Today, we are answering questions about contract negotiation. It is important to know what parts of a contract you can negotiate and what parts you likely won't have any control over. Because it is critical to understand the details of your contract, we highly recommend having your contract reviewed by a professional. You want to be crystal clear on your compensation, who pays for the tail, time off, sick time, maternity or paternity leave, call structure, etc. These are all things you can and should negotiate.

We also have the pleasure of chatting for a few minutes with Bill Bernstein. He will be another of our presenters at WCICON22 and is going to talk about the history of finance. Bill is a wealth of knowledge and always fascinating to listen to.

We also cover a few more questions about student loans. The student loan landscape is ever-changing but recently it has become easier to qualify for PSLF. If you are one of the lucky people who now qualify, we recommend applying no matter how much student debt you have left.

 

Retirement Account Contributions Used in Negotiating a Contract

“Hey Jim. My name is Matt. I'm an academic emergency physician, probably one of your more long-time readers/listeners. I have a question that I've never really been able to find the answer to. Have you ever heard of an individual physician being able to use their retirement accounts as an area in which to negotiate increased compensation? Let's say that my employer was to offer me a $10,000 raise on an ongoing basis. Have you ever heard of a situation where someone was successfully able to lobby an employer to place that raise as an increased matching contribution and do a 401(k) or 403(b) or even as increased deferred compensation into a 457(b)? This strikes me as a little bit too good to be true. And I also wonder if it runs afoul of an IRS rule regarding treating all employees the same, but I was curious if you'd ever encountered this or if you had any insight. Thanks.”

This is a common question, especially if someone is going to work for an employer that isn't going to put the maximum amount in a 401(k) profit-sharing plan to get you to the maximum limit. That limit is currently $58,000 and likely will go up next year with inflation. Honestly, you just don't see it. And there are a few reasons for that. One, they'd need to treat everybody the same because they have to follow the plan. Particularly if you're an academic doc and you're at a big institution, the plan is what the plan is.

They can't change the plan for every single employee. They can change the contract and give you a little more vacation or a little more compensation. They can tweak some other things in there, but they are not going to change the entire retirement plan structure just to get you to come work for them when they’ve got 5,000 other employees. Keep in mind that the way plans are structured a lot of times is so the employer doesn't have to put more money in for the lower-paid employees. The more they put in for you, the more they have to put in for lower-paid employees. This is just the way retirement plans are structured. You can't just use them for the boss. You can't just use them for the boss and the highly compensated employees. It has to be able to be used by everybody at the company.

For the most part, when you find that you're in a plan that can't be maxed out, that you can’t get $58,000 in, between your contributions and the employer's contributions, the usual reasons are that the employer simply doesn't want to put more money toward the lower compensated employees at the company.

This is not where I would spend my time negotiating on your contract. I would focus on negotiating compensation, who pays for the tail, time off, sick time, maternity or paternity leave, and call structure. I think you're going to have far more success negotiating those—especially with the big employer, like most academic docs have—than you are messing with the retirement accounts.

If you need help getting your contracts reviewed, be sure to check out our Contract Review and Negotiation resources on our recommended tab for our vetted servicers.

Don't be penny wise and pound foolish in this. This is a contract that if you stay at that job for a while, it’s going to pay you millions of dollars. Spend a few hundred dollars and make sure you get the contract reviewed and make sure you understand what it says, what happens if you don't want to be there, what happens if they don't like you. You have to know the details. Get your contract reviewed.

Recommended Reading: 

Contract Negotiation — 10 Tips from the Trenches

 

Negotiating a Residency Contract

“Hi, Dr. Dahle. I'm a medical student, and I was wondering if it is possible for individuals to negotiate their contracts when they go to residency. Obviously, it's a bit of a unique situation being matched into the job that they'll be in. But I was curious if you had heard of any experiences of individuals who had been able to negotiate any aspects of that contract?”

Well, that's an easy question. No. No, I've never heard of anybody pulling that off. I've heard a lot of people that would like to, but nobody that really could. It's worthwhile looking at the contract as you go through the match and interview process so you know what is going to be in it—and taking that into consideration as you make your rank list. But once you're matched, you are kind of stuck. What are you going to do if they don't adjust the contract? It's not like you can go somewhere else. For the most part, residency contracts are pretty standard.

Now, that doesn't mean that things aren't different for some people from time to time. For example, let's say you wanted to take six months off for maternity leave during residency. Well, you're going to have a little different contract than the other people that started with you. But that's probably something that's adjusted after the match process. And it's probably going to involve you staying in residency a few months longer, but that sort of a thing is a possibility. But I would not expect to somehow negotiate before you rank them or especially after you've matched with them. It's just not going to happen.

Now, a lot of people are unhappy about that. They view the match as basically a monopoly, and the doctors are getting screwed because of it. And wages are being kept lower for residents than they otherwise should be. But let's keep in mind what residents are really worth. As an intern, you probably ought to be paying tuition. You're not worth very much to your attendings. They have to watch you so closely and supervise you and spend so much time teaching you that they're not really gaining much out of you. On the other hand, a senior resident is very valuable. Maybe almost as valuable as an attending. So, your value gradually increases throughout residency, but that is not the way residency compensation is set up. And it's probably a good thing. It's basically averaged over the years of residency. You make $50,000 or $60,000 a year, every year of residency. And that's just the way it works out.

I would not expect that to change anytime soon. Maybe someday it will, maybe it will change for the better, maybe it will change for the worse. I have no idea, but that's the way it is now. And I would not count on being able to negotiate pretty much anything in your residency contract. If you get sick, have a baby, need a little more time to complete your residency training, or need to change residencies, special situations can be worked out in that regard and contracts can be changed. Just know they're not going to negotiate with their 10 or 15 different residents. No way you are going to get paid more or get more benefits than your fellow residents. It's just not going to happen.

Recommended Reading: 

What to Do If You Don’t Match into a Residency Program

 

Public Service Loan Forgiveness 

“This is Andy from the Midwest again. I have a question related to PSLF changes. Due to my previous financial illiteracy, I still have about $5,000 left in a federal loan within a graduated extended loan program. I was planning on paying off this loan on January 31, but from my limited understanding, this payment program may actually make me eligible for PSLF. It turns out I have worked for a 501(c)(3) for 120 months at this point.

Is it possible I could be eligible for PSLF on this $5,000 or is the better question whether it's worth applying for PSLF on such a small amount when starting from scratch? I am thinking about the ease of a single-click payment from my bank account compared to the hours of paperwork and phone calls over the next three months to earn this $5,000. Any input would be appreciated. Thank you.”

Five thousand dollars? I’d go for it. They really loosened the rules on public service loan forgiveness. Basically, any payment program is counting. Any payments are counting. So, why not? Go for it. It's $5,000—$5,000 is $5,000. How many days do you have to go to work to make $5,000? A couple of days, and that's after-tax. So, maybe it's three or four days of work. If you can do this, spending less than three or four days of work is probably worth it from a hassle perspective. But they've been making it easier and easier and easier to apply for public service loan forgiveness. So, I would not expect to make the dozens of hours of phone calls that people might've been making two or three or four years ago when people were just starting to get public service loan forgiveness.

I'd look into it and see what you can do and fill out the applications and see if you get it. If in two or three or four months, it's just not going to happen, then sure, take your $5,000 and pay off your loan and move on with your life. You don't need to drag this out forever, especially if it's accumulating interest. But I say go for it.

Recommended Reading:

Public Service Loan Forgiveness (PSLF)

Is Public Service Loan Forgiveness Worth It for Doctors?

 

Public Service Loan Forgiveness Waiver

“Hi Jim. Thanks for taking my question. I'm very grateful for everything that I've learned from The White Coat Investor. I had a question about the new PSLF waiver. My husband and I are both physicians and we honestly never paid too much attention to PSLF. As by the time we were really aware of it, our income would have had us paying off the entirety of our loans in any income-based repayment plan. We have already paid off all of our high-interest loans. However, we have about $30,000 of FFEL loans at 1.8%, for which we have just been making the minimum payment. I had been working in academic medicine for over eight years. My husband was active-duty in the military, and now is also in academic medicine. So, we both have qualifying employers.

My question is, since we don't have to consolidate to direct loans until October 2022, does it make sense to wait until just before then, before consolidating to direct loans and going on an income-based repayment plan? If I'm understanding correctly, then we would only have a few months of income-based repayment before reaching 120 payments and being eligible for forgiveness. As an aside, I do have some guilt about pursuing this as we could easily pay off our loans with our current income, but I guess that is a different discussion. Thanks again, for all you do.”

