Q&A: VFIAX, Dividend Investing, and $200K in Savings

0:28Shopping is hard, right? And welcome back to this week's episode of the Rich Habits Podcast, question and answer edition. We love these episodes because we get to hear from you all, not just on Instagram, but also Discord and our email address. You guys are everywhere. Let's be real. So in this episode, we're going to take some questions. We've got, I think, seven or eight picked out, and we're going to answer them. So if you have a question for us, be sure to shoot us a DM on Instagram. Hit us up in the Discord. Send us an email at richhabitspodcast at gmail.com. Whatever you can do to get in touch with us because we're going to answer you.

1:03And before we jump in real quick, I just want to give a major shout out to a newsletter that I read this morning called Grit Capital. Robert and I love reading their newsletter. They're doing their best to always summarize the bite-sized pieces of the economy. They're grabbing the earnings updates. They're grabbing the headlines from Wall Street Journal, making this crazy mumbo-jumbo easy to understand. So major shout out to Genevieve and all those awesome people writing that newsletter. Now, with that being said, Robert, are you ready for question number one? I am. Let's go. So our first question comes from Stuart M.

1:32Stuart says, can you explain the difference between VOO and VFIAX? One, I think, is an ETF. The other is longer letters. What's going on here, Robert? Well, I just covered this the other day, so this is very good timing. So, Stuart, the difference is VOO is the ETF for the S &P 500 and VFIAX is the index fund. Both S &P 500, very, very much the same investments. There's slight differences in how they work. Number one, VFIAX, the index fund, you are buying in dollars, whereas VOO, you are buying in shares. So the difference there generally is when you're buying the index fund, you have a minimum requirement to invest in it.

2:21So for VFIAX, it's$3 ,000. dollars. Whereas with VOO, the ETF version, you can get in for as little as$10 because you're buying it in shares or fractional shares. So that's one of the differences. One of the other differences is that VFIAX is traded once a day, whereas VOO is traded in real time. So you can buy it anytime you want during the course of operations when the markets are open. And then And the last thing, and one of the things that is important as well, is the expense ratio. VFIAX is 0.04 basis points expense ratio, and VOO is 0.03. So the reason you hear Austin and I talk for eternity about VOO and our love of the ETF is because you can get in for less money, lower cost basis for you to own it, And then also, it's just great for the everyday person who might not have$3 ,000 to get started, but wants to invest in the S &P 500.

3:22So that is the difference of each sector and each style of investment and the costs associated with it. Now, speaking from personal experience, I own VOO. I don't own any of the VFIAX. Maybe you have to buy it through Vanguard specifically. I really don't know. It's not something I ever explored as a retail investor here. I just bought the ETF. It's cheaper. It's easy. I buy little fractional shares of it. So if anyone is intimidated by investing in the stock market and seeing this$3 ,000 minimum investment, don't be, right? Because there's an alternative, which is the ETF that's treated as this basket of stocks that you can go buy on your Robinhood, your public, your Fidelity, your Schwab, anything you want to do there.

4:03So VOO is what I'm doing. It's probably what most of our viewers are going to be doing, right, Robert? Yes, definitely. Because so many people that are just beginning in their wealth journeys may not have the$3 ,000 to plunk down right away. So you can buy the VOO, pretty much the same investment, just a different way of doing it, different strategy, lower cost to get in. Cool. Really good question, Stuart. Yes, definitely love it. Now, funny enough, Stuart actually asked us two questions and the second one was so good I had to pair it with this first one. He says, same Stuart M, should I be investing into Bitcoin at all inside of my IRA?

4:36Now, Stuart, this is the first time Robert is hearing this question. So it's funny to see him like processing this. I bet he's really excited because he loves Bitcoin as much as I do here. I have Bitcoin in my Roth IRA. Call me crazy. Call me stupid. Call me whatever you want to call me. I believe Bitcoin should be, you know, call it 5 to 15 % of everyone's investable net worth, net assets here in their sort of portfolio. And being in my Roth IRA, it makes up that 5 to 15%. I'm here for it. We all have seen Bitcoin trend higher over the years and decade plus now. it's just been rocking up until the right now, sure.

