Q&A: Putting $1.6M of "Dead Equity" to Work, Selling Single Stocks, and VYM

0:01The world moves fast. Your workday? Even faster. pitching products, drafting reports, analyzing data, Microsoft 365 Copilot is your AI assistant for work built into Word, Excel, PowerPoint, and other Microsoft 365 apps you use, helping you quickly write, analyze, create, and summarize so you can cut through clutter and clear a path to your best work. Learn more at Microsoft.com slash M365 Copilot. Hey everyone, and welcome back to the Rich Habits Podcast, a top 10 business podcast on Spotify. My name is Austin Hankwitz. I'm joined by my co-host Robert Croak, and you're tuning in to our question and answer edition, which means we take your questions from Instagram or email richhabitspodcast at gmail.com, and we shoot you straight.

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2:04There's a full disclosure in the podcast description. Be sure to check that out. And of course, this is for US members only. Let's jump into our first question, Robert. This one's coming from JT. J says, I've been listening to the Rich Habits podcast for four months now, and I've actually gone back to re-listen to every single episode. My wife and I have$18 ,000 in our high yield savings account and it pays 5.15 % annually. Is this a good rate? I know T-bills are paying a little bit higher. Should I keep my money where it is, move it to T-bills? Should I think about ETFs? What do I do here, guys?

2:37Robert, this is a great question because I think we should actually take a moment to remind people why high yield savings accounts are so important. The reason why you want to have a emergency fund, right? A high yield savings account, a fully funded emergency fund here is so you don't have to make a mistake with your money given emotion or day-to-day turbulence or unexpected events. What I'm talking about is, for example, let's say you had a death in the family and you had to come up with five, 10,$15 ,000 to help cover funeral costs. If you didn't have an emergency fund, you might be tempted to take out a 401k loan, go into high interest credit card debt, maybe some sort of predatory HELOC on your house, right?

3:17But by having an emergency fund in place of three to six months of household expenses, you have that cushion between you and everyday life. So to answer the question, Robert, I wanna get your perspective here, but I mean, 5%, dude, you're doing great. I wouldn't, I mean, sure, if you wanna try and optimize a little bit there with half a percent that you might be able to get with T-bills, be my guest, but 5.15 and 5.5 isn't gonna be a big deal, especially with only$18 ,000. I mean, we're talking about, what, 60 bucks a year here in extra interest you can earn. So that's not the goal of these high yield savings accounts and these emergency funds, right?

3:51They are not investments. They are insurance against terrible financial decisions you might make in the future if you didn't have the fund. Yeah, I think you crushed the answer. And Jay, great question. To me, the way to look at it is, yes, we talk about treasury bills all of the time. And many times it's because so many people let their money just sit in checking and regular savings accounts. you're already in a very good high yield savings account. So you're crushing it from that perspective. And I love Austin pointing out the emergency fund status. The only thing to look at that's a little bit different because you don't necessarily need to trade from the high yield savings to the treasury bill just to gain that little small percentage of gain because you have to look at it that you're already doing well with the 5.1%.

4:33What I would look at is treasury bills do have some advantages. They are liquid through public.com. You do pay no taxes on your gains, both state and local. So there are some advantages. So just keep that in mind. But in this instance, if you really felt like you should transfer some money, I would maybe keep 10 in the high yield savings and put eight in the treasury bills. But otherwise, I think you're fine sitting put. You're doing great with that emergency fund. And just always remember that we want you to optimize your money and never let it sit. So just think about and figure out your monthly bills and how much you should have in an emergency fund, and then everything on top of that, I would get optimized in your Roth IRA, in the treasury bills, or in other more higher gain paying investment strategies.

5:18You know, Robert, this is why I love the podcast so much because you just mentioned something I totally forgot about, which is T-bills are tax exempt from both the local and state levels, which means if you're paying, let's call it 5, 10, maybe 15%, depending on what state you live in and your local sort of jurisdictions there, you could be saving upwards to$100 a year on this$900 in interest you'll be earning on the high yield savings. We're hearing all these talks of economic downturn and possibility of issues in the stock market because of inflation, et cetera, et cetera, et cetera. There's always a lot of sky is falling people.

