How to Make Smarter Investment Decisions (Taxes, Fees, Risk)

Transcription – WCI – 465
INTRODUCTION
This is the White Coat Investor podcast where we help those who wear the white coat get a fair shake on Wall Street. We've been helping doctors and other high-income professionals stop doing dumb things with their money since 2011.

Dr. Jim Dahle:
This is White Coat Investor podcast number 465.

Today's episode is brought to us by SoFi, the folks who help you get your money right. Paying off student loans quickly and getting your finances back on track isn't easy. But that's where SoFi can help. They have exclusive low rates designed to help medical residents refinance student loans. That could end up saving you thousands of dollars, helping you get out of student debt sooner.

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All right, welcome back to the podcast. By the way, if you're listening to this the day it drops, today's your last day. If you're interested in coming to WCICON27 at the lowest possible price, this is the end of our pre-sale is today, the day this podcast is dropping and that gets you $500 off the conference.

This is the biggest discount we will offer all year. Don't worry, it's not going to pop back up in a month or two or six, and nobody else is going to get this price except you if you act today.

We're going to the Rosen Shingle Creek in Orlando. East Coast WCICON. For all of you out there on the East Coast, this is a great chance, short flight, maybe even a drive for you to come to WCICON, see what you've been missing out on all these years. This is only the second time we've ever had it on the East Coast and I'm looking forward to meeting more of you Floridians in particular. A whole bunch of Floridians came the last time we were in Florida.

It's February 24th through 27th, 2027, and if you go to wcievents.com, you will find that the price is $500 off the regular price, the lowest price you will ever see for this conference. So, I hope to see you there.

All right, let's get into your questions.

Sell High-Gain ETFs for Lower Fees, or Will The Tax Hit Wipe Out The Benefit?

Speaker:
Hi Dr. Dahle, thanks for all that you do. I'm an ear, nose, and throat surgeon that's been in practice for about 13 years now and we've recently reached a milestone of a net worth over $10 million, which includes investments and real estate.

I've been considering firing my financial advisor and taking on a more central role and managing this stuff myself, but haven't quite gotten it done yet as it's a bit scary to do to be honest. But recently, the advisor had recommended selling a few of my funds, which are ETFs, in favor of a lower cost fund. However, the capital gains tax would be significant as there's been millions in gains in these accounts.

My question is, does the gain that I would get from a lower cost fund outweigh the significant taxes I would be paying in capital gains? I feel like the funds I would have to spend to pay the taxes would be significantly more than the small amount I would gain in a more cost-effective fund. I certainly feel that future funds going into a more tax advantage or rather a lower cost fund would be beneficial, but I'm concerned.

Dr. Jim Dahle:
Okay. Well, remember on the Speak Pipe, you only get 90 seconds. So that's where it cuts you off. There was plenty of that 90 seconds for us to talk about. First of all, don't necessarily ever feel like you need to fire your financial advisor quickly. You became a decamillionaire working with this person. Maybe they're not doing so bad.

Plus, I think anytime you move to fire your advisor, you should have the new plan in place first. If you're going to use a different advisor, which is fine, have the new advisor first before you fire the old one. If you're going to do it yourself, have your written financial plan created before you fire the advisor. It should only take a matter of weeks, either one of those things so there's no super rush to do that. A lot of times, I have people fire an advisor without any plan whatsoever, and maybe that's not a great move. I guess if the advisor is really bad, it's a good move.

The bigger issue I see with people who have $10 million is they made the mistake not of hiring a commission salesperson masquerading as an advisor. That's usually a lower net worth problem. But hiring somebody that charges an asset under management fee while charging 1% a year is probably a fair price.

With somebody with a million dollars, you'd be paying $10,000 a year in advisory fees. For someone with $10 million, if you're paying 1% a year, that's $100,000 a year in asset under management fees, and that's way beyond the going rate. The going rate right now for a full service financial planner and investment manager is $7,500 to $15,000 a year. That's the going rate.

If you're paying $30,000, $40,000, $50,000, $100,000 for that service, know that we can help you find someone who will do as good of a job, probably better, for a much lower price. We've got a recommended page for financial advisors at whitecoatinvestor.com, that you should check out.

But the question you have, and it's a little weird for you to have an advisor that you're presumably paying thousands of dollars a year to for advice, and yet feeling like you got to call up some podcaster to get confirmation of what they're recommending to you. Maybe that tells you that moving on from the advisor maybe is a good move for you because you don't trust them.

But the question is what to do about what we call legacy investments. Legacy investment is something you own in a taxable account. You can't have a legacy investment in a Roth IRA, you can't have one in a 401(k), you can't have one in a 457 or an HSA or a 529, because you can just swap your investments in those accounts with no tax consequences whatsoever at any time.

So you shouldn't have any legacy investments in a tax protected account. This is only in a taxable account. It's an investment you would not buy today, but that you feel like maybe you shouldn't sell because the capital gains hit would be too large.

So, let's talk about what options you have for these legacy investments. The first one is to sell it. You always have the option to sell it. Yes, you'll have to pay capital gains taxes. Hopefully you've owned it for at least a year, so at least you're paying long-term capital gains taxes. But I'll tell you what, the only thing worse than having to pay taxes is not having to pay taxes. You have to pay taxes because you had a great gain. That's a good thing. And the long-term capital gains rates are probably lower than your ordinary income tax rates, and so that will help reduce the cost of that. But that is always an option to sell it.

Option number two is to just sell it later. Later, maybe you'll have more money to pay the taxes, maybe you'll be in a lower tax bracket later, maybe between now and later, you'll have the opportunity to tax loss harvest, and have some of these capital losses you can use to offset some of these gains.

I think this is a great reason why it's good to acquire capital losses when it's convenient as you go along throughout your investing career, because maybe later you'll have an investment you don't actually want to hold on to, and the capital losses can allow you to sell it without having to pay any capital gains taxes.

Option number three is to give the money away to a family member or a friend with a low income. You give it to your kid, your kid's in maybe the 0% capital gains tax bracket. So maybe you give them $200,000 worth of mutual fund shares, and it only had $50,000 in gains, and they were able to basically sell that without actually having to pay any taxes or anyway having to pay a lot less in tax than you would. If you wanted to give something to that family member or that friend anyway, why not give them appreciated shares if they're in a much lower bracket than you are?

On that same note is number four, which is what I do with legacy investments. I use them for my charitable donations instead of cash. After you've owned it for a year, we transfer it to a donor advised fund. You can give it to a charity directly, we find it better and more convenient, more anonymous to give it to the charity via a DAF or donor advised fund, but you put it in there and you use cash to buy whatever investment you would rather have than that.

If you're charitably minded, and you have a taxable account, you should pretty much never give cash to charity ever again, you should be using appreciated shares to do so. Trust me, the charity knows how to turn those appreciated mutual fund or ETF shares into cash. Usually, if you're going through a DAF, you're giving them cash anyway, that's all they're going to receive. It's all the same as if you've given them cash out of your checking account, and yet neither you nor the charity pay the capital gains taxes and you get the full value donated to use as a tax deduction on your taxes.

