WCI #311: Asset Location

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 311. 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. All right, let's get right into our questions today. You guys always complain there's too many ads, too much promotion at the start of the podcast, so let's just take your questions right from the top. This one's from Tom. He's asking about high yielding ETFs and.

Where to stick them.

Hi Dr. Dahl, this is Tom from California. I have a question regarding ideal locations of higher yielding ETF funds across my taxable account, my tax deferred accounts or my Roth tax free accounts. Specifically, the funds are a TIPS fund, a REIT fund, vpn, a utilities fund, vnq, a total bond market, a total international bond market fund and a short term bond fund. All of these Vanguard. The question is, is it best to utilize all of the space within the tax deferred and the tax free accounts exclusively for those income producing funds, in spite of the fact that that takes away some opportunity to grow equities within that tax deferred and tax free space. Or is it better to have some of those funds, particularly the lower yielding ones, sit on the taxable account and allow a full equity fund like VTI to be in either the roth and the 403? Would appreciate your thoughts. And specifically, is there any difference between whether it sits in the Roth or if it sits in the 403 in terms of what you would put where?

All right, great question. It is not an easy question. I know you managed to record it.

In an hour and a half, in a minute and a half, but it's.

Going to Take me an hour and a half to answer it. All right, we're talking about asset location. And yes, this is a topic I've hit on a lot. If you want the definitive source, go to whitecoatinvestor.com asset location and it will talk about all of these principles. Okay, we are talking about portfolio design here. And the important thing with portfolio design is that you start at the top, right? You set your goals and you choose what accounts you're going to use to reach that goal. You know, typically for some things it's very simple.

You know, if it's a health goal.

You'Re probably using an hsa. If it's a college savings goal, you're probably using a 529. But if it's retirement, you probably have five or six different accounts that you're.

Using toward that goal.

Once you've chosen those accounts, you choose your desired asset allocation and then you choose the individual investments to go into to fulfill that asset allocation. You know, you're choosing funds now and then you're trying to decide where you put each of those investments inside those accounts. So this is like step five, the tax efficient fund placement or the asset location. That's what we're talking about here. And there's a few principles you should.

Be aware of here.

But the first thing overall, remember that this is not a problem for lots of people, right? If you only have a taxable account, or almost your entire portfolio is a taxable account, well, everything's going in the taxable account, very easy. Likewise, if you have all your money in a Roth ira, like you're a resident or something, you know, obviously everything's going in there, right? If you have space in a Roth ira, you're going to put the investments there. That's great. They grow tax protected. If all your accounts are tax protected, that's great. You don't have to deal with what do I stick in taxable. It's only for people that have some of the retirement money in a taxable account and some of their money in a tax protected account that this becomes an issue. So keep that in mind, right? Initially, there have been times in my life where my portfolio was 100% tax protected. And so I didn't have to figure out what went in taxable. I didn't have anything in taxable. And obviously if you can put everything in a tax protected account, that's better, right? You wouldn't pass up an investment in a Roth IRA in order to invest something in a taxable account.

Now there's A few things that you're.

Just not going to put in a.

Tax protected account, like municipal bonds or you can't put savings bonds in there, for instance.

But for the most part, if you're given the choice between a Roth IRA and a 403 or whatever on one side and a taxable account on the other, of course you're going to put.

It in the tax protected account. That's a good thing.

All right, so keep that in mind. All right. Assuming you've got a blend of accounts and you've got to put something in taxable, here are the principles to keep in mind. Number one, the higher the expected return, the more likely that the asset should.

Be in a tax protected account.

What you're trying to do here is grow the ratio of tax protected to taxable. So that would emphasize that whatever you think is going to have a high return should be in that 403, in that Roth IRA, et cetera.

Okay?

So that's principle number one. Principle number two, the lower the tax efficiency, the more likely the asset should.

Be in a tax protected account.

So this is mostly what our questioner is talking about, talking about tax inefficient investments. You know, tips tend to be pretty tax inefficient. I mean, you can get taxes on tips for income. You didn't even receive this phantom income, for example. I've got some tips now in my taxable account because almost everything's in my.

Taxable account now for me.

But I've got these tips in my taxable account that I had like $1,700 last year of taxable income sent to.

