Podcast #162 Show Notes: Are Side Gigs Mandatory for Doctors?

Do doctors need a side gig? No. But it certainly can ease the stress that comes from changes in your physician income beyond your control, like with this pandemic. But living like a resident, saving, and investing appropriately can also do that. I think each of us needs to find a balance and realize that if you will carve out a chunk of your income and invest it in some reasonable way, you’ll be okay. Doctors make enough money that if they will just manage the money well, they don’t need a side income. But it never hurts to have a little bit of side income if that is something that interests you. Besides discussing the necessity of side gigs in this episode I also answer listener questions about where to put your PSLF side fund, what asset allocation to have in your 457 account, whether my opinion on the use of bonds has changed given recent market events, and should you be interested in a side gig, how to pay yourself from that money. 

Gain the expertise to manage the business of medicine with the Physicians Executive MBA at Auburn University’s Harbert College of Business. Our flexible physicians-only program lets you earn your MBA without taking you away from your patients. Tailored to the practicing physician, Auburn’s Physicians Executive MBA program is currently enrolling for Fall 2020. Auburn’s unique twenty-one-month program blends innovative distance learning with five short on-campus residencies. Take control of your future during these challenging times. Learn more at auburn-pemba.com.

Quote of the Day

Our quote of the day today comes from William Bernstein MD who said,

“I’m going to assume that, like all investment adults, you’re disciplined and thus not vulnerable to the routine but serious buy high/sell low loss of capital.”

Unfortunately, too many investors are susceptible to that.

Announcements

#LiveLikeAResident

We want to promote you and your success. Using #livelikearesident we want to recognize readers and listeners that have paid off student loans. You can take a photo of yourself, maybe with a sign what your debt peaked at, and put that into a Google form for us. We will share it on social media and use it to inspire your peers and your colleagues. I’m going to compile a few of them into a blog post, and maybe we can get some of them on the podcast as well. Let’s share your success and inspire others to follow in your great work.

Direct Real Estate Investing Course

You may have noticed that during the pandemic there have been a lot of online courses going out. One of my favorites, that a lot of White Coat Investors have taken, is called “Zero to Freedom Through Cash-Flowing Rentals”. This is a course put together by dual physician couple, Leti and Kenji who are direct real estate investors, and they want to teach you how to do it. If you were interested in investing directly in real estate,  rather than through syndications, real estate investment trust, or private real estate funds, they will teach you how to do that in this course. It’s not the cheapest course out there. It’s only for if you’re really serious about doing this. But they put together a blueprint for you to follow to profitably buy and manage your income properties. If you buy that course through our link, I’ll throw in a signed copy of one of my books for you.

Are Side Gigs Mandatory for Doctors?

I wanted to do a podcast about side gigs after receiving an email from a loyal listener and reader. They said,

“I want to talk to you for a podcast suggestion. I’ve been an avid follower of your podcasts. I’m a physician on FIRE and I’m a believer of the “live like a resident” philosophy. I’m also a palliative care doctor, debt-free living in Hawaii working part time. This past week or two, the Leverage and Growth Virtual Summit for Physicians made a big push on entrepreneurship. The online summit has created an intense need to push yourself, make side gigs and do more than we were doing to not exchange our time for money and get side gigs to get a cash flowing stream. I know a lot of people are excited and want to learn more, but as a palliative care physician, I want to share that all these ideas can create anxiety. You can push us away from what matters most.

While I can chase all these side gigs and my mind can go a hundred miles an hour, it keeps me from enjoying playing backgammon with my 11-year-old. There is something to be said about protecting your time. Even time that you just spend in your head. I think as a physician, if you do all what you tell us to do and keep your spending in check, you’re okay. What we do is noble. Physicians don’t need to be jet setting. What we do matters. Our time is important. Just like I tell my palliative patients, once you know what matters most, the outside chatter can be turned down.”

I thought this subject worth discussing – whether a physician needs a side income. My position has always been it is not a need. Doctors make enough money that if they will just manage the money well, they don’t need a side income. You don’t have to have a passive income on the side. If you will just be a good doctor and manage your money well, you will do fine.

However, there are obviously events in all of our lives that make us think it would be very nice to have another income, such as the recent pandemic. Maybe that is what spurred all this interest in entrepreneurship and passive income recently,  the fact that so many of our incomes went down.

We had a recent meeting in our partnership about some changes and some issues that are going on in our hospitals and with our contracts. I’ve always said emergency medicine might be the worst business ever. You basically have one customer. You have your contract with a single hospital. If you lose that contract, that business basically ceases to exist. That is the way a lot of physician jobs are.

