WCI #344: Are Structured Notes More Than A Product To Be Sold?

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 344. Did you know that the White Coat Investor not only has a podcast and a blog, but several books that will help you on your way to financial independence. These books cover topics such as asset protection and minimizing your taxes to keep more of your hard earned money. They discuss plans for insurance, housing spending, student loan elimination, investing and estate planning. You can learn how to become a millionaire within five to 10 years of leaving residency and how to invest in a sensible, low cost and effective manner with or without the assistance of a financial advisor. There's even a book geared directly toward medical and dental students so you can start optimizing your finances or early in your professional journey. Find the book that is right for you at the WCI store, at shop.whitecoatinvestor.com or on Amazon. You can do this and the White Coat Investor can help. All right, welcome back to the podcast. We haven't recorded in a little bit, so I've got lots and lots to talk about. We've got a whole bunch of your questions off the Speak pipe and we're going to get to those, but I have some other stuff I want to talk to you about today as well. For those of you who have no idea what the Speak pipe is, that's where you can record questions and we'll answer them on the podcast. You just go to whitecoatinvestor.com and you can record your question up to 90 seconds and don't feel like you gotta use the whole 90 seconds and we'll play it on air and try to answer your question. This whole podcast is driven by you, your feedback matters, and what you want to talk about matters. So basically, if you don't like what you're hearing on the podcast, let us know and we'll try to adjust it and make those changes so that you're getting what you need out of it. We recognize that although you're not paying for this podcast, your time is valuable and we don't want to waste it. All right. I am just coming back from a trip, actually, a couple of trips and at one of those trips we were at the DLP conference down in near Jacksonville, Florida. It was kind of rough actually. I had to follow Tim Tebow. Tim Tebow on the docket which if you've Ever seen Tim speak? That's kind of a rough place to speak at a conference, to be on stage right after Tim. But it was fun. It was fun to meet him, and it was fun to have a great conference down there. My subject at that conference was that it's not a vacation, it's a lifestyle. And that comes from a saying that I've been using for the last few years here at White Coat Investor. When people give me a hard time, for example, I might be coming back and people are like, what do you mean you're going on another trip? Didn't you just get back from a vacation? I tell them, well, it's not a vacation, it's a lifestyle. I set my life up there this way on purpose. And it's true. A few years ago, I sat down and thought about what my ideal life looked like and compared it to my current life and recognized that I didn't have as much overlap there as I would like in that Venn diagram. And so I started making changes in my actual life to align it more fully with my ideal life. And that involves some more trips, some more vacations, some more adventures than I was able to take seven or eight years ago. And so that was kind of the focus of that talk. That saying has more than one meaning. The first meaning, of course, is that, yeah, I'm going to go on a lot of trips because that's what I want to do with my life. All these people talk about wanting to retire so they can travel or so they can vacation more. Well, I don't need to retire to do that because I'm able to do it while I'm still working. But the other meaning of that phrase is that sometimes I work while I'm on a trip. And, you know, and this was. I was getting a little bit of a hard time at this second trip we went on. After the DLP conference, Katie and I went out to the Bahamas. We went to Andros island and did some diving out there. And in between dives, and in the evening, sometimes in the morning before going out, we did a little bit of work. So we're sitting there in the lodge because that was the only place they had Internet. And we were writing blog posts or answering emails or responding to comments on the blog or whatever. And so the other meaning of that phrase, that it's not a vacation, it's a lifestyle, is that sometimes we're working out there. And the nice thing about that is if you're able to do some work on your trips, you can go on trips a whole lot more often than you otherwise could. And so it kind of has two meanings. It reminds me of the quote from Seth Godin, who said, instead of wondering when your next vacation is, maybe you should set up a life you don't need to escape from. That's what Katie and I have been trying to do the last few years, and I think with quite a bit of success. We really like the way our life's set up now. It allows us to go on multiple trips. We just spent the last 10 days out of town, basically the first five at that DLP conference, and the next five basically in the Bahamas. And then I'm here for a few days. I coached a hockey game on Saturday night. I'm coaching another one tonight. Tomorrow I have a shift in the er. And tomorrow night we leave for a Thanksgiving break. We're going down to Las Vegas. We're gonna do some climbing and