WCI #298: Leaving a Bad Advisor

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.

Still not sure what to do with your student loans? Overwhelmed with how to tackle that giant debt in an ever changing political climate, the experts@studentloanadvice.com are here to help guide you through the best options to manage your loans. Our experienced staff have consulted on over $250 million in student loan debt and the averagestudentloanadvice.com client has saved over $190,000. You will receive a customized student loan plan using the principles of the White Coat Investor. Get answers to all of your student loan questions, gain clarity about your financial future, and start down the right path toward financial freedom. Book a consult today@studentloanadvice.com you can do this and the White Coat Investor can help. Welcome back to the White Coat Investor podcast. I am your host flying solo today. I am Jim Daly. I'm an emergency physician. I practice in Utah. I'm the founder of the White Coat Investor. Twelve years ago, I decided that docs should get a fair shake on Wall street and they were not getting it. And I thought, well, how can I reach as many of them as I can? And there was this newfangled Internet thing and blogs out there and I decided to start one. It blew up and has subsequently grown into a lot of different things, including this podcast, which actually now has more reach than the blog. So thank you for listening to the podcast. Our mission here is to help you get a fair shake. We want to connect you with the good guys in the industry, run the bad guys out of business, and mostly help you to become financially literate, financially disciplined, and financially free. So I hope it has been beneficial to you. If there are things you would like to see us do better, please tell us. The easiest way to do it is to take our survey. It's open for a few more days. Whitecoatinvestor.com survey. We'll bribe you to take it, right? There's gonna be a random drawing for people who take the survey. Some are gonna win T shirts. I think we're giving out 20 T shirts and somebody's gonna win a free online course worth thousands or hundreds of dollars. Well, I guess it could be thousands of dollars depending on which course you choose. It's your choice which of our courses you wanna take, but please take that survey. Help us help you. Something Else I want you to know about is a startup school. This is expert witness startup school. If you have thought that you would like to be an expert witness, now you can just do it for the defense if you want. You don't have to be, you know, work for, you know, the prosecution, but most people do both and just try to give their honest opinion of what the standard of care would be in a case. But if that is something you're interested in doing and you want to learn how to do it, you want someone to take you soup to nuts and show you how to become an expert witness and use all this knowledge you spent a decade accumulating to do a little bit of a side gig, which most people say also helps them in their own practice to be a better doc. We have a course that will help you to do that. Okay. That course cart opens on January 20th. It closes on January 30th. So I'm recording this before Christmas. So if the world changed in the last few weeks like it did around the pandemic, and I sound really out of touch, you know, if Russia invaded Alaska or something, and I didn't even mention it on this podcast, that's why. But basically you're listening to this on the 26th, 27th, 28th of January, you only have till the 30th at midnight Pacific time. If you want to sign up for this startup school, you'll have lifetime access to the material. You get access to all the modules as soon as you enroll. And it takes place over four weeks with weekly recorded modules and one weekly live Q&A via Zoom. There's eight recorded video modules. There's homework each week that may take one to two hours. Obviously, they want you to be serious about this if you're taking it. Depending on your level of experience, it might take you longer. If you've never done anything like this before, it might take full two hours. If you've done some before and you're just brushing up, maybe a little shorter. But this session runs from the end of January through February 24th. And basically it will teach you how to launch and build an expert witness practice to diversify your income and increase your financial security. This is done by Dr. Gretchen Green, by We've had a lot of white coat investors take this course. They like it, they enjoy it, and they get to use skills they already have as physicians to generate some extra money, often at a higher hourly rate than they're making practicing anyway. You can sign up whitecoatinvestor.com ExpertWitness Be sure to check that out. All right, today we have a whole hodgepodge of questions off the Speak pipe. You guys drive the content on this podcasts. I say guys generically, of course. Many of our listeners, of course are not guys, but you know what I mean. If you would like to have your question answered on the podcast, you can leave it on the speakpipe whitecoatinvestor.com speakpipe if it's too long or you don't want someone to recognize your voice, you can send an email. A lot of those end up on the podcast as well. You can email editoritecoatinvestor.com but it's a lot more fun if you leave it on the speak pipe because then we have more voices or on the podcast. Our first one today, however, is an email question says I'm not a doctor but a personal finance enthusiast in Silicon Valley and greatly enjoy your podcast. We appreciate that there's actually a lot of tech workers who read and listen to the White Coat Investor. I am a tech worker and through my employer have access to a 401 plan which allows me to perform a mega backdoor Roth. Unfortunately, the after tax contributions are payroll deductions and my base pay compensation is such that it takes many, many pay cycles to contribute my target amount while I off RSU vestings. It is likely in 2023 I will leave this employer by choice or layoff and my next employer may not offer a 401 with the same features. That does sound like life of a tech worker constantly changing jobs. Is there any downside to scaling back my tax withholding with my employer to leave more after tax funds for contribution toward my mega backdoor Roth? This would allow me to reach my target sooner and I can make estimated tax payments to ensure I reach the tax withholding safe harbor. It's not all gloom as I could land with another employer with a great 401 where I could utilize the $66,000 limit twice in a single tax year while observing the $22,500 voluntary contribution limit. Hopefully this question isn't too specific. We like specific questions here at the White Coat Investor. Let's get out into the weeds and talk about this stuff. Then he finishes. I greatly enjoy your podcast. I really need to give my doctor a copy of your book because she has a whole life insurance plan. Yes you do. Please do give your doctor a copy of the book. That would be very kind of you. I think your plan's fine. Overall, I've seen docs do something similar to pay off their student loans actually in the first six months out of residency. Many years ago we had a guest post of a doc who basically took advantage of the fact that when you're self employed, you kind of get a pass the first year on your quarterly estimated. And so she basically didn't pay taxes for the first six months out of residency and she sent all that money to her student loan lender and paid off her student loans. Then come the next year, January, February, March, April of the next year, she saved up her money to pay her tax bill for the prior year. And it worked out really well and she was debt free and still met her tax obligations for that year. So keep in mind, there are two things going on here when we're talking about taxes. You have to pay your taxes, all right? I'm not advocating that you do not pay your taxes. You should pay your taxes every dime you owe. Don't leave them a tip, but pay them every dime you owe. What you do with your tax return each year is you are settling up with the treasury, with the irs, with the government. You're settling up with them. If you paid them too much, they give you some back. That's a tax refund. If you haven't paid enough, you got to send in a tax bill. Sometimes you've broken some of the rules. It is a pay as you go system. The federal system is. Some states are not. Utah is not a pay as you go system. You're allowed to pay your entire tax bill on April 15 of the next year. That's perfectly fine with Utah. It is not fine with the federal government. They want you to pay as you go. And so the way most people do that, because most people are employees, is their employers are required to pull some money out and send it to the IRS with each paycheck. That's called tax withholding. And other than that, general rule that employers have to pull a certain amount out based on what you put on your W4. It's a little bit loosey goosey there, right? Because how you fill out the W4 affects how much they have withheld. And so if you fill out your W4 in such a way that they don't withhold very much, well, you may end up having to write a big check come April number one. And there may be some penalty associated with that, but there's really nothing that keeps you from changing it throughout the year. I think they want you to be as honest as you can when you answer the questions on the W4. But I've never actually Heard of anybody getting in trouble for not doing so. You'd still have to pay the taxes in the end. But I think there's more flexibility there than the IRS really likes to tell you there is, especially if you're paying as you go anyway with quarterly estimated payments. I really don't think they care and it would help your cash flow to be able to do it this way. So I think that's fine. I don't think anybody's going to give you a hard time about that. And it'll allow you to max out your retirement account. The IRS does have an estimator that you can use. It's@irs.gov individualstax withholding estimator which lets you do all kinds of changes on how much you have withheld. So I don't see any reason why you couldn't do what you're planning to do here. I think it's fine to do, especially since you are paying as you go just as much as I am by doing your quarterly estimated tax payments. All right, our next question comes from Alex. He's asking, he or she, I'm not sure which is asking about selected insurance plans within the hospital and HSAs.

