Podcast #154 Show Notes: Bear Market Action Plan

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You are going to face many bear markets in your investing career. Having an action plan to survive a bear market is critical. I go over an important list of things to do and not do in a bear market in this episode. Things like don’t sell at the lows, stay the course, following your investing plan, and have a cash reserve on hand. You want to be a long term stock market investor. You don’t need this money next month, next year, or even in the next decade. Don’t act like you do.  All bear markets come to an end and stocks recover eventually.

In some respects, this one is a little bit different from other bear markets in that it involves a pandemic. I have a little bit of advice for you specific to this bear market, as well, in this episode. Your mortality may be a little higher, your income a little lower, and you may have more time on your hands. I address what to do for all of those things.  I think this show will be helpful to you right now. Soon we will be out of this. Maybe it is next month, maybe it is three years from now. I don’t know, but this too shall pass.

You’ve built a career on providing quality patient care where it’s needed most, and locum tenens can connect you with opportunities to help the nation’s hospitals through this crisis. Not sure where to start? Locumstory.com is the place where you can get real, unbiased answers. From basic questions like, “What is locum tenens?” to more complex questions about pay ranges, taxes, various specialties, and how locum tenens works for PAs and NPs. Go to locumstory.com and get the answers.

Quote of the Day

This one comes from John C. Bogle.

“If you have trouble imagining a 20% loss in the stock market, you shouldn’t be in stocks.”

I think that has been demonstrated quite well the last few weeks, if you hadn’t noticed, with your portfolio.

What to Do in a Bear Market

A reader asked me to create a list of things to do and not do during a bear market.

#1 Stay the course. Don’t sell at the lows.

Let’s start with some general bear market advice. The first thing is stay the course. Don’t go selling at the lows. This is the dumbest thing you can do with regard to your investments. Don’t wait until they drop in value and then sell them and lock in the drop. It’s just so insanely stupid. I cannot emphasize it any more than that. Don’t do that. Yes, there are some people that tried to sell at the market top. I don’t think that’s super wise either, but at least you’re selling at the market top.

After the market drops, there is no reason to sell. You’re going to lock in your losses, that money is going to be gone forever. You’re going to be sitting there as the market goes back up on the far side of this bear market wondering when to get back in and you basically permanently lost wealth. You are not investing this money for the next 30 days. You’re not even investing it for the next three years. Most of this money is not going to be spent for decades, so why are you treating it like it is money that you’re going to need some time soon? Stop doing that. Don’t put money you need in the next few years into stocks and leave the money you put into stocks there for decades like you originally planned to do. Stay the course. Our investing personal statement that we wrote back in residency and have been following ever since says we will not panic and sell securities due to market corrections. So when we get into a bear market and we lose a bunch of money, we don’t panic and sell it because that is our written financial plan.

#2 Rebalance according to your written financial plan.

The second thing you should do during a bear market, if your plan calls for it, is to rebalance. If you don’t have a plan, please go get a written financial plan. If you can’t write it yourself, take our Fire Your Financial Advisor course or hire a good financial planner who offers good advice at a fair price.  You should rebalance your portfolio in accordance with your financial plan. If your financial plan says you rebalance every January 1st, you don’t do anything during this bear market as far as rebalancing. If your financial plan says you rebalance the portfolio anytime the percentages are off by a certain amount, while they’re probably off by a certain amount now, so you need to rebalance that portfolio. But if you’re like most people in the first 10 years of your investing career, you’re just rebalancing with new money anyway. You almost never have to sell to rebalance. You just put all the new money into whatever has gone down recently, and lately, that means stocks.

#3 Tax Loss Harvest

The third thing you can do in a bear market that is really helpful is to tax loss harvest if you have a taxable account. Obviously this doesn’t do any good in a tax protected account like a Roth IRA or 401(k), but if you are in a taxable account with your investments, and they are underwater, you should sell them. But you don’t just sell them and leave the money in cash. You instantly take the money from selling and you buy another security that is very similar to but not exactly the same.

#4 Have a Cash Reserve

The next thing to do in a bear market or an economic downturn of any kind is to make sure that you have enough cash to get you through it. Normally an emergency fund of some type is what gets you through this situation. I generally recommend you keep an emergency fund equivalent to three to six months worth of your expenses. Perhaps the most interesting part about this bear market has been that doctors have lost jobs or incomes have gone down.  Who would have thought in a pandemic that doctors would be making less money? You need to make sure you have enough cash to get you through. If you do not have enough cash, you shouldn’t be investing the cash you have. Leave it in cash. That’s what it’s for. It allows you to stay the course with the money you do have invested because you can live off the cash you have.

If you don’t have enough cash, well, there are few things you can do to try to get more. Maybe you can sell some of your bonds since they’re not down like the stocks are or sell something else or you can cut your spending dramatically. But make sure you have enough cash to get through the situation.

 #5 Reassess Your Risk Tolerance

The fifth thing you should do is reassess your risk tolerance. I’ve been telling you for years, you don’t really understand what your risk tolerance is until you go into a big nasty bear market. Well, here is a big nasty bear market for you. How are you feeling? Are you lying awake at night worrying about your investments? If you are, you’re probably invested too aggressively. If you aren’t and you’re like, this is no big deal at all, I thought it’d be a lot worse than this, well, now’s a great time to ramp up your risk. If it’s not bothering you, and you have a 75/25 portfolio well, maybe you bump it up now to an 80/20 portfolio or an 85/15 portfolio or whatever. This is a great time to reassess your risk tolerance and really see where you’re at. Hopefully, you have not overestimated it.

#6 Don’t Look

Finally, some general bear market advice. The sixth point is don’t look. What most people will find is that, if they just don’t look at their investments for a few months, it is far easier psychologically to ride it out. Take advantage of some of those behavioral/psychological tricks, shred your statements before you open them, etc.  That’s probably not great for your security and maybe then Vanguard won’t protect your stuff if you don’t read your statements. But in general, don’t spend a lot of time looking at your investments. It’s just going to fill you with anxiety and make you lay awake at night worrying about them.

All bear markets come to an end eventually and stocks recover eventually. If they don’t, you’re going to need ammunition and canned goods, not some other investments. So, I wouldn’t worry too much about that. But in some respects, this one is a little bit different from other bear markets in that it involves a pandemic. I have a little bit of advice for you as specific to this bear market.

Pandemic Financial Advice

First, your mortality is a little bit higher than it might otherwise be. Get your disability and life insurance purchased. Get your estate plan done.

The second thing is about your income. This is a real bummer because, if your income were not lower, and for some of you it isn’t, but if your income is not lower, this is an awesome opportunity to be able to buy stocks low. It might be the best chance that you have for decades to buy stocks going forward. But for most of us, our income is down at least a little bit and we can’t really take advantage as much of stock selling at lower prices. So, do what you can there.

The good news is your spending is probably down, too, since you can’t go to the theater, restaurants, or on vacations. You are probably spending less money and hopefully, that makes up for the fact that you’re making less money.

The other thing that is kind of unique to this bear market is you have more time. I’m amazed how many docs are out of work.  This is a great chance to take care of some things. Maybe it’s a chance to get into better shape than you’ve been in. Maybe it’s a chance to get your finances in better shape than they have been in.

This is a great time to take one of our White Coat Investor online courses. If you still don’t have a written financial plan, take Fire Your Financial Advisor. You come out of it with a written financial plan that you understand and can follow to investing success.

If you already have a financial plan, you might enjoy our newest course, the Continuing Financial Education 2020 course. It is 34 hours of awesome material to help you become financially literate and learn about wellness. It’s eligible for CME and on sale until April 20th. Read some books, take an online course. You can still meet with a financial planner. All the ones on my list will meet with you by video conference. It’s totally virus free. This is a great time to get things in shape. Review your insurance, review your estate plan, rebalance your accounts. Maybe you want to refinance your mortgage or your student loans. Just remember your federal loans right now are at 0%, but, if you have private loans, it might be a good chance to refinance them again. These are all great opportunities for you during this particular pandemic.

Bear Market Opportunities

There are also some bear market opportunities you might want to keep in mind.

