Q&A: RSP vs. VOO, $5K/month For Life, & the Best Advice We've Ever Received

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0:30You're about to make a trade. Which you do you listen to? Is it get optioning those options? Or let's do a little research. Learn more at finra.org slash trade smart. Hey everyone, and welcome back to the Rich Habits Podcast, a top 10 business podcast on Spotify. This is our question and answer edition episode, which means we take your questions and we answer them. We're going to answer, I think, nine or 10 questions in this episode. Really high demand episode. You guys love it when we answer your questions. and we can't wait to answer more of them. If you wanna ask us a question and absolutely get it answered 100%, be sure to check out the Rich Habits Network.

1:12The Rich Habits Network is the easiest way for you to connect with Robert and I on a weekly basis during our live streams, as well as connect with other podcast listeners across all the different industries that they work in, tons of entrepreneurs in there, tons of people just figuring it out for the first time, as well as over six hours of video coursework for you to review and learn from, and more importantly, take notes and take action. Yeah, I'm excited. We just launched the school community with the Rich Habits Network a week ago, and already it is crazy in the community. There's just so many smart people, and it's exciting for me because we're getting to help and educate and spur community in the Rich Habits Network with so many people, and I am so thrilled to keep moving forward with it and building it bigger and bigger.

1:59And as Austin alluded to, There is already six hours worth of course material in there, plus multiple tools that we're giving away in the community. And we will continue to add more and more modules as we move along with the Rich Habits Network. So it's very exciting times for both Austin and I. Yeah, Robert, we've got over 300 people right now in the Rich Habits Network, and it's only been two weeks. Unreal how popular this has become. And I get back to every single direct message. So really, if you DM me in the network, I'm going to get back to you. Now, Robert, speaking of answering questions, we got a ton of questions in today's episode, most of them from the network itself.

2:37So if you want your question answered in next week's episode, join the Rich Habits Network, ask a question, and we might pick it for our episode. But before we jump into this episode, Austin, let's hear from our sponsor. If you're looking for a simple yet sophisticated investing experience, you have to check out public.com. From stocks to options, bonds to crypto, it's all there. You don't have to juggle or switch between different apps because Public lets you manage your entire portfolio in one place. You can even earn 5.1 % APY on your cash with Public's high-yield cash account. That's not just a good rate, it's literally an industry-leading rate.

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3:54Full disclosures in the podcast description below. Now, Robert, our first question comes from Kai. Kai says, my wife and I have been contributing the max into our 401k every year to reduce our taxable income. After listening to the Rich Habits podcast, I'm beginning to wonder if this is even a good strategy, especially considering the tax rates and how they're likely to be higher in the future. Are there better ways to reduce tax burden and maybe divert funds into our brokerage accounts, maybe even a backdoor Roth IRA? Kai, this is a really great question and I'm going to kick us off. So Kai, let me remind you and everyone else listening how Robert and I recommend people deploy their capital.

4:28Match, Roth, then taxable. So if you can invest into a 401k and you get, let's call it a 3 % match from your employer, that 3 % match on your invested capital is an immediate 100 % return on your investment, which is incredible no matter what the 401k is invested into. Next, we want to move to our Roth IRA. And in this case for you, maybe it's a backdoor Roth IRA. And the reason we don't want to immediately max out the 401k and just invest up to the match and then move to the Roth is because sometimes we can't control what the 401k is invested into. For example, some people have their 401ks automatically invested into target date funds or other random high fee funds that their employers pick for them, forcing them to underperform the market year over year over year.

5:15Now, if you're pouring all your money into underperforming funds and completely neglecting your own Roth IRA, then you are forced to underperform the market, not have the S &P 500, the NASDAQ, VTI, VGT, the things that we always talk about on this podcast, right? These longstanding index funds. Now, after you've got the match, after you've maxed out the Roth, then that's when you say, okay, either I have autonomy over my 401k and I should go max that out. Or if I don't, and it's just invested in these underperforming funds, I should take my remaining dollars, if I have any, and put all that into public.com into what we call a normal taxable bridge account.

