MtoM #165: Pediatric Resident Gets Back to Broke and Finance 101: Mutual 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 165. Pediatric resident gets Back to broke. The White Coat Investor is proud to introduce our no Hype Real estate investing course, which will provide the framework for developing further knowledge and experience as you progress in your real estate investing career. We call it an introductory course because there's always more to learn. But this is no short, superficial course. There are over 200 lectures and videos adding up to more than 27 hours of content by over 15 different instructors. We think it just might be the best real estate course on the planet. Continue your wealth building journey today with the no Hype Real Estate Investing course@whitecoatinvestor.com courses. You can do this and the White Coat Investor can help. All right, a couple of things you need to know. One is we are doing our Financial Educator award. The application is only open until April 26th, so if you know someone who's passionate about improving financial literacy among their colleagues, trainees and students, please nominate them for the highly coveted 2024 Financial Educator of the Year award. The winner of the award will get a prize of $1,000. But that's not all. As an added incentive to craft a compelling nomination or offering the nominator who writes the best submission a free WCI online course of their choice. Something like fire your financial advisor or no Hype Real estate investing or continuing financial education 2024. Whatever you like. If you win, you get it. If you'd like to nominate someone, visit www.whitecoatinvestor.com educator and you got to do it by April 26th. We believe in making financial education accessible to everyone and so we offer free presentations. Right? People are always emailing me going, hey, I need some slides. Whatever. We provide these. They're on various financial topics. They're geared toward medical students, toward residents, or toward attendings. You can download those presentations today. You can find them@whitecoatinvestor.com educator. They are free. Like 98% of what we do here with a white Coat investor. It's totally free to you. So. So go get some slides. Go give some presentations for your colleagues and trainees. Whether it's informally on rounds, whether it's a formal, grand round style presentation, whatever. Let's get this information out there and help us all to work together to make financial literacy a priority in the medical community. All right, we got a great guest today with a pretty unique milestone. I'm looking forward to it, but stick around. Afterward. We're going to talk for a few minutes about mutual funds. Sometimes I get criticism, but I spend too much time talking about real estate, which seems like a shame given that 85% of my portfolio is in mutual funds. But we're going to talk about those and why I think they're such great ways for people to invest. Our guest today on the Milestones to Millionaire podcast is Brad. Brad, welcome to the podcast.

Hey, thanks so much for having me, Jim. Happy to be here.

Thanks so much for being on here. We love having people on this podcast. This is the one where we try to use your cool accomplishments to inspire others to do similar things. But before we get into what you've accomplished, let's introduce you a little bit to the audience. Tell us where you're at in your career and what part of the country you're in.

Yeah, so I am a PGY2 in a categorical pediatrics residency and I am in the Intermountain West.

Very cool. Okay, tell us what we're celebrating today.

So today for me, we are celebrating being back to broke as a second year resident.

Awesome. That's pretty exciting. And you got there in a little bit different way, I think, than most people do. I would most people probably don't make it back as residents, but you were fortunately able to do so. But talk to us about these kind of unique circumstances that you're in.

Yeah, so in my case, I was able to get back to broke because of good family circumstances that I was able to, I suppose, take advantage of. There was a family real estate business that started a couple of generations back and then as generations have continued to move forward, the assets were distributed in such a way that all the kids grandkids were shareholders in the business. And now as we're all adults, we got voting privileges within the company. And so as there are now at last I counted 32 voting members in the business. It got really, really difficult to get everyone on the same page to really do anything. And an opportunity came forward for to be bought out by some of the other family members. And my wife and I took a look at our financial plan that we were able to put together thanks to the fire your financial advisor course. And boy howdy did it tell us that this was the time to do it. And so we were able to be bought out and then take that cash we were able to get from that and deploy it in such a way that we're now positive on our net worth.

Pretty awesome. And there are few times in Your career when money would be more useful than right now. I imagine you've got lots of uses for money and probably not that much income. About what do you make as a resident, as a PGY2 in your program?

Let's see, for me, right now it's just about $70,000.

And do you do. Are you doing any moonlighting, any other.

Sort of income working on getting that going? It's somewhat limited at my program, yeah.

And does your spouse work?

She is a stay at home mom, but she does do some sports coaching on the side.

Okay, so a little bit of extra income there, but mostly, you know, you're living on a five figure income. So about how much was this windfall that came your way as your share of this real estate company?

Total, it was about $130,000 and it was distributed to us over a period of two years.

Okay, tell us about what you did with it.

Yeah, so we rather aggressively started paying down on some of the debts that we have that we wish that we didn't. So we had a couple of car loans we were able to get rid of. We not going to say made the mistake, but made the mistake of buying a house at the start of medical school. So we were able to pay down a significant portion of our mortgage and then also just maxing out Roth IRAs, maxing out our HSA, and now working on maxing out my 403 for the year.

Very cool. So do you have a bunch of student loans?

I do, yeah. Right now we're at $266,000.

Wow. Okay. And what's your plan for student loans?

I'll be pursuing pslf. So I am a resident now. Planning on doing a fellowship. So that'll get me six years on the PSLF route and then planning on finishing out the four years as an attending.

