Rich Habits Podcast - 183: Rich Habits vs. Dave Ramsey (Debt Edition)

Starting point is 00:00:00 Hey everyone and welcome back to the rich habits podcast, a top 10 business podcast on Spotify, brought to you by public.com. By the end of today's episode, you'll understand exactly where we disagree with Dave Ramsey on debt and why. My name's Austin Hankwitz. I'm joined by my co-host Robert Croke. Robert is a seasoned entrepreneur with lifetime revenues of over $300 million, and I'm a multimillionaire in my early 30s with a background in finance and economics. As the show name might suggest, every episode. We talk about rich habits as they relate to business, finance, and mindset. So, Robert, what are we talking about in today's episode? Well, I'm obviously excited because in today's episode of the rich habits podcast, we're going to do something a little different. We're going to go head to head with Dave Ramsey. And look, Dave Ramsey has helped millions of people. His core message, spend less than you make, build an emergency fund, stop letting credit card debt ruin your

Starting point is 00:00:55 life. That's foundational. And honestly, most Americans need to hear it. We're not here to dunk on the guy or pretend his advice doesn't work for a large portion of the population. But Dave's philosophy on debt is built on one hard rule. All debt is bad and you pay it off as fast as humanly possible no matter what. And when you apply that rule with little to no nuance across every single situation, like student loans, business debt, mortgages, it starts costing people real money. sometimes hundreds of thousands of dollars, maybe even millions over a lifetime. So today we're breaking down our three biggest disagreements with Dave on debt,

Starting point is 00:01:37 and that's student loans, business acquisition debt, and mortgages, and showing you the math behind why we think his one-size-fits-all approach leaves way too much money on the table for many of you. So, Austin, let's start with the one that affects the most listeners right out of the gate, student loan debt. And currently over 20 million people, in their 30s and 40s still carry student loan debt. So this covers a wide swath of the American public.

Starting point is 00:02:04 Yeah, no, it certainly does. So Dave's advice on student loan debt is simple. Attack it like your hair is on fire. Baby Step 2 in his Baby Step Protocol Framework says that you list out every debt you have, smallest to largest, including those student loans, and you throw every extra dollar at them before you save more than $1,000 as this like starter emergency fund. but more importantly, before you invest a single dime, no investing, no building wealth, no nothing

Starting point is 00:02:34 until that student loan debt is completely gone. Now, here's why we disagree with this framework, and it's not because we think that student loan debt is good, it's because the two things you're comparing actually behave differently over time. So student loan debt has a ceiling. The worst case scenario with a $35,000 student loan balance is that it cost you $35,000. plus whatever interest accrues along the way. That's it. I cannot compound against you forever. It has a finite. I borrowed this amount of money for this period of time. These are my monthly payments. This is that interest rate. It starts and it ends. Like that's student loan debt. And once you pay it off, it's gone. It's gone forever. Congratulations. But money invested in the market, however,

Starting point is 00:03:21 compare and contrast here, money invested in the market does not have a ceiling. The S&P 500 has averaged about 10% annually going back to, what is it, Robert, the early 1920s, right? That money compounds not just for, you know, a five-year, 10-year, 15 period of time, which is whatever your student loan amateurization timeline might be, but it can compound for the rest of your life, for your children's lives. This is generational, right? There is no maximum as to how much money can be made in the markets. It can double and then double again and then double again. we all know the rule of 72. So that is so important to understand. And Robert talked about these nuances. That's the most important nuance to consider when it comes to student loan debt. And definitely,

Starting point is 00:04:07 Austin, here's the actual math. Let's say you graduate with $35,000 in federal student loans at a 6% interest rate. And you've got, let's say, a $500 a month that you could either throw at the loan or invest it. Dave's path, you take three years attacking the loan aggressively, throwing every dollar it and you pay it off. Congratulations. You have zero debt, but you also have zero investments because every spare dime for three straight years went to pay off the loan. So now you're 25, 26, 27, or maybe even much older with a completely clean balance sheet, but you have nothing invested. Our path here at the Rich Habits podcast is you make the minimum payments on the loan, say that's $390 a month. And you take the same $500 and you split it or better yet you invest.

