WCI #67: An Interview with Passive Income MD and Physician on Fire

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.

Here's your host, Dr. Jim Dahli. Welcome to podcast number 67, an interview with Physician on Fire and Passive Income, MD.

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Much for what you do. I know you're probably on your way into work, your way home from work, maybe you're jogging or doing chores around the house as you listen to this, but I want you to know that your work matters. You probably don't get thanked as often as you should be. So I want to be the first to say thank you for the time and dedication you put into your career. For all the time you're willing to be on call and work at night and holidays and weekends and evenings. It really is a special thing you're doing. We're going to be having a couple of my favorite people on this episode, the Physician on Fire and Passive Income md. I think both of them are kind of gradually coming out of the closet as far as who they are and becoming a little bit more well known rather than anonymous people on the Internet. But I think in today's episode we're going to be just referring to them as Physician on Fire and Passive Income md. We've got Passive Income coming from the west coast and it turns out that the Physician on Fire is in a little backwoods cabin up in Michigan. Unfortunately, that affected a little bit of his sound quality during this interview. We've cleaned it up as much as we can. We had to cut a little bit out of it. So bear with us when he's given some of his answers and know that we did all we could to improve that sound quality. Oh yes. Before we get into this interview though, let's do a quote of the day. This one is kind of an interesting one. This comes from John F. Kennedy, who said, I have no firsthand knowledge of the Depression. My family have one of the great fortunes of the world and was worth more than ever then. We had bigger houses, more servants, we traveled more. I really did not learn about the Depression until I read about it at Harvard. Okay, we've got a special podcast today. I've got both Passive Income MD and the Physician on Fire with me today and we are going to be doing nothing today but answering your questions. We've had dozens of questions submitted over Twitter and in our various Facebook groups as well as on the White Coat Investor forum and we're planning on getting to these as many of them as we can today. And maybe we'll have to have a part two. We got so many of these questions but but I think this is going to be a lot of fun and a really enjoyable episode. If you're not familiar with these two guys, you need to become familiar with them. Passive Income MD is probably the most popular physician specific blog out there focused on passive income, real estate ventures, et cetera. So if you haven't checked that out, be sure to look@ passiveincomemd.com likewise with physician on Fire. That's a play on the words financial independence. Retire early. That is a great place to go to learn more about how you too can retire early or at least become financially independent and get the freedom that comes with that legendary status of your finances. Passive Income MD and Physician on Fire, welcome to the show.

Thank you very much. I'm excited to be here recording with you once again. And I know we've got a lot of questions like you said, and I think it'll be a lot of fun to dig into these.

Yeah, cool. Thanks for having us.

Before we get too far into it, Passive Income md, let's have you give us just a little update on what's going on in your life and with your website.

It's been exciting last couple months. By the time this thing airs, I'll have come out public, so that's kind of a little bit of a scary but exciting venture for me. I think the reasons why I'm doing so will be explained pretty well in the blog and I hope that it's received well.

Cool.

That's cool. I'm excited and looking forward to reading that one. And I'm not really doing the reveal post that I believe Passive Income MD is planning, but I'm slowly letting my name and face appear in different places online. So it'll be subtle. But if you go on to my site right now, you'll see my smiling face on a fincon speaker ad. So it's one little bit at a time. Cool.

Well, let's get into the questions. So the first one that came in on the White Coat Investor forum was from Cord McNally. Bone in or boneless wings?

I'll go first.

Wings are wings. They have bones in them. They don't work as wings if they don't. And so if I'm going to have chicken wings, they're going to be bone in. You're not fooling me with the chopped up chicken breast in the squares and calling that a boneless wing. No, no thanks. Oh, and no breading. That's too much carb.

Yeah, yeah, no, I'm au naturel too. I like the bone in no breaded. I like to hold my wings there. And yeah, that's the only way I'll do it. How about you Jim?

I think I prefer the bone in as well. So that's a unanimous vote there. Let's move on to a little more relevant question to this financial podcast. How about this one? Do you feel you're helping your co workers to better handle their finances? I think they're talking about the people you interact with at the hospital.

I do a little bit. Having been largely anonymous, not everyone knows that I'm all that savvy with money, although they do know that I'm going to be retiring early and I'm in a financial position to do so. So I guess they do have some sense of that. And there are a couple of co workers that have come to specific questions about taxable accounts and tax loss harvesting and I've kind of talked them through that. But until my Persona is known and people know about the website, I guess I haven't really pointed them to specific posts on my site, but I have pointed them to both White Coat Investor and Passive Income md.

Hey, that's what I like to see, a little bit of cross promotion there.

Yeah, I've done the same. I mean I've been anonymous so I pretty much referred people to your guys site. I felt kind of weird sending people to my site anonymously, so. But I will when I'm there in the hospital, especially when I'm around residents and Fellows, we often have these financial talks. So sometimes my co workers are around, and so they'll hear and they'll kind of get engaged. And hopefully that's my way of kind of spreading the word about passive income and just working on your finances as a physician.

Let's go on to another one of Hatton one's questions. She also asked, when did you realize you had a better understanding of finances than the average doc?

For me, I guess in medical school, I read a book that helped kind of set the tone. And that was the only investment guide you'll ever need. And once I finished residency, I saw a lot of docs spending a whole bunch of money and buying life insurance. Whole life, that is. And doing things that I knew weren't necessarily a great idea. So probably I would say it was shortly after residency when I saw some of my friends and colleagues making financial mistakes that I knew to avoid.

How about you? Passive Income md For me, I mean.

It was a couple of years after being an attending when I started getting into real estate and kind of, you know, that's really changed my mindset about where I wanted my finances to be. And it's also my career. I started asking people in the hospital what they were doing, and really most people had no idea. They really have any answers. I said, what are you doing for your finances? Are using a financial advisor? Are you, you know, looking into real estate, other sources of income? And honestly, I found so few people that were actually doing it. And I realized, wow, nobody's really doing this stuff except for a few people that I did find. And, you know, we got together and ultimately, honestly, we formed a group and hopefully we'll talk about that a little later. But I found out there's only a small subset of physicians that are actually interested in this whole subject.

