WCI #235: Pay Off Debt or Invest?

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 number 235. Pay off debt or Invest welcome back to the podcast. We're recording this on October 21st. It's going to run on November 4th. So happy November to you. Hope you're getting ready for a nice Thanksgiving. Hopefully you can get a turkey. I hear you need to get it early this year if you want to get one. Due to all the supply chain snafus going on in the world right now, at some point in our financial lives it will be time to buy a home. A physician mortgage can be a good vehicle for a young doctor who's just out of school and has a more effective place to use their money than on a big down payment. These loans allow doctors to secure a mortgage with fewer restrictions and a lower down payment than a conventional mortgage. But if you're further advanced in your career or deeper into your journey to financial freedom, buying a home with a conventional mortgage and then later on potentially refinancing that loan to a better rate with a shorter timeframe could be a great move. Wherever you are in your financial journey, make sure you use the mortgage that will be most financially beneficial for you. Hop over to our recommended tab to learn more about all of your mortgage and refinancing options@whitecoatinvestor.com mortgage. You can do this and the White Coat Investor can help. All right, lots of new things going on these days. We need some champions. What's a champion? Well, a champion is a first year medical or dental student who's willing to pass out books, free books to their classmates. The White Coat Investors Guide for Students we're giving it away to every first year medical and dental student in the country. But the way we're giving it away is by sending it to one person in your class and having them pass it out so you can sign up for that. All you have to do is go to whitecoatinvestor.com champion and sign up now. We don't need 10 people from each class, but we do need one person from each class. We did this this spring and gave it away to about three quarters of the medical and dental students in the country, but that means there's a quarter of them that didn't get it, so I don't want that to happen again. This year. So if you'd like to be the champion, please do that. We'll send you a WCI T shirt for your efforts. If you send us a picture of you and your classmates with the books, we'll even send you a WCI Tumblr. So it's a great book, it's super use. It's written exactly for you. You are the target audience if you are a first year medical or dental student and you can have it absolutely free for you and your classmates. Now, this sort of information early in your career might be worth a couple million bucks to you combined with your high income. And so multiply a couple million by the hundred or 200 people in your class. That's a lot of value and it's coming to you absolutely free. Whitegoinvestor.com champion don't forget end of this month is the due date, the deadline for signing up for WC icon 22, the Physician Wellness and Financial Literacy Conference. Whether you're coming in person. And I recommend you sign up sooner than that if you're coming in person because the hotel block is going fast and that'll sell out before the conference does. So if you actually want to stay at the conference hotel, you need to sign up asap. But if you want the swag bag, whether you're coming in person or whether you're coming virtually, you have to sign up by December 1st. Those books have to be printed. We need time to print em before the conference starts. So that's the last day. If you don't sign up by then, you don't get the swag bag. If you're coming virtually, we're going to mail it out to you. You'll have it before the conference starts. If you're coming in person, it'll be there for you when you get there. But if you haven't signed up yet for the conference. Whitecoatinvestor.com WCICon22 all right, we need to talk about Public Service Loan forgiveness. I ran a blog post about this a couple of weeks ago. So those who also follow the blog have heard about this, but there's been a bunch of changes to Public Service Loan forgiveness that basically makes it easier to qualify. So some people that otherwise were not qualifying now do. They're calling this a limited waiver, but it comes with a deadline. In order to qualify under these new changes, you have to have consolidated your loans consolidated, not refinanced, but consolidated your loans by October 2022. So the deadline's still a year away, but you do need to do some things in order to qualify for this. So the main thing is FFEL loans. Payments you made under the FFEL program now count if you consolidate those loans into a direct loan by October 2022. So this is really big, right? These previously did not count and now all those payments count toward your 120 payments. Remember the Public Service Loan forgiveness requirements. You got to have qualifying loans, direct loans. You have to have a qualifying employer, a nonprofit, or a 501. You have to be working full time. You have to make 120 on time monthly payments. All right, those are the requirements, but they're loosening them. You still have to have a qualifying employer, but now FFEL loans count, which they did not in the past. In fact, payments you make under any payment program now count. Even if you made them a few days late, even if they were a few dollars short, they count. Now obviously this sort of a change comes with more questions than it does answers. So we're getting all kinds of questions on the blog from people who are wondering about their unique situations. If you need some help with this, the best person to contact is Andrew Paulson@studentloanadvice.com and for an hour of your time and a few hundred bucks, he'll help you through all your questions. So be sure to check that out if you have any questions about this. All right, so that's the main change. There are a few other things though. If you are in the military and you put your loans in forbearance, which is usually the wrong move, admittedly, you're going to get a mulligan on this. If you put your loans in forbearance every month you're on active duty counts as one of your 120 payments, even if you never made a payment. So it's a huge benefit for the military. I hope you enjoy that. I feel a little bad for those who made their payments and then found out later on that those payments would count even though they didn't make them. But for those who didn't make their payments, this is a huge boon for you, so be sure to check that out. Obviously, if you've already refinanced your loans with a private lender, those payments aren't going to qualify for Public Service Loan Forgiveness, so keep that in mind. So why are they doing this? Well, apparently the Department of Education found an obscure passage in the Heroes act of 2003 that allows it to waive certain federal student loan rules during periods of national emergency. And the COVID Pandemic qualifies. So the national emergency is scheduled to end Halloween 2022. So you have until then to take advantage of these emergency changes. So what should you do? Well, first thing you should do is find out what loans you actually have. So go to studentaid.gov, scroll down to the loan breakdown section, look at the names of the loans. Right. If it's Direct, you're already good. If it starts with ffel, these are the ones you need to consolidate into a Direct loan. Same with Perkins Loans. If you have a Perkins Loan, that needs to be consolidated into a Direct loan by the end of next year for those payments to count. And then of course, once you found out that you have those loans and you've consolidated them, you also have to apply for Public Service Loan Forgiveness using the standard Public Service Loan Forgiveness form, which is very easy to find online if you just Google those words. But if you need help with any of this, studentloanadvice.com and Andrew will help you with that. All right, let's get into some questions from you guys. This one comes from David, and I think this is the one we named the episode after. So let's take a listen to David's question.

