Building a Balanced Portfolio with Asset Location and Allocation

INTRODUCTION

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.

Dr. Jim Dahle:
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All right, welcome back to the podcast. Thanks everybody for what you're doing out there. It's important work. It's sometimes not something we get thanked a lot for. That doesn't mean it doesn't matter. So if you had a bad day today, this is a chance to hear thanks for what you're doing.

It's a big deal. I was called to a code in the cath lab for a patient I sent down there not that long before the other day. It didn't go great. And sometimes we forget that we're there for people on some of the worst days of their lives and trying to make a difference. And that stuff happens.

Thanks for being there. Thanks for all the training you did. Thanks for all the time you spent in school. And thanks for being willing to get up in the morning and drive into the hospital, drive into your clinic and make a difference in people's lives.

Hey, those of you who are just at the beginning of this life changing career, we have something we call the White Coat Investor Champions Program. It's already started this year, you can sign up right now, go to whitecoatinvestor.com/champion.

If you are a first year medical or dental or other professional student, and nobody has handed you a copy of the White Coat Investor's Guide for Students yet this year, that means your class does not have a champion.

All the WCI champion has to do is pass out a book to everybody in their class. We'll provide the books, all you have to do is give us your mailing address, we'll send you a box of books, you pass them out to your class, you're the champion. You get a little bit of swag if you do it.

Really, that's the whole program. Our goal is to get this information into the hands of docs at the beginning of their careers, when it can make the biggest possible difference. I ran into somebody at a wedding reception this weekend who had, somebody had given her my book as a pre-med, and it really made a big difference.

She was already not only applying correctly and almost surely going to get into medical school, she was already lined up a couple of interviews already, but was prepared financially for what was sitting ahead of her and could apply with an appropriate mindset about the debt she was facing and so on and so forth. And that's what we're trying to do is arm you against your future financial challenges as early as possible.

Please sign up, whitecoatinvestor.com/champion. If you know our first year, ask them to do it, ask them if they already have one in their class last year. In most prior years, we get this passed out to about 70% of the first year medical students in the country. We'd like to beat that this year. Please help us.

Okay, lots of questions today from you guys. We're going to go over some of them and maybe take some deep dives on some of these topics. This first one's an asset location question, which might not be the most complicated topic in personal finance and investing, but it ranks up there pretty far. This one comes from Ben. Let's take a listen.

HOW TO PRIORITIZE ASSET LOCATION OPTIONS

Ben:
Hi, Jim, this is Ben from the Southeast. Thanks so much for all your content, which I've been binging recently. I came across a podcast where you talked about asset location, and you mentioned a couple of principles that seem to be competing. I'm just wondering how you prioritize them.

The ones I'm referring to are where you advise us to put bonds and REITs and tax-protected accounts and stocks, particularly if they grow through capital gains and taxable accounts. But also, we should consider putting our assets with the highest expected returns in the tax-protected accounts. We know that stocks, in the long run, are expected to have higher expected returns than bonds.

I know you frequently talk about not letting the tax tail wag the investment dog, so I'm guessing it would not be great to put our entire Roth IRA into just bonds just because bonds are better in a tax-protected account, because then we'd be missing out on a lot of the tax-free growth that we would get from putting stocks in that account. So, I’m just wondering if you can enlighten us and talk a bit about how to think through those priorities. Thanks so much.

Dr. Jim Dahle:
Nice work, Ben. You have identified the dilemma. This is why asset location is so hard. It's those two competing priorities. I call them tax efficiency and I call them, for lack of a better term, the desire to have a better tax-protected to taxable ratio. You're weighing those two things and they're pretty important, but lots of people get confused about asset locations. So, let's maybe start at the beginning on this one and work our way back to your question, the biggest dilemma in the whole thing.

First, I think that's good advice, not to let the tax tail wag the investment dog. I think we see this all the time, usually not in these sorts of fund placement questions, usually in something like an email I got this week, which is somebody asking about a couple of years out of residency, I think, wanting to buy a short-term rental to take advantage of the short-term rental loophole, which is a pretty cool tax break for those people interested in direct real estate investing.

You can make a pretty good argument that even if you want to own long-term rentals, maybe you ought to make them a short-term rental for the first year or two to take advantage of that short-term rental loophole, which when combined with things like bonus depreciation and cost segregation studies, can give you a bunch of depreciation losses up front that you can use against your earned clinical income.

It's a really awesome tax break, but even with an awesome tax break like that, I wouldn't send somebody out to buy a short-term rental that didn't want to own rental properties. If you really just want to keep your portfolio very simple and have a handful of index funds, don't go out there and buy a rental property because the tax breaks are great. That's letting the tax tail wag the investment dog.

When we get into some of these asset location questions, as far as fund placement goes, a lot of people are letting the tax tail wag the investment dog. First, decide what you're going to invest in. Then try to do it in the most tax efficient way that you can. It's a really important principle that you keep things in that order because the very best tax breaks you can get are usually losing all your money.

You lose all your money in your tax deferred account. Guess what? You don't have to pay any taxes on that money ever. You didn't pay any taxes when you earned it. You're not going to pay any taxes when it comes out because there's no money to come out. Very tax efficient, but it's not awesome because you don't have any money.

Same thing in a taxable account. If you have all kinds of capital losses, well, you can use them, $3,000 a year against your regular income and an unlimited amount against your capital gains, but you're not going to make money. The point is to make money. Make money first, worry about the taxes second. It's important to keep that order right when you start talking about tax efficiency.

People start doing crazy stuff when it comes to taxes. This fear of taxes causes people to make dumb investments, to make dumb financial decisions. I don't know how many doctors have been swindled into buying a whole life insurance policy that they not only didn't need but don't want once they understand how it works because they're afraid of taxes.

It's a big wakeup call and it shocks a lot of doctors into going “What can I do to reduce my taxes?” Well, that's not the goal. The goal is not to reduce your taxes. The goal is to have the most amount of money left after paying the taxes. Don't forget that. Keep taxes in the right place in your life and have a proper perspective about them.

Let's talk about asset location. What we're typically talking about here is where you put the various kinds of mutual funds among your various kinds of accounts. You've got some tax deferred accounts. You got your traditional 401(k)s and IRAs. You've got some tax-free accounts. Most of these have the name Roth in front of them. You've got your regular old taxable brokerage non-qualified account.

Well, what goes where? Probably the biggest mistake I see people make is they just ask, “Where should I put this? What type of account should I put this fund into?” And that's totally the wrong question to ask. The right question to ask is, “Of all the things I own, something has to go into the taxable account. What should it be? Or what should go into the taxable account next? I've already got all my US stocks in there. What should go in there next of all the things I own?”

That's the question to be asking yourself. Because the bottom line is, putting things in the right place might earn you a little bit more on an after-tax basis. That might be worth, I don't know, one or two percent a year more to actually put stuff into the right location.

Now, ideally, all your investments are in Roth accounts. Your entire portfolio is one big fat $20 million Roth IRA. Then you don't have to deal with any sort of tax location issue. It's very tax efficient. Everything you earn, you get to keep. It's wonderful. But that's not the way most of our portfolios are built. Most of us have got some combination of tax-deferred accounts, some combination of tax-free accounts, some combination of taxable accounts. And we've got to decide where to put things among those accounts.

As the caller mentioned, you're weighing a couple of things. One is tax efficiency. What do I mean by this? Well, think about a typical bond. Maybe you've got a total bond market fund or whatever. The entire return, for the most part, at least in the long run, is the yield, the income that is paying out. And that income is taxed at ordinary income tax rates. The whole return gets paid out every year, and it's taxed at ordinary income tax rates. That is very tax inefficient.

