WCI #216: Gold Bullion, Subway Franchises, Taxes, and Divorce

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 is your host, Dr. Jim Dali. This is White Coat Investor podcast 216 Gold Bullion and subway franchises. The White Coat Investor is proud to introduce our no Hype Real estate investing course which will provide the framework for developing further knowledge and experience as you progress your real estate investing career. We call it an introductory course because there's always more to learn. But this is no short, superficial course. There are over 200 lectures and videos adding up to more than 27 hours of content by over 15 different instructors. We think it just might be the best real estate course on the planet. Continue your wealth building journey today with the no Hype Real Estate Investing course@whitecoatinvestor.com courses. You can do this and the White Coat Investor can help. All right, thanks for what you do out there. We're recording this on June 1st. It's going to be published on June 24th. I guess we have a few trips this month we're planning around. That's why we're recording so far ahead. Cindy and I got to record on the days that both of us are actually in town together, I guess. But you, I suspect, are also having an eventful summer. Hopefully you're feeling a little more free and open, being able to take a few more trips, see more people now that the pandemic is slowly abating. But if you're like me, you're still taking care of COVID patients. I admitted a COVID patient two shifts ago. I just saw a guy yesterday. It's interesting. I think he was in his 30s. I asked him, why didn't you get a vaccine? He said, well, I heard it could kill you. I asked him, have you heard that the virus could kill you? I mean, it's basically a thousand times or more less likely to die from the vaccine than it is from the virus. But that word just is not getting out there. And so I think a lot of us are still taking care of quite a few COVID patients. Even if our Covid specific units have closed, our ICUs still have a few in there. So thanks for what you've been doing during the pandemic and otherwise. It's not easy work. All right. If you want to come speak at WC icon 22, I will pay you to do it. We actually pay our speakers, unlike most academic conferences. I'll pay for you to come out, pay all your expenses, and give you something for speaking in addition to, you know, being able to come to the conference for free, which is going to be awesome. You in Phoenix. We're gonna have a great time. It's Phoenix in February. You know, I don't know where you live, but chances are the weather is not as nice there as it is in Phoenix in February. So come join us there. But if you want to come for free, you gotta speak. Whitecoatinvestor.com SpeakerAapp is how you apply. And I think we're gonna do three tracks again. We're gonna have basics advanced as well as a wellness track. Those ones have to qualify for cme, right? Cause everyone wants to come to this using their CME money. But you can apply to to speak. And we like having new speakers at that conference every year. And we'd love to meet you in person. So go ahead and apply for that if you would like. Otherwise you can just come to wcicon. Registration is going to open, I think in September. All right, let's take some questions. The first one comes from an anonymous listener. Let's hear it.

Hi, Dr. Dali, and thank you for all that you do. Dr. Bernstein and others mentioned that it can be beneficial to have a small amount of your portfolio in precious over long periods of time, just because with the volatility, you end up buying low and selling high a lot. But they always seem to say that they're not talking about bullion specifically and talking more about, say, gold mining stocks or something of that nature. I was wondering if you could speak as to why trading in bullion is not advisable. Is it because the fees every time you buy and sell that you're paying to the trader are just too much? Is it because you're not getting any dividends that you might get by investing in a business of gold mining?

Yeah.

I just appreciate your thoughts. Thank you.

