WCI #79: Sorting Out An Academic Doc's Finances

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 White Coat Investor podcast 79 sorting out on Academic Docs Finances Getting.

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So we're hoping to get a lot more voices on the podcast and get some fresh questions and get your questions answered. So please leave us a question there if you'd like to. Don't leave us hate mail there. Just send me an email if you want to send me hate mail, or if you have corrections or just want to say hi, go ahead and send an email to editorwhitecoatinvestor.com. but if you'd like your question actually featured on the podcast, please do record it there. You can do it just from your computer. You don't even have to use a phone to do it. We're going to get into a pretty awesome podcast today. We've got another guest that is a regular listener to the podcast, and we're going to go through her finances and see how we can help her as well as help those who are in similar situations as academic physicians. Let's get into it. All right, today on the White Coat Investor podcast, we have a very important guest with us, a very unique podcast. We've done this once before, but today we're going to bring on to a doctor, bring a doctor on and talk about her financial issues, her financial questions, her financial successes. She wants to stay partially anonymous. And so we're going to do our best to do that. We're going to call her Baby Doctor and obviously we're going to have to share some of her financial information or this isn't going to be very interesting or very helpful to anybody. So we'll be talking about that. But in the event that some of it seems vague, that's simply to protect her identity as best we can. So, Baby Doctor, welcome to the podcast.

Thanks for having me on, Jim. I'm really excited to have this conversation.

Yeah, we're looking forward to it. We've been doing a little bit for the last few minutes offline, but we'll certainly go back over anything that's particularly important and relevant to the conversation. Now that we're actually recording this, would you like to introduce yourself a little bit as far as kind of where you're at in life and what your finances might look like in a general way.

Sure. So one reason that I reached out to Jim was that I'm an academic physician and plan to be an academic physician for my whole career. I'm probably about halfway through that career. I'm 14 years out of fellowship and I'm a neonatologist. So I did a three year residency and a three year fellowship. So six years of post med school training and I've been at a single academic institution and don't necessarily envision actually leaving that institution. So I have a job that is about 25% clinical and 75% research and teaching. It seems like a lot of the very interesting physician financial websites and blogs such as Jim's site and Physician on Fire, which is where I found all of this stuff as well as the Happy Philosopher and some of those other things are mostly private practice people. So I thought it'd be interesting to kind of at what this is like from an academic physician's standpoint. We're a single income household, so my husband is a stay at home dad and I have a couple of high school and junior high age kids. And yeah, financially we've always been good savers, but we have had financial advisors that I'm in the process of severing from and the first thing they did was sell us some whole life insurance about 10 years ago from a, a well known company that I think everybody probably knows, you know, where that came from. And we're in the process of trying to kind of disentangle our finances and make sure that we're on track for a nice comfortable retirement in about 15 to 20 years.

Awesome. So what baby doctor didn't mention is she has 26 different projects going right now, 26 different academic projects. So it's pretty amazing that she has time for finances at all given, given all this stuff going on in her life. A few important pieces of financial information I think that people need to understand for the conversation. She's in a Midwest town, so a moderate cost of living with an annual gross income of around a quarter million dollars. And they've done very well on the debt side. They don't have any debts except their mortgage, which is just under $400,000 on a property worth about $600,000. And I've actually been good savers. We were just calculating up a savings rate before we hit the record button and it looks like it's over 20% toward retirement. So no doubt the savings is doing just fine. And I think most of our conversation today is going to be about what's going on with the investments and what money can be directed toward. So there's a pretty interesting combination of assets. We're looking at about $750,000 in retirement accounts, mostly a 403. There's some old Roth IRAs as well, about $62,000 there and a great start on the 529s at $100,000 and then a taxable account that we're going to be talking about a lot today, which is a little over $150,000. And so let's get into this a little bit. First of all, let's talk about your interaction with the advisor. How did you end up with this advisor in the first place and how long have you been there?

