Q&A: Side Hustle for Students, Too Many Stocks, & a $330K Inheritance

0:28The Burlington Coat Event is back. Oh, Hilton, stay. Your beds are soft and cozy. No lumpy couch, no stiff futon. No shower line at crack of dawn. Oh, Hilton, stay. Oh, Hilton, stay. When you want holiday comfort you can count on, it matters where you stay. Enjoy comfortable rooms and friendly service when you stay with Hilton instead. Save up to 25 % this season when you book with Hilton. Hilton for the stay. Terms apply. Hey everyone, and welcome back to the Rich Habits Podcast, question and answer edition. As you guys know, these are our Thursday morning episodes. In these episodes, Robert and I answer your questions as if we were in your shoes.

1:10You can send us questions on Instagram at richhabitspodcast or email us questions at richhabitspodcast at gmail.com. Or if you're part of the Rich Habits Network, not only do you always get your questions answered, but you get to join us every Tuesday evening for a live stream. Robert, I'm excited about this episode. We've got a ton of really good questions. We're talking about stocks. We're talking about a big inheritance, investing for nieces and nephews, even one of your favorite topics, permanent life insurance. So this will be one of those fun episodes. Yeah, I'm definitely excited. We are just getting so many great questions each and every day throughout all of our social channels.

1:45And that's why this episode is so important because we just do it live right off the dome and really try to help people, like you said, as if we're in their shoes. because personal finance is personal and everyone's situation is different. So I'm excited to dig in. Well, before we dig in, let's take a moment to hear from this episode's sponsor, Public.com. Because if you're as serious about investing as we think you are, you need to know about Public.com. On Public, you can invest in everything. Stocks, options, bonds, and cryptocurrency. They even offer some of the highest yields in the industry, like their bond account that pays a 6 % or higher yield and remains locked even if the Fed continues to cut interest rates.

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3:02That's public.com front slash rich habits paid for by public investing. Full disclosure in the podcast description. All right, Robert, this first question comes from James D. It's a very common question and I'm excited to answer it. James says, hi, Robert Nostin and the rest of the Rich Habits Network. I want to say thank you for all the videos and podcasts you put up. I've been listening for a few months now and I've really enjoyed them. Now, I've been doing some research on investing and I'm trying to figure out how many different stocks in my portfolio is too many. I want a dollar cost average into a lot of blue chip single stocks, but I feel like with the amount of money I'm investing every month, I'm not really investing that much into anything.

3:43What are your thoughts? Robert, you want to kick this one off? I would love to because this one should literally be in the frequently asked questions on the Rich Habits podcast website because so many people just have no clue. They either had a broker that had them in 45 different stocks or they had an uncle that told them they should be day trading or swing trading. and people just don't know. In my opinion, and what I do, is I think for the average person, until you get much further along and much more enhanced in your understanding of single stocks and well-versed, I think 10 to 20 is a great sweet spot because you don't wanna have so many that you can't let your winners win because you have$200 in 20 stocks and four of them really perform well, but you're not taking advantage of this.

4:32Austin and I talk about it all the time that you have to let your winners win. And so you want to really be able to catch the fire when you have a really good stock like Navidia's Ben or Palantir on running or some of these. So in my opinion, if you're at your beginning stages of purchasing individual stocks or even the middle stages, I think 10 to 20 stocks is a great sweet spot. I'm right there with you, Robert. I think in the beginning, a lot of people make the mistake, including myself, of saying, whoa, shiny ball syndrome, that stock went up a bunch, I want it. Oh, someone said this stock's going to go up a bunch too, I'm going to buy that.

5:07Oh, these guys talked about it on Twitter, this person told me to buy this one, right? And you quickly realize, if you've got 50, 75, 100 stocks in your portfolio, not only is that overwhelming, but nine times out of 10, you're not even keeping up with the performance of the S &P 500. So I want to just remind everyone the only reason you should own any single stock in your portfolio is because you believe the performance of that stock over the next 1, 3, 5, 10 years will be better than the S &P 500 or whatever benchmark index you want to, you know, index it against. So we like to say, okay, why do I own Amazon stock?

