Rich Habits Podcast - Q&A: 7.5% Mortgage Rates, High Expense Ratios, & Budgeting To Move Cross Country

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Starting point is 00:00:30 and welcome back to a Q&A episode of the Rich Habits Podcast, your favorite podcast, our favorite podcast. These are our Thursday episodes of the Rich Habits Podcast. And they're a good time, if I say so myself. It's an opportunity for us to answer your questions. Any question that you can come up with. You can email us your questions at Rich Habits Podcast at gmail.com. You can DM us your questions on Instagram at Rich Habits Podcast, which, by the way, Robert, we've got countless DMs. as of late.

Starting point is 00:01:01 Y'all have really, really liked our Instagram. So if you're not yet following us on Instagram, we haven't DMed us over there yet. Rich Habits podcast on Instagram. You're missing out. We're having a good time with those Instagram stories and the fun posts we're making over there. Definitely.

Starting point is 00:01:15 We love these episodes and just get involved. Everyone has blind spots, financial questions, business questions, mindset questions. Just get more involved. We have the Rich Habits Network. There's a seven-day free trial. We have the Rich Habits newsletter. You can Google that and follow along there.

Starting point is 00:01:34 There's so many ways to get more value out of us. They cost you $0. And all it does is help you improve your life and your financial situation. So get more involved. And as a reminder, this episode of the Rich Habits podcast is brought to you by public.com. But more on that later. Robert, we have a question coming from an anonymous listener I'm excited to dig into. They say, hi, please keep me anonymous.

Starting point is 00:01:58 I love your show. and I have a question. My employer allows for both 401 and Roth 401 contributions and has a match percentage. I'm 59 years old. So my question is, I'm making contributions to the Roth 401k. But all the fees for the funds that I can purchase inside my Roth 401k range from 0.62% to 0.7%, which seems kind of high to me when I could just invest that money in a taxable brokerage account that has some way lower fees. So my question is, should I just contribute up to the match and then invest the rest into a taxable brokerage account? Robert, do you want to start this one off? Yes, definitely. For those of you that have been around for a while, you know we like the up to the match, rock and roll, get that

Starting point is 00:02:44 free money, but everything above that in this situation, especially I think you should put in the traditional brokerage account and have it separate because then you can pick those low cost funds that we talk about all the time and rock and roll in that traditional brokerage account. We call it a bridge account where you control it, you pick what you want, and you can build that for as long as you want going into retirement or if you want to retire early. So I like this strategy, and I agree with you, with those fees that you mentioned, that is pretty high. You're going to see that a lot in these Roth 401Ks in these traditional 401ks.

Starting point is 00:03:22 but I like your idea of separating it and just going up to the match. Yeah, I wish we knew how much our anonymous friend here was making and how much they already had invested and all the details that are important to make a decision like this. But the framework we like to use is match beats Roth beats taxable. So up to the match with your 401k contribution to get the free money, then make sure you're maxing out that Roth IRA and then go back to that 401K that you're contributing to only if you have autonomy. If you don't and they pigeonhole you into some target date funds or bonds or high cost mutual funds,

Starting point is 00:03:59 like it seems like you might be here that underperform the markets, then say, okay, I've got my match going. I've got my Roth IRA. Instead of going back to that 401K, I'm instead going to focus on that taxable brokerage account on public.com. So you can do that. That's sort of how we think about it here. It seems to me that you are being offered some high fee funds that might underperform. the markets like a fund is not always bad Robert if it has a higher fee neos funds have higher fees than

Starting point is 00:04:28 the s and p you know v o for example but they're not bad funds because they have a very awesome tax efficient monthly income strategy that blows all of their competitors out of the water so like you're paying to outperform and the amount you're paying 100% offsets all the outperformance compared to their peers so like in this example for anonymous listener if they're paying a little bit higher for some funds, let's call it half a percent higher than what you'd pay with the SPY or V-O, and you're dramatically outperforming the market with these funds, call it 2, 3, 4, 5, 6% consistently. Cool, pay a little bit more, have some outperformance at all offsets. But if you're paying 0.62 or 0.7, like you're alluding to here, and they're forcing you into some target date fund and you're

Starting point is 00:05:13 underperforming the market, it's this big mess, then yeah, you need to reconsider where your next dollar goes because at the age of 59, I mean, you're right up there with retirement age. You're able to now think about how much can I take out of these 401ks and, you know, is this money accessible to me, things like that. So yeah, it's just, it really just comes down to, you know, and I wish we knew more about their financial picture, where else they have money, the amounts, the specific fund names, things like that so we could help benchmark for them here. But I think at the end of the day, being able to say and make that distinction between underperformance, high fees, not a good time, maybe I should stay away from that and say, all right, instead, let's focus on low-cost index

