MtoM #228: Multiple Milestones on a Moderate Income 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.

All right, welcome everyone to episode number 228 of the Milestones to Millionaires podcast. Our guest today is going to be Wendell Topper. And Wendell actually works with us here at the White Coat Investor behind the Scenes on the podcast. He's the audio and visual guru. And so he has put together all of the podcasts you've listened to and is the hero behind the scenes along with Megan to bring this to pass each week for us. And we're excited to talk to him today. So sponsor for today is Bob Bayani at Protuity. He is an independent provider of disability insurance and planning solutions to the medical community in every state and a longtime White Coat Investor sponsor. He specializes in working with residents and fellows early in their careers to set up sound financial and insurance strategies. If you need someone to review your disability coverage or get this critical insurance in place, contact Bob at www.WhiteCoatinVestor.com Protuity. That's P R O T U I T Y. You can also email bob@infootuity.com or give them a call at 973-771-9100. Our summer sale is happening right now at WCI until July 3rd. We've got everything, 20% off. The courses, books, merch, anything there on the website is 20% off until July 3rd. Use code SUMMER20 at checkout to get that discount. And now we'll get Wendell on the line and we're excited to talk to him and celebrate some milestones. Thanks for joining us today, Wendell, on this side of the podcast for you, you're always on the other side, hearing it and putting it together, getting things edited. Thanks so much for joining us today. Tell us a little about yourself.

Where do you live?

How would you describe what you do and tell us a little bit about your financial background?

Yeah, I've worked for White Coat for going on, I think six years now and I do all the audio and video stuff. So if you guys watch the YouTube videos or social media videos and you listen to the podcast, I take care of all that stuff on the back end. And it's been an interesting journey, learning through osmosis, all of this personal finance stuff. But yeah, I live in Florida with my wife and got some exciting milestones that we've hit the last year or so.

Awesome. Excited to hear about that. Tell us a little about where you've come from financially, about your sort of relationship with money growing up and then walk us into some of those milestones that we're here to celebrate today.

Yeah, I grew up relatively poor. My wife wasn't much different. We always had a roof over our head and food to eat, but money was scarce. Money was always scarce growing up. And even the first couple of decades of my adult life, money was scarce.

And.

It'S kind of hard to get out of that mindset. I'm super thankful to the white coat investor for the education that I have gotten and really been able to turn my financial life around in these last, you know, five or six years since I actually figured out what I'm supposed to be doing, you know. So, yeah, I've come a long way, I feel, and I'm excited of, you know, where we're going from here.

Awesome. So from that background where you, you had that sense of scarcity growing up, I, I can relate to that. My mom was an elementary school teacher. My, my dad hung drywall. And, you know, as I started to grow in my own academic and professional world, I didn't really have a reference point. So I resonate with you on that. And I think we both identify as moderate earners. I've written about that on the blog. As a public health dentist and now a flat fee planner. I'm not personally in that demographic of a lot of our listeners of the high six figure income, and I think you and I share that. Do you mind telling us a little about how much you make? How much is your household income and how do you view that income? How does that feel to you now?

Yeah, so last year was our best year ever and our total gross was 167,000. Between my wife and I, we both kind of work for ourselves from home. And, you know, probably maybe 90,000 of that was mine and 40,000 of that was my wife's, and the rest comes from VA disability that I received from my time in the Army. But how do I feel about it? I feel wealthy. Like, you know, growing up, my mother was a real estate broker and my, you know, stepfather was unemployed for most of my childhood. You know, you hear real estate broker, but it wasn't, it wasn't like you're thinking, you know, it was rough. And most of my adult life, you know, I made $35,000 a year and my wife made something similar. So to go from that sort of average American income of 60, $70,000 a year to now more than double that, I feel wealthy and I feel like we have lots of good things to do with our money and we've been doing good things with our money the last 5 years. Super excited that we were able to pay off our house. We are 100% debt free. We have a net worth of a little over half a million dollars. So we're half millionaires. We just bought a brand new car with cash this year. And probably the thing that I'm most excited about is my wife was having a really, really hard time recently with work and burnout. Physically sitting at a chair was just detrimental to her body because of some injuries she has, and she has been able to cut back by 90% her workload just to take care of her health. So all of these things that we've been able to accomplish in the last year, it's super exciting. And, yeah, I feel wealthy on my low moderate income.

Wendell, that's so cool. Congratulations on achieving those milestones. Those are meaningful numbers, in my opinion. They're clearly significant to you emotionally and relationally. How did you get there from a place of feeling like you had not a lot going when you were a kid to feeling that experience of wealth? Now connect those dots from us. What were some pivotal learning points from you? What were some decisions you made individually or with your wife that. What do you attribute led you to be able to achieve these goals?