Let's have the guilt discussion. That's an interesting topic. A lot of people think about that and go, “Well, maybe if I don't absolutely need it, I shouldn't take advantage of that.” Well, the government sets up programs, they set up rules for the programs. I don't think you should cheat, but if you qualify for a program, I don't have any problem with taking advantage of it. It is just like when you take the tax deduction for contributing to a retirement account or like many people who had kids in medical school and did so on Medicaid. Those are all government programs. Most of the time we're going to collect our Social Security payments as well. Also, a government program. Maybe you don't need it, but you know what? People are going to take it. So, I would not feel guilty about that if you qualify. And the good news is, this change they made recently, this PSLF waiver change is exactly for people like you, people with FFEL loans. So, you might as well take advantage of that.

Now, I worry a little about pushing the consolidation all the way to October. What if you miss a deadline? Don't wait until October. Maybe do it in July or August. That gives you a few months where you can stick with that FFEL loan. Usually with a consolidation, you basically keep the same interest rate that you had. I don't know that your interest rate is necessarily dramatically going to go up. I don't know if there's a big downside to consolidating right away. Maybe you should just go ahead and do that right away. Find out what your interest rate would be after consolidation. If it would be significantly higher or your payments would be higher for some reasons, such that you would get less money forgiven, then maybe hold off until a few months before. But if not, go ahead and do it as soon as possible.

Worst-case scenario: if something comes up, you get busy, you get sick or something, you forget to consolidate and you miss out on it, you end up having to use $60,000 to pay off your loans that you wouldn't have otherwise had to. But I wouldn't feel guilty about doing so. I would just be careful not to miss the deadline.

If you need advice on your student loans, we have a service for that. It's called studentloanadvice.com. We have an expert there, Andrew, who can give you, for an hour of your time and a few hundred of your dollars, specific and personalized advice and coaching about how to deal with your student loans. If you're in any sort of a complex student loan situation—such as multiple earners, people going for PSLF or trying to decide between IDR programs or how to file taxes, doing the married filing separately thing, or what retirement accounts to contribute to in order to maximize your forgiveness, those sorts of questions—he can help you run the numbers and help you feel confident in your decision that you do have the right student loan plan. Far better to spend a few hundred dollars now than to miss out on tens of thousands of dollars worth of benefits or paying too much in interest, that sort of thing. Studentloanadvice.com is our favorite resource for that.

Recommended Reading:

What Changes to the Public Service Loan Forgiveness Program Means for Borrowers

 

Refinancing Student Loans

“Hey Dr. Dahle. This is Sam, the intern. First of all, thank you so much for all the countless time and energy you put into The White Coat Investor. I know that you saved many young physicians from dire financial straits. I have a quick question on refinancing student loans for you. You have been generous enough to provide many links to many different companies that refinance student loans or mortgages, and we get $300, $500 if we go through your links.

My question is, is there anything that keeps me from refinancing consecutively with however many of the different companies and getting all of those $300-$500 benefits. Is that a free lunch or are those companies going to keep me from doing that? I haven't refinanced my student loans before, so maybe I'm just missing some part of the process. I appreciate all your help. Thanks so much.”

A lot of times refinancing your student loans is the way to go. The previous two callers were going for public service loan forgiveness, but if you're not working for a qualified employer, refinance your loans and get them paid off as soon as you can. At least according to whatever your written financial plan is. I like to see people getting out of their student loan debt within five years of coming out of training. I just think dragging them out for 10 or 15 or 20 years, hanging over your head, makes docs miserable. I think it is better to prioritize early on. It's a little bit like a trial run at financial independence. If you can pay off a couple hundred thousand dollars in student loans within a couple of years, you can certainly reach financial independence by mid-career.

As far as your question, our plan with creating these relationships with student loan refinancing companies, is to make it a win-win-win for everybody. When you refinance, we get paid. When you refinance, you get a lower interest rate and some cash back, and these days you also get Fire Your Financial Advisor absolutely free thrown in with it. So, you get the resource to help you build your own financial plan. And of course, they get your loan. And the taxpayer wins too because they get paid back. And so, it's really a win-win-win-win.

But no, there's nothing keeping you from refinancing multiple times with different companies and getting multiple cash-back bonuses. Now we're not going to give you a different copy of Fire Your Financial Advisor every time—you only get one of those—but you could get paid by each of those companies. Now, if you refinance with the same company, they're usually not going to pay you again. So, it's one time with each company basically. And they would rather you didn't do this, of course, but there's no rule or law keeping you from doing it. A lot of the companies don't care because they don't keep your loans. They sell them off after they refinance them. Some of the companies do care. They don't like it because they were planning to hold your loan, and they paid out cash. And then all of a sudden, your loan is gone two weeks later. They're not really fond of it, but there's nothing stopping you from doing it.

I don't think with any of the companies they claw back the cash if you refinance too soon. Not currently. Could it happen? We'll let you know if it does. But what's likely to happen if they did decide to do that is they'd require you to keep the loan with them for six months or 12 months or something like that. But right now, none of the people we work with, none of the big-name refinancing companies, have any sort of restrictions in that manner. So, I suppose it's a free lunch. It does take a little bit of time to apply with every company and you might not get a lower rate every time you change companies. You'd have to line them up in exactly the right order in order to get a lower rate every time. So, I don't know that it's worth getting a few hundred dollars in cash back if you ended up with a higher interest rate than you had on the previous loan.

But I would say most White Coat Investors who refinance are probably doing so more than once. Maybe after a year, their credit score is a little better or their debt-to-income ratio is a little better or they may qualify for a better interest rate. So, why not and get a few hundred dollars cash back at the same time?

If you've already been on those websites or you've gone through somebody else's link and you want to get the bonuses that are only available through The White Coat Investor links, first make sure you clear your cookies, and then go through our links which you can find on our Student Loan Refinancing Guide.

 

Is It Worth Using a 529 Plan to Pay Off Student Loan Debt?

“We have a fair amount of student loan debt that we are paying into. We are also planning on having our first child in the next year. My questions are regarding using a 529 plan to pay off some of the student loan debt. I read that there is a limit of $10,000 that can be paid off for individuals from a 529, per the SECURE Act.

We have not yet opened a 529 plan. Would it make sense to start a 529 with one of us as a beneficiary before we give birth to our first child to pay some $10,000 of student loan debt prior to the birth of our first child? Is there both a federal and state tax benefit from performing this? Would this affect the initial contributions we can make to the 529 once we have our child? Do you think this method is worth the effort?”

This really comes down to whether your state gives a state tax benefit for 529 contributions. If they do not, there's really no point in playing this game. You're going to put the money in the 529 and you're not going to get any state or federal benefit. Then you're going to take the money out of the 529 and pay off your loans. There's not going to be any earnings on it yet, so you don't get free earnings out of it because you just basically moved it through the 529. You didn't leave it there invested for any period of time. And then you paid off with your 529. So, that really doesn't make any sense at all. You're just adding hassle to your life.

On the other hand, if your state gives you some sort of a tax benefit, let's say they give you a 5% credit on the first $10,000 that you put into there. Well, you could put $10,000 into there and get your 5% credit. So, that works out to be $500. And then you take the money out and you put it toward your student loans while you just found a free $500. So, if that's worth the hassle to you to open a 529 and move the money through there to get $500, then sure, you could do that.

Is that worth the effort? It depends on the value of your time. You just have to answer that question yourself. It really comes down to how big that state tax deduction or credit is for you. But it's totally separate for contributions for the kid. You don't have to do it before you have a kid. You can do it in addition to any 529 you have for your kids. The contribution limits in 529s are per beneficiary, not per contributor. So, that'd be fine to go ahead and do that even if you already have a 529 for your child.

Recommended Reading: 

Best 529 Plans: Reviews, Ratings, and Rankings

 

Bill Bernstein — WCICON22 Presenter 

My special guest today is Bill Bernstein. Bill's training, of course, is as a physician, as a neurologist, but that is probably not what you know him for. You may know him from contributions on the Bogleheads forum. You may know him from contributions at prior White Coat Investor conferences, but most likely, you know him from some of the finance and financial history books he has written. And there are a plethora of them, everything from The Four Pillars of Finance to A Splendid Exchange to the most recent one we had him on the podcast a few months ago talking about.

Bill will be speaking at the Physician Wellness and Financial Literacy Conference, aka WCICON22, February 9-12 in Phoenix. He will be discussing financial history. Talk to us about why physicians should really care about financial history and what we can expect to hear from you on that topic at the conference?

“Well, what I'm going to start out with is an explanation of why they should care. And I usually start this kind of talk for physicians by explaining that the reason why physicians have such a deservedly poor reputation in finance and investing is because they don't take the subject as the serious academic discipline that it is. And just as you would never come out of medical school without learning the very basics of anatomy and physiology and pathology and pharmacology, it's the same thing with finance and sort of the pathology, if you will.

One of the four pillars of investing is the history of finance and the history of investing. It's an extremely important subject. As philosopher Santayana very famously is often quoted, ‘The history you don't know is what you're doomed to repeat.' And that's no less true now than it's been in the past.”

It’s certainly true. And a historical perspective, I think, helps people to stay the course anytime there is a market downturn.