 

  1. Buy stuff. I bought the car I’m still driving in 2009. It was a great deal. This is a Toyota Sequoia. It had 40,000 miles on it. I got it for less than $19,000. It was in pristine shape. And you know what? Nobody else was buying cars from that dealership that month. This was in January 2009 in the depths of the last recession. So this can be, if there’s a big, prolonged economic downturn and you are not as affected by it as most people, it can be a great opportunity to buy stuff at a significant discount.
  2. Of course, it is also a great time to buy stocks. The stocks I bought in 2008/2009 gave me the best return of any stocks I ever bought. So, it’s also a great time to be pouring cash into the market and buying investments that are discounted because the stuff you buy now is going to provide awesome long-term returns compared to what you bought just a few months ago.
  3. This is also a great opportunity to get rid of legacy holdings. Something you bought in a taxable account that you really wouldn’t buy today, that you really don’t want in your portfolio, but the capital gains taxes would be so high to sell it and you feel stuck with it and have built your portfolio around it. The value of those things dropped recently and so it might be easier for you to clean up your portfolio now. You might even be able to capture some losses, but at least the gains are going to be much smaller. It’s a good opportunity to really get the portfolio in the shape you want to be it in. It might be swapping an actively managed mutual funds for lower cost index mutual funds. Maybe you can finally get rid of those individual stocks you bought that maybe you shouldn’t have. It’s a good time to clean up your portfolio.
  4. Over rebalancing. Some people have written their financial plans such that when the market really drops big, they actually change their asset allocation to be a little bit more aggressive. This is a little bit controversial. You shouldn’t do this by gut feel. I think you should do it according to a very logical, non-emotional, written investment plan. But, for example, if you wrote your plan such that if the market drops 40%, you’re going to change your asset allocation from 70/30 to 80/20, then I think it is okay to do as long as that is what your written financial plan says. This essentially forces you to not only buy low and sell high like you normally do as rebalancing, but to do it on steroids.
  5. Roth conversions. Just like it’s a good chance to get rid of legacy holdings, the cost of doing Roth conversions has just gone down because the balance of that traditional IRA or that 401(k), whatever that tax deferred account is,  is lower. The tax bill for converting it is lower even though you’re converting the same number of shares of investment. A good chance to do Roth conversions if that’s something that you’ve been wanting to do or something you need to do.
  6. Reduce your estate taxes. Remember, you’re allowed to give away $15,000 per person per year while $15,000 worth of securities right now is a lot more shares than it was a few months ago. So it allows you to reduce the size of your estate. If you have an estate tax problem, now is a good time to work on that because of the costs of doing so. Whether it’s giving money away or using a grantor retained annuity trust or whatever scheme you’re using to reduce your estate taxes, it basically is more effective in a bear market than it is in a bull market. So, take a look at that.

What to Not Do in a Bear Market

#1 Don’t Try to Time the Market

It’s no easier in a bear market than it is in a bull market. Your crystal ball is just as cloudy as mine. Just as cloudy as the talking heads on CNBC. Don’t convince yourself that you somehow know what’s going to happen in the future. If you think you do know what’s going to happen in the future, I suggest you start keeping a journal and write it down. Be specific and you will likely find within a few months or a few years that you don’t actually know what’s going to happen in the future. At least not in any specific enough way to really capitalize on it.

#2 Don’t Day Trade

It’s no smarter in a bear market than it is in a bull market. Don’t buy individual stocks. You’re taking on uncompensated risk. Diversify that risk by using low cost, passively managed index funds to get your stock market exposure. Don’t buy actively managed mutual funds. Mutual fund managers don’t have some crystal ball either. Their record is not any better in a bear market than it is in a bull market. Don’t believe anyone who is telling you they can pick a mutual fund that will help you avoid the pain of loss in a bear market.

# 3 Don’t Buy Leveraged Inverse ETFs

Adding leverage to a portfolio is a good way to lose a lot of money in a hurry.  They are an instrument of day traders. They are not an instrument of long-term investors. Stay away from them.

#4 Don’t Short the Market or Buy Puts

Don’t get into the habit of shorting the market or buying puts. You’re playing in the options space here. There’s a lot of danger of losing the entire investment. Yes, puts can be used as an insurance policy to protect the rest of the portfolio, but basically what you’re doing by buying that insurance is you’re throwing away the money you spent on the insurance. That cost becomes much higher in a bear market than it is before a bear market.

#5 Don’t Leave the Stock Market for Alternatives

Obviously, when stocks go down, everything else looks better. Gold looks better, silver looks better, bitcoin looks better, real estate looks better. In general, other things look better. But what you have to do is concentrate on the long run. It’s okay to have a few alternatives in your portfolio, but don’t let the fact that stocks go down scare you out of investing in stocks. You just need to invest in stocks in a smart way which is the “buy and hold” for the long term, not trying to time the market.

You want to be a long-term stock market investor. What does that mean? That means you buy stocks every month for your entire working career and you leave them there. You don’t have to worry about them going down temporarily because they’re going to go up. You have 60 years to be investing this money.  You don’t need to worry about it dropping for a few months or a few years. It’s not money you need in that sort of a scenario.

Reader and Listener Q&As

Covid-19 and the Housing Market

“My wife and I are planning on moving to the Washington DC area in the next three months where I’m taking a new job. I am currently in fellowship and I have no savings whatsoever. I’ve basically been dedicating it towards getting rid of loans, which I have successfully done at this point. The question really is with the interest rates being slashed currently and lower than they’ve been in quite some time, is this a good time now to buy a house or is it a better idea to rent an apartment or a house and just build up savings that you can put towards a down payment later on? As it stands right now, yes, the interest rates are low, but I have no money towards a down payment. So, I may be dealing with variable interest rates or a physician loan type situation.”

Covid-19 or a bear market don’t change my advice on buying a home. You should still buy a house when your personal and your professional situation are stable. So as a general rule, I don’t think residents and fellows should be buying houses most of the time. Maybe if you know you’re going to be in one place for five plus years, it’s worth the gamble. But on average it’s about five years to break even. So, three-year residency, four-year residency, you’re probably going to lose money. It doesn’t mean you can’t buy a house. You can probably make up for the money you lost as a resident on a house. Just realize that on average you’re probably going to lose money buying as a resident in those sorts of shorter residencies. And even at a five-year residency, it’s a 50-50 proposition once you take into account all the transaction costs.

In general, that means residency and fellowship are not great times to buy a house. You’re not in a stable professional situation. This doctor, however, is leaving fellowship. Typically, you leave fellowship and you end up in a more stable job. But that is not necessarily the case all the time. Something like 50% of doctors leave their first job within two or three years. So, I think you need to go there and make sure the job is stable before you buy. Now, how long does that take?  Some people might know the job is stable in three months or six months. Other people might take a year. Certainly, it’s easier to get a rental contract for a full year than it is for three to six months. But in general, I think you’re better off actually renting for a few months.

That does a few things for you. Number one, it encourages you to keep living like a resident for a little bit longer. Number two, it gives you time to get in a better financial situation. As an attending physician, nearly every month you’re in a better financial position than you were the month before. You have more savings, you have more money invested, your credit score is going up, your debt’s going down, everything is better. Just giving it a few months, all of a sudden, you’re in a much better situation. You can make better financial decisions, you can get better deals on your mortgages, etc.

Now obviously if housing goes up 20% in a year, you could come out behind doing that or if interest rates went from 3% to 8% in a year you could come out behind doing that. But for most people, most of the time, you’re probably better off not buying immediately when you go to your new city with your first attending job. There are so many horror stories of doctors who have done this and then either eaten it when they had to sell that house six months later as they left the job or they had to be a long distance landlord or they had the hospital administrator holding that job over their head or holding that mortgage over their head because now they’re kind of locked into being there. There are so many horror stories. The possibility of coming out a little bit ahead by buying that house is just not worth it.

So once your personal life is stable, once your professional life is stable, that’s the time to buy a house. I’m a huge fan of home ownership. I want you to own your house, but I want it to be a blessing in your life and not a curse.

A Tilted Portfolio

“I would like to build a diversified portfolio across U.S. international emerging, small and large value in addition to large blend and REITs. But I’m a bit confused on the appropriateness of doing so in a taxable account. In “The Four Pillars of Investing”, Dr. Bernstein states that in taxable accounts, you shouldn’t invest in REITs or value with the possible exception of certain tax manage index funds, even if not investing in them means changing your asset allocation to exclude these asset classes entirely. However, in looking on the internet, for example, on a Boglehead page on tax efficiency, it looks like even in the 37% bracket, the overall loss due to taxes on these asset classes, it would be less than 1% annually with “buy and hold” which I admit that I don’t fully understand the calculation for. If this is true, then as I would expect more than 1% premium from using these asset classes and the creation of a diversified portfolio, at least based on the data from people like Paul Merriman, wouldn’t it then still be worth it to have these asset classes even in taxable accounts?”

This question is about a tilted portfolio that is mostly in a taxable account. I don’t actually put publicly traded real estate investment trust or my small value fund into taxable. There may come a time when I have to do that once I have all of my total stock market in taxable, all my total international stock market in taxable, all my equity real estate in taxable, maybe even all my bonds in taxable using a municipal bond fund that I’m forced to put REITs or value stock mutual funds into a taxable account.

But I haven’t gotten there yet. The vast majority of my savings is now going into a taxable account. So, realize that this is probably not going to be a problem for you. Chances are you’re going to be able to keep the tax efficient stuff in your taxable account and the less tax efficient stuff in tax protected accounts for the most part throughout your career. So, I wouldn’t worry about that too much, but you’re right. Bernstein’s book ‘The Four Pillars of Investing” lines up different portfolios based on how much of your account is in taxable. For someone whose entire account is in taxable, the classic example of this is someone who sells off a business for millions of dollars and just creates their investment account all at once rather than over many years, Bernstein generally does recommend you avoid those less tax efficient asset classes, but for the most part, you don’t want the tax tail wagging the investment dog. Take your asset allocation, the one that you want, that you think is going to perform well enough to meet your goals, and then decide what your asset location is going to be, what accounts each of those is going to go into and don’t let that tax tail wag the investment dog.

