Q&A: Retirement Investing as an Entrepreneur, Cashing out the 401(k), & Co-Signing Student Loan Debt

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0:35I just give my stylist my size, style, and budget preferences. I order boxes when I want and how I want. No subscription required. And he sends just for me pieces, plus outfit recommendations and styling tips. I keep what works and send back the rest. It's so easy. Make style easy. Get started today at stitchfix.com slash Spotify. That's stitchfix.com slash Spotify. Hey everyone, and welcome back to the Rich Habits Podcast question and answer edition. These are our Thursday episodes. And in these Thursday episodes, we answer your questions. No filter, no pre-recorded anything. It's Robert and I off the dome exactly what we think you should be doing as it relates to what you ask us.

1:18And you can ask us questions on Instagram at richhabitspodcast. You can ask us a question via email, richhabitspodcast at gmail.com. And Robert, speaking of emails, we have created what I would argue is the coolest, best, most informative, and also illustratively focused newsletter on the internet, the Rich Habits newsletter. We've got over 42 ,500 subscribers. We're adding 50 to 100 subscribers per day now. It is just blown away our expectations. You guys are eating up this newsletter. So Robert, why don't you talk about one, what you like about the newsletter? And then two, you know, we had one go out this morning about a really cool graph that Bank of America shared.

1:59And so maybe break down a little bit of what you thought about that graph, why it was interesting and what people can expect when they read the newsletter. Oh, I think for me, the coolest part about the newsletter is that it is a direct reflection of our brain dumps every week, what we're looking at, what we're investing in. And I think it just really vibes with us as people and how we deliver the information that we deliver every week. And everyone's approach to this is different. And I think ours is the best. Like I said earlier, I think we've built the best mousetrap. And so for me, it's just so incredible as we grow this community and the newsletter and rich habits to really just see how people react, how we break down the various aspects of building wealth and financial freedom, because it is different for everyone.

2:51And that's why this graph is so incredible to look at. Because when you look, we talk about it all the time, that building wealth and financial freedom is not a one size fits all. And there has never been a better graph to illustrate that than this one. And that's why it's so incredible to see the various age groups and wealth levels of what they believe in each group is the best strategy for growth and opportunities in investing. And so I think this graph is just incredible to illustrate that. And listen, people, if you're like, what graph? I'm not subscribed to the newsletter. I don't know what y 'all talking about.

3:29One, you should subscribe. Two, when you subscribe, you'll see the graph we're talking about. You'll also see Robert Nye's perspective on it in a very succinct summarized newsletter. And three, you can do all that by clicking the link in the show notes below. You just click right there, drop your email address. This is a completely free newsletter. There's nothing. We'll never charge you any money to read this newsletter. And it is the, again, best, best, best, best, best newsletter on the internet. I'm just calling it now. We have over 40 ,000 readers right now. We're growing again by about a couple hundred, over a thousand a week now.

4:02I think we'll probably have over 100 ,000 subscribers, Robert, by the end of the year on this newsletter. And what's really cool about it, too, again, not just that it's free, but you can share it with whoever you think should also know this information. Maybe you're in college and you want to share it with some of your classmates or maybe you work in finance or work in marketing or maybe you just know someone that cares also about the markets. Check out the Rich Habits newsletter. We're really proud of it. And if we provided you any value over the last 18 months, you're going to subscribe to the newsletter to do us a favor.

4:29And I think one of the most important things when deciding when you see it pop up in your inbox, if you're really going to read it or not, or just click on it and click away, is look at it from this perspective. When you hear the word newsletter, it sounds nerdy. It sounds boring. It sounds laborious to get through. But guess what? But if you take that five or 10 minutes a week and I look at it more of, it's less of a weekly newsletter and more of a weekly digest of what we're thinking and what we believe is important to your financial kind of history and future. If you can look at it from that mindset perspective and just carve that 10 minutes out a week, I think it'll be game changing for all of you in the coming months and years because this is a long game.

