Trusts, Direct Indexing and High Yield Savings Accounts - WCI Podcast #376

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Welcome back to the podcast everybody. We're recording this in June, June 6th, actually.

So a big delay between us recording this and you hearing it. I think it's scheduled to drop on July 18th.

So one thing I ought to say.

At the beginning of this podcast, July 16th is my wedding anniversary. We were married 25 years ago, so, so we've been celebrating this week our wedding anniversary. And 25 years is a long time, a quarter century. So I'm grateful for Katie and for.

Her putting up with me. It's been a heck of a ride.

The last 25 years.

We got married, we were totally broke. We're in a totally different place financially now and hopefully helping you to get to a similar financial place that we've.

Been able to enjoy the last few years. But more important than that, we've raised four, four great kids, have a wonderful group of friends and family and just really had a wonderful life together.

So thank you Katie for being a wonderful wife. Happy anniversary.

And for those of you out there celebrating anniversaries this summer, I hope you can say the same.

We've been playing a lot. If I'm recording something six weeks in advance, we've been doing lots of fun stuff. So I think Katie's got three river trips planned between now and when this podcast drops. I have two river trips planned.

These are week long trips and we've also got a week at Lake Powell. So we've been playing a lot in between this recording. And when you hear it, I hope you're having a great summer as well, but find that balance in Your life, you don't live forever. You need to spend your money on some things that are going to bring enjoyment in your life. But you also got to keep your financial ducks in a row, right?

You've got to save some 20% is.

What I tell docs. 20% of your gross toward retirement. Everything else, in addition to that, you got to take care of your debt.

That student loans and needs to be forgiven.

You need to get it paid off. Don't drag it out to mid career. You'll regret having student loans at 45 or 50, I promise. You know, you got to take care of your asset protection, you got to take care of your estate plan. Make sure you have a will in place, right? Make sure you have that insurance in place in case something terrible happens to you, whether it's a lawsuit or disability or life insurance.

But once you get that done, enjoy some money, right?

This ride goes fast and none of us are going to have a trailer.

No trailer hitch on your hearse, right?

When you leave, everything you've acquired during your life is going to stay right here without you. And so make sure you're enjoying it as you go along. Enjoy the ride and find a balance in your life.

Okay, we've got lots of great questions from White Coat Investors. This is really your podcast, it's the White Coat Investor podcast. And you may not realize this. I get introduced all the time as the White Coat Investor. I am not the White Coat Investor. You are the White Coat Investor, right?

The audience of the blog of the.

Podcast that is the White Coat Investor.

It's not me.

And so thank you for what you do.

Let's get into some of your questions and see if we can build some.

Great content for this episode that you all will enjoy. First, questions on revocable trusts.

Hey, Dr. Daly, I'm hoping you can clarify some of the nuances of naming a revocable trust as the beneficiary of retirement or IRA assets. I'm a little bit confused about how taxation works when those assets are passed to the trust and then distributed to non spousal and non minor people. It's my understanding that they may end up paying more taxes if they receive the assets via the trust rather than if I had just named those people as the beneficiary rather than the trust. Could you speak a little bit more to this? Really appreciate all you do for the white coat community. Thanks.

Okay, let's remember about a revocable trust, what a revocable trust is. A revocable trust is almost nothing right you can take money out of a revocable trust, put it back into your personal accounts, you can put it in the revocable trust, you can move it back and forth every day, all week long, as much as you want. Can't just pull assets and money back out. The point of a revocable trust is to avoid probate. So this is to pass things like.

You know, your cars so they don't have to go through probate, those sorts of things. Your checking accounts, maybe you're owned by a revocable trust so that there's not a big probate hassle at the time of death. That's the whole point of revocable trust.

But once you die, you can no longer revoke the trust. You're not around to do it. It's now an irrevocable trust with all the consequences of that. So keep that in mind. It also so happens that when IRAs are inherited, that also occurs at the same time, the time you die. And so for the most part, what people do is they do not name the trust as the beneficiary, they name.

The beneficiaries directly, right?

So the first beneficiary on all our.

IRA accounts and 401 accounts on the.

Ones with my name on them, Katie's beneficiary. On the ones that Katie's name on, she's a beneficiary.

These are not in our trust, right? And they're totally separate. So that's what most people, I think, do.

Now, the secondary beneficiary to these accounts, if we both get wiped out at the same time, is our trust. But we're doing that, not necessarily for some tax savings thing. We're doing that to control the money because we don't want our kids to get a whole bunch of money before they're 40. And none of them are 40, you know, at best, they're still two decades away from that. So if something happens to us in the next 20 years, we don't want.

Them to get the money directly. We may change that later in life and give them that money directly.

But right now it's set to go.

Into the trust, and the trust can.