And because of that tax inefficiency, a lot of times it's great to keep bonds in some sort of account where they're not taxed as they grow. So, you put them into your 401(k) or you put them into some sort of an IRA, and then you get to shield that. So, you don't pay any taxes on it for years and years and decades and decades until you take the money out. On a tax-deferred account, everything you take out is taxable income anyway, no matter what it was invested in. And in a tax-free account, everything you take out is totally tax-free. And so it allows you to shield that tax inefficiency of that bond fund.

And so, that's a lot of times why people say, “Hey man, put your bonds inside your retirement accounts so you don't have that issue.” Well, that's pretty good advice for the most part. The problem is the other factor, the factor that you want as much of your money to be inside these retirement type tax-protected accounts where it can grow quickly. You want your accounts to grow larger when stuff is growing in a tax-protected, tax-efficient way. You want more of your money in those accounts.

And so you want things that grow very quickly in those accounts. You were talking, and typically since you're your stocks and your real estate tends to grow faster than your bonds, it's an argument to put those sorts of assets into your tax-protected accounts.

And then people get even more confused when we talk about tax-deferred versus Roth accounts. And they start saying things like, “Oh, you don't want to have high returns in your tax-deferred accounts because you're going to have to pay taxes and all that money when it comes out, you're going to create yourself a required minimum distribution problem.”

That's nonsense. The problem all of us want to have is having to pull $800,000 a year out of our retirement accounts. That's a wonderful problem that you have tax-deferred accounts that are so large you have these huge required minimum distributions every year. “Oh my goodness, that's such a terrible problem. You're super rich and you don't know what to do with all your money.”

It's stupid. Don't think like that, okay? What you need to recognize in that respect is that a tax-deferred account is like having a combined account. It's really two accounts that are smooshed together for a few decades. One of the accounts is your money. It works precisely like a Roth account. It's just like your Roth IRA. It's your money. Everything that grows is going to come to you totally tax-free.

The other part of the account is government money. It's that money you didn't pay to the government when you earned it. You're going to pay it to them eventually for the most part. Sometimes you can figure out a way to arbitrage those rates between the time of contribution, the time of withdrawal.

But for the most part, you're going to give that money to the government eventually along with everything it earned. That's not a bad thing. It's the government's money. It's been the government's money the whole time. So don't feel bad that it's going to the government eventually. They just trusted you to invest it for them for a few decades alongside your money.

But it's not a bad thing that that government money account gets bigger while yours gets bigger. That's not a terrible thing. So, quit beating yourself up about the fact that heaven forbid you're going to have to pay more in taxes later. It was never your money in the first place. That's just the government money and the earnings on the government money.

So don't think about your tax-deferred account as being dramatically different from your tax-free account. They're really the same thing. It's just that some of that money isn't really yours. And when you think of it in that perspective, you realize that this advice to always put your stocks in Roth accounts and always put your bonds in tax-deferred accounts is not exactly right.

I've listed as one of my pet peeves about asset location because the truth about it is that they're the same account at the end of the day, just one of them is smaller than the other one. When you put your stocks in your Roth account and your bonds in your tax-deferred account, all you're really doing is tricking yourself into having a more aggressive asset allocation, a higher stock-to-bond ratio than you thought you had. On an after-tax basis, you just have more money in stocks. Of course you have higher expected returns in the long run because you have more money in stocks.

So, don't be surprised by that. It's not a bad thing to do. Just recognize what you're doing. You're taking on a little bit more risk and that's okay to do if you want to do. I just recognize it's not like a free lunch to put your stocks in Roth.

You're weighing those two things. And as you look at each asset class, you go, “Well, which one of these factors matters most or matters least?” Well, it's hard to say. And the truth is you don't have to get this thing perfect. The harder the decision, the less it matters. It's like a lot of things in personal finance that way.

What do people put into taxable first? Let's say you got a portfolio that's like mine. I've got 25% of my portfolio, basically in a total stock market index fund. It's in US stocks, it's a super tax efficient fund. That's 25% of our money.

We got another 15% in small value stocks. It's not quite as tax efficient. The yields tend to be a little bit higher. Turnover can be a little bit higher. It's not quite as tax efficient. We've got another 15% in a total international stock market index fund.

Now this isn't quite as tax efficient as the US total stock market fund because the yields are higher. There's more small and value kind of stocks in the international stock markets than there is in the US stock markets. We're all blown up on these large growth tech stocks. And so, our yield on the total stock market fund is like 1.2% or something pathetically low these days. That does make it very tax efficient, but it's one reason why these days most people are sticking your US stocks into your taxable account before your international stocks.

Now the only counter argument for that is you might qualify for what's known as the international stock tax credit. Basically for these taxes that your fund paid to foreign governments, you get a credit for that, but only if you invest in that fund in a taxable account. That credit's good, but it's probably not as good as the much lower yield in the US stock market fund.

In general, people are going to put US stocks like a total stock market index into their taxable account first. And the next thing's probably like a total international stock market fund.

Now for lots of us, that's a big chunk of our portfolio. For Katie and I, that in and of itself is 40% of our portfolio. If your taxable account is less than 40% of your total retirement money, you're never going to put anything but those things into taxable. Everything else is going to go into tax protected accounts. It might be some real estate, might be some bonds, might be some small stocks or some value stocks, or you got some actively managed funds, whatever you have that's less tax efficient than those big stock accounts is probably going in there.

Now I think that probably most White Coat Investors have got a taxable account that's less than 40% of their total. And so, that's all that ends up going in a taxable account is these super tax efficient stock funds. And you could tax loss harvest them, you can donate appreciated shares to charity, there's all these fun things you can do in a taxable account. And that's probably enough of your assets in there to do that.

On the other hand, some people end up in a situation like me, where most of our money is in a taxable account. You start going through each of your various asset classes going, “Which one should go in there next?”

And a lot of times people go, well, equity real estate, that's a pretty good thing to have in a taxable account, particularly if you're investing directly or you're investing in a private passive fund or something that passes through depreciation. That's usually a pretty good thing to have in a taxable account. Plus, it's a pain to put it in retirement accounts.

You might get UBIT tax, unrelated business income tax, not to mention your 401(k) isn't usually going to let you go invest in a private real estate fund. So, it's just hard to invest in that in a retirement account. A lot of times that ends up pretty early in your taxable accounts.

For most of us in relatively high income brackets, tax brackets, we end up if we have bonds in our taxable accounts, like some of our bonds are in taxable accounts, we choose to use municipal bonds.

Now the beautiful thing about municipal bonds is that income is tax free. At least on a federal basis. And if you buy a state specific municipal bond fund, it might be state and local tax free too. And so, that's very, very tax efficient. It has a relatively low return. It becomes one of those things like, “Oh, that's a pretty good thing to put in the taxable account instead of the retirement accounts.”

So, how do you weigh those two things, which is the question? Well, it's difficult. If you've gotten to the point where you recognize that those are the two things you're weighing, you're winning this game of asset location. So, don't beat yourself up about it. You probably don't have to get this perfect, get it good enough and be okay with that. Just remember to ask yourself the right question of “What should go into my taxable account next?”, not “Where does this go?” That's the wrong question to ask. I hope that is helpful.

Okay. This next question is also from Ben and he wants to talk about a specific asset class.

ROTH IRA, TIPS, AND TAXES

Ben:
Hi, Jim. This is Ben from the Southeast. I have a quick question about asset location. You've mentioned that things like TIPS or REITs are nice to have in tax protected accounts and stocks, particularly if they grow by capital gains are nice to have in taxable accounts, but also that assets with higher expected returns are nice to have in tax protected accounts.

