Mortgages, Universal Life Insurance and Annuities - WCI Podcast #369

This is the White Coat Investor Podcast where we help those who wear the white coat get a fair shake on Wall Street. We've been helping doctors and other high income professionals stop doing dumb things with their money since 2011.

This is White Coat Investor podcast 369 Healthcare is changing and so are you. Your current career goals are probably different than they were five years ago and you probably have questions about how to achieve them. Consider Locum Tenens as a solution. Locumstory.com has all the information you need to learn about all the benefits of locums and how it can work for you. On the Locum Story podcast you can find expert interviews with physicians who worked locum tenens firsthand and share what their experience was like along with advice for others looking to do the same. Tune in to the Locum Story Podcast on Spotify, Apple or Google Podcasts. Thanks for being back with us. We're recording this today on May 3rd. I don't think it drops till the end of the month though. So if something big happens this month and we don't mention it, that's why we have something really cool to announce though. For years people have asked us for student and resident specific material specifically when it comes to our online courses. We have taken your feedback into consideration and we have done what you wanted. There are now four versions of Fire your Financial Advisor. This is our flagship online course, the one that's designed to help you get a written investing plan, a written financial plan in place. There is Fire, you Financial Advisor for students, there is Fire, your Financial Advisor for residents. There is the regular old Fire your Financial advisor for attendings and other professionals in their careers. And there is Financial Wellness and Burnout Prevention. That is the CME eligible course that includes the entire five year Financial Advisor course and includes eight hours of burnout and wellness material that makes the course eligible for you to buy it with your CME dollars. So the FYFA course grows with you and you can upgrade to the next course as you moved into the next career phase. You just pay the difference between the courses. All right, so the reg prices for these. I know they tell you never make an online course that sells for less than $200 but we have done that. We just thought that was too high of a price for students. So we have made the student price $99. The resident price is 299. We're keeping the regular price for Fire your financial advisor at 799 and the same price for financial wellness and burnout prevention. That is 1099. But like I said, the idea is that you buy the student course as a student, then you upgrade when you become a resident. So Instead of paying 299 for the resident course, you just pay $200 and then you upgrade to fire your financial advisor for attendings. But Instead of paying $800, now you only pay $500 for the upgraded version. And if you want to upgrade to the CME eligible version, you can also do that. So very cool. But to incentivize you even more, those aren't your prices today. We're going to give you another 20% off. This sale's running through 27 May until 7 June. From 27 May to 7 June, it's 20% off all those prices. So the student course is now 79 bucks. That's as cheap as this thing's ever going to be. We're never going to make an online course cheaper than that. That's as good as it gets. Use the discount code, launch 20, and you simply go to www.wcicourses.com. that's where you can buy it. Obviously, there's links all of the website. If you go to whitecoatinvestor.com it is not hard to find where you buy. Fire your financial advisor. Buy the version that's right for you. As always, we have a one week, no questions asked, 100% money back guarantee. And you know, as long as you haven't taken more than 25% of the course, if you just take the whole course in a week, we're not going to give you money back. But if you don't like it, there's no risk. Check it out. Check it out. No risk to you. There are now cheaper versions available for students and residents. I mean, anybody can buy them, but that's who they're aimed for. If you're about to graduate from residency, if you're an attending, if you're, you know, an engineer working in your field, those are not the courses you want. You want the regular fire your financial advisor course, but these are less expensive versions for students and residents that will grow with you as you move throughout your career. So I hope you enjoy those. We put a lot of work and time into them, particularly Katie. She's over all of our products. She's our chief Product officer. And I think you're really going to like them, but if you don't, we'll give you your money back. Okay, let's do a correction. On a recent podcast, I said that Vanguard Sweep account pays you pretty well. That is true. The Vanguard Sweep account or the Vanguard Brokerage is just the Federal Money Market Fund. I think it's paying something like 5.25% right now. But the error I made is I said that at both Schwab and Fidelity, it basically sits in a zero percent account. That's not true at Fidelity. It is true at Schwab. But at Fidelity, their Sweep account also pays you a significant interest. It's less than Vanguard's. In fact, it's less than 5% right now. But it's pretty good. It's pretty close. It's far different from Schwab's, where they make money on your cash by paying you 0% on it. If you want a different money market account at either of those places, you have to deliberately put your money into a money market fund. But a Vanguard, it just sweeps directly to the Federal Money Market Fund, which is the one most of us pick. I mean, you can use the Municipal Money Market Fund if you're in a particularly high tax bracket or if you really only want to have it invested in Treasuries. That gives you a slight break on your state taxes. You can use the Treasury Money Market Fund. But the Sweep account is the Federal Money Market Fund. Sorry about that. I told you, don't quote me. But obviously people felt like we needed to correct it and we probably did. Okay, let's take our first question off the speak pipe today.

