White Coat Investor Philosophy - 12 Financial Principles for Doctors

Tom, let's talk for a minute about the White Coat Investor philosophy. A year or more ago I ran a blog post. This is what we called it, the White coat investor philosophy. 12 financial principles for doctors. And I think it's worth going over those again. I mean, they're timeless, right? A lot of times people get confused about what we're really preaching here at the White Coat Investor. We've got a missionary zeal, there's no doubt about it. And we preach, we rant, we try to get people to do the things that are going to help them in their financial lives. But These are the 12 points. These are the things you really ought to take away from it. These are the points that are not controversial, that nobody has some other opinion. And they're true and they're timeless. So let's pay attention to them. The first one, financial planning makes you happier. I'm 100% convinced that financially secure doctors are better partners, parents and physicians. If you will do real financial planning, you will have less stress, you will have less burnout, you are less likely to get divorced, you're less likely to kill yourself. You'll be happier, you'll provide better patient care. Do some financial planning. All right. The second principle, wealth, comes mostly from making a lot and saving a lot, right? It's not that complicated. Make a lot, carve some portion out of it to invest, and invest in an intelligent way, right? That's the formula to becoming wealthy. It's not complicated. Don't overcomplicate it, right? Yes, frugality matters. Yes, it's important to pay attention to the details sometimes. But the bottom line is if you can get those two things right, making a lot and saving a lot, you're probably going to be just fine. All right? The third point is that you need a reasonable written investing plan. You need a reasonable plan. It can't be some crazy thing like putting all your money in bitcoin. You want to own some bitcoin? Fine. Put 5% of your portfolio in bitcoin, no problem. And if it goes to be worth $10 million, you'll be glad you have it. If it goes to zero, it won't hurt you that much. Don't put 60% of your money in Bitcoin and 30% in gold and 10% in your brother in law's business. Have something reasonable. You know, the majority of your money needs to be in risky type investments, stocks, real estate, those sorts of things. Some of your portfolio probably ought to be in something that's not so risky. Cash Bonds, that sort of a thing. Stick with it, right? Set the percentages, write them down, refer to them from time to time. And you don't have to ask yourself every month when you have some money to invest, what you're going to invest in. It's already decided. You decided it 15 years ago when you wrote down your reasonable written investing plan. Makes the whole rest of your investing career a whole lot easier. All right, principle number four. Index funds are the best foundation for a portfolio. The most profitable companies in the history of the world are known as stocks. These are your Apples and your Amazons and your Walmarts. And these sorts of companies are all over the world. There's about 10,000 of them. These publicly traded companies. The best way to invest in stocks is via a low cost, broadly diversified investor index mutual fund. So these are a great foundation for your portfolio, right? If you want to add some stuff around the sides, fine. You want a little bit of real estate here, you want a little bit of bitcoin there, you want some bonds here, whatever, add them in. But this is a great foundation for your portfolio. You know that this is not going to go to zero barring some sort of apocalyptic zombie situation, right? You're not going to get scammed by your index fund. It's going to grow over time. Ask yourself, is this likely to be worth dramatically more in 20 or 30 years when I need the money than now? And the answer is yes. Yes. There's going to be a lot of volatility between now and then. That's okay. You can buy the 10,000 most profitable companies in the history of the world essentially for free, using an index fund. All right, Principle 5 is to insure well, but only insure against financial catastrophes like disability, death, health, liability, property loss, et cetera. You don't need to insure every little thing. You don't need to insure against things that are not financial catastrophes, like dying when you're 90. That's not a financial catastrophe. That's an expected event. You don't need whole life insurance to pay out when you're 90, unless you're in a pretty unique situation that most doctors are not in. All right, so let somebody sell you a whole life insurance policy that you don't need. You've got a better use for your money, almost surely. Principle number six is to live like a resident for two to five years out of residency. Now the point of this is to front load your wealth building activities to a time of your life before you're used to making A lot of money. It's relatively easy to keep the same lifestyle you had the year before. But now with the dramatically higher income, you've got a lot of that income you can carve out and use for wealth building activities like saving up a down payment, paying off your student loans, catching up to your college roommates with your retirement savings. I mean, even if you give yourself a little bit of a raise, right? Give yourself 50% raise coming out of residency, you're still following the principle. You just don't want to have a lifestyle explosion when you come out of training and grow into your newfound attending income with a big fat doctor house mortgage and two big fat car payments before you even get out of residency. And then when your student loan payments come due in a few months, all of a sudden you find yourself living hand to mouth on