5:14So just keep that in mind when you're joining. We appreciate it if you join, but if you don't read it and you don't get actionable items from it, then we're not doing our jobs properly. So please look at it from that lens, from a mindset perspective, and I think it'll be a game changer for all of you. With that being said, Robert, let's talk about this episode's sponsor, Public. If you trade options, you got to ask yourself, why wouldn't you choose an options trading platform that's putting investors first? And at public.com, there are no commissions or per contract fees. And more importantly, it's the only platform where you can earn a rebate on every single contract that you trade.

5:51That means you can save on your options trading costs and keep more of your capital in play. Whenever you trade options on public, your savings are automatically applied. So don't change your strategy, change your platform and see the difference in your bottom line. No commissions, no per-contract fees, and it's the only options trading platform where you can earn a rebate on every option contract traded. Paid for by public investing, options not suitable for all investors, and do carry significant risk. Full disclosure in podcast description. All right, Robert, we've talked about our newsletter enough here.

6:28We've given public their flowers. We love trading options on public. Let's dive in to the meat and potatoes of the episode, the very first question from Trela. Trela says I have$150 ,000 in my 401k and it's invested into target date funds and has been for the last five years and it's grown by about 8 % per year over that time frame. I'm 32 years old and I'm starting to realize that I need to make more money. Cost of living in the Bay Area is just so expensive. So here's my question. Do I invest 100 % of this$150 ,000 of my 401k into blue chip funds? Or do I split the money 50-50 across blue chip funds and other target date funds?

7:06Good question. As you probably know, Robert and I aren't the biggest fans of target date funds. You know, I think the importance of a target date fund, if it had one, kind of goes back to what Jeremy Schneider was talking about. It automatically rebalances your portfolio once a year. It puts you into some bonds, takes you out of the stocks. It's just really set it and forget it mentality. And it's very boring, boring, boring, way more boring than we want it to be, which of course comes with underperformance against the index funds we talk about all the time, right? The S &P 500, the NASDAQ, things of that nature.

7:41And so if you were maybe in your 50s or 60s, I could see a target date fund maybe being applicable given how you probably want to preserve capital more now than kind of grow it. But you said you're 32 and I'm 28 and I am so focused on growing my capital as you should be at 32 and probably 42. So Trayla, if I were you, I would put all$150 ,000 of that 401k into blue chip funds. Now you can do that through however, you know, I don't know what these mutual fund sellers are in your specific 401k. It's going to be different for everybody. But two things you want to look out for though, before you do this, the first thing is going to be the long-term performance of these blue chip funds, right?

8:21So, you know, that might be 5, 10, maybe 15 years if they have it. And the second thing is the expense ratio. You want to make sure you're not paying more than 1 % per year. That's just going to be suicide. But I think if you're doing both those things and you've got the right funds in front of you, I think you're setting yourself up for a great retirement come 65 years old. That's a great breakdown. And my take on this is going to be a little different, but we agree on the overall strategy. And that is for me, target date funds just leave too much money on the table. You hear me talk all the time about optimizing your gains within your investment strategies.

8:57And very few target date funds ever do that because they are built to maintain your money and not lose it versus grow it. And that is a big key here. Target date funds are great for that set it and forget it, but they don't take into consideration market conditions. They don't take into consideration wars and COVID and all the different things that can happen because they're not built to grow your money and make those adjustments as we would to find that extra growth. You take 2023, for instance. If you were to own a target date fund, making you six, 7%, which most of them don't even achieve that, versus being in the VOOs or the QQQs of the world, I think QQQ had gains of like 47 % for 2023.

9:44So you're just leaving too much money on the table. That is my problem. So I agree with Austin 100 % here that I personally, especially at your age, would not leave it in the target date funds because you're just leaving too much money on the table over too long of a period of time. So I personally would move it and just keep on moving on and, you know, get it out of that target date fund. I'm right there with you, man. And you had a follow-up question. Trela said, should I keep doing some pre-tax contributions? My employer matches 100 % up to 4 % of my$170 ,000 a year salary. So you said that you get 100 % match up to that 4 % of your$170 ,000 per year salary, which means that you are contributing that 4 % or$6 ,800 and they match it 100%, which is awesome.