Starting point is 00:05:53 funds on public.com's taxable brokerage account, V-O-O-Q-Q-Q-M, D-I-A, things like that. I think the biggest call-off for me there, and that was a great breakdown, is people understanding higher fees for funds that are performing better than the benchmarks are okay with me. If they have a strategy and I'm going to make more money with my money, rock and roll because active management costs more money. But if someone's going to charge high fees just to line their pockets and I'm not going to get that outperformance and really crush it in my portfolio, that's a different strategy. So I really, really like that call out. So our next question comes from Anthony P. And this is a really good one Robert. I'm excited to dig in. Anthony says, hey, I'm a long time listener. I've

Starting point is 00:06:37 had great success the last few years since I started listening to your podcast. My name's Anthony. My fiance and I are getting married in two weeks. I'm 31. She's 27. I'm a 1099 exterior contractor salesperson for a local company. But I also do full residential remodeling as a side hustle that is now starting to turn into a full-time business. I'm making between $250,000 and $300,000 a year right now. And I'm expecting a lot more growth. My fiance is a nurse at a school making around $70,000 a year. My question comes down to buying a house. We currently. have $260,000 of cash in a high-yield savings account. We have about 320,000 invested in the markets across various retirement accounts and taxable brokerage accounts. The reason for the high cash balance is, one, we have a wedding coming up, of course. We want to make sure we're paying cash for that and not going into high-interest debt. But also, two, we want to have a nice down payment for a house plus any remodel needs that might be around the corner. I'm curious if it makes sense, though, to build up the cash to purchase a house outright or to just put that 20% down, shrink our emergency

Starting point is 00:07:46 fund down to six months of expenses plus any planned purchases for the next year, and then put the rest in the stock market. We're looking to buy a house in the $400,000 range, and we're considering maybe a two-unit house to do some house hacking with. Robert, we've been pretty vocal, and we just had an episode, I think it was maybe four weeks ago, five weeks ago. It was episode 1.83 that came out on August 17 titled Rich Habits versus Dave Ramsey Debt Edition. And we talked about how the differences are between how we think about debt and how Dave Ramsey thinks about debt. And if you ask Dave Ramsey this question, he would say, put down as much as you can, pay off the house as quickly as possible, you know, all that fun stuff. And in that episode, you know, we were like,

Starting point is 00:08:29 listen, if you've got a two or three or four percent interest rate on your home, no, rock and roll, leave the mortgage, arbitrage the difference in the markets. And, you know, inflation is obviously the eating at the debt as well. Like there's, there's a lot of things that you could do with that money besides pay it off at a two, three, four percent interest rate. But Robert, our reality in, as we've filmed this now at the end of September of 2006 is a little different. Interest rates on 30 year mortgages are now at seven and a half, eight percent, depending on your credit score. The stock market does seven and a half eight percent every year adjusted for inflation. And so now things are getting a little tricky when it comes to mortgages. So I'd love to know your

Starting point is 00:09:04 perspective here on Anthony's situation. This is an incredibly first. and foremost, Anthony, you guys are crushing it. That is very, very cool at 31 and 27 years old. To be able to even be in this situation of thinking about paying cash for a house is incredible. This is where it gets tricky for me, Austin. On one side, we could say, okay, the S&P 500, we talk about VOO is a great investment vehicle. Let's say it's going to make you 8 or 9 percent. And let's say, I'm assuming Anthony has really good credit given his financial situation, let's say he's going to get this mortgage for 7 and a quarter percent.

Starting point is 00:09:37 There is a little bit of positive arbitrage there, but it's not enough to make a meaningful difference in this situation. But I still lean towards getting a traditional mortgage, putting the 20% down, and here's why. What I don't want you to do is deplete anything from the high-yield savings or your investments overall because you've done so good so far of building all of that up. And for me, you always have the opportunity to go back and refinance. but if you have so much of your net worth tied up in one asset, it puts you in a little bit of a different situation. And it, I feel, put you in harm's way because generally we know the rates are going to come down at some point and the markets are going to improve on those mortgage rates. But we also know the stock market in many years way outperform 7.5%. So I always want to make sure you have the opportunity to be able to invest in other things rather than having so much of your net worth in,

Starting point is 00:10:35 one asset. I like that perspective. Here's what I'm doing, Anthony. You know, I'm building a house right now. I am looking at these seven plus percent interest rates for 30 year fixed. You know, it's like I'm right in the same boat. And how I'm approaching it is I'm putting, I think for myself right now, I think 25, 27 percent down something of that nature. It was just a round number that made sense in my financial situation. But I'm putting down 20 percent or more toward this home. And then when it comes to my excess capital on a monthly, quarterly, an annual basis, I'm sort of splitting the difference because I'm looking at on one side, the S&P does 7, 8, 9, 10% a year. And on the other side, I'm looking at a debt that also is at that 7.5% percent, right? And so I'm thinking,