We've been with them for about 10 years, but probably between 10 and 11. And when I came to this faculty job, we were a young couple. Well, I guess we were 32, but you know, in medicine that's when you get your first job. Right? So we were a young couple with, you know, we had been making resident salaries. We both came from middle class families with no understanding of how to handle money, but we certainly didn't want to do a bad job. And so one of my colleagues had a financial advisor that he worked with and who basically still gets his business today by just word of mouth recommendations. So my husband and I sat down with this guy who's, you know, really nice guy. I don't think he's really a shark. I just think our goals don't really align. But at the time, you know, we just wanted somebody to help us make sure that we were saving money and really doing a financial plan appropriately. And so, you know, to his credit, he did, you know, he made sure that I had specialty specific disability insurance. And although, you know, yeah, it was a big, big money, whole life policy, he made sure we had life insurance and you know, set us up with a local attorney so that we could have, you know, wills drawn up and do some of that kind of stuff. And then because we were so intimidated by the whole saving and investing thing, we basically just said we just want to give you money and then know that we can spend whatever's left and know that we're saving for retirement and for our kids college. And he had talked to us about, you know, how much do you want to save for college? Do you want to pay for state college? Do you want to pay for graduate school? Do you want to pay for private school? And then a little bit of talk on risk tolerance. To even way back then. But then we've basically met with him and now his partner, who's coming on as part of the firm just about once or twice a year and gotten a lot of confusing information involving a lot of Morningstar charts and things, and walked away feeling like, well, at least we're saving money. But I'm starting to feel like I'd prefer to understand it better. And now that I'm learning about the fees, we were paying a 1% assets under management kind of arrangement, and I don't think I'm really getting the value for what I'm paying at this point.

Yeah, after looking through some of your stuff, I'm not quite sure you are either, Baby Doctor mentioned before we came online that she is actually meeting with this advisor to essentially fire him in a couple of days from the time we're recording this. And so by the time you hear this, it sounds like this relationship isn't going to exist at all anyway. One thing that's probably worth pointing out, by the way, is that you don't actually have to meet with an advisor to fire them. I mean, you ought to look at the contract and see what the contract requires. But what it typically requires is just that notice be given. And that can be as simple as sending an email and then at that point to move assets away from wherever they're currently being held. The easiest way is usually to contact the institution you want them to move toward, then have them pulled rather than pushed. And that usually works a lot better to actually move assets away. But we're going to talk a little bit about that as well. So it sounds like you were not super happy with the advisor. Now that you're starting to learn more about personal finance and investing and realizing that maybe some of the advice, advice you were given wasn't so useful. So fiduciary, so appropriate for you. Is that really what's driving you to move away from the advisor?

Yeah, and actually my first, you know, inkling was this whole life insurance thing. I. Within a couple of years of getting involved with them and buying this, I started to learn about how this is really not a good investment, you know, and that was mostly through Dave Ramsey. And, you know, every time he said, you know, you're paying a hundred times more for your insurance than you need to, and it's the payday lender of the middle class. I would just, you know, feel that fingernails down the chalkboard, think like, oh, God, yeah, we did that, we did that. And so I didn't have, you know, 100% faith in this operation anyway, because I was like, well, you know, they sold me this product that, you know, definitely, you know, is not a, you know, wasn't in my best interest. But then, you know, once we sold, we cashed that out actually to put a down payment on the house that we live in now a couple of years ago. And I felt like, well, everything was probably okay. And I knew about the assets, you know, that, you know, how they were getting paid. But then once I started to learn about expense ratios and look into the fact that they didn't seem to have us in any of the funds that were highly recommended, I thought, you know, I think I'm still getting taken, which just kind of annoyed me.

So the whole life insurance policy is gone at this point? Correct. You didn't just borrow against it, you actually surrendered.

Yep. And replaced with term life.

Now, how much term life insurance are you currently carrying?

We are currently carrying a million dollars on myself and a million dollars on my husband. And then I think I also have like 200,000 through my job, but individual policies, it's a million on each of us. And I think that's probably reasonable given the nest egg as well and kind of where we're at in life as far as, you know, what would happen if one of us passed away.

Yeah. So basically, if you died, your husband would have a couple of million dollars.

Right.

And what's the plan in the event that he did die? Would the plan be for him to go back to work? Would the plan be for him to live on that the rest of his life?