Hi, thank you for all you do. I'm a resident who has an HSA who currently switch insurance plans within the hospital and am wondering how can I switch the HSA to a self directed HSA or a personal HSA due to the fees and poor investment options in the current hsa. Appreciate it.

But Alex, that's a great question. I have this image of you recording this question, you know, with a hoodie over your head, sitting in the corner on one of the wards at the hospital trying to be quiet as you recorded it on the speak pipe. I don't know if that's how you actually recorded it, but that's kind of what it sounds like. It sounds like you're trying to be quiet as you recorded it, but it's a great question. Here's the deal with HSAs you mentioned. You're switching insurance plans. That really doesn't have anything to do with any of it. You know, if the old plan was a high deductible health plan and you were allowed to use an HSA for it, that's fine. If the new plan is a high deductible health plan, you're allowed to use an HSA for it. That's fine too. But the HSA itself is kind of separate from those. Now, there is a benefit to using whatever HSA your employer allows you to Use or your employer has chosen for you. And the benefit is they put money in there without you having paid payroll taxes on it, which for a resident is a big deal because you're still paying Social Security tax. 12.4% when you count the employer's portion. And your portion, 6.2% is your portion of that plus Medicare. Your 1.45% is the employee portion of Medicare. So you don't have to pay those taxes on the money that goes into the HSA if your employer is pulling it out of payroll and putting it in the HSA. So that's a good reason to use your employer's HSA. The downside is a lot of employer HSAs suck. They're terrible. They have terrible investment options. They might have a bunch of fees. It might be a pain to work with. There are better HSAs out there, places like Fidelity, places like Lively. So what most people do if they are not contributing directly to a good HSA like we do, we contribute directly to a good HSA because we don't have it withheld. You know, it's not a benefit that we offer at White Coat Investor because we know people can just go open it up themselves if they want. So we don't do that. So we just go directly. And ours is at Fidelity, it's fine. But if you're stuck at your crummy employer, one, you're not stuck there for long because once a year you can roll it over into a good hsa. And so that's what I would do if I were you. I would just have the employer pull the money out of payroll, put it in their crappy HSA with the high expense ratio of funds or whatever, and then once a year, do a rollover over to where you really want to be a Lively or a Fidelity or someplace like that with low costs, good investing options, and go for that. We actually have an affiliate relationship with Lively. If you want to help support the site while you open that, you can go to whitecoatinvestor.com lively. I think we get 10 bucks if you open an account there. So it's not exactly a big profit maker for us, but it does help support the site and we do appreciate that. Okay, our quote of the day today comes from Carmen Reinhart, who said, if there is one common theme to the vast range of the world's financial crises, it is that excessive debt accumulation, whether by the government, banks, corporations, or consumers, often poses greater systemic risks than it seems during a boom. A lot of truth to that. It's usually debt that gets us in trouble personally. Business wise, nation wise. Be careful how much debt you take on and be careful investing in entities that have a lot of debt because bad things happen. As I record this in December, the FTX debacle is still going on. I think it was just last week Sam Bankman Fried was arrested. I don't know how that will have played out by the time you hear this podcast, but borrowing money gets people in trouble. Be careful what you borrow. Don't borrow more than you need. Pay it off faster than you have to. You'll thank yourself later for it. Okay, next question is on HSA contribution rules.

Hi Dr. Dali, I have a question about HSA contribution rules. I am a W2 employee and I have a high deductible health plan and HSA through my employer, which I have been contributing to. My employer's benefits handbook specifically states and that we are not allowed to decline their health insurance coverage for 2023. I also enrolled in my husband's health insurance plan through his employer, which is a PPO plan and is not a high deductible health plan because there is a specific practice that I want to see that I cannot go to with my own employer's health insurance. Since I will technically be enrolled in both plans, am I still allowed to make contributions to the HSA for 2023? I use my HSA account as an extra retirement account as you have advised, so I do not plan to use or withdraw any of the contributions for health care expenses. Thanks so much for your help.

