WCI #364: High Yield Savings Accounts

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 364 high yield savings Accounts.

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All right, welcome back to the podcast. It's probably only been a week since you listened to it, but it's been. Or for some of you who are binging, it's only been a few minutes since you finished the last one. But for those of you who are recording them on our side, which is basically me and Megan, we haven't done.

One of these for a few weeks.

It's April 15th. As we record this, it's tax day.

Hopefully tax day was okay for you.

By the time you're hearing this, it's at least the 25th of April. If you're like me, you just filed extensions for tax day and you'll be doing your taxes in September or October most likely. It's really nice to file extensions, actually, you might consider, even if you don't have to, it just takes all the pressure off. All of a sudden now your tax preparer has all kinds of time for you and you know you have to do a certain amount of your taxes so you know about how much you're going to owe. But it takes all the pressure off getting all the details right and getting.

All the paperwork in. And if you're part of a partnership.

That doesn't get you K1s till the.

Week before, you know you don't have to rush anything anymore.

It's really nice. You ought to try it. All right, I should talk for a minute about April Fools. For those who aren't familiar with April Fools, it's not just a us thing. So not growing up in this country isn't really an excuse not to know about April Fools. It's been around for, I don't know, six, 800 years, mostly out of Europe, if you look for the historical origins of it. But basically, it's a day for capers. It's a day for fun little jokes and pranks that are done. And so it's kind of been tradition in my family. We run pranks on each other in April Fools, and I think a lot.

Of your families as well.

So we adopted that into the White Coat investor blog.

A few years ago, we had a.

Post about how I bought a Tesla. And this was a time when I was talking about how all doctors love Teslas, right?

They love Teslas because, you know, it's.

A dual status symbol. You get to say, hey, I have more money than you, and I care about the environment more than you do. And so I drive a Tesla. So I was always making fun of Teslas.

Well, the April Fool's post that year.

Was that I bought a Tesla, which.

Of course, I didn't. I took a picture of a Tesla.

Parked in my neighborhood and photoshopped on WCI into the license plate and ran that picture of the post. Well, most people understood by the end of the post that it was an April Fool's joke. I mean, it was run on April 1, but I was still getting questions about it a couple of years later, asking, you know, how they were optioning out their Tesla and asking how I liked mine. So apparently not everybody realized that was.

An April Fool's joke.

So each year since then, we tried.

To make it more and more and.

More obvious that the post we're running is just a joke, just a gag, Just an April Fool's post. And so the next year, we had.

One on how we met payroll by gambling on Ethereum and shorting the market and a bunch of stunts like that.

The year after that, I wrote a post about disinheriting my children. It was pretty over the top, and people seem to enjoy that one as well. Although a few people did take it seriously. And it's always kind of funny when.

You get some emails afterward and get to tell people, hey, that's just an April Fool's joke.

Well, this year, we decided to do something a little bit different. Instead of joking about my financial plan, we joked about one part of many of Your financial plan, Public Service loan Forgiveness. And so the title of the post was PSLF Cancelled. And if you're just realizing this now, listening to the podcast, that that was an April Fool's post, I'm really sorry. I wrote it in a way that I thought was pretty over the top.

And no one would get beyond a.

Paragraph or two without realizing that the whole thing was a joke. Well, apparently that's not the case for.

A lot of people.

And so given your feedback, a couple of days later we changed the title to include the words April Fools and also included some links and some explanations and a couple of follow up posts.

That we ran later in the month.

So hopefully there's nobody still thinking PSLF actually got canceled. But there were a few people that I disrupted their life more than I.

Really wanted to and so I'm going.

To apologize to those people. There was at least one person who lost some sleep over it and I'm really sorry about that. And a few people that made a few phone calls and felt foolish afterward.

You know, whether they forwarded the article to friends or whether they called up.

Their loan servicer or whatever, you know, I'm sorry if I wasted a bunch of your time. We ended up wasting a few of our staff members time as well replying.

To some of those things.

As I mentioned, our student loan advice guru, Andrew had about 10 or 12.

Emails that morning from people wondering what.

They should do now with their financial plan now that PSLF was gone. So bottom line, I'm sorry for anybody whose life are really inconvenienced with that post. It was really meant, all in good fun. That said, is it possible PSLF could go away at some point in the future? I guess that's possible, but keep in mind, it takes an act of Congress. And if you look at the first paragraph of that post, look what I had to come up with to come up with some sort of plausible situation where an act of Congress could actually.

Make PSLF go away.

I mean, it's a pretty big jump especially to have it done all of a sudden and have the news broken.

By a blog that typically writes its.

Posts months in advance rather than a real news site.

I mean, it's just not going to happen.

Plus, those of you who are in the public service loan forgiveness, even if you're just a borrower and you have PSLF already in your promissory notes, you.

Basically have a contract already with the government, so you are highly likely to.

Be grandfathered in any PSLF changes that.

May occur in the Future plus the government, and I'm talking both parties, have.

Shown in the past that PSLF tends.

To only get more generous.

Student loan programs in general only get more generous. They don't really become less generous over time.

Certainly there's no history of that in the last 30 or 40 years while the government has been in any way involved in the student loan program.

So PSLF is still out there. For anybody who is not aware that was just an April Fool's Day post, you can go back and read it. It might be funnier now that you know it's an April Fool's Day post.

But if it wasn't funny at all, I'm sorry. I didn't mean to offend anybody, and I certainly didn't mean for anybody to lose sleep or waste time or really be freaked out about it.

I think part of what happened is people on the Internet in general don't read. You skim on the Internet, and I guess if you just skim through that article, you might miss all the stupid.

Stuff that made it pretty obvious it.

Was just a joke post, especially the last line that says it's an April Fool's Day post. But part of it, I think, is it just. It's just so scary. It's like when a scammer calls you.

Up, right, and says, you know, and.

Freaks you out, and all of a.

Sudden your mind kind of goes to.

This fight or flight mode and your logic's not kicking in anymore. And I think that's what happened to some people. It's just so traumatic to think of the idea that PSLF could go away.

That they kind of tuned out everything else in that post.

Interestingly, our tech guru, James, he is our chief Technology officer, he read the post the day before it ran and didn't realize it was the April Fool's.

