WCI #367: The Importance of Asset Allocation

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 367 the importance of asset Allocation. Do you ever find yourself wishing there was somewhere to go to ask your finance, insurance or investing questions? The White Coat Investor community is a great place to turn. We have a thriving community across all of our social Facebook, Twitter, Instagram, Reddit and our WCI Forum. We have been discussing solutions to your money problems since 2011. Join the Conversation with thousands of other White Coat Investors. Follow WCI on your favorite social media platform for financial resources, tips and strategies. Just head to your platform of choice and search for the White Coat Investor. You can do this and the White Coat Investor can help welcome back to the podcast. We missed you. Been off having fun without you. Unfortunately today is April 25th that we're recording this. It'll run on May 16th. I spent the last five days in the last mapped place in the lower 48 down on the Escalante river. So I went to float the Escalante river and do some canyoneering and you know, it was pretty cool for several days. Really didn't see anybody else other than the group we took in there. Spectacular scenery, fun, adventure and good thing nothing happened because help was a long way. But it was a lot of fun and I enjoyed it and I hope you're able to get out every now and then and do what you think is fun. I return to find an email full of people email box full of people panicking. So I thought I'd say a few things about this and you may have read this on the blog where I talked about this. May have run by the time this podcast drops, but I know lots of you only listen to the podcast. You don't actually read the blog, so I'm going to talk about it here as well. I am continually surprised by the amount of panic I see in White Coat investors who see news announcements that might affect their financial plans. Please remember that there is almost nothing that needs to be done right now in any sort of reasonable long term financial plan as a result of something you read in the news. You don't need to email me immediately wondering how this might change your financial plan. You don't have to know all the details tonight. As I tell our content director, we don't need to run a post immediately about these sorts of announcements. Sure it might help our Search engine optimization. We might get more web traffic from from it, but we're not going to be able to compete with CNN and the BBC and MSNBC or Fox News when it comes to breaking news. You don't come to WCI because you want breaking news. You come here because you want an in depth, opinionated discussion of what to do in your financial plan. Guess what? It takes time to get details and to form opinions. So have a little bit of patience with us. If it is going to affect a lot of white coat investors, rest assured we are not going to ignore it. We're going to be talking about it on the podcast, we're going to be writing about it on the blog, it's going to be in the newsletters. So don't panic. Don't feel like you got to do something right away. You don't need to do anything stat about your public service loan forgiveness plan because WCI runs a post called PSLF canceled you didn't realize was an April Fool's post for an hour or two. You don't need to do anything stat because the FTC voted to pass a rule banning most non compete agreements. You don't need to do anything stat because Vanguard said it sold off its small business retirement plan division to a census. These sorts of breaking news things don't mean you need to do something. Just like you don't need to buy and sell mutual funds because the market went up or down. Settle down, take a deep breath. If something's going to affect a whole bunch of white coat investors, we'll be talking about it on the blog. It's going to be a few weeks. We record these things two, three, four, sometimes six weeks in advance. But you know what? You don't have to do anything in the next six weeks. It's all right. You can wait, let the details come out, let people think about it, talk about their options and then act right. It's a little bit like in medicine. You don't want to be the first person to adopt a new therapy. You don't want to be the last person to adopt a new therapy. You want to be in the crowd and doing it in an intelligent way. All right, so let's talk for just a minute. Right? The FTC voted on this law to get rid of non competes and it's not in its final form, I can assure you of that. Right from the time they publish it in the Federal Register. First of all, it's 120 days before the rule goes into effect. But in this case there's a lot of people that are not very happy about this, maybe most notably the Chamber of Commerce, which is an association of employers, because this is pretty clearly a loss for employers and a gain for employees in general, we think. And so it's going to go through some court cases. It wouldn't surprise me