Q&A: Our Favorite Nuclear Stocks, Deferred Compensation, & $203K in SPYI

Summary

Rich Habits Podcast Summary Episode: Q&A: Our Favorite Nuclear Stocks, Deferred Compensation, & $203K in SPYI
Hosts: Austin Hankwitz and Robert Croak
Release Date: October 24, 2024

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Introduction

In this special Q&A edition of the Rich Habits Podcast, hosts Austin Hankwitz and Robert Croak dive into listener-submitted questions, offering their expert insights on a range of financial topics. The episode, lasting approximately 38 minutes, covers investment strategies, loan options for franchising, the nuclear energy sector, deferred compensation plans, and the age-old debate of investing versus paying off a mortgage early.

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1. Franchising Loans: SBA Loan vs. Pledged Asset Line of Credit

Listener Question:
John B. asks whether to opt for a small business SBA loan or take a loan against his investment portfolio (a pledged asset line of credit) when financing a franchise.

Robert’s Insights ([04:51]):
Robert advises caution when selecting a franchise, emphasizing the importance of due diligence in site selection and ensuring adequate operating capital. He points out that SBA loans currently carry high interest rates (13-15%), which could burden the business with expensive debt. Instead, he suggests considering lower-interest options such as hard money loans or platforms like On Deck, which may offer better terms based on creditworthiness and business history.

Austin’s Perspective ([08:31]):
Austin echoes Robert’s sentiment, highlighting the drawbacks of high-interest debt and the risks of underfunding a new business. He underscores the importance of not overestimating short-term profits and warns against the trap of accumulating credit card debt to sustain the business.

Notable Quote:

Austin ([06:54]): "Have expectations of the business to do well, but don't overestimate how much you'll make in the short term... living off credit cards to help the business grow."

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2. Investing in the Nuclear Energy Sector

Listener Question:
Brandy S. inquires about favorite nuclear stocks and ETFs, particularly interested in how Big Tech is influencing the sector.

Robert’s Insights ([10:50]):
Robert expresses enthusiasm for the nuclear sector, citing its critical role in supporting burgeoning infrastructure and energy demands from companies like Tesla, Amazon, and FedEx. He recommends ETFs such as URA and URNM, and individual stocks like Constellation Energy Group (CEG) and Vistra (VST), emphasizing their potential for growth as nuclear energy becomes more decentralized and integrated with modern energy needs.

Austin’s Take ([13:26]):
Austin prefers broad-based investments over single stocks for new sectors. He outlines his strategy of investing in ETFs like URA and URNM to gain diversified exposure to the nuclear industry, alongside holding stocks from major tech companies investing in the sector.

Notable Quote:

Robert ([10:50]): "Nuclear is going to be completely different this time... Microsoft, Amazon, and Google are all investing heavily into the sector."

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3. Deferred Compensation Plans: To Participate or Not

Listener Question:
Key S. contemplates continuing a deferred compensation plan offered by her company, which currently invests in limited options tracking the S&P 500.

Austin’s Analysis ([16:45]):
Austin explains the structure of deferred compensation plans, comparing qualified plans (like 401ks) with non-qualified ones. He advises that if Key has other retirement vehicles like a Roth IRA and a Bridge Account (BRID), she might benefit from diversifying her investments beyond the limited options of the deferred comp plan.

Robert’s Perspective ([17:46]):
Robert cautions that for those not earning millions annually, the limited investment options and future tax implications might make deferred compensation plans less attractive. He recommends considering alternative investment avenues like Roth IRAs for greater control and potential for higher returns.

Notable Quote:

Austin ([17:46]): "Deferred compensation plans are pretty interesting, especially if you are one of those high earners... but in this situation, Key seems like you're setting yourself up for success."

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4. Investing vs. Paying Off Mortgage Early

Listener Question:
Andrew G. weighs the decision between paying an extra $500 monthly towards his mortgage or investing that amount, projecting significant long-term gains from investments.

Robert’s Insights ([24:59]):
Robert advocates for investing the extra funds rather than paying down the mortgage, especially with a low interest rate of 3.5%. He argues that investments have the potential to yield higher returns (10-15% annually) compared to the savings from mortgage interest. He emphasizes the opportunity cost of reducing liquidity by accelerating mortgage payments.

Austin’s Support ([26:42]):
Austin reinforces Robert’s stance, sharing his personal preference to invest rather than pay off low-interest debt. He highlights the benefits of compound interest, especially over a long investment horizon, and the flexibility that comes with maintaining an investment portfolio.

Notable Quote:

Robert ([24:59]): "if the debt you're taking on is completely covered by your assets... your stocks can continue to go up and to the right."

