WCI #288: Real Estate Q&A

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.

This is White Coat Investor podcast number 288, real estate Q& A. As a white coat, you have valuable knowledge. Various companies want that knowledge and they're willing to pay you for it. That's why we put together a list of recommendations for companies that pay you to take surveys. If you're looking for a profitable side gig for not too much effort, getting paid for surveys could be the perfect solution for you. You can make extra money, start a Solo 401 and use your medical knowledge to impact new products. One of the WCI columnists makes an extra $30,000 a year just doing these surveys. Sign up today and use a fraction of your downtime to make extra cash. Go to whitecoatinvestor.com mdsurveys. You can do this and the White Coat Investor can help. All right, well, it is now October 25th. This episode will drop on November 10th. You may be interested to know that this is actually the second time we've recorded this episode. In fact, we discovered that about eight podcast episodes we recorded a few weeks back had some sound issues and we didn't want to give you crappy sound. So we recorded all the podcast issues and we're almost done recording those. You know, it just so happened that we had to put a whole bunch of them together because Cindy was actually going out of town for three weeks. As I record this, she's in Italy, deserving a well deserved three week vacation there. But just before she went there, Katie and I were in Bosnia. And as soon as she gets back, we're going to California. So the only way to cover all these podcasts for that time period was, unfortunately, to record them all at the very beginning before these trips. And then when you have a sound issue, of course you end up with having to redo them. All good times. Of course it gets worse because I have a cold now and so, you know, I was sounding very nasally, but thanks to the miracle of Afrin, hopefully my voice sounds okay to you today. You know, I can totally understand how people get addicted to that. By the way, never use Afrin for longer than three days. And even then you're probably going to get some rebound congestion from it. But it really does help a lot. So hopefully it helps this recording. By the way, we fired Cindy. She is no longer the podcast producer. We now have Megan as a podcast producer. She has been promoted. She was an executive assistant with us for a long time. She still has some of those tasks, but she is also now the full time podcast producer. So give her a shout out when you record speak pipes these days. She'll love it. Thanks, obviously to Cindy for years and years of service as the podcast producer here. We didn't really fire her. Her time here at the White Coat and Bell has been one constant pattern of taking hats off her head. When she first started, she had about 12 hats that she wore and we've gradually taken them off her head and asked her, well, what job do you actually want? And so she is in charge of our partnerships and she maintains a lot of the relationships we have with our sponsors and advertisers. And that's what she's chosen to do. And so Megan's doing this job and so far she seems to be enjoying it. So be nice to her. Give her kudos for what you enjoy about the podcast. All right? Speaking of kudos, you deserve some kudos for what you do. It is not easy being a high income professional. Whether you are a physician, whether you are a dentist, whether you're an optometrist, a podiatrist, a pa, an np, whatever you are, your job is not easy. You probably went to school for a long time. You probably have a whole bunch of hassles and administrative junk you got to deal with these days. And it's not easy and sometimes not even the patients appreciate it. For those of you in the medical field, so let me be the first to thank you for what you do. If you're feeling underappreciated today, just know that there are people out there that do appreciate all the time and education, training and expertise that you have developed. In fact, we appreciate people so much that we are trying to make sure they're financially educated from the very beginning of their careers. And the main tool we have for this, and the best idea I think we've come up with in a long time, is what we call the WCI Champion Program. And what the WCI Champion Program is is a huge book giveaway. We are trying to give a copy of the White Coat Investors Guide for Students to every first year medical and dental student in the country. And the way we do that is that we need a champion from the class to give the books away. All you have to do as the champion is tell us your mailing address, tell us how many people are in your class, and pass out the books when you Give them. It's super easy. And if you'll do it, not only will you get a T shirt, and, you know, if you send us a picture of you and your class with the books, you get a yeti tumbler, but you get a free copy of the book yourself. And most importantly, you get to be a hero to your class. Because when you add up the financial difference this is going to make in the lives of your classmates and multiply it by the number of classmates, we're talking hundreds of millions of dollars of difference in the lives of physicians that you will make by distributing this book. So if you would be willing to do that, Please sign up whitecoatinvestor.com Champion. We only need one person from each school, but we do need one from each school. Last year we only got it out to, like, 70% of the schools. More of the students, since the big schools are more likely to have a champion. But it sure would be great to get this to every first year medical and dental student in the country this year. So Please sign up whitecoatinvestor.com Last year, we gave away 29,000 books. That's like more than $850,000 in value, and we'd love to beat that mark this year. Okay, another place that we need your help is we have a special episode coming up for Thanksgiving that we're going to be recording soon in which we are going to be focusing on gratitude. And we would like you to call into the speak pipe, that's whitecoatinvestor.com speakpipe, and tell us what you're grateful for this year. You don't have to use a whole minute and a half, but we'd like to include a few of those from our listener audience. All right, time for me to put on my humility hat and admit that I make mistakes. We've got some corrections, and as usual, forum member Spirit Rider likes to point out all the mistakes I make when it comes to taxes. And I made some in podcast number 284. It's been about a month since that ran, but it takes us time to get, you know, these corrections in and get the responses recorded. So this correction is about HSA questions. Okay, we got a question about an hsa and I gave the wrong answer. The answer should have been that spousal and dependent medical expenses are only qualified with dates of service after the date of status. Okay? So what that means is that your spouse's medical expenses can only be paid for with your HSA after you get married. Okay? So technical clarification, but it is true. Okay, another clarification. Didn't really get this one wrong, but it's worth clarifying. Medical expenses are only fully qualified with dates of service on or after the account's establishment date. Because an HSA is a trust accountant in most states, simply opening an HSA account does not establish the trust. It's only established when the first deposit is made. So it's not just opening the account, it's actually putting money in it that starts the clock. Any medical expenses after that date can be paid for with the HSA. Also, a clarification on 529 accounts. If someone opens a 529 account and names themselves a beneficiary and makes contributions and they later change the beneficiary to their children or anyone else of a lower generation, remember that is a gift that is subject to the annual or special 529 five year reporting rules. So keep that in mind. That is one downside to starting a 529 now and then changing the beneficiary to your kid or changing the beneficiary to a grandkid or whatever is you got to keep gift tax rules in mind. All right, yet another correction. This one about something I said a few weeks ago about DAFS donor advisory funds. It turns out that when you make a donation from the daf, you know, you make a donation to the DAF and then you make a designation of what charity it's going to go to. When you designate what charity it goes to, you do get to choose which funds from the DAF to distribute out of. So if you only want to distribute out of your cash, you can do that. If you want to distribute out of stocks because stocks are really up, or bonds because bonds are really up, you can do that. It doesn't come out pro rata from all of your funds. I suppose I didn't recognize that because I only have had money in the money market fund in the daf. Daf. Because we just use it as a conduit. We put the money in the DAF and then we distribute it. But if you are choosing to hold money in that account long term, you can choose which fund it comes out of. Kind of like a bucket strategy in retirement. All right, enough corrections. Let's talk about the subject that we're going to address in today's podcast, which is real estate investing. And I get lots of questions about real estate investing all the time. That's part of the reason we came up with our no Hype Real Estate investing course was to get this information out there and provide a framework for people to understand real estate investing and on which to hang later. Learning in the details about real estate investing. The first issue I wanted to talk about is your asset allocation with real estate. And the key to asset allocation is to have a top down strategy to start with the broad asset classes within your portfolio. Because your asset allocation determines something like 80 or 85% of your investment returns. So you really want to pay a lot of attention to asset allocation. And the main thing there is the difference between your risky assets and your not risky assets. That's the main asset allocation decision to make. But even within that decision, there are other decisions like how much do you are you going to put in stocks? And how much are you going to put in real estate? Right. It can be completely individualized. The key of course, is to pick something reasonable and stick with it for the long term. Don't try to get a perfect plan.