I'm not sure. He's actually trained as a physician, but has not practiced in 15 years. And he doesn't necessarily, I don't think, have a deep drive to work, but he's also a really frugal guy. So, I mean, I think he would move into a much smaller paid for house and just live on the, you know, on the nest egg pretty easily.

Yeah. I mean, I mean, basically, if. If it doesn't involve him going back to work, you're basically saying, okay, you're gonna live on, you know, something like $80,000 a year.

Right.

For the rest of your life. Which, you know, after we talked a little bit about your spending, that may be entirely doable even without him leaving the house.

Right.

Given how much you guys are living on. But you know that that's kind of the conversation to have when you decide whether how much life insurance to buy. And here's the thing about it, usually it's so Cheap to buy more that if you're at all close to how much you think you need, just tag on another million. You know, it's just not that expensive of stuff, especially if you're only going to need it for another decade or so. A 10 year policy is not very expensive and so tagging on another million there just to be sure you have enough wouldn't be unreasonable to do. And you can get quotes for that at a number of places online even without giving your, you know, private information out. Some place like termforsale.com is probably most frequently recommended and insuringincome.com also can give you quotes on that of what a million would cost you. But bottom line, it's pretty cheap. If you're not quite sure you have enough, you can pick up a little bit more. Now, how about your disability insurance? How much are you carrying in disability insurance?

That's one of the things that I actually do need to meet with the advisor about because they handled, they kind of handled all of this. And so I'm sure there are like kickbacks involved and everything. I know it's with a good company, it's with Guardian Berkshire, it doesn't replace my entire income. It's specialty specific. So if I can't, if I can't be a neonatologist, then, you know, it should cover it. But I need to actually get the policy documentation and read through it because as I recall, it's about a $7,000 a month benefit which was calculated at the time to combine with the group disability coverage that I have through work to equal my salary at that point, which would have been substantially lower than what I'm making now. I think probably like 80,000 a year less, probably. So I'm probably underinsured. But once again, you know, if we think about, you know, how much would we need and what our spending is, I doubt it's going to end up making sense to get any more at this point.

Yeah. Now do you still have a policy through work? Is there a group policy at work as well?

There is.

How much, how much is the face or the benefit on that? The monthly benefit?

That amount is like, I think it's 50% of my salary.

Oh, so it's quite substantial. Yeah, yeah. It's bigger than the individual policy you have. So between the two, you likely do have adequate disability coverage. I mean, there's no harm in meeting with a independent insurance agent just to review it all and go over it all and make sure you're, you know, comfortable with that. But Just, you know, ballpark figures. You've got that covered. I think the goal is to have enough not only to live the way you're living and want to live, but also enough to continue to save for retirement from those benefits. Now, the one coming from your employer is likely going to be taxable income to you in the event that it ended up paying out due to your disability. But the individual policy is likely not going to be taxable income. So that'd be 7,000 tax free, plus basically 50% of your salary in taxable income. So that seems like plenty to me. You might want a little more term life, but I think you're good from the disability perspective. Okay, so we talked a little bit about the advisor. You're moving on there. We talked about the insurance issues and you're doing pretty well there, it sounds like. So let's talk about. Sounds like the biggest question you had coming into this, which is your taxable investing account. Now a lot of your money is invested in the retirement accounts that come through your employer. Actually, it sounds like you're putting in about $54,000 a year into those retirement accounts through your employer. But you also put about $1,500 a month into a taxable investing account and there's about $150,000 in there. Now can you tell us about what that is invested in?

And I do need to change the allocations in my. In my employer account too, because the advisors have been doing that. So they have me in funds with higher expense ratios, but that I know I can do with no tax implications. So that doesn't scare me. I've identified the funds and I'm going to do that. But I have an account with a brokerage that I've already had the advisor removed from, so I can make changes on it now. And it's a combination of cash, so there's $5,000 in cash. And then I have actually three individual equities that total about 20 grand right now and that the cost basis was about 18. So the thing tells me that I've got 4600 or $4700 in gain on that. And then there are also a bunch of mutual funds which are a variety of.

Let's go through them. Let's just list them out.

Yep. Okay. So the, the of the mutual funds.

Sure. Well, what were the individual stocks to start with? Just out of curiosity's sake?

