How Safe Is Your Cash? FDIC and SIPC Explained

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:
Welcome back to the White Coat Investor podcast.

I just got off the Salmon River last week. I had a great time floating it. It was a great crew that I was with. We had a fun time. Interestingly, I actually floated it with a dental school classmate of Dr. Tyler Scott, who was a family member of a family member. I guess we're not actually related. We're outlaws, I suppose, but it's always fun to see that connection when doing that.

Of course, a week spent on a river where you concentrate only on getting up, and eating breakfast, and breaking camp, and loading the rafts, and getting through the rapids of the day before unloading the raft, and setting up camp, and having some time to relax in the evening, and chat with some great people is better than a week at work anyway.

It was a wonderful time. All the rafts were able to keep the rubber side down, which was not the case a week before that when I was floating on the Colorado River in Westwater Canyon, where we had a couple of raft flips, but it turned out to be a great week anyway.

We hope that you are having a great time and that you had a wonderful summer. We're now into the fall, of course. Fall is one of my favorite seasons. A lot of people don't recognize this because they come to Utah in the blasting heat of summer to visit the national parks in southern Utah, and they come to northern Utah in the winter to go skiing.

They don't realize the best months in Utah are the shoulder seasons. There are September and October, as well as April and May. Those are the best times to be in Utah. There are a lot of wonderful, beautiful places here and things to do when it's not too cold and not too hot. We're having a great fall here. By the time you hear this, I think I'll have gone to Glen Canyon to do some canyoneering again, as well.

We're grateful for you. We're grateful for what you're doing in your lives. Your work matters. It's important. I recognize that every time I go in and work a shift in the emergency department. I was just there two days ago. I've got a shift tomorrow. I've got a shift this weekend, and I'm right there with you, shoulder to shoulder, taking care of people, but also taking care of our own personal financial lives and trying to help you each be more successful in what you're trying to accomplish outside of your clinic or outside of the hospital or outside of your law practice or your small business or whatever you do for a living.

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This podcast is driven by you, what you're interested in, what you email me about, what you record on the speakpipe, and you can do that at whitecoatinvestor.com/speakpipe, and you can record questions of up to about 90 seconds, and we'll try to answer them on the podcast.

You don't have to use all 90 seconds, by the way as much time as you need to ask the question. We just limit it to 90 questions, because otherwise some of you would go on for like five minutes to leave your questions, and everybody would toot out of the podcast if we played those. So up to 90 seconds on the Speak Pipe, and we'll get those answered on the podcast as much as we can.

CORRECTION: CHARITABLE GIVING

Dr. Jim Dahle:
All right, now's the time on the podcast where we correct everything I screwed up from the week before or the month before. Whether it's a correction or a clarification or just some additional information, this has become a tradition over time, it seems, on this podcast.

A recent email came in saying, “I really enjoyed your recent brief podcast on charitable giving. In a short amount of time, you clarified a lot of issues around the topic. You mentioned that itemizing doesn't make sense if the total of your tax deductions does not exceed the standard deduction.

However, it's worth pointing out the number of states, including California, where I live, have standard exemptions, I think we mean standard deductions, that are significantly lower than the federal one. Hawaii, Oregon, and New York also come to mind as states that have relatively high state income tax, but a lower standard deduction. So, it still can make sense to itemize if one lives in such states.”

Well, that's great feedback. So I'm doing this clarification about it. It would definitely make a difference in a high tax state. Utah is like the opposite of those states, though. As your income climbs, our itemized deductions actually get phased out here. And so, if your income is high enough, you don't get any itemized deductions at all.

So you do have to understand your state taxes. And it depends on the state. I think there are some states where you might be able to itemize or not itemize on your federal income taxes and do the opposite on your state income taxes. But I'm not going to go through all 43 states or whatever that have an income tax and figure out which ones that is that that applies to.

You need to understand your state, the states that you file in, and how their income taxes work with regard to how you earn income in order to know whether to itemize or not.

A lot of times, tax software helps you a great deal with this. And half or more of you are paying somebody to prepare your taxes anyway. So hopefully they're helping you with this. But it is true that the standard deduction is smaller in some states. So, it might make sense to itemize because you're going to save enough more on your state taxes than what you would lose on your federal taxes by itemizing.

QUOTE OF THE DAY

Dr. Jim Dahle:
Our quote of the day today comes from Roman Stoic philosopher Seneca, who said, “It is not the man who has too little, but the man who craves more that is poor. What does it matter how much a man has laid up in his safe or in his warehouse, how large are his flocks and how fat his dividends, if he covets his neighbor's property and reckons not his past gains, but his hopes of gains to come? Do you ask what is the proper limit to wealth? It is first to have what is necessary and second to have what is enough.”

Love it. He was a contemporary of Jesus Christ, and some of those teachings are awfully similar.

FDIC AND SIPC LIMITS: SHOULD YOU SPLIT UP YOUR ACCOUNTS?

Dr. Jim Dahle:
Okay. Let's take our next question out of the email box. This one reads “As your assets grow, do you find that investors split up their assets cash into various accounts so as not to exceed the FDIC limits and SPIC limits for brokerage accounts? I like having everything in one place, but I was wondering your opinion on whether to split up cash accounts into smaller chunks that do not exceed the FDIC limits and same with brokerage account funds that do not exceed the SPIC limits.

What is your opinion on the best funds to put cash in? I like to have a good chunk of cash to know that money is safe, but I recognize that is not really helping or doing much long-term. I like Vanguard. What are a few safe Vanguard funds that you recommend? Thank you and would love to hear back from you and any other thoughts you may have.”

Wow. You guys get to the end of your emails and you're like, “Oh, I'll just throw in a few other questions” that literally require a blog post to answer your question. Like this one, what is your opinion on the best funds to put cash in? That's an entire blog post. What are a few safe Vanguard funds that you recommend? Well, I can go down the list of Vanguard funds and rate them for safety like Vanguard does. They rate them, I think, one to five. Your money market funds are one and your stock funds are five and do that for you.

But let's try to focus on the issue at hand here and recognize that these are two very different issues. The first one has to do with FDIC limits. FDIC is the Federal Deposit Insurance Corporation, I think is what it stands for. This is what protects your money in a bank if the bank fails. And there are limits on how much of your cash you get if the bank totally fails and you have money in that bank.

And so, yes, if you have substantial quantities of cash such that it exceeds those limits, you might want to open another account or open an account at another bank and kind of spread that around. So, let's keep that in mind.

What's the amount? Current amount is $250,000 per depositor, per bank and per ownership category. So, what does the FDIC do? If the bank fails or it's about to fail, the FDIC steps in and takes over. Usually happens very quickly and within a day or two, you'll have access to your money as long as you had less than $250,000 in that account.

Frankly, I can't think of a reason to use a bank that is not FDIC insured. Although rare, they do exist. They're often backed by something else. The Bank of North Dakota, for instance, is backed by the state of North Dakota. Foreign banks are not backed by the FDIC, but their country may have a similar institution.

But recognize how the limits work. $250,000 per depositor, per bank, per ownership category. So if you're married, you have a joint checking account at a bank, up to $500,000 in that account will be insured. If you have more money than that, you can simply go to another FDIC insured bank, open another joint checking account and get another $500,000 in FDIC coverage. That's straightforward. Depositor and bank limits.

But let's talk about that per ownership category thing. It doesn't mean the type of deposit product. You don't get $250,000 in your checking account, another $250,000 in your savings account, another $250,000 in your money market account at that bank, and another $250,000 in CDs. Those are deposit products. Ownership categories are single accounts, joint accounts, trust accounts, business accounts, certain retirement accounts, employee benefit accounts. So, now the wheels are turning your head.

How much could you have in a single bank and have it all be insured by the FDIC? Well, you put $250,000 in your single account, but $250,000 in your spouse's single account. Then you open a joint account with your spouse, there's $500,000 in there. Your daughter has a single account with $250,000 in it. Your son has a single account with $250,000 in it.

Then you have a joint account with your daughter, that's another $250,000. And a joint account with your son, that's another $250,000. And your business account that has $250,000. And your spouse's business account that has $250,000. And your IRA, why you have an IRA at the bank, I don't know. But your IRA account, another $250,000. Your spouse's IRA, another $250,000. You got a revocable trust account that names your two kids, well, that's $500,000 for that one. An irrevocable trust that names your spouse as the primary beneficiary and the two kids as contingent beneficiaries, that's $250,000.

You add all that up, it's $3.75 million. And that's all at one bank. And you go down the street to another bank, open all those same accounts and have another $3.75 million in coverage.

So, my point is, there are ways around these limits if you really have a lot of money sitting in cash in a bank. All that said, if you have that much money sitting in cash, it probably shouldn't be at a bank. Where should it go? It should probably be in a money market fund. So you go to Schwab or you go to Fidelity or you go to Vanguard and you put the money into a good money market fund there. Why? Because it's probably paying more than the bank is.

Now that's not always the case. And if you really want to make a game out of chasing yields around from various banks all over the country, you might be able to stay ahead of a good Vanguard money market fund long-term, but probably not. It's really hard to do it with bouncing your money around from bank to bank. I think you're better off just going with a good money market fund.