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5. House Down Payment vs. Building Passive Income

Listener Question:
Jake asks whether to allocate $140,000 towards a house down payment or invest it in ETFs (QQQI and SPYI) to generate passive income.

Robert’s Advice ([32:15]):
Robert discourages tying up the entire $140,000 in a down payment, suggesting instead investing a portion to maintain liquidity and financial flexibility. He highlights the potential higher returns from investments compared to the benefits of a larger down payment.

Austin’s Perspective ([33:44]):
Austin supports the idea of investing, noting the advantages of having accessible funds while working towards a future home purchase. He advises maintaining a balanced approach, ensuring that monthly expenses remain manageable and not becoming "house broke."

Notable Quote:

Austin ([36:34]): "Allowing you to make $2,000 or $2,200 per month... you could keep some of this monthly income paid to you that you could use to supplement your lifestyle."

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Conclusion

Austin and Robert wrap up the episode by encouraging listeners to submit their questions and engage with the Rich Habits Network community. They reiterate the importance of making informed financial decisions, leveraging investment opportunities, and maintaining a diversified portfolio to achieve long-term financial freedom.

Final Notable Quote:

Robert ([37:57]): "Everyone has their pain points in their business or in their personal finances, we're here to help."

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Key Takeaways

1. Franchising Loans: Opt for lower-interest loan options and ensure adequate funding and operating capital to prevent financial strain.
2. Nuclear Investments: Consider diversified ETFs and established companies within the nuclear sector, especially as Big Tech invests in energy infrastructure.
3. Deferred Compensation: Evaluate the benefits against alternative investment options like Roth IRAs, especially if investment choices are limited.
4. Investing vs. Mortgage: Generally, investing extra funds can yield higher returns than paying down low-interest mortgages early.
5. House Down Payment vs. Passive Income: Maintaining liquidity through investments can provide greater financial flexibility and potential passive income streams compared to tying up funds in real estate.

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Join the Rich Habits Network:
For personalized advice and more valuable financial insights, consider joining the Rich Habits Network or follow the hosts on their social platforms.

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This summary captures the core discussions and insights from the Rich Habits Podcast's Q&A session, offering actionable advice for listeners seeking to optimize their financial strategies.

Transcript

[A]

Hey, everyone, and welcome back to the Rich Habits podcast, a top 10 business podcast on Spotify. This episode is our question and answer edition, which means Robert and I sit down here for about 45 minutes and answer all of your questions that you ask us across all the different platforms. You can ask us a question by emailing us. Richhabitspodcastmail.com is the email address to use. Put in the subject line something catchy so it gets our attention. You can also send us an Instagram DM ichabitspodcast. Or more importantly, you could ask us a question inside of the Rich Habits Network because those questions always get answered. Not just on episodes like this, but in our live streams and everything else we do over at the Rich Habits Network. I'm super excited about this episode, Robert. We've got a ton of questions teed up, including a question about nuclear, which I think will be a fun one.

[B]

Yeah, I'm super excited about this episode as well. I love the complexity of all of the questions. It really makes me realize that people are digging in, they're taking it seriously, they're taking notes and taking action. And it shows in our viewership, we have been growing, growing, growing. And it's so awesome that so many of you are sharing the episodes with friends and family members and other people that might get value for what we're doing here. So before we jump in here, I just want to give a quick heads up that interest rates are falling, but you can still lock in a 6% or higher yield with a bond [e-mail] that's a pretty big deal because when rates drop, so can the interest you earn on your investment.

[A]

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[B]

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[A]

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[B]

I love it. But also, and I love this call out because I think our listener, new, old and people have been with us forever understand that we're not out here shilling just any random companies. We only talk about and work with companies that we actually invest in or have equity in ourselves. So I think we've really built that, especially with a company like Public that we both use every single day. We love. We work with them and I think it's great for the audience as well because we hand pick these select few companies that we work with here on the podcast and in the Rich Habits network to make sure that everyone is getting the best tools and platforms out there that we know of.

[A]

Now as a quick disclaimer, this was brought to you by Public Investing member FINRA and SIPC. As of October 21, 2024, the average annual yield to worst across the bond account is greater than 6%. Yield to worst is not guaranteed. This was not an investment recommendation. All investing involves risk and please visit public.comdisclosures/bond account for more information. So with that being said, Robert, are you ready to jump into the first question?

[B]

I am so ready. We have some great questions today and we get to like really utilize our big brains on these ones. So let's go.

