WCI #162: Are Side Gigs Mandatory for Doctors?

This is the White Coat Investor podcast where we help those who wear the white coat get a fair shake on Wall Street. We've been helping doctors and other high income professionals stop doing dumb things with their money since 2011. Here's your host, Dr. Jim Dali. Welcome to White Coat Investor podcast. Number 162. Are side gigs mandatory for docs. Welcome back to the podcast. We missed you guys. Been on vacation, we had a wonderful time at Lake Paolo and here we are back doing another podcast. Before we get into it though, I want to introduce today's sponsor.

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All right, our quote of the day today comes From William Bernstein, MD, who said, I'm going to assume that like all investment adults, you're disciplined and thus not vulnerable to the routine, but serious buy high, sell low, loss of capital. And unfortunately, too many investors are susceptible to that. Thanks for what you do. Those of you out on the front lines risking your lives every day, I appreciate it. And those of you who may have shut down your practices to save ppe, for those who are on the front lines or those who are simply doing all they can to keep their business afloat while surviving in these uncertain economic times, thank you for doing that as well. I had my daughter into the endodontist this week and that's always an experience she had. Needed a couple of root canals and that's not something I know how to do. So I'm glad some of you spent many years of your life learning how to do that. I got a message this morning. We're recording this. What is today? Today is the 28th of May. So we just released a podcast this morning like we do every Thursday, and I got a quick email back from someone that had been listening to it. If you'll recall, a couple of weeks ago we ran a podcast that included a speak pipe that was completely unintelligible to me and I had no idea what it was. And I asked you if you knew what it was. Well, this listener did. The listener, Sunil, describes himself as a South Indian and says, I love your podcast. I'm a longtime listener. The song is from a movie titled Raja the Great. It is Telugu language, which is a South Indian language. And he says, the listener is basically praising you and calling you a cool cat. I was listening to the podcast as I was driving to work, and when I heard this song amidst other serious topics, I just burst out laughing. I had to pause the podcast and type this reply. Lots of love and respect to you from a small town in Ohio, Sunil. So thank you, Sunil, for explaining what that was all about, because I had no idea. And I thought about just throwing it away, but it was too interesting not to run on the podcast. But for the rest of you, if you want to leave questions, they got to be in English. I mean, you can leave them in Spanish and I'll understand them, but we probably won't run them on the podcast. It's an English language podcast. There's just too few of you out there that speak Telugu. All right, lots of things going on lately in the personal finance world, the position, personal finance world. We've got something new we're doing. We want to promote you and your success. And so we have a program we are calling Live Like a Resident hashtag Live Like a Resident. And what this is is this is people who have paid off their student loans. If you have paid off your student loans recently or even in the last few years, we encourage you to take a picture of yourself, maybe a sign of how much you had in debt when you started or what it peaked at after residency or whatever, and put that into a Google form for us and we will share it on social media and use it to inspire your peers and your colleagues. So to get to that Google form, the URL is whitecoatinvestor.com debt free. That's whitecoatinvestor.com Debt Free. You can upload your picture there and you can put in a little bit of information. We will share that out on social media. I'm going to compile a few of them into a blog post and maybe we'll even get some of them on the podcast as well. So let's share our success and inspire others to follow. In your great work that you've done, you may have noticed that during the pandemic that there are a lot of online courses going out there. One of my favorites that a lot of white coat investors have taken is called Zero to Freedom Through Cash Flowing Rentals. This is a course put together by dual physician couple Letty and Kenji who are direct real estate investors and they want to teach you how to do it. So if you are interested in being a landlord and investing directly, you may hire out the landlording, but being a direct investor rather than through syndications or through real estate investment trusts or through private real estate funds, they will teach you how to do that in this course. The course is called Zero to Freedom through Through Cash Flowing Rentals. It's not the cheapest course out there, so it's only for if you're really serious about doing this, but they put together a blueprint for you to follow to profitably buy and manage your income properties. You can get more information on that@whitecoatinvestor.com rental and if you buy that course, I'll actually throw in a signed copy of one of my