MtoM #188: Doc Finishes Student Loans One Year Out of Training and Finance 101: Stock Indexes

This is the White Coat Investor Podcast Milestones to Millionaire celebrating stories of success along the journey to financial freedom. Hey everybody, it's Megan, your podcast producer. I'm just here to remind you that Dr. Dali is still resting and recovering from his accident. But don't worry, he will be back soon. He's doing well. Please enjoy this episode.

This is Milestones to millionaire podcast number 188. Emergency doc finishes student Loans Less than a year out of Training Learn why physicians have invested over $250 million with DLP Capital, a familiar name within the WCI community as a longtime member of our investment Opportunities list. If you want to invest with a high growth impact investor who believes in doing well while doing good, we encourage you to check out DLP Capital and its real estate backed investment funds. DLP Capital aims to build wealth and prosperity for all of its members, investors, clients and partners. Plus their funds have historically had zero loss. Find out more@WhiteCodeInvestor.com DLP you must consider if you're thinking about diving into the world of investment housing if you want to learn more about real estate. By the way, we have a free real estate masterclass. You can sign up for that@whitecoatinvestor.com remasterclass and learn more about real estate. Learn what you're getting into before you before you head down that pathway. Obviously, if you want to learn more, we have our no Hype Real estate investing course. That one is not free. We still think it's a great value. But the masterclass itself is free and a great introduction. All right, we got a great interview today coming up, but stick around afterward. We're going to talk for a few minutes about stock indexes and. Sounds like a boring subject, but it's actually really important to understand what an index is, what indexes matter, and why the ones you've heard about are not very good. Let's get into the interview. Our guest today on the Milestones Familiar podcast is Ethan. Welcome to the podcast, Ethan.

Thanks for having me, Jim.

Let's start out by introducing you a little to the crowd. Tell us what you do for a living, how far you are out of training, and what part of the country you're in.

Yeah, so I'm an emergency medicine physician about year out of training, currently practicing in Indiana, but did residency in the southeast region of the country.

Very cool. Two great regions for financial purposes anyway. Yeah, relatively low cost of living, you know, at least in Indiana. Pretty good malpractice and practice environment. You know, lots, lots of happy docs in Indiana, so. Very cool. All right, tell us what you've accomplished in the. In your year out of residency.

Yeah, so I had about 455,000 student loans that are paid off in less than a year.

Finishing $455,000, that's a ton of money. And you did it in a year. All right, let's break that into two things. First, how the heck did you get $455,000 worth of student loan debt?

I mean, it wasn't all, obviously, in that one single year. I mean, my wife worked during when I was in med school for the last two years. She's a pa, so that helped out obviously, a lot. But we're still building up loans at that time. And then when I was a resident then she was a PA as well, so still had a good income. So that entire time we were just kind of saving everything we could, just skimming off the top and just paying towards loans. So we were hitting it hard, heavy on in it with the interest rates and everything. So that helped out a lot. Just paying it in the beginning.

Yeah. So was that all your debt or was some of that her debt?

Some of it's her debt. Yeah.

Okay. Okay, now. Now I understand where the 455 came from.

Yeah. Yeah. So I have probably like 385,000. That includes undergrad, too. At about 60,000 undergrad and 310 from med school. And then she probably had around 100,000 or so, which actually comes out to being around 485, to be honest. We have about 25,000 left on her loans, but they're at 2% interest rate, and some have that sitting in a high yield savings. I'm like, why pay it off quick?

Yeah. Decided to drag that one out a little bit. Okay. I mean, she started working, you said, when you were what, an MS.3?

Yes. Yeah. Right. As I started MS.3, she got a job.

And what's she made over this time period? Something between 80 and 150, I imagine, as a P.A. something like that.

Yeah. I think she started off around 100, and then when we moved for residency, she was around 120 or so. And then with residency, I was probably around 60. And then moonlighting. That third year obviously helped a lot. We put pretty much all moonlight budding towards it.

Right. But up until that point, you were making maybe 180 in residency or so. So you're paying on these things more than just being. How much did you owe when you became an attending? How much of that student loan was Left. Oof.

Probably around a little over 200 or around, say around 200.

So you were smashing it during training.

Yeah.

You paid a lot of it off before you ever got out.