5:55And treasury bills are a great tool as is high yield savings. And the nice thing is as you grow and grow and grow, treasury bills can be a great place to have your money just chugging away, making that five, five and a half percent. So it's up to you. I think it's a great question. You're in a really good spot with the high yield savings, but both are great options. Our next question comes from Robert H. Robert says, I recently heard you all talk about NEOS's ETFs, SPYI and QQQI on the podcast, and I'm trying to weigh the benefits of investing into these funds opposed to just your simple dividend paying ETFs like SCHD and VYM.

6:31What should I do? Should I even do both? Robert, Good question. So from my perspective, I would consider doing both. I'm a dividend growth investor. I love owning dividend growth stocks, which are defined as companies who are growing their revenue, their profits, but more importantly, the dividends they pay to their investors every single year. Lowe's and Home Depot and Costco are great examples of that, right? Costco just increased their dividend by like 14 % year over year. So I'm a dividend growth investor because I think it reflects just how awesome the underlying business is. If you're able to pay cash dividends to your shareholders.

7:04Now to answer your question, Robert, SPYI and QQQI or some of these other dividend focused ETFs, again, I own both. I have SPYI, I have QQQI, I have SCHD, and I have VYM. So I have all four of the ETFs that you mentioned in this question. And if you want to sort of diversify your portfolio, not to just aim to track the underlying indices of the S &P and the NASDAQ, but also have some dividend growth stocks in there as well. SCHD is a great way to do that. And so is VYM. Robert, do you have any perspective on this question? No, not really. I think you can have both as well. We love SPYI and QQQI from Neos.

7:44They're just great, great products. And we're big believers in the NASDAQ and the S &P 500. So for us, I think you could have all four of those and really have a balanced portfolio as far as your portion going towards dividend investing. So I think it's great, Robert. and Austin, I think it's a good breakdown. You guys all know that we love the NEOs funds, and these are two really good ones. Good question, Robert. Our next question comes from Scott. Scott says, I'm 26 and I make$90 ,000 per year. I've been able to invest like crazy over the last several years, and my brokerage account balance has now exceeded$85 ,000.

8:19However, a lot of this is invested across dozens of single stocks. Some have dramatically outperformed, while others have dramatically underperformed. I want to clean up my portfolio, but every time I look up the stock I want to sell's price target, according to Wall Street, it's supposed to outperform the S &P 500 over the next 12 months. But weirdly enough, it never does. Should I sell these single stocks that are underperforming and move the money into index funds like you all say? I'm just experiencing some major analysis paralysis. Robert, I feel like this question is right up your alley.

8:50Yeah, Scott, it's a great question. And to comfort you as much as I can, I think everyone goes through this. I look at portfolios every single day and I see some people that have 35 stocks, 18 index funds, et cetera, et cetera. You know how this goes. And for me, I think you're on the right track. I think you should rebalance it. If you have to take some hits, it's not going to matter because you're going to be able to use those losses against your gains. So don't worry about that. And you really just want to focus your portfolio. I've been talking about something lately that I think is really important for people, especially in the earlier stages, is I think I could outperform most portfolios with five index funds, five stocks and five cryptos because so many people get stretched thin because they have far too many stocks, far too many index funds, and it's just not necessary.

9:38So in your case, calm down. A lot of people go through this, figure it out, see how the numbers work, and just really condense it down so you can understand it and look to lean on those index funds that we talk about because so many economists, so many brokers, and so many fake gurus are always gonna tell you that they're gonna outperform the S &P 500. Guess what? It doesn't work. You know, Warren Buffett had a famous bet where he outperformed all these hedge funds just by betting on VOO and the S &P 500. So I think just narrow the focus and really lean into some of these QQQ VOO funds that we talk about, and you'll be in great shape and you'll outperform the benchmark by a mile.