All right. I don't invest in gold bullion. The only gold I have is on my finger. I'm sure it's highly valuable. It's valuable to me. I'm not sure how many other people it's valuable too. If you melted it down, might only be worth a few hundred dollars. I don'. But the reasons I don't invest in bullion are the same reasons I don't invest in Bitcoin or Ethereum or dogecoin or whatever the newest cryptocurrency of the day is. Same reason I don't invest in yen or Canadian dollars or euros. Same Reason I don't invest in commodities like oil. I prefer investments that have some sort of payment that they make. Whether those are earnings in a stock, whether it pays it out as dividends or not, it's actually producing something. It's a viable going enterprise. It's a company or a fixed income investment that pays out interest or a real estate investment that pays out rents. And so those are the investments I prefer. I like investments that outpace inflation, since that is the greatest, you know, real risk to an investor over the long run. And so I prefer investments that will provide a return above and beyond inflation. It doesn't mean every single fixed income investment I ever have provides a yield to do that, especially in our low interest rate environment and now rising inflation. But that's kind of the goal for me. I don't want to include asset classes that I don't expect a significant return from. Now. What's the return on Gold? Well, 800 years ago, an ounce of gold bought a nice man's suit. Today an ounce of gold buys a nice man's suit. It basically has kept up with inflation with severe volatility over the years, but kept up with inflation, not outpacing it. And, you know, obviously there's costs of buying and selling and storing and ensuring something like gold bullion. So after you pay all those, you know, it's not even keeping up with inflation. So those are the main reasons I don't invest in it. But I don't think it's necessarily crazy to invest in it. You want to put 5% of your money into Bitcoin or gold or commodities or whatever. I don't think that's crazy. Go ahead and do it. Knock yourself out. If you really think it's an attractive investment, you want to hedge against inflation or you just like it or whatever, that's fine. To. I would discourage you from putting 50% of your money into it. I think that's a mistake. But you want to put 5% of your money into something like that. Knock yourself out. Go ahead. Okay. Chances are, even if you lost 5% of your portfolio, you would still be perfectly fine financially. And it's not going to have such a huge impact on your portfolio that it's going to sink you if it doesn't do very well. The reason Bill Bernstein doesn't like gold bullion in particular is because of that return issue. He prefers. If you're going to allocate some money, precious metals, that you put it into precious metal mining stocks. Because if you look at the return of These stocks, these companies that produce profits, they are higher than inflation over the long run. Now it's still impacted when there's a rush to gold in an economic downturn or when there's inflation fears. Those gold mining stocks obviously go up in value significantly. And so you still get some of that benefit that you're looking for when you buy gold, but without having to, you know, insure the gold number one or go through the trouble of buying it off, you know, a late night infomercial or a gold trader or wherever else people go to buy gold bullion. But you still get the benefit of that flight to gold in bad times. But he's quick to point out that this is something that you really have to hold for a long run because you might own it for 30 years and really only enjoy owning it for about three of those 30 years. You know, the rest of the time you're just staring at it, wondering why it's doing so crummy. And that's kind of, if you look at its performance, it has awesome performance, a very small period at the time. And the rest of the time is kind of ho hum, lots of volatility and not awesome performance. The last few years have been pretty good for gold though, so make sure you're not just chasing performance when you're adding this to your account. It might be 30 years before you see another period of awesome gold returns. Hope that's helpful to you. Let's take our next question. This one comes in about solo 401ks.

Hi Dr. Dali, I have been listening to your podcast and I've really learned a lot. I have a quick question related to solo 401k. So I'm 100% W2 physician with some side income from consulting around 3000 per year at the most. I rolled over my old jobs IR 401k into a traditional Iraq without knowing about the pro rata rule for the backdoor Roth. So then I opened a solo 401k with Fidelity, got an EIN in 2018, emptied out the traditional IRA into it as I had the side income doing some consulting, second opinions and some surveys so which I barely got about $25 to be saved for the retirement, but the real purpose was so that I would have $0 in the traditional IRA to avoid the pro rata rule. However, when I started a new job two years ago, I was advised on the White Coast Investor your forum by other members that if my side income did not pick up, the IRS could consider it as a hobby and I would be penalized for having a solo 401k. So I should close it by moving the money to a new. The new jobs 401k. So I did that. However, I hate the offerings in the 401k with the TIA graph that I am in now, and I want to take control.

All right, well, I got a minute and a half of that. Unfortunately, Speak pipe really does shut off at a minute and a half. You got to get your questions in before then. But I think what I'm hearing here is somebody who's kind of bummed with the move they made a couple of years ago due to what somebody on the forum told them. This is a bit of a gray area. There are some people that are worried you got to have a real business going in order to have a solo 401k or the IRS is going to come after you. I think that's a little bit overblown. I think they have much better things to do with their very limited time. That said, you're making three grand a year. That's a totally viable business. There's nothing wrong with that business. This is not flaky whatsoever. You're doing second opinions. You're taking some surveys, you're doing some other work. You make three grand a year. That's a business. It's fine to have a solo 401k for that business. So if you don't like what you have and they'll actually let you take money back out of that 401k at your main gig, which they may not, sure, open up a solo 401k and roll the money back in there. But I suspect now that it's in there, you may not be able to roll it out until you separate from your employer. But certainly the nice thing about you getting that money out of a traditional IRA into a 401s now you can do a backdoor Roth IRA every year. So I think it was worth the hassle to roll it into a solo 401 to start with. I think maybe people made you panic a little bit about moving that money into your regular 401k. I don't know that I would have necessarily done that. But it's not like TIA CREF are the worst possible funds you can invest in. They're generally considered one of the good guys. So, you know, use the best Funds in the 401, build around that. Use your backdoor Roth IRA and any other investing accounts you might have to round out your asset allocation, and you'll likely be fine going forward. I hope that's helpful. I'm not sure exactly what your question was, but I hope I answered it. All right, our next question comes in from Patrick about ugma accounts.

Hi, Dr.

Daughter.