The fifth option is to build around this legacy investment, not to sell it. The idea behind not selling it is that you die with it, leave it to your heirs or maybe charity when you die, but either one gets a step up in basis at your death. Nobody pays those capital gains taxes, but you have to build your portfolio around it. Maybe it's not the ideal fund, maybe you own an S&P 500 index fund, you'd rather have a total stock market index fund. Fine, you can deal with an S&P 500 fund. You can deal with that, you can build around it. Yeah, it doesn't have the mid-caps and the small-caps in it. Fine, add a little bit of a mid-cap or small-cap fund to it. You can build around.

Likewise, maybe it's a growth stock fund. You jumped into it, you're maybe chasing a little performance back in 2023, and now it's got huge gains. Okay, fine. Well, maybe you just hold a little bit more of a value index fund in your portfolio with future purchases, and use that to offset this growth index fund and the two of them together make something like a 500 index fund or a total stock market index fund.

The bottom line is there's a lot of investments, as long as they're not too huge of a chunk of your portfolio, that you can just build around. Let's say you have a bunch of individual stocks. You have a bunch of Tesla stock and some Ford stock and some Exxon stock. Okay, well, those are large cap stocks, and if you have enough of them, well, maybe you just include them in your large cap allocation.

Instead of selling them, paying a bunch of capital gains, you just own a little bit less of a 500 index fund. Instead of owning 30% of your portfolio in that 500 index fund, maybe you have 26% of your portfolio in that 500 index fund, and those other stocks make up 4% of your portfolio. I don't think anybody would argue that that's crazy to do.

Now, of course, if 80% of your portfolio is in Ford stock, and the other 20% is in Bitcoin, you're probably going to have to bite the bullet and sell some of it. But if it's a smaller amount, it's a little bit easier to build around.

Another thing to consider is what's called a 351 exchange. This is a relatively new option, where you swap a diversified portfolio of appreciated individual stocks in a taxable account for shares of a newly created ETF. That exchange defers taxes, but hopefully provides you a better investment. That would be the advantage of doing that. You get rid of the individual stocks, you might not have your ideal ETF, but maybe you then have one that you feel comfortable building around.

Obviously, you'd rather own a different investment that maybe has a lower expense ratio or is more diversified, or it's just a better investment for whatever reason. You've got to ask yourself, “Is it worth paying those capital gains taxes to get the better one?” Well, if it's only a little bit better, probably not. If it's dramatically better, or your portfolio is way out of whack from what it ought to be, then maybe you ought to just bite the bullet. Consider these other options. Even if they can't completely solve the problem for you, you ought to be able to reduce the size of the problem for you somewhat.

Congratulations on your success, by the way. Only something like 10% of doctors become pentamillionaires, and you became a decamillionaire. You ought to be very proud of that. Of course, make sure that you're also learning to spend and give well in your life.

QUOTE OF THE DAY

Our quote of the day today comes from Tony Robbins, who said, “Working because you want to, not because you have to, is financial freedom.” It's a good definition. I like that.

Thanks everybody out there for what you're doing by the way. It's not easy work. We know that here at White Coat Investor. We talk to you all the time in person at speaking gigs, at the conference, in these Speak Pipes on the podcast and interviews, when we're doing Milestone to Millionaire, by email every single day, in the comments section on the blog and in our online communities. We know what you're struggling with. We know your jobs are not easy. Thank you for what you're doing. Your work truly matters.

Okay, let's talk a little bit about taxes now for a while. Actually, we just got done talking about taxes, but we're going to talk about them some more.

Sequence of Withdrawals From Taxable Brokerage Accounts

Speaker 2:
Hi, Dr. Dahle. My question is about the sequence of withdrawals from taxable brokerage accounts. If you've been saving in these accounts for any amount of time, you're going to have different lots that have different amounts of cap gains relative to their basis.

In retirement, or whenever you pull money from these accounts, how do you pick which lots to pull from? It might be tempting if you needed a certain amount of money to pull from relatively recent lots that have smaller cap gains, lowering your tax exposure, but then you're kicking the tax can down the road, and those older lots that have presumably had more appreciation are just going to grow in their relative proportion of cap gains.

Or might it be better to maybe spread your withdrawals evenly among all the lots to kind of mitigate or even this out over time? I'm just wondering what kind of strategies you would recommend for this. Thank you very much.

Dr. Jim Dahle:
Okay, you win. When you're worrying about stuff like this, you have won this game. When you've got a taxable account that's so large and has been growing so much that you have all these capital gains in it, and you're like, “I wonder which one of these lots I ought to take first”, you won.

How many of your peers are not worrying about stuff like this? They're worrying about, “Oh, boy, how am I going to fund my retirement? Here I am at 58, and wow, I've only got $20,000 in a Roth IRA from years ago, and I've got $250,000 in my 401(k). What am I going to do about my disability insurance? It's really expensive to buy now.”

There are so many of your peers that just not worrying about these issues because they're not even close to being in the financial position where this is their biggest concern, much less financially literate enough to know they should worry about this stuff. So, it's a great question. Congratulations that you have it.

Okay, let's talk about the question. You're trying to balance your taxes throughout your retirement. As a general rule, your money will grow faster inside tax-protected accounts. Because of that, you should generally spend taxable accounts before spending tax-protected accounts. That's a principle you ought to understand. That makes sense, hopefully, to you just right at first glance.

As a general rule, taxable comes before Roth, taxable also comes before tax-deferred. But you do have the ability to drive your own tax situation in retirement. You can set your tax rate essentially by deciding how much comes out of that tax-deferred account, how much comes out of a Roth account, which are your tax slots you choose to sell. You can decide exactly how much each year you want to pay in taxes.

But I'll tell you what, none of those accounts except the taxable account has the benefit of a step-up in basis at death. Kind of a dumb move would be to sell shares that you're otherwise not going to have to sell before death. In that respect, I think most people probably ought to start with their high basis shares, stuff they bought not that long ago, but at least a year ago so they get long-term capital gains treatment on it and spend that money first. And as they go along, spend lower and lower basis shares. And yes, that will increase your tax bill as you go throughout retirement, but it will prevent the problem of paying taxes that nobody would have ever had to pay, which I think is the biggest concern.

Now, the question here really is, how do you spend in retirement? And remember that the first thing you spend is all the money you have to pay taxes on anyway. If you're getting pension payments, you're going to spend that money first. If you're getting social security payments, you're going to spend that money first. If you're of RMD age, required minimum distributions, you're going to spend that money first. If you have a taxable account that's spitting out taxable dividends or distributing capital gains to you even though you didn't sell anything, spend those first.

And for many of us, that takes care of our spending needs. We don't actually have to withdraw anything from our traditional IRA, from our Roth IRA, or sell anything in our taxable account. And then it becomes more complicated after that.