[A]

John B. Says I'm narrowing down two to three franchises I want to get into. My question for the experts is this what is a better option for loans? A small business loan like an SBA loan or taking a loan against my portfolio, AKA a pledged asset line of credit. I thought about liquidating some stocks I own to put more cash down on the loan, but I remember Robert and Austin talking about how they wouldn't want to lose out on growth of their investment opportunities and get hit with capital gains just to take on debt. Interest rates are about the same for both of these loans, maybe marginally higher for SBA loans. But does anyone have an opinion or real life learning to share about this? Robert, I'll let you go first.

[B]

Yeah, I love it. John B. Let's clarify just a few things with franchising. It's not all rainbows and unicorns, so make sure you select wisely. If you need any help, I have a great friend who's a franchise analyst in the country. He would really, really help guide you. You could do a free call with him if you already have it. But secondarily, when it comes to the funding in the loans, yes, you can look at a SBA 7 loan, but keep in mind the interest rates on those are very high right now and it kind of puts you in that spot where you're in this high interest debt situation to open this business. So I would say you could look at some other things. Maybe you look at doing a friends and family round, maybe you do a hard money loan to get the money you need upfront because it's going to be much less expensive than an SBA loan from an interest rate perspective. But also you could look at a platform like On Deck, see what they have to offer because they're going to take into consideration your credit, your company credit, you know, your history in the business and all of those things. So just make sure you really flush out all the options to find the best money you can find to do the franchise. Now, over the last 15 years, I've done very well in franchising, but I also have friends that have done very poorly in franchising because they chose poorly and they negotiated poorly. So make sure you have a professional helping you with site selection, lease negotiation and most of all the funding and how you get your money to get up and running and make sure my biggest pro tip for you or anyone listening, getting into franchising, make sure you have enough operating capital once you do get open, through the construction and into operations because so many people operate with far too little capital and they find themselves in harm's way quickly. You want to give yourself a cushion of at least a year if you can, to make sure that you give the business time to mature enough to create profits to build the bank account up.

[A]

So what you're saying is have expectations of the business to do well, but don't overestimate how much you'll make in the short term. And like don't take on credit card debt to supplement what those future profits might look like. And now you find yourself in this weird Bind living off of credit cards to help the business grow. And is that what you're kind of saying?

[B]

Yeah. And what happens in a small business that's underfunded and this happens every single day, I deal with it on a regular basis in my one on one calls is so many people are underfunded, then they max out the credit cards, then they get a second mortgage on their home and they do all of this and what happens is you find yourself spending your time chasing money instead of building your business. And that is a double edged sword that can ruin so many good businesses by being underfunded. So just try to do your best to understand. You want to expect great things, but you want to be prepared for bad things because you never know what's going to happen. I remember opening a brand new restaurant that I was building of my own and we were making it franchisable and we opened up and it was gangbusters. We were doing over $40,000 a week and I was like, I'm a rock star, I'm a hero. This is incredible for a 1500 square foot restaurant. And then they closed the road for 18 months and our customers had no access. The entire commercial side of the area where all of our lunch customers came from had no access to our restaurant and it ruined us because we couldn't do anything about those outside conditions. So just be prepared for the worst and make sure that you are funded well enough to make it through the good and the bad times.

[A]

Now John, my only perspective here, as someone who hasn't ever taken out an SBA loan or hasn't ever taken out, you know, margin or you know, what you call a pledged asset line of credit, which is the formal way of describing it there M1 Finance has a, I think it's six, six and a half percent interest rate on this pledged asset line. So for example, I've got about half a million dollars of assets on the platform. I think I can borrow between 25 and 50% of that as a pledged asset line of credit, which means I could borrow up to $250,000 of debt against my assets on this platform at a six and a half percent interest rate. Right. So if that is a opportunity that you might have to sort of take on maybe a margin loan and then you can use that debt at a lower 6, half, 7 and a half percent interest rate versus this 13, 14, 15% we're seeing from these 7A loans right now to go work about the franchise and get it up and running. That could be a good Opportunity because one, the debt you're taking on is completely covered by your assets. So even if the business does terribly, you're not going to now go into bankruptcy. With the SBA and these other different things, you just simply sell your assets. Maybe they've even appreciated by that time. Hoping that doesn't happen by the way. And so now you're still out, you're scot free. There's nothing to worry about from bankruptcy perspective. But now too, you don't have to sell your stocks, man. Your stocks can continue to go up and to the right. They can continue to appreciate over a long period of time. You don't have to, you know, worry about the capital gains taxes that come with it. So I'm cool. I'm leaning toward this sort of margin loan solution that you mentioned, John, especially with a platform like M1 Finance. But just be careful, know what you're getting yourself into, understand what margin calls mean. Go watch the margin call movie if you want, but we're rooting for you, John. This sounds like a really cool opportunity and we hope it works out for you. So our next question comes from Brandy S. Brandy says I'd like to now get into the nuclear sector after seeing what Big Tech is doing in the space. I know Robert has mentioned a few names and I've seen some of them on Barons as well, but has anyone bought any of them? I'm looking for a bunch of different names if it's ETFs or single stocks. Robert Austin, can you share with me your thoughts? Robert, do you want to walk through perhaps what happened recently in nuclear with Big tech and then two a couple ETFs per se that people could purchase or add to a well diversified portfolio to have some exposure into this cool new theme of nuclear energy.