10:18Especially at your age, Scott. I mean, you're 26 years old, dude. You know, I would also think about just copying what Robert just said. Get yourself five ETFs, right? Five index funds and get yourself five different stocks. And if you dabble in crypto, maybe get up to five there. I only hold three. Robert holds 300. That's the fun thing about crypto. So, but I think that's a great way to start, right? Let's call it VOO, QQQ, VGT, VTI, and MOAT. Those are the five index funds. They're all going to outperform and, you know, diversify your portfolio in a great way, especially at your age. Five stocks.

10:50I mean, I'm not going to tell you what single stocks to get. I personally would make sure Amazon's a part of that list. I'd make sure that NVIDIA perhaps is a part of that list, right? Maybe even - Salesforce. Salesforce can be in that list. Apple can be in that list. Palo Alto Networks, anything in there. Find yourself, let's call it five to seven single stocks that you, one, really, really understand the business. It's not one of these crazy companies that your friend on Discord told you to buy and it's trading at 22 cents and he told you it's going to go to$3, right? Not like that, which might be some of the red you're cleaning up out of your portfolio, Scott.

11:22But that's what I do. That's how I'd approach it, right? Get yourself five index funds, get yourself five to seven single stocks that you really understand, even the magnificent seven, if you want to just go after those, and then dabble in some Bitcoin, Ethereum, Chainlink. Maybe there's a couple others that you really like. and that's what I would do. That's what I would start. And the ones that aren't there, that's cool. Take the tax write-off like Robert said, write it off against your gains that you will, I'm sure, also experience or write it off your taxes. I think you can do that up to$3 ,000 a year and you'll be fine.

11:50But dude, you're 26 years old. What should be the foundation of your portfolio at your age are these ETFs and index funds. And only until you've got, I'm talking half a million in these index funds, then you should be really starting to think like, wait a second, Do I go into some of the single stocks? Like, let me do a little bit more research. But yeah, at your age and at your portfolio size, I mean, I really think that let's call it$60 ,000,$70 ,000 of this$85 ,000 should be invested into these index funds and ETFs. I love it. That's a great breakdown. Our next question comes from Aaron H. Aaron says, I'm about to receive a$39 ,000 bump in my salaried compensation at my job, but I'm not yet maxing out my employer-sponsored retirement accounts, and this extra income would give me the optionality to do so.

12:33So here's my question. Should I max out my employer-sponsored retirement accounts, or should I take the extra money and invest it into taxable brokerage accounts? Robert, what do you think? You know me. I look at these 401ks and 403bs and all of these accounts as you want to go up to the match. Anything else on top of that, I would look at getting into that taxable brokerage account, get it moving so you have the autonomy to be able to do what you want with it. Just like in the last question, you want to have as much control over your money as possible so you can do what you want with it rather than what the company says to do with it.

13:09So that's my opinion. I would get it into a basket of these index funds we talk about, have some good diversity and be able to control your destiny without having 10, 20, 30 years go by and you had no autonomy with your money. And you always say, Aaron, match beats Roth beats taxable. So to To Robert's point, invest up to the match. Everything above the match, I want you to obviously prioritize the Roth IRA. I didn't see that mentioned here, but I'm sure you're doing it. You're a smart guy. And then beyond the Roth IRA,$7 ,000 a year, we're talking about$39 ,000 here, right? Should go to a taxable brokerage account.

13:43You should put that money into the index funds we talk about. We want people to have autonomy over their investments because like what Robert was alluding to here, you want to only go up to the match because let's say that you invested all, you know, let's call it tens of thousands. and you maxed out this employer-sponsored 403B or 401K that you're alluding to participating in here, if you don't have autonomy over that and they've got you parked in some terrible funds that have underperformed and emerging markets or target date fund this or bonds and cash that, that's not what you want to be in.

14:12And let's call it you're in your mid-40s, maybe even early 50s, you still have 10, 20, 25 years still to invest toward your retirement. And that is not going to be doing well into these, call it smaller, underperforming funds, right? You want to be able to have that money in your control to invest into the funds we talk about. It doesn't matter if it's in a taxable account. Paying taxes, Robert, I think this is really important. Paying taxes is okay knowing that the profits you made to pay those taxes were profits you weren't going to get to begin with if you had parked the money somewhere else.