5:46Well, I own it because I think Amazon's going to outperform the markets over the next 1, 3, 5, 10 years. And so if you're thinking about building a portfolio from scratch, I totally hear where you're coming from. It kind of feels weird to like, you know, I'm buying 20 bucks of this stock and$14 of this one and whatever, because you want to make sure your weightings aren't weird. A strategy that I've used in the past is I say, okay, great. I've got all this money invested into index funds and ETFs. I feel good about that. It's time to diversify. And one at a time, I'm now going to start dollar cost averaging into a specific company until the weighting of that single stock hits my target.

6:21And so that target for me, again, Robert, I don't want any of these names to make up more than 3 % of my portfolio. Because if you've got 10, 20, 30, 40 % of your portfolio in a single stock, what happens when the stock goes down 20, 30 % because they had a bad earnings? Your portfolio crashes. And we don't want to do any of that. So I have a target, call it 1%, 2%, 3 % of my portfolio. I will allocate new capital to that every single week or month until I hit that target. And then I'm on to the next one. So James, really great question. And we hope this helps. Yeah. And I want to add one more piece to this.

6:54I really like where you're at on this strategy. And that is getting people to understand also, if you do own a lot of stocks, you have to always maintain and understand your opportunity cost when you're letting the losers lose. because so many people, I'll look at their portfolios and they will have six, eight, 10, 12 stocks that have been losing for a year, two or three years, but they never get rid of them. And they always think, well, it's gonna come back because Bill or Larry said it's gonna come back. Well, guess what? That is not an investment strategy. When you have a loser and maybe your thesis has changed on that loser, get rid of it, tax loss, harvest the losses and use that money elsewhere because you have to make sure your money is always working as hard for you as you work to get it.

7:39So keep that in mind as well as a caveat that you don't want to just let the losers sit because you hope they're going to come back. That is not a good investment strategy. I love that feedback, Robert. Our next question comes from Nicholas G. Nicholas says, Hey, Robert and Austin, just wanted to say, I am super grateful for you too and all you've taught me over the last few years since I found your podcast. My name's Nick. I'm 27 years old and I'm married. I just barely passed the six figure mark at my day job. Plus, I've got a side hustle that generates$600 a month, and I help my wife with her cleaning business that generates another$1 ,200 a month after taxes.

8:12I currently have$65 ,000 invested into index funds in my retirement accounts and a small amount in cryptocurrency as well as some real estate. We have$250 ,000 of equity across three rental properties and our primary residence that we've built up by house hacking. All the rental properties are break-even, but they appreciate very well because we live in a state with a very strong economy. I love real estate and would love to invest full-time once I build up my portfolio focusing on carbon-neutral investing. My question for you is this. As personal finance experts and entrepreneurs, should I still be fairly conservative by investing in index funds and crypto, or instead of going all-in on those and letting my rental properties kind of just do their thing, should I flip the script and go all-in on acquiring more rental properties and diversifying more into real estate until I've built up a wonderful portfolio.

9:02I'm pretty close to my investment base of$100 ,000 like you recommend, but pulled money out for our last down payment, and I'm just wondering what you think that I should be doing with all this real estate. Robert, I'll let you kick this one off. Yeah, I love this question from Nicholas, and I think you've already answered the question. I think you need to build up your base further because you're not really well diversified. I think you're absolutely, you guys are crushing it obviously at 27 years old, but I would do both. I would maybe pause the investing in the real estate right now or slow it down.

9:32At least I would invest more to get your base built up. You've got the 60, I think it was$65 ,000 right now. I'd maybe get that to 200 ,000, 250 ,000, then reinvigorate and buy more real estate. But I definitely like to see diversification. I've been around long enough to see many, many ups and downs in the real estate market, whereas even Austin or yourself have not. And so I would hate to be so fully immersed in real estate that if there were a big correction, and let's say housing prices came down 15 or 20%, that a lot of your equity gets eaten up there. But also you have to look at it that that equity is dead money essentially right now until you sell the property.

10:15Now you pointed out that you had great capital appreciation, which is really, really awesome, but you're not very liquid. And so I'd like to see you build up your base further, get to$200 ,000,$250 ,000. If you find a real estate project in the meantime, great, go for it. But what I don't want to see you do is continually save and spend, save and spend, because you're never going to get that liquid base built up to give you the diversity that I think you need. I'm right there with you, Robert. I think a mistake people make, and I see this a lot with people who are really excited to pay off their home, right?