Right.

The dream of a perfect plan is the enemy of a good plan. Just stick with your good plan. So what's reasonable when it comes to real estate? Well, I would say anything from 0% real estate to 80% real estate is reasonable. So pretty broad allocation differences there. Obviously, somebody that's got a portfolio that's 20% stocks and 80% real estate is going to perform very differently from somebody that has, you know, 60% stocks and 30% bonds and 10% real estate. They're gonna perform very differently. But both of those can be reasonable portfolios. So how do you prioritize real estate investing against everything else? Well, I think you have to go back to your investing plan, right? What is your plan? Do you plan to invest 30% of your money or 70% of your money in real estate? Then stick with that plan. That's how you prioritize it. So when I have money to invest every month, and every month I have money to. Right. Whether that money came from dividends that were paid out of my taxable mutual funds, whether I have distributions from real estate or real estate investment went round trip and I now have the money back or money that I earned from WCI or money I earned from my clinical work, we pay our expenses, we put some money away for taxes, and the rest gets invested. And so we take that money every month to invest and we look at our portfolio. What is lagging? Have bonds done poorly lately? Is our percentage of bonds lower than the 20% we want in bonds? Then the money goes in bonds. Likewise with stocks, likewise with real estate. And so the way I prioritize it is I look at where my percentages are in my plan.