Now there's something similar if you're at a credit union. It's called the NCUA, National Credit Union Administration. Basically the same thing as the FDIC. So keep that in mind. Okay.

Why is the money market fund plenty safe, even though it doesn't get FDIC protection? Well, it is basically, there's something behind it. When you put money in a bank, all that's behind it is the bank. But when you put money in a money market fund, well, that money market fund manager is going out and buying stuff that has value. And so, if for some reason the institution fails or something, that money market fund actually owns something that can be sold to get cash to give you your cash back. And so, that's why it's okay to have money in a money market fund, even though it's not FDIC insured.

Now we need to talk about SIPC, the Securities Investor Protection Corporation. This was formed in 1970 in response to a bunch of broker-dealers merging, being acquired, or going out of business during the turbulent markets in the late 1960s. And when that happened, many of the brokerages couldn't meet their obligations to the customers because they were going bankrupt.

And so, people lost a lot of confidence in the securities markets. So Congress stepped in to protect customers against certain kinds of losses at brokerage accounts. And since that time, the SIPC has shelled out like $3 billion plus to three quarters of a million investors and helped them recover billions of dollars there. But basically, initially it provided $50,000 in coverage, including $20,000 in cash. But those amounts were increased over the years.

The current amount is $500,000, including up to $250,000 in cash. But recognize a few differences between SIPC and the FDIC. The SIPC is not a government agency. It was created by federal law, but it's a nonprofit member corporation with a $2.5 billion line of credit from the U.S. Treasury. It is not the FDIC of investments. So recognize that, first of all.

The job of the SIPC is to get you your money. Unlike a bank, the broker dealer is not engaging in fractional banking. When you give a dollar to a bank, it might loan out $8. So when there's a bank run, the money isn't in the bank. It's not there. That's why they need the FDIC.

That's not the case at a brokerage. The money is at the brokerage. It's invested in these securities that need to be sold to get the money. But if the brokerage fails, it's not like the money's all gone. All that stuff that was being held at the brokerage is still there. It just takes some time to liquidate it and get you some money.

So, what the SIPC really does is it gets you a little bit of money right away using that line of credit from the treasury. And then it facilitates the liquidation of the brokerage to get you the rest of your money. It protects you from fraud and bankruptcy of the broker.

What you need to recognize though, is it does not protect you from investment losses. If you go to Vanguard and you put a bunch of money in the total stock market index fund and the market falls dramatically and half the money the total stock market index fund is now worth half as much. The SIPC is doing nothing for you in that case. It doesn't protect you against market losses in the value of your shares.

It doesn't cover losses from unauthorized trading or theft from an account. It does not cover a hacked account unless that hack forced the firm into liquidation. It does not cover losses due to bad, inadequate or inappropriate advice. It doesn't cover investments that aren't registered with the SEC. So, we're talking about annuities and currency and hedge funds and syndications and limited partnerships and private funds and commodity futures. It doesn't cover accounts of partners or owners or officers in the failed firm either, which is kind of interesting.

So now you understand how the FDIC works, how the SIPC works. Let's see if we can answer your questions. Should you split up your cash accounts into smaller chunks that do not exceed the FDIC limits? Frankly, if you got more than $250,000 sitting in a bank for any significant period of time, you need to rethink your cash management strategy.

You ought to be bouncing that money back and forth between your bank account and probably your brokerage account at Fidelity or Schwab or Vanguard or whatever and getting it into a good money market fund. But yes, if for some reason you have to have that much money sitting in accounts at a bank, consider having it under different ownership categories and different names to get a little bit more FDIC protection or consider using more than one bank. I think that's very much worthwhile.

Now, do you need to have your money split between Vanguard and Fidelity and Schwab in case one of them fails? Well, frankly, these firms are all kind of on the too big to fail category with the U.S. government. And so, I really don't think you do.

Now, naturally, many of us end up having money at multiple institutions anyway. I have an account at Schwab, I have an account at Fidelity, and I have an account at Vanguard because I've got a 401(k) at Schwab and I got a 401(k) and an HSA at Fidelity and I've got everything else at Vanguard. I'm already doing this naturally because I'm forced to, but I'm not doing it because I'm worried Vanguard is going to fail. And that's not really a big issue.

Another one of the questions that was asked was the best funds to put cash in. Well, one of the ones I really like at Vanguard, and I think Vanguard, one of the benefits of being there, maybe the customer service and the IT interface isn't quite as good as at Fidelity, but one of the benefits of being at Vanguard that I've noticed over the years is I generally make a little bit more on my cash.

I think their bond funds are top notch as well, but just getting a little bit more return on the cash makes up for a lot of the extra hassle that you occasionally run into at Vanguard. And so, what we use a lot is the Vanguard Federal Money Market Fund.

It's really very good. The securities behind it are not only very short term, like they should be in a money market fund, but are federal. So they're with the US government and they're with federal agencies. And so they're a little bit safer there than if they were with corporate entities, but mostly they just got rid of their prime money market fund, which is what I was using before, which does lend money to some corporate entities. Both of them were very safe, but it's slightly safer now and probably slightly lower yielding. I think that's a pretty good one.

Now, recognize before you guys get all ready to write in and make me do a clarification, if you're in a high tax state, sometimes it makes sense to be in their treasury money market fund. Remember, assuming you file your taxes or your tax preparer actually does this, interest paid by US treasuries is state tax free. And so, if the yields are close, it might make sense to be in the treasury money market fund.

For a lot of us, a lot of the time being in the municipal or tax exempt money market fund is the best place to be because after tax, you're actually coming out ahead there. The problem with doing that is the yields are so volatile. You really have to watch it a lot more carefully than you do with the federal money market fund, which kind of tracks along in a boring way compared to the tax exempt money market fund.

And so, I end up looking for a no hassle solution quite a bit more, even though I might be coming out a little bit behind on my cash after tax by not using that municipal money market fund. But those are kind of the three big money market funds at Vanguard and Fidelity and Schwab have similar ones, which are also very good. Usually not quite as high yielding as a Vanguard.

One thing to be aware of at Schwab is I think their sweep account, the place where your dividends go to naturally, unless you deliberately invest them into a money market fund, pays nothing. Like your checking account pays nothing or almost nothing. So, recognize that's an issue at Schwab. That's partly where they make up for some of the money that they don't make elsewhere. And so, recognize that can be an issue at Schwab.

And then the last question is what are a few safe Vanguard funds that you recommend? Well, you got to define safe before we do that. Bond funds are pretty safe. A diversified stock fund is pretty safe, but it could go down 50% in a nasty bear market. But if you're really looking for the safest Vanguard funds, we're talking about the money market funds. If you want to reach for yield a little bit more than that, well, maybe you go to a short-term bond fund, especially a short-term treasury bond fund that's pretty darn safe, a little more yield, but a little more risk.

And as you go into corporate bonds, and as you go into intermediate bonds, you start taking on more and more risk. You got to decide how much risk, how much you want to reach for yield, recognizing that sometimes that risk shows up, especially when interest rates climb.

I hope that's helpful and answered your question. Short question, I know, long answer, but otherwise I got to do a bazillion clarifications for information I didn't include in the answer.

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IS THE TOTAL STOCK MARKET FUND STILL DIVERSIFIED?

Dr. Jim Dahle:
Our next question also comes out of the email box. I got an email from somebody who had forwarded an email from Vanguard. Basically it was the email that says the total stock market fund is officially not a diversified fund anymore. And those went out earlier this year for those who missed them. I wrote a blog post about it. That was published April 7th, 2026. The title of that blog post was, “Is a total stock market fund no longer diversified?”

And this was shocking for a lot of people to receive this sort of an email. They find out their S&P 500 index fund or total stock market fund is no longer considered a diversified investment. And this is a regulatory thing.

Diversification means if one or even a few of your investments tank is not going to dramatically reduce your wealth level, but the regulatory bodies, when it comes to mutual funds have defined what a diversified fund is. They say it's an investment fund that's broadly invested across multiple market sectors, assets, and or geographic regions.

So a total stock market fund might have more than 3,500 stocks in it. That's a lot of diversification, isn't it? The opposite of a diversified fund is some focused or a sector fund or something like that. And those funds always tell you they're not diversified, but now even a fund that most of us consider pretty darn diversified, like an S&P 500 fund or a total stock market index fund is also required to tell you they're not diversified.

So , where does that come from? That regulation comes from the mutual fund act. Basically it's called the investment company act of 1940. It's the most important legislation in the mutual fund world. And it was passed due to events that occurred in the great depression, but the legal technical definition of a diversified mutual fund is basically what's called the 75-5-10 rule.

That requires at least 75% of the assets in various securities. So, not just cash or one thing or whatever. You limited investment in any one issuer to no more than 5% of fund assets. And you restrict ownership to less than 10% of any single issuers voting stock. That's what you have to do to qualify it as a diversified company.

But in the last few years, the magnificent seven stocks have done so well that they have become a larger and larger piece of the S&P 500 and of a total stock market index fund, which has like 99% correlation to an S&P 500 fund. And it's really an Nvidia and an Apple problem last time I looked. Because Nvidia, when I looked in the spring, when I wrote that blog post was just over 6% of a total stock market fund. And Apple was almost 6%. It was like 5.89% this spring. I don't know what they are the day I'm recording this, but that's about where they are. That's more than 5%.

