the traditional IRA has$10 ,000 of cash profits that we took because we are waiting for a market pullback. Now, here's my question. Should we take all 10 ,000 of this and keep it on the sidelines ready to buy a dip or do we deploy it immediately back into the markets? I'll take a first stab at this one, Robert. I think whenever I'm thinking about retirement accounts, and he is 62 years old, so he's up there. Don't get me wrong, he's up there. But when you have five, six, seven, 10 years of investing ahead of you, trying to buy a dip is pretty meaningless in my opinion.

10:02I mean, at the end of the day, seven years from now, I know for a fact, no matter what dip I bought or thought I bought, the S &P 500 is going to be higher than it is right now, which means that even if you deployed all$10 ,000 today, your money is going to be making money for you. Now, with that being said, we are experiencing a dip right now. We just had an episode talking about how the Fed's interest rate cuts will impact people's portfolios. And so if you want to maybe strategically deploy$2 ,000,$2 ,500 a month toward the ETFs that you have on a monthly basis as a dollar cost average, that could be a really good idea to kind of weigh both sides of the equation here.

10:38But I would not keep$10 ,000, especially at his age with his balance there in his portfolio, on the sidelines for longer than he has to. So my thought is 62 years old, wants to work till 70. You only have eight years. So trying to sit on the sidelines and time the market to me with that small amount of money just doesn't make sense. To me, I would either only dollar cost average$2 ,500 a month for four months, or I would dump it all in as soon as humanly possible, start making that money to get every day in the market you can to maximize your earnings over that next eight years. That's my opinion.

11:15I think that's what you have to do to try and get maximum gains rather than sitting on that sideline and trying to time the market because I've never seen anyone properly time the market. Zenjay, major shout out to you, man, for really trying to help your parents here with their money. And thanks so much for listening to the podcast. Our next question comes from Stefano S. Hi, Austin and Robert. My name is Stefano. I discovered your show a month ago and found it extremely interesting. I'm 39 years old and I'm from Italy, but I just moved to the US 10 years ago and got married six months ago. I worked my way up from being a waiter at a restaurant to my current role as a director of real estate for an Italian company.

11:52I would love to understand how to better manage my money. So here's my question. I'm making$120 ,000 per year. My wife is currently not working. I have a 401k with$60 ,000 into it. My company match is 3 % and my contribution is 10%. After listening to your show, I opened a Roth IRA with Wealthfront where I put$3 ,500 in and chose the automatic investment since I'm not exactly sure how to invest it, but I plan to contribute the max every single year toward my Roth IRA. I have$15 ,000 saved in a high yield savings account. I have a car loan at literally 0.99 % with the new car that we bought for my wife.

12:28I have 5 ,000 in credit card debt with zero interest until March of 2025. So you have a bird's eye view of my finances, Austin and Robert. What do I do next? Robert, what's your perspective here? I think this is all you. I think this is a great question tailored for you. All right. So first thing I'm doing is I'm going into Wealthfront and I'm changing my investments. You said you are 39 years old. You can definitely be aggressive. They will put you in bonds. They'll put you in international stocks. They'll put you in different funds. I would delete everything. I had to do this for my girlfriend.

12:58And I would put 50 to 75 % of the total worth of your Roth IRA into VOO, and I'd put the other 25 % to 50 % of the worth there into QQQ. I mean, those are the only two funds you need. If you want VGT or VTI, you can do that as well. But the first thing I would do is get out of the bonds and the international stocks that Wealthfront put you into. The second thing I would do is I would take$5 ,000 out of my high-yield savings account, and I'd use it to pay off my credit card debt, and I would not go back into credit card debt. You're done. It's over. Pay it all off. It's behind you, and stop going into credit card debt.

13:31It's a terrible idea, and I know you're trying to, oh no, 0 % though, it's fine. Like, dude, just, if you're a credit card person, you're a credit card person. If you're not, you're not. I don't know which one you are with how little credit card debt you might have right now. So it's hard to make a determination there. But if you're not a credit card person, don't use credit cards. I'm a credit card person. A lot of people are credit card people. I know a lot of people that know how to use them responsibly, pay them off, get the points, rewards, cash back, whatever. And if you are that, be that, just stop going into credit card debt.

13:57The last thing I would do is I would probably make sure that I might pull back a little bit on my 401k contribution. Maybe pull that back down to 3 % or 5 % if you have autonomy and your 401k is in the S &P 500. And I'd use that other 5 % of your$120 ,000 a year salary, so$6 ,000 a year, to start building out a bridge account on public.com. This is a normal taxable brokerage account. And we talked about this on our episode last week with Dave Ramsey, where a lot of people, they have all this money in their 401ks, but they don't have the bridge account. So they're working until like 55 and like, all right, I'm ready to retire, but they can't do anything because it's all locked up in retirement funds and you can't touch those without penalties and taxes and fees and stuff like that.