You know, the obvious answer is the white coat investor, right? You know, spending the last six years listening to every podcast episode multiple times, you know, with editing the audio and the video, there's just so much information that I have absorbed, absorbed through osmosis. And I didn't really do much. For about the first year of working for White Coat, I just sort of absorbed and watched. And then I started taking small little actions to improve my financial situation. You know, I am not a doctor, and, you know, I can't go out and get a job making $800,000 a year. But no matter where you're at or what you make or what your finances are like, you can always move in a positive direction. And so that's what I started doing. Just making small, incremental steps towards goals that I found had value to me or us, one of which was paying off the house. And a lot of people would probably, you know, and have on this podcast, you know, you know, I don't want to use leverage. And, you know, for us, the way that we grew up and money was scarce, and, you know, you're always kind of on the verge of, you know, what if I lose my house? Or what if I lose this kind of mentality? And so for us, it was really important to have security, right? Security based, sort of basic security in our life. We own our house and no one can ever take that from us. Right. I am very debt averse. We paid off all of our debt and I am not interested at all in taking out any more debt. We started with Dave Ramsey's snowball method. Paying off this tiniest amount first, which for us was a $300 credit card, you know, paid it off great. And we paid off a credit card that had $1,000 on it. And we just worked through that. And before we knew it, you know, every month, our financial situation was just getting better just by taking those small actions every, you know, every, every chance you get.

That's awesome. Those little steps, while mathematically maybe not profound, what I'm hearing you say is it created a sense of, of victory. As Jim says so often, personal finance is about 90% personal and about 10% finance. The math and the numbers matter. And we spend a lot of time on the podcast and blog talking about numbers. But really what I see in my life as a financial planner is it's the emotions, it's the behavior, it's how things feel to people. And I'm hearing you say that even paying off the $300 credit card debt felt like a win and that gave you some positive momentum to go to the next thing. Am I hearing that right or do you want to add any context or color how that felt for you, how that felt for your spouse? And what else would you say to those who feel like they're not making huge gains on the finance, the numbers side and maybe are just feeling a little stuck on that part?

Yeah, absolutely. It is so true. I think that personal finance might be 95% personal and 5% math. The more that I focused on that personal part and the less that I focused on the math. Like, it's easy to focus on the math. I like math. I'm a math minded person. But stepping away from the math and focusing on the personal part is really kind of what turned the tide for us. You know, realizing that the problem was not that I didn't know the math. The problem was that my personal habits were not suiting my values. You know, we talk a lot on this podcast about values and, you know, putting your money where your values are. And, you know, I had to take a hard look at it. There are a lot of negative emotions for a lot of people surrounding money. You know, shame and fear and anxiety and embarrassment. You know, if your finances are in a mess, like it's Embarrassing. Like, you don't want to look at it, you don't want to talk about it. You don't want to talk about it with your spouse, much less on a podcast. Right. So the big thing for me was realizing that the boogeyman is only scary in the dark. Right. Once you shine a light, you're not scared of the boogeyman anymore because he's not there. And so shining a light on my finances, looking at where we were, just starting a basic spreadsheet of our income and our expenses just to see where things are going, just to shine that light on for a second makes it much less scary. And then just executing on any small, tiny, positive step, that's what I would encourage anyone out there who's listening. If you have negative emotions around your finances, shine some light on them. Just start tracking it. And then identify one tiny thing that you can do, whether it's one extra payment on a car or sending an extra $100 to your student loans or anything, anything that you can do. That's a positive step. Take that action, and then when you have a little bit of extra money, take that action again, and eventually you'll get there.

Awesome. Such actionable advice, and cool to see how it's played out for you to. To get you to a place where you're feeling abundant, from a scarcity mindset to a place of abundance and gratitude and wholeness. What more can we ask for?

That's right.

Yeah. We often talk about in personal finance that if we can just feel organized and intentional, that regardless of how much we make, that if we can know where all the dollars are and feel like we have our hands on the wheel and decide where the dollars go, that feels good. And I hearing you say that that has been meaningful to you. If you had to boil down one or two things that you think you did really well, like specific, tactical. We've kind of talked philosophically to this point. Big picture. Are there one or two memories you have when you and your wife reflect on this of like, I'm so glad we did that thing? Can you point to one or two specific actions that you felt like turned the tide?

