Financial Mistakes High-Income Professionals Should Avoid with Amanda Harrell

INTRODUCTION

This is the White Coat Investor podcast where we help those who wear the white coat get a fair shake on Wall Street. We've been helping doctors and other high-income professionals stop doing dumb things with their money since 2011.

Dr. Jim Dahle:
This is White Coat Investor podcast number 468.

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All right, we've got a fun interview, a fun episode for you today. We're going to get into the weeds a little bit. We're going to do some nuance today. We're going to talk about things like direct indexing and maxing out retirement accounts and all kinds of fun topics like that. We're going to talk about whether or not you should bother doing a backdoor Roth IRA.

But before we get into that and we get our guest on the line, I wanted to let you know about a few things. First of all, our Financial Educator Award. If there's someone who's been teaching their peers, their colleagues, their trainees about finance, we want to recognize them.

Please nominate them for the Financial Educator Award at whitecoatinvestor.com/educator. This Saturday is the last day to nominate them. And if you have the winning nomination, you win too. They can get a thousand bucks in recognition. You can get a WCI online course.

We'll bribe to make a nice recommendation for somebody, a nice nomination. If you're interested in being a financial educator, we're going to give you some resources. I put together some slides, update them every year or two, that you can use and you can modify as needed for your own presentation. You can also find those at whitecoatinvestor.com/educator. You have until April 25th to nominate somebody for this year, and I hope you do.

QUOTE OF THE DAY

Dr. Jim Dahle:
Our quote of the day today comes from Thomas Stanley of Stanley and Danko fame, The Millionaire Next Door, who said, “Wealth is what you accumulate, not what you spend.” So important to understand the difference between income and wealth.

It's important what you're doing every day. That's why we thank you for it. It is wonderful work that you do. We want you to do well while you're doing good. And that's the whole point of helping you become financially educated, helping you become financially literate, helping you worry less about your money so you can concentrate on what really matters in your life, your practice, your patients, your family, your own wellness. Let's help you quit worrying about money so you can spend your time on those things.

As I said, our guest today has got a few pet peeves. So let's get her on the line. I want to talk about our pet peeves and let's get into some nuance about some of the things we talk about here on WCI all the time.

My guest today on the White Coat Investor podcast is Amanda Harrell. Amanda is the Senior Wealth Management at FTL Capital Management, who also does iQ401k. Amanda, welcome to the podcast.

Amanda Harrell:
Hi, thanks for having me.

Dr. Jim Dahle:
This podcast grew out of a dinner conversation. I was able to go to New Orleans actually twice this winter. I went once a couple of weeks before Mardi Gras and once a couple of weeks after Mardi Gras. I had to go speak to thoracic surgeons at the first one. I spoke to rheumatologists at the second one.

But at the first one, I got to spend a dinner with the folks at FTL Capital Management, which is always a pleasure, and I'll tell you why. White Coat Investor has been here for 15 years. It'll be 15 years in May. And guess who our first advertiser was? It was FTL Capital Management.

And so, we're grateful for that relationship. They were there at a table in the tiny little hall outside the first WCICON in Park City. They've been along for the long ride, and they help a lot of White Coat Investors with their 401(k)s. This iQ401k is this high touch but low-cost service for those of you putting a 401(k) in at your practice.

And in fact, when we changed over from an individual 401(k), when we changed all our independent contractors to employees, and we needed a real ERISA 401(k), we contacted all the people on our list, and guess which bid came in best. It was iQ401k.

They do our 401(k). If you've heard about the best 401(k) in the world, the WCI 401(k), these are the folks who run it. So, Amanda, thanks for all your help with my own 401(k). You helped me do my mega backdoor Roth every year, and I appreciate it very much.

Amanda Harrell:
I do have to say, you did want to fact-check us at dinner. You were like, “You were not the first advertiser.” And Michael was like, “Look it up.” And sure enough, you emailed us that night and you're like, “Okay, you're right.”

Dr. Jim Dahle:
Well, part of the issue is that the brand was different. The brand changed. So, in my defense, the first banner ad on the site did not say FPL Capital Management, but it was you guys. Totally, totally agree with that.

Anyway, the discussion we had at dinner, which was a great dinner, by the way, a fine choice. Thank you very much.

We had a discussion. Amanda's like, “There are so many pet peeves that I want to come on your podcast and talk about so that I can point to this podcast episode when I talk to white coat investors, and they only believe what you say.” So we're going to hit a whole bunch of those topics today. It's going to be great.

Amanda Harrell:
Absolutely. And I remember the first topic I brought up, and I was like, this is your fault, Dr. Dahle. This is your fault.

Dr. Jim Dahle:
All right. Well, let's get into it. Let's hit that topic to start with.

WAIT TO ROLL OVER YOUR 401(K) TO UTILIZE THE BACKDOOR ROTH?

Amanda Harrell:
All right. I remember I was like, the biggest thing that I have a pet peeve about is clients, investors, doctors, not wanting to roll over their 401(k), because they don't want to lose the ability to do a backdoor Roth contribution. And we can weigh all the pros and cons, but they're like, “Dr. Jim Dahle says, I need to do the backdoor Roth, therefore, I cannot lose the ability to.” And it's like they've clung to this idea. And then they overlook other aspects, the pros of doing it.

Dr. Jim Dahle:
So, let's give an example of somebody for whom it would be a terrible decision not to do an IRA rollover of an old 401(k), just to be able to do a backdoor Roth IRA.

Amanda Harrell:
Perfect example, someone approaching retirement. They switched careers, they wanted to go to a different hospital system that's going to give them more flexible schedule, maybe they're going part time. Now they have a 401(k), 403(b) that they can roll over, and they don't want to.

And the reasons that we recommend them rolling it over is to start introducing other asset classes, private markets in particular. With the 401(k), you have your traditional fixed income exposure, and then your equity exposure, and that's it. Not everyone has a 401(k) plan like you guys do where you have the flexibility to purchase anything that's available on Fidelity's platform.

I think that it's true, it's even more relevant today. And I'm going to, I guess, knock on your listeners for a second, but you do have a very like Boglehead type of audience. And even Vanguard is predicting long term capital market assumptions for equities, I think it's like 4 to 6%. I think it makes private markets more relevant today.

Dr. Jim Dahle:
Okay, one reason why somebody might want money outside of their 401(k) is just to get different investments.

Amanda Harrell:
Correct, diversification.

Dr. Jim Dahle:
And there are still 401(k)s out there that suck, it's fewer than there used to be.

Amanda Harrell:
Absolutely.

Dr. Jim Dahle:
But there's a lot of 401(k)s that are terrible. Yeah, they're filled with 1% plus expense ratio, actively managed mutual funds. And hopefully, that's not the 401(k)s of anybody's practice out there, because you got liability there. If you're offering a crappy 401(k), you can be sued for it.

This is the way you get your 401(k) changed, as you subtly mentioned to HR or whoever's in charge of it, that you got some liability here offering such a crappy 401(k), and maybe they will change it. But that's one reason you could, you might want to be in an IRA, especially if we're talking about you're rolling over a $2 million 401(k) into an IRA, you're like, “Oh, I don't want to do that, because I want to be able to put $7,000 into a backdoor Roth every year.” Well, the backdoor Roth is chump change compared to the $2 million in the 401(k).

Amanda Harrell:
I also think too, they need to consider that you can accomplish the same goal, even when you roll over the 401(k). Let's say that every year, I'm going to convert $7,500 to my Roth. And instead of putting a backdoor Roth contribution, I'm going to invest that efficiently in my taxable account. You're accomplishing the same goal. Essentially, it'll work out the same tax benefits over time. But if you take it a step further and say that, “My husband's 401(k), they don't allow in-plan Roth conversions.”

So let's say the market is down 20%. I want to do a Roth conversion for him. I can't. If you rolled it over to the rollover IRA, you can do the Roth conversion whenever you want. And market is down 20%, 40%. It just makes sense.

Dr. Jim Dahle:
Yeah, not all 401(k)s allow Roth conversions, for sure. Yeah. Those are some of the reasons why someone might want to consider. Now, there are also reasons you might want to consider keeping money in a 401(k). In some states, you get more asset protection by keeping the money in the 401(k). And so, that's one reason why it's maybe good to leave it in the old one or to move it to a new 401(k).

Also, the rule of 55 instead of 59 and a half. If you separate it from the employer, you can get to 401(k) assets without that 10% penalty, starting at age 55, not 59 and a half. So, that's a good reason to leave money in a 401(k). And then, of course, you can keep doing back to a Roth IRA process each year if you don't have any money in a traditional IRA. But I agree with you, especially if we're talking about millions of dollars, it's a pretty small benefit you're getting for being able to do your backdoor Roth IRA every year. And it's not like you can't still save that money for retirement. You just got to save it in a taxable account. And if you want more Roth money, you can still do Roth conversions of that IRA. So points well taken. What else do we have to say about that topic? Anything else?