to see it go to the Supreme Court. Right. And by the time it comes out of court cases, it might be a different party in control of the White House. And remember, anything that's passed by executive fiat by an appointed director of the FTC can be unpassed by another appointed director of the ftc. So that's the downside, right? You've heard it takes an act of Congress. Well, the nice thing about taking an act of Congress is it takes an act of Congress to undo it. When something is put in place not through an act of Congress, it can be changed without going through Congress. So keep that in mind. It's probably not going to be in current format by the time it actually applies to all of our lives. So give it some time. I mean, if nothing else, you got 120 days. That's four months before it even goes to an effect, assuming it doesn't go to court. In reality, it's probably one or two years before we really know how this is going to affect you. So don't go like changing something in your financial life, in your career, at your job, because this thing just got passed, right? It's not in its final form. Same thing if you've got a Vanguard Solo 401K, or as they call it, an Individual 401K. It's the same thing. A Solo 401 Individual 401. This sale doesn't even close until the third quarter of 2024. So you've got at least three months before anything changes. And even then, it's not like it's changing dramatically. You're still going to have the same investments. Maybe you pay a little more in fees, maybe you get a little better customer service, but there's no rush. You're going to be able to do nothing. And that will be an option. They'll just transition it from Vanguard to Asensus, and then you'll have a number of other options. Right. And I'm writing a blog post this morning, actually, I stopped writing to record this podcast about the other options you'll have, as well as some specifics about census. But it's not like this is some fly by night company that nobody's ever heard of. It's the biggest retirement plan company in the country. Right. It's not some sort of Ponzi scheme the vanguard sold you off to. They just realized they didn't want to run the charity they were running to run a small business, a retirement plan program, basically for free, and decided to concentrate on what they're better at and what maybe brings a little more money into the business. So don't panic. You don't have to run out and make some change to your plan. I come back from the wilderness and all of my WCI staff is talking about this stuff and I'm like, give it a second. We don't have to get a post out tomorrow and we don't have to change all of our individual 401s and all that sort of stuff. You got time. So don't panic when you see newsy things happen. Yes, they matter. Yes, they're going to affect your financial plan, but they don't have to affect it today. All right, enough ranting about that. By the way, we do two big webinars each year. One's a student webinar we do earlier in the year. The second one is the resident webinar this year. That's going to be on May 29, 6pm Mountain. Sign up at whitecoatinvestor.com residency. I am going to give the presentation. I'm going to make andrew with studentloanadvice.com come along with me and have him give the presentation he would give. If your residency program flew us out there to give you a grand rounds. This is information directly to you as a resident, totally for free. I cannot go to all the residency programs in the country. Number one, I don't have the time. Number two, none of your programs will pay me to come. They call me up and go, hey, we'll give you a hotel room if you come and do grand rounds at our residency program. Well, guess what? I don't need a CV line. If I had CV, it would be like 50 pages of blog posts and podcast recordings and webinars and presentations and nobody cares. I'm not an academic. I'm not trying to get promoted to full professor. I don't need a CV line. So I'm not coming out to speak to your residency program just because you'll buy me a hotel room night and won't even fly me out there or pay me anything. Come. But what I will do is do one of these webinars once a year for all the residents in the country. And it's the same presentation. Yes, it's going to be over Zoom or whatever platform we use. But it's the same presentation, same information. It's live. We take your questions. I think for the student webinar, Andrew and I hung around for two hours afterward answering your questions. Just like actually like doing this. This is my favorite part when I go talk to you in person is to stand around talking to you afterward about your life situations, answering your questions. So we still do that. You get almost a full experience. You don't get to see us in person, but we'll be there. We're going to talk about having a smooth transition to hit the ground running as an attending. Understanding what you need to do with your student loans to minimize their cost, ensuring you have the right insurance