To help us think about how to prioritize those things, since we know stocks have higher expected returns in the long run than something like TIPS, let's say someone had $100,000 in a Roth IRA. They have a million dollars of investable assets and they want to dedicate 10% of their portfolio to TIPS. How would you advise them as they're considering how much of their Roth IRA to dedicate to TIPS? If they put $100,000, their full Roth IRA in the TIPS, then they're missing out on a lot of tax-free growth that they could get if they put some stocks in there. I would love to have your thoughts. Thank you so much for all you do.

Dr. Jim Dahle:
Well, it's good to get into specifics. When you get into specifics, we can have real discussions and reasonable people can actually disagree on stuff. But the better place to have a discussion about the specifics of where to place your funds is not actually on the podcast. The place to do this is the forums, like the White Coat Investor Forum, maybe the subreddit, the Facebook group, that sort of thing.

The way you do it is you lay the whole thing out. “This is what I've got. I got $2 million, 18% of it's in Roth accounts and 32% of it's in tax deferred accounts and the rest is in taxable accounts. And here's my desired asset allocation. Which ones should go into which account?”

When you lay it all out like that, everybody can look at the whole picture and go, “Well, you probably ought to do this and this and this and this.” You come up with this crazy scenario. I don't know who has their money like this. I guess there's probably somebody out there that has a million dollars and 90% of it is taxable and 10% of it is in a Roth account and there's no tax deferred account whatsoever.

I don't know anybody who actually owns that portfolio, but if they did and they wanted 10% of their money in TIPS, do you put it in the Roth IRA? Well, TIPS tend to be one of the last things I move out of tax protected accounts. And the reason why is because they're bonds, so they're relatively tax inefficient to start with. And particularly if you own them directly, there's a phantom tax issue where you get to pay taxes on income you didn't actually receive, which annoys a lot of people.

Now you get credit for it later when that stuff eventually gets sold, but it annoys people. I have to pay taxes on money they never actually received. Now that doesn't happen if you're investing through funds, you don't get that phantom tax issue. You actually get the income that you need to use to pay taxes with, but it does happen when you're buying individual TIPS. And you got to be okay with that if you're going to invest in individual TIPS, at least in a taxable account, if you buy them through a brokerage account that's within a tax protected account, you don't have that issue, but in a taxable account, you would.

They tend to be one of the last things people move into taxable. But if all you had was 10% of your money in tax protected accounts, you got to go, “Well, what else do I own?” You're like TIPS and you didn't tell me anything else in the portfolio. Maybe there's something that's even worse than TIPS to own in a taxable account and you'd like to have that in the Roth IRA. Plus you've got this issue of weighing future returns.

What would I probably do? What most people do is they tend to put their bonds in tax deferred accounts. Not because there's a free lunch, as I explained earlier, but because it fools them into taking a little bit more risk with their portfolio. And their TIPS tend to go into their 401(k) or if they got a traditional IRA, because they're not doing backdoor Roth IRAs each year, maybe they go in there, but that tends to be where most people put their TIPS given the option.

But this hypothetical investor you've set up, they don't have that option. They've got a million dollars, 10% in a Roth IRA and the rest in taxable. So they've got a much more difficult decision to make.

What would I do in that situation? I'd probably put them in the taxable account. 90% of your stuff's taxable anyway. So that's getting close to the way my account is these days. And you know what? You just suck it up and you pay the taxes because almost everything is in taxable.

We've got some TIPS left in our tax protected accounts. We've got some REITs left in there. We've got a little bit of small value stocks left in there, but all our total stock market is out of the tax protected accounts. All of our total international stock market is out of the tax protected accounts. Most of our nominal bonds are out of there. Lots of our TIPS are out of there. All of our international small values are out of those accounts.

It's almost all in taxable at this point. When you get to those scenarios, there's only so much you can do. And so don't beat yourself up about the fact that, “Oh, I got my TIPS in the wrong place or something.” It's not going to move the needle that much in that sort of a scenario. I hope that's helpful for you.

But the truth is when you're starting to worry about stuff like this in portfolio construction, you've won this game. You win, congratulations. You're super financially literate. You're worrying about these little tiny things that move the needle a little bit here, a little bit there. Whereas most people out there are still making massive investing mistakes. They're trying to pick stocks. They're trying to time the market. They're selling low when the market goes down. They're not saving enough money. They're making the big mistakes. And here we are spending 10 minutes on the podcast talking about something that's relatively trivial as far as your future returns and your future meeting your future financial goals.

QUOTE OF THE DAY

Dr. Jim Dahle:
All right. A quote of the day today comes from Bill Bernstein, who said, “There are only two kinds of investors. Those who don't know where the market is headed and those who don't know that they don't know.”

I think there's a lot of wisdom to that. When you recognize that your crystal ball is cloudy too, it frees you up from those activities that involve peering into a crystal ball. And that's an immensely liberating feeling to recognize that you only need to spend your time and effort on a few things when it comes to your personal finances and investing, because they're the only things that not only matter, but that you can control. Because there's a lot out there that you can't control. If you beat yourself up trying to control that, which is uncontrollable, you're just going to be frustrated.

Another portfolio construction question. This one from Pedro. Let's take a listen.

PORTFOLIO CONSTRUCTION

Pedro:
Hi, Dr. Dahle. I'm Pedro from the East Coast. I'd like your opinion on portfolio allocation. You've covered this extensively in our podcasts and blog posts, but I'm facing a slight dilemma. My wife and I are 36 years old and physicians, three years out of training. Our portfolio is about 75% stocks and 25% real estate, primarily in syndications and funds. We've been investing in stocks for about 10 years, following the simple path to wealth and maintaining a 100% VTSAX portfolio.

We will achieve financial independence at around age 45. We plan to start adding bonds to our portfolio at age 40, targeting about 40% bonds at age 45, with the other 60% divided between VTSAX, international and small cap. Then we plan to decrease the bond proportion again to around 20%, some five to 10 years later.

That is all good for that time in our lives with a bond tent and reasonable diversification. But until then, what should I do from the ages of 36 to 40? Your post “150 Plus Portfolios Better Than Yours” shows several reasonable portfolio options, but another blog post argues that a 100% VTSAX portfolio is unreasonable. Am I taking too much risk by having everything in VTSAX until age 40?

Dr. Jim Dahle:
Okay, great question, Pedro. First of all, I think what people need to hear sometimes is that your plan is reasonable. And your goal is to come up with a reasonable plan, fund it adequately, and stick with it in the long term. Your plan is reasonable, Pedro. You're doing fine. You're doing great.

You're going to be financially independent at 45. You're totally winning this game. So don't beat yourself up about the small details. You're getting the big stuff right, and that's what matters.

Now, Simple Path to Wealth, it's a great book. J.L. Collins wrote this book years ago. We pass it on all the time. In fact, it's one of our favorite wedding presents. What we often do is we put a check inside it, and we write on it that when they read the book, they can cash the check.

And it's amazing how long it takes sometimes after the wedding for that check to get cashed. But part of that is maybe we don't tell them that there's a check inside the book, and so it sits on the shelf for a while before they get around to looking in there and finding the check. We're trying to get better at telling people that we give wedding presents to that there's actually a check in the book.

At any rate, I think that philosophy is fine. If you've looked at my post, “150 Plus Portfolios Better Than Yours”, there's actually 200 portfolios then. The gist of that post is that there's not a magic portfolio. The only way to know the perfect portfolio is to have a functional crystal ball, to have a time machine, to essentially go back once you know what's done the best and only put your money in that.

Well, none of us have that. And so, it's a guess. Your asset allocation is a guess. And you're hedging your bets with that guess because you're not sure exactly what's going to do the best.

And so, in my case, I put some money into stocks, I put some money into bonds, I put some money into real estate, and there's always something in there I'm not happy I own. In 2020 or 2022 or 2008, I'm not happy I own a bunch of stocks because they went down in value. In years like the last decade where US stocks have kicked the pants off of international stocks, I'm not happy that I own international stocks.