But in general, the first thing most people try to tap in that situation is often a 457(b) account if you have one, especially a non-governmental one where it's subject to the accreditors of your employer. But even before age 59 and a half or 55, in the case of a 401(k), you can get into that 457 money without any sort of 10% penalty. So, it's often one of the first accounts that you go after.

And after that, most people go after their taxable account because you want that Roth money. You want that tax-deferred money to grow as long as possible because it's growing faster. Everybody worries about, “Oh, man, I'm going to have huge RMDs.” Oh, heaven forbid you have huge RMDs. What a wonderful problem to have, a $10 million traditional IRA. It's a great problem to have. Yes, maybe it's worth doing a few Roth conversions to minimize that. But it's a great problem to have, trust me. There are a lot of people that would love to have that problem out there.

But the truth of the matter is what a tax-deferred account is when you're thinking about this question is it's a two-owner account. You own part of it. And Uncle Sam owns part of it but wants you to invest it on his behalf for a few decades. And all an RMD is is Uncle Sam saying, “You've maxed out the benefit of this account. So why don't you give me my account? And you're going to have to reinvest your account in a taxable.”

That's all an RMD is. So, it's okay to grow that traditional IRA as well as best you can because you're growing your account right alongside Uncle Sam's account. It's not a bad thing to have Uncle Sam's account get bigger too.

I hope that's helpful as you decide what to sell. It's a challenging thing to do. But truthfully, when you get to this problem, you often have enough of retirement savings that you're only spending the dividends anyway. You're spending your stock and bond and real estate dividends that are coming to you each month anyway, especially when you combine it with Social Security, especially by the time you get to age 73 or 75 and the RMDs start coming in. You might not have to sell any of those shares. So, if you do have to or do want to sell some of them, I think for the most part, you ought to be selling the high basis shares that you've owned for at least a year first.

Obviously, we can concoct some sort of a scenario where it would make sense for you to sell lower basis shares because you're in a low income year. You're not of Social Security age yet, or you're not of RMD age yet. Maybe it makes sense to sell lower basis shares because you know you're totally going to clean out that taxable account. But as a general rule, I think the high basis shares you've owned for at least a year is probably where to go with that.

Interview With Eric Wright of 1099 Tax Doctor

All right. We've been talking about a lot of taxes. Let's get a tax expert on the line, talk a little bit more about tax strategizing, what else you can do to lower your tax bill. My interview is going to be with WCI podcast sponsor, Eric Wright. And I want you to be aware that they've got a Tax Doctors podcast, the 1099 Tax Doctor podcast. You can hear that on your favorite podcast app. Let's get into the interview.

My guest today on the White Coat Investor podcast is Eric Wright, who is an emergency physician, as well as the founder of 1099 Tax Doctor, one of the tax strategizing firms that we've partnered with here at the White Coat Investor. Eric, welcome to the podcast.

Dr. Eric Wright:
Hey, Jim, thanks for having me.

Dr. Jim Dahle:
You're a doc, like so many of the people listening to this podcast. What made you decide you wanted to start a company like this to help docs reduce their taxes?

Dr. Eric Wright:
Like anything else in entrepreneurship, I just stumbled into it along the way. I knew from an early age that I wanted to be a doctor, but I also was very entrepreneurial. I started a lawn care company when I was 11 years old and hired my nine-year-old neighbor to be my employee and made enough money to buy a few Super Nintendo games.

When I went to medical school, I started day trading because I went to a state subsidized school. And of course, you could get a lot of subsidized loan money. And I didn't need it all because the tuition was pretty cheap, actually. But I said, “Well, heck, I have access to it and it's cheap.” So I just took it all and I started day trading. And this was back in, gosh, 2005, 2006. It was Ameritrade, I think was the platform I was on before they merged with TD Waterhouse, $10 a trade.

I actually had the scheme where I organized a lot of students in my med school class. There was first and second years, all lectures. So it was 07:00 to 12:00, five hours of lecture, five days a week. You need 25 students to commit to an hour to take notes for you. And then you can miss the lectures and you can day trade. And then you get a nice compiled note sent out to you and read the text and you're all prepared for the test. So third year, kind of cut that out because of rotations. And then fourth year, I got really, really lucky.

September of 2008 happened when the market crashed. I think a lot of people that were around remember that. And I remember I parked all my day trading monies that I had made in this little company, Secure Computing, I think was the name of it. A company out of California that does antivirus software or something. I thought they were really undervalued. And I just kind of parked a lot of money there.

I was doing a rotation with a family doc up in Northeast Georgia and an older guy close to retirement. And I remember that day the market crashed. He was just kind of ignoring his morning patients and just focused on CNN, just watching his accounts take a big hit. Poor guy. And I was thinking, “Wow, I made a really big mistake. This was not a White Coat Investor approved trading strategy I was involved in.”

But wouldn't you know it, that day, Norton Antivirus announced they were buying this company for 20% over the stock price. And so I got bailed out by sheer luck. But then I went to residency and finished residency. And I loved being an ER doctor. But I also knew that statistically, I was not going to love being an ER doctor forever. In fact, in five or 10 years, I might not like it so much, as is the case with a lot of ER doctors find themselves in.

And so, I decided what I really need is some passive income. I need to open a business so I can build some passive income. And then sometime down the road, if I'm not enjoying the job as much anymore, I can cut back or even maybe retire early.

And so, I got out of residency and I was in Augusta, Georgia with my lovely wife, Jenna. And the problem with starting a business is I'm a full time doctor. I can put some capital into it from the money I'm making. But my wife is also full time. She was an on-air meteorologist for one of the affiliates in Augusta. And she actually got offered a promotion to go down to Miami and do the morning weather at one of the major networks down there.

And so, we had a choice to make. We can move to Miami. I can be an ER doctor in Florida. Sounds great, glamorous in Miami, live it up. But she would have to be up at 02:00 A.M. every morning getting her hair and makeup done, getting down to the station, being on air by 06:00, have her graphics ready. And that's just not our kind of lifestyle. We both wanted to have a big family. We wanted to have kids. It's not the best lifestyle to try and raise a family. And you need a full time overnight childcare person.

And we decided she would actually quit. And she said, “Yes, I'm just going to quit TV and we're going to open a company.” We had some friends in Augusta that owned a payroll company and it was an interesting business model. Payroll is easy to start up, low costs, low capital, low overhead. And we had friends that did it and they said “We'll teach you how to do it. But you can't do it here. You have to go somewhere else.”

We moved to Charleston and opened a payroll company. And then Jenna actually kind of got it off the ground and hired the people and got the people in place. And that company did really, really well in Charleston. We wound up having hundreds of clients, small business clients, some that had as many as 800 or 1,000 employees. And then sometime around 2017, when you get into entrepreneurship, you get into business, you start seeing where the demand is in the market. You start seeing where the demand is and you start thinking like, “Well, hey, I can supply that demand and make some money doing that.”

And so, you start to see these things. And that's why I tell people, if you're thinking about business, just take the plunge and just go with an idea and try it out. And you're going to see things. You might not succeed in this idea, but you might find another area where you can see where the market's going.