Yeah, yeah, we brought it down a lot. And we were able to pay off our car loans too, during that time. And so, yeah, we were hitting it hard in the beginning.

Very cool. What kind of cars are you driving?

I got a 2016 Toyota Corolla, and then she just has a 2017 Hyundai Sonata.

Okay, these aren't exactly flashy cars. Were they huge car loans?

No, no, not bad. Probably like, I don't remember 15, 16 around that in the beginning. Those are actually the first thing we paid off just because the interest rate, I was like, I don't like having that over our head. So that was the initial thing once she got a job.

Yeah. Clearly you guys are not into interest, although I suppose you're carrying one loan at 2%. But I mean, you got this out of your life pretty early. How come you were so motivated to take care of your debt right at the beginning of your career?

I honestly, I remember getting out of undergrad, having 60,000, and then just feeling like, man, I'm about to tack on over 300,000 onto this. And that just kind of weighed on me heavy. And so in the beginning, I read your book, I started listening to the podcast, and then we just made a decision together. We're like, well, let's just. Let's just start putting towards it. In the beginning, we created a plan before the I did your fire your financial advisor eventually, later on, but we created a plan before, got a budget, and then we just kind of lived our life the way that we felt like was appropriate for us. We still had fun, we still took vacations, we still enjoyed sort of little things that we deemed was important in our life and then just put everything else towards loans. And then just it almost as if we didn't have that money. It was never there, just went straight towards it. So it was never in our heads.

Yeah, it's a little easier not to spend it when you haven't gotten used to spending it yet, isn't it?

100% easier? Yeah.

I'm curious to hear about this conversation you had. I mean, you got married in med school. At some point, you guys had this financial conversation. You told her you owed $300,000. What was her reaction?

Well, there's a little bit more to it, actually. We had met in middle school, so we've been together.

You knew the whole time.

She's Known. She knew when I went to undergrad. She's known this entire time. And thankfully she decided to stay with me. I just got really lucky, I guess.

Well, now she gets to. Now she gets to reap the rewards of doing that. Right. And she's been in this. In this game a long time.

Yep. Finally gets a reward from it.

Yeah. Very cool. So this was a natural progression then. It sounds like you guys are probably. When did you become interested in finance? You said you read the book, what, early in med school.

Yeah. I remember second year. And that's too, is when I got it. I remember how I heard about it, but, yeah, read it, then started listening to your podcast. I remember specifically fourth year whenever, back when you did auditions, like a bunch of auditions. I remember just going on the planes and stuff and listening to your podcast NonStop from episode one. That's when it really just started to take off.

It's interesting. It becomes much more important as you get closer to actually earning money, doesn't it?

Oh, yeah.

Very cool. And fourth year is such a great time to become financially literate, too. I mean, obviously it's maybe a little on the late side for minimizing how much debt you take out, but it's a great time because you're about to start using it all and you got a little extra time to learn. So I love it when I see schools putting in financial literacy electives of some kind for Ms. 4s. I just think it's a great time to be. To be picking this stuff up. Way, way better than 10 years into being an attendee.

Oh, yeah. Helps out a lot.

Okay. There's somebody out there that's in your situation, right? They've got a bunch of student loans, one of them, two of them, whatever, and they're like, wow, that'd be so awesome to be out of debt, you know, a year out of training. What advice do you have for those people?

I think you just have to define your goals. I mean, if that's. If you're someone who wants to be out of that debt, then you have to define that goal, create that plan, and then execute it. It's not. Honestly, like we talked about earlier. It's kind of like on autopilot. Once you set it, once you start doing it, once it's out of your head, you just don't really consider anything else. But you have to make sure those goals align with your significant other and with your values. If you value something else, you may not be able to do that, but define the goals, create the plan. Execute it. And if that's something you want, then you've made it this far in life and you obviously have a good career so you can be able to do it.

Now, looking back, was it easier or harder than you thought it was going to be?

Now I would say it's probably it was easier than I thought it was easier.

It wasn't as big a deal as you thought. How would you advise a pre med student who's worried about the debt, who's worried about they have no other way to pay for med school other than borrowing the whole sum and they're worried about coming out with three or four hundred thousand dollars in student loans and they're worried about being able to pay that off. What would you advise them?