books for you and send that to you if you buy the course through that link. So I appreciate what you do and if you are interested in that, take a Look at that. Whitecoatinvestor.com Rendell okay, I wanted to talk for a minute as the title of this podcast mentions about side gigs and this comes from an email. I got a suggestion from a very loyal listener, reader and even a WCICON attendee over the last couple of conferences. She says this or he says says this. I want to talk to you for a podcast suggestion. I've been an avid follower of your podcast and Physician on Fire and I'm a believer of the live like a resident philosophy. I'm also a palliative care doctor, debt free, living in Hawaii, working part time. I've considered myself an entrepreneur. I made my group switch my job from hospitalist to pay for my training at Harvard for Palliative Care. I also became the Vice Chief of Staff this past week or two. The Online Summit and the listener is referring to the online summit put together by Peter Kim at Passive Income md. This was a big push on entrepreneurship. The online Summit has created an intense need to push yourself, make side gigs and do more than we were doing to not exchange our time for money and get side gigs to get a cash flowing stream. I know a lot of people are excited and want to learn more, but as a palliative care physician I want to share that all these ideas can create anxiety and can push us away from what matters most. Well, I can chase all these side Gigs and my mind can go 100 miles an hour. It keeps me from enjoying playing backgammon with my 11 year old. There's something to be said about protecting your time, even time that you just spend in your head. I think as a physician, if you do all that you tell us to do and keep your spending in check, you're okay. What we do is noble. And like you said, financial advisors are not kindergarten teachers. Physicians don't need to be jet setting millionaires. What we do matters. Our time is important. Just like I tell my palliative patients, once you know what matters most, the outside chatter can be turned down. You could do a podcast about this subject. You can tell people not tune in if they don't want to talk about mindfulness and being okay with having enough. Well, I'm not sure that I need to do a whole podcast about it, but I thought it was a subject worth discussing. Whether a physician needs a side income. And it's always been my position that it's not a need. The doctors make enough money that if they will just manage the money well, they don't need a side income. You don't have to have a passive income on the side and a side gig and all this. If you will just be a good doc and manage your money well, you will do fine. However, there are obviously events in all of our lives that make us think it would be very nice to have another income, such as the recent pandemic. And maybe that's what spurred all this interest in entrepreneurship and passive income recently is the fact that so many of our incomes went down. And of course the listener goes on to say, I hope you know I'm not saying doing side gigs is bad. I was just observing from the phenomenal conference. It was creating excitement, but also a sense of serious anxiety and fear of missing out. In the Facebook groups that I belong to, there's value to the program. So much so that I'm considering to work with some life coach people to help me guide people through end of life decisions for a larger reach. Not to have more money, but more impact. I just wanted to remember we should protect the practice of medicine for what it is. Caring for those in need and remembering that there are those in worse situation than we are, both physically and mentally and financially, and that what we do still matters. While Covid has weakened our financial grip, it has also made my children think that as physicians we are heroes. And certainly that is the case, particularly those of you on the front lines. So how do you balance this? I mean we don't want to be dependent on our physician income, but we also spent a lot of time and effort becoming physicians for a reason. And it's true that you don't need to make $5 million a year in order to be happy. If you can't figure out how to be happy on 200 to $400,000, which is what most physicians make, then you probably have a spending problem, not an earning problem. I totally agree with that. That said, I can hardly be the poster boy for just practice medicine, not worry about it. My white coat investor income far exceeds my clinical income these days. I'm down to half time in my clinical work, so I can't really say you should do something different than I've done. So. So I find myself with mixed feelings on this subject for sure. But I think each of us needs to find a balance there and realize that if you will carve out a chunk of your income, you'll be okay if you invest it in some reasonable way. But it never hurts to have a little bit of side income if that is something that interests you. But certainly I would not feel like a side gig is mandatory for a doctor. In fact, for a lot of doctors, your best investment is investing into your own practice. Okay, let's take some of your questions now off the speak pipe. Our first one comes from Joe. Let's take a listen.