Day post for the year.

And he's like, oh, I wonder what they're going to come out with next? Because he figured there had to be something that replaced pslf.

But if you got fooled, you were not the only person. Even some of our staff was apparently fooled by that post.

So not obvious enough. I don't know if the staff is.

Going to let me do April Fool's Day posts anymore.

As you know, a few years ago, they kicked me off Twitter.

I'm no longer on Twitter. I was doing more harm than good on Twitter.

And maybe that's the case with April.

Fool's Day post as well.

So I hope you enjoy the four we've had over the years.

I don't know if there's going to.

Be any more all right, tonight, for those of you who are of the feminine persuasion, Megan wants me to announce that the financially empowered women are having an event tonight. It's going to be really good. It's Joanna Turner. She's been a blog sponsor for a long, long time. She's a tax guru. She's going to be talking all about taxes is tonight at Six O' Clock Mountain. You can sign up for that at whitecoatinvestor.com Few that's F E W Also, tomorrow's the last day to nominate people for the Financial Educator Award. And do you know someone who's passionate about improving financial literacy among their colleagues, trainees and students? If so, we encourage you to nominate them for the highly coveted 2024 Financial Educator of the Year Award. The winner of this prestigious award will receive a prize of $1,000. But that's not all. As an added incentive to craft a compelling nomination, we're offering the nominator who writes the best submission a free WCI online course of their choice. So to nominate someone, simply visit whitecoatinvestor.com educator by April 26th. We also believe in making financial education accessible to everybody. That's why we offer free presentations on various financial topics specifically tailored for medical students, residents, and attending physicians. You can modify the attending one for other professions, whether you're a PA or an NP or a pharmacist or an attorney or whatever. It wouldn't take much modification to have that be totally appropriate for you. You can download those presentations today. Also@whitecoatinvestor.com educator let's work together to make.

Financial literacy a priority in the medical community.

All right, let's do a Correction. In episode 362 we talked about non competes and I mentioned that non competes are basically banned in a few states, one of which is Colorado. Well, I had a correction written in by email basically said that's not entirely true for physicians specifically, as you would still have to pay liquidated damages, which.

Can be quite high.

This particular emailer said. Here's the wording I found the Colorado law provides that any non compete covenant or provision of an employment, partnership or corporate agreement between physicians that restricts the right to practice medicine upon termination of the agreement is void. However, the law permits physicians to agree to pay damages in an amount reasonably related to the injuries suffered by reason of termination of such an agreement. While this provision may read like a liquidated damages provision, the few Colorado court opinions on the statute do not support the parties estimating and defining liquidated damages in advance. Rather, the Colorado Court of Appeals has held that damages payable pursuant to the statute cannot be analyzed prospectively, but rather.

Must be determined upon the termination of employment.

So maybe not a complete ban in.

Colorado on non competence. Keep that in mind. Some more wording found on the Internet.

Says Colorado has long treated physicians differently than every other worker in the state.

When it comes to the enforcement of.

Non compete and non solicitation agreements, presumably based on the notion that a physician has spent too much time and money to obtain their medical license to restrict where they practice to protect patient choice.

And or to protect the ability of.

Physicians to stay in Colorado to service its population. Non competent non solicitation agreements are not allowed to be used to restrict a physician from competing for and or soliciting patients. Under the new Colorado law, it remains the case that the only remedy available with respect to a physician who violates a non compete or non solicitation agreement is the award of damages against the physician for breaching the agreement, with certain.

Exceptions for the treatment of patients with rare disorders.

So they can't run you out of the state and keep you from practicing.

But they can make you pay damages. Bottom line.

Okay, let's listen to a speak pipe here. This one's not actually a question, but I'm going to use it to jump.

Off into a topic. Hey Dr. Dali, Caleb, a dentist in Northern Colorado.

Just wanted to say thank you. Not really a question. I recently had a windfall of about $150,000 and listening to a podcast about what to do with windfall or savings money that you plan to use in the next six to 12 months and I had just had it sitting in.

A checking account earning nothing and so.

I immediately put it in a high.

Yield savings at 12%.

Thank you.

You just made me $5,000.

Bye.

All right, well, congratulations Caleb, on your windfall. I'm glad you were able to get that. Earning some money and this is a good point, right? Interest rates have gone up. You are no longer making 1% in a money market fund or in a high yield savings account you can make five plus percent.

I think the last time I looked.

It up, the Vanguard Federal Money Market fund was paying 5.27% and the most recent news from the Fed is that they're still not going to lower interest rates. So presumably it's going to be something similar to that throughout most of the year. And so why make 0% when you can make 5%? So if you got $50,000 sitting around checking account, some piddly, you know, credit union or local bank savings account paying 1% or 2%. Get that money into someplace real. You don't have to chase yield, right? You don't have to get the one that has the very highest percentage. But get us something that's paying at least 4%, right?

Four and a half, 5%, five and a quarter.

Might even find a few places that are 5.5. For reliability purposes. I find Vanguard's money market funds to be the most reliably high. A lot of the high yield savings accounts at banks can be higher, but.

They tend to only be higher temporarily. A lot of them are just a little bit lower. 4.8, 4.9, 5.0%. Whereas I find the money market funds at Vanguard to be pretty good.

Now, when rates were like super low, they were not the highest.

You know, Vanguard was paying like 0.25%. And I get 1% to the ally in their high yield savings account. But most of the time you're going to find a little bit higher rates in a money market fund. Now, technically those don't have FDIC protection, but it's also a pretty darn safe investment. I wouldn't spend a lot of time worrying about it if it's sitting in the money market fund. Schwab or Fidelity or Vanguard.

Keep in mind, one of the really nice things about Vanguard and people have.

Lots of complaints about Vanguard, that they can't get anybody on the phone when they call or whatever. Maybe their it is not as awesome as it is at some other brokerages. But one thing I really like about Vanguard is their money market funds and their bond funds too. But their money market funds in particular are spectacular.

And your sweep account, basically where your cash just sits at Vanguard is in one of those money market funds, whereas.

