Q&A: Our Favorite Nuclear Stocks, Deferred Compensation, & $203K in SPYI

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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, a top 10 business podcast on Spotify. This episode is our question and answer edition, which means Robert and I sit down here for about 45 minutes and answer all of your questions that you ask us across all the different platforms. You can ask us a question by emailing us, richhabitspodcast at gmail.com is the email address to use. Put in the subject line something catchy so it gets our attention. You can also send us an Instagram DM at richhabitspodcast, or more importantly, you could ask us a question inside of the Rich Habits Network because those questions always get answered, not just on episodes like this, but in our live streams and everything else we do over at the Rich Habits Network.

1:34I'm super excited about this episode, Robert. We've got a ton of questions teed up, including a question about nuclear, which I think will be a fun one. Yeah, I'm super excited about this episode as well. I love the complexity of all of the questions. It really makes me realize that people are digging in, they're taking it seriously, they're taking notes and taking action, and it shows in our viewership. We have been growing, growing, growing, and it's so awesome that so many of you are sharing the episodes with friends and family members and other people that might get value for what we're doing here.

2:07So before we jump in here, I just want to give a quick heads up that interest rates are falling, but you can still lock in a 6 % or higher yield with a bond account at public.com. That'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. So while other people are watching their returns shrink, you can sit back and collect on those regular interest payments. But you might want to act fast because your yield is not locked in until you invest.

2:45The good news, it only takes a couple minutes to sign up at public.com. Lock in a 6 % or higher yield with a bond account only at public.com forward slash rich habits. And Robert, I want to linger on this for a little bit because I don't want people to think this is just an advertisement and we're just kind of getting paid to tell you guys to go do this. You all should absolutely think about adding these high yield bonds to your portfolio, right? The S &P 500 averages about 8, sometimes 10 % per year. Obviously, over the last couple of years, we've seen a lot higher than that. But a well-diversified portfolio, right, after you've built your base, should also include some of these high-yield investment-grade bonds paying 6%, 6.5%, 7 % in some cases.

3:28Public.com is the absolute easiest way anyone can add high-yield interest rate corporate bonds to their portfolio. You can buy NVIDIA. You can buy Apple. You can buy Ford. You can buy Boeing. I mean, there's so many options to go out there and add them to your portfolio. So once you've built your base, go to public.com, get this bond account and add that to this now growing, well-diversified portfolio you will have as we head into the new year of 2025. I love it, but also, and I love this call out because I think our listeners, new, old, and people that have been with us forever, understand that we're not out here shilling just any random companies.

4:05We only talk about and work with companies that we actually invest in or have equity in ourselves. So I think we've really built that, especially with a company like Public that we both use every single day. We love, we work with them, and I think it's great for the audience as well because we handpick these select few companies that we work with here on the podcast and in the Rich Habits Network to make sure that everyone is getting the best tools and platforms out there that we know of. Now, as a quick disclaimer, this was brought to you by Public Investing, member FINRA and SIPC. As of October 21st, 2024, the average annual yield to worst across the bond account is greater than 6%.

4:44Yield to worst is not guaranteed. This was not an investment recommendation. All investing involves risk. And please visit public.com slash disclosures slash bond dash account for more information. So with that being said, Robert, are you ready to jump into the first question? I am so ready. We have some great questions today and we get to like really utilize our big brains on these ones. So let's go. John B says, I'm narrowing down two to three franchises I want to get into. My question for the experts is this. What is a better option for loans? A small business loan like an SBA loan or taking a loan against my portfolio, a.k.a.

5:20a pledged asset line of credit? I thought about liquidating some stocks I own to put more cash down on the loan, but I remember Robert and Austin talking about how they wouldn't want to lose out on growth of their investment opportunities and get hit with capital gains just to take on debt. Interest rates are about the same for both of these loans, maybe marginally higher for SBA loans, but does anyone have an opinion or real-life learning to share about this? Robert, I'll let you go first. Yeah, I love it, John B. Let's clarify just a few things with franchising. franchising. It's not all rainbows and unicorns, so make sure you select wisely.