[B]

Yeah, I love it and this is a great question, Brandy. I love the sector being because as Austin and I have been speaking on a lot in recent months, the US as manufacturing starts to really thrive again here, we need a ton of infrastructure support in the energy sector. Not just in the energy itself, but the picks and shovels of building that energy so we can have these huge gigafactories for Tesla and Amazon and FedEx and all of the big, big companies that are out there building. And why I like nuclear is because of its effectiveness when it comes to the cost of creating the power. And I've been talking on nuclear now for about a year and a half through URA and also urn M as a couple of my favorite funds that I really like but why I think it's important is nuclear is going to be completely different this time. And as you've seen, Microsoft, Amazon and Google are all investing heavily into the sector as well. So they're getting on board also. And what I see and what I've been researching for the past couple of years is that we're going to see nuclear be more of these localized centers where they're going to build these plants to be able to produce this power. And I think it's important to understand that instead of the big old way of looking at nuclear where it's dangerous and these big plants, it's going to be a lot more centralized locations for nuclear power throughout the country. And I think it's a great sector to have some of your portfolio in. As I mentioned mentioned, I've been buying URNM and URA for quite some time. But you mentioned ceg, Constellation Energy Group. I think that is a great one as well. I've been adding that to my position. I like it a lot. And then also VST Vistra is a very good company. They're one of the largest energy providers in the country and I like those as well. I just think it's a great sector. You always hear Austin and I talk about that you don't have to be first to a sector, you just have to be ahead of the masses. And even though Microsoft and Amazon have announced recently their dedication to the nuclear space, I think we're still early and that's why we want to get in with these picks and shovels, play into that sector and I hope that helps. So all in all, I really love this play in the nuclear field. And all of the big companies are really investing because they know AI is here to stay. And AI is very energy consumptive. And we want to make sure that we understand that and that is why they're investing in the sector and we want to get our piece as well.

[A]

Yeah. So I've not yet invested into URN M, but it seems like a pretty interesting etf. It's the Sprott Uranium Miners etf and then there's also ura. Personally, when it comes to investing in a new sector that I've not done too much research on. Right. I normally don't invest in things I don't research, which is why I haven't invested in anything yet. I like to do a broad stroke type investment. Right. I don't like find a single stock and go all in and have that only stock be my, you know, exposure to that sector. I will instead choose an ETF or two. So it seems like URA and UR and M will be the two broad stroke sort of investments that I'll make in this nuclear space alongside owning Amazon, Google and Microsoft stock.

[B]

Yeah, I think that's a great play. We never want to teach anyone to go all in on one stock. That's generally how people get their heads knocked off, but definitely Brandy, Great question and I love the sector. I'm dollar cost averag into all the projects we discussed and I hope this helps.

[A]

So our next question comes from Key S. Key says my company offers deferred compensation to reduce my taxable income. The funds are held in a Fidelity brokerage account with full control but limited investment options. I did this a couple years ago and I invested all the funds in FX, AIX and VVIAX to track the total performance of the S&P 500. It's open enrollment time again, but I'm having second thoughts about doing this. Just wanted to find out if others in the Rich Habits Network are doing this or if they've ever considered this option before. What a great question Key. And again, thanks so much for being a part of the Rich Habits Network. So you might be asking yourself, well one what the heck is a deferred compensation plan? And then two, is it something that I should be thinking about? So a deferred compensation plan is normally part of an employee's regular compensation that is set aside to be paid out at a later date, usually at retirement. Now you can think of a deferred compensation plan kind of like a 401k. There are qualified and non qualified deferred compensation plans. Qualified deferred compensation plans are available to tons of employees, including Robert, myself and Key, which are those 401k plans, 403b's and things like that that is governed by the federal government about how much you can put inside of them and they are a really cool way to invest toward retirement. Non qualified deferred compensation plans mainly cater to the high income earners like the executives that are making tens of millions of dollars a year now. Key it sounds like you have a qualified deferred compensation plan. Your company says hey, you can put your compensation into this Fidelity brokerage account. You can invest it into the S&P 500 to grow over time allowing you to bring down your taxable income in the year that this money is received. So I think it's a great idea assuming you have full autonomy over it like you mentioned that you do and that you are not just relying on that as a way to retire, you're also doing the Roth ira, right? You're also building the BRID account, you're also building the base and doing everything that Robert and I talk about. Deferred compensation plans are pretty interesting, especially if you are one of those high earners and you're making tens of millions a year. I mean that is how we get into some interesting tax loopholes as it relates to compensation. But in this situation, key seems like you're setting yourself up for success and two thumbs up for me.