But around 2017 or so, I was an ER doctor working full time. It was 1099. I think I was making out of residency. I was making around $420,000, typical ER doctor kind of salary and paying $125,000 in income taxes. Pretty common. And then I started working some more shifts and I was making more money. And finally, I met with an accountant friend who was just a buddy. And he was like, “Why don't you have an S-Corp set up?” And I was like, “I had a couple tax preparers telling me it just wasn't worth it.” He was like, “Well, look at your return. It's going to save you like $7,000 a year. You don't like money?” I'm like, “No, I do like money.” He's like, “Well, why don't you have a cash balance plan?” I'm like, “I've never heard of that.”

And he's trying to explain it. And it's just like in one ear out the other. I don't know what this is. It sounds really complicated and expensive. But I sat down and figured this stuff out and put it all in place. And next thing you know, making more money, I was paying half the tax bill. And so I figured out, “Oh, wow, when you're a 1099, you can pay a lot less in taxes using very vanilla stuff.” You don't have to get crazy aggressive or do anything fancy, but it is kind of hard to set all this stuff up.

I helped several other docs at my hospital in Charleston get their S-Corps and cash balance plans and the 199A deduction in 2017 had just come out, set that all up and they saved a bunch of money. And I realized, “Well, I shouldn't do this for free. Once you are good in something, don't ever do it for free. I can start a business this way.”

And so at that point, I was working with a really good tax attorney at a very stable firm and a real whiz with taxes. And I was working with a good TPA, third party administrator for my cash balance plan. And they were really good. And I had a fiduciary SEC registered wealth manager, very familiar with pension plans and overfunding and underfunding and how to handle rates of return and that sort of stuff.

And so, I had all the pieces in place. And we owned a payroll company, so you can have the S-Corp payroll component. And so, what if I just kind of combined all this together and made it like a one-stop shop? I can take a 1099 doc, a higher earning 1099er, and without charging them an arm and a leg, I can just set up their LLC and do their S-election or even a retro S-election if they need that. And then we can get their withholding accounts and handle their payroll and just do it as a single annual payroll. Simple.

Set up their cash balance plan and get that done and have someone manage it for a robo-advisor level fee and just kind of make it affordable and easy and just flat price and just save a lot of money on taxes.

And so, that's what we did. That's what 1099 Tax Doctor came out of, kind of a joint venture of several different financial professionals that were all basically the people I use personally to manage all my money and to handle all my taxes. And I've seen the results and I know they're good people. And so I can just negotiate prices and get a good deal and make sure people aren't getting overcharged or ripped off. And so, that's what it came out of.

Dr. Jim Dahle:
When somebody wants to hire 1099 Tax Doctor to help them lower their tax bill, do they talk to you? Who do they talk to?

Dr. Eric Wright:
Yeah, I do a consultation. I ask people, please go to our website. There's a little “more information” link. If you fill that out, it goes right to me. And that gives me all the information to know if it would be a good fit. We typically take clients that make at least $100,000 of 1099. We don't really do taxes, so to speak. We don't just crank out tax returns. If someone needs that done and they're sufficiently complicated, I can refer them just directly to the CPA, the tax attorney that I work with. Of course, if you're straight W2, you don't need that.

But for folks that have a lot of 1099, yeah, they come right to me. I'll go over everything, explain everything, answer any questions, make sure it's a good fit. Yeah, I talk to everyone that signs up with us. We focus on taking people that we know we can save on taxes.

Dr. Jim Dahle:
I've seen some of the marketing material for 1099 Tax Doctor, and you talk about saving people on average about $40,000 a year.

Dr. Eric Wright:
Yeah. It's obviously different for everybody, but you can look at it and say, well, for the average doc, let's say you're making $400-600,000. That's kind of the sweet spot. A lot of my clients are ER doctors, because that's typically the salary range and private equity is now in emergency medicine and a third of ER doctors are 1099s.

But if you take an S-corp election, it is going to save you somewhere between $5,000 and $10,000 in self-employment tax. You take a cash balance plan, you plop $100,000 into it. That right there is going to save you $30,000 to $40,000 in income tax. You optimize the 199A deduction by getting your adjusted gross below the limit using the cash balance plan. That's another deduction right there.

When you know how they make their money and how much they're making and how much 1099 they have, it's actually pretty straightforward to be like, “Yes, your S-corp, cash balance plan, 199A, that's going to save you, ballpark X.” It's a pretty simple thing to look at and be like, “Yes, it's straightforward.”

Dr. Jim Dahle:
Now, obviously with the cash balance plan, that's tax deferred money.

Dr. Eric Wright:
Correct.

Dr. Jim Dahle:
In the end, you're only going to save some fraction of that amount, but the rest of it, of course, the 199A, that's yours to keep.

Dr. Eric Wright:
Absolutely.

Dr. Jim Dahle:
So are the payroll savings, payroll tax savings.

Dr. Eric Wright:
Right.

Dr. Jim Dahle:
Absolutely. Okay. Well, I'm not sure we recommend your pathway. I don't know that we should be investing money that we told the government we're going to use for school on the promissory note on day trading. We're big fans of saving money on taxes. And we've been talking about cash balance plans and S-corps and 199A deductions for a long, long time here at the White Coat Investor. And a lot of people do, they just need someone to walk them through the process, through their specific situation. So that's pretty awesome.

All right. Well, a lot of people that hire tax strategists start hearing about interesting techniques. I don't want to necessarily call them gray or borderline or whatever techniques, but there's lots of interesting tax saving techniques out there that sometimes end up being a little bit of an audit lottery.

How does your firm feel about these sorts of techniques, whether they're land conservation easements or whether the one I got an email about today was somebody that was going to be doing some sort of an options technique to try to generate some losses, etc. Do you guys look into those? Do you help people with those? Do you advise against those? What's the thought for you guys?

Dr. Eric Wright:
Not our bag. I don't advise it one way or the other. People have different levels of risk tolerance. And so, I would look at it that way. If you have a high level of risk tolerance and it makes sense in your financial situation to try something like that, go for it. Not our bag. Basically, I really limit working with clients that are using things that carry a substantial majority opinion. Let's put it that way. Escort for payroll taxes, tax deferred retirement plans, maximizing your 199A deduction.

And then if you're making $400,000 or $500,000, $600,000, just with that alone, you're getting your effective tax rate down close to single digits. I did it myself. So you don't need to get anything crazy exotic. If you're making a million plus, you can still do what we're talking about and save a bunch of money, but probably not a good fit for our firm. We stay away from stuff like that and just use simple proven strategies that are going to work for anyone that has the same financial situation.

Dr. Jim Dahle:
Very cool. Okay. So, if someone wants to get in touch with 1099 Tax Doctor, what's the easiest way to do that?