ABV Inc. Which I don't even know what that is. I should probably look that up, which is ABBV is the Ticker, Then some Disney, which, you know, I guess I don't mind Disney.

Right.

I don't mind one in Disney. I love Disney. And then SLB, which is Schlumburger Ltd. Don't even know what that is either, but I own $5,000 worth of it.

What are the mutual funds?

Mutual funds are a bunch of first trust funds, particularly so. There's a US equity, one FPX. There's another fund, an ETF. They're all ETFs, too, actually. FV, which is first trust, Dorsey Wright, Focus 5, whatever that means. There's a. Looks like a real estate thing here. Rfdi, First Trust, Riverfront Dynamic Development, Developed International, a value dividend index FVD. And then three Invesco funds, diversified dividend, which is Lceyx, high yield municipal ActDx and equally weighted S&P, which is Vaddx. So a variety of different mutual funds and EDF's. Since that's, that's the majority of the account, that's $130,000 value right now with.

$20,000 of gain, $20,000 of gains on the mutual funds. Okay.

Yep.

Well, let's start at the beginning. First of all, the cash is very easy, right? No brainer there. You can just use that to invest in whatever your investment plan calls for you to invest in. There's no tax consequences there. Then we get to these three individual stocks. Yes, you have some gains there, but it's not all that much. You know, you got a four or $5,000 wor. So if you sell that, you know, in your tax bracket, I don't know, you might even be able to get down pretty close to, to not having to pay capital gains taxes on it, but I think you will owe 15% capital gains taxes on those gains. So 15% times $5,000 is what it's going to cost you to cash out of those individual stocks. Now, it always hurts to pay, right. You know, capital gains taxes. So there's a few alternatives to paying them and using that money to invest in what you wish you would have invested in in the future. First place, the first alternative is donating to charity. Do you know donate large amounts of money to charity every year by chance?

Not large. Maybe like 3,000 bucks or something total between a few different places. But that's all.

Yeah. So if it was all going to one place, that might be an option to donate shares, appreciated shares instead of cash. And basically what that does is it flushes the capital gains out of your portfolio. Not only do you get the Whole charitable deduction out of it. But neither you nor the charity pays the capital gains taxes. So that's one option. The second option is hold the thing until you die and never sell it. And that basically gives your kids, your heirs, a step up in basis on that. And so it's like they bought it on the day of your death and again, nobody has to pay the capital gains taxes on it. Then of course the final option is to just sell it, bite the bullet, pay the taxes and invest in what you wish you would have invested, invested in. And I think for a gain that's only 4 or $5,000, that's probably what I would end up doing. I would probably cash that out, pay the taxes, count it as you know, as Dave Ramsey likes to put it, stupid tax and move into investments that I'd rather own. You know, if you decide not to do that, you can build your portfolio around the mutual funds and around the stocks that are kind of these legacy holdings and just say, well, if I've got, you know, for example, one of those mutual funds was, is basically an S&P 500 fund. I think it's an S&P 100 fund is technically what it is. And if you really didn't want to pay the taxes on that, you could just consider that to be part of your total stock market allocation in your portfolio and just hold on to it. You know, you wouldn't reinvest the dividends, you know, you'd never put any more money into it, but you would continue to just hold it basically for your entire career and into retirement. So that's always an option to just build the portfolio around those legacy holdings if you don't want to pay the taxes. But honestly we're talking about a total of $25,000 in gains. So you're really only going to be paying $4,000 in taxes. And so I look pretty closely at just biting the bullet, paying the taxes and starting over.

A couple of these as I'm looking at them actually have losses. So those like there's one that's, that's I, that's 9200 bucks and has a $300 loss so that I can sell and get that 9200 bucks and tax free. Right. And just invest that.