[B]

Yeah. On my side of this, I would say you have to look at it from this perspective. If you're not one of those people making millions of dollars a year and you have limited investment options in this diver comp plan, you might want to consider like you already are not adding additional money to it and maybe going another route because again then you'll have full autonomy, more options, more diversity and probably a higher return year over year. So it really depends on your situation because again, you do have the ability with a deferred comp plan to reduce your taxable income now, but the tax is going to come out somewhere somehow down the road. So just keep that in mind when doing this. Consideration is that you might want to do exactly what you're thinking of and that is not re upping during this open enrollment and moving the money elsewhere where you have more control, maybe into the Roth IRA or whatever it may be to give you a better situation for down the road as you build your wealth.

[A]

I think it makes a ton of sense, Robert. It really goes back to this idea. You know how we always talk about personal finances? Personal. I mean you have to be not just in control of your money, but know where you're going. Right. We always talk about, about people that don't have a plan and just drift through life financially. Those are the people who end up being 54 years old with no money in retirement and 140,000 to student loans. And you know, maybe they haven't even bought a house yet. Right? Key, you're obviously not like that. You're asking the right questions. You're part of the rich habits network, so you're surrounding yourself with other like minded individuals. It just comes down to maybe there's a world where you could retire early leveraging a bridge account. Maybe there's a world where you do want to put more into this deferred compensation plan. If it's underfunded in your opinion. There's a ton of things to consider here, but I hope my Answer. And Robert's answer can help you navigate this question. Now our next question comes from Leslie K. Leslie says I'm in a high income tax bracket. In the past I would max out my 401k to save on taxes. When does it make sense to pay the taxes now and invest with post tax Roth IRA money and maybe even a mega backdoor Roth ira? Robert, you want to kick this one off?

[B]

Yeah, Leslie, you're right on track. This is probably one of the top five topics we discuss all the time. Do you keep maxing out the 401 or whatever you have for that retirement account through work or do you lower it down just to the match maybe and take all the rest of your investment money and put it through the Roth IRA and build the bridge account? Because if you have all that money in the 401k and you're maxing it out and putting in as much as you can, not only are you kicking the tax man down the road, which we don't know what taxes are going to be like 10, 20, 30 years from now, we can only assume they're going to be higher. And so I just always like, like to cut the losses early, get the money over into a tax free account. So I know for the rest of my life with that money it's tax free as it builds and compounds on itself. So that would be what I would do. I would look at the 401k, you've built it, you've got money in there, great. Only do up to the company match. Then I would get the Roth maxed out every year but then also start looking to build that bridge account. If you look back to the episode about net worth millionaires, it might be a great one for you to watch because it's really important to understand. And if all your money is tied up in a 401k or your home, you still have kind of these handcuffs because you can't get out there and retire early. You can't do what you want with your money because it's tied up. So I would definitely consider looking at the Roth ira, getting a bridge account set up and start going that route because you probably have a lot of money to invest every month and we don't want it to be all tied up in a 401k, especially because 401ks have a tendency to underperform general ETFs and index funds that we talk about having that basket of low cost funds to be able to build your wealth around.

[A]