Starting point is 00:04:56 the full amount first and build that pile before aggressively paying off the loan. We always talk about having your base built. This is how you do it. So if you invest $500 a month for those same three years at a 10% average return, you've got roughly $21,000 sitting in the market. And here's the part everyone misses. That $21,000 doesn't stop working just because year three ended. It keeps compounding.

Starting point is 00:05:23 20 years later at the same 10% return that pile alone without adding another dollar. Remember, you only put in that three years worth of money is worth over $140,000. $140,000 or paid off student loan debt faster. That's our disagreement. So meanwhile, you'd be debt free for those same three years under Dave's plan and have only started investing in that year four, right? So your compounding clock has started three years later. but on a long enough time horizon, three years of loss compounding at that 10% is not a rounding error. It is hundreds of thousands of dollars that you will never get back because, again, time in the market is the one variable that you cannot buy back later or do differently here.

Starting point is 00:06:10 Like time in the market, letting that compounding take place, even if it's just a couple hundred dollars a month turns into, right, a six-figure, seven-figure outcome over the course of your life. And that's our rule. Before you get aggressive by paying down student loan debt early, you want the equivalent amount or more sitting, invested, and compounding in your favor in the stock market. Not because the debt doesn't matter, but because every dollar you use to pay that debt off early is a dollar that stops compounding for you. Every dollar of debt you keep was never compounding against you beyond its own payoff amount to begin with anyway. So think about that, right? A student loan debt can only go to zero. Money invested in the markets over the course of 20

Starting point is 00:06:58 years in this example, Robert, goes to 140,000. And then that 140,000, it's passed on generationally and compounds into millions. Like, that's how we tried to think about this. So again, that framework we think about is before you aggressively pay off the student loans, because again, we don't want you to go into retirement with student loan debt, but before you aggressively, you aggressively, pay it off with this extra money every month, have the equivalent amount of those student loans, in this instance, $35,000 invested, growing, and compounding in your favor. That's the rule. And I want to be clear about something, though, because I know how this sounds to someone who hates the idea of carrying debt for even one extra month. We're not saying ignore the loans.

Starting point is 00:07:38 We're saying sequence it correctly. Keep making the minimum payments so you're never late, never damaging your credit, never letting it balloon with penalties. We're just, arguing against the psychological trap Dave sets up where investing feels irresponsible until you have zero debt. The trap is what actually costs people the most money because zero debt feels like a finish line, but it's not. It's just one input in a much bigger equation that includes decades of compounding you can't get back because you're so worried about carrying any debt and specifically here student loan debt. Dave says you get to earn the right to invest. We disagree. and want to get you invested as soon as possible

Starting point is 00:08:20 and always want to make sure that that positive arbitrage is going into your bank account and not someone else's. Great breakdown, Robert. Walk us through our second disagreement with Dave Ramsey's debt paid all off, which is this business acquisition debt. Yeah, it's basically the same thing. Dave's stance on business debt is just as absolute

Starting point is 00:08:40 as his stance on student loans. He tells people flat out to not borrow money to start or buy a business, save up, pay cash, grow organically, no loans, no financing, no exceptions. I couldn't disagree with this any more than anyone because I'm a small business owner and I have been for decades. And look, if you're launching a brand new business from scratch with no revenue and no track record, there's real risk there and we get why he's being cautious. And I largely agree. But that advice completely falls apart when you're talking about

Starting point is 00:09:13 acquiring an already profitable, already operating business, and specifically if you're considering using owner financing to do it. And in case you don't know what that means, here's how owner financing actually works. Instead of walking into a bank and asking for a business acquisition loan, which by the way, incredibly hard to get approved for as a first-time buyer, you go directly to the current owner of this profitable business and you structure a deal where you pay them out of the business's own future profits, overtime. So say a business does $400,000 a year in profit and the owner wants $1.2 million for their business. Instead of paying the $1.2 million up front in cash because you went and got some loan from the bank at 8, 9, 10, 12%, you say, okay, I will pay you $1.2 million like you're asking,