protection in place and nothing more. Make sure you're saving and investing your money to reach your goals so you can spend the rest on whatever you like guilt free. Free. And really understand the basics of investing so you can start building wealth asap. Now, there's not a lot of things you have to do during residency with your finances, but there are a few things and we're going to be covering those in depth. All right, sign up for that again. Whitecoatinvestor.com resident it is May 29th at 6pm if for some reason something comes up and you can't make it, still sign up because guess what? We'll send you a link. You won't be able to ask your questions live, but you'll get to hear everybody else's questions live. Or everyone else's questions won't be live, but the ones they asked. Okay, let's do a bit of an update clarification. I don't know how much of it's a correction. This is just something we promised you. This is from episode 365, so two episodes back two weeks ago. This is the one I did with. This was a Friends of WCI episode I did with Tyler Scott. We wanted to clarify two things with your HSAs. I was right about one. Tyler was right about the other. The first one was about saving your receipts. Even if you aren't covered at the time by the HDHP Right High Deductible Health Plan, you can still use your HSA money so receipts can be pulled out later. If you decided you're doing the stealth IRA thing with your HSA, you're going to wait 20 years and pull the money out using these old receipts. You don't have to be covered by an HDHP at that time. Okay. The other cool techniques I think is Way more interesting that Tyler brought up that I'd never heard before. And I'm actually kind of disappointed with myself that I didn't know about this technique because starting this year, this is super beneficial to my family. So I want to go over this. If you have a child that is over 19, but under 26 and they are covered under your high deductible health plan and no other plan, they or you, anybody can make a contribution, are allowed to contribute to a health savings account. This is in addition to your own family contribution to a health savings account. They can make their own contribution to their own health savings account or you can do it for them and you can contribute the family amount. Yeah, wild, right? $8,300 in 2024. You can put into your own HSA and you can put it into your kids, your adult child's HSA and your other adult child's HSA and your other adult child's HSA. I mean, pretty soon I'm going to have three kids between 19 and 26, so I could make four HSA contributions and you can help them start their lives out with a substantial HSA triple tax free account that can then compound tax free for decades. Pretty cool, right? Seems like pretty large loophole, but looked it up, multiple sources, it's there, it's legal, might as well take advantage of it. You know, there's a lot of things about 529s and HSAs that I'm not sure people really thought through through completely before passing these laws and these rules. Maybe they'll change in the future, but for now that is the law. Pretty cool, right? Okay, let's take some of your questions. That's what you come here for. Here's a philosophical question I'll speak by.

Hey, Dr. Dali, this is Leo Reap, a 34 year old oncologist from the Midwest. Thanks for all you do. You've been beyond instrumental in my financial knowledge and understanding. The question today is really more philosophical than practical. Do you believe in constitutive economic growth? The pitch for investment in index funds is somewhat predicated on the continued long term growth of a given economy at a rate of return that outpaces inflation. Individuals often quickly point to the historical Dow Jones OR S&P 500 index with the subtext that would be ludicrous for it to not to continue to go up over time. However, historically, from a much more global macroeconomic perspective and over a much larger timescale than 100 to 150 years, no economy has ever displayed constitutive economic growth added infinitum. Given America's arguably late current position within its long term debt cycle of the dollar, we think that this understanding should influence someone's investing perspective over their lifetime. While short term debt cycles are volatile and unpredictable, long term debt cycles have modestly predictable features that allow one to identify where a country exists along the long term debt cycle spectrum. Some of the best literature I can find is Ray Dalio's book Principles for Dealing with the Changing World Order. Well, I know that the immediate answer has to do with sticking to one's written investment plan and that our crystal ball is cloudy for the future. It seems prudent to ask these questions, particularly as a young investor with a long investment horizon. To be clear, I'm very pro index funds invested in regularly and understand their merits. Just interested into your thoughts regarding this. Thanks again for all you do.

