Q&A: Stock Market All Time Highs, Roth vs. Traditional, and Arbitrage

0:00This is a real good story about Bronx and his dad Ryan, Real United Airlines customers. We were returning home and one of the flight attendants asked Bronx if he wanted to see the flight deck and meet Captain Andrew. I got to sit in the driver's seat. I grew up in an aviation family and seeing Bronx kind of reminded me of myself when I was that age. That's Andrew, a real United pilot. These small interactions can shape a kid's future. It felt like I was the captain. Allowing my son to see the flight deck will stick with us forever. That's how good leads the way. Hablas Español. Spreys to Deutsch.

0:32Condénosque. If you used Babbel, you would. Babbel's conversation-based techniques teaches you useful words and phrases to get you speaking quickly about the things you actually talk about in the real world. With lessons handcrafted by over 200 language experts and voiced by real native speakers, Babbel is like having a private tutor in your pocket. Start speaking with Babbel today. Get up to 55 % off your Babbel subscription right now at babbel.com slash Spotify, spelled B-A-B-B-E-L dot com slash Spotify. Rules and restrictions may apply. Hey everyone, how's it going? And welcome back to the Rich Habits Podcast, a top 10 business podcast on Spotify.

1:06Happy Thursday. Now, before we jump in to the questions, we have some very, very exciting news to share. Public.com, the all-in-one investing platform, is now, as of January 23rd, the cheapest way anyone in the world can trade options, point blank period. That's because they're doing something no other investing platform has done ever before. They're sharing 50 % of their options trading revenue directly with you, the customer, the investor, the Rich Habits podcast listener. Whenever you trade options on public, you will get something back, minimizing your transaction costs. By them sharing 50 % of their options revenue means you all will know exactly how much they make from your options trades because they're literally giving you half.

1:54You, the listeners, that's right. Everyone here that follows along on Rich Habits. Public believes transparency is incredibly important, not just so you understand their incentives of what things cost, but also so they bring more transparency to the markets overall. So go to public.com and activate options trading before March 31st to lock in your lifetime rebate. Public, the cheapest way to trade options. If you have not yet tried learning how to trade options, how to use them to generate income, Robert, we've got a little announcement to make regarding this. A lot of people have been asking about this.

2:30Yes, we finally, finally, finally, I know. Don't come for us. We've been so busy. And we opened our mouths in Q4 of 2023, talking about putting out this webinar. And it's finally going to happen. Austin, what time and what is the date of the webinar? Because I am so excited to promote this. Everyone has been coming for us saying, when are you doing it? When are you doing it? So tell the audience the time and the date. That's right. We will be hosting the long-awaited covered call webinar, live stream, however you want to call it here. We're going to be live streaming how we do covered calls the Rich Habits way.

3:06How I've been able to generate$4 ,050 in passive income on my covered calls completely passively and easily on Tesla stock over the last four months or so. That's going to happen February 7 at 4 p.m. Eastern Time. It's going to be live. You're going to ask us questions. We're going to answer your questions. We're going to bring in the Wall Street experts to also answer your questions. Robert has a special guest he's bringing as well, right? This is going to be collaborative. This is going to be an environment for people to learn, to practice. We're going to share with you different ideas, different automations to use.

3:38It's going to be a blast. So please, there's a link in our description below where you can click and save a spot. We only have so many spots available. Literally, there's only a thousand. So if you guys don't make it the first thousand, you're not going to make it. So click the link in the description below. It's going to be right there. Click save my spot, email address, first name, last name, and show up when it's live stream time. And we'll see you there. And did I mention or did Austin mention it's free? We have gathered our big brains along with some really good guests. And we are going to knock this out of the park.

4:11It's going to be such an informative webinar that all of you will finally understand these covered call strategies that we talk about broken down bit by bit, just like we always do here, Rich Habits. so everyone can learn yet another strategy to help them in their wealth building journey. I can't wait for this webinar, and hopefully you all will join. Remember, there are limited seats. So let's get into this episode. We have a lot of great questions. So our first question comes from Daniel W. Daniel says, I'm trying to start my Roth IRA. However, I've reached out to two separate brokerages, Charles Schwab and Vanguard.