Okay?

Now if you have some sort of different plan where your plan is to have a certain amount of real estate income or to acquire a certain number of doors of real estate by a certain time period, you, you may prioritize it a little bit differently. But the key is to have a written investing plan and then to follow it. Then that monthly decision of what you're going to do every month is a no brainer. It's very easy. Whereas when you don't have a plan every month, you've got this dilemma of how you're going to invest your money. And so that is the way I would prioritize whether and how much you invest in real estate. All right? Now some people ask, how do I, what do I do with money that I'm saving up to buy into some sort of investment with a high minimum investment? It might be a syndication, might be a private real estate fund, whatever. Let's say it's got a $50,000 or $100,000 minimum investment and you don't invest more than that every month, if you're a typical physician. So you've got to do something with that money while you're saving it up. And I think you've got a couple of choices. The first choice is to just leave it in cash, right? It might be a few months before it's ready to be invested and that's fine. Especially these days, cash is starting to actually pay something. You know, you can make 3% on cash these days, so it's better than kicking the teeth. Used to be cash was like zero percent, so that's not so bad anymore to have that money sitting in cash. Of course, with inflation worse than ever, it feels worse. But at least you're making something on it on a nominal basis. The other approach you can take is to invest the money in real estate. Just have it be in something that's liquid, such as the Vanguard REIT and index fund that can be liquidated any given day. And you can take the money and put it into a syndication. That way you've got it invested in real estate just like your asset allocation says, but you can get it out at any time. You can also do this for capital calls. You know, like a lot of these real estate funds have capital calls and they call your money over a year or something. So what do you do with that money? Well, do you commit to put $100,000 in that fund when you don't actually have $100,000. You can do that if you think you're, you know, income's gonna be sufficient going forward to have that money when the capital calls come. Or you can set the money aside either in cash or in some sort of liquid real estate investment so you can pull it out as you go along funding that investment. The downside, of course, is that a real estate investment is a risky investment. It goes up and down in value. You know, the private investments, you know, they're not marked to market daily, but they're still going up and down in value all the time. But they're not liquid. So you can't really use that for a need like this. So you need something liqu. Liquid investments tend to be marked to market much more frequently, usually on a daily basis. That's the way the Vanguard REIT Index Fund is. And so, of course, when the market goes down, it's going to go down. Like right now, I think, as I record this, the Vanguard REIT Index fund or its equivalent ETF is down 29.77% year to date. So the downside of not keeping it in cash is you may go to need the money and find that it's down 30% from what you thought it was to be. So you've just got to weigh the consequences of that in your life. If they're not that bad, then you can do that. If they are that bad, well, maybe you ought to stick with cash while you're saving up for that syndication or those capital calls. All right, enough of me babbling and ranting for now. Let's listen to one of your questions off the speak pipes about LLCs for real estate.

Hi, this is Cindy calling from the Bay Area. In one of your recent podcasts, you were talking about the benefits of an llc, and you happen to mention that you have an LLC for your real estate investments. And if I recall, all of your real estate investments are via passive real estate. So my question to you is, is an LLC necessary if you're doing significant real estate investments via passive methods, such as the funds that you sometimes advertise on your website? I was thinking the LLC might have been more important if you're direct ownership, but sounds like you also do it for passive real estate. Can you speak on this?

Okay, great question. Here's the deal. Any sort of real estate property is a toxic asset, meaning it can introduce liability into your life. Your car's a toxic asset. Your boat's a toxic asset. Your airplane's a toxic asset. Your dog is A toxic asset. Right. So as many of those toxic assets as you can, it's great to kind of shield yourself from liability with those assets. That's called internal liability. It's liability that results from the asset. You know, somebody slips and falls on your property, that introduces some liability to you. And it's good to insure against that. Right. Both with property specific insurance as well as an umbrella policy that overlies that asset. So that can be done with a corporation. The corporations, for other reasons don't work very well for real estate, a much better option is a limited liability company or llc. So I think most real estate should be held by an entity known as an llc. And so that's a good idea. Now, there are other options. Limited partnerships can also provide that protection, at least for the limited partners. And you will see if you look at these private real estate investments, these syndications, these funds, they're all set up as limited partnerships or limited liability companies. So you don't need another limited liability company to then own your share of that limited liability company. One of them is enough. And a limited liability company works both for internal and external liability. Okay. For internal liability, what it does is it limits your liability to what's in the llc.