You go somewhere else and the sweep account's different from the money market funds. You know, if you're over at Schwab, and I think maybe Fidelity too, don't quote me on that one.

It basically sits in a 0% account.

That's your sweep account. And you gotta deliberately invest in any money market fund. Well, that's not the case at Vanguard.

You know, forget to reinvest a dividend. No big deal. It's making five and a quarter percent.

So one nice benefit about investing at Vanguard. And like I said, none of those three companies sponsor this podcast. I like em all, but I can't get any of em to sponsor this.

Podcast for some reason. Okay, let's talk a little bit about some criticism on the Internet.

And Internet's a fun place.

You can criticize anybody you want really.

As long as you're careful about libel, you know, it's unlikely to come back to bite you.

And the way search engine optimization works is you know, you want to criticize somebody that is searched for more often than you are.

And so of course there are a few people out there trying to take advantage of the name of the White Coat Investor to try to get some traffic to their website. It's really flattering actually, if people view us as that important or that popular that they're willing to write things about.

Us just to try to get more traffic on their website.

I'm actually very flattered by that.

But let's go through some of this.

This is an article talking about unveiling.

The risks of subjective financial advice. The Case of the White Coat Investor. Yeah, so it's very interesting you read through here. The White Coat Investor, a popular platform offering financial advice tailored to physicians, has garnered a significant following in the medical community. However, scrutiny has emerged. You guys know this. There's scrutiny out there surrounding the subjective nature of the advice provided and the qualifications of its owner to dispense such guidance. In this article we delve into the concerns raised by critics regarding the White Coat Investors financial recommendations and the potential implications for physicians seeking sound financial advice as well as the WCI's advertising model raising concerns about the quality and reliability.

Of the financial advice offered on the platform.

Never mentions who the critics are. I'll tell you who the critics are. People like fellow who wrote this article who is a insurance agent who doesn't like that I tell people not to buy whole life insurance. I suspect at any rate those are.

Who most of our critics are.

But he says critics argue that the financial advice offered by the White Coat Investor lacks objectivity and may be influenced by personal biases or vested interests. Unlike certified financial advisors who are held to fiduciary standings and must act in their clients best interests, White Coat Investor operates as a for profit entity raising questions about the motivations behind his recommendations.

That's all true by the way. We are not a fiduciary and we.

Are a for profit entity. That's why we do a big disclosure every year in our State of the blog that tells you what our financial conflicts of interest are.

I mean you can find them anytime.

Throughout the year, but it's important that you understand them. We do have financial conflicts of interest. This is a for profit entity.

If we don't make money, we don't.

Make payroll and there is no white coat investor.

I'm sure that's no different from the business of our critics, but it is important to keep in mind.

This is interesting though. Furthermore, the white coat investor's advice often revolves around a one size fits all approach, failing to consider the individual financial circumstances, goals and risk tolerances of physicians.

I'm not sure what approach they're talking.

About that's one size fits all. Unless it's something like maybe. Could it be, I think 99% of doctors don't need a whole life insurance policy. Well, if that feels like one size fits all advice to you, I guess that's what it is. Says this cookie cutter approach may lead to suboptimal outcomes for physicians who rely solely on the platform's guidance without seeking personalized advice. Well, you need personalized advice, Go get personalized advice. I'm a big fan of it.

In fact, we'll even refer you some people not like the people writing this article. We'll give that to you.

All right. Lack of Proper Licensing Another point of contention surrounds the qualifications of the owner of the white coat investor who provides financial information without holding the proper licenses in both finance and insurance. While the owner may have personal experience and insights into financial matters, critics argue that expertise alone does not substitute for the rigorous training and regulatory oversight required of licensed professionals.

Okay, well I guess if you want that and not just expertise alone, you can do that.

It goes on to say in the realm of finance, licensed professionals such as CFPs and RAAs are held with strict standards of competence.

Oh, only that were the truth.

Ethics?

Certainly not true. And professionalism.

You know, the ethics bars for people who are financial advisors are so low.

That your grandma could get over them.

It's just not that high of a standard.

It wasn't that long ago where they.

Were trying to make everybody have to be a fiduciary in this space and.

Basically a bunch of companies went and lobbied Congress so it didn't pass.

It's really unfortunate. So yes, there's a fiduciary standard.

It means almost nothing. There are people out there calling themselves financial advisors who are commission salesmen in disguise.

Okay, they go on. The implications for physicians, subjective nature of the financial advice provided the white coat investor and the lack of proper licensing raised several concerns for physicians. Physicians may inadvertently receive misleading or incomplete information from the white coat investor leading to suboptimal financial decisions, potential harm to.

Long term financial well being.

Okay, I guess that's possible, especially if.

You only read the posts that run on April 1st.

Limited advisor pool. By featuring only advisors who pay for advertising space, the white coat investor may inadvertently limit the diversity of perspectives and expertise available to physicians seeking financial guidance. This approach may overlook qualified professionals who choose not to participate or pay to be part of the advertising model, potentially depriving physicians of valuable insights and alternative strategies.

Strategies? Boy, sounds like somebody got turned down. Oh, were you not allowed to advertise.

The white Coat investor because you rip off doctors?

Hmm.

Seems like you got a beef here, buddy. All right. Potential conflicts of interest. Advisors who pay for advertising space may face conflicts of interest. They may prioritize their own financial interests or the interests of the platform over the best interests of their clients.

Well, that's true. Everybody's got conflicts of interest.

The WCI implements a screening process only admitting advertisers that conform to the financial beliefs of the white coat investor, which could influence the recommendations provided to physicians leading to suboptimal outcomes or biased advice. Yeah, we don't bring on insurance agents.

That are going to sell you a.

Bunch of whole life insurance. Lack of transparency. The advertising model employed by the white coat investor may lack transparency regarding the selection criteria for featured advisors and the financial arrangements between the platform and advisors positions may be unaware of the underlying biases shaping the advice they receive, undermining.

Trust and confidence in the platform.

Okay, in case it's not clear, almost everybody, not quite everybody, we have a.

Few people that we don't get paid.

To recommend, but almost everybody on our recommended pages we have a business relationship with. Most of them pay us for that listing. Yes, they have to meet our criteria, but they also have to pay us.

