WCI #36: Interview with Nathaniel Minnick, DO

This is the White Coat Investor podcast.

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Here's your host, Dr. Jim Dahli. Welcome to podcast number 36, an interview with Nathaniel Minick. Do.

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I hope you're following us on social media. Personal finance is sometimes digested a small piece at a time and that's what I try to serve up on Facebook and Twitter. So please like us, follow us and share the stuff you like with your own friends and followers. Our quote of the day today comes from Martin Ginsberg who said, as Forbes magazine with rare accuracy suggested a dozen years ago, tax shelter economics were so bad that 19 out of 20 investments could only be sold to groups of doctors. The 20th scheme was awful beyond belief and could be sold only to dentists. Well, today we have a special guest on the show. Our guest is Nathaniel Minick do who is a doc that I first came into contact with at the ASEP Scientific Assembly a couple of years ago and met him again at the most recent meeting that I went to and I thought he would make a great podcast guest. And so we're going to talk about a bunch of stuff today about him and about some of his financial life and about some of the current issues facing doctors and finance these days, as well as maybe get to a few of your questions that we'll answer together. So welcome to the show, Nate.

Thanks for having me, Jim. It's my first podcast ever, so it's new venture for me.

That's all right, we'll just cut out all the bad stuff so you'll sound like a pro when it's all done.

Sounds great.

All right, well first let's start with you. Tell us about where you grew up and your family growing up and just kind of give us a little bit of background information.

Sure. So I'm from Detroit, born and raised. My father's a physician, so that's kind of my entry into a few things, including medicine as well as he taught me how to invest. We'll talk about that a little bit later. From Detroit, went to medical school at VCom in Blacksburg, Virginia. Went back to Detroit for residency and now I work in Newport News, Virginia. Kind of close to your old stomping grounds. I'm a practicing emergency physician. Do some medical education stuff in addition to that. So that's kind of a very brief version of my how I came to be.

Cool. So how far are you out of residency now?

Three and a half years. Graduated 2014. So. Three and a half years.

Three and a half years. Brand new.

It's still, still learning.

Very nice. And our, we have a mutual friend, a certain Sean Flanagan that probably deserves a shout out on this podcast. I'm sure he'll listen to this.

He wants to listen to it. He's holding the signed autographed book of yours over my head frequently. And he's probably going to hold it over your head too, that he is the original White coat investor.

Yeah, I don't doubt it. I hear he's been, he's been saying that, you know, it's interesting. When I was in the military, I was technically his boss, but because he was a contractor and I was active duty, I mean he probably made twice what I was making or more, you know, and so it was always kind of an interesting relationship there. But he, he was driving a dirtbag car at the same time I was. So if he wants to claim to be the original White Coat investor, he can have it.

He still drives an old pickup truck we were just talking about the other day. He drives an old pickup truck. He's thinking about buying a brand new truck and he thinks that'll be the last car he'll ever buy because we're trying to figure out new versus certified, pre owned versus used, which is what he's always bought. But yeah, he's kind of in our same world of philosophy. His son is actually. I don't know if he wants me talking about this, but I'll do it. His son is at UVA and has an economics bend and some well renowned professor of economics at UVA University of Virginia was talking to them about personal finance to the class and recommended index funds. And so Sean thought that that was just a really good thing. That even not just Warren Buffett anymore, but now at the college level they're talking about index funds as the way to go.

That's great that people are doing that. You got to get that message out because there's still plenty of people that are trying to pick their own stocks or pick their own mutual fund managers, et cetera. Now I get a lot of questions from pre med and medical students, particularly pre meds, that they worry that going to a DO school is going to keep them from being able to do the specialty they want to do or keep them from being able to match. Did you have any issues matching into emergency medicine as a doctor?

I did not. I trained in Michigan, which is a very do friendly state. I trained at an ACGME program. In the next few years going forward, ACGME and coca, which is one of the osteopathic educational bodies, the ACGME is merging. So that delineation of D.O. versus MD and the programs therein are all going to fall pretty much under the acgme. The previous biases towards DOS also has largely been nullified over historical time. So I did not find a problem matching into emergency medicine, particularly in Detroit, which is where I'm from.

Yeah, I suspect.

Pre med students who are concerned about ACGME or MV vs Dr. I just told Scribe the other day, go wherever it's cheapest.

Yeah, that's. That's pretty good advice. Unfortunately, a lot of times some of the D.O. schools are some of the most expensive ones out there just because so many of them are private. An interesting issue. I've noticed they're opening one or two new D.O. schools in Utah and it always surprises me that they open DO schools when they could open either one. But I think there's a few things that make it easier to open one. So I think a lot of these new for profit schools are DO schools.

Yes, there are. The for profit models seems to be seeping into the DO world. And I mean, somebody once joked that they're opening up DO schools and strip malls now because they're becoming way more ubiquitous. And it'll be interesting to see where this all goes over the next 10 years as graduate medical education starts to mold and morph under one umbrella where it's separate, previously been separate. And the graduate medical education world is being, you know, more strict because there are more American graduates than there are residency spots. So that's not even counting in foreign medical graduates. Whether it's Caribbean or Europe or Middle East Asia. There are no plans for really new residency spots. And yet American medical schools are growing their classes and this is going to lead to a crunch that's already happening. I'm a transitional year program director for an ACGME program at our hospital. We have ty, OB and FM and we're all seeing our application numbers just shoot up through the roof. It's going to get tight. It already is. There are many people graduating without guaranteed residency spots, which is the first time in probably modern history that this has happened. So going, going into medical school is a little risky sometimes because you may not be guaranteed a residency spot.