It is a bummer. That's such a taboo topic to really talk about. We all make plenty of money. We should feel comfortable talking, speaking freely, you know, behind closed doors, at least about this stuff.

Yeah, you know, for me, it was very early on, and it was very early in my financial education process. You know, my first financial book I read toward the end of my intern year, and within a few months, I think I knew more than the average doc. I mean, it really is such a low bar to get over to know more than the average doc about finances that, you know, it doesn't take very long once you start showing any interest at all. But I can remember distinctly teaching other residents in my residency about finances and. And, you know, very shortly thereafter Other attendings that were just absolutely clueless about it.

I think we are raising the bar though. And we have you to thank, Jim, for starting starting us down this path too. You know, I learned quite a bit from your site before I started mine.

Well, good. I was glad to be helpful, obviously, for everybody, you know. Okay, let's move on to a question from Vagabond md. If you lost your current MD job, would you seek a new one? You want to take this one first Passive income md?

I actually want to hear what physician on fire has to say, but for me, I would definitely find another job. I still find a lot of enjoyment in it and I don't want to give it up completely, especially at this point. It's way too early for that for me. So I would definitely go out seek another job. But it'd be very, very specific as to what I'm looking for and I definitely wouldn't settle.

Yeah, for me, and I bet you guys could guess the answer, but I would say no, I would not look for another job. I had financial independence about three years ago now and yeah, we're in a good position. And yeah, if I lost my job, I would not be looking. But I do plan on working part time and actually full time a little bit here for the next year or so.

And I understand that's to cover one of our military members that's out serving. You're kind of backfilling for him, as I understand.

That is correct. One of our, one of my colleagues is heading to the Middle east for four months. So from November to February, I will be working full time.

Well, thank you for your service. In my case, I like to think I would go get another physician job. Obviously I don't need it at this point, but I do enjoy practicing. The problem is I have a unicorn job. It's awesome. I have a great job, a great group of people. The pace isn't too bad. I'm not working nights. I'm working about eight, eight hour shifts a month now. I mean, it's an incredible job. And so it feels like any other job I took would be a significant step downward. And so I think I would hesitate at least a little bit before doing that. I would certainly take some time off. I don't know, three months, six months, maybe a year even that would allow me to do some stuff that maybe I can't do just because I got to get my shifts in every month. But I'm not ready to be done with medicine. I expect I'm going to be practicing medicine in some form for the next 10 to 20 years. All right, let's move on to another question here. Also from Vagabond MD on the White Coat Investor Forum, if your three blogs and connected social media empire did not exist, what would be your go to resources for up to date accurate and easily digested personal finance information?

That's a good question. And I guess I'll go back to what I was looking at before I discovered White Coat Investor and before I started my own blog. I was on Bogleheads quite a bit and learned from the forum and the wiki there. I read some other blogs like, well, Mr. Money Mustache, I wouldn't say that's maybe a go to resource for up to date accurate personal finance information, although in some ways it is. There are so many other sites besides the three of ours that are blogs that are great and then you've got sites like Morningstar, maybe Kiplinger's, you've got Money Magazine, you're getting personal finance. You're maybe not getting heavy duty investing information there, but personal finance encompasses a pretty wide space. There's a ton of places. How about you, Passive Income md? What would your go to resource be?

Yeah, it's funny, before I started my blog I didn't read a lot of other personal finance blogs. Besides once in a while I would look at the White Coat Investor and when yours came on the scene I started reading that. But I think the only other one that I kind of looked at was biggerpockets.com especially because it's real estate related, it's not personal finance per se. And that's the only other site that I use to really get a lot of information about passive income. I was on the forums there and besides that, probably once in a while on CNN Money and that's about it.

You know, I Bogleheads I'd have to name. I mean I was the eighth most prolific poster on that before I started the White Coat Investors. So for sure that's a great resource. If you've never checked out the Bogleheads forum, it is the largest and most top notch, highest quality investing forum on the planet. So I'd highly recommend that. But truthfully, I think rather than going to the Internet or worse, radio and tv, I think the best place to go to get good investing information, even if maybe not up to date, is the library. I really think books are the best way to learn about investing because here's the idea, you know, even inherent in that question, what's your most best place for up to date information, you don't need up to date information. You know, the principles of investing are the same five or 10 years ago as they are today. So this idea that you need absolutely current information, I think, you know, maybe with regard to the tax code, but that's about it, I think. And so I'd recommend you hit the recommended book lists, you know, on good blogs and forums. In addition, you know, as I noted in a post I ran recently, shoot, there's another 50 active physician financial blogs out there. So I guess if ours didn't exist, I'd check out some of those, you know, but that's where I'd go.

All right, next up, you'll like this. Jim, what's. Let me just interject quick. So today we biked from our cabin here in northern Michigan into the nearest public library about five miles away. And I took our kids with me and then jogged back. But yeah, we go to the library several times a week, I would say, no matter where we are.

Yeah, I think the library is great. Alright, here's one more from Vagabond, Maryland, who, incidentally I think is going for the record for most podcast and guest post appearances on physician financial blogs without starting a blog himself. But he asked if your child were going into medicine and asked advice, what field to choose, where would you steer him or her.

Passive income? Do you want to.

That's a tough one, man. Yeah, I think choosing your field is so, oh man, it's so specific to the person and what you're looking for and what your goals are in life. I mean, if lifestyle's a concern, and I obviously noted that they love the freedom and they love to. Yeah. That they weren't 100% into their career. Of course I'd have them choose one of the more lifestyle specialties. And I think they're still out there. I mean, anesthesia, emergency medicine, we're both, we're all in those fields. Even ophthalmology.