4:47and unfortunately, I can't invest into fractional shares of ETFs through their platforms. Vanguard will only allow me to fractionally invest into their own ETFs, which is great for VOO, but nothing else. Do you know of any other platforms that allow for Roth IRA investing in fractional shares of all ETFs that exist? Robert, I'll kick this one off. I use M1 Finance for my Roth IRA, and I do that for two reasons. The first reason, Daniel, is you already called it out. They have fractional investing for any stocks, any ETFs. I can find them all on there. It's very simple. M1 Finance is the name of that.

5:23And so one, fractional investing. Two, they allow me to create something called a pie with slices inside of it. Now the pie is the strategy. And so for me, the strategy is the Roth IRA. Now the slices are the specific ETFs and the weightings of those ETFs that I want inside of that strategy. So for me, I've got like 80 or 90 % of my Roth IRA into the VOO, SPY, IVV, just these big index funds that track the S &P 500. And the other 10 or 20 % of my Roth IRA is across other ideas. If that's a smaller index fund or maybe even a Bitcoin ETF, whatever I really feel like doing, but I have the vast majority of that and the flexibility to choose that with M1 Finance.

6:05Robert, do you have any feedback? No, I think it's a great strategy. It's a great question. And it's really just all about understanding your options. Not everyone does fractional, you know, some places have higher fees, you just really have to pick what works for you. And M1 finance is a great place for this particular strategy. And just always remember that investing in these types of strategies is not a one size fits all structure. So do what works for you, research what works for you based on your age, your risk tolerance, and what your goals are, and the rest will take care of itself because there's many platforms that you can do these types of strategies with.

6:41And it's just all about you charting out your own course because investing is never one size fits all. And just as a reminder, we're actually picking all of this week's questions from our email address, richhabitspodcast at gmail.com. We have countless emails we still need to get back to. We've received three or four a day from you all and they're very in-depth, so stay tuned on that. But if you do have a question to ask us, you can always send us a DM on Instagram at richhabitspodcast. You can email us richhabitspodcast at gmail.com or you can drop a comment on the post that Robert and I share every week on the public app.

7:15Just find Austin Hankwitz or Robert Croak on public. We post about, hey, y 'all have questions, let us know. All of last week's questions came from the public app, so it's another place we'll be harvesting our questions for these episodes. Now, our next question comes from Natasha C. Natasha says, hey guys, I love the podcast and I've been listening to it every week now for a very long time. I have a question though. I'm not sure if I should do a Roth or a traditional 401k. I was thinking of doing a traditional 401k up to my 3 % match and then doing a backdoor Roth IRA for both me and my husband.

7:47Let me know what you think. Okay, so Natasha, you just said two different things. So as a reminder here, the 401k is with your employer. The IRA is through your individual, right? Your social security number, the individual retirement account. They are independent of one another. They're two separate accounts and you can do both of them at the same time. Now, your original question was, I'm not sure if I should do a Roth or traditional 401k. That means that, you know, there's a traditional 401k and a Roth 401k. I had a Roth 401k with my employer because I wanted after-tax dollars to be growing for me.

8:20So whenever it was retirement time, I could take the after-tax dollars out tax-free and spend it however I wanted to. However, a lot of people don't have that luxury. Only so many employers offer Roth 401ks. The vast majority of employers offer the traditional 401k. Now, Robert, we have a saying. We've been saying this for a while now. Match beats Roth beats traditional. Let's walk through that now with Natasha. The match from the employer, Roth 401k or traditional 401k does not matter. The match is always a match. You want that free money. Now, if you're really trying to figure out Roth 401k to traditional 401k and you have that opportunity to pick between the two of them, just pick the Roth because you have tax-free money now in retirement, I think that's a better idea because you know exactly what you're paying in taxes now.

9:04It's hard to predict what future taxes are going to look like. So I always pick the Roth. 3 % match there. Next is the Roth IRA. We want to make sure we're maxing that out every single year at$7 ,000. And then finally, the traditional brokerage account, public.com. If you have money left over, assuming you've got the match, you maxed out the Roth and you still have this money left over, go head over to public.com, buy some music royalties, buy some index funds, buy some crypto, buy some single stock, cybersecurity, AI. We talk about this stuff all the time. That's how Robert and I have the playbook written.