Protecting Your Investments Against Fraud

“Most of my family’s net worth – IRAs, 401(k)s, money market accounts, etc.- is concentrated at a couple of financial institutions. Identity theft is fairly common. Also, theoretically secure companies like Equifax can suffer massive breaches affecting millions and millions of people. How do I buy or get insurance against our 10+ years of savings being wiped out by breaches? I understand FTC and similar programs’ insurance does not cover account holders against theft, fraud and robbery. Identity theft insurance seems to primarily help with expense reimbursement rather than protecting balances. Some financial institutions have policies to reimburse their customers for these types of losses, but I’m not sure of how to assess their willingness to do that and how to assess their ability to do that for a hypothetical large-scale breach affecting most or all of their customers”.

Number one, FDIC insurance and for credit union, I think it’s FCUA, ensures up to $250,000 per account against the bank going under. So that’s an important protection to have. If you are keeping more cash than that in the bank, you would probably be wise to open a different account, maybe even at a different bank to put some of that money into. But we are talking about here is Vanguard and Fidelity and Charles Schwab and E-Trade and these sorts of institutions.

Vanguard’s online fraud policy. “Our commitment regarding online security is simple. If assets are taken from your account in an unauthorized online transaction on vanguard.com and you followed the steps described in the “your responsibilities” section of our online fraud policy, we will reimburse the assets taken from your account in an unauthorized transaction”. Okay, so you go to that section. It says your responsibilities are “you should be aware of the risks of sharing your account information. If you share your vanguard.com username and password, or if you allow someone to access your account information, activities performed with your shared or access credentials or information may be considered authorized. If you’ve given someone authority to transact on your behalf, that person’s activity is authorized.”

Remember that everyone has a role to play in account security. Here’s how to do your part. “Protect your computer and device. Make sure that any computer or device you use to access your accounts has up to date antivirus and anti-spyware software and is protected by a firewall. Don’t use a public computer unless you know it has up to date security and you can log off completely. Protect your vanguard.com username, password, and other account-related information. Make sure your username, your password, and the answers to your security questions are unique and strong and keep them secure. Be careful about responding to opening attachments in or clicking links in emails that ask you for personal or financial information because you may expose account-related information. Vanguard will never send you an email asking for your social security number, account numbers, passwords, or security questions and answers. Don’t store your password or answers to security questions on the computer or device you use to access your Vanguard accounts. Monitor the activity in your account and alert us immediately of any activity you didn’t authorize. Review the account related information we send or make available to you as soon as you receive it, such as statements, confirmations, and changes to your mail preferences such as address change, bank information, or other services. Let us know immediately if you discover an unauthorized activity”.

Then, if should something happen, cooperate with them. “If Vanguard investigates suspected unauthorized activity in your account, you must fully cooperate with us. For example, we may ask you to file a police report, provide us with a statement of facts or allow us access to your computer”.

If you have complied with all that, they are saying they will cover the loss. There’s no dollar amount on it, so you lose millions from someone transacting online at Vanguard, they’re going to cover it as long as you follow those guidelines.

That is helpful. But what else can you do? Well, you can’t really buy insurance against this that I know of. What are you left doing? Well, you can spread your assets around. If you’re really worried about this, you can put some money at Fidelity and some at Vanguard and some at Schwab. That way one breach at least won’t take all your money. But honestly, I don’t spend a lot of time lying awake at night worrying about this. If you do, I suggest you spread your money around a little bit more than it is currently.

 

Employee Contribution Limits

“I’m a resident and I will be graduating this year. My question is regarding contribution limits to 403(b)’s and 401(k)’s. I’m currently saving as much as I can and my program is for 403(b) using after tax contributions since we don’t get a match. I figured this year I’ll be making less money since I’ll only have six months of attending salary. I plan to do a backdoor Roth IRA for this year, as well, once I get my attending job. The employer I’ll be signing with has a 401(k) plan, and I plan on maxing this out using tax deductible contributions. My question is if I save approximately 10k for my 403(b) this year, would I also then be able to save another 19.5k in my next job’s 401(k) plan since it would be two separate plans from two separate employers? Or do you have a 19.5k combined employee contribution limit for the year for all 403(b)’s and 401(k)’s? “

It is really important to understand the multiple 401(k) rules. Yes, you can have more than one 401(k) in a given year, but you only get one $19,500 employee contribution no matter how many 401(k)s you qualify to use that year. Now, for each 401(k), you’re allowed to put up to $57,000 into it. Separate employer, separate $57,000 limit. But that limit is comprised of employee and employer contributions. And so, if you have already used your entire employee contribution in the first 401(k), you can’t put any employee contribution into the second 401(k). Chances are good that the employer is not going to put any money in there if you don’t put any money in there. In fact, the truth is at most new jobs, you’re not eligible for the 401(k) for 12 or 18 months anyway, so this becomes a non-issue for most people.

The real beneficial way you can use multiple 401(k)’s, though, is you have the one at your main gig at the hospital, your group or your employer or whatever it is, and then you have your side gig 401(k), this individual 401(k) for your independent contractor work or your side business or whatever. Yes, maybe that one is composed entirely of employer contributions, but if you make enough money in that side gig, that can be a substantial amount of money that can be in there. For many, many years I was able to put the equivalent of $57,000 into my partnership 401(k) with my group. And then I was also able to put the equivalent of $57,000 into the White Coat Investor individual 401(k) because I was making enough money in both businesses to max both of those out. Now I’ve cut back my clinical hours a little bit. I don’t quite make enough money to actually max out that 401(k) at the partnership anymore. In this sort of situation though, going from one job to another, you’re probably not going to be eligible for the new 401(k) anyway, so I wouldn’t worry about it.

Ending

I hope this episode was helpful. Stay the course. This too shall end. If you have questions you would like answered on the podcast please leave them at our speakpipe.

 

Full Transcription

Transcription – WCI – Ep 154

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 154 – “Life in a bear market”. You built a career on providing quality patient care where it’s needed most and locum tenens can connect you with opportunities to help the nation’s hospitals through this crisis. Not sure where to start? Locumstory.com is the place where you can get real, unbiased answers from basic questions like “What is locum tenens?” to more complex questions about pay ranges, taxes, various specialties, and how locum tenens works for PAs and NPs. Go to locumstory.com and get the answers.
Dr. Jim Dahle:
Welcome back to the White Coat Investor podcast. Today as we record this, it’s April 8th and we expect this podcast go live in about a week on the 16th of this month. So, we’re excited to be back recording. We’re recording this one today and we’re recording next week’s today as we often do batch these podcasts.

Dr. Jim Dahle:
I’m going to talk a little bit more about that in a few minutes, but first let’s do the quote of the day. This one comes from John C. Bogle – “If you have trouble imagining a 20% loss in the stock market, you shouldn’t be in stocks”. And I think that has been demonstrated quite well the last few weeks if you hadn’t noticed with your portfolio. “Thanks so much for what you do. Particularly thanks for those of you on the front lines”. it’s been very interesting for me. I keep getting all these “thank you’s”. “Thank you for being on the front lines” kind of comments by email and in person, etc. But I don’t actually feel like I’m on the front lines and let me tell you why. It’s a little bit like when I was in the military. Once you put on that uniform, everyone’s always thanking you for your service. And the assumption is that if you got a uniform on, you’re getting shot at. And the truth is I was never closer than a two-hour flight from anybody who actually got shot at while I was in the military. And it feels very similarly during this pandemic.
Dr. Jim Dahle:
Yes, I work in the ER. Yes, I go see all these patients wearing full PPE, but it just feels very different here in Salt Lake City compared to in Detroit or in New York or in New Orleans or in Italy or China for that matter. And I think we have two positives in our hospital as of today. That was the email I saw this morning. I think we have five more that we’re waiting on tests that are actually admitted, but it just feels very different. It’s a huge disconnect when I read CNN and then I go to work. And not only are we not seeing a lot of COVID patients right now and maybe ever, I don’t know. Who knows where this is going to go over the next few weeks? Maybe by the time you hear this I’ll be swamped at work.

Dr. Jim Dahle:
But it feels very different to read CNN and hear about 800 people dying a day in New York City and then to go to work and not only not see patients with COVID but not see patients at all. The place has been dead. I mean I’ve had shifts where I’ve seen three or four patients. I had a colleague who worked an overnight shift and basically threw a no hitter, didn’t see a single patient on the overnight shift. And I think some of us in various parts of the country can relate to this, it’s just a very different experience from what we’ve been having. So, wherever you might be, whether you are in the line of fire, you’re in an ICU with 150 coronavirus patients in it, if you’re seeing 10 patients in your hospital die a day from it, know that we thank you and those of you who are just prepared for those sorts of situations but not actually seeing them, we thank you as well.