Right. I mean, that's an incredible financial catastrophe. To ring up 200, 300, $400,000 in debt and then basically be qualified to do nothing but be an intern and have nobody wants you to be an intern for them.

It is a huge, there's a huge undercurrent of potential problems coming down the road. Yeah, I could think of a $300,000 degree that. Yeah, you don't get a guaranteed spot.

Yeah, it's really, really can be pretty ugly. Now tell us a little bit about your family. Married, children.

Married for what, seven years now and three kids, all on eight, ages five, four and two. That is kind of a surprise to me that I married with kids because I never thought that would be a thing, but here I am. My wife currently does not work. She had been a high school teacher in a few geography or sorry, geology and other environmental consulting type situations. After the third kid she kind of stopped teaching because financially it cost more for her to work both tax wise as well as daycare than it was for her to stay at home.

Yeah, we ran those numbers myself on ourselves, on my wife's teacher salary. And I think we figured it out that she was getting paid 2 bucks an hour to go to work. It just didn't make sense. At a certain point I was better off working an extra half shift. At a certain point there.

Yeah, no, it's not any less stressful, that's for certain. She has more stress than I do probably.

Yeah. You know, sometimes I find myself going to the hospital to reduce my stress and to relax. At any rate, tell us a little bit about your financial life. What have you guys done wrong? What have you done right? What have you learned?

I started at an early age. My dad got me started in stocks when I was 10 or 12 years old. Took us to our stock broker. At that time, Internet wasn't really in full force. So we went to our stockbroker after hours and he showed my brother and I, he broke down how stocks work, what investing in the company is. So I started an early age anytime I got some free money from, well, not free, but anytime I worked and got a significant amount of money that I would put it towards potential stocks. And so that was kind of the early financial life. Didn't you know you make mistakes only because you're, you're high school kid not knowing what to invest and you're kind of going for things that look cooler. I would go to the library and look at the value line which is still around and that's a huge collection of stocks and analysis. So I learned early on the risks and rewards of stock investment and picking stocks. I'd say that my biggest mistake financially has been a few things. One is my wife has Pre existing traditional IRAs which we never really did anything with. So I know I'm kind of breaking our code, but I'm actually not doing any Iraq stuff for her each year. I'm not doing a traditional ira, which is probably the way I should go. But I'm not doing a Roth IRA for her either. Only because of the pro rata that I can't. Pretty much due to apathy. I just haven't gotten around to figuring out is it worth it for us to convert that all the way over from traditional to Roth and continue through with backdoor Roth or should we just continue to contribute to her traditional ira? It's something I just probably this tax year I'll sit down with a tax advisor, go through the calculations and just pull the trigger on one of them. And the reason I think now is the time for me is we had been living in a 900 square foot house in Newport News, Virginia. Out of residency I was able to pay off all my debt. I did it without the assistance of any of the programs really. I just went straight full forward because our rent was very cheap. Saved up enough money for a down payment, bought a house. So that chapter of my life is over where I'm now able to look at some of the more detail oriented things versus big picture items.

Well, if you get the big picture right, the little details don't matter so much. Did you guys hear that he's three and a half years out of residency? He has his student loans paid off, he saved up a down payment, now he's in the doctor house. I mean I talk all the time about living like a resident. This is what it looks like. Did they live in a super nice place for a couple of years out of residency? No, they were living in a place that A resident would live in driving 2005 Mustang.

Yep, 2005 Mustang. My wife had a Toyota Avalon that she received from her parents, which was a great gift. It had 100,000 miles on it. But she received her car. And then, you know, if you want to talk about potential mistakes, we bought her a Honda Odyssey minivan for the kid to help facilitate moving the kids around. And that's actually on a loan. So it is a 2% interest, which I know pay cash or don't get it, but at 2% made sense. We needed a car that was not a sedan to get all these kids around.

Well, shoot. If you pay off your student loans in three years, I'll give you permission to take out a 2% car loan again. Again, it's one of those things. It's the big picture, right. When you argue about whether you take a 2% loan out or pay cash, you know, that's a relatively small picture thing. Whereas living like a resident for three years, I mean, you basically set yourself for yourself up for financial success for the rest of your life by doing that for a few years.

I can only hope. And every time I lecture, it's really. Don't. I've seen it. You've seen it. Your listeners have seen, your readers have seen it. Go straight for the half million dollar plus house straight out of residency or worse, during residency, they buy a house at all and then try to get the newest five series. And it's really. Until you can get to a manageable amount, I'd say probably less. You know, if you go to zero down, zero on the debt, that's the goal, I would think probably closer down into the $30,000 and less range, depending on the situation and the forgiveness program, I think that's when you can start to really assess how much you need to start accumulating for the next steps. Or splurge like on a minivan or something like that.