Me on a 1099 OID original issue discount or whatever I think it's called.

And I owe tax on that $1,700 or $1,800, but I didn't actually get the income. I don't get the income until I sell that TIPS or it matures. So that's lame, right? Phantom taxes. That's a great reason to keep tips in a tax protected account, if you can. It's usually one of the last asset.

Classes that you move out of tax protected accounts into a taxable account.

Likewise, high returning, but tax inefficient investments think like debt real estate funds, you know, REITs in some respects, although they're a little more tax efficient now than.

They used to be.

You know, that stuff tends to do.

Well in a tax protected account as well.

It tends to be one of the.

Last things that you move out.

Now, obviously, if you have two stock Funds, one has a higher yield than the other one. Both expect similar returns, but one of them is putting out more income. It's a value stock fund or something. You know, you're going to try to keep that one preferentially in the tax protected account. So for most people, the way this works out is the first couple of things they move out into a taxable account is a total stock market fund, a total international stock market fund. If they have a municipal bond fund.

Those are the sorts of things that.

Tend to move first and the things that tend to move later. Anything actively managed bonds tend to move relatively late out of your tax protected accounts. Tips, certainly REITs, certainly those sorts of.

Investments are the ones that you tend to move to taxable last when you're forced to.

All right, principle number three, the more likely you are to avoid paying capital gains taxes, the more likely you should put capital gain assets in taxable. Let me go over that one more time. The more likely you are to avoid paying capital gains taxes, the more likely you should put capital gain assets in taxable. What's a capital gain asset? Well, think about like a total stock market fund, right? This is going to be, you know, most of the return is capital gains. It's not income from that fund. It's very tax efficient. And if you are somebody like me that donates a lot of money to charity and you donate appreciated shares instead of cash, or you plan to leave those assets to your heirs where they'll get a step up in basis, that is, you are likely to avoid paying capital gains tax taxes. That is a great asset to have.

In a taxable account.

You know, there are things even more tax efficient than, you know, a total stock market fund, for example, cryptocurrency.

Right now, I don't know if it's a good investment. I don't know if you'll actually have a positive return.

But if you're convinced that you will, it's very tax efficient. You basically don't pay taxes on it until you sell it. And so if you leave it in there for 50 years or you leave it in there and leave it to your heirs, right? This is super tax efficient. And so that's a good place for it. Even gold, it gets taxed as a collectible when you sell it. But if you don't sell it, there's no income from it. So it's a capital gain asset. Taxable can be a good place to have that. All right, principle number four, the more volatile the investment, the more likely it.

Is better in A taxable account.

And the reason why is cause it.

Gives you opportunities to tax loss harvested.

And especially if you're not paying capital gains taxes because you're donating to charity or savings, you know, appreciated assets for your heirs, then you get the losses and never have to deal with the gains. And so that can be a great.

Thing to have in a taxable account comparatively.

You know, obviously if you can put it in tax protected, do it.

But if you got to put something in taxable, that can be a good asset there.

Principle number five, place high expected return assets into tax free accounts. But recognizing that you are taking on additional risk. All right, so this is the Roth versus tax deferred question, right? What do I put in my Roth? Well, a lot of people say, oh, put the thing with the highest expected return in the Roth. So you increase your ratio of Roth to tax deferred. Well, that's probably not the worst advice, but recognize that all you're doing is.

Taking on more risk.

The best way to think about a tax deferred account, mentally the way to account for this is to, you know, think of it as a tax free account, I. E. Part of that is like a Roth account and the other half is an account you're investing on behalf of the government. And if you think of it that way, you'll make the right decisions.

Okay?

And so it's not, doesn't really matter if you're putting your assets in a.

Tax protected into a tax deferred account.

Or tax free account. Just recognize that if you're putting in a tax deferred account, you have to put more in there because after tax, it's less money than the tax free account is. Okay? So that means if you're putting stuff into the tax free account, the Roth.

Account, because you think it's going to be better, that it's going to grow.

Faster, so on and so forth, you recognize that's probably true, but it's just because you're taking on more risk, your ratio of money in that asset class.

Is greater because if you look at it from an after tax basis, you have more there now because you put it in the tax free account.