And when large growth stocks are doing great, I'm not happy that I have small value stocks. And when real estate is thumping stocks, I'm not very happy that I've only got 20% of my money in real estate. And when everything seems to tank except my bonds, I wish I had more money in bonds. And when everything's doing great except the bonds, I wish I had less money in bonds.

You're always regretting something when you have a diversified portfolio, but you set your asset allocation by trying to balance two things. Your fear of missing out, FOMO, what you feel in years like 2023 and 2024 when you don't have all your money in tech stocks versus your fear of loss. You got to balance those two things.

That's what your asset allocation is. It's a mix of investments that you can stick with, even with FOMO and even with fear of loss. That's the balance you're trying to get. You're trying to mix mostly your stock to bond ratio, your risky asset to your not so risky asset ratio. That's what you're trying to get right.

So, you don't panic sell in March of 2020 or when interest rates go up 4% and real estate's struggling like in 2022, or when the whole financial world is melting down like in 2008, or when everything with dot-com after it's named tanks in 2000. You're trying not to panic in those moments. And so you got to have a balance there.

Your plan is fine, Pedro. You've obviously funded it well, and obviously going all U.S. stocks over the last decade or so has really worked out well for you. I'm not surprised that you're pretty happy with that performance. You're talking about being FI so early in your life because that ended up being a very fortuitous choice.

It's not terribly diversified. It's more diversified than just picking a few stocks because you own all the stocks. You own 4,000 U.S. stocks, but let's be honest, whatever it is, 35 or 40% of the money in VTSAX or the ETF version VTI is currently invested in the top 10 stocks. It's all these household tech growth stock, stocks that we've all heard of over and over again for the last 10 years. That's where 40% of your money is. It's not terribly diversified. And so, you got to be okay with that.

Now, obviously it worked out very well for you. And I think it's a reasonable way to invest. It's certainly a very simple way to invest. And that's the beauty of JL Collins' work. He gives you a simple path to wealth. If you can stick with that 100% U.S. total stock market approach and you fund it adequately, it's going to work out. There's going to be some decades when it's not awesome. I started investing in what's been referred to as the last decade, 2000 to 2010.

And basically over that period of time, the S&P 500 had a return of barely more than zero. It was very close to zero. It wasn't negative. It was just slightly more when you include the dividends. But it wasn't great. It was a pretty lousy decade. Everything else did better. International stocks did better. Bonds did better. Real estate did better. Small value stocks did better. Everything did better than U.S. large stocks, particularly these growthy stocks.

Now, for the last decade, it's been just the opposite. And those growthy stocks kicked the pants off of everything else. And so, you got to recognize that you kind of benefited from having a tailwind at your back as you invested over the last 10 years and recognize that that's a little bit of an issue.

Now, it sounds to me like you've got some other stuff in your portfolio, so that's great. And I think that's going to work out fine for you. Just recognize that being 100% stock has risks.

Most of the time, having more money in stocks, if you can tolerate them and not sell them low in a market downturn, pays off. Because in the long run, these riskier assets tend to have higher returns. And as long as you're not just buying two or three individual stocks, you're buying them all, that usually works better than putting bonds in your portfolio. But there's no guarantee of that.

Bonds can outperform stocks for a very long period of time. And the US is a little bit of an exception when you look at all the countries across the world of stocks always beating bonds. I think there's a good case that can be made for having some bonds in your portfolio. And it sounds like you're planning to add them in a few years, which I think is very reasonable.

And this idea of having a bond tent and then decreasing your bonds later throughout your retirement to help your portfolio keep up with inflation once you've got through those worst years per sequence of returns risk is not crazy.

For those of you who've never heard of this idea of decreasing your bond exposure later in life, I think it's a reasonable philosophy, even if it's the opposite of what most people do, which is decreasing their stock-to-bond ratio over the decades. For an early retiree, a pretty good argument can be made for this increasing stock-to-bond ratio after the initial sequence of returns risk decreases. I think it's not crazy what you're doing.

Now, what should you do for the next four years? Well, without a functional crystal ball, I can't tell you. If I knew that international stocks were going to crush everything else for the next four years, I'd tell you to put all your money in that, but I have no idea. I'd keep a reasonably diversified mix.

Is it okay for you to stay 100% stock until then? Probably, it probably is, but be aware. Be aware that stocks can fall and they can stay down for a long time. There's no guarantee that they're going to outperform bonds over your investment horizon, even with a long horizon. There's no guarantee of that. And the only real protection you can have is just like Finding Nemo, the little blue fish in Finding Nemo. What's her name? Dory. Just keep swimming, just keep swimming, just keep pouring money into that account.

And if you can continue to do that, if you can put off your retirement a year or two, and maybe you don't stop working until you're 47 or 48, even if those stocks tank when you're 43, maybe that's not such a big deal.

There's a lot that goes into choosing your asset allocation, but the main thing is to pick something reasonable, fund it adequately, and stick with it in the long run. I hope that's helpful.

If you need to hire somebody to tell you exactly how to invest, even though they don't know any better than you do or I do, we've got a long list of financial advisors we refer to. If you go to whitecoatinvestor.com under the recommended tab, we've got financial advisors there, and they pretty much all help you choose an asset allocation, but they don't necessarily know any better than you what's going to perform the best over the next four years.

I think you probably know enough to be managing your own money and should feel very competent about doing that. Just recognize there's a lot of different philosophies, there's a lot of reasonable portfolios. All you got to do is pick a reasonable one, fund it adequately, and stick with it.

HOW TO BUY ETFS

Okay, let's talk about ETFs. I got an email. It says, “I have a topic that might be helpful for the podcast. Would you consider discussing how to buy ETFs? The order types are confusing. Much to my chagrin, I've always used mutual funds, not ETFs, for these transactions.

Now that I am about to restart a taxable account with ETFs after liquidating it for a buy-in, it seems reasonable to get comfortable with ETF transactions, particularly the order type. Market, this is pretty straightforward, versus limit, stop, and stop limit. Nevertheless, I had to look each up, and it would be a valuable topic to review, in my opinion, if you would, on the podcast.

To further discuss the topic, how do you recommend doing ETF transactions? Do you always do market as your order type? Do you typically do your ETF transactions midday, when the market typically is less volatile, as opposed to right when the market opens or closes? What is your strategy in purchasing and selling ETFs with respect to order type and timing of the transactions? Long time listener of the podcast. Thanks for all that you and the folks at WCI do.”

Okay, it's natural when you first change over from investing in mutual funds to investing in ETFs, to have these questions. I had all these questions, and I tried a few different things, until I settled in to what I do now. And let me tell you God's honest truth about these sorts of questions. In the long run, they don't matter. They just don't matter. So, don't beat yourself up too much about it. You do have to make a decision and stick with it, but they don't matter that much.

Is there something to be said for buying your ETFs in the middle of the day, rather than right when the market opens or closes? Yeah, maybe. Doesn't matter that much? No. Because how much does the market move during the day? Well, less than 1%. And how much does that 1% matter over the next 30 years? Well, not very much.

If the only time you've got to put your money in the market today is right when the markets open on the East Coast, or right before they close, well, go ahead and do it. I would not not invest because of that concern.

The bigger problem is people don't put money into the market. The bigger problem is people don't make contributions to their retirement account. The bigger problem is people don't save enough money. They spend it all. So, once you've won on the big issues, quit beating yourself up about the small issues. Get the money in there, get it going. Time in the market matters more than timing the market.

Let's talk about these types of orders. When you go to put an order in. If I log into my brokerage accounts at Vanguard, and I've logged into Vanguard.com and go in there, and I go, “I want to buy some VTI today. I got some money I got to put to work this month. I'm going to invest whatever it is $10,000 or whatever into VTI.”