Hi, Dr. Dali. My wife and I, we're both about 40 years old, we're both physicians, and our current net worth is about $4 million. We max out our 401 plans. We do backdoor Roth IRAs for 6,000 each. We have two kids. We put 600 per month per kid towards a 529, 800 per month per kid towards a brokerage account for each of them currently in Wealthfront. And then on top of this, we save about anywhere between 50 and $90,000 a year. I've been putting this excess savings towards brokerage account mostly and occasionally I will use some of it to pay off my mortgage, which sits at 3.5% with a balance of $900,000. The mortgage is my only debt right now. My question for you is, should I be taking the excess savings that I have each year and, and paying off the mortgage and ignoring brokerage accounts at the time? For the time being, since I have the 401k and backdoor Roth, you know, my thought was that if the stock market returns 6% even after long term capital gains, maybe I come out ahead by putting it towards the brokerage account as opposed to my mortgage. Any insight you can offer would be great. Thanks again for all that you do. It's extremely helpful.

You're killing it, David. You're Doing great. I'm sure some listeners are like, why is this guy calling? And he's just humble bragging. But, you know, you got to have those details. And the wonderful thing about the white coat investor community is, yes, we spend all day talking about first world problems, but at least it's someplace you can come and talk about your first world problems. This is actually the most common question I get. It's super common because everybody struggles with this. But I think you said it very well, right? You said, well, shoot, I got this mortgage at 3.5%. It's a big mortgage, $900,000. So I could spend a lot of time and a lot of money put money towards that, or I could make 6% or even more in the stock market or in real estate or in something else. Well, I think you said it exactly right. Maybe you earn more in the stock market or real estate or something else. Because here's the deal. That 3.5% is a guaranteed return. Anytime you pay off debt, it's a guaranteed return. Now, if that's deductible interest to you or whatever, maybe the rate's slightly lower than that. Maybe it's 2.7% or something like that, and that's your guaranteed return. But whatever it is, that's a guaranteed return. And if you look at your other guaranteed return investments out there, like a Treasury bond or something like that, it's not paying 3.5%. So that's a very attractive, safe investment for you. So the question comes down, do you need more safe investments or do you need more risky investments? So let's step back and just talk about this dilemma that everybody has, at least all those who still have any debt at all, and just give you some general guidelines on it. Probably the best advice I can give you with regards to the payoff debt versus invest question is to avoid the extremes with this question. 95% of the time there is no right answer, but 5% of the time there is. So don't botch it. That 5% of the time. For example, if you're giving up an employer match in order to pay off debt, you're making a mistake, you're leaving part of your salary on the table. Likewise, if you're carrying around 30% credit card debt in hopes that your investments are going to outperform it, you're making a mistake. But for just about everything else in between, I can come up with a situation where it makes sense to invest, but I could also come up with a situation where it makes sense to pay off the debt, no matter what kind of debt that might be. So these are both good things. It's good to pay off debt. That is a good thing to do. It builds your net worth. It is good to invest. That also builds your net worth. So it's not like one of them's wrong, one of them's right. They're both right at its worst. One of them's a little more right than the other, and if you can't tell which one is better for you, it probably doesn't matter much. So don't worry about it. You could even just split the difference between the two, but don't let it paralyze you from doing either right. Because what happens to a lot of people is they don't invest, they don't pay down debt. They just leave the money sitting in their checking account. That's the wrong move. Do one or the other, but make a decision. This decision is not going to be the one that decides whether you're going to be financially successful or not. The most important decision in this regard is what percentage of your income is going toward building wealth. Whether that's investing or whether that's paying down debt. That's far more important than exactly how much of it goes to which of those. So, but let's talk about seven principles that help you determine whether you should pay off debt or invest. The first one's your attitude about debt. If you hate debt, then you're going to lean more toward paying off debt. Likewise, if you have a low risk tolerance, you're