5:52This account's purpose is so you can retire early. We want this account to grow to hundreds of thousands of dollars in your 40s and 50s so that when you eventually have hundreds of thousands, if not millions in your 401k, hundreds of thousands, if not millions in your Roth IRA, but you can't touch it until 59 and a half, but now you're 53 and you got a couple hundred thousand in this normal taxable account that you can touch without penalty, then it's going to bridge you over into retirement until you can finally access those other accounts. I really appreciate though the call out around the higher taxes.

6:23I totally agree. I think taxes will only go up in the future. The US is running at a crazy deficit. We just saw that Kamala Harris wanted to do something about a 44 % long-term capital gains, things like that, right? I think income taxes are going to rise in the future, which is why Robert and I really recommend everyone to do and choose a Roth IRA, pay the taxes now, and have that tax-free money in retirement. That's a great takeaway. And Kai, if I were in your shoes, I'd invest up to the match, max out the Roth. And if I had autonomy, max out the 401k. Then if I had any money left monthly, I would pile that into that bridge account Austin was talking about.

7:02It can be on public.com and invest that money in those basket of funds that we like and talk about all the time. VOO, VGT, QQQ, VTI, and even Berkshire Hathaway. And if you don't have the autonomy, then more in the bridge account could be a good idea versus maxing out everything else. At the end of the day, Robert, and it's crazy because I just had this conversation in the DMs and the Rich Habits Network. A guy was like, hey, Austin, here's sort of my financial picture right now. The problem is I am worth about$5 million, but I can't retire because three and a half million of this is tied up with retirement accounts.

7:38And I'm only 51. And another million, million and a half really is in my house. And he only had about$200 ,000 in a bridge account. And he's like, I can't touch this money for another, call it eight years, nine years. and I don't want to sell my house, but like I am a net worth multimillionaire, but I can't retire. I have nothing generating income for me that I can access today without paying penalties on it. And so that's what we're trying to encourage people to do is be cognizant. We of course want you investing in your 401k. We want you to be optimizing your Roth IRA and having all of your money in these tax advantage accounts working for you, but do not make the mistake of over indexing, right?

8:14Over allocating money into these retirement accounts, knowing that once it is several million and you're like, wait a second, I can retire now, but I have sort of these golden handcuffs where if I want to touch the money, I've got to pay that 10 % penalty. I've got to pay taxes on it. I got all these different things. Just be cognizant of that. Kai, you're doing a really great job. And we're really proud of you for maxing out your 401k. Just make sure you've got that backdoor Roth IRA also working for you behind the scenes. Yeah, I love this strategy and I'm surprised more people don't talk about it.

8:43We deal with net worth millionaires and multimillionaires on a daily basis. And no one ever told them earlier on, you have to have money that's available to you prior to retirement. And you just really need that autonomy. So it's so important that we keep pushing this message of having that bridge account and having people understand the difference, because this is an exact scenario we don't want people to be in. Now, Robert, to this guy's second question, do you have any other way on the top of your mind here that he could lower his taxable income? I mean, the best way to lower taxable income, in my opinion, is short term rentals, just because then that way he can, you know, we always talk about it's not what you make, it's what you keep.

9:22So by buying short term rentals every year and accelerating the depreciation, he could certainly eat away at some of the taxable income. But I'm a big fan of getting rid of the taxes. Now, so many people ask me on a weekly basis, oh, I don't want to pay the taxes on my 80k or my 180k. They don't realize you have to pay it at some point. Why not pay it now rather than kicking the tax man down the road. It's just better to get it out of the way now in these Roth elements, because then that way you're not paying any taxes on it later on. So, you know, there's a lot of different ways to find these tax advantage processes.

9:55And that's just what we get to do here each and every day is try and break it down for people. Our next question comes from David R. David says, at this time, which index would you prefer over the other, The regular S &P 500 or the equal weight S &P 500? Oh, I love this question, David. And I just, I want to make sure that everyone's on the same page about what David's talking about. So we all know and have talked about religiously now for over a year and a half of the S &P 500. It is the 500 largest, most profitable companies in the United States listed on the stock market, right? Think Amazon, Apple, Tesla, Microsoft.