All right, principle number six. If you have a required minimum distribution problem, which most people don't have, but if you actually do have a required minimum distribution problem, increase your tax free.

To tax deferred ratio. The way you can do that is typically with Roth conversions.

Alright, so that is basically the advice.

The principles you should keep in mind.

Now some people don't like Principles.

They don't want to apply principles. They just want to be told what to do.

Okay, all right, here we go. I'm just going to tell you what to do.

Now.

It's in accordance with those principles. But some people just want to be.

Told what to do. So here's what to do.

If you're going to invest in muni bonds, do it in a taxable account. The ad interest is federal and sometimes state tax free. If you have an investment with a high expected return that is very tax efficient, like a hard money loan fund earning 11% for instance, that is likely worth moving it into a tax protected account, even if you end up paying some fees or cost or hassle to do so. Put your bonds in your tax deferred accounts. Recognize this isn't a free lunch. It's not necessarily the right thing to do at very low interest rates. But even when you're wrong, it doesn't matter much if you have to invest in a taxable account. The types of assets you want in there include equity, real estate, municipal bonds, total market stock index funds. If you're taxable, the tax protected ratio gets so large that you have to find another asset class to move into. Taxable. Congratulations. You're going to be very rich. Quit worrying about stuff like this. Max out your retirement accounts. Consider doing Roth conversions. REITs and mutual funds that invest in rates probably belong in a tax protected account, even if they would qualify for.

The 199A deduction because that income is taxed at ordinary income tax rates.

I mean, some of it comes out.

It'S protected by depreciation, it comes back as return of principal, but the actual taxable income is taxed at ordinary income tax rates. And don't bother doing anything else. You know, it's just as likely to be wrong as right. And even if you're right, it's not going to make that big of a difference. Just worry about getting the big things right.

You know, if you're having to decide.

Whether to put your, you know, large.

Value fund or your small value fund into taxable.

Next. Don't kid yourself. That doesn't matter that much.

All right, Is that a long enough rant for you? Let's get on to the next Speak pipe question. Next one. This one. It comes from Tom. Oh, same guy. It's not the same guy.

Maybe it's the same guy.

We'll find out. Let's see if he sounds the same same name.

Hi, Dr. Dahl, this is Tom from California. I'd like to get your Thoughts as to the wisdom of investing in a QLAC as a deferred longevity risk strategy? And if you could explain what a QLAC actually is and what, what are some of the pros and cons of actually doing it, and any particular tips as to how much and whether you would advise a different type of annuity approach for longevity risk.

Thank you. Well, let's start by talking about annuities in general.

Right? Annuities are not required items.

Most annuities are crap.

They are products designed to be sold, not bought.

So you need to start with that mindset. Anytime you're talking about annuities, almost surely somebody talking to you about annuities, recommending annuities is probably selling you an annuity.

Okay?

So keep that in mind. Most of them out there are variable.

Annuities, which are basically a high expense.

Not necessarily more tax efficient mutual fund.

And often a crappy actively managed one.

So beware of that. Now, if we're going to talk about the good annuities, we're talking about low fee annuities, straightforward annuities, not necessarily a lot of bells and whistles. Keep in mind we're talking about a.

Very small subset of what annuities are out there.

So one of my favorite kinds of.

Annuities, if I have a favorite, is.

What'S called the single premium immediate annuity or a spia. And all this is buying a pension. You take a lump sum of money, you give it to an insurance company and they start paying you every month.

From now until the day you die.

So think of it as a way to spend your money in retirement rather than an investment.

It's like how to kind of protect yourself from living a long time. And in fact, people who have annuities actually do live longer on average. I don't know if they're trying to stick it to the insurance company or what, but it's true. Maybe just people that have long life expectancies are the ones who actually buy.

Annuities because of that they're not priced all that well. They assume you're going to live longer.

Than average when you're buying annuities.

And so in fact, your best annuity out there, if you're thinking about buying annuities, the best one is to delay.

Your Social Security to age 70 because.

That one is not priced in that way.

And so, you know, if you're not.

Going to delay your Social Security to.

70, you probably shouldn't be thinking about annuities. Right? Because that is your best priced annuity out there.

Plus, it's like the only one you can still get that's indexed to inflation.

So keep that in mind.

But there are other types of annuities that you might want to consider in.