going to lean more toward paying off debt because that's a guaranteed return. If you have a very high risk tolerance, you may want to invest more aggressively. And even doing it on margin, which is essentially what you're doing anytime you have debt. The third one is your available investment accounts. Okay, this had a major effect on how we made our choices about paying off debt versus investing. We never paid off debt unless we had already maxed out all of our tax protected and asset protected accounts like 401s, Roth IRAs, et cetera. And so it wasn't until we started looking at a taxable account before we actually started putting chunks down on our mortgage. So that should have a pretty significant effect because investments in those accounts are way better than investments outside of them. The fourth one is your anticipated investment. Right? What are you going to do with the money you don't put in there? If you're going to put it into bonds instead of paying off a 3.5% mortgage, that's dumb, right? If you're going to put it into this great small business idea you have that might pay off incredibly well millions of dollars over the years, well then it probably makes sense to do that instead of carrying around, instead of paying off a 3.5% debt, the interest rate has to play into it, right? You're smarter to pay off a 12% loan than you are a 4% or a 2% loan. Especially right now with inflation running around 5%. I mean, even if you have a 3% loan, technically right now they're paying you to have the money, even though you gotta pay interest, right? The loan becomes worth less and less every year. The sixth factor is your level of wealth, right? The wealthier you are, the less you have to worry about this stuff, the more you don't have to optimize your finances to reach your financial goals once you've already met them. In fact, William Bernstein likes to say, when you win the game, stop playing. And that's kind of the way we felt when we carried, when we paid off our mortgage. We just said, you know what, we don't have to do this anymore in order to reach our goals. So we just sent in a few checks and paid off our mortgage. But if you have a four figure portfolio and you're decades away from financial independence, maybe your priorities shouldn't be paying off a 3% or 4% mortgage. Alright, final factor as far as paying off debt versus investing is asset protection and estate planning considerations. Depending on your state laws, sometimes it may sense to pay down a mortgage. If you're in Florida or Texas or a similar state with a unlimited homestead exemption, that money's all tax protected. I mean, not tax protected, it's asset protected. Whereas if you invest in a brokerage account that's totally exposed to your creditors, and then of course you know it. Also, there can be some estate planning considerations. Imagine you're old, you've got some taxable investments with low basis. Do you sell those investments to live off of or do you borrow against them? You know, one of them has a tax bill, the other one has an interest bill. And you have to weigh those two factors against each other. And so in that case, it might be better to leave the money invested and take out additional debt. It's kind of a tax play that way. So if you need some specific instructions, Let me give you some specific instructions, but realize that these are not set in stone. You know, reasonable people might disagree slightly about them. But if you follow this, you're going to do fine. Step one make sure you get any employer match. Step two pay off high interest debt. If it's 8% or higher, that is a fantastic guaranteed return. Step three max out your available retirement accounts. Right, if you're in your peak earnings years, we're talking about tax deferred accounts. If in your non peak earnings years we're talking about tax free or Roth accounts. You might even consider non retirement tax protected accounts if they're aligned with your goals, like an HSA, a 529, a UTMA, that sort of stuff. Stuff. Okay. Step 4 Investing in assets with high expected returns. Obviously it makes sense to do that. If you're not going to get a high expected return, paying off debt starts looking a lot better. Next, I'd pay off moderate interest rate debt, 4% to 7% kind of debt. Next I would invest in assets with moderate expected returns and then I would pay off low interest rate debt and finally invest in assets with low interest rates expected returns. Hopefully that's helpful to you to have a list that will allow you to know what to do in this situation. Just realize you shouldn't stress a lot about it. Just do something. Concentrate on how much of your income is going toward wealth building and don't stress too much about how much of it goes toward debt and how much of it goes toward investing. Hope that's helpful, David, both to you and to other listeners. All right, let's take our next speak pipe we got here. This one's about money sitting in a Savings account.