Yeah, it's quite a splurge getting a minivan rolling with. Rolling with the swag wagon there.

Never imagined that this would be like the splurge.

A little bit disappointing, huh?

I don't like growing up.

Yeah. So you've gotten involved into the physician finance world. Tell us how that happened. I mean, how'd you end up on this podcast?

So I think that's kind of an interesting story. And I was talking to my friend about this a couple nights ago. So I started out at a young age. My dad got me started during medical school and even college. I was still investing by picking stocks, but I didn't have much of an income in either of those worlds, so there wasn't a big push towards that. Then in residency, I started watching a little bit more of what was going on, mostly for my attendings and hearing their stories, their setups and their failures and everything in between financially. And I don't know why this happened, but at some point I ended up talking to my residency program. And I think the genesis for that talk came from the unmentioned. I won't name their names, but it was an insurance company that had spoken to our residency about what they could do for us. And I walked out there thinking, I don't know anything about life insurance. I don't know anything about disability insurance. Yeah, somehow the insurance company got my pager number and I started meeting with an insurance representative from that company. And they were talking to me about Whole Life. Obviously I took it back to my parents, got my dad's position. My mom invests in the stock market, so she watches CNBC regularly. But she really Suze Orman, she reads a lot. So I said, what's this whole Life deal? And they kind of said, yeah, that's probably not the way to go, but look into it. And I think this is how this happened. I think Googled it. Whole life insurance physician. I think I got to your blog, which was very probably early on in the day. This is probably back 2012 or 13. I don't think you had much up on the blog, but you did have the Whole Life post. And so I went through all that and thought, oh, I do not want this. Somewhere along the line, same time frame, I ended up getting onto the Bogleheads forum, saw the book and read the book. And that's how I got into the whole position finance thing. Once I read that book, I thought, oh, I know most of this, some of this I didn't know. And I'm glad I know it now. I went back to my residency and said, hey, I want to give a talk on this. And my program director said, yeah, of course. And so I gave a two hour lecture on that and it was a good idea. A lot of attendants asked questions. The next step from that was I again, I don't know how this happened, but I got ahold of the internal medicine residency program and asked, hey, I give this talk. Can I give it to you guys? And I got into two of their morning reports and gave the lecture there. This was the tipping point for me because more attendings in that room asked questions than the residents. And that's When I realized, I think you were onto something, I kind of found what I could add to this, and that was that attendings didn't even know what was going on, which we now know is very much a thing. Then I asked other programs in the hospital. They said no. They didn't quite get it, so they said no. And so going forward, Graduated residency. I work for Riverside Medical Group out here in Eastern Virginia. And first year out, I would tell anyone who's listening to this, your first year out of residency, you do nothing but study for boards. That is, your goal professionally is to learn how to be an attending, but pass your boards. Don't take on any other side jobs or committees. Just study for boards, pass reports. Once I pass boards, I talked to our. I guess it's our HR group type thing. Every month our medical group has a new employee, new hire for positions, and NPAs, an orientation. And I asked if I could speak at their lunch session, which was an open lunch. There were no lectures. And this is a type of orientation where you have a safety committee talk and you have epic training and all those types of onboarding processes.

That sounds pretty painful.

Well, it was for them, but for me, I just came in at lunch and talked and I gave the same talk that I always give. And again, more questions than I ever anticipated from people who are not just new graduates. And from there, it just spiraled into where I am now, where I get to talk at asap, because I think that they're somehow. I'm so glad I'm a member of ASAP and that they're forward enough looking as to what the current situation of being an emergency physician is and how student debt is such a huge issue, as well as personal finance, that they gave me the chance to talk past couple years.

That's great. Why is it, do you think that doctors suck at money so bad? What's our problem?

They don't get it. Their education isn't coming from anywhere except for the various firms who can get into the residencies and give talks. And they tell people what the firm can do for them, but not how they can do it themselves. I felt undergraduate medical education for not pushing this to the forefront a little bit. Student loans aren't very well taught at an undergraduate medical education level. I think residencies may be a little bit more on board or at least getting closer to being more capable. And so I also felt many residency programs for not pushing this out there. Then outside of acep, I don't know if any other college or society is really Pushing this through. ASEP now has your monthly article. They let me give talks at the Scientific assembly nationally. And so I think that it's just there's no education and then once that education is given, there's still an inertia of resistance towards money. People are focused on other things. I'm glad that people go to Scientific assembly and go to all the trauma and all the cardiology and ultrasound things, but it was kind of disheartening that the student loan lecture only had 50 plus people when I know. I think. What was your statistic that I think.

It'S 33% of emergency docs still have student loans.

Yeah. I'm not sure what the. I don't have an answer for why, why this isn't as well, you know, out there to the physician workforce. I think medical schools need to start earlier with student loan knowledge and education residencies. Certainly need to push a little bit more of a personal finance by a physician. Personal finance education or curriculum? I'll be speaking at the what's the national convention for transitional year program directors this spring and I'm giving a talk on how to create a financial curriculum, personal finance curriculum for residency. So I'm hoping this will be a first. I'm hoping it goes well.