All right, great question. You know, it reminds me a little bit of some of William Bernstein's writings for from his years old, decades old blog post called the Retirement Calculator from Hell. And he talked about how silly it was to try to get a safe withdrawal rate that had a predicted success rate of anything better than 80% because the likelihood of some worldwide disaster happening was far higher than 20% over the course of your investment horizon. I mean, if you look at estimates of nuclear war in the next hundred years resulting in a nuclear winter, they range from 10 to 74%. So what should you invest in if we're going to go through a nuclear winter? Well, that's likely to last longer than people thought initially. People thought initially maybe it'd be just a year of nuclear winter. In reality, it's probably closer to 10. 10 years of freezing cold temperatures, crop failures, mass extinctions, you know, societal upheaval and wars and you know, like something out of the Walking Dead. Ten years. You got to survive that. So what should you be investing in? Well, bunkers and AK47s, plenty of ammo, 10 years worth of canned goods. You know, that sort of thing. Now, how much of your money do you want to put into that sort of a scenario, knowing that if that scenario happens, you're probably wiped out in the initial blast. Most of the Northern hemisphere will be. And maybe it's not worth spending a huge chunk of your portfolio to insure against stuff like that. On the other hand, if you're worth $10 million, maybe it's worth spending $100,000 on a bunker and a whole bunch of canned goods and a few AK47s you know, it's about the craziest thing in the world, but I wouldn't think that coming up with a different investing in different stocks or buying a little bit of gold or bitcoin or something is going to save you in that sort of extreme scenario. So keep that sort of an issue in mind. As far as what's going to happen with the United States long term, I have no idea. Is this going to last a thousand years like the Roman Empire, or are we going to melt down in 10? It seems like we're at each other's throats more and more each year lately. And you know, they've even got a movie out lately called Civil War. Somehow both Red Texas and Blue California ended up on the same team. I'm not sure how that happened in the movie, but it's an interesting look at what could happen in the future. However, I think there's a couple of points that ought to be made. One is that you are not just investing in. In a growing economy when you buy an index fund, you are buying profitable businesses at its bottom line. That's what a stock is. These are the world's most profitable corporations in the history of mankind. These companies make more profit than any other company that's ever existed. And you own a piece of them. When they make money, you make money. So if these companies don't make money and become worth less. Yes, your investment's going to go down in value. If there are fewer people to sell iPhones to, Apple's going to be worth less. People stop wanting iPhones for some reason. Apple is going to be worth less. Or Tesla or Exxon or whatever. Right. Whatever these companies are. But don't forget that you're not just investing in the economy in some sort of vague, broad way. You are practically buying companies that make money. So that's point number one. Point number two is what's the alternative? Right. People say, oh, index funds. Everyone's buying index funds. I want to be a contrarian. Well, what's the alternative? Buying individual stocks? No, it's pretty much been shown to be stupid. Buying actively managed mutual funds that are trying to beat the market. That's been pretty much shown to be stupid. Buying speculative investments. Putting your money in gold or empty land or Beanie Babies, Bitcoin, whatever. Well, maybe you make money and maybe you don't. That's the problem with speculative investments is they're speculative. 100% depend on somebody else paying you more for them later than you paid for them. And a lot of times there's some ongoing costs to maintain, insure, store, et cetera, these sorts of things. So what else are you going to invest in is the question? If you don't want to invest in index funds, there's not like there's some magic thing out there that is going to work dramatically better. So if you want to hedge your bets a little bit, if you want to take 10% of your portfolio and put some of it into Bitcoin, some of it into gold or whatever, you know, short the market, I don't know, who knows, some sort of hedging strategy, go ahead and do that. Right. But would I put 75% of my portfolio in there? No. I think when you're starting to do that, you're going down the road of somewhat prepper type extreme views on the world future. And guess what? If you go back and look at a history of that, it doesn't end well. Most of the time those people are wrong. Almost always right, wrong, wrong, wrong, wrong, wrong. Maybe they're right eventually, 280 years from now after your great grandchildren have died, maybe they're right. But most of the time these people are wrong. They're wrong for a long time and it costs them a lot of money. And in a lot of cases it results in them not being able to have as nice of a life as they could have had if they had stuck with a little bit more conventional strategy. Hope that's helpful to you. All right, so let's take a question from John a little bit more nuts and boltsy about asset allocation.

