MtoM #126 - Pharmacist Writes a Book and Pays Off a Mortgage and Finance 101: Index Funds

This is the White Coat Investor podcast, Milestones to Millionaire. Celebrating stories of success along the journey to financial freedom. This is Milestones to Millionaire podcast number 126. Pharmacist writes a book and pays off a mortgage. I estimate that 80% of doctors need, want, and should use a financial advisor and or an investment manager. Some investment gurus, such as Dr. William Bernstein, think my estimate is way too low. At any rate, if you want to use an advisor temporarily or for your entire life, there's no reason to feel guilty about it. Just make sure you are getting good advice at a fair price. If you need help updating your financial plan or just getting one in place, check out our list of recommended financial advisors@whitecoatinvestor.com financial advisors. You can do this and the White Coat Investor can help. All right, we've got a unique milestone today, so let's get our guest on the line. Stick around afterward. I'm going to talk a little bit about the investment that makes up the majority of my portfolio. All right. Our guest today on the Milestones to Millionaire podcast is Tony Garrett. Tony, welcome to the podcast.

Hey, thanks for having me. I'm really excited. Longtime listener.

Yeah, this is great because we're going to be celebrating a milestone today that I don't think we've celebrated yet on the podcast, despite 125 previous episodes. So tell us what milestone you've accomplished.

I paid off a house by writing a book, but I'm actually in the process of paying off two more houses and it just worked out really well. And one of those, you write a couple of books and some are not successes. And then all of a sudden you hit a cord you didn't mean to, and Amazon starts paying you more than you pay Amazon. And it worked out really well.

Awesome. Well, those are all milestones worth celebrating, I think. But let's step back a little bit and let's just talk a little bit about your career path so people kind of know where you're coming from because it's not, I think, the typical career path people hear about on this podcast.

Okay, so I started as a pharmacist, graduated in 97 from Maryland, and I worked in Arizona for four years, then came back to Baltimore and something happened. I didn't realize it was my iliotibial bands, but I was having real knee pain. We stand about 12 hours a day, which is just kind of par for the course. And I was really worried that my career was going to be over just maybe five or six years in didn't have disability insurance or any of that stuff. So I became hyper aware of those types of things and then found out, okay, it's the it bands. Got the pt, got that sorted out, but I really got spooked and so I went and got my real estate license, said I'm going to do this side hustle thing and I'll start selling houses. And actually ended up getting formal coaching Buffini & Co. Out in California and then did that for a while, moved to Iowa with my wife and I think we could stop there. But that's where I ended up getting a job as a community college professor where I am now. And my first nine month contract, which would have been 2009, was $53,000. So I was making resident pay as a real career job.

It's interesting to hear this because we hear about all these people leaving medicine, pharmacy, nursing, whatever, to go into real estate. And you did that, you went into the real estate space and left it. I did, essentially. At least partly, you're still a real estate investor, but left it at least as a major side gig, a full time gig, et cetera, to teach. And was that a passion thing? Was it that you found it was harder than maybe you thought it was going to be or what drove that change?

It was actually quite abrupt. 95% of my clients were pharmacists that I had gone to school with or I knew. And it did happen that we were moving at that time. So it was kind of a we're going to move to Iowa, where my wife is from, and I was in Baltimore. And it's not one of those things you can just pick up and take with you. Maybe I could have kept going with it, but something you find out later is that that's one of the professions that's fundamentally incompatible with being a present partner and a good parent. And it just, it isn't a good fit. It's a good fit in your early 20s or whatever when you got lots of time and it's a good fit after the kids are gone. But it's a little bit of a tougher fit to explain to your spouse why you're buying a washer and dryer for a client at 9:30 at night, on a Saturday night or whatever it is. So it was just more incompatible with a good lifestyle. And so now I have this government job. That's fantastic.

Yeah. It's funny, the clients all want you to work on evenings and Saturdays and Sundays, don't they? But somewhere in there you picked up a little Bit of a taste though for real estate investing. You have some real estate investments. How many rental properties do you own?

I just have two. One in Arizona where I lived before and one in the south part of Ankeny where we live now. And then we have our own home. It was completely perchance geo arbitrage to move from Baltimore on the east coast to Iowa. So our dollar does go a lot further here. But I learned a lot helping about 300 people find homes. And so when I went to get them, I actually, I actually haven't even seen the Arizona one. I've never actually been in it. And my agent just got a two year contract with a new renter. So really excited to kind of lock in and continue to get those rents, but that's the one that's paid off.