“Part of what I want to convey is what the market looks like when prices are high and future returns are low, and we may be ready for a tumble. And more importantly, what the markets look like when the excrement hits the ventilating system and no one wants to come near stocks. It turns out those are the best times to buy. And that's one of those things, because of the psychology of investing, that is much easier said than done. And so, when you know what market tops and market bottoms look like, it's much easier to stay the course. You want to know that—not so you can time the market, because no one really does that very well, but you do it so that you can stay the course, which is the secret of successful finance.

One of the basic tenets of finance that I try to teach is that far more important than what stocks or bonds you own or what your exact allocation to certain asset classes is, that is far less important than your simple ability to stick to whatever you've decided to invest in.”

What lessons do you see from history now that we're in a little bit of a unique environment? We're looking at inflation of 6% or so, at least as measured by the CPI, which is someplace we haven't been now for most of the time I've been investing. I think it's been the 90s since we had inflation this high. Any thoughts or lessons from history on that topic?

“Well, there's some very powerful lessons. Easily, the most significant risk, long-term risk, that any portfolio faces is the risk of inflation, and particularly hyperinflation. I first started writing about this seven or eight years ago. And I got a little bit of good-natured ribbing about, ‘Why are you writing about inflation? There is no inflation.' And the response to that is when you look at the broad sweep of history, the largest risk to your portfolio comes from inflation. The next obvious question is, ‘How do you get around that?' And first and foremost, although inflation doesn't do good things for stocks in the short run, in the long-term, stocks are one of the best hedges against inflation there is because companies own real property. They own factories, they own equipment, but most importantly, they produce products that can be priced in real, inflation-adjusted terms.

And so, over the very long-term, when you look at the countries that have had the worst inflation, the asset class that has still done the best is stocks. Now, the asset class that does most poorly with inflation is obviously long-term bonds. One of the things that history teaches you is as awful as it feels right now, owning treasury bills with a near 0% yield, they are still preferable to owning longer bonds. If you own a bond fund that has a duration of five years, for every percent rise of the interest rate, you are going to lose 5% of principal value. That is really going to hurt when you want to sell those bonds to buy stocks.

And so, that's the next lesson, which is if you're going to own fixed income assets, keep them short, no matter how awful it feels and no matter how low their yields are. It's something that Warren Buffet has taught for decades.”

Lots of people are excited these days about I bonds due to the inflation protection that they provide. Any thoughts on that for the mom-and-pop investor?

“Yeah, I bonds are a fine investment. The only problem with them is the logistics of owning them. You basically have to own them through a treasury direct account. And those sometimes can be a pain in the tuchus. But more importantly, a married couple can only invest $20,000 a year from them. That, depending upon your level of assets, just may not be worth your time. If you really want to be in the position where they really aren't worth your time, it means that you have a fair amount of assets to invest.”

TIPS are available out there. What do you think about durations on TIPS? Is it OK to go long there or should those stay short as well?

“Well, now you're asking me to make a market timing call, and I really don't like to do that except to observe that when you look at the five-year TIPS, it's now yielding very close to minus-2% per year. So, you are basically guaranteeing yourself a minus-2% per year real return for the next five years. And even when you get up to 30 years, you still don't have a positive real return. Last I looked, the 30-year TIPS had a couple of dozen, maybe two or three dozen, negative basis points. So, you're still not going to do well, you are still not going to keep up with inflation, even with those. It's hard to be enthusiastic about them.”

I guess what the investor does, though, is they wonder, “Well, do I then take on more risk? Do I put more money into real estate, more into stocks, more into alternatives, the precious metals, cryptocurrency, etc. because bonds look so bad these days? Or do I just stay the course of my plan? My plan calls for 25% bonds. Do I keep just plugging money into bonds?”

“I think the answer to that is yes. If bonds have an expected real return, let's say of minus-1.5% after inflation, what is the return on stocks going to be? Well, there's something called an equity risk premium which is the return in excess of the risk-free rate you get for taking the risk of stocks. And then in the United States that's typically been in the range of about 4%, maybe 3.5%, maybe 5% somewhere in there.

So yeah, you'll get a positive real return, but you're also taking on a great deal of risk. And if you have too much exposure to really risky assets to chase yield and chase return, then you may wind up in a very cold sweat one night at 2 am, and be tempted to sell all your stocks, which does happen to people. There's a very famous quote from a financial writer by the name of Raymond DeVoe, who said that more money has been lost chasing yield than it was ever lost at the point of a gun.

People are really tempted to chase yields when yields are this low. Walter Bagehot wrote about that almost two centuries ago when he said that John Bull can stand many things, but he can't stand 2%. What he meant was a 2% yield on consoles, which was historically low yield at that period of time. Although even that was a real yield.

The way I look at low yields for bonds, low expected returns for bonds, and quite frankly, low expected returns for stocks, is to be philosophical about it. Right now because of central bank policies around the world and low interest rates, we're looking at grossly inflated asset prices. So, start with stocks and bonds. And then go on to real estate, go on to speculative assets. And then in the past couple of months, go on to chicken at the grocery store and gasoline. Everything is priced high.

And so, the counterfactual to all of that is to have decent yields. It’s to have say 4% or 5% treasury bill yields, maybe 5%, 6%, 7% treasury bond yields, maybe 7% or 8% corporate bond yields for the highest-grade credits. What do stock prices look like in that atmosphere and that environment? Well, they look terrible. If we suddenly were to see interest rates like that, your stock portfolios are going to be worth one-half to one-third of what they're worth right now. And so, you're faced with a choice between a great big bloated portfolio with a minuscule yield or a minuscule expected return, or a much smaller portfolio with a decent return. Which would you rather have?

Well, the answer to that depends upon how old you are. If you're a geezer with a great big portfolio and not a lot of human capital left, this is really a pretty good environment. I would be perfectly happy at this point to have a zero real return on my portfolio between now and the time I'm pushing up daisies, to use a medical metaphor. Whereas if I'm a young person, I want to live in that world of very high yields and very high expected returns but very low prices. So, I can accumulate my assets for retirement at low prices and then hope we wind up in the world we're in now when you are old.”

Changing the subject, a little bit. New technology over the last decade has led to over 6,000 different cryptocurrencies, coins, tokens, etc. Lots of people are very excited about them, obviously due to very high returns in this space with Bitcoin, Ethereum, and others. I'm curious what lessons from history there are to inform us about a new asset class, a new technology like this, and how we ought to think about it in our portfolio construction.

“Well, this falls very neatly into the history of bubbles. The question that is sort of an academic question in finance is how do you define a bubble? How do you recognize a bubble using typical econometric techniques? And the answer is you can't. People have tried. They've looked at all sorts of price patterns, all sorts of metrics, valuation metrics. And it's really very, very difficult to identify a bubble based on those.

I take a different point of view. I take heart from the famous Supreme Court decision Jacobellis v. Ohio from several decades ago, which was a case on pornography and whether something was pornographic and whether it could be outlawed or not. And Potter Stewart said, ‘I don't know how to define it, but I know it when I see it.' And so, what do you see during a bubble? Well, you see four things. In the first place, you see the object of the speculation, in this case cryptocurrency, being an object of everyday discussion in social situations. Well, check. You can't walk into an Uber car without having your driver talk to you about their cryptocurrency holdings.

Number two is when you see people quitting perfectly good jobs to day trade. Check. There are all sorts of people now who all of a sudden become crypto experts and crypto speculators, and seem to be making a fair amount of money, at least temporarily.

The third one is something I think we were talking about before recording started, which is when skepticism is met with hostility. So, it's not just that you express skepticism about a given asset class and people disagree with you politely. It's when they get angry. I saw that during the 1990s when I would express skepticism about dot-com stocks, and my medical colleagues, the politest ones would tell me that I was an idiot and the less polite ones would insult my parentage, my lineage.

And then finally, you start to see extreme predictions. It's not that Bitcoin is going to go up by 5% or 10% per year. It's when you see that they're going to add a zero or two. You see all four of those things right now. And that doesn't mean that it's going to crash. That doesn't mean it's going to come crashing down very, very quickly. And in fact, there have been cases in history when you have seen all four of those things, and there hasn't been a crash, but those are relatively less common. Nine times out of 10, this diagnostic pattern, if you will, of signs and symptoms is something that almost always ends badly.”

So, what's an investor to do? Watch it closely? Try to get out before it drops too hard? Avoid it completely? Make it only a tiny percentage of the portfolio? How do you deal with that when you have this fear of missing out and you're watching your friends getting rich off it?

“If you suffer from FOMO, which I recommend trying to resist, but you can't resist and you suffer from it and you feel the need for therapeutic intervention, by all means, put a few percent of your portfolio in it. If you've made yourself, if you're one of these very lucky people who is sitting on an enormous amount of assets, you've won the game. When you've won the game, you stop playing the game. So, I'm not saying that you should sell all of your crypto assets, but you should sell some of them so that if it does come crashing down, you can still buy groceries.”