Do what it can with it. To try to stretch that out, my recollection's five years, don't quote me on it, that the trust can continue to use some tax protection there. It could be as much as 10 years. Nobody gets more than 10 years these.

Days on inherited IRAs, but I think it's only five for trust.

So by doing this, by having this control, we're giving up some tax benefit that could potentially be used if we didn't do this. And that's the way things work in finance. You can't always get all the tax benefits you want and all the asset protection benefits you want and all the state planning benefits you want, and all the tax benefits you want and all the maximizing return benefits you want, the investment benefits, whatever. You can't always get it all. You got to make sacrifices. You got to not get something because.

Something else is more important to you. Right. And that's the way it is for us with that.

So you may or may not want to name your trust as a beneficiary. If you're okay with your kids inheriting the money, if you die today and getting all that money, lump sum coming.

To them, then you don't need to.

Name a trust at all. If you still got young kids and you're not super comfortable with that.

And when I say young, I'm talking 20s, right? Because if they're minors still, there's a custodian to help manage this stuff. But if they're in their 20s and you're not comfortable with them getting the money yet, then you may want to name a trust instead of them directly. Hope that's helpful for you.

All right, a quote of the day today comes from Melody Hobson said the most powerful tool a woman can have.

Is her financial independence. Let's be honest, that might be the.

Most powerful tool a man can have.

Too, but it certainly gives options, particularly given the history of the world, that having a little bit of financial independence, a little bit of your own money, a little bit of your own ability to earn can make a big difference in the freedom in your life.

Especially true for women, hopefully becoming less.

And less true in that regard as the years go by.

Okay, another estate planning question.

Let's take a listen.

Hey, Jim, I had a question about probate and trusts. So my dad has two houses. One is sort of a main house and the other is a summer vacation home. And he put my name on both of them with the idea that when he dies, it would be easier for me to take control over them and rent them out or sell them if I want. I was under the idea that if he does that, then I don't get a step up in basis. And if I were to sell them, I would end up having to pay capital gains tax on anything over $250,000 profit from what he paid for them originally, as opposed to if he put that in a Trust, I would get a step up in basis, I guess. I'm also under the impression that the houses would go into probate for some amount of time, although I'm not super familiar with that process. So I guess, number one, is that the correct way of thinking about things? And would putting the properties into a trust be a better option? And if that is the case, could he still do that? Could he take my name off of the houses and kind of still go ahead with that, even though my name has previously been, you know, listed as an owner? So, yeah, any advice would be much appreciated.

Thanks.

Great question. I hear a lot of confusion in.

Your voice and what you're saying, so let's try to sort this out a little bit.

Parents, stop doing this. This is a bad idea to put your kid's name on the title of your home. Do not do that.

Okay?

You think you're, like, making things easier when you pass, and maybe you are, because if you put your kid's name on there, it won't go through probate, right? It just becomes theirs when you die. It's now theirs, right? Now it's both of yours. When they die, it's just theirs.

So nice work. You avoided probate, but what did you.

Give up to get that?

You gave up the step up in basis at death.

So let's say you bought this house for $100,000. It's now worth $1 million, right? If you just died and left this house to your kid in your will, it would be treated as though they bought the house for $1 million. So now they can sell it right? After they inherit it for $1 million. And that's all totally tax free to them. No estate taxes.

Probably most people aren't rich enough to have to pay estate taxes.

No income taxes. Awesome, right? Pretty cool deal. Step up in basis of death. It's awesome. So you can screw that up in two ways. The first one is by putting their name on the title, which is what happened in this case. Dum, dum, dum, dum, dum. Don't do that.

It's not this particular person, this caller's fault.

It sounds like the parent just did that without talking to them, without getting good advice. They just did it. They thought it was a good idea.

And you know what? It's not a good idea.

The other way you lose that step up in basis of death is putting it in a trust, right? You can put your house into an irrevocable trust and it's no longer owned by you. It's owned by the trust. Well, the trust doesn't die because the trust didn't die. There's no step up in basis at death. So when you're starting to mess around with this sort of heavy estate planning trying to avoid estate taxes, and Katie and I have done this because we got an estate tax problem, you're giving up a lot of times some income.

Tax in order to save estate taxes.

Because all the stuff that's in our trust is there's not going to be.

A step up in basis of death.

So we had to make the calculation that we thought the saved estate taxes was going to outweigh the benefit of of income tax that our heirs would get.

And we ran the numbers and made the judgment call that it was. We also happened to get a few.

Asset protection benefits for doing that sort of thing. But you've got to realize that there's.

Consequences to doing these things, to giving.

Your house away to a trust, to giving your house away to a kid. There are tax consequences and you should get good advice or at least know what the heck you're doing before you.

Do this sort of a thing.

Now can this be reversed?

I don't know. How long has it been? Maybe it can just be reversed. Maybe you can give your share of.

The house back to your parent. They probably didn't even like file a.