Our listener goes on to say,

“I hope you know I’m not saying doing side gigs is bad. I was just observing the phenomenal conference was creating an excitement, but also a sense of serious anxiety and fear of missing out in the Facebook groups that I belong to. There is value to the program; I just want to remember we should protect the practice of medicine for what it is – caring for those in need. And remembering that there are those in worse situations than we are both physically, mentally, and financially. What we do still matters. While Covid has weakened our financial grip, it has also made my children think that, as physicians, we are heroes. And certainly, that is the case, particularly those of you on the front lines. So, how do you balance this? I mean, we don’t want to be dependent on our physician income, but we also spent a lot of time and effort becoming physicians for a reason.”

It is true that you don’t need to make $5 million a year in order to be happy. If you can’t figure out how to be happy on $200,000 to $400,000, which is what most physicians make, then you probably have a spending problem, not an earning problem. That said, I can hardly be the poster boy for “just practice medicine.” My White Coat Investor income far exceeds my clinical income these days. I’m down to halftime in my clinical work. So, I can’t really say you should do something different than I’ve done. I find myself with mixed feelings on this subject, for sure, but I think each of us needs to find a balance there and realize that if you will carve out a chunk of your income, you’ll be okay if you invest it in some reasonable way. It never hurts to have a little bit of side income if that is something that interests you. But certainly, I would not feel like a side gig is mandatory for a doctor. In fact, for a lot of doctors, your best investment is investing into your own practice.

Reader and Listener Q&As

Public Service Loan Forgiveness Side Fund

“I’m four years away from forgiveness. I do max out retirement accounts, backdoor Roth, and HSA. From my side fund, I currently put $2,000 per month into a brokerage account, $1,000 per month into a high yield savings, and I also pay $2,000 per month extra on my mortgage, with a goal to basically split up my side fund in a few different ways, rather than throwing it all into the market or just into a savings account.

My question is once my house is paid off, which will be in about two years, I’ll have two years left until forgiveness. And at that point, my goal is to have about $7,000 per month to allocate purely towards the side fund. My thought was to possibly place half of that per month into the high yield savings account and half into a taxable account. This way I could limit my risk by not putting everything in the market yet, I could still capture some gains of the portion that’s in a taxable account. Do you have any thoughts on location for side fund placement, considering that the amount may be $7,000 per month for someone who’s currently four years away from forgiveness, but at that point would be two years away from forgiveness? And any thoughts on how that might change as you get closer to forgiveness?”

This is a really interesting adaptation of the idea of a public service loan forgiveness side fund. My idea behind the public service loan forgiveness side fund is that it does two things for you. Because you’re not throwing these massive sums, $5,000 to $10,000 a month, at your student loans, you should still be putting that money somewhere and using it to build wealth. Just because you’re going for PSLF doesn’t excuse you from living like a resident for two to five years after residency. That is your building-wealth period. I think it is imperative to remember that.

Does it matter so much from that perspective where the money goes, whether it goes into retirement accounts, taxable investing account, used to pay off a mortgage, or into a savings account? No, it doesn’t really matter where the money goes. I think you can mix it up like this doctor has done. But the other purpose of the public service loan forgiveness side fund,  was to be able to take that money and pay off the loans. That becomes much more difficult if you use the money to pay down a mortgage or invest it in stocks that have now lost value, or, if they’ve gained a lot, you don’t want to pay capital gains taxes on the gains. So, from that perspective, I don’t think it’s really serving as a side fund.

The idea behind a side fund is that if something happens to public service loan forgiveness, or simply that you no longer want to work for a 501(c)(3) company, you could wipe out your debt and you’d be just the same as if you hadn’t gone for public service loan forgiveness.  What should this listener do after the mortgage is paid off in a couple of years? Well, if the idea is to truly have a PSLF side fund, I’d put that money into the high yield savings account. But if you don’t care so much about that, and you’re just trying to keep building wealth, I think it’s fine to invest some of it. I think it’s okay to put some in the stock market like you’re doing. If you’re not already maxing out retirement accounts, obviously take advantage of those. It is kind of a non-answer I know. I think this is one of those areas that’s kind of gray. The idea is to stay focused on your finances, even if you’re going for public service loan forgiveness.

Paying Yourself from Your Side Gig

“I’m going to be paying myself when my business starts becoming profitable. And obviously, I have options of paying myself as W2 or just taking it as owner’s draw of the profits when those start rolling in. The only reason why I want to know what you would recommend is because in my state, I’m required to pay workers’ comp insurance on all payroll, which is 1.3% essentially of everything that’s paid on payroll. So, if I pay myself on a payroll company, it’ll charge me an extra 1.3%. Whereas if I just take an owner’s draw, obviously I can avoid that. Is that the right thing to do?”

