WCI #333: Investing in India's Stock Market and More!

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 333. Investing in India's stock market and more. 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 average studentloanadvice.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. But book a consult today@studentloanadvice.com you can do this and the White Coat Investor can help. All right, well, by the time you're listening to this, it's now September 21st. I promised you, I think, last week that I would tell you about my trip to Half Dome. And I'm not going to do that. Not because it was that traumatic, although maybe it was that traumatic, but because it would take too long. But for those of you who like adventure stories want a particularly long read, and when I say long, I'm talking 15 or 20,000 words. You can check out the story@whitecoatinvesture.com Half Dome it was a pretty remarkable experience, pretty tiring. And we found ourselves equal to the task, but just barely. And at one point, I think I climbed for 24 hours straight. And I know I had my harness on for, you know what it ended up being, I think about 44 hours straight during the main part of the climb. So it was pretty exciting, epic, adventurous, terrifying, but very rewarding ascent of the face of Half Dome in Yosemite. So we did make it. I'm still here making podcasts, so let's get going. One other thing you should know about, I think we mentioned last week, WCICON 24 early bird registrations open. That only goes through October 12, though. Okay. You'll be able to register after that, but it's going to cost you more money. For now, it's 300 bucks less, so register now. Between now and October 12th, you'll save yourself some money. Okay. You can use your business money to do this, right, this is a business expense. You're going to get CME for it. You can use your CME funds to pay for this. So it's like paying with pre tax dollars for most of you, right? Last week I told you about one of the keynote speakers, Paula Pant, right, of podcast Afford Anything Fam. This week I want you to hear about Dr. Taryn McCarthy. She's a happiness and transformational mindset coach that focuses entirely on docs, physicians and dentists. She's the host of the Business of Happiness podcast. She's an orthodontist, an author, a motivational speaker. She's founded her own orthodontics firm up in Maine. She's been there and done that. She's got a degree in psychology. She's obviously got a dmd. And she is also a certified life coach, a certified mastermind, magic practitioner, and a rapid transformational therapist. So she's going to give this great talk on wellness and on really getting, you know, your life in the happy state that you want it to be in. So you're going to love that. Obviously. I'm going to be one of the speakers there. I've got a great talk planned on estate planning, which we've learned lots about over the last couple of years. I'm also going to be talking about the importance of, of having a base for your portfolio, which is index funds. Right? Seems boring. No one wants to talk about it. You wouldn't believe how few people apply to talk at the conference about index funds. But I think we need at least one talk on what I invest 85% of my money into. So I'm going to talk about index funds this year and about why they're so important and why you need to know about them and what you really need to know about them. But there's 30 plus other sessions at the conference. It's going to be awesome. It's at a great facility down in Florida. You know, by the time it rolls around in the first week of February, you're going to be ready to get out of wherever cold state you're living in, whether that's Washington state or Maine or Michigan or Pennsylvania or Minnesota or even Utah. You're going to want to be down in Florida with us. So sign up now, get it at the cheapest price and come spend some time with us at WCICON24. It will be fun, it will be informative. For many of you, it will be life changing, truly. It will help you get back to loving your career, to building your career into what you want to aligning your ideal life with your current life so you can get more information. WCIEvents.com for that. Alright, our first question, this one by email. I've been seeing a lot about agency bonds on the news lately. I was wondering if you would be able to do a post on these bonds as I'd like to learn more about them. Well, I didn't think there was really enough for me to do a whole blog post about it, much less a whole episode of a podcast about it. But the best way to think about agency bonds is that they're slightly higher risk than treasury bonds and have slightly higher expected returns. In fact, when you invest in the federal money market fund at Vanguard like most of us are, instead of the treasury money market fund at Vanguard, you're getting very short term bonds from the agencies. You know, you're also getting treasury bonds in that particular money market fund. But today they're basically yielding about the same. And so that tells you that the market basically treats them the same, almost exactly the same risk as Treasuries, almost the same return from them. And that's really what you need to know about agency bonds. There's a number of government agencies that issue them and if you really want just pure government bonds, just pure treasury bonds, you can get that. There are treasury money market funds, there are treasury bond funds and obviously you can go to treasurydirect and and just buy straight treasury bonds. But I wouldn't spend a lot of time worrying about default risk from an agency bond. The risk is not very high. All right, those of you who are on social media, like social media. We have a new social media platform just like Mark Zuckerberg. It's called Threads hewhitecoatinvestor. That's us on there. If you follow us on Instagram, you probably have had a chance to now follow us on Threads. But if you're just checking out threads, follow us. And our community there is growing rapidly, like all communities on threads. Our quote of the day today is from Warren Buffett. Do not save what is left after spending. Instead spend what is left after saving. It's funny to hear this person who is worth so much money giving very practical, basic personal finance advice. But it's good advice. So you know, most of what Warren Buffett says is very, very good advice. So I would take his advice. There's as well. Let's do our first speak pipe. We're going to talk about HSA money.