Okay, so that explains why none of it went toward your student loans.

Yes, absolutely, because there's already a plan for that and that's going to be taken care of later.

Cool. Okay, so you're back to broke. Let's run through your balance sheet. Tell us about your assets and then about your liabilities.

Yeah, so right now the biggest liabilities are the mortgage that we have. It's just over $200,000. And then the student loans, as I said before. And our assets primarily are in the retirement accounts that I discussed before and then also tied up in our home still. So home equity is definitely one of our big ones.

Okay, so you bought this home at the beginning of medical school.

Yeah. So 2018 okay.

And you're obviously in the same place doing residency. Tell us about your thought process there. As you were applying to residencies, knew you had this home, knew that that would certainly help that you already had a home in that location. How did that affect how you applied to residency?

Having the house really didn't. It was just something that if we happened to match where we wanted to, great, we were able to stay. But if not, we already had plans that we were going to sell the house is what we decided when we were making our financial plan. We don't like the idea of being long distance landlord. So it was definitely going to be a sell the house almost regardless of what the market was like at the time.

Very nice. It's worked out pretty well for most people in the last five or six years. Especially if you can stay in the house for five years, which you're going to be able to, you know, between four years of med school and three years of residency, you'll be in there seven years and hopefully do quite well with it.

Yeah, that's the hope. Right now things are looking up for it, but I mean, my crystal ball is cloudy. I have no idea what the market's going to look like in a year and a half when we're looking to move for fellowship.

Okay, so let's talk about this discussion you and your spouse had about what to do with the cash. How did you decide between paying down debt and investing and putting it in various accounts? How did you prioritize those?

You know, it was actually really simple. We opened up our financial plan and there is a section in there that we had listed out. This is what we will do in the case of a windfall. This is the amount that we will put towards debt.

Wow. You had a windfall section in your financial plan.

We have a windfall section in our financial plan, yeah. So it really was as simple as opening up the plan, looking at it, doing what the plan said, and it's worked out really well for us.

Very cool. So you don't. Your cars are all paid for now, you've got money in accounts, it's growing, you're investing, you've got a plan for your student loans, you've got a plan for the house. How does it feel to know you're kind of on the way?

So much better than it did before. When we were staring down a half a million in debt total and, you know, prior to having our financial plan in place, we really felt lost. So being able to look at that, be on the same page and actually see our plan move us in the direction that we want to is really comforting and reassuring.

Now, we just did our annual survey for the white coat investor, and we asked our audience, do you have a written financial plan? And it was about 50, 50, 50% of white coat investors do not. What do you say to those people?

You know, I say that looking at where I am at now. I am only where I am because of our financial plan. It made it so that we were able to make the difficult decisions when there wasn't actually any money on the line. We were able to sit down and have the, well, do we stay in business with family? What do we do if this kind of thing happens when it wasn't? We have the next 72 hours to make a decision. And it's a six figure decision. And that by itself just makes it so much easier if, and in my case, when those things do come along, that can potentially be really, really tough conversations to have it beforehand when there's no money, the emotions are low. I can't recommend enough having a financial plan just for that aspect of things.

Yeah, let's turn the page just a little bit. We've got a lot of white coat investors that are very successful. Some of them have a significant real estate empire. And they're thinking about their legacy, they're thinking about their estate planning. And they hear your story and they're like, huh, I wonder what my third generation will be doing with what I'm building now. What advice do you have as someone in that third generation that you would give to the person in the first generation about how they set things up?

The biggest advice that I would have is that it can be great from a tax planning standpoint to be able to pass off some of that income to others, but setting things up in a way that makes it fair and advantageous for them not to get too deep into the weeds. But there were times as an undergrad that I would get a four figure tax bill that I didn't have any income from or the ability to pay. And it was just because of the way that things were set up. So making sure that those things are also taken into account when you're planning and then also being okay with the fact that your posterity might not want to do the same things with their money that you wanted to do and recognizing that is a distinct possibility.

Very cool. Good advice. All right, well, there's somebody else out there that is in your situation. Maybe they're a med student, maybe they're a resident, maybe they're an attending and they're like, oh man, I really ought to get a financial plan. I've been putting it off for whatever reason or I'm scared to see what bad shape my finances are in. What advice do you have for that person as far as steps to take to get to where you're at?

Well, number one, you do have to actually look at things. Putting your head in the sand is not going to get you where you want to be. I do recommend the fire your financial advisor course. That is how my wife and I were able to put together our plan. I recommend that to co residents, medical students that I talk to all the time. But the biggest thing is getting a plan in place really as soon as you can. If you're a medical student, having it in place before you graduate because there are tasks that you will need to do almost immediately your intern year to set yourself up. Well, if you're a resident about to graduate, you really need to know what you're going to be doing with that first paycheck. You know, if you're a new attending or a mid career attending and you're still not where you want to be financially, having that written plan is really going to be, in my opinion, one of the best things to get you there.

Well said. Well, Brad, congratulations on your success. You guys are off to a fantastic start. That's going to allow you to build wealth and manage your debt well and allow you to concentrate on those things that really matter. Your own wellness, your patients, your family, et cetera. Congratulations on your wonderful family and kid and I'm excited for you and your career and everything you're going to see going ahead. So I'm glad you got your financial ducks in a row. I think it's going to pay a lot of dividends for you.

