Q&A: Secular Growth Trends, Trading Options, & Rebalancing for Retirement

25:38But if it's below it, you lose everything. It's literally an all or nothing trade. And so that is very much why we say it is gambling. I could go buy Nvidia stock, just straight up buy some shares of Nvidia stock. But if it's below$150, it doesn't matter. I still have all these shares of Nvidia stock that are worth something. And so it's just very important to understand what you're getting yourself into. To the other side of the equation, you're probably listening and saying, what are you guys talking about? You just had Chris Camillo on the show a couple episodes ago. He's all about options trading.

26:06That's how he's built his$60 million portfolio is by making these big bets. Yes, Chris Camillo for the last 15 years has made some very risky, high risk, high reward bets with some of his money and he's broken out big with it. I would argue he's an anomaly. I cannot do what he does. Robert can't do what he does. And I'd argue 99.9 % of people can't do what he does. So if you are someone who, you know, is online and someone's like, hey, let me teach you how to make a million dollars options trading. I would argue that person is trying to maybe sell you something or scam you or do something. So just be careful.

26:39But if you genuinely are like super curious and you're like, yeah, like I want to start taking 50 bucks or 100 bucks a month and practice options trading with some of these, you know, smaller names or whatever. And it's something that you genuinely want to try and figure out how to do. Go for it. Learn. But just don't do it with long-term retirement money. Do it with money that you've already have that maybe you cut back on your going out money for every single month for the next three months. You've got$300 and you want to now go try and use that to make more or whatever and experiment with options trading.

27:12Do not use long-term investment money to go gamble with options. Not a good strategy. Yeah, I agree. It's one of those things, if you want to take a small portion, your high-risk bucket and learn options trading, go for it. But like I said, become an expert because it's not something you're going to be able to spend an hour here, an hour there and become really good at it. You're better off just investing in the companies, doing it for the long term, and you will make money over time rather than blowing up your account multiple times because that's what people end up doing when they're not serious and they're not experts in the field.

27:4687 % of day traders lose money in the first year. That includes options. So if you are someone who's going to try and do this, just know you are a statistic. If you are someone who's going to go do this, just know that statistic, right? There's a 9 in 10 chance that you're going to lose money on this. So just be careful. Don't use money you need for rent or investing or things like that to try and gamble in the stock market. Not a good idea. So our next question comes from Sadie N. Sadie says, hey, Robert and Austin, I'm a teacher and contribute to my teacher retirement, a 457B, and I max out my Roth IRA.

28:21I'm also an ISR swim instructor and I have an LLC on the side. My question is, should I open a solo 401k and stop funding my 457b and instead use that money to fund my solo 401k? My 457b options are very limited, and I like the idea of having more options, not just with the investments, but also with Roth and traditional and other things that I can do with this solo 401k. Thank you all for everything you do. I love listening to your podcast on my commute to work. Very cool to hear that, Sadie. We very much appreciate you listening to the show. Robert, you want to kick this one off? Sure. I love it.

28:57We have a saying here, Sadie, and you're spot on. Here's what I would do. Up to the match with the 457B. So you want to get that free money, go up to the match. Everything else is going to go into the Roth IRA till that is maxed out. And then we want to also look at any leftover money that you want to use. You want to make sure to turbocharge your investments by having something where you get an account on carry.com. And it is the easiest way that we know of to open that solo 401k. I think it's a great idea. I have one, Austin has one. And any time you can get that solo 401k supercharged, I think is a great way to accelerate your wealth towards retirement.

29:39But I think you're right on track, but just don't put the additional money over top the match in the 457B because generally you are gonna have limited options and it is going to underperform. That's why we want everything else in the solo 401k and the Roth component as well. Yeah, I totally agree, right? So up to the match on the 457b, max out the Roth IRA, ensure the Roth IRA is invested properly into the index funds and ETFs we talk about, and then go to carry.com and open up a Roth solo 401k. You can do a normal one if you want, but I think Roth is always the better variant if you're able to choose it, which means now all the money, all the growth that happens inside this solo 401k for the next 10, 15, 20, 25 years, whenever you retire, is going to grow tax-free.

30:25That's what I do. I have what's called a mega backdoor Roth solo 401k, which means I'm able to invest up to like 60-something thousand dollars a year toward it. It's got over a hundred something thousand dollars in this account. It is awesome. And it's all going to be tax-free when I am 59 and a half years old and ready to tap into it. So carry.com is the name of that. Not sponsored. We just love what they do over there. And the solo 401k is a great way for you to begin to turbocharge your retirement investing. I guess just the only thing I would encourage you to do is not forget about the bridge account.