Great question. The answer is no. You cannot contribute to an HSA unless your only health plan is a high deductible health plan. The fact that you're also covered by this PPO keeps you from contributing to your HSA for 2023. That doesn't mean you got to pull the money out of your HSA that you have in your HSA now. You don't have to spend it, you can leave it there, you can leave it invested, but you cannot contribute for 2023 because you are covered by a non high deductible health plan. Boy, that's a really unfortunate situation. You've got a plan provided to you, you want to use an HSA and presumably you're paying extra to be covered under your spouse's plan. That's a bummer. And you don't even get any money back from your employer for it. I guess if you really want that doc and you really need that coverage, you got to do it. But that's unfortunate I'm sorry to hear about your situation. Okay. We have a program here called the Champions Program. And what I want to do via this program is give away a million dollars. But I'm giving it away in a very specific way in the form of White Coat Investor Guide for Student Books. We are trying to give one of these away to every first year medical and dental student in the. We want to be as successful as we can at this because we know it makes a difference. We're seeing surveys among medical students that now the younger medical students are feeling more prepared financially than they used to. And then the older ones are the ones who have not yet been given a copy of this book. We've given it over the last couple of years to 70% plus of first year medical and dental students. So we know it makes a difference. And as the years go on, that difference will compound and compound and compound and compound. You know, I mean, there's a million doctors right now, and I figure this could make a difference of a million or $2 million to each of these doctors if they would read and apply the lessons in this book over the course of their careers. So a million times a million dollars. I mean, that's a lot of money. That's a trillion dollars that this investment in giving these books away to first year medical and dental students could create. And it may be the most important thing we ever do here at the White Coat Investor. We need a little bit of help. We cannot afford the staff nor the postage to send these books individually to everybody. We have to send them in bulk, we have to send them in boxes. And what we need is a first year student, somebody in the class to just volunteer to be the champion. All you have to do is pass the books out. That's it. Haul a couple of boxes into school one day, pass the books out to your classmates, and we'll send you a T shirt if you send us a picture. What are we sending a Tumblr this year? Is that what we're sending? We'll send you a WCI Tumblr if you send us a picture of you passing it out to your classmates. But mostly you get to be the champion. You get to be the one who saved your classmates millions of dollars. It's pretty awesome. So Please sign up whitecoatinvestor.com Champion. Help us give away a million dollars worth of White Coat Investor Guide for student books this year so we can help doctors to become financially literate, financially disciplined, and be able to concentrate on their families and their own wellness and their practices and to do those things that you went to medical school for in the first place. We appreciate those who have volunteered to be champions in the past, those who have already volunteered this year, those who volunteered even though there's already somebody from your school. Thank you anyway. We appreciate it. We only need one from each school, but there are still schools out there that have not yet had a champion emerge. In fact, Megan, why don't we get a list of the schools that we don't have a champion from and we'll put that into a podcast coming up. And if you're at or near or from one of those schools, maybe you can put some pressure on somebody and find us a volunteer to help pass these books out. All right, our next question is the one for which this episode Leaving a Bad Advisor was named, and I think there's a lot of interesting points from this question. It comes from Shay, thank you so much for calling in with this question.

Hi Dr. Dali, thanks for all you do My question is about what to do with actively managed mutual funds when you decide to make the switch from a bad financial advisor to managing your own portfolio. I'm the partner of a current medical student who recently introduced me to WCI. I'm 24 and I've been maxing out my Roth IRA for a little over a year. My advisor recommended that I buy front load shares of the American Fund's One Fund portfolio, which I now understand is an actively managed mutual fund invested in other actively managed mutual funds, so it's doubly actively managed. I have not yet broken even with the front load fees, so my shares are theoretically still worth less than the money I've paid for them. If I do choose to sell them, should I cash them out when I make the switch to investing on my own, or should I transfer them in kind to the new account and just buy low cost index funds? Moving forward, I'd kind of just like to be rid of them, but I'm not sure if it's wise since I've already committed to the front load and so in theory they should just be able to sit there and grow without me having to pay that much more on them. I'd appreciate your thoughts. It's been bothering me and I'm going back and forth about it, so I just want somebody else's opinion who I trust. Thanks so much.