Hi Jim, this is John from New Jersey. My question concerns the mechanics of adjusting asset allocation. Currently I am invested 100% in equities per my investment policy statement, but will add bonds next year when I turn 40. I'm concerned about the market dropping right before I adjust my asset allocation, which would cause me to sell equities low. What do you think of tying the reallocation to the market trend rather than strictly age? For example, say I want to have a 20% bond allocation. If the Vanguard Total Stock Index fund is within 1% of its all time high, I would rebalance all at once when I tend to 40. If not, I would stay with 100% equities for another year if it is still not within 1% of the all time high. When I turn 41, I would rebalance halfway to 10% bonds. In another year at age 42, I would finally rebalance to 20% bonds. No matter what the market is like, I feel like this would improve my Chances of selling equities high, since stocks are more likely to be up over a longer period of time. However, this seems like a form of market timing and obviously would be disadvantageous if there was a prolonged market downturn. Thanks for your help.

All right, John, great question. How do you adjust when you decide you're going to adjust? Number one? First of all, I would do it in advance, not in some sort of emotional way while watching the market move around. And I would put it down written in your plan. That plan, as you've outlined, is fine. It's fine. Put it in your written investment plan and follow it. I don't have a problem with that. But trying to do it based on how you feel about the market one day I think is a mistake and allows your behavior and your feelings to overcome logic. Obviously, this can work out badly. To follow your plan, you might be better off just doing it all at once in a prolonged downturn or whatever. And so you could get burned either way. So either way is fine. You might come out ahead, you might not. But I would make it automatic as much as you can and emotionless. And I would write it down on paper and I would follow it no matter what happens. That's the most important thing when it comes to a long term investing plan, is sticking with it. That matters way more. That said, your plan seems really complex and there's a lot of benefit to simplicity, right? I'm reminded of this all the time when I talk to Katie about stuff. I'm always wanting to add complexity to our financial plans and to our investment portfolio. And she's like, why do we need to do that for? And she's right. We don't have to. So don't add more complexity than you have to. Right? A lot of us, those of us who listen to this podcast every week are optimizers. This is a hobby for us. We like to play with our money. You don't have to play with your money. You can just make these changes, make them once and forget about it for the next year if it really bothers you. Maybe your plan was too aggressive to go from 100% stocks to 80% stocks all in one year. Maybe you should go down 5% a year over the next five years. Maybe that would make it. So it didn't bother you so much to make the change all at once. Just a thought. Okay, another question about long term investment plans and asset allocation.

I am a do it yourself investor and I've been out of residency for about two years and I've Been investing for about five years total. I have a written financial plan and I set my reasonable asset allocation when I first started investing. I recently used your blog post on using the XIRR function in Excel to calculate returns and I just did this for the first time with my portfolio. My question is, how do you recommend using this information and managing your money over the long term? Since you and other experts recommend setting a reasonable plan and sticking with it, it seems seems like doing these calculations periodically should not necessarily influence any changes in my asset allocation. Should it influence me to change other variables in my financial life like my savings rate or when I plan to retire? I'm just looking for some guidance on how to best use this information in a meaningful way over the long term. Thanks so much for your help.