Gift tax because they didn't know enough to do it when they gave it to you. And now you're gifting a whole bunch of money back to them to try to reverse it. Maybe you can give it back to.

Them $18,000 at a time so that it doesn't happen. It's just a mess to have to.

Deal with this afterward. I think I would talk to an estate planning attorney before doing anything more at this point. I think there's been enough that's botched here that you just need advice to kind of do the best you can going forward from here.

I mean, it sounds like the parents got some money.

They own two houses, right? They're presumably at least a millionaire.

They can afford spending 5 or 10.

Or $15,000 with an estate planning attorney and getting a real estate plan.

So I'd recommend they go do that.

And hopefully this can kind of be reversed and get that step up in basis of death and go for that. If nothing else, I'm sure it can be worked out that at least half of that house can still get step up in basis at death. You just got to mess with the titling a little bit and should be able to do that. But be careful what you do with titling. It matters and it really can increase the tax bill.

One other thing I heard in there.

Is you mentioned the $250,000 limit, right? What's the $250,000 thing?

This is what you get when you.

Sell your house while you're alive, right? So let's say you buy a house.

For $500,000, you sell it for a million dollars. Well, the first $250,000 in gain, or $500,000 if you're married, is tax free. After that, you got to pay capital gains taxes on your own house, right? So you sell it for a million dollars. You're not married, you got to pay.

Capital gains on $250,000. So that's why elderly people maybe don't.

Want to sell their houses. Instead of paying those capital gains, they.

Can give their heirs to step up in basis at death.

But after you inherit it, it's got to be your primary residence for a.

Couple of years before you can sell it and get that $250,000 exemption. You don't just automatically get it because you inherited a house. This is a benefit for your primary residence. And if you're not living there, you don't get that benefit. It's not on everything that ever gets sold. You don't get this on investment property. You don't get it on second houses. You get it on your primary abode.

Okay, next question. This one's from Bethany.

Hey, this is Bethany in Florida. Thanks for answering our mini questions. I'm trying to do some future value calculations and I'm wondering what you think is a reasonable real return to use for these calculations. I'm looking at retirement in 20, 25 years and wondering, I know we can't.

Predict the markets, but what do you.

Think is a reasonable number to use for those calculations?

Well, there's no right answer.

Right. I can give you my opinion and.

What I use when I'm running my own numbers.

What I used, for example, is in.

The Fire your financial advisor course where.

I taught people how to do these calculations. Is 5% real? Right.

5% after inflation. So typical inflation of 3%, that's like an 8% return nominally. But when you're running numbers for long ways out, like how much you need for retirement, you want to use real after inflation numbers.

And I typically use 5% in my future value calculations. If you want to be conservative, you could use 4%. If you want to be aggressive and.

Maybe you invest aggressively, maybe you bump that up to 6 or even 7%. If you look at the stock market return, historically it's been about 7% real.

Estate over the decades. But most people don't have all their money in stocks. They have some money in bonds or some money in cash or some money in real estate or whatever. So they may use a number that's a little bit lower. I think 5% is reasonable, but remember.

It'S just a guess.

With all these calculations, you got to update them as you go along. As you get close to retirement, you got to run the numbers again and.

Adjust as you go.

If you don't have enough, you got.

To make adjustments, you got to spend.

Less, you got to work longer, you.

Got to save more, you got to.

Invest in a different way, whatever. But I think 5% is a pretty good place to start in that calculation.

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All right, next question is from Mark. He wants to talk about direct indexing.

Direct indexing is being offered at very low cost basis, something like 0.8 basis points at Fidelity and very similar rates at other institutions. It seems like direct indexing has some evidence to support its superiority over just index funds. Can you talk about this?

Okay, good question. First of all, you say very low cost and then you say 0.8%. So I'm going to push back on.

That to start with.

0.8% is not very low cost. If I'm paying somebody 0.8%, I expect them to do all of my financial planning. I expect them to do all of my asset management. Come by and walk the dog and mow the lawn.

Right.

0.8% of assets is a ton of money.

Right?

On a million dollars, that's $8,000 a year. On $5 million, that's 40 grand a year.

Right.

That's not insignificant. That's a ton of money. I'm not sure that's what they're charging. You might have misspoken.

Let's see.

Fidelity, Direct indexing fees and just searching for the fees. I'm into the small print now. I'm still trying to find the fees that they're charging to do this.

And they're not disclosing it up front.

That's a bad sign.

Maybe it is 0.8%. Go back and try searching one more time. See if I can find it here. Nice to see what they're actually charging.

How much does direct indexing cost? Okay, Wealthfront's charging 25 basis points, 0.25. Schwab's charging 0.4%. Fidelity, it says undisclosed, but maybe somewhere.

Between 0.5 and 1.5.

They might be charging 0.8, which is ridiculous. No, I wouldn't pay 0.8 to do this.