Hey Dr. Dali, this is Joe with a question about Public Service Loan Forgiveness side fund. I'm four years away from forgiveness. I do max out retirement accounts, backdoor Roth and HSA for my side fund. I currently put $2,000 per month into a brokerage account, $1,000 per month into a High Yield Savings, and I also pay $2,000 per month extra on my mortgage and a goal to basically split up my side fund a few different ways rather than throwing it all into the market or just into a savings account. My question is once my house is paid off, which will be in about two years, I'll have two years left until forgiveness. And at that point my goal is to have about $7,000 per month to allocate purely towards the side fund. My thought was to possibly place half of that per month into the High Yield Savings account and half into a taxable account. This way I could limit my risk by not putting everything in the market yet I could still capture some gains of the portion that's in the taxable account. Do you have any thoughts on location for side fund placement, considering that the amount may be $7,000 per month for someone who's currently four years away from forgiveness, but at that point would be two years away from forgiveness. And any thoughts on how that might change as you get closer to forgiveness? Thanks for all that you do. It really is greatly appreciated. And stay safe.

Well, this is a really interesting adaptation of the idea of a public service loan forgiveness side fund. My idea behind a public service loan forgiveness side fund is that it does two things for you, right? Because you're not throwing these massive sums, you know, five to ten plus thousand dollars a month at your student loans. You should still be putting that money somewhere and using it to build wealth. Just because you're going for PSLF doesn't excuse you from living like a resident for two to five years after residency. That is your building wealth, period. And I think it is imperative to remember that. Does it matter so much from that perspective where the money goes? Whether it goes into retirement accounts or whether it goes into a taxable investing account or it's used to pay off a mortgage or goes into a savings account? From that perspective, it doesn't really matter where the money goes. So I think you can mix it up like this Doc has done. I think that's perfectly fine. But the other purpose of the public service loan forgiveness side fund was to be able to take that money and pay off the loans. And that becomes much more difficult. If you use the money to pay down a mortgage or use the money to invest in stocks that have now lost value, or if they've gained a lot and you don't want to pay capital gains taxes on the gains, it becomes not as easy to do. So from that perspective, I don't think it's really serving as a side fund. The idea behind a side fund was that if something happens to Public Service loan forgiveness or simply that you no longer want to work for a 501 company, you could wipe out your debt and you'd be just the same as if you hadn't gone for public service loan forgiveness. That's the idea behind it. So what should you do after the mortgage is paid off in a couple of years? Well, if the idea is to truly have a PSLF side fund, I'd put that money into the High Yield Savings Account. But if you don't care so much about that and you're just trying to keep building wealth despite that, I think it's fine to invest some of it. I think it's okay to put some into the stock market like you're doing, you know, and if you're not already maxing out retirement Accounts obviously take advantage of of those. I hope that's helpful. It's kind of a non answer. I know and I'm sorry about that. But I think it's one of those areas that's kind of gray. The idea is stay focused on your finances even if you're going for public service loan forgiveness. Okay, next question is from Dan from South Florida. Let's take a listen.

Hey Jim, this is Dan from South Florida. Wanted to ask you another question about side gig that I'm going to be starting as soon as the Corona restrictions lift. Obviously I'm going to be paying myself when the business starts becoming profitable and obviously have options of paying myself as W2 or just taking an owner's draw of the profits when those start rolling in. The only reason why I want to know what you would recommend is because in my state I'm required to pay workers comp insurance on all payroll, which is 1.3% essentially of everything that's paid on payroll. So if I pay myself on my payroll company it'll charge me an extra 1.3% whereas if I just take an owner's draw, obviously I can avoid that. Is that the right thing to do? I don't know if you have any thoughts on this and I appreciate anything you'd help.