I love this question Leslie, and I think at its core, Robert is very much correct in the assumption that probably in 20 years our effective tax rates on every single one of us is going to be higher than they have been for the last, call it five years on average, maybe 10. I guess what I'm trying to say here is the federal government is running an insane deficit. And the only way that they are going to turn that deficit into a positive or even just neutral right balance, the federal spending budget is to spend less or collect more in taxes. Spending less is really hard because once you open up the floodgates and you start spending, no one wants to turn them off. Which means the only real solution is to raise taxes. Now, are they going to raise taxes on everyday people like us? Are they going to raise taxes on billionaires or corporations? I have no idea. It's a very fair assumption that tax taxes will be higher in 20 years than they are today. And so for me, that means I want to get as much money as possible into a tax free account like the Roth variation of my 401k and my IRA as I possibly can. Now it seems, Leslie, that you have been putting all this money in a normal traditional 401k for the last several years, allowing you to bring down your taxable income today. This has probably been a good strategy for you, especially if your effective tax rate is in the 30ish percent. I mean, you're probably saving some money here. But I do want to encourage you to think about making the switch to the Roth variation that Robert talked about. I'm not saying to convert your existing funds into a Roth account. That is a taxable event. That could be tens of thousands of dollars paid to Uncle Sam just to do that. We're not saying that. We're just saying to take a pause on the traditional IRA and 401k contributions and if your company offers a Roth 401k, open up that account, contribute to it. You definitely can open up a Roth IRA yourself and use a backdoor Roth IRA strategy to contribute to that. So there's ways that you can add after tax, right, these tax free dollars to your retirement accounts in a way that doesn't cause you to have a taxable event like converting from a traditional to a Roth would. So Leslie, there's a bunch of ways to approach this. Just really want to encourage you to think about those after tax dollars. Now, before we move on to our next question, I need you all to listen up because time could be running out to lock in a 6% or higher yield at public.com you can lock in a 6% or higher yield with a bond account, but remember, your yield is not locked in until the time of purchase, so you might want to act fast. Lock in a 6% or higher yield with a diversified portfolio of high yield investment grade corporate bonds only at public.com rich habits again, that's public.com forward slash rich habits so our next question comes from Andrew G. Andrew says hey Austin and Robert, I've been listening to your podcast for a few weeks and I can tell I'll be listening for much longer than that. Me and my wife, both 28 years old, make roughly $140,000 a year combined and we have no debt other than our mortgage. We bought our house in early 2022 for $275,000 and we took out a mortgage for $220,000 at a 3 1/2% interest rate. Now, over the past two years we've been paying ext our mortgage every month and we've gotten the principal down to roughly $200,000 each month. After expenses and savings, we have about $500 to do whatever we want with. We've been debating on whether it would be wiser to invest the extra money or pay towards principal each month. I ran an amortization table with the extra payments and if I continue to pay an extra $500 per month toward the principal, my last mortgage payment would be on January 1st of 2039, saving me $50,000 in interest paid and cutting roug years of debt off my mortgage. However, if I invest the $500 per month over the remaining life of the loan through compounded interest using a conservative 10% annual return, I'll have roughly $720,000 anyway. From an emotional standpoint, I would have a peace of mind and would feel like a great accomplishment to pay off the house early and owning it outright. From a practical standpoint, I feel like my dollars would be put to better use if I invested them. Any advice would be amazing. Thank you so much for what you do, Robert. I'll let you kick this one off.

[B]

Andrew, Great question and you've already spelled it out for everyone listening and following along. You should probably know my answer. I get it that you want the peace of mind of having your house paid off, but I can tell you this from experience that having debt as long as it's good debt like you have on this house is not a bad thing. And I don't think it makes sense to pay any more extra payments when your mortgage interest rate is 3.5%. We can make 10%, 12%, 15% a year with our money pretty easily in almost every year of our lifetimes. So I don't see why I would want to pay off a 3 1/2% interest rate when I can make more with my money. If you followed along for a while. You know, I always say make your money work as hard for you as you work to get it. And in this instance, you can borrow and have that three and a half percent mortgage interest rate and take the extra money and put it towards investing. I think you would be way better off in the long term for retirement, leaving your payment in place, paying the minimum payment, and let the bank carry the note for as long as they'll do it. Because to pay it off early, yes, you have peace of mind, but you also have all of that money tied up in a home that you cannot touch if you want to touch, budget or do anything with it unless you sell the property later. The financial side of this and the math side of it is easy. You're going to invest the money and make the money work on your side that positive arbitrage and keep making the minimum payments. And you will figure out when you wake up every morning, you're one step closer to financial freedom that it's okay to have a house payment.

[A]