Hey, Dr. Dali. My name is Dr. Steven. I am a neurology fellow practicing in New England. Currently. My question is how much money should I put down on my next house? I bought a condo in Medical School. 0% down, down, sold it, was able to buy a house for residency and have now sold it. And at this point, after real estate transaction fees, we'll have $250,000 for the next house which is under contract. And it the purchase price is 500,000. So my question is how much of this 250,000 should I put into the new house? I'm leaning towards all of it, but more context. I have about 300 in student loans, but my new employer is going to pay it down quite a bit to where I'll just have a little over 100,000. And with my sign on bonus, I'll have about $50,000 cash to help move and get settled in the new location. And anything after that I was planning on throwing at the loans anyway. Just wondering where the best use of this house equity money would be. Thank you so much for all you.

Do all right, well, thank you. Good question, Dr. Stephen. And thank you for what you do. And really to all of you, thank you for what you do. You know, I was in a shift last night. I don't normally work evenings. I swapped with one of my colleagues because he needed to go to a meeting that afternoon. And I feel like that's supporting my levers if I make it so they can go to their meeting. So I swapped my day shift for an evening shift and forgot that different things come in in the evening than they do during the day. And right as I was leaving for my shift, we had somebody come in with a foreign body that was still moving. So it's always interesting stuff in the emergency department. Thank you to those of you who were working and taking care of people. All right, at any rate, your question is, what do you use the money for? How much of the money do you put down? There's no right answer to this sort of question. Right. You can do whatever you want. If you want to invest all that money somewhere else, that's not wrong. And use a doctor loan to buy the house, I don't know that I'd do that. If you want to put it all toward your student loans, that might be wrong in your situation, since it sounds like your employer is going to pay down a lot of your student loans. You didn't share the terms of that. But if they're going to pay everything but $100,000, there's no reason you can't put $100,000 toward your student loans, especially if they're 6 or 7 or 8% or something like that. That's pretty darn attractive, I think. But just putting it down on your house is not a bad idea either. I mean, this is money that's home equity from prior houses. You know, whether it was the right thing to do or not to buy a priori as a student and a resident, you did, and it worked out fine for you. And now you got all this home equity. You can just put that into your next house. It might be particularly important if the housing prices drop and you need to get out of the house, you'll be glad you have some equity in there that allows you to do that. Certainly, putting half the money down is going to reduce your mortgage payment, which is really nice. That's particularly important now that people are getting 6.5%, 7.5% mortgages. The lower your mortgage, the smaller your mortgage, the less interest you're paying, the lower your mortgage payment. That's a great use for cash Lots of people obviously have good uses for cash when they're brand new attendees, right? They might need to beef up their emergency fund, pay off some student loans, pay off a car, replace a beater. You know, maxing out HSAs and retirement accounts is always a great thing to do. Some people want to get started saving for their own kids college. You know, there's all these great uses for cash and usually not enough cash. You have much more cash than most people coming out of training. You know, between the signing bonus and this home Equity, you got $300,000. So great problem to have. There's not really a wrong use for it. I think I'd probably put the lion's share down as a down payment on the house. Maybe keep a little bit out put toward your student loans or keep a little bit out to beef up an emergency fund. But there's nothing wrong with just putting all $250,000 of it down. I mean, when mortgage rates are 6.5%, you're basically earning a guaranteed 6.5% on that money. So I find that pretty attractive. Even if you put it in the federal money market fund I was discussing earlier, you're only going to make five and a quarter. So you can beat that guaranteed by using it as a down payment. I think I'd probably use the lion's share of it for that. All right, next question is another mortgage related question.

Hi Jim, this is Elena from the Midwest. Thanks for all you do. I'm an emergency position, almost three years out of training with an annual income of about $450,000. My husband and I are under contract for a new construction home with a purchase price of 1.15 million. We are trying to decide if to use a 30 year jumbo loan at 7.25%, a 5 year ARM at 7 6.625% with 10% down or a 5 year ARM at 6.5% with 20% down. Those ARMs are physician loans. We won't have to pay PMI. We already put 10% down as an earnest money deposit and the remaining 10% is in a money market fund that we have access to today. This decision also depends on student loans. I was initially pursuing PSLs, but I recently changed jobs and no longer qualify. My student loan balance is now $220,000 and I'm on the save plan with an interest rate of 5.625%. So now we have about $115,000. That could either go towards your down payment or student loan balance. I initially wanted 20% down to have more equity in the home. But now that I no longer qualify for loan forgiveness, I'm wondering if I should put that lump sum of money towards my loans now and take advantage of the physician loan. We also plan to itemize our taxes this year to benefit from the mortgage interest tax deduction. We don't qualify for the student loan interest deduction, so there's actually a benefit to pay more in mortgage interest while there is no tax benefit to paying student loan interest. I know you say young physicians have a lot of good uses for their money other than spending it on a big down payment. And now that I don't qualify for pslf, I'm wondering if a physician loan is right for me. We'd likely refinance within these first five years if rates go down and recognize that rates going up is an inherent risk of an adjustable rate mortgage. Thanks for your thoughts.