The fund now fails the 75-5-10 rule. It fails the five part of it. And so that's why Vanguard sent you this email saying, this is no longer technically a diversified fund. Now, do I consider it still very diversified? Yes, I do. But it is a consequence.

And so, the emailer says, “Surely this isn't the first time the market's been concentrated like this. Is this sort of notification going to scare people away from total market indexing? As a small value and ex-U.S. tilted investor, this makes me feel kind of smug, but is this total market fund concentration really something people should worry about?”

Well, should you worry about it? Yes, I think you should. I've been worrying about this for decades. And an S&P 500 or a total stock market fund is highly concentrated in U.S. large cap and currently tech growth stocks.

So, what have I done about that? Well, I've been tilting my portfolio for decades towards small value stocks. We have a substantial portion of our U.S. stocks invested in relatively small and value-y stocks, the opposite of these mag seven stocks. Our particular tilt, we have 25% of our portfolio in a total stock market fund and then 15% in a small value fund, which is only like 3% of the market or something like that. We've got 15% of our portfolio plus the amount that's already in a total stock market fund in small value stocks. So it's a big tilt. It's at least a moderate tilt, I think by anybody's measurement. And that's what I do about it. Plus we also have money in international stocks. We have it in real estate. We have it in bonds, et cetera.

So yeah, I do worry about it. And what I did about it, I did years ago, I diversified my portfolio. Now keep in mind for the last five to 15 years, I have come out behind as a result of that diversification decision. If I had just put it all in the S&P 500 or even better put it all in NVIDIA we would have a lot more money than we currently have.

The problem is you cannot confuse outcome with strategy. You can't go, “Oh, I should have had everything and whatever did the best” because that requires a functional crystal ball in order to invest that way. I don't have one of those. I convinced myself years ago that I don't have a functional crystal ball. If you're not sure if you have a functional crystal ball, start writing down your predictions. And within a few months or a few years, you'll probably convince yourself that you don't have a functional crystal ball either.

And so people that are saying, “Oh, just put your money in the S&P 500.” I think these days, most of them are just performance chasing. Yes, your money is more than 3X since the lows associated with the pandemic in March 2020, but that's not going to continue forever. The S&P 500 basically had a return of zero from 2000 to 2010. That could happen again from 2027 to 2037. Recognize that there is no guarantee the S&P 500 is going to continue to outperform smaller stocks, going to continue to outperform value stocks, going to continue to outperform real estate or international stocks, or even bonds going forward.

Diversify your portfolio, stay the course. I like a total stock market fund. It's 25% of our serious long-term money is in a total stock market index fund. I'm not bailing out of that investment, but I do diversify because there is risk there, especially when it becomes particularly concentrated.

That said, if I had bailed out of this five years ago, I would have missed all of this run-up with Apple and Nvidia and Amazon or whoever else is in the mag seven. I don't have the list memorized, but it's good to have owned that stuff the whole way up on the run-up, but maybe you don't quite want all of your money invested in those stocks.

HOW TO COMPLETELY DIVEST FROM AI

Dr. Jim Dahle:
Another question comes in by email. A lot of email questions today. No wonder I had to ask you guys to put on some more Speak Pipes here. This one is interesting. This comes from somebody who asks, “How do I completely divest from AI? I suspect that isn't actually possible. However, given that corporate medicine is trying to use it to replace doctors, it's all a marketing scam that is going to tank the stock market, it might kill us all before that, et cetera. How do I best opt out of supporting these companies financially?”

Okay, I'm going to answer the question. I promise I'll answer the question in the end. But first, we've got to step back and get some perspective here. I've seen the Terminator movies. I understand that, I guess, there's a possibility that AI could kill us all, but I'm not sure we've got to change our portfolios today due to that risk. I'm not sure that AI is a marketing scam either. It has certainly made vast improvements in productivity in huge amounts of industries, and it is upending all kinds of sectors of the economy.

AI companies actually have profits. This is different from the dot-com era in a lot of ways. I don't know what future market returns hold, but let's be careful not to overblow these sorts of risks as well.

As far as AI replacing doctors, I just read an interesting article from Mark Cuban. Maybe it wasn't his article. It was somebody talking about something he said where he's like, “This isn't even going to replace radiologists, much less the rest of us.” Sit back for a second and think about your job. What percent of your job can be done by AI? My job in the emergency department, I estimate about 5%. About 5% of my job can be done by AI. AI is not going to wrestle drunks. It's not going to sit there and talk with people on the worst day of their life. It's not going to explain to people that they have cancer in any sort of a compassionate way. There are a lot of things I do at my job that AI just can't do, and that's the case for every medical specialty. So, keep that in mind.

The other thing to keep in mind is that you not investing in AI companies is not going to change a thing about how that is going to affect the practice of medicine. It's probably not going to change a thing about whether AI kills us all à la Terminator.

This is the whole ESG thing. People think if I don't invest in a tobacco company, fewer people will smoke and fewer people will die of lung cancer. No, I've got news for you. The tobacco companies don't care if you buy their stock. They don't care. When you buy a stock of a tobacco company, it's not going to the tobacco company. It's going to the person who owned it last. The only time the company gets money is in an IPO, when it first gets listed on the exchange, when they first go public with the stock. Otherwise, you're not affecting them one bit. Yeah, I guess you could vote, but who's really voting anyway?

So, don't overestimate how much of an effect your investments have on what's going on in the world. If you really want to affect the world, I suggest you just buy all the stocks and then donate to charities or politicians or whatever that's going to make the changes you want to see in the world.

As a general rule, when you're trying to invest in these ways to avoid evil tobacco or AI companies, most of the time you're earning lower investment returns, and you can do less to change the world than you could if you just got your normal investment returns, and you're going through a lot of hassle to do it in the first place. That's my perspective on this sort of question.

Now let's answer the question. If you just don't want to invest in AI stocks for whatever reason, because you think they're going to kill us or you think they're going to take your job away or you think it's a scam or you think the market's going to tank, probably the best way to do it is to just find a good low cost AI ETF, tech ETF of some type, at least a US large cap growth ETF and short it, just short it.

So, you're long total stock market, you short this AI ETF in a certain amount, and that basically cancels out the AI portion of the investment. And so, you're essentially going to end up with the return of the total stock market minus the AI stocks. I guess you could buy puts on it as well. I think shorting is probably a little bit more efficient way to do it, easier, cheaper, I think, in the long run.

You could also go to some of these direct indexing companies. A lot of these will allow you to say, okay, I want you to track the S&P 500, but no tech stocks or no AI stocks or no tobacco stocks or whatever. You can actually do that, and they will do that. The more customization you want, the more it's going to cost you, number one, and number two, the more tracking error you're going to have. For example, avoiding AI stocks and getting the S&P 500 return might be kind of tricky. It's probably easier to exclude tobacco stocks or something and get that return than it is to exclude AI stocks because they're such a big portion of the index right now.

I suppose you could short the individual AI stocks or buy put options on the individual stocks, but that just seems unwieldy and expensive. I wouldn't necessarily go down that road, but if you're interested in not investing in something, it is possible to do that. Keep that in mind.

Okay, let's take a question off the Speak Pipe here.

FINANCIAL PLANNING FOR A SHORTENED MEDICAL CAREER

Speaker:
Hi, I am a brand new attending, and I find myself in a challenging situation that could use your advice. I have a degenerative condition that I foresee will prevent me from continuing clinical practice past the next five to 10 years. In preparation for this, I have signed up for two GSI disability policies and have maxed out my Roth IRA while in residency and contributed more to other retirement accounts when possible.

I have a minimal student loan balance, which I plan to pay off quickly in attendinghood. Is there anything else that I can be doing to set myself up for success in these next few years? Thank you.

Dr. Jim Dahle:
All right, great questions. Well, first of all, I want everybody else out there in White Coat Investor land to recognize that this is why we talk about disability insurance. You need to get it before you develop any sort of medical problem that's going to keep you from being able to work.

As a general rule, I tell people to buy disability insurance when they start making money. That's usually your intern year. There actually are some ways you can buy it as a student. Whether it's a good idea to buy it using borrowed money or not, I'm not entirely decided on yet, to be honest with you. But certainly by the time you start making money, you need some disability insurance.

As you go out to buy it, if you already have a medical condition, and it can be a very minor medical condition, or if you already have some interesting hobbies, like scuba diving or rock climbing, those sorts of things, you might want to look into the possibility of a GSI policy, Guaranteed Standard Issue policy.

And these are available at most institutions that have a residency program. It's usually only with one insurance company. And it's usually not quite as good a policy as you can get if you go through the full underwriting process. But as you work with the insurance agents that we recommend at whitecoatinvestor.com/insurance, you'll be kind of walked through this process. And they're going to ask you questions about your medical stuff.

Be totally honest with them. Even if you think it's nothing, even if you think it's testicular cancer you were cured of eight years ago, even if you think it was just one little episode of high blood pressure while you're pregnant and you had to take meds for a few months, tell them everything. Because what happens if you tell them, “No, I don't have any medical problems,” because you're thinking, “I don't have any medical problems now, or no doctor thinks this is any sort of a big deal.” And then you go through the underwriting process, you might be denied or rated such that your insurance costs more.