14:44And another thing everyone needs to be paying attention to is we talk about optimizing your money all the time. And we talk about broker fees and expense ratios and all this stuff is to realize this. Even if you optimize your portfolios, like Austin was discussing, some of these lower performing funds, target day funds or money markets or whatever they might be, mutual funds. Even if you optimize for the better, two, three, 4 % a year over 10 or 20 years, you're talking about 20, 30, 40 % more of returns on your money because of the compounding effect over time. And it's so important to understand that because a lot of times we may be talking, you go, oh, what's the difference in one or 2 %?

15:24But over time, it's massive. And everyone needs to understand that math because it's so important and could mean the difference between 100, 200, 500, even a million dollars in your pocket versus not in your pocket by optimizing and making sure you have the best performing funds you can have in your portfolio. Right there with you, Robert. So earlier in the show, you heard us talk about the investing platform, public.com. That's where you can trade options with no commissions or per contract fees. And you get a rebate of up to 18 cents per contract traded. NerdWallet recently gave public five out of five stars for options trading.

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16:35So keep that in mind as you make that little swipe up that Robinhood lets you do or a little tap to go, that fidelity, right? You want to be using public for your options. You're going to be making a lot more money or rather saving a lot more money using their platform. Now, our next question comes from Robert A. Robert says, I'm 23 years old and I live in an apartment with my girlfriend. We split all of our costs and I live well below my means. I'm able to personally save anywhere between$2 ,000 to$2 ,500 per month to invest. Now, at the moment, I've got$70 ,000 in a Roth IRA that's invested across VOO, VGT, and Berkshire Hathaway.

17:11I also have another$30 ,000 in index funds you guys always talk about. With that being said, how do I approach talking about money with my girlfriend and soon-to-be fiance? We're generally on the same page about money, but I want to help her pay down her student loans and begin investing toward her retirement. Robert, you are a 23-year-old with$100 ,000 invested. Like that's what I got from this question, man. You should just be taking laps, patting yourself on the back like, oh my gosh, man. I wish I was in your shoes when I was 23 years old. That is just unbelievable, dude. So, okay, let's talk about how to approach this conversation.

17:47You guys said you're, you know, soon to be fiance, and that's really cool. Propose, get married, do all the fun stuff. That's awesome. You did say, too, that you guys are generally on the same page about money. I read further in your email, you guys budget together, track your spending, all that fun stuff, which is really healthy. I love that as well, because as we think about getting married, what I think a lot of people make the mistake of is they say, oh, the husband does all the money or, oh, my wife pays all the bills or, you know, they're the one that does the money, not me. They just tell me what to spend.

18:14I just do what they say. That's not real healthy, right? That's not the kind of relationships, at least that's not the kind of relationship I want to be in when I'm married. And I'm sure Robert A. here doesn't want that type of relationship either. I think the simplest path to wealth for married couples is a path where both people are on the same page. Both people understand how much is coming in to the bank account, know how much is going out of the bank account, where it's going. You guys have similar goals. I mean, we made a whole episode about this, Robert, talking about how to have a good, healthy marriage with your money.

18:44So Robert, here's my answer. If I were you, one, it seems like things are already going well, but a couple things I'd add here. Show her your brokerage account and your Roth IRA and show her how you contribute, what you're invested into so it can one, inspire her and two, help her understand just how easy it is to over a long period of time, make money investing in the stock market. And then two, as it relates to student loans. You didn't mention your student loan situation. I'm assuming you don't have any, especially with this much money. But with her student loans, right? I think the only thing you can do there until you guys are married is help her budget, make sure that she understands sort of what that payoff period looks like, how to pay extra on her loans, maybe help her understand the differences between high interest rates and lower interest rates with those loans.

19:27But I mean, you guys are on the right track here. I mean, all you have to do here is just continue talking about and being transparent with your money, especially, especially if you plan to get married, If you guys are inching toward marriage, that is something you guys should definitely be talking about. Now, I'm not saying combine accounts. I'm not saying you go off and pay off her student loans. That's not what I'm saying. You guys are not married. That is not something you should do until you get married or even consider doing until you're married. But it's good to have these conversations because if she's got maybe that savings muscle that you can help her sort of flex over the next 6, 12, 18 months because you guys are talking through this stuff, I think that's just healthy.