Yeah, we never work nights or weekends or holidays. They're really lifestyle specialties, aren't they?

Well, you can choose. That's the cool thing, right? I mean, you've done it, you've been able to create your career. I think it's much harder for someone. Yeah. Like a surgeon who is like a brand. Right. And they, they need to be there for their patients at all times. I mean, for us, luckily, in some ways we're all interchangeable. So that's allowed for ultimately, if you have other sources of income and that sort of thing, you can actually create the type of life and career that you want. And. Yeah, I mean, that's probably one of those I probably have them go into. How about you guys?

Yeah, I would choose anesthesia again if I were to do it again.

But.

I can't say that it would be necessarily the one that my child would choose. So I would just tell them to go into third and fourth year, third year in particular of medical school with an open mind. And, you know, when I went in, I thought maybe I'd do pediatric, you know, and I ended up trying anesthesia and thought I would not enjoy it all, and I loved it. So you just gotta keep an open mind, I think.

Yeah, this is a very real question for me. I've got two kids that are talking about medical school. And so, you know, one of them says he wants to be an emergency doc and become the white coat investor. So I'm not sure how seriously to take him. But the other one's been talking about medicine for quite a few years and she's already 14. So this may very well be a conversation we have. And I think the first point is, do you talk them out of medicine at all? You know, rather than just out of a specialty or into a certain specialty? And I know there's a lot of doctors out there that would. They just see all the downsides of medicine and all the hassles that are there now with EMRs and all the government regulation and all that kind of stuff. And they literally would encourage your children not to go into medicine. I don't think I feel that way. I think it's a great career. I think it's a wonderful profession. You still make pretty darn good money that if you manage it well, you can become financially independent very quickly with nothing but your medical income. So I think I would be encouraging my kids to go into medicine. But I do like the fact that some of these shift specialties have allowed me to pursue other interests and I think are easier to mold your life around as your. As your desires. And what you want to do with your life changes through the years. You know, you can cut back and raise kids or drop your night shifts or, you know, start a business on the side or whatever. I think a lot more easily with shift work specialties than you can with others. That said, if you hated emergency medicine, I would not do it just for the shift work. I mean, you got to love the medicine first and foremost.

Definitely I would. I would have probably switched a day surgery center earlier in my career if I, you know, could go back and Kind of redo that. But I'm happy with the way things have gone and good. What, 12, 13 year career, good enough for me.

Truly the physician on fire. All right, next question comes from. I don't even know how to pronounce this. Sajimon from the forum. And this one is specifically for passive income. MD says, I'm interested in starting a real estate investment club with other physicians. Do you recommend partnerships? And how do you go about doing this?

Well, this I can speak out of experience. I think I mentioned before that, you know, when I started learning about real estate and investments, I was on fire. And I was trying to find, you know, anybody in the hospital, any other physicians who are doing these kind of things. And luckily I did find a very, very small subset of people doing it. And the cool thing is, you know, one was an E. Sorry, one was a ENT surgeon, one was a plastic surgeon, a couple other anesthesiologists and an internist. And we started getting together actually as a group, and it was 10 of us, and we started doing this on maybe like once a month. And we, you know, throughout that process, we actually found a deal that we all wanted to jump in on. So we all got together and signed the paperwork and formed a group. The deal fell through and. Which is fine, actually. I think it was the best thing for us because all these life changes happen all of a sudden, and we all had different plans in mind and goals, and next thing you knew, we stopped meeting. So I'm actually, I actually think the best thing that happened was that the deal fell through. The best part of the whole thing was that we actually got together, we all started learning. The ones that actually wanted to learn more actually branched off from there and continued on this like, nice path. And a bunch of us have, you know, rental properties. A few of the people that actually weren't that interested actually fell off. And so I do think it's a great idea to get together with other physicians to talk about it, to learn and this sort of thing. And I would absolutely recommend that. As for trying to go into business together, I think that's a totally different thing. And I think I wrote a post on it, something about going to business with friends. You definitely have to be very, very careful and make sure you're obviously do it right, you know, you're totally aligned, you do the paperwork right and these kind of things. So it's a specific situation. I can't always recommend it.

Okay, next question. This one is for both of you, but not for me, apparently. Because I've written about it before. But this question was how do you tackle finances with your wives? I think they're getting to, you know, how do you get on the same page with your partner? Is basically the question. Question being asked here.

That's a great question. My wife and I, well, I guess I handle the finances in general. I do the investing, pay bills and earn the money. My wife stays home with our kids for the most part. She has done a little substitute teaching and that sort of thing. But I keep her very much informed as to where we are, what the status is. We both know what we spend because we're on mint.com maybe once a week, just looking over the transit and I really like the idea, although I haven't done this and Jim, I believe you had a guest post on this. But the idea of a monthly meeting where you review month's finances and it's not something we've done, but I think if you're on your path to financial independence and you're starting out early, you really want to be on that same occasion. That's a great way to make that happen.

Yeah. My wife, and you know, my wife is also a physician and she also runs her own business as well. So we actually talk about finance quite a bit like on an overall level, like how are our businesses doing and these kind of things. I think I handle most of the investment side and luckily she's been super supportive. Basically she just told me, just don't lose money. That's what she told me. So she's given me a lot of freedom in terms of what type of investments to go in.

That's a difficult directive though. Not lose.

I know it's hard to give me time.

At some point you'll lose some money.

Yeah, you got to give me time. That's what I tell her. Just this is a long term game, so give me time. I'm trying to be strategic and smart about it. I think overall, as long as we win, I think that's what she cares about. But yeah, I mean we, I'll be honest, we're not super, we're not super tight with our budget. We don't talk about it on a super regular basis. I handle pretty much the counts and watch over it. She's a, you know, she spends some money here and there, but she spends, she also makes a good amount of money. So she's very smart about it and I trust her in that sense and she trusts me with it. And so I think that's the most important thing. We know it can be kind of a source of marital discord or the number one cause for divorce. So I think we've been careful about how we deal with money and making sure we're both on the same page. I want to hear about you, Jim. How do you do it?