Dr. Jim Dahle:
And in particular, if you are one of the majority of docs who is kind of out of work right now, maybe even been fired or furloughed, certainly having a lower income, maybe you’re a dentist or maybe you’re an ENT surgeon or a plastic surgeon or whatever. Also, thank you for your sacrifice. I mean you have taken a significant economic hit to help fight this pandemic. So, thank you for doing that.
Dr. Jim Dahle:
It’s interesting as I go over the news for today, and I do this most mornings because it’s so interesting, frankly, I think that’s why all of us are talking about it on social media and reading the news and talking about it with friends and patients and coworkers and family and whoever. As I looked at it today, it said New York is having fewer diagnosed cases and actually having fewer patients in the hospital, although they’re still having some pretty lethal days. I think today it was 800 people who died of coronavirus. And so, there are some positive signs. I’m excited to see that.
Dr. Jim Dahle:
Here in Utah, I think we’ve had 13 deaths at this point and they are actually bumped up when they expect to see peak healthcare resource utilization from the last week in April to this weekend, which if it doesn’t get much worse than it is right now, that’s just a wonderful, wonderful blessing for us. Although I suspect we’re probably going to see a few more waves of this over the next 18 months. Hopefully, it’s not quite the healthcare hit or the economic hit that we’ve taken with this one.
Dr. Jim Dahle:
All right. We got a few other things I wanted to mention to you while we’re talking about this. First of all, if you are a healthcare worker, go get your Krispy Kreme’s every Monday. You get to a dozen Krispy Kreme donuts, so I’ll be sure to pick those up. We’ve been enjoying those the last couple of weeks.
Dr. Jim Dahle:
And our new course is out. Our promotional price is only good through Monday evening or Monday, April 20th. It’s a hundred dollars off for our new course. This is “Continuing Financial Education 2020”, the latest in physician wellness and financial literacy. It’s all the videos from the White Coat Investor conference back in March, as well as six hours more of videos from speakers who weren’t able to make it to the conference. It’s 34 hours of awesome material from all your favorite speakers and podcasters and bloggers, and it also comes with CME. It comes with 10 hours of CME. So, you can use your CME funds to buy it. You can write it off as a business expense if you’re self-employed. It’s great that way. So that essentially lowers the price for most people by at least a third.
Dr. Jim Dahle:
The price during the promotional period is $549 at midnight on the 20th of April then that will revert to its regular price, which is $649 but frankly we consider that to be a great price. For 34 hours of material, it’s actually the cheapest physician financial course out there if you divided by the number of hours of instruction that you get from it. So, we consider that our resident prize, we consider that our military price, we consider that RPA price. We just give it to everybody because we don’t think it’s fair to gouge attending physicians with a higher price. And so, you can get that, you can check that out. It’s at the White Coat Investor very prominent link right on the front page there. You can check out the new course, so be sure to do that.
Dr. Jim Dahle:
We’re going to have an episode coming up probably in June that’s all about disability insurance. So, we’re going to be answering all the questions about disability insurance that we get between now and then on this episode. I’ll have a special guest there to help answer those, so please leave us questions on the Speak Pipe at the whitecoatinvestor.com/speakpipe you can leave those questions for us and we’ll get them on to that podcast.
Dr. Jim Dahle:
All right, lots of emails in the last month. Let’s read some hate mail. It’s always fun to get hate mail and the more popular your podcast or your blog or whatever gets, the more hate mail you tend to get. This was specifically about the podcast though, so I thought it’d be fun to share with you. This is the entirety of the email without the person’s name.
“WTF? Where were you during the last two weeks? Completely absent and out of sync with your readers during the worst crisis of our lives. The only thing we received was your ads and prerecorded podcast, which were out of touch with the financial crisis. Thank God me and wife read all the old Jim Dahle teachings and stayed the course. Well, the old Jim Dolly who amassed this diehard fan base ever appear again or should we download the podcast only when we’re in the market for syndicated real estate sponsors. Thank you for your service. Past tense! Concern, diehard physician follower”.
Dr. Jim Dahle:
All right, thanks for that email. You feel better after sending that one. This is a good opportunity to talk about a couple of things. The first is feedback, right? And I am actually super appreciative that I got this feedback by email. I totally appreciate that. It’s way better than getting feedback on social media. For instance, if you had posted that on Facebook or if you’d posted it on Twitter or if you had put it into a review of the podcast. That’s not so fun. I would much rather get this negative feedback by email, so I do appreciate that and I do appreciate negative feedback. In a business like this, negative feedback is gold because it tells us what we’re screwing up and what we can fix better.
Dr. Jim Dahle:
Okay. The second thing I wanted to talk about was how we produce this podcast. This podcast is not done live. You probably have noticed that. In fact, it is done generally weeks in advance. This is actually really unusual. I’m recording this on April 8th, it’s going to go live on April 16th by the time you hear it. Maybe it’s who knows, the 19th, the 20th, who knows by the time you hear it. That’s not going to change. We’re not going to start recording podcasts and running them the next day. It just takes too much work between me preparing them, recording them. Cindy does some work with them, lining up guests and coordinating all the pieces. We send them out to Wendel who is our assistant that does the video editing. Then they have to be uploaded. The podcast notes have to be created and so it’s quite a production.
Dr. Jim Dahle:
And so, on average, we’re typically producing these somewhere between one week and six weeks before you actually hear them. And that’s not going to change. That’s just the nature of the podcast. Unless I drop everything else I’m doing between the newsletter, writing books, running an online course, doing a blog, doing all this other stuff that we do. Unless I drop all that, there’s no way that we’re going to shorten that interval. So, if you are expecting up to date information, you’ve got to realize that this is the White Coat Investor podcast. It is not CNN. Go to CNN if you need stuff that was updated two minutes ago. If you’re okay waiting a few weeks to learn some more financial information, listen to the White Coat Investor podcast. We’ve got a lot of great stuff, but if you needed something more up to date, there are other places to get it.
Dr. Jim Dahle:
For example, when I send out the newsletter, I hit send two minutes after I write it. It’s up to date to the minute. So, if you like that subscribed to the White Coat Investor newsletter. You can find links to that at whitecoatinvestor.com and you’ll get that in your email box about usually around the first of each month. The blog is also sometimes more up to date, although we do write even months in advance and schedule posts out. I will bump them from time to time and I’ve probably done that during this crisis. I’ve probably done that about six times where I’ve written something more current, more up to date and bumped what we had scheduled back a few weeks. That’s a little bit more up to date then you will find the podcast being.
Dr. Jim Dahle:
But if you really want to be up to date with what I’m doing, follow me on Twitter. Those are my thoughts for that day. I’m always sharing links to articles that I think are good, giving my perspective on the markets from time to time. But if you like up to date stuff, follow me on Twitter rather than the podcast. As the podcast, it’s always going to be at least a week old. That’s just the way it is.
Dr. Jim Dahle:
So, I’m going to try to make a better effort in letting you know the date we’re actually recording the podcast. Because what happened in March? Well, the world went crazy, right? In the matter of just a few days everything changed. The stock market dropped like crazy. The pandemic came on like crazy. And so not only were we two or three weeks behind, but because of the White Coat Investor conference that was in March, we had actually gotten a little bit farther ahead than usual so that we could concentrate on that conference during March. Any podcast you heard during March was actually recorded in February before the downturn started at all, before the pandemic really got real at all. If it sounded out of sync and out of touch, it’s because it was! It’s because it was recorded before any of that started. It was either not give you a podcast that week at all or run what we had recorded and we felt like that would do you more good.
Dr. Jim Dahle:
So hopefully that addresses some of those concerns in that email. I’m also getting a sense from the email that maybe we’re talking about real estate too much and not enough about index funds. So, we’ll try to talk about index funds more and stock market and less about real estate. And obviously as far as the sponsors of the podcast, the sponsors are going to be the people that pay me money. I’m not going to do the podcast for free. It’s a for profit business we’re running here, there’s going to be ads on it. I do appreciate feedback like, “Hey, there’s too many ads. I don’t want to listen to all these ads”. That’s fine and we’ll adjust for that. Sometimes you go across that line where you really are putting out too much promotion. You’re putting out too many ads and that’s fine. Other times, if you send me feedback saying, “I don’t want any ads in my podcast at all, I want you to work for free”, obviously we’re not going to do that.
Dr. Jim Dahle:
All right. Here’s another. I don’t know, this one’s hate mail is just feedback about the podcast. He said, “I found myself cheering for you as though I was watching a skilled boxing match on your last podcast, “How to choose a charity?”, but as the episode came to an end, I realized that this was a bad thing. In that episode, you read a podcast comment stating that what set you apart is your down to earth attitude. That is not what showed in the charity podcast. You appropriately told these people what they were doing, thinking scheming was wrong, but the delivery was so crass and ethereal that it felt like a hypo father berating a kid to the ears of a recommended friend. Once you’re around for a long time so I just wanted to give you a heads up. I’m sure I’m not the only person who heard this.”
Dr. Jim Dahle:
So, it sounds like I got tone not quite right in that podcast. So, I apologize to anybody I offended with that. I do appreciate feedback like that. Tone is one of the hardest things to get right. It’s probably a little bit easier on a podcast than it is in a blog post, but I appreciate it when I get it wrong to hear about it.
Dr. Jim Dahle:
So, looking at a few of the reviews that have come in on the podcast lately, I’ve got one that says, “Biased information, conflict of interest, over monetized”. Again, I’d rather get that feedback by email then as a review. It’s much more helpful to try to reach other people to get five-star reviews. Here’s another one, “Similar theme, over monetized, I used to love this podcast. Jim’s a great resource for financial education with issues specific to the high-income earner. Unfortunately, it’s become hyper monetized with far too many ads, guests who are merely on because they paid Jim advertising dollars and topics which are heavily biased toward paid services. Some of his prior guests include some highly suspect characters, one of which was subsequently outed for financial fraud activities”. That is absolutely true. I did have a guest that was outed for fraud and we went back and actually rerecorded that podcast and put a big fat disclaimer on the front and end of it and I also addressed it in a later podcast. Yeah. Of the things I regret about this podcast, that episode is at the top of the list. No doubt about it.
Dr. Jim Dahle:
I have certainly had some of our recommended financial advisors on the podcast over the last year. I think we have had eight on and we got two more from our list of 10 that we’re going to bring on the podcast. I think one runs next week. You get to meet Chad Chubb. And what we try to do is yes, I introduced them for a couple of minutes and then we try to answer your questions together. So, we’re trying to get a few more voices on the podcast and hopefully you find that helpful. But if you don’t, well, there’s only two more of them left, you’ll get over it.
Dr. Jim Dahle:
Okay. Similar feedback on this one – “A good info in early episodes, bogged down with ads afterward. Jim does a good job, especially in the early episodes going over topics that are on everyone’s mind when getting out of residency. He certainly knows his stuff. Over the course of listening to his show, I’ve noticed it has really ramped up the monetization. The info is still solid, but takes time to sift through the ads to get it”. Yep, Cindy told me I put too many ads in those two episodes and you guys have confirmed it. I appreciate that.
Dr. Jim Dahle:
All right. Another one, “Lowly pediatrician who just wants to help people. This one’s about episode 119 absolutely absurd. Pediatricians treat colds and ear infections refer out to specialists and that’s why they don’t earn very much”. Okay. This one is not fair at all. I did not say that. That was a guest. It was a blogger who is not a doctor who said that. And immediately after it on the podcast I corrected him, pointed out how much pediatricians do and told you to send all your hate mail to him. So, I think that’s not fair that you nailed me with that on a review. So, I’m sorry about that, but I think I corrected that in real time. I don’t think anybody can really criticize me for that.
Dr. Jim Dahle:
Occasionally on Twitter I get told that I’m tone deaf and sometimes that’s with a screenshot of something from the blog. Well, bear in mind that my audience is not the general Twitter audience. My audience is high-income professionals, the top 1% to 2% of the population by income. So, the things I say and write on the blog and talk about in this podcast are aimed at that group. Obviously when I’m talking to that group is pretty easy to take something out of context that when applied to the general population will sound tone deaf.
Dr. Jim Dahle:
Let me give you an example. I chew you guys out for not having an emergency fund, right? There’s really no excuse for someone making $200,000 a year to not have an emergency fund or some kind of savings. But a screenshot of three lines from a blog post saying, I think you need an emergency fund. Then becomes ammunition for someone whose situation sounds like it came out of a country music song. They lost their house, they lost their job, their spouse left them to clean out their accounts, the dog died, etc. So, you’ve got to take things in context and realize that I am speaking to my audience. My avatar is somebody that makes a couple hundred thousand dollars a year and that’s not going to be applicable to everybody in America, much less across the world.
Dr. Jim Dahle:
Okay, so enough hate mail. Please do send me negative feedback by email. Positive feedback, please make public. Just like you like getting your feedback. But if you send it by email, I’ll see it sooner. I’m guaranteed to actually see it. Whereas if you bury it in some other location, I might not see it and I’m far more likely to make changes based on it. So, I appreciate those sending feedback by email. It helps to promote the message rather than to hurt it. And I totally get the lots of people are on edge lately. We’ve all lost income, we’ve all lost a significant portion of our wealth. We’ve all got this fear of contracting and bringing home a serious illness. So, I totally get it.
Dr. Jim Dahle:
I recognize that the vast majority of the mail we use to get is still nice such as this one. Says, “I just wanted to send you a thank you note during this time. I’ve been following WCI since about 2013 and I guess this is my first real economic downturn. Not only do I feel completely prepared and stable, part of me is actually happy and loving the discounts in the market. He was really right that you never know who’s swimming naked until the tide goes out. Thanks for teaching me to keep my bathing suit on. Nobody knows what will happen in the future and I realize things may still get worse, but I could be singing a different tune soon. But there are very few scenarios I can imagine where I won’t be financially prepared. Thanks to your help”. And I got that right at the depths of the bear market.
Dr. Jim Dahle:
It’s interesting as I stare at this chart of VTI, the Vanguard Total Stock market ETF, I’ve seen that it peaked back in February. It was, let’s see, it looks like it was on February 19th that peaked at $172 a share. It went up and down quite a bit on its way down to its nadir on March 23rd basically at $112 a share. That’s a big drop.
Dr. Jim Dahle:
Since then it’s come up quite a bit. I see as it’s trading right now as we’re recording this at $136 a share. So, up from $112 to $136 a share. So that’s a pretty good rise off the bottom already. I have no idea what happens next. Maybe we go right back up to $170 a share. Maybe we’re going to have a double dip and it’s going to go back down to a $112 a share or even lower. But the point is you need a financial plan that is going to work for you in both of those situations without relying on you having a functioning crystal ball to tell you which of those two is going to happen.
Dr. Jim Dahle:
I feel really bad for the people who sold, even those who sold at the top, which obviously is a good thing if you can time that right, because now they’re faced with this very difficult decision of what to do now. How quickly do you put your money back in? How many months do you take to dollar cost average in? Do you put it all in at this level? Obviously, it’s really hard to know without being able to know the future. All right, we’ll talk a little bit more about that in a little bit.
Dr. Jim Dahle:
Let’s take some of your questions though. This one comes from Rafi.
Rafi:
Good morning. Thank you for everything that you do. I really enjoy reading your blog posts as well as listening to the podcast. It’s been a great wealth of information. My question pretends to COVID-19 and the housing market. My wife and I are planning on moving to the Washington DC area in the next three months where I’m taking up a new job. I am currently in fellowship and I have, as I said three months ago, I have no savings whatsoever. I’ve basically been dedicating it towards getting rid of loans, which I have successfully done at this point. The question really is with the interest rates being slashed currently and lower than they’ve been in quite some time, is this a good time now to buy a house or is it a better idea to rent an apartment or a house and just build up savings that you can put towards a down payment later on? As it stands right now, yes, the interest rates are low, but I have no money went towards a down payment. So, I may be dealing with variable interest rates or a physician loan type situation. Your insight on this matter would be extremely useful and thanks again.
Dr. Jim Dahle:
Okay, so it’s interesting. I get all the same questions, but they’re all phrased now the COVID-19 has happened. Or now that there’s a bear market, should I do it differently? Does that change things? Well, no, it really doesn’t change things. You should still buy a house when your personal and your professional situation are stable. So as a general rule, I don’t think residents and fellows should be buying houses most of the time. Maybe if you know you’re going to be in one place for five plus years, it’s worth the gamble. But on average it’s about five years to break even. So, three-year residency, four-year residency, you’re probably going to lose money. It doesn’t mean you can’t buy a house. You can probably make up for the money you lost as a resident on a house. Just realize that on average you’re probably going to lose money buying as a resident in those sorts of shorter residencies. And even at a five-year residency, it’s a 50-50 proposition once you take into account all the transaction costs.