Well, I hope it will too. It might be the first one in emergency medicine, but it certainly isn't the first one out there. I know of at least one that's being done in Arkansas for general surgery, and so there's certainly a model for that. What else do you think doctors could do to help their peers with regards to financial literacy?

I think we need to put the good information out there, such as the Bogleheads book, maybe one up on Wall street, various other just generic books. I think as a culture, we need to open up, as a physician culture, we need to open up a little bit more about money. I know it's not a very socially appropriate topic to talk about money, but if we keep hiding behind it, then I think that we will perpetuate what we continuously see of poor investment choices. Wrong investment choices, uneducated investment choices.

I think what happens is because of this taboo that we can't talk about money, we all end up in our own little individual silo, you know, and we get no help from the other silos. And meanwhile, you know, all these predators in the financial services industry come by the top of the silo and, you know, drop manure on us. And that's basically what I think is happening. Every doctor is making the same mistakes over and over and over again. And so all we got to do is get a little bit of education from one peer to another. And it doesn't mean we got to become accountants or financial advisors, but the basics, you know, pass along the basics to your peers and it's surprisingly easy to do that sort of stuff.

I wholeheartedly agree. I am always a little dismayed when my partners currently tell me about their financial planners and I tell them, you know, you read two books. And during all my talks, I always push two books. The Boglehead's Guide to Investing and, and the White Coat Investor Book. With those two books, you're pretty much good in my view, except for a few phases of life. One is, as your kids near college for that type of planning and then towards your retirement. Those are two times I think that a financial planner is a good idea.

Yeah, certainly anytime you want to sit down with somebody that's charging you an hourly rate and run your plan by him is totally reasonable. I mean, but compared to paying, you know, $20,000 a year in asset under management fees, you know, that's, that's dirt cheap to pay someone a few hundred dollars to go over your plan with you.

I don't even think you need to do that up until those two phases. Unless you really need some guidance or, or some, you know, education as to your risk level. I think, like you had mentioned, these silos of all of us keeping our financial information to ourselves. Even within my emergency group, there isn't much discussion outside of a few of us about what our financial situations are. You know, we don't have to use actual numbers, but just general ideas. And I don't know if the education level, the financial IQ of physicians is enough, is high enough for us to be able to openly talk about it. And I don't know what the barrier is. I don't know why that is.

Yeah, I find it, it's interesting when I share a little bit, all of a sudden other people are a little more willing to open up and, and I think I kind of break the taboo and give them permission to talk about it a little bit, and that seems to help. But in your er, it's probably because you're too busy taking care of gunshot victims. You know, I moonlit in that ER for a little while. That Newport News is surprisingly violent place.

We are coming from Detroit. This is no change.

But the fact that it's no change from Detroit says something.

I thought I was escaping this and walking into just as much of it. Our Portsmouth Navy residents love coming to us because they get to see the trauma that the naval hospitals don't get. They're not open to ambulances. So yeah, we do take care of a fair amount of trauma. And it would be nice if I could instead sit down and talk to my group about what a Roth IRA is.

Yeah, exactly. Well, let's hit a few reader questions here. Some of these are more complicated than others, but a few of them aren't too bad. I kind of love getting the really easy questions because you don't have to do any research. And a lot of times you can make a big difference in somebody's life just by teaching them something that you thought everybody already knew. This first question is a little bit like that says, I'm a third year EM resident, graduating in June. I've been contributing to a Roth IRA for the last three years and I'm trying to figure out if I'll be able to do it in 2018 as well. I make about $70,000 this year as a resident in New York City and I'll start working as an attending on August 1st. I'm assuming I'm going to be over the $118,000 limit for 2018 since I'm guessing I won't be able to contribute. Unless you know a loophole, where would you recommend I start contributing? During the last six months of my residency, I have $6,000 saved up that I was going to put in my Roth IRA before I came to this realization. I also have a mutual funds account of about 5,000 that I could contribute more to as well, but it obviously doesn't have the same tax benefits as a Roth ira. You want to take that one?

Thank you. Yeah. Hopefully I don't swing and miss on this one. What I did was in December of your first year as an attendant, open up a Vanguard traditional IRA and then do the backdoor conversion. Then if you think you're going to be over the $118,000 mark, I don't know. You may be able to answer this, Jim, if you were to do a backdoor conversion or a backdoor Roth. So the traditional IRA and then convert it to a Roth. And I'll explain that more back to the original question in a bit, but one question I've had is what if you do that before you file the taxes? What if you do this on January 30th but you try to apply it for the previous calendar year? Is that a doable thing?

Yes, you can apply the contribution to the previous calendar year, but the conversion step gets reported on that year's tax return.

Okay, so then, so you can, you.

Can certainly still do it. It's just, it's a little trickier reporting it on your form 8606.

And so what I recommend to residents is finish residency, don't worry about IRAs until about late November, early December of the first year out, take that $5,500 that you've hopefully been able to save up, then open up a traditional ira. The quote, loophole that he was wondering about is the backdoor Roth ira. And if you Google enough, you'll find out how this works. But you can tribute to the traditional IRA the full amount with a few clicks. You convert that into a Roth categorization. You have to know the tax implication and the tax form that would need to be filled out with this. Most good accountants should know this. And if they don't, there are enough websites, including yours, that will talk you through that. That's my recommendation.

