WCI #339: Dave Ramsey Gives Poor Advice to Unmatched Doc

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 339. Dave Ramsey gives poor advice to an unmatched dog Getting quality disability and life insurance should be the first financial chore.

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All right, welcome back to the podcast. Thanks everybody for what they do.

I recently recorded a podcast.

I don't remember when it runs, but my dad came out of surgery late.

Last night and while I'm thanking you.

For what you do, I want to thank his doctors specifically for what they did for him.

The pain he went in to get eliminated is now gone and doesn't seem to have had any complications, at least so far. So we're all thrilled with our most.

Recent encounter with the medical establishment. All right, those of you who don't know about financially empowered women, the Few, this is a WCI associated group and they have their next event next week. It's on November 8th at 6:00pm Mountain Time. And guess who's going to be talking. Not only is queen bee Megan, who introduced the Few to you a few weeks ago, going to be helping run that, but SC Gutierrez, who is on here as a friend of WCI helping answer your questions a few weeks ago, she will be on there as well. She's going to be talking about how to make a financial plan. Great option there. I think there's 1,000 or more of.

You in this group now, so I hope a bunch of you show up to take advantage of that.

You can sign up for this if you haven't yet@whitecoatinvestor.com Few.

That's few.

All right, let's do. Not a correction, but maybe a clarification after having Dr. Steinschlger on the podcast to talk about these issues with fees from insurance companies that are really pretty darn unfair. I think I got an email from.

A doc who is associated with the.

Ama, said in your recent podcast, I wanted to correct the statement that the AMA will not do anything to help regarding unfair fees for EFT payments. I'm an alternate delegate to the AMA for my state. Twice a year, delegations from all 50 states, national specialty societies, and the Federal health Services take time away from our busy practices and families set policy and priorities for the ama. It is never accurate to say that the AMA will not do anything to help because the House of Delegates dictate what the AMA does. If an individual physician wants to advocate for stronger positions or a change in direction, they can bring resolutions to their state medical society or specialty society to.

Ask their delegation to advocate their position and seek the support of other delegations.

That being said, the AMA has been fighting against these unfair practices for several years. In 2021, the AMA, along with the 50 state medical associations and 40 specialty societies, sent a letter to CMS asking.

The Biden administration to take action on these unfair practices and we include a link to that letter in the show.

Notes goes on to say Furthermore, the AMA has a multitude of resources and guides on their website so that physicians and practices know the rights and how.

To navigate the system.

While physicians face challenges like these, it's.

Important for us to stick together with a unified voice.

Making inaccurate remarks about our own professional.

Organizations does not move the needle.

Well, I sent that along to Dr. Steinschlueger, who replied rather vociferously, this is what he said. I greatly appreciate the fact that you listen to the podcast. I found a point of disagreement. I also appreciate the time and effort delegates like you commit to running the ama.

You can imagine I've put quite a.

Few hours and dollars in advocacy on behalf of physicians. I'm an AMA member as well and introduced many of the resolutions that you're alluding to. I'm in solo private practice and appears.

That you're part of a small practice as well. Our interests should align.

You're correct to some extent. The members write resolutions that are supposed to set policy. In reality, things work a little differently. Perhaps that's one of the reasons that.

The ama has a 15 to 20%.

Approval rating based on membership data. In fact, many AMA policies are set without resolutions, so why should one have to write a resolution to reverse such policies? For example, the AMA decided to call virtual credit cards a valid payment method whose bright idea is that valid means Legal. Nowhere does the law say that virtual credit cards are legal to use as.

A payment from insurance to doctors.

In fact, it's the opposite. I've been fighting to get that language.

Changed for years now.

The AMA board of Directors are well.

Aware nothing has been done, but here's.

A resolution which should not be needed.

Again, we'll include that link in the show notes.

While the AMA management keeps writing letters, it fully knows that letters will not achieve anything. Talking to elected representatives will not achieve.

Anything either, since they have already spoken.

In fact, most recently, AMA refused to confront the insurance lobby's attempt to normalize virtual credit cards. Do you know who confronted the insurance lobby? The American Hospital association, whose policy team is run by a former AMA employee. I got 500 physicians to write letters to counter the AMA's complicity with UnitedHealthcare and zealous. I hope you would be enraged if.

You found out what the AMA wrote.

Need a full understanding of the financial administrative burden impacts to physicians prior to recommending adoption.