All right, great question. So much going on here. Let's talk about a few of these things first. Congratulations. 24 years old. You know what I was doing at 24? I was broke. I was donating plasma for grocery money. Right. I was enrolling in medical school. I was getting married. I didn't have any money and I wasn't going to have any money for a long time. You've already been maxing out a Roth IRA for a year. You're going to be so wealthy. Congratulations so much on getting started early. It makes a huge difference. Now. Lots of docs out there, as you've obviously learned recently, don't get started at 24. But that extra decade of compounding can really work for you in a good way. So congratulations on caring about investing, on saving money, on investing it. There are far worse things you could have done. I know you feel like you made a mistake hiring a bad advisor, putting money into maybe not the best mutual fund, but congratulations on what you're doing. When I got started investing at 28ish, almost 29, it was the same kind of thing. I ended up in a loaded, actively managed mutual fund. That wasn't the best choice, but I was getting started and that was the beginning of my Roth IRA and my wife's Roth ira. And you know what? It's had more time to compound than anything else we've ever invested because we started early. So good job to you. Good job for learning about this stuff. Good job for caring about this stuff. All right, let's talk for a minute now about financial advisors. If you need advice, if you need service, it is okay to get it, go hire a financial advisor. We keep a list of vetted financial advisors that give good advice at a fair price under our recommended tab@whitecoatinvestor.com. if you need somebody, go hire somebody. It will help you. Okay? If you are not going to do this well on your own, you are far better off paying a fair fee and getting someone to help you. Now, some of those firms specialize in helping you to become a do it yourself investor. Others prefer to both manage your assets and give you financial advice for the long run. So you got to match yourself to what you're actually looking for there. But if you need an advisor, go get an advisor. There are basically four ways to pay financial advisors. The first one, the way you've been paying your advisor and I put advisor in air quotes there is with loads or commissions. This means when you invest money in a mutual fund, the advisor takes some of the money you are going to invest and puts it in his or her pocket. It's a load, it's a commission. That's how they're getting compensated for what they are doing for you. I do not like this model. I think it's a terrible model because it incentivizes all the wrong kinds of behavior. It incentivizes them to sell. It incentivizes them to cause turnover in your portfolio, which is almost always a bad thing. It incentivizes them to encourage you to invest in the highest load and highest commission investments. I just think there's too many conflicts there that even a good person can't overcome them. The other problem with the model is it tends to attract people at the beginning of their career when they don't know very much. And you end up with not a very good advisor. So you're not getting good advice, you're not getting good investments, and it's just not a great way to pay. The other three ways are fee only methods of paying a financial advisor. The most common one is an asset under management fee where you basically pay a percentage of your assets to the advisor each year. And that can be a really good deal when you don't have any assets. You know, if you have $100,000 portfolio and you're paying 1% a year, that's only $1,000. That's a screaming deal. For full service financial advice and asset management, it's really a good deal if you're only paying $1,000 a year. The problem is when you have $5 million and you're still paying 1% a year. Now you're paying $50,000 a year, which is not a screaming deal, it's a rip off. It doesn't cost that much to manage a portfolio and to give good financial advice and to help you follow your financial plan. It doesn't cost $50,000 a year, not even close. If you're paying that, you're getting ripped off. So the problem with an AUM fee is you got to do the math each year. And so many people don't want to deal with this. They don't want to inertia, they don't want to change advisors as their assets grow. And they end up paying too much. Even if they're getting good advice, they end up paying too much. So it's not my favorite method. The next method is like a flat annual fee. This works pretty well. It's like having an advisor on retainer to give you financial advice. Or sometimes you just pay for your asset management. This way you might give them $5,000 or $10,000 a year to manage your assets. I think that's a reasonably good way to pay for financial advice. There aren't a lot of people that work under that method though. And so the difficulty becomes finding somebody willing to work under that method. We have a lot of them on our list@whitecoatinvestor.com so you can check that out if you want to pay people that way. The last way is an hourly rate. And these are often high. They're often higher than what you're billing at. You might be paying 2002-503004-00500, $600 an hour to get financial advice on an hourly basis. And that sounds like a ton of money, right? It keeps you from coming in and getting the advice you probably need. But the truth is you might be paying a lot less on an hourly basis than you would under an AUM fee. And so you got to do the math just like you would with an AUM fee and make sure you're paying a fair price, which is typically a four figure amount per year. All right, so back to your situation, Shay. You're in this fund of funds from American Funds. American Funds aren't the worst actively management fund company out there. They're a favorite of these commission based financial advisors. They call themselves fee based, by the way, there's a difference between fee based and fee only. Fee only is just fees. You know those last three methods, fee based or commission based, however you want to call it, is they're charging you not only fees, but commissions. So anyway, American Funds is a favor here among these folks. It's not the worst place to have your money. They've got not a bad long term record on some of their funds. So you could have done a lot worse. So don't feel too bad about that. But they are actively managed. They do have relatively high expense ratios. I pulled one of their funds of funds up here. This is the American Funds Global Growth Portfolio. The expense ratio is 0.79%, which is 10 to 20 times what you'll pay for a Vanguard Total Stock Market Index Fund. You can get a Fidelity Total Stock Market Index Fund for nothing. An expense ratio of zero. So it's a relatively high fee. And when you stack a load on top of that, you're paying an 8% load or I don't know what load you're paying to this person. That's like nine times as high of a fee if you only hold it for one year. So it's really expensive. And obviously those fees come out of your return. It just takes time for the asset for the investment to do well enough to make up for all those Fees, which, if that's the way it's got to be, that's the way it's got to be. But that is not the way it has got to be because you can invest in no load mutual funds. This was the big revelation I had in residency. Right when I went on this road trip. I think we went up to climb Devil's Tower. We were driving from Tucson to Devil's Tower to go climbing. Then we went to the Wind Rivers, did some climbing there. We're heading back to Tucson. We stopped in Salt Lake. The car wasn't running well. We had to get it fixed. So we went to my old mechanic here in Salt Lake when I was in med school. And while we were there, we went to a bookstore, I don't know what it was, Barnes and Nobles or something. And I bought a book called Mutual Funds for Dummies by Eric Tyson. And I learned the difference between no load funds and a, B and C loaded funds. And I thought, oh, I think I've got no load funds because I'm paying my advisor a flat fee each year. And it turned out that I was also being put into loaded mutual funds. And that made me mad. And so I started learning about investing and eventually created the White Coat Investor. So they're not, you know, sometimes good things come from paying loads. Luckily, probably like you, I didn't lose all that much money. But I learned an important lesson in what to do about mutual fund commissions. So what do you do with actively managed mutual funds? You've already paid the load. That's water under the bridge. You let it go. If you don't want to be in that investment, you get out. Staying in there for years does not help. You're still paying this expense ratio of 0.8% or whatever it is for the given fund that you're in. And so you just get out now in a taxable account. You want to think twice before you get out because you might have some capital gains and you'd have to pay taxes on it. Maybe you choose to hold on to a less than ideal investment and build your portfolio around it. But you're investing in a Roth ira. There are no tax consultants consequences to selling. The load you paid is water under the bridge. So if you don't want to own that fund anymore, sell it. Invest in what you want to actually own and move forward. Consider it tuition. In the school of hard knocks, consider it your stupid tax. We've all paid it. I paid it, you know, I paid it in a whole life insurance policy. I Paid it in loaded mutual funds. All these mistakes that doctors make. You know, hiring, mistaking a commission salesman for investment advisor. I've made these mistakes and so don't feel bad when you've made them. But don't stay there sitting in those mistakes for the rest of your career. Make a change, take control and have a real investment plan moving forward. Keep your costs low, diversify broadly, fund it adequately, stay the course and you'll reach your financial goals. Great job, Shea. Good question. Thanks for being part of the white coat investor community. All right, our next question or questions comes from Nick. This must be a long question. I've got two speak pipes from Nick, so let's take a listen to him.