Hello Dr. Dali, my name is Bea from the East Coast. I'm new to finance and I have been reading your books and listening to your podcast to gain more financial literacy this year. I'm three years out of training and I practice in primary care in a high cost of living area. We are a household with a gross income of 390k between me and my spouse. Thanks to your help so far I have started maxing out my 401k. I opened up an IRA and did a backdoor conversion to Roth this year and I also started a 529 plan for my children. I'm taking baby steps. I do not have any other investments. I have a primary residence home which I am paying for the mortgage monthly. My question is I shamefully have 150,000 sitting in my savings account. Can you give me some advice on what to do with this money? I do not have any plans to use them soon. I would like your advice on some ways that I can invest this money long term with relatively low risk. Thank you for your time to answer my question.

All right, first of all, don't feel shameful about your finances. You're doing awesome. You make $390,000 a year. You've got $150,000 in cash. You're maxing out retirement accounts. You're saving for college. You're doing awesome. So don't feel ashamed about any of this. Now, is leaving that money sitting in your checking account the very smartest thing you could do? Probably not, but there's lots of dumber things you could do with it. So don't beat yourself up about it. What should you do with it? Well, I know we all like to be told what to do. Like there's an exact answer. But as you just heard with the previous caller, there's not an exact answer. It really comes down to your goals. So you got to look at your goals and how long you need you want until you reach them and how much money you're putting toward each of those goals every year. For example, if you have a goal to have a certain amount in retirement at a certain date, then you can calculate backwards and determine how much you need to put toward retirement each year. Now, if just putting Money in your 401 and your backdoor Roth is not enough money to get to that goal, then you need to invest more money each year toward that goal, even if you have to do it in a taxable account. And so this really comes down to your financial plan, and you need a financial plan. Now, you might have other goals. For example, college, Right? You might want to have a certain amount for college at a certain time. And so is the amount you're putting in there adequate to get there with some reasonable assumptions? If it is, then you don't need to put more money toward that goal. If it's not, you might need to put more money toward saving for college. You might have a goal to pay off your mortgage early. Well, how much extra do you need to put toward it every year? If you're not putting enough toward it, how much? Then some of that money might need to go toward that. But if you're looking for low risk investments, paying down that mortgage is probably the lowest risk investment you've got. I mean, it's got a guaranteed return. And so maybe that's the best way to go for you. But you really have to look at this as an entire financial plan. If you need help getting a financial plan, there's really three ways to do it. One's hire a financial planner. We've got a list of them. Whitecoatinvestor.com under our recommended tab, there's a financial advisor. One you can hire someone to help you draft a financial plan. It'll cost you a few thousand dollars. The second option is take our fire your financial advisor online course, right? That's 800 bucks. But you can even buy a version for a little bit more. That'll give you cme. You can use your CME funds to buy it, but basically that'll help you learn to write the plan yourself. The great thing about that is, well, you know it in and out because you wrote it. And so I think that's a really great way to do it, especially if you don't want to pay a few thousand dollars to a financial advisor. The third way is just become a hobbyist. You know, consume financial information like crazy, read books, follow blogs, participate on the forums, et cetera, and eventually you're going to go, you know what? This isn't that hard. I can write my own financial plan. That's kind of what I did. It takes the most time and hassle, but it is the cheapest, right? Blogs are free. Books are very cheap. It's super cheap to do it that way. But it does take some time and some hassle. So you just have to weigh which one of those ways is best for you to get a financial plan in place. But it sounds to me like you need a financial plan to help you decide what to do with your money. All right, we've got a guest we're going to bring onto the podcast here. Let's bring him on. All right, our guest today is Joe Ollis. Joe's the chairman of the board and advises the Peak Housing REIT as the investment officer for the company. He co founded and served as the COO of SmartCap prior to this, where he did 11 syndications as well as running four funds, and, and then connected with the Peak Group primarily to diversify into single family homes. So single family home investments is what Peak does. They have a real estate investment trust REIT called the Peak Housing REIT and have been partnering with us because, you know, they have some great investments and they're looking for great investors to invest in them. So, Joe, welcome to the White Coat Investor Podcast.

Well, thank you very much. It's nice to be here, Jim, and nice to have a chance to talk with you and your audience, and thank you for that nice introduction.