Starting point is 00:11:22 okay, for every dollar that I invest, is it possible for me to also put a dollar toward paying off my mortgage? Can I also say, you know, let's say this month 50% goes to net new retirement contributions and stock market contributions and investments because I want to have that money invested and I want to continue to invest and, you know, ride the wave. I mean, obviously the stock market over a long period of time to 7, 8, 9, 10%, but AI recently has had us do 10, 15, 20, 25%. So I want to be riding that wave and enjoying that while also saying, okay, I already have seven figures invested in the markets and doing that for me. Maybe I should take half this capital that I would have put in the market's net new capital and start using that to pay down my mortgage because it's at a

Starting point is 00:12:06 7% interest rate or higher, whatever it comes out to be here as we close on this loan. But long story short, I don't think it's black and white. I don't think it's, I should go all in on this cash to buy a house outright. Like I don't think it is that, but I also don't think it's ignore it. I don't think you need to ignore this mortgage interest rate like people have been taught to ignore interest rates at the 2, 3, 4%, and just ride the wave. And yeah, you're always going to have a mortgage at 2, 3, 4, 5%, whatever it is, when it starts to creep up to those high single digits like it is now, you have to look at it holistically and say, wait a second, if the stock market historically does this, and I'm paying more in interest to do that, my dollars theoretically

Starting point is 00:12:43 should kind of be split between both of them. And I should theoretically think about it as, you know, getting rid of this higherish interest while also getting invested and staying invested. You know, a problem, and I guess we'll give, you know, Dave Ramsey his flowers here, he doesn't say to go all in on paying off your mortgage as aggressively as possible with every dollar of margin in your budget. He says to invest 15% of your pre-tax income into the markets and then everything above that goes to the mortgage. And I don't know if I want to say, you know, 85% pay off the mortgage fast, 15% then percent getting in the markets. I'm more 50-50, right? I want to make sure I'm getting a lot of money still in the markets because I think the market, I can do better

Starting point is 00:13:22 personally than the S&P 500, right? So I want to make sure that I'm getting into that and I'm having fun over there. But I'm also cognizant that, you know, having a net worth that will go up over time and being able to lean on and say, I've got a paid off house or I've got a house with a mortgage that's much less. And I've got, you know, several hundred thousand or over a million dollars of equity in this piece of real estate. And it's continuing to trend up into the right. And it doesn't have high debt on it, things like that. Like, that's also a cool, you know, outcome. And so in my experience or my perspective, that's how I'm playing it. Kind of do a little 50-50 action. But I don't think it's so black and white. We have to say.

Starting point is 00:13:57 say buy cash, go all in on this, or completely ignore it, do just the 20 and like, you know, don't worry about the interest rate and keep it around forever. I think it's okay to have a little bit of gray area there because, again, personal finance is personal. I really like that breakdown. And the one thing I want to add that I missed in the first attempt at answering the situation is the two-unit home having that duplex. That is a really, really good idea. I still wouldn't pay cash for it. There are a lot of great programs out there. You have the Fannie. may 5% down mortgage, which is a really, really cool program you could utilize and you could put more than the 5% down if you wanted to. The number one thing I really like about what Austin said,

Starting point is 00:14:37 though, for all of you out there in this situation, is understand this. Don't buy more home than you can actually afford. Too many people buy what they get approved to rather than what works for their debt to income ratio to make sure they're not house broke and they're continually investing towards their future, not just in their home. Robert, support for the show comes from public.com. If you are actively involved in your portfolio like we are, you probably catch yourself repeating the same actions like buying the dip, manually sweeping idle cash, or even putting on a hedge.

Starting point is 00:15:11 On public.com, you can now create AI agents that handle all of these tasks on your behalf. Just describe what you want to do in plain English, like if the VIX hits 25, buy a put option on the S&P 500, or if my cash balance goes above $20,000, move the excess into my direct index. You approve the workflow and your agent handles the rest. Monitoring the market, watching for your conditions and executing your strategies exactly as defined. Public is the world's first agentic brokerage. It's an investing platform driven by your intent, not just your clicks. And if you're into that sort of thing, you can also get full read and write.

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Starting point is 00:16:23 front slash disclosures. Now our next question comes from Chris M. Chris says, Robert in Austin, you answered a question of mine recently about robots taking over the world and you encouraged me to Usa and so I have been doing that. Thank you so much for the advice.