Dr. Jim Dahle:
In general, that means residency and fellowship are not great times to buy a house. You’re not in a stable professional situation. This doc however, was leaving fellowship. Typically, you leave fellowship and you end up in a more stable job. Yeah, that’s not necessarily the case. Something like 50% of docs leave their first job within two or three years. So, I think you need to go there and make sure the job is stable before you buy. Now, how long does that take? I don’t know. Some people might know the job stable in three months or six months. Other people might take a year. Certainly, it’s easier to get a rental contract for a full year than it is for three to six months. But in general, I think you’re better off going to get this big boy, big girl job out of training and actually renting for a few months.
Dr. Jim Dahle:
That does a few things for you. Number one, it encourages you to keep living like a resident for a little bit longer. Number two, it gives you time to get in a better financial situation. As an attending physician, nearly every month you’re in a better financial position than you were the month before. You have more savings, you have more money invested, your credit score is going up, your debt’s going down, everything is better. Just giving it a few months, all of a sudden, you’re in a much better situation. You can make better financial decisions, you can get better deals on your mortgages, etc.
Dr. Jim Dahle:
Now obviously if housing goes up 20% in a year, you could come out behind doing that or for interest rates went from 3% to 8% a year you could come out behind doing that. But for most people, most of the time you’re probably better off not buying immediately when you go to your new city with your first attending job. And there are so many horror stories of docs who have done this and then either eaten it when they had to sell that house six months later as they left the job or they had to be a long distance landlord or they had the hospital administrator holding that job over their head or holding that mortgage over their head because now they’re kind of locked into being there. There are so many horror stories. The possibility of coming out a little bit ahead by buying that house is just not worth it.
Dr. Jim Dahle:
So once your personal life is stable, once your professional life is stable, that’s the time to buy a house. I’m a huge fan ownership. I want you to own your house, but I want it to be a blessing in your life and not a curse.
Dr. Jim Dahle:
All right, let’s hear from a medical student on this next call off of the Speak Pipe.