Hi, Dr. Dali, Russ here from Ohio with a question on what to Invest HSA Money In I currently invest all of my HSA money in the Vanguard Total Bond ETF Fund at TD Ameritrade. Although I include HSA money in my overall stock bond allocation, I recognize that this money isn't interchangeable for future health care expenses. I've chosen a bond fund to provide stability and some growth. However, a colleague of mine has a different approach. They invest in equities, counting on future growth of the account, obviously exposing the HSA account to potential loss. So my question is how would you recommend investing HSA dollars? Thank you for your answer in helping guide my DIY investing since 2013.

Great question Russ. You know there's no right answer to this question. What you're doing may very well be right for you. What your friend is doing may very well be right or that person and what I'm doing might be right for me. I can tell you what I'm doing. I have a pretty good size hsa. I have a six figure HSA because we've been funding it since we were eligible for an HSA back in 2010 and we've maxed it out every year and we haven't actually taken any money out of it and we've invested at 100% in equities the whole time and obviously equities did pretty well from 2010 to 2023 and that's why we now have a six figure HSA. In fact, I'm starting to worry we may not be able to spend it all on health care during our lifetimes at the rate it's going. So keep trying to get around to actually counting up what we've actually spent on healthcare so that we actually have that record. There's a couple of schools of thought here. The first one is if you're spending from your HSA as you go along, that money that you are likely to spend in the next year or two probably ought to be in cash. So if your max out of pocket for your health insurance plan is $5,000, you probably ought to have at least $5,000 in your HSA in cash. That's what it's for is so you can meet the deductible and the out of pocket expenses, maybe even a couple of years in case the market has a big downturn. Beyond that, I think you're okay investing it a little bit more aggressive. Now, is that dramatically different if somebody has some money in cash and some money in equities versus your money all in bonds? Probably not, but that's kind of the approach I would take. So I would invest money that you don't expect to spend for a long time in there aggressively. You know, I'm talking equities for the most part. And the reason why, of course, is that this is your only triple tax free money, right? It's really an important account. It's going to grow in a tax protected way, so it'll grow a little faster than your taxable account because there isn't any tax drag. I like the way you're looking at it as part of your whole portfolio. And that way you can just say, hey, if you decide to spend some of this money, or if you need to rebalance into equities, you can also always sell some of this total bond market you have in there and buy some total stock market or total International stock market or whatever else you invest in in the hsa. There's nothing that keeps you from doing that so you're not stuck forever in whatever you choose to invest in today. There are no tax consequences to changing investments inside your hsa. You can swap them willy nilly anytime you like without having to pay any capital gains taxes. But as a general rule, I think you ought to have enough in cash that you're likely to spend soon and the rest ought to be invested pretty aggressively. So I don't think I'd be a big fan of a bond index fund in my hsa, but it's not necessarily the wrong thing to do if you're just looking at it as part of the rest of your portfolio. If you got your stocks elsewhere, that's okay. All right, the next question is from Greg. Hi Dr. Dali, this is Greg from Oklahoma. I've got a question regarding factor investing. Currently I have a simple three fund portfolio.

Lately I've been reading the arguments for.