Starting point is 00:16:38 Okay, Chris. Very cool, man. Chris says, you just had on the show the Nios Funds Partners and I want to make them a major parts of my savings for retirement, say even up to a quarter of my portfolio. But I've been researching about something called nav erosion, and I want to better understand what's going on there. So one, can you please break down what nav erosion is? And then

Starting point is 00:17:00 could you also talk a little bit about cost basis and how NEO's funds change the cost basis for their investors over a period of time? My Roth 401k is maxed out with the S&P 500, which means all of this would just be in my taxable brokerage account, taking advantage of their tax efficiency. This is a good question. off? Yeah, I think what I'll do is cover the net asset value, and then you can talk about how NEO's funds does not have that NAV erosion generally like some of these other funds that we don't like. So net asset value, that NAV erosion stands for net asset value of a fund, and it represents the total value of a fund's assets minus its liabilities and operating costs. So in other words, the NAV is what's left for the funds investors that get paid out to

Starting point is 00:17:50 them. So for ETFs, the NAV per share is like the product's price tag, showing the proportionate NAV value for each individual share within the fund. So I hope that helps clear up what that means. And Austin, you can speak a little bit more about how this works within the NEOS funds and why we like them so much. Yes, like when we talk about nav erosion, it's not something we actually talk about a lot here on the show. So it's a good question and I'm glad we're addressing this. Nav erosion and AV net asset value erosion happens in ETFs all of the time especially ones that start with the letter Y like there's there's nav erosion that takes place you just have to be careful and that's why

Starting point is 00:18:32 you are doing your research and understanding how these products work nav erosion like how we like to think about it means the value of the ETF's assets are gradually shrinking over time so you put your money in an investment and that investment is gradually shrinking over time. This can happen in products that pay out regular income to investors in the form of options premium, very similar to Nios funds, but they do not have Navarosion and we'll get into that. But you can kind of think about it like this, and this is how I had to help myself think about it when I was first learning. Coca-Cola or Johnson and Johnson, right? Big dividend paying stocks. Everyone knows they've been paying

Starting point is 00:19:08 dividends. Warren Buffett gets his Coca-Cola check every single quarter. What happens if a company, instead of paying their dividends to their shareholders through a percent of profits, they don't have profits to pay that dividend. So they instead go into debt to pay their dividend. Well, that's not really a dividend because the definition of a dividend is it's a portion of profits that's getting shared out to their shareholders, right, paid out to shareholders. So instead, they're going and taking on debt to then still pay the money out to shareholders. But like, why would a shareholder want that? because it's a worse-off situation for the long-term success of the business. And so, yeah, the company's paying a dividend and maybe a higher dividend in this example,

Starting point is 00:19:48 but at the cost of the long-term success of that company, because what company wants to take on debt to pay out dividends to shareholders. ETFs experience nav erosion when they pay out a distribution to their investors that is larger than the income generated by their strategy during a specific period. of time. So let's walk through this. If you are investing into a income producing ETF, and that income producing ETF uses option contracts like covered calls or cash secured puts or, you know, all the other cool things you can do with options, if they have some sort of income producing strategy, and that strategy generally yields 10% per year. And it generates that 10% and instead of

Starting point is 00:20:33 that 10%, the ETF manager says, no, we're going to pay out 15%. during this one year period of time. If the price of the ETF does not increase by that 5% difference, kind of breaking even there, which is the total amount, that 15% that was paid to investors, if you don't have that total and you make 10%, but you pay out 15, you're essentially doing what the dividend company did. You're going into debt. You're going into the red, right, to pay out to your investors, which is a very, very bad long-term strategy. You can go look at C-O-N-Y, you can look at T-S-L-Y, you can look at some of these single-stock covered call ETFs that exist out there that have had NAV-Erosion over the years, it's just down, right?

Starting point is 00:21:14 It's just going down. And that's, in my opinion, not something I'd want to have in my portfolio. I want things that go up. I want things that pay me tax-efficient income that generally trend up into the right over time. NEO's funds thus far have not had NAV erosion, and we believe their underlying strategy is not susceptible to NAV erosion either. And the reason I say that is because NEO's funds do two things very, very specifically that make it so they do not have Nav erosion. And if you're an options nerd like I am, you'll understand this.

Starting point is 00:21:44 If not, that's okay. Just nod your head and keep going. Nios funds sells out of the money option contracts on only 75 to 90 percent of their total portfolio value. So yes, you're getting the out of the money option contracts, which means that the price of the underlying index can go up and value. right? We want things to go up and value, not go down, talking about this nav erosion. So it can go up in value, which is good. And it's only written against 75% to 90% of the total portfolio, which means there's still a 10 to 25% of the portfolio that's not capped on the upside, which means as the markets go up regardless, that portion of the portfolio will continue to go up as well. So that is why their Nav erosion strategy works great because they do not have it. They've built this specifically to, you know, push that Nav erosion away and to not have it inside of it. their funds. Fingers crossed, something weird that doesn't happen, right? Like, they continue to be Nav erosion free, which is very, very important when you're looking at having an income producing asset inside of your portfolio. What a great question. I agree with you. We don't talk about

Starting point is 00:22:47 some of these things enough. So it's really good to kind of dig deep on some of these questions that people just don't understand about it, even with the NEO's funds, because we love working with them. I just wanted to take a second. This was a really cool question. and talk about office hours. I don't remember when we introduced it. For any of you that have not checked it out yet, every Friday at noon Eastern time, Austin, myself, Eric, sometimes Christian, we all jump in.