10:33I mean, every big, awesome, beautiful company that you've ever heard of, right? But it also includes a lot, and even hundreds now, of other companies you might not have heard of, but they do still meet the criteria to be categorized as an S &P name, which means they've been profitable for so many quarters. Their market capitalization is X amount in size. And so this index, right, these sort of investing rules deliver 8%, 9%, 10%, 12 % returns over a long period of time here. And what David is trying to allude to, Robert, which I think is interesting, is wait a second. The difference between the S &P 500 and the equal weight S &P 500 are not the names inside of it, but instead how big of a weighting each of those names have.

11:14So for example, right now in the S &P 500, the Magnificent Seven, the seven largest, most profitable companies right now inside the index, weights about 25 % of the index. So if these seven companies go down, have a red day, while all other 493 companies have a green day, then I mean, that green day is really pulled back by some of this volatility that we might be experiencing with the Magnificent Seven. And so what I'm trying to decipher here for the listeners is, is it a better idea to spread equally across all 500 companies in the S &P 500 or have a greater weighting with the larger names by market cap?

11:53So that's what David's asking. Now I'm right there with you, David. RSP, which is the ticker of the ETF, that is the Invesco S &P 500 Equal Weight ETF, just hit all-time highs. It's up about 11 % year to date. And the reason it's seeing sort of this new all-time high is because the market breadth is beginning to expand beyond just technology, technology, and AI, and AI, right? I feel like that's been the narrative, Robert, for the last 12, 18, 24 months in the market, which is why the MAG-7 became so big and inflated. But now investors are saying, wait a second, let me take some profits off of these big technology companies and begin deploying that money into utilities, for example, right?

12:32We had Jay Jacobson to talk about his ETF IDU or the defense ETF names or the aerospace names like XAR, even healthcare, right? All these other different sectors of the market are beginning to have a little bit of life given back to them. David, if it were me, I would approach it this way. I think it's foolish for anyone to try and time the market, right? And so by saying that you're going to go all in on an equal weight ETF or the standard ETF, I think it's kind of a fool's errand. But my question is, why not both, right? I've got a little bit of RSP in my own portfolio. I think it's a great way to sort of hedge against this mega cap technology volatility that might be around the corner.

13:10And it allows us to have some additional exposure to those value names. I know the Dow Jones is seeing some life again right now too. So it's a way to have some additional, you know, hedging in your portfolio in a very risk adjusted manner. But Robert, I want to get your thoughts on this as well. Yeah, I think it's important for everyone to understand when you look at a regular S &P 500 fund and equal weighted, if you consider the regular S &P 500 fund like a VOO, you're going to be looking at it's going to move more in a momentum based way because we're so top heavy, like Austin said, with the Magnificent Seven, because that top seven to 10 companies drive all of the action.

13:47When you're equal and you have this equal weighted S &P 500, same companies, but because it's equally weighted, then it is more value-based driven because the money you spend is spread across all 500 companies. So that's very important to clarify and for people to understand. We also have to look at with the Fed proposing to cut rates. Let's call it September 18th. We believe that'll happen. then that is also why we've been talking about small cap and some of these smaller companies because as money gets more affordable for them, they see more growth. So I think it's all a very good mix. Like Austin said, you don't have to have one or the other.

14:25You can definitely have both depending on what you believe is gonna happen with the MAG-7 versus the rest of the S &P 500. So our next question comes from Claudia R. Claudia says, I'll be retiring in January of 2025. I have two options. I can take option one, which is$5 ,000 a month for life with no increase for inflation, or option two, which is a$1.2 million lump sum. What option should I take and why? What a good question. Robert, I'll let you kick this one off. Yes, Claudia, what a cool scenario. I would say I want the$1.2 million right now to retire off of. Always take the lump sum and let me explain why.

15:05The$5 ,000 a month may sound enticing until you run the numbers. First, you have to live over 20 years just to receive the equivalent worth as that lump sum in the$5 ,000 a month payments. And I can't predict the future to know how long you're going to live, but neither can you. Also, if you were to take into consideration the rule of 72, that just basically states that your money is going to double in market value every seven years or so. So if you invest that$1.2 million and in seven years it doubles to$2.4 million and then again doubles again in seven years to$4.8 million, you can't achieve those same numbers with the$5 ,000 a month, even if you invested all$5 ,000 every single month.