And against the small cap value tilts. During my research I've come across DFA funds and advantage funds and I'm not sure what to think about them. My question is this. What is the difference in strategies between the ETFs of VB AVUV and DFSV? I understand that the Dimensional and Advantage funds are more small and more value, but I also know that these are not index funds as they do not track an index. But many commentators online I say that these are not traditional actively managed funds. I was hoping you could help me understand the investing strategy of these funds. Thanks. All right. That's a great question, Greg, and I don't know if we have enough time to get into that on the podcast. Honestly, I've Written a couple of blog posts recently on Avantas and dfa. Many years ago, I wrote a blog post about dfa. And for those who aren't aware of what DFA is, this is Dimensional Fund Analysts or something. I don't remember even what the A stands for, but basically these are folks who said we can do better than index funds. We get the reason why passive is so important. So we're going to start with an index fund base, but then we're going to try to do a few things that make them a little bit better. For example, they say they're a little bit more patient in how they trade. They don't have to follow the index. Exactly. So if it doesn't make sense to make a trade right when something comes out of the index or add it right when it comes into the index, they're not going to do that. And another thing they try to do is they tend to have factor tilts. Now, DFA grew out of this faculty at the University of Chicago where they did all this research on the small factor and the value factor. And so they're big believers in this. And so if you go and pick up one of these small value funds or ETFs from DFA or Avantis, you will see that they're very small and very valuey, especially compared to the Vanguard Small Value Index Fund. And so you get a little bit more of a factor tilt. So when those factors do well, the DFA and now the Avantis funds tend to do a little bit better than the Vanguard tilted funds toward that factor because they're a little bit more tilted on the downside, they technically are actively managed. Now, if you ask them, they'll say, well, our philosophy is passive, but our implementation is active. But, you know, I mean, it's active. You're not truly getting an index fund there, and you're also paying a little bit more for that. You'll see if you look at their funds, the expense ratios tend to be low. Yes, way less than the average of 1%. But at 0.25 or 0.35, that's quite a bit higher than what you're looking at Vanguard, where it's essentially free. When you get down below 10 basis points of expense ratio, you're basically investing for free. And these are not free. There is an expense there. And if there are methods and their factor tilts or not enough to overcome the expense, well, you'll come out behind. Now, I like both of these. I like the fact that basically Avantis is a bunch of People that left DFA because DDFA wouldn't implement ETFs. So they went and started their own firm and basically have what are the equivalent of DFA ETFs. And then of course, DFA had to react to that. Now they've come out with their own ETFs. So this is eliminated. One of the biggest problems with dfa, which is that you had to go hire an advisor to invest in their funds and pay them a 1% AUM fee. Well, you no longer have to do that because you can invest in the DFA and the Avantis ETFs and basically get the same sort of investment without the investment advisor. So I like that aspect. Now, there are some very subtle differences between DFA and Avantis and how they tilt to the factors. And you can look into those. It's a little, you know, as you look at the prospectuses for each of the ETFs, as you look at Morningstar and see what's actually under the hood, what they're actually investing in, you'll see that one has a little more of a small tilt, one has a little more of a value tilt. They also tend to use some other factors to a certain extent, like profitability and quality. So you can do a little bit of research about those factors and how much you believe they're actually real. Keep in mind that these funds used to use other factors, like momentum. DFA used to use momentum. Well, they've kind of quietly dropped that factor because it turned out to be very difficult to capture that premium in a practical way. And so factor investing does not have the track record that you'd love for it to have. There are some risks there, and these factors underperform inevitably for long periods of time. Some of them may not even be real. Once you have more data, it may be obvious they're not really real. But I like what DFA and Avantis are doing there. And if you want to tilt your portfolio to factors, I think they're great ways to do it. You can also do it just going straight to Vanguard. But these guys are kind of specialists in factors, and it's not unreasonable to have one of these funds or two of these funds in your portfolio in order to tilt your portfolio toward those factors. I think that's probably about as much as I can say on the podcast about it. Watch for some blog posts on the blog. I've written a couple blog posts recently about these two companies and their ETFs, and why I'm considering them for a portion of my portfolio and that'll give you some more information. All right. We got a really nice note from a white coat investor recently. I thought I'd share it with you because I hope some of you find it inspiring. This person wrote in and said Just broke into the $2 million plus net worth. Found your blog in 2012 or 2013. Graduated residency in 2016. My spouse is also a doc. We had a net worth in 2016 of -650,000 in 2023. We are now multimillionaires. I can't thank you enough for your guidance and info on your blog. Probably one of if not the most influential person in my life and we've never met. Sincerely thank you for what you do. Keep up the awesome work. I think this came in as an Instagram message, right? I don't even check the Instagram messages. One of my staff members that checked it, but they're pretty excited to see that because this information Becoming financially literate, becoming financially disciplined. When you apply that to a doctor income or a two doctor income, it can do some pretty awesome stuff pretty quickly. So congratulations to this person and I hope there's a whole bunch more of you out there that have had the same experience. All right, let's talk about Paying off debt versus Investing. This is a question from Joe on the speak bite.