It's good advice. Well, our time is running short. I wanted to remind everybody that you will be at this year's Physician Wellness and Financial Literacy Conference. If you have still not registered for that, whether in-person or virtually, you still can here. And if you go there, you can see Bill's talk on why physicians should really care about financial history. If you haven't met him before, it’s a real treat.

 

Corrections

On a podcast a few weeks ago, we talked about 401(a)s, and we need to clarify a few points. 401(a)s share the $58,000 limit this year with 401(k)s, but a 403(b) has a separate $58,000 limit. Your 457 has a $19,500 limit. With a 403(b), most of the time, there's not a match there. It’s just a $19,500 limit for those under 50, but you may still be able to put another $58,000 into a 401(a). Technically those contributions are usually directly from the employer, but they pay you less to make up for that. I got that wrong on a podcast a few weeks ago. So, if that applies to you, rest assured that you can get a little more money in a 401(a). It's usually limited by how much the employer is willing to put in there anyway.

Another correction I want to do is from podcast #234. I answered Justin about lump-sum investing. He was thinking about getting his money into a retirement account earlier in the year, and that works just fine most of the time. It works fine if you don't get an employer match. It also works fine if the employer does a true-up at the end of the year, to make sure you get your entire match, even if you put all your money in January. There are some employers out there, however, who don't do a true-up contribution. So, if your employer does not give you your entire match, unless you spread your contributions throughout the entire year, then you want to spread your contributions throughout your entire year and make sure you get your entire match from the employer.

 

Help WCI Give Away $50,000

WCI is giving away $50,000 to our readers' 50 favorite charities and we need your help! If you would like to participate in this, all you have to do is go to that blog post and put a comment under it, naming in the first line your favorite charity.

There are a few rules for who we will donate to. The charity cannot be one that is going to be offensive to a large percentage of The White Coat Investor audience. We will not donate to political or religious organizations. We will not donate to a university or a college or an individual GoFundMe page.

Otherwise, as long as it gets a reasonable rating on CharityWatch or Charity Navigator, then it's a matter of how many people vote for it. The 50 charities that get the top votes will receive $1,000 apiece through our donor-advised funds.

 

If you’re like most doctors, nobody taught you anything about personal finance or investing during your undergrad, professional school, or residency. 

And even though your family – and perhaps even your business – rely on you to be the Chief Financial Officer, you have never been given the tools to succeed. Enroll in WCI Financial Boot Camp, a FREE educational email series, and learn to convert your high income to wealth. You will learn the basics of investing, saving, insurance, and more. Your high income alone will not lead to financial success, but as always, we want to help you on your financial journey. 

Go to whitecoatinvestor.com/financialbootcamp to sign up today! 

You can do this and The White Coat Investor can help.

 

WCICON 2022

Time is almost up to register for The Physician Wellness and Financial Literacy Conference. The conference is in Phoenix on February 9-12, 2022. If you cannot attend the in-person event, we are also offering a virtual component. Get your tickets today!

 

Milestones to Millionaire Podcast

#42 – Back to Broke as a Resident

This second-year anesthesiologist resident and nurse partner are already back to broke. With a salary of $90,000, they have been investing and paying off debt. What are their secrets to success? Being born into geographic arbitrage has definitely helped. Continuing to take advantage of that by doing med school and residency in a low cost of living area and keeping the loans down to $125,000 helps also. As well as making sure they are spending money in alignment with their goals. Live like a resident and you can get back to broke and soon be debt-free and on your way to millionaire status, too.

Sponsor: WCI Blog

 

Quote of the Day

Our quote of the day today comes from the Bible from King Solomon and Proverbs 22:6.

“Train up a child in the way he should go: and when he is old, he will not depart from it.”

And boy, I sure hope that's true. I'm sure trying that with my kids.

 

Full Transcript

Transcription – WCI – 239

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 239 – Q&A contract negotiation and student loans.

Dr. Jim Dahle:

If you’re like most doctors, nobody taught you anything about personal finance or investing during your undergrad, professional school, or residency. And even though your family – and perhaps even your business – rely on you to be the Chief Financial Officer, you have never been given the tools to succeed. Enroll in WCI Financial Boot Camp, a FREE educational email series, and learn to convert your high income to wealth. You will learn the basics of investing, saving, insurance, and more. Your high income alone will not lead to financial success, but as always, we want to help you on your financial journey. Go to whitecoatinvestor.com/financialbootcamp to sign up today! You can do this and The White Coat Investor can help.

Dr. Jim Dahle:
If you saw the blog yesterday, you know that we need a little bit of help. We need some help giving away $50,000. Now we're not going to give it to you. We're going to give it to charity, but we'd like to give it to White Coat Investors' favorite charities.

Dr. Jim Dahle:
If you'd like to participate in this, all you have to do is go to that blog post, not the show notes for this episode, but that blog post that ran yesterday called Help Us Give Away $50,000 at whitecoatinvestor.com and put a comment under it, naming in the first line your favorite charity.

Dr. Jim Dahle:
Now there's a few rules. It can't be a charity that's going to be offensive to a large percentage of the White Coat Investor audience. We're not going to get money to the NRA foundation. We're not going to give money to Planned Parenthood. We're not going to get money to the Donald J. Trump foundation. We're not going to get money to the Clinton foundation, et cetera.

Dr. Jim Dahle:
It also can't be a church or a religious organization. Yes, we give to our church, but we're going to take those out. If it's not primarily a religious function that the charity does, if it's Catholic Relief Services or something like that, that's okay. But we're not going to give it primarily to a church. We're not going to give it primarily to a university or a college.

Dr. Jim Dahle:
But otherwise, as long as it gets a reasonable rating on charity watch or charity navigator, then it's a matter of how many people vote for it basically. The 50 charities that get the top votes, we're going to give a thousand dollars a piece to. We're going to give it through our donor advised funds.

Dr. Jim Dahle:
So, it's got to be a real charity. You can't be just a Go Fund me. I can't be your cousin that has cancer. It's got to be a real charity. But go ahead and put your vote in there. You only get one of course, but please help us figure out who best to support this holiday season with part of our charitable contributions.

Dr. Jim Dahle:
All right, let's do a correction. I think I had a podcast a few weeks ago about 401(a)s. And I got a correction on it, which is correct. 401(a)s share the $58,000 limit this year with 401(k)s, but a 403(b) has a separate $58,000 limit.

Dr. Jim Dahle:
So, your 457 has a $19,500 limit. Your 403(b) most of the time, there's not a match there. It’s just a $19,500 limit for those under 50, but you may still be able to put another $58,000 into a 401(a). Technically those contributions are usually directly from the employer, but they pay you less to make up for that.

Dr. Jim Dahle:
But keep that in mind that that is the way 401(a)s work. I got that wrong on a podcast a few weeks ago. So, if that applies to you, rest assured that you can get a little more money in a 401(a). It's usually limited by how much the employer is willing to put in there anyway.

Dr. Jim Dahle:
All right. I have one more correction I want to do from podcast number 234. I answered Justin about lump sum investing. He was thinking about getting his money into a retirement account earlier in the year, and that works just fine most of the time. It works fine if you don't get an employer match, like I've never actually gotten an employer match from any employer I've ever had.

Dr. Jim Dahle:
It also works fine if the employer does a true up at the end of the year, to make sure you get your entire match, even if you put all your money in January. There are some employers out there, however, who don't do a true up contribution. So, if your employer does not give you your entire match, unless you spread your contributions throughout the entire year, then you want to spread your contributions throughout your entire year and make sure you get your entire match from the employer. So, keep that in mind.

Dr. Jim Dahle:
All right, let's get into some questions that you have. The first few are about contract negotiations, and then we're going to have a special guest on who everybody loves, Bill Bernstein, is going to be back on for a few minutes to talk a little bit about the history of finance and the talk he's going to be giving at WCI con 22. And then we're going to answer some more questions about student loans.

Dr. Jim Dahle:
So, let's take our first question off the Speak Pipe. This one's about retirement account contributions used in negotiating a contract. Let's take a listen.

Matt:
Hey Jim. My name is Matt. I'm an academic emergency physician, probably one of your more long-time readers/listeners. I have a question that I've never really been able to find the answer to.

Matt:
Have you ever heard of an individual physician being able to use their retirement accounts as an area in which to negotiate increased compensation? Let's say that my employer was to offer me a $10,000 raise on an ongoing basis. Have you ever heard of a situation where someone was successfully able to lobby an employer to place that raise as an increased matching contribution and do a 401(k) or 403(b) or even as increased deferred compensation into a 457(b)?

Matt:
This strikes me as a little bit too good to be true. And I also wonder if it runs afoul of an IRS rule regarding treating all employees the same, but I was curious if you'd ever encountered this or if you had any insight. Thanks.

Dr. Jim Dahle:
Great question, Matt. One I've gotten a number of times in the past. A lot of people think about this, especially if they're going to work for an employer that isn't going to put in the maximum amount to get you to whatever it might be, $58,000 or whatever, for example, in a 401(k)-profit sharing plan for 2021, I suppose that's going up next year with inflation.