Amanda Harrell:
I think that if you look at 2022. Equities dips of, what was it? 27%. Bonds dipped 13%. That was an unprecedented year. And I think the reason that I'm so about this topic is that I specifically remember a client who we were trying to introduce private markets. And he's not unlike many other people, where all of their assets are in a 401(k) or in retirement, maybe they have a smaller taxable account. And we were saying, “You're pushing retirement, you really need to start introducing these other asset classes.” Well, all he had was bonds and equities, his entire accounts down.

We wanted him to have access to the private markets. Some of those diversifiers, I think private real estate index was up 8%, private credit index was up 6% in 2022, when everything else was down.

Dr. Jim Dahle:
Part of this discussion is a discussion of nuance and the value of nuance. So perhaps the most popular financial podcaster on the planet is Dave Ramsey. And the thing people criticize Dave Ramsey about is lack of nuance. There's no nuance. It's “All debt is bad all the time. This is how you invest, you go to my recommended advisors will charge you commissions.” There's no nuance in it.

And obviously, that means he's wrong sometimes, because there's a lot in personal finance that is nuanced. But there's also value to getting rid of nuance. “These are the baby steps, you follow these, you'll be fine.” There's some value to not having the nuance either. Because if all we ever did on this podcast was get into the weeds, we spent all our time in the weeds, people would think, “Oh, all this detail matters a lot, we really got to know about this” or worse, “This is too complicated for me, I'm not going to do it.”

And so I think we have to be a little bit careful to recognize that yes, there's nuance and oftentimes nuance matters. But we got to be careful not to get into too much nuance, or it just ends up spoiling the pie. Okay, let's move on to your next pet peeve.

FINANCIAL ADVISORS PUSHING DIRECT INDEXING

Amanda Harrell:
Advisors pushing direct indexing.

Dr. Jim Dahle:
Direct indexing. All right. Well, this is a little bit of a hot topic. You are a WCI sponsor. Well, I've had another WCI sponsor on here, talking about the benefits of direct indexing. A little bit of pro/con here. Tell us what your problem with direct indexing is.

Amanda Harrell:
I think that it is being pushed hard by advisors. I'm getting phone calls every day, maybe a few times a day about the direct indexing. This is my issue is that what is the benefit? I don't think any person benefits from traditional direct indexing. I think it's sold like it's a magical unicorn and it's lipstick on a pony.

Dr. Jim Dahle:
Hot take. Tweet it out. Amanda hates direct indexing.

Amanda Harrell:
Please do.

Dr. Jim Dahle:
Okay, what's the issue with direct indexing? There's an expense. And I had this discussion with the CEO of Frec about expense. And he's like, you're right. If somebody is paying 0.6, 0.7%, it's not going to pencil out. The benefit is not going to be there long term at whatever they're charging nine basis points, I think. He's like, “I think we can make the case much better.”

So part of its expense, a lot of people out there doing direct indexing are just charging you a lot for it. If you're hiring an advisor and paying them 1% a year to help you do direct indexing, and that's the only reason you're hiring them, you may not be getting that sort of value out of it. But there's more to it than just the expense. Tell us what other problems we have with it.

Amanda Harrell:
You mentioned the long-term benefits. There are no long-term benefits to direct indexing. We're talking about tax loss harvesting benefits that taper off after three years. And I just don't think that it's a unique benefit. Let's say you have SPY in your taxable account, and you're consistently adding new money; you're naturally going to have tax loss harvesting benefits, just from everyday equity market volatility. I think right now, statistics are once every two years, the markets dip 10%. And then maybe four to five years, a 20% dip. So you're naturally going to have those benefits if you're continuously adding money.

I think that my biggest issue is that there is no benefit. And there's definitely no long-term benefit. And then I think that you're also signing up for underperformance. I don't know about Frec's performance. But I've looked at Parametric, they're one of the biggest in the industry. Their US large cap core, which is basically indexing the S&P, underperformed 3% over 1, 3, 5, 7, 10 year numbers.

So, you're signing up for underperformance that no one goes into direct indexing, saying like, “Ah, they're going to provide excess market return, or I'm here for the overperform.” That doesn't exist. You hope they perform in line with the markets and get some tax loss harvesting benefits, but why pay for someone when you could do it yourself?

TAX LOSS HARVESTING

Dr. Jim Dahle:
Okay, let's do let's divide this into two topics, because I think it's really two topics. The first one is, what's the value of the losses to you anyway? For a lot of people, more losses don't help. Right now, I'm carrying forward seven figures of losses. How much can I take against ordinary income every year? $3,000. I've got four centuries of $3,000 per year saved up.

So, if that is the only benefit you're getting from tax losses, you don't need that many. And you can get all the tax losses you need just by tax loss harvesting every year or two when the markets dip 10 or 20%. Tax loss harvest your last few lots that you bought. That's going to give you a lifetime of $3,000 per year.

Other uses for losses. Well, if you end up not liking your portfolio. You can change your portfolio without a tax cost for it. There's some benefit to that. Other uses in retirement. If people need to sell some shares to fund their retirement, they generally sell stuff that they've owned for at least a year with the highest basis. And if you combine that with some tax losses that you've been carrying forward, you can get a lot of spending money out of not that many tax losses. And maybe if you had more because you'd done direct indexing, maybe that process could last longer.

But whether you need it to last longer or not is very individual. It turns out six out of seven retirees aren't spending as much as they could anyway. They're just mostly spending their income. They're not realizing any capital gains anyway. And so they don't need more tax losses. They're not even going to use the tax losses they can get just from tax loss harvesting at the fund level.

Other things you could use tax loss harvesting for. If you move and you've got a really expensive house. The problem with the stupid personal home exemption is that it was never indexed to inflation. It's still $250,000 single, $500,000 married. It's been that way for as long as I can remember, since it was put in place, I think. It hasn't been indexed to inflation. And certainly, the value of White Coat Investor houses has gone up dramatically. If we sold now, well, maybe not with all the money we put into a renovation. But if we hadn't done that, we'd have a substantial capital gain above the $500,000 exemption. And it would allow us to move or downsize without having to pay taxes on this. That'd be a benefit.

But I think the main benefit is for people who are entrepreneurs like me. I've got this business whose basis is basically zero. If I ever sold WCI, the entire value of it would be taxable at 23.8% federally, plus 4.5% or whatever it is in Utah state. And so any tax losses I can come up with would offset that gain. And because they do argue, and I think the argument is valid, that you can get more losses from direct indexing than you're likely to get from just tax loss harvesting at the fund level.

And for somebody like me, maybe those losses would be worth it. But it is going to cost me at least nine basis points. And as we get to the second part about potential underperformance, it might cost me a whole lot more than that. But the point is, most people aren't like me. They don't own a WCI. How much use do you really have for more losses? This is a discussion I have when people come to me and ask me about direct indexing. And I'm like, well, how much value do you have to more losses? And if they just get really vague, that we think it'd be a good thing, I basically tell them don't do it, because you probably won't have that many gains to deal with.

Amanda Harrell:
I think we're talking about the tax loss harvesting benefits tapering off after three years. I don't think that advisors are telling clients what you're stuck with after those three years. You're stuck with a portfolio of 200, 500 individual stock positions.

Dr. Jim Dahle:
And that's assuming you did an S&P 500 fund. If you did this with a total stock market fund, or worse, a total international stock market fund, you might have 12,000 individual securities that you have to sell to get out of it. So, it's a little bit like whole life insurance. It's a lifelong decision. If you want to do direct indexing, not only are you paying somebody to do that the rest of your life, but you're probably doing direct indexing with that taxable account the rest of your life. And even then, your heirs are going to have to clean up those 500 stocks or whatever.

Amanda Harrell:
What you just said was key. It's like you're agreeing to a lifelong relationship with an advisor. And I think that's why they push it. It's because it creates that stickiness with them. What am I going to do with 500 positions? They're overwhelmed. They don't know what to do. So they'll stick with that advisor.

Dr. Jim Dahle:
I had this discussion with the CEO of Frec. I'm like, “Well, what happens after three or four years if you want out? You want to reverse this decision.” And basically, his argument was this, let me summarize it. The argument was basically, well, the truth is if you have these 500 stocks or whatever, maybe it's not 500, maybe it's 250. You've really only got substantial gains in maybe 24 of them. And so you're not stuck with 250, you're really stuck with 24. And that's much more manageable. That was part of the argument. The other argument was, well, you can use all those losses to offset the gains.

Amanda Harrell:
Great. So I'll walk with nothing.

Dr. Jim Dahle:
Now you didn't get any benefit from it, but at least you can kind of unroll it and get out of it. But his point was that most of the gains you're going to have are relatively few securities. And yes, you would be stuck with those if you want to keep the losses that you did this whole thing for. But I think maybe there are some people out there who don't understand why the losses are all so front-loaded. So, let's explain that a little bit better. Why do you get whatever it is, 80 or 90% of your losses in the first three years after making an investment?

