In this episode we discuss charitable giving and dive into donor-advised funds (DAFs) vs. Charitable Remainder Trusts (CRTs) and private family foundations. We break down what each of these are and discuss the merits and drawbacks of each option. We also answer listener questions regarding whether to sell or rent your home when moving to a new city. We discuss if it is wise to allocate the bond portion of your asset allocation within your financial plan toward your primary home mortgage. We share our thoughts on if we will ever go back to the gold standard, and then we answer one reader's question about if medical evacuation insurance is a worthy purchase. And finally, we answer questions from a military member regarding life insurance and if the military benefits should be added to independently purchased life insurance.

 

Charitable Giving — Donor-Advised Funds (DAF)

Today, we are talking about charity and specifically some of the vehicles you can use for giving to charity. Our first question was emailed and reads,

“I'm hoping you could talk a bit about donor-advised funds on an upcoming podcast. What are their benefits? Are there any drawbacks? What kind of asset allocations should we use? And any thoughts on whether to use a Vanguard or Schwab DAF vs. one that's available through a well-regarded nonprofit in my city?”

We have a donor-advised fund at Vanguard. Vanguard is not as easy as Fidelity to work with. Compared to Vanguard, Fidelity has lower minimum initial contributions and lower requirements to keep money in there without paying additional fees. If you're not going to be making significant donations, don't bother with a donor-advised fund. Vanguard's minimum donation is roughly $500. That means when you take money out of the DAF and give it to the charity, you've got to give at least $500. This doesn't work if you're giving $20 at a time. If you're just contributing to your local elementary school or you're giving a few bucks here and there, donor-advised funds really don't work.

The basic point of a donor-advised fund is to provide you with a few things you can't get going directly to a charity, one of which is anonymity. When you give money to a charity, it's really hard to remain anonymous. Another advantage of a donor-advised fund is you can give the money now and get the tax deduction. And then you can wait to actually give the money to charity.

Now, you can't take it back out and spend it on yourself. It can only go to a charity, but you don't have to give it to the charity right away. If you want to get the whole tax deduction for your donation this year but you actually want to spread out the giving over many years, then a donor-advised fund works very well. It's also a little bit slicker come tax time because you just have this one big donation to keep track of for charity. And the DAF gives you all the documentation for it. You don't have to keep track of all of the smaller donations you make to various charities.

Recommended Reading:

Should You Use a Donor Advised Fund

The Donor Advised Fund – A Win, Win

 

Drawbacks for Donor-Advised Funds

One drawback for a DAF is that it adds an extra step. Anytime you give to charity, it has to go in the DAF and then goes to the charity. Another drawback is that the DAF actually charges fees. At Vanguard, if you don't keep $25,000 in there, it'll charge an annual fee of roughly $250. The truth is you only have to have $25,000 in there on the one day in February when the balance is checked. Vanguard also charges a 0.6% AUM fee, and Fidelity is similar, possibly even a little higher. You are paying that AUM fee on any money you leave in the donor-advised fund. And if you look at 0.6% of $25,000, you're starting to get closer to that $250 annual fee mark. You're going to pay one way or the other. If you have $1 million dollars in there, that's $6,000 a year you're paying just for the benefit of the DAF. You can make the argument that the DAF fee is pretty darn similar to what the tax drag is if you just left that money in your taxable account. Maybe it's a wash one way or the other. Also, the AUM fee is for the first million dollars and drops after that.

 

Asset Allocation

What kind of asset allocations should you use there? Well, it really depends. When are you going to give the money? If you're not giving the money away for years and years, you can invest aggressively. You can put it mostly in stocks. You're pretty much going to be stuck with publicly traded mutual funds. You're going to have the same funds available to you in the DAF that you will in your taxable account.

We don't really park money in our DAF. The money that goes in basically comes out a few days later and goes to the charity. And so, all the money that we have in our DAF sits in cash. It just goes in a money market fund, and then it comes out and goes to the charity. Our asset allocation is 100% cash.

Vanguard, Schwab, and Fidelity all have these. I think Fidelity is probably the top one, particularly if limits at Vanguard bother you. If you want lower contribution, initial contribution, and lower charitable donation limits, then Fidelity is the one to use. It really works well if you have your taxable account in Fidelity to use the Fidelity DAF. It works well if you have the Vanguard taxable account to use the Vanguard DAF. It's very slick that way. But I am told it's pretty darn easy to use a Vanguard taxable account with a Fidelity DAF, so no big deal there either.

The other option is a well-regarded nonprofit in your city. Oftentimes these are actually run by the charity itself. If that's the only charity you want to support, and they have a DAF, you can go ahead and use that one if you want. But I prefer a more broad-based one at a typical brokerage house like Vanguard, Fidelity, or Schwab.

That's kind of the donor-advised funds story. They're pretty good. And I think they're very useful for people that aren't super-wealthy. In fact, if you're going to have less than a seven-figure amount, I think a donor-advised fund is probably the way to go.

Recommended Reading:

DAF Giving Tutorial from Vanguard and Fidelity Charitable

Donor Advised Funds with Vanguard Charitable

 

Family Foundations

The next question is from a doc who wants to maintain some anonymity but basically asks,

“Can you go in depth on DAFs vs. CRTs, charitable remainder trusts vs. private family foundations, their pros and cons? The background here is we are FI physicians in our 40s and are looking to maximize some tax deduction opportunities for the current year, given our high marginal tax bracket.”

They basically have some highly appreciated securities they don't necessarily want to pay capital gains taxes on, and they also have some charitable desires.

Family foundations are a little bit of a different kind of vehicle. At a private family foundation, you don't have to pay that 0.6% or 0.7% fee to Vanguard or to Fidelity. But someone has to manage the investments inside the foundation. That can be you. You can manage them for free and not charge anything to do that. And you can choose super cheap index funds to put in there.

At large amounts, the savings from not paying that AUM fee can be significant. But a private family foundation is basically just a private foundation. It's governed by the IRS regulations for private foundations. It just happens to be governed and funded by family members.

About 50% of private foundations in the U.S. are family foundations. Family members are often the only members in the foundation's board, and they decide how the assets of the foundation can be used to meet the foundation's mission by making grants to charities or even to individuals. There is a little bit more latitude in what the money is used for. Just like any other private foundation, you do have to disperse 5% of assets every year.

It can be funded all at once when you sell a business or it can be funded on an ongoing basis with assets. You can give cash to it. You can give appreciated securities, whether they are stocks or mutual funds or whatever. You can use private stock or family-controlled business or assets or real estate to fund it. And it can be managed either by family, or it can be managed by a professional manager. An attractive perk to some is that you can pay your kids to be on the board. You can give them a salary.

 

Drawbacks for Family Foundations

The grants are publicly viewable, so you don't get the same privacy you would get with a DAF. That does take away some of that anonymity.

Obviously, you're going to need to go to an attorney to set this up. You can't just go to Vanguard Charitable and open up the account. You're going to need to draft some documents, and it’s probably going to involve an accountant as well. It needs articles of incorporation, mission statements, and other documents. You also have to file a tax return for it each year. And this is not an insignificant tax return. This is form 990-PF, the return of a private foundation. It's a 13-page tax return.

There is another regulation with a private foundation. You basically have to pay a fee, though it's pretty low. It is a tax on the income for the foundation each year. It's 1% to 2% of the income, not the assets in the foundation. This isn't an AUM tax, it’s just on the income. So, let's say it made 5% income this year. Well, you have to pay 1% of that. So, it's pretty small, but it doesn't exist when it comes to a DAF.

With a private foundation, you can't quite put as much money in as a percentage of your income and get a deduction for it. For example, if you put it in a donor-advised fund, you can get 60% of your adjusted gross income if you put cash in there. And 30% if you put appreciated securities in there. So, that's pretty good for a donor-advised fund. If you made $1 million this year, you can put up to $600,000 into DAF and claim a deduction for that. If you are using a private foundation, however, those two numbers are 30% and 20%. So, if you made a million dollars, you could only put $300,000 into your private foundation.