Starting point is 00:23:15 We get a few dozen people that come in with their questions, asking about their finances or maybe nav erosion or real estate or all these things. It's just a really chill, fun thing that we've added to our repertoire every single week that we do for our audience. make sure you guys check it out. It's really, really easy to join every Friday at 12 Eastern. And that is inside the Rich Habits Network, by the way. So we host these office hours inside the Rich Habits Network alongside of a Tuesday night two-hour live stream. So you get an hour of us on Fridays to answer cool questions and I'm happy to dig into the nuances of nav erosion or

Starting point is 00:23:54 covered calls or out of the money this. Like I'm very much a nerd. So we can talk nerd stuff if y'all want inside the office hours there in the Rich Habits Network. So again, link in the show notes below for a seven-day free trial of the Rich Habits Network. Robert, I want to give a shout out because I know they're listening here to the 122 people that have joined us inside the Rich Habits Network in the month of September. There's 122 people that join the Rich Habits Network in September. You're amazing. Thank you for joining us. And for the people who are listening that were not part of the 122,

Starting point is 00:24:29 what are you waiting on? You could be the 123 person. Like, it's like, if I heard on a podcast that 122 people joined something in September and 2003 people joined something in August and 120 something people joined in July, like, I'm like, whoa, that's like 400, 500 people that just jumped aboard this thing that I need to go try this. Like, I need to go give it a try. And we encourage you to do so. That's why your first week inside the Rich Habits Network is completely free because it is a trial. You can go try things. You can see if it fits you. You can see if it fits your learning curve, curriculum, all that stuff. Go check out and try the rich habits network. Just Google Rich Habits Network. Find Rich Habits Network in the description or in our link in bios on social media.

Starting point is 00:25:15 Any which way, go find the Rich Habits Network. All righty. Robert, next question here coming from our friend Daniel. What's up, Daniel? Thank you so much for tuning in. Daniel says, first off, your show rocks. I've listened to so many episodes of the Rich Habits podcast, and I always come away with a better perspective on money, investing, and building wealth. I really appreciate how you teach people to think differently about their finances and long-term futures. My name's Dan. I'm 37. I'm a public school teacher. My wife is 42. She works in health care, and we have three young children. Here's a quick snapshot of where we are. We have $105,000 in a bridge account managed by a financial advisor invested into domestic U.S. stocks, some international stocks, and some

Starting point is 00:25:57 other short-term investments like T-bills. We have 67,000 in a personal investment account through our bank, primarily invested into individual stocks, including several of the magnificent seven companies. We have 27,000 in 529 accounts, 118,000 in Roth IRAs, 62,000 in a rollover IRA, and 300,000 in my wife's traditional 401k. Here's my question. Since we already have $105,000 in this bridge account made for flexibility, should I approach the $67,000 investment account differently? Would you move funds away from the individual stocks it's already invested into? Maybe instead build towards something like $100,000 invested into the index funds and ETFs you talk about? Or would you approach it differently and maybe invest the money into stuff we're not even thinking about? Thanks again for

Starting point is 00:26:47 everything you guys share here. Your podcast has genuinely changed the way I think about personal finance and I really appreciate the time and effort you put into educating people like me. Dude, so nice of you to say that. Thank you so much for tuning in. Super grateful, seriously. And we will not take that for granted ever. So, Dan, if I were in your situation, I'm looking at your 105,000 bridge account. It says it's managed by a financial advisor. Okay, maybe you need a financial advisor for 105 grand. I lean, you probably don't though. You probably, if you wanted to, and you feel comfortable doing this, take this money back from the financial advisor and have it get transferred to a taxable brokerage account on public.com. And you can focus entirely on, to your point, the VOO's, QQ's, VXUS's, DIAs of the world.

Starting point is 00:27:34 So you have that domestic and international. I don't think you need short-term investments at 37. You probably shouldn't have cash and cash equivalents in an account at such a young age. I'd rather see all of that money invested into index funds. So now you've got this bridge account that you're managing by yourself, and you've got it in the index funds and ETFs we talk about. So that's the 105 base built. And then you've got this $67,000 that you're saying,

Starting point is 00:27:57 listen, our bank is managing this money, and they've got it in individual stocks, which is a cool strategy. We are big believers in being diversified into blue chip single stocks. I've got a ton of them. Robert does as well. So if you feel comfortable having $67,000, in essentially the Mag 7, which I think is totally cool, totally fine.