Dr. Eric Wright:
Easiest way, just go right on the website, 1099taxdoctor.com, and there's a request more info. You just fill that out. It's going to ask you a bunch of questions that allows me to see if, “Hey, would this be a good fit for our company?” That does not put you, I swear, it does not put you on any sort of mailing list. The only thing I'm using this for is I'll shoot you a text message and be like, “Hey, it's me, really me. It's not a bot. I looked at your stuff. Hey, you'd be a good fit. I think let's schedule a time to talk.”

Dr. Jim Dahle:
Very cool. Eric, thank you so much for your time, for being willing to come on, for doing what you're doing for doctors.

Dr. Eric Wright:
Thanks, Jim. Appreciate it.

Dr. Jim Dahle:
All right. I hope you enjoyed that interview. Hopefully that's helpful to you. We obviously have conflicts when we want to introduce you to our sponsors, but we hope you're getting some valuable content out of those introductions as well. We're aiming to kill two birds with one stone there.

Multi-Year Guaranteed Annuities (MYGA)

Okay, let's talk a little bit about MYGAs. And many of you might not know what that is. It's one of the “good” annuities out there. But let's hear the question.

Speaker 3:
Hi, Jim. Thanks to you and WCI for all that you do. Can you please discuss the pros and cons of MYGAs in depth and give any recommendations for companies that you would use and maximum amount you would consider investing? I've heard you mention them on the podcast and read about them in the blog, but wonder if I'm missing something.

For instance, Gainbridge. I have zero personal interest in this company. I just happen to be looking at them. It's currently offering a no fee, no commission guaranteed five plus percent return and a no tax deferred option that can be taken out before 59 and a half. This seems better than most bond funds and CDs, at least for the last decade.

Why wouldn't I use a MYGA in lieu of a bond fund for diversity from stocks in a taxable account or for a retirement ladder? From what I can tell, there seem to be four main risks. The liquidity from early withdrawal penalties, which is not that much different from any retirement account. Inflation risks, but bonds have that too. Taxes, which is true of any taxable account investment and loss of principal.

But MYGAs are at least guaranteed by the state up to a point and that's better than my taxable account. So other than these four risks, what am I missing and need to look for when vetting potential companies? Thank you.

Dr. Jim Dahle:
Okay, good question. Let's talk for just a minute about annuities. What is an annuity? An annuity is a financial instrument that's typically used to protect you from longevity risk, the risk of living too long, the risk of having more time than money, running out of money before you run out of time. That's what an annuity is.

But like cash value life insurance, there are so many different ways to structure these things that the vast majority of annuities are products designed to be sold, not bought. And if you're first meeting with a financial planner, financial advisor of some kind, involves a sale of an annuity, you are probably mistaking a financial salesperson for a financial advisor.

With that caveat in place, let's talk about some of the “good” annuities that you might find useful for various purposes in your life. The classic annuity is the SPIA, single premium immediate annuity. You're giving an insurance company a lump sum of money in exchange for a promise to pay you every month for the rest of your life, no matter how long you live. You're essentially buying a pension from the insurance company. Single premium immediate annuity.

The second type you might want to consider is what is called a deferred income annuity, or a DIA. And this is like true longevity insurance. This is an annuity you buy now, but it doesn't start paying you immediately. Those payments are deferred. And you could defer them for five years. You could defer them for 20 years. The longer you defer them, the bigger they are.

So you might want to take some chunk of your money, buy one of these things, let's say at age 40 or age 65, and have it not start paying you until you're 85, if you're still alive. And if you're still alive, it's going to pay you a lot of money, far more money than an immediate annuity would pay you, because it has to start paying out immediately.

It essentially gives you permission to spend the rest of your money as you go throughout your retirement. Because if you live a long time, you've got this thing that starts kicking in at age 85 or 90 or 95, or whenever you want, that's going to take care of you after that. Some people find that an attractive annuity to buy.

Obviously, there's all kinds of different versions of that, that you buy at different times in your life and start paying out at other times in your life, but it's something worth looking into.

You might have heard of a QLAC, a Qualified Longevity Annuity Contract. That's just a DIA inside a retirement account. That's all that is. QLAC is a DIA, which brings us to the third kind of reasonable annuity to buy, which is a multi-year guaranteed annuity, or a MYGA. This is what the question was about, was how to buy MYGAs, should I buy MYGAs, et cetera.

The way to think of a MYGA is as the insurance industry's answer to certificates of deposit, CDs sold by banks. You pick the term, you put the money in, the insurance company pays you a guaranteed income as you go along, and you get your principal back at the end of the term. That's a MYGA. The CDs are backed by the bank and the FDIC. MYGAs are backed by the insurance company, and maybe a state guarantee fund, which of course is generally considered inferior to the FDIC. Maybe a CD is a little bit safer than a MYGA, but MYGAs are pretty safe investments, especially if you don't buy them in larger amounts than your state guarantee fund will back.

But it has a couple of advantages over a CD. With the CD, interest is paid out in tax as you go along. MYGA interest can be paid out in tax, or you can just let it compound inside the annuity.

At the end of the term, with CD the money is given back to you. But one thing you can do with a MYGA is you can exchange it into another MYGA, further deferring taxation. So, in this respect, it's growing in a tax-protected way, similar to a 529 or an HSA or a retirement account. Because it grows tax-protected, that means it grows a little bit faster.

Now, if you bought this with taxable money, not in some sort of a retirement account, you had to use after-tax money to buy it. It's not as good as using a Roth IRA or using a 401(k), but it's similar to using a non-deductible IRA in that respect. But it does help boost the return a little bit, especially if you exchange these, exchange these, exchange these, as the terms come up until you're at the point in life when you actually want to start spending that income. That's the advantage.

Now, given that advantage of a MYGA over a CD, you'd expect them to pay lower yields. Well, that's not always the case, especially for longer time periods, when you're getting to 5, 7, 10 years, that sort of thing. When I wrote a post about it, and this was a few years ago, this was in like 2021, when rates were really low, I saw that you could buy CDs that were paying 0.67 for one year, and the equivalent MYGA was only paying 0.1%. But as you got to five years, that CD was only paying 1%, and the MYGA was paying 3.1%. A lot of times for these longer time periods, the MYGA actually pays a higher rate than the CD would.

Now, another alternative might be buying a bond. Let's say, I know I don't want the money for five years, so I'm just going to buy a five-year treasury bond. Well, the problem is every month that treasury bond pays you interest, you got to pay taxes on that, just like the CD. And then the money is returned to you in five years. You can't defer it like you can a MYGA by exchanging from one MYGA to another or just having the interest stay inside the MYGA and be reinvested. That's the downside of using a CD, the downside of using a treasury bond, et cetera, for that particular purpose. That's the benefit of MYGA.

So, what's the downside? Well, you got to deal with an annuity salesperson. That's a downside in my view. I don't really like talking to those guys because they usually try to sell me something else, something with more bells and whistles and a higher profit margin. And there's a lot of annuities out there. And most of them are designed to be sold, have all kinds of bells and whistles, and have high profit margins. But that doesn't mean if you're willing to be a careful consumer, you can't just buy the good ones.