Okay, did all of you out there in listener land get all those numbers? I didn't. I had to listen to this three times to write down the numbers. Let's recap a little bit what the numbers are, Doc. Making $450,000, there's a spouse. I don't know if the spouse has any income or not. I'm assuming not because it wasn't mentioned. And the house is $1,150,000. Alright, well my guideline for buying houses is try to keep your mortgage less than 2x your gross income. So if your gross income is $450,000 2x, that is 900,000, $1,015,000. House is another $250,000. So if you don't put $250,000, you're going to be over that 2x guideline. Now it's a guideline, right? It's not a hard and fast rule, but it does suggest that maybe it's a good idea to have a bit of a down payment when buying this house so you don't feel house poor when you get in there. Three options given for a mortgage and you know these rates are probably changed by the time you listen to this. Rates change twice a day so they're all over the place. You got to shop around and it's kind of a pain searching for mortgage rates. It's much easier if you're comparing like to like apples to apples rather than apples to oranges. You're just trying to decide right now what type of mortgage. It sounds like you're going to be there longer than five years though. So a 5:1 arm is fixed for only five years after that, it's an adjustable rate mortgage. That's not necessarily bad. A lot of times mortgages and adjustable student loans adjust downward. There were a lot of people that took out student loan refinancing a few years ago at 2.5%, and then it went to 1.5%. It's not all bad to have an arm, but you do need to be able to afford the worst case scenario. So when you're looking at an arm, see what the worst case scenario is. It might be capped at 9% or 12% or something. See what the worst case scenario is. Make sure you can afford that. If you can't afford that, you need to pay the bank to take that interest rate risk for you. What that means is a fixed mortgage. In this case, it'd be a jumbo loan because you're over the jumbo loan limit. But that's really neither here nor there. So your fixed rate was 7.25. Your adjustable rate after five years was 6.625 or 6.5, which are very close together. Right. Those are only an eighth of a point difference. I don't know that I'd put an extra 10% down just to get my rate down an eighth of a point. That's not a huge benefit for that much money. I don't think the risk for running the interest rate risk yourself. The benefit for that knocks about three quarters of a point off. Well, that doesn't seem like you're really getting paid to take that either. I might lean toward the jumbo or the fixed rate loan on this one. And as far as what to do with that extra 10%, there's no right answer here. But if you look at the math, you can see that the mortgage interest rates are higher than the student loan interest rates. So putting the money toward a 6.5 or 7.25% loan seems smarter mathematically than putting it toward a 5.625% loan. However, there's also the behavioral component to consider. And the idea is that you pay off your loans in the snowball method. Smallest loan to largest loan, and in that calculation you would be paying off the student loans first. But there's no right answer here. Do whichever one you want. I like the idea that you're putting it toward one or the other rather than spending it on a wakeboat. I think when you owe $220,000 in student loans, it's not time to be buying second homes and wake boats and fancy F250s and things like that. It's time to be putting the money toward building wealth, paying down debt or investing it. But which one you do, I don't think matters all that much. I think if I were in your situation, I'd probably get the fixed mortgage and I'd probably put 20% down. I think that's what I'd do. Don't get suckered into this idea that you ought to have a big mortgage because you get a mortgage interest deduction that suckers a lot of people into buying way too much home, into borrowing too much money. Yes, it helps, but basically it just subsidizes your interest rate a little bit. That's all it does. It's not like free money. Right. Because if you spend $100,000 in order to get a $32,000 deduction, that doesn't make sense, obviously. Okay, let's bring on while we're talking about homes and interest rates, let's bring in an interview here I did recently with the folks from SI Homes. Now, obviously SI Homes is an advertiser, a sponsor on this podcast, but I think it's always great to talk to Jim Shields, and he's got a lot of great perspectives both on real estate investing as well as life in general. So let's talk with him for a few minutes, then we'll get back to your questions. Here with me on the White Coat Investor podcast today is one of our sponsors, Jim Shields, a partner of Southern Impression Homes. Welcome back to the podcast, Jim.

Hey, good to be here, Jim.

Thanks for having me. Now, some people may remember we had you on the podcast talking about 18 summers, talking about the family board meeting, your bestselling book. You've got a new book out, too, which is pretty exciting. It sounds like you wrote it together with your wife. But for those who may not remember you or have never heard of you before, can you introduce both yourself as well as Southern Impression Homes? Sure.