Well, it's better than tax free because not only do you get the $9200 tax free, the $300 offsets the capital gains from somewhere else. And so yeah, anything with a loss is a no brainer to sell today basically and add it to the cash holdings that you have there, anything with a minimal gain is a no brainer to sell today. It's only the things with large gains. And usually this is stuff you've held for decades where, you know, you paid $10 a share for it, now it's worth $80 a share. And you go, huh, maybe I can build my portfolio around this one, you know. But it sounds like from the description of what you're holding there, this isn't stuff you really want to hold long term. Over the long run, I think you're going to come out better from having better funds with lower expenses, even though it's going to cost you some taxes up front. Now, for example, this first trust etf, the fpx, this is basically an index fund, but it's an index fund with an expense ratio of 0.59%. You know, if you go to Vanguard and buy a total stock market index fund, the expense ratio is 0.04%. So you're basically paying 15 times more in expenses for this fund than one that you, you know, you would choose at this point now that your level of knowledge about investments is a little bit higher. And so I think you probably won't regret just cashing these out and biting the bullet and paying the taxes and moving on. That's probably what I would do. If there's any that have been bought in the last 12 months that you have a big gain on, you might want to wait until it hits 12 months. That'll help you reduce the capital gains taxes from short term capital gains, which is essentially your regular income tax bracket, to long term capital gains, which for you is likely going to be about 15%.

That sounds a lot less daunting.

So yeah, I mean, it's not so painful. You're going to end up paying, you know, sounds like four or $5,000 in taxes and then you get to start over and you've basically got $150,000 in cash to allocate into your plan. Now you mentioned that you'd looked at your 401k and other employer provided accounts and you had identified some funds there that you, you liked. What funds are in there that you thought were attractive?

There are some of the Vanguard funds, not the biggest ones, but there are some institutional shares classes in the S&P 500 fund that Vanguard has, not the VastX or that all the bloggers write about. But then TIAA CREF actually has some reasonable low expense ratio targeted, you know, retirement targeted retirement fund kind of things that are just simple stock Index, you know, total stock index and a bond index. And I'm going to meet with the guy that is a free service from TIAA provided by the my employer to go to learn a little bit more about some of those different funds. But it looks like it's going to be pretty easy to switch because that account also has like, it's got real estate stuff in it. It's got cash, it's got, you know, these like 1% expense ratio real estate fund in it. It's got. And then a bunch of American funds, which my advisor must get a kickback from them because we're in, we're in those with the, with the old Roth IRAs too, which I'm just going to get pulled into a different institution, basically just open Vanguard account.

So, yeah, that's relatively easy to liquidate those and move to Vanguard. And yes, your advisor did get a kickback on those. Those are generally considered loaded mutual funds and probably 5.75% of everything you invested there went to the advisor. So that's just the way it works. And unfortunately, most of us have made this mistake. I made this mistake. You know, the first funds that went into my Roth IRA were loaded mutual funds sold to me essentially by a commission salesman masquerading as a financial advisor. And, you know, the truth is most doctors have made mistakes like the ones you've made. You know, I owned a whole life insurance policy. I bought commissioned mutual funds. You know, I didn't have really any sort of comprehensive, you know, financial plan when I first started out. And some of us, you know, corrected things sooner than others. Some did it in our 30s, some in the 40s, some of the 50s, and some still haven't done it. And so it just depends, I think when people become a little more financially interested and knowledgeable about it. Certainly that institutional index fund that you're talking about would be a major building block in your portfolio just because it's an S&P 500 fund instead of a Total Stock Market index fund. Yes, I like Total Stock Market a little bit better. It's got more stocks in it. But the truth is the correlation between the two is like.99. It's basically the same fund. And so that is probably going to end up being a major building block in your portfolio. But the difficulty I think you're running into is one that a lot of people run into where they go, what funds should I pick? And the truth of the matter is they're skipping a few steps in the financial planning process. The first step is to set your goals, which you kind of have, you know, you want to retire in 10 or 15 years and you know about what you're spending and so, so you'll want to replace that amount of spending. But what you don't have, what you don't seem to have done, is step two, which is an asset allocation, which is the percentages of your retirement money that you're going to put into each type of asset class or type of investment, such as US Stocks, international stocks, real estate, bonds, et cetera. Have you given any thought at all to what sort of asset allocation you wanted to have?

No, I've just started to read some stuff about that. I read the Simple Path to Wealth the other weekend and you know, so I, so I sort of know it's something you need to do. I just don't really know how to, you know, how do, how people make those determinations. I assume it's relatively personal, like there's no one right answer or, you know, it would have been spelled out for me somewhere.