Most mutual funds are crappy too. If you don't know how to pick a low-cost, broadly diversified index fund, you could end up with a 1% plus a year expense ratio on some crappy, actively managed mutual fund. And lots of us have 401(k)s that are filled with those kinds of funds. So, if you pay attention and only buy the good ones, there's a good chance you can do better with it than you can with a CD or even a treasury bond.

Now, one thing you can't do with a MYGA, at least I haven't seen one yet. Someone will write in, I'm sure, if one's been invented. But you can't really get inflation protection with it. One thing you could do is you buy a 5 or 10 or a 30-year TIPS, a Treasury Inflation Protected Security, or you get similar inflation protection in a US government I Savings Bond. You can't do that with a MYGA. You're not going to get insurance or inflation protection.

It shares that downside with a CD or a typical treasury bond. But it's possible that, yes, you can get a higher yield. And it's possible that, yes, you can have some tax savings in the long term using these MYGAs instead of a CD or that sort of thing.

Now, should you be buying them instead of stocks or real estate? No. This is a bond equivalent. You should be buying this in place of money you would have in a money market fund, the money you would have in a CD, money you would have in a treasury bond, that sort of a thing. That's what it's replacing in your portfolio. Maybe a bond fund as well, that sort of thing, although they act a little bit differently. I would expect fairly similar returns out of all of those products in the long run.

The fourth kind of annuity that's sometimes reasonable to buy is a variable annuity. And most variable annuities are terrible. But a low-cost one does have a place for some people. Typically, it's when they realize they bought a whole life insurance they shouldn't have, and they're way underwater on it. If you exchange the cash value in that policy into a low-cost variable annuity, you can let it grow back to your basis, the amount of the payments you made in that insurance policy. And that growth back to basis is totally tax-free.

So, it might be worth paying a little bit of extra costs, like you would in that low-cost variable annuity, in order to get that tax-free growth. And then you can cancel the annuity and walk away from it. Some people do that with variable annuities. Maybe if you have a very tax-inefficient asset class, and you can't put it into a retirement account, but you have to invest in it, maybe you could use that in a low-cost variable annuity to come out ahead. But most of the time, those are investments that are probably better avoided, designed to be sold rather than bought.

There's all kinds of annuities out there that really aren't that reasonable. You probably shouldn't be buying. This includes most variable annuities, fixed index annuities, and any complex annuity. Avoid those sorts of things. But MYGAs, it's totally reasonable.

Now, have I bought any MYGAs? No. Have I been out shopping for them? No. And so I can't tell you that this company you mentioned is any better than any other company at offering them. But if I were going to buy one, if I was going to put substantial money into one, like it sounds like you were going to, I would do that research.

I would look at a few things. I would look at how stable the insurance company is. Is it likely to be able to keep its promise, to keep and fulfill its contract? What is the financial stability of this company? I would look at the yield. I would compare it to alternatives for my particular use. I'd be looking at buying treasury bonds. I'd be looking at a money market fund. I would be looking at CDs. Is it really going to pay me enough more that it's worth it to me to deal with the hassles of the annuities? Because it's pretty darn easy to put money into a money market fund compared to buying a MYGA. And if the answer is yes, then knock yourself out. Go buy a MYGA. Totally reasonable.

There's a fair number of people on the Bogleheads forum. They tend to be relatively conservative investors who are into MYGAs. If you search MYGA on that forum, you'll see lots of discussion about it and get connected to the best deals at the current time period as far as MYGAs go.

Okay, let's take another question. Different topic.

Can An HOA Invest Reserve Funds in Stocks, or Should it Stick to Cash and Bonds?

Dr. B:
Hi, Jim. Thanks for your work as always. This is Dr. B, a surgeon in the northeast. I have a unique question I'm hoping you can offer some help with. I sit on the board of the upscale community, about 100 homeowners within it, and we have a private road network that's about four miles that needs to be replaced every 15 to 25 years.

Our most recent estimates show that we should plan on a budget of $3.5 to $4 million in about 20 years to replace the roads the next time they need it. Historically, the majority of our HOA dues are placed into this road cost sharing fund, though we have an annual budget that provides for some other landscaping and snow removal as well.

The investment plan for this road cost fund has traditionally been in mostly cash and bond assets, but my question for you is, with the investment timeline and location of assets within an HOA, is it legal and also recommended to have a certain portion of this fund in other asset classes like stocks?

This seems to be a little bit outside the typical descriptions of investors in your recommended advisor page, so any help is greatly appreciated. Thanks so much. Our next HOA meeting is March 8th.

Dr. Jim Dahle:
Well, I want you to know that I'm recording this question, this answer to this question, on March 3rd, but I don't think you're going to hear it before March 8th. I think this podcast is scheduled to drop on April 2nd, so I'm real sorry about that, but there is a lag time between getting these Speak Pipe questions and getting them answered on the podcast. We just don't record podcasts the day before they drop. I'm far too busy seeing patients in the ER and going skiing and traveling and doing other stuff to run that stuff out at the last minute.

If you have very time-limited questions, you're far better off posting them in our communities, the White Coat Investor forum, the White Coat Investor subreddit, White Coat Investor's Facebook group, the Financially Empowered Women's group, or shoot me an email at [email protected] if you've got a time crunch on your question. We might still answer it on the podcast later, but if you record a Speak Pipe, chances are you're probably not hearing the answer in the time period that you need it.

Your HOA is essentially an institutional investor. You might not have that much money, maybe we're only talking about a few tens of thousands or hundreds of thousands, maybe a few million dollars. This isn't exactly Harvard or Yale or some huge church or something like that. You've got an expense coming, you know more or less when it's coming. If you're in year two of 20 with these roads, it seems reasonable to take on some risk. You could probably even take on some illiquidity and hopefully grow that money so HOA dues don't have to be as high as they otherwise would have to be because your money's doing some of the heavy lifting.

But I'll tell you, there are people in your community that are not as comfortable with investing risk as you might be. When they find out that you invested 60% or 90% of the HOA money into the stock market, and then the market dropped 40%, or maybe it had a lost decade like the 2000s in the US stock market, where it barely had any sort of a positive return, they might not be very happy with you.

Lots of institutional investors, and I suspect lots of organizations like HOAs and school districts and those sorts of things tend to invest very conservatively. They keep a lot in cash, maybe a little bit of treasury bonds. Because of that, they end up having to pay more money for the stuff they buy on average.

But they don't have to answer to taxpayers, they don't have to answer to HOA members when the investments do poorly. You're having this meeting and presumably maybe you're going to volunteer to be on the investment committee, and there probably needs to be a committee of people making these decisions, so it's easier to defend yourself when the inevitable pitchforks and torches come out after a market downturn in year 7 of these 20 years, and again in year 14 of these 20 years, and the money takes this huge hit.

What I would advocate for if I was on that committee is a balanced approach. Maybe for the first 10 years, you can have a 60-40 portfolio. Maybe for the last 10 years, you can have a 40-60 portfolio. Then when you go, “Okay, we're going to buy this a year from now, we're going to buy this two years from now, we're going to redo all the roads, let's move it into a money market fund, so we don't have to worry about volatility.”