This is Patrick from Hawaii. I have a question regarding UGMA accounts. I have three accounts that I set up for my children, and we're teaching them about money and investing, and it's working out pretty good. However, I have a question about how the UGMA accounts are taxed. I understand that there's a limit of the first eleven hundred dollars is completely tax free on any gains in the UGMA account, and then the second eleven hundred dollars is taxed at a child's rate, which I think should be tax free as long as my kids don't have any other sources of income. So is there any reason that I wouldn't want to do a tax gain harvesting strategy each and every year, especially while the accounts are small and below that threshold limit of gains such that I can just each year increase their relative cost basis. Thank you.

Okay. Sounds like you have a pretty good understanding of it, Patrick. I'm not sure what I can add to it other than confirming that what you understand is correct. A child's unearned income, the first $1,100 is not taxed. The next $1,100 is taxed at their tax rate. Okay, so assuming they don't have a whole bunch of earned income, they should still be in the 0% capital gains bracket. At that point, the kiddie tax kicks in. If there's more than $2,200 a year in income, not return, not increase, not account value, but $2,200 in income in that UTMA account, then taxes are paid on that at the adult's tax rate. So, yes, that gives you $2,200 a year in which you can do whatever you want with it. Right. You can have a really high income investment. You can have tax gain harvesting where you sell something with a gain in order to update the basis and update the basis. But keep in mind, most people that get a UGMA account at least the purpose why my kids have them is to spend money in their 20s. And so I fully expect when they spend that money, they're probably going to be in the 0% capital gains bracket without any tax gain harvesting along the way. But if you want a tax gain harvest and it's not costing you anything to do it, sure, do it as you go along. Just keep in mind, as those accounts get bigger, it'll be harder and Harder to do that. For example, if the yield on a total stock market index fund is 2% and you got $100,000 in there, that's going to get you pretty close to your $2,200 a year in income. That's tax free. There's not much room there to do tax gain harvesting. But if you have a $10,000 account and it's only kicking out $200 a year in income, well, sure, you can do a lot of tax gain harvesting on that account. So it just really depends on the size of the account, how much tax gain harvesting you can do without paying any taxes on it. A lot of people don't want to get into the weeds that much in their investments, but it doesn't sound like you're very scared of getting out in the weeds. So knock yourself out. Do some tax gain harvesting. All right, next question comes from Dean about withholding taxes in retirement.

Hello, Jim, this is Dean from the upper Midwest. I have a simple question about withholding taxes in retirement. I may be about 10 years or so away from retirement. Ever since I was 16 years old and got my first job at a local pizza place, I have earned W2 income. I have always filled out the W4 for withholdings and adjusted them accordingly. Now when I retire, I will still have sources of income such as capital gains, dividends, plus I will be likely doing some Roth conversions for a tax deferred account, a cash balance plan that will become a traditional IRA. This is to minimize the RMD at 72. So my question is, how does withholdings logistically work upon retirement when I no longer have a W4, I don't want a penalty come tax time because I haven't paid anything. Thank you so much.

All right, Dean, good question. I think you're a repeat caller as I recall. But welcome back to the podcast. Here's the deal. This is really obvious for those of us who have been self employed for a long time. Each year you have to get into the safe harbor or you owe penalties in addition to whatever taxes are owed. You have to pay the taxes no matter what. But if you don't get into the safe harbor, then you got to pay penalties too. So what's the safe harbor? Well, the safe harbor might be that you owe less than $1,000 in taxes. If that's the case, you're good. Okay. If you got to within $1,000 of what you owed, you know, you paid 6,000 and you owed, you know, 6,900, then you're good, right? Even though you underpaid your taxes during the year, you're okay because you're in the safe harbor. You still have to pay those taxes that are due, but you know that extra $900, but you don't have to pay any penalties. Another safe harbor is having paid either 90% of what's due if you're a low earner or 100% of what's due. Okay, if you paid everything that's due for the year, you're in the safe harbor and you don't have to pay any extra. Or you can pay 100% if you're a low earner or 110% if you're a high earner of what you owed last year. And that gets you into the safe harbor. So if your income doubles this year, you can dramatically underpay your taxes this year and settle up with the IRS on April 15th and still not pay any penalties. You still have to pay all the taxes due, but you don't have to pay any penalties. And so the goal for those of us who have to manage this crazy process throughout the year because we're self employed is to get into that safe harbor. And the ways you get in there are you have money withheld by your employer. All of that counts, no matter when in the year it was counted. You know, even if it's withheld on December 28, it counts just like every other dollar that's withheld during the year. You can also have it withheld by somebody like Vanguard when you do a Roth conversion or when you do a RMD withdrawal or something like that, and that goes into that same withholding pot of money. The other thing you can do if that's not enough to meet the taxes you have to pay is you can pay quarterly estimated taxes. And those of us who are self employed, we write a check every quarter. It's due on April 15, it's due on June 15, it's due on September 15, and is due on January 15 for each of the quarters, respectively. Yes, I know those dates are not each three months apart. It causes me incredible cash flow issues this time of year. Every year, because I only have two months of income and yet I got to somehow pay three months of taxes in June. But such is life, right? You get four months to make the last one, you get two months to make the second one, you get three months for the other ones. It's kind of weird, but that's the way it works. So if you are not having enough withheld in retirement by having Vanguard or whoever, withhold your money from RMDs, then make quarterly estimated payments. So if you make a big Roth conversion in the fourth quarter, send in a fourth quarter estimated quarterly payment. And as long as you're doing it more or less as you go along, because it's a pay as you go tax system with the Feds, not necessarily all the states, but with the Feds, it's pay as you go, then you're okay. It's easier sometimes to just pay equal amounts each quarter, and then the IRS doesn't even bat an eye. And it saves you one form at tax time rather than having to show that your payments actually line up with when you earned your money. But in general, that's the process. If you're not having enough withheld, you just make quarterly estimated tax payments. No big deal. Although it can be complicated at times. So maybe it is a big deal. But I hope that's helpful to you. I can see why that would be a mystery if all you've ever done is had your employers withhold it. But once you've been self employed for a while, which is really what a retiree is, it's not that complicated. All right, next question comes from Matt. Let's take a listen. How should we invest money that we.