Yeah, tactically, you know, if you've listened to the podcast at all, you've heard Jim talk about, you know, offense and defense with your finances. Right. The offense is making more money and the defense is spending less money. And so we kind of attacked both sides of that. Again, you've heard Jim say a lot of times, you know, you owe your overestimate how difficult it is to double your income. Well, we did that. I took that as a personal challenge. He says it's not that hard or. Well, I'm going to show him. I'm going to try real hard. And actually, from my days of earning $35,000 a year and I'll earn 100 this year, I've tripled my income. And it was by changing careers. I used to have a completely different career, and I'm in a different, completely different industry now. You know, the steps can be difficult and sometimes they're large. Right? But attacking our finances from the offense side, increasing our income while not increasing our lifestyle, and then from the defense side of, you know, my wife is excellent at budgeting and saving, taking dollars and throwing them, you know, throwing them under the mattress, right? And then I go and take them out from under the mattress and do things with them, you know, and the other thing is, you know, just getting on page. On the same page with her. Like I said, she's always been excellent at saving. And when we met, she had, I think it was maybe, I don't know, $18,000 in a savings account. And my mind was, like, blown. Like, how did you hold on to all that money? And she's just excellent at saving money and not spending it. But it was in her bank Savings account earning 0.02%. And she would show me her statements and she's like, Look, I earned 37 cents of interest this month on my $18,000. And I'm like, oh, boy. So over the years, she and I sit down and we have discussions about money, and she doesn't like math and she doesn't like finance. Right. But she understands that that part of it is important. You can't earn 0.02% on your money and get anywhere. But at the same time, we don't have to be buying on margin calls and trading options and doing every sort of mathematical financial tactic in order to reach our goals. We actually keep a lot of money in cash in a high yield savings account because that makes my wife very comfortable, Right? It makes her comfortable that as FDIC insured and that we're earning, you know, 4 or 5%. And she loves that where, you know, I'm trying to get more of that money in the market where we can earn, you know, 8% on average. But, you know, coming at it as, like a team aspect of, she needs to be comfortable with what we're doing and I need to be comfortable with what we're doing so that we have a shared goal. You Know, those two things I think were really key for us.

Awesome. Yeah. Great collaboration between you two. Finding your shared risk tolerance and enacting an intentional plan around what works for you both. I love what you said earlier too, about should shine a light on it, that the boogeyman's only scary till you put the flashlight under the bed and realize there. And I have an oncologist client who has said, you know, people are more scared of wondering if they have cancer once they find out they have cancer, even if that's bad news, that feels actionable, almost like, okay, we can take it on. We have a treatment plan. We know what we're going to do now.

And.

And in some ways, people's anxiety goes down just knowing if the boogeyman's actually under there or not. And it's the. It's the wondering. It's the laying in bed at night, can we patch the roof? What car can we afford? It's the wondering that can be most anxiety producing. But when we shine a light and go look and make a plan, even if the news isn't good, at least there's something we can do about it. And I'm hearing that in your story of taking it on, putting it all out on paper, having the conversations with your spouse about this is what's going well, this is what could be better. And finding a shared path forward is really cool. Wendell, this has been so wonderful. I so appreciate you taking the time and joining us on this side of the audio and visual experience. I feel confident this will be a valuable addition to the Milestones storyline. Is there anything else that's on your mind or on your heart today that you want to share? Anything you wish we would have touched on before we sign off?

I would just encourage everyone. My favorite word is execute. And so I would encourage everyone out there to go out and execute some positive action in your life. And once you reap the benefits from that, execute another positive action. And you will be surprised at how quickly your life gets really, really good.

One step at a time, right?

That's it.

Yeah, we get there. Awesome. Well, Wendell, thank you for joining us today. Really appreciate your candor and your vulnerability and sharing your story with us. Have a great rest of your day and thanks for all the magic you do behind the scenes.

Well, thank you so much for having me.

Wonderful, everyone. Thank you so much for joining us. On today's episode of Milestones to Millionaire. We're going to turn it over to Jim to give us our Finance 101 on mutual funds. But First, a reminder that today's podcast was sponsored by Bob Bagnani at Protuity. One listener sent us this review about his experience with Bob. Bob has always been absolutely terrific to work with. Bob has quickly and clearly communicated with me both by email and or telephone, with responses to my inquiries usually coming the same day. I have somewhat of a unique situation, and Bob has been able to help explain the implications and underwriting process in a clear and professional manner. Contact Bob at www.whitecoatinvestor.com or by email at infoortuity.com or by phone at 973-771-9100 to get disability insurance in place today. Thank you so much again for joining us, and we'll pass it on to Jim to learn a little more about mutual funds.