That seems like a reasonable way to approach it to me. I think I could defend that in front of a crowd full of people with torches and pitchforks, but whether your investment committee can or not, I'm not sure.

Now, would I recommend you volunteer to be on this committee? Maybe not. You might be the savviest person in the whole community though, so it might be a big benefit to the community if you were on it, but bear in mind that there is some not only reputational risk there for you, now maybe nobody in the community is going to choose you as their surgeon because they think you're not very smart, or there's also some financial risk there.

Typically, an organization like this would choose to purchase some errors and omission insurance of some kind to protect you as a board member, as an investment committee member from those sorts of lawsuits as a personal person, but be aware that that would be a risk. I hope that's helpful for you.

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Thanks for leaving us five-star reviews. Thank you for telling friends about the podcast. This recent one comes in from EconoPNW who said, “10X my retirement. Thanks to Dr. Dahle and the entire team at WCI for the useful, helpful, and inspiring advice. Divorced with a small nest egg of $300,000 at age 50, I now 13 years later have $3 million and can retire anytime I wish. Travel, donate to good causes, and know my future is secure. The pitch of the podcast is perfect from basic to technical to downright geeky material. I've benefited greatly from your counsel. Sorry, I'm too shy to sign up for Milestones to Millionaire. Thanks again.” Five stars.

Wow, what a nice review. Thanks for sharing that, and congratulations on your success. That's awesome. So many people think that a financial setback is forever, and you've shown that it's not.

All right, everybody, keep your head up, shoulders back. You've got this. We're here to help you. We'll 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.

Transcription – MtoM – 268
INTRODUCTION
This is the White Coat Investor podcast Milestones to Millionaire – Celebrating stories of success along the journey to financial freedom.

Dr. Jim Dahle:
This is Milestones to Millionaire podcast number 268.

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 to get this critical insurance in place, contact Bob at www.whitecoatinvestor.com/protuity today. You can also email [email protected] or just pick up your phone and call (973) 771-9100.

Okay, I am not even home yet as this podcast drops. We've been doing WCICON all this last week. We've been in Las Vegas. But as we mentioned at the end of the conference this year, we're not in Las Vegas next year.

Next year, we're going to Orlando. We're going to be on the other side of the country. So those of you who've been waiting for us to come back to the East Coast, this is your chance. We're going to be at the Rosen Shingle Creek, and we're going to be there February 24th through 27th, 2027.

If you'd like to go, if this is something you've been waiting to do for years, this is the time to book. This is as cheap as it will get. We literally just finished the last one two days ago. So we're having what we call our pre-sale, and this thing only goes through April 2nd. That's like three days from now, four days from now if you're listening to this the day it drops.

But from now until then, you get $500 off. It's as cheap as this conference ever gets. We will not sell it for cheaper at any point between now and when the conference is. And of course, it's a year from now, I get it. Everyone's like, “I don't know if I can commit to that.” Well, they're refundable through August. Through August 28th, 2026, with a $99 cancellation fee to cover our credit card processing costs, you can basically get a refund.

And of course, all in-person registrants can downgrade to the 2027 online course and receive a credit for the difference in cost between the course and the in-person conference registration through February 1st, 2027.

So, no decision is ever final. You can downgrade it. And you can even cancel it up until the cancellation date. All you got to pay is the credit card processing costs, basically. So, don't feel bad that maybe your plans will change. That's okay. Very few people change. A few do every year, but not very many. Most of you, we end up seeing you at the conference.

If you've come before, or if you haven't come before, come to the Physician Wellness and Financial Literacy Conference. It may be life-changing for you. It is for many people who attend. If nothing else, you will meet some people and make some friends that you can actually talk to about money and finances and all your concerns and worries and successes, and they'll celebrate them with you.

But even if it isn't dramatically life-changing, it sure is fun. And we have a great time. We go home with more wellness than we came with, and usually with a lot more financial smarts. Honestly, given your income, you only got to learn one useful thing while you're there to pay for the entire conference and all your time there. That's just the way physician finances work. If you can just make sure you're doing things right, those little tweaks you do on your plan compound over the years and can be worth quite a bit of money in the long run. wcievents.com is where you go to book. And like I said, right now it's $500 off. It's the cheapest price you're ever going to get.

All right, we've got a great interview today. And after that interview, we're going to talk for a few minutes about crypto, everyone's favorite subject. Well, maybe not right now. Crypto is not having the greatest year ever, but it's still interesting to talk about. So we'll talk about that for a few minutes.

INTERVIEW

Our guest today on the Milestones to Millionaire podcast is Dylan. Dylan, welcome to the podcast.

Dylan:
Happy to be here.

Dr. Jim Dahle:
Tell us what you do for a living and what part of the country you're in and how far along you are in your career.

Dylan:
I am a PGY-4 interventional radiology resident in the Southwest U.S.

Dr. Jim Dahle:
And we're going to celebrate multiple milestones today. Tell us what you guys have accomplished.

Dylan:
Yeah, I really only figured it out when we were doing our end of year financial review, but we paid off my wife's car, maxed out mine and my wife's Roth IRAs. We paid down about $7,000 of her student loans. And I actually also recently opened my own solo 401(k) and started funding that.

Dr. Jim Dahle:
Congratulations. Are you doing some moonlighting then?

Dylan:
Yes. That's kind of how we were able to do a lot of this.

Dr. Jim Dahle:
Yeah. It's amazing when your income goes up, how much easier all this financial stuff is, huh?

Dylan:
Yeah.

Dr. Jim Dahle:
Okay. Tell us, what does your spouse do for a living?

Dylan:
She's in pharmacy. Works as a pharmacy tech writing prescriptions for long-term care facilities.

Dr. Jim Dahle:
A normal job for lack of a better term.

Dylan:
Yeah, more or less. Yeah.

Dr. Jim Dahle:
She's not another interventional radiologist that's been out of training for four years or something.

Dylan:
No, she doesn't want anything to do with that.

Dr. Jim Dahle:
Okay. When did you guys start getting interested in all this financial stuff?

Dylan:
I got interested in medical school. It actually first started, I want to say it was like my third or fourth year. It was during COVID. I remember actually, I couldn't find the email, but I remember I had sent you an email a while back being like, “What should I do?” And I was kind of annoyed.

Dr. Jim Dahle:
I bet I can find this email.

Dylan:
I remember it seemed like kind of a snarky response and it was just like, “You're going into radiology, you're going to be fine.” That was kind of helpful to take some of that stress off. But I tried to dabble in some investing during med school, but it was a difficult time and obviously with not much money, but just trying to listen to podcasts, read blogs, books, but just kind of been doing that over the last few years.

Dr. Jim Dahle:
Yeah. Very cool. Yeah. I see this email exchange is from November 14th, 2020.

Dylan:
A little while back.

