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

0:00Thinking about refreshing the carpet in your home? Now's the time to do it. For a limited time at The Home Depot, get 10 % off installed carpet projects on trusted brands like LifeProof, LifeProof with PetProof Technology, Home Decorators Collection, and Traffic Master. Plus, with installation starting at just 49 cents per square foot, upgrading your space is more affordable than ever at The Home Depot. Offer valid September 24th, 2026 through October 4th, 2026. Exclusions apply. For licenses, see homedepot.com slash license numbers. brussels clean up nicely at sweet green maple glazed roasted and edges perfectly caramelized sweet greens fall harvest is back on the menu and the season's most overlooked little green vegetable is dressed to be devoured you know what to do order on the sweet green app hey everyone and welcome back to a q a episode of the rich habits podcast your favorite podcast our favorite podcast.

0:58These 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 richhabitspodcast at gmail.com. You can DM us your questions on Instagram at richhabitspodcast, which by the way, Robert, we've got countless DMs as of late. Y 'all have really, really liked our Instagram. So if If you're not yet following us on Instagram, you haven't DM'd us over there yet, richhabitspodcast 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.

1:35Definitely. 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. There's so many ways to get more value out of us. They cost you zero dollars 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.

2:11Robert, we have a question coming from an anonymous listener I'm excited to dig into. They say, hi, please keep me anonymous. I love your show and I have a question. My employer allows for both 401k and Roth 401k 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?

2:56Robert, 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 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.

3:31So 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 and these traditional 401ks, 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.

4:14If you don't and they pigeonhole you into some target date funds or bonds or high cost mutual funds, 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 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 the S &P, you know, VOO, 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.

4:59So 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 VOO, and you're dramatically outperforming the market with these funds, call it two, three, four, five, six percent 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 underperforming the market, it's this big mess, then yeah, you need to reconsider where your next dollar goes.

5:39Because 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 funds on public.com's taxable brokerage account, VOO, QQQM, DIA, things like that.

6:20I 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.

6:54I'm excited to dig in. Anthony says, Hey, I'm a longtime listener. I've 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.

7:31We currently have$260 ,000 of cash in a high-yield savings account, and 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 fund down to six months of expenses plus any planned purchases for the next year and then put the rest in the stock market.

8:13We'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 183 that came out on August 17 titled Rich Habits vs. 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.

8:47And in that episode, we were like, listen, if you've got a 2 % or 3 % or 4 % interest rate on your home, no, rock and roll. Leave the mortgage, arbitrage the difference in the markets. And inflation is obviously eating at the debt as well. There's a lot of things that you could do with that money besides pay it off at a 2%, 3%, 4 % interest rate. But Robert, our reality as we've filmed this now at the end of September of 2026 is a little different. Interest rates on 30-year mortgages are now at 7.5%, 8 % depending on your credit score. The stock market does 7.5%, 8 % every year adjusted for inflation.

9:20And so now things are getting a little tricky when it comes to mortgages. So I'd love to know your 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%. And let's say, I'm assuming Anthony has really good credit given his financial situation.

9:54Let's say he's going to get this mortgage for 7.25%. 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.

10:32And it, I feel, puts 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 outperforms 7.25%. 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 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 7 plus percent interest rates for 30-year fixed. You know, it's like I'm right in the same boat.

11:10And how I'm approaching it is I'm putting, I think for myself right now, I think 25, 27 % down, something of that nature. It was just a round number that made sense in my financial situation. But I'm putting down 20 % or more toward this home. And then when it comes to my excess capital on a monthly, quarterly, and 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-ish percent, right? And so I'm thinking, okay, for every dollar that I invest, is it possible for me to also put a dollar toward paying off my mortgage?

11:49Can 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 markets, net new capital, and start using that to pay down my mortgage because it's at a 7 % interest rate or higher, whatever it comes out to be here as we close on this loan.

12:31But 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. 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 should kind of be split between both of them.

13:06And I should theoretically think about it as, you know, getting rid of this higher-ish 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 % getting in the markets. I'm more 50-50, right?

13:38I want to make sure I'm getting a lot of money still in the markets because I think the market, I can do better 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.

14:07Like 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 where you have to 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 liked that breakdown. 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.

14:40That 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 Mae 5 % down mortgage, which is a really, really cool program you can 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, 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.

15:18Robert, 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. 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.

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16:45Now, 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. OK, Chris. Very cool, man. Chris says, you just had on the show the NEOS 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?

17:20And then 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. That's a good question. Robert, you want to kick us off? Yeah, I think what I'll do is cover the net asset value. And then you can talk about how NEOs 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.

17:58And 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 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.

18:36So it's a good question. And I'm glad we're addressing this. NAV erosion, NAV, net asset value erosion. happens in ETFs all of the time, especially ones that start with the letter Y. There's Nav erosion that takes place. You just have to be careful. And that's why 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 Neos funds, but they do not have Navarotian and we'll get into that.

19:18But 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 & Johnson, right? Big dividend paying stocks. Everyone knows they've been paying 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?

19:51Paid 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 they're just, 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, 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.

20:30So 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 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.

21:17You'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 CONY, you can look at TSLY, 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? 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. NEOS funds thus far have not had NAV erosion and we believe their underlying strategy is not susceptible to NAV erosion either.

21:54And the reason I say that is because NEOS 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. If not, that's okay. Just nod your head and keep going. NEOS funds sells out of the money option contracts on only 75 to 90 % 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 in value, right? We want things to go up in value, not go down. We're talking about this Nav erosion. So it can go up in value, which is good.

22:27And 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 Navarosian strategy works great because they do not have it. They've built this specifically to push that Navarosian away and to not have it inside of their funds. Fingers crossed, something weird that doesn't happen, right? Like they continue to be Navarosian free, which is very, very important when you're looking at having an income producing asset inside of your portfolio.

23:04What a great question. I agree with you. We don't talk about 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 NEOs funds, because we love working with them. I just want 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. 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.

23:44It's just a really chill, fun thing that we've added to our repertoire every single week that we do for our audience. So 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 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.

24:23So 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, what are you waiting on? You could be the 123rd person. Like it's like if I heard on a podcast that 122 people joined something in September and 203 people joined something in August and 120 something people joined in July.

25:04Like 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 schedule, 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. Any which way, go find the Rich Habits Network.