Amanda Harrell:
Yeah. It's going to be the same with direct indexing, or even if you just own, let's say, SPY. As you tax loss harvest, you're lowering your cost basis. I think this is also a misconception with doctors, physicians, is market dips 10%. And they're like, “Are we tax loss harvesting?” No, your cost basis is so low. So that is why you see the benefits taper after three years or so.

Dr. Jim Dahle:
Yeah, because the market rises. And especially if you tax loss harvested at once, the market's never going to be at the level at which you bought those shares. You don't tax-loss harvest the same shares over and over again. You're tax loss harvesting whatever you bought in the last year or two. When you tax loss harvest, that's what's being tax loss harvested, whether you're doing it at the fund level or whether you're doing it at the individual security level.

Part of this problem, why direct indexing exists at all, is the stupid Investment Company Act of 1940, where basically the funds can't pass the losses through to you. Because if they could, the funds could do the tax loss harvesting for you. And you could get these losses passed to you.

The worst part about it is that they have to pass the gains to you, and they can't pass the losses to you. Now, they can use their losses to offset their gains. But you feel hosed when you have a fund, especially if you have some relatively high turnover, actively managed funding in a taxable account. And nothing happened during the year, you got your 8% return or whatever. And all of a sudden, the fund gives you a 24% capital gains distribution at the end of the year. And you're like, “What is this?” I'm only up 8%. Now I have to pay taxes on all these capital gains. Part of it is just the nature of how mutual funds are designed.

Okay, let's turn to your other point. Your other point was about at least potential underperformance. And I quizzed the CEO of Frec about this. And I'm like, “Well, if you're not following the index exactly, which you can't be, if you're tax loss harvesting all these securities, you're going to have some tracking error.” His argument was that you were as likely to have a positive tracking error as a negative. You're arguing that you think performance is going to lag long-term the majority of the time, most of the time. Explain why you believe that.

Amanda Harrell:
Well, I think that when you're looking at these managers, a lot of times they're quoting this after tax return. And I think it's hilarious. I think they're trying to beef up their numbers. It's misleading. They're basing the tax loss harvesting benefits they're getting for someone who's in the highest tax bracket in California.

I did laugh out loud when I was looking at parametrics, the S&P direct indexing strategy, where in 2020, the after-tax return was still lower than the S&P. So, what does that say? You would have been better off just owning SPY, even if you didn't have a single lot to tax loss harvest, not even a dividend reinvestment, you would have been better off owning that than doing the direct indexing strategy with however many positions. I don't see it. And the after-tax return is very misleading.

Dr. Jim Dahle:
I agree with that. The only after-tax return that counts is your after-tax return. If those losses are not very useful to you, you're not getting a lot of benefit out of that. But here's the deal. If underperformance is an issue, and you're at least paying an expense even if it's only nine basis points, you should expect on average performance nine basis points lower.

But if it's worse than that, if it's 25 basis points, it was 50 basis points and you run that out over decades, because remember, this is a lifelong commitment to direct indexing, you run that out over decades, you may have enough underperformance on this multimillion dollar portfolio to eliminate all the benefit from those tax losses that you harvested in the first few years when you move money into this sort of portfolio.

So you've got to be really careful about underperformance. Underperformance can eliminate all the benefits of those losses, especially if you're one of those people that doesn't get a lot of benefit from those losses.

Okay, we beat that horse to death. You got anything else to say about direct indexing?

Amanda Harrell:
I do. I do think that when it comes to an individual investor not working with an advisor, the idea of tax loss harvesting seems overwhelming. They're not sure exactly how to accomplish it. “Does this mean I need to log into my account every day?” And I think a simple solution or a simple strategy that anyone can follow is any of your custodians, Schwab, Fidelity, Vanguard, you can put in alerts. You can put in an alert for SPY, send me an email or text when it drops 10% from the high, 20% from the high, and then you use that entry point or that period in time to go and do your tax loss harvesting and keep it as simple as that. You don't need to be a day trader trying to harvest these losses. And I think at the end, you'll be better than if you did direct indexing.

Dr. Jim Dahle:
I don't even know that you have to do that. When there's a tax loss harvesting opportunity, you know the markets are down, because everybody's talking about it. It's on the news. When I look back at the last five or 10 years, when I've actually harvested losses, I did it in March of 2020. Nobody missed that. I did it in 2022. I think I harvested a little bit of losses last year. I guess maybe that one, the news wouldn't have been blaring about it if you pay a little bit of attention.

I am not looking at my portfolio more often than every three months-ish. The other thing is that people start thinking about this frenetic kind of tax loss harvesting. They come up with like six tax loss harvesting partners for one asset class. And I'm like, “What are you doing? You're missing the point here.”

They tax-loss harvest and three days later, they go to another fund, and seven days later, they go to another fund. And they're like, “I need another fund. I've been through six, and it hasn't even been 30 days yet.” And I'm like, “You're missing the whole point.” I never tax-loss harvest more frequently than every two months. I don't even look for two more months because additional losses aren't that valuable to me, number one, but you don't have to get every dollar of losses that are out there.

And if you wait at least two months and you never run into the 60-day dividend rule, you never convert dividends accidentally from qualified to unqualified, and you're certainly never going to run afoul of the 30-day wash sale. So I think you don't have to be frenetic about tax loss harvesting.

Now, what percentage of the losses that I might get if I were direct indexing, am I getting just by doing that occasionally at the fund level? I don't know, but even if it's only 50 or 60%, it's probably enough. As I said, I've been carrying losses forward for a long time already and haven't used them. Barring a sale of WCI, I'm going to carry these tax losses to my grave, and they're going to disappear.

401(K)S AND PAYING PENALTIES

Dr. Jim Dahle:
Okay, now I think we beat it to death. Let's talk about something I ran into the other day, and this is a little bit related. You guys help WCIrs with their 401(k)s, and a lot of people are like, “Oh, your 401(k) sounds awesome. I want one like yours”, and they don't realize that in order to get increased 401(k) contributions, in order for practice owners to be able to put $72,000 in their 401(k), that often means paying penalties for their non-highly compensated employees.

Amanda Harrell:
I hate when you use that word.

Dr. Jim Dahle:
Right. Penalties, it's an extra bonus. It's a bonus for your employees into the retirement account. I totally agree with you there, and I am fine paying bonuses to my employees into the retirement account, so I'm okay with these penalties. Well, a lot of people don't realize that when they hear about our 401(k), they don't realize that we're paying tens of thousands of dollars every year in penalties to our employees.

Talk a little bit about that. When people come to you guys, they want a 401(k), and they've got three front office staff in their dental clinic or whatever, but they want to put $72,000 into their 401(k). What insight do you give them?

Amanda Harrell:
I think you have to even take a step back. I see a lot of practices that aren't even doing the safe harbor match, and therefore, they're not even able to put the full employee contribution of $31,000 because they're not doing the safe harbor match of 3% to the employees. That's step one.

Even when you're doing it, you want any type of contribution, an employer contribution to the employees, you have the TPA run the numbers. If I do a 3% safe harbor, if I do a 6% profit sharing, if I do this, they'll run the calculations. This is how many dollars you're going to need to contribute, but here's the tax benefit. They will break down the exact tax benefit you will receive as the employer. It's going to be based on your contributions to the plan and then the business tax deduction standpoint.

I think that seeing the numbers written out on paper is more palatable than to just say, “Hey, you're going to have to give thousands of dollars to your employees.” That I would say is step one.

Then I think when you're going to look at doing the defined benefit plan, those sorts of things, those are going to be more commitments, but with the profit sharing, your safe harbor match, it's not a commitment. Each year, you can go to the TPA and say, “Hey, I want to max out. Hey, I want to see the max. Can we bring it down $50,000?” It's not something that's set in stone like the defined benefit plan or the cash balance plan.

Dr. Jim Dahle:
I think that's something people have got to realize. If you've got a solo 401(k), you have no employees. Yeah, as a doc, you're going to be able to get your $72,000 in there, but once you have employees, this is no longer a do-it-yourself project. There are TPAs and actuaries and everybody involved recognizes that in order for you to save the max, it's going to cost you something. It may or may not be worth it to you, depending on how much your employees value those contributions.

ARE ONE-STOP SHOPS GOOD OR BAD?

Dr. Jim Dahle:
Okay, you have mentioned before one-stop shops and a problem you have with one-stop shops. I think your main beef is they end up, yes, you can go to one place and get everything done, whether that's taxes and financial planning and asset management and estate planning and asset protection and everything, but I think your argument is that if you go to a one-stop shop rather than getting the best of each of these categories, you end up with mediocre in three or four of them.