Don'T want locked up in a retirement account or after maxing out tax advantage contributions? Should we use an individual taxable brokerage account? Should we like form an LLC or.

Some kind of entity to have a taxable brokerage account within or managed by? Good question, Matt. This is one of those questions that you're going to look back on in a year from now and wonder that there was a time you didn't know the answer to this question. Basically, yeah, you open up a brokerage account, that's it. You go to Vanguard and buy a mutual fund, or you go to Fidelity and you buy some ETFs. You know, that's how it works. Or you go to, you know, and you buy a investment property or you buy a syndication. Now, sometimes it makes sense for an investment to be inside an llc, for example, and nearly every real estate syndication or fund out there is set up as an llc. And that's to reduce your liability. So you can't lose anything more than your investment. That sounds bad, right? To lose your entire investment, but it could be worse. You could lose more than your investment. So the LLC protects you from that. But in general, if you're just buying ETFs and mutual funds, stocks and bonds, those sorts of investments, you don't need an LLC and you can just open a brokerage account. Now there's some asset protection things you can do. For example, if you're married, you're in attendance by the entirety state, you can title that account tenants by the entirety. But just putting it inside an LLC that you're the sole owner of probably isn't going to do much asset protection wise. It probably isn't going to do much estate planning wise. It certainly, certainly isn't going to change anything tax wise. It's not going to improve your investment account, really your investment return. Really. An LLC is supposed to be a business and your brokerage account really isn't a business. So I wouldn't go putting in an llc. I would just open up the brokerage account and start investing. And that's perfectly fine. Obviously, you invest according to your written investing plan, right? You want to look at all your investments that are aimed at retirement, even if they're not in a retirement account. All of your investments aimed at retirement as one big asset allocation. One plan should govern them all. Now, if that money going into the taxable account is not for retirement, you might want a different asset allocation on that and invest it a little bit differently. For example, if it's money that you're going to need in a year to buy a house with, you probably don't want to put it all into stocks. You probably want it in something very safe like a money market fund or a short term bond fund, something like that. If it's money you don't need for four or five years until you want to buy your dream car or something, maybe you invest it a little more aggressively than that, but you're not investing it as aggressively as perhaps the retirement money you're not going to need for 30 years. I hope that's helpful to you. Next question comes from Justin. Let's take a listen.

I opened a rollover IRA in 2021 and maxed it out for 2020 and 2021. I also rolled over assets I had from a 403B traditional 403B into that rollover IRA and this was all for this year. I actually did my first backdoor conversion this year in 2021. I converted all of the money, 2020s, 2021s and all of those other assets I had that were pre tax. I understand I'm going to get a tax. I'm going to have to pay tax on that. However, what I wanted to know is did I have to fill out Form 8606 for 2020, even though I technically did not do any backdoor for 2020. Also, what will my 8606 form look like when I'm filing for 2020? 2021? I'm sorry, because I did convert all of those other growing assets into my Roth. Thank you so much.