Starting point is 00:28:17 If you have a long-term vision like we do, rock and roll. Either keep it with the bank or, again, don't pay their advisory fee. Do it yourself on public. And the same account that you've got the $105,000 of index funds in, you could have $67,000 of magnificent seven stocks. And now you're in a situation where your wife's traditional 401K, hopefully is invested correctly in index funds and ETFs. That's 300,000.

Starting point is 00:28:41 You've got a couple of Roth IRAs and other IRAs. raise that's also invested into index funds and ETFs. So now we're at roughly 470,000 of that. At another 105, we're at 570, 600,000 of index funds. And then you've got about 67,000 of single stocks. I think that's a awesome, awesome ratio. It's about a 10% single stock to 90% index fund ratio there. Nothing to argue with on that. Even, Robert, maybe you can talk about how important it is to kind of follow that, you know, we always talk about the core satellite port portfolio strategy. 15 to 35% to be in that satellite. Call it 65 to 85% to be in those index funds and ETFs. So Robert, what are maybe some ways that our friend Dan here, if he wanted to diversify a little

Starting point is 00:29:24 bit more with this 67,000 or maybe this other 1005,000 in a bridge account, what are some of your favorite diversification strategies? Yeah, I think you did a great job of covering it, and I want to kind of linger on what you were talking about for a little bit. Obviously, Dan and his wife have done a incredible job getting to this point, but a lot of these funds are tied up and having other people manage them. So first and foremost, I would do an audit of every one of these accounts. I want to know what's in it, what's invested, what are the total fees going out to this bank and to these other people that are helping us with these funds? First and foremost, because I agree with you, with $105,000 in the bridge account and the 67

Starting point is 00:30:06 in the bank managed account, I feel like that could almost be one, a public.com. account that they manage and they handle to cut down on all of these fees that they're being charged. And then from there, I would audit all the other accounts as well to make sure I understand what am I actually invested in because so many people do this, set it and forget its strategy, especially when it comes to a work-related 401k or Roth 401k or something like that. So that's where I'd start. When it comes to diversification, I would look at, okay, do I have enough exposure to the future, whether it's space or it's AI or its energy or something like that. Do I have the interest in why am I not invested in any real estate, either through direct investments

Starting point is 00:30:50 in real estate or through some of the reits we like that can get them some exposure to real estate? What about precious metals? We keep hearing and we've done very, very well with precious metals over the last three, four, five years, gold, silver, copper, some of these precious metals, should they have 5% of their net income or portfolio in these precious metals as well? So I would definitely do the audit first, figure out if they should manage the 105 and the 67 themselves and combine it into one account that they control. But then I would start putting net new capital or some of this capital depending into some of these other ways to diversify out of just being specifically in these traditional

Starting point is 00:31:34 ETFs and in these MAG7 stocks because you can still own ETFs like GLD, SLV, let's say XLE. There's a lot of different ways to diversify while still staying in that ETF wrapper. So that's what I would do. I think that's a great perspective, Robert. Our next question comes from Lindsay A on Instagram. Lindsay says, hi, Austin, Robert, I have a question about public.

Starting point is 00:31:58 I've been using public for my high yield savings for a while now, thanks to you all. And I noticed they just came out with a new, reserve membership for $200 a year. Right now, I only use them for my high yield savings slash bonds slash T bills, and that total $60,000. The reserve account has some interesting perks that I think would be worth the 200, but I'd love your thoughts because I haven't heard you talk about the public reserve. I would earn 3.75% on my high yield savings account versus 3.3%, which would essentially pay for the membership in itself. If I make the switch, I'm going to also move over $102,000 of my Roth IRA and 50,000 from other brokerages to take advantage of their new match. Am I missing something? Or is the

Starting point is 00:32:40 public reserve a no-brainer? Again, I haven't heard y'all talk about it on the show yet, so I just want to get your thoughts. I know you love additional context, so we'll add that I have 120 grand in my 401k with Fidelity. I'm 27 on my condo in St. Pete and make 200,000 per year in software sales. Yes, public.com slash reserve is awesome. And the reason we have not talked about their reserve membership. We haven't had the opportunity to film an episode yet. It came out literally like three or four days ago. So it's it's brand new public.com slash reserve. I'll just kind of walk through it here. Robert, I bet I can share my screen and show everybody what this landing page does. Here we go. Higher yield, bigger matches, one membership, unlock $4,000 plus an annual value only with reserve.