 

When to Use a Family Foundation

So, when do you do it? You do it the year you sell the property or you sell the family business or whatever. That's the year you put all the money in because you've got this very high income, which means you can get a pretty significant deduction. But you can put more into a donor-advised fund than you can into a private foundation and still get that deduction for it.

I suppose there's nothing that keeps you from using both. If you want to put everything from selling a business in there, you could put 60% of the cash into the donor-advised fund and put 30% into a private foundation. I don't think those are aggregated limits. But that's basically the point of a private foundation.

Down the road, of course, I think a foundation probably lasts longer. You can name basically beneficiary advisors to your donor-advised fund if you want so the next generation can now decide what charities the money goes to. But they can basically just clean the thing out in one year. They can't take it themselves, but they can give it all to their favorite charity the year you die, and that's it. The donor-advised fund is all over.

Meanwhile, a private family foundation usually has some guidelines and some laws. And so, it's likely to last longer, although there's nothing that keeps your donor-advised fund from being stretched out for a long, long time, if you would like, as well.

 

Charitable Trust

That brings us to this other option: a charitable trust. There are a lot of different types of charitable trusts. If you go on the White Coat Investor blog and look up “charitable trusts”, you'll see that there are a whole bunch of them.

A charitable remainder trust is one of the common types. Basically, what is left after the annuity period goes to the charity. So, the annuity period is where you get income from the charitable trust. That can go to you. It can go to a family member or whoever else. Once the beneficiary dies, whatever's left goes to the charity. You get a certain amount of a charitable donation for setting up this trust.

The main purpose of doing these is when you want an income of some kind. You have some charitable desires, but you don't necessarily want to give it all to charity, or you want to create a kind of a spendthrift trust with it and use some of it to support your family member.

A lot of people say the best time to use it is when you actually want to provide more tax benefits than just income tax benefits, because this can also reduce the size of your estate and reduce your estate taxes. If you have an estate tax problem, this might be a great idea. If you are selling a family business, this can work out really well for you to try to keep that out of your estate and avoid gift tax issues. Those are the kinds of people that look into these charitable remainder trusts.

If you want to keep it simple and straightforward, you probably prefer a donor-advised fund or a private foundation than you would a charitable trust. But if you like the idea of getting some income from it or you have an estate tax problem or you're selling a highly appreciated business, then you can start looking at a charitable remainder trust.

Recommended Reading:

Charitable Trusts

 

When to Choose a Charitable Trust

Simply having some appreciated shares of stock or mutual funds is not necessarily a reason to use a CRT. Obviously, CRTs are going to involve an attorney and there is going to be some significant expense there. You're not going to do this for a $50,000 charitable donation. This needs to be something relatively large to justify all the money you're going to spend setting up and maintaining this trust.

Those are the different types of charitable vehicles. For most people, I would start with the DAF and see if you can meet all your needs with that. If you are a particularly wealthy person, if you're starting to worry about estate taxes, or if you have a really appreciated business, then maybe start looking into a private foundation, meeting with an attorney, and talking about a charitable remainder trust.

Recommended Reading:

7 ways the IRS Supports Your Charitable Giving

 

Reader and Listener Q&As

Rent vs. Sell When Moving to a New City

The next question comes from Garrett.

“Quick question about how do you assess a property as to whether to sell or whether to rent if you're moving to a different city. I'm an MD/PhD student who's about to graduate next year. We've accumulated about $100,000 in equity in our house, and we are trying to decide whether to sell it, when moving to do a residency, or keep it as a rental property. Currently, our taxes, mortgage, and insurance are about $1,000 a month whereas houses, they're all identical because it's a row house neighborhood, rent for about $1,600-$1,700. It's also a rapidly gentrifying neighborhood. So, we think that prices are likely to continue to increase. But of course, that's never a guarantee. I’m just trying to decide how you would assess whether to keep a property like that or whether to sell it and use that to help fund IRAs and 401(k)s throughout the course of residency training.”

What is your housing plan? Do you sell it? Well, what's your plan when you go to the next place? Is your plan to rent? Is your plan to buy another house? If you're going to buy another house, why not take the home equity out of that and use it as your down payment? There are a lot of benefits to having a down payment when you buy a house. It makes it less likely that you're going to lose the house. If the value of that house drops from the time you bought it, it’s less likely that you have to bring cash to the table if you have to sell. You get more options for a mortgage. You don't necessarily have to use a doctor mortgage, especially if you can come up with 20% down.

Do you want to be a direct real estate investor? If you are serious about maybe renting this out, consider if you want to be a direct real estate investor, because that's what you're going to be when you rent it out. And since you're probably leaving this city or you wouldn't be selling the place, do you want to be a long-distance landlord?

I can tell you I have been a long-distance landlord once. It was not fun. I did not like it. I do not recommend it. If you want to be a direct real estate investor, I think you ought to buy properties in your own city where you can drive by them and look at them and take care of little things with them. The majority of the time, I think you probably ought to sell these properties. The first reason is, of course, you probably want the money to use in your housing plan. The second reason is because, if you don't, you're going to be a long-distance landlord.

Not all houses are good rental properties. The property you bought to live in probably isn't a great rental property. You have to ask yourself, “If I were going to buy a rental property and be a direct real estate investor, is this the one I would buy?” And chances are it's not. The only advantage that property has over any other property in the entire country now, since we're talking about being a long-distance landlord, is that you already own it.

The only benefit is you don't have quite as much hassle in buying it and you don't have quite the expense to buy it. You get to save yourself that expense of buying the property or selling this one and buying another one. You get to save a little bit on the transaction costs. That's it. And remember just because your mortgage payment is $1,000 and you can rent the thing for $1,600 doesn't mean it's a cash flow positive property. You have to look at all the other expenses of owning the property, especially now that you're renting it out. You have to look at vacancies. You have to look at property management costs. You have to look at maintenance. You might still have to take care of some utilities. You might be taking care of the lawn or else it's going to go to pot. Maybe you have to do the snowplowing.

Who knows what the other expenses are? There are going to be upgrades. There are going to be turnover costs. You have to look at all the costs of being a direct real estate investor. It is not just about comparing mortgage to rent. There's more to it than that. So, unless you want to get into direct real estate investing, it's probably time to sell the property.

 

Reallocating Assets to Pay Mortgage

Our next question is about mortgages from Raish.

“Thank you for all your education over the years. I have a question about using the bond portion of my asset allocation within my written financial plan toward my primary home mortgage. I have a 15-year fixed mortgage, and bonds constitute 10% of my portfolio. If I was to take that 10% out and move that all toward my home mortgage, what are your suggestions for strategies for asset allocation moving forward? I rebalance roughly every two months by adding new funds in rather than shifting funds around. So, if I continually keep adding new funds, what are your suggestions for the spreadsheet to make sure that there's some number to represent the bonds so that I'm not over allocating into other asset classes?”

That is one way to think about debt, as a negative bond. Bonds pay you interest. Debt costs you interest. So, it's a negative bond. It's a great way to think about your debt. Let's say you've got a mortgage that's 3.5%, and you can't find a bond fund that pays more than 2% right now. So, obviously, you're going to come out ahead getting a guaranteed 3.5% then you are getting a guaranteed, maybe not even completely guaranteed, 2%. Therefore, it makes sense to pay off your debt rather than invest in bonds from an intellectual standpoint. Keep in mind, however, that part of the reason we invest in bonds is not just for the return. It's not just for the income. It's also to reduce the volatility of the portfolio. If you start doing this instead of investing in bonds, your portfolio is going to be more volatile than it otherwise would. You have to be sure that you can actually handle that volatility in a down market.