Thanks. Okay, this is an interesting question. I'm not sure exactly what he's getting at here and I think that's because he's got a little bit of confusion on his part. Most of the time when you have a side gig, you're paid on a 1099, you're an independent contractor, etc. You are basically a sole proprietorship and a sole proprietorship does not pay wages to the owner. So basically all the profit is an owner's draw. If you form an S corp then you can pay yourself wages. Then you are also an employee of the company, so you get wages. And there are also owner distributions. You only pay payroll taxes on the wages, you don't pay them on the owner's distribution. So that's a strategy for a lot of people and that's why they form an S corp is in order to save on those payroll taxes. You know, for doctors it's usually just a savings of Medicaid tax or Medicare tax. Sorry for, you know, somebody who's a lower earner. It might also include Social Security tax that you can save on and that's obviously a much bigger savings. But as far as this worker's comp tax in your state, if you're not an S corp, you shouldn't have to be paying that because you don't actually have employees. And so I think that's a non issue. I suspect in your case unless you've gone ahead and formed an S corp and if you form an S corp, well you got to pay yourself a reasonable wage and the rest can be an owner's draw or an owner's distribution. And of course you'll have to pay any required workers comp taxes on that. But look carefully at the law. I think you may be able to get out of workers comp if you are the only employee of that company. But I suspect that may be state specific. So take a careful look at that. All right. Our next question comes from Josh about 457 plans. Let's take a listen to it.

Hi Dr. Daly, I'm a early career hospitalist in the South. My question regards asset allocation in a non governmental 457 at a large academic institution. I currently have a 8020 stock bond allocation. I keep essentially the same asset allocation across my 403B and 457 accounts in essentially the same assets. I find these are usually easiest accounts to rebalance. My 457 is a pre tax does not allow rollovers and I must take out the money within a 10 year distribution period. My question is there any argument to keep more or less bonds or lower yielding assets in the 457 with the knowledge that this is possibly the first money that I will have to take out in retirement or if I were to change positions to a different hospital mid career? I realize that I may have very different tax situations depending on scenario. But I'm interested in your thoughts. Thank you for all you do.