Yeah, exactly. The backdoor Roth IRA is the loophole you're looking for. And I'm always amazed. You know, I think my long term readers are sick of hearing about the backdoor Roth ira. But I am continually running into doctors who have never heard of this, never heard that they can keep contributing to a Roth IRA throughout their career, not only for them, but also for their spouse.

So here's, I can't understand how, how this continuously is not understood and then the other things that aren't understood that I'm hoping we can clarify over the next 10 years is that you get an IRA if you're married, your spouse gets an IRA. They're separate, they're a separate entity. It's an individual retirement arrangement. And it is separate from your 401 or your 403 or your solo 401k. It is its own account. And I run into that question a lot of confusion of 401, 403 and how it's different than an IRA.

Yeah, it's pretty impressive how low our level of financial literacy is about retirement accounts, especially when that is such a big deal for doctors because, you know, a typical middle class person, they can do all their retirement savings inside their 401k. You can get 20%, 15%, 20% of your income in there. No problem if you're only making 50 or $75,000 a year. But when you need to save more than that as a doctor, it's just you're going to need more than just a 401k. You're going to need to look into a backdoor Roth IRA and a taxable account and those sorts of things. Alright, Speaking of retirement accounts, here's another one. This one also from an emergency document says I max out my 401k, my Roth IRA for myself and my spouse and a stealth IRA meaning a health savings account. I also donate for three kids to our 529s but not maxing those out yet. This is all self managed and low cost Vanguard index funds and I've been contemplating where to put money next. My taxable account was a logical choice. I'm also thinking about doing some real estate. However. I work for Team Health which is one of the big contract management groups for emergency medicine and they offer what they call a serp, a supplemental executive retirement plan. I can put an additional maximum of 85% of my income aside pre tax in an investment account. In this account you can invest in Vanguard Low cost index funds, Admiral funds, et cetera. Have you ever heard of a serp? Had experience with or heard of anyone else's experience? And I want to know whether this is better than a taxable account. All right, what do you think? You want to take a swing at that one?

No, I've never heard of this. I don't work for contract management group. I'm an employee of a kind of a hospital type medical group. I've never heard of a SERP unless they mean SEP ira.

No, they're definitely not talking about a SEP ira.

Yeah, I'm not familiar with this. I'll leave this one to you because I'm gonna strike out.

So. So what? This SERP is not to be confused with the lirp, which is a life insurance retirement plan, which is pretty much always a bad idea. A SERP can be a good idea. It's a lot like a 457 account that a lot of that a lot of academic attendings have. And so it's basically another tax deferred account, allows you to put money in and get the tax break the year that you put it in and then it grows in a tax protected way and you can invest it in various investments and then when you pull the money out you pay taxes on it. But the difference between that And a typical 401k or other tax deferred retirement account is basically two things. Number one, the money belongs to the employer. So just like with a 457, if that employer doesn't look very stable, you don't want to be investing your money there. And the other big difference is the withdrawal rules are often Kind of odd, you know, sometimes you have very limited distribution options and so sometimes you have to take all the money out the year you leave the employer. And so basically you've saved up all this money, you got all these great tax breaks, and then it all comes back to you all at once in the year you retire or the year you separate from the employer. And so that's obviously a terrible thing for you, you know, tax wise to get all that income all at once. And so sometimes you just got to get into it and read the details and see what the distribution options are. Sometimes some 457s, like governmental 457s will allow you to roll that money into a traditional IRA or a 401k. And those are great, especially if they offer low cost index funds and they've got low fees. You know, now you've got a great distribution option, but probably more commonly what I see is they require you to take the money out over five years. And so you really got to think about those distribution options before you go for this. And you also have to look at that employer and make sure they're looking pretty stable because obviously if that money is available to the creditors or your employer, it could just disappear on you and you would have been a whole lot better taking the money, paying the taxes and just investing it in a taxable account.

I'd recommend for an early career position to potentially avoid that and just build up a taxable account. That's my recommendation. You have more control over it. You lose a little bit on the tax side of it, but you get a little bit more control and a little bit more fluidity than through a server 457. I have access to a 457 and I don't really put anything into it. I just would rather manage a little bit of this early on myself into my own. It's now it was Scottrade, now it's TD Ameritrade. And just managing it myself a little bit, have that fluidity in the event that the new house ends up with a problem or something and have it tied up through an employer. I get the advantages of SERP now versus a 457 for the early career though. Do you think that's a good idea?

Well, I think you're, you're, you have so many needs for your money when you come out of residency, right? You got student loans to pay off. Maybe you want to save up a house down payment. You probably have some tiny little emergency fund you'd like to boost. You Want to be maxing out your, you know, retirement accounts, your 401k, your backdoor Roth IRAs and you know, your HSA. And now all of a sudden you want to start saving for your kids 529s. I mean you were just pulled everywhere those first couple of years out of residency. You have so many things to do with money. And so certainly if you're going to pass up on one of these tax protected accounts, you know, the 457 or a SERP is the first thing to pass up on. Especially if the distribution options are crummy. Like do you know the distribution options for your 457?

I suspect, I don't know as it gets closer to retirement. But it's just like every other non governmental 457. If I were to leave the group, I get either a paycheck within of all that money back to me in anywhere from one to six months.