If they really want to become a doctor or dentist or whatever the career. In my opinion, it's going to be worth it. They just have to start this stuff early. Kind of like what I did. You start learning about it early, try to start chipping at it early on and then it's not so daunting kind of at the end.

Yeah, very cool. All right, well, congratulations to you, Ethan. You have done some fantastic work with your own personal finances. What's next for you? What's your next goal? I mean, the student loans are gone, the car loans are gone. What are you working on next?

Yeah, right now we're saving a little bit for hoping to expand the family, have a couple little household things. We want to get a deck sort of stuff we've been pushing off, but I'm also just saving up for real estate too. I've this will be the first year we max out our 401k, Roth IRAs, HSA and so all that's kind of done. And then the rest of it we're just kind of building up some wealth to put into real estate. I've been reading those books kind of simultaneously with your books. So excited to go into that next chapter.

Very cool. Are you going to be buying individual properties or are you going to be investing passively?

I'm going to start off with buying individual properties.

Very cool.

We'll see how that goes. I mean, there's obviously a lot of different avenues you can take, but I kind of want to start off there, be a little bit more hands on initially, learn the trade, learn just all the aspects that go with it. And then if I need to back off or change it to be more passive, then I should be able to have that freedom to do that.

Very cool. Well, we wish you the best of Luck and luck in building your real estate empire. And hopefully you're just as successful at that as you have been in emergency medicine and taking care of your student loans.

Oh, thank you.