Okay. Sounds to me like you knew what you were doing. So you're not going to get prorated on any of this because everything you put in there you converted. So no big deal. Yes, you'll owe taxes on anything that came out of that retirement account on your 2021 tax bill. Yes, you have to file an 8606 for 2020. All it is going to document is the traditional IRA contribution for 2020. So that's relatively easy and straightforward to fill out. You put it on. You know, if you put it in in 2021, you put it on line one, your basis on line two is zero. Line three is again your contribution, presumably 6,000. And since you did that after the first of the year, you put in 6,000 on that line as well. And that's about all that ends up getting filled out on this first. In fact, I don't even think you have to fill out line four. You basically go down to line 14, and that's all you fill out on part one. So your 20208606 is going to be really simple. I suspect you're asking the question because you didn't file it, though. So now you ought to do a 1040 X. Nothing has to go on there except the part three. You write a paragraph explanation of why you're sending it in, and a new form, 8606, to explain what you did. So I would do that for 2020. Just amend your taxes, no big deal. For 2021. Your 8606 is going to be a lot more complicated. Not only will it also document a contribution for 2021, but it's going to document all the conversions you did. No big deal. You just add them all up. 6,000 for 2020, 6,000 for 2021. Whatever the total amount you rolled over there was, all of that gets added up, and that's what you converted. So every time the form asks you if you did a Roth conversion, put it here, you put it on that line. So that's line 8. That's the line 16, and you just calculate the taxable amount. That's what the form's for. It helps you calculate how much of that conversion is going to be taxable for you. So no big deal. And then of course, going forward, presumably you'll do the contribution and conversion during the calendar year and your 8606 will be a whole lot more straightforward. Hope that's helpful. Let's take our next question from Jennifer about subway franchises.

Hi Dr. Dali, thanks for your podcast. I enjoy listening and I am a pediatrician in Ohio who has some questions about retirement accounts. I currently have a generous 401k and profit sharing program through my place of work and I'm fully maxing that out along with maxing out a backdoor roth for myself and my husband. However, my husband does not have any retirement accounts whatsoever. He is an entrepreneur that owns multiple franchise locations. We have about 10 franchise locations within the Subway network right now. And our plan had been as part of our retirement that when he's ready to retire, we would basically sell all of those, take that lump sum check and count that basically as, you know, what would have been a big lump sum retirement account for him, and use that to kind of live off of the interest from in our retirement years. I know this is not necessarily a taxed, advantaged way to save, but wanted to hear your thoughts on that and if that seems reasonable, considering the loans on the stores are getting paid down by the stores versus if there is a better way to do it because he cannot afford to have retirement plans funded for his employees, which we thought was going to be required of him if he started his own retirement plan.

All right, this is a great question, Jennifer. I really like this one. Eat fresh. Right? 10 subway franchises. I have no idea what that's worth, what it could sell for, what kind of income it puts out. But each individual franchise is a business. Some are probably better than others. The better you run it, the better it is, the more it's worth, the more you can sell it for and so forth. You know, an interesting story about Subway franchises is that 50 years ago, apparently, according to this article on the web, Dr. Peter Buck gave a college freshman, the founder of Subway, this is Fred DeLuca, the idea to open a submarine sandwich shop as a way to help pay tuition. He had a couple of attempts that didn't work out. It was called Pete's submarines after. After Dr. Buck is what he. He called it, but the name had to change because it didn't translate well over radio advertising. But the doc gave Fred a thousand bucks and that did pay off. The two of them owned and operated six, 16 sandwich shops in its birthplace of Connecticut under a name called Doctors Associates, Inc. And that was from the idea that DeLuca hoped to earn enough money in the business to become a doctor himself. So cool little medicine Subway tie in there. But according to this article, Subway franchises are actually some of the best franchises out there. So this may be an awesome investment for you. Is it okay to not have a retirement account? Well, yes, because he's absolutely right. He can't open a retirement account for himself without providing one for his employees. And if that is just cost prohibitive and the people working at Subway don't value a retirement account as much as they would higher wages, then it's probably a non starter for him to have a retirement account for that business. So two things he can do to provide for his retirement. One is to sell them, pay any capital gains taxes due and invest that money in a different way and use those investments to live off of the income from those investments or selling those investments from time to time and live off it. The other thing he could do is sell a franchise every year or two and live off those proceeds for the next year or two and keep the other franchises. Right. So you go from 10 to nine to eight to seven to six. Right. And you're just selling one of these every couple of years now obviously you're not going to want to be working in them when you're 85 years old. Hopefully you're not doing too much work now. But that's part of being a business person is actually extracting yourself from the business. That's what makes the business more valuable to sell to someone else. If you're just selling somebody a job that's not very valuable, you've actually got to be able to take yourself out of the business and have it generate money without you. The other option, assuming you can do that, that you can hire managers and, and extract yourself from the business, is you can just take the income from the Subway franchises and live off that. Especially if there's some debt associated with it now and you pay off that debt over the next few years and so you're getting a lot more cash flow up from it. Maybe you don't have to sell the Subways at all. You can just live off the income from the subways. And the nice thing about that, at least under current law, is when you leave those subways to your heirs, they get a step up in basis and nobody pays capital gains taxes on the gains from that business. So those are some thoughts on it. Certainly this decision to not have a retirement account is very reasonable. A lot of dentists actually do the exact same thing because they don't want to put a bunch of matches into their employees retirement accounts and they don't want to pay the expenses of keeping a 401 in place. And so they just don't. They invest in taxable and that's how they invest for retirement and that's perfectly fine. Naturally, your husband can also take some of those earnings he has now, assuming you're not spending them all, and he can put that money into a taxable account. Just because you can't invest in a retirement account doesn't mean you can't invest it for retirement, of course. Okay, our next question comes from Brian.