5:52If you need any help, I have a great friend who's a franchise analyst in the country. He would really, really help guide you. You could do a free call with him if you already have it. But secondarily, when it comes to the funding and the loans, yes, you can look at an SBA 7A loan, but keep in mind the interest rates on those are very high right now, and it kind of puts you in that spot where you're in this high interest debt situation to open this business. So I would say you could look at some other things. Maybe you look at doing a friends and family round. Maybe you do a hard money loan to get the money you need upfront because it's going to be much less expensive than an SBA loan from an interest rate perspective.

6:33But also you could look at a platform like OnDeck, see what they have to offer because they're going to take into consideration your credit, your company credit, you know, your history in the business and all of those things. So just make sure you really flush out all the options to find the best money you can find to do the franchise. Now, over the last 15 years, I've done very well in franchising, but I also have friends that have done very poorly in franchising because they chose poorly and they negotiated poorly. So make sure you have a professional helping you with site selection, lease negotiation, and most of all, the funding and how you get your money to get up and running.

7:16And make sure my biggest pro tip for you or anyone listening, getting into franchising, make sure you have enough operating capital. Once you do get open through the construction and into operations, because so many people operate with far too little capital and they find themselves in harm's way quickly. You want to give yourself a cushion of at least a year if you can to make sure that you give the business time to mature enough to create profits to build the bank account up. So what you're saying is have expectations of the business to do well but don't overestimate how much you'll make in the short term and like don't take on credit card debt to supplement what those future profits might look like and now you find yourself in this weird bind living off of you know credit cards to help the business grow and is that what you're kind of saying yeah and what happens in a small business that's underfunded and this happens every single day i deal with and on a regular basis in my one on one calls is so many people are underfunded then they max out the credit cards then they get a second mortgage on their home and they do all of this and what happens is you find yourself spending your time chasing money instead of building your business.

8:27And that is a double-edged sword that can ruin so many good businesses by being underfunded. So just try to do your best to understand you wanna expect great things, but you wanna be prepared for bad things because you never know what's gonna happen. I remember opening a brand new restaurant that I was building of my own and we were making it franchisable and we opened up and it was gangbusters. We were doing over$40 ,000 a week and I was like, I'm a rock star. I'm a hero. This is incredible for a 1 ,500 square foot restaurant. And then they closed the road for 18 months and our customers had no access.

9:05The entire commercial side of the area where all of our lunch customers came from had no access to our restaurant and it ruined us because we couldn't do anything about those outside conditions. So just be prepared for the worst and make sure that you are funded well enough to make it through the good and the bad times. Now, John, my only perspective here is someone who hasn't ever taken out an SBA loan or hasn't ever taken out, you know, margin or what you call a pledged asset line of credit, which is the formal way of describing it there. M1 Finance has a, I think it's six, six and a half percent interest rate on this pledged asset line.

9:43So for example, I've got about half a million dollars of assets on the platform. I think I can borrow between 25 and 50 % of that as a pledged asset line of credit, which means I could borrow up to$250 ,000 of debt against my assets on this platform at a 6.5 % interest rate, right? So if that is a opportunity that you might have to sort of take on maybe a margin loan, then you can use that debt at a lower 6.5%, 7.5 % interest rate versus this 13%, 14%, 15 % we're seeing from these 7A loans right now to go work about the franchise and get it up and running. That could be a good opportunity because one, the debt you're taking on is completely covered by your assets.

10:26So even if the business does terribly, you're not going to now go into bankruptcy with the SBA and these other different things. You just simply sell your assets. Maybe they've even appreciated by that time, hoping that doesn't happen, by the way. And so now you're still out, you're scot-free. There's nothing to worry about from bankruptcy perspective. But now too, you don't have to sell your stocks, man. Your stocks can continue to go up into the right. They can continue to appreciate over a long period of time. You don't have to worry about the capital gains taxes that come with it. So I'm cool.

10:53I'm leaning toward this sort of margin loan solution that you mentioned, John, especially with a platform like M1 Finance. But just be careful, know what you're getting yourself into, to understand what margin calls mean. Go watch the Margin Call movie if you want. But we're rooting for you, John. This sounds like a really cool opportunity and we hope it works out for you. So our next question comes from Brandy S. Brandy says, I'd like to now get into the nuclear sector after seeing what big tech is doing in the space. I know Robert has mentioned a few names and I've seen some of them on Barron's as well, but has anyone bought any of them?