some mountain biking and some hiking into some hot springs, and we're gonna go to Omega Mart and watch a Cirque du Soleil show and go to the Blue Man Group and have Thanksgiving dinner at a buffet. So we think it's going to be a great trip. But will I do a little bit of work on that trip too? Almost surely. So that's a little bit of our life and how we've set it up. I encourage you to consider your ideal life, what it looks like, how much work, how much play, how much vacation time, how much time with your family and friends. And then try to make little adjustments each year in your life. Try to get it more like that ideal. And as you do that, you should have a more joyful and happy life that allows you to fulfill your purposes while enjoying the time you have on this sphere. All right, let's get into your questions. It's enough About Me this podcast supposed to be about you, not me. Our first one is an email and it's about structured notes. Email says financial advisors often tout structured notes as a good investment with significant potential upside combined with downside protection. The more I read, the more confused I get. They seem to me to be a combination of prop and parley bets. I do not have a specific question that would be appropriate for the speak pipe, but wonder if this type of investment could be addressed on a future podcast. I searched the blog post but failed to find much information. I suspect the answer is that these products were created to be sold, not bought, but did want to better understand them. All right, well the first thing I had to do was understand your Question. I'm not a gambler, so I didn't really know what prop and parley bets are. But for those who also don't know, I'm going to explain this. I had to look it up. A prop bet, short for proposition, is essentially any sports bet that doesn't revolve around the winner or final score of the game. It's like you're betting on how long it's going to take the singer to do the national anthem or whether the coin flip at the beginning of the game is going to be head or tails. That's a prop bet. And a parley bet is simply combining a bet on the outcome of the game with some other prop. Right? So maybe you're combining the outcome of the game with whether the Giants won the coin toss or not. That's what a prop and parley bet is. That's a little hard for me to relate to structured notes, but I suppose there's some sort of relationship there. Here's the deal with structured notes. Structured notes are put together, typically by a bank, sometimes by another investing company, and they're sold. So if your financial advisor is recommending structured notes, they're almost surely not a fee only financial advisor. They're likely a commission salesperson masquerading as a financial advisor. So if your financial advisor is trying to sell you these things, you don't really have a financial advisor. Now you need to go get a new advisor if you need advice or learn how to do this on your own. It's like if your advisor is trying to sell you some index universal life insurance policy, right? They're an insurance agent, they're not a financial advisor. Okay? Even though they're allowed by law to call themselves a financial advisor, that's really not what they are. Same thing if they're trying to sell you loaded mutual funds, right? If they're talking about A shares and B shares and C shares, not a financial advisor, you need to go get a real financial advisor, somebody who works only for fees. Most of them charge AUM fees, which are fine if you don't have that much in assets. Others charge hourly or kind of an annual rate, some sort of a flat fee. But you need to understand how they're paid so you can understand whether you can trust their advice. But a structured note, the idea behind these is to appeal to your psyche, right? People want the upside without the downside of investing. But risk and return are very closely connected when it comes to investing, right? So we all know about index funds, right? An index fund gives you the market return on average. The market, you know, we're talking about US Stock market over the last hundred years or whatever, has made approximately 10% a year, but it also sometimes crashes dramatically, goes down 40 or 50%. People don't like that. It doesn't feel good when the money you put in the stock market, instead of doing a kitchen remodel, disappears. So they like to have some sort of downside protection so they can't lose all that money. And what a structured note is, it offers that. It gives you downside protection. Right. You can only lose so much or you can't lose any money. And how do they pay for that? Well, they reduce your expected return. So now instead of being able to make 10%, maybe you only are likely to make 6%, but they ensure that you can't lose money. Well, the problem with these things is the way they set them up is in general, you're giving up too much in order to get the guarantees. And there also tends to be commissions and then fees and complexity. And you can bet that that complexity does not favor you. So I think your initial assessment of structured notes is correct, that these are products made to be sold, not bought, and you can just avoid them completely. In my opinion, the problem is if you want to understand every single one of them, you have to dive into them. Just like all these IUL policies, every one of them is unique. You can't compare them