10:48They go, okay, I've got a couple hundred thousand invested in the markets, but I spent the last nine years paying off my$700 ,000 mortgage. So now I've got way more money in real estate than I do invested as it relates to my net worth. So let's say you have a million dollar net worth. You have$700 ,000 of equity in your home and$300 ,000 invested in retirement accounts and no debt. Well, congrats, you have no debt, which is cool. But on the same token, you are way over indexed to real estate. And I'm not saying Nicholas is in a bad spot by any stretch of the imagination. You're doing wonderful for 27 years old to have all this money invested, all these properties, all this like you're crushing it.

11:26But I agree to what Robert's saying in the sense that you've already got such a head start on the real estate side of the equation that it's time to begin to catch up a little bit on the investing. So I'd love to see just as much as you have invested in real estate, this$250 ,000, invested in index funds. Right? So you're at 65 right now. what is the plan to go from 65 to 250 so you're 50 50 split asset wise 50 real estate 50 stocks over the next let's call it three to five years and then really begin to say okay great i've got my base built i've got my index funds i've got my dividend etfs and my single stocks and my crypto and my emergency all this fun stuff and i've got some cool real estate i would hope the next logical step is to say okay how do i now either one make the real estate i own at the moment start cash flowing?

12:13Because I think that's very important. Or two, how do I now focus more on cash flow real estate? Because to Robert's point, this$250 ,000 of equity is dead money. I mean, yeah, it's growing. Don't get me wrong. It's wonderful. But you don't see it unless you sell the house. And that's a whole other four, six, sometimes nine-month process, depending on what markets you're in. Yeah, I love that takeaway, Austin. And one more little quick story for Nicholas G's question. And And that is, I remember vividly back in 2009, 10 and 11 when the housing market really crashed. And I'm not saying that could happen again, but I'm just telling you a story.

12:48And that is, I had so many wealthy friends that as soon as that happened, they had to sell the Bentleys, sell the mansions, sell the boats. And then all of a sudden they were starting from zero again because all of that equity and all of that wealth that they thought they built through real estate evaporated. That's why we love to speak diversity. A lot of people call me out online and say, oh, you should go all in on one thing. And those people don't know what they're talking about. Because I will tell you some of the most successful people I knew back then in 2009, 10, 11, 12 got wiped out and it took them a decade to recover.

13:23It happens all the time when you lack diversity. So everyone listening, everyone watching, please stay diversified. it is ultimately important to make sure you can sleep well at night and one sector having a correction cannot wipe you out. So our next question comes from Patrick O. Patrick says, Hey Austin and Robert, I'm a huge fan of the show. Thank you so much for putting out all this helpful information. I didn't start learning about personal finance until I was in my mid-20s, specifically the power of compound interest. I don't have kids at the moment and I'm not sure I want to in the future.

13:54So my nieces and nephews are my focus. Ideally, when they are ready and mature enough, I'll have contributed for over a decade to some sort of brokerage account on their behalf. Austin, I believe you once referenced saving money for your own nieces and nephews. Do you find the UTMA account to be the best option or do you prefer the 529 account? I appreciate any insight. Thank you so much. Patrick, this is a great question. So let's break down the differences real quick between the 529 account and the UTMA account. So the 529 account, just so we're on the same page is an investment account. And by the way, we talked about this on Monday's episode.

14:30It's an investment account that parents and other people that have children or nieces and nephews can put money into, invest the money, and use those profits tax-free to pay for education-specific type expenses. So think college tuition, think trade schools, think room and board, things like that, right? Education-related expenses. So let's say you put in$50 ,000 over the next decade, it grows to$100 ,000. You have$50 ,000 of profits now in this$100 ,000 account. You can spend those $50 ,000 of profits completely tax-free on education-related expenses. That's the 529 account. Now what makes the 529 account cool, in my opinion, is once that kid turns 18, you can roll over up to$35 ,000 out of that account directly to the child's Roth IRA.

15:21So give them a really big jumpstart there on their retirement investing. Now, how I understand it on the contrary is a UTMA account is also an investment account, but it's essentially like an account where you can contribute money toward it. You've got the profits. It's all the fun stuff, but the child can't touch it until they're a specific age. Think like 18 or 21 years old or something like that. Now the flexibility that comes with the UTMA account is that whatever profits are generated in this account, you pay some taxes on it and you can spend the money on anything you'd like. So on one side of the equation, it's education specific.