5:11It's got the big ups and the big downs, but if you can stomach that, math tells us if something zigs and another thing zags, then you want to have a little bit of both and you get that sort of long-term kind of sharp ratio is what they call it, right? So what I'm thinking about here is I'm keeping a little bit of Bitcoin in my Roth IRA. I've got that through actually a ETF that I own. It's super simple to purchase just like you would VOO. And I think it's fine. I'm not trying to bet the farm. I'm not doing that. I'm not, you know, putting my Roth IRA into the hands of the Bitcoin, but I am having a little bit of exposure.

5:44And to me, I think it's a good idea. Well, everyone that listens and follows along knows that I'm kind of a Bitcoin maximalist. And so far over the last 11 years of owning Bitcoin, I've been right. I don't own any Bitcoin through my Roth IRA, but I do have Bitcoin in cold storage. I have it on Coinbase. I have it under rocks in the yard. I've got, you know, I've got it everywhere. So for me, I love the strategy of having it through the Roth IRA. The ETFs are great as well if you want to have that extra layer of security. But for me, I just buy Bitcoin straight out. I love it. And I think that everyone should have a portion of their portfolio in Bitcoin.

6:22Obviously, there's many other cryptos that we like as well, but that's for another question. But definitely, I like the 5 % to 15 % of your net investable income being in cryptocurrency as a sector. And you know, I've got some pretty bold predictions out there for the price of Bitcoin coming up in 2024. So we'll see how right I am. And if Austin owes me a jet ski. The holidays mean more travel, more shopping, more time online, and more personal info in more places that could expose you more to identity theft. But LifeLock monitors millions of data points per second. If your identity is stolen, our US based restoration specialists will fix it guaranteed or your money back.

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7:38For terms, visit bjs.com slash holiday and get the same great prices online as in-club. Good question, Stuart. Our next question comes from Craig S. Craig says, how the heck does a zero-interest credit card work? How do you roll over one balance to another card? Yeah, that's a great question and a very good one for those of you facing high credit card debt and you're trying to get out of it quickly. One of the ways to do that is to get a zero interest credit card with as long of a lead time as you can. 12 to 18 months would be preferable. And then take and migrate your balances from the other cards to the zero interest credit card.

8:14So then that way you can have that window, that 12 to 18 months of not paying those high interest debts on the other credit cards. And that's all you're doing is migrating the balances over to give you some time to be able to pay it down and pay it off without having that 25 or 30 percent interest on the old cards. So let's put some real parameters around this. Let's say Austin has$10 ,000 of credit card debt on a Discover card. And Discover card, let's say, has a 30 % APR interest rate on that card. And let's say that Austin wants to roll that$10 ,000 off the 30 % and onto a Capital One 0 % intro credit card for, call it, 12 months, right?

8:55So what would happen here is that same 12-month period, assuming that same 30%, Austin would pay$3 ,000 in interest on his$10 ,000 of credit card debt. So by rolling it from that 30 % interest on the Discover card over to a 0 % interest on this new Capital One card, Austin would not pay 30 % interest. Austin would pay zero interest. However, what Austin would pay is he would pay, I think it's like a balance transfer fee. It's maybe 10 % or so of the total balance. So sure, I'm still paying a little bit of money, call it this$1 ,000, but I'm paying$1 ,000 and I'm not paying$3 ,000 over that same 12 month period.

9:31So I'm saving money all as well from the interest perspective, right? We're doing something a little bit better here. But what's not happening is I'm not getting bombarded with letters in the mail and notifications from my new Capital One card saying, hey, pay us, pay us, pay us. They gave me 12 months of breathing room to say, okay, go pay off this debt, go figure it out. No interest is accruing, like go do your thing. And that is what's so important about these zero interest credit cards is because as people who have 10, 50,$80 ,000 of credit card debt, if you're staring a 30 % interest rate in the face, that's 15, 20,$30 ,000 a year in interest, right?

10:06That is almost an impossible hill to climb, especially as you're trying to pay off the debt, more interest is coming down. It just feels like an endless cycle. By moving that credit card balance to a new one, it gives you that 12 to 18 month lead time where you can say, okay, I'm going to tackle this, pay it off as aggressively as possible without that crazy interest hitting me in the face. You nailed it. Wow. That was incredible. Always remember, just to cap this off, is that you can't out-invest high interest debt. And that's why the 0 % credit card balance transfer is such a great strategy.