I’m not sure exactly what he’s getting at with this question and I think that is because he is a little bit confused. Most of the time, when you have a side gig, you’re paid on a 1099 as an independent contractor. You are a sole proprietorship and a sole proprietorship does not pay wages to the owner. So basically, all the profit is an owner’s draw. If you form an S Corp, then you can pay yourself wages. Then you are also an employee of the company. So, you get wages and owner distributions. You only pay payroll taxes on the wages. You don’t pay them on the owner’s distributions. So that’s a strategy for a lot of people, and that’s why they form an S Corp, in order to save on those payroll taxes. For doctors, it’s usually just savings of Medicare tax. For someone who is a lower earner it might also include social security tax that you can save on. That is obviously a much bigger savings.

But as far as this worker’s comp tax in your state, if you’re not an S Corp, you shouldn’t have to be paying that because you don’t actually have employees. I think that is a non-issue, I suspect, in your case, unless you’ve gone ahead and formed an S Corp. If you form an S Corp, you have to pay yourself a reasonable wage and the rest can be an owner’s draw or an owner’s distribution. Then of course you’ll have to pay any required workers’ comp taxes on that. Look carefully at the law. I think you may be able to get out of worker’s comp if you are the only employee of that company. But I suspect that may be state-specific. So, take a careful look at that.

Asset Allocation for 457 Accounts

“My question regards asset allocation in a nongovernmental 457 at a large academic institution. I currently have an 80/20 stock bond allocation. I keep essentially the same asset allocation across my 403(b) and 457 accounts in essentially the same assets. My 457 is a pretax. It does not allow rollovers. And I must take out the money within a 10-year distribution period. My question, is there any argument to keep more or less bonds or lower yielding assets in the 457 with the knowledge that this is possibly the first money that I will have to take out in retirement? “

Spending your 457 money first is generally what I recommend in retirement. But then the question comes in “Should I mess with the asset allocation of that account because of it?” Maybe have fewer bonds that are not taking as much risk because you’re going to use that money sooner?  I think you ought to look at all of your retirement accounts as one big account. Your 457, your 403(b), your taxable account, your Backdoor Roth IRA, your spouse’s 401(k), your spouse’s Backdoor Roth IRA, maybe your HSA. Look at it as all one big account. If you want to take money from the 457 first, that’s fine. Whether it’s invested in stocks or bonds or real estate or whatever. If it happens to be up at the time, when you withdraw from that money, that’s great. You’ll end up, however, as you withdraw that money and spend it, you’ll buy whatever it was invested in your other accounts in order to rebalance the account.

Likewise, if it’s in bonds, for instance, and bonds haven’t been doing very well, there is going to be less money in that account, and you’re going to go through it faster, but the other accounts will be bigger than they otherwise would be because you put the stocks in those accounts and stocks did well, for instance. So, I don’t think you really need to be thinking about this subject when choosing an asset allocation for that account.

In general, when you’re implementing your asset allocation across your accounts, you want to look at the best options in that account that you need to fulfill. For a lot of 457 and 403(b) and 401(k) accounts, the only decent fund in there is a 500-index fund. So you may have your large U.S. stock allocation in that account preferentially simply because it’s the only decent fund in there. Then you use your other accounts to make up the difference. But basically, I wouldn’t necessarily have a different asset allocation in your 457 account. I would look at all of your accounts together.

Bond Allocation

‘I was hoping to ask a question about bonds and bond allocations specifically. I know you’ve mentioned in the past that investors who want to reduce their risk should invest more of their portfolio in bonds. I was wondering if your opinion on this has changed at all, given the very elevated bond prices at the moment, and the potential that if an investor did want to reduce the risk by moving into bonds they could actually lose some money if the price of those bonds go down.”

It seems like almost every question I get these days is during current times or during the pandemic or since Covid came, is this different? Well, there’s very little that’s actually different since that time. One thing that is different is your federal student loans are 0% until September 30th. So, obviously most people are not going to want to refinance them until September 30th. But otherwise, most things have not changed. Bond yields go up and down. Bond values go up and down. Interest rates go up and down. Unless you’ve got a crystal ball that is more clear than mine is, it’s very difficult to take advantage of that sort of a situation.

If you don’t know what’s going to happen in the future, you can’t really anticipate it with your portfolio. I think you’re much better off setting up a fixed asset allocation. You set the percentages – this much in stocks, this much in bonds, this much in real estate, whatever you’re going to invest in and rebalancing back to it each year. Just because bonds had a great year this year, it doesn’t mean you hold less of them next year.