20:01So that's what I would do. I would just approach it one day at a time, be very transparent, authentic, and forgiving. I mean, oh my gosh, everyone has their own story, their own perspective, their own experiences with money. And maybe your experience with money has been really positive, Robert, right? Robert A., you're talking about how you've got 100 ,000 by 23. That's unbelievable, dude. Maybe her experience is a little bit more negative, right? Maybe her family was a little bit more paycheck to paycheck growing up, or maybe she obviously had to have student loans for a reason. So be forgiving, be empathetic, but also do what you can to put yourself in her shoes and you guys just work together.

20:33All right, I'm going to go opposite side of the fence here, Robert A. Austin, you crushed that. But here's my thought, and you touched on it a little bit. You're not married yet. I'm going to tell everyone a little story here today. A very dear friend of mine fell in love, had a fiance, put her through nursing school, bought her a nice used BMW. He did the whole thing, five years. She lived with him. He put her through school, the BMW, the whole thing. Within a month after graduating and getting her job, she left. he paid over a hundred thousand dollars in student loan debt all of these things so keep in mind until you're married her debt is her debt and your wins are your wins could you consider guiding her like austin said absolutely you love her you should guide her but should you sign on the dotted line and take on that debt now absolutely not because you don't know what could happen in the next year two years during the process of getting engaged and moving further along in the relationship so So please, for everyone listening, no matter where you're at in your relationship stage, understand that because it's very important because you never know when things are going to change or go bad or whatever.

21:41And you just have to be careful. And you've done such a great job, Robert A. And I don't want to see you get sidetracked taking on someone else's debt until you sign the dotted line. Very important for everyone. You know, Robert A., I love that you want to help her and you should help her. But to Robert C's point here, don't do anything that is going to set you up for failure in the future. It just, you don't combine these things until you are married. 100 % full stop. Our next question comes from Jennifer K. Jennifer says, I want to ask your opinion on a rental property, single family residence that I've owned for over 20 years in California.

22:15The value of the property is$2 million and our equity is$1.65 million. Our mortgage interest rate is 3.1%. 1%. It's about$3 ,500 a month when you include taxes, insurance, and expenses. And we have a long-term tenant who pays us$4 ,800 a month. So I'm wondering whether this rental is a wise investment or not. For example, I could take out the equity and purchase another rental or an Airbnb or even invest it into ETFs. I could also sell the property, do a 1031 exchange into a larger asset such as a multifamily or even a small apartment building. Or I could just sell it all in general and take the money and do whatever else with.

22:51What are your insights? I don't know what to do. I feel stuck. Robert, this is right up your alley. Let's hear what you have to say. Jennifer, very well-crafted question. I love this. It's amazing that you understand the complexities and the options. So let's do some simple math. The HELOC. Love the idea normally because you have so much equity tied up that you can't do anything with and you can't grow it. But the problem is the math doesn't math right now with HELOCs. In California, you're going to be 7, 8, 9 % on that HELOC. And as we always say, you can't out-invest high interest debt. Once you start getting up to that 7, 8, 9%, we consider that high interest.

23:28So that's a tricky one. The 1031 exchange could work if you did the exchange into a larger, more expensive property. But the other problem there is, is that you also have to look that interest rates on that commercial loan are going to be again, that six or 7%. So again, it's right on the fence. So in my opinion, in this breakdown, you are kind of hand tied because of the state of the market and the time of selling this. One thing that would help you consider what is the right move is to go out and do the research really simple for you to figure out what is the average capitalization rate where that property is located.

24:07Do some comps and figure that out because you have to look that if let's say across the country, it's three and a half percent. If the average capitalization rate there is five, six, seven percent, then that gives you some ammunition to understand the best strategy here because you are kind of stuck in a really difficult spot. You could take a million dollars out in equity through a HELOC, pay the 8 percent and maybe hit a home run and have a 12, 14, 18 percent return on the new property. But if you don't, then you're going backwards because you're not going to be able to cover the HELOC in the cash flow that you have from the property.