apples to apples. They've all got different terms and conditions and you gotta wade through them all. I think you're better off just avoiding them. And frankly, I would avoid those who sell them. So hopefully that's helpful to you. About structured notes. Haven't owned any, don't plan to own any, etc. Okay, for those of you who don't know, we have some sponsors of the podcast of the blog that are credit card companies. And by choosing the right card or cards, a doctor or other high earner can maximize convenience while potentially saving money on purchases or earning free travel, making it worth the effort to find the right card for your situation. So these cards that we've partnered with you can find@whitecoatinvestor.com creditcards or you can just go under the recommended tab from the homepage. Now, a couple of things you need to be aware of when it comes to credit cards. First is credit cards are not for credit, they're for convenience. So if you are carrying a balance on a credit card, you're doing this all wrong. You shouldn't have any credit cards if you've pretty much ever carried a balance on a credit card. These are not for you. The interest rates are 15 to 30%. If you are not paying them off every month, that is like one of the dumbest financial things you can possibly do. Two, Be aware that studies show you likely spend more when you use a card instead of cash, you likely spend more when you use a credit card instead of a debit card, and you likely spend more even when you use a debit card rather than checks. So keep that in mind that you are likely to spend more money using credit cards. But if you've got an adequate savings rate, you're looking for some convenience and you're like, heck, why not get some free points or some cash back if I'm going to be using credit cards anyway, you're the person I'm talking to about these credit cards, okay? You can find those whitecoatinvestor.com creditcards all right, let's talk about asset protection. Here's a question off the speak pipe.

Hey, it's Dr. Q. First time caller, longtime listener. Thank you for all that you do. I just had a quick question on asset protection. I have your book and I read it briefly. I was just wondering on if you live in one state and practice in another, which state laws should you be practicing for asset protection? While the states are very close in proximity, the laws are drastically different. Thank you.

Okay, great question. The book he's talking about is the White Coat Investors Guide to Asset Protection. This is a book I did a couple of years ago. It's all about asset protection and it's got a couple of purposes. One, doctors are way too fearful about this. We're all afraid we're going to be cleaned out by a lawsuit. It's actually incredibly rare that doctors lose personal money to a malpractice lawsuit. Almost always in these lawsuits, you're playing with the house money, you're playing with the insurance company's money. That's why you paid those malpractice premiums for so many years is so that when this happens, the insurance company is going to pay for your defense and they're going to pay for any judgment or settlement that comes as a result of the case. So it's very rare. That's one of the main points of the book. Another point of the book, however, is that asset protection law is state specific. And so something like half of the book is simply a listing of all the state laws that apply to asset protection. So you can go through state by state and see what the laws are, and it's pretty interesting actually. They're very unique. A lot of big differences from state to state. But the book's worth it just for that section, just to know your own state laws. You can get that at Amazon, you can buy it at the White Coat Investor store, you can buy it wherever. But I do recommend it. I think it's worth checking out. It's maybe not the first White Coat Investor book you should read, but if you're looking for something on that niche topic, check it out. All right, so what state laws apply when there's a lawsuit when you live in one state and you work across the border? Well, it depends on what state you're sued in. That's probably the laws that are going to apply most fully. But the truth is that both laws are likely to apply in some way and it's going to be fought out in court. And so it's hard to really answer that question in advance because you really don't know how it's going to shake out. So look at both laws or both states set of laws, recognize that worst case scenario, the ones that are going to apply are the ones that are least favorable to you in the situation and act accordingly and hope for the best. You know, it's possible that the most favorable ones to you will apply, but that's probably going to be an argument between two sets of lawyers in court and I can't really tell you how that's going to go. So sorry. I wish it was more clear cut than that. Asset protection is murky to start with. There's a lot of not only, you know, written law, but case law involved in these cases. The good news is you're probably not going to ever have to really deal with them. Okay, next question comes down to is from Joanne. We're going to talk a little bit about IT safety. Hi, Jim, this is Joanne. I'm a family med doc in the Pacific Northwest. I had a burglary a few months ago from identity thieves and they took some of my account information. I realize that now how silly I was in the way