How do you do it? Well, you just put money toward the mortgage. That's it. If you've decided that you're going to put, let's say, 10% of the money you invest toward bonds, then you take 90% and you put it into your asset allocation, your investments, and your stock mutual funds. You take the other 10% and you send it into the mortgage lender until that mortgage is gone. Don't try to put the mortgage onto your asset allocation spreadsheet, though. Just have 100% stock allocation on that spreadsheet. And when the mortgage is paid off, change the asset allocation and add those 10% of bonds back in. That'll make your paperwork life a lot easier and your spreadsheet a lot easier to manage.

 

Is the Gold Standard Gone for Good?

Our next question is an email that asks,

“Do you believe a return to the gold standard is possible? If so, how will this affect our stock and bond holdings?”

No, I don't think it's really possible. I don't think we're going back to the gold standard. I think the advantages of being off the gold standard outweigh the disadvantages pretty significantly. And I think the government believes that, and I think the Federal Reserve believes that, and I think the equivalent organizations in other countries also believe that.

There were a lot of downsides to the gold standard. Maybe it wasn't quite as inflationary, but, as you've seen, keeping inflation at around 2% a year is not necessarily a bad thing. It can really help economies to grow at a maximal rate. To see the downsides of the gold standard, all you have to do is go back and look at the Great Depression. So no, I don't think it's really going to happen.

How would a return to gold standard affect stock/bond holdings? Well, it's hard to say how that would affect stock holdings. Bond holdings would probably eliminate one of their bigger risks, which is the risk of inflation really. And the risk of hyperinflation would be lower on the gold standard. And so, it would make bonds, I suppose, a little bit more attractive to hold. Maybe yields would go down significantly, and that would drive up the value of your bonds if you owned them when we went to a gold standard. I don't know how it would affect our stock holdings. That's a good question. Maybe somebody else can speculate on that, but I don't think it's entirely clear how that would affect the value of your stocks or future returns of your stocks to be on the gold standard. The truth is, I think it's very, very unlikely that we're going back to a gold standard anytime soon.

 

Medical Evacuation Insurance

Our next question comes in from Danny about medical evacuation insurance.

“I was wondering if you can comment on medical evacuation insurance. I'm a resident in a general surgery program in Texas, but my wife and I used to guide in Utah. The stars recently aligned, and we are actually headed down Desolation Canyon on a private rafting trip out in your neck of the woods in a couple weeks. We plan to take similar trips to remote areas in the future, especially once our kids are older and they can come along, but it's got me thinking about the financial repercussions of what's realistically a tiny risk of needing to initiate medical evacuation. But it is a risk. Our emergency fund would probably cover most if not the entire cost of an extraction, but it would still be a really big bill to pay. Do you ever purchase evacuation insurance when headed to remote areas, and what is your reasoning?”

I have never bought evacuation insurance. I don't think of Desolation Canyon as a super risky place, but it is a week-long trip. And if you had to get out of there, it might be a little bit tricky. One thing I would invest in is an InReach device so you can actually initiate that rescue. I think that's probably far more important than actually having the insurance.

Most of the way these things work is dependent on who's coming to rescue you. The rescue may be free. The medical helicopter, the one that comes with a nurse and a paramedic on it, that one charges you. But the Sheriff's helicopters—at least this is the way it works in southern Utah, for instance—does not cost you.

Now in general, the first thing to look at with these things is what does your insurance company cover? You may find that your insurance company is going to cover flying you out in a medical helicopter from Desolation Canyon, in which case it would be really stupid to pay extra for medical evacuation insurance for that.

When I think about medical evacuation insurance, I think about people outside the country where your medical insurance policy is specifically written, “We're not going to cover this flight.” I've seen people buy that when they go to Nepal or they go to South America or whatever, as insurance to cover a medical evacuation flight. But I don't think that sort of thing happens very often when doing stuff inside the United States. Look into the details of your policy and look into the pricing and decide if that's something you really want to spend money on insuring. But you know, an inReach subscription is super cheap and the device isn't very expensive.

 

Life Insurance for Military Members

Our next question comes from a military member.

“I'm just starting my chronic pain fellowship after an anesthesia residency. It's an active-duty fellowship in the military. Then I have at least a three-year active-duty Air Force HPSP commitment after that. I'm also recently married and I have a baby girl due in a month. Using your calculation from the life insurance section of the WCI bootcamp book, we estimate I'll need about $4 million in coverage. My questions are, should I add the military benefit to that, as well? And also, given your history with the military, which I thank you for, any other life insurance tips and tricks given my situation would be much appreciated. Side note, I tell everyone I know to follow you, and every word on your blog is absolute gold.”

Disability insurance is pretty tricky with the military, but life insurance isn't that hard to deal with at all. You can just go to a life insurance broker and buy that $4 million policy. Now, if you like the SGLI policy, you can use that for $400,000 of your coverage. I had the SGLI as part of my coverage when I was in the military. When I got out, I looked at veterans group life insurance. I didn't like the pricing on that and decided we were fine without it. And so, we just dropped that portion of our coverage.

Remember, as you go through your career, you need less and less and less life insurance coverage as your nest egg gets bigger and bigger and bigger. It's kind of natural to slowly decrease how much life insurance you have, which works out well because it gets more and more and more expensive as time goes on unless you lock in level pricing with a 20- or 30-year level premium policy. I'd just go to a life insurance broker. We've got a recommended list at The White Coat Investor. Go into the Recommended tab and there's the insurance agent tab there.

So, I don't think you need a lot of tips and tricks there. Look at SGLI as part of your coverage, the Servicemens Group Life Insurance policy. And that's fine to use for part of your insurance coverage. But you're probably going to need more than that because you can't get $4 million in SGLI. So, keep that in mind. Again, thanks for your service, and I hope you enjoy your fellowship.

 

Underinsured Motorist vs Uninsured Motorist Coverage

I wanted to offer clarification about a podcast that we did a few weeks ago. I don't think I did a very good job explaining my thoughts on underinsured motorist and uninsured motorist coverage. Remember that uninsured motorist and underinsured motorist are basically split into two parts. There is liability coverage, and there is vehicle coverage. Since I have collision and comprehensive coverage on the vehicle, I don't need the vehicle coverage from underinsured and uninsured motorist.

That is basically my point with this coverage. Don't buy something you already have somewhere else. You have to look at your liability coverage, including your umbrella policy and see whether it covers uninsured motorist and underinsured motorist-related liability. If you've got that, wonderful. If you don't, then you may need that coverage.

I looked at mine carefully, and it turns out my umbrella policy would require me to have that particular liability coverage—the uninsured motorist and underinsured motorist—to $300,000 and then stacks a few million dollars on top of that. You have to look at your umbrella policy. If it includes it, you don't need it separately. If it requires you to have it as part of your auto policy, like mine does, then you have to buy it.

 

A lot of physicians have questions about locum tenens, and locumstory.com is the place for them to get real, unbiased answers to those questions, basic questions like, “What is locum tenens?” to more complex questions about pay ranges, taxes, various specialties, and how locum tenens works. And then there’s the big question: Is it right for you? Go to locumstory.com and get the answers.

 

Milestones to Millionaire Episode

#31 Millionaire Dentist

As this dentist demonstrated, owning your own practice pays off. Everything extra comes to you. Save and invest that extra and you’ll be a multimillionaire. If you’ve been thinking about starting your own practice, check out these tips.


Sponsored by GoodRx

 

Conferences

Registration is now open for The Physician Wellness and Financial Literacy Conference. The conference is in Phoenix on Feb. 9-12, 2022. In the past, the tickets have sold out quickly so don’t wait to get yours. If you cannot attend the in-person event, we are also offering a virtual component. Visit whitecoatinvestor.com/wcicon22 to get your tickets today.