Okay, he was going to spend his $457,000 first. That's probably a good idea. I generally recommend that in retirement. But then the question comes in should I mess with the asset allocation of that account because of it that is Maybe have fewer bonds? You're not taking as much risk because you're going to use that money sooner. And the way I look at this is I think you ought to look at all of your retirement accounts as one big account account. Your 457, your 403, your taxable account, your backdoor Roth IRA, your spouse's 401K, your spouse's backdoor Roth IRA. Maybe your HSA. Look at it as all one big account. Because here's the deal. If you want to take money from the 457 first, that's fine. Whether it's invested in stocks or bonds or real estate or whatever. If it happens to be up at the time when you withdraw from that money, that's great. You'll end up, however, as you spend that money, as you withdraw that money and spend it, you'll buy whatever it was invested in in your other accounts in order to rebalance the account. Likewise, if it's in bonds, for instance, and bonds haven't been doing very well, well, there's going to be less money in that account. You're going to go through it faster, but the other accounts will be bigger than they otherwise would be because you put the stocks in those accounts and stocks did well, for instance. So I don't think you really need to be thinking about this subject when choosing an asset allocation of that account. In general, when you' implementing your asset allocation across your accounts, you want to look at the best options in that account that you need to fulfill your asset allocation. And in a lot of 457 and 403 and 401k accounts, the only decent fund in there is a 500 index fund. And so you may have your large US stock allocation in that account preferentially, simply because it's the only decent fund in there. And then you use your other accounts to make up the difference. But basically, I wouldn't necessarily have a different asset allocation in your 457 account. I would look at all of your accounts together. Okay. Our next question comes from Tony. Dr. Dali. Thanks for all that you do. I was hoping to ask a question about bonds and bond allocation specifically. I know you've mentioned in the past that investors who want to reduce their risk tolerance should invest more of their portfolio in bonds. I was wondering if your opinion on this has changed at all, given the very elevated bond prices at the moment and the potential that if an investor did want to reduce their risk tolerance by moving into bonds, they could actually lose some money if the price of those bonds go down. Appreciate your thoughts on this. Thank you. All right. It seems like almost every question I get these days is during current times or during the pandemic or since COVID came, is this different? Well, there's very little that's actually different since that time. I mean, one thing that's different is your student loans are 0%. Your at least your federal ones are at 0% until September 30th. So obviously most people are not going to want to refinance them until September 30th. But otherwise, most things have not changed. I mean, bond yields go up and down. Bond values go up and down. Interest rates go up and down. Unless you've got a crystal ball that is more clear than mine is, it's very difficult to take advantage of that sort of a situation. If you don't know what's going to happen in the future, you can't really anticipate it with your portfolio. I think you're much better off setting up a fixed asset allocation. You know, you set the percentages this much in stocks, this much in bonds, this much in real estate, whatever you're going to invest in and rebalancing back to it each year. Just because bonds had a great year this year doesn't mean you hold less of them next year. Yes, you sell down to whatever percentages are set in your fixed asset allocation. More likely you just use your money to buy stocks. That's what I've been doing the last few months. But you don't actually change your asset allocation just because yields have fallen. And why is that? Well, if you had done that, you wouldn't have owned bonds since like 2009. You would have missed this big run up. You know, people have been saying for more than a decade, the bond rates must go up, interest rates must go up, and what has happened, they've stayed flat or gone down over that time period. I mean, it's just really difficult to predict the future. So I don't think you should use an investing plan that requires you to be able to predict the future. I think that's a good route to really screw things up in your life, you know, because guess what, you're going to be wrong a lot about the future. If you don't believe that, I suggest you start keeping a notebook or a journal of your predictions about the future. And you might be surprised how poor they are, how bad you are at predicting the future. Write down specific predictions of what you think the s and P500 is going to do, whether you think US stocks are going to beat international stocks, whether you think bonds are going to do this or that, what interest rates are going to do, what the housing market's going to do. And you might be surprised when you pull that and that out in 6 months or 12 months. Just how dumb you were 12 months ago on things that seem so obvious now, you know, and as I have kind of done that over the years, I've realized that my crystal ball is not clear at all. And if you think yours is, either you should be running a whole lot more money than your own, or you are probably making a big mistake leaving a lot of money on the table, but the truth is that most of us just do not have a clear crystal ball. All right, I hope those questions are helpful to you. As I mentioned at the beginning of the podcast, make sure that you check out our new thing. If you paid off student loans at any time in the recent past, go to whitecoat investor.com debtfree leave us a picture, leave us the basic story and we will share that on social media and use it to inspire your peers. If you're interested in that real estate course I mentioned at the beginning of the podcast, Zero to Freedom through Cash Flowing Rentals. You can find that@whitecoatinvestor.com rental. This is only on sale. It goes on sale a couple of times a year, but it's only on sale through June 14th. So if you're listening to this the day the podcast came out, you've only got three days if you want to buy at this time. Otherwise the course will be closed for months. I wanted to thank those of you who've left us a five star review on the podcast. I've seen a lot of great reviews lately and I do appreciate that it helps us to get the word out to others. The podcast is been in the top 50 investing podcasts in the US for the last couple of years and those reviews help us to keep it there. So I appreciate that as a White.

Coat, you have valuable knowledge. Various companies want that knowledge and they're willing to pay you for it. That's why we put together a list of recommendations for companies that pay you to take surveys. If you're looking for a profitable side gig for not too much effort, getting paid for surveys could be the perfect solution for you. You can make extra money, start a Solo 401 and use your medical knowledge to impact new products. One of the WCI columnists makes an extra $30,000 a year just doing these surveys. Sign up today and use a fraction of your downtime to make extra cash. Go to whitecoatinvestor.com mdsurveys. You can do this and the White Coat Investor can help.

All right, I think we've come to the end of our podcast. Thank you for telling your friends about it. Keep your head up, your shoulders back. You've got this and we can help. Please stay safe out there and we'll see you next week on the White Coat Investor podcast. My dad, your host, Dr. Dahl, is a practicing emergency physician, blogger, author and podcaster. He is not a licensed accountant, attorney or financial advisor, so this podcast is for your entertainment and information only and should not be considered official personalized financial advice.