Yes. You sell down to whatever percentages are set in your fixed asset allocation. More likely you just use your money to buy stocks. That’s what I’ve been doing the last few months. But you don’t actually change your asset allocation just because yields have fallen. And why is that? Well, if you had done that, you wouldn’t have owned bonds since like 2009. People have been saying for more than a decade, “the bond rates must go up. Interest rates must go up.” What has happened? They’ve stayed flat or gone down over that time period. It’s just really difficult to predict the future. So, I don’t think you should use an investing plan that requires you to be able to predict the future. I think that’s a good route to really screw things up in your life. Because guess what? You’re going to be wrong a lot about the future. If you don’t believe that, I suggest you start keeping a notebook or a journal of your predictions about the future. You might be surprised how poor they are, how bad you are at predicting the future.

Write down specific predictions of what you think the S&P 500 is going to do. Whether you think U.S. stocks are going to beat international stocks, whether you think bonds are going to do this or that, what the interest rates are going to do, what the housing market is going to do. You might be surprised when you pull that out in 6 months or 12 months, just how dumb you were 12 months ago on things that seem so obvious now. As I have kind of done that over the years, I’ve realized that my crystal ball is not clear at all.

Ending

If you have questions you would like answered on the podcast you can leave them at our speakpipe. If you are interested the business of medicine check out the Physicians Executive MBA at Auburn University’s Harbert College of Business. It can all be done at home with only a few short visits to the campus. Thanks to Auburn for sponsoring this podcast episode.

Full Transcription

Transcription – WCI – 162
Intro:
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 Dahle.
Dr. Jim Dahle:
Welcome to White Coat Investor podcast number 162 – Are side gigs mandatory for docs? Welcome back to the podcast. We missed you guys. We’ve been on vacation. We had a wonderful time at Lake Powell and here we are back doing another podcast. Before we get into it, though, I want to introduce today’s sponsors.

Gain the expertise to manage the business of medicine with the physician’s executive MBA at Auburn University’s Harbert College of Business. Our flexible physicians only program lets you earn your MBA without taking you away from your patients. Auburn’s unique 21-month program blends innovative distance learning with five short on campus residencies. Take control of your future during these challenging times, learn more at auburn-pemba.com. That’s auburn-pemba.com.
Dr. Jim Dahle:
All right, our quote of the day today comes from William Bernstein MD, who said, “I’m going to assume that all investment adults, you are discipline, and thus not vulnerable to the routine, but serious. Buy high, sell low, loss of capital”. And unfortunately, too many investors are susceptible to that.
Dr. Jim Dahle:
Thanks for what you do. Those of you out on the front lines, risking your lives every day, I appreciate it. And those of you who may have shut down your practices to save PPE for those who are on the front lines or those who are simply doing all they can to keep the business afloat while surviving these uncertain economic times, thank you for doing that as well. I had my daughter into the dentist this week and that’s always an experience. She had needed a couple of root canals and that’s not something I know how to do. So, I’m glad some of you spent many years of your life learning how to do that.
Dr. Jim Dahle:
I got a message this morning. We’re recording this, what is today? Today is the 28th of May. So, we just released a podcast this morning, like we do every Thursday. And I got a quick email back from someone that had been listening to it. If you recall a couple of weeks ago, we ran a podcast that included a Speak Pipe that was completely unintelligible to me. And I had no idea what it was. And I asked you if you knew what it was. Well, this listener did. The listener is Sunil. He describes himself as a South Indian and he says, “I love your podcast. I’m a longtime listener. The song is from a movie titled ‘Raja the Great’. It is Telugu language, which is a South Indian language”. And he says, “The listener is basically praising you and calling you a cool cat. I was listening to the podcast as I was driving to work and when I heard this song among other serious topics, I just burst out laughing. I had to stop the podcast and type this reply. Lots of love and respect to you from a small town in Ohio, Sunil.”
Dr. Jim Dahle:
Thank you, Sunil for explaining what that was all about because I had no idea. And I thought about throwing it away, but it was too interesting not to run on the podcast. But for the rest of you, if you want to leave questions, they got to be in English. You can leave them in Spanish and I’ll understand them, but we probably won’t run them on the podcast. It’s an English language podcast. There’s just too few of you out there that speak Telugu.
Dr. Jim Dahle:
All right, lots of things going on lately in the personal finance world, the physician personal finance world. We’ve got something new we’re doing. We want to promote you and your success. We have a program. We are calling it “Live Like a Resident”, hashtag #livelikearesident.