I was keeping account information on pieces of paper, et cetera, and they seemed really quite attune to that. I was just wondering if you could remind all of us about basic IT safety with all of our accounts being online these days. Thanks and shout out to Megan for producing the podcast. Hey, all right. Megan got a shout out. We love it. Yeah, Megan works really hard putting this podcast together, so you definitely should thank her. You know, it's interesting When I do this podcast, I only spend about the time you listen to the podcast doing it. And Megan and Wendell, our AV guy, it probably takes four to five times what you hear of work to put a podcast together, and I'm only doing one of those, so we appreciate you thanking the staff. Without them, there would be no white coat investor for sure. I would have quit four years ago. Okay, IT safety. Yes, you should do it. It's good. You definitely do not want somebody else getting your passwords. You cannot use the same password on every account. You cannot write down your passwords and make them someplace they can easily be stolen. You should not be logging into your financial accounts from hospital computers or other public computers. Some people go so far as to have a dedicated computer that all they use it for is logging into financial accounts from home. I think that's maybe a little overkill, but I understand where they're coming from. Passwords should be changed periodically. You should close browsers after you get done being in financial accounts and so forth. I also recommend you have some sort of a password program, and I promise this will make your life easier. Everywhere except the hospital. The hospital. You still have to remember your stupid passwords. But for your passwords at home, you can just use something like LastPass, that's what we've been using. And then all you have to remember is one master password. And every time a website comes up, you can simply, you know, just click on the box and it feeds your password in there. And that allows you to use a 12 character nonsense password with capitals and small letters and numbers and symbols that no one's ever going to break into all of your passwords and they'll all be unique and you can keep track of them all. You can share this with your partner and, you know, work colleagues, whatever, but it's really, really helpful. So I highly recommend something like that and just being smart about things. The other place you got to be careful is, you know when you get texted things, when you get emails and they want you to click on links? That can be very bad. Do not do that. If it's at all suspicious, if it all seems funny, you ought to have your antenna up and not click on links, not download things that are suspicious. And if you do realize you've screwed something up, you know, get on it right away and get things taken care of. Another great step you can take, particularly if you're kind of done with the borrowing phase of your life, is to freeze your credit. That'll keep people from opening credit cards in your name that'll keep people from being able to open any sort of line of credit in your name. Cause your credit will be frozen. It doesn't take that long to unfreeze your credit. But it's worth doing. You can do it for your kids as well. I mean, people can open accounts in your daughter's name and nobody know about it because you never check their credit report because they don't have any credit. Right. But you gotta be careful about those sorts of things too. Lots of people have their kids credit frozen as well. So lots of good things to do. This happens to lots of people, though it's not uncommon. There are services out there you can hire that might help to protect you, but mostly help you to get everything taken care of once you do have your identity stolen. Whether they're worth it or not. I don't know. Haven't dealt with one personally, but I've had some people say, you know, maybe it's not worth it because you just put a whole bunch of time and effort in. While others say, hey, it was definitely helpful when I had my identity stolen. It's not that expensive if it's something you want to buy, but I don't have a recommended provider for that, so. All right, let's do our quote of the day. This one's from Epictetus. I don't know if I'm pronouncing that right. I'm probably not. Probably some Greek person who said wealth consists not in having great possessions, but in having few wants. And I think there's a lot of wisdom there. Alright, let's take a speak pipe. This one's from Mark, who wants to talk about investment fees.

Hey, Dr. Dolly, this is Mark from the Southeast. I have a question about fees for investments. I have most of my taxable portfolio in a Charles Schwab account that is invested in a total stock market index fund. However, a small percentage of my portfolio is in an Edward Jones account that was a custodial account from my parents that I've never really done anything with. And after talking with the advisor, it seems that there would be different types of fees that they could charge to continue investing with Edward Jones. However, the explanation from the advisor seems very convoluted. And the way that she frames it, it seems that she's saying the fees would be very similar to what I currently pay to invest with Charles Schwab. Is this correct? Is there any light that you can shed on this situation? Thank you so much for your help.