10:36If you're in a pickle and you need to get out from underneath that heavy debt load, that's a great way to do it. Good question, Craig. Our next question comes from Ramon W. Ramon says, how the heck do I make money through dividend ETFs? I know how I make money through dividend paying stocks, right? You have a share of Apple stock. They pay you a specific cash dividend per share you own. But how do ETFs work? Okay, so think about it like this. We all know that an ETF is a basket of stocks. And so if that ETF is, let's say,$100 per share, and we know that underlying basket of stocks averages out their dividend payment of, call it 2%, then you will likely have about that 2 % yield on your$100 per share here of the ETF, right?

11:18So$2 per share, 100 shares, you get a 2 % yield. Now that changes depending if it's an actively managed or a passively managed ETF. For example, some of these actively managed ETFs like JEPI, they sometimes buy more companies inside of the ETF that are defensive, right? Value focused. Where more passively managed ETFs like SPYI, they just follow the S &P 500. So we can kind of predict what the yield is there. It totally depends on the underlying holdings, but here's what you can do. Whenever you are looking at an ETF and you're trying to figure out what's that dividend yield, how do I make passive income from buying this ETF?

11:54You're going to look for the word dividend yield. And all that is, is as a percent of the money you've invested into the ETF, that percentage, let's call it a dividend yield of 2%, you could expect to get 2 % back in dividend payments, cash dividend payments to you every year. So if it's $100 you've invested, you'll get$2 back. If it's$100 ,000 you've invested, you'll get$2 ,000 back, It all depends on that dividend yield, and you'll see that on Yahoo Finance, Seeking Alpha. You'll see it on any website you use to analyze your ETFs. That's a great way to break it down, and that's probably one of the reasons why we love SPYI so much is because you just have multiple ways to really make money here, and it's always about finding the best return for you.

12:40That's why you want to have dividend-producing stocks and ETFs in your portfolio because yes, we love stocks as well, but you also want to add that passive amount, that passive section of your portfolios that helps you build wealth and pays you passively quarterly or yearly. So I think it's a great way to explain it and why we like having those types of products in our portfolio as well. Yeah, and Ramon, I'm sure you're like, well, what dividend ETFs do I buy? So dividend ETFs that Austin Hankwitz here personally owns. One, we just mentioned it, SPYI. They are essentially tracking the performance of the S &P 500 while writing covered call options strategies on top of that.

13:17Long story short, they generate about 12 % of an annual distribution yield is what they call it, but it's a dividend yield. So for let's say you invest$100 ,000, you could expect to receive about$12 ,000 back in passive income dividends, about a thousand a month, right? Paid to you. Now that's way on the upper echelon there of dividend yields. Now the other side, you've got the super normal dividend paying ETFs that don't have these crazy option strategies. Think SCHD. This is a growth dividend ETF by Charles Schwab. They do a really good job. I think the yield there is about three and a half or four percent right now.

13:51Another one is NOBL. These are only investing in companies, I believe, who've been paying and growing their dividends for 25 years now, right? So a lot of these dividend ETFs have different strategies around them. Are they growing their dividends? Is it a growth payment ETF? Or is it one of those long-term steady stream type ETFs like NOBL? So those are a couple of my favorites. I have equity in all of them and I like passive income. What can I say? I'm going to tell you what I can say. I love these Q &A episodes because we just get to rip and it's just so awesome the depth of these questions.

14:25So I just am so thankful for our audience. This is incredible. 100%, man. These are definitely my favorite way to spend about an hour and a half throughout the week is just going through the DMs and the Discord and the emails, getting back to the people and letting them know that we care. We want to provide value. And if you have questions of your own, send us a question just like Ramon and just like Stuart, right? We're hitting them all. Let's keep going. Our next question comes from Sissy G. She says, how do I allocate$200 ,000 of savings into investments? Here's what we're going to do, right?

14:56The first thing we're going to do is we're going to get rid of that high interest credit card debt or any high interest, bad consumer debt. Robert said it earlier, and I just want to reiterate and echo what he said. You cannot out-invest high interest debt. Now, if you have any personal loans, credit card debt, maybe high interest student loans or a high interest auto loan, think anything above like that 5 % or 6 % range. If you have debt that has an interest rate above 5 % or 6%, let's pay it off. Let's get rid of that, right? Let's put some money back in your pocket on a monthly basis. The next thing I'm doing is I'm going to make sure now that I have no high interest consumer debt is that I also have a saving, right?