Very cool. So then you started another side gig, this writing. You're doing books.

Oh yeah.

All right. Tell me about how you got excited about doing that, how you got into that and how the books have gone.

The first book I wrote was actually explaining why pre med isn't actually a major. And that's a conversation as a pre professional advisor where I work. And my impetus for books is always to buy myself time. And so those were hour long conversations explaining that, well, you can be any major you want. And while bio is the most common major, it's actually the one that has one of the least acceptance rates. And it's actually better to be a humanities major and to be honest, a physics major, engineering major is going to have the highest chance of getting in. And it becomes this long conversation that I said maybe I could just put it in a book, not have the conversation over again. But the one that hit was memorizing pharmacology, a relaxed approach where I taught as an adjunct a pharmacology class in nursing. And I didn't realize that chemistry was really not the way in nursing as it is in medicine where they don't have chem 1, chem 2, organic 1, organic 2, biochemistry, they may not have chemistry at all. And so I had to approach it from the humanities and talk a little bit more about the stems and endings. And it really took off. And I think it took off because it was an audiobook. I hired a British narrator because I'm like, if a British narrator can make the phone book exciting, then maybe you can make pharmacology exciting. And it just one day my book was next to a tool gawande because my book was one of those audible specials and so it sold 300 books. A day for three days over that weekend. But that doesn't happen anymore. That was the good days. But I only make about 25, 30 grand a year from it now.

Mostly nurses buying it.

Yeah, nurses and allied health professionals. So the pharmacy technicians, medical assistants and those. But those, you know, go getters like the pre meds that are in high school, the ones that take freshman organic chemistry, those guys can also get a hold of it too.

Yeah. Still 25, $30,000 a year is money changing money or life changing money when you're making a resident type salary. That's a lot of cash.

Yeah, I get it was 60 to 70,000 a year because the way Audible worked is they would give you $50 for everybody that joined Audible because of your book. And because this particular group that kept buying my book was not on the audiobook scene, I was getting massive amounts. And now you have to get through a link rather than just who comes to Amazon because of you. And so it changed. But so I guess I'm looking at it half empty because it's 30, not 60 or 70 anymore. But that's how the money for the houses came around. We've got to do something with this extra cash. And I was so terrible with the stock market. Like recently I dropped all of the money I had in the stock market when it went down to 23,000 and then it obviously went up to 37 or 36 or whatever it is. So my space is real estate now.

So you ended up paying off the investment house mortgage. Have you paid off your regular mortgage as well?

We have a plan to pay it off in six years each because of the weirdness that's going on with the interest rates. And that interest rate's only three and a half and the one on my house is four and a half. So we're going to pay them off because our triplet 11 year olds will graduate high school in six years. So they'll be paid off at graduation.

Very cool, Very cool. So how'd you do this? I mean, obviously you had an increase in income, but most people, when they get an increase in income, particularly when they're not making that much spend it. How did you avoid spending that extra income?

Well, we did. I have three 11 year olds and if you've ever put someone into childcare, that's like six or five or four and then you triple that. We spent it on that. But really it just was. I think I enjoyed buying houses and that was just kind of fun. So just like some people buy cars, I just happened to buy something that actually has a tenant in it. So that's just more exciting for me. And then my wife, like your $4 million guest, is relatively frugal and she can make a penny scream. So she's great with coupons, loves doing that stuff. So I have a good partner and it's just not our value set to do that. It's very Midwest.

So if there's somebody out there that wants to be like you, you know, in some way, maybe they want to write an audiobook or some other side gig or they want to pay off some mortgages, what advice do you have for them?

Oh, I'm glad you talked about this. All right, so the first thing is stay away from the seven to $10,000 book people that'll make you a book or whatever it is. They tend to go after high income people that want to put a book and they'll talk all about the, you know, your feelings and how great it'll be. But the ROI is terrible. What you really want to do is you want to figure out what the book is. I don't want to say outline because I know people don't like to make an outline, but just figure out what problem in your life would give you more time. So if whatever it is with kids with something, attack that. And I don't like it when people use the word writer. I prefer that they use the word author, because if you say writer, then you start thinking about typing and all these things. You want to be an author, you want to record the book, what whether you're going to have an audiobook later or not, but you want to record it, make it happen fast, get that vomit draft out. And then once you get that draft out, all of a sudden you've got something to work with. You've got enough momentum that you'll keep going. But the average book only sells 300 to 400 copies if you're going to make $7 a book, if you're lucky, $2,100 a year. If you're at physician salary, that means you're going to lose at least 30 to 40% of it. So better to solve a problem in your life which may happen to solve other people's problems. And that would be the way that I would write the book. And it happens fast. I wrote a book with brandon dice of TLDR pharmacy in 11 days. We just recorded back and forth, back and forth, 100 residency questions. So it can happen fast. It doesn't need to happen over the months. And paying somebody thousand dollars a month to help you write this book.