I go in there and I put in the order. I put VTI. And sometimes they let you just invest a dollar amount. So you get partial shares. Some brokerages make you specify the exact number of shares. I use a little calculator and go, “Well, VTI is $200 a share and I want 10,000 of them. That's how many shares.” And I put in the share number.

And then what I typically do is I use a market order. Because basically all the ETFs I use are very liquid ETFs. They transact immediately. They have a very thin bid to ask ratio spread. That spreads very thin, usually like a penny. And so, I'm not getting hosed on market orders. Now, if you're buying something that almost never gets traded, or you're in a really volatile market, maybe it makes sense to put a limit order on it.

I did that for a while when I first started buying ETFs. And what I would find is the order didn't go through. I put in a limit order and it went up a little bit in price right after I put in the order. And so, the transaction wasn't happening. It wasn't happening. It wasn't happening. 15 minutes later, and I changed it to a higher price. And then on the market moved up again. And then I was chasing my tail. I found it easier to just put in the market order.

VTI, VXUS, these sorts of things, most of us tend to be buying with most of our ETF transactions are super liquid. You put in the market order, it's done. It's done. You got a fair price. Nobody is hosing you. The market isn't taking you out back and whooping you. You're getting a fair price and you're done. You can move on with the rest of your day. So, that's what I do.

Now there are stop limit orders. Basically when the market falls, it sells your shares automatically. I don't do that. I'm a firm believer in what Warren Buffett said. My favorite holding period for an investment is forever. When I'm buying stuff, I really don't plan to ever sell it. The only reason I really ever sell things is when I'm tax loss harvesting.

Now, if you think just buying an ETF with your money you're investing every month is complicated, wait till you start tax loss harvesting. When you're tax loss harvesting an ETF, you got to sell one and you got to buy one that's an awful lot like it, but not in the words of the IRS, substantially identical.

And you want to do it really quickly. Because you don't want the market to go up in between the time you sell the loser and you buy your future investment. And so, this will give you practice on buying and selling ETFs in a hurry. But if you screw it up, all of a sudden you might lose more money than you were really gaining in picking up those tax losses. You got to be a little bit careful when you decide to go in and start doing your tax loss harvesting. It's not that complicated, but you want to know what you're doing.

Get used to putting orders in. It's not that big a deal. Practice with $100 at a time until you've done it 20 times. Then you'll be like, oh, that's how orders work. It's no big deal. And it only costs you a few dollars in bid-ask spreads. You're not paying any commissions on most of the platforms we're all investing in these days anyway. So, go ahead and do a few tiny little orders until you get used to the process. And then it's not a big deal.

When you start out managing a four-figure portfolio, it's not a big deal to manage a five-figure portfolio. When you've done that for a little bit, it's not a big deal to manage a six-figure portfolio. When you've done that for a while, it's not a big deal to manage a seven-figure portfolio or an eight-figure portfolio. And now you're putting in orders that are six figures. You're moving around $100,000 or half a million dollars at a time. And it's just not a big deal because you've been doing it for years.

So, it's really not hard to do. Take a deep breath. If this is your first time doing ETF transactions, you too can do this. Tens of thousands of doctors before you have figured out how to buy and sell ETFs in a reasonable way. You can figure it out.

For the most part, market orders are fine to use. I wouldn't beat yourself up about it, but you know what? If you read something that scared you into using limit orders, go ahead and use limit orders. I did for a few years. And then I'm like, “Why am I doing this? This is stupid. All it's doing is wasting my time.” And you might quit using them too. Either way, it's fine.

A limit order just says that it's only going to transact if it can transact at that price. That's all a limit order is saying. If for some reason, heaven forbid, as soon as you put the order in, the market dropped 20% because we're back in 1987 or something, well, it wouldn't transact because you had that limit, thankfully.

But for the most part, you don't have to do that. The markets are very efficient. And maybe those days when the market's super volatile, you shouldn't be going in there anyway. And the reason to do that on those days is to try to really catch a bargain and maybe do some tax loss harvesting. That's an area for experienced investors to be wading into the markets. If this is your first time to do an ETF transaction, don't do it on a day the market's down 4% for crying out loud. Give yourself some practice on a normal day. I hope that's helpful.

IS INVESTING IN FILM A REASONABLE THING TO DO?

Okay, let's talk about another email I had. I get all kinds of emails. It's a lot of fun, actually. I like it when you guys email me because I get to know what you're thinking. And of course, it provides all kinds of content that we can use on the podcast or on the blog or in the newsletters or whatever.

I get this call from someone I've exchanged emails with him a number of times over the years. It says, “I received a call from investing in an animated feature film. Are you aware of any such investments?” And then he read it. “Thank you for your interest in reviewing our offering on the name of the film. In the next 24 to 48 hours, you may receive a call from one of our staff to confirm your contact information before shipping the investment materials. In the meantime, we'd love for you to check out our recent press releases on our films through the links below or visit any website to discover more about what we've been working on.” And it includes some links.

That's the whole email. He's like, “What do you think, man? Should I invest in this?” Well, first of all, if your due diligence process is just sending an email to the White Coat Investor saying, “What do you think? Is this legit?” you probably need more due diligence and you probably ought to stick with publicly traded markets and probably just some index funds.

If you're into private investments, you ought to have the ability to evaluate these investments on your own without the assistance of an accountant or an attorney or an advisor, much less some random podcaster out there.

The question I got in the email was, “Is this legit?” Well, that's obviously not a very specific question. So it left me trying to guess at what the emailer was actually asking. My first guess was, number one, is it possible to invest in a film? And the answer to that is yes. You can be one of the backers of a film. And if it makes money, you make money. If it loses money, you lose money. You can invest in film.

Question number two that he might be asking when he's saying, “Is this legit?” is “Is it possible to make money by investing in a film?” And of course the answer to that is yes, it's possible.

Maybe what he meant when he said, “Is this legit?” is “Do I invest in films?” And the answer to that is no. I invest in stocks and bonds and real estate. That's what I invest in. It's a very boring portfolio. If you're looking for excitement from your portfolio, you're probably not going to invest the way I do. My portfolio is boring. I try to get my excitement from my recreational activities rather than how I invest.

I don't invest in films. I got a brother-in-law that makes films. I've never invested in any of his films. By the way, about the worst thing you can ever do is invest in anything your brother-in-law is doing. I got another brother-in-law in oil and gas. I don't invest with him, either. But I don't invest in films.

Maybe what he meant was, “Do I need to invest in films to reach my financial goals?” Well, the answer to that, of course, is almost surely not. This is a fun little thing on the side. If you want to mess around with 5% of your portfolio, picking stocks or investing in films or something like that, that becomes a more reasonable place. Certainly not for serious money that you're trying to use to reach your financial goals.

And then maybe what he meant was, “Do you have any advice for someone that would like to invest in films?” Well, I've got some advice for that. It's the same advice I give to somebody that emails me up and asks what I think about NFTs or what I think about some crypto asset or what I think about investing in gold or what I think about investing in some other private investment. Limit it to no more than 5% of your portfolio and do due diligence on it as best you can. That's the advice.

But I'm not a film investor guy. There's lots of people out there that invest in films. I'm sure some might even be good at it, but I suspect a lot of people that have dabbled in it have lost money. Like people who dabble in any type of new private investment usually do.

He suggests, emails back, “This might be a good podcast question.” And I'm like, “Well, yeah, it might be, but I don't know that I can dedicate an entire episode to investing in films. It's pretty out there as far as alternative investments go.” And so I'm like, “What do you really mean when you ask me, is it legit?” And what he said was, “I meant, should I consider this phone call as a spam or some fraudster calling me to get my personal information? Or is it actually a legitimate entity calling me?”