Dr. Jim Dahle:
And what this is, this is people who have paid off their student loans. If you have paid off your student loans recently, or even in the last few years, we encourage you to take a picture of yourself. Maybe a sign of how much you had in debt when you started or what it peaked out after residency or whatever, and put that into a Google form for us. And we will share it on social media and use it to inspire your peers and your colleagues.
Dr. Jim Dahle:
To get to that Google form, the URL is whitecoatinvestor.com/debtfree. That’s whitecoatinvestor.com/debtfree. You can upload your picture there and you can put in a little bit of information. We will share that out on social media. I’m going to compile a few of them into a blog post, and maybe we can get some of them on the podcast as well. So, let’s share our success and inspire others to follow in your great work that you’ve done.
Dr. Jim Dahle:
You may have noticed that during the pandemic, that there are a lot of online courses going out there. One of my favorites that a lot of White Coat Investors have taken is called “Zero to Freedom Through Cash-Flowing Rentals”. This is a course put together by dual physician couple, Leti and Kenji who are direct real estate investors and they want to teach you how to do it. If you were interested in being a landlord and investing directly, you may hire out the land-lording, but being a direct investor, rather than through syndications or through real estate investment trust or through private real estate funds, they will teach you how to do that in this course. The course is called “Zero to Freedom Through Cash-Flowing Rentals”.
Dr. Jim Dahle:
It’s not the cheapest course out there. It’s only for if you’re really serious about doing this. But they put together a blueprint for you to follow to profitably buy and manage your income properties. You can get more information on that at whitecoatinvestor.com/rental. And if you buy that course, I’ll actually throw in a signed copy of one of my books for you and send that to you if you buy the course through that link. So, I appreciate what you do. And if you are interested in that, take a look at that – whitecoatinvestor.com/rental.

Dr. Jim Dahle:
Okay. I wanted to talk for a minute as the title of this podcast mentions is about side gigs. And this comes from an email I got. A suggestion from a very loyal listener, a reader, and even a WCI attendee over the last couple of conferences. She says this, or he says this, “I want to talk to you for a podcast suggestion. I’ve been an avid follower of your podcasts. I’m a physician on FIRE and I’m a believer of the “live like a resident” philosophy. I’m also a palliative care doctor, debt-free living in Hawaii working part time. I’ve considered myself an entrepreneur. I made my group switch my job from hospitalist to pay for my training at Harvard Palliative Care. I also became the Vice Chief of Staff.
This past week or two, the online summit, the listeners referring to the online summit put together by Peter Kim at Passive Income MD. And this was a big push on entrepreneurship. The online summit has created an intense need to push yourself, make side gigs and do more than we were doing to not exchange your time for money and get side gigs to get a cash flowing stream. I know a lot of people are excited and want to learn more, but as a palliative care physician, I want to share that all these ideas can create anxiety. You can push us away from what matters most.
While I can chase all these side gigs and my mind can go a hundred miles an hour, it keeps me from enjoying playing backgammon with my 11-year-old. There’s something to be said about protecting your time. Even time that you just spend in your head. I think as a physician, if you do all what you tell us to do and keep your spending in check, you’re okay. What we do is noble. Like you said, financial advisors are not kindergarten teachers. Physicians don’t need to be jet setting. What we do matters. Our time is important.
Dr. Jim Dahle:
Just like I tell my palliative patients, once you know what matters most, the outside chatter can be turned down. You could do a podcast about this subject. You can tell people not to tune in if they don’t want to talk about mindfulness and being okay with having enough”.

Dr. Jim Dahle:
Well, I’m not sure that I need to do a whole podcast about it, but I thought it was a subject worth discussing – Whether a physician needs a side income? And it’s always been my position that is not a need. The doctors make enough money that if they will just manage the money well, they don’t need a side income. You don’t have to have a passive income on the side and a side gig and all this. If you will just be a good doc and manage your money well, you will do fine.
Dr. Jim Dahle:
However, there are obviously events in all of our lives that make us think it would be very nice to have another income such as the recent pandemic. And maybe that’s what spurred all this interest in entrepreneurship and passive income recently is the fact that so many of our incomes went down.

Dr. Jim Dahle:

I can totally relate to this because we had a recent meeting in our partnership about some changes and some issues that are going on in our hospitals and with our contracts that make us really wish that maybe we weren’t so dependent on physician income on that group’s income.  I’ve always said emergency medicine might be the worst business ever. You basically have one customer. You have your contract with a single hospital. If you lose that contract, that business basically ceases to exist. And that’s the way a lot of physician jobs are.
Dr. Jim Dahle:
And of course, the listener goes on to say, I hope you know I’m not saying doing side gigs is bad. I was just observing from the phenomenal conference. It was creating an excitement, but also a sense of serious anxiety and fear of missing out in the Facebook groups that I belong to. There’s value to the program so much so that I’m considering to work with some life coach people that help me guide people through end of life decisions for a larger reach, not to have more money, but more impact. I just want to remember we should protect the practice of medicine for what it is – Caring for those in need. And remembering that there are those in worse situation than we are both physically and mentally and financially. And then what we do still matters. While Covid has weakened our financial grip, it has also made my children think that as physicians, we are heroes. And certainly, that is the case, particularly those of you on the front lines.

