Q&A: 1.5% Advisor Fees, Becoming a Pilot ($340K in 4 Years) & Healthcare Costs

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0:57Consult a healthcare professional if symptoms persist. Hey, everyone, and welcome back to the Rich Habits Podcast question and answer edition brought to you by public.com. These are our Thursday episodes where every Thursday we answer your questions as if we were going through whatever you might be going through. You can DM us your questions on Instagram at richhabitspodcast. You can email us your questions at richhabitspodcast at gmail.com. Or if you're inside the Rich Habits Network, our community for our biggest fans, you're getting your questions answered anyway. You're in the DMs, you're in the community, you're in the Zoom calls, you're in the office hours.

1:31You are getting your questions answered because that's the point of the Rich Habits Network. But for everyone else here who's hanging out with us with these Q &A episodes, welcome. And I can't wait to dig right in. Definitely. This is going to be a fun episode. Some really, really good questions we got from multiple platforms. So I'm ready to dig in. Let's go. Our first question comes from Kenneth on Instagram. Kenneth says, Hey, Austin and Robert, I'd love your take on my situation for a Q &A episode. I'm 40 years old. I'm a dentist slash practice owner. I've been practicing for 15 years and I paid off my student loans within six years.

2:02My practice collects about 1.5 million a year and I have 60 % overhead. I have$510 ,000 in investments with Northwestern Mutual,$156 ,000 in a personal brokerage account at public.com, $100 ,000 in a business brokerage account at public.com,$69 ,000 in Fundrise, and$300 ,000 in liquid. I own a townhome that I'm renting out. It makes$3 ,500 a month in rent, and my mortgage is$1 ,600, and I recently bought a$950 ,000 primary home. My advisor charges a 1.5 % AUM fee. At what point should I ditch the advisor, simply go all in on these low-cost index funds, and pay a fee-only CFP slash CPA when needed?

2:47And would you keep Fundrise in this situation or simplify that too? Love the show. Thanks in advance. Robert, what's your take here? Yeah, my first take before we got to the bottom of what the question is, is I would be very careful with Northwest Mutual. They are very well known for having people in a lot of mutual funds, target date funds, and expensive funds in general. So when should you ditch the AUM fee and the advisor? 1.5 % is pretty typical for that size portfolio. But as you inch up towards a million, million five, you should be able to see those fees get down under 1%. Normally it's once you cross a million five, you're gonna be under 1%.

3:28So when should you ditch? I think you're doing a fantastic job at 40 years old, but you are paying a lot of fees. Now here's the rub here from my opinion, and I know Austin's gonna have some really good takes. At 40, you're building your wealth. At some point, you're going to need some fiduciary wealth advisory help. You want to have somebody to help you, you know, figure it all out with taxes and retirement and what you're going to do for your family and all these other things. So you have to consider that. But could you shy away and manage it all on your own from 40 to 50? Maybe. But I would just look at maybe shopping around and finding someone else that says, hey, this is a smaller account right now, but it's going to be a big account because you're a high earner, and find a way to get those AUM fees down to 0.85, up to 1%.

4:18And then I think you're fine to have someone's shoulders to lean on because like with Croke Capital, we have a team of 18 people. And even though we charge similar fees, they charge similar fees. You get so much help that I think it's worth it for higher net worth people. So that would be my take. everything else I love about what you're doing. But my take would be either shop around, keep going, or go back to them and say, hey, I'm not happy with these fees. I'm going to move all my money to public.com and I'm going to self-manage. What can you do? Because they have different tiers of fees and see if they'll bump you down a couple tiers because your account is growing so much over the coming years.

4:57They might be willing to do that. It's a good take. You know, Kenneth, you're in a great situation. You're 40 years old. Your practice is making, let's call it, I don't know,$600 ,000 a year of profit. You have$500 ,000 invested with Northwestern Mutual, $150 ,000 in public, another$100 ,000 in a public business brokerage account, which I guess that's new. That's really exciting. I'm assuming that's invested maybe in like a cash thing, so you can earn some interest there. I'm not sure. Fundrise is cool. $300 ,000 in cash. You are just rolling in it here at 40 years old. In my opinion, I think that you're smart enough, you are capable enough, you are educated enough.

5:33And if you aren't at this moment, you're capable of putting in the work to become smart enough and educated enough to understand that low cost index funds like VOO and QQQM and some of these other, you know, Dow Jones industrial average and VXUS and all these like low, low, low cost things are pretty identical to the stuff that you would be put in if you were using a financial advisor, except the financial advisor is paid by wholesalers. Those wholesalers say, hey, we over here at XYZ Fund Creators are essentially going to pay you as a financial advisor to put your client's money in our funds that are half a percent, 75 basis points, 1 % annual expense ratio.