Referring to the proposal of adding virtual credit card information to the standard 835 remittance advice.

So, at any rate, I won't read the entire email.

But basically the bottom line is he certainly feels the AMA could be doing a lot more than it is doing now. And this doc furthermore replied that he would continue to work on that point and bring a resolution to the next meeting.

So a lot of people commented on.

That podcast and hopefully we can move the needle on this, get rid of this garbage fee that decision practices are.

Paying and really actually make a difference. So hopefully that podcast will make some changes. All right, I was sent a link to a call that Dave Ramsey took on his recent show for intellectual property reasons. I don't think we can play the.

Whole call here, but we'll have a.

Link to it in the show notes. Let me give you the summary. A doc calls in.

Not a doc, I guess a medical student.

Former medical student. This is a medical student who had.

Failed the boards a couple of times and had been dismissed from school. Medical school's over. He's basically kicked out.

He owes $430,000 in student loans and.

Is now working as a substitute high school science teacher and was asking Dave.

What should I do about this? And Dave gave what I thought was terrible advice. Terrible advice. I mean, it's reasonable to make sure that this pathway into medicine is really.

Over for this former medical student. And it sounds like it really is. I mean, I can't imagine you're going to get accepted back into medical School after school has actually dismissed you after failing the boards multiple times, I'm assuming failing step one.

But yeah, that's appropriate to ask. But following which Dave's advice just got bizarre, right? He's like, well, go to PA school.

And pay off your student loans and.

Borrow more money for PA school. And what makes you think PA school is going to go any better than medical school did? Or go, you know, try to find a job and pay off this debt. It's $430,000, Dave. What job are you going to get that allows you to pay off that student loan? It doesn't matter how much you eat rice and beans, that debt is not going away. Without a physician like income, it's just not going to happen. Meanwhile, he's teaching. This is a PSLF qualifying job. He's working for the government, right? State government, municipal government, school district, whatever. This is a PSLF qualifying job. Dave, why will you not acknowledge that PSLF works, that hundreds, thousands of doctors are receiving public service loan forgiveness? You put in your 10 years, you make your payments, the rest of your federal student loans are forgiven.

Yes.

You have to work for a 501C3 or government entity. You have to work full time, you have to fill out the paperwork and that's it. It goes away. This is clearly the path this medical student should take. Without a doubt, that is what should be done now. Is there another path? Yeah, you could put in 20 or 25 years and go for an income driven repayment program, forgiveness.

That would be a taxable forgiveness.

And obviously it takes at least twice as long to get that forgiveness.

And then you got to save up.

For the tax bomb on the side. That might not be a terrible option.

In this sort of a terrible situation.

But PSLF is so obvious, right? If you want to teach, if that's the backup plan now, great, go teach. Make these little tiny IDR payments for 10 years and get the rest forgiven.

That's the advice that should have been given. Not go to PA school or go.

Try to find some other job that.

Pays enough money to pay off these student loans. That's great if you can get it. If you can go work on Wall street and make $800,000 a year, sure, you can pay off these medical school loans, but I'm guessing that's probably not all that likely, whereas he already ought to be on this PSLF pathway.

All right, we'll include a link to that call.

You can listen to it and see if you agree with the advice I gave. I'll be surprised if you don't.

All right, let's take some of your questions now.

This one's about investing in taxes.

Hi, Dr. Dali. Thanks for all you do. I'm an oncologist in the Midwest. I have about $300,000 in savings in my non retirement account and they currently are in the Vanguard Sweep Fund, which pays about 5%. How will that affect my taxes? Ideally, I want these in either S&P 500 or something like Berkshire Hathaway and pass it on to my children with the elevated cost basis. But with the current market, I favor the Vanguard Sweep Fund. Interested to know your thoughts about how this affects my taxation. Thank you.

Okay, this is pretty straightforward. A sweep account, a Sweep fund. This is just a money market fund at Vanguard, and at Vanguard, it's the.

Federal Money Market fund.

So the Federal Money market fund is a taxable interest paying account. Interest is taxed to your ordinary income tax rates. So you got $300,000 in there. It's paying a little over 5% a year. So basically it's going to give you $15,000 of income this year and you'll owe taxes on it.

Your ordinary income tax rates, if you're.

Like a typical doc, maybe you're paying, you know, 32% federal and 5% state on that. So 37% of that 15 grand is going to go to the tax man.