15:53On the other side, it's I want to go buy a new iPhone. And in your question, you mentioned how you have a little bit of concern about them using this money and spending it frivolously. So if I were you, I would do the 529 account. Again, it is something you have full control over, full autonomy to be spent on education-related expenses. I think it's a wonderful gift to set your nieces, nephews, children, people you care for up for success in life by saying, hey, don't worry about student loans. Hey, don't worry about that trade school. Don't worry about these education expenses. I will cover that for you.

16:25I'll set you up on a really great, you know, take the right step forward with your own finances. And don't forget about that$35 ,000 rollover to the Roth IRA as well. Yeah, I love this. And I just want to put some clarity out there for this question. And it's a great question. And that is you have no clue at a much younger age, what this child, niece, nephew, whatever it is, how they're going to turn out at 18 or 21 years old. So you have to understand the cons of a UTMA. And that is they have full autonomy to do whatever they want with the money at 18 or 21 years old, whichever time you have it set up for them to take over the account.

17:04And so if your goal is to set them up to have a paid for education, then you have to do the 529 account. If your goal is to try and trust the system and you want to do the UTMA account, there's more flexibility. There are some benefits to the UTMA account, but I personally would not do it unless you're just trying to set them up and give them an opportunity to have money when they turn 18 or 21. But the 529 is the clear leader if you want to see them get a good education and you feel that is the best step forward for them. And because of the SECURE Act 2.0, you now can roll over these funds, if not used for education, into a Roth IRA.

17:47And I really love that because then you're setting them up truly for their future and their retirement. 100%, right? Because if it's in a UTMA account and they say, I want to go on an exotic vacation and spend$15 ,000, that's their prerogative. Where if you've got it in a 529 account, you can make sure that you're paying for their education and setting them up for retirement with this Roth IRA where they can't touch it until they're 59 and a half years old, right? So it's what I prefer. It's what I'm doing. And I think it's the best way to set up the future generation for success with money. I agree 100%.

18:21All right. Let's jump into our next question from Oliver. Oliver says, Hi Austin and Robert. I love the podcast and how it approaches building wealth from multiple facets. Huge fan of the show. My wife and I make a combined$270 ,000 from our W-2 jobs. I'm 32 and she's 31. She is still in residency to be a doctor after having taken some years in industry prior to medical school, so we expect our combined income to grow by about$150 ,000 after the next few years when she wraps that up. We have about$630 ,000 in investments across several retirement accounts, our bridge account, and crypto. We have$30 ,000 in a high-yield savings account as an emergency fund.

18:57She has$75 ,000 in medical school debt remaining at around 5.5%, but it is still in forbearance until October of this year. No other debts. We're expecting to inherit$330 ,000 in the coming months. We would eventually like to purchase a house, but probably not for the next few years since we will likely move after she finishes her residency. We do not plan on having kids. We are hoping to plan for an early but comfortable retirement sometime in our late 50s, which already seems possible given our current situation. My question is, how should we approach scaling this inheritance into our investments to optimize our growth potential?

19:31I am planning to top up our emergency fund and then use this inheritance to offset W-2 deductions in order to max out both our 401ks and backdoor Roth IRAs, as well as make some payments against the student loan debt once that starts back up. But this still leaves a large amount of money that I will probably just park in a high yield savings account until I figure out what to do with it. Should we invest all of it via our bridge account and one lump sum, scale in over time, or maybe even hold back to be able to rinse and repeat in multiple years, maxing out our 401ks to optimize for tax advantage accounts?

20:04Oh my goodness, Robert. First off, Oliver is a genius. Shout out to Oliver and his incredible wife. Incredible. Geez, I wish more people would really take the time to continually learn and take action to get to this situation at 32 years old. Bravo. This is amazing. I love these kind of questions. I do, too. Well, I want to start this question with empathy. You're getting$330 ,000 because someone passed away that you love. So I'm sorry to hear about that. And I pray for your peace and comfort over time. So the first thing I think I'd want to do is to clean up this medical school debt. She's got$75 ,000 left, which at this 5.5 % interest rate is about$1 ,000 a month that they're paying on this payment once the forbearance kind of gets itself figured out in October.