Dr. Jim Dahle:
You just don't see it. And there's a few reasons for that. One, they'd need to treat everybody the same because they have to follow the plan. Particularly if you're an academic doc and you're at a big institution, the plan is what the plan is.

Dr. Jim Dahle:
They can't change the plan for every single employee. So, they can change the contract, they can give you a little more vacation, they can give you a little more compensation. They can tweak some other things in there, but this is not something that they're going to change. They're not going to change the entire retirement plan structure just to get you to come work for them when they’ve got 5,000 other employees, it's just not going to happen.

Dr. Jim Dahle:
Keep in mind that the way plans are structured in a lot of times is so the employer doesn't have to put more money in for the lower paid employees. The more they put in for you, the more they got to put in for lower paid employees, just because that's the way retirement plans are structured. You can't just use them for the boss. You can't just use them for the boss and the highly compensated employees. It's got to be able to be used by everybody at the company. And so, there's rules about that.

Dr. Jim Dahle:
That for the most part, when you find that you're in a plan that can't be maxed out, that you can’t get $58,000 into between your contributions and the employer's contributions, the usual reasons are that the employer simply doesn't want to put more money toward the lower compensated employees at the company. And that's why.

Dr. Jim Dahle:
We ran into this when we designed the White Coat Investor plan. They're like, “Oh, if you do that, you're going to have to pay these penalties”. Well, what the penalties are is putting money into the retirement account for the lower compensated employees.

Dr. Jim Dahle:
As the owner of the business, I was more than willing to do that. I don't view that as a penalty at all. I've used a way to tell my lower compensated employees thank you. But let's keep in mind I'm a little unusual that way, as far as employers go. Most employers do not view that as a benefit.

Dr. Jim Dahle:
And so, it's a bug and not a feature. I wouldn't count on this. I wouldn't try to go there when it comes to negotiating your contract. There are other places to, I think, spend your time. Compensation, who pays for the tail, time off, sick time, maternity or paternity leave, those sorts of things, call structure. I think you're going to have far more success negotiating those, especially with the big employer, like most academic docs have, then you are messing with the retirement accounts.

Dr. Jim Dahle:
If you need help getting your contracts reviewed, be sure to check out our resources on our recommended tab. If you go to whitecoatinvestor.com/contract-negotiation-and-review, you'll see our recommended servicers there.

Dr. Jim Dahle:
Don't be penny wise and pound foolish in this. This is a contract that if you stay at that job for a while, it’s going to pay you millions of dollars. Spend a few hundred dollars and make sure you get the contract reviewed and make sure you understand what it says, what happens if you don't want to be there, what happens if they don't like you. If it's claims made policy, who's going to pay the tale under what circumstances? You got to know that stuff, get your contract reviewed.

Dr. Jim Dahle:
Our quote of the day today comes from the Bible from King Solomon and Proverbs 22:6. “Train up a child in the way he should go: and when he is old, he will not depart from it.” And boy, I sure hope that's true. I'm sure trying that with my kids.

Dr. Jim Dahle:
All right, let's take our next question. This one's about negotiating a residency contract. Let's take a listen.

Speaker:
Hi, Dr. Dahle. I'm a medical student. And I was wondering if it is possible for individuals to negotiate their contracts when they go to residency. And obviously, it's a bit of a unique situation being matched into the job that they'll be in. But I was curious if you had heard of any experiences of individuals who had been able to negotiate any aspects of that contract?

Dr. Jim Dahle:
Well, that's an easy question. No. No, I've never heard of anybody pulling that off. I've heard a lot of people that would like to, but nobody that really could. It's worthwhile looking at the contract as you go through the match process, the interview process, knowing what's going to be in it and taking that into consideration as you make your rank list. But once you're matched, you are kind of stuck.

Dr. Jim Dahle:
What are you going to do if they don't adjust the contract? It's not like you can go somewhere else. You are kind of stuck at that point with whatever contract they have, whatever their standard contract is.

Dr. Jim Dahle:
And for the most part, residency contracts are pretty standard. Everybody says the contract is standard. They really mean it when it comes to a residency contract. So, I would not count on that.

Dr. Jim Dahle:
Now that doesn't mean that things are different for some people from time to time. For example, let's say you wanted to take six months off of maternity leave during residency. Well, you're going to have a little different contract than the other people that started with you. But that's probably something that's adjusted after the match process. And it's probably going to involve you staying in residency a few months longer, but that sort of a thing is a possibility.

Dr. Jim Dahle:
But I would not expect to somehow negotiate before you rank them or especially after you've matched with them. It's just not going to happen. Now, a lot of people are happy about that. They view the match as basically a monopoly, and the doctors are getting screwed because of it. And wages are being kept lower for residents than otherwise should be.

Dr. Jim Dahle:
But let's keep in mind what residents really worth. As an intern, you probably ought to be paying tuition. You're not worth very much to your attendings. They have to watch you so closely and supervise you and spend so much time teaching you that they're not really gaining much out of you.

Dr. Jim Dahle:
On the other hand, a senior resident is very valuable. Maybe almost as valuable as attending. So, your value gradually increases throughout residency, but that is not the way residency compensation is set up. And it's probably a good thing. It's basically averaged over the years of residency. And so, you'd make $50,000 or $60,000 a year, every year of residency. And that's just the way it works out.

Dr. Jim Dahle:
I would not expect that to change anytime soon. Maybe someday it will, maybe it will change for the better, maybe it will change for the worse. I have no idea, but that's the way it is now. And I would not count on being able to negotiate pretty much anything in your residency contract.

Dr. Jim Dahle:
Now you get sick, you have a baby, you need a little more time to complete your residency training, you need to change residencies. Special situations can be worked out in that regard and contracts can be changed, but they're not going to get to negotiate with their 10 or 15 different residents a different contract. No way you are going to get paid more or get more benefits than your fellow residents. It's just not going to happen. All right, let's get Bill Bernstein on the phone and talk with him for a few minutes.

Dr. Jim Dahle:
My special guest today on the white coat investor podcast is Bill Bernstein. Now Bill may need no introduction. His training of course is as a physician, as a neurologist, but that is probably not what you know him for.

Dr. Jim Dahle:
You may know him from contributions on the Bogleheads forum. You may know him from contributions of prior White Coat Investor conferences, but most likely, you know him from some of the finance and financial history books he has written. And there are a plethora of them, everything from “The Four Pillars of Finance” to “A Splendid Exchange” to the most recent one we had him on the podcast a few months ago talking about. But it's wonderful to have you back on the podcast Bill.

Dr. Bill Bernstein:
Good to see you again, Jim.

Dr. Jim Dahle:
We're going to be seeing a lot of you here coming up at our Physician Wellness and Financial Literacy conference a.k.a. WCI con 22, February 9th through 12th in Phoenix. Sunny Phoenix is usually pretty awesome in February. And we're looking forward to seeing you down there and hearing a talk from you.

Dr. Bill Bernstein:
Yeah, I'm sure looking forward to getting out of Portland in the middle of a long dark winter, and coming to Phoenix as well.

Dr. Jim Dahle:
Yeah, it's going to be great to get people back in person again. Last year we had to do the conference virtually due to the pandemic, of course. But now hopefully, we're at least in the second half of that anyway. And certainly, something like 96% of physicians have been vaccinated at this point. And so, it's pretty easy to have a conference where everyone is going to be vaccinated and reduce that risk somewhat.

Dr. Bill Bernstein:
Let’s all hope that the spike protein is done mutating.

Dr. Jim Dahle:
Yeah, exactly. Exactly. At any rate your topic down there is going to be a little bit on financial history. I think we just came up with a name for it “Why physicians should really care about financial history?” What can people expect to hear from you on that topic at the conference?

Dr. Bill Bernstein:
Well, what I'm going to start out with is an explanation of why they should care. And I usually start this kind of talk for physicians by explaining that the reason why physicians have such a deservedly poor reputation in finance and investing is because they don't take the subject as the serious academic discipline that it is.

Dr. Bill Bernstein:
And just as you would never come out of medical school without learning the very basics of anatomy and physiology and pathology and pharmacology, it's the same thing with finance and sort of the pathology, if you will.

Dr. Bill Bernstein:
One of the four pillars of investing is the history of finance and the history of investing. It's an extremely important subject. As philosopher Santayana, very famously is often quoted, “The history you don't know is what you're doomed to repeat”. And that's no more true now than it's been in the past.

Dr. Jim Dahle:
It’s certainly true. And a historical perspective, I think helps people to stay the course anytime there is a market downturn. In particular, I think that's probably one of the greatest uses of it.

Dr. Bill Bernstein:
Yeah. That's part of what I want to convey is what the market looks like when prices are high and future returns are low. And we may be ready for a tumble. And more importantly, what the markets look like when the excrement hits the ventilating system and no one wants to come near stocks. It turns out those are the best times to buy.