Many White Coat Investors have gotten involved with Passive Real Estate Academy through Passive Income MD. You can get more information at whitecoatinvestor.com/prea. If you join their waitlist by Sept. 17, the day after this podcast drops, you get early access to join that online course and community, and you get a $200 waitlist discount. The waitlist pricing for this is $1,797 or three payments of $679. Then standard pricing is $1,997 or three payments of $747.

 

Quote of the Day

Our quote of the day today comes from Jack Bogle, who said,

“Don't look for the needle in the haystack. Just buy the haystack.”

 

Full Transcription

Transcription – WCI – 228

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:
This is White Coat Investor podcast number 228 – Charitable giving DAFs versus CRTs versus private family foundations.

Dr. Jim Dahle:
It’s story time, brought to you by locumstory.com. Today we'll be reading docs in shocks. Some docs are overworked. As work works, overworked workers worry. Some docs are over stopped. Stopped as pandemic tick-tocks, keep docs off clocks. If docs are in shock as a pandemic clock, tick-tocks, then locum is the token to unburned the burnt out broken.

Dr. Jim Dahle:
Enough ticks have tocked. The time is now, and locum is how. Locum tenens tend to trend as a godsend demand, to burnt out ends. For more locum tenens information, locumstory.com is your final destination.

Dr. Jim Dahle:
All right, welcome back to the podcast. It is September 8th and I think this runs next week. So clearly, we need to get a little bit ahead in our podcast. I think this runs on the 16th. And so, when you hear this, there is a great thing going on. Maybe it's already over, actually, I don't know right now. It's always exciting to watch this happen.

Dr. Jim Dahle:
You never know how quickly WCI con is going to sell out. The first year we did it, it sold out in six days. The next time we did it, it sold out in 23 hours. So, it's possible that by the time you hear this podcast, it may already be sold out. At least the in-person component. The virtual component of course has no limitation. And so, you can still register for that.

Dr. Jim Dahle:
But if you have not read yet registered and you're interested in coming to WCI con 22, A.K.A. The Physician Wellness and Financial Literacy conference, go to whitecoatinvestor.com/wcicon22. We are in the early bird pricing period right now. And if there are still spots available, you can get those.

Dr. Jim Dahle:
The conference itself is going to be in Phoenix, February 9th, through 12th, 2022. We have an awesome lineup all ready for you. We have James Lang coming. We've got Bill Bernstein coming. We have Michelle Singletary coming. We've got all kinds of great speakers from the White Coat Investor community. It's really going to be a great event.

Dr. Jim Dahle:
I highly recommend you sign up for that. If the in-person is already full, sign up for the virtual option. It's going to be very good. Those of you who attended the virtual conference last year, know that it's still very awesome. It's not quite the same as being in-person, but it's very, very good.

Dr. Jim Dahle:
And there is some content that is actually only available on the virtual option. Of course, we'll make that option available as well to those attending in-person but it is going to be a legit virtual conference, this hybrid conference. So be sure to check that out.

Dr. Jim Dahle:
I can totally understand why some people may come virtually. There's a lot of COVID going on out there right now, and a lot of very burnt-out docs. And that is partly why we have this wellness conference because the wellness portion is becoming more and more popular every year. At first, we thought the wellness was just to kind of get the CME in there, but it turns out there's a lot of docs coming to this conference for the wellness portion. And it is a very good wellness conference in addition to a financial literacy conference.

Dr. Jim Dahle:
Thanks for those of you on the front lines, those of you who are sick of dealing with COVID day to day. It's really pretty profound just how burned-out people are due to COVID these days. Maybe not even as compassionate as they once were, particularly toward people who have not yet gotten their vaccines. So, thanks for being there. Thanks for taking care of people. Thanks for doing the right thing.

Dr. Jim Dahle:
Our quote of the day today comes from Jack Bogle, who said, “Don't look for the needle in the haystack. Just buy the haystack”.

Dr. Jim Dahle:
All right. Let's do some questions and talk for a few minutes. And then I got one other thing I want to tell you about that's coming up later this month. I'm going to move that I think to a little bit later in the podcast though.

Dr. Jim Dahle:
First, I need to do, not quite a correction, just more of a clarification about a podcast that we did a few weeks ago. I don't think I did a very good job explaining my thoughts on underinsured motorist and uninsured motorist coverage. In that episode, I talked about my auto policy. Based on the feedback I'm getting, maybe I need to clarify this a little bit.

Dr. Jim Dahle:
Remember that uninsured motorist and underinsured motorist are basically split into two parts. There is liability coverage and there is vehicle coverage. Since I have collision and comprehensive coverage on the vehicle, I don't need the vehicle coverage from underinsured and uninsured motorist.

Dr. Jim Dahle:
In fact, my company, USA won't even let me buy it. Well, if you have a collision comprehensive, you can't buy it. You can buy it if you just have liability only, but you don't need it for collision comprehensive. And so, of course, I don't want it. They won't let me buy it. That works out just fine.

Dr. Jim Dahle:
That's basically my point with this coverage, it’s don't buy something you already have somewhere else. You don't need something that's going to cover your disability. You don't need something that's going to cover your medical problems. You've got health insurance. You've got disability coverage that covers those things.

Dr. Jim Dahle:
Same thing with liability coverage. You got to look at your liability coverage, including your umbrella policy and see whether or not it covers uninsured motorist and underinsured motorist related liability. If you've got that, wonderful. If you don't, then you may need that coverage.

Dr. Jim Dahle:
I went and looked at mine carefully and it turns out my umbrella policy would require me to have that particular liability coverage, the uninsured motorist and underinsured motorist to $300,000 and then stacks a few million dollars on top of that. And so, you got to look at your umbrella policy. If it includes it, you don't need it separately. If it requires you to have it as part of your auto policy like mine does, you got to buy it.

Dr. Jim Dahle:
But the point is don't double insure stuff. If you're already insuring it with something, don't insure it again. And you got to look at that, especially when you're getting your policies from different companies.

Dr. Jim Dahle:
All right. So, let's get into the subject of this podcast. Let's talk about charity and specifically some of the vehicles you can use for giving to charity. I got a couple of email questions here. The first one is a simple one. “I'm hoping you could talk a bit about donor-advised funds on an upcoming podcast. What are their benefits? Are there any drawbacks? What kind of asset allocations should we use? And any thoughts on whether to use a Vanguard or Schwab DAF versus one that's available through a well-regarded nonprofit in my city?”

Dr. Jim Dahle:
Then the second one via email is a lengthy one from a doc who wants to maintain some anonymity, but basically asks, “Can you go in depth on DAFs versus CRTs, charitable remainder trust versus private family foundations, their pros and cons? The background here is we are FI physicians in our 40s and are looking to maximize some tax deduction opportunities for the current year, given our high marginal tax bracket”.

Dr. Jim Dahle:
They basically have some highly appreciated securities. They don't necessarily want to pay capital gains taxes on, and they also have some charitable desires.

Dr. Jim Dahle:
All right. So, let's talk about these three different types of vehicles. First, the donor-advised funds. You may know the most about these. I've written about them many times. I'm sure I've talked about them on the podcast at some point in the past.

Dr. Jim Dahle:
Katie and I have a donor-advised fund at Vanguard. Vanguard is not the easiest one to work with. I think Fidelity is probably the easiest one to work with. They have lower minimum initial contributions and lower requirements to keep money in there without paying additional fees than Vanguard does.

Dr. Jim Dahle:
I think you can make smaller donations as well. I think Vanguard's minimum donation is like $500. Meaning, when you take money out of the DAF and give it to the charity, you got to give at least $500. This doesn't work if you're given $20 at a time. If you're just contributing to your local elementary school, or you're giving a few bucks here and there, donor-advised funds really don't work.