Awesome. Well, good advice. Well, congratulations on your success. It's pretty awesome to be able to create something that is actually valuable, valuable to other people and can create an income that can change your life. And also congratulations on paying off the mortgage. Well done.

Oh, thank you.

All right. I hope you enjoyed that one. It's a little bit different, right? I don't know that we've had somebody with quite that low of an income on here before, but it emphasizes a few things. One, it emphasizes the importance of side gigs, particularly when your income's not all that high. They can make a big difference, especially when one of them really takes off. And also the importance of controlling when you have a boost in income, whether that's from graduating from residency or whether that's from a side gig, doing really well, or being able to sell something or an inheritance or whatever, but actually being able to control your spending and using that additional income, maybe not all of it, but at least a big chunk of it, to build wealth. And I think that's pretty important. The other lesson I think that can be learned there is that everybody's a little bit different and it's okay if your financial life doesn't mirror mine or anybody else's. It's okay to have your own pathway, your own mix of how you pay off your debt versus invest, your own mix of how you work and what your career path looks like. Your own mix of investments. Right. The important thing is that you stick with something. You pick something that you can stick with, because what you don't want to do is be bailing out every six months or every year or every three years, or selling all your stocks at the bottom of the bear market. That can really hurt you. So make sure you're not doing that. Speaking of stocks, the best way to invest in stocks. Now, I spent a lot of time looking at this over the last couple of decades, and I am firmly convinced that the best way to invest in stocks is to simply buy them all. Truly, it is the best way, and there's a lot of reasons why. One of the reasons is that it gives you better performance. So what am I talking about when I'm talking about buying them all? I'm talking about using a low cost, broadly diversified index mutual fund, such as those you buy from Vanguard, Fidelity, Schwab, iShares, State Street. On the ETF side, these are mutual funds that just buy all the stocks, such as the Vanguard Total Stock Market Index Fund. This buys all the stocks in the US The Vanguard International Stock Index Fund, Total International Stock Index Fund. It buys all the stocks outside the US between the two of those, you own all the publicly traded companies in the world. It's not entirely correct. They actually do some sampling, but your performance is the same as though you bought all of the companies in the world that are publicly traded. You can even do that with one fund. It's called VT on the ETF side, but it's basically an all world index fund. I don't know that I necessarily recommend that. It actually costs more than just buying the two separate parts. And you also lose your foreign tax credit, which is unfortunate, but that's getting into the weeds. The point is, when you buy these index funds, you get better performance the vast majority of the time for the vast majority of people compared to the alternatives. And what are the alternatives? Well, one alternative is hiring somebody else to pick all the good stocks. That's called an actively managed fund manager or a separately managed accounts manager. You're hiring a professional to try to beat the market. And the truth is that most of these professionals do not beat the market. They don't beat the market before tax and they certainly don't do it after tax. The data is pretty clear that an index fund over time, and I'm talking about an investing career 20, 25, 30 years over time, is going to be somewhere between 80% and 98% of the active managers. Is it still possible to beat the index fund? Absolutely, it's possible. But is that a bet you should make? Not really. That's not a bet you should make, number one. Number two, the downside of doing that, you know, aside from the risk, is a whole lot of time and effort and education and trouble and hassle and that's probably not worth it either. Okay, so the other thing you can do besides hire a professional and try to beat the market is try to beat the market yourself. If all these professionals are struggling to do it with the world's fastest computers and with all these specialists and super educated people are sending out to talk to all these people at all these companies all over the world, if they're struggling to do it, why do you think you're going to be able to do it in between patients? The odds are just not with you. And if it turns out you are really good at it, you shouldn't just be managing your own portfolio. You ought to be managing money for other people and charging them 2 and 10 to do it because they will gladly pay you if you can reliably beat the market. Over the long term. So what do you get with an index fund? Number one, you get better performance. And that is why 85% of my portfolio is invested in index funds. Publicly traded securities, stocks, bonds, real estate. 