Hi Dr. Dali, I have a payoff debt first and best question regarding non governmental 457B versus paying off my mortgage. Our written financial plan states that my wife and I will be debt averse, retire in 20 years with 3.5 million in retirement savings and built by a $2 million doctor home. In seven years. Our retirement goal will require $100,000 per year in retirement savings. We currently max out our 403 fees with employer match and back to a Roth IRAs. If I were to max out my non governmental 457 it will allow us to hit our $100,000 per year goal in completely protected retirement accounts. Beside student loans which should be forgiven in 2 1/2 years with PSLF. Our only debt is our 30 year fixed mortgage of $450,000 with 2.99% interest rate. My current plan is to max out the nongovernmental 457 and when our student loans are forgiven, reallocate our monthly student loan payments to extra mortgage payments, putting us on track to pay off our mortgage in 15 years. 457B has good investment options and my employer is on solid financial footing upon severance from my employer I have no plans to leave. But you never know. 457B distributions must begin at 70 and a half or at a date that I determine within 60 days of severance. Alternatively, if I redirect money currently allocated to my 457 and the money going to our student loans after they have forgiven towards our mortgage, we will pay it off in five years. Should I contribute to the 457 or redirect these funds directly to paying off our mortgage?

Great question. There's no right answer. There's no wrong answer here. So I'm going to go to your financial plan to answer your question. Okay, you're saying you need to invest $100,000 a year to meet your retirement goal. And in order to get to $100,000 you got to use the non governmental 457. I mean, I guess you don't have to. You could always invest in taxable, but you can use the government, non governmental 457. It's a good 457. I don't hear an issue with the distributions. I don't hear an issue with the fees or the expenses or the employer. So I think that's what I do. I mean, right now you can make 5.2% in a money market fund at Vanguard and your mortgage is at 2.99. It's hard to argue that that's the right move right now. Especially when your plan says you need to invest more money to get to your retirement goal. So I like your idea of for now putting the money in a 457 and once the student loans disappear in two and a half years, reallocating that to paying off the mortgage that you want to be rid of because you're relatively debt averse. And that's fine. I paid off my mortgage. I totally get it. Mine was 2.75 when I paid it off. Totally understand the mindset there and I think that's fine. But you want to make sure you reach your goals as well, that this being debt averse doesn't keep you from reaching your goals. And I'm afraid if you invest less than your $100,000 in order to pay off the mortgage faster, then it's going to keep you from reaching a goal that I sense is more important to you than having a paid off mortgage in five years. So I think that's what I would do. But like I said, there is no wrong answer here. You and your partner ought to talk about it and decide what you want to do. And either one of those is totally reasonable. All right, let's take a question from Prashant, and this is the one that we've named the podcast after, because I think it's the most unique question we got for this episode. Hi, Dr. Dali. This is Dr. Prashant Patel from North Carolina and internist. Thanks for all you do. And my question is, what do you think of investing in India's stock market, given its significant growth and projections, and in particular the nifty nifty 55. 0. I believe it's India's comprehensive mutual fund. And in particular with the currency exchange or Forex, I believe that in the long run, it appears that the Indian rupee will at least say where it is or get stronger than the US Dollar, which can result in greater gains.

Compared to US Equities.