Yeah, so that's not a great option.

A couple brackets hired. Who knows what's going to happen as of today in December 2017, what's going to happen in the next few weeks to months. So what about a mid career physician, emergency physician? What's Your take on 457 or circ@ that point?

Well, again it comes down to the stability of the employer and the distribution options. You know, if the distribution options are good, particularly if you can just roll it into an IRA or a 401k later and you've got great investment options. You know, especially if your employer is, you know, the state of Tennessee, you know, I think you can go ahead and use it and be glad you have another retirement account option. But if your employer is some fly by night for profit hospital company and you know, the distribution option is take it all out within a year or two, you know, I'd probably pass on it. A taxable account gets a really bad rap sometimes. You know, mostly because of the name. You know, non qualified taxable brokerage, you know, it's got these terrible names but there's a lot of advantages to it. I mean the income from it is usually qualified dividends or long term capital gains you can tax loss, harvest. You get a step up in basis at death and you can use it for anything you want with any without any sort of rules or restrictions. It's really not a bad account to have. I mean I'll take a Roth IRA any day over it, but it's not like it's a bad thing to do. A lot of people are hesitant to invest anything outside of a retirement account. They don't realize they can, you know, invest for retirement in a non qualified account.

They need to look at your post from a couple years ago where you ran the numbers. I think it was a 529 against a taxable accountant. Found that based on my recollection of that post, that they kind of turned out about close to even.

Yeah, I think, I think what that post was probably someone who was asking about whether they should invest for retirement in a 529 account. Because a 529 for education is, you know, it's about like using a Roth ira, right? I mean, no big tax break going in unless maybe you get a little state tax break. But the money all comes out tax free and it grows tax free as long as you spend it on education. But if you pull it out and you got to pay all that penalty, then you'd be better off in a taxable account saving for retirement. All right, let's take a few more questions. This person writes in with three different questions. The first one is, I'm not particularly happy with my 403 at my program. So when I graduate, I'm transferring it upon graduation. I know I'll need to do a backdoor Roth in the future. So I'd like to open a solo 401 and I'd like to convert my 403 to a Roth 401k as I'm not yet in my peak earnings years. But I don't know where to open my 401k. Am I allowed to have two solo 401ks? For instance, I heard that Vanguard allows me to do conversions and Fidelity allows me to do rollovers. What do you think? Where would you tell this person to open their solo 401k?

That's a good question. I don't have a great answer. I would. If I don't know what the rules of Vanguard Solo 401k are, I would think Fidelity would be a good choice. I would avoid. I just don't know enough about this to go anywhere else.

Yeah, they're both good choices. It turns out this is really screwy. This isn't an IRS rule. This is Vanguard and Fidelity policies that they don't offer really all the features you would want in a solo 401k. At Vanguard, they don't let you do rollovers. So if you got some old traditional Iraq, you need to roll it into a solo 401k so you can start doing backdoor Roth IRAs. Vanguard doesn't allow that. Which is really pretty annoying. Fidelity, I think, as I recall, will allow that, but they don't let you do a Roth 401k. So if your goal is to put some Roth money in there, you know, you can't do that. And so I think probably if I had it all to do over it again to open my solo 401k, I'd probably open it at E Trade. Now mine's at Vanguard because I don't need the rollover feature. Luckily, you know, about the time the backdoor Roth IRA came around was about the time my income went above the Roth IRA contribution limit. And so that worked out nicely for me. But you know, E Trade allows the rollovers, allows the Roth option, and you got to pay small commissions to buy Vanguard ETFs, but basically you're investing in the same thing and you even get the little bit cheaper ETF expense ratio than the investor shares that even the Vanguard Solo 401k offers. So I think E Trade is a great option for this person that's interested in Roth and is interested in conversions. I think it's a no brainer to go to E Trade.

I know less commission is better. We try to tell people that. But sometimes some commission isn't the end of the world. Especially the overall account is a better account than what you would get somewhere else.

Right.

Because how much are you really going to be doing trading within to rack up a lot of commission?

Right. I mean, most of these places have got their commissions down to five bucks a trade. I mean, decades ago it used to be much higher, but now it's literally $5 a trade. So even if you put money in there 12 times a year, you're still only up to 60 bucks, you know, which is not very much money. All right. His next question was, my future company is merging with another company. I'll leave them both unnamed, but it's my understanding that both companies have a lot of debt. So I'm not sure I want to put any money into their 457 in case something happens. How safe or unsafe are 457 accounts? Well, here's a great example of that one that we just discussed. I mean, this is someone who's literally worried his company's not going to stay in business. You don't want them to have your paycheck.

And his early career.

And his early career don't play any games.

Right. Just keep it under your mattress to put it into the brokerage account with E Trade.