And what happens once that happens is you no longer qualify for these Guaranteed Standard Issue policies. So if you have one of those issues, well, what you do is you get the GSI policy first, then you can still go through the underwriting process, and maybe you can get a better policy, maybe you can get a little better price on it. But if you don't qualify, you've at least got something in place.

I think that's one thing to keep in mind is get disability insurance. That's for everybody, not just those with degenerative illnesses. If you already have a medical problem, look at the GSI policies, and our agents can help you with that. A lot of times they don't get paid because they have to refer you to some other agent, because these policies tend to be only available through one agent that works with your institution and people at your institution to get it.

But they'll still do the right thing for you. That's been a real point we've been making for years with them. And trust me, they're going to do it now because otherwise, they're not going to be working with us.

Beyond that, what else can you do? Well, recognize that some methods of working might make your illness get worse faster. Maybe working a lot of hours will do that. Maybe working overnight shifts, maybe doing certain procedures, is going to make you degenerate faster. So, avoid that.

I have worked with doctors who have medical problems that they recognize, “You know what? I'm only going to be able to work part time because it'll allow me to work longer. Or I'm not going to do night shifts because it's going to allow me to work longer.”

And I think that's completely legitimate to just recognize that and build your career that way. When you make career decisions, optimize for longevity. Everything works out better, not just the career and your patients that you're taking care of, but financially it works out better when you can work longer.

It's more years for you to pay into Social Security. It's more time for your investments to compound. It's more years for you to save. Spreading less income out over more years actually reduces how much of it goes to the tax man. There are just all these good things that happen when you're able to work longer. So, try to optimize your career for longevity.

And also consider other things you can do with your medical degree. Maybe you can no longer practice medicine, but maybe you can teach. Or maybe you can evaluate cases for an insurance company or something. There are other careers you can use your medical degree for that aren't practicing medicine that you might still be able to do as your illness gets worse.

Another consideration, of course, is when you recognize from the beginning of your career that you're only going to have a short career and maybe a whole bunch of high-burnout specialties like emergency medicine ought to recognize this early on. You really need to get to financial independence earlier than a full career. Frankly, most emergency docs ought to be aiming to be financially independent by, I don't know, 55, maybe 60. Maybe you can work to 65. Maybe you can work till 70. But not on average. I don't think emergency docs are working that long on average. I think they're retiring at 58 on average or something.

So you need to be able to get your finances to that state. What does that mean? It means spending a little bit less, investing a little more. Maybe it means learning how to be your own financial planner and investment manager to save those fees so they can go toward your investments. These sorts of things allow you to hit financial independence a little bit earlier. I think it needs to be a bigger priority for you if you have a degenerative illness.

But that's about all I can think of to help somebody with that issue plan for their career. I'm sorry this is happening to you. And hopefully that advice helps you at least with the financial portion of your life moving forward. And remember, there's a whole bunch of people working out there to make your life better, whether they are researchers or clinicians. There are all these degenerative diseases out there. And guess what? We're getting better at treating them. And people are living longer and having more fulfilling lives despite having them.

So, recognize that something may change medically as you go throughout your career, and it turns out not to be nearly as big a deal as you might think it is. There's a kid in my neighborhood with muscular dystrophy who's having a relatively normal life because of a treatment they figured out just a few years ago where he just takes ridiculous amounts of potassium. And I see him out riding a bike and scooters and doing all kinds of fun stuff. I even had him up rappelling the other day. And so, recognize that medicine changes. And we're getting better and better at treating some of these things that have vexed us for so long.

Okay. Next question is off the Speak Pipe. Let's take a listen.

SHOULD YOU ADD YOUR SPOUSE AS AN OWNER OF YOUR LLC?

Speaker 2:
Hi, Dr. Dahle. Thanks for all the great information on your podcast. I had a question about LLC ownership and what's advisable. I am part of an LLC, a 50-50 partner in my pediatric practice. My husband has two separate LLCs, one that he holds 10 subway franchises in and one that holds real estate. And I do not help with the subway management at all, but I do help with the real estate side of things.

And I was wondering if I should also be named as an owner on either of his LLC companies, regardless of if I'm helping in the company or not. Mostly just if that is advisable for the event of death and ease of transition of me managing those properties and use there versus eventually down the line, being able to take any pay out of those businesses in my name rather than just in his. If you could give me any advice, that would be very helpful. All of our LLCs are taxed as S corporations, but his two LLCs, he is the sole proprietor of. Thank you.

Dr. Jim Dahle:
Okay, complicated situation, complicated question. There's a lot involved in this question. There are asset protection concerns. There are estate planning concerns. There are business concerns. There are cashflow concerns. And this is the way a lot of our financial lives end up being super complicated. We own all these businesses. We're in these partnerships. We're getting K1s. After a while, we can't even file our own taxes ourselves. And that's in addition to all the retirement accounts and investments and loans and other stuff that we have. So, I get it that it starts getting complicated.

It's a little bit hard for me to say exactly what you should do because I just don't have enough information. I don't even know what state you're in. Some states, this answer might be a little different than other states due to community property laws.

So, let me give you some basic information about LLCs and how they work. And of course, this is different in different states. And I don't know what state you're in. As a general rule, an LLC is ignored by the IRS. For tax purposes, an LLC is nothing. It is either a sole proprietorship, or if there's more than one owner, a partnership, or if it elects to do so, it can be taxed as a corporation. And if it is taxed as a corporation, that corporation can file an S-election and be taxed as an S-corp. So, that's the way an LLC gets taxed. It can be taxed as anything else, but not as an LLC. So keep that in mind.

If the LLC is just being taxed as a sole proprietorship, and now you add yourself as a partner as another owner, another member is the technical term with an LLC. Well, now it's a partnership. So now it has to file a partnership return. Instead of just going on schedule C on your individual return, now you've got a partnership return. Maybe you don't want to file a partnership return because that's expensive and it's a pain. So, that's one downside of putting yourself onto an LLC that only your spouse is on at this time.

Another reason why people use LLCs is for asset protection. And of course, asset protection laws, including LLC laws are all state specific. In some states, you get additional protection in an LLC that is a multi-member LLC. And sometimes they view a husband and wife as multiple members and sometimes they don't. It's very state dependent. And an LLC law itself is very state dependent. In some states, an LLC if you got a claim against an LLC, it's limited to a charging order.

So you can't get any assets out of the LLC until the LLC distributes returns or dividends or whatever you want to call them, some sort of distribution to its members. And if it doesn't, that creditor gets nothing. In fact, you can send them the tax bill. They got to pay taxes on this money made by the LLC that was never distributed. And so, that can oftentimes cause a creditor to want to settle with you for less money than they otherwise would if you hadn't used the LLC.

LLCs provide both internal and external liability protection. The idea is if something terrible happens on your rental property and it's owned by the LLC and somebody sues you and gets a huge judgment, well, all they're going to get is what's in that LLC, i.e. the rental property. They're not going to get the rest of your assets.

And so, the LLCs do provide protections like that. And in some states, having multiple members in the LLC does give you some additional asset protection. Again, I don't know your state, but buy my asset protection book, look up your state, see what the LLC protections are in your state. And that may be enough to push you into adding your name to the LLC.

As a general course of business, you don't want someone owning an LLC that has nothing to do with the business. Now when it's a husband and wife, two spouses that are going to split everything up evenly in a divorce anyway, maybe that doesn't matter so much. But if you have nothing to do with the business, I don't know, you don't have to own the business. It doesn't mean you can't own the business, but some people go, “Why is this person on here when you go to do certain business dealings or transactions?” And you might have to answer some questions about that. So, that might be a reason not to be on the LLC. Maybe you'd be required to both sign paperwork, and that's more of a pain if you're both on the LLC.

As far as estate planning goes, yes, if both of you are on the LLC and one of you dies, it's probably a little easier for the other person to be the owner of the LLC. But this is not a hard thing to do. Most of us are using, I love you style wills or I love you style estate planning that if we die, our spouse gets everything. So it's not going to be that hard for your spouse to take over the LLC in the event that something happens to you. So, I wouldn't feel like you have to have a name added to the LLC for that purpose.

You definitely want to be careful with things like that when working with your parents. Like a lot of people think this is a smart thing to do to have your name put on your parents' house. So it's owned by both of you. And then when your parent dies, you get the house. Well, what you're losing in that sort of a situation is a step up in basis. So it might cost you dramatically more in taxes when you go to sell that house down the road. So that's usually a bad idea. Now, does it matter so much with two spouses if one of them dies and they're both on the LLC? Probably not so much. But that's another thing to consider.

So, this is actually a really complicated question. And I think the best way to get the definitive answer is to work with a business attorney in your state, an asset protection attorney in your state and an estate planning attorney in your state and maybe a financial advisor to help you all tie it together.