Right.

Somebody slips and falls on the property, you don't own the property, they can't sue you for slipping and falling. They can only sue the llc. And what can they get? Well, they can get everything the LLC contains, which may be the value of that property, its bank accounts. If you have another property in there, they could get the value of that property, but that's pretty much what they're limited to. So it insulates your other assets. You're not going to lose your home, you're not going to lose your brokerage account, you're not going to lose your car to somebody slipping and falling at your property. It also, and this varies by state, can protect from external liability. So let's say the rare chance you get an above policy limits judgment that isn't reduced on appeal from medical malpractice. Right. In many states you will be limited to a charging order against that llc. And what a charging order is is it basically says when you distribute funds from the llc, they have to go to your creditor, not to you. But the nice thing about that is, is if that's all they're limited to, if they can't force you to pull assets out of that LLC or can't force the LLC to liquidate the asset, then you don't have to distribute anything from the llc, you can say, okay, great, you're just going to get the tax bill for what the LLC makes. We're not actually going to make a distribution. So not only are you not going to get any money, you're going to get a tax bill. And so that encourages people to settle rather than go after you and your assets in the llc. So provide some external liability protection as well. Now you will see some people that are really into asset protection or are really into, you know, complicated schemes and trying to make themselves anonymous. They will set up an additional LLC often in Wyoming. So a Wyoming LLC then owns the LLCs in your state, one for each property. And the idea is that they can't find out who owns the property. Well, the truth is, in a lawsuit, there's a process called discovery in which they put you on the stand and ask, what do you own? And unless you want to go to jail, you'd better tell them the truth, right? This is a civil matter, but you start lying in court and it becomes a criminal matter and you get to go to jail. And so I don't think that's worth as much as a lot of these expensive asset protection firms would have you believe. But if you really want the utmost in protection, you can set up yet another LLC that holds the ownership of your LLCs. And you can do it in a state like Wyoming for that additional protection. But I don't do that. I certainly don't have an LLC that owns my shares in the LLCs and LPs of the private real estate syndications and funds that I have. I think that's overkill. So I don't do that. All right, Speaking of private real estate investments, you know, there's a whole spectrum of ways that you can invest in real estate, right? Everything from publicly traded REITs, like you'd get in the Vanguard REIT index fund, all the way to, you know, running your own short term rental business and doing fix and flips. You know, very active direct real estate investing on the other side. And everybody has to find their place on the spectrum. One interesting place on the spectrum where you get a lot of the benefits of direct real estate investing as well as not having to deal with, you know, 3:00am toilet calls. And a lot of the management headaches is to do what's called turnkey investing. And that means that you buy the whole house, you own the entire house, you can decide when it's bought, when it's sold, et cetera, but you don't do anything else with it. You don't find the tenants. You don't have to do the hassle of a lot of the buying and the selling of it. You don't do any of the managing. That's called turnkey real estate investing. And one of our partners that helps with turnkey real estate investing is Jax. And what Jax is Jax Wealth Investments is they build houses to rent and the whole neighborhood isn't houses to rent. Just some of the houses in the neighborhood are built to rent. The rest are owner occupied. And if you are interested in that sort of investment, I recommend you check out whitecoatinvestor.com Jax and check out that company. All right, let's take some more questions off the speak pipe.

Hi, my name is Will from Boston. I'm a resident with a quick question about rent increases. Recently our apartment complex sent us a renewal offer with a rent increase of about 30%. This is up from 20% the year prior. Unfortunately, this is becoming standard practice as rents have increased a lot in the greater Boston area. And I currently live in one of the more affordable housing options. Don't own a car is another way of trying to save money by utilizing public transportation. But unfortunately this has become normal here. I was wondering if you had any recommendations for ways to negotiate or try to bring down the rent to make it more affordable. I currently live with my fiance and don't have a roommate, so we're already trying to slip the rent that way. Thank you.