30:56So the goal here again is to like, of course, make sure we have a lot of money in retirement in our 60s and 70s. But if we are on track to have a lot of money in retirement already, let's say you've got hundreds of thousands of dollars now invested at maybe your 30s or, you know, have well over a million invested in your 40s, maybe it's time to dial back the retirement account specific investing and start investing more specifically toward a bridge account on public.com. So just make sure you got the bridge account somewhere in your strategy along the way. Our next question comes from Justin P.

31:27Justin says, I'm trying to determine if I should pay off my rental property, which is a duplex, as fast as possible, or if I should put all of that money into the market instead. My interest rate is 5 % and I'll be keeping the rental property once it's paid off to earn rental income as extra cash flow? Really good question, Justin. Robert and I are always saying a phrase that is, make sure your money is working as hard for you as you work to earn it. And when we say that phrase, we mean make sure that your money is earning as much possible money for you because we all work really hard to take money home every single paycheck.

32:05And when we say that, we really encourage people to apply that as a don't let it just sit in a checking account. If it's going to be sitting in a savings account, make sure it's a high yield savings account. Don't pay off low interest debt with your money. If you can go invest it somewhere else to make more money with your money than just saving on that three, four, 5 % interest rate. So that's, you know, generally speaking, what we mean when we say that phrase, I would argue that phrase right now, Justin would apply to you, you have a 5 % interest rate on a duplex. And assuming the duplex is already cash flowing, and it's already appreciating and doing all the normal fun stuff that rental real estate supposed to do over a long period of time.

32:43Taking money essentially out of the markets, which is what you're doing in this situation, to then pay off a duplex to save 5 % interest maybe isn't the best move. I would argue that you could earn 7%, 10%, 12 % in the markets on an annualized basis over a long period of time, which is 5%, 7 % more than what you would save in simple interest on this mortgage. So my perspective is compounding in the markets, likely over a long period of time, is going to be a better move than taking all of this money to pay off a duplex. But you really just have to run the numbers, make sure it's cash flowing, make sure it's appreciating, all that fun stuff.

33:25I agree with Austin 100%, Justin. With a 5 % interest rate on your mortgage, I wouldn't pay a single penny extra in payments. Here's a quick illustration. The S &P 500, you hear us talk about VOO all the time, has returned over 90 % in the last five years. QQQ, over 90 % in the last five years. Bitcoin, over 900 % over the last five years. So we always talk about this, making your money work as hard for you as you work to get it, but it also comes down to having the positive arbitrage be in your favor. And right now, Now, if you're paying a 5 % interest on your mortgage and you can make 10, 20 % in the markets and sometimes higher with the Bitcoins of the world, why would you not want all that extra money going in your pocket versus paying down what is presumably a pretty low interest rate mortgage?

34:20That's my opinion. I always want my money working as hard as possible, never letting it sit. And you're in a great situation with this 5 % interest. I would not pay extra payments. I really think the best way to think about this, Robert, is let's say it's a$300 ,000 account and the$300 ,000 is invested correctly across the index funds and ETFs we talk about. It's got some diversification. It's got some high growth names in there. It's also got some cryptocurrency and whatever else you have in your$300 ,000 account. I would argue that$300 ,000 account year to date would be up 6, 7, 8, 9 % right now.

34:55Maybe it continues to go up even more beyond that. Would you sell all stocks in that$300 ,000 account to take$300 ,000 in cash to pay off this mortgage at 5 % to lock in a guaranteed 5 % per year for the rest of the time you own this mortgage? That's the question you're asking yourself. And the reason why, again, I don't think I would do it is because compound interest is much more important than simple interest. So on a mortgage of$300 ,000, a 5 % interest rate is about$15 ,000 a year in interest. Well, let's now go forward one year. Let's say, you know, of your mortgage payments, it brought down your principal that you owe now to$295 ,000.

35:34You now owe 5 % interest on$295 ,000, which is$14 ,750. So the amount of money of interest that you owe is going to go down every single year until you pay off this specific property. The flip side is happening when it's invested, right? So let's say I earn 10 % in the markets on this$300 ,000. That is$30 ,000. Now you're going to earn 10 % on the$330 ,000 invested. And then another 10 % on the$363 ,000 invested, right? So your money grows exponentially while your interest just goes down like a solid line. So it's just understanding compounding versus simple is such a life hack. It's crazy. It is one of the biggest life hacks.