Dr. Bill Bernstein:
And that's one of those things because of the psychology of investing, that is much easier said than done. And so, when you know what market tops and market bottoms look like, it's much easier to stay the course. You want to know that not so you can time the market because no one really does that very well, but you do it so that you can stay the course, which is the secret of successful finance.

Dr. Bill Bernstein:
One of the basic tenets of finance that I try to teach is that far more important than what stocks or bonds you own or what your exact allocation is to certain asset classes is, that is far less important than your simple ability to stick to whatever you've decided to invest in.

Dr. Jim Dahle:
What lessons do you see from history now that we're in a little bit of a unique environment? We're looking at inflation of 6% or so at least as measured by the CPI, which is someplace we haven't been now for most of the time I've been investing. I think it's been the 90s since we had inflation this high. Any thoughts or lessons from history on that topic?

Dr. Bill Bernstein:
Well, there's some very powerful lessons. Easily, the most significant risk, long-term risk that any portfolio faces is the risk of inflation, and particularly hyperinflation. I first started writing about this seven or eight years ago. And I got a little bit of good-natured ribbing about “Why are you writing about inflation? There is no inflation”.

Dr. Bill Bernstein:
And the response to that is when you look at the broad sweep of history, the largest risk to your portfolio comes from inflation. The next obvious question is, “How do you get around that?” And first and foremost, although inflation doesn't do good things for stocks in the short run,in the long-term stocks are one of the best hedges against inflation there is because companies own real property. They own factories, they own equipment, but most importantly, they produce products that can be priced in real inflation adjusted terms.

Dr. Bill Bernstein:
And so, over the very long-term, when you look at the countries that have had the worst inflation, the asset class that has still done the best is stocks. Now the asset class that does most poorly with inflation is obviously long-term bonds.

Dr. Bill Bernstein:
One of the things that history teaches you is as awful as it feels right now, owning treasury bills with a near 0% yield, they are still preferable to owning longer bonds. If you own a bond fund that has a duration of five years, for every percent rise of the interest rate, you are going to lose 5% of principal value. That is really going to hurt when you want to sell those bonds to buy stocks.

Dr. Bill Bernstein:
And so, that's the next lesson, which is if you're going to own fixed income assets, keep them short, no matter how awful it feels and no matter how low their yields are. It's something that Warren Buffet has taught for decades.

Dr. Jim Dahle:
Lots of people are excited these days about I bonds due to the inflation protection that they provide. Any thoughts on that for the mom-and-pop investor?

Dr. Bill Bernstein:
Yeah, I bonds are a fine investment. The only problem with them is the logistics of owning them. You basically have to own them through a treasury direct account. And those sometimes can be a pain in the tuchus. But more importantly, a married couple can only invest $20,000 a year from them. That depending upon your level of assets just may not be worth your time.

Dr. Jim Dahle:
Yeah, for sure. That's definitely the biggest downside.

Dr. Bill Bernstein:
If you really want to be in the position where they really aren't worth your time, it means that you have a fair amount of assets to invest. Yeah.

Dr. Jim Dahle:
Exactly. When you got a lot of money in I bonds, that's probably a bad sign. You are right about that.

Dr. Bill Bernstein:
Exactly.

Dr. Jim Dahle:
TIPS are available out there. What do you think about durations on TIPS? Is it okay to go long there or should those stay short as well?

Dr. Bill Bernstein:
Well, now you're asking me to make a market timing call, and I really don't like to do that except to observe that when you look at the five-year TIPS, it's now yielding very close to minus 2% per year. So, you are basically guaranteeing yourself a minus 2% per year real return for the next five years. And even when you get up to 30 years, you still don't have a positive real return.

Dr. Bill Bernstein:
Last I looked the 30-year TIPS had a couple of dozen, maybe two or three dozen, negative basis points. So, you're still not going to do well, you are still not going to keep up with inflation, even with those. It's hard to be enthusiastic about them.

Dr. Jim Dahle:
I guess what the investor does though, is they wonder, “Well, do I then take on more risk? Do I put more money into real estate, more into stocks, more into alternatives, the precious metals, cryptocurrency, et cetera because bonds look so bad these days? Or do I just stay the course of my plan? My plan calls for 25% bonds. Do I keep just plugging money into bonds?”

Dr. Bill Bernstein:
I think the answer to that is yes. If bonds have an expected real return, let's say of minus 1.5% after inflation, what is the return on stocks going to be? Well, there's something called an equity risk premium which is the return in excess of the risk-free rate you get for taking the risk of stocks. And then in the United States that's typically been in the range of about 4%, maybe 3.5%, maybe 5% somewhere in there.

Dr. Bill Bernstein:
So yeah, you'll get a positive real return, but you're also taking on a great deal of risk. And if you have too much exposure to really risky assets to chase yield and chase return, then you may wind up in a very cold sweat one night at 2:00 AM, and be tempted to sell all your stocks, which does happen to people.

Dr. Bill Bernstein:
There's a very famous quote from a financial writer by the name of Raymond DeVoe, who said that more money has been lost chasing yield, than it was ever lost at the point of a gun.

Dr. Jim Dahle:
Yeah. I think there's a lot of truth to that. And there's certainly a lot of yield chasing going on these days. I don't know if that's necessarily different. I think people have been chasing yield for a long time though.

Dr. Bill Bernstein:
Yeah. But people are really tempted to chase yield when yields are this low. Walter Bagehot wrote about that almost two centuries ago when he said that John Bull can stand many things, but he can't stand 2%. What he meant was a 2% yield on consoles, which was historically low yield at that period of time. Although even that was a real yield.

Dr. Bill Bernstein:
The way I look at low yields for bonds, low expected returns for bonds, and quite frankly, low expected returns for stocks is to be philosophical about it, which is right now because of central bank policies around the world and low interest rates, we're looking at grossly inflated asset prices. So, start with stocks and bonds. And then go on to real estate, go on to speculative assets. And then in the past couple of months, go on to chicken at the grocery store and gasoline. Everything is priced high.

Dr. Bill Bernstein:
And so, the counterfactual to all of that is to have decent yields. It’s to have say 4% or 5% treasury bill yields, maybe 5%, 6%, 7% treasury bond yields, maybe 7% or 8% corporate bond yields for the highest-grade credits.

Dr. Bill Bernstein:
What do stock prices look like in that atmosphere and that environment? Well, they look terrible. If we suddenly were to see interest rates like that, your stock portfolios are going to be worth a half to a third of what they're worth right now. And so, you're faced with a choice between a great big bloated portfolio with a minuscule yield or a minuscule expected return, or a much smaller portfolio with a decent return. Which would you rather have?

Dr. Bill Bernstein:
Well, the answer to that depends upon how old you are. If you're a geezer with a great big portfolio and not a lot of human capital left, this is really a pretty good environment. I would be perfectly happy at this point to have a zero real return on my portfolio between now and the time I'm pushing up daisies, to use a medical metaphor.

Dr. Bill Bernstein:
Whereas if I'm a young person, I want to live in that world of very high yields and very high expected returns, but very low prices. So, I can accumulate my assets for retirement at low prices, and then hope we wind up in the world we're in now, when you are old.

Dr. Jim Dahle:
Changing the subject, a little bit. New technology over the last decade has led to over 6,000 different cryptocurrencies, coins, tokens, et cetera. Lots of people are very excited about them, obviously due to very high returns in this space with Bitcoin, Ethereum and others, et cetera.

Dr. Jim Dahle:
I'm curious what lessons from history there are to inform us about a new asset class, a new technology like this and how we ought to think about it in our portfolio construction.

Dr. Bill Bernstein:
Well, this falls very neatly into the history of bubbles. The question that is sort of an academic question in finance is how do you define a bubble? How do you recognize a bubble using typical econometric techniques? And the answer is you can't okay. People have tried. They've looked at all sorts of price patterns, all sorts of metrics, valuation metrics. And it's really very, very difficult to identify a bubble based on those.

Dr. Bill Bernstein:
I take a different point of view. I take heart from the famous Supreme court decision Jacobellis versus Ohio from several decades ago, which was a case on pornography and whether something was pornographic and whether it could be outlawed or not. And Potter Stewart said, “I don't know how to define it, but I know it when I see it”.

Dr. Bill Bernstein:
And so, what do you see during a bubble? Well, you see four things. In the first place, you see the object of the speculation, in this case cryptocurrency, being an object of everyday discussion in social situations. Well, check. You can't walk into an Uber car without having your driver talk to you about their cryptocurrency holdings.

Dr. Bill Bernstein:
Number two is when you see people quitting perfectly good jobs to day trade. Check. There are all sorts of people now who all of a sudden become crypto experts and crypto speculators, and seem to be making a fair amount of money, at least temporarily.

Dr. Bill Bernstein:
The third one, the third issue is something I think we were talking about before recording started, which is when skepticism is met with hostility. So, it's not just that you express skepticism about a given asset class and people disagree with you politely. It's when they get angry. And that's another sign of a bubble.