15:31My savings account, not$200 ,000 of savings, but a savings account. So why not have$200 ,000 in savings? Good question. Because compound interest doesn't do its thing if it's sitting in cash. $200 ,000 in the market goes up by on average, call it 10 % a year. $200 ,000 sitting in cash goes down by about two or 3 % a year, depending on inflation, right? We want to make sure our money is working for us. Robert says all the time, the velocity of money is really important. So the first thing I'm doing here, paying off the debt. Second thing I'm doing is making sure I have three to six months of my expenses.

16:04Maybe, you know, you seem like you like to save big, lean toward that six month. Maybe that's 30 or 40 or$50 ,000 for you sitting in a high yield savings account on Wealthfront or in T-bills on public.com, paying you 5.5%. So you're beating out inflation there. Now that you've got your savings, now that you've paid off the debt, you've got money. I'm assuming you still have about 100K left, right? Now you have this big pile of cash. What to do? Well, the first thing I'm doing is I'm thinking about retirement, my Roth IRA. Open up that Roth IRA. You can do this on Vanguard, Fidelity, Wealthfront, Betterment, whatever brokerage account, it doesn't matter.

16:36Just Google Roth IRA, open it up and deposit$6 ,500 and invest that now. Don't just deposit it, but invest it into the S &P 500 or the index funds we talk about, VOO, VGT, QQQ, things like that. So we've paid off our debt, we have our six months of expenses, and we have the retirement figured out for the year, and you still have money left over. Now it's time to think about actually investing and putting this money to work. We just talked about the passive income ETFs like SPYI. Maybe you want to put some money toward that so you have some passive income coming in on a monthly basis. Maybe you want to invest more into technology, so VGT or undervalued names like MOAT.

17:15It's an ETF that invests into those undervalued names over the last 10 or 15 years. So there's a bunch of different ETFs to think about. If it were me, I would do VOO, VGT, MOAT, right? Those are the three that will always get you going. You put your money 33, 33, 33, or even 50 % VOO in the 25, 25, and you're good. Set it and forget it and don't even think about it. But that would be all of it. Robert, I know you have some diversification tactics here, so let me hear them. Yeah, I think what I would do is a little bit different. I would max out the Roth IRA, just like you said, with that basket of funds that we like.

17:51Then I would look to public.com. There's a link in the show notes. And I would get into public.com with maybe$10 ,000 or$20 ,000 of the leftover money. And I would split that between treasury bills, making that 5.5 % right now. And remember, with treasury bills, they're really high and a really safe place to put money right now because you're basically lending money to the federal government. And what's nice about it is you pay no taxes on your gains from a state and local level, which is really, really nice. Then I would also take a portion of those funds again in public and I would buy some Bitcoin.

18:24Everyone should own some Bitcoin. I think it's going to be one of the best investments of the next 10 years. So I would do that. Then for further diversification, I would look at Fundrise. You know, Austin and I, everyone that follows along knows we love Fundrise. I would get a few thousand dollars in Fundrise and I would split that between the real estate and the new innovation fund because I think they're both going to do really well in the coming years. And the innovation fund is really making some great investments. So I think those are a few of the things I would do to further diversify. And don't ever sleep on having an Acorns account and having the Roundup feature set because I think that's a great way to have that little side hustle of that feels like free money kind of investing.

19:07So those are the things I would do right out of the gate. Now, here is how to do that. It's a strategy called dollar cost averaging. What you don't want to do is take all of this$6 ,500 and put it all into the stock market in one day with your Roth IRA. What you don't want to do is take this$10 ,000,$20 ,000 on public and put it all into Bitcoin on one day or all into T-bills on one day, right? What you don't want to do is buy these assets in one day because maybe the day you buy it, the market's down and you'll be fine, but maybe you buy the top, right? I can't time the market. Robert can't and sissy.

19:42I don't think you can either. So what you want to do is say, all right, I'm going to set aside X amount of dollars every week to begin dollar cost averaging. I'm going to start buying$2 ,000 worth every Monday morning until I've invested all of my 10 or$20 ,000 or 4 ,000 or 5 ,000, whatever you want to do, right? Be as aggressive as you want. But what you should not do is just drop it in and walk away because sure, maybe you timed it perfectly, but maybe you didn't. And I am not good at timing stuff. I've never done that well. So dollar cost averaging is your friend here. Well, the good thing, Austin, you and I know the ropes and we don't have to try and time the market.