My name is Jim Shields. I'm a partner at Southern Impression Homes. We focus on build to rent. We build rental portfolios for wealthy investors and work long term for that generational wealth effect. I'm also an author. I wrote a family book about 10 years ago that I never expected to write, but thanks to the support of groups like White Coat and others that actually hit number one. Wall Street Journal. And it's about how do we balance our our busy careers with staying successful at home? And there's just some, some real good fundamentals and principles that we share in that book that are now.

Wow.

It's being used by about a Half a million families worldwide, which is quite an honor. But a lot of people, Jim, after I wrote that first book, said, we have this quality time with your family. Give me the how. How, how do you have five kids, you're living a few months out of the year in Costa Rica, Give me the how. And I said, well, the how for how I was able to even afford to get a best selling book out and do these adventures was through my real estate investments. That's the how. So now the how that got me and my wife there and we talk in this new book, the Passive Income Playbook, about how can you buy back your time and have that incredible family life through builder rent investments. So that's what the second book is about. Kind of our 25 year journey of the real estate changes that we've made to our portfolio and how we really hit a stride about 10 years ago through this new thing called Build to Rent. Turnkey.

Yeah. So there'll be links in the show notes to both of those books, both the family board meeting as well as the Passive Income Playbook, right? Yes sir is the official title, so you can check those out if you like. Links in the show notes. You know, I talk a lot about the spectrum of real estate investing on this podcast. All the way at the left side, people ground up developing, building their own buildings and then renting them out, et cetera, to all the way on the other side, investing only in a, in a publicly traded REIT mutual fund. And everything else is somewhere in between. You know, turnkey investing finds itself in about the middle of that, that spectrum. It has some benefits of being a direct investor completely owning the property, as well as some benefits of not being as much of a hassle because somebody else is taking care of all the headaches and the 3am toilet calls. Can you make the case for turnkey investing over direct real estate, investing over funds, over syndications, et cetera?

Yeah, I think, you know, funds and syndications, I invest in them, Jim. I believe in them and I think they're great. You know, how we met was from our friends at dlp. So I believe in funds and syndications, but I can honestly say the most amount of money I've made over the last 25 years is through my direct property ownership. And, and I think people forget that that's still an ability to be able to do that. Funds and syndications, you'll get a high interest rate return, which I like for some of my portfolio. But holding the property like we went over numbers before, if you invested five years ago, 250,000, let's say, into the S&P 500. Well, Jim, you and I would have made 10.49%. That's a great return. If we had invested this $250,000 into a good real estate fund, again with don over at DLP, we had probably over 13% of our money. That's a great return and things that I personally do, but direct property ownership, $250,000. If you had invested into our Build to Rent program, owning your own new construction rentals in Jacksonville, Florida with us, your annual return over the last five years would have been 69% year over year. That's the power of direct property ownership. And that's why I always say I believe in handing some of my money off to people to take care of for me. But then I like that. Direct ownership. And what I've found is a lot of people, you know, especially our medical.

Friends, Shimon, you know, I work with.

A ton of them for years. They don't want a second or third job. They don't want to go out and be meeting with realtors, researching markets, interviewing contractors, overseeing projects, managing it themselves, or where do I get it financed? How do I ensure this? They want all those questions answered. And that's why we do the turnkey model, so we can. They can just grab onto our coattails. Everything we've done for ourselves, they're just following suit. And we're handing off the playbook to them so that instead of sending wow to do it on their own, it could be 20, 30, 40, 50 hours a month. They're spending two hours a month through our program.

Yeah, you know, it's been a pretty remarkable run the last five years. Not just in real estate, in stocks as well. I mean, we've had good returns. I mean, 2022 was maybe not a great year, but it's been some great returns the last few years. And obviously those can't be guaranteed going forward. But the nice thing about ownership, whether you own your practice, whether you own a business, whether you own a real estate property directly, you get all the benefits of ownership. All the downsides too, but all the benefits. And when it does well, you do really, really well. The other thing I really like about turnkey is the control. Right. You know, a lot of times you're going from one investment to the next one. You don't need the money yet. You're a mid career, you're living off your earnings from your clinical work. You don't need all that money being paid back to you. And when a fund closes after five or six or seven years or a syndication wraps up and is sold off, well, all of a sudden you've got to realize all those capital gains, you don't have to do that. When you're the direct property owner, you can put that off, you can exchange to another property, you can leave it for your heirs, and nobody ever pays taxes on the depreciation recapture on those capital gains. The control, I think, is a big bonus of turnkey investing that I think people don't put enough emphasis on being able to really control the tax situation and the investment situation in the long run. And I think that's one of the, one of the greatest benefits of it. Now, Southern Impression Homes does something really cool right now. Interest rates went up about 4% over the last couple of years. You know, people looking out there to buy investment real estate, they're finding out that they're paying 7%, 7.5%, etc. You have done something really cool to allow your investors to buy these homes with much better financing than that. Can you describe that for us?