Dr. Bill Bernstein:
And I saw that during the 1990s, when I would express skepticism about dot-com stocks and my medical colleagues, the politest ones would tell me that I was an idiot and the less polite ones would insult my parentage, my lineage.

Dr. Bill Bernstein:
And then finally, you start to see extreme predictions. It's not that Bitcoin is going to go up by 5% or 10% per year. It's when you see that they're going to add a zero or two. So, you see all four of those things right now. And that doesn't mean that it's going to crash. That doesn't mean it's going to come crashing down very, very quickly. And in fact, there have been cases in history when you have seen all four of those things, and there hasn't been a crash, but those are relatively less common. 9 times out of 10, this diagnostic pattern, if you will, of signs and symptoms is something that almost always ends badly.

Dr. Jim Dahle:
So, what's an investor to do? Watch it closely? Try to get out before it drops too hard? Avoid it completely? Make it only a tiny percentage of the portfolio? How do you deal with that when you have this fear of missing out and you're watching your friends getting rich off it?

Dr. Bill Bernstein:
If you suffer from FOMO, which I recommend trying to resist, but you can't resist and you suffer from it and you feel the need for therapeutic intervention, by all means, put a few percent of your portfolio in it.

Dr. Bill Bernstein:
If you've made yourself, if you're one of these very lucky people who is sitting on an enormous amount of assets, you've won the game. When you've won the game, you stop playing the game. So, I'm not saying that you should sell all of your crypto assets, but you should sell some of them so that if it does come crashing down, you can still buy groceries.

Dr. Jim Dahle:
It's good advice. Well, our time's running short. I wanted to remind everybody that you will be at this year's Physician Wellness and Financial Literacy conference. If you have still not registered for that, whether in-person or virtually, you still can. The URL is whitecoatinvestor.com/wcicon22. And if you go there, you can see Bill's talk on why physicians should really care about financial history. Thank you again today for your time Bill. And we're looking forward to seeing you in person at the conference.

Dr. Bill Bernstein:
Thank you. See you there.

Dr. Jim Dahle:
It’s always great having Bill on. I’m looking forward to seeing him again at the conference. If you haven't met him before, it’s a real treat. Again, whitecoatinvestor.com/wcicon22 is how you register for that.

Dr. Jim Dahle:
All right. Let's take a question from Andy about public service loan forgiveness.

Andy:
This is Andy from the Midwest again. I have a question related to PSLF changes. Due to my previous financial literacy, I still have about $5,000 left in a federal loan within a graduated extended loan program. I was planning on paying off this loan on January 31st, but from my limited understanding, this payment program may actually make me eligible for PSLF. It turns out I have worked for a 501(c)(3) for 120 months at this point.

Andy:
Is it possible I could be eligible for PSLF on this $5,000 or is the better question whether it's worth applying for PSLF on such a small amount when starting from scratch? I am thinking about the ease of a single click payment from my bank account compared to the hours of paperwork and phone calls over the next three months to earn this $5,000. Any input would be appreciated. Thank you.

Dr. Jim Dahle:
Yeah. $5,000? I’d go for it. They really loosened the rules on public service loan forgiveness. Basically, any payment program is counting. Any payments are counting. So, why not? Go for it. It's $5,000. $5,000 is $5,000. How many days do you have to go to work to make $5,000? A couple of days, and that's after tax. So, maybe it's three or four days of work.

Dr. Jim Dahle:
If you can do this, spending less than three or four days of work is probably worth it from a hassle perspective. But they've been making it easier and easier and easier to apply for public service loan forgiveness. So, I would not expect to make the dozens of hours of phone calls that people might've been making two or three or four years ago when people were just starting to get public service loan forgiveness.

Dr. Jim Dahle:
It's going pretty quick now. And so, I'd look into it and see what you can do and fill out the applications and see if you get it. If in two or three or four months, it's just not going to happen, then sure, take your $5,000 and pay off your loan and move on with your life. You don't need to drag this out forever, especially if it's accumulating interest. But sure, I'd look into that and see if I get $5,000. If you qualify for it, you qualify for it.

Dr. Jim Dahle:
Speaking of which, all of you out there with a relatively high income, if you're listening to this podcast, either you have high income or you probably will soon, thanks for what you do. Your job is not easy.

Dr. Jim Dahle:
I was in the ER last night until about 10 o'clock. This is the 17th of November. And I know this won't run until December, but we're still seeing lots of COVID. I think we had seven or eight COVID patients in the ER at one point.

Dr. Jim Dahle:
It's always an interesting conversation when you talk to them. “Hey, why didn't you get vaccinated?” And he says, “Well, I heard it could hurt you, but I'm really kind of wishing I did now. In fact, I wish I was dead instead of having this” is what he told me last night. But I think he's probably going to do okay with it, not having a very fun time though.

Dr. Jim Dahle:
I don't know about you, but our ER volumes are higher than they've ever been. So, we're getting absolutely hammered at work and it makes for some busy shifts. And that's good because we own the business. So, when we see lots of patients, we make a little bit more money, but it certainly makes for a stressful shift and they're not easy.

Dr. Jim Dahle:
And I know you were doing something similar. That's why you get paid so much. So, thanks for doing that. It is an important work and I'm grateful you took the time to train yourself to do it.

Dr. Jim Dahle:
All right. Another public service loan forgiveness question. This one comes from Liz. Let's take a listen to that.

Liz:
Hi Jim. Thanks for taking my question. I'm very grateful for everything that I've learned from the White Coat Investor. I had a question about the new PSLF waiver. My husband and I are both physicians and we honestly never paid too much attention to PSLF. As by the time we were really aware of it, our income would have had us paying off the entirety of our loans in any income-based repayment plan.

Liz:
We have already paid off all of our high interest loans. However, we have about $30,000 of FFEL loans at 1.8%, for which we have just been making the minimum payment. I had been working in academic medicine for over eight years. My husband was active-duty in the military, and now is also in academic medicine. So, we both have qualifying employers.

Liz:
My question is, since we don't have to consolidate to direct loans until October, 2022, does it make sense to wait until just before then, before consolidating to direct loans and going on an income-based repayment plan? If I'm understanding correctly, then we would only have a few months of income-based repayment before reaching 120 payments and being eligible for forgiveness.

Liz:
As an aside, I do have some guilt about pursuing this as we could easily pay off our loans with our current income, but I guess that is a different discussion. Thanks again, for all you do.

Dr. Jim Dahle:
Let's have the guilt discussion. That's an interesting topic. A lot of people think about that and go, “Well, maybe if I don't absolutely need it, I shouldn't take advantage of that”. Well, the government sets up programs, they set up rules for the programs.

Dr. Jim Dahle:
I don't think you should cheat, but if you qualify for a program, I don't have any problem with taking advantage of it. Just like you'd take the tax deduction for contributing to a retirement account, just like many people in medical school that had kids in medical school did so on Medicaid, but the kids on chip, right? Those are all government programs.

Dr. Jim Dahle:
Most of the time we're going to collect our social security payments as well. Also, a government program. Maybe you don't need it, but you know what? People are going to take it. So, I would not feel guilty about that if you qualify.

Dr. Jim Dahle:
And the good news is this change they made recently, this PSLF waiver change is exactly for people like you, people with FFEL loans. So, you might as well take advantage of that.

Dr. Jim Dahle:
Now, as far as pushing the consolidation all the way to October. I worry a little bit. What if you miss a deadline? So, don't do it in October. Maybe do it in July or August. That gives you a few months where you can stick with that FFEL loan.

Dr. Jim Dahle:
But I think if you consolidate, usually with a consolidation you basically keep the same interest rate that you had. I don't know that your interest rate is necessarily dramatically going to go up. I don't know if there's a big downside to consolidating right away. Maybe you should just go ahead and do that right away.

Dr. Jim Dahle:
But find out what your interest rate straight would be after consolidation. And if it would be significantly higher or your payments would be higher for some reasons, such that you would get less money forgiven, then maybe hold off until a few months before. But if not, go ahead and do it as soon as possible.

Dr. Jim Dahle:
Worst-case scenario, if something comes up, you get busy, you get sick or something, you forget to consolidate and you miss out on it, you end up having to use $60,000 to pay off your loans that you wouldn't have otherwise had to. But I wouldn't feel guilty about doing so. I would just be careful not to miss the deadline.

Dr. Jim Dahle:
If you need advice on your student loans, we have a service for that. It's called studentloanadvice.com. We have an expert there, Andrew, who can give you with an hour of your time and a few hundred of your dollars specific personalized advice and coaching about how to deal with your student loans.

Dr. Jim Dahle:
If you're in any sort of a complex student loan situation, multiple earners, people going for PSLF or trying to decide between IDR programs or how to file taxes, doing the married filing separately thing, or what retirement accounts to contribute to in order to maximize your forgiveness, those sorts of questions, he can help you run the numbers and help you feel confident in your decision that you do have the right student loan plan.