36:17And I just love getting to dig into these questions and really answer and help people understand because so many people are trained to pay off debt as quick as possible. and it's just not good advice with low interest debt, which I believe 5 % is in that range of low interest debt, especially because for the past three years, the markets have been ripping with much higher returns. And that's why I just like to, you know, when in doubt, zoom out and look at it long-term. So before we get into our next question, listen up, folks. Time could be running out to lock in a 6 % or higher yield at public.com.

36:54You can lock in a 6 % or higher yield with a bond account, But remember, your yield isn't locked in until the time of purchase, so make sure you act fast. Lock in a 6 % or higher yield with a diversified portfolio of high-yield and investment-grade corporate bonds only at public.com forward slash rich habits. So our next question comes from Melissa on Instagram. Melissa says, hi, my name is Melissa, and I'm a 37-year-old single mom who currently lives with her parents. I'm trying to save money for a down payment on a house. I have$7 ,000 saved so far, and I've done this within the last five months.

37:29I have a pension, a 457B that I contribute 6 % of each paycheck to, and get a 4 % match on. I have$25 ,000 in debt via a personal loan, and I just started looking into investing into Bitcoin, and I also bought a small position in Boeing. I make$70 ,000 a year. Please tell me the reality of being able to purchase a home by the end of this year. I don't receive child support. What should I do? Anything helps me right now. Okay, Melissa, first and foremost, you got this. Take a deep breath. You are going to be just fine. 67-year-old Melissa is going to be sitting on a beach, drinking a margarita with a big, beautiful retirement account and awesome children.

38:07Like, you're going to be just fine. So I know things might be tough right now, but I'm telling you, if you make a couple small changes and stay consistent, you are going to be great. So a couple of things that I want to just call out here. First one,$70 ,000 a year is an awesome income. That's amazing. It seems like you're a teacher or something of that nature because you said you have a 457B and you're contributing 6 % of your paycheck and 4 % is matched. That's amazing. We're going to continue to do that. Let's make sure that we continue to invest into these retirement accounts and to log into the retirement account, review your investments, and make sure you are invested into whatever the aggressive allocation is.

38:47This is likely going to be mostly equities, S &P 500, large cap, mid cap, whatever, but make sure it's invested and it's not sitting in bonds. It's not sitting in cash. It's not sitting in these different low performing funds. We want to make sure our money is working hard for us because that's the only way we're going to retire. Right, Melissa? So we've got that figured out. We're going to continue to do that. You talked about how you have$7 ,000 saved right now and you want to go buy a home. I would argue that you should probably flip a switch as it relates to your goals. I love that you have this goal that you want to buy a home.

39:21I think everyone should own a home one day and you're definitely working toward that. And you've done a great job. $7 ,000 in five months is huge. However, buying a house right now has never been more expensive. Renting is statistically cheaper right now than owning a home. And if you are really dead set on having some sort of place to yourself, I would argue having a apartment or maybe renting someone's home is probably a better bet in the short term than going and putting down$80 ,000,$100 ,000, whatever 10, 15, 20 % is on a home to go then have another mortgage payment of 2 ,500 bucks a month.

39:58Like that's not feasible in our situation right here. So just switch your goals away from right now, just for a season of your life to I can't afford a home at the moment, not because I'm not making enough money or because I'm not good with money, but because homes are so expensive right now. So switch away from that to let's go figure out an apartment situation, a rental home situation of something like that, because it is the smarter move right now. And the last thing I want to call out is this$25 ,000 of personal loan debt. I'm assuming that's from maybe some credit cards, some medical bills, things of that nature that have maybe carried over.

40:30Our goal is to get that paid off quick. I'm assuming the interest rate is 12, 14, 15 % here on this personal loan debt because that's kind of what they're at right now. And that is very much considered high interest debt. I'd love for you, Melissa, to maybe have the$7 ,000 of savings sitting in a high yield savings account. Let's pause that for a second. That's a good little emergency fund for now. And then start focusing all extra money that you have, instead of using it to beef up this savings account, let's get rid of this$25 ,000 of high interest debt. Because at 15%, that's over$300 a month that you're paying just in interest, right?

41:07That is eating you alive. So let's make sure we get rid of this personal loan debt. Let's make sure now that we're out of that debt, let's call it a year from now, because you can do that in a year, maybe 18 months tops at this pace for sure. And now you're out of that debt. Now we're going to beef up the 7 ,000, perhaps to 20 ,000, 15, 20 ,000, have a good emergency fund, and then maybe save another five or 6 ,000 for a deposit on some sort of apartment or, you know, rental home or thing of that nature. And then you now start saying, okay, I'm gonna go build my base. I've got my emergency fund.