It's a lot.

Okay. What's direct indexing? Not everybody's convinced about this, but the majority of informed investors and advisors in.

The personal finance and investing world are.

Very much aware of index fund investing and its benefits.

Right.

So what do you get? You get guaranteed market matching returns. You have no manager risk, low cost, tax efficiency, long term outperformance of the vast majority of active managers. Easy Portfolio construction, minimal hassle. It took decades. But you know what? Jack Bogle's cost matters hypothesis has won.

Over most people, right?

It's finally reached widespread acceptance. People believe in index funds now. But in an attempt to overcome some of the problems with indexing, and there.

Are a few problems with it, in.

An attempt to overcome some of those and provide even more benefits, some people have taken to an approach that's called direct indexing. So what is that? Direct indexing is simply buying all the stocks yourself instead of paying a mutual.

Fund to do it.

So Instead of owning VTI, you now own 1,000 shares. Maybe you don't need 1,000 to get the benefits. Maybe you can do it at 100 or 200, but obviously this dramatically increases the complexity of your portfolio. So why in the world would you want to do that? What's the problem with just using an index fund? Well, the main one and the main one why direct indexing exists is that mutual funds don't pass through tax losses, okay? So if your mutual fund sells shares at a loss, you don't get that loss passed through to you on a 1099, it's just gone. And so the idea is if you own the shares directly, you could take the loss.

And this is one of the downsides.

Of the way regulations and tax law.

Has been written about mutual funds.

So if you own the shares directly.

You could take that loss.

Now, obviously, if you have a loss on the fund, this is tax loss harvesting. If you have a loss on the fund, you can sell it by something similar, claim that loss, use it on your taxes. But you can't get the losses passed.

Through from the individual securities, which is.

A real bummer because you certainly get the capital gains passed through. And it's really just kind of a.

Downside of the structure of mutual funds and why it's so important to have low turnover in those funds.

Another downside with an index fund is they have some expenses. Now they're practically free these days, right? There's even some free ones at Fidelity. You go to Vanguard, Schwab, iShares, State street, you're typically paying for a good.

Broad based index fund.

3, 4, 5, 6, maybe 10 basis points. That's basically free, but there is an expense there. Five basis points is five basis points.

And if you multiply five basis points.

By $10 million, it's not an insignificant sum of money.

It's not truly free, but it's pretty darn close.

But you get to save those expenses by direct indexing. If somehow your expenses from direct indexing.

Can be lower than that. But I don't see how that's really going to be possible no matter how it's done.

Mutual funds also offer less control and autonomy. When you buy an index fund, you get all the stocks.

Maybe you don't want all the stocks.

Maybe you're into environment, social governance, tilts. You want an ESG tilt to your.

Portfolio or you want to avoid, you know, stocks that are not halal or whatever.

You know, maybe you just don't want to support gun manufacturers. Well, you have that control if you're buying the shares yourself.

You don't have that control if you buy vti.

There's a few index funds out there.

That struggle with tracking error or manager area. They're just not that good at indexing. And so that could be an issue if you're using an index fund for that. I think that's pretty weak argument given that the big places that do index funds and have most of the index fund money don't have an issue with this.

You also don't get invited to shareholder meetings, right? If you're a VTI owns Exxon, you don't get an invitation to the Exxon meeting every year. If you want to go to the Exxon meeting, you got to own the shares directly.

So I guess that's a downside to investing in index funds.

Well, I don't find any of those to be a big deal, except maybe the pass through the tax losses thing. But honestly, you get so many tax.

Losses from just tax loss harvesting your.

ETFs and mutual funds that I don't.

Think this is an issue. I don't think it's worth it. Even if you have millions and millions of dollars to be direct indexing.

Because there's problems with direct indexing.

Right.

It's not a magical solution. If it were, we'd all be doing it. The fact that we're not doing it should tell you something. It's just become more popular recently because there's been some changes made in the industry that kind of decrease some of its downsides. It hasn't eliminated them. They're still significant, but they're not as bad as they used to be. Basically, there's some startup companies that figured out how to automate many of the processes. And these companies were recently snapped up.

By the Wall street giants like Fidelity and Schwab.

That's why you're hearing about this idea now. So the first issue with direct indexing is cost. One of the benefits of mutual fund economies of Scale, Thousands, millions of investors banding together to share the cost of running the fund. You know, it's like you get cheaper prices at Costco than you do at.

Your local grocery store.

Same thing. Economy of scale. So, I mean, imagine if you're trying.

To Pay commissions on 4,000 stocks that you're buying and selling in a fund that adds up in a hurry.

So what's changed now? Well, there's brokerages that don't charge commissions for stock trades. So making 8,000 trades now maybe isn't.

That bad because you don't have to pay for trades at Vanguard and Fidelity and Schwab. So it's a little bit less costly than it used to be.