10:32So now you have$13 ,600. Incredible. And if that's invested into blue chip stocks and blue chip funds, you are just off to the races, right? That is awesome. So should I keep doing pre-tax contributions? I'd say yes, right? Robert and I, we always talk about up to the match, then you do your Roth, and then anything over that if you have autonomy of your 401k to go back and max that out, which of course now you do, and it's not in target date funds, which is even better. And then you can take any extra money if you have more than that, and you can put that into a normal taxable brokerage account.

11:05So I hope that answered your question, Trela. We're really proud of you. You are investing so much money at 32 years old, and you are absolutely at this rate going to retire a net worth millionaire come 65 years old, even if you live in the Bay Area. Isn't it crazy, Robert, how some of these people, they're like, oh, I live in this area. It's so expensive. I'm never going to be able to do it. And then you do the math for them. You're like, no, you can do it. It's possible. And they're like, oh, well, I guess you're right. Wow. Maybe it's not cost of living. Maybe it's not these outside forces inflation, right?

11:32We just want want to make sure people have hope. I think that's the biggest and most important thing at the end of the day is a lot of people get kind of bogged down in the numbers and the weeds of things. They see the markets go up and down or in circles and they just say, what the heck? This is a loser's game. I don't know what I'm doing. I can't achieve this. I don't know what it's going on. But in actuality, you're doing a lot better than you think, right? And by just investing and listening to the podcast is a great first step, right? But by doing these little things, you're setting yourself up and you're sort of beginning to build the brick by brick by brick of your financial future.

12:02And we couldn't be more proud of you guys. Yeah. And I think that's one of the things I enjoy the most about what we get to do every day as financial educators is being independent thinkers. And what that means is Austin and I are not bound to one specific product or company or something where we have to tell you to buy these investments. We're independent people. We are educators. So we can tell you what we think is best for your situation. Because as I said earlier, everyone's financial situation is different. And that is one of the beauties of us being independent and educators is we can tell you and educate you on what we think is best for your situation, not the masses or not some company that we have to push their products.

12:47So that is one of the best things that I get to do every single day. And beyond that too, Robert, a cool way we're always doing that is by transparently showing you guys, you know, what we're investing into, how we're deploying capital, what we're focused on. And we do that not just in the newsletter, but of course, on this podcast, right? We're always telling you guys, you know, we've got tens of thousands of dollars in Neos funds. And we do that with pride. We've got thousands of dollars in masterworks. We've got, you know, all these cool different sponsors, like we use them, right? Yahoo Finance was a sponsor a couple of weeks ago.

13:17I've used Yahoo Finance since college. I love their platform, right? So at the end of the day, we just want you guys to know that we're proud of you. And And we're trying to be as authentic and as transparent as possible in this awesome, awesome process. Our next question comes from Nicole. Nicole said, I love listening to your podcast on my commute to work every day. I'm Nicole. I'm 22 and I'm a college student with two more years left until I graduate. I have$5 ,500 in my savings account,$500 in the stock market with$130 a month being automatically invested. Round of applause. Love it. and$17 ,000 in student loans that I won't have to pay back until I graduate.

13:54I make$2 ,300 a month working two jobs, and I'm saving about$900 a month at the moment. I'd love your advice as to how I should allocate that extra savings. Should I try and build my savings up to$15 ,000? Should I put more of this into the stock market? How should I use this$900 a month? Robert, I'll let you go first. Nicole, great job. Love that you're automating some of your investments already. And so based on the information provided, I would say with having$5 ,500 a month in your savings already, you're good there. I hope it's in a high yield savings account, not just sitting there making no money.

14:28So if it is making no money, let's get it into a high yield savings. But after that, the answer to me is you should first and foremost get the Roth IRA set up. Get some of this funneled into those basket of funds we talk about all the time, like VOO, VGT, QQQ. That's where I would start. Secondarily, based on your age, I would look at getting a small portion of this, maybe$200 a month into a nice cryptocurrency portfolio. Just get the basics when you get started. Bitcoin, Ethereum, Chainlink, XRP, some of the basics, kind of like the blue chips of crypto. I would do that. And then third, I would look at getting a public.com account set up.