Starting point is 00:10:04 but it's going to be over the course of six years and I'll be taking $200,000 of the $400,000 a of profit and using that money to pay you. So it's funded directly by the cash flow the business itself is generating. The business is paying for its own acquisition. You're not writing a check for capital you don't have. You're using an asset that's already proven it can generate income to pay for itself. It's a fundamentally different kind of debt than Dave is worried about, which is that speculative debt borrowing against an idea that hasn't been proven yet. A profitable business with real customers, real revenue, real cash flow that already exists is a lot less risky than saying, I'm going to go start a food truck. So I'm going to go borrow $40,000

Starting point is 00:10:52 from the bank at 18% interest to go do that, right? Like, we agree. That's silly. Don't do that. But if it's to acquire a business that already exists, use owner financing. We agree. That's okay. That's a cool way to do this. Dave doesn't think so. Yeah. And I've been doing this for decades and everyone needs to understand that's watching and been considering how do I start and buy my own business? Look at it this way. With owner financing, the seller has every incentive to make sure you succeed because their payout depends on the business continuing to perform even after they leave. That alignment doesn't exist with a traditional bank loan. A bank gets paid whether your business thrives or barely survives at all. An owner finance seller is functionally

Starting point is 00:11:37 your business partner for the life of that note, and then you're on your own. And with the overwhelming majority of small business owners approaching retirement right now, and there are millions of them in the U.S. right now as baby boomers age out of businesses they run for decades, they would rather sell to someone who'll keep the thing running and pay them out steadily than sell for a lower all-cast price to a stranger. An owner financing isn't some exotic loophole. It's not hard to do. It's one of the most common ways small businesses actually change hands in this country. I have been doing it for decades and you just have to really realize you don't get anything without trying and you have to ask. I go into many, many businesses and say, hey, I can't buy

Starting point is 00:12:23 this for $1.2 million, but here's what I can do. You offer them a little bit of interest rate, definitely not high interest, but you offer them a small interest rate on their money and you come up with a plan. Most recently, we bought a pizza store a couple years ago. Many of you have heard about. It's in Florida. And we did that with partial money down and owner financing over four years. I think we paid a 5% interest rate on the owner financing. It was a couple small contracts. You're up and running and it's easy to go. Because you have to remember, with millions and millions of baby boomer businesses that are just sitting there and they're ready to walk away and hit the beaches, drink those Mai-Tai's, they don't have succession plans and they might be lovingly

Starting point is 00:13:07 ready to sell it someone through owner financing to help someone else get a fresh start and keep their legacy alive because they're going to make money for years and years. So don't be afraid to check out owner financing or even mix in some friends and family money. If you need a down payment, get that at a low interest as well. And for a kind of a pro tip that I'd like to add in there for you guys to tool around with is go to crexi.com. C-R-E-X-I-com. This is not paid for. It's a site that I use. There are over 10,000 listings currently as we film this podcast, and you can even type into the search bar, owner financing. It will pull up deals where the owner has listed it that they will do owner financing of some sort. So I think this is a great way to get people started without using high

Starting point is 00:13:58 interest debt. Wow, that's a great breakdown. I didn't not know about this website. I appreciate you calling it out. I looked it up. I'm looking at a car wash right now for sale in North Carolina. I mean, it's cool. This stuff is, it exists. It's out there. So just like if you're looking for this stuff, like it's out there. Just do a little bit of a little bit of research. And now as we think more about like, you know, the debt side of this, the risk, you know, it's not zero to be fair to Dave. But if the business underperforms after the sale, you're still on the hook for those payments. And that's a real conversation that buyers need to have before signing anything. But that's a due diligence problem. We verify those financials, understand the customer concentration, know why the owner is actually