All right. I hope you enjoyed that. I love seeing the power of focus. You know, he talks about making that last payment a few days before July 1 and reaching his goal of doing it all within a year out of training. But there's nothing like a goal and a deadline to focus your efforts. And so I encourage you to set specific goals. Right. You've heard of smart goals, right? Specific is the S in smart. And be specific about your goals. Put a date on them, put a dollar figure on them. Even if you got to change them later, that's okay. Having that specific would allow you to reach your goals much better than something vague like, you know, I want to pay off my house someday. All right. I told you at the beginning that we were going to talk about indexes. Okay. What is a stock index? Well, a stock index is just a list of specific type of stocks. Okay. And they're made in all kinds of different ways. You know, most of them are what is called capitalization weighted, meaning the bigger the company, the more of the index it takes up. So if you're looking at Nvidia or something right now, you'll find out it's like 5% of some stock indexes because it's a really big company right now. Right. Capitalization is the number of shares times the share price. That's the value of the company. If you wanted to buy the whole thing from all the owners, that's what it would cost you to buy. Not all stock indexes, however, are capitalization weighted. For example, the Dow Jones is not. This is the granddaddy of all stock indexes. Somebody back in, I don't know what it was the 30s, I think the 20s or the 30s, sat around and said, we should make a stock index. We'll take 30 representative companies. And they were big name, kind of blue chip companies. And they just took the stock price had nothing to do with the capitalization. It was like if something was selling for $2, it was $2 in the index. Something was selling for $4, it was $4 in the index. And that, that nothing to do with this capitalization, Just literally the stock price, which is a stupid way to make an index if you're going to really use it to track a market, much less if you're going to design an index fund to follow it. That's one reason why it's kind of dumb to have an index fund that follows the Dow Jones. It's just dumb. Don't do that. There are lots of other indexes out there that are popular that you've heard of that maybe aren't the best ones to follow with your indexes. The most common one out there is the s and P500. And you've heard of the people say the S and P and they mean the s and P500, but they don't realize the S and P has lots of indexes. So you can't just say the S and P and assume that you're referring to the s and P500. But the S&P500, it's been around for quite a while. It's basically 500 large US stocks. It's not the 500 largest ones, though. There's a committee that decides what goes into the s and P500 and when and what comes out and they announce it. And so index funds that follow this are forced to buy that stock after this announcement is made. So what happens? Well, a bunch of people go, oh, this is going to be added to the index. A whole bunch of people are going to want to buy it. A bunch of funds are going to buy shares of this. The price is going to go up. Let's buy it now and front run this. And that's a problem with the s and P500. If you're using a total stock market fund that's following a total stock market index that you've never heard of, something from MSCI or FTSE or something like that, that doesn't happen because it was already in the index even when it was a small company. And so that's one downside of something like the s and P500. The other thing is it's technically not 100% passive to do that. Right? Because there's a committee deciding what goes into the what goes into the index and what comes out of the index. Now, it doesn't have a huge effect. If you look at the correlation between the S&P 500 and a total stock market fund, it's pretty darn close, like 0.99. But it's not an awesome index. So I don't own index funds that follow the S&P 500. Sometimes it's all you got in your 401. If your 401 is the federal TSP, its C fund is an S&P 500 index fund. You don't have a choice if that's where all your investments are. You have to Use that and it's fine. But it's not ideal. I prefer a total stock market fund that has 4,000 stocks in it, an S&P 500 index fund that only has 500 stocks in it. You get mid caps and small caps with the total market fund, whereas you only get large caps with the S&P 500. Other indexes out there, you might have heard of the Russell 2000. This is a very popular small cap stock index. And there's lots of funds and ETFs that follow this index or a variation of it. But it's not an awesome index. It has all kinds of issues. I've written a blog post about the issues with the Russell 2000. And frankly I wouldn't invest in an index fund that invests in the Russell 2000. I don't think it's a very good small cap index. And when you're talking about index funds, one of the things that matters the most is what index is it following. And the Russell 2000, for various reasons just is not a very great index. And it certainly is not an index that's designed for an index fund to follow. Another one that's popular out there people talk about is basically the nasdaq. So you can buy an etf, very popular ETF called qqq, and all it does is follow the stocks that are traded on the NASDAQ. Now there's basically three stock exchanges in the U.S. right? You got the New York Stock Exchange and the American Stock Exchange, and you got the nasdaq. But it doesn't really matter what exchange a stock is traded on. There's no reason whatsoever why you would be interested in index of just the stocks traded on the New York Stock Exchange or just the stocks traded on the nasdaq. It's kind of a silly way to do it. Now, people got super interested in this back in the 90s because most of the stocks trading on the NASDAQ were tech stocks. And so investing in QQQ was a way to tilt your portfolio toward these high flying growthy tech stocks. It's basically the equivalent of what we call the Mag 7 today. All these techy stocks that have had great growth the last few years, well obviously that didn't end super well in 2000-2002, but it's just a weird way to construct a stock index, right? If you wanted a tech tilt, well, buy an index that tracks all the tech companies in the world or in the US or whatever, not just the ones that are traded on the nasdaq. Right. It's silly to do it that way. So not a great index. So pay attention to the indexes. Although these are the ones the media pays attention to, these are not the best indexes to use when you're buying index funds. One thing you will notice they're used by, however, is the insurance industry. The insurance industry has all these index linked products and the options industry has all these products where the options are based on the indexes and they tend to use these ones. Right? So annuities, the type you should be avoiding, cash value life insurance, the type you should be avoiding, they tend to use these types of lousy indexes. So those are products designed to be sold, not bought. Stay away from them. If you want to look at index funds that are designed to be used or indexes that are designed to be used by index funds, go to a place that does a good job running index funds. We're talking your Vanguard, your Fidelity, your Schwab, your Blackstreet. Those are iShares and see what indexes their best funds are following. And those are the sorts of indexes that you want to pay attention to. Now they're not reported on the nightly news and so you actually have to look up fund returns on Morningstar on the website to see exactly how they're doing. But they're far better indexes. So sorry it has to be so complicated, but that's the way it is when it comes to index fund investing. Sometimes it's simpler than active management, but there's still a little bit of complexity to it. Our sponsor, DLP Capital aims to build wealth and receive recurring distributions for its investors, members, clients and partners. DLP Capital makes impact investments in attainable workforce housing communities, all while producing attractive returns for its 2,900 plus accredited investors. Their equity and debt real estate backed investments build wealth and prosperity and their funds have never experienced a loss since inception. Their unique fee structure means they don't make money until you make money. Find out more@whitecoatinvestor.com DLP all right, thanks for being part of the White Coat Investor community. If you want to share your story and your accomplishment, use it to inspire others to do the same. Apply to come on the milestones podcast@whitecoatinvestor.com Milestones until next week. Keep your head up, shoulders back. You've got this. We got a whole community here to help you. We'll see you next time.

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.