15:51I just don't think the numbers would add up for you to get there. And it would take you decades and decades to achieve that. So my opinion, take the money, run, get it invested properly, and then you can drink Mai Tais on the beach forever. Yeah, I think the rule of 72 is really important here, Robert, because we hear about people winning the lottery. And sometimes it's like, hey, do you want to get paid X amount of dollars every month or year as a lottery winner? Or do you want to take much less, but have it get paid to you in a lump sum? And if you run the numbers, the lump sum always wins. And that's because we have velocity with our money when that money is invested into things like the stock market.

16:27For those of you that might not know what the rule of 72 is, it's very simple. If you take the number of 72 and you divide into it your expected annual rate of return, the number that is spit out of your calculator is how long it's going to take you to double your money. So if we have the number 72 and the stock market returns 10 % per year, 72 divided by 10 is 7.2 years that it's going to take for our money to double. The stock market does about 10 % a year, so that's why we say it doubles every seven years. And beyond that too, what I think is really important here, Robert, to address is the 1.2 million can be passed on to Claudia's heirs.

17:03I have no idea if the 5 ,000 for life is going to be passed on beyond that, right? But if you do take this lump sum and something happens to you, your children have something. Where if you don't take the lump sum and you're just depending on this 5 ,000 a month for life, then if something happens to you, what happens to your children? So I think that the lump sum is more responsible, has a higher upside potential throughout the rest of your life in retirement. And I don't know what the taxes look like on it. So be sure to check that out for sure. But make sure you are getting that money invested properly.

17:36That might mean working with a professional. That might mean doing this yourself, whatever you are comfortable doing here. but optimizing for income, ensuring that the money is obviously not being YOLOed into some cryptocurrency or some options trading contracts or whatever else. Just want to make sure it's a nice diversified pot here that you can begin to pull four, five, 6 % off per year and really enjoy retirement. I love it. I love it. Okay, Robert, our next question is coming from Travis Z. Travis says, I've built my 100K base and I've begun investing into cryptocurrency. I currently have about 6 % of my invested capital in various cryptocurrencies that you and Robert talk about.

18:14I've done a fair amount of research about the pros and cons, though, of holding my own keys in a hardware wallet versus investing through crypto sites like Public or Fidelity. Currently, most is stored on exchanges, but I want to get some advice from the people in the Rich Habits Network, but more importantly, Austin and Robert, before investing more on these exchanges. So here's my question. Do you prefer storing your crypto in a hardware wallet or just investing through these exchanges or even via spot ET apps for the long term? Robert, you are the crypto guy. I'm going to let you start this one off.

18:44Yeah, Travis, I think it's a great question. And here's how I try to look at it. If I had$100 ,000 in crypto, I would say I would probably have 70 % of it in cold storage and then in a hardware wallet. And then I would have 30 % of it on the exchanges. And here's why. I like to have money on exchanges so I can constantly be making moves versus having it on hardware wallets having to get out the hardware wallets get my seed phrases and be able to move that money but i also like having some safety at higher levels of crypto ownership and having some in cold storage but i don't think there's anything wrong with holding your crypto on exchanges they are insured and in 95 of all instances you're going to be fine with your money and if you wanted to look at etfs i think those are great as well because then you have further protection through the company, whether it's BlackRock or Fidelity or ARK Investments, holding your money because you have their insurance layer as well.

19:38So just keep that in mind. I think it's good to use all three. I don't particularly need the use of these ETFs and the fees that are associated with them. I like to own the cryptocurrency, the asset itself, but there is nothing wrong with these ETFs if you want some management help and don't mind paying those fees. Couldn't have said it better myself. I've got about 50 % of my cryptocurrency in a cold storage wallet. I've got the other, call it 35-ish, 40 % on exchanges and another, you know, 10 to 15 % in these ETFs, specifically Bitcoin ETFs that are in my Roth IRA. You know, I think, Travis, at the end of the day, it's whatever you're most comfortable with.