6:18And the whole goal of those funds is essentially the same thing, the S &P 500, the NASDAQ, the Dow Jones, some international stuff. But instead of going with the low cost stuff, the Northwestern Mutuals of the world work with these wholesalers and put your money into their funds, their mutual funds, their ETFs, things of that nature. And those funds are charging such high fees that not only are you paying a one and a half percent fee to Northwestern Mutual on your assets, but you're also paying an expense ratio that's 40, 60, 80, 100 basis points, right? 1%. So actually, you're paying, you know, 2%, 2.5 % on your money.

6:56Here's what I would do. If you want to self manage, which I think you are absolutely capable of doing rock and roll, there are plenty of ways that you can get connected fee only with certified financial planners and CPAs and things of that nature. What comes to mind is HelloNectarine.com. We actually have a referral code in the link in the show notes below HelloNectarine.com slash r slash rich habits and you will get some sort of discount thing going on over there if you use that. But we've been big believers in this fee-only fiduciary rock and roll where you might not have millions of dollars where you need a whole team of people to help you think about taxes and estate planning and these big investments, which in this situation you kind of don't.

7:38You have several hundred thousand and it's enough where it's worth paying someone to help you navigate the situation, but it's not so much where you need to have a team of people surrounding you. So that's what I would do is I'd work with a fee-only fiduciary in this situation. And the other thing I'm kind of like, what's going on here is this$300 ,000 of liquid cash reserves. Maybe something's going on with a real estate down payment, or maybe something to do with your business that I'm not aware of. That's cool. Just make sure you're using a high-yield savings account. If that's on public, maybe it's waldo.ai for your business.

8:12Who knows what's going on here? But I think that Northwestern mutual money, the 510, should get pulled out and should be invested on your own. You can do that on whatever platform you want to do it on. If it's public, if it's Vanguard, if it's whatever's going on with your retirement accounts, it's kind of different there. But at the end of the day, I would self-manage this and just park it in the S &P, the NASDAQ, the Dow Jones, and some international stuff, and you're going to be just fine. Yeah, I like that take. It's just, it's, you know, personal finance is personal. No one loves to have AUM fees.

8:41I'm from a different ilk because I believe as long as you have enough money and enough things going on, you have businesses and real estate and all that, it definitely helps. But I get it. And at that one and a half percent plus what Austin alluded to with all the additional fees, because they're going to put you in more expensive mechanisms and products that just charge you more for doing the same thing if you self-manage. So I love that take. And I think it's really important. Just you're smart enough to do it, like Austin said, and just do the research because personal finance is personal. Yeah, I want to linger on that because I think as people have a portfolio that gets built out, it's cool to have a money guy, a money team, people that are in your corner that you can call, you can email, they can tune in and help navigate and figure out what's going on.

9:25But I have a weird feeling that Northwestern Mutual is not that for him right now. I got a feeling that Kenneth has a Northwestern Mutual login that he clicks and he meets with his advisor once a quarter and it says, yeah your performance is pretty good we've got you in this stuff like good job kenneth and they're charging him two percent all in from expense ratio and this aum fee which means you're now paying ten thousand dollars a year to be parked in some mutual funds and target date funds and whatever else so it's like you have to understand the difference between there's my money getting invested and they're just investing it i'm not getting anything but like access to the stock market which like congrats you can do that yourself and the difference between that and like oh they've got a team of like all these people and i've got millions of dollars and i need an accountant that has visibility to my investments and my real estate and like that's a different thing and i don't think kenneth has that or is there just yet and i would be willing to bet you a really nice lunch that he does not talk to that northwestern advisor every quarter it's probably more like once a year or once every two years and he gets a quarterly email hey you're up this a percentage and this is what we've done and so yeah i love it great question and great coverage austin but you know what he is getting that christmas card from his northwestern mutual advisor that's the most expensive christmas card on the face of this planet robert it really is our next question comes from evan b evan says austin robert hello been listening from the start and i believe i profited off your knowledge immensely let's go evan cool cool evan says i'm 31 i'm a male and I'm married.