Great question, Will. Lots of people dealing with this on both sides, right? There are people who are feeling priced out of being able to buy houses because the price of houses has gone up so much. There are people who feel it's very difficult to even rent a place because rents have gone up so much. It's really a supply and demand issue is what we're seeing in the marketplace. Too few houses, too many people looking to live in them. And part of that goes all the way back to 2008, 2009, when builders kind of just stopped building stuff. And so this supply demand mismatch has been in place ever since then. Probably had an oversupply going into the global financial crisis, but certainly within a few years afterward, there was an undersupply of housing. And so that's resulted in the cost of housing for all of us going up. Now one of the great benefits of owning a home is you're insulated from that. Once you are in the home and you own it, you don't care if the price of your house goes up. You don't care if rent goes up, you've essentially locked in the cost of your rent, at least as far as the mortgage and maintenance expenses go. Now, obviously, some of them go up with inflation and property taxes can go up, but you've largely insulated yourself from rent increases. That's the real benefit of owning a home, is you get free rent, right? You think of it as the dividends on this investment in your own home. But here's the deal. Here's some things you can do, okay? Remember that there is somebody else on the other side of this negotiation, which is what you're doing. You're negotiating rent, right? And that person wants to get as much money as they can from the property without having vacancies, right? Vacancies are terrible when you are a real estate investor. When you're the owner of a rental property, you don't want vacancies. You would much rather have only a small increase in rent than having a have a few months of vacancies. So when you raise the rent, you're betting that either the current tenant will pay the increased rent or that you could rapidly get a new tenant in there if they decide not to pay the rent at that price. So the incentive for the landlord is to charge no more than market rent. And what's market rent? Market rent is the price at which you could rent out the unit relatively rapidly with a reasonable amount of marketing. Okay, that's market rent, and that's the going rate. That's a fair price, right? That's if you leave your current property where you're currently living and go try to rent another property that's similar, you're going to find it costs the same as what they're charging you for this property if they're charging you market rent. So the first thing you do when a landlord raises rent dramatically on you is go figure out if they're actually charging market rent. Go look around at similar properties, and if you can go rent an apartment or a house that's similar for much less, well, move. Yes, there's a little bit of cost and hassle to moving, but if it's dramatically less than you can get elsewhere, and this landlord truly is gouging you, or maybe they just want you out for whatever reason, then go move and go somewhere else. However, what you will often find is that not only are they not charging more than market rent, they're often still charging less than market rent. So you go look around, you come back, you go, I've still got a pretty good deal. And you just have to find that money somewhere else in your budget or you have to go earn more money to be able to cover that. For a resident, that might mean moonlighting or it might mean not going on as expensive of a trip with your vacation that year, or it might mean, you know, eating out less. But this is something that we all deal with every day as we decide our priorities and our values and try to afford those things that we want. I would not, however, think this is like some evil thing, that they're against you, that they are persecuting you, that landlords are against renters and there's a huge conspiracy to rip them off. Landlords expenses go up too, right? You know, if they have to do maintenance, if they have to do upgrades, if they have to pay property taxes, you know, if they're on an adjustable market rate, an adjustable rate mortgage, their mortgage expenses have gone up recently too. And so that has to be passed on to you as the renter. If it's not passed on to you, all of a sudden they're just subsidizing your housing costs. You've essentially become their favorite charity. And so, you know, I'm a big fan of charging market rent now. You don't need to raise the rent on somebody the month they're diagnosed with cancer. You know, you can find a little bit of compassion for, you know, situations like that short term. But in the long term, unless your tenants are your favorite charity, you've got to charge market rent or it just doesn't make sense for you to be in the real estate investing game at all. And if they are your favorite charity, you should still charge market rent and then just write them a check afterward because that preserves the value of your property, which is derived from how much rent it's getting. So you'd be better off actually charging them market rent and then writing them a check than you would charging them below market rent. Hope that helps. Let's take another question off the speak pipe. This one is from Steve.

Hello, Jim, this is Steve in Ohio. You and your wife have put a lot of effort into the no hype real estate investment course. Just wondering if that's caused you to rethink your investment mix. Thanks.