Yeah. When? June 2022. That was just the hockey stick time. All of a sudden rates started going, going, going, going. And the Fed has a history of doing this. And as you said, it went up four points. And we didn't see that we had a pricing problem, we had an interest rate problem because most of our people, they want cash flow. And the difference between a good interest rate or a bad interest rate is whether it has positive cash flow or negative cash flow. So about a year and a half ago, we decided we had to get into the money buying business. Now luckily, since we have a healthy balance sheet and part of our company is owned by Sumitomo, a large 331-year-old company, which gives us a great ability where we have zero bank debt, which is kind of unheard of, it gives us leveraging power to go into banks and actually pre buy large amounts of money. So we'll go in and pre buy all these large amounts of mortgage money for our clients, Jim. And many code people have used them. And so when they come to buy a new construction home, a duplex or a quad with us, we'll be able to lock them in at 4.75%. Or if they went to their own mortgage company in their backyard, they might be getting quoted seven and a half percent. And the, the goal of that is we want to get people positive cash flow and off on the right foot. And that interest rate difference, as you know, can. Can make all the difference.

Yeah. Very cool. Well, Jim, thank you for sponsoring this podcast and thank you as well for all the hard work you put in to help so many white coat investors to have excellent returns with not that many hassles, as it turns out, when you're investing in turnkey rentals through Southern Impression Homes. For those who would like more information about this company and these investment opportunities, you can find that@whitecoatinvestor.com Sihomes that's Sihomes. Thanks so much, Jim, for your time.

Thank you.

All right, our next question is about insurance, life insurance, specifically for people who have had cancer. Let's take a Listen.

Hi, Dr. Dally. Thank you for everything that you do. I have a question about a universal life insurance policy. My situation's a little bit unique. About three years ago I was diagnosed with cancer. As I was a working full time urologist, I had to take a year off of work on disability for treatments. But I was able to get back to work over the last two years, full force now, and everything's been going great. My question is that I had a group life insurance policy of my previous employer and when I terminated employment there, knowing that I had a cancer diagnosis, I was nervous about being uninsurable for other life insurance policies, none of which I had. So I converted that to an individual universal life insurance policy. It's quite expensive. It's about $800 a month. And just wondering in my situation, given that I'm kind of uninsurable otherwise, is this one of those exception to the rules carrying a. I think it's a $550,000 policy. It does have a little bit of cash value in my new employer. I also have another group policy of another $500,000. So overall coverage of a little bit over a million. My wife is also a physician, so we have quite a bit of income coming in, but still working to pay off student loans and some other debts like a mortgage. So let me know your thoughts if you think that's one of those exceptions to the rule or still worthwhile getting out of at this time. Thanks a lot.

All right, great question. A lot of details there as well. 2 physician household doc that has had cancer, was on disability for a year. Now two years of presumably cancer free and working full time, no longer disabled, has an expensive universal life policy. I want to tell you, first of all, I think you made the right decision taking that policy with you in whatever form they let you take it. Now, obviously it's great if you can take it As a term policy, sounds like maybe the only way they'd let you do it was this universal life policy. When you do not qualify to get life insurance and you have life insurance, hold on to the life insurance you have. Now, this assumes you actually have a life insurance need. You talk about having a mortgage, you talk about having some student loans, you talk about being relatively early career. I'm assuming you actually need the life insurance. That's not necessarily true, right? I mean, if you died, your wife is a doc, she can presumably make some pretty good money and isn't going to be in the poor house if you die. So one might argue you don't need life insurance or don't need all that much life insurance. But presumably you want to do something for your family, should they, should you, you know, something happened to you whether it's related to the cancer or whether it's completely unrelated. So you really have to ask yourself, what is your financial plan? What is the family's financial plan if you die? What is the family's financial plan if your wife dies? What is the family's financial plan if you both die? And that's how you decide how much life insurance to have. And if you discover that you need more than the $500,000 presumably term that you have with your current employer, then yeah, you got to keep this universal life policy because you need the insurance and you can't buy anything else, at least not for probably three more years. Three years from now you might be able to after you've been cancer free for 5ish years. A lot of times you can buy insurance, you probably don't get the best rate on it. It's probably going to be priced better than a universal life policy. So I think I'd probably hold onto it, assuming you still think you have a need for life insurance for a little while longer. But as soon as you feel like that need is gone. Maybe it's when you pay off student loans, maybe it's when you pay off a mortgage, maybe it's when you got a million or $2 million or become financially independent, you can drop that and take the cash value, pay any taxes due on it, or you know, hopefully you're actually in the black on it, probably will be by then and do whatever you want with it so you're not stuck forever with this thing. But it sounds like maybe it's not quite time to drop it. I think you're probably going to have it for a few more years anyway, whether you swap it for a different life insurance. Policy or whether you just decide you don't need it anymore. Sounds like you probably do need and want it right now. 800 bucks a month is a lot. There's lots of good things you can do with $800 a month. But if you have a life insurance need, I'd keep the life insurance. Hope that helps. All right, our quote of the day today comes from. HL Mencken said the chief value of money lies in the fact that one lives in a world in which it is overestimated. Money's good for some things, but there are some problems that money just cannot solve. It's not like oxygen that way. When you have enough, you never think about it. When you don't have enough, it's all you can think about. All right, let's take a question about an annuity.