Dr. Jim Dahle:
So, how do you balance this? I mean, we don’t want to be dependent on our physician income, but we also spent a lot of time and effort becoming physicians for a reason. And it’s true that you don’t need to make $5 million a year in order to be happy. If you can’t figure out how to be happy on $200,000 to $400,000, which is what most physicians make, then you probably have a spending problem, not an earning problem. I totally agree with that.
Dr. Jim Dahle:
That said, I can hardly be the poster boy for “just practice medicine.” My White Coat Investor income far exceeds my clinical income these days. I’m down to halftime in my clinical work. So, I can’t really say you should do something different than I’ve done. So, I find myself with mixed feelings on this subject, for sure, but I think each of us needs to find a balance there and realize that if you will carve out a chunk of your income, you’ll be okay if you invest it in some reasonable way. But it never hurts to have a little bit of side income if that is something that interests you. But certainly, I would not feel like a side gig is mandatory for a doctor. In fact, for a lot of doctors, your best investment is investing into your own practice.
Dr. Jim Dahle:
Okay, let’s take some of your questions now off the Speak Pipe. Our first one comes from Joe. Let’s take a listen.

Joe:
Hey Dr. Dahle. This is Joe with a question about public service loan forgiveness side fund. I’m four years away from forgiveness. I do max out retirement accounts, backdoor Roth, and HSA. From my side fund, I currently put $2,000 per month into a brokerage account, $1,000 per month into a high yield savings. And I also pay $2,000 per month, extra on my mortgage and a goal to basically split up my side fund on a few different ways, rather than throwing it all into the market or just into a savings account.
Joe:
My question is once my house is paid off, which will be in about two years, I’ll have two years left until forgiveness. And at that point, my goal is to have about $7,000 per month to allocate purely towards the side fund. My thought was to possibly place half of that per month into the high yield savings account and half into a taxable account. This way I could limit my risk by not putting everything in the market yet I could still capture some gains of the portion that’s in a taxable account. Do you have any thoughts on location for side fund placement, considering that the amount maybe $7,000 per month for someone who’s currently four years away from forgiveness, but at that point would be two years away from forgiveness? And any thoughts on how that might change as you get closer to forgiveness. Thanks for all that you do. It really is greatly appreciated and stay safe.

Dr. Jim Dahle:
Well, this is a really interesting adaptation of the idea of a public service loan forgiveness side fund. My idea behind the public service loan forgiveness side fund is that it does two things for you. Because you’re not throwing these massive sums, $5,000 to $10,000 plus thousand dollars a month at your student loans, you should still be putting that money somewhere and using it to build wealth. Just because you’re going for PSLF doesn’t excuse you from living like a resident for two to five years after residency. That is your building wealth period. And I think it is imperative to remember that.
Dr. Jim Dahle:
Does it matter so much? From that perspective where the money goes, whether it goes into retirement accounts or whether it goes into a taxable investing account, or it’s used to pay off a mortgage, or it goes into a savings account, from that perspective, it doesn’t really matter where the money goes. So, I think you can mix it up like this doc has done. I think that’s perfectly fine. But the other purpose of the public service loan forgiveness side fund, it was to be able to take that money and pay off the loans.
Dr. Jim Dahle:
And that becomes much more difficult if you use the money to pay down a mortgage or you use the money to invest in stocks that have now lost value, or if they’ve gained a lot, you don’t want to pay capital gains taxes on the gains. It becomes not as easy to do. So, from that perspective, I don’t think it’s really serving as a side fund.

Dr. Jim Dahle:
The idea behind a side fund was that if something happens to public service loan forgiveness, or simply that you no longer want to work for a 501(c)(3) company, you could wipe out your debt and you’d be just the same as if you hadn’t gone for public service loan forgiveness. That’s the idea behind it.
Dr. Jim Dahle:
What should you do after the mortgage is paid off in a couple of years? Well, if the idea is to truly have a PSLF side fund, I’d put that money into the high yield savings account. But if you don’t care so much about that, and you’re just trying to keep building wealth, despite that, I think it’s fine to invest some of it. I think it’s okay to put some in the stock market like you’re doing. And if you’re not already maxing out retirement accounts, obviously take advantage of those. I hope that’s helpful. It’s kind of a non-answer I know and I’m sorry about that. I think this is one of those areas that’s kind of gray. The idea is to stay focused on your finances, even if you’re going for public service loan forgiveness.
Dr. Jim Dahle:
Okay. Next question is from Dan from South Florida. Let’s take a listen.