Thank you so much and thanks for all you do. Okay, great question. A lot of things to talk about with this question. First of all, I cannot believe that they have named their index over there the Nifty 50, with no historical reference whatsoever to the Nifty 50 of the 1960s in the United States, which ended up being not a great investment. That doesn't mean this nifty 50 is not going to be a great investment. But you'd think you would name it something else based on what happened to the Nifty 50 in the 1960s. Very interesting choice they've chosen there, but that's what it is. The Nifty50 index is a benchmark index of the national stock exchange in India. Whereas it was these 50 stocks that you couldn't lose in the 1960s and turned out you could lose when you got to the stagflation of the 1970s. And the historical record on the Nifty 50 is not so awesome when you look at that. But anyway, I don't have anything against investing in India. I invest in India. If you own Total International Stock Market Index Fund, you are investing in India. If you own Vanguard's extended or not extended, sorry, Emerging Market index fund, or ETF, you know the ETF is VWO, then 18% of that ETF is invested in India. Right? 33%'s in China, 17%'s in Taiwan, 7%'s in Brazil, 3.5%'s in South Africa. That's what emerging market stocks are. So if you're investing in emerging marketing stocks, you are investing in Indian stocks. I own all the Indian stocks that are publicly traded because I own that fund. And so the question here is really, should you tilt your portfolio to India, meaning you should invest more than the market does in Indian stocks because you think Indian stocks are going to outperform the stocks in the rest of the world. And in answer to that question, I have no idea. I don't know how well Indian stocks are going to do. My crystal ball is extremely cloudy in that respect. Just because a country has been growing very rapidly does not mean its stocks will outperform. Exhibit A, China, lots of growth over there. Stock market not so good. In fact, right now it's facing lots of problems, especially as they mark down some of the property that they thought was worth so much and it turns out it's not worth that much. Well, that sort of thing could happen in India too in that everyone expects it to boom because the country's growing so rapidly. I mean, it's now the largest democracy in the world and yet the stock may not grow nearly as fast. And so there's some risk there. Now, if the rupee versus the dollar were to increase in value, that would provide a significant tailwind to those Indian stocks. Right. That would be great for you if you're over tilted to Indian stocks because it would give you an even better return. This for instance, like lots of people looking at international stocks right now in the last 10 or 15 years and like, oh, returns are crappy. Well, the main reason the returns don't look as good as the US stock market is because the dollar has strengthened so much over the last decade. And so that's kind of muted the returns. The international stocks are actually doing fine in their own currency. It's just when you put them into dollars that they don't look like your performance is so awesome. That trend could reverse at any time. There's no guarantee there. Now you seem very sure that the rupee is going to outperform the dollar. I would question the clarity of your crystal ball, but you might be right. And if you really have a strong conviction that is the case, that may be a case for you to over tilt your portfolio toward Indian stocks. Another reason might be if you plan to retire to India or if you have a lot of spending in India, for example, you're supporting parents in India or something like that, you might want to tilt your portfolio a little bit more toward India, but otherwise I don't know why you'd bet on India any more than Mexico or Thailand or South Africa or Malaysia or, you know, whatever. And so I kind of favor a market approach that, you know, India's 18% of emerging markets, that's probably about the percentage of my portfolio that I'd put into it is, you know, whatever amount of emerging markets I'm going to put in emerging markets, 18% of that I put into India because I have no idea if India is going to do better than Taiwan or not. Hope that's helpful. By the way, I see this, I used to see this a lot, especially when interest rates were really low in the US and they were higher in India and people were like, I can make 6% if I just put my money in an Indian bank. What they failed to realize was that you have to account for the difference in, in the currencies. And so if the value of the rupee's fallen, even if it fell 5% that year and you made 6% in the Indian savings account, well, you only made 1% when it comes to dollars. And so it was about the same as what you were making in the US bank at the time. And so you've got to keep that in mind. You got to know what inflation is over there. You got to know what the foreign exchange rates changing are going to do to those investments and realize that it all has an effect. It's not, you know, it's not a magic pill that you can just go invest in India and automatically have higher returns. There's some risk there. You may not have higher returns. All right, time's come for me to say thanks to you guys. You know, we get feedback. Sometimes people hate that I do this. They're like, why are you thanking us? Our jobs are not that hard. I got an email from someone saying, hey, the bricklayers, they're working hard too. Okay, well, that may be true, but the bricklayers are not necessarily the target audience for this podcast. It's for high income professionals. And while I appreciate what bricklayers do, I particularly appreciate what docs, attorneys, you, other high income professionals out there do. And it's often unsung work. People assume that because you're paid highly that you're being thanked enough and don't deserve to thank you for the hard work you're doing. Well, I see people doing a lot of stuff out of the goodness of their heart just to do the right thing. And I think you deserve a special thank you. If no one's ever said that to you today, let me be the first. All right, you are probably aware we have a number of white coat investor communities. We have a Facebook group. We have the White Coat Investor forum, which is hosted right on our website. We have the Reddit, which is growing like crazy, by the way. If you love Reddit. Come by the White Coat Investor subreddit. It's growing like mad, but we are starting a new WCI community and so I'm going to have our podcast producer, for the first time ever on this podcast, step in and tell you a little bit about our new WCI community. Welcome Megan. If you listened to the podcast last week, you heard our announcement about our new fabulous community for women, the financially empowered women or the few. Our first event is next week. It's on Tuesday, September 26th at 6pm Mountain Time. I will be hosting our first live virtual event and our presenter will be our very own Katie Dolley. She's going to talk to us about building an intentional financial life. After Katie's presentation, we will break into small groups to answer your questions and have continued conversations. It's going to be a great evening and we would love to see all of our White Coat Investor women there. Please go to whitecoatinvestor.com few to sign up. Again, that is whitecoatinvestor.com Few all right. I hope you are excited about this new group. I hope you sign up for that. Some great things are gonna come out of that. We have some awesome guests being lined up. I can't reveal them all cause they're not all 100% lined up. But there's going to be some awesome events for the few and I hope those of you eligible to join will join and enjoy that experience. Our next question is coming off the speak pipe.