Hi, White Coat Investor podcast. My name is James from Texas. I'm an ophthalmologist. I've been practicing for about 15 years. I've been able to save up a lot of money. And I do have a financial advisor that I use. I meet with about every year to two. I do most of DIY stuff, but he did sell me one insurance product that allows me to get some advice every once in a while. So my question for you is he is recommending this annuity called the Prudential Flex Guard. And I was hesitant, of course. Listen to your podcast for years now and any annuity has some baked in scary stuff like caps on growth. They have surrender charges, they have a lot of fees baked in. And I know they don't always seem the most sound. We were saying this one had basically has no upfront fee, no ongoing fees if you invest in an etf. And it does have a downside buffer. So it's kind of making it sound like it's different than other products, but maybe it's just the advertising of it. So if you could look into it and tell me what you think of this, this, this product. It's called the Prudential Flex Guard, I would much appreciate it. I'm skeptical, but I not smart enough to read all the fine print and figure out where they got you. So if you could look into it for me, I appreciate it. Thank you very much.

Okay. I'm glad you called it. Let's. Let's talk about the elephant in the room. This person is not a financial advisor. You might think you're getting some sort of beneficial financial advice because you once bought an insurance product from this person. But this is not a financial advisor. This is somebody who sells products, whether they are selling loaded mutual funds or annuities or cash value life insurance, they are a product salesman. Maybe a couple years ago they were selling used cars. Maybe a couple of years from now they'll be selling refrigerators. They are not a financial advisor. They might call themselves a financial advisor, but they are not a financial advisor. When you go to get financial advice, I think you ought to pay for financial advice, not commissions on products. That way, you know, the advice is far more bias free. Now, there's all kinds of biases out there. I understand that, But I think the model where you pay commissions for financial advice is just too biased. It is just those incentives are all wrong. And even really good people, I can't resist them. So I don't think you should take financial advice from this person. If you really think you might need an annuity, go see a fee only financial advisor, a fiduciary who can give you advice on whether you need an annuity. And if you need an annuity, maybe you start looking at annuities. Maybe you consider this one. Probably not quite honestly. But first determine if you need an annuity. You don't go to the car salesman at the dealership and ask if you need a new car. You don't go to the barber and ask if you need a haircut. Right? So the whole question of whether you need an annuity should be determined either on your own if you're capable of doing it, or talking with a true financial advisor. Okay, you didn't say anything that indicated to me that there's a need here for an annuity. I don't have all your financial information in front of me. Maybe there's something I'm missing. But an annuity is a very specific product with very specific needs that it fills. If you don't have one of those needs, don't buy an annuity. There's lots of expenses associated with it. It limits your options. You know, you lose some optionality, some flexibility when you buy one. Don't buy an annuity unless you have a need for an annuity. There's a cost to it. It's an insurance product. And that insurance has costs, not the least of which is the commission this person would earn. You know, typical commissions for a product like this range from 5 to 10% of the money you're putting in this product. So you put $50,000 in it, that person is going to get paid something like 2,500 bucks to $5,000. Right? That's not an insignificant piece of income. For someone who sells this stuff. So there's real bias there. All right, I did Google this product and what I determined as I searched for this is that the Flex Guard Annuity from Prudential is an indexed variable annuity. Now, just because they put the word index in there doesn't make it good. Doesn't mean it's like an index fund. These are like my least favorite financial products. I have yet to see somebody that I thought actually had a need or made a good case for buying an indexed annuity. Most indexed annuities are actually fixed annuities. This one somehow is a variable annuity. But I would not buy this. If you have a need for an annuity, it's probably a single premium immediate annuity or a spia. It might be a deferred income annuity. That's basically longevity insurance. You buy it when you're 65, it starts paying when you're 85. If you live that long and kind of gives you permission to spend during retirement, I can make a case for that. I can make a case for multi year guaranteed annuities. If you're comparing them to CDs, they're basically a CD of the insurance industry. I cannot make a case for the Flexguard indexed variable annuity. I can't think of a reason why somebody would need one. So it's very hard for me to think of why you would need one. Even though I don't know all that much about you, I do think you ought to get another opinion from a real financial advisor before buying something like this. Remember, when you're buying annuities, when you're buying cash value life insurance, these are generally lifelong decisions. They require a lot of due diligence, similar to getting married. It's going to cost you a lot of time and hassle and money to get out if you decide you don't want to stick with it for the rest of your life. So I don't like what you're getting from this financial advisor. I don't like this particular product and I don't really like the category of product, quite honestly. So I think I'd stay away. And if you need an advisor, go get a new one, because this one is not an unbiased advisor. All right, next question comes from Tyler.