Dan:
Hey Jim, this is Dan from South Florida. I wanted to ask you another question about side gig that I’m going to be starting as soon as the corona restrictions lift. Obviously, I’m going to be paying myself when the business starts becoming profitable. And obviously, I have options of paying myself as W2 or just taking it as owner’s draw of the profits when those start rolling in. The only reason why I want to know what you would recommend is because in my state, I’m required to pay workers’ comp insurance on all payroll, which is 1.3% essentially of everything that’s paid on payroll. So, if I pay myself on a payroll company, it’ll charge me an extra 1.3%. Whereas if I just take an owner’s draw, obviously I can avoid that. Is that the right thing to do? I don’t know if you have any thoughts on this and I appreciate it if you could help. Thanks.

Dr. Jim Dahle:
Okay. This is an interesting question. I’m not sure exactly what he’s getting at here. And I think that’s because he’s got a little bit of confusion on his part. Most of the time, when you have a side gig, you’re paid on a 1099, you’re an independent contractor, etc.

Dr. Jim Dahle:
You are basically a sole proprietorship. And a sole proprietorship does not pay wages to the owner. So basically, all the profit is an owner’s draw. If you form an S Corp, then you can pay yourself wages. Then you are also an employee of the company. So, you get wages and they’re also owner distributions. You only pay payroll taxes on the wages. You don’t pay them on the owner’s distribution. So that’s a strategy for a lot of people, and that’s why they form an S Corp as an order to save on those payroll taxes. For doctors, it’s usually just savings of Medicare tax. For somebody who’s a lower earner it might also include social security tax that you can save on. And that’s obviously a much bigger savings.
Dr. Jim Dahle:
But as far as this worker’s comp tax in your state, if you’re not an S Corp, you shouldn’t have to be paying that because you don’t actually have employees. I think that’s a non-issue I suspect in your case, unless you’ve gone ahead and form an S Corp. And if you form an S Corp, you got to pay yourself a reasonable wage and the rest can be an owner’s draw or an owner’s distribution. Then of course you’ll have to pay any required workers’ comp taxes on that.
Dr. Jim Dahle:
Well, look carefully at the law. I think you may be able to get out of worker’s comp if you are the only employee of that company. But I suspect that may be state specific. So, take a careful look at that.
Dr. Jim Dahle:
Our next question comes from Josh about 457 plans. Let’s take a listen to it.

Josh:
Hi, Dr. Dahle. I’m an early career hospitalist in the South. My question regards asset allocation in a nongovernmental 457 at a large academic institution. I currently have an 80/20 stock-bond allocation. I keep essentially the same asset allocation across my 403(b) and 457 accounts in essentially the same assets. I find these are usually just council rebalance. My 457 is pretax. It does not allow rollovers. And I must take out the money within a 10-year distribution period. My question, is there any argument to keep more or less bonds or lower yielding assets in the 457 with the knowledge that this is possibly the first money that I will have to take out in retirement? Or if I were to change positions to a different hospital in that career? I realized that I may have very different tax situations depending on scenario, but I’m interested in your thoughts. Thank you for all you do.

Dr. Jim Dahle:
Okay. He was going to spend his 457 first. That’s probably a good idea. I generally recommend that in retirement, but then the question comes in “Should I mess with the asset allocation of that account because of it?” maybe have fewer bonds who are not taking as much risk because you’re going to use that money sooner. And the way I look at this, as I think you ought to look at all of your retirement accounts as one big account. Your 457, your 403(b), your taxable account, your Backdoor Roth IRA, your spouse’s 401(k), your spouse’s Backdoor Roth IRA, maybe your HSA. Look at it as all one big account, because here’s the deal. If you want to take money from the 457 first, that’s fine. Whether it’s invested in stocks or bonds or real estate or whatever. If it happens to be up at the time, when you withdraw from that money, that’s great. You’ll end up, however, as you spend that money, as you withdraw that money and spend it, you’ll buy whatever it was invested in, in your other accounts in order to rebalance the account.
Dr. Jim Dahle:
Likewise, if it’s in bonds, for instance, and bonds haven’t been doing very well while there’s going to be less money in that account, and you’re going to go through it faster, but the other council will be bigger than it otherwise would be because you put the stocks in those accounts and stocks did well for instance. So, I don’t think you really need to be thinking about this subject when choosing an asset allocation of that account.
Dr. Jim Dahle:
In general, when you’re implementing your asset allocation across your accounts, you want to look at the best options in that account that you need to fulfill your asset allocation and a lot of 457 and 403(b) and 401(k) accounts. The only decent fund in there is a 500-index fund. And so, you may have your large U.S. stock allocation in that account preferentially simply because it’s the only decent fund in there. And then you use your other accounts to make up the difference. But basically, I wouldn’t necessarily have a different asset allocation in your 457 account. I would look at all of your accounts together.
Dr. Jim Dahle:
Okay. Our next question comes from Tony.