You're doing so good. I'm so proud of you. Two years out of residency, you've already been investing for five years. You're asking questions like this. You win, you win. You're doing it. You're going to be so successful. Chances are none of this stuff's going to matter to you because you're going to have so much money. Your biggest issue is going to be who you leave it to and how much you give away each year and those sorts of issues. So congratulations to you. It's pretty awesome to be two years out of residency and asking questions like this. It is an incredibly smart question, right? Why bother calculating these things if it's not going to change what we do? Well, I think it's good to know how things are going. Number one. That's the main reason I would calculate this stuff. When you run your long term projections, for instance, I tend to use a figure of 5% real 5% after inflation for my portfolio. And so if there were a long period of time where I realized I'm not getting 5% real out of my portfolio, I might start using a different number to make run projections. I might start saving more money. I might plan to work a little bit longer. So yes, I think it would affect my financial plan. Plus I think it's interesting and I'll bet given your level of expertise and your interest and time that you put into this over the last five years, I bet you find it's interesting too. So it's probably worth your time just in that respect. You might change your asset allocation too if you're like, oh, I thought I was going to be able to reach my goals with the 6040 allocation. Maybe not. Maybe I and need to be a little bit more aggressive. Maybe I'm going to go to an 85% stock allocation, for instance. So that's another way that knowing those results could help. Now, should you make some big change based on last year's returns? Obviously not. But longer term, if you're starting to see that these things are not working out the way you expected them to, not even within the range of what you expected, it might cause you to make some changes in how you live your financial life. Good question. All right, here's another question from Sid. Hi Dr. Dali, I'm a radiology resident from Canada. Thank you for all that you do. I started listening to your podcast several years ago as a med student. And now, thanks to your teachings, I've nearly paid off my loans and maxed out my retirement accounts using my resident and moonlighting income, I've been considering incorporating a portion of my portfolio toward equities with additional risk premiums, such as a small value tilt, as part of my overall financial plan for when I start out as an attending in the next couple of years. And trying to plan the best way to go about this, I've considered investing in vbr, which is the Vanguard Small Cap Value etf. Accepting that this will only cover the US Market versus some kind of international small value equity ETF versus a more actively managed ETF from Dimensional or Avantis. How should one go about choosing between these? And specifically, why are the Dimensional and Avantis funds so popular if they're actively managed anyway? And how do they compare to, say, a Vanguard fund? Thank you. All right, man, a lot of winners out there today. Those of you out there who are hearing these questions and you're like, who are these people? They're residents and they already know this stuff. They're going to do so well, don't feel bad. You're 40 or 50 and you're like, what's an index fund? Again, I can't keep it apart from my 401. These are people who have really taken a deep dive and really become financially literate and they're asking hard questions. These are questions that don't necessarily have right answers. Small and value are factors, and there's some evidence in the academic literature that factor investing, tilting your portfolio towards certain types of stocks are likely to give you a higher long term return in the very long run, which is decades long. And so there are a number of us who tilt our portfolio toward those stocks. And these are smaller stocks which are riskier than big stocks. And it makes sense theoretically that if these types of stocks carry more risk, they should in the Long run, provide more return. Same thing with value stocks with value. There's really two explanations for this potentially higher return. One is that they're riskier companies, they're more likely to go out of business, they're more likely to have something happen to their earnings than the popular growth stocks, your Disney's and your Apples and your Teslas and those sorts of stocks. The other explanation is that they're not popular. It's a behavioral explanation. People want to own the cool stocks and so they ignore the K mark and they buy the Walmarts. They ignore the crappy companies that are about to go out of business, even though those companies may actually provide a higher return. So two explanations. One is behavioral, one is a risk story. Nobody really knows how much of each is responsible for the premium. And in fact, nobody knows if the premium is actually going to be there going forward. It's there. Looking back at the historical record, but it's a pretty limited data set that we have in the historical record. That said, it seems to be robust not just in the US but across multiple countries, across multiple time periods. The academics think that a small cap value tilt is going to pay off eventually. That said, for my entire investing career it has not paid off, right? For the last 20 years it hasn't paid off. It did really, really well in the aftermath of of the dot com breakdown, but it really hasn't. Since then. And particularly the last 10 years or so, large in growth and US stocks have done dramatically better than small