I got to be careful how I phrase this there's a very short list of financial firms with whom I will never do business and to which I will never send anybody. That consists of banks like Wells Fargo, for instance, insurance companies such as Northwestern Mutual, and advisory companies such as Edward Jones. I do not like the way Edward Jones runs their company. I do not like how their advisors work. I do not like their fee structure. There is very little about it that I do like. So the first thing I would do if I had an account with Edward Jones is I would move it somewhere else, like Charles Schwab. Fine place to have it. Now, these investments, I don't know what they are, but they are probably loaded mutual funds. They're probably front loaded, meaning you already paid the commission on those funds. You're probably not paying ongoing commissions, but the expense ratios are likely fairly high in comparison to a good low cost, broadly diversified index fund like you would get from Schwab or Fidelity or Vanguard or iShares. So it may be worth changing those funds out. But you mentioned this is a taxable account and a taxable account that was a custodial account, meaning it's probably pretty old because you're probably now a doc that's 30 or 35 and your parents probably opened this thing for you when you were 10 or something. And so you probably have pretty low basis on those investments. And it might not be worth selling them due to the very high capital gains that you have on them and the taxes you'll have to pay. It may be worth building your portfolio around them. So this brings in the discussion of what to do with legacy investments. And there's lots of things you can do with them if you have a loss. Obviously you can easily sell them if there's not much of a gain. You can sell them if you have a bunch of capital losses from something else that you can offset gains, you can sell some in proportion to that. You can use them for your charitable giving. If you give to charity, those are great way to flush those out of your account. And sometimes you just build your portfolio around them. But if they're really terrible, well, you just bite the bullet and you sell them and you move the money into what you'd rather invest in. But the first thing to do anytime you have legacy investments like that is figure out what your basis is, what would really be the cost to sell them and invest in what you'd prefer to invest in. But as far as what the advisor and I want to put quotes around that word when we're talking about somebody at Edward Jones is telling you that the fees are similar to what you can get at Charles Schwab. Well, that's a very vague statement. There's probably a mutual fund that you buy at Charles Schwab that's going to be the same fee as this mutual fund that you now own or was purchased through Edward Jones. But there's probably something cheaper at Charles Schwab too. So it's like a half truth kind of classic for these sorts of investment people. All right, let's talk a little bit about some student loans for a minute.

Hi Dr. Dahl, my name is Jay. I'm a neonatologist. Thank you for everything you do. I've worked with one of the advisors recommended on your blog to establish the optimal student loan repayment plan for myself based on my life circumstances, income and student loan burden. We've settled on 20 year non PSLF forgiveness. I plan to aggressively make payments into a slush fund for the next three to five years that I will then use to make the monthly student loan payments and pay off the tax bomb when it hits. This will effectively allow me to forget about my student loans after three to five years, even though we're still making payments for the next 12. I'm wondering, however, if you have any ideas to decrease or somewhat mitigate the tax bomb when it does hit. I've considered ideas such as taking a one year sabbatical so I won't have any earned income in the year of forgiveness. But I'm wondering if there are any other ideas or strategies you could recommend. I do have 12 years to plan for this. Thank you.

Wow, great question. I don't think I've ever had this one before. I'm not a huge fan of IDR forgiveness, which is what we're talking about. So this is either pay pay as you earn forgiveness at 20 years for grad student and undergrad loans, or it's save forgiveness at 25 years for graduate loans and 20 years for undergraduate loans. And of course that forgiveness does not require you to work at a 501. It doesn't require you to work at all. You just have to make payments for 20 to 25 years and then the rest is forgiven. Unlike PSLF, it is not tax free forgiveness. It is taxable forgiveness. Taxable are your ordinary income tax rates all in the year in which you receive it. So if you're making $400,000 a year and you get $400,000 in forgiveness that year, you're going to owe taxes that year on $800,000 even though you only made $400,000. As you can imagine, that can be quite a hardship and something that you really do need to save up for. But if you save early for it and you invest it so that money is growing toward that tax bomb, it's entirely possible that you could come out ahead. Typically, the people who do this are people with a relatively high debt to income ratio. So what can you do to reduce that? Well, saving up for the tax bomb is obviously a good idea. You've figured that out. But if you had no other income in the year you received that forgiveness, that would certainly lessen the tax bomb. Some of it would probably happen tax free, some of it at the 10% bracket, the 12% bracket, the 22% bracket, the 24% bracket, et cetera. But you still need to live. So if you're going to do that, you got to save up a year's worth of living expenses, too, in order to take that year. I don't know, man. Now it feels like you're basing your