But if you want them to do it for you, which you probably do because this would be a huge hassle and your time has value. What did I tell you the costs were, right? 25 basis points, 40 basis points. That's not insignificant. 40 basis points times $5 million. What does that add up to? That's 20 grand a year. You know, how much do you think those losses you're going to get from direct indexing are really going to be worth to you? Probably not that much.

If you're like most people, you can.

Only use 3,000 a year against your.

Regular income, and the rest can only.

Be used against capital gains that you may have.

And if you're using index funds, you.

Probably don't have that many capital gains. Okay, so another problem with direct indexing is just hassle, right?

I don't find it all that fun.

To manage a 5 or 10 index fund portfolio.

I can't imagine a portfolio with thousands of individual stocks and bonds. So that means you're going to pay somebody else and you're going to pay 25 or 40 or 80 basis points to do that.

Okay. Another problem ends up being fractional shares.

So if you don't have a lot of money, you may end up having to buy and sell like a tenth of a share or a half a share of a stock to match your index. And that's not very practical. It's actually possible these days, but not very practical.

But I think the main issue with direct indexing is this temptation to lose the main benefit of indexing. What's the main benefit?

Right.

Well, they say, well, if I do direct indexing, I can leave Exxon out.

And I don't have to support these evil oil companies.

Or I can leave out Smith and Wesson or whatever.

Right? Leave out, what is it, J.P. reynolds.

A tobacco company, whatever you want to Leave out. Well, you leave out too many of those things and now you're running an active fund. You've now lost the advantage of an index fund, which is that by owning.

Everything, you get the market return. Well, you take too much out of there, you don't get the market return, you may get a return that's significantly worse.

So where can you go to get direct indexing? Morgan Stanley is doing it. They bought Parametric. BlackRock's doing it. They bought Perio, JP Morgan bought Open Invest, they're doing it. Vanguard bought JustInvest with its direct investing company known as Kaleidoscope. I think it's a value add for advisors only.

There.

Fidelity's doing it, Schwab's doing it.

Lots of places that you can do it. For the most part, it's the cost of hiring an advisor. You want to hire somebody to manage your money. You can get that for 25, 35, 40, 50 basis points and that's what you're going to pay for direct indexing. So I don't think this is something that most people ought to be doing. I kind of like the idea. I get it, but I don't think it's worth paying much for. If you could get it for five.

Or 10 basis points, it's probably worth it.

When you start talking about paying 25.

And 40 and 80 basis points to get it.

I'm not sure you're getting that much of a benefit from it. Be a nice value add if an.

Advisor'S giving it to you anyway for no additional cost.

But I don't think this is something that most white coat investors ought to be chasing after. I don't think it makes sense at all with a five or six figure portfolio. I'm not sure it even makes sense with a seven figure portfolio.

But if you want to look into it, it's not like it's a scam.

It's just I'm not sure you're getting your money's worth out of it.

All right, next question from Steve, who.

Wants to know where to put his money.

I'm a surge resident four years into seven year training. In my early 30s. I'm married with no kids, live in a midclass of living city. We bought a house in 2021 and have a 2.75% mortgage. We paid off all our student loans in the first three years of my residency. I'm a W2 as a resident and my wife has a few different 1099 jobs. I make about $5,000 every four weeks after deductions. My wife makes about 8 to $10,000 a month. We're both frugal and save a minimum of 5 to $8,000 a month. We maxed out our Roth IRAs as of this past weekend. We have about $150,000 in savings, roughly 60% in index mutual funds, 17% in bonds and 23% in cash in high yield savings accounts and CD. My main concern is I have too high of a proportion in cash and bonds and would like to find a better use of roughly $60,000 should I max out my 403 this year and try to catch the tax savings. Could also open a solo 401 for my wife to save us on taxes. Alternatively, I've considered getting into real estate and have been educating myself recently through the bigger podcast podcast and various books. I'm considering no investing as a potential method without worrying about being a landlord, but could also see myself purchasing a rental property if the right opportunity came up. How would you recommend that we use the $60,000? I'm aware this is a good problem to have as resident and owe much of it to your work. Thank you very much Dr. Dali. I look forward to hearing what you recommend.

First of all, you're crushing it.

So you need to be aware of that.

You are doing absolutely fantastic financially.

I mean, paying off your student loans.

During training, got all this extra money piled up. You don't even know what to do with it. You're doing all this good stuff.

I mean, you're doing awesome. It doesn't really matter what I tell you. You're going to be financially successful in life.

So the first thing I feel like I need to tell you is that.

You ought to spend some of this money, go find something that's going to make you happy and buy it. Maybe it's a little travel, maybe it's something for the house. Maybe it's a car that needs to be replaced. Whatever. Go spend some money.

It's okay to spend money.