Hi Dr. Dali, this is Sam from the Midwest.

It's my understanding ETFs are more tax.

Efficient than mutual funds.

Is this mostly in reference to actively managed mutual funds with a higher turnover rate as opposed to broadly diversified indexed mutual funds? Is there much of a tax difference between VTSAX and vti? Why would you choose one over the other? Thanks for all you do. Okay, great question. It's actually more than one question. Let's talk about actively managed versus passively managed when it comes to tax efficiency. Okay. A passively managed or index fund, whether that be a traditional mutual fund or an ETF as a general rule, will be more tax efficient than an actively managed one. And the reason why is because the turnover's lower. The less you're buying and selling stuff in there, the fewer capital gains, both short term and long term, that are being realized. And so, you know, when you look at something like the Total Stock Market Index fund, you see the turnover is 4%. You know it's going to be really tax efficient. I mean, these Vanguard funds The total Stock Market index fund, whether you're looking at the mutual fund or the ETF or whatever, they haven't distributed a capital gain in like 20 plus years. Okay? You know, you have mutual funds in a taxable account. You'll notice that they send dividends, but a lot of them also send a capital gain. And it's a pass through capital gain. You didn't sell anything, but the fund was selling some of the stocks inside it. And you got to pay your share of those capital gains each year. And that's not very tax efficient when you have to do that. And so it's good to have a very low turnover mutual fund to minimize that. Okay? So that's the benefit of passive investing, particularly in a taxable account. Now when it comes to a traditional mutual fund, an etf, you got to understand how an ETF is made and how a share of an ETF is destroyed or broken down. Because what this ETF manager can do is when it's time to get rid of a share of etf, they don't have to sell the stocks themselves. They can pay or give instead of cash, they can give shares of stock that the ETF owns to these companies, these authorized participants that put together ETF shares and break them apart. This is a mechanism in the market. They try to make a few cents in arbitrage doing it, but basically that's their role is to form these. And because of the ability of this ETF to distribute capital gains in that way, it gives the appreciated stock shares, not the, not the high basis ones, it gives the low basis ones. And so that helps make the ETF more efficient. A traditional mutual fund can't do this. And so in that respect, the ETF wrapper, the ETF framework, the ETF model is more tax efficient than the mutual fund model. So if given the choice in a taxable account and between even an index low cost, passive, low Turnover mutual fund versus the equivalent in an ETF, the ETFs going to be a little bit more tax efficient. At Vanguard, they have a special patent, it actually just expired. So hopefully we see other companies doing this soon now too. But their ETF is simply a share class of the mutual fund. So vtsax is the traditional mutual fund. VTI is the ETF share class. Just like they used to have investor share classes, admiral share classes, and institutional share classes. ETF is another share class of that fund. And they can use that ETF share class to flush the capital gains out of the entire fund. So at Vanguard, you should Expect the ETF to be about as efficient as the mutual fund. They're pretty similar. But when you go to other companies, the ETFs are slightly more tax efficient. So you ought to consider that in a taxable account if you're using non Vanguard ETFs. And so I do tend to, but only because it's a little bit more convenient to stick with one or the other. And I went into ETFs for some of our share classes, and so I've kind of gone to ETFs or for some of our asset classes. I've gone to ETFs for almost all of our asset classes. I think our municipal bond fund is still a traditional mutual fund, but the rest are ETFs in our taxable account. But there's nothing wrong with an etf. There's nothing wrong with the traditional index fund. You just got to realize they're slightly different. And if you care about the differences, dive into them and understand them. Okay, this next question comes in by email. I was wondering your thoughts on VTCLX or other tax managed funds. I have not heard any discussion of these. For those with large amounts of stock holdings in taxable accounts who are not planning to donate the appreciated assets, is there any information around this type of fund versus a VTI, the total stock market fund, or an S&P 500 fund? Okay, so we're using tickers, which really isn't, really isn't fair to use tickers, right? Who memorizes tickers? Yeah, I know VTI. You know, I probably know the tickers for four or five ETFs I actually use. But that's not fair