Starting point is 00:14:38 selling, it's not a reason to avoid the entire path of business ownership to begin with. Speaking of businesses, Robert, before we jump to our next point, I think that we can all agree that a high-yield savings account is very important. Earning interest on your emergency fund, so it's not just withering away to inflation. Is there entire purpose for existing. And as we always say, make your money work for you as hard as you work to earn it. But the problem is most businesses don't have access to an interest-bearing account, which means they're earning next to nothing on their idle cash. Waldo fixes that. Waldo helps small business owners, startups, nonprofits, and enterprises do with the big

Starting point is 00:15:21 companies in the world do with their idle cash by using something called a high-yield treasury account. Waldo offers access to yields up to 5% alongside SIPC insurance coverage up to $75 million with no minimum deposit and no need to switch bank accounts. So if you have a business and your cash is sitting in a checking account earning nothing, go open an account on Waldo and start earning yield on your idle cash right now. Opening an account takes less than five minutes. Learn more at waldo.a i or click the link in the show notes below and do what the big companies do with their cash and be sure to use code rich habits whenever you sign up and they'll send you a one percent match on your deposit up to a thousand dollars so if you're depositing up to a hundred thousand dollars use code rich habits there

Starting point is 00:16:11 and they'll send you a thousand dollars as like a match there so very cool seeful terms and conditions at waldo dot a i but we're so thrilled to have waldo as a sponsor of this show especially as we talk more, Robert, about business ownership. I know so many people own businesses and their money is sitting idle in these checking accounts earning next to nothing. So Waldo fixes that problem. Let's now wrap this up with our final disagreement with Dave Ramsey as it relates to debt. Our last disagreement today is the one that probably impacts the most net worth over a lifetime, your mortgage. Dave's rule here is specific and rigid. Invest 15% of your gross income for retirement and then every single dollar above that goes straight towards paying off your mortgage early,

Starting point is 00:16:54 regardless of your interest rate. The last part is where we break hard from his framework. The interest rate on your mortgage should absolutely change how aggressively you pay it down. Treating a 3% mortgage and a 7% mortgage the same way is where the math doesn't math and just doesn't make sense to us here at the Rich Habits podcast. So let's kind of walk through that math, Robert. The actual comparison is this. If your mortgage rate is 3.5%. Like, I mean, remember, millions of Americans locked in rates

Starting point is 00:17:23 between 2.5 to 4% during the pandemic. I have an interest rate of 3.3%. So, like, it's very common. Every extra dollar that you send toward that mortgage at 3.5%, for example, is going to earn you a guaranteed 3.5% return because that's interest at 3.5% that you're not paying. But that's the ceiling. There's no scenario where paying down a 3.5% mortgage early earns you more than a 3.5% return on that dollar. Meanwhile, the S&P 500 is averaged that 10% a year going back a century. So Dave's advice, when applied to a low-rate mortgage, is functionally telling you to take money that could be compounding at a historically 7, 8, 9, 10, 12%, and instead, you lock it into a guaranteed 3.5% or lower return depending on your income. mortgage interest rate. You're choosing the worst outcome on purpose every single month for the life

Starting point is 00:18:21 of the loan. So let's run the numbers for everyone, an extra $1,000 a month. So say you've got a 3.5% mortgage with 25 years left on it. If you throw that extra $1,000 a month at the mortgage, you'll knock off years of the loan and save some interest, real but modest savings because the interest you're earning by prepaying is capped at that 3.5%. So this is where it gets really interesting. If you instead invested that same $1,000 a month into the market at a 10% historical average for those same 25 years, you end up with somewhere around $1.3 million. So compare that to the interest savings from prepaying a 3.5% loan. It's not even close. The gap between a guaranteed 3.5% return and a historical 10% return compounded monthly for 25 years is the difference between

Starting point is 00:19:13 a comfortable retirement and a genuinely wealthy one. Now, to be fair to Dave, Robert, if your mortgage rate is, I don't know, six and a half, seven percent or higher, like the math changes significantly, right? Like, like, yeah, 7 percent guaranteed return on your money. Like, I'm not mad if you want to, like, go lock that in because a guaranteed 7 percent on your money is a much harder hurdle for the market to reliably beat every single year. And so, you know, we're not saying to never pay off or pay extra on a mortgage. regardless of the rate.