Right.

The financial advisor fills his practice and he's like, you know What?

I got 125, you know, clients.

I don't need any more clients. They're not going to pay us to advertise anymore, and we're not going to list them. It's not helpful to you to list somebody whose practice is full, number one, even if we think they're a great advisor. And number two, we got to make payroll. So we're going to send you to people who are still accepting clients and willing to pay us to advertise at the White Coat Investor for Profit business.

That's what we're running here.

Multimedia company. Yes. Hopefully it provides some entertainment. Yes, hopefully it provides some useful information to you.

But at the end of the day, we. We have ads just like everybody else in the business world.

All right? And then he goes on and says, consult certified professionals. Do due diligence. Diversify your information sources.

Can't say I disagree with any of that. They did a follow up article a few years later and said while Dr.

Dali's work has undoubtedly provided valuable insights, it's essential for doctors to understand there may not always be the best or most objective source of information. Says because Dr. Dali has niche expertise limited medical specialty perspective Dr. Dali is an emergency physician, which means his financial advice often reflects the experiences and challenges specific to his medical specialty. What works well for an emergency physician might not apply to other specialties or healthcare professionals, but different income structures and demands.

Okay, whatever. But he knows that. Yeah, like exactly.

Megan's like he knows that. So insurance agent is apparently going to.

Be better for you than an emergency.

Physician because he's much more like an.

Orthopedist or PM&R doc. Whatever.

Product Affiliations the White Coat Investor generates income through various means, including book sales, advertisements, affiliate marketing, and offering courses. Yep, running a business here. Surprise. Some readers have raised questions about potential financial affiliations with insurance providers that may be in line with this one size fits all approach to financial planning. I think this is what this whole all comes down to. One size fits all to this agent means I'm telling them not to buy whole life insurance. All right, if you think whole life insurance is the cat's meow and every doc ought to buy it, you're not going to like what you hear about insurance at the White Coat Investor. Simplified Advice One size fits all approach. Okay, Limited depth Complex Financial topics Medicine and finance are both complex fields, and navigating the intricacies of financial planning requires in depth knowledge and expertise. While the White Coat Investor provides valuable information for beginners, you may lack the depth needed for advanced financial strategies, tax planning and investment management.

Yeah, you shouldn't be using index funds. You need advanced stuff.

We certainly never talk about advanced tax stuff here. Never mind that half of your accountants can't figure out how to file form 8606.

Unbelievable.

Changing financial Landscape the financial landscape is continually evolving with new investment products, tax laws, and economic conditions. Relying solely on a single source for financial advice may result in missing out on the latest trends and strategies that.

Could benefit your financial future. Okay, I guess it may result in.

That, but probably not bias and subjectivity. Every financial expert has their biases and personal preferences.

Okay, well, hard to argue with that. So yeah, it's okay to get information elsewhere. I don't know that I'd take it.

From this person, but it's good to.

Get information from other places and you'll.

Find good financial advice crops up in.

The same places over and over and over again. I remember when I was first becoming.

Financially literate, I lived across the street.

From a used bookstore and I went.

Over there and I bought a whole bunch of two and three and four.

Dollar books and read them and most.

Of them were terrible. But you know what, the good books, they were all saying the same thing.

And so when you're going to multiple.

Different sources and they're all saying the same thing, you can be pretty sure.

But that's pretty good advice.

All right, well, that's enough time on.

Some critics for the White Coat investor.

If that's all you got.

Well, I'm feeling pretty good about that. Feel a lot better about that than the poor doc who lost sleep based on an April Fool's Day PSLF post.

Okay, speaking of sponsors, I have one of our sponsors that we're going to.

Be talking to here a little bit about real estate.

MLG has been with us for quite.

A long time now actually, and they do commercial real estate investing, mostly multifamily. And we're going to do a short interview here with one of their folks. Let's bring them on the line.

Hey, I've got two of our partners here, Nathan Kleberg and Tim Wallen. Tim is the CEO with MLG Capital. Nathan is a Vice president with MLG Capital.

Thank you so much for being on.

The White Coat Investor podcast today.

Thank you, Jim. Thanks for being here.

We're excited to have you on today. We want podcast listeners to learn a little bit more about MLG and the opportunities available there, but also wanted to talk with you a little bit about one of the decisions you've made with your funds. Many real estate syndicators, many real estate funds, have gotten into a little bit of trouble in the last couple of years with floating rate debt, but you guys have decided to basically only use fixed rate debt, at least for the period of time in which you're holding the assets in your fund. Can you talk to us a little bit about why that was so important for you?

Sure. We've been doing this for 35 years at least. Me and Nathan's got five years in. But we've been doing this for 35 years. And debt can get you in trouble. Debt is a tool of our industry. It's used, but the combination of managing how much debt and we typically target, target 60, 65% debt leverage initially can allow you to go as high as 80 or 90% leverage, but that creates lots of Risk and then on top of that, floating rate debt, as we evidenced here in the last 24 months, can cause a lot of pain when it moves quickly. So our philosophy was let's focus on how we grow value in real estate, how we grow net operating income, how we grow gross revenue, how we manage control expenses. Let's eliminate interest rate risk and debt risk as much as possible. So in our funds historically we went about 70% fixed rate and then third cent floating. But the floating rate debt piece we always bought interest rate caps, meaning that we cap how high the insurance could ever go in a floating or a dead vehicle. And we hit all those caps and our cap was at a 2.5% interest rate and it went up to 5 and a half percent. So it saved us 3% per per year by buying those caps in the floating area portion of our debt. So we again, we're just trying to manage risk. Preservation of capital is critical to what we do. And you want to manage your risk and you want yourself put yourself in a position within those people's equity. And, and I'm heavily invested in real estate. I'm not a stock bond guy. I got less than 1% of my net worth in the stock market. I'm all investing in what we do. I'm not looking to lose my money. And so we're going to manage that risk and near risk as well.

Another really interesting thing about MLG is that it offers its funds in two different structures. A typical K1 structure partnership structure where the depreciation is passed through to you as well as a dividend fund if you will, where you just get a 1099 or if it's in a retirement account, I guess you don't get anything at all. Can you talk about why you chose to put those options out there and who tends to pick one over the other?