You're very welcome. So the Peak Housing reit, tell us what's unique about it. What's different about this compared to A lot of other opportunities out there.

Yeah, no, that's great. Thank you. Well, the peak housing REIT is a investment into the single family rental marketplace. And think of it as having three separate strategies built within it. The first is as a reit, we're taking investors money and we're using it to go buy single family rental homes. And those are rental homes today that might be in existence that are already rentals. We're buying from previous owners. The second strategy though is that we're building new homes. And so those new homes might be built in neighborhoods that are already existing or in whole new neighborhoods, which is often referred to as build to rent communities. And then finally the third strategy, because we're a reit, we can support what's called an upreit exchange, which allows investors who already own a rental home to contribute their home to the REIT itself in exchange for shares of the REIT in a tax free exchange. And those three strategies allows us to really aggregate a large portfolio of homes. And this is our total investment premise. With an aggregated portfolio of homes, we believe we can acquire homes for a cheaper cost than what a larger institution will want to pay for those homes in the future. With an aggregated set of larger, larger portfolio of homes, we can drive down costs, we can optimize for leasing income. And those are things that really set our REIT apart from other investment strategies pertaining to single family rental homes.

Awesome. So this is kind of a real synergy with you and the other principals in the company. You come with experience of running funds in the past and syndications, and the Bowers, Ryan and Todd, the CEO and the CCO come in with experience in single family homes and been doing that for years and years and years. So this is a little bit unique. I think a lot of the investment opportunities we've told our audience about have been multi family homes. And this one is the first one I know that we brought to our audience that is single family homes. So it's a diversification play into a different part of the market. And one that I've noticed, especially in the last week or two has been in the news a lot about, you know, the opportunities of getting into single family homes. But you guys have been in it now for. Well, the REIT's been open for 18 months and you guys have had a pretty spectacular returns since it started. Can you tell us a little bit about those?

Yeah, that's right. So we did launch 18 months ago, and in that 18 months we've had a share price increase of over 20%. And we've been paying a very consistent dividend yield on a quarterly basis to our investors. The dividend yield today is around 2%, and it will be growing as we add more houses to the portfolio and as the net operating income in the portfolio goes up.

Can you tell us how many houses are in the portfolio and where they're located?

Yeah, that's great. We have over 1300 houses in the portfolio at the end of September. We have a pipeline today of nearly 500 houses that will be added over the next three to six months. The portfolio's concentration is primarily in Texas, but we have small subsets of our portfolio outside of Texas, including Indianapolis and Springfield, Missouri.

Okay, so let's get into some of the details here. If somebody's interested in this, well, they've got to be an accredited investor. They've got to make $200,000 a year or have investable assets of $1 million or more. The minimum investment is $25,000. And then you can invest in any increment. Once you meet that, the fees on it are 1.35% a year. And then there's a 1.35% acquisition fee for each asset in the portfolio. And then there's an 8% preferred return. Above 8%, it's split 80, 20 with no catch up. Is that all correct?

That is all correct.

All right. And if people are interested in that, you can get more information@whitecoatinvestor.com peak and get more information. I just invested with Peak this week, actually, as we're recording this, and it's pretty easy, pretty straightforward. On their website portal, you just got to go in there and put in your information. You've got to, you know, obviously fund it. You've got to sign the paperwork, which is really easy, just kind of a DocuSign signature kind of thing. And then you've got to actually prove you're an accredited investor like most of these investments. But there's an easy, free way to do that. You just basically have to upload, you know, something that proves your income or something that proves your net worth. Pretty easy. I did it all in about 20 minutes, so not terribly painful. And that's how you would invest in this investment. Now, how much communication should they expect from you after they invest? Can you tell us about that?

Yeah. So thank you. We do have somebody that handholds along the way when you are investing, so if there are any questions, you don't hesitate to reach out to us. Now, after you have invested, you should expect to hear from us monthly with a quick monthly update which will include commentary from me or from other principals pertaining to the operations and the net operating income of the portfolio, what houses are added, what we believe the strategy will be going forward, etc. And then on a quarterly basis, in addition to that monthly update, you'll also receive unaudited financials coming from our fund controller. Finally, you'll receive your 1099 dividend statement early in January, and close to the middle of the year, you'll receive the full audited financials for the reit. And so there is a lot of communication that comes from our company and we like to say we're operating in a similar strategy to what a publicly traded REIT would be operating, but we still are private.