Some weird situation, such as a delayed income annuity. And this is what you think of as longevity insurance.

You may give an insurance company a lump sum at 60 and they pay you nothing until you're 80. But when you turn 80, if you're still alive, they start writing you these huge checks that might be 35 or 40 or 50% each year of what you put in that thing at 60, because they got 20 years to invest it, right?

And a whole bunch of people that bought them died. And so they can afford to pay you out that much and still make.

A profit on it. And this is one way to kind of give you permission to spend and.

To make sure you don't run out of money late in retirement. And so you spend your regular money during your go go years.

And, you know, you got this thing coming just like, you know, you have Social Security coming at 70 or whenever.

And so that gives you permission to spend your assets as you go along on a cruise to Greece or whatever, knowing that even if you do live to 98, at least you got something to live on.

Okay, so what is a qlac? A qualified longevity annuity contract.

Okay.

This provides guaranteed monthly payments that begin after the specified annuity starting date. Well, that sounds like a delayed income annuity, right? This is something you buy now, it.

Doesn'T pay you until later.

And the reason why it's a Q lack is the Q is qualified.

Right?

When we're talking about qualified, we mean qualified with the irs. And so that means we're talking about retirement account assets. You're buying this with your IRA money, you know, your 401k money.

Although I think you probably usually roll it into an IRA before buying one of these.

And the big benefit here is that while that money is sitting in there, you're not paying RMDs on it.

So RMDs for most of us who aren't already getting RMDs or soon will be, are going to Start at age 75 after secure Act 2.0, you know, is fully implemented.

And so we're talking about someone that's, you know, getting up there a little.

Ways by the time this becomes an issue.

But you don't have to pay on the money you put in a QLAC.

You don't have to pay RMDs on it. You know, when, when it pays out later, you got to take that money out and pay taxes on it, obviously. But, you know, so that's one thing you can do.

If you truly have an RMD problem.

And you're just totally opposed to giving.

The government any more money, you can buy a QLAC with it and further delay when the government gets their money for your IRA.

So that's one benefit of it.

I think by 85, they have to.

Be paying you something. I think that's as long as you can push it. But you're going to be taking money out of it, at least by then. But that's basically it.

It's an investment vehicle that allows funds in a qualified retirement plan to be converted into a delayed income annuity, should you buy them.

I don't think most White Coat investors need this product. I think it's a product designed to be sold, not bought for the most part. But if you listen to what it.

Is and you're like, oh, that's really what I want.

Go buy one, it's fine with me. Don't put all your money into it.

But if you want a delayed income.

Annuity with this little side benefit of maybe delaying your RMDs with some portion of your nest egg and you're using an IRA to buy it, you know.

Fine, go buy it.

But I think mostly it's just something out there being sold.

All right, in case you're not aware, we have a subreddit. What's a subreddit? Well, a subreddit is like a little category on Reddit that's just us. It's called, it's@Reddit.com r whitecoatinvestor. And it's where White Coat Investor hangs out on Reddit. So Reddit calls itself the front page of the Internet. It's a very, very popular forum. Software people like it because you can upvote stuff and downvote stu and stay really, really anonymous on it has very little promotion.

We're not allowed to do much promotion on it. And so, you know, if that's kind.

Of your idea of an online community, check it out. If you're on Facebook, check out our Facebook group. If you like the White Coat Investor Forum, you're more than welcome there.

We host that right@whitecoatinvestor.com actually forum.whitecoatinvestor.com but.

If Reddit's your preferred format, come see us on Reddit.

Reddit.com R. Whitecoatinvestor.

All right, this question's from James, great name. We're going to talk about asset allocation.

Hi, Dr. Dali. My question is regarding the asset allocation of my non qualified deferred comp account in retirement as it draws down in relation to my other accounts. So I know that we have to think holistically and I'd like to keep an overall 65, 35 stock bond split, but because the deferred component plan is a forced payout each year, in my case over 15 years starting in retirement, I'm wondering if it might be better to remove it from my overall asset allocation and consider it separately, keeping it more conservative, perhaps a 2575 allocation, almost treating it like an annuity where the annual payout will be fairly reliable, or in the alternative to not do that and just think of it as one of the rest of my accounts, one account that makes up the overall allocation. If I did that, would you still keep it more conservative in relation to the other accounts since it is a forced payout? What do you think some of the pros and cons or the best way.