20:53So you're talking about$12 ,000 a year, which could then be used for that early retirement you're talking about. So if you want to retire early, I think getting rid of those pesky monthly payments, especially at this call it five and a half percent interest rate. It's not so high where it's alarming, but it's also not, you know, two, three, four percent. It's right there in the sweet spot where it's I don't want to keep this around that much longer. So that's probably the first thing I would do is clean up the medical school debt. Robert, what do you think they should do, especially when it relates to maybe buying some real estate or diversifying?

21:25They've got a wonderful investment account,$630 ,000 across a lot of different accounts here, which is great. Do you have any tips for them to diversify? Yeah, I love it. This is a great situation. And I definitely think with the lump sum, I would not let it sit in high-yield savings. You need your emergency fund and that's it. I would get the rest of it invested, but I don't think I would just dump it all in the market in one day. I'd probably break it over six months and do a chunk every month so you can really get some dollar cost averaging in. Because right now with the markets being a little choppy, we don't know what's going to happen in the coming weeks and months.

21:59It's always best to dollar cost average because no one can truly time the market successfully. And I would consider and make sure you check with your tax attorney or your accountant. I would consider looking at investing in some real estate too to get some of these write-offs. And so there's a lot you can do with this, but diversification is key here. Don't let the money sit in high-yield savings. We're very, very happy and impressed that you at least have it in high-yield savings because so many people let it sit in a regular checking or savings account making no money. So that's fantastic. But then I would also dollar cost average over time, maybe three, six, nine months.

22:35And I also want to address, you know, they want to retire early sometime in their late 50s, which is good because at 59 and a half, you'll be able to touch your retirement money penalty free. But if you did want to begin to retire into those late 40s, early 50s, we're talking about 10 years or so where you can't touch these retirement accounts without some rigid plans and penalties and very, you know, hard to work around situations. So beefing up that bridge account, Oliver, like you mentioned, right, investing this delta between the medical school debt and the inheritance via a bridge account and some retirement accounts, but majority bridge account will give you the flexibility to what Robert said, have that scale in overtime, six month sort of time horizon there, while also not having to pay penalties and fees when you wanna cash out that money.

23:25Maybe you wanna cash it out for that forever home you wanna build in your 40s, or maybe you wanna cash it out for some early retirement, but regardless of the reason, it's gonna be there penalty and fee free. Yeah, I love it. And it really speaks to one of the episodes we did about net worth millionaires. So many people, because they do not ever initiate a bridge account, put themselves in a difficult situation because they have all this equity in a home and then they have all these funds in a 401k, but they don't have access to this money until 59 and a half. That is why we always wanna make sure you have that bridge account.

23:57So you have all of your money working for you, but you also have autonomy over that money and can get to it anytime you need. Congratulations on what you've built, Oliver. you guys are going to be multi multi millionaires in retirement. All right, Robert, our next question comes from Kevin and this is all for you. Hi, Robert and Austin, big fan of the show. I'm married and I have a three month old. So I'm looking to buy some life insurance. I was planning on buying term life insurance, but I heard a presentation from a financial planner about permanent life insurance. And it has me thinking that it could be a really good idea.

24:30A bit of my financial background is I work in the medical field and I take home about half a million a year. My 401k is fully funded by my employer, and my IRA and HSA accounts are maxed out. I have$500 ,000 in my bridge account. I also have a home mortgage of$630 ,000 and another$50 ,000 in student loans. The way it was presented to me is that permanent life insurance has the same tax benefits as a Roth IRA, except with no contribution limit, and I can withdraw it at any time. So if I have the extra disposable income, does it make sense to invest in a permanent life insurance plan? What What are the downsides to such a plan?

25:06Should I just stick with term life instead? Robert, do you want to kick this one off? Oh, yes. I love this. Let's not be mean to Kevin. Kevin is, I'm sure, just curious. He doesn't know better. We're not going to be mean, but Kevin and everyone else that gets pitched permanent life insurance, IULs, be careful. Because let me explain the most important factor of all of this. And that is, if you invest in VOO in the S &P 500 for 10 years, the investment grows, it compounds, you're making money, you're growing your wealth, and you stop investing in VOO in the S &P 500, guess what? The money keeps growing.