11:03Our net worth is$940 ,000. We have$300 ,000 of real estate equity between our primary residence and a rental,$62 ,000 in precious metals,$140 ,000 in some cryptocurrency,$300 ,000 in ETFs, a$40 ,000 emergency fund on public, and$60 ,000 in some paid off vehicles. Now for the last three years, I've been doing real estate sales, making some good money, you know,$180 ,000 to$220 ,000 a year from that, but I recently took a dream career as an airline pilot, which has a large pay cut. Now I'm making$100 ,000 a year. My wife also took a year off of work as a flight attendant to raise her new baby, so she'll be returning in a few months.

11:42In the months I do not have real estate closings, I'm losing around$1 ,200 to$1 ,500 through just simple cost of living. I'm also maxing out my Roth IRA at the first of every year, and I invest$1 ,200 a month into the ETFs you both discussed. So really, we're burning$2 ,400 a month. This pay will not change for the next 18 months. Starting out as an airline pilot is low pay, but the upside is significant, as I anticipate making $340 ,000 a year in the next four years. So my question is, is it wise to continue investing as I was even on months we are in the red? Or should I lower the amount invested every single month?

12:18I feel like we can weather the lost income month over month for a short duration. Now, anytime I get a real estate closing, I replenish my accounts and I dump the remainder into the markets. I think we're in an okay situation. I'm tracking my money and I would just really appreciate any insight you guys have. Thank you. Robert, you can kick us off. This is one of the coolest breakdowns, questions I think I can remember in recent history for a 31-year-old married person. This is just incredible. I mean, this is the proverbial all my ducks are in a row. And I think this is simple. I would cut back on the investments during the lean months till you get to that next step.

12:56I think it's a tremendous move on your part because being an airline pilot, one of my dear friend's sons just became an airline pilot. I think he's 28 and he is going to make hundreds of thousands of dollars a year doing something he loves. So I think it's really simple. Cut back while you're in the red. Boost it back up when you get out of the red because you don't want to be in a situation where all of a sudden you're having to sell investments or put things on credit card. and then just keep rocking and rolling because you are absolutely crushing it. And who cares if you cut back for six months or a year while you're in the red making this transaction?

13:30I love this situation, though. And I love the fact that we have people out there that follow along in the Rich Habits podcast that we've helped along the way that are absolutely crushing it at such a young age. So this is an incredible situation. No, I completely agree. So doing some math here, right? Our friend is saying, Evan, Evan saying, hey, this pay is not going to change for the next 18 months. So starting out with the low pay, but then it's going to get boosted up here in the next, call it 18, 24 months. Just by looking at Evan's$40 ,000 emergency fund, Evan mentioned he's burning about$1 ,500 a month with cost of living.

14:05That's 26 months until that entire emergency fund is burned through. And then you also have 300 ,000 of ETFs and 140 ,000 of, you know, cryptocurrency and 62 ,000 in precious metals. So at the end of the day here, you could theoretically completely burn through this emergency fund and still have two months left of like$1 ,500 of spending that you have to do. That's 24 months in the future, you should be earning enough to like, kind of make all of this come together. If you're still not earning that much, you have 300 ,000 of ETFs, you got some crypto, you got some precious metals, you can lean on.

14:41I'm so positive that just by pausing these investments that Robert was talking about, burning through this$1 ,500 a month while you are going through this lower season of your life where everything's a little bit lower for a little bit, until you start back up on that trajectory, you're going to be just fine. Now, we're talking as if your cost of living is fixed. And I got a weird feeling that that$1 ,500 a month that you're burning with the cost of living, you could pull some strings and get that down to 900 right you can do some things here and there and get that down to five six seven eight hundred bucks like you mentioned that you know right now you're making around a hundred thousand dollars a year and so making a hundred thousand dollars a year let's say you're taking home about 75 of that so you divide that by 12 so you're saying that you're spending right now seventy eight hundred dollars a month you didn't tell us where you live so that's definitely like depending on where you live that could be true but for a family, 31, married, just had a baby, like$7 ,800 sounds a little expensive to me.

15:42Personally, I spend less than that per month. And I mean, I don't have a baby, but like, I'm kind of like, I'm in your same age bracket, right? I think 7 ,800 is a lot. So maybe you can pair up this, I'm going to pull money from my emergency fund and hopefully not my investments. But if I have to, I can because they're accessible and you've done so well over the course of your life doing that and building them up. So I'm going to pull down from those until my actual income begins to skyrocket, like you alluded to in the next four years, while simultaneously cutting back on my living expenses. So it's not the$7 ,800 a month, but maybe it's, I don't know,$7 ,000 a month, right?