11:22I'm looking for a bunch of different names, if it's ETFs or single stocks. Robert Austin, can you share with me your thoughts? Robert, do you wanna walk through perhaps what happened recently in nuclear with big tech, and then two, a couple ETFs per se that people could purchase or add to a well-diversified portfolio to have some exposure into this cool new theme of nuclear energy. Yeah, I love it. And this is a great question, Brandy. I love the sector because as Austin and I have been speaking on a lot in recent months, the US as manufacturing starts to really thrive again here, we need a ton of infrastructure support in the energy sector not just in the energy itself but the picks and shovels of building that energy so we can have these huge gigafactories for Tesla and Amazon and FedEx and all of the big big companies that are out there building and why I like nuclear is because of its effectiveness when it comes to the cost of creating the power and I've been talking on nuclear now for about a year and a half through URA and also URNM as a couple of my favorite funds that I really like.

12:29But why I think it's important is nuclear is going to be completely different this time. And as you've seen, Microsoft, Amazon, and Google are all investing heavily into the sector as well. So they're getting on board also. And what I see and what I've been researching for the past couple of years is that we're going to see nuclear be more of these localized centers where they're going to build these plants to be able to produce this power. And I think it's important to understand that instead of the big old way of looking at nuclear, where it's dangerous and these big plants, it's going to be a lot more centralized locations for nuclear power throughout the country.

13:08And I think it's a great sector to have some of your portfolio in. As I mentioned, I've been buying URNM and URA for quite some time, but you mentioned CEG, Constellation Energy Group. I think that is a great one as well. I've been adding that to my position. I like it a lot. And then also VST. Vistra is a very good company. They're one of the largest energy providers in the country, and I like those as well. I just think it's a great sector. You always hear Austin and I talk about that you don't have to be first to a sector. You just have to be ahead of the masses. And even though Microsoft and Amazon have announced recently their dedication to the nuclear space, I think we're still early.

13:53And that's why we want to get in with these picks and shovels play into that sector. And I hope that helps. So all in all, I really love this play in the nuclear field. and all of the big companies are really investing because they know AI is here to stay. And AI is very energy consumptive. And we want to make sure that we understand that. And that is why they're investing in the sector. And we want to get our piece as well. Yeah, so I've not yet invested into URNM, but it seems like a pretty interesting ETF. It's the Sprott Uranium Miners ETF. And then there's also URA. personally when it comes to investing in a new sector that i've not done too much research on right i normally don't invest in things i don't research which is why i haven't invested in anything yet i like to do a broad stroke type investment right i don't like to find a single stock and go all in and have that only stock be my you know exposure to that sector i will instead choose an etf or two so it seems like ura and urnm will be the two broad stroke sort of investments that I'll make in this nuclear space alongside owning Amazon, Google, and Microsoft stock.

15:02Yeah, I think that's a great play. We never wanna teach anyone to go all in on one stock. That's generally how people get their heads knocked off, but definitely, Brandy, great question, and I love the sector. I'm dollar cost averaging into all the projects we discussed, and I hope this helps. So our next question comes from Key S. Key says, my company offers deferred compensation to reduce my taxable income. The funds are held in a Fidelity brokerage account with full control, but limited investment options. I did this a couple years ago, and I invested all the funds in FXAIX and VVIAX to track the total performance of the S &P 500.

15:42It's open enrollment time again, but I'm having second thoughts about doing this. Just wanted to find out if others in the Rich Habits Network are doing this or if they've ever considered this option before. What a great question, Key, and again, thanks so much for being a part of the Rich Habits Network. So you might be asking yourself, well, one, what the heck is a deferred compensation plan? And then two, is it something that I should be thinking about? So a deferred compensation plan is normally part of an employee's regular compensation that is set aside to be paid out at a later date, usually at retirement.

16:13Now you can think of a deferred compensation plan kind of like a 401k. There are qualified and non-qualified deferred compensation plans. Qualified deferred compensation plans are available to tons of employees, including Robert, myself, and Key, which are those 401k plans, 403b's, and things like that. That is governed by the federal government about how much you can put inside of them, and they are a really cool way to invest toward retirement. Non-qualified deferred compensation plans mainly cater to the high-income earners, like the executives that are making tens of millions of dollars a year.