A mutual fund is simply pooling money together with other investors in order to invest together. By doing that, there are a number of advantages. One one of which is you get professional management of the portfolio. Whatever you're investing in, whether it's stocks or real estate or bonds, you get a professional manager. You also benefit from some economies of scale. And as long as you're investing in a true mutual fund that's publicly traded, you get daily liquidity, meaning you can get out of that fund and turn your money into cash any day the market is open. But one of the main reasons people invest in mutual funds is simply because you get instant diversification. Instead of buying one stock at a time, you could be buying thousands of stocks at a time. And so your investment turns out to be much more diversified. And this is the reason why mutual funds are the main investment in 401s and HSAs and 529s and the vast majority of investors do and should use mutual funds for most of their investments. What makes it mutual? Well, it's just multiple people working together, right? That's why it's called a mutual fund, because we're working together for the benefit of everybody. There are two main strategies when it comes to mutual funds. One is an active strategy, and the other is a passive or index strategy. When you have an active mutual fund, the manager is trying to beat the market. They're trying to have higher returns and lower risk than the market itself has. And it turns out that's kind of hard to do because there's so many people out there trying to do it, making the market so efficient when it comes to pricing stocks or bonds or whatever that it's actually pretty hard to beat the market. And so for the last 50 years or so the advent of passive funds has come along and the strategy with a passive fund is just to buy all of the stocks and get the market return. And this is not that hard to do. So it doesn't take a lot of resources or expenses to do it. And it eliminates the risk of underperforming the market. And it turns out when you look at the academic studies, that risk is actually pretty high over the long term. Even before tax, 90 to 95% of the actively managed mutual funds underperform a strategy of just buying all the stocks. And so savvy investors generally use index funds, these funds that just buy all of the stocks in order to be successful. Now there are closed end funds and open end funds, and almost every mutual fund you've ever heard of is an open end mutual fund. But there are a few closed end mutual funds out there. There's really lot of reason to use them. But the difference between an open end and a closed end fund is all the money's raised and put into a closed end fund at the beginning. Whereas with an open ended fund, the fund can be bigger or smaller over the years, typically gets bigger as more contributions are made to it, at least if it's successful. And so that's typically the fund structure you see out there these days. A much more common thing to see is an exchange traded fund. Now with a traditional mutual fund, you can't trade it during the trading day if you want to get out of it or you want to get into it, that happens at 4pm Eastern every day. With an exchange traded fund, you can get out any minute the market is open. You can get back into it a minute later if you want to. That has some advantages for traders, but there are a few advantages for an exchange traded fund, even for long term buy in holders, particularly in a taxable account, due to the way the shares of these exchange traded funds are made, there's an opportunity to flush some of the capital gains out of the fund to people that put these shares together called authorized participants. And so all things being equal, you're generally better off with an ETF type structure if you're investing in a taxable account. Now what makes for a good mutual fund and what makes for a bad mutual fund? Well, the first thing to look at is the underlying investments, right? What are you actually investing in and do you want to be investing in it?

Right.

For example, if you want to be investing in US Stocks, you can use a simple total stock market index fund. But if you wanted to invest in international stocks instead of US Stocks, that's a terrible fund to invest in. So you got to look at what is actually being purchased by the fund manager. That's the first thing to look at. Anytime you compare a mutual fund and you want to make sure they're buying investments that you want to be invested in, the next thing to look at is really who the manager is, what their track record is, and what strategy they're using. Right. If it's an index fund, their strategy is just to match the market. And you can look back over the last few years and just make sure they're doing that. It's not that hard to do, but there's a few index funds out there that aren't all that good at doing it. The main ones you see from Vanguard and Schwab and Fidelity and Blackrock, they do just fine. And you're fine to use those. But if you're considering using an actively managed fund, you better take a real careful look at that fund manager, what they're trying to do and how good they are at doing it. All of a sudden, then the track record matters a lot. Even though there's no guarantee if they've outperformed in the past, that they will continue to outperform in the future, Perhaps the most significant indicator of future mutual fund performance is the cost of the fund, the fees being charged to you. The more fees you're charged, the lower your performance is, what the studies show. And so you want to make sure you're keeping your costs low. And the truth is, with the advent of very low cost index funds these days, investing is essentially free. So if you're going to pay more than a handful of basis points, a Basis point is 0.01% of the money in that fund that year. If you're going to Pay more than 0.05 or 0.1, you've got to really be convinced that this fund and its strategy is worth the additional expenses that you're paying. Don't ignore fees. Don't ignore the costs of investing. If they're not close to zero, you need to make sure you're getting your money's worth out of them. Those. So mutual funds are just a way to work together with other investors to get a diversified liquid investment that's going to help you get to your financial goals.

Thanks so much for joining us today, everyone. We look forward to seeing you next time on Milestone to Millionaire.

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.