Tony:
Dr. Dahle, thanks for all that you do. I was hoping to ask a question about bonds and bond allocations specifically. I know you’ve mentioned in the past that investors who want to reduce their risk tolerance should invest more of their portfolio in bonds. I was wondering if your opinion on this has changed at all, given the very elevated bond prices at the moment, and the potential that if an investor did want to reduce the risk tolerance by moving into bonds they could actually lose some money if the price of those bonds go down. I appreciate your thoughts on this. Thank you.
Dr. Jim Dahle:
All right. It seems like almost every question I get these days is during current times or during the pandemic or since Covid came, is this different? Well, there’s very little that’s actually different since that time. One thing that’s different is your student loans are 0%. At least your federal ones are 0% until September 30th. So, obviously most people are not going to want to refinance them until September 30th. But otherwise, most things have not changed. Bond yields go up and down. Bond values go up and down. Interest rates go up and down. Unless you’ve got a crystal ball that is more clear than mine is, it’s very difficult to take advantage of that sort of a situation.

Dr. Jim Dahle:
If you don’t know what’s going to happen in the future, you can’t really anticipate it with your portfolio. I think you’re much better off setting up a fixed asset allocation. You set the percentages – This much in stocks, this much in bonds, this much in real estate, whatever you’re going to invest in and rebalancing back to it each year. Just because bonds had a great year this year, it doesn’t mean you hold less of them next year.
Dr. Jim Dahle:
Yes. You sell down to whatever percentages are set in your fixed asset allocation. More likely you just use your money to buy stocks. That’s what I’ve been doing the last few months. But you don’t actually change your asset allocation just because yields have fallen. And why is that? Well, if you had done that, you wouldn’t have owned bonds since like 2009, you would have this big run-up.

Dr. Jim Dahle:
People have been saying for more than a decade, “The bond rates must go up. Interest rates must go up.” And what has happened? They’ve stayed flat or gone down over that time period. It’s just really difficult to predict the future. So, I don’t think you should use an investing plan that requires you to be able to predict the future. I think that’s a good route to really screw things up in your life. Because guess what? You’re going to be wrong a lot about the future. If you don’t believe that I suggest you start keeping a notebook or a journal of your predictions about the future. And you might be surprised how poor they are, how bad you are predicting the future.
Dr. Jim Dahle:
Write down specific predictions of what you think the S&P 500 is going to do. Whether you think U.S. stocks are going to beat international stocks, whether you think bonds are going to do this or that, what the interest rates are going to do, what the housing market’s going to do. And you might be surprised when you pull that out in 6 months or 12 months, just how dumb you were 12 months ago on things that seem so obvious now.
Dr. Jim Dahle:
As I have kind of done that over the years, I’ve realized that my crystal ball is not clear at all. And if you think yours is either you should be running a whole lot more money than your own, or you are probably making a big mistake of leaving a lot of money on the table. But the truth is that most of us just do not have a clear crystal ball.
Dr. Jim Dahle:
All right. I hope those questions are helpful to you. As I mentioned at the beginning of the podcast, make sure that you check out our new thing. If you paid off student loans during your time in the recent past, go to whitecoatinvestor.com/debtfree. Leave us a picture, leave us the basic story and we will share that on social media and use it to inspire your peers.
Dr. Jim Dahle:
If you’re interested in that real estate course, I mentioned at the beginning of the podcast, “Zero to Freedom Through Cash-Flowing Rentals”, you can find that at whitecoatinvestor.com/rental. This is only on sale. It goes on sale a couple of times a year, but it’s only on sale through June 14th. So, if you’re listening to this to the day the podcast came out, you’ve only got three days if you want to buy it this time, otherwise, the course will be closed for months.
Dr. Jim Dahle:
I wanted to thank those of you who left us a five-star review on the podcast. I’ve seen a lot of great reviews lately, and I do appreciate that. It helps us to get the word out to others. I’ve been in the top 50 investing podcasts in the U.S. for the last couple of years, and those reviews help us to keep it there. So, I appreciate that.
Dr. Jim Dahle:
I want to thank our sponsor today – The Auburn University Physician Executive MBA. Gain the expertise to manage the business of medicine with the Physicians Executive MBA at Auburn Universities Harvard College of Business. Our flexible physicians only program lets you earn your MBA without taking you away from your patients. Auburn’s unique 21-month program lends innovative distance learning with five short on-campus residencies. Take control of your future during these challenging times. Learn more at auburn-pemba.com.
Dr. Jim Dahle:
All right, I think we’ve come to the end of our podcast. Thank you for telling your friends about it. Keep your head up, your shoulders back. You’ve got this and we can help. Please stay safe out there and we’ll see you next week on the White Coat Investor podcast.

Disclaimer:
My dad, your host, Dr. Dahle, is a practicing emergency physician, blogger, author, and podcaster. He’s 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.