Awesome. So this is another great benefit of the particular structure you've chosen for this fund. You know, instead of getting a K1 in March or July or September, you know, requiring you to file an extension on your taxes, you get a 1099 in January or February. It's far easier to deal with on your taxes. Cost you less in tax preparation or in your own time if you're doing your own taxes and doesn't cause you to have to file in a whole bunch of different states and file extensions and all of that. So tax wise, this is about as easy as it gets in private real estate. So I appreciate that for sure. I just got done filing my 2020 tax taxes this last week and I ended up filing in nine states cost me way more money. This is my first year paying somebody else to do it. Way more money than I expected it to be. And so I can totally understand the pain some private real estate investors have if you've got investments spread all over the country in the tax preparation. But a 1099 from a REIT, that's pretty darn easy to deal with. So I appreciate that. What else should investors know about this opportunity? Joel?

Well, I think one of the unique things about the peak group and our peak housing REIT is that we are a full vertical aligned company for the operations of the REIT itself. So what that means is not only are we managing the reit, but we also have within the vertical a property management company, a title company, a construction company and a maintenance company. And what that allows us to do is to really streamline operations, have a lot of central control, and also reduce costs. And so that's a very unique strategy to REIT from some other similar type operators.

So with the move of investors, this has kind of been a Mom and pop investor space for a long time in single family homes. And it seems like institutions like this REIT are getting more and more into it all the time. What effects do you think that'll have on the market, both for people wanting to buy homes and for investors?

Yeah, that's a really good question. That's something that we take very seriously and think about a lot. So the, the, what I call the ESG component of our business. So let's first kind of start at the macro point and then talk down to what we're thinking about internally within the reit. So the first point at the macro, you're right. Right now over 96% of all single family rental homes today are owned by what would commonly be called to, as a mom and pop investor. We refer to that as somebody who has 10 homes or less in a portfolio of rental homes. It is that remaining 4% is the true institutions. We believe between now and the end of the decade that we're going to see that 4% grow to be between 15 and 30%. So there's a lot of people that are coming into this space and when I mean people, I mean these institutions and that's where that aggregation strategy comes into play that I'm referring to. So from a cost perspective though, what is that doing to the average homeowner? Well, we're buying houses that are already rentals. That is one thing that we clearly want to kind of articulate here. The second is we're also building new houses. So if you think about the pricing today, why houses are so, so expensive, most of it is being referred to as the supply constraint, which has been as a result of the last 10 years of, under development of new homes. So we're trying to help with that from the standpoint of building new homes. But finally, the houses that we're buying are houses that are really renting for this what I call median income component. So think of somebody that might be moving beyond a multifamily apartment to wanting more space for their, their kids or their dog or their toys that they put in the garage. And it's still affordable. So we target that 30% of median income as our rent. And that 30%, by the way, is much lower than the publicly traded REITs. We're targeting that 40 to 45% median income. What that means is we are playing in the realm of really providing a service for many of these middle income earners that might be trying to save money for their own down payment on a house while having a good experience of living in a single family house that has more amenity and more space.

Awesome. Well, Joe, thank you for your time and for coming on the White Coat Investor podcast. This has been a discussion with Joe Olis. He's the CIO of, of the Peak Housing reit. If you're interested in learning more about that or investing in the Peak Housing REIT, you can do so at whitecoatinvestor.com Peak P E A K. Thanks again, Joe.

Thank you. Have a great day. All right.

I hope you enjoyed that. It's kind of a unique investment, right? $25,000 minimum is a lot lower than a lot of our other partners. In fact, one of them, dlp, is going up or just went up, I guess, by the time you hear this from 100,000 to $200,000 minimum. And for a lot of docs, that just prices them out of this market. So here's a chance to get in at 25,000. And you know, if you're interested in single family home investing, if you're interested in that diversification, play that part of the real estate market. This is a great opportunity, right? If you don't want to manage tenants, if you don't want to pick the houses yourself, you don't want to maintain them or manage them or deal with any of that, you know, 3:00am toilet calls is the infamous thing. This is an easy way to get into single family homes without having to deal with any of that. All right, let's take our next question. This one is another invest versus debt question, another variation on the theme. So let's take a listen.

Hi, Dr. Dali. I'm an endocrinologist in Houston with a growing family. I'm putting about $5,000 a month into a savings account to buy a home in about 12 to 18 months from now. Since the savings account hardly pays any interest, would it be wise to invest in a taxable account for the time being? Can you give a few examples of ETFs or type of investments that I can consider? Thanks.