Yeah, I mean, the difficult thing about it is it can be personal. But the key is you want something that you can stick with in the long run. And the problem with doing it is nobody knows what the best asset allocation is going to be going forward. And so I wrote a Post once called 150 portfolios better than Yours, which is a little bit of a tongue in cheek title, but Basically it demonstrates 150 reasonable portfolio portfolios. And that's your goal with an asset allocation. You want something reasonable. And sometimes until you've seen a whole bunch of portfolios, you're not sure what reasonable looks like. So a few guidelines that would help with reasonable. First of all, most of us have significant need to take risk with our portfolios. We need them to grow and we need them to grow faster than inflation. So that means the majority of the portfolio is going to need to be in something that is likely to have returns higher than inflation, which historically have been around 3%. So that argues for the majority of the portfolio being in things like stocks and real estate. And so when you look at the total percentages, the most important percentage as far as how your portfolio is going to perform is basically your risky assets like stocks and real estate to your less risky assets like bonds. And so, you know, there's been guidelines given out for that over the years. You know, that you should have your age in bonds or age minus 20 in bonds. There's lots of guidelines out there, but they're just rules of thumb. The reality is you basically want as much stock in the portfolio as you can tolerate in a nasty bear market like 2008, because you're likely to lose about half of it. And, you know, if you could tolerate losing 30% of your portfolio without panicking and selling everything at a low, then that's about, you know, tells you that you can have about 60% of your portfolio in stocks. If you think you can lose about 50% of your portfolio without panicking, maybe you can get closer to 100% in stocks. But for everybody, that's a little bit different. And most of us don't know how we're going to react in a nasty bear market until we pass through one. Now, I don't know how much attention you were paying to your investments in 2008. Was it something that was just out of sight, out of mind, or do you recall your reaction to losing money then at all?

I actually found it. It was interesting because it was, you know, a couple years into, you know, having, you know, I was five years or so into my attending salary, and so I. We had the retirement account, you know, had, like, what looked like real money in it. And then we were. We didn't have the taxable account yet, though. So I don't, you know, I don't know. But I remember our advisor saying to us during that time that they wish that they had, like. Like 100 of us, because they said, you're, you know, and he. The other thing that he has said to me a couple times is you would do fine with $55,000 a year. You would still save the same proportionally, of course. But I kind of don't even think about all that money as my money. I always think of, like, the money that's my money is the money that's in my checking account. So the. I remember that it, you know, it went down, like, 35% or something like that. And some of my older colleagues who are the age I am now or a little bit older were freaking out, and some of them sold everything and put it into cash. And I like to think that I would just be like, well, I guess I'll just work longer. You know, if this is the. If this is what's gonna happen, because I have a lot of faith in my ability to earn an income. And then the. The investment money just doesn't really even seem like it's real at this point. But maybe it'll seem a lot more real the next time that this happens.