Amanda Harrell:
Absolutely. The best CPA or even a mediocre CPA does not want to come work for me, a flat-fee advisor. They're going to own their own firm. It's something like my sister mentioned the other day, like, “Oh, the Fidelity team is going to do something with my taxes.” I'm like, stop right there. You're trying to start a business, and you're going to use Fidelity's tax advisors. Absolutely not. They are not working for Fidelity. They're going to own their own firm. I see the argument about “I'm super busy, it makes my life easier”, but I think you're giving up something in return.

Let's say you're working with an advisor. They're not a one-stop shop. It's just to see “Hey, who do you recommend as a CPA?” There may be a CPA firm or a few CPA firms that can work seamlessly with your advisor, that'll make your life just as easy, but you're still getting the best. You're getting the best wealth manager. You're getting the best CPA, the best estate attorney. I think there are ways to get it done without getting mediocre services.

Dr. Jim Dahle:
But you understand the draw. To have one money guy. Have your financial planner manage all these guys so you don't have to deal with it. You only have to talk to your financial planner. I get the draw. It's super attractive to have a one-stop shop. There's a cost to it, though, isn't there?

Amanda Harrell:
Absolutely. I couldn't quote exactly what they're charging, but definitely AUM fees and who knows what else. If it's just the one-stop shop, you have an AUM fee plus an annual tax consultant fee or an annual estate planning fee, even though you just needed estate documents one year. Yeah, don't know the cost, but it's definitely not going to be the most cost-effective route for sure.

Dr. Jim Dahle:
Well, it's interesting because you look at what the going rate for a financial planner and asset manager right now is something like $7,500 to $15,000 a year. If you want a really good tax strategist, you might be paying another $12,000 to them. So I get it. People are like, “I'm already paying somebody $15,000 a year, and they can't do my taxes too, or at least give me tax advice?” I understand the frustration people have, and they're like, “Really? How much do I really have to pay for this? Because I only make $200,000 or $300,000 or $400,000, and now I have to spend $40,000 on advice and service.

Amanda Harrell:
I can't see a tax. I don't know what you refer to them as charging. How much did you say? $12,000. For a W-2? That would be outrageous.

Dr. Jim Dahle:
Well, to be fair, I think most of the people who charge that $10,000 or $15,000, they don't take people who just have a W-2. You're not right for us if you don't have a complicated practice and 18 K1s; you're not a good candidate for our firm, to be fair. But yeah, there absolutely are firms that oftentimes they can save people more in taxes than the cost of their fee. So I get it. The attraction of a one-stop shop, I understand, because this is the way we think. We're like, “Well, why shouldn't I be able to get that? I'm spending thousands of dollars a year. I should be able to get that.” But I guess in a lot of respects, you're not going to get your pulmonary advice from your family practice doc.

Amanda Harrell:
Thank you. Yes. And I do, as I said, I think the middle ground is your advisor, who you've worked with, who you trust, or the CPA who you work with, who you trust, is seeing who they work well with. That could save you a lot of time and effort.

TRUE FAMILY OFFICE SERVICES

Dr. Jim Dahle:
Yeah. Now you've talked a little bit about a fictitious family office. Tell me what you mean by that. What's a fictitious family office?

Amanda Harrell:
True family office service is not available to your regular high-net-worth individual clients. It just doesn't exist. But it's just like, I could start calling myself, “I’m family office services. What do I do? I do asset management and wealth management. Everyone else is calling themselves family office service, family office boutique.” It's just a hot topic. It's fictitious.

Dr. Jim Dahle:
How would you define true family office services? What are you getting that you're not getting from a financial planner?

Amanda Harrell:
A true family office service is going to be your quarterback. Here's a good example. You have a client who you're doing the asset management, you're doing the wealth management, but you're also doing payroll for their house staff. You're also arranging their private jet, and every financial aspect of their life you're controlling.

Dr. Jim Dahle:
In order to really be interested in that sort of service, you should have enough money that you've got a private jet, at least NetJets.

Amanda Harrell:
Yeah, exactly.

Dr. Jim Dahle:
Where would you draw the line that someone ought to start thinking about family office services? Is there a net worth, or is there a number of generations involved?

Amanda Harrell:
$100 million plus.

Dr. Jim Dahle:
$100 million plus. And do you think it matters how many generations are involved?

Amanda Harrell:
No, I don't think so.

Dr. Jim Dahle:
Because I've seen at least one person who looks at the complexity of your life, and they looked into how many businesses you own, how many generations are involved, and how many trusts are there, and what's the net worth, and you put it all together and try to decide whether it's complex enough to justify that sort of thing.

Because when you're paying for a family office, this is typically a six-figure amount you're paying every year. There are people whose job is to run your family office, even if they're also running another family's family office as well or something.

Amanda Harrell:
But you have to see just FPL, family office services, that's not real.

Dr. Jim Dahle:
There are a lot of people out there advertising family office when they're really not doing it. That's their beef with it.

Amanda Harrell:
Yes.

DO YOU NEED TO MAX OUT RETIREMENT ACCOUNTS?

Dr. Jim Dahle:
Okay, let's look at another one I've been thinking about. That is this drive to always max out retirement accounts. “You're doing it wrong if you're not maxing out your retirement accounts.”

Now, in general, saving more money is a good thing. Generally, your money is going to grow faster inside retirement accounts. You're also going to get some asset protection there. I'm a big fan of using retirement accounts. I'm a big fan of saving. Most people, including most doctors, aren't saving enough money. So, encouraging them to max out retirement accounts is generally a good thing. When is it the wrong advice?

Amanda Harrell:
That's a great question. I think it's the mentality of, like you said, shoving every single dollar into retirement. What is the benefit? What's the benefit of an IRA versus a taxable account? So you have, let's just put it up, $5,000 to invest. You can put it in a retirement account and get the pre-tax deduction. It's going to grow. You're going to withdraw the funds. Your earnings and your contribution are going to be taxed as ordinary income.

Now, versus the retirement account, it's been taxed already. You're going to invest it in a taxable account. You buy SPY. When you withdraw the funds, it's going to be taxed as long-term capital gains. I don't see the huge benefit of a retirement account in that scenario.

Dr. Jim Dahle:
Well, there's a benefit. The money grows faster. Because it's not being taxed as it goes along. There is a benefit to it, but I guess a few issues I see with it. One, sometimes they have a better use for their money. They're like, “Oh, I have to max it out. I've got a 403(b), and I got a 457(b), and I have a 401(a), and we have to do our backdoor Roth IRAs.” You add it all up, and 35% of their income is going into retirement accounts.

I've got a pretty good situation in my partnership. I can put in as much as $120,000 into a defined benefit plan and $72,000, I guess $80,000 now because I'm older, $80,000 into the 401(k) profit sharing plan. That's whatever that is, $190,000, $200,000 I can put in retirement accounts. I didn't make $200,000 clinically in the last couple of years. And so obviously you're not going to put everything in there. You have to live on something.

I think when people do this, they make a couple of mistakes. The first one is that they just save too much. Whereas they'd probably be happier if they actually spent more money. I think that's the first issue with always maxing out retirement accounts. Yes, it's generally a good thing, but here you are at 67, you still have a side gig, and you're putting money into a solo 401(k). You're at the stage of life when your net worth maybe ought to be decreasing. You ought to be spending more than you're making, and you ought to be giving it away, that sort of thing. This whole “Die With Zero” philosophy, and you're still saving like crazy.

The other thing is, you might have a better use for your money in some other type of account. Maybe that taxable account would work out better for you due to its flexibility. Maybe there's a better chance this money is going to go to charity, and maybe it should be in a 529 or should be an HSA. I'd be going towards some other use for money rather than 529 accounts.

The classic example is this partner I was talking to the other day, who's been doing a great job saving for a long time. He's like, “We'd really be happier if we were in a bigger, better house.” He's like, “I think I'm going to cut how much I put in the profit-sharing plan this year.” He felt guilty about it. He felt bad about it. He felt like he had to justify the decision to me. We're just chatting in between patients. I think people get into this, “I have to max out my retirement accounts. I have to do everything I can.” And really, you've got to come back to your goals every time and go, “What is your goal?”

Amanda Harrell:
I think another good example in there is when I see physicians faced with the non-governmental 457 accounts. They want to shove the max in there, and we're like, “You'd be better off saving in your taxable account.” Well, why? There's limited flexibility in that non-governmental 457. You leave, you hope that the plan allows you to push off the taxable disbursement until after retirement. Sometimes they don't. Sometimes they force you to take it within 90 days of your termination.

It's very rare that I have a physician client who truly believes that the hospital system that they work for is in great shape and that it will be around for the next 40 years or 20 years. That's really rare. In those examples, we try to push clients, “I think you’d be better off saving in the taxable”, but they want to get as much of a tax deduction as they can.