Hi, Dr. Dell. My name is Tyler. I'm on the East Coast. I'm an academic family medicine doctor. I have been trained to teach my residents your lessons and so far I think they greatly appreciate it. I had a question the other day as I was Going through the residency waterfall subjects that you have. In one of your blog posts, one of the residents said that she was told by a friend who is in financial planning of some sort that she should slowly pay off her loan because the longer she has a loan, it improves your credit score. This is not the first time I've heard this. Especially I think last time my wife.

And I bought a new car for.

Her and it was financed. The representative, who I definitely don't trust from just his position, said something similar that we should not pay it off all right away. So I wonder where this probably Nick and what your thoughts are.

Thank you. All right, Tyler, great question. Appreciate you calling in and leaving a question. I think it's well worth discussing. I think you're right to be skeptical. It sounds, though, like you called me from a convention or a hockey game. So just as a general advice to people out there, when you're calling in and leaving a speak pipe, we're going to play the speak pipe as it gets recorded. But our sound guy can only do so much with background noise. So do everybody a favor and go to a quiet room to record your speak pipes when you leave them. Obviously, if this was a call in show, I'd tell you to walk into another room or something where it's quieter. Great question. The question is he's heard or somebody else heard through a, AKA financial advisor. I hate that term because anybody can use it, that you should pay off your student loans slowly. So you get this sweet, sweet high credit score that's gonna make the rest of your life super easy. Cause that is the most important number in your financial life. Cause if you can't borrow money, what are you gonna do? How can you possibly live without borrowing money? I don't understand. How does that happen? Where would I get this saved money from? As Steve Martin says in that old Saturday Night Live scene, get. Which you should definitely watch if you've never seen. It's titled don't buy stuff you cannot afford. At any rate, let's talk about credit scores. I understand that credit scores can make your life a little bit easier. You don't need all that high of one. You know, if your credit score's 740 or 760, that's as high as it needs to be. An 810 doesn't give you anything you can't get with a 790. All right. There's five factors that go into a credit score. Okay, well, before we get into that, let's talk about what credit scores are used for. They're used for borrowing money. They check your credit score and you get a new credit card. They check your credit score when you get a car loan. They check your credit score when you get a mortgage. But they're also used for some other stuff. Sometimes employers check them. They can be checked as part of a background check if you want a military or government job. Sometimes utilities will use them. And so there are a few uses. I think it probably is relatively useful to have a decent credit score. I don't feel like you can't ever have a credit card or you're a terrible person. But I am aware that the studies show you're likely to spend more with a credit card than you are without one when you use credit. As general rules, studies show that people on average spend 10 or 15% more than they do if they're not using credit. So don't feel like you have to have no credit at all. But also don't feel like you gotta do all this stuff to build up a great credit score. You don't have to do much to get a great credit score, right? Put your gasoline on a credit card, pay it off every month, and that's enough of a credit, combined with making your rent payments to buy a house. That's it. That's all they need. You talk to the mortgage lenders, they're like, yeah, two, maybe three sources of credit. That's all you need. You don't need 12 credit cards and student loans and some old house. You just don't need that for the things that you need a credit score for. So when somebody tells you to do something just to increase your credit score, they're probably an idiot, all right? Unless you're like, I need to buy a house in six months and I don't have a credit score at all. What should I do? Well, go start buying your gas on a credit card and maybe get one other credit card and put one thing on it and pay it off. And now you have two lines of credit, and you can show that you're responsible with credit. All right, credit score, where does it come from? Well, it's based on five factors. Your payment history, the amount owed, new credit, the length of your credit history, and the mix of credit or the various different types of credit. The most important things are on time payments and the amount of credit you've used. Okay, so basically, if you just pay your bills, you'll have a high credit score. If you're like most people, all you gotta do is just do what you agreed to do. That's all a credit score is measuring. You borrowed money, you paid it back, that's it. And so if you just put some money on a credit card every month and pay it off every month automatically with an automatic payment out of your checking account, that's good enough. By the way, if your kid needs a credit score, the best way to establish it is just add them to your oldest credit card and voila, in a few months they've got a top notch credit score too. But basically, payment history is 35% of it. The amount owed is 30%. The length of your credit history is 15%. New credit is 10%. Credit mix is 10%. So let's. Now we know that stuff about a credit score. Let's evaluate this advice that you should keep your student loans or drag them out longer than you otherwise would in order to have a higher credit score. Well, you might get a lower credit score doing that, especially if you're not making the payments