You know, I think I've written about this before, but we actually have a monthly budget meeting and we go over all our expenses and, you know, and talk about where we want to invest the extra each month, whether it's going into the 529s or, you know, 401k or whether we're going to save it up for a house remodel or whatever. So we've met once a month for our entire marriage. You know, 19 years now we've got a spreadsheet for every month our marriage and that's worked for us. Highly recommended. If you've never tried it. Granted, it's got, you know, the law of diminishing returns applies to it. I think the first six months you do it are incredibly useful and then maybe not quite as useful to do it after that. But I'd encourage anybody that's never sat down and actually looked where every penny is going to do it. It's a good exercise.

Yeah. You know, what came up recently is we started, we were revising our trust and we're talking about these issues. And one thing I realized is if somebody's totally out of the loop, like my wife in terms of our investments, I had to kind of explain to her we're doing this, this or that. And she's like, how do I find those things if something, you know, something happens to you? And so I was like, you know, I understood the importance of actually having that discussion, having both partners know exactly where the finances are coming from, where they're going, where can they find, you know, know, out this kind of information? So that's something I definitely recommend to people, kind of talk about it.

Okay, next few questions are a little bit more about blogging, I think, which I don't want to spend too much time on. I think that was actually one of the criticisms of the blogger panel at the White Coat investor conference was it wasn't enough finance and it was too much about blogging. But a lot of people were asking blog stuff. So let's, let's do a couple of blog related questions. Here's one from Wonka31. With the saturated physician blog market currently, what would be your side gig, project or hustle if you were starting one today?

Oh, I could See myself starting a brewery someday. I think that would be a ton of fun. And I know a little bit about the business side of it, so that would be one possibility. And I'd also look into real sort of thing. And unfortunately I have a site like Passive Income MD to learn all about it.

So. Booze and land, huh?

Yeah, there you go. Yeah.

For me, I mean, I'm doing the real estate thing, you know, doing the blog, but if I were going to do one, what seems like the most fun today is that is being a social media influencer. I mean, I just, when I see, when I see other physicians doing this and they seem to be having a great time, they're taking pictures, they're interacting with people, they're getting paid for it. And I'm not saying I'd be good at it, but that one just seems like the most fun to me right now.

And so we need to talk about that in our business meeting later. That sounds like something I might enjoy as well.

I mean, people that are traveling, they're getting paid to travel or go to these places or shop or do these kind of things to get paid for it. Oh, it looks awesome.

Yeah, for me, I'm just not getting paid to do it. I gotta fix that.

Yeah, for me it was real estate. My, I mean, my plan from the beginning, if I wasn't making a thousand dollars a month within two years with the white coat investor, I was gonna quit and go do real estate. And, and, and you know, I'm glad it worked out, but it just barely worked out. You know, that's about what I was making two years into it. So it, you know, there's a lot of great things you can do that aren't blogging. And if I looked and saw that there were 80 physician financial blogs in the niche, I don't think I'd start one. I'll be honest. Okay, next question is kind of related to that. And we actually got this one from two separate people on the forum. Basically they're asking if a physician without a serious money producing blog or side gig, you know, does your advice, is it still germane? Can you still retire early without an outside income source, you know, or what advice would you give docs that are considering fire without the supplemental blog income? Why don't we have you start with this one? Physician on fire.

Sure. And I'll say absolutely. It really just boils down to do you actually believe in the concept of a safe withdrawal rate and do you believe that you have the ability to control expenses? Are going to be. But it's fun. It is extra money, but I donate half my profits. So if you believe that you can make your money last with, let's say, a 3.5% or lower withdrawal rate, and I believe you can, and there's evidence to support that, then absolutely, you don't need a lick of a side gig or a blog or anything else. And the same thing with passive income. If you have passive income coming in that exceeds your current and presumably will continue to exceed your future expenses, then yeah, you can totally do it. And it's anything extra you do is just that it's extra.

All right, next question comes from ENT Doc and this is directed at both of you, saying White Coat Investor recently quoted his annualized returns, has 293% in physician on fire and 2,500% in passive income MD respectively and they want to know what your returns are. I'm not sure this question can actually be answered given that it's earned income for you, but you want to take a stab at that.

Me, Physician on Fire? Yeah, that's the best one.

I can share what my portfolio returns are and they're pretty darn close to the returns of the S&P 500. I always kind of compare and contrast and they're pretty similar within a percent or so typically. And my return on passive income MD is the same as yours, Jim.

Yes, it's been quite a good return, hasn't it? I gotta love getting passive income from Passive Income md.

Yeah, I'm happy for you guys. Honestly though, my returns here has not. You're right, I don't have anything monetary to show for it. But honestly, the just being part of the network, being part of this community, learning from you guys, I mean the returns have been obviously amazing. You know, it's obviously increased the the income of the blog, the readership, and even just my enjoyment of it overall. So it's been great, guys.

All right, Physician on Fire, you mentioned the S&P 500, so let's take a question from the White Coat Investor Facebook group. This is from K. Tong who asks, considering there was a phenomenal amount of debate on this question post, why do you recommend investing in the S&P 500 by default instead of any other index? What makes market cap weighting so special when it overweights tech so disproportionately with potentially unnecessary sector concentration risks in a potentially late economic cycle and prolonged long term debt cycle? What to factor in when considering Vanguard thinks expected real returns on equities will Be very low in the next 10 years. That's really two questions there. Anybody want to take a stab at that one?

I guess I'll start with recommending investing in the s and P500 by default. I don't do that. I don't think Jim does. I do talk some about the three fund portfolio as the total stock market, which is about 80% s and P500. But I know that anything makes that particular index special. It is the 500 largest U.S. stocks publicly traded. And what makes cap weighting so special? I don't know that it is super special. It's just that you're going to own each of the proportion that they have value as determined by all the people trading those stocks.