Dr. Dali, thank you so much for all you do.

I was hoping you could weigh in.

On the debate over domestic versus international stock allocation. Specifically, how did you come to your chosen percent allocations to the general categories of US versus foreign equities? It appears from your 2012 and 2017 WCI portfolio posts that you've chosen a 2 to 1 domestic to international stock portfolio or 66% US to 33% international. I've spent hours reading various arguments over the need or lack thereof for international stock exposure. It appears the range for international percentage is anywhere from 0% up to market weight. In the end, the debate on this topic will likely continue on, but I thought it would be helpful to get your thoughts. Thanks again.

All right, I think you've correctly identified the issue and the range of what people say out there. Some people say you don't need any international equity at all. Others say it should be market weight, which these days I think is less than 50% given how well the US has done. But it wasn't that long ago that something like a market weight was 55 or 60% international, and I suspect in the future it once more will be a majority international. If you wanted to be more market weight, I would say there is a range inside of that that is reasonable, and I think a reasonable range is 20 to 50% of equity. Okay, so if you've got 60% of your portfolio in stocks, then perhaps anywhere from 12 to 30% of your portfolio is in international stocks and that's probably a reasonable range. Now mine is 1/3 International, 2/3 Domestic. It's been that way for a long time. The reason I made it that way originally is it seemed reasonable to me. I didn't want market weight because I knew I was most likely to retire in the United States and be spending dollars and so I wanted to overweight the United States a little bit. I also like the United States for a lot of other reasons. I think it's a great place to have a business. I think it's particularly good related to, compared to a lot of countries as far as how it is regulated. So I think there's some really good arguments to overweight the US for a US investor. But at the same time I wanted the diversification available from investing internationally. And so I ended up with 2/3 US, 1/3 International. It's about right in the middle of that range of what I said was reasonable. It's about right in the middle of that range that you've heard of people, of what people actually do. But there's no magic to one third international. There's no argument I can make that 33% is better than 28% is better than 38%. Right. The key though is to recognize that there will be times when the US Outperforms international and there will be times when international outperforms the US and so I think the most important thing is that you pick a percentage and you stick with it, recognizing that each of these asset classes is going to have its day in the sun. Over the long run, returns are probably going to be pretty similar, but you want to own both of them and rebalance periodically to take advantage of the fact that from time to time one will outperform the other. Over the years there has been increasing correlation between US stocks and international stocks, but I don't think it's increased so much that there's no value at all to international stocks. I think you can still make a very case to have some international stocks in your portfolio, but how much you hold is really up to you. I identified what I thought was the reasonable range, 20 to 50% of equity and, you know, so pick a number in there, stick with it in the long run and I'll bet you'll be glad you did. Next question comes from Aaron about student loans and how much to take out if you think you're going for PSLF.

Hi Dr. Dali, I appreciate your podcast. I just have a question. If I'm a health care student on HPSP military scholarship and my school allows me to take out as many direct and Grad plus loans as I'd like, and I'm already committing four years to public service and the idea of staying in the military or finding another public service job to hit the 10 years is a possibility, what would hold me back from maximizing my student loan disbursements so that I'm maxing my return on investment by doing public service loan forgiveness? I know this question Rubs people wrong. Because there's an ethical dilemma here as far as student loan forgiveness and, you know, cheating or playing the system to your benefit. Anyways, just love to hear what you think about that. Thanks.