Dr. Jim Dahle:
Far better to spend a few hundred dollars now than to miss out on tens of thousands of dollars’ worth of benefits or paying too much in interest, that sort of thing. Studentloanadvice.com is our favorite resource for that.

Dr. Jim Dahle:
All right. Let's talk about refinancing student loans with this question from Sam, the intern.

Sam:
Hey Dr. Dahle. This is Sam, the intern. First of all, thank you so much for all the countless time and energy you put into the White Coat Investor. I know that you saved many young physicians from dire financial straits.

Sam:
I have a quick question on refinancing student loans for you. You have been generous enough to provide many links to many different companies that refinance student loans or mortgages, and you get $300, $500 if we go through your links.

Sam:
My question is, is there anything that keeps me from refinancing consecutively with however many of the different companies and getting all of those $300 to $500 benefits. Is that a free lunch or are those companies going to keep me from doing that? I haven't refinanced my student loans before, so maybe I'm just missing some part of the process. I appreciate all your help. Thanks so much.

Dr. Jim Dahle:
Yeah. A lot of times refinancing your student loans is the way to go. The previous two callers were going for public service loan forgiveness, but if you're not working for a qualified employer, yeah, refinance your loans and get them paid off as soon as you can. At least according to whatever your written financial plan is.

Dr. Jim Dahle:
I like to see people getting out of their student loan debt within five years of coming out of training. I just think dragging them out for 10 or 15 or 20 years, hanging over your head makes docs miserable. So, I think it was better to prioritize early on.

Dr. Jim Dahle:
It's a little bit like a trial run at financial independence. If you can pay off a couple hundred thousand dollars in student loans within a couple of years, you can certainly reach financial independence by mid-career. You've already proven that with the trial run, which is paying off your student loans quickly.

Dr. Jim Dahle:
But as far as your question, these relationships we built with these student loan refinancing companies, our plan was to make it a win-win-win for everybody. When you refinance, we get paid. When you refinance, you get a lower interest rate and some cash back, and these days you get Fire Your Financial Advisor absolutely free thrown in with it. So, you get the resource to help you build your own financial plan. And of course, they get your loan. And the taxpayer wins too because they get paid back. And so, it's really a win-win-win-win.

Dr. Jim Dahle:
But no, there's nothing keeping you from refinancing multiple times with different companies and getting multiple cash back bonuses. Now we're not going to give you a different copy of Fire Your Financial Advisor every time, you only get one of those, but you could get paid by each of those companies.

Dr. Jim Dahle:
Now, if you refinance with the same company, they're usually not going to pay you again. So, it's one time with each company basically. And they would rather you didn't do this, of course, but there's no rule or law keeping you from doing it. A lot of the companies don't care because they don't keep your loans. They sell them off after they refinance them.

Dr. Jim Dahle:
Some of the companies do care. They don't like it just because they were planning to hold your loan and they paid out cash. And then all of a sudden, your loan's gone two weeks later. They're not really fond of it, but there's not necessarily anything in place there.

Dr. Jim Dahle:
I don't think with any of the companies they claw back the cash if you refinance too soon. Not currently. Could it happen? We'll let you know if it does. But what's likely to happen if they did decide to do that is they'd require you to keep the loan with them for 6 months or 12 months or something like that.

Dr. Jim Dahle:
But right now, none of the people we work with, none of the big-name refinancing companies have any sort of restrictions in that manner. So, I suppose it's a free lunch. It does take a little bit of time to apply with every company and you might not get a lower rate every time you change companies. You'd have to line them up in exactly the right order in order to get a lower rate every time. So, I don't know that it's worth getting a few hundred dollars in cash back if you ended up with a higher interest rate than you had on the previous loan.

Dr. Jim Dahle:
But I would say most White Coat Investors who refinance are probably doing more than once. Maybe after a year their credit score is a little better. Their debt-to-income ratio is a little better. They qualify for a better interest rate. So, why not and get a few hundred dollars cash back at the same time. Makes sense.

Dr. Jim Dahle:
You can get those links to go through and you have to clear your cookies if you've already been on those websites or you've gone through somebody else's link and you want to get the bonuses that are only available through the White Coat Investor links. Make sure you clear your cookies, but you got to go through the links. You can find them at whitecoatinvestor.com/student-loan-refinancing. And that's under the recommended tab on the main White Coat Investor website.

Dr. Jim Dahle:
All right, you've got a question from an email here. “We have a fair amount of student loan debt that we are paying into. We are also planning on having our first child in the next year. My questions are regarding using a 529 plan to pay off some of the student loan debt. I read that there is a limit of $10,000 that can be paid off for individuals from a 529 per the secure act.

Dr. Jim Dahle:
We have not yet opened a 529 plan. Would it make sense to start a 529 if one of us has a beneficiary before we give birth to our first child to pay some $10,000 of student loan debt prior to the birth of our first child? Is there both a federal and state tax benefit from performing this? Would this affect the initial contributions we can make the 529 once we have our child? Do you think this method is worth the effort?”

Dr. Jim Dahle:
Well, here's the deal. It really comes down to whether your state gives a state tax benefit for 529 contributions. If they do not, there's really no point to play in this game. Because you're going to put the money in the 529, you're not going to get any state benefit. You're not getting any federal benefit. Then you're going to take the money out of the 529 and pay off your loans.

Dr. Jim Dahle:
There's not going to be any earnings on it yet, so you don't get free earnings out of it because you just basically moved it through the 529. You didn't leave it there invested for any period of time. And then you paid off your 529. So, that really doesn't make any sense at all. You're just adding hassle to your life.

Dr. Jim Dahle:
On the other hand, if your state gives you some sort of a tax benefit, let's say they give you a 5% credit on the first $10,000 that you put into there. Well, you could put $10,000 into there. You get your 5% credit. So, that works out to be $500. And then you take the money out and you put it toward your student loans while you just found a free $500. So, if that's worth the hassle to you to open a 529 and move the money through there to get $500, then sure, you could do that.

Dr. Jim Dahle:
Is that worth the effort? It depends on the value of your time, but maybe. You just have to answer that question yourself. It really comes down to how big that state tax deduction or credit is for you.

Dr. Jim Dahle:
You can look that up at our webpage on this blog post I did earlier this year called “Best 529 Plans: Reviews, Ratings, and Rankings”. We'll put a link to that in the show notes and you can check that out.

Dr. Jim Dahle:
But it's totally separate for contributions for the kid. You don't have to do it before you have a kid. You can do it in addition to any 529 you have for your kids. The contribution limits in 529s are per beneficiary, not per contributor. So, that'd be fine to go ahead and do that even if you already have a 529 for your child.

Dr. Jim Dahle:
There are plenty of options when it comes to your career in medicine. But just like every patient is different, each physician forms their own personal definition of success.

Dr. Jim Dahle:If you’re like most doctors, nobody taught you anything about personal finance or investing during your undergrad, professional school, or residency. And even though your family – and perhaps even your business – rely on you to be the Chief Financial Officer, you have never been given the tools to succeed. Enroll in WCI Financial Boot Camp, a FREE educational email series, and learn to convert your high income to wealth. You will learn the basics of investing, saving, insurance, and more. Your high income alone will not lead to financial success, but as always, we want to help you on your financial journey. Go to whitecoatinvestor.com/financialbootcamp to sign up today! You can do this and The White Coat Investor can help.Dr. Jim Dahle:

Don't forget, if you refinance through our links $60,000 or more, you get Fire Your Financial Advisor step by step guide to create your own financial plan. This is our flagship online course. You get not only the amazing cash rebates we've negotiated, but you also get another $799 in value with that course.

Dr. Jim Dahle:
Join more than 5,000 other professionals who have created their own financial plan with the help of the white coat investor at whitecoatinvestor.com/student-loan-refinancing. That is good through January 31st. We may extend it beyond that, but for now, that particular deal is through the 31st.

Dr. Jim Dahle:
You got to claim it within 90 days of your loan disbursement, of course. And you can't do it with the same person that you've already refinanced with. It's got to be a new partner and you have to be identified as coming from the White Coat Investor.

Dr. Jim Dahle:
Thanks for those of you who've left us a five-star review and or told your friends about the podcast. Our most recent one comes from TrishTanMD, who said, “Awesome podcast for any high-income earner, five stars. I have been listening to Jim since 2018. I wished I found him sooner. It has changed how we manage our finances and we have grown our net worth since then. I’m excited to see Dr. Dahle and his team when they come here in Phoenix in February. Thank you for answering my questions through the Speak Pipe about gold and international investments and properties. Your podcast is number one for me.”

Dr. Jim Dahle:
Thank you, Dr. Tan for that great review. We appreciate all of you who have helped us with reviews. That does help spread the word about the White Coat Investor.

Dr. Jim Dahle:
Keep your head up and your shoulders back. You've got this and we can help. 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.