Dr. Jim Dahle:
I think the “They always max out retirement accounts” thing is often a symptom of over-optimizing. There are optimizers and there are satisficers. The satisficer is like, “It’s good enough. It's good enough. I’m going to reach my goals. I don't want to spend any more time or effort or whatever on this.”

Whereas with the optimizer, there's always something you can tweak. It might take a little more of your time. It might be a little more effort. We had something come up on the WCI forum talking about trying to get a step-up in basis in your irrevocable trust by naming the generation before you, your parents, as one of the beneficiaries of this trust. It's just this massive optimization.

I started running the numbers. I'm like, “Well, that could be a lot of income taxes. I could save somebody a generation or two from me because you lose the step-up in basis in the irrevocable trust account.” And I'm like, “I don't know that I want to go have this discussion with my wife's 93-year-old grandfather about adding him as a beneficiary of our trust.” You know what I'm saying? Optimizing can sometimes get a little bit crazy. How should people find a balance between being an optimizer and being a satisficer?

Amanda Harrell:
I think just weighing out the pros and the cons and then choosing a strategy that works for you instead of trying to chase tactics that they heard on a podcast by Dr. Dahle or read on a Facebook blog is truly just weighing out the pros and the cons. I think that's with every decision.

Dr. Jim Dahle:
Sometimes we focus too much on the pros, and we blow them up to be in this big thing, and we minimize the cons. Let me give you an example. We did some optimization this last year. It was a UTMA account. She's 21, so it's her taxable account now. I'm like, “Whitney, you're in the 0% long-term capital gains bracket. We should do some tax gain harvesting. We should update your basis in all these funds. And then when you eventually sell them, you'll save all this money in capital gains taxes.”

Well, it's true. I did the numbers right. We only realized as many gains as she would get in the 0% long-term capital gains bracket. We owed no additional money in federal taxes for updating her basis. But you know who we owed money to?

Amanda Harrell:
The state.

Dr. Jim Dahle:
The state. Yeah, we owed money to the state because there is no 0%. There is no long-term gains bracket in our state at all. All income is taxed at one rate in our state, and so she owed some money on that.

Now, the federal tax savings, assuming she would be realizing those gains at 15% down the road, would have outweighed that, but that's assuming, number one, that those taxes would have had to be paid eventually, whereas she might go to another state that has a 0% income tax rate and never had to pay those state taxes on those gains.

She might also realize those gains within the next few years before she really is into the 15% bracket. Maybe I'm updating basis that doesn't matter anyway, and she'd never get that benefit from it. It's kind of classic questionable over-optimizing just to get this benefit. I'm like, “Oh, this would be great. We'll save you $7,000 or something in future long-term capital gains taxes.” And instead, it costs $1,000 in state taxes, and maybe we'll never actually save that $7,000 in long-term capital gains.

Amanda Harrell:
I love that example. I can't wait to use it.

CAPITALIZE ON DIPS IN THE MARKET

Dr. Jim Dahle:
All right. Something else you had mentioned was being afraid of market all-time highs instead of having a plan to capitalize on them. Tell me what you mean by a plan to capitalize on dips in the market.

Amanda Harrell:
Since we made this shift in our firm and what we've done for clients, I've just noticed a huge sigh of relief from clients. People will say the news, it's all-time highs, all-time high, and they're like, we know the market's going to crash, and we know there's going to be a correction. We need to pull some risk off the table.

Dr. Jim Dahle:
Even though the market's at all-time highs most of the time.

Amanda Harrell:
Yes, correct. Correct. We've instituted something where we have a plan when the market dips, we're going to capitalize on it. I think I mentioned the strategy, and you said I was nuts, but hey, it's worked out so well for me so far.

Dr. Jim Dahle:
This makes for good podcast content if we disagree about something. This is good.

Amanda Harrell:
Market dips, instead of having the mindset of, “Oh no, I'm missing out”, our clients are now shifted into the mindset of, “Oh, yay, I can't wait to capitalize on this market dip. I'm going to enhance my return.”

We're picking up leverage. We're picking up leverage market exposure. For example, SSO, it's two times the market. When it's going down, you're getting two times down. When it's going up, you're getting like one and a half percent because of the decay in those leverage funds, but it's a plan to capitalize on the market dip.

Now they're excited. “Oh, the market's dip.” Here's a perfect example, in March the market started to dip. I think it was 10%. April dip to 20%. By July 1st, we're closing out. We're back at the market all-time high. It was a quick little turn. The market was down, what? 5% this week or something like that. They're excited like, “Oh my goodness, are we going to get to deploy two times the market strategy?”

It just changes the mindset. I think that if more investors embraced something like that, then they wouldn't be scared about the market's all-time high. We're going to get a correction soon.

Dr. Jim Dahle:
There's so much involved there. There's investor behavior. There's a behavioral aspect. We know that personal finance is about 90% personal and 10% finance. The behavioral aspect matters a lot. If having a strategy like this sitting out there helps somebody to not only stay invested but to continue investing their money, you're probably helping them. Even if the strategy is a losing strategy, you're probably helping them from behavioral aspects. I like that part of it.

As far as capitalizing on a market dip, well, if you're in the accumulation years and you're periodically investing, you invest something every month, you're capitalizing on dips anyway. You get excited, “Oh, a chance to buy more shares for the same amount of money. That's exciting.” Maybe that helps you to stay the course and not be afraid of dips.

Some people go, “Well, if it dips, I can get some tax loss harvesting. That helps me to stay the course.” I guess I worry with a strategy like the one you're describing because the market timing aspect of it is hard. If you're introducing leverage as the market goes down, well, let's say the market goes down 20% and you're like, “Okay, market dipped, let's leverage up a little bit”, whether you're using a leveraged ETF or whether you're borrowing against your house or against your portfolio or whatever.

Well, what happens now when the market drops another 30%? It turns out this is 2008 instead of 2022. Now you've leveraged your second drop. Well, what's that going to do not only to your portfolio, but to your behavior and your ability to stay the course?

Amanda Harrell:
Yeah. Whenever we're going to deploy a strategy like this, we always say we're going to set a commitment. We may be introducing it at a negative 10% drop, but if it goes to a negative 20%, you need to be ready to deploy an equal commitment or an equal amount, and then also at negative 30% and at negative 40%. It's a commitment. If it goes down further, you've got to be ready.

Dr. Jim Dahle:
Don't go all in at minus 10%?

Amanda Harrell:
Nope.

Dr. Jim Dahle:
Because you might have to put more in at minus 60%?

Amanda Harrell:
Exactly. Exactly.

Dr. Jim Dahle:
Sounds like it wouldn't be that hard for someone to get in trouble with the strategy. Do you think it's easier when you're managing somebody else's money to follow a strategy like that?

Amanda Harrell:
Absolutely. 1000%. I don't necessarily have an emotional tie to placing trades. And even when I go to place my own trades, I second-guess things, and I'm like, “What am I doing?” Yeah. Definitely, I think having someone else do it takes the emotions out of it, makes it easier to execute.

Dr. Jim Dahle:
On that same aspect, I looked at investing my kids' money, 529 money, their Roth IRAs, and their UTMAs. It wasn't my money. It didn't bother me as much to see it go down in value as it bothered me to see my retirement money go down. Behaviorally, I'm like, “I can invest their money really aggressively.” Our 529s have always been invested very aggressively. I have kids in college now, their 529s are still invested very aggressively.

It's interesting, so much of investing is behavioral. Recognizing that your enemy is the person you're looking at in the mirror every morning, and doing all you can to recognize who your real opponent is when it comes to investing can sometimes be a good thing.

Amanda, I think our time is up. I think we've hit your pet peeves. You can refer clients now to this podcast. This is number 468. I think we got into nuance today. Whether that's good or bad, for someone who this is their first WCI podcast, they're not all like this, I promise. But for those of you who've been looking for something new and maybe a deep dive into some topics, I hope we did that for you today.

Thank you so much for being willing to come on, Amanda. If you're interested in talking more to Amanda, you can go to FPL Capital Management. She'll talk to you all day. They can help you with your 401(k). They do asset management. They've been sponsoring us for 15 years. Thank you for that sponsorship, and thanks for being on the podcast today.

Amanda Harrell:
Thanks. All right. Have a good one.

Dr. Jim Dahle:
Okay. I hope that was fun. That grew out of a dinner table conversation. I was eating seafood at the time. It was very good seafood in New Orleans. We talked about being on the podcast. I said, “Well, Amanda, if you have good content, that's not a podcast sponsorship. That's an episode.” She's like, “Oh, that'd be so fun.” I said, “Well, let's bring you on. Let's have this great episode. Let's talk about these topics because it is good to point out nuance where nuance exists.”

I don't want to confuse people with nuance. I don't want to make them feel like this stuff's too hard for you by making it too complicated and too nuanced. The truth is, there is nuance in life. If you go Dave Ramsey style, “No nuance, all debt bad, all investing should be done this way. Growth stock mutual funds are the only way to invest.” Well, you lose something. You lose something when you don't acknowledge the nuance.