Starting point is 00:33:25 So you get 3.75% APY on your cash. You get a 4% annual I. IRA contribution match, which means if you max out your Roth IRA, Robert, at $7,500 a year, that's $300 of free money. That's the whole membership in and of itself, right? You're making money by just maxing out your Roth IRA. You also get a 1% annual match against your generated assets, as well as a half a percent additional match on, it seems like, direct indexing and your treasury account that's worth up to $1,250 every single year. And they got a cool kind of breakdown here on the differences between them. So yes, if you are someone that uses public like we do, $200 a year for reserve is a no-brainer.

Starting point is 00:34:11 I just laid out the math, Robert, for the Roth IRA. You pay 200. You get 300 by maxing out your Roth IRA. You make $100 there. And that's before the high-yield cash account difference that our friend Lindsay here is talking about. That's before the generated assets. That's before the direct indexing. Like, that's before everything else.

Starting point is 00:34:30 So there's a maximum match of $4,000 that you can earn against this $200 a year reserve membership that public is offering. So I think it's great. We have not yet talked about it here. But that's because we haven't had the opportunity. It just came out. We just talked about it with life last week. We had them on the show. And we're recording this now on Monday.

Starting point is 00:34:49 We're so pumped. We're so excited for public reserve. So go to public.com slash reserve. Sign up. Go check it out. Do your own diligence and figure if it's a good fit for you. Yeah, 100%. absolute no-brainer for all of you that are using public.com right now or even if you haven't

Starting point is 00:35:04 joined yet, it's incredible. And I'm glad you highlighted $4,000 in value right out of the gate, first year for $20 a month. It's incredible. Lindsay, shout out St. Petersburg. But yes, definitely check it out. Now, Robert, before we jump to our final question coming from Joshua Kay on Instagram, we are entering the fourth quarter of 2006. October is here. And uncertainty has never felt so high. Interest rates are all over the place. The Futter Reserve just raised interest rates for the first time. I feel like unemployment is doing some weird stuff. We see some craziness going on with Bitcoin and cryptocurrency. Major indices haven't experienced real durable uptrends.

Starting point is 00:35:43 I know we got a little pop there in the NASDAQ recently, but it wasn't really a new durable all-time high. All this stuff is all over the place. How are you feeling about it? I mean, it's exactly why it has never been more important to have a plan and stick to it. And if you're a long-term investor like we are, that plan has never been easier to come up with and implement, and that is dollar cost average and ride the wave. That's right. We've been talking about how important it is to dollar cost average for years now. When the markets feel shaky, it's hard to see your progress, which is why we recommend being part of a social platform called Blossom Social.

Starting point is 00:36:15 On Blossom, you're able to see your entire portfolio in a very clean and simple way, including your holdings, your performance, your dividends, all that fun stuff. But you're also able to follow other long-term investors on the platform. platform helping you stay motivated during uncertain economic and market times. Not to mention the portfolios on Blossom are all verified. So if you're seeing someone buy or sell a name, it's because they actually did it in their own brokerage account. We're both on there. Our portfolios are on there.

Starting point is 00:36:43 So if you want to join us, search Blossom Social in the app store or head to Blossomsocial.com on your phone or desktop. There's also a link in the show notes below. All right, Robert Joshua Kay. Last question for the episode. Hi Robert Nostin. Big fan of you guys and the podcast. I've been listening since I was a junior in college.

Starting point is 00:37:02 I've now graduated from college, just started my first full-time job in early September of this year, and I couldn't be more excited. I have an annual salary of $89,000 and I've received a $6,000 signing bonus. I live in the state of California. I have little student debt. I live at home at the moment, so I'm not paying any rent. I have questions about building my budget. I have a Roth IRA I want to contribute to in Maxx.

Starting point is 00:37:26 out as well as a 401k that I recently started contributing 17% of my paycheck to. The full-time role I am in is a rotational role, so it's very likely that I will be moved to New York City by this time next year. I just had questions about essentially how should I allocate my monthly income in terms of my retirement investing, my personal savings, as well as how much I should be setting aside for this inevitable move to New York City. Thank you all so much for the help, and I love what you guys do. take us off. Well, great job. Congrats. We look forward to seeing what happens with your move. But I would say first and foremost, I would only go up to the match. We talk about this all the time for the 401k. I would get the Roth obviously maxed out every single year if you can. And then I would take all

Starting point is 00:38:13 the rest of those funds in a traditional brokerage account because then you have autonomy, you can control it, you can build it how you see fit. Hopefully you're a member of the Rich Habits Network so you can rock and roll and know exactly what to do with your money. But that's where I would start because for me in a 401k in most instances, you just want to go up to the match, get the free money because you investing your money elsewhere is generally going to outperform the target date funds and the mutual funds in your 401k. Unless you're with some company that has autonomy in the 401k and you have a better selection process of what you can't invest in, that's where I would start. I love this question. Congrats on making $89,000 a year.