Yeah, I mean, I don't use the s and P500 index unless I'm doing some tax loss harvesting. I prefer a total stock market index fund. I've written a post before about my favorite mutual fund and it's the Vanguard Total Stock Market Index Fund. I've held it basically the whole time I've been at least a knowledgeable investor. And so I think this is a common criticism of index investing is you guys just invest in the S&P 500. And that couldn't be further from the truth. You know, I've got a bond index fund, I've got a real estate, you know, real estate investment trust index fund. I've got small value index funds, I've got international index funds, I've had emerging markets index funds, you know, so I've got all kinds of index funds that I, you know, and so I think that's a false criticism of index investing, that people are just investing in the s and P500. I mean technically the S&P500 isn't actually the 500 biggest companies. It's, you know, in some ways it's actively managed. I mean there's a committee that chooses which companies go into the S&P 500 and which ones come out. I think they rearrange it once a quarter or something. And that's part of the reason I don't really like that index that much to start with. But I think the question here is diving into something a little bit deeper, deeper. This idea he's hinting at that we're late in the economic cycle and we have a prolonged long term debt cycle. And when people start asking questions like those, what they're really getting at is what's going to happen in the future. And one thing I love about index investing and particularly cap weighted index Investing is it doesn't require you to predict the future to be successful. You're basically buying the market and you get the market's returns. Now, might there be other ways to invest? There are almost surely better ways to invest, but it's difficult to identify those in advance. And so I think your best default investing method is using a capitalization weighted index fund because that is giving you the market return you know, that you're going to beat over the long term, 90% of other investors. And so I think that's a great place to start. And I think we shouldn't be quick at all to throw that out in favor of some of these, you know, equal weighted index funds which are really just tilting your portfolio to small and value stocks. Let's move on to the next question. This one I think it'd be best for passive income MD to take. This comes from Joseph Brown on the White Coat Investor Facebook group. Buying a real estate investment trust versus buying a rental property. I always felt I was missing out not owning rental real estate, but it seems a good dividend REIT isn't much different than buying a property. The property can appreciate, but so can the stock. Both can tank your thoughts.

Yeah, we get this. I mean, I've seen this question a bunch. You know, what's better? A REIT versus rental property. And I think the answer really goes back to what your, what your goals are. And I think they're totally different. I'll be honest with you. And it's kind of unfair to compare the two. Let me just go over some pros and cons real quick. I think when you're talking about a reit, the pros there are that, you know, it's, there's the liquidity factor, so you can buy and sell that thing publicly. It's easy. It's diversified, which is great. And it's definitely more passive. Right? It's. You definitely don't spend as much time kind of managing the situation. And the thing is though, it's, it is. I mean, to me, it correlates with the stock market, everything that I've seen. And the problem is you don't get some of the great benefits of owning rental property, which is, I mean, the tax, some of the tax benefits. I mean, amazing. You know, there's a 1031 exchange there, there's the whole depreciation factor. And you're missing one of the biggest things, which is for me, one of the big pluses investing in real estate is the concept of leverage. I know, Jim, you've Talked about that being like a two headed snake. I'm sure it can work against you, but I mean, I also think it's one of the greatest things of investing in real estate. One of the greatest advantages is the fact of using leverage to really help multiply returns and then you really have control over it yourself. And there's something nice to kind of being able to control the asset, in my opinion. Yes, you don't get the liquidity, yes, you don't get the diversification. But I think for me personally, when I look at overall returns and kind of developing and building wealth, I really think there's no better way in the real estate kind of sector than to buy rental property. Now that doesn't mean I won't invest in a REIT or I won't invest in real estate funds or syndications or in some things in crowdfunding. I like to do all of them. So. So I don't really necessarily see as one versus another. I mean, they definitely have their advantages and disadvantages. What do you guys think?

I think, I think you just got to realize these are different animals, you know, they're not necessarily substitutes for one another. And, but here's what people don't realize is there's no called strikes in investing. You don't have to invest in everything. You know, I don't invest in currencies, I don't invest in options, I don't invest in precious metals. I could do an entire blog post on the stuff I don't invest in. So I don't know why someone would feel like they had to invest in both REITs and direct real estate and syndications. You know, I mean, maybe if you're writing a blog about it, you want to invest in a little bit in all these different things. But that's the only real reason I can think of. You might as well pick what you like best and stick with that and realize that yes, diversification is important. And yes, I think real estate's a great asset class, but you don't have to invest in real estate in every possible way you can in order to get the benefits of that asset class. So I think you can pick and choose a little bit. And if you prefer having a lot more liquidity and diversification, then maybe you lean toward a reit. If you like having more control over your investment and a few more tax advantages and don't mind the hassles that come with direct ownership, maybe that's the direction you ought to go in.

You know, REITs at least the vanguard REIT index fund lost, I believe, 78% of its value back with the housing crash. And, you know, not many rental properties would have lost that much of their value. 50%. Yeah, easily. But also those rental properties continue to have rents that probably didn't change that drastically. Whereas of course, the dividend from the refund certainly went down right along with the value. 78%, I imagine.

Yeah, thanks for that reminder. That was a really pleasant experience. All right, our next question is a really good one, I think. This comes from Zach Chastain, also on the Facebook group. What is the recommended net worth allocation for high income professionals? Stocks to bonds to home equity to real estate to cash, etc. Not an investment allocation, but a net worth allocation. You want to try taking a stab at that passive income? MD.