But otherwise, we got to work through the details. And the place to do that is probably not a Speak Pipe question in this podcast. It's probably in one of the White Coat Investor online communities. So, go to the WCI forum, go to the WCI subreddit, maybe even the Facebook group and ask this sort of a question. Then people can ask the follow-up questions and you can answer them. And perhaps for free, without having to hire all those attorneys, get a reasonably comprehensive answer and make a reasonable decision for your situation.

But there's a lot that goes into this question. So, I don't know that I can just say, yes, you need to be on these LLCs or no, you don't, because it's complicated and there are benefits and downsides both ways.

All right. So I hope that was helpful to you to run through those questions today. We love answering your questions on this podcast. Sometimes they get complicated. Sometimes we don't even know the answer. Sometimes we get the answer wrong.

But if this is what you're worried about, this is what we're going to talk about on the podcast. And if you feel like we're not talking about the issues you want to see addressed, write in or leave us a Speak Pipe and we'll address those. I know a lot of you out there are relatively new to the podcast and maybe you haven't heard the basics yet.

So, if stuff is just going over your head, call in with a basic question. We like answering the basic ones too. Maybe we don't want to answer a backdoor Roth IRA question every week for the rest of the year. But we'll answer some of them each year. And we'll help you with investments and help you with disability insurance and help you with budgeting and help you with getting you and your spouse on the same page and all the things that we've all got to do as we work our way through this financial stuff.

SPONSOR
Dr. Jim Dahle:
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And that's what makes them unique. They can look at your situation and offer multiple solutions to build your career the way you want it and meet your financial goals. And they know their stuff, especially when it comes time to negotiate contracts, which they're willing to do for you.

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All right, you guys are awesome. We appreciate you. Keep your head up and your shoulders back. You've got this. We're here to help you. See you next time on the White Coat Investor podcast.

DISCLAIMER

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 specific advice relating to your situation.

INTRODUCTION

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

Dr. Jim Dahle:
Welcome back to the podcast. We love doing this podcast because it gets to celebrate you. All of our podcasts are driven by you, your questions and what you want to hear about and learn about. But this one in particular, where we feature you and the things you've accomplished and use them to inspire somebody else to reach their own financial goals.

We call it the Milestones to Millionaire Podcast, although truthfully, half the milestones we have on here are people that are already millionaires. And that's okay, too. It seems like we've had a rash of decamillionaires this year with how well the stock market has done in the last few years.

But we'll celebrate any milestone. And we love unique ones. Today, we've got a unique one I think you're going to enjoy quite a bit. Before we get into it, though, I want you to recognize that we are here to help you with everything in your financial life.

And one of the things that is kind of a no-brainer when it comes to physician finances is getting your employment and partnership contracts reviewed. The point of a review is twofold. One is to make sure that you're not being taken advantage of, that it's not a bad contract. And two, to make sure that you understand what you're signing, that you understand the non-compete, if any, that you understand who's buying the tail covers, you understand how this thing breaks up.

It costs a few hundred dollars, but it's totally worth it. You're signing for a job that pays hundreds of thousands of dollars a year that you might be in for 10, 20, 30 years. We might be talking about $10 million or $12 million dollars here. Is it worth spending a few hundred dollars to get that reviewed? Of course it is. And too many physicians end up with poor contracts. And when the job doesn't work out, they end up saddled with high costs and burdensome non-compete agreements and unfair treatment. So, spend a few hundred bucks up front, get the contract reviewed. It's well worth it. We keep a vetted list of these firms that do contract reviews at whitecoatinvestor.com/contractreview.

Today, we're excited to have the wins on the podcast. They have done a pretty unique milestone. And my favorite part about it is they did it with cash. And part of that was because the interest rate they were being offered was terrible. But the truth is when it comes to wants, most of the time we probably ought to be paying for them with cash. Occasionally we have to use some debt for a need. If we have to borrow to get through med school, it's probably a good investment to do so.

Most of us have to borrow something to buy a house, at least our first one. And that's probably a good investment to do so. Occasionally somebody's got to have transportation. Well, I hope you don't ever have an $80,000 car loan. An $8,000 car loan, certainly something that's not unreasonable. But these guys didn't do that. They saved it up while meeting all their other financial goals. So, let's hear the story. And I think you're going to enjoy it.

This podcast is sponsored by Bob Bhayani of Protuity. He is an independent provider of disability insurance and planning solutions to the medical community in every state 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 get this critical insurance in place, contact Bob by emailing [email protected], by calling (973) 771-9100 or just by going to whitecoatinvestor.com/protuity.

INTERVIEW

Dr. Jim Dahle:
Our guests today on the Milestones to Millionaire podcast are Teresa and Pete. Welcome to the podcast guys.

Pete:
Thank you.

Teresa:
Thank you for having us.

Dr. Jim Dahle:
Let's introduce you a little bit to the audience. Tell us what you do for a living, how far you are out of training and what part of the country you live in.

Teresa:
I guess I'll go first since I was the one that brought us into this. I'm Teresa. I'm a child and adult psychiatrist. We're from Southern California. I finished my training in 2015 and right now just doing tele-psych work part-time. Yeah, that's me.

Pete:
Yeah. I'm Pete. I'm family practice. Originally, I grew up in Ohio, but I consider myself Southern California. I am about four years out of training. I graduated residence in 2022.

Dr. Jim Dahle:
Very cool. Now you guys have a unique milestone. This is episode, I don't know, 300 or something. We have never had this milestone on the podcast. Tell us what you guys accomplished.

Pete:
Okay. I guess for context, I had always been interested in the idea of being a traveler where I could have my own RV, our own bedroom, bathroom, kitchen that we can take with us when we travel. I love to drive long distances. One day, I think back in 2018, my wife showed me an Instagram clip of tiny homes.

That led me down a rabbit hole into these bands that are exactly what I was hoping for and dreaming about. I kept following on YouTube these different influencers who set off in band life and they just live out of their bands. We don't do that, but we do take it out pretty frequently. We made a very concerted effort to save and be diligent about the things that we can save on and orient ourselves towards this milestone of getting a van one day. The stars aligned and we're in a good financial place at the moment. We pulled the trigger and we were able to pay cash for what I consider the dream RV that we didn't have to compromise on. We got everything we wanted. We still use it to this day pretty much on weekends with kids as well. It's been a huge milestone for us.

Teresa:
What inspired us towards this van life was that we're very big travelers. We lived in Arizona. We lived in Southern California. We've done rotations pretty much everywhere because we just finished our training. We're constantly traveling. At the time, we had a dog. As you know, it's really hard to find hotels or places we can stay that would allow for our dog. We wanted the ultimate freedom vehicle to visit, to work, to travel, and be anywhere on our terms, whenever we wanted to go, this was our freedom vehicle. That's what inspired getting us a van. We saved hard for that.

Pete:
Yes, we did.

Teresa:
We saved so much money. It took years to get.

Dr. Jim Dahle:
Okay. Tell us how much this awesome van cost you. What did you actually write the check for?

Pete:
I think all in, and we did not compromise on any of the features. We got all-terrain tires. We got the maximum battery pack, the air conditioning. It runs off-grid for a week at a time. I think all in was close to $200,000. We were able to not finance it. We just signed the check and we went home with it that day with the pink slip. That was pretty incredible. That was an incredible feeling when we did that.

Dr. Jim Dahle:
Awesome. I assume you've got Starlink in it as well.

Teresa:
That's on our to-do list. Our phones have been pretty good hotspots enough, so we haven't needed to jump to Starlink yet.

Pete:
Yes, but when we go out into the middle of nowhere, which we haven't been yet because we still have two small children, but when we do that, probably we'll install Starlink.

Dr. Jim Dahle:
Yes, you won't go back. I can tell you that, having used it in some pretty wild places. Basically, if you can do telehealth, you can do telehealth from anywhere with Starlink. So, it’s probably the next installation on that, I'll bet.

This was important to you to pay cash for it. You saved up for it, which is an idea that apparently seems old-fashioned in today's world. Everyone says finance everything, right? Why did you want to pay cash for it?

Teresa:
I looked into the APR at the time. It was 9% or it was above. It was so expensive. I was just like, “Why take out a loan if we don't have to?” We weren't owning property at that time. We didn't have a house. We didn't have a permanent residence yet. I'm like, well, this is money that we were saving for a house. Why don't we just pour it into the van now? Eventually, once he graduates his residency, once we have a permanent job, then we'll allocate funds to a home. This was our pre-home, home on wheels, if you call it.

Pete:
We recognize that by all accounts, if you go through any financial forum, online, Reddit, they universally say don't buy an RV, don't buy a boat. They are the worst financial decisions you can make. They don't have any return on investment. They immediately depreciate when you drive them off the lot.

We carry the philosophy that we pour everything into what's the most important. We pour everything into the passion. We decided this is one of our top priorities. We went ahead with it. We still are achieving the other milestones that we're supposed to be doing as well in terms of saving and investing. That is something that I'm really glad we did despite the general advice that most people don't recommend to do. We're really happy we did it.

Dr. Jim Dahle:
You bought the van before a house. Are you still renting or have you since bought a house?

Teresa:
We since bought a home and we've since then bought another home.

Pete:
Yeah. The house that we're in right now is our current one. It's bigger. It's in Orange County, which is ultra-high cost of living. We're still renting out our previous property, which was much less expensive. So far, so good. No issues yet.