Starting point is 00:19:45 Like we're not, we're not saying that. But what we are saying is that the rate has to be part of this decision, which is exactly what Dave's framework refuses to account for. But, Austin, there's also a liquidity argument here that Dave's plan completely ignores. Every extra dollar you throw at your mortgage principle is a dollar that's now locked inside your house. You can't spend it. You can't invest it. And you can't access it in an emergency without selling the house.

Starting point is 00:20:13 or taking out a home equity loan, which defeats the purpose of paying it off in the first place. But a dollar invested in the market by contrast is completely liquid. You can access it when life happens, and paying down a lower mortgage aggressively isn't just a lower return decision. It's a liquidity-destroying decision as well. There's also a tax angle that makes the gap even bigger for some households. For example, if you itemize and you can deduct mortgage interest, the effective cost of that 3.5% loan is actually lower than 3.5% after you take the deduction because of what you're saving in taxes by keeping the deduct. Yeah. So you guys get that.

Starting point is 00:20:52 There's a little bit of nuances here. And this isn't a tax breakdown. But the biggest like broad stroke thing to account for here is if you want to pay off your mortgage early, make sure you're taking into consideration your interest rate. Is it very low? If yes. Yes, maybe you keep it around and you invest the difference like Robert talked about for that 25 year period of time and end up with $1.3 million. Is it high single digits, 6, 7% like some people might have right now? Maybe it does make sense to pay it down. So like personal finance is personal. You have to have these conversations. But that's the point, Robert, of the Rich Habits podcast is we want to make sure everyone has the information they need to make educated decisions

Starting point is 00:21:36 with their money. And they're not blindly following some protocol that someone told them is the best way to treat their money. Yeah, I think the biggest lesson for me is I always want to see people and make sure they understand that if we can have that positive arbitrage between what we're paying to borrow the money and what we can make with our own money, as long as they understand that distinction and why we preach of these things and these tactics, then we're free and clear that everyone understands we're just trying to help them build the most wealth we can while not letting everyone else make more money on their money than they do. So that's the most important factor for me.

Starting point is 00:22:14 So let's talk about the framework here. Let's break that down real quick. I want to make this really practical. If you're listening to this and trying to figure out where you land on all of these, ask yourself these questions. On student loans, do you have at least as much invested in the market as you owe on your loans? If not, that's priority number one before you get aggressive on paying it off early. Assuming your loan rate is reasonable and not some dumb. double-digit private loan. On business debt, is the business you're looking to acquire already profitable with real, provable cash flow? If that answer is yes, owner financing is not reckless debt. It's a legitimate path to ownership that most people never even consider because they assume you

Starting point is 00:22:57 need cash to buy a business and that cash can only come from a business loan. And right now, the interest rates on that are in the double digits. On to the mortgage, Austin. What's your actual interest rate? Below roughly five or six percent. The math almost always favors investing your extra dollars over prepaying. Above that, it's a much closer call. And prepaying might make more sense. We've seen the markets have lower returns, but we've also seen the S&P 500 return 15 and 20% as well.

Starting point is 00:23:26 So make sure you understand that distinction. None of this means that debt is free of risk. None of this means that Dave Ramsey is wrong about everything. His advice with emergency funds and credit cards and life. style creep. It has helped millions of people who need a hard rule because nuance gets them in trouble. But when the debt in question is a fixed known ceiling, like a student loan, a fairly financed business acquisition, or a low rate mortgage, treating it identical to reckless high interest consumer debt costs you one thing. You're never going to be able to get back. And that,

Starting point is 00:24:03 again, is time in the market. And not all debt is created equal in the math in this episode. proves it. A dollar that can compound forever is fundamentally different from a debt that can only ever cost you what you already owe. And once you understand that difference, you'll never look at pay everything off as fast as possible the same way again. I'm really glad we did this episode, Robert. I know that a lot of people kind of graduate from Dave Ramsey's baby steps, right? They learn about money for the first time because of how simple the framework is, but then they start questioning things like we have. You're like, wait a second. would I pay off this mortgage? It's so low where, wait a second, I should only invest into,