Speaker 1:
Hi, Dr. Dahle. First off, I want to thank you for all you do. Your podcast sparked my interest in investing in personal finance, which has now turned into a hobby of devouring financial books and podcasts. I’m a medical student who’s fallen in love with a specialty which happens to paid quite well and will allow my wife and me to put a majority of our investing into taxable accounts after filling up our retirement accounts in the future. I would like to build a diversified portfolio across U.S. international emerging, small and large value in addition to large blend and reits. But I’m a bit confused on the appropriateness of doing so in a taxable account. In “The Four Pillars of Investing”, Dr. Bernstein states that in taxable accounts, you shouldn’t invest in reits or value with the possible exception of certain tax manage index funds, even if not investing in them means changing your asset allocation to exclude these asset classes entirely. However, in looking on the internet, for example, on a Boglehead page on tax efficiency, it looks like even in the 37% bracket, the overall loss due to taxes on these asset classes, it would be less than 1% annually with “buy and hold”. Which, I admit that I don’t fully understand the calculation for. If this is true, then as I would expect more than 1% premium from using these asset classes and the creation of a diversified portfolio, at least based on the data from people like Paul Merriman, wouldn’t it then still be worth it to have these asset classes even in taxable accounts? Thank you again for all you do.

Dr. Jim Dahle:
Okay. Wow. How would it be to know who both Bernstein and Merriman are as a medical student? Imagine how far ahead you’d be today if you knew who those folks were when you were a medical student. This medical student is already wrestling with the minutia of investing and so that probably bodes well for his future financial situation. You are going to be so wealthy knowing this stuff at this point in your career. To answer your question about what to do with a tilted portfolio that’s going to be mostly in taxable. I don’t actually put publicly traded real estate investment trust or my small value fund into taxable. There may come a time when I have to do that once I’ve got all of my total stock market in taxable, all my total international stock market in taxable, all my equity, real estate in taxable, maybe even all my bonds in taxable using a municipal bond fund that I’m forced to put reits or value stock tag mutual funds into a taxable account.

Dr. Jim Dahle:
But I haven’t gotten there yet. The vast majority of my savings is now going into a taxable account. So, realize that this is probably not going to be a problem for you. Chances are you’re going to be able to keep the tax efficient stuff in your taxable account and the less tax efficient stuff in tax protected accounts for the most part throughout your career. So, I wouldn’t worry about that too much, but you’re right. Bernstein’s book ‘The Four Pillars of Investing” lines up different portfolios based on how much of your account is in taxable and in someone whose entire account is in taxable. And the classic example of this is somebody who sells off a business for millions of dollars and just creates their investment account all at once rather than over many years. He generally does recommend you avoid those less tax efficient asset classes, but for the most part, you don’t want the tax tail wagging the investment dog. Take your asset allocation, the one that you want that you think is going to perform well enough to meet your goals, and then decide what your asset location is going to be, what accounts each of those is going to go into and don’t let that tax tail wag the investment dog.
Dr. Jim Dahle:
Okay, next question comes in by email.
“Most of my family’s net worth IRAs, 401(k)s, money market accounts, etc. is concentrated at a couple of financial institutions. Identity theft is fairly common. Also, theoretically secure companies like Equifax can suffer massive breaches affecting millions and millions of people. How do I buy or get insurance against our 10 plus years of savings being wiped out by breaches? I understand FTC and similar programs insurance does not cover account holders against theft, fraud and robbery. Identity theft insurance seems to primarily help with expense reimbursement rather than protecting balances. Some financial institutions have policies to reimburse their customers for these types of losses, but I’m not sure of how to assess their willingness to do that and how to assess their ability to do that for hypothetical large-scale breach affecting most or all of their customers”.
Dr. Jim Dahle:
Okay, great question. What a wonderful problem to have. It’s a total first world problem, right? How do I keep from losing my money to fraud? It’s great to have that money to lose. Well, a few things you can do. Number one, FDIC insurance and for credit union, I think it’s FCUA. Basically, the same thing, ensures up to $250,000 per account against the bank going under. So that’s an important protection to have. If you are keeping more cash than that in the bank, you would probably be wise for you to open a different account, maybe even at a different bank to put some of that money into. And some people do that. They might have $2 million in cash spread across eight different institutions, but usually, you can get quite a few accounts at one institution. You’ve got an account in your name, one in your spouse’s name, a joint account, maybe one of the kids, maybe one in the businesses name. And those all get a separate $250,000 amount of insurance. But I don’t think that’s necessarily what we’re talking about.
Dr. Jim Dahle:
I think what we’re talking about here is Vanguard and Fidelity and Charles Schwab and E-Trade and these sorts of institutions. So, let’s go and look at what their policy actually is.
Dr. Jim Dahle:
Well, here’s what Vanguard says. Vanguard says our online fraud policy. “Our commitment regarding online security is simple. If assets are taken from your account in an unauthorized online transaction on vanguard.com and you followed the steps described in the “your responsibilities” section of our online fraud policy will reimburse the assets taken from your account in an unauthorized transaction”. Okay, so you go to that section. It says, “your responsibilities”. “You should be aware of the risks of sharing your account information. If you share your vanguard.com username and password, or if you allow someone to access your account information, activities performed with your shared or access credentials or information may be considered authorized. If you’ve given someone authority to transact on your behalf, that person’s activity is authorized”.
Dr. Jim Dahle:
Remember that everyone has a role to play in account security. Here’s how to do your part. “Protect your computer and device. Make sure that any computer or device you use to access your accounts has up to date antivirus and anti-spyware software is protected by a firewall. Don’t use a public computer unless you know has up to date security and you can log off completely. Protect your vanguard.com username, password, and other account related information. Make sure your username, your password, and the answers to your security questions are unique and strong and keep them secure. Be careful about responding to opening attachments in or clicking links and emails and ask you for personal or financial information because you may expose account related information. Vanguard will never send you an email asking for your social security number, account numbers, passwords, or security questions and answers. Don’t store your password or answers to security questions on the computer or device you use to access your Vanguard accounts. Monitor the activity in your account and alert us immediately of any activity you didn’t authorize. Review the account related information we send or make available to you as soon as you receive it, such as statements, confirmations, and changes to your mail preferences such as address change, bank information, or other services. Let us know immediately if you discover an unauthorized activity”.
Dr. Jim Dahle:
Okay, great. And cooperate with us. “A Vanguard investigate suspected on authorized activity in your account. You must fully cooperate with us. For example, we may ask you to file a police report, provide us with a statement of facts or allow us access to your computer”.
Dr. Jim Dahle:
Okay, so have you compiled with that, they’re saying they will cover the loss. There’s no dollar amount on it, so you lose millions from someone transacting online at Vanguard, they’re going to cover it as long as you follow those guidelines.

Dr. Jim Dahle:
So, that’s pretty helpful. But what else can you do? Well, you can’t really buy insurance against this that I know of. And so, what are you left doing? Well, you can spread your assets around. If you’re really worried about this, you can put some money at Fidelity and some of Vanguard and some at Schwab. That way one breach at least won’t take all your money. I’m kind of forced to do that anyway. I’ve got money all over the place just because 401(k) is tend to be at a different institution than where my IRA happens to be. But honestly, I don’t spend a lot of time lying awake at night worrying about this. If you do, I suggest you spread your money around a little bit more than it is currently.
Dr. Jim Dahle:
All right, our next comes off the Speak Pipe from Dan.
Dan:
Hi, Dr. Dahle. I’m a resident and I will be graduating this year. My question is regarding contribution limits to 403(b)’s and 401(k)’s. I’m currently saving as much as I can and my program is for 403(b) using after tax contributions since we don’t get a match and I figured this year I’ll be making less money since I’ll only have six months of attending salary. I plan to do a backdoor Roth IRA for this year as well once I get my attending job. The employer I’ll be signing with a 401(k) plan and I plan on maxing this out using tax deductible contributions. My question is if I save approximately 10k for my 403(b) this year, would I also then be able to save another 19.5k in my next job’s 401(k) plan since it would be two separate plans from two separate employers? Or do you have a 19.5k combined employee contribution limit for the year for all 403(b)’s and 401(k)’s? Thank you for all that you do.

Dr. Jim Dahle:
Okay. This is important. This happens all the time when we change jobs, right? It’s really important to understand the multiple 401(k) rules. Yes, you can have more than one 401(k) in a given year, but you only get one $19,500 employee contribution no matter how many 401(k) you qualify to use that year. Now each 401(k), you’re allowed to put up to $57,000 into it, right? Separate employer, separate $57,000 limit. But that limit is composed of employee and employer contributions. And so, have you already used your entire employee contribution in the first 401(k), you can’t put any employee contribution into the second 401(k). And chances are good that the employer is not going to put any money in there if you don’t put any money in there. In fact, the truth is most new jobs, you’re not eligible for the 401(k) for 12 or 18 months anyway, so this becomes a non-issue for most people.