Dr. Jim Dahle:
Now, while you were saving for the van, how many years did you spend saving up for the van, by the way? How long did it take to save up for this one-time purchase?

Teresa:
It helped that to reserve the van, you had to wait two years. You had to be on a waiting list for two years. You had to put down $25,000.

Dr. Jim Dahle:
Because it was so customized.

Teresa:
Yes. It's made in Canada. Because of the long wait list, we just kept saving up for it. At the time when we signed up for it, we didn't have the funds, but we made this commitment. We just kept saving, putting money in every year, made sure all loans were paid off by then. It took about two years to have it.

Dr. Jim Dahle:
I can relate to that. It took me two years just to get an F-250 in 2022, 2023. They literally weren't making stuff. If I wanted a special seat or something, they were like, “Sorry, you're not getting a truck this year.” I literally didn't get a truck the year I ordered one. So I get it. It can take a while.

Pete:
Yes. We had to make similar compromises too because of the supply chain issues from COVID. Our van doesn't have certain cameras and certain features that normally it would, but that's okay. It's better for my driving reflexes.

Dr. Jim Dahle:
Okay. So, tell us how you balance your various financial goals where you're working toward one that a lot of people are going to look at is this is purely a want. This is clearly not a need. This is just something you want to have a lifestyle, a consumption item, et cetera. How did you balance that with things like paying off student loans and saving up for your house and saving for retirement, those sorts of things? How did you balance those?

Teresa:
A great question. I'll answer most of those calculation questions.

Pete:
Because I defer to her for everything.

Teresa:
We were all paid off on our school loans by then. I ensured that that was our first priority that I paid myself off first because we're actually about nine years apart in terms of graduation from med school. So, I made sure I was done first and I ensured he was done next. And then we started aggressively saving for this van once we agreed mutually that we were going to do that.

And of course, it took a combination of us living conservatively as if we were still in residency. Like when I graduated, I didn't buy a new car. You definitely didn't buy a new car. We didn't have any big purchases. If we were going to buy a house, that would be our next purchase. But because we were still not sure where we're living, this became the funds that we would have saved for our house or the camper van, which we did consider a house as well.

Dr. Jim Dahle:
Very cool. So what are some of the places you've taken the van?

Pete:
So far we've taken it, because we now have two small kids, we don't go too far. We haven't gone cross country yet, but we've gone to Vegas. We've gone to Arizona as far as Tucson, Scottsdale, Phoenix. I think we've taken it to mid-California, San Diego. My dream is to actually drive it to Alaska if that's possible. I definitely want to do it that one day.

Dr. Jim Dahle:
It is possible. I will assure you it's possible. It's about 48 hours of driving from Salt Lake to Anchorage. So, add 12 more to Southern California and that's it. It's only 60 hours to get to Anchorage. No big deal. But you're going to want more than three or four days to do it. I assure you there's a lot of cool stuff to see. But it's certainly possible.

The interesting thing about the Alaska-Canada highway is that part of it is dirt, but it will be a different part every time you go down the highway. It's always under construction and some of it will be dirt. I just can't tell you which part. But it's a great road trip. You should definitely do that. So, you've been to Idlewild and Joshua Tree and Yosemite and all those sorts of places already in it or no?

Teresa:
Joshua Tree, for sure. Honestly, our rate-limiting stiff is not our stamina, it's the children's stamina. When you have a four- and two-year-old, there's so much will that they will offer.

Pete:
It's a challenge because we have what's called a Class B camper van, which is if you've ever seen one of those Amazon trucks that are based on a Ram ProMaster or Mercedes Sprinter. So, imagine that with four people living in it. And so, we have to get real creative. There's a truck space under the bed that we turned into a room for our five-year-old. And then we have a pack-and-play that we use for a two-year-old. That's an ever-evolving kind of dynamic arrangement. And there's a lot of restroom breaks. There's a lot of snack breaks. But overall, it's worth it still.

Teresa:
Yeah, it's been great for when our babies were really small. It was pretty much a changing table for us wherever we went. It's a nap space. It's a decompression space when things get overstimulating. And the most important thing is we get to do everything on our terms. We're ready to go. We don't have to outstay our welcome. We could just pack up. We're like, don't worry. No space for us in the room? No problem. We're parked out front. We've always got our own space.

Pete:
It's a wonderful feeling to just roll out of bed, brush my teeth, and just walk over to the driver's seat.

Dr. Jim Dahle:
Yeah, a lot of freedom and flexibility there for sure. Okay, very cool. Well, what advice do you have for somebody else that wants to save up for something expensive like this? Maybe it's a van. Maybe it's a boat. Maybe it's shares of a houseboat. Maybe it's, I don't know, some other sort of expensive toy. What advice do you have for them as far as living now versus living later, balancing your various financial priorities? What advice do you have for them?

Pete:
What I would say is, first, marry someone who's really good with money. What I did. Whoever in the relationship is more savvy with finances, trust them. We have a unique financial relationship. Some couples, they keep separate bank accounts and they manage money independently.

With us, I wholeheartedly, blindly trust her. I don't even know at any given time what is in my account. She manages the account, but I trust her wholeheartedly because magical things happen where we can afford an RV. If I were left in charge of the finances in this family, we would have 10 car payments and no house. The most important thing is recognizing whose strength it is to manage the finances.

The other thing is, and I want to reassure anyone who may feel limited because of their specialty, I'm primary care. Statistically, I'm supposed to be making the least. It's possible no matter what.

It's all about that graduation day of residency or the first attending job. The temptation is to just go get what you've been waiting years for, whether it's a BMW or a big new house that may not be able to afford at the time. If you can hold off just a couple of years, it's not long. That delayed gratification each year means so much. In that time, you can aggressively pay down loans. You can aggressively save. You can aggressively invest.

It'll feel like you're still in training, which sucks, and probably more so for people who do surgical specialties and fellowships where it never ends. If you can resist that temptation, and it's not for long. For me, I ended up getting my new car, and I just waited a couple more years for it, like three years. We ended up getting a new house, one that I never thought that we would be able to afford. In Orange County, California, I think the going rate is at least a million. To be a little TMI, I think we closed for $1.6 million on our house, which is unfathomable that we could afford that. If you asked me during med school residency, I'm like, we would never get a house like that. We ended up doing that, and we're doing okay.

All of this is because we were willing to live like residents, like conservative residents, because some residents still spend a lot. We make little decisions. We reuse a lot of items. We still live this way where I have a pair of gym shoes. They were coming apart at the Soles. I've had them for over 10 years. I was at the gym. I was on the treadmill, and I noticed there's this giant flap of the Soles just straight up coming off the shoe. My first instinct, being me, is like, “Let's get a new pair of shoes.” Her instinct was, “Let me superglue it. Let me just fix it myself.” Lo and behold, it works again. It went against my instinct of buying or anyone's instinct of buying new shoes when they fall apart, and I'm still using them.

These cumulative decisions that she makes like that enable us to go drop cash on a $200,000 RV. We just have to wait a little bit longer. We just have to not splurge if we can help it on things that don't matter as much. If you can do that, the cumulative effort over time is huge. That would be my advice.

Dr. Jim Dahle:
Teresa, I'm just looking at you beaming like a proud parent. You have birthed this financially literate man who understands live like a resident and frugality and all this stuff. It's pretty awesome.

Teresa:
I'm glad he said that.

Pete:
This is against all my instincts, by the way. I grew up poor. We grew up in a very temporary state where “I don't know how long we're going to be this lucky. I better go buy all the things I want when I have the money to.” I have to consciously suppress that at all times. She's taught me to live that way, and I'm used to it now.

Teresa:
I'm very fascinated with money behavior because I'm a psychiatrist. How we spend money says a lot about our upbringing, our childhood, our traumatic experiences. All that plays into how we spend money. My conservative upbringing has been like, “When money comes, you definitely want to make your decisions well thought out. You don't just spend frivolously or impulsively all the time.”

Sometimes it's okay. But I'm always checking in with him. What are your dreams? What are your wishes, your goals? Is that a shared goal for all of us? Is that something we can all benefit from? We try not to limit each other's dreams, but if it's something small like shoes or I don't know, we'll mutually decide, okay, that one doesn't matter as much. We try to create money dials to every decision we make. Okay, that deserves our money and our attention. That one, not so much because we both don't care about it.

I have a special formula that my friend used to tell me in med school where you buy the most expensive cheap thing or you buy the cheapest expensive thing, and that's a sweet spot of where you want to be. Everything is a dynamic decision we make together with skills we've learned from podcasts, such as White Coat Investors. I also follow Ramit Sethi a lot. I'm always reading new ways to save money, credit card points. I'm always aware of the latest deals, Costco fanatic. All that plays into how we try to optimize how we spend in our behavior.

Dr. Jim Dahle:
Yeah, pretty awesome. Well, congratulations to both of you. It's been fun chatting with you. I love doing these unique milestones because we get asked questions we never get asked about in other things, but this is life. We're balancing the needs and wants of current us versus future us and trying to get that balance right, and there's no exact mix that's perfect for everyone, but you guys have found a great balance and moderation in all things. So I congratulate you on reaching this milestone, and thank you for coming on the podcast to share it with others and inspire them to do the same.