You can't take it with you when you go. You got your ducks in a row. You're doing great.

Now as far as having too much in cash and bonds, well, you need.

An emergency fund, right?

Most people consider that three to six.

Months worth of expenses. So make sure you have that in cash.

That's totally reasonable to have in cash. Even if you don't have that much money, most or all of it can be in cash because you need an emergency fund. So that's okay. Don't feel bad about having cash when it's Money you're going to need to.

Either spend soon or it's emergency fund.

You sound like you're not entirely happy with your asset allocation, with your investment.

Mix with your investing plan.

But you don't mention if you actually have one. You feel like you're not being aggressive enough. You need more stocks, you need more real estate. But I'm not sure you have a plan at all. So get a plan in place. You sound to me like the person.

Who'S capable of writing your own financial.

Plan for other people out there who don't feel capable of doing that. You can use our fire your financial advisor course, it's way cheaper than a financial advisor.

Or you can hire a fee only.

Planner to help you write a financial plan. You can even hire them or somebody.

Else to implement it for you if you want. But I think everybody ought to have a written financial plan.

So first get a written financial plan. Maybe it says you're going to become this real estate guru and build this empire of investment properties. Maybe it says you're going to use retirement accounts and invest in index funds in those retirement accounts, some combination of the two, whatever. But get a plan in place. Now, I like the idea of using your retirement accounts. It sounds like you're not maxing out.

Retirement accounts that your wife can open.

Up a solo 401 1k that she hasn't done yet.

So I would definitely recommend doing that. You can find places that can help you with that under the recommended tab@whitecoatinvestor.com.

It sounds like you've got a 403 available to you.

You may want to look at that. I think probably the Roth version, if they offer that is probably what you're going to end up wanting to use because I suspect you're going to be making a lot more money soon.

So look into your Roth 403B.

That'd be a great place to invest some of the money. And if you want to get into.

Real estate investing as a general rule, I recommend you do this after training.

I think when you're really busy in training may not be the best time. But I can't talk some people out of it. If you're that into this stuff, go.

Ahead and get started.

Maybe your wife can do the lion's share of the work while you're still training. I don't know. But it's okay to invest some of.

Your money into real estate. We have lots of money in real estate. We invest in real estate. We've done a little bit of direct real Estate investing. I even manage the syndication for a.

While and we have lots of money passively invested in real estate, which is also a reasonable way to do it. I don't know you guys quite make enough to qualify to invest in a lot of these syndications. I'm not sure you qualify as accredited investors.

You're probably not at that stage yet.

But perhaps somewhere down the line you can do that. If you don't want to be a direct real estate investor. Obviously you don't have to be an accredited investor to be a direct real.

Estate investor, but you just got things going everywhere and you can't figure out.

What you want to do. So you need to get it down on paper what you're going to do. If you want to build a real estate empire, it's a totally reasonable thing to do. I think you're probably more than capable of doing it given what you told.

Us in that short speak pipe. But I would do it very intentionally.

And have a written plan that says how you're going to do it. So I think some financial planning is in order. If you feel capable of doing that.

Yourself, I think that's fine.

But there's lots of things you can do at this point and my opinion of what's going to be best for you is probably not as useful as your opinion what's best for you.

So get together with your wife, write.

A financial plan, figure out what's going.

To go into the retirement accounts, what's.

Going to go toward real estate, what's going to go toward other investments, what's going to be spent, what's going to go to paying down any sort of debt you might have. And get that all written down not only for now, but when you become an attending, follow the plan. You'll be amazed. In a few years you'll be a millionaire, multimillionaire, financially independent. You guys are well on your way. You're doing awesome. So not surprised to see you being super successful a few years from now.

Okay, next question is going to be.

About some safer investments.

How do high yield savings accounts and CDs correlate with bond rates historically? I'm asking this question because it seems like I know how to do a CD ladder, but the interest rate changes frequently and if I wanted to do a bond ladder, I was curious how to do that. It seems like if I go into Vanguard to purchase bonds, I can buy the index of certain bond funds. But if I wanted to do a ladder, I would not know how to do that. Thanks for the information.

What Can I say about this? How do they correlate? Well, they fluctuate.

Sometimes CDs pay a higher yield than bonds do. Sometimes bonds pay a higher yield than CDs do. You can buy individual bonds just like you can buy individual CDs.

If you want to build a ladder.

Of bonds, all ladder is, is like a one year cd, a two year cd, a three year cd, a four year CD and a five year cd.

That's a CD ladder.

You can do that with bonds. You could have a 30 year treasury bond ladder. You could buy a 30 year, a 29 year, a 28 year, a 27.

Year, a 26 year.

You can assemble it over time by buying them at auction from Treasury Direct, or you can go to Vanguard or.

Fidelity to their bond desk and you.