9:32That has worked for us. And that's what we think you should do as well. Yeah, I guess the best takeaway for this question, and so many people get it wrong or they're confused, is why not pay your taxes now? Get it out of the way. Have that tax-free growth for life rather than kicking the can down the road because you feel like you're saving more now and having more to invest. Take the unknown out of the equation by doing the Roth and taking the taxes now. Pay them, get them over with, have that tax free growth because you never know what's going to happen to your tax structure and what that amount's going to be down the road.

10:07That's why we're always telling you to take the tax hit now, get it over with, get that Roth maxed out, and then explore these other structures to be able to get max earnings on your investment money. That's our opinion. And I think that's the best strategy you can have. So this is actually really interesting you say that, Robert. The top income tax rate reached above 90 % from 1944 to 1963, having peaked in 1944 when top taxpayers paid an income rate of 94 % in 1944, right? It is bonkers. That was way long ago. Who knows if history is going to repeat itself. But like, I don't want to get a 94 % tax rate.

10:46I know what I have now. And I know what that looks like in the future. Once I pay that, I want to control my controllables and predict as much as I can. Yep, I love it. Great way to come back on that. And you heard it here, people, please take notes, take action and follow along and the rest will take care of itself. So our next question comes from Cheryl G. Cheryl says, thanks for considering my question. You all recommend SPYI, which has an expense ratio of 0.68%, which is considerably more expensive than other securities you talk about. Can you please explain your rationale as to why SPYI is being recommended, even though the fees are so expensive?

11:21Good question, Cheryl, and let me explain this to you as simply as I can. SPYI is a covered call ETF. Their whole focus is to make sure that they can best track the total performance of the S &P 500. However, they're not alone in doing that. There's also two other very popular ETFs that have a very, I mean, I'd say identical investment objective, XYLD and JEPI. XYLD has a lower expense ratio and so does JEPI. However, XYLD, they don't do the same strategies regarding the covered calls. They write at the money versus out of the money. And long story short, they underperformed drastically. SPYI outperformed XYLD by 8 % in 2023.

12:06And they outperformed JEPI by 12 % in 2023. So are you paying a little bit more for this ETF? Sure. I mean, you're paying 0.68%. But are you seeing the drastic outperformance against their competitors that more than offsets the incremental payment that you are paying? Yes, right? That's what you're paying for. And that's what they do so very well. So I love SPYI. I think they're triple win, win, win in my book. One, they actually track the S &P. They do it very well. Two, they use section 1256 contracts, which are very tax efficient. And three, they write their covered calls and pay them out in a way where their distribution yield is paid monthly, 12 % annually.

12:47It is unbelievably incredible. So really good question, Cheryl. Yeah. And the key takeaway for me on this question and great way to cover it, Austin is this. We spend more hours than you can imagine a week, Austin and I and our team, flushing out every single thing that we talk about. We don't shill anything. We don't talk about anything that we don't invest in ourselves. So we are always going to find the best of the best of how to optimize your portfolios and ours. And so of course, we're always taking into consideration the expense ratio of that item. Is it worth it? You know, SPYI in particular, yes, it's a little bit higher than other ones, but it's actively managed.

13:30It's outperforming. There's just so many reasons that make it better. So we're never going to shill you and we're never going to give you something that we would look at as a call out in our education process that we haven't fully flushed out the reasons why. So you always have to keep that in consideration that We are putting all of our efforts forth to make sure we flush out the best opportunities that are out there in the markets, no matter what category or sector it's in. I couldn't have said it any better, Robert. Our next question comes from Julith G. Julith says, I love your podcast and I've been learning a lot from you too.

14:05I have a question though, regarding some extra money I have sitting in a high yield savings account waiting to be invested. Should I wait until VOO is down a little bit before I start investing? I just feel like new all-time highs isn't a great time to start investing. Robert, do you want to take this one first? I mean, this is an easy one. No, no, no. No, you should never wait. All jokes aside, you should never wait and try to time the market. I had a gentleman jump on my live last night and said, well, I can time the market. And I was like, good for you, buddy. If you think you can successfully time the market, then that is just kudos to you.