The rest you get to keep.

That's the way the taxation works. So what should you do with it? Well, it sounds like this is money that you're pretty sure you're not going to need yourself.

I don't know if that's actually the truth.

I don't know where you're at in life.

Most of us, you know, leave money.

Behind to our heirs after we're sure.

We don't need it.

But you're investing this for your heirs?

Mostly. It sounds like.

So for the long run, when you invest in money for the long run, you generally want to invest it pretty aggressively.

We're talking about stocks, we're talking about real estate, that sort of stuff.

The Vanguard Total Stock Market Fund is a great option. It's very tax efficient.

It is, you know, the yield on it's less than 2%.

So instead of paying taxes on 5%.

Kicking out every year, you'll be paying.

Taxes on less than 2%. Plus, almost every dividend coming out of.

That fund is qualified.

So instead of paying the ordinary income.

Tax rates, you would be paying at your qualified dividend tax rates, which for.

A typical DOC is either 15% or.

20% and possibly plus the 3.8% NIIT tax, that net investment income tax.

So paying at 23.8% sure beats paying 40ish percent, and especially since it's kicking.

Out a lot less income.

So that's going to be a lot more tax efficient. If you're concerned about tax efficiency, that'd be a good reason to invest that into stocks rather than just a money market account. If you are interested in having more growth on it, you're likely to do better than 5% in the long run.

Holding onto stocks. Now, that might not be the case for the next year or two years or five years or 10 years, but over the next 50 years it's almost surely the case.

So that would be a good option. You mentioned Berkshire Hathaway. Now, Berkshire Hathaway is a single stock. It's one company now. Yes.

Warren Buffett and those associated with them.

They buy a whole bunch of other.

Companies under the umbrella of Berkshire Hathaway.

And so because of that, some people treat it a little bit like a mutual fund, but it still isn't. It's still a single stock. So it's hard for me to recommend.

You put all your money into Berkshire Hathaway.

Obviously, Warren Buffett has done very well over the years.

Maybe not so well over the last.

15 or 20 as he did the 30 before that, but he's got a pretty good track record. Unfortunately, he's pretty old. He is not going to be managing Berkshire Hathaway much longer and neither is his partner, Charlie. So it's going to be in somebody else's hands soon. And if you choose down the road to change out of that, because of that, there's going to be a capital.

Gain associated with changing.

The one nice thing that Warren understands, and I hope each of you understand, is that paying a dividend is just a tax event. It doesn't actually mean anything. When a stock pays you a dividend, the remaining stock is worth less. So the nice thing about Berkshire Hathaway is it doesn't pay dividends on purpose. So it's extremely tax efficient to own. And with the step up in basis of death, money invested in there may.

Never be taxed again.

But that assumes you hold onto that until you die, which I don't know.

How old you are, but 40, 50.

60 years, whatever from now.

And that seems like a stretch. So I don't think I can recommend you just plump it all into Berkshire Hathaway. I think I'd rather see you using a total Stock Market index fund or Perhaps a diversified collection of funds for this taxable account and go from there.

But that's how the taxation on each.

Of those options would work.

So I hope I answered your question. Next question. This one's also about taxes. As I record this, it's four days before the October tax deadline for those.

Who have filed extensions.

So I guess no surprise we're doing some tax questions.

I just met with my tax preparer yesterday and like the year before and the year before that, also got a chance to educate my tax preparer. I know a lot of you have had that experience as well, but you ought to pay attention to this stuff because even the professionals sometimes get it wrong.

Admittedly, the point I was correcting her.

On was not a very mainstream question or problem, but still, this is what we're paying people for. Expect them to know more than me about it.

Dr. Dali, I'm doing my quarterly taxes right now and went down the rabbit hole in terms of trying to estimate the payments, including my qualified dividends and taxable interest. First of all, do I make estimated quarterly payments for the taxable interest and qualified dividends, or are the quarterly taxes just on earned income? And then the second question is, how do I know which tax rate the qualified dividends and taxable interest are? I'm looking at my form 1040 from last year and I see where the taxable income is, but it doesn't have it broken down in terms of percentages of my earned income tax rate versus the interest and dividend tax rate. Any advice you have on this would be helpful, thanks.