We'd like to acknowledge the nuance here, even if we try to keep things as simple as we can and recognize that 90% of the stuff out there, when it comes to personal finance and investing, can just be totally ignored. You can still be financially successful without doing anything we've talked about in this episode today. I think if you can understand the big picture, then the nuance becomes a lot more fun to talk about, dabble in a little bit, et cetera.

SPONSOR

Dr. Jim Dahle:
As I mentioned at the beginning of the podcast, SoFi could help medical residents like you save thousands of dollars with exclusive rates and flexible terms for refinancing your student loans. Visit sofi.com/whitecoatinvestor to see all the promotions and offers they've got waiting for you.

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DISCLAIMER

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INTRODUCTION

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

Dr. Jim Dahle:
This is Milestones to Millionaire podcast number 271.

This podcast is sponsored by Bob Bhayani of Protuity. He is an independent provider of disability insurance and planning solutions to the medical community nationwide and a long-time White Coat Investor sponsor. He specializes in working with residents and fellows early in their careers to set up sound financial and insurance strategies.

If you need to review your disability insurance coverage or to get this critical insurance in place, contact Bob at www.whitecoatinvestor.com/protuity. You can email [email protected] or you can call (973) 771-9100.

Hey, it's annual survey time. From now until May 6th, please, please, please take our annual survey by going to whitecoatinvestor.com/wcisurvey. This information really helps us improve the podcast, the blog, the newsletters, the conference, everything we do. It also helps us gather some information anonymously about the entire WCI community that I use to put together a blog post about you. And that's always a lot of fun to see how all of us are working together to move toward our financial goals.

This is so important for us to help us do what you need done, that we'll actually bribe you to fill it out. If you fill out the survey, you get a chance to receive a t-shirt. And in fact, five people will win a WCI online course totally free. So, please help us know how we can serve you better, how we can improve WCI for you and how your financial life is going by filling out the WCI survey for 2026 at whitecoatinvestor.com/wcisurvey.

All right. We've got a great episode. Stick around afterward, we're going to talk for a few minutes about expense ratios. Let's get our guests on the phone.

INTERVIEW

Dr. Jim Dahle:
My guests today on the Milestones to Millionaire podcast are Matthew and Casey. Welcome to the podcast, guys.

Casey:
Hey, thanks for having us.

Dr. Jim Dahle:
Let's have you introduce yourselves to the audience. Let's talk about where you live in the country, what you do for a living, how far you are out of training.

Matthew:
I'm Matthew Wright. We live in Tennessee and I'm a hospitalist.

Casey:
And I'm Casey, I live in Tennessee with my husband, Matthew, and I'm an emergency medicine doctor.

Dr. Jim Dahle:
Okay. So two doc couple. And how far are you out?

Casey:
Just under two years.

Dr. Jim Dahle:
So, same. You both came out at the same time. Now that everybody knows where we're standing, I want you to tell them about what milestone you just accomplished because I think it's pretty impressive.

Casey:
We paid off our student loans in one year and it was just a little bit over $500,000.
Dr. Jim Dahle:
Yeah. $527,000 in student loans in one year. I don't know if that's a record, but it's pretty awesome.

Thank you.

Dr. Jim Dahle:
Obviously a big shovel, it's a two dock income, but I know what the average hospitalist makes. I know what the average emergency doc makes. And I know about what the tax bill is on that combined income. And when I compare that to $527,000, they're awfully similar. So what did you guys eat for the last year?

Casey:
Beans and rice.

Matthew:
I don't think we went without. We probably ate a lot at the hospital because we worked a lot, but I don't think we went without. If we wanted steaks or things like that, we had them.

Dr. Jim Dahle:
All right. Give us the story. Somehow, you guys got inspired to do this in one year. And so there had to be some conversations about it. There was some planning. Give us all the details. How much money did you make in that year? How much did you work in that year? How much did you spend that didn't just go to the student loans? Give us the details.

Casey:
Matthew had a small amount of savings from when he was about 18 or so. He started an account.

Matthew:
My parents actually started a brokerage for me when I was born. And they bought somewhere around $2,000 worth of AT&T stock back in the early 90s. And then they didn't put anything in it for the rest of the time. When I was 23 or 24, going into med school, it had grown into about $35,000.

Dr. Jim Dahle:
Still invested just in AT&T stock?

Matthew:
I think they may have sold it around 2012 and put it in the S&P. It had a couple of years of S&P growth. But for the most part, it was AT&T for the vast majority. I want to say that was around $20,000 when they moved it. And then over the next six years, I think it grew to $35,000.

Fair disclosure, my parents helped me a lot with just bills and everything in college and medical school. They viewed it kind of as an investment in my future and their grandkids' future. They were helping me with rent in med school. And they decided it'd be better to own a place in med school. So they said, how about you liquidate the money in your brokerage account, which at the time was $35,000, use that as a down payment, and we'll pay the mortgage instead of paying rent. And then at the end of that time, we will get back what we've paid in the mortgage in equity, and you'll get back your deposit. So my first two years of med school.

Dr. Jim Dahle:
So they paid the mortgage?

Matthew:
They paid the mortgage.

Dr. Jim Dahle:
That's a pretty good deal. I'd probably take that deal.

Matthew:
They helped a lot, tremendously. So that helped also keep my loans down because I only had to take out money for tuition, whereas Casey took out money for everything.

Dr. Jim Dahle:
What did you owe when you came out?

Matthew:
I was $187,000 and Casey owed $340,000.

Dr. Jim Dahle:
Okay, yeah, quite a difference. Were you guys at the same school?

Casey:
Yes.

Dr. Jim Dahle:
Okay, so same school, huge difference in loan amount. And that's what happens when you're getting help from parents versus, Casey, you must have borrowed the whole thing.

Casey:
I borrowed everything that was offered to me.

Dr. Jim Dahle:
Can I have another, please? Yeah. Okay, very cool. And so when did you get married? At what stage?

Matthew:
Fourth year of med school.

Casey:
Right, yeah. I just got out of medical school, so my last name would be his last name when I graduated.

Dr. Jim Dahle:
Yeah, that is convenient. Okay, when did the conversation about how much you each owed in student loans come up for the first time?

Matthew:
Probably early.

Casey:
Pretty early, I think, yeah. We were placed in the same medical school group together in first year. And then we just pretty much started dating shortly after that.

Matthew:
But I think financially, actually, Casey discovered your podcast sometime in med school, or your book. And we had kind of discussed some financial stuff before that. And my parents educated me a lot on finances, but I don't think she got that same kind of level. She actually read your book. And then that was at the end of medical school. So we were on similar wavelengths as to what we wanted to do.

Dr. Jim Dahle:
Okay, so no awkward conversation when you found out she owed $340,000.

Matthew:
No.

Casey:
Most people owed more because they owed it from college. I luckily had need-based loans or grants in college. I didn't owe any undergraduate.

Dr. Jim Dahle:
Okay. So you guys finished school. You couples matched, I assume?

Casey:
Yes.

Dr. Jim Dahle:
Okay, so you went to the same place, did your residencies. And what'd you do about student loans during residency?

Matthew:
Fortunately, regardless of any of your feelings about it, the student interest loan pause they placed on everything. We didn't have to pay anything in. So we ended up just saving the money.

Dr. Jim Dahle:
So you did nothing with student loans during residency. That worked out very well. But you decided you didn't want to go into a 501(c)(3) job. You didn't want to go for public service loan forgiveness. You're going into private practice and paying these off. Did you refinance them at some point?

Matthew:
No.

Casey:
We never had to with the COVID pause. We looked into it and then…

Dr. Jim Dahle:
You liked your 0% rate.

Casey:
Yeah, we didn't need to adjust that at all.

Dr. Jim Dahle:
Okay, so now take us through. You guys are like, “Okay, we read the White Coat Investor book. We listened to podcasts. We got a little bit of money. We're going to soon start making a whole bunch of money next year.” Tell us about your planning for that first year of your attending life.

Matthew:
We obviously kind of did what you said. We did definitely get an increase in our kind of living expenses and allowance that we let ourselves spend. And we are not budgeters. We don't have a written budget. I think I'm definitely much more of numbers. I look at the bank accounts very frequently. Casey does not, but she is still very frugal. We really don't spend that much. We did have a significant increase in what we were spending, but our percentage of income was still, I want to say about 10 to 15% of what we made, we spent. And then the rest we put in high yield savings and did that for the whole first year.

Dr. Jim Dahle:
Okay. So, it doesn't sound like there was a ton of planning for the first year. You just happened to be really frugal people. Is that right?