you're supposed to make. On most important thing is that you make the payments that's 35% of your credit score, the amount you owe. As a general rule, what we're talking about here is the amount you owe divided by the total amount of credit available to you. So the idea is you have a $10,000 limit on your credit card, but you only use 50 bucks. That's really good for your credit score. Whereas if you run that card up and you owe 9,500 on that card with a $10,000 limit, that's not so good. So that's what we're talking about when we're talking about amount owed and that's 30% of your credit score. So having a bunch of, you know, showing that you made payments on your student loans that would help your credit score, but owing a whole bunch of money on student loans is not going to help your credit score. The length of your credit history. I guess if you had student loans for decades, that shows that you can be responsible with credit for decades. Although I would argue just the opposite. If you can't pay your student loans off quickly, you're not that responsible with credit. New credit, we're talking about new inquiries, right? If you make a bunch of inquiries for new credit that can drop your credit score, that's 10% of the value. So that's usually bad. If you go to get a mortgage and they look and you applied for credit 37 times in the previous two months, that makes them wonder if maybe giving you a loan is a bad idea. And then lastly, it's a credit mix, I guess. Having student loans and a car loan and credit cards would give you a slight increase to your credit score, but that's only 10%. None of that sounds like good reason to drag student loans out longer than you otherwise would. My recommendation is you get rid of your student loans within five years of getting out of your training program, whatever that might be. You're out of school. If you're going for pslf, it might take seven, right? If you made three years of payments during residency and you gotta make seven more payments as pslf, well, maybe it takes you seven. But for most people, they're gonna want to be out of student loan debt within five years. And I have yet to regret anybody who to meet anybody who regrets paying it off in one or two or three years. So pay it off. Don't drag it out. And certainly don't drag it out so you can have a higher credit score. That's stupid. Healthcare is changing and so are you. Your current career goals are probably different than they were five years ago. You probably have questions about how to achieve them. Consider locum tenons as a solution. Locumstory.com has all the information you need to learn more about the benefits of locums and how it can work for you. On the Locum Story podcast, you can find expert interviews with physicians who worked locum tenens firsthand and share what their experience was like, along with advice for others looking to do the same. Tune in to the Locum Story podcast on Spotify, Apple or Google Podcasts. Okay, As I mentioned earlier, if you go to wcicourses.com you will see that we have some new online courses and these are actually different flavors of the Fire your Financial Advisor course. This is our flagship course that takes you from zero to hero, right? It helps you be financially literate, helps you have a written financial plan that you can follow to investment success. It's a really great course. People love it. We get great reviews on it. It's priced dramatically cheaper than hiring a professional to help you draft up a financial plan. It is more expensive than doing it yourself, just reading blogs and listening to podcasts and reading books and writing your own financial plan. It is more expensive than that, but it's much cheaper than hiring a financial advisor. We think it's great. You can go to wcicourses.com and buy it. But the news is that we've got four versions of it now. Four versions. One for students, that's $99. One for residents, that's $299. One for regular people in their career, attending physicians, dentists, et cetera, that is 799. And then the one that's eligible for CME, that is 1,099. But for the next few days through June 7th, they're all 20% off. And these are student ones, as little as $79. And let's see if I can do the math here. 20% off, 300 bucks. That's 60 bucks off. So that one should be what, 239? 239 through the seven. So dramatically cheaper than buying the full course, dramatically cheaper than even buying the regular course or buying these new courses on sale. So check that out. Use code launch20Cicourses.com all right, thanks. For those of you who are leaving us five star reviews telling your friends about the podcast, that word of mouth really does help. It helps us as a business and so I thank you for that. But most importantly, it helps us as a community to spread the word about the importance of financial literacy among medical and other high income professionals. A recent review said a must for any medical professional. I discovered the White Coat Investor toward the fifth year of my training. Although it's been only four years since then, it's been a life changing. The podcast information should be given to any medical professional and high earner as early as possible before they're in a big hole of debts. Now I won't miss any episodes. Thank you for all the great advice. 5 stars. Thanks for that great review. All right, hope you're all doing well out there. It's that time of year when we're going into summer. I hope you have some fun plans for the summer. If you have kids and they're getting out of school this week, boy, enjoy them. They don't last long. Before you know it, they'll be out of the house. Keep your head up and shoulders back. You've got this. We're here to help. We'll see you next time on the White Coat Investor Podcast.

The hosts of the White Coat Investor are not licensed accountants, attorneys or financial advisors. This podcast is for your entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.