Okay. Our federal income tax system is a pay as you go system. You're not supposed to save it all up to the end of the year and pay on April 15th. That's not the case with all the states. For example, my state, Utah, has no problem whatsoever if you just pay all your taxes on April 15 for the whole year. There's no penalties, there's no interest, nothing. You pay. It's not a pay as you go system, but the federal income tax system.

Is a pay as you go system.

So that way that works for most taxpayers in the United States is their employer takes money out every two weeks or every month, however often they get paid and withholds it and sends it to the IRS on your behalf.

Seems like a nice service, right? If you have to pay as you go, at least they help you do it. Now, it's a bit of a burden on employers, but, you know, it works pretty well and funds the government pretty well. And you don't end up having to come up with a whole bunch of money.

Come April, if you are not an employee, or even if you are an employee and you have a lot of other sources of income, in addition to that withholding, you are also supposed to make quarterly estimated tax payments. These are due not every three months throughout the year, but on a specific schedule. They're due April 15, June 15, September 15, and January 15. You'll notice there's only two months between the first and second one, and there are four months between the third and fourth one. And this is a mystery to a lot of people to figure out how much to send in. And it really is hard to get it exactly right. I mean, even the amounts that employers are required to withhold from your paychecks are not exactly right. They're just an estimate. They're a formula that the government uses. And then come April 15th, when you file your return, October 15th, if you file an extension, you settle up with the government. If they withheld too much or you paid too much in quarterly estimated taxes, you get a refund. If they didn't withhold enough or you didn't pay enough in your quarterly estimated taxes, you have to make a payment. And if you really underpaid it, you.

Might have to, you know, pay some. Some additional interest on money you should have paid.

So that's the way the tax system works now. You know, when you get paid dividends, when you get paid interest, do you have to pay on that? Yeah, you got to pay on everything. But you might have enough withheld from your employer that you don't have to actually file any quarterly estimated taxes. The only way to know for sure is to get yourself into the safe harbor. Now, how do you get in the safe harbor? Well, one method is just paying everything you owe. If you pay everything you owe this.

Year, you're automatically in the safe harbor. Right?

If they're sending you a refund, you.

Are in the safe harbor.

Not necessarily true.

If you paid it all with your fourth quarterly estimated tax payment, a lot of it was for income in the first quarter. But as a general rule, that's the way it works.

Another way to be in the safe harbor is to pay at least 100% of what you paid last year. Or if you're a high earner and there's a threshold there, and most docs.

Most of those listening to this podcast, are going to be over it, you.

Pay 110% of what you owed last.

Year in taxes, then you'll be in the safe harbor.

So if the only way you pay taxes is via quarterly estimated payments, this is really easy. You take last year's income, you multiply it by 110%, you divide it by.

Four, and that's what your quarterly estimated.

Tax payments should be. And then the last way you can be in the safe harbor is if you get really close and you only miss by a little, right? If you're less than $1,000 underpaid, which.

You know is for a moderate earner, that's, that's, you know, a pretty good estimate.

But for high earners, very hard to.

Be within a thousand, right? For some of us it's hard to.

Be within 100 times that. You know, it can be really hard.

To estimate your taxes.

Things come up and your income's very.

Variable or whatever, right?

And so for most of us, this is a big fat guess, right? You do the best you can, but the only way to know for sure is basically to do your taxes throughout the year. You're continually doing your taxes to see what you're going to owe, you know, your deductions, you know your income, what it's going to be. And that's basically what I do. I know what my big deductions are. My big deductions are the QBI deduction, that 199A deduction. Charitable contributions is another huge deduction for me. I've got some smaller deductions with some tax deferred contributions. And so I subtract those out. I know what my income has been and I total it together and I go, what's the tax bill on that going to be?

And that's how I know how much to pay in quarterly estimated taxes. But it's a guess.

And I've been off by a lot on both ways. Too low and too high.

And so I've had to pay some interest and I've also loaned the government an awful lot of money. It's not easy to do.

As far as your qualified dividend and long term capital gains rates, those are 0%, 15% and 20%. And you just got to see what your income is.

Those are pretty big brackets as pretty.

Darn easy to see what bracket you're in there. For 20, 23, the tax brackets for capital gains, if you are single, if your income is under $44,625, you pay 0% on your long term capital gains. If you're married filing jointly, it's twice that. So just under $90,000, 15% ranges for singles from $45,000 to $492,000 for married from $89,000 to $554,000. That's the 15% bracket. So anything over $492,000 or $553,000 is 20%. And if you make over $200,000, you.