14:43But the bottom line is this. In almost all situations, dollar cost averaging is the key to the win and how you should look at your investment strategies. You should never be sitting on the sideline with your money in some savings account making 0.0001 % when you could be dollar cost averaging into the VOOs of the world and optimizing your wealth building strategies. We did a bit on an episode in the middle of 2023 where we talked about, and Austin might have the numbers in front of us, of what would happen if you missed the eight best investment days of the S &P 500 over the last 50 years. And it was crazy the difference in return.

15:24You almost went from this hundred and some percent return to zero or losing money just by missing the eight best days or nine best days. And that is just a testament to not trying to time the markets and just being in the markets. And we always say that don't time the market. It's time in the market, not timing the market. And it's just so important to understand that, especially when you're talking about VOO and the S &P 500. Juliet, just so we're on the same page here, in my investment accounts this morning as we're recording this, I invested another$2 ,000 in the S &P 500 today. And we are at all time highs.

16:01And you know what I'm going to do next month? I'm going to invest another$2 ,000. And you know what I'm going to do in the month after that? I'm going to keep investing more, right? Because two reasons. One, I have a very long time horizon. We know over the short term that it's pretty unpredictable. I think Robert and I would agree on that. And you as well, Juliet. However, over the long term, several years, decades, we know which direction the stock market's likely going to go. And that is up into the right. So if you do not need to have this money over the next 60, 30, 90 days, whatever it is here, and you have a long-term investment horizon, then invest the money into the markets toward your retirement, right?

16:36And if you can't grasp that for some reason, if it's hard for you to understand and maybe you just have a lot of emotion with it, try and automate the process. If that is, you know, getting the auto-invest feature turned on on public or Fidelity or whatever broker you use, but kind of automate that where it happens behind the scenes. Maybe it comes out of your paycheck, kind of like the 401k does whenever we get paid, right? That has helped a lot of people take fear and emotion out of investing, just automating that process away. And you'll soon see, Jule, that over time, if it's months or even years even, for example, I remember I had a friend here who refused to invest during 2022 and 2023 because they thought there's no way the market's going to keep going up.

17:13The economy's bad, this, this, and that. And they just didn't want to invest. Well, what I did is I turned on my auto invest. I just kept auto investing, auto investing, auto investing. And my returns outperformed the market. I think it was 34, 35 % last year in 2023 is what I returned to my portfolio. Now I did that without even looking, right? I just picked my index funds. I didn't even care. I just kept going. And now I look back and say, well, that was cool. Let's try again this year, right? Let's try again, keep going and going and going. I don't care where the market is right now. I believe in American capitalism and I believe in these long-term index funds that Robert and I have talked about for several months now.

17:48Yeah. The easiest way for everyone listening and following along to understand and a practice that you can implement right now in seconds is to learn to zoom out. Every day people message me by the dozens. Did you see Bitcoin today? Did you see Chainlink is down 12 % today? And sometimes I'll be like, no, I don't look at the day-to-day prices. I don't have a reason to. But the easiest practice you can do is go to a browser, type in Bitcoin price, click on it, and instead of looking at all the red you see for the last seven days, click on year to date, click on five years, click on 10 years, and zoom out, and you can see that it's just this.

18:28Always going up and down, but to the right. Once you learn that practice, it will calm you down. It will get you to understand that you don't want to look at the minutiae in this day-to-day battle because you'll drive yourself crazy. If you believe in a sector, you believe in an investment, you've done your research, then stop worrying about the day-to-day fluctuations because it shouldn't matter in that long-term horizon. It's just way better to zoom out. I couldn't have said it better myself, Robert. Now, our next question comes from Tarun M. Tarun says, I love your podcast during my daily drive to work.

19:02Thank you for the great content. I have a few quick questions for you. So Robert, let's do some rapid fire. The first one is, what are the index funds you guys recommend investing into? Go. Me right now, VOO, VGT, QQQ, AIQ, and I'd probably throw in some MOAT for the long term. I am right there with you. I would add BRK, Berkshire Hathaway. You can buy that fractionally through their Berkshire Hathaway A or B shares. I would probably also want to add SPYI into that because I like some income. QQQI is around the corner. They'll be releasing that as a new ETF in a week, which is really exciting.