Starting point is 00:24:44 you know, these things. I shouldn't do business acquisition or cryptocurrency. I thought Bitcoin has done pretty well historically. All these little nuances that Dave isn't a fan of, you start to kind of graduate from that. And you're like, wait, I need to think more holistically about my money. And that's the point of the Rich Habits podcast. Again, we want to give you all the information so you can make the best, most educated decision with your money. So you're trending in the right direction and building wealth, not just for yourself, but for your children and your children's children. And to be fair to Dave, when he created a lot of these concepts 30 years ago, interest rates in some instances were very high. People back then were taught that all debt is bad

Starting point is 00:25:25 and not to have debt. But if you look forward now in 2026 as we film this, the wealthiest people that I know on earth, many billionaires and people worth $500, $200, $200 million, all have debt because they understand that arbitrage that we always talk about in the Rich Habits Network, that if you can borrow money for less than what you can make with it, you always use other people's money. Now, before we jump to the Q&A section of this episode, y'all, if you're not yet using Blossom to track your portfolio and your investments, what are you waiting on? Not only does Blossom have this beautiful app interface that makes it easy to see the stocks and ETFs that you're actually invested in, their total return, things like that, but you can also see

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Starting point is 00:27:34 All right, Robert, let's now jump to our Q&A section of this episode. If you have a question to ask us, DM us on Instagram at Rich Habits Podcast, or email us your question at Rich Habitspodcast at gmail.com. Our first question comes from Rob. There you go, Robert. We got Rob here. Rob and Robert. Rob says, hi, I'm a big fan of the show, and it's motivated me to be more disciplined and

Starting point is 00:27:56 focused on my investing goals. And it's made me a better provider for my family, showing my daughter, successful money habits. Thank you both for all you do. Let's go, Rob. Rob says, my question is about my mother. Her husband, my father, passed away about 18 months ago and she will be moving in with us. We're excited to have her with us and she can spend more time with her granddaughters and help us out a little bit. She's 64 years old and expecting to receive $150,000 from her home sale. By moving in with us, she's going to stop working and start drawing on her Social Security survivor benefit, which is $2,500 per month. I'll be helping managing her finances. After ensuring she has an

Starting point is 00:28:35 emergency fund established, what is your recommendations for investing the remainder of the $150,000 home sale purchase? I'm thinking 60% stocks and 40% bonds. We are also considering setting up a trust for long-term planning. This is a really cool question. You want to kick us off? I think it's a great situation that you are helping her. But your question, what should you do with the money? I think stocks at 60%, 40%, depending on what the rest of her financial situation is probably fine, but I don't know enough about the rest of it. Considering setting up the trust might work as well, especially if she has other assets and other funds that she's going to be passing along to you. But I would just definitely make sure, especially if she has Social Security coming in and I'm

Starting point is 00:29:20 assuming maybe a pension or something, that you set these funds up so they're growing safely and you don't have too much of your foot on the gas by being too aggressive. At 64 years old, she's pretty young still. So you want to make sure that you're looking at a long enough timeline for her to where this is making income, but you're not being too aggressive trying to make up for lost time if she doesn't have a lot of other income or investments added to the home sale. Yeah, that's great.

Starting point is 00:29:49 Rob, I think it's really just like a couple questions that you have to ask yourself. Question one, how much money does. your mother need to survive on a monthly basis? Is the $2,500, like, is that all? I mean, can she live adequately off $2,500 a month from her Social Security survivor benefit? If yes, this $150,000 can be invested as if it's going to compound for the next 10, 15, 20, 25 years. Because you mentioned the 6040 portfolio. The only reason people do the 6040 portfolio is because they are following the Trinity study and the 4% rule. They want to live off of that portfolio and they need to ensure that that portfolio has durability and is not going to have too much volatility. The Trinity study tells us that