Yeah, I think this is going to be definitely different for the individual. I mean, I live in a high cost of living area and in terms of net worth, just over time, just the fact that it's appreciated quite a bit, it's kind of disproportionately gone up versus some of the other assets that I have. And that's not really something I can control, doesn't mean that I'm going to go ahead and go out there and necessarily change where I live to alter that. I actually am a little bit probably different from you guys in the fact that I'm definitely going to be a little bit more. I prefer to be weighted a little bit more in real estate. You know, I cringe. I don't know, I see when I see people talking about 10% in alternative investments and they put real estate in there, to me, that doesn't. That's not something that I necessarily subscribe to. I personally am at least, at least 50%, if not closer to 60 to 70% in real estate. And that's just something I'm comfortable with. I consider that a business in a way, just especially the real estate investments that I have something that I can control and I feel comfortable with that versus some of the other, you know, assets that you might have mentioned, like stocks or bonds. Who knows? By the end of this, I might be 90% in real estate. And that's not something necessarily I recommend to everybody, but that's something that I'm very comfortable with.

You nailed it. With individual, you know, where you live, it depends on what you value and depends on how you prefer to invest. You know, for me, I live in a place that has low housing costs and I also have a cabin and some more lakefront property. But altogether that's less than 20% of our net worth, and that's just a byproduct of where we live and then how we invest most of our money for retirement.

Yeah, in my case, my retirement portfolio, 60% stocks, 20% bonds, 20% real estate. But if I looked at my entire net worth, I'm about half in the White Coat Investor llc. That's about half our net worth, I figure, is in the business. And about 10% is probably in the value of our home. You know, our cash needs are simply, you know, money that's in our. Either our emergency fund or. Or is going to be paid out in taxes shortly or money that we just made this month. That's all we keep in cash. We don't have a specific allocation to cash other than that. But I think that's about how our net worth breaks down. Obviously, you know, putting 50% of your net worth into a single business can't be recommended to anybody. But most entrepreneurs are pretty comfortable with that sort of a net worth allocation, I think just because they have control over it. You know, it's the whole thing where you either don't put all your eggs in one basket or you put them all in one basket, and you watch that basket very closely. And I think it just depends on the person which you're more comfortable with.

Well, and if you are financially independent, you know, separate from that business, then you can be as risky as you want with the other, you know, that other portion of your net worth. So, you know, I think you want to have your. Your financial independence money and maybe treat that in a way that will make it last, but also be somewhat safe, but with any additional money, do whatever you want. Buy Bitcoin. Wait, I didn't say buy Bitcoin, did I? Don't actually do that, but you can be risky with the money that is in excess of what you need to be financially independent.

All right, let's move on to the next question. This one comes out of the Passive income MD Facebook group, which, if you haven't checked out, you ought to. All three of us now have a Facebook group, so join them all. They're all great, and there's a little bit different personality in each of them, which is a lot of fun, too. But this one comes from Mike Mullins, and he asks, how do you evaluate the legitimacy and confirm results of a private equity firm? And let's have you start with this one. Passive income.

Cool. I mean, this is definitely not necessarily easy. This is relevant, though, considering some of the posts that I've written recently about private equity funds in particular. I'm assuming that's what he's referring to. Number one, it helps that. I mean, for me personally, this is how I do it. I'm part of a few investor groups now at this point, since I've invested quite a bit and I'm able to speak to other investors that have been invested for quite a while. I mean, that's the number one thing for me, the referral. They have personal experience with how that operation runs, how those operators run, whether they've been on time with their payments and their dividends, whether they follow through and stuck through what they've done. Sorry, what they've said. The other thing is, yeah, you have to get a look at their history. I mean, they should provide it for you. Every fund and every syndicator should do that and be transparent about that. And hopefully some of these bigger funds, you've asked whether they've been audited by an outside agency and most of the legit ones, or if not all of the legit ones have been by some of these bigger firms, like a Deloitte or something like that. So make sure to ask about that whenever you're kind of vetting out a fund. And that's for sure that it's been externally audited. Beyond that, again, part of it's, you got to look at their history. You've got to look at the actual people running the funds. One question that I always ask is if there's a criminal history. I mean, it sounds kind of crazy to do that. You feel a little bit awkward, but it's important to know, is there a criminal history here in the background that I need to know about? And, and if there's any sort of inkling that maybe you're not getting a straight answer, you gotta check that, especially, you know, in these type of businesses and cases. But again, to go back to it, it really helps to reach out to previous investors, and these companies will give you those referrals to call. So that's how I do it.

All right, let's jump into the Physician on Fire Facebook group. I got a question here from Matthew Allison, who's asking. I'm very intrigued with Vanguard releasing their new commission free ETF list. And I would love to hear a discussion about how this affects the industry and ultimately your individual portfolios, if at all. Want to take a stab at this Physician on Fire.

Sure I am. I'm not an ETF investor. There isn't a whole lot of difference between ETFs and mutual funds, but I mutual funds and I'm happy with the ones that Vanguard offered. So right now it's not really going to change anything for me. I guess if I were to do a little bit of experimentation with play Money, maybe I would buy one of the say ETFs that does equal sector weighting. We had a question earlier about cap weighting and maybe I could do a comparison, invest in one versus another. It is neat that it opens up a whole lot of different ETFs that won't cost investors anything. But as a flagship member I think I got like 25 free trade before this happened. So it doesn't really change much for me.

Yeah, I agree. It's not changing anything for me either. Maybe it's a little bit easier to do some tax loss harvesting if you have to, you know, make two or three exchanges in a given month because the market keeps dropping. But that's really the only use for buying non Vanguard ETFs at Vanguard that I, I can really think of. I prefer buying Vanguard ETFs with my money. That's other places besides Vanguard like at Schwab where I've got my 401k or at TD Ameritrade where I've got my HSA. I was a lot more bummed by the fact that I had to start paying commissions there to buy Vanguard funds than I was overjoyed to find out that Vanguard wasn't going to charge me to buy other ETFs at the Vanguard brokerage. But this is basically a non event in my investing life. Okay, next question. This one from Victor Mangona. For each person, if you had to be one of the other two, which would you rather be and why you want to take a hit at that one. Passive income.