Matthew:
Well, we had a goal actually. We did have a goal and our goal was to pay it off as soon as possible. I kind of thought it was two years, it was my reasonable goal. I kind of got on and did the interest rate calculations. If they Trump got reelected, if he was going to start back the interest and how long it would take to pay it off. And I said, two years is what our goal was. But I have him talk to my brother, who's a computer engineer and was telling him about that. And he told me he didn't think I could do it. And I took that personally to do it in one year.

Dr. Jim Dahle:
You know I paid him to tell you that, right? That's awesome. Okay. So what was the process? What'd you do? You just wrote a big check every month or what?

Matthew:
No, we didn't. We got our first paycheck in September of 2024. And we put all of it minus what we had to pay for expenses.

Casey:
Yeah.

Matthew:
In the high yield savings. And we did that for an entire year. And at the end of the year, this past September in 2025, they were saying that the interest rate was going to start back.

Dr. Jim Dahle:
Oh, because you were still 0%.

Matthew:
We were. I wasn't going to pay until it started back up.

Dr. Jim Dahle:
So they started it back up. When they started up the interest again, did you have enough in there to pay off the student loans?

Matthew:
We had it all. We paid it off before any interest.

Dr. Jim Dahle:
So you wrote one check?

Matthew:
One check, yeah.

Dr. Jim Dahle:
Two maybe, I guess. But yeah, very cool. Very cool. And then we just wiped them out, stick them in the corner, dropped an anvil on them. That's my favorite number of student loan payments.

Casey:
It was definitely a big weight off our shoulders for sure.

Dr. Jim Dahle:
It's been interesting to watch this. Because obviously I was podcasting, blogging before this student loan holiday. And to see this thing come in and get extended and extended and extended. Andrew Paulson and I, he's one of the founders of studentloanadvice.com. We would look at each other and go, “Do people understand what's going on here? This is a huge boon for doctors. This is massive. Doctors are saving $60,000 a year in interest on this. They're going to get loans for giving after having only made $10,000 in payments. It's just this huge boon.”

And now it's been fun doing these milestones after it's over and seeing that indeed, there were a whole bunch of doctors that recognize that as well. And so, that's pretty cool. Well, congratulations to both of you.

Matthew:
Has the interest started back up on them or?

Dr. Jim Dahle:
I don't know that I have all the exact details. I think interest for the most part is back for everybody on student loans at this point though.

Matthew:
I used to listen to all those episodes. And then once we paid it, I haven't listened to it.

Dr. Jim Dahle:
Yeah, it still feels like it's changing every two or three months, but it's actually stabilizing quite a bit. And I think everybody's paying interest now because people are getting back into income-driven repayment programs and changing them and refinancing student loans. So I think the game is back on now, but it sure was beneficial to have game off for three and a half years without a doubt.

Okay. Well, that's pretty awesome that you guys were able to do that. Do you have any idea what you spent during that year on your lifestyle? What you paid for rent or mortgage and what you spent on vacation and food and all that stuff? About how much did you guys spend that first year out of training?

Casey:
Our rent, we live in a pretty nice house that we rent. It's like a six bedroom house. The rent, it's like $3,000 something a month.

Matthew:
$3,500.

Casey:
So, we spent that. Well, we have two small children, so we contribute to their daycare and to their 529s too. That's some spending that we do. But we did go on a Disney vacation during that time that we paid for.

Matthew:
It was a small one.

Casey:
Yeah, it was a small one. We had some free tickets from the 1990s.

Dr. Jim Dahle:
So what? A $100,000, $150,000, something like that, maybe?

Matthew:
No, I think it was less. I'd say it was probably about $8,000 to $9,000 a month, maybe. Not including rent, sorry. So yeah, maybe $12,000 including rent.

Dr. Jim Dahle:
Very, very cool. $150,000 or so. And about what was your combined income for that year? It sounds like you worked pretty hard. Was that deliberate to deliberately be working hard that year?

Casey:
Yes. Yes.

Matthew:
$775,000 I think was our combined income.

Dr. Jim Dahle:
$775,000 between the two of you. That's not outrageous for a hospitalist and emergency doc, but it's definitely working full-time plus.

Casey:
Yes.

Dr. Jim Dahle:
Yes.

Casey:
I worked 165 hours.

Dr. Jim Dahle:
Yeah. That's a lot for an emergency doc. That's like 1.3 FTEs, I'd say. Well, did you feel burned out during that year?

Casey:
I wouldn't say so. No. Especially with our goal in mind. And now we can taper back on the aggressive saving and slowly give ourselves some raises here.

Dr. Jim Dahle:
Yeah. To pay this off in a year, you were basically putting, I don't know what that works out to. I'd have to do the math. $30,000 plus toward them. Something like that. $35,000, $40,000, maybe.

Matthew:
Casey, actually, she had two months off, too…

Casey:
For maternity leave.

Matthew:
For maternity leave, yeah.

Dr. Jim Dahle:
Okay. So, where is that $35,000 or $40,000 a month going now that is not going toward student loans?

Matthew:
We are planning to buy a house. We've started the process.

Dr. Jim Dahle:
So, you're saving up and down payment.

Casey:
Correct.

Matthew:
Actually, one of the big things that we did, and maybe this isn't recommended, but just with our goal, we did not contribute towards retirement during that 12-month window. Now, between September and December, we were fortunate enough, we were able to max out both of our 401(k)s and IRAs, which we converted to Roth.

Dr. Jim Dahle:
So, it went from paying off debt to going toward retirement savings.

Matthew:
We had about, in terms of capital, maybe $10,000 at the end of December. And since then, we've saved and we have enough for a down payment on a house that we're planning to move into in May.

Dr. Jim Dahle:
Well, you certainly learned the power of focus, to focus on one goal and how powerful that was. Do you have any regrets about that, about focusing on the student loans until they were gone? Or was it such a short time period that it was no big deal?

Casey:
I don't have any regrets about it because those are now gone and eliminated from our stress. And we don't have to worry about the interest rate. That was never a thing to have to worry about refinancing or all that interest accruing every month.

Dr. Jim Dahle:
Casey, I want to ask you this in particular. Somewhere out there, there's a pre-med or a first-year who is just realizing what it's going to cost them to borrow the entire cost of medical school. What advice do you have for them?

Casey:
While you're in school, there's not really much you can do about it. Just try to live as frugally as you can and don't blow it all. Because it kind of feels like monopoly money when you first get it into your account every semester. But kind of the same thing that we did afterwards, just don't live like a big physician lifestyle. When you're attending, just focus for those one to three years and save it and pay it off as early as you can. Because it's not going to go away. It's just going to get more and more stressful.

Dr. Jim Dahle:
All right. Well, what's next for you guys? You're saving up a down payment. You're saving for retirement. What are your next financial goal or goals?

Matthew:
Ultimately, we want to get a little bit more and maybe buy some land and build a house. And also save, like you said, for retirement and achieve financial independence would be a good goal.

Casey:
Yeah, I agree. Yeah, we want to pay for our kids' college too. We're saving for both their 529s. And we want to be able to give that to them. And yeah, build a house. Main goal, dream house.

Dr. Jim Dahle:
You obviously learned a lot about managing money and became very disciplined about it. If someone was to ask you, a colleague that heard this and cornered you in the ER or on the wards next week or next month or whatever and says, “I'd sure like to do what you guys did. How did you learn all this finance stuff?” What would you tell them?

Matthew:
Because I do actually have discussions with my colleagues about it. I was telling most of them today, a lot of them listened to your podcast that was coming on here. So they're excited for that.

Dr. Jim Dahle:
Shout out to all of them.

Matthew:
I think the big thing I try and impart on them is automatically saving. And again, we don't really do this, but automatically saving just 20% straight off the top. If you're not good about controlling, if you'll spend whatever's in the account, is maybe controlling it straight from the jump. But definitely, also living frugally and living on less than what you make. I think it just has to be a pillar of your financial health.

Dr. Jim Dahle:
Anything you add to that, Casey?

Casey:
Honestly, the majority of what I've learned about finances has been through him teaching me stuff and reading your book and listening to your podcast. And this isn't supposed to be a plug, but I guess.

Dr. Jim Dahle:
We'll let you plug WCI anytime you want. Thank you very much.

Casey:
Honestly, when I grew up, I didn't really have a lot of financial education. I didn't grow up in a wealthy household or somewhere that had a lot of savings and a lot of financial literacy. I learned that throughout the whole process, but really starting in medical school and through now.

Dr. Jim Dahle:
Well, very cool. Congratulations to both of you, Matthew and Casey. You've accomplished something that is very remarkable that will pay dividends for the rest of your life. Congratulations on figuring this stuff all out early and just taking those student loans in the corner and dropping an anvil on them. $527,000 in student loans out, your first year out of training. You should be very proud. Thank you for coming on and sharing your success with others to inspire them to do the same.

Casey:
Thank you. Thanks for having us.