15:08And that could be for the crypto and maybe look at some treasury bills, getting some base there as well. just so you're getting a little bit of your base spread out so everything's not all in one place. Or you could also look at maybe getting an additional couple hundred dollars a month put away into Fundrise. We love Fundrise. You could do that into their innovation fund. That would get you some exposure to some startups that have some really large promise in the coming year. So I would just get that balanced out among a few of those things I mentioned. And then that way you're growing the Roth IRA, you're growing the crypto base, and you're getting yourself out there along with having the high yield savings account.

15:47That's where I'd start. I think you did a great job breaking that down, Robert, and especially kind of thinking about the Roth IRA. I think that's a really important one. Of course, we want everyone to max out the Roth IRA every single year. And, you know, Nicole, I just did some math for you, right? Let's say that you were super strict with your budget and every single month you set aside$900 and you used it to both max out your Roth IRA and invest in the stock market. So between those two things, of course, when you max out the Roth IRA, you are investing that money into the index funds that Robert just eloquently laid out for you, as well as putting some money in the stock market.

16:23Over the next two years, you said you graduate in two years. So over the next two years, If you invest$900 a month, you'll have about$22 ,000 spread across your Roth IRA, which is$7 ,000 a year, so$14 ,000 over there, and the rest will be in your brokerage account on public.com. That$22 ,000 invested into the ETFs Robert just laid out for you at an average return of between 10 % and 12 % per year from 24 years old to 65 years old. When you are 65, you will have$2.7 million if you just don't even touch this money again. You don't add a dime to it, right? And so, you know, we see a lot of people online, especially Dave Ramsey, he'd tell you pay off your student loans, right?

17:05Save money to pay for school along the way. Doing that, you're leaving over$2 million on the table by not investing this money. So if you want to get some crypto, be my guest. If you want to have some T-bills, be my guest. But I think what's most important here is that you do not keep this money on the sidelines over the next two years, but instead you make sure that you deploy that$22 ,000-ish over the next two years and you forget about it until retirement. Nicole, you have so much wealth building ahead of you in your future. I mean, this is just$22 ,000. Imagine what you're going to start making and investing after you graduate, right?

17:37You might be a decamillionaire by the time you're 65. You're going to be so rich and we are so proud of you. Thank you for listening to the Rich Habits Podcast. Our next question comes from Trevor. Trevor says, hey guys, great job on the podcast. You have changed my outlook on life. I'm a real estate agent living in Tampa, Florida. I have$10 ,000 in my Schwab account, and I want to grow that to$100 ,000 as quickly as possible. How do I best deploy this capital as tax efficiently as possible? I'm going to be eating turkey sandwiches and ramen for the next couple of months to squeeze out every last dime of my budget.

18:10I love me some Trevor. This is what I'm talking about. The right mindset. When you're younger and you have flexibility in your lifestyle, you should be looking at it from that perspective. And I'm not saying you need to go this far with turkey sandwiches and ramen, but why not? Instead of going out and blowing$300 a week at the bars and stuff you don't even need, you start socking away that money now and let it grow, grow, grow for the future. Then you have set yourself up for future freedom instead of spending every dime you have until you're in your forties and then trying to play catch up. So Austin, take it away on what Trevor should do based on your thoughts to become tax efficient in this growth?

18:55Yeah, really good question, Trevor. So of course, the first thing you can do is the Roth IRA, right? But that's only 7 ,000 a year. You're a real estate agent. So I think you're self-employed, which means you probably don't have a 401k at work. So if you are self-employed, you have your own LLC. Assuming you have yourself on payroll through gusto.com, you can open up something called a Roth solo 401k. Now, a Roth solo 401k is going to be a way for you to also contribute after-tax dollars toward a retirement account, which is a great thing. And they have a sort of tax loophole, Trevor, depending on, I guess, how much money you make for the year, depending on what you can invest.

19:35You can deploy, I think, Robert, in 2024, is it$69 ,000 in the mega backdoor Roth? Yeah. So you can deploy$69 ,000 of after-tax dollars into this mega backdoor Roth solo 401k. We use carry.com. You can use whoever you want, but they make it very simple. And you can do that. And again, that's after-tax dollars. So it's going to grow tax-free. So if you're all about tax efficiency, right, the Roth IRAs, the Roth, everything else, like this is money that's going to grow for you that you can lean on in retirement, take out in retirement and not have to pay a diamond taxes on it. So that is probably what I would consider doing.