20:18We don't have to be like the fake gurus that say they can tell you where the bottom is. We just dollar cost average and win, win, win over time. And that's always the goal. Compound interest, baby. So our next question comes from Edward W. Edward says, I'm 37 and I'm retired. I live off of my investment income of about$65 ,000 a year. That's awesome. This is exactly what the end goal is, right? Make money and live off the income. So shout out to you, Edward. But here's his question. Edward says he wants to learn how to increase his income in a meaningful way. He's got some side hustles. Give him, call it$400,$500,$600 a month.

20:53but he's willing to invest$10 ,000,$20 ,000,$30 ,000 to learn a new skill or invest in a business or do something. So knowing that context, Robert, any ideas on side hustles that are really going to move the needle for Edward? I love this question and I love this strategy. So for me, I would start with investing in education in a new sector. I think one of the biggest things someone could do with very little to no money would be to learn and create a SaaS business just around understanding two different categories. One is helping small business owners and creators set up their TikTok shop and optimize it.

21:34And two is helping entrepreneurs, creators, and small business owners on how to develop their tech stack accordingly. Because as people like myself and Austin grow, there's always issues of what tech stack is best. How do we optimize it? How do we tie them all together? I think those two categories for someone that was very computer literate and diligent and wanted to learn, those are the two things I think you could do and make a ton of money as a side hustle because you could literally get it up and running. And then you could just start a DM strategy where you hire a virtual assistant to DM people with like me or Austin and say, here's what we're offering.

22:15Give us a shot. Make it very, very, you know, really good pitch. And you'd be shocked at how many people would say yes and let you give them a shot to help them with the problems we have with growth and also integrating and getting TikTok shops set up. Yeah. So I think, Edward, the game plan here is digital, right? We're not saying, I mean, sure, go get a hose or a pressure washer, knock on doors and go make money pressure washing, that is a dirty job and you can make a lot of money doing it. But if you want to really move the needle, I think something in the digital side, the digital realm is going to help you do that.

22:50To Robert's point, there are countless small businesses in your town right now that sell physical goods that have never heard of TikTok or TikTok shop. There are millions of dollars being made right now by people who have figured out how to sell and leverage TikTok shop to go viral, help other people sell their product for them and earn a commission, right? There's a whole way to think about this. Nothing that I'm an expert in. I'm not selling anything right now. So I have no, I don't know how to do it. So I'm not going to pretend I am. But if you can figure that out, Edward, like you might have a solid six figure business on your hands, right?

23:23Imagine going out to a local candle and soap company in your town and say, hey, I can set you up a TikTok shop. We'll figure out the commissions, the affiliates, we'll get videos made. I got a content team that can help. Maybe it's a person that you found that's in college and is trying to earn a film degree and they're going to help you out with this, right? There's little things you can do here to keep the cost low and start charging five, six, seven,$10 ,000 a month and maybe even a percentage of sales that go through this TikTok shop. There are tons of different ways to think about this, Edward.

23:51So think digital, think entrepreneur, think how you can help solve problems for other people knowing the knowledge you know today. Maybe you're really good on Pinterest and that's your thing. Maybe you're good on TikTok, maybe you're good on Twitter, who knows what you're good at. But think about what do you have specific knowledge in and what do you have a unique perspective of and how can you take advantage of that to help solve problems for other people? Yeah, the bigger the problem, the bigger the payday. Really good question, Edward. Our last question comes from Lena S. Lena says, I have three kids.

24:19I have two 18-year-old twins and a 16-year-old. How do I best set them up for financial success in the future? All right, Lena, I'm going to take my first step at this and then Robert's going to rally around behind me here. First thing I'm doing with the 18 year olds is I'm teaching them what a credit card is. I'm teaching them what a credit score is, what goes into the credit score, why it's important, what you can get and what it costs you to have a bad credit score in the future. Teach them about credit and I'm going to open up a secure credit card for them or alongside them here and all they're going to do is put a tank of gas on it every month or maybe put that Netflix subscription.