16:19So that$1 ,500 delta, that burn you're talking about turns into$900 or$700 or something that's going to help you get a little bit further. Yeah, I think that's very tactical and just incredible insight, Austin, but either way, they're going to be fine. I mean, they're absolutely crushing it. Lots of opportunities, you know, having all of these funds in crypto and in the ETFs and everything else gives them other options as well. So I think it's just a great situation and they're going to kill it and do just fine. And making three, 400 grand as a pilot in a couple of years is going to be awesome.

16:52Yeah. I think it's important to come to the realization that it's okay to pause your investing if it's like, hey, we got to do this, right? Like, hey, I got to go all in on being this airline pilot because I can see a light at the end of the tunnel of making, you know, several hundred thousand dollars a year, but it's going to cost me two years of Roth IRA contributions or a year and a half of Roth IRA contributions. Like the risk to reward ratio there, Robert, is way better to hit the pause button and that's okay. So our next question comes from Anthony. Anthony says, Hi, Austin and Robert. My name is Anthony.

17:27I've been listening since the beginning, and I really appreciate the way you approach personal finance, not just looking at individual investments, but looking at larger picture and helping people make decisions with their money. I'm hoping you can help me think through one of those larger picture decisions. I recently turned 35. My wife is 39, and we have two young children. I'm a public school teacher in New Jersey, and I've been teaching for 13 years. We've tried to build a strong financial foundation. Before I get into the question, thank you for being a public school teacher. I feel like they don't get enough recognition.

17:56You're a rock star for teaching our youth. That's awesome. Thumbs up from me. So Anthony says, I have a 403B with about$132 ,000, a Roth IRA with$34 ,000, a taxable brokerage account with$108 ,000. My wife's 401k has$175 ,000 and her Roth IRA is continually being built up. We're still contributing over there, so not much going on. We're putting$200 a month into our 529s. We have a$250 ,000 mortgage at 3 % interest. And the reason I'm laying all that out is because I'm considering a major career change. My cousin and his wife recently purchased a coffee roasting slash coffee shop business a year ago, and I've been working alongside him during the summers and whenever my teaching schedule allows.

18:38The business itself has been profitable since late 2020 before we took it over, and the revenue has remained consistent while even gradually growing. The plan over the next year is for me to leave education, work in the coffee business full-time, invest capital into it, and ultimately own one-third of the company. My starting compensation will be about$100 ,000 a year. My cousin and his wife view that compensation as an investment in growing the business rather than simply adding another employee. There's only so much he can do operating it full-time by himself, and with another owner working on the business, we believe we can expand beyond what the shop currently generates.

19:11We've already begun establishing an online presence and we're looking at other ways to grow our sales. Long term, maybe there's an opportunity to purchase a commercial building and all that fun stuff. Now, the non-financial component matters a lot as well because I really enjoy working in the business and believe the transition would make me happier. The traditional argument for staying and teaching, of course, is my pension, the job security and the benefits. But I'm not trying to let those become my golden handcuffs. if the alternative gives me an opportunity to build business equity, own some commercial real estate, and most importantly, improve my quality of life.

19:44I'm already vested in the New Jersey pension system. I can leave what I've accumulated in the pension system and collect a reduced pension beginning at 65. So I'm not walking away from my pension entirely. But the health insurance is what I'm struggling most with. My wife's employer sponsored plan isn't attractive for anyone here. we're paying almost$2 ,000 a month. So given our existing financial foundation, would you view this as a financially reasonable calculated risk? And how would you determine whether we are truly ready to make this transition? All right. So here's my take, Austin. Obviously, this person's in an incredible situation.

20:1935 years old, wife is 39. They have about$500 ,000 in these accounts already. So it makes it a little easier for me to digest what to do here. If they only had 100 ,000 or 150 ,000 and they were going to go backwards because of the cost of the health care, then I would be a little bit more nervous. But the way I would look at it is if going out on their own, the only downfall right now is the health care cost. then I think that's easy because I think they can handle that healthcare cost, but also talk to the cousin and wife and say, Hey, with me taking this risk and coming on board, we're super excited long-term.

20:59Is there a world we can go out and try to get a company healthcare program for the coffee shop and the surrounding business with the coffee shop? Cause that might be a way where you get all of you on the right program and lower your overall cost because that is one big consideration. A lot of people that are in the school system or government work stay in those jobs, even though they do have the golden handcuffs because the benefits are so good. So I think that's the main consideration for me. Obviously, I feel like the way this is written, though, you're ready to rock and roll and do this. So I think you're in a good enough spot that you can take the risk, especially because the coffee shop has been around for years and the growth has remained steady.