and value and international stocks. Various reasons for that. Will the pendulum swing back? I think it will. I'm maintaining my tilt towards small and value stocks that I've had in my portfolio for the last 20 years. I still think it's eventually going to pay off, but there's no guarantee of that. The easiest thing to do is to just use a total market approach, right? Buy all the stocks in capitalization weighted proportion as you would get in a typical index fund and forget about it. Concentrate on how much you earn and how much you save and what you want to do on your time off and with your family and do the best you can for your patients and those sorts of things and not make your portfolio any more complex than you have to. But if you're a hobbyist, you want to try to eke out a little bit of extra return, you want to tilt your portfolio towards small and value stocks, then let's go on a journey. I've got a number of blog posts and I think that's the best way to really learn about this stuff is the blog post. It's hard to really get all the detail in there that you need, including charts and visuals and stuff in a podcast format. I'd recommend going to a blog post that was published last October called which Small Cap Value Funds Are Best for your and go through those. And in that post I explain about Avantis and dfa. For those who don't know, Dimensional Fund Advisors. DFA is a company that's been around for a long time and believes in this small and value stuff and has said, well, are there any ways we can tweak index funds and make them slightly better? And I think for the most part they did figure out a way to do that, a little bit of execution kind of stuff, et cetera. The problem for many years is you had to pay an advisor 1% a year in order to have access to these mutual funds. And so was that worth that much? Probably not. So people didn't. I mean, I had some DFA fund and my kids 529, but that was really it. Well, a few years ago, some people at DFA decided, you know, we really need to get into ETFs and just sell directly to people rather than only distributing our funds through advisors. And so they decided, okay, we're not going to do that. Go away. And so a whole bunch of people left the company and they started a company called Avantis, basically uses the same methods, very similar methods of investing in factors that they did at Dimensional. And they offer, you guessed it, exchange traded funds or ETFs. Well, Dimensional said, oh, I guess we do have to do it. So they pumped out some ETFs. So now there are ETFs made by dimensional, made by Avantis that use these techniques. Right? The way they describe it is they say, well, we have a passive philosophy but active implementation of that philosophy. Whereas a Vanguard Broad Market Index Fund has a passive philosophy and a passive implementation of that philosophy. And so is it active? Is it passive? Well, it's a little bit blurry, right? They're still low cost. And that's the thing that matters the most. That's why passive investing works, is because it costs less. As Jack Bogle would say, it's the cost matters hypothesis, not the efficient markets hypothesis that matters. And so by keeping your costs really low, you can maybe eke out a little bit of advantage and actually end up beating the market by a little bit. So Avantis hasn't been around very long. The track record looks really good for what it is. But I Think it's three or four years long for most of these funds. But a lot of the people that are into these small and value tilts, they have now gone to these DDFA and Avantis ETFs rather than the corresponding Vanguard small and value funds. I am one of them. I changed at some point in the last year, year and a half. It's a gradual change for me because this is mostly in a taxable account. So there are tax consequences to me changing and I'm not going to realize capital gains to change. I don't like them that much. But as I slowly give away to charity appreciated shares and buy new ones, I'm buying Avantis and DFA. My primary holding are the two Avantis ETFs. There's one that's for the US, a small value fund for the US and a international small value fund for the overseas markets. That's what we're using as we need to tax loss harvest. We use the DFA alternatives. They're very similar, but I like the Avantis slightly more. Hope that's helpful. Hope the rest of you didn't go to sleep as we spent our time out in those weeds. You do not have to invest with Avantis or DFA to be successful, just like you don't have to invest in real estate to be successful. If you want to try to eke out a little bit more, it's something to consider. All right, let's do our quote of the day. This proverb says, the art is not making money, but keeping it. There's a lot of truth to that. Okay, another question from Sam the intern who we've heard from before on the podcast. Hey, Dr. Dali, this is Sam the intern. Thanks for all you do. I have a quick Vanguard question for you. So I have a brokerage account where I have some money invested in the Vanguard Federal Money Market Fund. And then my settlement fund is also the Vanguard Federal Money Market fund. When I went to withdraw funds, I had to sell my shares of the money market fund so that the money got put into the settlement fund, which is also in the money market fund, before I could withdraw them. Am I crazy here? Is there any advantage to actually purchasing money market the money market fund shares versus just having everything sitting in a settlement fund? I appreciate your thoughts. Thanks so much. No, there is no advantage. Just leave it in the settlement fund. I think they do that more as historical accident than anything else. There was a time when you did do that. There are some brokerages