Starting point is 00:38:53 That is an awesome, awesome salary. with that $6,000 signing bonus, rock and roll. So when you build your budget for the first time, and this goes for anybody, not just our friend Josh here, what I've seen helps me when I started building my budget, when I've seen other people do that I think is a really cool way to think about it, is you have, maybe you do this on your Google sheet, you do it on a pen and paper, whatever. You've got fixed expenses on one side and discretionary spending on the other. So you have fixed and discretionary.

Starting point is 00:39:20 What's the difference there? A fixed expense is an expense that is recurring that you have to pay. pay to live your life. Think rent. Think groceries. Think gas in your car. Insurance on your car. Phone bill. Utilities, right? These are things that happen every single month that you have to pay for to maintain your life. That is a fixed expense. They are not surprises. Normally fixed expenses are the same every single month. And you can easily break down what those 5, 7, 10, 12, 14 fixed expenses are in your monthly budget, depending on your family, your size, what kind of life you live, right? But those are the fixed expenses. Okay. Now you know that this is how much money you have to spend every single

Starting point is 00:40:03 month to live your life. For you, you don't have rent. So rent is not a fixed expense for you. But maybe your phone bill is, maybe your car insurance is, groceries, maybe the gas you put in your car, right? There are fixed expenses that apply to you. So now on the other side of the piece of paper or your Google sheet, you have the other column, which are discretionary spending. This is going out to eat and drink with your friends. This is taking your vacation. This is traveling to the wedding that you want to go to. This is upgrading your phone because you want the new iPhone 18, so you're setting some money aside every single month so you can go upgrade this phone, things like that. So now you've got your fixed expenses and your discretionary expenses. After you do that, there should still be what we call

Starting point is 00:40:43 margin in your budget. That margin, which you should have probably between 15 and 25%, depending on your situation, anyone listening should kind of be in that range. That 15 to 20% margin is the saving and investing that you need to be doing alongside of these fixed and discretionary expenses. So when we talk about building a budget, right, you got your fixed, you're discretionary, and then you also have that margin at the end of the month. Now, for our friend Josh here, I'm assuming you're going to have a lot of margin because you don't have rent. You're right out of college. You probably don't have that much of like fixed expenses. And I'd encourage you to live a life where your discretionary spending is as low as possible so you can have as big of margin as possible at the end of every single

Starting point is 00:41:28 month to then take and get invested. If that's with your Roth IRA, like we always encourage people to do. Maybe you got the public reserve account and you're maxing out the Roth and you get that 4% match. Or maybe, and it should be as well for this too, is the sinking fund for this five or $8,000 move you're going to have to incur when you move across the country to New York City. Maybe it's for a foreseen expense in the future. Maybe it's for that emergency fund that we encourage people to have, right? But that margin in your budget is the most important part because that's where you start to get ahead. That's where you go from, I'm not just trading time for money anymore, but I now have enough

Starting point is 00:42:05 margin in my budget to take that and invest it into assets that will grow for me throughout my lifetime where the portfolio income from those investments will eventually offset the amount of money that I trade and do at this $89,000 salary. That is the definition of financial independence and financial freedom. Robert, we just did a huge episode about this, episode 187, titled What Makes Someone Financially Free. Highly recommend Josh and everyone else to listen to that episode to better understand why we think it's so important to have that margin and how to deploy the margin so you eventually become financially free in the future. Josh, great question, and congrats on the new job.

Starting point is 00:42:44 Yeah, that was a really, really good breakdown. And every time we have a younger listener asked these types of questions, it always brings me back to us talking about every dollar wasted in your early 20s that's not saved and invested could have turned into $77 in retirement. So for any of you that are in your early 20s, watching these episodes and learning about money, Always remember that that you need to give compounding as long of a window as possible to help you build wealth. So if you're early on when you do the right budgeting and you're putting away that margin and you're investing it every single week or every single month, that's how you build real wealth.

Starting point is 00:43:23 Everybody, we're so grateful that 100,000 of you come back to listen to the show every single week. But only 1,100 of you are hanging out with us inside the Rich Habits Network, which means there's 98,900 of you that are listening right now that are not. inside of the Rich Habits Network. So go check out the Rich Habits Network, seven-day free trial, and the link in the show notes below or just Google Rich Habits Network. And join us for a Tuesday night live stream, invest alongside of us into some of these pre-IPO companies. And join us for those office hours that Robert was alluding to. Definitely. I love these episodes. And I'm so glad that we get so much inbound questions from people because personal finance is personal and everyone is going through something differently. So we appreciate you guys

Starting point is 00:44:07 engaging with the rich habits podcast and make sure you check out the seven day free trial for the rich habits network thanks everyone and we'll see you on thursday

Rich Habits Podcast - Q&A: 7.5% Mortgage Rates, High Expense Ratios, & Budgeting To Move Cross Country

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