And of course, I don't know if they're running a fraud or not. Obviously frauds are most common in private investments. It's a lot harder to run a fraud when your investment is publicly traded on the markets and the SEC and FINRA and everybody's all regulating it. It's much harder to run a fraud. It can be done. See Enron for details. You can run a fraud in a publicly traded investment. It's not even all that uncommon in hedge funds. See Bernie Madoff for details.

But typically most frauds tend to be in the private world. Maybe it's a film investment, maybe it's an NFT or some sort of crypto asset or some sort of real estate deal. I had somebody commit fraud on one of the real estate deals I invested in. Basically the manager borrowed more money against the property than it was against the LLC operating agreement. So, fraud is just a lot more common in the private market. It's entirely possible.

The emailer goes on to say, “I was just surprised that a company making movies called me for investment. My assumption is that the movie's budget is several million dollars and I can't invest a lot of money in this type of business. So why are they even wasting their time calling me?”

Well, guess what? When you need money, you got to go find investors. That doesn't mean you should invest in what they're selling, but it does mean they need some capital. They obviously don't have the money to pay for it themselves. So they got to go to investors and they can offer you some sort of return if the movie's successful, maybe make a killing. But it's pretty hard if you don't know anything about movies to know which movies are going to make money and which ones aren't.

My best guess from what I see in the theaters is if it's not a sequel for something that made a lot of money, it's probably not going to make a lot of money. So, keep that in mind as you choose from the films you want to invest in.

Was it possible this one's a scam? Sure. I don't know if it's a scam or not. I don't have any magic due diligence wand that allows me to find out if a film investment is a scam or whether it's going to make any money or not by you emailing it to me. I don't have any insight or connections in the industry that allow me to know whether your chosen private film or oil and gas or real estate investment is actually going to make money or whether it's being run by a fraudster or not.

I do diligence the same way all of us do. You try to do background checks on the principal, you look into their track record, you start out with small amounts of money and watch it for a few years, see how it does before putting the large amounts of money into that sort of an investment. And a lot of people just go out and want to deal with it. And they just stick with the publicly traded markets.

And you can do that. You can invest all of your money into boring old index, stock bond, real estate funds, and never go into the private markets at all and be perfectly successful and reach all of your financial goals. You do not have to invest in private investments to be financially successful, whether they are real estate or they are film or they are oil and gas, whatever they might be. You do not have to invest in those things to be successful.

Now it's possible that it will be more interesting to you. It's possible that you'll get to financial independence a little bit faster. It's possible that you'll get some diversification benefits by having some of that stuff in your portfolio. But you shouldn't feel like you have to. There's no called strikes in investing. And if people are sending you emails about an investment from people you've never even heard of, chances of it possibly being a scam are probably a little bit higher than if you go out seeking the investment in the first place. I hope that's helpful to you.

SPONSOR

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Yes, good advice is evergreen. Good advice doesn't change over the years. Good advice doesn't try to predict the future. Good advice doesn't require a functional crystal ball. None of us have it. So maybe the financial services industry should quit trying to pretend they have it. And the rest of us can get on to being successful and reaching our goals and being able to focus on those things that really matter in our lives. Whether that's our family or our practice or our own wellness, let's spend our time and our effort on what really matters in life and quit worrying about our finances.

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DISCLAIMER

The hosts of the White Coat Investor are not licensed accountants, attorneys, or financial advisors. This podcast is for your entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.

INTRODUCTION

This is the White Coat Investor podcast Milestones to Millionaire – Celebrating stories of success along the journey to financial freedom.

Dr. Jim Dahle:
This is Milestones to Millionaire podcast number 243 – Locum's psychiatrist crushes his student loans in four years.

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All right. Gotta love MLG. MLG has been with us for a long time. I've been with MLG for a long time. I invested in their fund four. I actually recently invested in their fund seven. So I'm going to be with MLG for quite a while. I’m grateful for them and their sponsorship of the podcast. They've been on our real estate opportunities list.

Maybe I haven't talked about the real estate opportunities list in a while, but if you go to whitecoatinvestor.com/reopportunities, you can sign up for that and you'll get emails. Some of these come from us at White Coat Investor, educational kind of stuff. Some of them come from the sponsors themselves and we always make them lean toward the educational side as well, but they tell you about the opportunities.

And that's really all we can do is introduce you to them. We're not making investment recommendations or anything. We're not a financial advisor licensed to do that, but it gives you the opportunity to check it out and see if that's something you want to do with some portion of your portfolio. Again, that's whitecoatinvestor.com/reopportunities.

All right. We have an awesome interview today. It's from a locum's doc. And you would think this was a locum's advertisement to interview him here on this. It's not. We do have some sponsors that do locums, but they didn't sponsor this podcast and he doesn't mention any of them. He just talks about this awesome life he's having doing locums and including the financial benefits of it. So, we're going to spend some time talking with him. Stick around afterward. We're going to talk for a few minutes about dental insurance.

INTERVIEW

Dr. Jim Dahle:
Our guest today on the milestones to millionaire podcast is Steve. Steve, welcome to the podcast.

Steve:
Thank you. Thanks for having me.

Dr. Jim Dahle:
Now you've done something awesome. We're going to highlight momentarily, but first let's get to know you a little bit more. Tell us what part of the country you're in, what you do for a living, how far you are out of training.

Steve:
I am from Arizona, but I'm a full-time locum, child and adolescent psychiatrist. I also do general adult as well, but I travel basically all over the country. The amount of time I'm actually in Arizona is variable from year to year. I'm out of training. I graduated fellowship in 2020, but I didn't start actually working till 2021, January. I took about six months. This is during the pandemic. I took about six months and was basically trying to figure out my financials, how I wanted to work and locum. I was just getting things set up and just sorting out what I wanted to do. I just did per diem and moonlighting stuff for a bit to float for a few months. And then I actually started doing locum full-time in January in Virginia.

Dr. Jim Dahle:
Awesome. Well, I bet you, you have arranged to spend your time in Arizona between February and April rather than between June and August. Am I right?

Steve:
You'd think that would be the case. Honestly, it really varies. I've been up in Boston area in the winter time. I've been in Hawaii in the summer. I've been in California for nine months and so kind of carried the gamut.

I've just been kind of all over. I usually try to pick places where I have friends already or family. So it makes it easy to visit. A lot of my friends and family are married with children and so they can't really get out and it's hard to hang out with your friends once they've all kind of scattered, but it's easy when you're doing locum. There's no pressure to see each other for the one weekend you're in town. You're there for three months. So we see each other when we want, and yeah, it's been good.

Dr. Jim Dahle:
Yeah, I want to spend some more time talking about that, but first we got to celebrate a milestone with you.

Steve:
Absolutely.

Dr. Jim Dahle:
Tell us what you did.

Steve:
I paid off my student loans in four years.

Dr. Jim Dahle:
Wow. How much did you pay off?

Steve:
It was about $400,000.

Dr. Jim Dahle:
$400,000 in four years.

Steve:
Yeah.

Dr. Jim Dahle:
You should be so proud of yourself. That's awesome.

Steve:
Yeah. There's a little bit of a story. I kind of feel like I lucked into a lot of my decisions because I made a lot of them when I didn't know everything I know now and somehow in retrospect, they ended up being decent, good decisions. I was supposed to pay it off in five and I just ended up paying it off in four because I had extra money this year and I said, let's just finish it off.

Dr. Jim Dahle:
Yeah, I like that extra money stuff.

Steve:
Yeah, that's always nice.

Dr. Jim Dahle:
Amazingly though, extra money seems to come from either working harder or spending less. Am I right?

Steve:
Yeah. I'm the kind of person that likes to try to do everything. I wanted to save the most and I wanted to get out of debt fast. And I knew a lot of people they don't have the luxury of being able to do both. They have to sort of choose one or the other, which it's fine, but I just wanted to save a lot because I am on the older side. And I also wanted to get out of debt as fast as possible.