Dr. Jim Dahle:
Fidelity works a little bit better than Vanguard, but for the most part, these are for significant donations you're going to be making to charity. If you're not going to be making significant donations, don't bother with a donor-advised fund.

Dr. Jim Dahle:
The basic point of a donor-advised fund is to provide you with a few things you can't get going directly to a charity. One of which is anonymity. When you give money to a charity, it's really hard to remain anonymous. And all of a sudden, your mailbox gets flooded with what I call charity porn. Not only are you getting all these glossy brochures from that charity for years and years afterward, but they actually sell your name and address to other charities to send you more charity porn.

Dr. Jim Dahle:
So, all of a sudden, instead of helping all these people you're hoping to help through charities, the charities are using the money to market to you to get more money. And I'm not a big fan of that. So, I like the anonymity that comes from using a donor-advised fund. They don't get my name, they don't get my address. They can't send me any charity porn. So, theoretically more of my money is going toward actually helping the cause that the charity works on. So, I like that aspect of it.

Dr. Jim Dahle:
Another advantage of a donor-advised fund is you can give the money now and get the tax deduction. And then you can wait to actually give the money to charity. You can give the charity in a year, five years, 10 years, 80 years, whatever you want. You can leave all that money in your donor-advised fund.

Dr. Jim Dahle:
Now you can't take it back out and spend it on yourself. It can only go to a charity, but you don't have to give it to the charity right away. If you want to get the whole tax deduction for your donation this year, but you actually want to spread out the giving over many years, then a donor-advised fund works very well. I call that a bit of a jerk move in some ways, that you're getting the benefit now and the charity isn't getting the benefit for a while. But I'll let you deal with the ethics of that.

Dr. Jim Dahle:
That's one thing people like about a donor-advised fund, and it can make sense, right? If you're in a high tax bracket now, you're not going to be in a high tax bracket later. You might as well get your charitable production now, or maybe you're selling a company or something. And so, you want to get that money in there. You can see why that would be an advantage.

Dr. Jim Dahle:
Those are the main benefits of a donor-advised fund. It's also a little bit slicker come tax time because you just got this one big donation to keep track of for charity. And the DAF gives you all the documentation for it. And then you don't have to keep all these little or smaller, I guess they're not little, but these smaller donations you make to various charities. It's less paperwork when tax time comes around.

Dr. Jim Dahle:
What's the main drawback? Well, you got one additional step. Anytime you give to charity, it's got to go in the DAF and then it goes to the charity. It's one additional step, that's one drawback. The other drawback is that the DAF actually charges fees.

Dr. Jim Dahle:
At Vanguard if you don't keep $25,000 in there. And the truth is you only have to have $25,000 in there on the one day in February when they check the balance. But if you don't have $25,000 in there, they charge you an annual fee. I think it's $250.

Dr. Jim Dahle:
Also, they charge 0.6%. And I think Fidelity is something similar, maybe even a little bit higher. So, you're paying an AUM fee on any money you leave in the donor-advised fund. And if you look at 0.6% of $25,000 is, well, you're starting to get closer to that $250 annual fee mark. You're going to pay one way or the other.

Dr. Jim Dahle:
And so that's the main drawback. If you're managing your portfolio for just a few basis points, all of a sudden, now you're paying a 0.6% AUM fee. So, a significant drawback. As you get millions in there that AUM fee does drop. But I think that's what the fee is for, the first million.

Dr. Jim Dahle:
If you got a million dollars in there, that's $6,000 a year, you're paying them just for the benefit of the DAF. Now you can make the argument that DAF fee is pretty darn similar to what the tax drag is if you just left that money in your taxable account. And so maybe it's a wash one way or the other. Obviously that money, once it's in the DAF, is growing tax free. And so, maybe the tax drags and the DAF fee kind of cancel each other out. So no big deal.

Dr. Jim Dahle:
What kind of asset allocations should you use there? Well, it really depends. When are you going to give the money? If you're not giving the money away for years and years, and years and years, you can invest aggressively. You can put it mostly in stocks.

Dr. Jim Dahle:
Now you're pretty much going to be stuck with publicly traded mutual funds. It’s pretty much what you're going to be able to use in a DAF. But if you're using the Vanguard index funds anyway, that's no big deal. You're going to have the same funds available to you in the DAF that you will in your taxable account. So, no big deal there, but don't expect to be able to invest in private real estate or cryptocurrency or something inside your DAF. You're probably not going to be able to, although there's probably a market there for somebody down the road that wants to offer that. I'm sure they can probably arrange it.

Dr. Jim Dahle:
But what kind of asset allocation should you use? Well, we don't really park money in our DAF. The money that goes in basically comes out a few days later and goes to the charity. And so, all the money that we have in our DAF sits in cash. It just goes in a money market fund, and then it comes out and goes to the charity. And so, that's the asset allocation we use, 100% cash.

Dr. Jim Dahle:
Vanguard, Schwab, Fidelity, all have these. I think Fidelity is probably the top one, particularly if limits at Vanguard bother you. If you want lower contribution limits, initial contribution and lower charitable donation limits, then Fidelity is the one to use. It really works well if you have your taxable account in Fidelity to use the Fidelity DAF. It works well if you have the Vanguard taxable account to use the Vanguard DAF. It's very slick that way. Although I'm told it's pretty darn easy to use a Vanguard taxable account with a Fidelity DAF, no big deal there either.

Dr. Jim Dahle:
The other option of course, is one that is kind of a local, well-regarded nonprofit in your city for instance. And oftentimes these are actually by the charity itself. And so, if that's the only charity you want to support and they have DAF, you can go ahead and use that one if you want, but I prefer a more broad based one at a typical brokerage house like Vanguard or Fidelity or Schwab.

Dr. Jim Dahle:
That's kind of the DAF story, donor-advised funds. They're pretty good. And I think they're very useful for people that aren't super wealthy. In fact, if you're going to have less than, I don't know, a seven figure amount is probably where I'd start thinking about some of these other options. If you're less than that in some sort of charitable vehicle, I think a donor-advised fund is probably the way to go.

Dr. Jim Dahle:
All right. So, let's talk for a minute about private family foundations. They are a little bit of a different kind of vehicle and let me explain why. The reason why is at a private family foundation, you don't have to pay that 0.6% or 0.7% fee to Vanguard or to Fidelity. But somebody's got to manage the investments inside the foundation. That can be you. You can manage them for free and not charge anything to do that. And you can choose super cheap index funds to put in there, no big deal.

Dr. Jim Dahle:
At large amounts, the savings from not paying that AUM fee can be significant. But a private family foundation is basically just a private foundation. It's governed by the IRS regulations for private foundations. It just happens to be governed and funded by family members.

Dr. Jim Dahle:
But about 50% of private foundations in the U.S. are family foundations. Family members are often the members, the only members in the foundation's board and decide how the assets of the foundation can be used to meet the foundation mission by making grants to charities or even to individuals.

Dr. Jim Dahle:
And so, there's a little bit more latitude in what the money is used for. Just like any other private foundation, you do have to disperse 5% of assets every year. The grants are also publicly viewable, so you don't get the same privacy you would get with a DAF. That does take away some of that anonymity. It makes it easier for the nonprofits and donors to learn what the foundation cares about and which causes the organization supports. So maybe now the foundation starts getting a bunch of that charity porn. I don't know.

Dr. Jim Dahle:
It can be founded all at once when you sell a business or it can be founded on an ongoing basis with assets. You can give cash to it. You can give appreciated securities, whether they're stocks or mutual funds or whatever. You can use private stock or family-controlled business, or asset or real estate to found it. And it can be managed either by family, or it can be managed by a professional manager.

Dr. Jim Dahle:
Obviously, you're going to need to go to an attorney to set this up. You can't just go to Vanguard Charitable and open up the account. You're going to need to draft some documents and probably it’s going to involve an accountant as well. It needs articles of incorporation, mission statements and other documents.