Also add on that 3.8% tax $250,000 married.

So for lots of docs you're going to be in the 18.8% long term.

Capital gains bracket or the 23.8% long term capital gains bracket.

And you just gotta estimate that when.

You make your quarterly estimated tax payments.

There's a reason they're called estimates, because we don't really know. Try not to miss too much. If you don't like paying interest to the irs, well, give em a little.

Extra and then you don't have to.

Worry with coming up with that money. If you're content with that and you'd rather not give the IRS a tax free loan, maybe pay a little bit less. But you know, most of us are.

Just trying to guess the best we can and deal with the consequences later.

Hope that's helpful. All right, next question comes in by email. And this comes in asking I have a question on the Social Security tax portion of federal taxes that I can't seem to get a clear answer on. Here's a quick breakdown of my wife and I's anticipated 2023 tax situation. We're married, filing jointly. My income I made 150,000 as a W2 earner. My wife made $50,000 in wages as a W2 earner and then began doing 1099 work. Expects to make about $20,000 in 1099 work. Combining all of that, we get to around $220,000 for the year. My question is around the Social Security tax component. Am I seeing the $160,200 limit for 2023? But I'm not clear how this applies since we're married filing jointly. And is this a limit for all of our income combined, regardless of source, or does our 1099 income have a separate limit from our W2 wages? Okay, there are not separate limits for your W2 and your 1099 wages.

Right.

You have to pay on both of them.

No separate limits.

But you each have a separate limit, right? Yours is 160,200. So once you start making more than that, you do not have to pay Social Security tax anymore on additional income. Once she makes more than that, she, she does not have to pay any additional Social Security tax on additional income. So in this case, that $20,000 is.

Going to be pretty heavily taxed because.

You'Re in a relatively higher tax bracket due to your combined high income. And she's going to be paying both halves of Social Security and Medicare tax on that money.

So I know that's not the news you wanted, but that's the way it works.

All right, let's take another question, this one about oil and gas drilling.

Hi Dr. Dali, thanks for all you do for us Waco investors out here. I wanted to ask a question about some unique tax breaks. We work with an accounting firm that also has a wealth management side. Fortunately, our incomes this year were significantly higher because of some bonuses that both my wife and I received. And so we were looking for additional ways to save on taxes. They mentioned oil and gas drilling partnerships and did a search on the WCI website and found that you had just written an article about it. And so I wanted to see if I can get a little bit more clarity about what you wrote. And obviously it's a high risk investment. You mentioned that you know, some of these will never find oil, but I wanted to see if you in your research found like maybe some percentages on this as well as how this exactly works. Are these operators just drilling in one place and if they don't find oil, that's it, or are they going to then look for multiple sites? And again, maybe this depends on the operator and the exact deal, but I wanted to see if you could provide a little bit more clarity on this and whether this is something that would be advisable for those who are in some of their high income earning years. Thank you for your time and attention and look forward to your answer.

Okay, good question. For those who didn't see it or.

Don'T read the blog, there's a blog post published on September 18th of this year called Investing in Oil and Gas.

And it's a pretty extensive deep dive.

I took into not only the investment options but also the taxation of these investment options.

And I don't know that I can.

Add a lot more detail if you've.

Already read that post. That's much of what I know about.

Investing in oil and gas. I do not personally invest in oil and gas in any way other than via the publicly traded stocks in a total stock market fund.

So how does it work? Well, you got lots of options. You can buy publicly traded stocks that.

Invest in oil and gas and they.

Get taxed exactly like all your other stocks do. You can buy oil futures and actually gamble on the price of oil. There are mutual funds and ETFs that.

Invest in either futures or in these equities.

Or you can kind of go direct.

You can invest in the mineral rights.

Side, you can invest in working interests. You can invest via master limited partnerships.

These are often transporting gas pipelines and that sort of a thing. Then, just like in real estate, there are often private general and private limited partnerships that you can invest in.

And there are a few unique tax.

Advantages to oil and gas investing. But the important part here is that.

You do not let the tax tail wag the investment dog. It sounds like your interest in this is just because you, for the first time in your life, had to pay a big fat tax bill.

All right?