where you have to do that. You have to invest it specifically into a money market fund, or it just sits in a sweep account, a settlement fund that's paying you 0%. I think Schwab pays 0%. That's how they keep their commissions at $0 because they're making money on your cash Vanguard. And this is one of the best things about Vanguard, I think when you're not, you don't have your money invested, it's making right now like five and a quarter, which I think is pretty awesome. But no, you don't have to specifically invest it into a money market fund at Vanguard to do that. Now, keep in mind, your settlement fund is generally that federal money market fund. So if that's not the money market fund you want to use, if you want to use the treasury money market fund because you're in a high tax state like California, or you just trust Treasuries more than the debt to other federal agencies, or if you want to use the municipal money market fund, you're going to have to buy and sell that deliberately. You can't just use that as your settlement fund. So keep that in mind. But in your case, when you're using the federal money market fund anyway, you just leave it in the sweep account. It's fine. All right, next question is from Brandon. Hey, Jim. Brandon from California. I have a question that's been asked before on the podcast, but I figured I'd ask it in a slightly different way in case you might give a different answer. In the hypothetical situation where you have a young investor who has 100% confidence and discipline to maintain an aggressive asset allocation in a bear market, would you still recommend holding some percentage in bonds for diversification purposes in case bonds outperform stocks and equities in a 40 to 50 year investing horizon. Thanks so much for what you do. Sounds like you have a pretty good understanding of the underlying issues. Yes, we expect stocks to make more than bonds in the long term, assuming you can stay the course and not panic sell out of them. But there is the possibility that bonds will outperform stocks even in the very long run. And that's one argument for having some bonds in your portfolio. You know, not only to reduce the volatility and make it a little easier to tolerate the ups and downs of the market, but also just in case bonds work out better in the long term, you can do what you want. There are white coat investors that have 100% stock portfolios. There are white coat investors who are very young who started with bonds in their portfolio and still have bonds in their portfolio. I've always had bonds in my portfolio from the very beginning. I like that it works for me. In big nasty bear markets like 2008, I was really glad I had some money in bonds. I do think it's folly to assume that this is a brain thing and not a stomach thing until you've been through a big nasty bear market where that money you could have spent on a kitchen renovation disappeared. I'm not sure you really know what your risk tolerance is, so I would encourage you to have an asset allocation that's a little bit on the more conservative side until you go through a bear market or two and you're sure that you can handle an 80% stock or 100% stock portfolio. The other thing to keep in mind is there's no hard limit at 100%. You can borrow money and have an asset allocation that's actually more than 100%. And in fact, most young investors actually do because they have so much money borrowed. You got $400,000 in student loans and you got a $300,000 mortgage and you owe $20,000 on a car and you got $10,000 in credit card debt and you got a $50,000 portfolio. Your asset allocation is actually really aggressive if you count all that debt toward it. So something to keep in mind. I'm not going to tell you you can't be 100% stocks. There are lots of people that are 100% stocks and it works just fine for them. Obviously in the past that was the way to bet. No guarantees about future. Do you ever find yourself wishing there was somewhere to go to ask your finance, insurance or investing questions? The White Coat Investor community is a great place to turn. We have a thriving community across all of our social Facebook, Twitter, Instagram, Reddit and our WCI forum. We have been discussing solutions to your money problems since 2011. Join the Conversation with thousands of other White Coat investors. Follow WCI on your favorite social media platform for financial resources, tips and strategies. Just head to your platform of choice and search for the White Coat Investor. You can do this and the White Coat Investor can help. Don't forget about our resident webinar. It's May 29, 6pm Mountain whitecoatinvestor.com resident is where you sign up. We will help you with a smooth transition to hitting the ground running as an Attending and make sure you have the important financial steps you must take as a resident completed. This is the presentation I'd give you if I was able to come out to your residency and do a grand round. Thanks for those leaving us five star reviews and telling your friends about the podcast. Recent one came in from Rasa Bayaga said a must listen for all physicians. Dr. Dali is truly serving the people who serve by sharing his knowledge regarding all things financial. I've been listening to the podcast non stop since I've discovered it a few months ago and cannot believe the amount of information I've not only learned, but retained due to the accessible nature of the podcast. Thank you Dr. Dali. Five stars. Thanks so much for that great review. It's very kind of you. All right, that's it. We've come to the end of another podcast. We'll see you next week. Until then, keep your head up, shoulders back. You've got this and we can help.

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.