Well, it likely will for a few reasons. One, you're A little closer to retirement. Two, you no longer have the advisor. I think back then you were thinking, I got a money guy, he's taking care of that. I'm not going to pay any attention to it. Now you kind of know that it's your baby and you've got to take care of it. So it might be a little bit harder next time because of those reasons. Benjamin Graham suggested that nobody ever have more than 75% of their portfolio in stock or less than 25% of their portfolio in stock. And I think that's a pretty good general guideline. But I think the next step you've got is to really kind of decide on an asset allocation. And I wouldn't panic about it too much, because the truth is it doesn't matter that much. The investor matters far more than the asset mix. And the main thing is that you can stay the course with whatever you choose through thick and thin. And so I would, you know, pick something relatively simple, but something that makes sense to you and write down the reasons for adding each asset class in there and why you put that percentage in, and then go with it. And then every time you're wondering why you did that, you can refer back to your notes and see, oh, yes, I decided I was going to put more in US Stocks and international stocks because I plan to spend dollars in retirement, for instance, you know, and so maybe you Decide to put 2/3 of your stocks into US stocks and 1/3 into international stocks stocks, for instance, and maybe add some real estate in there. You decide to put 10% of the portfolio into real estate. And the goal for that was to still have high returns but have low correlation with the rest of the portfolio. Then when you come to a time when real estate's done crummy for three or four years in a row, you can look back and go, oh, yeah, I wanted something that wasn't correlated with stocks. And now this is what happens with diversification. Everything doesn't go up all at once. But when you have one of those periods of time where stocks aren't doing great and real estate is doing great, you'll be glad you own it. And so I think just picking something reasonable and Maybe reasonable is 40% in US stocks, 20% in international stocks, 30% in bonds, and 10% in real estate, you know, that's a for fund portfolio. It's very reasonable. Nobody's going to argue that's a crazy portfolio, you know, but whether that's the ideal one for you or not, only you can really decide. But let's assume that that's you decide on something like that. Now when you go to your 401k, you look at what's in there, you see that there's an international fund, you see that there's a bond fund there. And you see, you know, this institutional index fund, you say, well, I think we're going to use this to hold a lot of our US stocks because we have this great fund in our 401k. And so you decide to use that fund for, you know, the majority of your US Stocks, for instance. And then when you go to your Roth ira, you say, well, you know, I've got some more options, my Roth IRA here at Vanguard. Maybe this is where I'll put my real estate fund and maybe this is where I'll put, you know, some of my international stocks, for instance. And then when you go to your taxable account, you also have lots and lots of choices. You can invest in basically anything in the taxable account. If you choose to put bonds in there, you can do that using municipal bonds, which are tax free. They're typically the ones that a high income professional, like a doctor, would use if they're going to hold their bonds in taxable. And so you can get something like the Vanguard Intermediate Tax Exempt Bond fund. And that would give you an option to have bonds there that's very easy to buy, very low cost and provides tax free income. You can also use other tax efficient funds like the Total Stock Market Index Fund or the Total International Stock Market Index Fund in that taxable account. Those are common holdings there for people who are building their own portfolios just because they're very tax efficient, don't kick out a lot of income that's going to require, you know, high tax payments each year. As your portfolio continues to grow, does that make sense to kind of start with the asset allocation and then work with what your available accounts are in order to pick, you know, which funds you're going to be invested in in each account.

Absolutely.

So I think that's probably, you know, the easier step of the two. Deciding which asset allocation to use, I think is a little bit harder than implementing once you have it. A lot of people have trouble though, across the various accounts. You know, you've got a couple different accounts with your employer, your Roth ira, your husband's Roth ira, the taxable account. You're balancing five accounts already there. I think in our portfolio we're balancing eight or nine different accounts. Sometimes it can get confusing. You actually have to write it down on a Spreadsheet to figure out what's going where. And it just seems overwhelming if you've never done it, but after you've done it once or twice, you're like, oh, this is no big deal. This is just Math. This is 4th grade math I'm using to decide how much to put into each account. But without the underlying plan, it's just completely overwhelming. If you don't know what percentages you're trying to hit with the total portfolio, it can be a little bit tricky. So I guess that's what I would do with as far as that goes. Now let's talk about the 529s. You've got two kids, one of which may be starting college as soon as what, four years from now?

Yeah, he's a freshman, so three more years. Yeah.

So where is that held?

That is held in our state's 529 plan. And I just looked at all the asset allocation for, for that and that's actually all it been in Vanguard funds all along without my knowing. And it was in age, it was in an age based fund that then adjusted into more bonds over time. About a month ago I went in, my husband and I went in together actually and we made them both a little bit more aggressive than they have been because my son's was all the way down to like I think 60 to 70% bonds because of as, you know, as school gets closer, but as you know, way better than I do. That's kind of one big pot of money that can be used because it can be allocated, you know, differently between the. Reassigned to different beneficiaries as we need to use it. So we actually put them both into, I think it's like 70% stock basically total stock market index and 30% bond index funds and it's all Vanguard products. So it looks like it's good. It has been a fairly conservative performer over the years because the higher bond allocation in there. But I mean we do have, we have enough money to send the one kid for sure already in hand. And then, you know, I'm planning to cash flow it as we go as well, so.

Right. And I don't think we mentioned this earlier in the, in the program, but you're putting $750 a month into those 529, so.

Right.