That is not a reason to go invest in oil and gas. That is not a reason to go invest in real estate. That is not a reason to do lots of other things that people do just to lower their taxes. As a general rule, if you're paying more in tax, that's a good thing because you made more money. That's not a bad thing. So pat yourself on the back and say, hey, good job. That's a good thing. You don't go around going, well, how can I get out of this?

Right?

Well, because here's the best way you can lower your tax bill. Stop making money. Stop making money and you'll quit paying taxes. As a general rule, when you invest.

Whether you invest in real estate or oil and gas or stocks or bonds.

Or whatever, you want to invest tax efficient. So if you are going to invest.

In oil and gas, sure, get the tax benefits for that.

But don't go rushing into oil and.

Gas investing just to lower your tax bill.

Because I tell you what, the best way to lower your tax bill through investing is to lose money. If you lose money, your income goes down, you pay less in tax, and that's what a lot of oil and.

Gas investments end up being. Now, obviously, some of them do make.

Money, but you want to first choose.

The investment based on how it's going to do, not based on what tax break you're gonna get from it. There's been lots of things, especially in.

The 1980s, lots of things sold to doctors to lower their tax bill.

Yeah, it lowered their tax bill, but.

Getting a 30% deduction on something and.

Losing 100% of your investment is not a good deal.

So be careful with that. Read that article carefully so you understand.

How the taxation works.

But as a general rule, this is.

Not what you do when you have a great clinical year and make a bunch of money and you start going, oh, I have to invest in oil and gas now to lower my tax. That's a very bad way to approach any investment. So please don't do that.

Hope that answered your question. I don't know that I have more information for you. Yes, it's a high risk investment. Yes, there are some tax breaks associated.

With it, but you need to become a bit of an expert in oil and gas if you want to start investing in oil and gas or at least stick with something simple like a mutual fund that invests in it or a very broadly diversified partnership. But yeah, these companies, if they don't find oil in one place, they go somewhere else. A partnership. It just depends because some of them might be a partnership on one.

Well, and if that's it, that's obviously pretty high risk. If they don't get oil, they don't get oil. And you don't make any money.

Even though you got a tax break, you're not making any money. You lost your investment.

All right, a quote of the day today comes from Ginny Romiti who said, growth and comfort do not coexist.

So if you want to grow personally.

In your world, just like building a.

Muscle, it's not comfortable, you got to go work out.

All right, another question on taxes, this one on tax loss harvesting from Sherene.

Hi Jim, this is Sherene from Florida. My question is regarding tax loss harvesting. I understand the wash sale rule, but I'm somewhat confused about how tax loss harvesting may turn a dividend from qualified to non qualified. Does this occur even if I have auto reinvestments turned off, or does this switch occur simply from the dividend being distributed to my sweep account? And if that's the case, how exactly can I tell when a dividend will be distributed for a fund and therefore know the best time to do the tax loss harvesting? I looked at my index funds at Vanguard and it looks like these distributions are pretty random. So how do I avoid this reclassification from qualified to non qualified dividend when doing tax loss harvesting? Thanks so much in advance for your time.

Okay, the rule is that if you own a stock for less than 60 days, right. 60 days around the when a dividend.

Is paid, you know, 30 before, 30.

After, whatever, then it is no longer a qualified dividend.

It is now an ordinary dividend and.

You pay your ordinary income tax rates.

On it instead of the lower qualified dividend tax rates.

So what's the best way to avoid this? Well, don't do frenetic tax loss harvesting. If you only go in there to.

Look every couple of months, every two.

Or three months to see if there's.

Anything worth harvesting, then you'll never have a problem with this.

You'll never have a problem with the.

30 day wash sale rule.

So just chill on the tax loss harvesting, right? You don't have to get every single.

Dollar of loss that ever happens in your account.

The way this works for most people is that they start a taxable account. They're kind of excited about tax loss harvesting. And as that taxable account gets bigger and bigger over three or four or five years, they hit a bear market. And everything they've bought in the last five years is now underwater. And they tax loss, harvest all of it. And now they've got enough losses that they've got $3,000 a year for the rest of their life. And they can offset a number of.

Other capital gains in their life.

And then they go another four or five years and they hit another bear market and they do a whole bunch more tax loss harvesting.

Right.

But they don't have to be in there every two weeks checking for tax losses to get every $30 drop in the funds. And so that's the way you avoid.

Those two issues is you just don't do it that often. I mean, if there's a pandemic and the market drops 30%, yeah, you ought to go check and see if you.