The concept is really that the two different vehicles into our funds, you get the same basket of assets, we target the same returns. But the difference really lies in how the income that you're realizing is structured from a tax perspective within the private fund or option A, like Jim mentioned, allows through the maximum depreciation pass through to investors. And it also allows them to recognize passive rental income and loss. This passive ordinary income is often deferred by the losses that we pass back through to investors. That's a really powerful tax tool. The dividend fund, by contrast, flows the distributions from the properties through a non traded REIT vehicle and up to investors. And actually investors still participate in an LLC so they still receive a K1 in this structure. However, by flowing the cash through that reit, we accomplish two things. One, for those investors that are looking to invest through a retirement account, we have a lot of investors who have a lot of wealth built up in their 401ks and IRAs. They'd like to get diversified out of the public markets. In those accounts we can accommodate that within the dividend fund structure and we avoid triggering an additional tax on that income called unrelated business taxable income or ubit, which is commonly recognized in retirement accounts that invest passively in debt backed real estate. So that's one benefit. The other, the downfall of the first option, if there is one, is that we invest across multiple states. It's a great diversification technique and mitigates risk that way. However, it can create an obligation to file taxes in different states that we're investing in. For those who are investing a smaller dollar amount, call it 50 to $100,000, they may find that the additional tax prep costs for the multi state filing can be more burdensome than they're worth in their in their investment. So they can invest in the dividend fund and avoid the multi state filing obligation. As you invest more money or if you're a person that has significant other passive ordinary income in your tax picture, the private fund can start to make a lot of sense, especially for those who are taxed at or near the highest rates. That's when you'll, you'll see the most benefit there. So if you're investing cash post tax dollars, you can invest as low as 50,000 in either fund. If you invest through a retirement account, the minimum is 100,000.

Well, I just had one more comment there. You know, overall we want your income tax at cap gain rates, not ordinary rates. And we're very disciplined about creating structures that achieve that if you're a site, if you're taxable money. Now I'm one of 12 CPAs within MLG. We're very focused about delivering great after tax results in addition to economic results from our real estate investments.

And I assure you white coat investors very much appreciate that a lot of us have pretty darn high marginal tax rates. So anything we can do to help with that burden goes a long way to helping us build wealth, especially when.

We start so late in our careers to do so.

Let's make sure we cover the details for what you're raising money for now, which is Fund 6. You mentioned the minimum investments which are $50,000 or $100,000 within a retirement account. Can we Talk a little bit about the preferred return there and the waterfall structure.

Sure.

So we target all in returns of funds in fund six of 11 to 15%. We do that by bringing together a basket of 25 to 35 different real estate investments diversified geographically, across the country and across different asset classes. The way we get to that 11 to 15%, all in return to the investor, is comprised of a three tiered waterfall structure. The first is an 8% accrued compounded preferred return. I say accrued and compounded because it's not likely that we'll pay 8% out of the gates. In fact, we'll more likely pay in the 4% range. It takes time. We buy these properties with a strategy to grow the operating income. And we're not going to pay a 4% right out of the gates, however, if we pay a 4 the unpaid portion of that. So another 4% is accrued to our investors, it's owed to them, and it earns 8% compound interest until we make.

Them whole on that.

So our first obligation as the manager of these funds is to get investors current on their 8% preferred return. The second phase of our waterfall is a full return of capital. We expect that we'll start selling properties in these funds within probably the first three to four years and continue that throughout the remaining life of the fund with a target of returning all investors original capital within 6 to 8 years of when the fund begins. One critical differentiator within our structure is, is that investors get 100% of the net cash flow produced by the fund until they have an 8% rate of return and all of their money back. Many other groups are able to sell the first property in the fund. They make $10 million. They can reach in and pull out their share of the investments at that time. In our structure, 100% of those proceeds go to the investor to make sure that they're taken care of first. If and when we return 8% annualized and all the investors capital, then all the remaining distributions. Because if we've done our jobs well by 30 properties, we might sell 15 to get you caught up on the 8% preferred and all your money back. The remaining distributions are split typically 70% to the investor and 30% to MLG. As the manager, we have a special deal with the White Coat investor group. We're thankful for the relationship we have, so we give you a better profit split on the back end for white coat investors. Now that the group has surpassed 5 million in total investment with MLG in Fund 6, you guys get 75% and our, our shares reduced to 25%. So it's, it's a very investor first return structure and, and we think it, it allows for complete alignment of interest overall.

All right, thank you so much, Tim and Nathan, for coming on the White Coat Investor podcast and for what you're doing at mlg for myself and for other white coat investors. For other white coat investors out there.

Who are interested in learning more about.

Investing with MLG, you can go to whitecoatinvestor.com MLG and learn more or sign up to invest. Obviously, as with most private real estate opportunities, you have to be accredited investor, but otherwise, since most white coat investors meet that requirement, this is an option.

For diversifying your portfolio.

All right, hope you enjoyed that interview. Let's get to some of your questions here. This one is coming from Josh and.

I love this question because it makes me want to rant like crazy. But let's listen to the question first.

Hello, Jim, My question for you is about a written financial plan.

Why does it specifically need to be written down?

If I know my asset allocation, where my money is going when I rebalance, and all the factors that have to do with a financial plan in my head, then why does it specifically need.

To be written down?

Thank you so much for all you do. Okay, Josh, so let me get this straight. You're going to spend 60 years as.

An investor, 30 years while you're working, 30 years while you're retiring.

The biggest financial task of your life is acquiring a nest egg big enough.

To support you after you're done working. That can support you the rest of your life.

20% ish plus of your income is.

Going to go towards saving for retirement.

And it's too much work to write down a page or two of your financial plan. That's too much work, really. That's what you're trying to avoid is doing a couple pages of writing. You must really hate writing, is what I'm saying. I think there's two benefits to writing it down. The first one is, as you write it, it exposes the holes in your knowledge. It exposes the gaps in your thinking. You get to the end of it and you're like, oh, I don't have anything for estate planning. Oh, I don't have what? I didn't put anything in on rebalancing. I didn't put anything in on my behavior in a bear market. You know, it exposes these gaps and.