Let's talk about your situation in general, this situation in general, and then talk about your situation specifically. Number one, I don't like this. I don't like that people even think about this. This is what we call moral hazard. Not because we're talking about moral and immoral, but the term refers to incentives. It's an economics term. It refers to incentives when people are incentivized to do something they otherwise would not. For example, if you think you're going to get your student loans forgiven, you are incentivized to take out more student loans than you need than you would otherwise take out if you were not expecting them to be forgiven. And that's moral hazard. It's a, it's a side effect of poorly written policy, really. And so I hate the fact that people are even thinking about this, but people are thinking about it all the time. I hear this question very often of whether you should borrow more and spend more or invest more with the money than you otherwise would take out. And my general answer to that is no. The main reason why is because things change, right? A certain percentage of medical students every year don't match, for instance, and then they can't get a PSLF qualifying job, for instance. Or you end up changing your mind and you don't want to be an academic or, you know, you find a really great job or you marry somebody and they want to live in their Hometown. There's no PSLF qualifying jobs there. Who knows what's going to happen 10 or 15 years from now when it comes time to really make your decisions about what job you take and how much you want to work. Maybe you want to stay home with the kids. I have no idea. And the problem is these decision you've made as an MS.1 and how much loans you've taken out has taken away your freedom 15 years from now in how you live your life. And so I as a general think this is a bad idea. Even though you can run the numbers and show that it's a good idea, right? That if all works out, it's great that you should borrow as much as you can and get it all forgiven. I just don't think it's a good idea. The other problem you run into is you run into a moral and legal issue here with regards to student loans when you take out a Student loan. You sign a Master Promissory note. And let me read you a section from the Master Promissory Note for the William D. Ford Federal Direct Loan Program for Direct Subsidized Loans and Direct Unsubsidized Loans, basically the federal loans you're taking out for medical school. If you go down to the section under borrower requests, certifications, authorizations and understandings that you sign your name to, at the bottom of the form, you will read this paragraph. Under penalty of perjury, I certify that I will use the loan money I receive only to pay for my authorized educational expenses for attendance at the school that determined I was eligible to receive the loan. And I will immediately repay any loan money that is not used for that purpose. So can you take student loan money and invest it? No, not legally. You just signed under penalty of perjury that you would not do that. It's against the contract. And so I recommend people don't do that because it's illegal. Now, are they going to find out? Probably not, right? I don't know how they're going to find out, but that doesn't mean it's not illegal. Now let's talk about your situation in particular. You're there under HPSP scholarship, meaning the military is paying every dime of your educational expenses. They're paying all the tuition, all the fees, all the equipment, any required equipment or books is paid for. Right? I was on HP Scholarship. HPSP Scholarship. I know how it works, right? They bought me a stethoscope and they bought me an otoscope and an ophthalmoscope, and anything the school would say was required, they bought for me. And I got every dime out of them that they were on contract to give me. But you know what? They got every bit of time out of me that they, that I contracted to give them. It was mutually, whatever you want to call it, relationship, whether you want to call it a predatory relationship or whether you want to call it a business relationship. We certainly got everything out of each other that we could possibly get out of each other. You know, the issue I would have is signing a promissory note that says I'm going to use loan money to pay for my authorized educational expenses when somebody else is paying for my educational authorized expenses. It seems really hard for me to get a bunch of money from the military and also certify that I need this money to go to school. I don't know. I'm having a hard time, you know, feeling good about signing that note for that purpose. Even though your scheme would seem that it would work out fine, right? Because you go do a military residency for three or four or five years, right? And then you owe them four years. Maybe you stay another year after that and all those student loans are forgiven. Maybe you come out $300,000, $400,000 ahead, but basically you've got a lie to do it. So I'm going to recommend against doing that. And the truth is, you know, there's some risk there, something happens in your life and such that you can't serve in the military, or you just want to get out at all costs and you don't want to finish the time required to serve in the military and get pslf, who knows? I just wouldn't do it. I understand why you're thinking about it. I understand what the numbers would look like if you ran them, but I think it's a bad idea for you to do so. I'm going to recommend against that. Thank you, however, for your service. Enjoy your time as a military doc. You know, enjoy the fact that they're going to pay you a couple grand a month in living expenses and invest some of that money as you go along. Take advantage of the fact that the residencies generally pay you more, that you get a great 401k with the military tsp. It even has a match now and a Roth option that it didn't have when I was in. And enjoy that special experience that it is, serving your country. Special good and special bad at times, but definitely special. And the further away you get from it, you forget more of the bad and you remember the good. So thank you for your service and good luck with medical school. All right, our next question comes in from email. As a non married, established mid career physician woman in a relationship with a man who makes considerably less. Would love a podcast on prenup versus Trust and things physician women should do to protect assets. But also that is fair to all parties. I see a lot of female colleagues on Facebook, pain a lot if the marriage doesn't work out. Would also love a podcast on how couples with income disparities split expenses. There's not a lot here that's woman specific. This works pretty much both ways. You know, if you are marrying somebody after you're