an income of 2 or 3 or $400,000 a year. Happens all the time. 25% of doctors get into their 60s and still are not millionaires. How does that happen? Because they spend all their income. That's the main way. Yes, some of them get disabled or have something terrible happen to them, get divorced and have to split their income and assets in half. But for the most part, that tragedy is completely preventable simply by living on less than you earn. And if you will front load that for just a short period of time at the beginning of your career, you will not regret it. All right, Principle number seven is to spend intentionally. I don't care what you value. Maybe it's a wakeboat. I got a wakeboat, right? Maybe it's a Tesla. I don't have a Tesla. Maybe it's fancy vacations, maybe it's $10,000 handbags. Maybe it's eating out a Michelin three star restaurants. Maybe it's a nice house. Maybe it's private school for your kids. Maybe it's supporting your extended family in a developing country. I have no idea what you value most, but spend your money on that. You can buy anything you want. You can't buy everything you want. And you need to be intentional. Intentional, great word. You need to be intentional about how you spend. Number eight is to get good advice at a fair price. Right? The most profitable hobby you can have is to learn to be your own financial planner and investment manager. But if you're going to do it, you need to do it right. Which means you need to educate yourself well enough that you're doing it about as well as a good professional would. If you're not going to do that, go hire somebody to help you, it's going to cost you probably four figures a year. 2000, 6000, 8000, something like that a year is what you're going to pay for good financial planning and investment management. That's a fair price. But they need to be talking about the same stuff we talk about at the White Coat Investor, right? If they're not talking about index funds, if they're not talking about rebalancing, about insuring only against financial catastrophe, right? Then that's not the sort of person you want to be getting advice from. If they're selling you products, you're almost surely getting bad advice. All right, number nine is to understand and use your tax advantaged accounts. Doctors often have a plethora of tax advantaged accounts provided by their employers or not by their employers. These can include 401s, 403s, 457, 401as, solo 401s, Roth IRAs, HSAs, 529s. Learn how all these accounts work. Use them to your advantage. Not only they provide great tax benefits, which makes your money grow faster than it otherwise would, but they give you estate planning and asset protection benefits. So learn about them. Use them to your advantage. Number 10, pay cash and avoid debt. We all become numb at some point during dental school or medical school when we get used to living on borrowed money. You got to get over that. When you get out of your training, you got enough income that you can waste quite a lot of it and still be just fine. So get used to saving up for stuff. It's a good habit, I promise. It's like that old skit that Saturday Night Live did with Steve Martin where he says, where would I get this saved money? Well, you know where it comes from, right? It's money that you earned but did not spend. So minimize your debt. Pay cash for stuff. My kids know when I ask them from a very young age, would you rather earn interest or pay interest, they know the right answer. Make sure you know the right answer, too. Principle 11 is to minimize your taxes and know the tax code. For the most part, you lower your tax bill by living your financial life differently, not by knowing some secret loophole or having somebody different file your taxes. Don't go looking for the secret loophole. The secret loophole is to live differently, right? Might be getting married, it might be having kids, it might be starting a business, it might be saving for retirement, it might be paying for health care. Those are the sorts of things that lower your tax bill. And finally, principle number 12, asset protection is actually pretty easy and it matters a lot less than you think. Do the basics. They're cheap, effective and pretty easy. Right? Title your property properly. Max out your retirement accounts. Know the laws about asset protection in your state. Buy malpractice insurance. Buy personal liability insurance. Right? And as you acquire millions, you may want to look into some more complicated, expensive, less reliable asset protection techniques. But you probably don't have to. Right? We're all worried about losing money in an above policy limits judgment from practicing medicine or dentistry. But the truth is those are are extraordinarily rare events. For the most part, you're playing with the house money and you're functioning as a witness for the defense. Won't help you sleep any better at night if you get sued. I know. But the truth is you're probably not losing any of your personal assets in that lawsuit. I hope those 12 principles make sense. They're timeless. We're going to keep talking about them here at the White Coat Investor, so don't be surprised by that. But if you incorporate them into your life, you will be successful. This stuff's not that hard if you just concentrate on the basics and get the basics right. It's like what Jane told you in the interview today. She concentrated on getting a big shovel. She carves a whole bunch of it out. She invested just in simple ETFs. It's not that complicated. She's a millionaire. She's going to retire early as a multimillionaire and have helped a whole bunch of people along the way. You can do the same. The hosts of the White Coat Investor are not licensed accountants, attorneys or financial advisors. This podcast is for your entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.