You'Re like, oh, I don't really. Oh, do I want bonds? I don't know if I want bonds.

Well, now you got to go figure out if you're going to have bonds because you got to write it down in your plan.

Right.

Or how you're going to introduce them later, or how you're going to withdraw your money in retirement.

Right?

All these questions that pop up when you write it down and realize, oh.

I don't know what to put in that section of the plan.

So I think that's benefit number one. Benefit number two is a commitment. It's a commitment to the process.

Right.

I'm actually going to spend some time to write this down, number one.

And number two, you're going back to it later, right?

2008 happens. 2020 happens. 2022 happens. December 2018 happens.

Oh, yeah. What did I say I was going to do when this happened? Let me go back and look at my written plan. Oh, yeah.

It says not only am I not going to sell low, I'm actually going to see if I can come up with some extra money to put in.

This month into the market because it's down 25%.

So I think there's benefits to it being written down.

But hey, you know what? If you have no better use for.

Your limited memorization space, your limited brain space, than to put your financial plan in there, go ahead, memorize it.

Don't write it down.

It's no skin off my nose. But I think this is a really useful exercise for people to have a written financial plan. So much so that I think it's worth paying thousands of dollars, the financial planner, to help you draft one.

I think it's worth paying whatever we're charging right now for fire your financial advisor, 800 bucks, or whatever it is.

To have us walk you through the process of writing your own financial plan.

I think it's extremely valuable.

Only about 50% of white coat investors in the surveys tell us they have.

One, but I think almost all of them ought to have one, including you, Josh.

So even if you just jot down a few things on an index card.

And throw it in your filing cabinet, I think it's worth it. Hey, here's another benefit of having it written down, right?

I'll bet your partner, if you have one, is not as into this stuff as you are.

Right?

So maybe you've got to memorize in.

Your head what happens if something happens to you. Right? It'd be nice to have the written plan there that at least your partner can take to a financial planner to help them once something happens to you.

All right, End of the rant. Our quote of the day today comes from Melody Hobson who said the biggest risk of all is not taking one.

Got to keep opportunity cost in mind when you're scared about taking risks.

All right, next question comes from Noah.

Hi Jim, this is Noah from the East Coast. Thanks for all you do. Your blog and podcast have really helped me get our financial ducks in a row, as you like to say. My wife and I are academic physicians in relatively low paying subspecialties. The institution where we work offers a benefit where the institution will pay for a significant part of a college tuition for our children. And with the two of us combined, we would have nearly the entire cost of college tuition paid for for our kids. The problem is that this isn't some fund that we can take with us if we leave these jobs. If we leave these jobs before our kids get to college, then we are out of luck. We have two kids under 6 and my 15 year crystal ball is cloudy. How do I factor this into our college savings plan? I know with the Secure Act 2.0 we could potentially use leftover money from a 529 to fund Roth IRAs for the kids, but I hate to put a significant amount of money in a 529 and then not be able to use it. Do you know any other docs and academic positions with college tuition benefits like this? How do people navigate this situation? Thanks.

Great question. You know the local university, University of Utah, lots of docs there at the University of Utah Hospital, I think they get 50% off tuition for their kids. And that's not just for docs and their families.

Right. If you're, if your spouse is a nurse and you're a student up there.

You got 50% off tuition. So it's a really great benefit.

It's a great way to pay for part of school. Send your spouse to work at that university for the few years you're in school. Really makes a big, big difference. Obviously if you're getting 50% of tuition off.

As far as what I'd do in your situation though, six year old kid.

You know, it's a long way from college and you don't know that your.

Kid actually wants to go to your institution.

Right.

So you got to hedge your bets.

A little bit here.

I think what I would do is I'd save some money for college, but.

Maybe not in the 529. I'd save it either in my own.

Taxable account or I'd save it in a UTMA account which becomes the kids in most states at age 21, depending.

On how much you trust them, I guess, how much control you want in your life, whether you put in your brokerage account or their brokerage account.

That way, if you decide to go somewhere else, you've got something safe for.

College that you can use.

And if they decide to go somewhere.

Else, there's something there that can be used to pay for college.

But at the same time, you're not.

Locked into a 529.

And it's not like being locked into.

The 529 is the worst thing in the world.

As you mentioned, there's now this cool provision that you can roll 35,000 DOL out into the beneficiary's Roth IRA.

It's limited each year to the amount of the contribution limit and they have.

To have earned income and it has to have been in the account for 15 years.

There's all these rules about it, but.

That'S one escape valve for a 529. The better escape valve, in my view, is you just change the beneficiary to the grandkids.

All our 529s are almost surely overfunded. Our kids are all talking about cheap in state schools. Even our kid. I'm very proud of her, right?

Our second just got 36 on the ACT and she's got nearly a 4.0. Probably be a 4.0 because she wants to retake her A minus class this summer.

I mean, she can probably go anywhere in the country that she wants to go.

She's still talking about going somewhere cheap in state.

And given her grades and scores, she's probably going on a full ride.

And so her 529 is dramatically overfunded for college. So where are these going?

They're going to our grandkids. That's where they're going to go to.

So it's not the end of the.

World if you overfund the 529. I mean, you can even take the.

Money out, pay the taxes and penalties.

And buy a sailboat with it if you want. It's not like the money just goes.

Away or something, but it's not the.

End of the world.

But in your case, as you describe.

It, I think I wouldn't save in a 529.

I'd save somewhere else. I'd save something. And then if it doesn't get used, they can use it for a house.

Down payment, or you can use it toward your retirement or whatever. Hope that's helpful.

Next one comes from Rob.