Dr. Jim Dahle:
The real beneficial way you can use multiple 401(k)’s though is you have the one at your main gig at the hospital, your group or your employer or whatever it is, and then you have your side gig 401(k), this individual 401(k) for your independent contractor work or your side business or whatever. Yes, maybe that one is composed entirely of employer contributions, but if you make enough money in that side gig, that can be a substantial amount of money that can be in there. For many, many years I was able to put the equivalent of $57,000 into my partnership 401(k) with my group. And then I was also able to put the equivalent of $57,000 into the White Coat Investor individual 401(k) because I was making enough money in both businesses to max both of those out.
Dr. Jim Dahle:
Now I’ve cut back my clinical hours a little bit. I don’t quite make enough money to actually max out that 401(k) at the partnership anymore, which is a real pain because I’ve got to calculate exactly how much it can be put in there every year. Those limitations start to come into play for you. In this sort of situation though, going from one job to another, you’re probably not going to be eligible for the new 401(k) anyway, so I wouldn’t worry about it.

 

 

Dr. Jim Dahle:
Okay. There comes a question by email – “I think it’d be great to do a bear market recession podcast episode or blog post if it’s not already in the works. On the forum, most people are levelheaded by, I see a lot of folks on the Facebook group still talking about selling and converting to cash and gold, converting equities to all bonds, trying to play with individual stocks, etc. Things which are generally not encouraged in the White Coat Investor books or other recommended personal finance books. Basically, maybe you can create a top five things to do and a top five things not to do during this acute drop, but also in the possible recession months and years that lie ahead. In addition, maybe some recommendations for those who are in training pre EFI, post EFI and early retirement, including how to help parents who are freaking out”.
Dr. Jim Dahle:
Yeah, you do have to help your parents if they start freaking out. Like with anything, hopefully you’ve been preparing them if you’re the person they look to for financial information, you’ve been preparing them for years for a bear market. I’ve been helping my parents with their finances since the mid-2000s. This is their fourth bear market. This isn’t new to them, and so they know what to do. They’ve been trained on what to do and they’re doing it. So, I hope that’s happening for your parents as well.

Dr. Jim Dahle:
But let’s talk about bear markets, shall we? I’ve put several posts on the blog recently about bear markets and I think that’s a great place to get some additional information about it. But let’s cover a few of these topics today.
Dr. Jim Dahle:
Let’s start with some general bare market advice. The first thing is “Stay the course. Don’t go selling at the lows”. This is the dumbest thing you can do with regard to your investments is wait until they drop in value and then sell them and lock in the drop. It’s just so insanely stupid. I cannot emphasize it any more than that. Don’t do that. Yes, there are some people that tried to sell at the market top. I don’t think that’s super wise either, but at least you’re selling to the market top.

Dr. Jim Dahle:
After the market drops, there’s no reason to sell. You’re going to lock in your losses, that money is going to be gone forever. You’re going to be sitting there as the market goes back up on the far side of this bear market wondering when to get back in and you basically permanently lost wealth. You are not investing this money for the next 30 days. You’re not even investing it for the next three years. Most of this money is not going to be spent for decades, so why are you treating it like it is money that you’re going to need some time soon? Stop doing that. Don’t put money you need in the next few years into stocks and leave the money you put into stocks there for decades like you’re originally planning to do. So, stay the course. Our investing personal statement that we wrote back in residency and had been following ever since said we will not panic and sell securities due to market corrections. And so, when we get into a bear market and we lose a bunch of money, we don’t panic and sell it because that is our written financial plan.

Dr. Jim Dahle:
The second thing you should do during a bear market, if your plan calls for it, and if you don’t have a plan, please “Go get a written financial plan”. If you can’t write it yourself, take “Fire Your Financial Advisor” written course or hire a good financial planner who offers good advice at a fair price. You can find on a recommended page on the website to help you draft up a financial plan. You should rebalance your portfolio in accordance with your financial plan. If your financial plan says you rebalance every January 1st, you don’t do anything during this bear market as far as rebalancing. If your financial plan says you rebalance the portfolio anytime the percentages are off by a certain amount while they’re probably off by a certain amount now, so you need to rebalance that portfolio. But if you’re like most people in the first 10 years of your investing career, you’re just rebalancing with new money anyway. You almost never have to sell the rebalance. You just put all the new money into whatever’s gone down recently. So, that probably means stocks lately.
Dr. Jim Dahle:
The third thing you can do in a bear market that’s really helpful is “You can tax loss harvest”. If you have a taxable account, obviously, this doesn’t do any good in a tax protected account like a Roth IRA or 401(k) but if you are in a taxable account with your investments and they are underwater, you should sell them. But you don’t just sell them and leave the money in cash. You instantly take the money from selling and you buy another security that is very similar to but not exactly the same.
Dr. Jim Dahle:
So, for example, you might swap from a total stock market fund to a 500-index fund. And basically, those two investments have a correlation of 0.99 but they’re not the same investment. They’re very different. One of them holds 500 stocks, the other one holds 1000 of stocks. They’re not the same investment. Nobody’s going to argue they are. And what you’ve done is you have captured or harvested that tax loss. When it comes time to do your taxes next year, you can use up to $3,000 of that tax loss against your ordinary income. So, it gives you a tax break and you can carry those losses forward indefinitely and you can use them in the future to offset capital gains in an unlimited amount.
Dr. Jim Dahle:
But the real benefit is that $3,000 a year of offset in your ordinary income. So, if you have a taxable account and there’s a bunch of red in it, when you go to the cost basis page on it, it’s time to do some tax loss harvesting. So, read up on how to do it. Don’t screw it up. There are ways to screw it up, but it’s just not that complicated. You’ve got to make sure you don’t rebuy that security within 30 days on either side that you just sold. And you also don’t want to get to doing this so frequently that you turn your dividends from qualified dividends to non-qualified dividends. But basically, if you’re only doing this once every couple of months, then you’re going to be okay with tax loss harvesting. It’s only when you really start doing it very frequently that you run into problems.
Dr. Jim Dahle:
The next thing to do in a bear market or an economic downturn of any kind is to “Make sure that you have enough cash to get you through it”. Normally an emergency fund of some type is what gets you through this situation. I generally recommend you keep an emergency fund equivalent to three to six months’ worth of your expenses. Perhaps the most interesting part about this bear market has been the docs have lost jobs, doc’s incomes have gone down. If there’s anything that’s black swan like about this, I think that’s it. Who would have thought in a pandemic that doctors would be making less money? So, you need to make sure you have enough cash to get you through. If you do not have enough cash, you shouldn’t be investing the cash you have. Leave it in cash. That’s what it’s for. It allows you to stay the course with the money you do have invested because you know you don’t have to spend it because you can live off the cash you have.
Dr. Jim Dahle:
If you don’t have enough cash, well, there’s a few things you can do to try to get more. Maybe you can sell some of your bonds since they’re not down like the stocks are or maybe you can sell something or you can cut your spending dramatically or whatever. But make sure you have enough cash to get through the situation.

Dr. Jim Dahle:
The fifth thing you should do is “Reassess your risk tolerance”. I’ve been telling you for years, you don’t really understand what your risk tolerance is until you go into a big nasty bear market. Well, here’s a big nasty bear market for you. How are you feeling? Are you laying awake at night worrying about your investments? If you are, you’re probably invested too aggressively. If you aren’t and you’re like, this is no big deal at all, I thought it’d be a lot worse than this. Well, now’s a great time to ramp up your risk, right? If it’s not bothering you, you got a 75/25 portfolio and you’re like, this is fine. Well, maybe you bump it up now to an 80/20 portfolio or an 85/15 portfolio or whatever. This is a great time to reassess your risk tolerance and really see where you’re at. Hopefully you have not overestimated it.
Dr. Jim Dahle:
And finally, some general bear market advice. The six point is “Don’t look”. What most people will find is that they just don’t look at their investments for a few months. It’s far easier psychologically to ride it out. And so, take advantage of some of those behavioral, those psychological tricks, shred your statements before you open them. That’s probably not great for your security and maybe then Vanguard won’t protect your stuff if you don’t read your statements. But in general, don’t spend a lot of time looking at your investments. It’s just going to fill you with anxiety and make you lay awake at night worrying about them.
Dr. Jim Dahle:
All bear markets come to an end eventually and stocks recover eventually. If they don’t, well, you’re going to need ammunition and canned goods, not some other investments. So, I wouldn’t worry too much about that. But in some respects, this one is a little bit different from other bear markets and that involves a pandemic. I have a little bit of advice for you as specific to this bear market.