whole career and these big career decisions around your student loans. I hate that. I hate that for you. I like to see these things out of people's lives less than five years out of training so they don't have to think about it anymore. Instead, you're going to have student loans. I mean, if you say you came out of training at, you know, 35 and maybe you have your student loans at best till you're 50 or so, man, I'm 48 now. I cannot imagine still having student loans. It'd just be wild for me to still have student loans that I was dealing with from decades ago. I hate that. But, you know, it's true that the numbers may look good that way. And especially with, you know, this new save program that's out this year. Instead of your discretionary income being, you know, your income minus 150% of the poverty line, it's minus 225% of the poverty line. And then it's only 10% of that discretionary income that is your payment for your student loans. So it's a little bit more generous than it used to be. And so a few more people are going to make that decision that this makes sense for them to drag this out. If you're not sure if this makes sense for you, if you're having trouble running the numbers, I recommend you meet with one of our folks at Student Loan Advice and they can book a consult for you for, you know, with one flat fee, they'll go over your Student loans help you run the numbers, help you decide between going for pslf, refinancing your loans, going for IDR forgiveness, and all that stuff that goes into coming up with a good student loan plan. Other things you could do well, it doesn't really help to do a bunch of tax loss harvesting to reduce that tax bomb. That's not going to help you because those are capital losses and this is going to be ordinary income when you get it. You could make huge contributions that year to tax deferred accounts that'll lower your income. So you could pay a little bit more toward the taxes on that bill and maybe in a lower tax bracket. But mostly the main thing is going to be saving up for that tax bomb, knowing it's coming so it's not a huge surprise and just recognizing that that's part of the deal, that's part of your student loan plan when you go for IDR forgiveness. Also remember, it may very well make sense for you to be in the pay program, not the save program, because it's five less years that you've got to make payments before you get that forgiveness. Okay, I wanted to talk for a minute about a book. If you're watching this on YouTube, you can see the book now. This book is called the Solopreneur's retirement account Solo 401. It's an entire book dedicated to one of my favorite retirement accounts. It's written by Sean Mulaney, cpa, who I've met and congratulated on this book. He sent me a copy of it. I love it. I think it's great you have a solo 401k and you don't feel like you understand what's going on with it. I recommend you pick up this book and buy it. It's not that long. It's only. Let's see here. Even with the notes at the end, looks like before the notes It's 194 pages. It's not that long. You can get through it in a few hours. But I think there's a lot of good stuff in here. I love the fact that the third chapter here, after the history of retirement savings and Solo 401 basis basics, is why not a SEP IRA? And that's a great question because far too many people are told by their cpa, told by their financial advisor that they should be using a SEP ira. And for most of you high income earners, that is bad advice. You should be using a Solo 401k instead of a SEP IRA for a handful of reasons. But if you are a solopreneur, basically if you own a business and you don't have any employees other than possibly your spouse, a Solo 401 is the retirement plan for you. You can also do a personal defined benefit plan on top of that. But a Solo 401 is where it's at this year. I think you can put in $66,000 into this. And with the way the rules are changing with Secure Act 2.0, you can get more and more of that into Roth. If you so want, you can get a personalized plan that allows you to do after tax contributions. So sometimes you can get 66,000 doll with only making a five figure amount. So it's really a great, great retirement account. And obviously investing in retirement accounts gives you a little bit extra asset protection. It facilitates estate planning and it reduces the tax drag on your investment so your money grows faster. When you're given the choice, you almost always want to save for retirement anyway in retirement accounts rather than in a taxable account. Taxable accounts are for money after you've already maxed out your retirement accounts. Speaking of these personal defined benefit plans and cash balance plans, our next question off the speak pipe has to do with cash balance plans.

Hi, Dr. Dali, thanks for all the great advice you've given over the years. I have a question with regard to how to handle cash balance funds in terms of your overall asset allocation. Right now, about 20% of my retirement portfolio is in my group's cash balance plan and it's invested and guaranteed at 5%. I'm also an owner in this practice, so I guess technically speaking I'm guaranteeing that 5%. I've been mentally treating it as part of my bonds or fixed income allocation, mostly because of that 5% guarantee. But actually looking at the individual components that the fund managers have been investing the money in, the cash balance plan, and it actually looks like it's only about 25% bonds and, you know, 75% other various financial products that the plan manager is investing to try to reach that 5% target. So I guess my question is, do I treat it as bonds? I guess this would be the simpler thing to do. Although in reality the money isn't technically completely invested in bonds. How would you approach this? Thanks.