Should tax loss harvest.

If you hit 2022 and the stock market's down 20%.

Yeah. Go in and look, see what's underwater. Do some tax loss harvesting. But in a year like 2023, I don't think I've done any tax loss harvesting at all. So no problem with 30 day wash rules. No problem with the 60 day qualified dividend rule, because I haven't done any of it. Nothing's really been underwater all that much.

Everything's done okay this year. You know, maybe something was underwater for.

A couple of weeks, but it wouldn't have been a big loss.

And that's really the only losses I'm interested in grabbing at this point.

So hope that's helpful. Those dividends are not random, though. Most fund companies will tell you when.

The dividends are going to be paid.

Just look at the history of the dividends.

Right. And they'll announce the dividends a couple of weeks in advance usually too. But for the most part, if you look at like most Vanguard funds, dividends are often paid quarterly.

That's probably the most common thing some of them only get paid twice a.

Year and some of them only pay once a year, generally in December. So I expect dividends around the end of March, around the end of June.

Around the end of September, and around.

The end of December. That's when I expect dividends. The only ones who are paying more frequently than that are like bond funds and money market funds, that sort of a thing. The stock funds, which are the ones you're generally tax loss harvesting, are generally paying quarterly.

All right, let's take a question on asset allocation here.

Hi Jim, I'm an anesthesiologist in the Southeast, not far out of training, working in private practice, I've been reading through many of the staple personal finance and investing books that you recommend, and I recently have been contemplating my asset allocation. As a young physician with many years of investing ahead of me, I I initially intended to invest in the simple Boglehead 3 fund portfolio with a tilt towards small cap value and also plan to include a REIT index fund. My question to you is this. Knowing what you now know and given your vast experience thus far, would you continue to tilt your portfolio towards small cap value or would you instead opt for the simple three fund portfolio plus REITs for the sake of simplicity and ease? Said another way, if you were a new physician just starting out in investing, but had the investing knowledge that you have now, what would your asset allocation look like? Keep up the good work and thanks for all that you do.

All right, that's a great question. First of all, remember what matters in investing, okay? And you invest so you can spend.

More later than you have now, right? You want your money to keep up with inflation. Time value of money, you want it to grow. That's the point of investing.

And what really matters in that funding the account matters. How much you put in is probably.

The most important thing. Your savings rate, that's what matters.

And then your asset allocation matters. And then you're staying the course with.

That asset allocation matters.

It really doesn't matter all that much what that asset allocation is as long as it's reasonable. The more important thing is that you stick with it.

Because each asset class, each reasonable asset.

Class tends to have its day in the sun. Just like large growth stocks have had a great last decade. If you look at the 2000s, small.

Value stocks did much better and really.

Haven'T done great for 10, 15 years now. But if you own both of those.

Chances are that sometimes the large growth stocks are going to do well.

At some times the small value stocks.

Are going to do well.

Now, a total stock market approach is.

Pretty heavily weighted toward those large growth stocks because that's what the stock market is. A large part of it is Apple and Amazon and those kind of big companies, whereas a very tiny part of it, only about 3%, is really small value stocks. So if you want to tilt your portfolio towards small value stocks, you'll usually need some sort of a small value fund in addition to a total market fund. And that's what I've done. I've been investing since 2004, 2005 ish, and I've maintained a tilt essentially since.

That time that has not paid off.

Over that time period. From 2005, 2006, 2008, whatever, until now.

The better bet has been about US large growth stocks.

That's what has done the best out of the stock market over that time period.

But I've got a lot longer investment.

Horizon than just 15 years, right? I'm only in my late 40s now. I expect to be investing for another 30, 40, 50 years and I think that pendulum is going to swing.

I'm a believer in the long term.

Data on the small and value factors. I think that tilt is going to pay off over my entire investment lifetime.

Even though it has not yet paid off. So if I was designing a portfolio.

Now, yes, I would have a small value tilt.

But it's really important that you don't tilt that portfolio more than you believe that data, because it's entirely possible with this limited data set that it was just an anomaly and that you'd be better off just keeping costs low, buying.

Everything, using total stock funds.

So good luck with your decision. Whatever you do. Remember the most important thing is whether you decide to tilt 2% of your portfolio, 5%, 15% of it is that you stick with that decision. What you don't want to be doing.

Is chasing your tail, buying small value after small value does well.