41:37I'm out of high interest debt. I'm ready to start investing aggressively. That's when you start doing some stock stuff and crypto stuff and things like that. I wouldn't worry about the crypto in the stock right now. It's not in the season you are. It's not the chapter of your life. You need to focus elsewhere, but you're going to be just fine. 40-year-old Melissa is going to be caking. She's going to be just fine. You're doing everything right. Just want to make a couple little tweaks here along the way. That's a great takeaway. And I'm going to add a couple more things. The 457B, I would just go up to the match because right now you're doing the 6 % when they're only matching 4%, I would take that additional 2 % and put it elsewhere.

42:12Like Austin said, you have to get this high interest personal loan debt taken care of. And then go back to the beginning of something we talk about every day. You have to build your base. We would love to see that base be$100 ,000 saved and invested. But let's say you're really, really bent and your mind is just stuck on buying a property so you can own a home. I would say get to$50 ,000 at the very minimum that is going to be invested for the future and not used towards this home. And then look at buying a duplex, a triplex, or a quadplex. Use the Fannie Mae 5 % down mortgage when you get to that point.

42:49But I agree with Austin 100%. You have to get everything else in order first because you're not there yet. I feel like right now having this high interest debt with the personal loan, only having the$7 ,000 saved up so far, You're going to put yourself in harm's way if you try to go buy a property right now because your base isn't built, you're not ready, and you're still paying on another personal loan. And remember, home purchases cost more and just take up way more money than you think because most people, when they're budgeting for a home, they think down payment, HOA, and closing costs. They forget about lawn care, pool care, air conditioners go out, dishwashers go out.

43:30what's the roof going to cost, all of these things that come into home ownership. So I wouldn't rush it. I would get everything dialed in and then come back to home ownership in two, three years from now, like Austin said, when you're ready to go. You also mentioned that you don't receive child support. I would learn more about that one. Try to figure out how to start doing that. If you have a child and the father is still alive and he's working and doing all those things like normal people do, but he's not in the child's life and isn't paying child support, that's super not fair. I do not like that.

44:01Go figure that one out. That is that very well could turn into another thousand or$2 ,000 a month to add to this equation. So I'm sorry that you're going through that. But Melissa, I want to give you some hope here. There's so much to look forward to. You've got a plan now and you just have to execute on this plan for the next three years and your life will be completely different. So our last question comes from Lucas C. Lucas says, I'm 24. I have a solid investing background and I've been a fan of the show for a while. Thank you so much for all you do. Recently, my parents, who are both in their mid-50s, have expressed concerns about their 401k performance.

44:32They've got$165 ,000 saved and they're contributing$600 per month, aiming to retire in about 15 years. Right now, nearly all of their money is in a 20-40 target date fund, which hasn't performed well at all. Since they have limited investment knowledge, I've offered to help them shift their portfolio into better options with more growth, ideally ETFs that track the S &P 500 or total market indices. While I'm personally comfortable taking on these types of risks, I want to find the right balance for them, maximizing returns without exposing them to unnecessary risk, especially given today's market conditions.

45:08Any advice that you all might have on building a better allocation for them would be greatly appreciated. Thanks in advance. Robert, you want to kick this one off? I do. And I really appreciate it that Lucas, you're looking out for your parents because I see so many portfolios every week of people that are just in a target date fund. They don't know what it's invested in. They don't know if they have other options and they just don't pay attention to what's in their 401k and what's happening. So I'm really glad early enough you caught this to be able to say, all right, we're going to draw a line in the sand and we're going to do something about it.

45:41Because at the end of the day, my problem with target date funds are They underperform simply the S &P 500 and the NASDAQ, but also the fees are high and it doesn't take into consideration anything that's happening in the market because the goal of a target date fund is to preserve your cash, not grow it. And that is why they generally underperform the open markets. So I love where your head's at and you're absolutely right. You need to see, are there other options to get their money working as hard for them as they work to get it? And of course there will be. Maybe you find a situation where they stop putting this extra money in the 401k.

46:20They put in just the minimum to get the free money and everything else goes into the funds we talk about. They could have a bridge account that would help them. And in that bridge account, take this additional money, the$600 a month that's over and above and put that into the VOOs, the QQQs, maybe the VUGs of the world, VTI. Some of these funds are really, really good funds and perform well. And then maybe they could have a small portion into some bond accounts. A BNDI might be great for them, a NEOs fund that we like. But then also you could put a small portion maybe into Bitcoin and get some of the nice growth that's there.

47:00Because at the end of the day, they have another 10, 15 years in their investing horizon before retirement. And we want to make sure we can capitalize on as much growth as possible. because I think the number one biggest mistake people have made for the past 30 or 40 years is thinking that a 401k is a retirement strategy. It is not. It is better than nothing because you're getting the free money from the match, but generally there are limited options and they underperform. So it really makes me happy, Lucas, that you're keeping an eye on it, helping them out and getting them the guidance they need to get better returns with better products.