14:43So those are my three hot takes by just looking at this. But Robert, I'll let you chime in as well. Yeah, I really only have one other hot take because you mentioned the car loan at under 1%. Don't pay extra payments. Don't pay the car down. It's free money. Pay the minimum payments on time and use every other dollar to go to everything else. That's the only thing I have to add to this scenario. Yeah, 0.99 interest. I think it might be a Tesla. I think Tesla was running something like that, right? Where they did like a 0.99 % interest rate on some of their new cars there. So shout out to you for buying a new Tesla.

15:19That's pretty cool. I want to tell one of the funniest stories of my career back when I was a car salesman and I was in finance real quick. It was when General Motors first introduced 1.9 % financing and the car business went crazy. It was a Friday afternoon. It was the busiest day I'd ever seen on the car lot. My roommate who ran the finance division, I was like, dude, we should stay open till nine o 'clock tonight and just rip. He's like, what do you mean? No dealer's ever been open. I go, look at the parking lot. I made him look outside. So I ran across the street to office, Max. I bought 10 clipboards, a box of pens, and a bunch of these little post-it carts.

16:00Got all the golf carts out. Every other salesman, everyone left the building, but me and him. And I literally, I opened the doors up, turned the light back on and people were walking in. Are you still open? I'd like to buy a car. And I was like, here you go. Go right down the stock number. We'll pull it up for you right away. At 935, we had the waiting room for F &I backed up. The owner of the dealership rolls up in his Ferrari. He's like, croak, what the hell's going on? Why is my dealership open? I walk him over to the finance store. I go, that's why. He lost his mind because I sold and delivered.

16:37I think it was nine or 11 cars after hours in one day. It was amazing because it was right when that kind of financing came out. So I wanted to share that story. It has nothing to do with anything except for the low financing, but it's awesome. Oh my gosh. That's quite the story, man. Good for you. Good for you for taking advantage of the moment. 22 years old and I was just ripping it. It was so fun. Now, before we jump to our next question, I want to remind everyone that you can earn 5.1 % APY with a high yield cash account on public.com. There are no fees. There's no minimums, just an industry-leading 5.1 % APY on your cash.

17:14And with up to$5 million of FDIC insurance, your money is secure. Go to public.com and start earning 5.1 % APY straight up with no strings attached. It's an industry-leading interest rate, no fees, period, public.com. This is a paid endorsement for public investing. 5.1 % APY is as of June 17, 2024, and a subject change. Full disclosures in the podcast description. And Robert, speaking of public.com, I'm telling you, dude, every day, I love starting my day out listening to that rundown podcast that they've got. Zaid Admani is so funny. He's always breaking down earnings news, headline news, crypto news.

17:51I mean, this guy is all over the place. It's five, six, maybe seven minutes long of a podcast, real quick hits here. And it's what I do to get ready for the investing day and the investing week ahead of me. So if you've not yet checked out The Rundown by Public.com and added them to your rotation, your podcast rotation, a little bit of filler podcast there as you're waiting for the next Rich Habits podcast episode to come out, definitely check out The Rundown by Public. Zaid is a master at his work. Yeah, it's a great filler podcast. They're short and sweet and just really, really insightful. And I think they do a really good job with it.

18:24So yeah, I'm glad you mentioned that because I just think it's a great product. So our next question comes from Michael H. Robert Nostin, thank you for hosting Rich Habits. I listen to every episode. My name's Michael. I'm a captain in the army and I wanted to come to you for advice. I don't recall you answering questions for military personnel, nor do I know how familiar you are with it, but I trust you guys too much, so it doesn't even matter to me. I'm 26 years old and I make around$110 ,000 a year. I've got $80 ,000 in a brokerage account on Schwab,$40 ,000 in a Roth IRA on Schwab,$20 ,000 in my army retirement plan,$20 ,000 in a checking account,$20 ,000 in a high-yield savings account on public.com.

19:02Parentheses, thank you so much for the advice. You're welcome. I also have$5 ,000 in Bitcoin and Ethereum. I'm moving to North Carolina, my next duty station, this December. I'm interested in buying a home there, and this will be my first time getting into real estate. I see it more as a long-term rental, not my dream home. Being in the military, I do qualify for a VA loan, which requires a 0 % down payment. And I do have some liquid cash available. Do you all recommend I pursue buying a house as opposed to renting? And if so, what do you think my price range should be? Also, should I put my checking account money somewhere else?