Dr. Jim Dahle:
And you have to file a tax return for it each year. And this is not an insignificant tax return. This is form 990-PF. The return of a private foundation. It's a 13-page tax return. It's not insignificant.

Dr. Jim Dahle:
There is another regulation with a private foundation. You basically have to pay a fee. Well, a tax on the income for the foundation each year. Now it's not terrible. It's actually pretty low. It's 1% to 2% of the income, not the assets in the foundation. This isn't an AUM tax, it’s just on the income. So, let's say it made 5% income this year. Well, you got to pay 1% of that. So, it's pretty small, but it doesn't exist when it comes to a DAF.

Dr. Jim Dahle:
You can do a few other things with it. You can pay your kids to be on the board for instance. You can give them a salary. The foundation can pay them to be board members. And so, a lot of people find that option attractive. And that's kind of it.

Dr. Jim Dahle:
I guess there's one other thing you can't quite put as much money into as a percentage of your income and get a deduction for it. For example, if you put it in a donor-advised fund, you can get 60% of your adjusted gross income if you put cash in there. And 30% if you put appreciated securities in there. So, that's pretty good for a donor-advised fund. If you made a million dollars this year, you can put up to $600,000 into DAF and claim a deduction for that.

Dr. Jim Dahle:
If you are using a private foundation, however, those two numbers are 30% and 20%. So, if you made a million dollars, you could only put $300,000 into your private foundation.

Dr. Jim Dahle:
So, when do you do it? Well, you do it the year you sell the property or you sell the family business or whatever. That's the year you put all the money in because you've got this real high income. And so, you can get a pretty significant deduction. But you can put more into a donor-advised fund than you can into a private foundation and still get that deduction for it.

Dr. Jim Dahle:
So, keep that in mind. I suppose there's nothing that keeps you from using both. If you want to put everything from selling a business in there, you could put 60% of the cash into the donor-advised fund. You could put 30%, I suppose, into a private foundation. I don't think those are aggregated limits. But that's basically the point of a private foundation.

Dr. Jim Dahle:
Why do some people use it? I guess because they want to put their kids on the board. I don't know. That seems to be the main benefit. It’s an older thing. Donor-advised funds are a little bit newer. And so maybe a lot of people don't realize it. Maybe there's a lot of attorneys and accountants that are running up their fees by recommending family foundations rather than the easier to manage donor-advised fund.

Dr. Jim Dahle:
Down the road, of course, I think a foundation probably lasts longer. You can name basically beneficiary advisors to your donor-advised fund if you want so the next generation can now decide what charities the money goes to. But they can basically just clean the thing out in one year. They can't take it themselves, but they can give it all to their favorite charity the year you die and that's it. The donor-advised fund is all over.

Dr. Jim Dahle:
Whereas a private family foundation usually has some guidelines and some laws. And so, it's likely to last longer, although there's nothing that keeps your donor-advised fund from being stretched out for a long, long time, if you would like as well.

Dr. Jim Dahle:
All right. So that brings us to this other option, a charitable trust. There are a lot of different types of charitable trust. If you go on the White Coat Investor blog and look up “charitable trusts”, you'll see that there are a whole bunch of them. There are all kinds of different types of them.

Dr. Jim Dahle:
A charitable remainder trust is one of the really common types. Basically, what is left after the annuity period goes to the charity. So, the annuity period is where you get income from the charitable trust. So that can go to you. It can go to a family member or whoever. Once the beneficiary dies, whatever's left, goes to the charity. And so, you get a certain amount of a charitable donation for setting up this trust.

Dr. Jim Dahle:
The main purpose of doing these is when you want income of some kind. So you have some charitable desires, but you don't necessarily want to give it all to charity, or you want to create a kind of a spendthrift trust with it and use some of it to support your family member.

Dr. Jim Dahle:
A lot of people say the best time to use it is when you actually want to provide more tax benefits than just income tax benefits because this can reduce the size of your estate as well and reduce your estate taxes. So, if you have an estate tax problem, this might be a great idea. If you are selling a family business, this can work out really well for you to try to keep that out of your estate and avoid gift tax issues. Those are the kinds of people that look into these charitable remainder trusts.

Dr. Jim Dahle:
If you want to keep it simple and straightforward, you probably prefer more donor-advised fund or a private foundation than you would a charitable trust. But if you start liking the idea of getting some income from it, or you have an estate tax problem, or you're selling a highly appreciated business then you can start looking at a charitable remainder trust.

Dr. Jim Dahle:
But just having some appreciated shares of stock or mutual funds, I don't think that's necessarily a reason. You got to go look at a CRT. Obviously, those are going to involve an attorney, drafting it up there's going to be some significant expenses there. You're not going to do this for a $50,000 charitable donation. This needs to be something relatively large to justify all the money you're going to spend setting up and maintaining this trust.

Dr. Jim Dahle:
I hope that is a helpful discussion. Those are the different types of charitable vehicles. For most people, I would start with the DAF and see if you can meet all your needs with that. If you are a particularly wealthy person or you're starting to worry about estate taxes, or you have a really appreciated business, then maybe start looking into a private foundation, meeting with an attorney, talking about a charitable remainder trust, those sorts of issues. I hope that's helpful for you.

Dr. Jim Dahle:
Okay. Let's talk for a minute about Passive Real Estate Academy. Many White Coat Investors have gotten involved with this. This is through Passive Income MD. You can get more information at whitecoatinvestor.com/prea. Passive Real Estate Academy.

Dr. Jim Dahle:
If you join their wait list by September 17th, let's say that's the day after this podcast drops, you get early access to join that online course and community, and you get a $200 wait list discount. The wait list pricing for this is $1,797 or three payments of $679. And then standard pricing is $1,997 or three payments of $747.

Dr. Jim Dahle:
And what you get out of that is you get this online course in a community that helps you evaluate private real estate investments like syndications, like funds. If you're interested in getting into those sorts of investments, I highly recommend the course. This is done by Peter Kim over at Passive Income MD. Go to whitecoatinvestor.com/prea. That’s the link you need to know to get into that.

Dr. Jim Dahle:
All right, let's take a question off the Speak Pipe here. This one comes from Garrett. Let's take a listen to it.

Garrett:
Hi, Dr. Dahle. Quick question about how do you assess a property of whether to sell or whether to rent if you're moving to a different city. I'm an MD PhD student who's about to graduate next year. We've accumulated about $100,000 in equity in our house, and we are trying to decide whether to sell it. I’m moving to a residence or keep it as a rental property.

Garrett:
Currently, our taxes, mortgage and insurance are about $1,000 a month whereas houses, they're all identical because it's a row house neighborhood rent for about $1,600 to $1,700. It's also a rapidly gentrifying neighborhood. So, we think that prices are likely to continue to increase. But of course, that's never a guarantee.

Garrett:
I’m just trying to decide how you would assess whether to keep a property like that or whether to sell it and use that to help fund IRAs and 401(k)s throughout the course of residency training. Thank you. 

Dr. Jim Dahle:
Well, first of all, congratulations on making some money on a house. That doesn't always happen. In fact, I would say when you buy a house during medical school or residency, a lot of times it doesn’t happen. Especially once you paid all the transaction costs, you actually walk away with less than you would've had you rented for those few years. So, it's good if you've got a property that did well. Congratulations on that. You've got some options.

Dr. Jim Dahle:
Do you sell it? Well, what's your plan when you go to the next place? Is your plan to rent? Is your plan to buy another house? If you're going to buy another house, why not take the home equity out of that and use it as your down payment?

Dr. Jim Dahle:
There's a lot of benefits to having a down payment when you buy a house. It makes it less likely that you're going to lose the house. If the value of that house drops, it’s less likely that you have to bring cash to the table. If you have to sell, and the value's gone down from the time you bought it, you get more options for a mortgage. You don't necessarily have to use a doctor mortgage, especially if you can come up with 20% down.