To look at that might be? Thanks.

I think you're making this more complicated than it needs to be. I don't see any reason to make that a separate asset allocation.

I mean, you're taking over 15 years. Yeah, you might start taking it out.

In a bear market, but say your.

First two or three years of withdrawals.

Are in a bear market and then it's going to be a bull market.

For a while and then it's going to be another bear market.

Now, 15 years, I just treat it like any other account.

I mean, you're only going to be.

Taking out what, 7% or something a year. So, no, I just fold that into the rest of your asset allocation.

Keep in mind, let's say you do get really aggressive with it, right?

You happen to keep a bunch of.

Stocks in it, for instance, and stocks do really terrible. Well, some other account, because you're looking at everything holistically, some other account has invested less in stocks now. And so that account did comparatively better. So that's fine. Even though this account kind of got hammered, you got another one that did well to offset it. And so that's why you look at it all as one big hole. So all money directed at one goal.

Like retirement should be managed as one asset allocation. And I don't see this as an exception to doing that.

You know, maybe if you had to.

Take all the money out over two years or and you were about to.

Start taking it out, maybe you'd put it in cash or something, or even five years.

But 15 years, no, I mean, that's like everything else you have. So I wouldn't, I wouldn't change anything for that.

All right, if you're listening to this on your way home, had a bad day today.

Nobody said thank you, Right?

You're heading, you're into work, you're tired, you're trying to get some caffeine into your body before you arrive at the hospital.

Let me just tell you thanks for what you're doing.

It's not easy.

It's hard work.

Earning income is a hard thing to.

Do and oftentimes it's thankless. And lots of us that go into.

These high income professions are really doing it out of a service mentality. And so when it doesn't feel like anybody appreciates the service we're given, it.

Makes it that much harder.

So.

So nobody's told you.

Thanks today.

Let me be the first.

Okay, another question on asset allocation.

Actually, I think it's more of a question of what to do when your bond options suck. But let's take a listen.

Hey, Dr. Dali, thanks for all that you do. I do have a question regarding asset allocation. We are aiming for an 80:20 stock to bond ratio in our portfolio. Unfortunately though, my only bond option in my employer accounts for my 401 and 457 is Metropolitan West's Total Return Bond Fund, or MWTRX, which does have a relatively high expense ratio of 0.65. We do have a taxable account which is 100% stock, with our goal of keeping bonds in the tax protected accounts. However, as our taxable account has grown to maintain that 8020 portfolio, more and more of my 401 and likely soon, the majority, if not all of my 401 will likely need to be in.

That one bond fund.

My 457 is already 100% in that fund. Would you recommend transitioning the majority, if not all, of the 401k to that fund despite the relative high expense ratio? Or would you recommend using the taxable account for bonds knowing that it will be lower cost but maybe not quite as tax efficient? My 401k does have lower cost funds available for stocks such as vti. Appreciate your input.

Well, I guess it wasn't an asset allocation question, it was a tax location or an asset location question. We kind of covered this at the top of the podcast. You're weighing two factors here, right?

You're weighing tax efficiency and you're weighing the ability to have higher returns in your tax protected accounts.

And there's no right answer to this.

Sort of a question like you have, this doesn't matter all that much.

What would I do in this situation?

I don't like pain for ridiculously priced mutual funds.

0.65 makes me mad and so I probably wouldn't use it. Now what does that mean for you? It means you're probably going to be using a municipal bond fund and taxable, which is fine. It sounds like your taxable to tax.

Protected ratio is growing anyway and you may have to put bonds out there anyway soon. You know, what are you going to.

Do when your whole 401 and Roth IRA is filled up with bonds?

You're going to have to put some.

Bonds in taxable anyway, so you might as well get started and then take.

Advantage of what's good in the 401.

When locating your assets, you usually look at at the retirement accounts you have.

And see what's good in there. You know, many employer 401ks sting, you know, maybe there's one S&P 500 index fund and the rest is terrible high priced, you know, actively managed funds and.