It sounds like you understand the issues here very well. With a cash balance plan, the return can be set up a number of different ways. It can be set up to basically give you the return that the fund got. It can be set up to be, you know, something like 5% like yours is. There's a lot of different ways to do that, but you recognize that any guarantees it provides are coming from you as the owner of the company. So if there's a big huge bear market and you, you know, and you're way underwater in this plan from that 5% return, you have to make additional contributions into the plan. Now, that's not such a bad thing, right? Those are tax deferred contributions. So you get a tax break on that money you put into your cash balance plan. But you do have to make those contributions or the plan pretty much blows up. So you got to be prepared to do that. And if you're not prepared to do that, you shouldn't be in a cash balance plan. So the way these typically are used, are typically used for five or ten years, and it's basically another 401k that's masquerading as a pension. So it has to follow the pension rules, and that's why it gets all convoluted. Why the expenses are a little bit higher. Why actuaries have to be involved, why you can't manage the investments individually like you do in your 401, is because it's supposed to look like a pension, at least to the government and to the irs. And there's nothing fishy here. They know what's going on. And these are perfectly legit, perfectly legal things to do. But that's why. So how do you treat it in your asset allocation? Well, mine has always been relatively small part of my funds. It's a tiny percentage of my retirement funds. I don't know, it's certainly less than 1% of the money I have for retirement. So I ignore it. I don't count it toward my retirement asset allocation at all. The way ours is currently set up, we're allowed to choose one of the Vanguard Life Strategy funds. I actually chose the more aggressive one that they allowed me, which was the moderate, moderately aggressive or whatever they call it. It's about 60% stocks and 40% bonds, and that's pretty aggressive. If you talk to people who set these things up for you and they tell you take the risk in the 401k, put your bonds, put your low returning stuff in the cash balance plan, and that's probably good advice most of the time, it really doesn't bother me. If I had to put in additional money into this plan, I've got the money to do it, and that wouldn't be a big deal for me. So I don't mind being a little more aggressive. There. But it brings up these issues, like my partnership's planning to close its plan in a year. And they were really worried that the market could go down and people would have to contribute cash into their accounts. And so they actually ran the numbers. On average, it was only like $700 they'd have to contribute into the account to bring it up to par. Because basically when you close the plan, it couldn't be underwater of what had been contributed to it over the prior five years. And they're really worried about it. They're worried that everyone was going to get all mad and that people wouldn't have the cash flow. And I guess that's legitimate worry. There's plenty of doctors out there living hand to mouth. So they actually, you know, we're gonna close this thing in like a year. They actually moved everybody to cash last month. So that's the, you know, you can opt out of that. So I opted out and put my money back in the investments that I had. But anybody who didn't opt out of it is now sitting in cash just so that they don't have to contribute that additional money in there. And frankly, I guess you could do that in your fund. I mean, this thing's guaranteeing 5%. Money market funds are now paying 5%. You just put it all in a money market fund, take no risk whatsoever, meet your 5% goal and go from there. But if the fund makes more money, if it makes 8%, even though it's only guaranteeing 5%, it's developing this surplus over time. And when that plan is closed, you get the surplus. So it's not such a bad thing to earn a little higher return, even though the plan's set up with a guaranteed 5% return. These are kind of complicated. It's hard to wrap your mind around it until you really dig into the details. I've got a number of blog posts on cash balance plans, if you have one. You should read those blog posts so you can understand what's really going on there. But how do you treat it in your asset allocation? You know, if it's small, I just ignore it. I think it's fine to treat it like bonds. You can actually look at the asset allocation in the cash balance plan and use that. Yours sounds like it's 75, 25, which is actually pretty aggressive. You could just treat it like that, that you have a balanced fund that's 7525 in your asset allocation. Lots of ways to skin that cat. I don't think there's A right way to do it. I would just be consistent in how you did it over the years. Okay, let's take a question from Diana.