Can just buy individual bonds. A Treasury bond that's been around for a year, it was a 30 year bond originally, it's now a 29 year bond. And you could assemble a bond ladder.

If you wanted to. With that you don't have to buy.

Any mutual funds, you don't have to.

Buy these bond index funds. You don't have to do that. If you want to roll your own, you can do that.

Now there are times when a high yield savings account, AKA cash, similarly to a money market fund, will pay more than a CD or a bond rate.

Or a bond does.

And those are, that's called an inverted yield curve. In general, the longer your money's tied up, the higher yield you get. So a 5 year CD pays more than a 1 year CD.

A 10 year CD pays more than.

A 5 year CD. A 30 year bond pays more than.

A 10 year bond.

But for the last year or two.

We'Ve been dealing with an inverted yield curve where you could actually make more on cash. And what that's basically saying is the market thinks the rates are going to come down, short term rates are going to come down.

They haven't yet.

I think a lot of people have.

Been surprised by that.

But they haven't yet. And so you can get like five and a quarter still on cash, whether that's from a high yield savings account or a money market account. So if you'd like to build a.

CD ladder, you can do that just.

At banks or you can buy them through a brokerage. If you want to build a bond ladder, you can buy those through a.

Brokerage or directly at treasurydirect, although it'd.

Probably take longer that way. But you may just want to leave your money in cash. I'm not sure. Exactly how this all works together with your finance financial plan.

You sound very young to me.

So it's interesting to hear you talking about wanting to build ladders. These are typically built by people approaching retirement in retirement, but you can do it anytime during your investing career if you like and don't want to just deal with the simplicity of using a bond fund and letting somebody else run the ladder for you, essentially.

Okay, thanks.

By the way, for those of you.

Out there, you know, we've done surveys.

Most of you are commuting as you listen to this. Some of you are walking the dog.

Some of you are working out, some are doing chores around the house, but mostly you're commuting.

You're on your way to work. Maybe you're on your way home, maybe you had a bad shift. You know, I lost a patient the other day, somebody that came in dead and stayed dead, but a young person, you know, that had been talking to the medics. And it's always shocking, it's rough. And I was talking to my friend, the pediatrician. He's like, boy, when one of our.

Patients died, it's like the worst day of the year.

Well, that's true because it's a two year old or a four year old or a two month old. But even people in their 30s, 40s, 50s, 60s, they don't expect to die. It can be a rough day. So if you're coming home from a bad day, let me be one to say thanks for what you're doing, for what you signed up, for what you've committed to. It's not easy. It's the reason they pay you a lot to do it is because it took a long time to learn how to do it and because it's not easy work and there's lots of liability there. So thanks for what you do out there.

All right, let's take another question about real estate investing.

Jim. This is Ed from Michigan. In some of your older podcasts and blog posts, you have briefly mentioned that if it were not for the WCI blog in the early days, you had considered investing more heavily into real estate, potentially the beginning of your own real estate empire. I was hoping you might elaborate on your thoughts back in the day. What kind of real estate were you considering seriously investing in? Were you planning on purely being an investor or would you have had an operator role? You still considered major real estate investing despite your experiences in becoming an accidental landlord. How were you planning on structuring your real estate business in those early days? Thanks for all that you do. My family and my wakeboat. Thank you.

You can't just drop that comment and not tell me what the wakeboat is. Come on. You know, wakesurfing is a lot of fun.

It is not the least expensive hobby in the world. So you must be reasonably financially successful if you can afford to do it. So congratulations to you on that.

This is all hypothetical, right?

Because obviously this is a life pathway. We did not go down. But it's true. This was an alternate plan for us.

If the white coat investor was not.

Working out on a financial basis. We did have a plan to build a direct real estate investing empire, primarily multifamily and single family homes. That was the plan. But we didn't get very far down that. This is very different from being an accidental landlord, right? We were an accidental landlord. That house we bought in 06 we.

Couldn'T sell in 2010 when I got.

Out of the military.

Nobody would buy it for anything other than a price at which it would be a screaming deal as an investment. So we kept it, kept it for another five years, still sold it at.

A loss compared to what we paid for it in 2006. But at least we had a renter in there for a few years and paid the mortgage down dramatically. But I, when all was said and done, we claimed a pretty good loss on our taxes for that investment property. It was not a fun situation. It was in another state.

It was not bought as an investment to start with.

The numbers really didn't work all that great at the price we paid for it. And overall, not fun.

But what would I have done if.

I was building one?

Well, first of all, I would have built it here.

Here in Utah rather than in Virginia, where that property was. It would be properties that I could drive by and look at. Right. Salt Lake has been a pretty good real estate market for the entire time we've been here. It's gone from being a relatively low cost of area to a mid to high cost of living area. Serious tailwind here. I think we would have done very well as direct real estate investors over that time period, but we would have.

Been probably starting out managing them ourselves.