85% of my portfolio. It's been that way for a long, long time. You know, we've been getting some feedback lately. Hey, it's like everything's real estate these days. Well, yeah, we have a new bunch of new real estate advertisers here at the White Coat Investor. My portfolio hasn't changed, and neither has my recommendation of how to invest. I think most people ought to have stocks in their portfolio. And the way to invest in stocks is using index funds. All right. Another great benefit of index funds, it's just less time consuming. You don't have to watch the managers. You don't have to track performance and worry about them losing their touch. You don't have to diversify between managers. You don't need a manager. It's just a computer managing them. You're buying all the stocks. One fund is fine. I have 25% of my portfolio in the total Stock market index fund. It's actually in the ETF version in my taxable account, but same thing, really. That's it. That's a whole lot of money in one mutual fund. Very non time consuming, very boring, very effective over the long run. Okay. Another reason to use index funds are less risky. Not only do you not have manager risk, you got more diversification and there's just less risk there compared to the alternatives. It's better. It's better. Better performance, less risk. Okay. Another reason, it's lower cost. And that just leads to better performance. In fact, the main reason why index funds beat actively managed funds most of the time is their costs are much lower. Most actively managed funds are really expensive. If you ever want to try to pick an actively managed fund and give it the best shot you can at beating the next fund, it's important that you choose a low cost, one that helps minimize the advantages of indexing. Index funds are also more tax efficient. Most of my stocks are now in my taxable account, so tax efficiency matters a lot to me. I'm in the highest bracket, both for capital gains and for regular income. And so tax efficiency is a big piece of it. And index funds are more tax efficient. They have almost no turnover, at least the broadly diversified ones. So you're paying almost nothing in capital gains year to year as the investments grow. I can't remember the last time the Vanguard Total Stock Market Index Fund Distributed a capital gain, it just doesn't do it. You get dividends. Yeah, they have to send you the dividends, but at least you get to pay it. The long term. Order the qualified dividend rate on those, okay? Another good reason for index funds are very easy portfolio building blocks, right? You decide, well, my asset allocation is going to be 15% international stock, okay? Well, you can get that with one simple index fund, a total international stock market index fund. It's just really easy to build a portfolio. It's really easy to go from your asset allocation to your actual investments when you're using index funds. Another great thing about index funds, they're widely available. Almost every 401 and 403 and 457 has got index funds available in it. Now you can get them whether you're a Schwab or Fidelity or Vanguard. If you're another brokerage, you ought to really be asking yourself why. But even if you are, you can buy an ETF from Vanguard or iShares or State street at that brokerage. They're just widely available. They're all over the place. You're always guaranteed to capture the market return. And another nice thing about at least total market funds is there's no factor risks, right? You've heard of factors. These are people that tilt their portfolio to small and value. And you can get a small value index fund too. When we're talking about total market funds, there's no factor risks. For example, these small value stocks are supposed to outperform in the long term, right? Well, that hasn't been the case for the last 10 to 15 ish years. They've underperformed the overall market. You don't have to worry about that when you're investing in a total market index fund. So know the advantage of these broadly diversified funds, and perhaps the best reason to use them is it just minimizes regret. You don't have to worry about, ah, I picked that crappy fund or I shouldn't have been picking my own stocks. Or how about this one, right? There's somebody at a cocktail party bragging that they own Tesla or whatever, whatever the hot stock of the day is. Well, you own that. You owned it before it went big because you own all the stocks. So you always get to minimize regret. And you can brag that you own that stock even before this person at the cocktail party did. All right? Index funds, they're good investments. If you're investing in the stock market, it is the way to invest. If you're not investing in the stock market, you really ought to consider it for part at least of your portfolio. I estimate that 80% of doctors need, want, and should use a financial advisor and or an investment manager. Some investment gurus, such as Dr. William Bernstein, think my estimate is way too low. At any rate, if you want to use an advisor temporarily or for your entire life, there's no reason to feel guilty about it. Just make sure you're getting good advice at a fair price. If you need help updating your financial plan or just getting one in place, check out our list of recommended financial advisors@whitecoatinvestor.com financial advisors. You can do this and the White Coat Investor can help if you'd like to be on this podcast, we will celebrate your financial milestone with you, whatever it might be. I don't care if you paid off a mortgage. I don't care if you wrote a book and made some money with it. Whatever your accomplishment has been, we will celebrate it with you. Sign up@whitecoatinvestor.com Milestones and we'd love to get you on the podcast and use your experience to inspire others to do the same. Thanks so much for what you do. We'll see you next time on the Milestones 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.