I am right there with you, Robert and Andrew, just to make it a little bit more, more relatable. I'm sure you're really tied up in this idea of, oh my gosh, I really want to pay off this house. I had the same mentality. I was also a Dave Ramsey listener back in the day and I had the idea and the dream of paying off a house. Don't get me wrong, I'm going to pay off the house I'm in right now. But the difference between my house and your house is I have nearly a 7% interest rate on this mortgage. You have a three and a half interest rate. My 7% is much more exciting to pay off than just a 3 1/2% interest rate. Now let me also mention that in part of paying off this house early, I will have hundreds of thousands, if not millions of dollars invested in the markets before I do it, allowing my money to double every seven years. In the markets. You are, instead of choosing, you know, the markets to allow your net worth to grow, which we've seen over the last 90 years, the S&P 500 has been around. This has been a wonderful way of wealth building that you believe that this specific real estate investment investment will outperform the markets. I, of course, cannot predict the future, but I'm willing to bet that that is a wrong assumption. I'm willing to bet that the s and P500 will continue to do 8, 10, 12, 15% per year over the next 5, 10, 15, 20 years. Because you talk about this being paid off in the next 15 years. Now back to this idea of paying it off in 15 years, right? Andrew, you mentioned that you're going to have this extra $500 per month and use that as an extra payment on your mortgage for the next 15 years. If instead of doing that, you took the same five hundred hundred dollars that you've already said is in your budget and you invest it in, let's say a Roth IRA or you open up an account on public.com and just put it in the S&P 500. Assuming a annual return of about 10 to 12% per year, that $500 is going to turn into $250,000 over the course of 15 years. Assuming you continue to invest every single month, that 250,000 is much higher than the $50,000 of interest that you would save if you paid off your house early. Heck, if you want to just put all this money in a bridge account account, grow it for the next 15 years, and then take the 250 to pay off your house early, you can go do that. But what we're saying is it's a better idea 10 times out of 10, especially at a 3 1/2% interest rate, to invest the money than to pay down the house early. We want every single person to go into retirement without a mortgage payment, right? We think that is paramount because rent payments always go up. But if you can pay off a house like, you're good, right? If you. That's the biggest line item in everyone's budget, living costs. And if you can predict them every month, you're going to have a happy retirement. We want you to pay off your mortgage before you retire. But you're 28 years old. You got 40 more years until you retire. And in our opinion, your money is best used if it's invested in the s and P500 and the other index funds. We talk about allowing it to double every seven years for the next 40 years that you'll be investing versus paying off the house early.

[B]

I couldn't agree more. You guys all know my stance on this. If you can borrow for less than what you can make with your money, you always borrow. Everyone should know this. I'm going to say it a thousand more times. So get used to to it. Because at the end of the day, that is why some of the wealthiest people on earth have mortgages on their yachts, mortgages on their mansions, payments on their Rolls Royces is because they can borrow money cheaper than when they can make with their own.

[A]

And Andrew, I want to make a very clear distinction from what Robert just said versus what you're doing. You are borrowing money to own an appreciating asset. If you were borrowing money to purchase a $200,000 Rolls Royce or Lamborghini, I would call you crazy, tell you to sell it so you can't afford afford it, pay it off, whatever, right? Like get out of that. But you are borrowing money at a 3 and a half percent interest rate to own an asset that, let's call it over the next 10 years will probably be worth between 500 and $550,000. That's really cool. And of course we want you to pay off that mortgage before retirement, but you don't need to right now. You're pretty young. Time is on your side. Compound interest is calling your name, says Andrew. Come utilize me. I'm ready to grow for you. Right? So go do that. We're rooting for you, man. Our last question comes from Jake.

[B]

Beat.

[A]

Jake says hire off center Ro Robert. First off, you guys are doing an awesome job providing valuable content. It's very much appreciated. I'd love to get your perspective on my situation. I currently have $140,000 save for a house in a high yield savings account, which I plan to use mostly as a down payment to keep my monthly mortgage around $2,000. However, after listening to your insights, I'm now wondering if it makes more sense to invest that money into QQQI and spyi for passive income instead. If I put all $140,000 into the house, it'll be tied up and inaccessible. On the other hand, if I invest the $140,000 into QQQI and Spyi, I could potentially generate around $2,000 a month in passive income. Considering the fact I already make $700 a month from QQQI alone, I'm the sole provider for my wife and three small children. So managing cash flow and financial security is really important to us. Here's a quick snapshot of my current financial position. My salary is 91,000 a year. My retirement plan has 26,000 into it. I have a Roth IRA worth $61,000. We have 10,000 in our HSA. My QQQI investment on public.com is $63,000. I have an emergency fund of 10,000 and I have a car loan of $32,000 at a 6% interest rate. Given this information, what would you do if you were in my situation? Should I prioritize the house down payment or focus on building passive income? I'd love to hear your thoughts. Thanks, Robert. You want to kick this one off?