Hey, Dr. Dali, my name is Nick and I am a second year family medicine resident here in the state of Idaho. I recently signed a contract, an employment contract with a future position as an attending physician in a very small hospital in northern rural Idaho. This is coming with a $40,000 signing bonus as well as a $1,500 monthly stipend throughout the duration of the rest of my residency and until I start to at my work at my new position as an attending with this signing bonus. My plan currently was to use a portion of it, about $15,000 in order to pay off the interest that is outstanding on some of my loans. That interest was frozen and was not placed into the total principal upon my graduation from medical school. And so I would like to pay that off and I find that to be. I think that is a good financial option. However, I don't know what to do with the rest of the amount of money. For me, it is a lot of money and I'm not sure what vehicle I should use in the meantime because I am going to a very small area. There's really no rental options and I will need to buy a house when I do move up there after residency. And I was hoping to use this as a portion of a down payment for a future house. What vehicle would you recommend that I use? I know the options are available, such as a money market fund or a cd, but I was just wondering what.

Thoughts you might have. Thanks.

All right, let's take that first one to start with. A lot of good questions there. Congratulations on getting through residency. You must be doing a good job. People want to hire you, so congratulations on that. It's exciting to start getting some money. Getting a little bit in advance is a good thing. If you're sure that's where you want to go anyway. And thank you so much by the way for being willing to serve and work in a rural community. You know, a lot of people talk about the doctor shortage, you know, and the truth is we don't have that much of a doctor shortage. What we really have is a doctor maldistribution. You know, everybody wants to work in Salt Lake, everybody wants to work in New York City, everybody wants to work in, you know, Denver, whatever, but nobody wants to work in rural Idaho. So thank you for going to rural Idaho. There's a lot of great things about rural Idaho. I have a wonderful time in Idaho every year. This year we spent time floating the river no return, the Salmon river, floating from the eastern side of Idaho to the western side of Idaho. It is beautiful country. There are a lot of great things in Idaho. So thanks for going up there and I hope you enjoy all of that fun outdoor stuff that you can do in Idaho. As far as what to do with your money, it sounds like you have a plan. You want to use it for down payment, put some toward your loan interest. That's a good use of money, some for a down payment. That's a good use of money and you know where to put. Almost seems like your confidence is lagging your knowledge base, and that's pretty typical for white coat investors. A lot of people will tell you this is the case when they came out of residency. They're like, ah, I don't know what I should do. But if you actually ask them the questions, they do know what they should do. You know what you should do? You know, you should keep this money aside in the money market fund and use it for your down payment. That's a perfectly fine use of money. Now, at the beginning of your career as a doctor, and you guys have heard me say this before, you have a limited amount of money and all kinds of really good uses for it, right? You got student loans to pay down. You probably have some credit card debt. You maybe have a car loan. You know, you want to have a home down payment. You want to, you know, get a real emergency fund. You got retirement accounts and HSAs to max out. You want to start investing for retirement. Maybe you want to get started in real estate investing. You have all these great uses of money and not very much money. You know, in your case, you got an extra $1,500 a month. That's great. That's huge for a resident. I think you said it was a $40,000 signing bonus or something like that. That's great as well. But you're not going to be able to do all that with that much money, you're not going to be able to pay off all your student loans, for instance. You know, you're only covering some of the interest that's built up. So you got to choose. And there's no really wrong answer among these choices. It's just your personal preference. In our case, it was important to us to put down a down payment. So that was a pretty big higher priority for us coming out of residency. I don't know if it was right in the end. In the end, we probably should have rented for those four years I was in the military. Ended up losing money when we sold the house nine years later. But that was more a reflection of the fact that I came out of residency in 2006. But some other priorities we had was maxing out our retirement accounts. That year we left residency. That was a big priority and we were able to do that as well. So it just depends on what your priorities are. If your priority is paying off loans, maybe you want to put it all toward loans. If your priority is to have a down payment, not use a doctor mortgage for buying that house, that's an option as well. No real wrong answer there. So do what you want with the money. Don't go spend it. You have too many good uses for it to be spending. Yet now is the time period where you live like a resident. Two to five years. Kind of jumpstart your wealth accumulation process. You'll be glad that you did do that. All right, let's listen to your other question on the speak.

Piper.

Hey, Jim, this is Nick from the Midwest again. Just wanted to send a follow up with more information. Currently, I've chosen the Fidelity Advisor Freedom Blend 2065 fund. Class C shares. Due to my plan of not being at this employer for the long term and seeing as though I'm young, I chose the 2065 fund. Let me know your thoughts. Thank you.

Bye. Oh, I'll let you know my thoughts. I don't like that fund. Is that fund in your 401? Because if so, your employer hates your guts and you ought to sue them for it. Maybe not sue them, but the point is, employers have fiduciary duty to you to give you good mutual funds in your 401. And if they don't do that, they have liability. They have a duty to give you good investments. A Fidelity Advisor fund in your 401k is like a high expense ratio mutual fund, right? Fidelity has two kinds of funds. They have some very low cost index funds and then they have like advisor funds. That is used to compensate their advisors for selling you these funds. Right, to compensate them for this. Great advice they're giving you to go into these high expense ratio mutual funds. It's not a service though. I would try to avoid that fund if you can. Looking around that 401, see if there's something better. I get the draw for a target retirement or life cycle style fund. It's a great choice. These life cycle funds are a great choice, particularly for a resident. All your investments are in a 401 or they're in a Roth IRA or whatever. It's fine to use these life cycle funds. It's a one stop shop. Get back to learning medicine. It's great. I don't like high expense ratio ones. If that's all that's available to you in your 401, maybe you got to suffer with it for a year or two. Fine, if it's your ira. Look around, you're probably in the wrong fund. You can get something that's dirt cheap. Index funds. Fidelity has two sets of these life cycle funds. One that the advisors sell with high costs and one that the advisors don't sell with low cost. And so when you deal with Fidelity, you got to be aware of that. We had a podcast a few weeks ago where we talked about the problems with Vanguard. Well, this is one of the problems with Fidelity, right. Fidelity is a privately owned company. They want to make a profit. The Johnson family, I think still owns it. And what they try to do is have you come over with these lost leaders, these super low cost 0er index funds and then hopefully you buy some other services there like their expensive actively managed funds. And so that's the problem with Fidelity is you got to be aware of that dichotomy and negotiate it and navigate it it properly so you're not getting ripped off at Fidelity, in your case leaving residency. If this isn't a 401k, you probably want to just convert this all to a Roth ira. That's one of your priorities as you leave residency. And there'll be a little bit of a tax cost to doing that most likely, but it's probably worth paying and maybe you want to use some of your $40,000 signing bonus for that. All right, our next question comes from Noho.