already established in your career, or after you already have a significant amount of assets, or after you already have kids, a prenup is a very, very good idea. Now, if you're getting married at 20 and neither one of you have anything and you go through college and medical school, and residency together. You know, maybe a prenup's not as required. I don't know what it would say. Anyway, once you accumulate all of that together, it's going to be hard to have anything fair that doesn't split your money as well. Now, fair is very interesting to use that word. And the truth is that fair means different things to different people. Your state has already determined what is fair when a couple divorces, and you can go look it up and see what they think fair is. And you know what, how much alimony is paid depends on how long you're together and the income disparity and how much child support is paid is. Is also determined by the state. And so if you don't agree that the state's laws are fair and you both don't agree to it, then you can sign a prenup that says something else will happen in the event that you get divorced. Okay. The other thing you can do, of course, is you can put a bunch of money into a trust that's for your benefit or somebody else's benefit, such that if there's a divorce, that spouse can't get it. Now, this happens a lot with wealthy parents who maybe don't like the person their child is marrying, and they put it in a trust that the new spouse will have no access to in the event of divorce. I don't see it quite as often with people getting married, but I suppose you could do it as well. I think it's far more common just to get a prenup in that situation. But certainly you can talk with an attorney about both of those options and their pluses and minuses. You know, the downside of the trust, of course, is the expense of the trust and the limitations the trust might have on you, Especially if it is a revocable trust. Right. And the court can just force you to pull the money out of it. So it's got to be an irrevocable trust, which means now that you don't necessarily have full control over the money. So it's probably pretty well protected from your now ex spouse. But you also gave up some significant control, took on some additional hassle and expense to form it. The prenup, I suspect, is significantly cheaper. You know, a postnup is also an option, but again, you're still in the situation where you got to agree with your spouse on what it's going to say. If they don't sign it, it's useless. Right. So I hope that's helpful to you. Obviously, physicians get divorced as well, the rate of divorce is much lower than it is for the general population. Instead of being about 50%, it's about 25%. And in fact, if it's a two physician couple, it's only about 10% or so. And so we actually do better than our reputation. But there's still obviously lots of docs getting divorced out there, and almost all of them wish they'd had a prenup of some kind. But I don't know that that's necessarily different for women than it is for men. You know, I see lots of men who have gotten divorced complaining about the exact same thing and having to make huge alimony payments, so on and so forth. It's really interesting if you want to have an interesting conversation with your spouse, especially if you got married relatively young like I did. You know, it's interesting to talk to them about what something might look like, like alimony and how the assets would be split up in the event you did get divorced. What you think is fair is probably very different from what they think is fair. Good way to start a fight that way too, by the way. But you know, you might think this is really straightforward and different people have very different opin opinions on it, and that's why the state and the courts decide so many of these cases. A podcast on how couples with income disparities split expenses. Ah, I don't even like the premise of this question, and I'll tell you why. Because once you're married, I think you ought to combine all your finances until you get married. I think you ought to keep them all separate. I don't think you should pay off your fiance's student loans or make their car payment or anything like that. I think you ought to have separate finances until you get married. But once you get married, I would combine everything. All your income is no longer his income and her income or her income and her income. It is all our income. All of your assets are our assets. All of your liabilities are our liabilities, our debts, our accounts. And I think couples that do this are far more successful than those that try to keep separate checking accounts and try to keep separate investments and try to keep their financial lives separate. I think that's just asking for trouble. It's just so much stress on a marriage already without that additional financial stress of trying to keep things separate. Now, the only reason people keep things separate, aside from the fact that maybe they're not truly committed to the relationship, is because they want to have their money that they don't have to account to the other person for. And I think a better solution to deal with that is to simply give allowances. They don't even have to be equal allowances if you don't want them to be, but to give allowances. And this is a sum of money each month that you don't have to account to the other spouse for. You can spend it on whatever you like. You want to put it on baseball cards, you can do that. You want to spend it on pedicures, that's fine. You want to spend it on rafting equipment, you can do that. If you want to eat out with it, you can do that. You want to buy shoes with it, you can do that. But it's money you don't have to account to your spouse for. And we did that from very early on in our marriage. You know, I think it might have been $20 a month in the very beginning, but it was something we could spend without having to account to the other person. We actually dropped that out of our budget a couple of years ago and basically just buy whatever we want at this point. But it really served a purpose for a number of years in our marriage and there were things that it was nice to be able to buy without having to justify. So that's what I would recommend to you. I hope that's helpful. 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There are over 200 lectures and videos adding up to more than 27 hours of content by over 15 different instructors. We think it just might be the best real estate course on the planet. Continue your wealth building journey today with the no Hype Real Estate Investing course@whitecoatinvestor.com courses. You can do this and the White Coat Investor can help. Keep your head up, shoulders back. You've got this and we can help. We'll see you next time 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.