16:49Now, Key, it sounds like you have a qualified deferred compensation plan. Your company says, hey, you can put your compensation into this Fidelity brokerage account. You can invest it into the S &P 500 to grow over time, allowing you to bring down your taxable income in the year that this money is received. So I think it's a great idea, assuming you have full autonomy over it, like you mentioned that you do, and that you are not just relying on that as a way to retire. You're also doing the Roth IRA, right? You're also building the bridge account. You're also building the base and doing everything that Robert and I talk about.

17:23Deferred compensation plans are pretty interesting, especially if you are one of those high earners and you're making tens of millions a year. I mean, that is how we get into some interesting tax loopholes as it relates to compensation. But in this situation, Key, seems like you're setting yourself up for success and two thumbs up for me. Yeah, on my side of this, I would say you have to look at it from this perspective. If you're not one of those people making millions of dollars a year and you have limited investment options in this diverged comp plan, you might want to consider like you already are not adding additional money to it and maybe going another route.

17:57Because again, then you'll have full autonomy, more options, more diversity, and probably a higher return year over year. So it really depends on your situation because again, you do have the ability with a deferred comp plan to reduce your taxable income now. But the tax is going to come out somewhere, somehow down the road. So just keep that in mind when doing this consideration is that you might want to do exactly what you're thinking of. And that is not re-upping during this open enrollment and moving the money elsewhere where you have more control, maybe into the Roth IRA or whatever it may be, to give you a better situation for down the road as you build your wealth.

18:39I think it makes a ton of sense, Robert. It really goes back to this idea, you know, how we always talk about personal finance is personal. I mean, you have to be not just in control of your money, but know where you're going, right? We always talk about people that don't have a plan and just drift through life financially. Those are the people who end up being 54 years old with no money in retirement and$140 ,000 of student loans and maybe they haven't even bought a house yet, right? Key, you're obviously not like that. You're asking the right questions. You're part of the Rich Habits Network, so you're surrounding yourself with other like-minded individuals.

19:09It just comes down to maybe there's a world where you could retire early, leveraging a bridge account. Maybe there's a world where you do want to put more into this deferred compensation planned, if it's underfunded, in your opinion. There's a ton of things to consider here, but I hope my answer and Robert's answer can help you navigate this question. Now, our next question comes from Leslie Kay. Leslie says, I'm in a high income tax bracket. In the past, I would max out my 401k to save on taxes. When does it make sense to pay the taxes now and invest with post-tax Roth IRA money and maybe even a mega backdoor Roth IRA?

19:44Robert, you want to kick this one off? Yeah, Leslie, you're right on track. This is probably one of the top five topics we discuss all the time. Do you keep maxing out the 401k or whatever you have for that retirement account through work? Or do you lower it down just to the match maybe and take all the rest of your investment money and put it through the Roth IRA and build the bridge account? Because if you have all that money in the 401k and you're maxing it out and putting in as much as you can, not only are you kicking the tax man down the road, which we don't know what taxes are going to be like 10, 20, 30 years from now, we could only assume they're going to be higher.

20:22And so I just always like to cut the losses early, get the money over into a tax-free account. So I know for the rest of my life with that money, it's tax-free as it builds and compounds on itself. So that would be what I would do. I would look at the 401k. You've built it. You've got money in there. Great. only do up to the company match, then I would get the Roth maxed out every year, but then also start looking to build that bridge account. If you look back to the episode about net worth millionaires, it might be a great one for you to watch because it's really important to understand if all your money is tied up in a 401k or your home, you still have kind of these handcuffs because you can't get out there and retire early.

21:04You can't do what you want with your money because it's tied up. So I would definitely consider looking at the Roth IRA, getting a bridge account set up and start going that route because you probably have a lot of money to invest every month and we don't want it to be all tied up in a 401k, especially because 401ks have a tendency to underperform general ETFs and index funds that we talk about, having that basket of low-cost funds to be able to build your wealth around. I love this question, Leslie, and And I think at its core, Robert is very much correct in the assumption that probably in 20 years, our effective tax rates on every single one of us is going to be higher than they have been for the last, call it five years on average, maybe 10.