Teresa:
Thank you so much.

Pete:
It was a pleasure.

Dr. Jim Dahle:
Okay, my favorite part about that interview was just watching Teresa as Pete talked about all this financial stuff that we talk about all the time on this podcast. Things like live like a resident and paying cash for stuff and balancing your financial goals and those sorts of things.

But before we started recording, Pete told me that he's not into this stuff, that she's the financial person, that she's the White Coat Investor, and so it was fascinating to watch how much of that that he has internalized presumably through her and her interaction with all of you in the White Coat Investor community.

So, thank you. Recognize that when you teach one White Coat Investor something, that extends to other people. It extends to their partner. It extends to their family. It extends to their colleagues. It sometimes even extends to their patients, and so let's keep the effort up and keep teaching each other how this stuff works. There's no reason that just because we're doctors, we have to be poor.

Let's learn how to do well while doing good. That's the whole point of the White Coat Investor. I think you become a better partner and a better parent and a better physician when your financial ducks in a row. So, let's all get our financial ducks in a row and do that.

FINANCIAL BOOTCAMP: ASSET ALLOCATION

Dr. Jim Dahle:
Asset allocation is a fancy term for your mix of investments. We're talking about how much of your portfolio is in stocks versus bonds versus real estate versus cash versus alternative kinds of investments. That's your asset allocation. These are all assets, and this is how you allocate them.

Now, some people use a tactical asset allocation where they're changing that mix of investments, trying to time the market and figure out which one is going to do best going forward. I'm not a big fan of that technique because I've found my crystal ball is not very functional.

And so, I need an investing technique that is going to work no matter what the markets do that doesn't require me to be able to predict the future in order to be successful, and that's called a static asset allocation. You actually decide what percentage of your portfolio is going to go into each type of investment, each asset class, they're called, like international stocks or U.S. stocks or small value stocks or real estate or TIPS bonds or regular nominal bonds.

You decide up front what percentage of your money is going to go into each of these types of investments, and then all you have to do is maintain those percentages. But it turns out when people study this, the actual mix of investments, the asset allocation matters more than the individual investments you pick. It's not about whether you pick Nvidia versus Amazon or it's not whether you pick a Schwab index fund versus a Vanguard index fund. We get focused on that stuff too much.

What really matters is the overall mix of investments, how much is going into stocks, how much into bonds, how much into real estate that drives something like 80 or 90 percent of your returns rather than the actual investments that you choose.

So, try to zoom out a little bit and focus on the forest and not the trees. It's important to recognize that risk and return are connected here. Now, you don't always get a higher return for taking on more risk. You want risk that you're compensated for. Just gambling with your money is very risky, but that doesn't necessarily have a higher expected return. But getting higher expected returns generally do require you taking on more risk. It is a necessary but not sufficient condition for higher returns, if you will.

Now, the downside of higher risk investments is not only volatility, where the value of the investment goes up and down over time, but also the actual risk of loss in the long run can be higher as well. And so, it's a bit of a trade-off. If you want to take less risk, you're going to need to save more money because you're not going to have as high of a return on the money. If you take on a little bit more risk, maybe you can get away with saving a little bit less money, which is obviously very attractive to lots of people.

So you're balancing your ability to deal with that volatility and the risk of real loss with the benefit of possibly being able to save less and still being able to reach your goals or being able to reach your goals a little bit faster.

So, how do you set your asset allocation? You do it by determining your need, your ability, and your willingness to take risk. For example, you might run the numbers and calculate that you need 9% returns to reach your financial goal in 10 years from now. That's going to require you to take a significant amount of risk than if you run the numbers and you find you only need 3% returns in order to reach your goals. Well, the person who needs 9% returns has a lot higher need to take risk.

Ability to take risk refers to a few things. It refers to your risk tolerance, your emotional makeup that allows you to tolerate that volatility of your investments going up and down in value. It also reflects your practical ability to deal with downturns. For example, when you have a larger emergency fund, a larger chunk of money sitting in cash, you have a greater ability to take risk with the rest of your portfolio.

So, we talked about your need and your ability, and sometimes your willingness to take risk also affects it. For example, imagine somebody that's very, very wealthy compared to how much they spend. Let's say they have $10 million and they only spend $150,000 a year in retirement. This is the sort of person that it really doesn't matter what their asset allocation looks like. Any asset allocation is going to allow them to spend $150,000 of $10 million with pretty much zero chance of ever running out of money.

So that person is then asked, “What's your willingness to take risk? What are you going to do with the extra money that comes from your portfolio having higher returns? Are you going to be able to leave more to charity? Are you going to leave more to your heirs?” Maybe you're more willing to take more risk than you actually need to reach your goals. So you have to determine your need and your ability and your willingness to take risk.

The core building blocks for most portfolios is a risky asset class, usually stocks. These are shares of the most profitable companies in the history of the world. And bonds, a safer investment that pays a fixed amount of income. These could be substituted for cash or CDs or something like that.

But generally stocks and bonds are the two basic building blocks. The stocks provide the growth, so they generally have higher long-term returns, and the bonds provide stability and income and help reduce how volatile that portfolio is. And so, you can change that mix, that stock to bond ratio. It could be 90% stocks, or it could be 25% stocks. The 25% stock portfolio is probably going to have lower long-term returns, but it's going to be dramatically less volatile and less risky as far as long-term loss goes.

Now, obviously the lower your returns, the less likely you are to reach goals, especially if you need high returns to reach those goals. And inflation, of course, is also going to have a more substantial impact on a portfolio with lower returns. So, that's a pretty individual decision, how much money you put into stocks and bonds, and can be challenging for a lot of people to come up with.

But the truth is, if you pick something reasonable, and reasonable for most people means something like 50 to 90% of your portfolio, and risk your investments like stocks and real estate, that's probably about where you need to be.

It's important to be diversified. You want to be diversified between asset classes, stocks, bonds, real estate, et cetera, as well as within an asset class. So, I generally recommend people have at least three asset classes in their portfolio. There are probably some significant benefits in going as high as seven. Maybe there's some minor benefits as you go into eighth, ninth, and tenth asset classes. Beyond that, you're clearly just playing with your money.

At least three, no more than 10 is my guideline as far as how many asset classes belong in your portfolio. And within each of those, you need to be diversified enough that if one investment gets wiped out, if one of your private real estate investments goes to zero, it's not going to have a substantial effect on your portfolio.

Within publicly traded assets like stocks and bonds, you can own thousands of them. When you buy a total US stock market index fund, you're buying 3,500 or 4,000 different stocks. If one of them goes to zero, even if it's Google or Nvidia or Amazon or something like that, it's really not going to have a big effect on your overall return.

And so, that's a wonderful thing about being diversified. It matters. Diversification matters. Don't put all your money into one real estate property. Don't put all your money into one stock. Don't put all your money into a cryptocurrency or something like that. When you hear financial tragedies, often they're caused by a portfolio that just wasn't diversified. Someone was essentially gambling, not investing.

One of the most important aspects of your asset allocation is that you have to be able to stick with it. Nobody can know in advance what the exact perfect right asset allocation is. So, you need to pick something reasonable and stick with it. Whether you invest some money into real estate or whatever, real estate will have a stay in the sun.

But it's going to have some bad years too where stocks and bonds outperform it. And you're going to go, “Oh, why do I even have this real estate in here?” But it's important in the long run when you have the static asset allocation that you rebalance back to those percentages each year that you can stick with it.

You are the most important part of your investment plan. The biggest risk to your plan is the person looking back at you in the mirror every morning. Your own behavior is the biggest risk. So the most important thing when choosing an asset allocation is choosing one you can stick with, one you're not gone get FOMO about and go making it more risky at just the wrong time, or one that you panic sell when the market goes down in value. It needs to be an asset allocation that you can stick with.

And don't fall into the trap of performance chasing. So many people, when they put their asset allocation together, they look at what did great the last two or three or four years? And they don't realize that there are cycles in all things.

So, a lot of people in 2026, when they're putting together portfolios after five or 10 years of large US growth, tech stocks outperforming, they have a lot of those in their portfolio. Whereas somebody who put a portfolio together in 2010, after a decade of those stocks doing very poorly, might not have very many of those at all.

So, be careful about performance chasing, really try to take a long term perspective and not just focusing on recent winners that are likely to disappoint you if you're arriving late to the party. And don't forget, of course, to rebalance the portfolio periodically. Studies show that you don't have to do this very often.

Every one, two, three years is probably plenty often and try to do it inside tax protected accounts like 401(k)s and Roth IRAs and those sorts of accounts. So you don't have to pay any tax costs for that rebalancing. But rebalancing allows you to bring a portfolio back to your desired risk level. No matter what has done well in the last year, you're back to where you started at the end of the year as far as your percentages. Hopefully it's a significantly higher amount in the account, but the percentages are back where you started them.

And remember this, there is no perfect portfolio. You just settle on good enough, that's what you're looking for, and then fund it adequately, and it's highly likely to allow you to reach your financial goals.

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 and has always 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 and the underwriting process clearly and professionally.”