Hello, Dr. Donnelly I'm a self employed consulting engineer and old dad. I'll be 61 when my daughter starts college in seven years and 66 when my son starts. If they decide to go that route. And paying for our kids college is our biggest, most uncertain financial goal. Given that we don't know what they'll want to do, how much college will cost or what the markets will do. It's really the only thing that gives me any pause about our financial Future. We started 529s for them and the balance is about 30k each. Live in a state without an income tax, so there's no real tax benefit there. And given all the uncertainty and the fact that I'll be able to tap my 401k without penalty by then, should I just plan on using that to pay for college? In addition, my wife stopped working in the school system and started working my business so we could theoretically max out another 401. We'd also be able to save at a higher rate since it won't be restricted to college expenses and we'll get a much bigger tax benefit, you know, in the present. So does that seem reasonable? Are there tax, college financing or other implications we should think about? Does that affect the ability to make contributions to the 401k in addition for either myself or my wife once I start drawing on it? And if it makes sense, should we. And can we take the money, the contributions to the 529 plan, and put them to something else? Either to a brokerage account, which we don't have yet, or to UTMA accounts for the kids, which we plan to set up. But again, given the uncertainty in college saving, we haven't done that to now. Thanks for everything that you do.

Sounds like you ran out of a minute and a half there. I think we got the questions though. It's nice to have a question from someone that's not a doc.

We don't get those as often.

So thanks for what you do.

If nobody's told you today.

And that goes for all you docs out there too.

This week we've been doing brand new emr. We just switched to epic. I'm actually thrilled to have epic. I've used it before. It's way better than the Meditech we were using, so. And I'm excited about it.

But there's growing pains anytime you switch.

EMRs in a hospital.

And for whatever reason, my hospital decided to change the entire telephone system while they're at it.

So it's been a heck of a week. And if you're dealing with something like.

That at work too, I'm sorry.

And thanks for putting up with it in order to help patients and in.

The case of you engineers out there, clients, okay, old parents, man, you're making me feel old. I'm going to be 58 when my last kid starts college. So I guess, I guess there's plenty.

Of us old parents out there.

Lots of docs, of course, put off kids, right?

35, 40 years old before you're having kids. I guess your old parents too.

There's a cool benefit though, when you get to those older ages is you.

Can use your retirement accounts, right, to pay for college.

Well, if you're 55 and you've separated from an employer, you can get into that 401k with no 10% penalty. If you're 59 and a half, you.

Can get into your IRA with no penalty.

Now, in your case, it sounds like you're still going to be working as a consulting engineer and contributing to your 401k. So I don't think your 401k is as available as you might think it.

Is, but your IRA should be if you've got some IRAs there.

And I think you can make a good case, Rob, for saving in retirement accounts for your kids college because that's.

Going to be accessible to you when you go to pay for college.

And you're right, the tax breaks are a lot better. I'm not a big fan of skipping out on a retirement account contribution in.

Order to put more money in the 529. And I know they're separate goals and.

You save for them separately. But the 401 tax break is way better than the 529 tax break. And so I would max those out.

Before I even thought about 529s. I think. And as a general rule, you can.

Help others best from a position of strength. You should always prioritize retirement before saving for college. Your kids can get loans for college, they can go to a cheaper school. You can't go to a cheaper retirement. You certainly can't get loans for retirement, right?

Not in the same way anyway. I guess somebody is going to write in and argue with me that you can get loans for college or that you can get loans for retirement and that you can have a cheaper retirement.

But for the most part that's true. You understand what I'm saying? Do retirement first, then do college.

In your case, Rob, I think I would max out those retirement accounts. You'll figure out college. It's not that hard to pay for. Right. It's not that big of a deal whether you're using a utma. And of course the downside there is.

It becomes the kids money at age 21.

But you get a few extra tax breaks compared to your taxable account.

But you haven't even maxed out your available 401s yet, especially with your wife.

Now working at the business. It gives you another contribution. So yeah, I think you're barking up.

The right tree there. All right, next question comes from Nicole about selling a house.

Hi Dr. Dali, thank you so much for taking my question. We are thinking about selling our house here and moving out of state. We currently have a 2.25% interest rate on our 10 year fixed rate mortgage and the thought of losing that interest rate kills me. But that's the situation that we're in. We max out all of our retirement accounts and we have about 400,000 in a taxable account. I'm wondering what your thought process would be on deciding if you would take out another mortgage at the higher interest rate or if you would just raid your taxable account to pay cash for a new house. Just for some reference, our net worth is about 1.8 million. So taking a couple hundred thousand out of taxable wouldn't be crazy. We have about 300,000 in equity in our current home and we're looking to spend total on our new home between 400 and 500. So we'd probably have to take out a couple hundred thousand from our taxable account, which would put a significant dent in it, but then we'd be avoiding a higher interest rate. My husband's pretty debt averse, but I'd love to talk through the math if you could. Thank you so much.

Okay. You know, a lot of these payoff debt versus invest questions and this is really the same thing. Take out debt versus take out investments. It's just the same thing. Looking at it in a reverse way are difficult. There's no right answer and it's not.

Clear what to do. And either option is probably fine.

In your case I think it's pretty obvious, right? This is a no brainer in your situation. I think your husband, the debt averse.

One has probably got it right. I mean you're only going to need a couple hundred thousand dollars. You've got $1,800,000 in net worth, right? You got a $400,000 taxable account, so it's only half of it that you're going to use. And then you're Going to be totally.

Debt free, no mortgage at all. I'll tell you what, we paid off.

Our mortgage in 2017, I think in.

Seven years, mortgage free, we do not miss it. We have had no urges to go out and borrow money on this house to get another mortgage. Even when we could have gotten it at 2.25%, we did not go out and borrow on the house. We like being debt free. It's got a lot of nice, you.

Know, call them emotional benefits, if you will.

But the only way someone's going to get our house is if we don't pay property taxes.

And that's going to take several years of not paying property taxes to lose it for that purpose.

So I like the security, I like the simplicity.

Lots of things to like about it.

Now, in your case, unfortunately, you're leaving.

This super low rate mortgage, right? And I think you can make a.

Pretty good case mathematically, at least, not always behaviorally, but mathematically, you can make a case to borrow money at 2.5%. You're probably going to do better than that with your investment portfolio. In fact, if you're not going to do better than that on your investment portfolio, you got bigger problems, right? But even right now, if you can borrow at 2.5% and you can put it in a money market fund and make 5.25% today or a high yield savings account, now there's pretty good arbitrage there, but that's not what you're going to get.

You're going to a new state, you're getting a new mortgage, your mortgage rate's going to be six, six and a half, 7% at best. In cash, you're going to make 5.25%. That's before tax, right?