21:51I guess what I'm trying to say here is the federal government is running an insane deficit, and the only way that they are going to turn that deficit into a positive or even just neutral, right, balance the federal spending budget, is to spend less or collect more in taxes. Spending less is really hard because once you open up the floodgates and you start spending, no one wants to turn them off, which means the only real solution is to raise taxes. Now, are they going to raise taxes on everyday people like us? Are they going to raise taxes on billionaires or corporations. I have no idea. It's a very fair assumption that taxes will be higher in 20 years than they are today.

22:25And so for me, that means I want to get as much money as possible into a tax-free account like the Roth variation of my 401k and my IRA as I possibly can. Now, it seems, Leslie, that you have been putting all this money in a normal traditional 401k for the last several years, allowing you to bring down your taxable income today. This has probably been a good strategy for you, especially if your effective tax rate is in the 30-ish percent. I mean, you're probably saving some money here, but I do want to encourage you to think about making the switch to the Roth variation that Robert talked about.

23:01I'm not saying to convert your existing funds into a Roth account. That is a taxable event. That could be tens of thousands of dollars paid to Uncle Sam just to do that. We're not saying that. We're just saying to take a pause on the traditional IRA and 401k contributions. And if your company offers a Roth 401k, open up that account, contribute to it. You definitely can open up a Roth IRA yourself and use a backdoor Roth IRA strategy to contribute to that. So there's ways that you can add after tax, right? These tax-free dollars to your retirement accounts in a way that doesn't cause you to have a taxable event, like converting from a traditional to a Roth would.

23:41So Leslie, there's a bunch of ways to approach this. Just really want to encourage you to think about those after-tax dollars. Now, before we move on to our next question, I need y 'all to listen up because time could be running out to lock in a 6 % or higher yield at public.com. You can lock in a 6 % or higher yield with a bond account, but remember your yield is not 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 investment grade corporate bonds only at public.com forward slash rich habits. Again, that's public.com forward slash rich habits.

24:20So our next question comes from Andrew G. Andrew says, hey Austin and Robert, I've been listening to your podcast for a few weeks and I can tell I'll be listening for much longer than that. Me and my wife, both 28 years old, make roughly$140 ,000 a year combined and we have no debt other than our mortgage. We bought our house in early 2022 for$275 ,000, and we took out a mortgage for$220 ,000 at a 3.5 % interest rate. Now, over the past two years, we've been paying extra on our mortgage every month, and we've gotten the principal down to roughly$200 ,000. Each month after expenses and savings, we have about$500 to do whatever we want with.

24:59We've been debating on whether it would be wiser to invest the extra money or pay towards principal each month. I ran an amortization table with the extra payments, and if I continue to pay an extra$500 per month toward the principal, my last mortgage payment would be on January 1st of 2039, saving me$50 ,000 in interest paid and cutting roughly 12 years of debt off my mortgage. However, if I invest the$500 per month over the remaining life of the loan through compounded interest using a conservative 10 % annual return, I'll have roughly$720 ,000. dollars. Anyway, from an emotional standpoint, I would have a peace of mind and would feel like a great accomplishment to pay off the house early and owning it outright.

25:42From a practical standpoint, I feel like my dollars would be put to better use if I invested them. Any advice would be amazing. Thank you so much for what you do. Robert, I'll let you kick this one off. Andrew, great question. And you've already spelled it out for everyone listening and following along. You should probably know my answer. I get it that you want the peace of mind of having your house paid off. But I can tell you this from experience that having debt as long as it's good debt like you have on this house is not a bad thing. And I don't think it makes sense to pay any more extra payments when your mortgage interest rate is 3.5%.

26:20We can make 10%, 12%, 15 % a year with our money pretty easily in almost every year of our lifetimes. So I don't see why I would want to pay off a three and a half percent interest rate when I can make more with my money. If you followed along for a while, you know, I always say make your money work as hard for you as you work to get it. And in this instance, you can borrow and have that three and a half percent mortgage interest rate and take the extra money and put it towards investing. I think you would be way better off in the long term for retirement, leaving your payment in place, paying the minimum payment and let the bank carry the note for as long as they'll do it?