Thanks for the question, Steve. Great question. The short answer is no, we haven't changed our mix at all. Our asset allocation for long term listeners know is 60% stocks, 20% real estate, 20% bonds. I think real estate's a great investment. I've been blogging about real estate for over a decade. It's not like it's a new Thing to us. Yes, we have a new course out on it. That's because we saw a real need out there for a just the facts ma' am style real estate course that was broad enough to talk about both direct real estate investing as well as passive real estate investing. So this course covers everything from fix and flips to publicly traded REITs. You know, it'll talk about how to evaluate a syndication and how to look at the manager of a private investing fund, how to do short term rentals and long term rentals, what to consider when looking at turnkey investments. It covers the entire spectrum of real estate investing and teaches you how to boost returns and lower taxes and build wealth. And an awful lot of the information in that course is from my personal experience investing in real estate, both on the direct side as well as what we mostly do now, which is on the passive side. We want you to be able to maximize your returns and your tax investments and yet not have to deal with the hype that you see out there. And there's lots of hype in real estate investing, you know, because, well, there has to be hype, number one, because it's not the easiest thing in the world to do and you have to motivate people to do it. And number two, it's, you know, a lot of work and people are also trying to sell you stuff, you know, and so you're going to have some hype in the space. You got to get used to that. But we try to cut through that with this course. That's why we call it the no hype Real Estate investing course. We want to give you the vocabulary you need to understand real estate investing, teach you the calculations you need to be able to make, and help you to know where, most importantly, where you fit in on the real estate investing spectrum. Because for one person, you know, they're not going to be happy doing anything but managing their own direction real estate properties. And somebody else is like, I don't want to ever have a call from a tenant and I don't even want to talk to a property manager. And so you've got to decide where you're at on that spectrum and, you know, choose that style of real estate investing. And so that's what the course really teaches you is how to do that. So if you're interested in checking out the course, by the way, you can do that. Whitecoatinvestor.com no hype. And like all of our online courses, there's a one week money back, 100% money back, no questions, asked guarantee. So you can check it out and see it and see if you think it's right for you. But if you've been thinking about adding real estate to your portfolio, you're not really sure in what form to add it, or you've decided what form to add it in, but you need some more help deciding which real estate investments to choose. This is your course. Okay, check it out. Whitecoatinvestor.com nohype all right, our quote of the day today comes from Michael Jordan who said, my mother is my root, my foundation. She planted the seed that I based my life on. And that is the belief that the ability to achieve starts in your mind. I think there's a lot of truth to that. I think mindset is really important. Now of course you can't say mindset is everything, right? Because all you have to do is flip that statement on its head and say the reason people are poor is because they have bad mindset. And obviously that's not true. There's lots of factors that lead to people being in poverty and being poor. It's not just mindset, but certainly it does play an important part. All right, let's take another question off the speak pipe. This one about a common situation for both medical and dental practices is selling out to private equity.

Hi Dr. Dali, this is Ash from the East Coast. Thank you for all of your amazing advice over the years. I recently sold my dental practice to private equity and I'm doing a five year work back. I'm in my early 40s and I plan to retire at the end of my work back. We have a net worth of around $10 million and hope to increase that by another 3 to 5 million before I hang up the boots. In five years I have been invested or had been invested in a 9010 portfolio as well as a significant portion in DLP syndication. So with the retirement horizon upon me, I was wondering if you advocate for a cash cushion. I was reading Dr. Carsten's post about having a 2 expense year cash cushion and replenishing that from equities when the time's right. I've been going full steam ahead on setting up retirement and taxable accounts, but never really thought about what the withdrawal process looks like. Any advice or direction on where to go to come up with a plan would be greatly appreciated. Thanks again for everything that you do.