Well, thank you so much. I appreciate it.

All right, man, I couldn't have asked for somebody to plug fire your financial advisor any better, could I? If you're interested in that course, by the way, you can go to wcicourses.com and you too can get fire your financial advisor. Yes, there's a charge for it. I mentioned earlier in the podcast that 98% of what we do at WCI is free. That is not in that 98%. That's part of the 2% that is not free. But it comes with a guarantee, right? Basically, no questions asked, money back, one week guarantee. If you've taken less than 25% of the course, just say I want my money back and we send your money back. It doesn't happen very often. Maybe 3% of the people that buy it, 1% of the people that buy it, maybe everyone else is thrilled with it because it really does save you a ton of money versus the alternative of going to hire a financial advisor to do this for you. So check that out@wcicourses.com all right, I promised you. We're going to talk about mutual funds. What is a mutual fund? A mutual fund is just a bunch of investors pooling their money together to invest. And what do they get for doing that? Well, they get a few things. They get professional management, right? You're not going to be able to hire somebody for what you pay for management fees. You're not going to be able to hire an individual to just manage your money because it's practically free if you're investing in the right mutual funds. So you get professional management, you get economies of scale, right? You banded together with thousands or millions of other investors, so you get these economies of scale. You get better prices when you're going to buy things. You get diversification. There are rules. Mutual funds can't put all their money into one investment, right? A mutual fund cannot be the Tesla mutual fund and just invest in Tesla stock, right? You can't do that. It's required to not put more than a certain amount into any given stock or whatever the mutual fund invests in. And you got to have a certain number of investments in the fund, right? There's regulations on this stuff. So that's a benefit that diversification. As well as that regulation, you also get liquidity. You can sell this investment any day that the markets are open. In fact, if you buy an exchange traded fund, a type of mutual fund, you can sell it any minute the market is open, completely liquid. You know, by the time it settles, within a day or two, you've got cash. And so it's very liquid investment. It's easy to diversify, it's easy to build a portfolio. It's just a great way for people to invest, especially in the beginning. But as you can tell, I've been investing for 20 years and it's still the lion's share of my portfolio is in mutual funds. Now, there are two basic types of mutual funds. The first type is what's called an actively managed mutual fund. And in that type of a fund that professional manager is trying to. We'll use stocks as an example, right? Although mutual funds can invest in stocks or bonds or real estate, investment trust or all kinds of different assets, a mutual fund can Invest in and we'll just pretend they're all in stocks at this point. But in an actively managed stock mutual fund, that professional manager is trying to pick the good stocks, the ones that are going to outperform the market and avoid the bad stocks. It turns out that's a really hard thing to do, especially after the cost of doing so and especially, especially after the tax cost to you of somebody trying to do so. So what's the alternative to active management? Well, passive management, AKA index funds. These are funds whose goal is not to beat the market, but to match the market. And beating the market is very difficult. In fact, you'll see long term numbers even before tax that only something like 10 to maybe as high as 20% of funds will beat the market over time. After tax, it's lower than that. And in some asset classes it's dramatically lower than that. But that's about what you see. But the truth is it's really easy to match the market. Simple. And you don't have to have an army of analysts going out and talking to all these people running companies, right? There's hardly any turnover in the fund. You just buy all the stocks in the index and that's it. It's pretty easy. And it's basically free. If you go to Fidelity, they have zero percent expense ratios. That's the percentage of the fund that's used for the fund's expenses every year. At Ishares and Vanguard, a lot of These funds are 2 basis points, 3 basis points, 4 basis points, 7 basis points. That's basically 0.02% per year or 0.07% per year. It's nothing. It's free. It's free compared to paying for anything else in financial services. And so it's a pretty awesome benefit that you can own all of the stocks in the world essentially for free. These are the most profitable companies in the history of the world. In the last two or three plus millennia. These companies make more money than any other companies ever founded. And you can be an owner of those Companies all in 30 seconds just by going to Vanguard or your favorite brokerage and buying the nice shares. Or a Vanguard or Schwab E ETF that invests in these companies. So it's a pretty powerful way to invest. Just keep buying. You know, stocks go up, stocks go down. Just keep buying. Keep your expenses low. And you'll be amazed what a mutual fund portfolio can grow to over time. The white coat investor is proud to introduce our no Hype real estate investing course, which will provide the framework for developing further knowledge and experience as you progress in your real estate investing career. We call it an introductory course because there's always more to learn. But this is no short, superficial course. There are over 200 lectures and videos adding up to more than 27 hours of content by over 15 different instructors. We think it just might be the best real estate course on the planet. Continue your wealth building journey today with the no Hype Real Estate Investing course@whitecoatinvestor.com courses. You can do this and the White Coat Investor can help. Alright, this is the end of another great Milestones to Millionaire podcast episode. We hope you enjoyed that interview with Brad. We hope it inspires you to get a financial plan in place that will lead you to financial success. Until next time, keep your head up, shoulders back. You've got this. 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.