19:39So stay tuned on that. That's going to be a massive 14 to 15 % distribution yield for investors to track the total performance of the NASDAQ. You called out Moat. I love that. Yeah, I love all those answers, Robert. Is there anything specifically related to AI beyond AIQ that comes to mind? Oh, there's just so many good ones. People should just really be looking at NVIDIA, AMD, Microsoft, Meta. You had a big call out on Meta a few months ago. People are sleeping on Meta because a lot of times people struggle equating because they think Meta is Facebook and nobody uses Facebook anymore, but they forget that Facebook might not be the most popular social media platform, but there's so much more to Meta.

20:23Or they look at Google or Microsoft and be like, oh my God, why would Microsoft be important? But there's just so many really good AI plays right now that are super important. And so those would be the other ones I would look at when it comes to AI, but also in crypto as well. There's just some really good cryptos in artificial intelligence like Fetch AI, Ocean Protocol, AGIX. There's a lot of AI plays right now in all sectors of investing that I'm really, really bullish on and dollar cost averaging into every couple of weeks. Love it. Very cool. His next quick question was, what's an approach to open a Roth IRA if I'm above the income threshold?

21:04It's called a backdoor Roth IRA, Tarun. It's very simple. Just go to Google, type in backdoor Roth IRA. Fidelity is going to walk you through it. Carrymoney.com can walk you through it very simply. And his third question is, what are your thoughts on using public.com for investing? Obviously, we love public.com. We use them for investing all the time. My favorite thing about them, Tarun, is their investment plans. So just like you can talk about automating your investing, you can do that on public and you can build out your investment plan. So say, okay, I want a dollar cost average into the six index funds that Austin and Robert just talked about every single two weeks.

21:37I'm going to put 50 bucks in every two weeks into these six index funds. You can make an investment plan on public.com. You type in the tickers of the index funds. You talk about how much weighting you want. You type in the weightings there. You say every other week, 50 bucks, go. And it's going to do it for you. That's it. Congratulations. There's no emotion. There's no fear. It's just automating your investing into these index funds that we talk about all the time. So that's my favorite thing about public.com or these investment plans. Before we jump into the next question, I want to remind everyone that Public is officially now the cheapest way to trade options.

22:11It just launched. We've been on this options kick. We're talking about it a lot. We're doing the webinar. But that's because for Public, they're doing something that no other brokerage has done before. They're sharing 50 % of their options revenue directly with you, the customer. Whenever you trade options on public, you get something back, minimizing your transaction costs. So go to public.com and activate options trading before March 31st to lock in your lifetime rebate. Public.com is the cheapest way to trade options. What a great reminder, Robert. And yeah, everyone go tune in on February 7 at 4 p.m.

22:48Eastern time to the webinar that Robert and I are hosting. There's going to be a link in the description below to learn more. So our next question comes from Samantha E. She says, hey, y 'all, do y 'all have a favorite budgeting app? Do you think it's beneficial to pay for a budgeting app? Samantha, we do have a favorite budgeting app. Before we share that, though, just want to remind everyone, we have our own budgeting template. It is a Google sheet. It's completely free for anyone to download and use. There's going to be a link to that in the description below as well. So go check that out. But Robert, my favorite budgeting app is called Copilot.

23:18They do a really good job of helping people track their recurring expenses, track their budgets on a daily and monthly basis, track their net worth, their investments, their debt, their loans, everything in between. It's a really holistic bird's eye view into someone's financial picture. Yeah. I mean, CoPilot, I was a big talker about Mint and I used that for many years, but CoPilot definitely upped the ante. They have AI integration to really keep you up to date with everything you're doing, where you're at on your net worth journey, all of that. So I'm with you on Copilot. We are not getting paid to say that.

23:52We just like the app and we're always going to try and provide you guys with the best possible platforms and investments that we like, we flush out and we use. So I agree with you on Copilot. Yeah, Copilot's awesome. So go check that out. Oh, and to answer that question yearly, yeah, Copilot has like a free version and a paid version. I would totally pay, you know, the 80, 100,$120 a year to use the premium version of a budgeting app. I think that's totally worth it because I mean, that's just an investment in yourself, right? That$120 you spend might be what is able to help you save$1 ,000 that year or$2 ,000 that year, right?