Dr. Jim Dahle:
First your mortality is a little bit higher than it might otherwise be. If you are on the front lines, if you are in New York city and you are in an ICU with 150 patients with COVID, your mortality is a little higher than it used to be. So, make sure if you haven’t done this previously that you have all your ducks in a row. That means you got your disability insurance bought, you’ve got your life insurance bought, you’ve got your estate plan done. If you haven’t done that stuff, get it taken care of.
Dr. Jim Dahle:
The second thing that’s unique and then I alluded to earlier is your income’s lower. And this is a real bummer because if your income were not lower, and for some of you it isn’t, you have guaranteed contracts or whatever. If your income is not lowered, this is an awesome opportunity to be able to buy stocks low. It might be the best chance that you have for decades to buy stocks going forward. But for most of us, our income is down at least a little bit and it’s a real bummer because we can’t really take advantage as much of stock selling at lower prices. So, do what you can there.
Dr. Jim Dahle:
The good news is your spending is probably down too since you can’t go to the theater, you can’t go to the restaurants, you can’t go on vacation. So, you’re probably spending less money and hopefully that makes up for the fact that you’re making less money.
Dr. Jim Dahle:
The other thing that is kind of unique to this bear market is you have more time. I’m amazed how many docs are out of work. I think I got a fax from our group of plastic surgeons saying, we are now offering a 24/7 laceration clinic. They want all our lacerations. But our volumes are so down, we’re not going to send them any more than the ones we sent them before. The really complex ones. And so, it’s interesting that so many docs have time. But this is a great chance to take care of some things. Maybe it’s a chance to get into better shape than you’ve been in. Maybe it’s a chance to get your finances in better shape then they’re in.
Dr. Jim Dahle:
This is a great time to take one of our White Coat Investor online courses. If you still don’t have a written financial plan, take “Fire Your Financial Advisor”. It’s only $499. It’s a great course. You come out of it with a written financial plan. You’ve written yourself so you understand it and you can follow it to investing success.
Dr. Jim Dahle:
If you already have a financial plan, you might enjoy our newest course, the “Continuing Financial Education 2020” course. A 34 hours of awesome material to help you learn more about finances, become financially literate and learn about wellness. It’s eligible for CME, you can’t beat it. So, it’s a great time to do that. Read some books, take an online course. You can still meet with a financial planner. All the ones on my list, they will meet with you by video conference. It’s totally virus free. So, this is a great time to get things in shape. Review your insurance, review your state plan, rebalance your accounts. Maybe you want to refinance your mortgage or your student loans. Just remember your federal loans right now are a 0%, but if you have private loans, it might be a good chance to refinance them again. These are all great opportunities for you to do during this particular pandemic.
Dr. Jim Dahle:
There are also some bear market opportunities you might want to keep in mind. Number one is to buy stuff. I bought the car I’m still driving in 2009. It was a great deal. This is a Toyota Sequoia. It had 40,000 miles on it. I got it for less than $19,000. It was in pristine shape. And you know what? Nobody else was buying cars from that dealership that month. This was in January 2009 in the depths of the last recession. So, this can be, if there’s a big economic prolonged economic downturn and you are not as affected by it as most people, it can be a great opportunity to buy stuff at a significant discount.
Dr. Jim Dahle:
On the other hand, it’s also a great time to buy stocks. The stocks I bought in 2008/2009 gave me the best return of any stocks I ever bought. So, it’s also a great time to be pouring cash into the market and buying investments that are discount because the stuff you buy now is going to provide awesome long-term returns compared to what you bought just a few months ago.

Dr. Jim Dahle:
This is also a great opportunity to get rid of legacy holdings. What do I mean by that? I mean something you bought in a taxable account that you really wouldn’t buy today that you really don’t want in your portfolio, but the capital gains taxes would be so high to sell it and you feel stuck with it and so you’ve kind of built your portfolio around it. Well, the value of those things dropped recently and so it might be easier for you to clean up your portfolio now. You might even be able to capture some losses, but at least the gains are going to be much smaller. It’s a good opportunity to really get the portfolio in the shape you want to be it in. It might be swapping on actively managed mutual funds for lower cost index mutual funds. Maybe you can finally get rid of those individual stocks you bought that maybe you shouldn’t have. It’s a good time to clean up your portfolio.
Dr. Jim Dahle:
Here’s another one, and this one’s a little bit controversial. This is what I call over rebalancing. Some people have written their financial plans such that when the market really drops big, they actually change their asset allocation to be a little bit more aggressive. I think you shouldn’t do this by gut feel. I think you should do it according to a very logical non-emotional written investment plan. But for example, if you wrote your plans such that if the market drops 40%, you’re going to change your asset allocation from 70/30 to 80/20 then I think that’s okay to do as long as that is what your written financial plan is. And what that is, is that essentially forces you to not only buy low and sell high like you normally do as rebalancing, but to do it on steroids.

Dr. Jim Dahle:
Another great thing that can be a good opportunity in a bear market is to do Roth conversions. Just like it’s a good chance to get rid of legacy holdings, the cost of doing Roth conversions has just gone down because the balance of that traditional IRA or that 401(k), whatever that tax deferred account is, it is lower. The tax bill for converting it is lower even though you’re converting the same number of shares of investment. A good chance to do Roth conversions if that’s something that you’ve been wanting to do or something you need to do.

Dr. Jim Dahle:
It also can be a great opportunity to reduce your estate taxes. Remember, you’re allowed to give away $15,000 per person per year while $15,000 worth of securities right now is a lot more shares than it was a few months ago. And so, it allows you to reduce the size of your estate. If you have an estate tax problem, which right now is, we were just talking about the federal estate tax, I think it’s $23 million for a married couple. But if you have an estate tax problem, now’s a good time to work on that because of costs of doing so. Whether it’s giving money away or using a grantor retained annuity trust or whatever scheme you’re using to reduce your state taxes, it basically is more effective in a bear market than it is in a bull market. So, take a look at that.
Dr. Jim Dahle:
Okay, so those are all the you can do in a bear market. What are some of the things you shouldn’t do in a bear market? Well, you shouldn’t try to time the market. It’s no easier in a bear market than it is in a bull market. Your crystal ball is just as cloudy as mine. Just as cloudy as the talking heads on CNBC. Don’t convince yourself that you somehow know what’s going to happen in the future. If you think you do know what’s going to happen in the future, I suggest you start keeping a journal and write it down. Be specific and you will likely find within a few months or a few years that you will convince yourself that you don’t actually know what’s going to happen to the in the future. At least not in any specific enough way to really capitalize on it.
Dr. Jim Dahle:
Other things, not doing a bear market – Don’t day trade. It’s no smarter in a bear market than it is in a bull market. Don’t buy individual stocks. You’re taking on uncompensated risk there. Diversify that risk by using low cost, passively managed index funds to get your stock market exposure. Don’t buy actively managed mutual funds. Mutual fund managers don’t have some crystal ball either. Their record is not any better in a bear market than it is in a bull market. Don’t believe anybody who’s telling you they can pick a mutual fund manager that will help you avoid the pain of loss in a bear market.

Dr. Jim Dahle:
Don’t buy leveraged inverse ETFs. These are good ways to lose a lot of money in a hurry adding leverage to a portfolio. I’m not a fan of these. They are an instrument of day traders. They are not an instrument of long-term investors. Stay away from them.
Dr. Jim Dahle:
Likewise, don’t get into the habit of shorting the market or buying puts. You’re playing in the options space here. There’s a lot of danger of losing the entire investment. Yes, puts can be used as an insurance policy to protect the rest of the portfolio, but basically what you’re doing by buying that insurance is you’re throwing away the money you spent on the insurance. That cost becomes much higher in a bear market than it is before a bear market.
Dr. Jim Dahle:
So, what you want to be is a long-term stock market investor. What does that mean? That means you buy stocks every month for your entire working career and you leave them there. You don’t have to worry about them going down temporarily because they’re going to go up. You’ve got 60 years you’re going to be investing this money. Okay? You don’t need to worry about it dropping for a few months or a few years. It’s not money you need in that sort of a scenario.
Dr. Jim Dahle:
Another thing you want to be careful not to do is to leave the stock market for alternatives. Obviously when stocks go down, everything else looks better. Gold looks better, silver looks better, Bitcoins look better, real estate looks better. In general, other things look better. But what you got to do is concentrate on the long run, right? It’s okay to have a few alternatives in your portfolio, but don’t let the fact that stocks go down scare you out of investing in stocks. You just need to invest in stocks in a smart way which is the “buy and hold” for the long term, not try to time the market.
Dr. Jim Dahle:
Okay. I think that’s probably enough about the bear market and I hope that’s helpful. I hope that’s timely and given that I’m only recording this a week before it runs, I hope we’re actually still in a bear market by the time it runs, so that’ll be helpful to you. But soon we’ll be out of this. Maybe it’s a next month, maybe it’s three years from now. I don’t know, but this too shall pass.
Dr. Jim Dahle:
Remember to check out our new online course. You’ve heard about it. It is “Continuing Financial Education 2020”. You get a hundred bucks off that course from now through Monday evening at midnight. No, we’re not going to extend that. You’ve got to actually buy it by Monday evening at midnight to get that discount. It’s still a great price even after that time period, but if you want it at the cheapest possible price, that’s the time to buy it. Also, leave a Speak Pipe questions. Especially Speak Pipe questions about disability insurance. We’re going to collect those together for an episode about disability insurance.
Dr. Jim Dahle:
You can build your career on providing quality patient care where it’s needed most. And locum tenens can connect you with opportunities to help the nation’s hospitals through this crisis. Not sure where to start? Locumstory.com is a place where you can get real, unbiased answers from basic questions like “What is locum tenens?” to more complex questions about pay ranges, taxes, various specialties and how locum tenens works for PAs and NPs. Go to locumstory.com and get the answers.
Dr. Jim Dahle:
Please leave us a five-star review and tell your friends about the podcast. Send me any negative feedback directly and privately. Keep your head up, your shoulders back. You’ve got this and we can help. Stay safe those of you on the front lines and we’ll see you next time 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.