Starting point is 00:30:37 you're able at that 60-40 breakdown that that portfolio will be durable for 25, 30 years, assuming you pull off 4%. And so if she needs to live off the $150,000, then yes, a 60-40 breakdown is the best way to approach it. If she doesn't need to live off the 150,000, thousand and it can grow for her for the next 510, 15, 20, 25 years, then invest it normally, like, you know, index funds and ETFs like we talk about. Maybe want to have some bonds in there, sure, but I wouldn't do the 60-40 breakdown if you don't need that and it needs to just grow normally as if she had another 5, 10, 15, 20 years to invest. It all just comes down to, does your mom need $5,000 a month in income? If yes, then half of it's going to come from this, you know,

Starting point is 00:31:22 Social Security, then take the 150, do the 6040 breakdown there, take that 4% rule to supplement to that 5,000 as much as you can and then make up the difference elsewhere. That's how I would break that down and treat the money. I'd not treat it as like this blanket, oh, she's older, therefore we have to have it 6040. I would treat it as like, do we even need this money from an income generating perspective to survive? If no, if we could survive off the Social Security, and maybe whatever's going on else in her life, then let's just have this money compound indefinitely. Our next question comes from Brad. Brad says I'm from Perth, West Australia. Okay, Brad, thanks for tuning in from West Australia. How cool. Western Australia. Wow. Brad says I've enjoyed listening to your

Starting point is 00:32:06 podcast for the last 18 months. Here's my question. My wife and I are currently building our base and we're aiming to have 200,000 Australian dollars in it. Each fortnight, two week, we invest into V-O-O, VG-T, QQQ-Q-Q-Q-Q-Q-Q-Q-Q-T-A-Q-T and AIQ. Would you suggest any other ETFs to further diversify to help protect in pullbacks in the market? I'll kick us off, Robert. I think Brad is thinking about this incorrectly. Pullbacks in the market are normal. VGT, QQQ-Q-Q-A-Q-Q, like, yeah, there is overlap. app. But what's your investing goal, Brad? Is your investing goal to have all of your portfolio be so diversified that you are, you know, bulletproof in a sense that you don't have pullbacks and you're

Starting point is 00:33:01 not experiencing and you're trying to truly protect from those pullbacks? If that's the case, then you need to be diversified into real estate, into gold, into silver, into, you know, like, you need to diversify into a ton of different things. But I don't think that's the best way to approach investing. Pullbacks are okay. Having, you know, you know, you know, you know, you know, you know, VGT, AIQ and QQQ as well as VO and maybe some Dow Jones and whatever else. Like, yeah, they all kind of move similarly. But on the same vein, like, they're diversified from each other where, you know, yeah, there's some overlap, but like you want exposure to that historical compounding that they've done.

Starting point is 00:33:38 I guess what I'd encourage you to do is like, don't think so much about, oh, I'm so scared to protect about a pullback. Like, the only reason you'd be scared to protect against a pullback is if you, need the money tomorrow. If you're like me, Brad, and you mention you're a 30-year-old listener, you don't need this money for another 30 years until you're in your 60s. What is protection against a pullback in the month of July have to do with you when you're 60 years old? So, like, that's, I think the brain switch you need to make here is like, yeah, AIQ, VGT, QQQ, they might have some overlap, which like rock and roll, that's fine. But like, you don't

Starting point is 00:34:13 need to worry about protecting against a pullback in the market. assuming you don't plan to retire for another 5, 10, 15, 20, 25 years. Now, if you have to retire in five months from now, that's a different story. If you need this money to be preserved because it has to sustain your lifestyle, it's a different story. But I don't think that's what I'm reading here. All right. So I'm going to talk about it from an overlap perspective. Is there too much overlap?