Yeah. And the truth of the matter is most of people in this situation, owe student loans. You know, if you owe a student loan at 4, 5, 6, 8%, you know, that's, that's a great guaranteed investment. All right, his last question was, I have about a $5,000 emergency fund with a $5,000 line of credit at my bank, which I hope to never use. And I'd like to build this up to 15 to $20,000 in case I have to replace a roof or there's a car wreck or something. I feel pretty secure with my position both as a resident and an attending, so I don't feel like I need six months of expenses even if I were to lose my job and make about $5,000 in a weekend of moonlighting, which really is more passive than active income as I spend more time playing at the park with my kids and seeing patients. And there are a lot of shifts I could pick up if I needed to that I currently pass on. Does that sound reasonable or should I take money away from paying off the house and possibly investing to build a larger emergency fund?

So his question is, should he be taking money from where to put it into an emergency fund?

The question is, is my $5,000 emergency fund ad for a new attendant never? I mean, it's a pretty small fund.

No, because again, there are a lot of, a lot of red flags in my mind that are going on. Yes, you could do a shift or two and make up that money. What if you're disabled because your long term disability may not kick in for a good while and you're going to hopefully rely on some short term disability through your employer. Your kids do not have disability insurance and if something unforeseen and unfortunate happens to them, you don't want to spend your time working shift to make up for added costs there. And 5,000 in cash and 5,000 line of credit does not go very far when houses start to break. That's my opinion, is focus on the emergency fund. Get that into a 20 or $30,000 bucket somewhere. That's my opinion.

Yeah, I think that's, that's pretty good advice. $5,000 is a very small emergency fund for a physician. Now I guess you got to look at what your other options are. You know, if you're carrying $30,000 in credit card debt, well, you know, at 30% interest, well, shoot, maybe I'd go for a little smaller emergency fund to start paying some of that down. The other thing a lot of people don't realize is you can pull out Roth IRA contributions at any time. So technically, if you're worried you're not going to be able to both save up the emergency fund and make the contribution. You could make the contribution to the Roth ira, leave it invested in something very safe and pull it back out in the event of a terrible emergency. In the end, you do okay doing that. You can't pull out earnings without paying penalties and interest, but you can pull out the contributions. Of course, if you're making enough that you have to make your contributions via the back door, that doesn't work so well. But if you're low enough income that you can make your contributions directly, that's a reasonable option for an emergency fund as you're trying to get started. But it's just, it's that same scenario. You know, your first six months out of residency. There's so many things you need money for. You know, you want to do a Roth conversion maybe of some tax deferred money. You have, you got the house down payment, you got the student loans, you got the emergency fund. You want to start investing. All of a sudden the kids are getting older. It's. It's just tough to decide where to put all that money. And that's why I think the best thing you can do is just keep your spending down so you can do as much of that as possible.

So that's kind of, I think this is a philosophical difference between you and I. I recommend to residents to not invest or not contribute to their 401 or 403 through their residency program. I encourage or I recommend that they either focus on some level of student debt, but more particularly focus on a traditional IRA or their resume. They could potentially just go straight for the bet for a Roth IRA because of that ability to pull the money out in the time or pull the contribution out in the time of crisis. As a resident, many people say you pass up free money. The ability for that compounding to occur from the 401 or the 403 depending on their institution. But if they contribute to the 401 or 403, they potentially kind of get stuck there. They don't get that money back in crisis, which is always looming over everyone's head.

Yeah, I mean, there's a couple options there. First, I not sure I would recommend a 401k over a Roth IRA only. Maybe enough to get the full employer match. I mean, that's part of your salary. So you want to get that. You can borrow against a 401k. It's not a great idea because the problem is if you lose your job, you got to pay that money back within 60 days or else you end up taking penalties and taxes on it. But in general, I agree with you. If you're a resident, your investment dollars belong in a Roth IRA until that thing's full. Unless you're some kind of super saver resident that can not only max out a Roth IRA, but also put money into a 401k, you know, that's probably where your investment money goes. What's that?

Do those people exist?

There are a few. I get a few people to send me emails and I'm like, you are so far ahead of where I was that you're going to do just fine no matter what you do. There's definitely a few of them at.

The end of my lectures. My overall point is you gotta do something. And if it's a 403 or 401 versus the Roth IRA in residency, if you're doing something, you're ahead of most of the other people in your residency program for sure.

Almost no residents come out with any significant savings at all. And truthfully, with the student loans compounding during residency, most of them come out with a net worth of negative 300,000. You know, I mean, literally, they're the poorest people on the planet. It's terrible. They're poorer than, you know, the homeless guy living under the aqueduct. You know, it's, it's pretty sad really. Doctors, when they start their careers, are literally the poorest people on the planet. All right, let's do another question here. This one comes from a doc not too far out of residency, says due to paralysis by analysis, I actually have a decent bit of cash in a 1% savings account. I made the decision that because my student loan rate is 4%, I'll continue paying it and keep the emergency money and use the rest for investments or other forms of passive income. I realize now that I could have put my cash to better use for the past two years, either paying off my loans or investing. But this is where I'm at. I've now gotten over my paralysis. I'm going to put some money into a Vanguard account which would include a backdoor Roth and the rest in taxable plus minus a 529 for the kiddo. But one of my partners offered me an opportunity. He owns half of a non medical side business, a stable business. The rent on a warehouse is increasing, so he and his partner are planning to buy a much larger one with 20% down and borrow the rest. He's been working longer than me and has plenty of money probably not enough cash though to cover the 20% down and do everything else that the business needs, including a down payment on his new house and covers normal expenses without liquidating investments. So he's offered me the opportunity to give him a hundred thousand dollar loan with a five year duration at 6%. What do you think? What do you tell them?