It might be a while before somebody gets around to suing them for breaching their fiduciary duty to their employees and you've got to deal with it in the meantime. So maybe in that sort of a situation you would put all your money into that 500 index fund in that 401k and build out the rest of your asset allocation in other accounts. Now don't let the tax tail wag the investment dog. Don't change your asset allocation just because of that. If you have to use the bond fund with an ER of 0.65% then use it, that's okay.

But you know, in general I don't like doing that. So in this case I'd probably take that 401 and use the best fund in it.

Sounds like you have VTI there, which I obviously think is a great fund. Got 25% of my portfolio in it. That's the total stock market index fund. And I'd probably use that in the.

401K and put the bonds elsewhere, whether it's a Roth IRA, whether it's a 457, whether it's the taxable account. Usually there's muni bonds there. If you're like most high income professionals. But I wouldn't feel like there's some dogma that you're a total investing idiot if you don't have your bonds in your tax protected accounts.

The majority of My bonds are in the taxable account. Of course, the majority of my portfolio.

Is in the taxable account. So it doesn't bother me to have.

Some bonds in taxable.

It's not the end of the world. As a general rule, if you're given.

The choice, you want to put everything in tax protected. And maybe bonds aren't the first thing.

You move out of there. But don't let the tax tail wag the investment dog.

Good luck with your decision.

Console yourself with the fact that it doesn't matter all that much. The things that really matter are having the right asset allocation, the right mix of risky to risk less or less risky assets, your savings rate, your income, staying the course with your plan in a bear market, those are the things that really matter.

When we're talking about this sort of stuff, we're off in the weeds pretty far.

It doesn't matter that much.

Okay, now let's talk about a 457 plan.

This one's from Tyler.

Hey, Dr. Daly, this is Tyler in Louisiana. I had a question about asset allocation in a 457. Given the typical less than ideal distribution options in the 457, does it make sense to have a majority of my bond allocation in the 457? My thought is that if I keep my overall mix as I like it, but put the majority of my bonds in the 457, this would theoretically lead to less growth in the 457 and then less of a tax hit when I receive the distribution upon parting with my employer. Am I overthinking this or do you think this makes sense? Thank you for all you do.

Hey, I got a great idea. You don't want the tax hit. Don't put the money in there to start with. Or better yet, just leave it in cash or just stuff it under the mattress. Then you won't have to pay taxes on it. I mean, seriously, sometimes we let the tax tail wag the investment dog. Don't do that. Paying taxes is not a bad thing. Usually when you pay taxes, it means you made a lot of money. That's a good thing. If you got to pay a whole bunch of capital gains taxes, that means whatever you bought appreciated a lot. If you have to pay on a lot of income, whether that's qualified dividends or whether that's ordinary income or earned income or whatever, that's a good thing. Not only do you get to help us build roads and defend our borders and all that sort of stuff, but it means you made a lot of Money. So don't beat yourself up about paying taxes. Why in the world would you want your retirement accounts to grow less so that you paid less in taxes? That's dumb. Don't do that. You want them to grow. And in fact, it's better if you have a higher ratio of money in a tax protected account than you do in a taxable account because it grows faster there because it does not have that tax drag on it as it grows. So don't deliberately pick crappy investments that don't grow just so you pay less taxes on. Now, all that said, is it okay to put your bonds in a 457? Sure, there's nothing wrong with doing that.

That's often a good place to put.

Them, but not for the reason you're talking about. Just because that's overall the better tax location strategy, the asset location strategy that.

You want to use for the overall portfolio, not because you know some of that is going to be paid in taxes.

Think of those tax protected accounts, those tax deferred accounts anyway, as partly your money, partly the government's money. And just forget about the part that's the government's money. If you're in, you know, the 33% bracket, a third of that account is not yours. The rest is a Roth ira. Think of it that way. You invest them together and at some point in the future, the government gets their section. You're never going to get it. It's not yours to start with, it's not yours as it grows, it's not yours in the end, it's not your money. The part that's yours is the other 2/3. But you invest the whole thing. You're investing that one third on behalf of the government. And so you want to make sure that you are investing your part right. And in order to do that, it means you got to invest the government's part right too.

So hope that's helpful to you.

All right, a quote of the day from my friend William Bernstein who says you are engaged in a life and death struggle with the financial services industry. If you act on the assumption that every broker, insurance salesman and financial advisor you encounter is a hardened criminal, you will do just fine. It's not that they all are. It's just that's the mindset you need.