to podcast listeners, right? Nobody knows these things by the tickers. So BTC Alex is the Vanguard Tax Managed Capital Appreciation Mutual Fund. This is one of these funds that Vanguard started. And it's really interesting. And by the way, you should read this book I finished recently called Stay the Course. It was Jack Bogle's last book, but you can read all about the history of Vanguard and when these funds were made and why and what the reasoning was behind them. And it's super interesting, actually, if you've been a fan of Vanguard for a long time. But anyway, that's what that fund is. It's this fund that's trying to appreciate your capital, right. But also be fairly tax efficient for a taxable account. And so you can learn about this mutual fund just like you can any other mutual fund. If you search that ticker or the name of the fund, and morningstar It'll take you to Morningstar's analysis. And what you'll learn if you go here is there's $18 billion in this fund. It's got an expense ratio of 0.09%. It's mostly invested in large blend stocks. So that's fairly similar to an S&P 500 fund. And if you look at the portfolio, you can see that it's pretty broadly diversified. It's got 981 stocks in it, and they're all the stocks you've heard of, right? Apple, Microsoft and Amazon and Alphabet or Google, Tesla. That's what their main holdings are. So this is similar to an S&P 500 fund. So the question is, do you just take an S&P 500 fund, it's going to be investing in the same stocks, or do you somehow grab this one and hope it does better because they're tax managing? Right. Well, the truth is, an S&P 500 fund is very tax efficient to start with, so there's very little that can be added to make it more tax efficient. But what you'll notice if you look at it is you will notice that its yield is probably lower, I'm going to guess, than AN S&P 500 funds. And let's look at it. The yield is 1.25%. And if I go and look at the same yield for Voo, which is the S&P 500 ETF version, you'll see that yield is 1.45%. So the difference between 1.25% and 1.45%, you'll get a little bit less money in dividends. You'll probably have a similar return, but a little bit less money in dividends. And so it's theoretically a little more tax efficient. I'm not a big fan of that sort of active management. I think they're just as likely to choose the wrong stocks as to choose the right stocks. And it's already so tax efficient, I don't know that it's really worth bothering, but we can go and look at the performance of this fund. Again, I'm at Morningstar. I click on the Portfolio tab or the Performance tab, and I can go back and see what the performance has been versus the S&P 500, which I think is the index they're using to compare here. Let's see. No, they're using a Morningstar index there. But basically what they're saying is that over the last 15 years, they got 10.86% and the index got 10.77% so they outperformed it by almost nothing. Basically got the index return. And if we look at the same thing for the S&P 500 fund, we will see over the last 15 years I have a 15 year return for that particular ETF. So let's use the fund. BFINX is what it is so we can get an apples to apples comparison and you'll see under the performance that it was 10.74%. So they did beat the index, but not by much. They beat it over 15 years by 14 basis points a year. So it's not a bad choice. You won over the last 15 years. Not by much. You put your nose across the finish line before the index fund did, but you won. So maybe you'll win over the next 15 years. Is it slightly more tax efficient and get about the same return? Yeah, probably is. So it's okay to use. Just realize that once you buy something, you're kind of stuck with it long term in a taxable account once it appreciates. If you're not willing to donate shares to charity and you don't want to sell them, you're stuck with it long term. So be sure you really like it. Anytime you use an actively managed fund, things can change, the manager can change, but I would expect that particular fund to be managed pretty conservatively. They're mostly a closet index fund that just tries to add a little bit on the tax management side, so it's okay to use that. These funds in general from Vanguard, they're mostly a failure because most of them are not necessarily dramatically more tax efficient, nor necessarily outperforming the comparable index fund. When you read Jack Bogle's take on them a few decades after he created them, he doesn't necessarily call them a failure, but he doesn't call them a smashing success. They're fine, but they're nothing special. I don't use them. If ETFs had never come along, I think they'd be more popular. But with an etf I think you can get that tech extra little bit of tax efficiency you're looking for. And I don't think you need to use the tax managed funds. All right, let's talk about moonlighting and tax deductions. This is a question on the speak pipe from Brad.