Hey Dr. Dali, thank you for all that you do. I'm a beginner investor and a first time question asker. I've jumped into the Boglehead's philosophy and I think I've made the mistake of consuming too much information in a short period of time and I'm suffering from analysis paralysis and I'm hoping you can help. I'm confused as to why asset allocation should be diversified past investing in a total US Stock market fund. If you have a long risk horizon, why discuss adding value premiums, weighing and having different tilts, internationals, REITs, emerging markets, et cetera? It seems that looking at compound annual growth rates over the past 40 years, it's been most optimal to just edit your risk profile by changing the ratio in your portfolio, by changing the ratio between pure equity and a total market fund and fixed income, rather than adding asset classes or weighing different premiums. Obviously previous returns have no say in future, but I think I'm just having a difficult time getting started, so I was hoping you could speak on that again. Thank you for all that you do well.

Good question. And thank you for what you do. That goes for all of you out there listening. It's not easy to be a high income professional. You have a difficult job, that's why they pay you to do it. And so whether you're listening to this on your way to work, your way home, working out, walking, whatever, forcing your spouse to listen to it with you, whatever you're doing, thanks for what you do. It's not easy. And for those of you who are the money person in the couple, whether you're the high income professional or not, thank you also for taking care of the finances. Those of us who do that, primarily Katie and I split it pretty well, but I still do more than she does, know that it is work. There's actually some work and some chores and some jobs that have to be done there as you manage the money. So thanks for doing that. All right. It's difficult for me to talk about this question because it sounds like I'm talking down about a total stock market fund, which is my favorite investment. It's my favorite mutual fund. 25% of our retirement portfolio is in a Vanguard or an iShares, depending on if we've tax loss harvested recently. Total Stock Market Fund. It's in US Stocks as allocated by capitalization. Very low cost investment, very broadly diversified, essentially guarantees you the return of the US Stock market. I like this investment. It's a good investment. I've chosen not to put all of my money in it because I think there are other things that are worth owning. And one of the best explanations of this is imagine that you were a Japanese investor in the mid-1980s and you said, if I look at past returns, the Japanese total Stock market fund for the last however many years has done so well. Why would I bother investing internationally? Why would I bother investing at small and value tilts and REITs and bonds and all this other kind of stuff? If I have a long time horizon, why wouldn't I just put it all into this Japanese total Stock Market Fund? Well, the answer, for those of us who understand financial history is very clear. By the late 1980s, the Japanese stock market had collapsed and it basically has not yet come back. You know, it's come back some, it's paid some dividends along the way. But if you look at the Japanese stock market, I don't know, what is the Nikkei 225 or something? I can't remember what the index is called. Yeah, the Nikkei 225. If you look at that and you go back to 19, let's see, the furthest Google's going back for me is 1991. Well, in 1991 it was at 26,000. Well, today it's at 27,000. Right. It's been 30 years. Thirty years, the index has not gone up. Could that happen in the US or. Absolutely it could. Now, the US Is a bigger economy than Japan, although at that time Japan was a huge portion of the world's stock market capitalization. The US In a lot of ways, has some advantages. The Japanese does not, Japan does not. But this is the reason why you invest internationally, because you don't know when this is going to happen to your country. And so I think it's worthwhile owning international stocks. And it's so easy to do. Just like there's a total stock market index, there is a total international stock market index where you can buy all the stocks in the world in 30 seconds, essentially for free. Right. Not that hard. And you can own all these European stocks, all these, you know, Japanese and Pacific Rim stocks, Australian stocks, emerging market stocks in China and India, et cetera, in case you're not sitting on the winner. Okay, number two, you're looking at the past record. And what you may not be considering is that over the last 10 years or so, US stocks have done dramatically better than international stocks. Part of that reason is just the US Happen to do well, and part of it is the dollar has strengthened dramatically over the last 10 years. And so it looks like it's done even better than it has. But going forward, US stocks are more richly valued than international stocks are right now. And that gap is bigger than it's been in a long time. That pendulum swings back and forth and you haven't been investing long enough to watch very many of these swings. The last time international stocks did really well was in the 2000s. And they call the 2000s the lost decade, because the S&P 500 basically didn't go up. You know, if you count dividends, it did, but it basically didn't go up from the market high in 2000 until 2010. It's the lost decade, right? And maybe the 2000 and 2020s are going to be a lost decade for US stocks. And everyone by the end of it will be going, why does anyone invest in US Stocks when the record for international stocks is so much better? But that pendulum swings back and forth. So I think it's worth owning both. How much should you put in each is really up to you, but I think it's worth owning both. Jack Bogle didn't, though. He's like, US Stocks. Do business outside the US you're okay just owning US Stocks. I disagree with them on that point. Lots of people do. If you don't knock yourself out, just buy US Stocks. But I think it's a mistake. I think you ought to own some international stocks. Whether it's 10% of your stocks or 50% of your stocks, whatever, I think you ought to own some international stocks. As far as small and value tilting, in some ways, it's the same story. The question is, is diversification just owning the maximum number of stocks stocks, or is it about diversifying risks? Because the academics would tell you that there's market risk, there's small risk, there's value risk, there's all these other factors as well, but those are the big ones. And if you tilt your portfolio to small stocks and you tilt your portfolio to value stocks, you're actually diversifying your risks, even though you are not now market weighting your stock portfolio. And of course, over the last 10 years, what has done the best? Large stocks, growth stocks, US Stocks, tech stocks. So that means small value stocks and international stocks are more value y than growth. And so international stocks as well have not done as well. And so everyone goes, well, why don't I just invest in the Fang stocks? Since they do so well, they have the best historical record. Well, because the pendulum swings. That's why. And so I think you need to pick something you can stick with for the long run. For me, that's a little bit of a tilt to small stocks. It's a little bit of a tilt to value stocks. It's a little bit of a tilt to international stocks. It's a little bit of a tilt to real estate and I know there are times when those tilts are not going to pay off and there are other times when I will be very glad to have those tilts. Like 2022, right? US large growth stocks did not do awesome and small value stocks did much better. And so this has been a good year for a small value investor. But if you look back historically, there are good years and bad years. Over the long run, small in value seems to have outperformed, but it's probably a risk story. They're probably riskier stocks. And so I'm taking on more risk by tilting my portfolio to small and value stocks. If you don't want to tilt, if you just want to use a classic three fund portfolio, total stock market, total international total bond market, I think that's fine. Different strokes for different folks. There are many roads to Dublin, but I would encourage you to pick a mix of investments you can stick with in the long term and then stick with it. Don't swing back and forth because what will happen is you'll have a decade like the last one. You'll go, I should put it all in US stocks. Then you'll have a decade like the 2000s, and you should go, I shouldn't put any money in US Stocks and you'll be buying high and selling low. Don't do that. Just have a static asset allocation rebalance once a year. Take what the market gives you and you'll be successful in the long run. Hopefully that's helpful. All right, next question comes from Ross, who's thinking about changing his plan. Probably not a good idea, Ross. I know it's tempting. Probably not a good idea. Let's listen to your justification.