When you interact with the financial services industry.

All right, one more question. Let's take this one. This is from columnist Ricky Rossella. Always love hearing from him on the speak pipe.

Hi, Jim. Keep up the great work of the podcast. You and the WCI crew are always doing a bang up job. One of the questions that you had answered a few weeks ago was regarding a podcast listener where his 401k options only included a total US stock market index fund or an S&P 500 fund, one of those at low cost as well as a bond fund at low cost. But his asset allocation had called for international, whereas the only option in his international fund that was offered in the 401k was 80bps. You had mentioned that really you should still choose that fund and follow your asset allocation that you had chosen before. But I'm not sure if that would be the most optimal because of the high costs or always guaranteed to eat up your returns. I'm not not sure how much diversification benefit you're going to get by paying 80 bips over something like an SB 500 run. That's two or three bips. Are you really going to get that much benefit for the fees you're paying? So I'm not sure if we really should have diversification among sub asset classes when costs are high. Wonder if you can comment how much is diversification among sub asset classes worth? Is it really worth that extra 75bps or more? Your thoughts would be great.

Thanks. All right, great observation. Let's have an argument about it. Here's the deal. First of all, for those of you who don't know what a BIP is, right, we're talking about basis points.

So 1 bip, 1 basis point is 0.01% per year.

So if your expense ratio is 0.80.

That'S 80bps or 80 basis points, you know, 4/5 of 1%.

Okay, here's the deal. Don't let your available investment options. Don't let taxes dictate your asset allocation. Choose the asset allocation first. Don't let your 401 holdings dictate what.

Your asset allocation is going to be.

Because your asset allocation is relatively long term, you're probably not going to be in that 401 forever. All your money isn't going to be in that 401. Some's going to be in Roth IRAs.

Some might be in a 457.

Some might be in your spouse's accounts with totally different options.

Some's probably going to be in a.

Taxable account eventually, right? So don't let the 401 options dictate.

Your asset allocation now.

You might have to make some adjustments.

Now and then, you know, if your.

Only option in a 401k is for international stocks that your plan calls for is really expensive. Well, what are your options? You can use it or you've probably got a Roth ira. Why don't you put it international there and you can pick a really great international fund to put in the Roth IRA and just stick with the US.

Stocks in the 401.

Build around what's good in the 401. But I would not change your overall asset allocation just because you gotta pay a little more expense to get a.

Certain asset class or certain fund.

Now, whether it's worth having a whole bunch of different asset classes, if having a really complex portfolio is a totally different question. There's a great value in simplicity. Thoreau said, simplify, simplify, simplify. And I used to have more stock asset classes in my portfolio than I do Now. In about 2016, we simplified a little bit.

We, you know, took some.

Asset classes and consolidated them. We basically used to have a large value allocation and we had a small value allocation. We had a micro cap allocation. Now we just have one small value.

Allocation that is bigger. You know, it used to be 5% in each.

Now it's 15% total in small value and that's simpler.

We decided that was worth it for some simplification in the portfolio and you may choose to do that as well.

Certainly once you get beyond 10 asset.

Classes in your portfolio, you're just playing with your money at that point. So keep in mind the simplicity versus complexity matters. But if there was no benefit at all to having more than one asset class, none of us would do it. There obviously is some diversification benefit there.

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 to visit our White Coat Investor subreddit@Reddit.com r Whitecoatinvestor. Thanks. For those of you leaving us a 5 star review and telling your friends about the podcast most recent one from neuroradsrock said, Absolutely changed my life. Helped change the course of my finances drastically.

Read the blog also.

It's fantastic.

I agree. The blog is fantastic. I'm amazed how many of you don't read the blog.

I pour my heart and soul into the blog.

I feel like I do the podcast on a whim. But you guys like podcasts, so we'll talk to you about the stuff on the podcast. It's great.

All right, that's it. Our time's up. Keep your head up. Keep your shoulders back. You've got this and we can help.

We want you to reach your financial goals. We want you to find all the professional and personal and financial success you deserve. See you next time on the podcast.

The hosts of the White Code Investor Podcast are not licensed 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.