20:17I think you should, though, get comfortable using and learning how to use cold storage wallets. I think that's a very important skill to learn, especially if you plan to be a long term cryptocurrency investor. However, I would not do, you know, what unfortunately I think a lot of people make the mistake of doing is like, you know, let me go on this random website like a KuCoin or a Mt. Gox, right, or one of these crazy websites and buy some crypto, give them my credit card information. And then, you know, you hear two months later that everyone was hacked or something crazy happened, right? So if you are going to use online exchanges, stick with the big guys, the Coinbase, the public, the M1 Finance, the Fidelity.

20:55Skip with the everyday names that we all know and love and don't fall victim to a Chinese exchange hack that might happen for some random site you found on Twitter. And another pro hack for everyone following along, if you're going to get into cold storage, learn this mistake. And trust me on this. Do not buy your cold storage wallets from eBay. Don't buy them from Amazon and don't buy them from Best Buy. Don't buy them anywhere except from the manufacturer's website. And here's why. People will go into a Best Buy. They'll buy a bunch of these cold storage. They'll put a back door into them. They'll re-shrink wrap them, put them back on the shelves.

21:35You buy it. You go home. You upload your crypto. Boom, your crypto's gone. You want to make sure you only buy it from the manufacturer's website and do the work to check it and make sure it's correct. This is very, very important. I've seen too many people that'll buy a used or an open box item on eBay and wonder why their crypto got hacked. Don't do that. Very, very important. Yeah. I have my friend, John, he lost about$50 ,000 because he bought it. I think it was on Amazon is how he bought it. And it was fine for like two years. And then out of nowhere, just gone. He woke up one day and he realized that it was sent out of his wallet about two months because he hadn't checked it for months and months.

22:14Of course. And then he looked on, he's like, oh my God, where'd it all go? And he looked at the transactions and it was just sent away two months ago and he had no idea. There's nothing to do about it. It happens all the time. And I probably don't talk about this enough. I'm going to definitely bring it up on tonight's live, just because it's so important to realize that you have to be super careful in this day and age of technology. It's, I believe a great time to be alive and create wealth, but you have to protect it as well. For sure. And so if this is confusing to you, where you might not know what's going on, maybe it's a good idea to just start with a Coinbase, start with Publix, start with one of these tried and true exchanges until you begin to accumulate tens of thousands, if not hundreds of thousands of dollars in cryptocurrency like Robert and I do.

22:55And then it's like, okay, let's figure out how to use these hardware wallets. Now, before we jump to our next question, I want to remind everyone, you can earn 5.1 % APY at public.com with their high yield cash account. There are no fees, no minimums, just an industry leading 5.1 % APY on your cash. And with up to$5 million of FDIC insurance, your money is secure. So go to public.com and start earning 5.1 % APY straight up with no strings attached. It's an industry-leading interest rate with no fees, period. That is public.com. This is a paid endorsement for public investing. 5.1 % APY is as of June 17, 2024 and is subject to change.

23:35Full disclosure is in the podcast description below. All right, Robert, our next question comes from Connor. Connor says, what's the best piece of advice you've ever received, whether from a person, a book, or a class? For me, it's not just one piece of advice from a single source, but a recurring theme that I've noticed in the words of people I admire, the books I've read, and the experiences I've had, which is consistency is key. But Austin and Robert, I'd love to hear your thoughts as well. Robert, I'll let you start off. Yeah, this is really a great question, Connor, and I think more people should ask it.

24:04And you really, really eloquently spelled it out. I think everyone should have a notebook or a folder or something on their phone. It could be handwritten where you keep all of the things you hear that resonate with you, whether it comes from me or Austin or someone else out there that you know, like, and trust. I think it's so, so important because then I feel like it just builds this database of habits and thoughts and mindset to be able to help you know directionally where you're going in life and be able to take and reflect on these notes over and over again so you always have direction even during the hardest days.

24:42So for me, I'm going to use two instead of one because I think they're both super simple but very important and I live by them every single day. That is number one, never listen to people that are not going where you're going. This is so important. I've had my ex-wife's parents tell me what I should be doing financially even though they weren't anywhere near I was financially. I've had people that do not have the education that I have in finance and building businesses or have never owned a business trying to tell me how I should tell other people or myself how to build a business. So that is a very, very important one for me is always about never listen to people who are not going where you're going.