Oh man, that's not fear. Yeah. There's parts of both your lives that I definitely appreciate. I mean Jim, obviously what you've grown here with the White cone investor and you know, your. The life that you've built as a result of that, it's definitely enviable. But the physician on fire, obviously his. I mean the life that he's built recently with all the, the slow travel and that's something that I've always wanted to build into my life and I just haven't been able to do that yet. And so I watch those posts like a hawk and I'm saying trying to figure out how he does it and honestly that, that sounds like an amazing life to me. So both. Is that fair?

Well, I'm Going to take a similar angle. I'm going to say half of each, right? All summer long I'll be physician on fire and all winter long I'll be passive Income md. How's that sound? Then I enjoy the good weather year round and get to experience both aspects. This one's pretty hard to pin down. I mean, here's the fun thing about being financially independent is you get to build the life you want. If I really wanted to go live in, you know, a high cost of living area and have awesome beach time and stuff like that, you know, that's where I'd live. And instead I prefer living in the mountains. And so I think we've each built the life we want for a reason. And that's one of the awesome things about financial independence. And we hope for all of you listeners that you'll be able to build the life you want such that you, you don't look at somebody else's life and go, I wish I had that, that you have exactly what you want.

Great answer.

Okay, let's try this one. This one apparently is from questioner B.L. gwinto. I think I'm pronouncing it right. He says, I think I've tried to ask this question to passive income MD before, but he asks what is a simple plan or path that we can all follow?

You know, what makes us tough is that I think on the white coat investor, you've laid it out pretty well for people through your books and your course how to build the life that you want through this nice roadmap. Unfortunately, I don't quite have that yet for people. What I'm trying to do is, I mean, I'm the guy who's wanting to try a lot of different things. I think I'm not at the point yet where I can necessarily say this is the proven path, not that there necessarily is one. I'm trying all sorts of different things just to see what works and what doesn't. And I think out of that, hopefully after doing this for a little while, I have a little bit better idea of some sort of path or you know, way for a, to take a physician maybe right out of his. I mean, this is a goal of mine anyway. Take a physician right out of residency or training and say, look, here's a 10 year plan for you by investing in real estate and developing your own business and these kind of things. Unfortunately, it's not that easy to do that. The closest thing I got to that in one of my posts is the concept of buying one Rental property or one house a year. And I kind of showed people what some of the numbers might look like. Now again, these things vary quite a bit. I might have to revisit that and maybe, you know, try some, you know, a combination of whether it's a house or an apartment building. There's variations that I might build on top of that, but that's probably the closest that I've seen. I mean, I think if you are able to buy investment property once a year, I think you're doing something right. And I think by the end of it, in 10 years, I think you'll be in really good shape. So that's pretty much how I can answer that.

Yeah, I think it's very difficult to write a how to manual for entrepreneurship or business ownership in general. And that's what, that's what real estate.

Properties are actually missing an important piece. He says what's a simple plan to follow? They're missing what is the destination, what is the simple path we can follow to. But yeah, I'll go ahead and assume financial independence. A simple plan for that is to simply live on half, invest the rest in something simple like a fun portfolio and let time do its thing.

Yeah, I think so too. I mean, I think you're exactly right. When I start talking to people about this, like one on one, I think the first thing I ask them is exactly what kind of life are they looking for in 10 years? In 20 years, if it's five years, you're going to have to make some different moves to get there. And so I think it has to be individually crafted, but it kind of starts at people's why and what they're looking for before you're able to create that roadmap.

Next question from David Draguinas is where's the best place that you've traveled with children? You want to take a stab at that? First physician on fire.

The best place we've traveled with children and my boys are seven and years old currently. I think it was our trip to Guanajuato, Mexico, three weeks. It was the slow travel that passive income MD was talking about. It was low key, we didn't need a car. Everywhere was walkable, the weather was perfect. It was in the 70s in the day and the 40s and 50s at night. And we just had a great time as a family and learned a lot and got to do some pretty cool stuff, took some Spanish language classes and we would go back in a heartbeat.

So we have almost five year old and a two year old. So we haven't really been too adventurous in picking really cool spots to travel as a family, especially with that two year old. Those with kids know how painful a long plane flight might be. But actually the best place that we've traveled as a family is when we went to Salt Lake City and Park City for the Wycombe investor conference. I took the whole family, we got to go out and play in the snow together, which is, I mean, just a unique thing for us being out here in California and especially where I live, I mean, but that was the best trip we took as a family. And really it's amazing pictures and just a great time.

Life gets so much easier when you don't have to worry about naps and diapers. I think I'm the only one out of the three of us that is in position right now.

Yeah, well, we are just about out of diapers. She's almost done, our three year old, so we'll be there soon. But our favorite place to go with the kids is Lake Powell. You know, whether we're camping or staying in a houseboat, basically when they come out of bed, we put a life jacket on them and forget them for the rest of the day. You know, they can do whatever they want and they love having that kind of free time. There's no screens around, it's, you know, beautiful mother nature and it's also a lot of fun boating and playing in the water and just having adventures. So that's where we like to take the kids. And we've, we've had them all over the place. But I think it's pretty hard to travel internationally with small children. So I kind of like the stuff that's a little bit closer to home. Alright, just time for a couple more questions. Let's take this one from life of a med student. With the increased market valuations and many projecting below average returns the next decade, would you more strongly recommend paying down student loan debt over investing in a taxable account after all your tax advantaged accounts are maxed out? I'm currently doing 60, 40, but I'm conflicted.

I think it's great that he's doing both. I mean, I do think paying down debt is a great thing to do. It's a guaranteed return. Certainly are not. And he does hint at the fact that valuations are relatively high compared to history. And people like Jack Bogle are saying that returns will be lower over the next decade and they may very well be right. But he's doing both. He's doing 60% towards taxable 40% towards student loans. If you wanted to flip that, I don't think that would be an issue. But you know, most people paying down their student loans aren't even thinking about a taxable account if they're even maxing out all of the tax advantage space they have. So kudos to Charlie from Life of Medstudent.