So you're gonna have to take on risk. If you're going to be 6, 7%.

Maybe you can do it, maybe you can't.

But I still find 7% to be a very attractive guaranteed return.

Right?

Bonds aren't paying 7% right now, cash isn't paying 7% right now. But avoiding this mortgage, you're making 7% guaranteed. There's a lot of people out there that don't expect any higher returns than that on stocks. In the long run, 7% is a pretty good return. And you can get that just by paying cash for this mortgage. It's one thing to take out a mortgage when you're coming out of residency.

You don't have any money. Your net worth is minus $300,000.

You just had twins, right?

You're Sick of living in an apartment.

Your job's now stable. It's time to buy a house, but you don't really have any money. Fine, get a mortgage.

Go get a doctor mortgage.

Put like 2% down, whatever. No big deal. That is not where you're at in life, right? You're almost a multimillionaire and you're buying a very reasonably priced house. You've already got, you know, three fifths of its value in your current house as equity, right? You only got to come up with a couple hundred thousand dollars and you get to skip the whole mortgage process altogether. You probably even get a better deal on the house for offering cash, right? So it's. I think in this case, if I.

Were you guys, I would not, you know, borrow against this house.

If you do borrow against this house.

You know, you're borrowing 6.5%, 7%, and.

You'Ve got to out invest that. Not impossible, but once you adjust for.

Risk, I just don't think you're coming out ahead there.

Mortgages are for people who don't have money to buy their house. You have money to buy your house.

So I don't think mortgages are really for you.

Same thing I tell someone who's buying.

A car, you know, I got $40,000.

And I want to buy a $30,000 car. Should I get a car loan?

No, just go buy the car. Right? It's okay not to borrow for stuff.

All right.

I hope you guys are enjoying this podcast.

If you don't like it, let us know. We'll see if we can fix it so you do like it.

Maybe we can, maybe we can't.

But shoot us emails editorwhitecoatinvestor.com and we'll try to fix the things that annoy.

You and do more of what you enjoy.

At some point in our financial lives, it will be time to buy a home. A physician mortgage can be a good vehicle for a young doctor who's just out of school and has a more effective place to use their money than on a big down payment. These loans allow doctors to secure a mortgage with fewer restrictions and a lower down payment than a conventional mortgage. But if you're further advanced in your career or deeper into your journey to financial freedom, buying a home with a conventional mortgage and then later on potentially refinancing that loan to a better rate with a shorter timeframe could be a great move. Wherever you are in your financial journey, make sure you use the mortgage that will be most financially beneficial for you. Hop over to our Recommended tab to learn more about all of your mortgage and refinancing options@whitecoatinvestor.com you can do this and the White Coat Investor can help.

All right, don't forget tonight, 6pm Financially empowered women. It's a virtual event featuring Joanna Turner. It's all about Taxes. Sign up@whitecoatinvestor.com Few I think there's more than 2,000 ladies in that group now, Megan. It's getting to be really big and they have some great discussions.

I'm sure they don't actually let me come, but I think it's great and a lot of people really enjoy them. We're getting great feedback on don't forget.

About the Financial Educator Award. Please, please, please. If someone gave lectures at your med.

School or your dental school or in.

Your residency or is going the extra mile to really help you be financially literate, nominate them for the White Coat Investor Financial Educator Award. You can do that@whitecoatinvestor.com Educator if they win, they get 1000 bucks. If they win and you gave them the best nomination, you get a free WCI course. So sign up for that. Michaelinvestor.com educator that's also the page you can get the slides to give presentations. There's a set of slides for students, one for residents, one for attending physicians.

And other professionals that you can give yourself right?

Modify them as you need them, whatever, or just put them together for you to make it easier for you to.

Do this stuff for your peers.

Let's work together.

Make financial literacy a priority in your community.

Thanks for those of you telling your friends about podcasts. We really appreciate that and thanks for.

Those of you who are leaving.

Five star reviews. A recent one came in from GRT show said excellent and thorough. This podcast is an example of a motivated physician gaining substantial knowledge on a.

Non medical topic and sharing it with everyone.

He's altruistic and thoroughly engaged in this material. I find when he lacks information on topic, he's not afraid to admit it. Research it thoroughly to provide an accurate and actionable answer. The staff should be given significant credit.

That's the truth for the success of.

This podcast as it clearly must take.

More effort than just one man can muster.

Great combination for a podcast. Knowledgeable, altruistic host who surrounds himself with intelligent guests and hardworking staff all.

Keep it up. Great work.

Wow, that was a really nice review.

We should put that on the website or something.

But thank you for that. These five star reviews really help get.

The word out so we appreciate you doing those?

Keep your head up, shoulders back. You've got this. And we can help. As we prepare to move into summer in the next month or so, let's get your finances set up and have.

It not be something you have to worry about anymore.

Practicing medicine is way more fun when.

You don't have to do it or.

When you don't have financial pressure hanging.

Over you making you do it. I promise you, getting your financial ducks in a row is well worth it.

Whatever the next step is for you.

Whether it's going and buying disability insurance or buying, you know, some term life.

Insurance, not whole life.

Almost all of you, whether it's doing your estate planning or whether it's, you know, finally figuring out those investments or reading up on your 401k plan document, go do it. You can do this. We're here to help. We got a whole community, right? We mentioned a few earlier.

We've got the WCI subreddit.

If you're into Reddit, we've got a Facebook group.

If you're into Facebook, we've got the WCI forum.

If you're a boomer.

Just kidding.

Everybody's welcome on the forum, but you.

Can ask these questions and people will answer your questions. Is there, like, high quality answers you're getting most of the time? Certainly if you sift through all the answers, the quality's in there somewhere. And you can save tons of money on paying professionals. We're not against professionals. Pay professionals, too. If you want to just make sure.

You'Re getting good advice at a fair price, check out our recommended pages. If you're not sure what a fair.

Price looks like, or if you're not sure what good advice looks like.

And we'll try to get you connected with the good guys and the good girls in the business.

All right, see you next time.

Have a great week.

The hosts of the White Coat Investor are not licensed accountants, attorneys, or financial advisors. This podcast is for your entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.