And so my intern year, actually, there was this financial people, there was some financial group that they would look over your loans and basically tell you, should you refinance or not based off what you're projected to make as whatever your field is. And I remember doing some consultation with them and they said, “Well, you're on the border, but you could just refinance.”

At the time, I think my loans together were roughly between 6.5 and 7%. And they said you can refinance and get a fixed rate around 3.5, 4% but you'll have to pay it off in five years. And I was like, yeah, paying off less in total, in my mind, I'd rather just pay less. I don't care if it takes shorter or longer. I just want to pay less. If it means I pay it off faster, fine. I'll pay more upfront and be done with it.

I signed up for that as an intern, not really knowing what I was doing. It just refinanced everything. And so, my rates were like 4% fixed. And of course, interest rates kept dropping. And I had read your blog about should you do variable versus fixed? And I think one of your posts was like if you're on variable, you're going to pay even if it goes up, you're going to have paid at that lower rate initially for some period of time. So there's some catch up before you meet the fixed percentage.

And so, I was kicking myself like, man, I should have really done the variable. And so then when 2020 came around, I said, “You know what? I'm not going to make this mistake this time. I'm doing the variable.” I refinanced again in 2020. And it was like 1.5% or something, 2% variable. I'm like, “Oh, this is fantastic. I'm lower.” And then obviously everything skyrocketed since then.

Dr. Jim Dahle:
Yeah. And 2022 was not a good year for you.

Steve:
Yeah. And I was like, I probably should have just been fixed in 2020, but it was fine. I just kept paying and I didn't even look at it. I just said, “Just take it out every month.”

Dr. Jim Dahle:
So, what'd you end up doing? You pay the same amount every month until it was gone, or did you send big lumps in or what?

Steve:
Yeah, it would vary based off the interest rate. It was anywhere between I think $5,000 or $4,500 at the lowest. And then it went all the way up to like $7,000, $7,500 a month at some point when it was super high, the interest rates. And I think by the end, I was paying about $6,000 to $6,500.

Dr. Jim Dahle:
But there was no big inheritance or big lump sum you put on it all at once. You just paid $5,000 to $8,000 a month for four years.

Steve:
Yeah. This year, I had saved a certain amount of money. Because I'm 1099, my income kind of oscillates a bit. I never know if I'm going to have to pay a lot more in taxes one year or not. So I keep a lot. And as a locum, you just tend to have a bigger emergency fund or just cash on hand just because, well, if I want to take three months off or something, I need cash to float. And so, you just kind of leave it sitting.

I had a lot of cash, and I think I just paid like $80,000, $90,000 and just wiped it out. I was like, “Why keep paying at this interest rate for the rest of the year when I could just be done and not have to pay the interest on it?” And I said, “Let's just do it. I don't have anything I need this money for at this moment.”

Dr. Jim Dahle:
Awesome. How'd that feel to write that check?

Steve:
It was amazing. It was great. It was like, don't have anything coming out every month but unfortunately my car got wrecked at the same time. So I needed to buy a car, but I had enough cash to do that. And I bought a nice car as well. I just brought in the bank check and gave it to the dealership and that was it too. I would have had more money than I have right now if I hadn't to buy the car, but I still ended up saving roughly $750,000 in savings between my retirement accounts and just cash. I was able to pay that off and save that amount.

The other kind of lucky thing, I had a friend in medical school, I think in 2010, told me about your blog. He just started reading it and he's like, “Oh, you should read White Coat Investor.” And so I started reading it. I still was a med student. I wasn't super savvy with anything, but I do remember the thing about the Roth IRA in residency, just take advantage of that. Because that's the lowest time you're going to be making money and it's going to grow tax free, et cetera. And so, in residency, I did max out my Roth every year. And when I came out, after growth and everything, it was about $50,000 in retirement after five years of training and whatever. It had gone up quite a bit.

And the other lucky thing is, I put it in a total stock market index. And I honestly can't remember why I did, because I didn't have any idea what I was doing. I just had a Fidelity account and I just said, “Okay, this one looks fine enough.” And I just started putting everything in the total stock market. And then it was only afterwards I read more on the blog and I was like, “Okay, actually that was a good choice. I'll just keep doing that.”

Dr. Jim Dahle:
Yeah. That's the opposite experience I had when I started reading books. I'm like, “Oh, I got all my money in the wrong mutual funds. I'm getting lousy advice.” Good for you, man.

All right. Well, congratulations. You did great with the student loans. You should be very proud of yourself. You've also been saving a bunch of money and investing a bunch of money at the same time. We call that approach the “live like a resident” approach for a few years coming out of training. So you can do everything at once rather than having to choose between investing and paying off loans. When does your “live like a resident” period end? Are you going to start spending more now or are you just going to get to financial independence super early?

Steve:
I'll be honest. I think living like a resident as a locum is very easy. I don't own a home, but the locum pays for my accommodations everywhere I go. I'm in a nice part of the East coast right now. They spend a lot of money on this two bedroom, two bath apartment I'm in and I don't have any overhead as far as housing. It also helps, I'm single, I'm not married. I don't have children. That all is expense that most people I think around my age probably have, and they usually have a mortgage of some kind, even if it's a small one.

And as far as my hobbies, I'm a private pilot, so I do fly, but I don't fly enough or very expensive planes where it's super expensive. I like to ski. I like to play golf, but I don't go to super fancy courses. And I like to travel. That's probably my biggest expense and I'm not a luxury traveler. My main thing is just going and seeing a place and immersing myself in wherever new thing is. And so, getting a fancy hotel just seems lost on me since I'm asleep. Most of the time I'm in a hotel anyway.

I feel like my tastes are expensive. When I do buy stuff, I tend to get nicer things. If I get a computer, I try to research and get nice parts or things, electronics, whatever, but I don't do it often. I'm not spending. My monthly spending is pretty low compared to my income.

Dr. Jim Dahle:
Yeah. It doesn't sound like you're feeling very deprived and then you need to really increase your spending at this point. So I'm guessing this $5,000 to $8,000 a month is probably going toward investments now.

Steve:
Oh yeah. Yeah. That was the one thing. I remember also, I was not saving at 20 to 25% because I was viewing that loan as a negative bond, which I've read and I heard you say before. And so I was like, you know what? When that goes away, I'm going to A, now start my taxable account and really start filling that up. And I'm also going to also start giving a lot more to charity.

I wasn't giving as much, I was always like, “Well, I still have student debt.” And I was just kind of excuse making for why I wasn't giving as much, but now I've really made a much more concerted effort. I started a donor advised fund and I'm picking charities and giving that way. I feel a lot better on that front too. I was just always like, “I'm a resident, I'm a med student and I can't afford to give a lot.” You give a little here and there. And now that I've been working and I have my loans paid off, I'm like, “Yeah, I don't have an excuse to not give at least 10%.”

Dr. Jim Dahle:
You're crushing it. You're four years out, you paid off your student loans. You've got a bunch of money put away for retirement. You started a donor advised fund. You're killing it. You're doing awesome.

Steve:
Yeah. I'm hoping. At the end of the day, money, it's there to help us do the things we want to do in life and to take care of our needs and hopefully help other people. Money is not a goal. I'm not tracking my money daily. I don't look at my Fidelity account all the time. I just keep doing the same thing. I know it'll eventually work out. Even if the stock market just flatlined and I didn't make anything, I'd have enough money if I just keep saving at this rate that I'll be fine. That's all I really think about. If I wasn't able to afford something super expensive, it wouldn't be a big tragedy to me. I feel like most of my joy comes from things that don't have any monetary value.