All right, great question. Well, why don't you just split it between Bitcoin and Ethereum and put it in there? No, I'm just kidding. Money you need soon, money you need in 12 or 18 months, you really shouldn't be taking much risk with now. I know it sucks to not earn much on your money, right? If you're putting it into something that's very liquid and very low risk, it's not going to pay you very much. And in fact, with inflation running right now about 5%. You're losing money on a real after inflation basis in any of those sorts of investments. Whether you put it in savings bonds or whether you put it in a short term bond fund, or whether you put it in a money market fund or a high yield savings account, it's all going to be about the same. You're going to make half to 1%, maybe 1.5%, and that's it. So you're essentially losing money under an after inflation basis. But if you need this money to buy a house in 12 months, or you need this money in four months to pay your taxes, or you need this money to buy a Tesla in six months, that's not money you take a risk with. The money you're taking risks with is money that you don't need for retirement for 20 years or money your kids don't need for college for a decade. So there's really three things to consider when we're talking about short term investing. And I recommend you take a look at a blog post I did on this whitecoatinvestor.com short term investing. And I've got a whole blog post that basically is written for people with questions like yours. But the first thing to consider is liquidity, right? If you need the Money at exactly 12 months from now, you better keep it very liquid, right? If the money, you don't really need it in 12 months, you wouldn't mind putting off that house purchase till 18 months, for example, then maybe you can take a little more risk with it. Maybe you can put it into a short term bond fund or even a balanced fund with some stocks and some bonds in it. Maybe you could do that if it really doesn't matter, if you don't need it right at that moment. But there's some things that are very illiquid that you wouldn't want to use, obviously, right? You wouldn't want to go invest it in real estate down the street, right? That's terribly illiquid. You want it in something that you can get your money to right away. Now, stocks and bonds and mutual funds all qualify as being liquid enough for this purpose. But in that case, it's more about the amount of risk you're taking. So the second thing is that risk issue, right? The risk of loss, how big of a deal is it going to be if you lose some of this money between now and 12 to 18 months from now? If it's not that big of a deal, then maybe you can take more risk with it. Maybe a short term bond fund or A balanced fund would be fine with you if it doesn't bother you. If you lose 5 or 10% of that money over the course of the next year, then you can probably go ahead and take a little bit more risk there. But putting it all in stocks, that's probably not very wise. The annualized return over the last century is basically about 10% on the stock market. But that ranged anywhere in any given year from 54% to minus 43%. Right? That's a lot of risk for money that you're going to need in a year. You wouldn't want to take that because in this case, the return of your principal matters a whole lot more than the return on your principal. And so as you look at other types of investments outside of stocks or real estate, you'll see that you can get a whole lot less volatility, a whole lot less risk of loss in the short term by dialing way back on the amount of money in stocks and dialing up the amount in bonds or cash. And then of course, the final thing to consider is the consequences of loss. You know, how big of a deal is it if the money's not there in a year? So if you need the money very liquid, you can't lose any of it, you know, because you can't deal with the consequences or you can't risk that, then you're stuck, you know, you're stuck in your savings account for the next 18 months, and that's okay. That's where I put my short term savings. So it's not a big deal. But keep that in mind. A lot of people just can't stand only making 1% on their money, and so they put it into stocks and sometimes it pays off, sometimes it doesn't, right? Or you can take even more risk and you can gamble. You can put it down on the roulette table or you can put it in bitcoin for the next year. But I tell you, bitcoin in a year, no matter how you feel about bitcoin, long term, bitcoin for one year is a huge risk, Right? You could easily lose a big chunk of that money. And most people aren't willing to do that with something they need for a short term savings goal, like buying a house in a year. So I hope that's helpful. All right, let's take our next question. This one's about the new tax bill.

Hey, Dr. Dali, my name is Eric from Arizona. Thanks for everything you do. I recently finished Your podcast, number 230, about the tax bill. For high income earners. You briefly mentioned that you have already written to your representative to oppose this bill and I wanted to know what your thoughts would be in sharing this email through your blog post so we can all have access to it and then with a quick editing make it our own and then we can each one send it to our representative and hopefully have an impact on some of these tax bill changes. Thanks for everything you do. I appreciate your time. Have a great day. Bye.