Great question. I'm a big fan of having some cash in your asset allocation once you're retired. I don't have cash in my asset allocation. We have bonds I have some very cash like bonds in the TSPG fund, but we don't actually have cash in our retirement asset allocation. My parents do. And that's obviously a portfolio I manage as well, but they have cash. About 5% of the portfolio is in true cash money market fund and about 5% is in very short term bonds which are obviously very cash like. But the typical recommendations you see from people are to have anywhere from one to four years worth of withdrawals in cash. So if you're pulling out 4% a year out of the portfolio, that would suggest that somewhere between 4, 4 and 16% of the portfolio be in cash. And the idea behind that is in the event of a year like 2022, where both stocks and bonds and right now, you know, if you look at housing prices, real estate as well is, are all down in the same year, you know, so are lots of alternatives. You know, crypto assets like bitcoin and all the Bitcoin Bros of course are mad that I called bitcoin a crypto asset. But such as it is, it's also down 70%. So if you invested in just about anything besides cash, it's down this year. And so the idea of having cash in your portfolio is so you have something to pull out of the portfolio in those years and give the market time to replenish the other asset classes in your portfolio. And so that's the theory behind cash. It gives you the opportunity to still take money out of your portfolio without feeling like you have to sell low. Of course that means your portfolio is not going to be as balanced as it was before. You're basically not going to rebalance that year. But that's okay. Studies show you only need to rebalance every one to three years on average for best results. This is a little bit more like the bucket strategy than it is a rebalancing strategy. And then you replenish that bucket when the market goes back up in one, two, five years, whatever it might be to get through that bear market. So hopefully that's helpful. I would certainly in your 10 to $15 million portfolio as you move into retirement, have some money in cash. How much really depends on you. All right, our next question comes via email. Says, I tried to record a podcast question on the speak pipe, but I ran out of time. Well, I can see why this is a long question and I really think you need all the details to answer it. Okay. I work at a university hospital and I'm eligible to contribute to a 403 and a governmental 457. Okay, that's pretty typical for a university employee. We are required to make contributions of 5% of our salary. These required contributions count toward the 415C limit which is $61,000 for 2022 but not the 402 limit which is the $20,500 for 2022 employee contribution. I then have the option to make voluntary contributions above this. I receive a one to one match on up to 10% of my contributions per pay period on the first $305,000 of salary each year. I currently make about $284,000 per year, but this can vary from year to year and should increase to about $293,000 in October. I would like to ensure that I receive the entirety of my employer match and also maximize my pre tax contributions to both the 403 and 457. Last year I made the mistake of contributing too quickly a total employee contribution of 18% and I reached my 415c limit at the beginning of November and thus did not receive my employer match for most of November and all of December. As the match can only go in the 403 and our university requires us to first fill up the 403 prior to making contributions to the 457. I've tried requesting that I fill up my 457 prior to my 403 but HR says they can't do this. I can think of two possible strategies to deal with this. Option one is to contribute 12% the total employee contribution from January through November and 100% of my December paycheck up to the IRS limits. However, HR has not been able to tell me how they will handle the December contribution. Do they contribute $1 match for every $1 I contribute up to 10% or do they make my entire contribution first and only then try to add the match, in which case there won't be room in the 403 for the December match. Option two is to fill out a form which I state that I estimate I will make X contributions to another employer sponsored retirement plan, then reduce my 402 limit by that amount and force contributions to go to the 457 early. I don't seem to have to prove that I ever make a contribution to another employer sponsored retirement plan and I can't find anything from the IRS stating that I can't do this this year. If I estimate $3,000 on that form then I should get pretty close to accomplishing both my goals. Do you see another option I have not thought of do you think either of the options I proposed is reasonable? Is there anything illegal about the second option? To do this option, do I need another source of income, then open a Solo 401 and actually make a $3,000 contribution? Or can I just make an estimate and the estimate ends up being wrong without any consequences? Thanks for your help. What a complicated situation. You're just trying to optimize everything you have here and max out those retirement accounts. You know, if you're getting close, I wouldn't worry about this too much. It does irk me to see 401 s designed this way. A good 401 will do some kind of a true up at the end of the year, right? So you get your entire match so you're not penalized for maxing out the 401 early in the year. I think that's a really crummy way to design a 401k. And having designed a 401k, that tells me when someone does that, they just hate their employees. And that's not a very good message to be sending to your employees. So if you design a 401, design it with a true up, please, so people don't have to deal with stupid questions like this. Okay, which would I do? I think it's probably fine to just spread those contributions throughout the year, which is your option one. Option two is a little wonky. You know, filling out a form that includes you lying on it. I don't know how much I like that. Obviously, it's not an IRS rule, though. This is your 401's rule. And so if they're going to Design a dumb 401k, maybe it's not so bad for you to do something dumb to get around their stupid rules. But, you know, I don't know if there's a great answer here. You certainly, you know, depending on how you feel about lying to your HR person, you know, there's no IRS requirement that you open up a solo 401k and make a contribution there in order to fill out this form for them. But, you know, I try to be honest in what I do, so I think I'd probably just try to spread my contributions out throughout the year to make sure you get all or almost all of the match. And then I wouldn't worry too much if you don't get every single dollar into your 401k. I mean, you're doing great here, right? You're talking about getting maxing out a 403B, maxing out a 457. Maybe even getting to the $61,000 limit. I'll bet you're investing above and beyond that. You probably have a personal and spousal backdoor Roth ira. You're winning this game. You're doing great. So if you lose $200 of match money or you fall $1,000 short of the contribution limit into that 403, that's not the end of the world. As a white coat, you have valuable knowledge. 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