Selling small value just before it does.

Well, that's a recipe for investment disaster.

Pick something reasonable, stick with it, fund it adequately.

You'll be successful.

All right, another question via email.

This one also on Asset allocation said.

Hope you're enjoying your summer after taking your FYFA course and listening to your podcast. I haven't seen much of this discussion so would like your input. What are your thoughts on the following we're in our mid-30s, one intermediate term money 10 to 15 years and two using a different asset allocation for that goal. Our short term money assigned to short term goals is basically in high yield savings accounts and money Market accounts.

Good.

I like that our retirement money is in retirement accounts as well as in a taxable account.

We're on track to reach our goals.

If we stick to our plan.

Great.

My question is about intermediate money. Money I may want to use pre retirement, such as a summer home or renovation, etc. What do you think of index fund.

Investing for that in general?

And secondly, do you see the benefit of dumping money into a second brokerage account with a different asset allocation to reach those goals? Similar to how a 529 may have a different allocation. Seems that dumping all money in the same account can throw the allocation out of sorts.

Both when in putting and withdrawing a large sum.

It's a great concern.

I don't know that it matters that much, let's be honest.

But it's a great question and there's no right answer.

Like most great questions, I think it's.

Very clear that you're doing it right.

For short term money, right?

If you're going to need this money in the next year, two, three years, cash is the place to be. The nice thing is these days you get paid for that, right? If you put it in a Vanguard Federal money market fund, it's paying like five and a quarter percent. So much better than two years ago when it was paying 1%. So I feel like even if you got money sitting there for a while, you're not being punished for that.

These days, savers are doing much better in comparison to borrowers than they were a couple of years ago due to the increase in interest rates.

Long term money, of course, you tend.

To invest for the long run. Whatever your asset allocation that you can tolerate for long term money is stocks, bonds, real estate, maybe something else. Whatever.

That intermediate money is hard to sort out. Though nobody knows exactly. It's probably some combination of the two.

If you need the money in seven.

Or eight years, maybe you put some of it in stocks and the rest in cash. How much is some? Well, there's no guidelines.

Nobody knows. Obviously, if the stocks do better over.

Those seven or eight years, you'll wish you had more in it. If they do poorly, you'll wish you had more in cash.

It's just hard to say without a functioning crystal ball. But here's the deal.

If it's a goal that's like all wishy washy, if it's a goal that's 15 years out, just invest it for retirement, right? Whether it's in your retirement accounts, whether.

It'S in the taxable account, then when.

This thing comes up Right. And you're like, okay, now we're serious. We want to buy that lake house in two years. Let's start saving toward that and making plans for that.

And you go, okay, well, I can't.

Save it all up in the next two years, so I'm going to use some of the money out of my portfolio. Well, you probably are looking at your taxable account. Well, what's in my taxable account? Well, I've got some, you know, total stock market fund in there, and I got some total international stock market fund in there. What am I going to sell? Probably the shares with high basis, so the tax hit isn't so much. And then you simply adjust for that.

You adjust your retirement allocation. Your new money is going to be going in toward, you know, that total stock market and a total international stock market allocation.

You might even sell some of something else inside one of your retirement accounts and buy some more of those two.

Asset classes in order to rebalance the account at that time. But that's what I would do if it's vague and it's way off in the distance. I'd just invest it all into the long term portfolio and then make adjustments when things come up.

If you're like, okay, now we're going to do it in two years, all right, now's the time. Put it in cash. You know, you're only two years out.

You don't want anything to happen to that money. So you can buy that house, or you're building a house and you're going to have to make payments over 15 months or something, but.

And then you want to get that.

Money out of stocks and into cash. I hope that's helpful.

If it's a definitive thing, you know, if it's college, you know it's going to start in nine years. Yeah, I'd put a separate asset allocation for it if. For sure. You know, you want to have $500,000 in six years to buy a vacation home in Tahiti. And it's a very specific goal. Sure. Set a different asset allocation for it. I don't know that you necessarily need a different brokerage account for that. It's easy to open another brokerage account.

You can have multiple brokerage accounts at Fidelity or Vanguard or Schwab, you know, all at the same place. You can do that just like you can open different bank accounts.

But I don't feel like you had to.

You can keep track of it on a spreadsheet, but don't feel bad if you want to open one that's not bad. Okay, I think I've answered most of your questions here today. This is good.

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