Dr. Jim Dahle:
Yeah. Let's talk a little bit more about this locum's decision. Do you anticipate having an entire career of locum's? Or do you think at some point you'll settle down and stay in the same place? Tell us about that decision-making in your career.

Steve:
My family has asked me this question all the time. All the time. There was someone in my residency that told me about locum. He was a senior, I was an intern and he was finishing and I asked him what he was doing. And he was one of the smartest guys in the program. And he said, he's doing locum because his girlfriend I think was OB-GYN finishing her residency. So he was going to do locum for a year. And I asked him about it and it sounded so interesting in the sense of just the autonomy over time.

I used to tell everyone, one of the reasons I chose psychiatry was because I felt I just had a lot more autonomy. That specialty felt like there's enough little things you could do that you can mitigate and manage your time the way you want it.

I grew up with a single dad and he was a dentist and whenever we'd have a day off of school, he'd take a day off of work. And that value of time, that ability, and I know not every parent can do that, and I really valued that from him. I thought, I want that control over my time, more than the money. I'd rather make less money and have more control over my time and what I want to do with it. And so, that was one thing about psychiatry.

And then locum just feels like it takes it to another level. I can work somewhere and then just say, my parents, both parents, they're divorced. They live on separate parts of the country. They both retired the same year. I was able to go spend a month or two helping them recalibrate and help things around the house with one, and then flew across the country for a month or two, helped the other one out for a while. And then I went to the APA conference for a couple of weeks. And then I was just able to take… I think I took four months off that year. Even if I was private practice, I could never do that. And I just thought this is the only way of working where I can take that much time off and still make a lot of money. Like a lot of money. It's a lot more money than I would if I was working just W-2 or otherwise.

Dr. Jim Dahle:
Make more money, have lower expenses, have more experience and control. It doesn't sound like you found anything bad about locums yet.

Steve:
I was a locum at an academic center for nine months and I had fellows and medical students and they asked me to do a lecture on locum because some of them are graduating. They wanted to know about it. And so, I had to come up with sort of pros and cons and what was good and bad. And obviously there are pros about working in one system, having colleagues that you're friends with and having a community and having familiarity with a computer system, et cetera. And so, a lot of people find value in that. Obviously, if you're married with children, you can't afford to be away for months and months. It's just not good for the family life.

Dr. Jim Dahle:
Only some spouses and children travel well like that.

Steve:
Yeah. I have met locum that take their whole families and do long nine, 12 month assignments and they homeschool their kids and they're on the road and they do stuff like that. So you can work, but it's definitely difficult. I think the ideal for me would be if I get married to find a position, a locum position or many positions within my geographic area that I could keep doing locum and stay quasi local.

But your bargaining power, I am a pretty good negotiator when it comes to my contracts. And so, I feel like your bargaining power is a little less if you're not willing to say, “Well, thanks for this offer, but I got another one, 2,000 miles away that I'm just as willing to take that's one and a half times what you're offering.”

Locum places that want locum are pretty desperate. And if you're someone that has a good track record and you've been doing locum for a while and all the places you've worked at like you, they will value that. They know, “Hey, this is a guy who's jumped from this EMR to that EMR seamlessly without skipping a beat. He hasn't had any issues with anyone. He does his work.” They'll say, “Okay, we will pay the extra amount to have this guy who we know is not going to be a problem.” So, it worked out. For sure.

I highly recommend locum to anybody who's burning out, tired of “I don't have to deal with hospital politics. If I don't like a place I say, okay, that's it. I'll go somewhere else.” Fortunately that's never really happened. I've liked most of the places I've gone to.

That's the other thing. People think locum is all like the drag work, like, “Oh, that's got to be a terrible job that nobody wants.” Far from the truth. I've had some of the chillest jobs where I go in, work a few hours, they pay me for the whole day and you're done and you're like, “Wow, this is amazing.”

Dr. Jim Dahle:
Yeah. Pretty awesome. Well, Steve, congratulations on your success crushing those student loans and this great start you have to your career. And particularly thanks for the insight into locums. I think a lot of people wonder about that, wonder how it might fit into their life. And you've demonstrated that for a lot of people, it can work out just fine and include significant financial and control benefits. Thank you so much for being a White Coat Investor. Thanks for being willing to come on the podcast.

Steve:
Thanks, Dr. Dahle. Thanks so much. Obviously, I refer to your website. That whole six months that I left and didn't work after fellowship, I literally went from number one of your podcast and just went through all of them one by one. And by the end or by somewhere in the middle, I said, “I don't think I need to hire a financial advisor” because I was about to, I was like, “I think I need one. I don't know what I'm doing.” And by the end, I was like, “Okay, this is not that hard. I think I can do it.”

Dr. Jim Dahle:
Awesome. Well, congratulations. That's a big step. Well done.

Steve:
Thank you. Thank you so much. Thanks for having me.

Dr. Jim Dahle:
Okay. I hope that was helpful to you. Locums. Locums, control, you got to be self-employed. You get to decide whether you take three months off at a time. You get to decide where are you going to work. If you're willing to be flexible with your location it is pretty awesome the deal you can get. All your living expenses paid plus a generous income.

What's not to like there? Yes. It might not work very well if you're stuck in one geographic region for one reason or another, but it's pretty amazing what percentage of docs that sort of thing can work for at least for part of their career or part of their year or part of their practice or whatever.

Even if you're married, even if you have kids, maybe the kids get homeschooled. Maybe your spouse has a location independent job. There's lots of ways, maybe you take a nanny with you. I don't know. There's lots of different ways you can make locums work for you.

When you're getting paid significantly more and they're covering all your living expenses, it's pretty amazing what other things you can do with that money to make it work for you. So, check that out. If that makes sense for part or all of your career, it’s something worth checking out.

FINANCE 101: DENTAL INSURANCE

Dr. Jim Dahle:
I told you at the top, we're going to talk a little bit about dental insurance. Dental insurance is not necessarily catastrophic coverage. In fact, most dental insurance plans have a cap on what they'll pay. In some ways it's almost the opposite of insurance. Dental insurance pays for the cheap stuff. It doesn't pay for the expensive stuff. It'll often cover your cleanings and your exams and the first 50% of your cavities until the plan is paid out, I don't know, $2,000 or $3,000 or something like that.

It is relatively inexpensive and it's often provided by your employer as a nice benefit. And it's a good reminder that you ought to go in and get your teeth cleaned and examined every now and then, but it's not exactly the same thing as a catastrophic health insurance policy where when you fall off the side of a mountain, you really need that health insurance.

Dental insurance is pretty optional. And it's optional in the lives of a lot of our dentists that are White Coat Investors. They're like, “We're not going to bother with insurance or you got to pay this in addition to the insurance or whatever.” So they have a different relationship with insurance than a lot of people like emergency doctors do, where we take what we can get because we're happy to have it. A lot of times they pick and choose which dental insurances they take or whether they take it at all, or maybe have you do all the reimbursement hassle with billing your dental insurance for payment of the services that you've engaged them for.

It's a little bit different in those respects. Optional to buy, we've had it for most of my career. We like it. If nothing else, it's a good reminder and a good incentive to get in there and get our money's worth out of it, which usually means doing your cleanings and exams. And I think it promotes good dental health in that respect. But if somebody said, “I'm just going to play cash for my dental insurance, I wouldn't say they're making a bad financial move.”

In other respects, it works a lot like medical insurance, there tends to be co-pays, there tends to be co-insurance. Just read the plan, understand what you've bought. And if it works for you, go ahead and use it. If nothing else, it allows you to buy some of your dental care with pre-tax dollars.

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Keep your head up and shoulders back. We'll see you next time on the podcast.

DISCLAIMER

The hosts of the White Coat Investor are not licensed accountants, attorneys, or financial advisors. This podcast is for your entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.