Dr. Jim Dahle:
So, there's lots of options to just using that as you go from house to house and continually rolling your home equity into the next house. And hopefully eventually you'll be in the situation we're in where we don't have a mortgage payment at all, which is pretty awesome. So that's one thing to consider. What's your housing plan?

Dr. Jim Dahle:
Secondly, if you are serious about maybe renting this out, if you want to be a direct real estate investor, because that's what you're going to be when you rent this thing out. You got to ask yourself, is this something you want to be? And since you're probably leaving this city or you wouldn't be selling the place, do you want to be a long-distance landlord?

Dr. Jim Dahle:
I can tell you this I've been a long-distance landlord once. It was not fun. I did not like it. I do not recommend it. If you want to be a direct real estate investor, I think you ought to buy properties in your own city where you can drive by them and look at them and take care of little things with them.

Dr. Jim Dahle:
Because every time you have any sort of issue and you're in a long-distance landlord situation, you're going to be paying somebody to come out and look at it. And that can add up to a lot and it can eat up a lot of your profit. You obviously have to have a manager and hopefully a very good manager and that's not necessarily an easy thing to find.

Dr. Jim Dahle:
So, most of the time, I think you're probably ought to sell these properties. The first reason is of course, you probably want the money to use in your housing plan. The second reason is because if you don't, you're going to be a long-distance landlord. But the third reason is also significant. That's because this property you bought to live in, probably isn't a great rental property.

Dr. Jim Dahle:
So, you have to ask yourself “If I were going to buy a rental property, I want to get a rental property now and be a direct real estate investor. Is this the one I would buy?” And chances are it's not. The only advantage that property has over any other property in the entire country now, since we're talking about being a long-distance landlord, is that you already own it.

Dr. Jim Dahle:
So, you don't have quite as much hassle in buying it number one. And number two, you don't have quite the expense to buy it. So, you get to save yourself that expense of buying the property or selling this one and buying another one. So, you get to save a little bit on the transaction costs. That's it.

Dr. Jim Dahle:
Otherwise, you got to be asking yourself “Why this property?” But for the most part, I think if you are leaving town, you probably want to sell. And those are the three reasons why. If you want to try to rent it out, you can, good luck. Certainly, a lot of people have really regretted that decision. For some people, it's how they got started in their real estate empire. It was renting out someplace they used to live in.

Dr. Jim Dahle:
But chances are you didn't buy it as a rental property to start with. It's probably not that great of a rental property. Maybe you got lucky and it will be, I don't know, but you have to run the numbers just like you would with any other rental property.

Dr. Jim Dahle:
And remember just because your mortgage payment is $1,000 and you can rent the thing for $1,600 doesn't mean it's a cash flow positive property. You got to look at all the other expenses of owning the property, especially now that you're renting it out. You got to look at vacancies. You got to look at property management costs. You got to look at maintenance. You might have to just still take care of some utilities. You might be taking care of the lawn or else it's going to go to pot. Maybe you got to do the snowplowing.

Dr. Jim Dahle:
Who knows what the other expenses are? There are going to be upgrades. There are going to be turnover costs. You got to look at all the costs of being a direct real estate investor. It is not just about comparing mortgage to rent. There's more to it than that. So, unless you want to get into direct real estate investing, it's probably time to sell the property.

Dr. Jim Dahle:
All right, let's take our next question. This one's also on the Speak Pipe from Raish. Let's take a listen. We're talking about the mortgages here.

Raish:
Hi Jim. This is Raish. I’m from Phoenix, Arizona. Thank you for all your education over the years. I have a question about using the bond portion of my asset allocation within my written financial plan towards my primary home mortgage. I have a 15-year fixed mortgage and bonds constitute 10% of my portfolio.

Raish:
If I was to take that 10% out and move that all towards my home mortgage, what are your suggestions for strategies for asset allocation moving forward? I rebalance roughly every two months by adding new funds in rather than shifting funds around.

Raish:
So, if I continually keep adding new funds, what are your suggestions for the spreadsheet to make sure that there's some number to represent the bond so that I'm not over allocating into other asset classes? I hope that question makes sense. Thank you for everything that you do. 

Dr. Jim Dahle:
Good question, Raish. That's one way to think about debt, as a negative bond. Bonds pay you interest. Debt costs you interest. So, it's a negative bond. It's a great theoretical construct. A great way to think about your debt.

Dr. Jim Dahle:
The problem is when you start trying to use it that way you run into these practical questions, like what you're running into. You can understand why it would make sense, though. Let's say you got a mortgage that's 3.5%, and you can't find a bond fund that pays more than 2% right now.

Dr. Jim Dahle:
So, obviously you're going to come out ahead getting a guaranteed 3.5% then you are getting a guaranteed, maybe not even completely guaranteed 2%. And so, it makes sense what you're doing to pay off your debt rather than invest in bonds from an intellectual standpoint.

Dr. Jim Dahle:
Keep in mind however, that part of the reason we invest in bonds is not just for the return. It's not just for the income. It's also to reduce the volatility of the portfolio. So, if you start doing this, instead of investing in bonds, your portfolio is going to be more volatile than otherwise. And you got to be sure that you can actually handle that volatility in a down market.

Dr. Jim Dahle:
If you change to this strategy and you swap your bonds for stocks and start putting all your new bond money toward your mortgage, you got to keep in mind that you've got to be able to weather that portfolio in a market downturn. If you sell low, this was a stupid thing to do. That's going to more than make up for any additional 1.5% you made on this strategy. So, keep that in mind.

Dr. Jim Dahle:
If you think you can handle, what's essentially now 100% stock portfolio from an emotional standpoint, and don't overestimate your ability to do that unless you've been through a bear market or two, then sure you can do this.

Dr. Jim Dahle:
So, how do you do it? Well, you just put money toward the mortgage. That's it. If you've decided that you're going to put let's say 10% of the money you invest toward bonds, then you take 90% and you put it into your asset allocation, your investments, your stock mutual funds, and you take the other 10% and you send it into the mortgage lender until that mortgage is gone. That's how it works. It's not that complicated.

Dr. Jim Dahle:
Don't try to put the mortgage onto your asset allocation spreadsheet though. Just have 100% stock allocation on that spreadsheet. And when the mortgage is paid off, change the asset allocation and add those 10% of bonds back in. That'll make your paperwork life a lot easier and your spreadsheet a lot easier to manage.

Dr. Jim Dahle:
Don't try to add in what your home equity is and that sort of stuff into the spreadsheet. Just remember, “Hey, it's going toward the mortgage for now. And when that mortgage is gone, then I'm going to put bonds back into my portfolio”. Easy-peasy.

Dr. Jim Dahle:
All right. Next question is via email. “Do you believe a return to the gold standard is possible? If so, how will this affect our stock and bond holdings?”

Dr. Jim Dahle:
Wow. No, I don't think it's really possible. I don't think we're going back to the gold standard. I think the advantages of being off the gold standard outweigh the disadvantages pretty significantly. And I think the government believes that, and I think the federal reserve believes that, and I think the equivalent organizations in other countries also believe that.

Dr. Jim Dahle:
So, I don't think we're going back to a gold standard anytime soon. There were a lot of downsides to the gold standard. Maybe it wasn't quite as inflationary, but as you've seen, keeping inflation at around 2% a year is not necessarily a bad thing. It can really help economies to grow at a maximal rate. And so, the downsides of the gold standard, all you got to do is go back and look at the great depression to see some of the downsides of the gold standard. So no, I don't think it's really going to happen.

Dr. Jim Dahle:
“If it did, how would this affect our stock and bond holdings?”