Dr. Jim Dahle:
I hope that was helpful to you. It's always fun to see doctors just knock it out of the park. And these two really did. $527,000, that's a lot of student loans and they crushed them, absolutely crushed them by working hard, being thrifty and just writing big checks every month. It's amazing how well that works if you just pack the money away and then you've got enough money to pay off your student loans very rapidly.

The fun part about it is that they kept doing this. They're talking about saving for a house and afterward, I'm like, “Are you saving a down payment or are you saving up for the whole thing?” With that sort of savings, you could buy your house in most places in a year and a half, two years, something like that, just with cash. And imagine the freedom you would have. No student loans. No practice loans because it's an emergency doc and it's a hospitalist. No house payment. Can you imagine what your financial life would look like if you just got rid of all the payment? It's pretty awesome. Pretty awesome.

FINANCIAL BOOT CAMP: EXPENSE RATIOS

Tyler Scott:
Hello, my name is Tyler Scott with White Coat Planning. And today, Jim has asked me to come share the principle of expense ratios with you and make sure we have a good understanding of that term.

Both individual investments and the accounts that hold those investments can have all kinds of fees to be aware of. There are sales loads, broker commissions, advisory fees, account fees, management fees, redemption fees, transaction fees, 12b-1 fees. It's a cavalcade of fees out there.

Today, we're just going to talk about one of those types of fees. The one I think you've probably read about and heard about the most when you read on White Coat Investor. And that relates to investment choices. And that is where we arrive at the term expense ratio.

The expense ratio is a measure of a mutual fund or exchange traded funds operating costs relative to its assets. It's determined by dividing a fund's operating expenses into its net assets. Operating expenses reduce the fund's assets, thereby reducing the return to investors because the expense ratio is deducted from the fund's gross return and paid to the fund manager.

You never have to calculate the expense ratio. It will always be provided in the fund's prospectus. You can also just Google it if you know the ticker symbol for the fund in question. It's available on analytics sites like Morningstar or Yahoo Finance. Good and ethical 401(k) custodians will just provide the expense ratio right on the statement or website where you're looking at the investment options.

In financial conversations, you'll sometimes hear expense ratios expressed as basis points or BPS for short. Written out, BPS. When I say basis point, that is referring to one 100th of a percentage point. It is the cost of the investment expressed as a percentage. If you have an investment that has an expense ratio of 0.12%, that's the same as saying the fund has an annual fee of 12 basis points. That means you owe 0.12% of the value of that investment each year to the firm that created the investment, like Vanguard or Fidelity.

If your investment is worth $100,000, you owe them $120 for the year. 12 basis points is a very low-cost fund. Sadly, most mutual funds and exchange-traded funds out there are not low-cost funds. It's not uncommon for me to review a client's list of available funds in their 401(k), 403(b), or 457 and see that all of the options have expense ratios of 1% or higher. In other words, the fees are 100 basis points and up.

When I was working at a public health dental clinic in Oregon, we had funds in our 457(b) with 240 basis point fees. That is a ridiculous 2.4% expense ratio. If I had $100,000 in that fund, they would charge me $2,400 each year, every year, just to own the fund.

Now imagine my investment returns for the year in that fund were 5%. That means the expense ratio would consume a whopping 50% of my investment return for the year. I'd had to give away half of my growth to the underlying investment. Thus, keeping expense ratios in your investments low should be a goal for any savvy investor.

Fortunately, there's been a lot of pressure to lower expense ratios since John Bogle started the index fund revolution at Vanguard in the mid-70s. Today, there are many wonderful, tax-efficient, highly diversified, low-cost funds available at places like Vanguard, Fidelity, Schwab.

Fidelity even offers their so-called zero funds that have an expense ratio of zero. Funds like this can be compelling to people once they learn about expense ratios, but some folks can become a little obsessive about whether a fund costs 7 bps or 9 bps. Don't worry about that. Don't be that person.

Jim often talks about anything below 20 bps doesn't really matter. The goal is not to go from 9 bps to 7 bps. The goal is to go from 145 bps to 9 bps. If you don't know the expense ratio on the funds you're using, go find out. A good investor always knows what they're paying for their investments.

SPONSOR

Dr. Jim Dahle:
This podcast was sponsored by Bob Bhayani at Protuity. One listener sent us this review. “Bob has been absolutely terrific to work with. Bob has quickly and clearly communicated with me by both email and or telephone with responses to my inquiries usually coming the same day. I have somewhat of a unique situation and Bob has been able to help explain the implications underwriting process in a clear and professional manner.”

Contact Bob by emailing [email protected], by calling (973) 771-9100 or by simply going to www.whitecoatinvestor.com/protuity. Either way, get that disability insurance in place today.

All right, that's the end of our episode. I hope you enjoyed it as much as we did. Keep your head up and your shoulders back. We'll see you next time on the Milestones to Millionaire podcast.

DISCLAIMER

The White Coat Investor podcast is for your entertainment and information only. It should not be considered financial, legal, tax, or investment advice. Investing involves risk, including the possible loss of principal. You should consult the appropriate professional for specific advice relating to your situation.

Dr. Jim Dahle:
There are two main types of retirement accounts: defined contribution accounts and defined benefit accounts. A defined contribution account is your typical 401(k). You put money in, and depending on how well your investments perform, that determines how much money is available later for you to spend. The other type is a defined benefit plan. In this case, the employer takes on the investment risk rather than you. Instead of contributing a set amount, the employer promises you a specific benefit in retirement. If investments perform well, the employer keeps the excess. If they perform poorly, the employer must make up the difference.

A defined benefit plan is essentially a pension. You work for an employer for a set number of years, and in return, they pay you a steady income for the rest of your life. Many pensions include some level of inflation adjustment, which is increasingly difficult to obtain elsewhere. While you can get inflation-adjusted income through Social Security—especially if you delay claiming until age 70—pensions are one of the few other sources that may offer this feature. Some pensions also include retiree healthcare benefits that supplement or replace Medicare.

The downside to a pension is that it is not your money, and you have limited control over it. Unlike a 401(k), where you could withdraw funds if needed, pensions are far less flexible. Another major risk is the financial stability of the employer. If the employer runs into trouble, your pension could be reduced. While there are insurance-like backstops that provide some protection, they typically only guarantee benefits up to a certain limit. This becomes particularly relevant if you are offered a lump sum payout instead of the pension.

Pensions are also far less common than they used to be. In the past, many workers relied heavily on pensions combined with Social Security. Today, pensions are mostly limited to government roles, such as the military or state employment, with only a few private companies still offering them. The primary reason for their decline is that employers prefer not to carry the financial risk, and many employees prioritize higher salaries over retirement benefits.

Each pension plan is structured differently, so it is important to understand how yours is calculated. A common formula might use your average salary over your final working years and apply a percentage to determine your annual benefit. For example, if your average salary over your last three years is $100,000 and your plan pays 50%, you would receive $50,000 per year in retirement, or just over $4,000 per month, often with inflation adjustments.

Pensions are also designed to encourage long-term employment. You typically need to work a certain number of years before you are “vested,” meaning you qualify to receive the benefit. If you leave before reaching that threshold, you may receive nothing or a reduced amount. Additionally, pensions are generally not portable. If you switch employers, you usually have to start over in a new system.

When incorporating a pension into your financial plan, it is often best to think of it as a guaranteed income source rather than trying to assign it a portfolio value. For example, if you expect to spend $120,000 annually in retirement and your pension and Social Security provide $60,000, then you only need to generate the remaining $60,000 from your investments. This approach simplifies planning and avoids overcomplicating asset allocation decisions.

Having a pension can also influence tax and retirement strategies. Because pension income is taxable and can fill lower tax brackets, it may push other income, such as required minimum distributions, into higher brackets. As a result, you may want to favor Roth contributions or conversions during your working years. It can also impact decisions about when to claim Social Security.

If you are offered a lump sum instead of a pension, the decision can be challenging. One way to evaluate the offer is to compare it to the cost of purchasing a similar income stream through an annuity. For example, if it would cost $800,000 to replicate the pension income but you are only offered $600,000, the pension may be the better option. Keep in mind that inflation-adjusted pensions are particularly difficult to replicate with private annuities, making comparisons imperfect.

Despite the risks, pensions offer valuable benefits. They provide a guaranteed income floor in retirement, similar to Social Security, which can be reassuring in case your investments underperform. When evaluating this guarantee, it is more appropriate to compare it to low-risk assets like CDs or Treasury bonds rather than higher-risk investments like stocks or real estate.

Interestingly, people who receive lifetime income from pensions or annuities tend to live longer on average. This may be due to selection bias, as healthier individuals are more likely to choose these options, but it is still worth considering when evaluating the long-term value of guaranteed income.

The White Coat Investor Podcast is for your entertainment and information only and should not be considered financial, legal, tax, or investment advice. Investing involves risk, including the possible loss of principal. You should consult the appropriate professional for advice specific to your situation.