Contact Bob at whitecoatinvestor.com/protuity, you can email [email protected] or you can just call (973) 771-9100 to get your disability insurance in place today.

Thanks for what you're doing out there. Thanks for being a White Coat Investor. Thanks for listening to the podcast. It's not much of a podcast without listeners, and we're grateful for you and telling your friends about the podcast and sharing five-star reviews and all the things you do. You're awesome. It's a pleasure to serve you. Thank you. See you next time on the 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:
Let's talk for a minute about term life insurance. Term life insurance is basically a bet that you're going to die. It's kind of morbid to think of it that way, but that's really what you're doing. You're putting a little bit of money down so that if you do die, your beneficiary gets a whole lot of money. Now it's a term life insurance policy, meaning you have to actually die during the term, and you might buy a policy for one year or five years or 10 or 20 or 30 years, but that's basically the bet you're making: is that I'm going to die in this time period, and if I do, I'm going to get a whole bunch of money for my beneficiaries, my heirs, and that's what term life insurance is.

So why would you buy this stuff? Well, you buy it because somebody besides you depends on your income. It might be your spouse, it might be your kids, it might be your parents, it might be some other organization. There's all kinds of reasons, but somebody needs money in the event that you die. Traditionally, it's your spouse, and so the high earner in a family typically buys a pretty good-sized policy so that the financial life of the spouse is the same whether you live or die. Everyone's afraid. What if I overinsure and I'm worth more dead than alive? Well, that's usually not an issue. Most people don't usually quite buy that much. But I suppose if you're worried about your spouse knocking you off, that might be a little bit of a concern.

So who needs it? Well, if you are already financially independent, if you and your spouse and your kids or disabled kids or whoever can already live off all the money you have for the rest of their lives, you don't need any life insurance. You're beyond needing life insurance, and so you know who needs it? Those who need money more than what they have left behind should they die prematurely.

So what you have to do to figure out how much life insurance is needed, or if life insurance is needed at all, is add up what do you want it to do, right? Add up how much is needed without you working, and subtract from that the amount you have, maybe adjust a little bit for possible future inflation. But that's it. That's the whole process. So if you want life insurance to pay for your kids to go to college, and you haven't saved anything for college yet, and you think they need $100,000 each for three kids, and you want it to pay off the mortgage, and the mortgage is still half a million dollars, right? So we're $100,000 times three, $300,000 plus half a million dollars. We're at $800,000, and you want your spouse to be able to never have to work again if you die, and you figure that's going to cost about $5 million, and you already have $800,000 saved up toward that, so $4.2 million. So we add up that $4.2 million plus the $300,000 to send your kids to college plus the half million dollars to pay off the house. Okay, that's $5 million of life insurance. That's literally as complicated as it is.

So what do most attending physicians carry? Typically, something between $2 and $5 million. The more you have in your nest egg, the less you need in a term life insurance policy. The less you spend, the less you need in a term life insurance policy. It's not about, you know, 10x what you make. It's all about what you spend, what you need, and how much you have. Right? Those rules of thumb like have eight or 10 times as much as you make. Those are just rules of thumb, and if that's as deeply as you can think about this subject, I guess use that sort of a rule of thumb. But most people can think a little bit more deeply, and actually do a gross calculation of about how much they need. Term life insurance is relatively inexpensive, so just round up to the next million. If you think you need, you know, $3.1 million, just get four. Okay. If you think you need $2.7 million, just get three. Right. These are relatively large round numbers, and it's fine to overshoot a little bit. That's not a big deal because this stuff is not that expensive.

So, how long should the term be? Well, typically, if you want it to cover you until you have enough money that your spouse can live off it the rest of their life, that's also about the time you become financially independent yourself. So the question is, how long until you're financially independent? And if that's going to happen 20 years into your career, and you're buying this policy right at the start of your career, then you need a 20-year policy. If it's 25 years or 30 years, then you need a 30-year policy. If it's only 10 years away, you only need a 10-year policy, and so in general, you should buy a policy that will last until you no longer need the insurance.

Now, most people buy what's called a level premium policy, meaning you pay the same amount every year, right? So it's actually a better deal toward the end because you're older and more likely to die than it is at the beginning. But it costs the same every year. Other people prefer something like an annually renewable term policy, where the price goes up every year, but starts out very inexpensively because you're very unlikely to die when you're 25 or 30 or 35, and then it gets more expensive as you become 50 and 55 and 60, and so you can go either way. Either one's fine. Just recognize that's how it works. And obviously, the sooner you're becoming financially independent, the more likely you are to be better off with something like an annually renewable term policy than you are with a 30-year level premium policy.

The easiest way to shop for term life insurance is to go through the vetted agents at WhiteCoatInvestor.com. They can all sell you a term life insurance policy, but they're not complicated. We're putting together software on the website that can basically tell you what your policy is going to cost if you're young and healthy, right? When it becomes more complicated is when you have a few medical conditions, perhaps you smoke, perhaps you've had a little bit of heart disease or some sort of cancer, and those sorts of things. If it's bad enough, you're not going to be able to get a policy at all. In which case, you might have to look for a group policy. It's going to be small, probably offered by your employer or a professional association. But for the most part, you want to buy individual policies because those are the ones that are big enough to actually cover the needs you have, and so the idea is to buy them before you pick up any really dangerous hobbies or before you develop any sorts of medical conditions that either make it more expensive or don't let you buy it at all.

For the most part, term life insurance is a commodity. It's like buying gasoline. How do you buy gasoline? Well, you drive down the street, and whichever one's selling it cheapest, that's where you buy it. Well, there's a little more to it than that. You want the company to still be around in five or 10 or 20 years in case you die and it needs to pay out. So you don't want to pick the weakest, you know, company from a financial strength perspective, but you don't have to pick the strongest one either. Typically, if they're within the top two or three ratings, that's good enough. And there are dozens and dozens of insurance companies that are within those ratings and are sufficiently financially stable in order to buy a policy that's going to last a few decades.

But that's really it. I mean, you're looking at price. You care a little bit about the financial strength. You want to know how long a term is going to last, but you don't necessarily need a bunch of bells and whistles. Insurance agents are famous for adding bells and whistles to policies. Typically, they don't do it to term life policies. Those are more of the permanent cash value policies, like whole life and universal life and variable life. But, you know, every now and then you'll see even term life policies with bells and whistles on them, like return of premium, right? Get to the end, you get your premiums back. Well, guess who's paying for that? You are, in the form of higher premiums. If you're going to pay higher premiums, I'd rather just see you get a larger death benefit than something like a return of premium policy. Those seem gimmicky to me, and I don't think you need to bother with those sorts of things. Spend your money on just getting a larger base policy instead of buying a $3 million policy with some bells and whistles on it. Get the $4 million policy instead.

A lot of dual-income couples wonder how they should do term life insurance. Just like they wonder, should they both buy disability insurance or should they consider each other to be their disability policy? Well, what you really need is a plan. You need a plan in case spouse one dies. You need a plan in case spouse two dies. If the plan works out fine without any life insurance if spouse one dies, great. If the plan works fine without, you know, any life insurance policies if spouse two dies, great. If the plan still works if both of you died in the same car wreck or plane crash or something, great, you don't need life insurance. But for most people, they're probably going to choose to buy some sort of a policy on one or both spouses just in case one of those things happens because the plan doesn't work without one of them working or without the higher earner working or whatever. And so you just have to run through those situations and decide what both spouses are comfortable with, and then move forward. But you don't have to have life insurance. You do have to have a plan.

One bell and whistle that occasionally people consider is a convertibility option. This is a chance to convert a term life insurance policy to a whole life insurance policy at the time it is expiring, or even before it expires. As a general rule, most people don't need whole life insurance, and so this feature is not really worth much. So you shouldn't pay a lot for it, but it's often given free. And if they're giving it free, and the policy is otherwise the same as any other policy you can buy, I think it's fine to own it. If you're only paying a tiny little bit extra to have that feature on it, I think that's fine. But I wouldn't pay any significant amount extra just to have a convertibility feature on the policy.

Typically, when your term life insurance policy expires, it doesn't actually expire. They offer to let you continue to renew it, but as an annually renewable term policy. But because you've been paying, you know, level premiums for 30 years, they're priced on average like maybe what it cost 15 years ago, and so you're much older, much more likely to die now. The price is dramatically higher to shift into an annually renewable term. You might think they're just trying to get you off the policy, but they're not. They're pricing it fairly for somebody your age now, and if you went out and bought a five-year or a 10-year policy now, it'd be dramatically more expensive than the one you bought at 25 or 30 years old. And so recognize that that's how the policies typically wind up at the end.

But the idea is, by the time you get anywhere near the end of your term life insurance policy, you're already financially independent, and you don't need it, right? We no longer have life insurance on us because we don't need it. We have enough money that if either one of us died, the other one is going to be just fine. We've already met our savings goals for the gifts we want to give to our children, the 529s, and those sorts of things. We've already paid off our mortgage. We don't have any need for life insurance, and I hope you can get there by mid to late career as well, and just cancel your policies and put those premiums toward something else. Hopefully, something you really enjoy.

DISCLAIMER

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 specific advice relating to your situation.