19:34Am I having too much in there? Robert, Michael gave us a great breakdown of his financial situation. And before we jump into the question, I do want to thank Michael so much for his service. We appreciate you more than you know. So Robert, what's your perspective here on this sort of bird's eye view as a 26-year-old with all this money. I love it. I do have some questions that maybe Michael can follow up with a DM to us or an email to us at Rich Habits. But I do have a question of what is the army retirement plan that the 20K is in? What is that invested in? What type of plan is it? I would love to know more about that.

20:07I do think having 20K in a checking account is a lot. You've already got 20K in a high yield savings account. And with the checking account, you're obviously making no money with that. So I don't see why you need that much there. I would rather see that 20K whittled down to maybe 5K because, you know, any money that's parked, I consider dead money and I believe it should be working. And I would really look to getting 15 of that 20K put somewhere else, maybe in a traditional brokerage account and really get that money moving as well. Because especially you want to have another account where you have full autonomy if you're going to be buying this property, but we don't want to leave money on the table by it just sitting in a checking account.

20:51So that would be my main takeaway of the changes I would make to set himself up better. So Michael, to answer your question, in North Carolina, there's some really good markets in and around there. And I just think you could do either. I like the idea of house hacking because of your age and the ability and flexibility you would have there, but also building up equity for your future while not having a lot of overhead while you're building your financial base. So I like that idea, but I'm totally fine with renting as well for now, because contrary to what a lot of the fake gurus say, renting is much, much less expensive, allowing you to put more money towards your future.

21:35So just, I would look around at, can you find a duplex, triplex, or quadplex? What is the capital appreciation in those areas? so you know what you're looking towards as far as appreciation on the property. And you could really do both and you wouldn't be wrong. So I think it's just up to those criteria and figure out what's best for you. I like that answer. And I'm just thinking here out loud, Michael said he makes$110 ,000 a year. He's obviously done a very good job of investing his money, both into his retirement accounts through the army, as well as his Roth IRA and his brokerage account, right?

22:11He's crushing it. I would assume that of that$110 ,000, maybe he's taking home between$80 ,000 to$85 ,000 of that, which is about, let's call it$7 ,000 a month. And so I think from a price range perspective, if you wanted to borrow, let's call it$320 ,000,$330 ,000 for a mortgage, that'll put you, depending on taxes and insurance, all this other stuff, around$2 ,500 a month in payment at current interest rates. At a$2 ,500 a month payment, taking home about$7 ,000, that's going to put you at a 35 % allocation per month toward housing, which I think is pretty healthy. It's not house broke. It's not obviously perfect, but it gets you in the door, dude.

22:54The best decision I made was buying my first house. I paid$280 ,000 for it. It's now worth $450 ,000. I put$10 ,000 down. I now have$150 ,000 of equity. I mean, if you wanted to buy a... Again, I don't know how the VA loan does the multifamily stuff. But if you wanted to buy a house for$250, $300 ,000,$350 ,000 with 0 % down, I'm not mad at that because it gets you in the game. I mean, I've seen so many people online. There's a guy I follow on YouTube that talks a lot about dividends. And he was like, yeah, the big thing that really bumped my net worth up was I was able to sell my house over this recent rally we had in 21 and 22 for$400 ,000 more than I bought it for.

23:36So all I know is that housing goes up over a long period of time. And if you want to get in the game, 26 is a great age. You're definitely there from a, I don't see any debt. I don't see anything bad here, Michael. So really want to encourage you to get into some sort of real estate. I think you've rented long enough and now is your time to start diversifying into some different asset classes. Now, our last question comes from Max B. Max says, Hi, Austin and Robert. Thank you for all you do. I'm a longtime listener and I have a question about my taxable brokerage account. Here's some context. I'm 24 years old.

24:07I'm in graduate school. I receive$4 ,000 per month in a scholarship. I have$100 ,000 of student loan debt, but I have$30 ,000 invested across my Roth, my taxable in Bitcoin. I'm matching a part-time 401k at 3%. I have a six-month emergency fund at$10 ,000. And all of my remaining cash, which I'm saving for a wedding, is going in a high-yield savings account, paying nearly 5%. Now, I've invested into a few individual stocks back in 2018 when I first opened my brokerage account. Those were Apple, Microsoft, Disney, Eli Lilly, Realty Income Corporation, and Berkshire Hathaway. Fast forward to this year, and I'm now too busy in graduate school to track these individual companies.