Starting point is 00:34:39 Probably VGT, QQQ, AIQ, more international, VOO, fantastic. you could look at throwing in some XLE, some SCHD, maybe swap out VGT for VTI to get you some broader base here. But I agree with Austin totally. You need to understand what is your goal. Is there a lot of overlap in what you have? Yes, I own all of those funds as well, but I have a strategy as to why. So I would think if you want to diversify, think about precious metals, think about energy. Think about some of the other sectors other than AI and these hyperscalers,

Starting point is 00:35:19 which you have a lot of exposure to right now and broaden out into them. Real estate is fantastic as well, precious metals, Bitcoin, some of these other things. But don't do it in that willy-nilly fashion where you don't have a plan. I would just take this, feed it in, tell chat GPT or whatever you're using for your AI. This is my goal. What should I do with this and come up with a better plan to get the diversity, that works for your risk tolerance. I think that's the key. The diversification that works for your risk tolerance. You mentioned you're like, I need to help protect him pullbacks. It's like,

Starting point is 00:35:56 does your risk tolerance tell you that pullbacks are bad, which they're not? If yes, then like, yeah, maybe you do need to have some treasuries and bonds or like, you know, hedged different types of ETFs in your portfolio because you don't like those pullbacks. And like, maybe that's the case. But we're here to help you understand that pullbacks are normal. The NASDAQ fell by 11 percent in July. That's fine. It's up 100 percent since chat GPT was released, call it three years ago, right? Like pullbacks are normal. It's okay. We tend to trend up until the right with American capitalism. Our final question comes from AA on Instagram. A.A. says, hi, Robert Nostin. I love the show. I've been a long time listener. Thank you so much. They say here is my question. I've always thought that my

Starting point is 00:36:40 marginal tax rate is tax on the next dollar I make my federal bracket plus my state. Claude is bringing up that I'm now subject to the 3.8% N IIT tax and adding that to my federal. I haven't previously considered this. Should I be considering this when thinking about my total federal marginal tax rate? Robert, maybe you want to break down what that N IIT is and maybe what counts toward that income? first and foremost, I want to make it clear. This is a tax because you're crushing it. So if you're making a lot of money and you're over that $200,000 threshold if you're single,

Starting point is 00:37:21 or over $250,000 threshold, good for you. It's 3.8%. Get that money and stop worrying about it because what are you going to do? Lower your income to avoid this 3.8% tax. But yes, Austin and I pay this tax every year. We pay it gladly. because we're high earners and we want to build our net worth. So what does this count?

Starting point is 00:37:45 How do they calculate this? And they look at it as your net investment income. So they're basing it on how much do you have in bonds and real estate and stocks, rentals, any of these other incomes that put you above that threshold is why you are now in that bracket of having that tax being added to your yearly tax return. Austin, did I miss anything? No, I'll just define it. for everyone, right? So the net investment income tax is a 3.8% federal surtax applied to certain

Starting point is 00:38:18 investment income of high earning individuals, estates, and trusts. If you are single or had a household earning more than $200,000 a year, this would apply to you. And if you are married filing jointly earning over $250,000 a year, this would apply to you. What a great episode, Austin. And this was long overdue of us addressing these disparities between our thoughts and our ways and Dave Ramsey. Dave has helped millions of people over the years. So we're not, you know, we're not coming for him. We're not dunking on him. But we wanted to clear up the math of why we believe what we believe versus Dave's age old strategies that he's been teaching forever.

Starting point is 00:38:58 Yeah, this is a great episode. And Robert, I just want to remind everyone that we're still running a seven-day free trial for the rich habits network. we have over 1,000 people now inside the Rich Habits Network. Over like 138 people have joined us in the last 30 days alone. If you've not yet joined the Rich Habits Network, what are you waiting on? Seriously, there are so many people inside of there you can chat with. You can chat with Robert and myself. We have a two-hour weekly live stream that takes place every Tuesday night. We have our office hours where we just kind of kick it and hang out. Friday afternoons, We've got eight hours of video coursework.

Starting point is 00:39:36 You can send us a DM and we can chat privately. Like, it's so, so cool. So if you want to join the Rich Habits Network, you can use our seven-day free trial, kick the tires, do what you got to do to figure out if it's for you or not. Use the link in the show notes below or Google Rich Habits Network or click our links on our social media. Like, you can find the Rich Habits Network. I promise it's very accessible and we can't wait to see you in there.

Starting point is 00:40:00 Everybody, thanks so much for hanging out with us and we'll see you on Thursday. Thank you.

Rich Habits Podcast - 183: Rich Habits vs. Dave Ramsey (Debt Edition)

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