[B]

Yes. With limited information. Jake, we don't know your age age and then we also don't know what you're currently doing for your house situation. So I'll take a shot at it. But we do have a little bit of a gap in information here. I hate the idea of taking that whole big nest egg and dumping it all into a house because as you alluded to, it's tied up, it's inaccessible. That money is dead money until you sell the house. And I get it, you want to lower your house payment down. But like we just did in the last question, question how we broke down the math, that $140,000 working for you in the markets is going to far outweigh in gains what you save in your monthly mortgage payment over time. So at the very least, if you're considering this and you're really hell bent on it, I would put a hundred thousand away and only use 40,000 towards the house. And if that doesn't work, maybe it's not time to buy the house yet. And maybe you need to look at another option. Maybe you house hack just for one year to get some equity into a property that will later cash flow. Maybe you look at one of the Fannie Mae or FHA loan programs that offer 5% down instead of 20 or 25% down. So then that way you can keep more of your money working for yourself. But for me, I never like to see people be house broke by having so much into their home homes that they don't have the freedom to do the other investments that it takes to become financially free earlier in life.

[A]

Jake, this is a really good question. Yes, you should keep your monthly mortgage around 2000amonth, full stop. That is 33% of your take home pay any more than 35% of your take home pay. Robert and I argue that you're getting on the verge of being house broke. Too much of your monthly take home pay is going toward your living situation after you include utilities, hoa, things like that. So I really like the idea of keeping your monthly mortgage around 2000, which to your point means you might have to put more down on a house to Achieve that. Assuming interest rates for mortgages don't come down, we do know that interest rates on mortgages should begin to come down below the 6% and even below 5% over the next, call it 12, 18, 24 months. So fingers crossed that trend continues to Robert's point. I agree. I don't know your current living situation. You all might be in an apartment or something, or maybe you already have a house. So whatever you're doing right now, if it works, perhaps consider continuing that before you think about buying a house. I know right now in all of America it is cheaper to rent on average than it is to buy a house. That is a complete fact. So maybe you're renting and it's cheaper and you're taking advantage of that situation. So the idea of putting 140,000 into QQQI, allowing you to make 2000, 2200 or so per month, I think it's a great idea. But let's now think about the cons that come with that and even what that money would be used for. So if you put all that money in, you're now making $2,000 a month, 2120 $200 a month is all of being used to pay your rent. Is all that money now being used to buy groceries, gas and health insurance? Like, what are you doing with this money that is going to materially move the needle from a day to day life situation perspective for you and your family? You guys are making 91,000 a year. You're doing a great job as a household here. But I do know that three kids and a wife are definitely expensive, especially on $91,000 a year. So being able to supplement your income with an extra $2,000 month could be a game changer for you guys. And additionally, what's cool with that too? I mean, you already have 60,000, so we're talking about $200,000 invested into an index fund that is not going to go anywhere, right? So if you need to sell the 200,000, maybe in the next couple of years to use that as the down payment on a house, you could also do that. I think putting the money in Q. Q. Q. I gives you a little bit of flexibility, allowing you to have some of this monthly income paid to you that you could use to supplement your lifestyle and take care of the kids and the wife as well as maybe stay on the sidelines for a little bit longer as you wait for a potential cooldown in the mortgage interest rate environment. As we inch closer to a sub 6, sub 5, maybe even a sub 4 interest rate again over the next 12, 24 or 36 months. Because to your point you have to be in that 2000 $2100 a month mortgage all in payment if if not you will be house broke.

[B]

I love the takeaway Austin. I think you killed it. I agree 100%. I just don't like seeing the $140,000 sitting there making 5%. I love the idea of getting it working for them while they figure out when is the best time to buy. Of course we assume interest rates are going to come down and that's going to help them get that payment down as well. So Jake, good luck. I love your takeaway Austin and keep.

[A]

Us updated with that too. I'm. I'm just now noticing 26,000 and a 457 plan is not that much. You are doing great with the Roth IRA and of course 200,000 in a bridge account is incredible. But I would also encourage you to beef up that 457 plan pretty soon. I'm not saying you have to focus on this right now. I know you're focused on buying a house for the next couple of years and saving for that, but I'd really like to see that closer to a hundred thousand in the next call it like four or five or six years. So definitely beef that up a little bit. But really good question Jake Everyone, thanks so much for tuning into this week's episode of the Rich Habits Podcast Question and Answer Edition. Don't forget, if you have a question to ask us you can email us at rich habits podcast gmail.com that's what Jake and Andrew both did. Or you can send us an Instagram dmich Habits Podcast. But more importantly, you can join the Rich Habits Network just like Leslie Key, Brandy and John B. All did and get your questions answered on the episodes and or in the Rich Habits Network community.

[B]

Again, thank you all for stopping by each every week. Make sure if you find value in these episodes you share with a friend, tell them about the Rich Habits Network and get them involved as well. Because everyone has their pain points in their business or in their personal finances, their mind are here to help. So thank you all for stopping by. Hope you enjoy the episode.

[A]

Thanks everyone and have a great rest of your week.