Wow. I mean, the basic sniff test just hearing that story was I don't know if I would do that. That sounds very risky. We don't have the full situation that he's got. I don't remember hearing some other numbers besides that final number. What? I think it depends on the side business. I don't know if I would go for something like that. The various investments that have been offered to me recently are established companies with an established business plan. Whether good or bad, it's still a business plan versus just an overall loan for a warehouse that hopefully appreciates in land value. Yeah, I would question that.

Yeah, for sure.

Not a good idea.

There are so many red flags in this one that it's unbelievable. First of all, your practice partner borrowing money from you, right? Can you imagine if he stops paying on the loan, how awkward that's going to get, trying to get him to take call for you? I mean, this is not, you know, this is like loaning money to family. You know, you just don't want to get into that, number one. Number two, the guy doesn't have enough money to pay 20% down on the investment. Right. I mean, most real estate investments, in order to get them to be cash flow positive, you got to be putting down about a third just to be cash flow positive. So he's already strained pretty good just trying to get this to cash flow. And he's got this other stuff going on, you know, he's got, you know, he's put a down payment on his new house, he's got to buy stuff to go in the warehouse. I mean, you're loaning money to somebody that's really pretty leveraged. And if someone that's well into his career and still pretty highly leveraged, you got to wonder how well he's managing money. And then the last thing, right, 6%. You're basically making a hard money loan here. Right? And a hard money loan, the going rate is 9 to 12%. You know, 6% is like a sweetheart deal. This is like the one you give your little brother when you don't expect the money back, you know, I mean, that is just so out of touch with what hard money Lums go for. He's either trying to swindle this doc, which is bad, or two, he has no idea what's going on in the real estate world, which is another good reason not to invest with him, you know. And so I'd say this sort of a thing you've just got to be very wary of. This is a classic dumb doctor deal and you got to stay. That sort of stuff.

I can't. Yeah. There is no business plan here. That is, that is just a loan. And if you're going to do real estate, do it in a much more protected and just a more protected environment, whether it's a REIT or through some of the groups that you've been working with for your apartments in Indianapolis or something like that. A person to person loan, even with lawyers involved, is not something that I think anyone should really get involved with for sure.

This is not the time when you're early in your career, you still owe student loans. This is not the time to be making investments like this, if ever.

I don't think there's ever a good time for that.

Yeah, exactly. All right, well, we're getting a little long here, so we're gonna better start wrapping up here anyway. You got any other advice for our listeners out there?

No, I think we really hit on it. You guys just live cheap and delay the. And defer your luxury until you're more established in the world because you don't know where you're gonna be from year to year. Starting out despite. I know we're two em guys talking to each other, but for non em people, you still don't know where you're gonna go. If you're a surgeon, you don't know what your complication rate is going to be. You could be finding a new job somewhere else. And so just delay and defer that luxury. That's really my biggest advice. I was thinking of other things as we were all talking. And one question is out in Utah, do you guys have a bunch of title cash loan places? Because over here every street corner has a title cash for loan business. And I'm wondering, should I get into that?

You know, that's a great question. They're actually going out of business in Utah. One out of six of them. I was reading an article the other day. One out of six of them went out of business last year. And the reason why is our legislature's cracking down hard on them. They're basically making it so you can't pay off a payday loan with another payday loan. And so there's Actually a surprising amount of legislative risk in that business. But I think the main problem I would have with going into that business, you know, and as some people brought up with peer to peer loans, you know, where you're charging somebody 20% interest, well, when you're giving someone a title loan or you're giving them a paycheck loan, I mean, you're charging like 484% interest. I mean, if that's not loan sharking, you got to wonder how good you feel about being in that business. I think morally I might run into a few problems with that. So I don't know. Let us know if you get into it. I'd be curious to see a guest post on it.

Yeah, that would be a great guest post. Next question is. So I recommend everyone do some at least once a week, if not once a month, Sunday morning on the couch with an iPad, read one financial article, preferably from some type of blog, not Wall Street Journal, because that's so macro that it really won't affect an individual. What's your Sunday morning couch reading? You know, what do you read?

Well, I think that's pretty good advice. I mean, my advice to people to get some continuing financial education is read one good financial book a year and follow a blog. And I think there's now a number of good physician financial blogs out there. I think we're pushing 40 now. There's been another 12 or 15 that started this year. And so there's really no shortage anymore like there was when I started the White Coat Investor of physician Specific financial information. And so if you don't like my blog, read somebody else's. But read a blog and it'll keep you up to date. The big changes will show up there and they'll give you, you know, a sense for, for what you need to be doing. But more than just the information, it'll give you the motivation. It'll give you a chance to see another doc who's doing it, who's being financially successful, and you can kind of model yourself a little bit after that and reach your financial goals too. Well, I sure appreciate you being on the show tonight. This has been a lot of fun. It's sometimes fun just to get another voice on here. I think the hardest thing to do in podcasting is actually doing a monologue like a lot of mine have been in the last year. And so it's fun to get another voice on here and just, you know, have a conversation.

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