Dr. Jim Dahle:
Well, it's hard to say how that would affect stock holdings. Bond holdings would probably eliminate one of their bigger risks, which is the risk of inflation really. And the risk of hyperinflation, that risk would be lower on the gold standard. And so, it would make bonds, I suppose, a little bit more attractive to hold. Maybe yields would go down significantly. And so that would drive up the value of your bonds if you owned them when we went to a gold standard. I don't know how it would affect our stock holdings.

Dr. Jim Dahle:
That's a good question. Maybe somebody else can speculate on that, but I don't think it's entirely clear how that would affect the value of your stocks or future returns of your stocks to be on the gold standard. The truth is, I think it's very, very unlikely that we're going back to a gold standard anytime soon.

Dr. Jim Dahle:
All right. Our next question comes in from Danny Hansen about medical evacuation insurance.

Danny:
Hello, Dr. Dahle. This is Danny. First of all, I'd like to thank you for all of your hard work that you've put into the White Coat Investor. It's become a wonderful educational resource that I know has helped me a lot, and I know it's helped a lot of other people as well.

Danny:
I was wondering if you can comment on medical evacuation insurance. I'm a resident in a general surgery program up here in Texas, but my wife and I used to guide in Utah and the stars recently aligned. And we're actually headed down Desolation Canyon on a private rafting trip out in your neck of the woods in a couple weeks.

Danny:
We plan to take similar trips to remote areas in the future, especially once our kids are older and they can come along, but it's got me thinking about what the financial repercussions of what's realistically a tiny risk of needing to initiate medical evacuation. But it is a risk.

Danny:
Our emergency fund would probably cover most if not the entire cost of an extraction, but it would still be a really big bill to pay. Do you ever purchase evacuation insurance when headed to remote areas and what is your reasoning? Thanks.

Dr. Jim Dahle:
All right. Evacuation insurance. No, I've never bought it. I don't think of Desolation Canyon as a super risky place, but it is a week-long trip. And if you had to get out of there, it might be a little bit tricky. One thing I would invest in is an inReach device so you can actually initiate that rescue. I think that's probably far more important than actually having the insurance.

Dr. Jim Dahle:
Most of the way these things work is depending on who's coming to rescue you. The rescue may be free. The medical helicopter, the one that comes with a nurse and a paramedic on it, that one charges you. But the Sheriff's helicopters, at least this is the way it works in Southern Utah for instance. If the Sheriff's helicopter comes and gets you and extracts you and takes you to the Trailhead, that flight doesn't cost you.

Dr. Jim Dahle:
Now, they're always talking about charging you something for that. And I think there's actually some sort of program in Utah that you can use to help support those sorts of organizations. That's super cheap and you give them a few bucks a year to support them. And basically, that guarantees you won't be charged for that. But if you get picked up by Life Flight or something like that, they're still going to charge your insurance company that sort of a bill.

Dr. Jim Dahle:
Now in general, the first thing to look at with these things is what does your insurance company cover? And you may find that your insurance company is going to cover flying you out in a medical helicopter from Desolation Canyon, in which case it would be really stupid to pay extra for medical evacuation insurance for that.

Dr. Jim Dahle:
When I think about medical evacuation insurance, I think about people outside the country where your medical insurance policy is specifically written “We're not going to cover this flight”. I've seen people buy that when they go to Nepal or they go to South America or whatever, as insurance to cover a medical evacuation flight. But I don't think for doing stuff inside the United States, that sort of thing happens very often.

Dr. Jim Dahle:
So, look into the details of them, look into the pricing and decide if that's something you really want to spend money on ensuring. But you know? An inReach subscription is super cheap. The device isn't very expensive. If you're going to be doing a lot of stuff in Southern Utah, you can pay that little program fee they have for rescues in Utah. Wherever you are, you can look into those sorts of programs.

Dr. Jim Dahle:
But I don't know that I would even think about medical evacuation insurance, unless I'm doing something outside the country, because I think a lot of times your medical insurance is going to cover that evacuation. Yes, you're going to have to pay your max out of pocket, but that's what emergency funds are for.

Dr. Jim Dahle:
All right. Let's take our next question. This one sounds like a military member.

Mike:
Hi, Dr. Dahle. I'm just starting my chronic pain fellowship after an anesthesia residency.; It's an active-duty fellowship in the military. Then I have at least a three-year active-duty Air Force HPSP commitment after that. I'm also recently married and I have a baby girl due in a month.

Mike:
Using your calculation from a life insurance section of a WCI bootcamp book, we estimate I'll need about $4 million in coverage. My questions are, should I add the military benefit to that as well? And also given your history with the military, which I thank you for, any other life insurance tips and tricks given my situation would be much appreciated. Side note, I tell everyone I know to follow you and every word on your blog is absolute gold.
Dr. Jim Dahle:
Thank you, Mike, for your kind words. And thanks for your service. Disability insurance is pretty tricky with the military, but life insurance isn't that hard to deal with at all. You can just go to a life insurance broker and buy that $4 million policy.

Dr. Jim Dahle:
Now, if you like the SGLI policy, you can use that for $400,000 of your coverage. I had the SGLI as part of my coverage when I was in the military. When I got out, I looked at veterans group life insurance. I didn't like the pricing on that and decided we were fine without it. And so, we just dropped that portion of our coverage.

Dr. Jim Dahle:
Because remember, as you go through your career, you need less and less and less life insurance coverage as your nest egg gets bigger and bigger and bigger. And so, it's kind of natural to slowly decrease how much life insurance you have, which works out well because it gets more, more and more expensive as time goes on unless you lock in level pricing with a 20- or 30-year level premium policy.

Dr. Jim Dahle:
So, I just go to life insurance broker. We've got a recommended list at whitecoatinvestor.com. Go into the recommended tab and there's the insurance agent tab there. And I just buy life insurance, no big deal.

Dr. Jim Dahle:
Now keep in mind, they often will not cover acts of war and that sort of a thing. But the truth is as a military doc, you're probably not going to die from your military service. You're much more likely to die from cancer or being hit by a car on your way to work or whatever. And so, those are the risks you really need to ensure against. Not so much if you get shot evacuating from the runway in Afghanistan. It's just not a very high risk for military docs.

Dr. Jim Dahle:
I'm not saying no military doc has ever died while being deployed as an active war. It certainly has happened, but it's pretty low risk. And so I would just buy life insurance knowing that it's probably not going to cover those risks, but it covers all the other risk in your life that you're taking on.

Dr. Jim Dahle:
So, I don't think you need a lot of tips and tricks there. Look at SGLI as part of your coverage, the Servicemens Group Life Insurance policy. And that's fine to use for part of your insurance coverage. But you're probably going to need more than that because you can't get $4 million bucks in SGLI. So, keep that in mind. Again, thanks for your service and I hope you enjoy your fellowship.

Dr. Jim Dahle:
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Dr. Jim Dahle:
If WCI con isn't sold out as of today, be sure to go register. You can register for that at whitecoatinvestor.com/wcicon22. If the in-person version is sold out, that's okay. You can still go to the virtual version of this hybrid conference. It's going to be awesome.

Dr. Jim Dahle:
We were all super excited about the virtual conference last year. Basically, this year we're doing both. It's a hybrid conference. It's going to be in-person and it's going to be virtual. So, you can still sign up for that all the way up until the conference. You do have to sign up before a deadline in order to get the swag bag though. If you wait too long, you're not going to get the swag bag. So, check out the details for that at whitecoatinvestor.com/wcicon22.

Dr. Jim Dahle:
Thanks for those of you leaving us a five-star review and telling your friends about the podcast. Our latest one comes in from Megan who says, “A great resource. Dr. Dahle does such a good job covering a variety of topics. The guests offer valuable insight as well. I would recommend this podcast to anyone looking to be inspired and informed!” Thank you so much, Megan, for that.

Dr. Jim Dahle:
As my shirt says, head up, shoulders back. You've got this, and we can help. 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.