Hi, I'm an HPSP graduate finishing my civilian deferred radiology residency this summer and will soon be starting work with the Air Force at Langley Air Force Base in Virginia. I have listened to a few of your podcasts about Moonlighting, as well as tax deductions. But I have a few questions pertaining to these topics. I would like to moonlight for a company as a 1099 independent contractor, Reading films from my apartment, which I will rent in Virginia. Am I able to deduct all of my expenses related to this, and how far do these deductions extend? I assume I can deduct my direct expenses, such as desks, chairs, computer hardware, and Internet. Can I deduct the entirety of my rent and utilities if I decide to go to a radiology conference in Hawaii for a single hour? Can I deduct the entire vacation if I stay for a week and claim it as education? Where is the line drawn with deductions? And at which point does the IRS get suspicious?

All right, great question. First of all, thanks for your service. I also spent four years at Langley, so I know that 1st Fighter Wing Hospital very well. I'm also aware of the local moonlighting opportunities there as I moonlit at some of the trauma centers in that area. Sounds like you're going to be working for more of a national company as a 1099. Your question is a good one. And doctors, we like to have things black and white when we can. Here is okay, here is not okay. But guess what? This is a very gray area. So what can you deduct? Well, if that computer is only being used for this moonlighting job, you can deduct 100% of the cost. You might have to depreciate it, depending on how much it costs, but for the most part, you can deduct it. Same thing with furniture. You may end up having to depreciate it over a few years. But if you're only using it for the business, that's a business expense. However, this computer, you're only using 10% of the time for the business, guess what? You only get to deduct 10% of its cost. And that's the way all these expenses go. Same thing with your apartment, right? If 10% of the apartment is a home office that is used regularly and exclusively for this home business, then yeah, you can deduct that percentage of the cost of the home, including rent, including the mortgage payment, including insurance, utilities, everything. Okay, if it's 10% of the home, you can deduct 10%. Or you can do what most people do, which is just take the simplified version, which is $5 per square foot up to 300 square feet, and they just take that deduction. But the same rule applies. You have to use that space regularly and exclusively for the business. Now, if it gets used for 10 minutes for something else, the IRS isn't going to come knock on your door and find out and disallow that deduction. But if it's being regularly used by your kids to do their homework each afternoon, well, that's not very honest of you to claim it's being used exclusively for the business. Are you going to be caught? Probably not. And it's one of these things where pigs get fat and hogs get slaughtered. You try to take too much and the IRS starts paying a little more attention to it. So same thing with the travel deduction. Now, when you go to a conference in Hawaii, the main purpose of the trip, if more than 50% of the main purpose of the trip is to attend the conference, then you can deduct that. Okay. But if you're going there for an hour and you're spending a week vacationing, it's going to be pretty hard to justify that in the event of an audit. Now, do a lot of people claim that? Yes. Do they deserve it? No. But they can claim that. There's this other question that's kind of gray, but if you talk to a cpa, what they will tell you is that if you are moonlighting and you have a regular job as a radiologist, you've got to prorate that expense. And you can only take a deduction for the percentage of the income that's coming into you or your time used as, you know, as an independent contract radiologist. And so that further decreases your deduction as the most honest way to take it. Now, are most people doing that? Probably not, but that's the way you're supposed to do it. You know, if you got a W2 job, that's half your time, and you got a 1099 job, that's half your time. And you're going and trying to write this off as a business expense, you're really only supposed to write off half of it as the other half your employer ought to be reimbursing for. And so it's a little bit complicated, it's a little bit gray, but that's the way it works. Hope that's helpful to you and hope you're able to get some sort of deduction there, even if it's maybe not quite as big as you had hoped it was going to be. 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 at studentloanadvice. You can do this and the White Coat Investor can help. All right, don't forget you can sign up for the Financially Empowered women our new WCI community whitecoatinvestor.com few f e w thanks. For those of you leaving us a five star review and telling your friends about our podcast, we have a review from Lei Lee, who says, always inspiring. This is such a great podcast and an inspiration to medical professionals to take control of their own finances. 5 stars. Thanks for that great review. We appreciate it. All right, we've come to the end. I'm glad I'm still here after getting back from Half Dome. I'm glad you're still here. Don't go climb Half Dome, at least if you like your skin and don't want to be exhausted. Actually, it was a pretty great experience, I'm not going to lie, but not one I can necessarily recommend to everybody else out there. At any rate, I missed you guys. It's good to be back with you recording podcasts and we'll see you next time on the White Coat Investor Podcast. 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