What's, what's not in there yet is, is probably going to be in there just from your, the good job you've been doing, saving, you know, that's really great. With the 529s. They try to make it easy to do the right thing, you know, with these one stop shopping choices, you know, these age based funds, for instance. And when the 529 provider has gone to the trouble to find some low cost Vanguard funds and they put down together these nice mixes of them so that you can just pick one even without knowing much about investing and still end up with a good outcome, that just brings a smile to my face. You know, I like seeing 401ks doing that as well. Just because I think those sorts of solutions are the answer to the financial literacy we see in America. Because then people don't have to become an expert in investing in order to choose their investments. They can just do kind of the default options. So it sounds like you've been served pretty well there. I agree with you though. I think it's worth investing aggressively in a 529 for a few reasons. One, you know, it's not as critical I think as retirement is in that if there's a shortfall in the money, there's other things you can do with it. For example, you can choose a different school, you can go to a less expensive school as one option. The student can work, the parents can help cash flow it. You know, you can get scholarships. There's just so many other options for paying for school that the consequences of shortfall are much lesser than they are for retirement. I mean, you can get a loan for college, but you're not going to get a loan for retirement. And so I think being aggressive there is probably a good move. I think you'll be glad you did that. But obviously that's going to depend on what the market does over the next few years. But even if the market crashes when your first child is 17, you could leave that money in the 529 until his senior year and pull it out at that point to pay for college after the markets recovered. You can also, if the market's taking a while to recover, you could leave that money to the sibling and use the cash flow that you're using now to fund the 529 for the younger person to pay pay for school. And so there's lots of options and lots of flexibility there that I think allows people to really be more aggressive with their 529s even more so than they can be with retirement, which might not come for a decade after paying for college. Does that make sense at all?

Yeah, absolutely. Yeah, I was really encouraged because, you know, some, all the stuff with the advisor that I hadn't been paying attention to and when I looked at it, it was way more complicated. Complicated and you know, look like there had been some big mistakes. The 529s, which they've never had their hands on. When I looked at those, I was like, oh, that's actually just fine.

Isn't that terrible? You've been paying 1% of assets under management and getting worse advice than what you, what you just would have, might have maybe have done automatically. Yeah, yeah, it's really a shame sometimes. At any rate, our time is getting short here. I wanted to make sure if you had any other questions or things you wanted to address that we did.

So one thing that I wanted to point out to other people is that I did have an advantage that I think a lot of physicians now don't necessarily have, although others in my position can take advantage of. I borrowed. I had $130,000 in medical school loans, which is low, I know right now, but I finished Medical School in 1998. So, you know, at that point it was probably higher than the average actually. And I was able to get 90% of that debt forgiven through the National Institutes of Health loan repayment program over a six year period when I was a junior faculty member. So people that are planning on staying in academics and doing research as part of their jobs, those NIH awards are still funded at high levels, like 30%. And there is no other NIH payline that is that high. So I encourage other people who may qualify that for that to do that because without that, you know, I would have had to have paid, you know, all that money back, which I was clearly willing to do by borrowing it. But it was, you know, one benefit that those of us in academic medicine, you know, can take advantage of if you're not going to do public service loan forgiveness, which didn't exist, you know, for me. So.

Yeah, and, and as I understand it, the two can be combined as well, so.

Right. I believe so.

Use both. So that's a great tip. Well, I congratulate you on your success. Here you are at mid career, you're millionaires, you're doing great with your savings, you're now taking control of your finances, you're moving them into excellent investments and you know, if nothing else, you're going to be saving the advisory fee. So congratulations on, on, you know, we've talked a lot about some of the mistakes and things you've done wrong here and nitpicking here and there, but by and large you've done wonderfully. You know, you're doing better than many, many, many of your peers. So congratulations on that and I wish you continued success both in your practice and in your finances.

Thanks a lot Jim.

Thank you for being on the show. That was great. It was fun to be able to help somebody and hopefully help a lot of you that are in similar situations. If you're a regular listener and would like to be on the podcast today like Baby Doctor was to talk about your finances, shoot an email to cindyhitecoatinvestor.com to let her know. Also, if you just have a quick question you want answered on the podcast, don't forget you can do that@speakpipe.com whitecoatinvestor.

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