20:12You have to set up some sort of payroll. You got to pay yourself, right? There's a little bit of intricacy, right? But if you use the right platform, again, Gusto is who I use. I'm sure Robert maybe has a recommendation for how he pays himself as well. He'll be able to share in a second. But once you've kind of got the groundwork laid there, it's pretty simple. And once you've done that, you are off to the races, man. Tax efficient growth is the name of the game. It's something I'm really passionate about, something Robert is as well. And by doing this, you'll be able to have millions of dollars of tax-free money waiting on you when you're 65.

20:42It really comes down to what I say pretty much a thousand times a week. It's not what you make, it's what you keep. So Trevor, Austin's breakdown is perfect. And you definitely need to look into every avenue of this tax efficiency, but also understanding what is afforded to you being a self-employed real estate agent. And I think this is very, very important that you're optimizing what write-offs you can use, whether it's your car, your cell phone, a portion of your apartment or condo or home. All of those things really come into play with helping you grow your wealth early on and extracting every last dime out of your budget.

21:21So just make sure, you know, DM me if you need to hit us up in the show notes and really just make sure to flush all of those options out so you can maximize your tax efficiencies, but also your savings. So you have more to invest at the end of every year. You know, and for me, yes, Austin, you're right. I use ADP. We do that for all the companies, not all of them, but some of them, but Gusto is great as well. Like Austin mentioned, and it's really just all about what works best for you in optimizing your gains with the revenue that you're making. I love it. Good question, Trevor. We're rooting for you, buddy.

21:55Eat those ramen and turkey sandwiches. I'm right there with you. I love myself a daily turkey sandwich. Our next question comes from Andrea. Andrea said, I got laid off from my job a couple weeks ago, and it made me realize that I need to increase the number of ways I need to make money, specifically through my investments. So what do you all recommend as a consistent way to make money through investing? I'll kick this one off, Robert. My favorite way of making consistent income, there's two ways, but it's the same strategy, and that's covered calls. We talked about this on a webinar. We broke everything down for you guys.

22:26I'll leave a link to that webinar, Andrea in the show notes below. But it's a pretty simple strategy that allows you to earn income every four to six weeks. For me, I'm earning right now anywhere between$1 ,500 to$3 ,000 per month doing this completely passive. But I did have to invest 40 ish thousand dollars to earn that income. If you don't have that much money, you can also buy the NEOS funds ETFs we talk about. They are covered call ETFs. They do it all automatically for you. And these ETFs are like a share. So for 50 bucks, you can start getting some skin in the game. They pay every single month, just like my covered calls do.

23:00It's about a 12 to 14 % annual distribution yield there. So just think about it as like the 1 % rule, right? If you invested$10 ,000, 1 % of that's going to get paid back to you every single month, which is pretty cool. Those are my two ways. Robert Jevony, recommendations on how Andrea can generate some extra income with her investments. Yeah, but I also think with limited information that Andrea provided, I would look at it too more so of having multiple streams of income, not just through investments, unless she has this big basket of money already and then she can diversify that money like you stated.

23:36But I would look at it that I would want to really find ways to have multiple streams of income through my investments, but also through work. And that could be a couple side hustles and not having all your eggs in one basket for your income. But as far as that goes, you can look at investments that are smaller venture investments. Again, we don't know how much money you have. Investing into maybe things that you can flip. If you had a few thousand dollars and you could find a niche in your area where you You could use that few thousand dollars and start flipping maybe luxury handbags. It could be shoes.

24:11It could be vintage luxury watches. There's a lot of different ways to make meaningful income. You can do it through Etsy and OfferUp and Facebook Marketplace and all these, but there's just so many different ways. But I think for me, it would start out with having multiple streams of income through investments and through earnings to make sure you're never in a position where you can go completely broke because you are not prepared through these multiple streams. So that would be my take on it. Yeah. I like that a lot. Of course, the easiest way that anyone can just start making money, right?