Hey Jim, longtime WCI follower, first time speak Piper, wondering your thoughts on adding a wrinkle to my financial plan. We followed our financial plan consistently for about a decade now, including maxing out our 401 defined benefit plan, HSAs as a stealth IRA and a yearly backdoor Roth for myself and my wife. After experiencing a couple of buyer markets, I've not had the slightest inkling to sell during them and have consistently found myself wanting to take advantage of the market downturn. We currently have a 75% stock, 25% bond portfolio and I'm 43 years old. We're considering changing our plan to have specific triggers to increase the equity portion. For example, my financial plan might read, if a 20% drop in the market occurs as measured by the price of VTSAX, we will change our investment holdings to 95% percent stock, 5% bonds. If we implement this, we would also plan to have a lesser trigger at 10% market downturn 85, 15. And plan for corresponding changes in times of market gains. It seems that this might help me to buy low and sell high over time. I don't mind doing a bit more work. In fact, I enjoy nerding out on this stuff. I'd love your blunt opinion on whether this is an unwise addition to our financial plan. Thank you.

Oh, Ross, that's very convincing. I think it's okay to do something like this. It needs to be written down in your plan. And our plan requires us to wait three months before making a change. So I hope yours does as well. Think about it. Decide if this is really something you want to do long term. But I think that sort of thing is okay. But you're only mentioning half of it. You haven't thought about the criteria of when you go back to the lower stock allocation.

Right.

Because going to 85% or 95% stocks, at some point, presumably you're going to want to go back down. And you got to pick the right time to do that. That's the difficulty in timing the market right. So you got to set criteria to do that. Is this okay to do? This is okay if it's what your plan says. I think you ought to follow it. But you ought to think about this in advance. What am I going to do? Make sure it's something you can tolerate. Consider the downsides of when this could burn you. You. Right. Because there are times when this could burn you. Look at the Great Depression, that sort of a thing. When this sort of thing might not have worked out as well as you think. And the other thing I would caution you is not really to make changes at 10 and 20% down. I've looked at the data on this particular point and the data is pretty good. When the market drops 40% plus that pouring money into stocks really works out well. The data is not very good. When stocks go down 10%. That pouring money into stocks is a good idea. And so I would encourage you to, if you want to do this tactical asset allocation, which even Jack Bogle mentioned was okay to do a little bit. And I think the amount you're doing probably still falls within a little bit is to, you know, I think, have a little bit bigger movement before you actually make any changes or you're likely to get whipsawed. The other thing to keep in mind is there are tax consequences to doing this in a taxable account. So if a lot of your investments are in taxable accounts, there's a cost to buying and selling and changing your asset allocation dramatically that may outweigh the benefits of doing so. But the idea here is simple. Stocks are cheaper when the price goes down. Same company, right? Walmart's the same company it was a year ago and now you can buy it for I don't know how much less. Let's look it up. Walmart stock over the last year, well, it's not down all that much. Walmart's actually about even over the last year. But anyway, if it was a stock that had gone down, say it had gone down 15%, well, you're buying the same company 15% cheaper. And that's the way the overall market is as well. So it makes sense to try to do that. It's just incredibly difficult to do in the long term. I think the best way to do it is with some sort of systematized plan. Maybe you go from 75% to 85% stocks after the market drops 25% and then you keep it there until the market recovers to its former high and then you go back to 75% stock. But you need to write that plan down, be comfortable with it. Look at it historically, how it would have been in a few different situations. Make sure it's going to pass the stomach acid test with you and implement it and follow it and stick with it. Don't be changing that sort of a plan every year or you'll end up regretting it. Okay, good question. It wasn't as crazy as I thought it was going to be. When I've made changes to my investment plan, I've often regretted them. So keep that in mind. I remember when I added REITs to my plan in 2007. Did not work out well. That initial investment I lost 78% on. Now we've stayed the course with it over the years and our long term return is just fine on that asset class. But that initial investment, the timing on it might not have been all that awesome.

Hi Dr. Dali, thanks for everything you do at the White Coat Investor. I'm a physician in the Midwest. My spouse and I are in our mid-30s and in terms of savings, we are about 70% of the way to our financial independence savings goal. I've been contemplating cutting back my hours to 6FTE so I can have more time for travel and hobbies and just less stress in my life. If I cut back, we would still be able to put about half of our annual household income into savings. So logically, I know we're in a great place financially to allow me to scale back. However, when I run the numbers after taxes, I currently make about $700 a day. So for each day that I choose not to work, it would feel like I'm paying $700 for the day off. As a frugal person, it's hard to imagine spending $700 a day just to read books and take my dog on walks. Am I thinking about this correctly? As far as feeling like cutting back my hours is paying a lot of money for more days off, do you have any advice for me in this situation? Thanks for your thoughts.