I've seen lots of people do that in trying to influence legislators, et cetera, or other public events, for example, or trying to decide whether to build a gondola in my backyard these days. And so everybody in the neighborhood's up in arms about it. But in my experience, the ones that really work, the emails that really work, the letters that really work, and I think letters do work better than emails by the way, are the ones that are personalized that talk about the things you actually care about in the tax bill. I think a really strong argument can be made if the goal of the tax bill is to only raise taxes on people that make more than $400,000. I think you can make a really strong argument against changes to the backdoor Roth IRA, because lots of people that only make $200,000 use the backdoor Roth IRA. Now, the mega backdoor Roth IRA is used by people who might only make 50,000 or $60,000 a year. And so I think you can make a pretty good argument to your legislator to not include those changes. But I was against most of the changes in that tax bill. So when I emailed my legislator, I basically just told them, hey, I don't see anything in here that is what I consider to be good policy, and told them, I know you're probably already completely against this, and my legislator is, but I just wanted to support you in that decision. A few days later I got an email back, probably written by a staff member. So I don't know that a form letter is the best way to go about it. I would keep it brief. I would say I oppose the tax tax bill and include one or two specific reasons why you do and send it off. It's a pretty quick process. How much it influences legislators, I think depends on the legislator. Some people are going to be for this no matter how much mail they get about it, and some people are going to be against it no matter how much mail they get about it. But there's probably a few people in the middle that can be swayed. So especially if you think your legislator is one of those, I would really prioritize communicating with them about this tax bill. All right, our quote of the day today comes from Seth Godin. He said, instead of wondering when your next vacation is, maybe you should set up a life you don't need to escape from. Isn't that the truth? I love that quote. All right, our next question is about Harbor Vest from Vanguard. We'll take a listen to that.

Jim. I just got a letter from Vanguard announcing their association with a private equity fund called Harbor Vest. Do you know anything about this? Thanks.

You must have gotten that email from Vanguard because you're doing very well. It sounds like this is a partnership between Vanguard and Harborvest. Harborvest does private equity investments. I'm not a huge fan of private equity investments. I find the space pretty opaque when I'm looking at small companies or new up and coming companies. I like it to be a company I can actually influence in a space that I know more about than the vast majority of other people. And I don't know if that's necessarily the case when you're just investing broadly into private equity. So I don't have any investments in private equity fund or et cetera, anything like that. But this one, I believe Vanguard's requirement, or whether it's Harbor Vest requirement is you have to be a qualified purchaser. Qualified purchaser is a higher standard than accredited investor. You have to have basically $5 million in investable assets. And so that's who they're aiming it at is institutions and qualified purchasers. If you are interested in having that asset class in your portfolio, you want a slice of your portfolio, 5% or 10% in private equity, this might be a decent way to do it. I don't have that asset class in my portfolio. I don't know that I need to add it. I haven't been super impressed by the data I've seen on it. But if you are convinced that private equity should be added to your portfolio, Vanguard's usually a lower cost option to add something like that. So I'd take a look at it and see if you're interested. I don't know anything particularly bad about this particular option, but I don't know anything particularly good about it either. I just don't have a lot of exposure to Harbor Vest. But that's what's going on at Vanguard. With that, at some point in our financial lives, it will be time to buy a home. A physician mortgage can be a good vehicle for a young doctor who's just out of school and has a more effective place to use their money than on a big down payment. These loans allow doctors to secure a mortgage with fewer restrictions and a lower down payment than a conventional mortgage. But if you're further advanced in your career or deeper into your journey to financial freedom, buying a home with a conventional mortgage and then later on potentially refinancing that loan to a better rate with a shorter timeframe could be a great move. Wherever you are in your financial journey, make sure you use the mortgage that will be most financially beneficial for you. Hop over to our recommended tab to learn more about all of your mortgage and refinancing options@whitecoatinvestor.com mortgage. You can do this and the White Coat Investor can help don't forget about our Champions program. This is our biggest outreach program of the year. We are trying to give away 20 or 30,000 books the White Coat Investors Guide for Students. If you will help us do it, sign up whitecoatinvestor.com champions. You got to be a first year medical or dental student and if so, we'll send you the books and a T shirt and a tumbler for your efforts. Don't forget about WCICON 22. You can sign up@whitecoatinvestor.com WCICON 22 Last day to get the swag bag is December 1st, so make sure you sign up before then. Thank you to those of you who are leaving us a five star review and telling your friends about the podcast. Our most recent one comes from Billy who said Life change starts with education. Doc does a wonderful job explaining challenging financial concepts, topics and individual questions. Even though I'm not a physician, as an airline pilot with a relatively consistent good salary for many years, I can benefit from the Doc's podcast and advice. I love the concept of goal based financial planning and knowing that life is not all about money and you take nothing with you. The better you save in the young years, the more you can give in your later years. As Morgan Housel, a WCI podcast guest says, save like a pessimist, invest like an optimist and stay the course. I agree with that. That's good advice. Keep your head up, shoulders back. You've got this and we can help. 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.