21:44If it was a new coffee shop and you're going to quit everything and it wasn't proven and you didn't know what the profits were going to be, I would say, don't do it. Keep doing both for a couple more years. Get yourself in a better position. Then take the risk after the coffee shop and that brand has proven itself. But it sounds like you're already making a lot of money with a coffee shop. It sounds like there's growth to be had. Maybe you can open multiple locations by the building to open up more profits. So I think I would say go for it as long as you understand there are going to be some setbacks in the beginning while you make this adjustment.

22:16But if it's going to give you a better quality of life and give you more upside potential in the long term, then I say go for it. Yeah, I like that. I think, too, right? It's like if your whole thing here is health care that you're focused on, which is like you call it two thousand dollars a month and you're like, OK, we'll have to pay two thousand dollars a month to get comparable health care. I would just, and y 'all are going to laugh at me, y 'all are going to disagree with me, and that's okay. But it's, I hate healthcare in America so much. So much so that I don't have a traditional health insurance policy myself.

22:48I have a catastrophe healthcare policy. I pay$112 a month for my catastrophe health insurance policy here. And it is coverage up to$2 million of like something terrible happens. If I get in a car accident, I'm life flighted to Vanderbilt, right? Like that whole thing covers that entire situation up to$2 million. And it's$112 a month. It's not dental. It's not vision. It doesn't include any of that stuff. I pay for all of that out of pocket. And you know what, Robert? And this is what makes me so upset. And I really want to encourage our friend Anthony here to do his own research. But like, for example, I had a mole on my face, like, I don't know, 18 months ago that I thought was like kind of weird.

23:27And so I was like, hey, Ireland, you have a dermatologist. Like, can you share your info? Like, I want to go check it out with the dermatologist and see what's good. So I went to the dermatologist and I was like, hey, I don't have health insurance. I'm willing to pay cash. Like, but I want this mole checked out. And can you remove it? They're like, sure. And so they're like, yep, we'll remove it. All good. And it happened. I paid$72 because I paid cash. Right. I asked her, I was like, hey, do you have health insurance? Like, no, I'm just going to pay cash. Like, oh, good. We give people 50 % discounts when they just pay cash because health insurance is such a nightmare for us getting people to like, you know, all this money.

23:58And the same thing with my dentist. I pay about$120 to get my teeth cleaned. I had a tooth that chipped, you know, a month or something ago that got fixed for like$200. I go to Warby Parker. They've got a optometrist in the back of the Warby Parker in my mall. Yeah, exactly. And I pay them$180 every, what is it, year or two years to get my prescription updated. And so it's like if you start sitting down, Anthony, and start thinking about, okay, what are the benefits that I'm getting for this$2 ,000 a month? $2 ,000 a month? I can't even imagine spending$2 ,000 a month in cash on actual health care that I'm receiving.

24:32Now, I did have around 4th of July, I had an accident and I cut my finger and I had to go get it all checked out. And I did end up paying$600 at the urgent care for that. But like, cool, I have an emergency fund, right? Like that's what that's for. versus like hitting a deductible and like max cash out of pocket, like all this stuff. Like I just truly believe that healthcare, health insurance, it's all broken right now. And the way that I've approached it myself is I've got a worst case scenario, catastrophe health insurance plan where like if something bad happens and I truly, truly need to have a surgery or a helicopter flight or something ambulance ride, I've got that part covered.

25:11It's$112 a month. It's$112 a month. And for that, it's also a$10 ,000 deductible, which guess what? I have an emergency fund. That's in that emergency fund. It's all good. Like that will just be a really bad month for your boy. I had an ambulance ride, whatever. It's all good. But on the flip side, after just five months of this$2 ,000 monthly premium going on, that's the equivalent of the entire deductible of this plan that I'm talking about. And so, Anthony, I just really want to encourage you to do more research about how you can pair and think about healthcare as a family of four that doesn't include$2 ,000 a month, but maybe there's a massive umbrella-type catastrophe insurance, maybe pay cash for some specific things, and just there's got to be a better way than paying$2 ,000 a month.

25:57I've also heard, Robert, of things like crowd health. There's a lot of this crowd-sharing healthcare stuff going on. I've heard really good things about them. I actually have a friend that does that, and their wife is pregnant right now, and I think it was a total out-of-pocket cost of like four or five, six,$7 ,000 for, for a delivery. And like, it's, you know, there's a lot of different things. Cause unfortunately how I realized is, is that healthcare is like this big blanket and it's like, yeah, for 2000 a month, you're going to get all this stuff. And I was like, wow, it's really expensive.