All right, great question. There are a lot of people out there listening to this podcast who can relate to your question. I know because they send me messages and I see their posts on Twitter and Facebook and I talk to them at the WCI conference. You are a natural saver. This advice I'm giving to this doc does not apply to everybody listening this podcast. It only applies to this doc and people whose mindset is like this doc. You have won the game. You haven't quite won it yet, but you are on track to. You will win it very soon. Okay, you're at 70% of the way to your FI number in your 30s. That's awesome, right? This is like physician on fire esque. He was fi at like, 39 or 40. That's where you're going. Okay. You're very frugal. You're talking about cutting back and still having a 50% savings rate. Okay, so you have won this game that a lot of people struggle with, of earning enough money and saving enough money and investing it wisely. A lot of people struggle with this. You do not. You won. Okay, but there are five money activities, and you are not winning at all of them, I suspect. Okay, the first one is earning. Sounds like you're doing fine there. You're making 700 bucks a day after tax. The next one is saving. You're clearly doing well here when you can cut back on work and still have a 50% savings rate. He didn't mention your investments, but I'll bet you're doing fine. There's. The next one is spending. I don't think you're very good at spending, and I can relate. I'm not very good at spending either. And I think you need to spend some more time and effort on spending and frankly, some money on spending and figure out some things that you can spend money on that will make you happier. Now, one of those is probably cutting back at work. Okay. Does this cost you money? Yes, it costs you 700 bucks a day. And guess what? There will come a time in your life in the not very distant future when that seems like a fantastic deal. Because here's the deal. You can always make more money. You can't make more time now. You're in your 30s, you're young, you're in the hard charging era of your career. But there will come a time when you will realize that you only get so much time on this sphere going around the sun and you can't get any more of that. And $700 for a whole day of it, That's a great deal. You know, I'm like 700, wow. I'll pay 700 bucks for a day off. That sounds like a great deal to me. And so don't think about it that way. Think about it as you have enough money or soon will. You could be on coast fire very easily and be there in just a few years even if you don't save anything more and start thinking about, well, how can I buy some of my time back? And you can buy time back by paying someone else to clean your house and mow your lawn and shovel your driveway and do your grocery shopping for you and work on your car for you. There's lots of ways you can buy time back, but one of which is just by working less. So I have done this. I have bought my nights back by paying my partners to work them. I do not work after 10 o' clock at night ever. I used to work after 10 o' clock a lot. My daughter talks about staying up. We're going on a trip here soon where we got kind of a red eye flight. And I'm like, ah, I don't like staying up all night anymore. I've already spent enough of my life in those early morning hours awake. I don't want to do it anymore. So I have also cut back on my shifts at work. I've essentially bought my time. Now what does an emergency medicine shift pays? They probably pay on average about two grand after taxes. It's going to be less than that. I don't know, 1200 bucks, something like that. And so every time I drop a shift, it's 1200 bucks a month and I get a day off for it. I get this time that I can use to do something else. And so that's a very good price to pay. It's not all about money. You only need enough. And it sounds to me like you've figured out how much is enough and when you have enough more does not make you any happier. So as you are well on track to having enough, you may want to cut back a little bit early and start buying some of your time back and doing those things you enjoy, even if they're very inexpensive things. Walking a dog or eating books don't cost much money, but you've got to decide what your life looks like. You should not feel guilty that you should be at practice, at your practice all the time practicing. You should not feel guilty about spending some time off, about not earning as much money as you can possibly earn. Find balance in all things. But for you, you are like me, a natural saver, not a natural spender. You got to spend some time working on the spending skills that I suspect have eluded you to this point and realize that you have got saving problem, an earning, saving, investing problem. You're very good at those to the detriment of the rest of your life. And I would bet that there are some things that you would like to spend a little bit more money on when you sit down and think about it and come up with a deliberate plan to do so. So congratulations. You are in a minority of people, a minority of physicians. It's difficult for most of us to save as much money as you're saving. And so you've won from that respect. Now it's time to start thinking about what next. What are you going to do with the remaining 10, 20, 40, 50 years left on this planet? How much of it do you want to spend practicing medicine? How much of it do you want to spend reading books and walking your dog? It's now your choice. Congratulations. You win. Still not sure what to do with your student loans? Overwhelmed with how to tackle that giant debt in an ever changing political climate, the experts@studentloanadvice.com are here to help guide you through the best options to manage your loans. Our experienced staff have consulted on over $250 million in student loan debt and the averagestudentloanadvice.com client has saved over $190,000. You will receive a customized student loan plan using the principles of the White Coat Investor. Get answers to all of your student loan questions, gain clarity about your financial future, and start down the right path toward financial freedom. Book a consult today@studentloanadvice.com you can do this and the White Coat Investor can help. Don't forget about our survey. We appreciate you you taking that whitecoatinvestor.com survey. It's only open for a few more days. It helps us to guide what we do for the next year. It really does matter what you put on that survey. We make changes every year based on the responses to it. Thanks for those who have volunteered to be White Coat Investor Champions. If you are a first year medical or dental student and somebody has not yet handed you a white Coat Investor book this year, be the champion for your class. Be the person who hands them out to your classmates. Whitecoatinvestor.com if you'd like to take the expert witness class that we mentioned earlier, this online course by Gretchen Green, you can sign up for that@whitecoatinvestor.com ExpertWitness thanks for those of you leaving us reviews these 5 star reviews do help us to spread the word about physician financial literacy. One came in this year from Tactical Magic who said Best Financial Podcast Period? I've been listening to the podcast for years and can easily say this is the best financial podcast out there. Objective, carefully researched and accurate. Whether you're an md, an MBA like me on the path to fi, or just trying to figure out whether the whole life insurance policy your brother in law's friend is trying to sell you is a good idea, the White Coat Investor is the best place to start. Thank you to Dr. Dali and your team for everything you do. 5 stars. Thank you so much for that great review. Keep your head up, shoulders back. You've got this and we can help. We'll see you next time. Thanks so much. Have a great week.

The hosts of the Y Code Investor Podcast are not licensed account accountants, attorneys or financial advisors. This podcast is free entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.