47:39I couldn't have studied it better myself. My perspective is continue this$600 a month. And then to also remember though, like you mentioned 15 years, right? 15 years is a long time for whatever tariff tantrum or 2022 bear market or, you know, whatever volatility we're seeing in the markets, right? Volatility normally lasts 13 to 15 months. That's the average length of a bear market before we're back to trending in the right direction again. And so just know that like that's a year to a year and a half. So by having a mentality of like, oh, I'm going to go risk off 15 years before I retire. So I can maybe try and preserve my capital like that to me is just like a little too much, right?

48:22So here's the statistic. There's an 85 % chance that you can buy the S &P 500 on any given day, wait five years while reinvesting those dividends like we always tell you to do that you will be in the green at the end of that five-year period of time. You can literally just like throw a dart at a dartboard, pick any day in history, and that will be an 87 % chance. And so why I share that statistic is if you're someone right now who's worried about where the S &P is gonna be at in 15 years, statistically speaking, we're gonna be much higher in the markets in 15 years than we are today. So there's no reason, in my humble opinion, that someone should go completely risk off with these target date funds and this capital preservation at such a long period of time away from their retirement age.

49:07I think to Robert's point, right, we always talk about this portfolio strategy of 65 to 85 % of the portfolio invested into these index funds and ETFs we talk about. And then the other 15 to 35 % of the portfolio diversified across if it's some single stocks, some NEOs funds, some gold, some bonds, whatever you want to do from that perspective. So that's really where our heads are at. Let's really call it a 30-70 split between some diversification and these index funds and ETFs that we talk about. I think that's an awesome strategy. I think that's a great weighting. And by taking this episode's answer and showing it to your parents, hopefully Robert and myself will be able to explain to them why a 2040 target date fund might be a little too risk-off for their appetite at the moment.

49:50And for everyone else listening that doesn't have an awesome son like Lucas, make sure you understand in your 401k or any brokerage accounts where you're getting help, make sure you understand the fee structure. What are you actually invested in and what are the returns year over year? Because so many people just turn a blind eye to their funds and say, hey, I'm putting all this money in. I'm going to be great because they see a little bit of growth from time to time, but they don't truly understand it. And that's why it's so important to dig in, have the hard conversations, understand what you're doing with your money because you want to make sure you're optimizing growth over time for the long term.

50:33I hope this helps some of you because it's so important to understand what your money's doing, where it's going, and is it the best solution for you? Everyone, thank you so much for joining us on this week's episode of the Rich Habits Podcast Question and Answer Edition. A few reminders, we have a ton of free resources for you if you're curious on taking your wealth building journey to the next level. The first one is, of course, this podcast. We come out with new episodes every Monday and Thursday. The second one is the Rich Habits newsletter. We've got like 60-something thousand people who are subscribed to it now.

51:06New newsletter editions come out every single Thursday morning. There's going to be a link in the show notes below or just type in Rich Habits newsletter on Google and it'll be the first link. And then finally, don't forget about the Rich Habits Network. This is a community for our biggest fans to interact with us every single week. We host two-hour weekly live streams. We've got eight hours of video coursework. And we're always in the DMs getting back to your questions. So be sure to sign up for a seven-day free trial. No strings attached. No questions asked if you leave. It's all good on the Rich Habits Network using the link in the show notes below.

51:39Thank you all for joining us every week and giving us all those five-star reviews. It helps us grow. It doesn't cost you a dime. And we appreciate each and every one of you that supports the rich habits network and the rich habits podcast. Thanks. Rinse takes your laundry and hand delivers it to your door expertly cleaned and folded. So you could take the time once spent folding and sorting and waiting to finally pursue a whole new version of you like tea time. You or this tea time. You or even this tea time. You said you hear about Dave or even tea time, tea time, tea time. You. Mmm. So update on Dave.

52:18It's up to you. We'll take the laundry. Rinse. It's time to be great. Lemo, Lemo! And Doug. Here we have the Lemo, Lemo in its natural habitat, helping people customize their car insurance and save hundreds with Liberty Mutual. Fascinating. It's accompanied by his natural ally, Doug. Uh, Lemo, is that guy with the binoculars watching us? Cut the camera. They see us. Only pay for what you need at LibertyMutual.com. Liberty, Liberty, Liberty, Liberty. Savings vary underwritten by Liberty Mutual Insurance Company and affiliates excludes Massachusetts. Everyone, and have a great rest of your week.