Hi, Dr. Dolly. I'm a pulmonary critical care physician in Illinois, and I have a question for you about I bonds. Like many of us did in 2021 and 2022, my husband, myself, and our trust purchased series I bonds. At that time, the fixed rate was 0% and the variable rate was 6 or 9%. With inflation being so high now, I believe the fixed rate is around 0.9% and the variable rates are coming down around 3%. I've heard the recommendation to actually take that money out before the five year mark, pay the three month interest penalty, and then reinvest it either in a certificate of deposit or high yield savings. As many of those accounts are paying 4 and 5% now or stock market, et cetera. My question is, in pulling that money out now, we would have to pay income tax on that interest. So is it actually worth it to move that money around or would it be better just not to mess with it and leave it in place till the five years? Thank you so much for your thoughts.

Well, first of all, thanks for what you do. Being a critical care doc is no small feat. Now, when you look at burnout surveys, critical care and emergency medicine are battling each other for the most burned out specialties. Every time. I was talking to an anesthesiologist in the Bahamas who was in New York during the pandemic and had a dramatically different experience with the pandemic than I did. His entire hospital was quickly converted into an icu. It was the entire hospital. And for four or five months, instead of doing elective cases, it's basically an ICU doc. And just, you know, it's a little bit traumatic having gone through that sort of an experience. And I know a lot of you have, so thanks for, for what you do. All right, so we're talking about I bonds. I've got some I bonds. We're keeping our I bonds. We're not cashing them out. We're adding more each year. I know it's not as good as it was in 2021. You're not getting the 9% rate that you were getting. But you have to ask yourself, why do I own these? Did you go into I bonds just because you were looking for something that paid a little bit more on your cash? Is this like your emergency fund? Is this like your cash holding in your portfolio? If so, then yeah, now's probably the time to change Take it out of the I bonds, you can, heck, you can just put it in a money market fund that's paying 5%, 5.25% and probably come out ahead this year. But if you look at I bonds as part of your allocation to inflation indexed bonds, TIPS and I bonds as a long run part of your portfolio long term, then you may want to just leave that money in the I bonds like we are and add more money to it. You can't go back and put the money back in I bonds. You can only put so much money each year in the I bonds. And so if you want to build a substantial portion of them, you've got to keep adding to it and not be taking money out of those I bonds. You just can't put that much money into them each year. And so, you know, it really comes down to how you view that. There's not a wrong answer to this question. You can't cash out during the first year. If you cash out during the first, you know, second through fifth year, you got to lose three months of interest, but you still may come out ahead having done that and then moving into something like, you know, a money market fund or some other type of bond fund, whatever for that money. But I view it as a long term holding, so we're just sitting tight on it. We recognize that it's not as high of a yield as it was a couple of years ago and that might go down, might go up, but it's going to help protect our portfolio from inflation in the long run. So we're just sitting on ours and I think that's okay. Did you know that the White Coat Investor not only has a podcast and a blog, but several books that will help you on your way to financial independence? 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You can find them@WhiteCodeInvestor.com recommended or just go to the recommended tab@WhiteCoatinvestor.com thanks for those of you leaving us 5 star reviews and or telling your friends about the podcast and the blog and the books and the courses and all that. Our most recent review came in from ireView 11:17 who said grateful I can't recommend the podcast and other WCI resources more highly. I'm amazed at what I've learned from the podcast, blogs and books. I've transformed from financially illiterate to actually identifying mistakes financial advisors were making with family. I owe a tremendous degree of my financial success to Dr. Dali and I'm very grateful for everything he's done. He truly is helping high income professionals achieve financial independence. 5 stars. Thanks so much for those kind words and for that review. It truly does help your colleagues to find the podcast. It's funny how that works, but that's just the way the podcast world works. Without reviews, nobody finds out about your podcast. So thanks for those of you who have done that. All right, I won't be talking to you again until after I come back from Las Vegas. We're going there for Thanksgiving this year. Should be interesting having Thanksgiving dinner at a buffet, but we got lots of fun stuff planned. Going climbing, going hiking into some hot springs. Going to do some mountain biking. We're going to go see some shows. I hope you're having a great time at Thanksgiving. For those of you who are working, thank you so much for doing that. This year. I got Thanksgiving off. I'll be working at Christmas time. But it's important what you're doing. So you've got this financial stuff. It's not that complicated. You can do it. Keep your head up and shoulders back and we'll see you next time on the White Coat Investor Podcast.

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