As volume grew, we would have been hiring out more and more and more until at this point, 15 years later, we'd probably have just about everything hired out.

How many doors would we have under management now?

I don't know, 20, 30, something like that, probably.

But this is a viable pathway to wealth.

It takes some work, there's some risk, particularly leverage risk, but it would have worked. We could have built wealth in this way.

I would have continued to max out.

Retirement accounts, invested that money in index funds as I did. Maybe I have built a taxable account. All that money maybe would have been going into real estate properties.

But this is a pathway to wealth. The problem is I was busy. I was busy doing a white coat investor. How many jobs do you need?

I was working full time in the emergency department, 15 shifts a month, rotating.

Shifts, nights, weekends, evenings, holidays. And I was basically working another full time job doing white coat investor.

This is probably the first four, five, six years we're talking about of the white coat investor's life. Even for a couple of years after that, I was doing 3/4 time at the emergency department. So no, I'm not going to do a real estate empire. In addition to that, I want to invest my money passively and my time actively.

But that's what I would have done. It's not a complicated formula. People have done this for centuries. It's real estate investing. You buy the property, you rent it out, you collect the rents, you pay all your expenses, you keep the cash afterward, the property appreciates. If you got a loan on it, you're paying down the mortgage, you get a few tax benefits. It's not complicated. There's nothing complicated about real estate investing. It takes some work and there's some risk there. You may not be as diversified as.

You could be with other investments. You have always got the risk of.

Having tenants living in your investment.

You've got the possibility that the values go down. You've got the possibility that your leverage situation changes. Maybe you're on variable interest rate loans and rates go through the roof like they have lately.

There's lots of risks there.

But those risks can be managed in a reasonable way.

If this is something somebody wants to.

Do and wants to put the work in to do.

We have a course that teaches you how to do this. It's called the no Hype real estate investing course. And it'll teach you how to do this stuff.

It's not that complicated, but it's also not required.

Most doctors, if they just go to work, work their shifts, see their patients, run their clinic, do their operations, whatever, they carve out 20% of their gross income. They invest it intelligently into index funds in retirement accounts where possible, in a taxable account when not they're going to retire as financially independent multimillionaires. You do not have to invest in real estate in order to be successful in life.

But can it work a little bit faster? Sure. Especially with leverage, Maybe you can get to financial independence in 10 years instead of 15 years. You know, that's the sort of thing we're talking about.

So if you want to do this, go do it. Knock yourself out. Have fun.

Does it work? Yes, it works. Can you get burned? Absolutely. Will it be a lot of work? Absolutely. It will be a lot of work. You'll learn some. And some people really love it. You know, they love the deal making.

They love the owning something tangible they can drive by and show to their friends.

If that's you, go build yourself a real estate empire. I'm probably not doing it going forward. All our real estate now is invested passively. We don't need to do this to reach our financial goals. And since it's a lot of work, why would we if we don't need to? That's kind of where we're at today.

Now, as I mentioned at the top.

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All right, I mentioned the credit cards earlier. That link again. Whitecoatinvestor.com credit cards. Check it out if you need a.

Credit card with good rewards or whatever. Thanks.

For those of you leaving us a five star review telling your friends about the podcast, a recent one came in from Sherry said. High quality listening enjoyment. Jim and Ramit, two of my favorite podcasters and teachers. I smiled with joy when I saw this episode come up. You two are so smart, pragmatic and entertaining.

Love you both. I think she's talking about the episode we did. I don't know, was it last year or two years ago? Last year, I guess with Ramit Sethi. And it was a fun episode to.

Do and he's become even more famous since then.

He had a little Netflix special so it was fun to have him on the podcast.

But we appreciate that five star review. All right, to those of you out there who are wondering if you can do this yourself, you can do this yourself. You don't have to do it yourself.

You've got the entire White Coin investor community to help you.

You've got professionals that will give you good advice and good service at a fair price.

Not free, but at a fair price.

Whether that's studentloanadvice.com, whether it's our recommended advisor list or recommended insurance agents, people that can help you set up a customized Solo 401.

We got people that can help you.

Make a little bit more money with surveys. We got all these recommended resources for you. If you haven't come by the website whitecodeinvestor.com and thumbed through the recommended tabs.

You'Re really missing out on a great opportunity.

The likelihood of you not needing somebody on that list at some point during.

Your career is very low. And these are people that White Coat.

Investors are continually vetting.

If we're getting complaints about people, they.

Come off the list.

So they're good people.

They're the good guys in the industry. It helps support the site when you.

Go through our links to go to.

Them and use their services. We appreciate that.

And they're here to help you, really. It's just we're trying to connect you with the good guys in the industry, run the bad guys out of the.

Industry, help you be successful, help you.

Have that life that you deserve.

So thanks for listening to the podcast.

We'll see you next time. Keep your head up and shoulders back.

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.