I think that's, that's perfectly reasonable thing to do. Honestly though, if you're maxing out your tax advantaged accounts, I just throw the rest at your loans. But I'm a little more anti debt, I think, than most people. I just think people make different decisions in their lives when they're done with their student loans. I think that's something that you really ought to get rid of early in your career, hopefully within the first two to five years. And I've had lots and lots of white coat investor listeners and readers that have done that. I know it's entirely possible. You just have to set up your life so you can be done with it that way. There's plenty of time to invest in a taxable account later. I think your first few years out of residency are the time to get rid of your stuff. Student loans. Now, if you got them at 1.5% or something, maybe you can justify, you know, investing in a taxable account. But if you have pretty standard 6 and 7% student loans, that's a fantastic guaranteed return on your money. You know, you're not going to get that out of any sort of conservative investment. You might as well pay off the loans. I see it. All right, let's do another question here. Let's make this the last one. I think we're pushing up against an hour for this podcast already. We're going to. This one comes from Rich Manaik. Do you think that not being born into wealth was integral in shaping your financial literacy? Considering that your children likely will not have the same financial pressure you experienced, what approaches you planning to take in teaching them financial stewardship? And why don't you start on this one? Passive income?

Well, actually I was born into a physician family, so living in the south suburbs of Maryland in a pretty nice area. I guess I was, I was born into wealth. You know, it's. But it's funny because I think I suffer. I think I'm going to deal with. I dealt with the same things that my, my children will have to deal with if I am not smart about how I teach them about finances. I mean, I was ever, actually never spoke to my father about finances growing up. I don't think my children will have that same issue with me. I think I never learned about credit card debt. If you read some of my stories, I got easily got into tens of thousands of credit card debt while I was in college, especially into med school. And that's something that I'm definitely not going to let my children get into. If possible, I think I'm going to teach them a little bit early on about the whole concept of saving, saving money, giving money. Those three buckets, I think I forgot where I read that, but it's a book that they talk about three buckets of having money where you know, they're able to earn money, they have to save some of it and also give some of it away. And I think that's an awesome thing for children to teach them at an early age. I mean, we're not there yet. She's only five years old. But yeah, I mean I think for me, I think I went through the challenges of having the same that my children will go through as well. And so luckily, and hopefully I'll be better about it.

My answer is fairly similar. My father was a dentist, a classic kind of millionaire next door type. So we definitely shopped around for good used cars and went to thrift stores and yard sales. And my dad did talk about money. He taught me the rule of 72, brought me to a financial advisor and he showed me what the future value of X amount of dollars invested per year will be in 30 years and learned about compound interest and all of that. For my children. We're doing the give, save and spend. And I did read that same book, which escapes me, but it was good. And I also have what we call the bank of mom and dad spreadsheet that I update monthly. They started getting pretty money in their piggy banks and so we put it on a ledger instead. So the balance is number on a spreadsheet and every month they get 1% interest from us and they want to spend some money, we take it from their balance, pay for whatever it is they decide to spend money on. But we have that conversation first. We're very open about. They'll know about my site and when the time is right. And yeah, I think they're going to be in good shape.

Yeah, I mean this is something I can really relate to. The question certainly came from a middle class family, but there wasn't a lot of extra money sloshing around for sure. My father was an engineer, my mother was a stay at home mom. You know, my wife Katie, her father was a Military officer and her mom was a teacher and a stay at home mom, depending on time of the career. So neither one of us really came from a lot of money and neither one of us got a ton of financial teaching. And so it's really been an experience to kind of learn all of this on our own. And I think there's a lot of doctors out there that can relate to this, that they just, you know, they're first generation rich really. And so this is something we worry about a lot, how we can teach our kids to be just as good with money without them having to go through the experience of donating plasma for food money in college, you know, which I don't necessarily want them to have. And so I think part of it is instilling financial literacy in them. So we're always teaching them about finances. You know, they all know that they want to be paid interest, not be paying interest. And you know, they're well versed with things like mutual funds and those sorts of things long before they ever even get into high school. So I think just teaching them the basics of finance is worth a lot. But I think there's also an important aspect here of providing a good example. And part of the way we do that is when it comes to giving. I mean, we have a year end annual giving meeting where we all sit around the table and decide what organizations we're going to give money to. And I think realizing that money is something that isn't necessarily to be hoarded or to be spent on yourself, but something that can enrich the lives of those around you is really passing on values that I think the kids will appreciate and hopefully that will help them to have a good, you know, a good sense. Sense of money as they get older, that they'll neither be scrooges nor spendthrifts and hopefully find some sort of middle ground. Well, I thank you both for being on our podcast today. I think this will be a great one. I've got at least half our questions still left here that we didn't even touch. So maybe we'll have to do a part two down the road of these. But I appreciate you both being here. And for those who want to learn more about passive income md go to passiveincomemd.com also be sure to join his Facebook group there. And if you would like to learn more about early retirement and financial independence from the physician on fire, check out physicianonfire.com and join his Facebook group, Physicians on Fire. And as well as his other Facebook group, he's got two of them. Also fat Fire, which kind of refers to retiring on a little bit more than a bare bones retirement. But thank you both for being here today and we'll see you next time.

Thank you so much for having us. It was a great chat.

All right, thanks. All right, take care guys.

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Be sure also to check out physicianonfire@physicianonfire.com and passive income md@passiveincomemd.com you can also join all three of our Facebook groups, the Physician on Fires group as well as Passive Income MD Community. Those are both physician only groups. And then of course the White Coat Investors Group is open to all high income professionals and their spouses, but not to finance professionals. Thank you for what you do. Keep your head up and your shoulders back. You can do this and we can help. See you next time.

My dad your host, Dr. Dahl, is a practicing emergency physician, blogger, author and podcaster. He is not a licensed accountant, attorney or financial advisor. So this podcast is for your entertainment.

And information only and should not be considered official personalized financial advice.