Dr. Jim Dahle:
And it is a little snarky, typical for most of my emails, but very cool. I said something like “If you told me $650,000 in student loans, or you told me you were going into preventive medicine, that's a different scenario, but $250,000 in radiology, no problem. You're going to pay this back within a couple of years of getting out of training.” Pretty awesome. And ever since then, you've been doing better and better and better.

Okay. Tell us about these conversations you have with your spouse about how you guys manage money.

Dylan:
We aren't perfect, but we try to sit down at the end of every month. I kind of nerd out and have a spreadsheet. I have a tracking app that tracks all of our spending and where we're putting everything. We've set different categories to basically track what we're spending each month, what we're putting away and see where we're at with our spending, just to try to not get too ahead of ourselves.

We were doing okay with our income. We were both actually previously married. Both of us divorced and we just remarried. And I know she had said from her past relationship, there were some not so great financial habits and practices from her past marriage. And so, really just trying to start on the right path moving forward and build those habits during this time so that when I do finally become an attendee, we can kind of just hit the ground running and get to where we want to be.

Dr. Jim Dahle:
Okay. Well, tell us a little bit about your income. You mentioned that you've been doing maybe a little bit of moonlighting now, but give us a sense of what the household income has looked like the last few years.

Dylan:
Yeah, it's changed. I went back to try and calculate it. When I started residency in July, 2022 for that year, our combined income was just over $50,000. She'd worked the whole year. I only worked half the year. Then halfway through my PGY2 year, we actually got about a 10% raise. The student union advocated for a raise. That added about $6,000 to my PGY2 salary. End of 2023, our combined income was just under $80,000. 2024 was about $110,000. That was when I started moonlighting. And then just this last year, I've kind of ramped up a little bit. And the total gross was about $150,000. After the adjusted gross income from taxes this year was just like $119,000.

Dr. Jim Dahle:
And what does a radiology resident do for moonlighting?

Dylan:
A lot of it is contrast coverage, just sitting and babysitting the scanner. But there are some interpretive moonlighting opportunities, basically like reading studies and getting paid for that. Obviously, you have to do it within reasonable work hours. A lot of it right now is mostly just contrast coverage.

Dr. Jim Dahle:
And you may even be allowed to sleep during contrast coverage, are you?

Dylan:
You could. A lot of it, I'm preparing for boards right now. So, it's usually just a paid study block.

Dr. Jim Dahle:
Yeah. Well, that's almost as good, right? That's pretty good double use of your time there, for sure. But clearly, you guys have not yet hit the big bucks, right? Everyone's always saying, you always have these high earners on the Milestones podcast. And maybe someday we'll have you back on when you are a high earner, but maybe not quite there yet. Give us a sense for where your family is sitting financially. Have you calculated your net worth recently?

Dylan:
Yeah, I actually tried to, this is what I say, I kind of nerd out on it and keep track of it. I updated it today. We are sitting right at negative $250,000.

Dr. Jim Dahle:
Negative $250,000. And give us a sense, what's that worth? Tell us about the liabilities and the assets.

Dylan:
Yeah. $325,000 of that is in loans. My student loans are at about $312,000 now. I've got about $4,500 left on my car. Like I said, we paid off my wife's car about a year ago now. And then my wife still has about $7,500 left on her loans. And then as far as assets, we have about just over $65,000 invested and then about $9,500 in cash. About $75,000 in assets.

Dr. Jim Dahle:
Yeah, you guys are doing great. You should be very proud of yourselves. You may not know yet. You may not be close enough to your attending job, but how do you expect you're going to manage those student loans?

Dylan:
I plan on just trying to pay it down as quickly as possible. My wife does not like the idea of having debt, even if there is a plan long-term or whether or not I can out-earn in the market investing the difference. But the goal is for sure to pay them down in less than five years, possibly within three years outside of training.

Dr. Jim Dahle:
But you don't anticipate a public service loan forgiveness qualifying job?

Dylan:
No. The goal is to go private practice. My wife and I have talked about this and we're on the same page where we currently rent our house. We're just going to keep renting essentially until the loans are all gone. And then once we're out of debt there, then we'll look at possibly building or buying a house or whatever.

Dr. Jim Dahle:
What are you guys investing in now?

Dylan:
Right now, it's mostly just index funds, S&P 500 and some growth index stuff. And then some random tech stocks here and there from when I dabbled in med school that aren't really doing a whole lot, but just kind of holding onto it.

Dr. Jim Dahle:
Well, if you've had them since med school, they've probably done something.

Dylan:
Well, I made some not smart decisions to some of them.

Dr. Jim Dahle:
We all got to learn that lesson either ourselves or vicariously for sure.

Dylan:
Yeah. It wasn't large sums of money, so it's not like it's hurting me right now.

Dr. Jim Dahle:
That's how I feel is I made all my mistakes early on with small amounts of money. That's the time to make them for sure. Well, very cool. You guys are doing awesome. You should be very proud of your financial literacy and your financial discipline and all the debt paying off you're doing and starting to invest and all that.

What advice do you have for somebody out there that's maybe a couple of years behind you or maybe they're in training too and they're like, “I got to get on top of this stuff. I'm not doing any of this stuff he's doing.” What advice do you have for them?

Dylan:
I think the biggest thing that has helped me, obviously, has been being able to moonlight. I know outside of radiology, there's moonlighting opportunities. I had a buddy who isn't attending now, but he did physical medicine rehab. He moonlighted a lot. I know there's emergency med docs that have moonlighting opportunities during residency. I think finding a way to do that and supplement that income has really helped take a lot of the burden off.

And then a lot of what I was just taught growing up just living within your means and not spending more than you make. There's a lot of colleagues that I know that have ridiculous car payments or paying significantly more for their rent than we are. And we have a family and a lot of these friends and colleagues are single or don't even have kids. And so, there's a lot of decisions that you can make as far as where you live, what you're paying for your month-to-month expenses.

But on the flip side, I think we try not to limit ourselves too much. We know that once I'm attending, we're going to have the income. And so, we do still try to have fun during residency. We just came back from Disney World last week, where we probably spent more than we should have. But we're still within our goals for what we're trying to do. And so, especially during residency, it's hard. And I think it's important to still have fun. But whatever we can do to develop those habits early, I think will pay off long term.

Dr. Jim Dahle:
Yeah, for sure. Moderation in all things, right? Well, Dylan, congratulations on your success. You guys have done awesome. Should be very proud of what you've done and what you're headed toward. We're excited to maybe hit you back for another milestone in a few years and see you again on the podcast. Hopefully, I'll be less snarky by then. I'm getting a little better as the years go on. It's really fun to go back and look at an old email and then put a face to the name. I appreciate you pointing that out.

Dylan:
Yeah, no problem. I'm happy to be here. I appreciate the opportunity.

Dr. Jim Dahle:
I hope you enjoyed that interview. I love closing the loop with people when they come back after 10 years after I sent them an email or after they came to the conference or after they took one of our online courses or listen to me speak somewhere and just tell us how it's changed their life. It's really fun to hear.

This story is fun because everyone's always like, “Oh, we don't want to hear from the people that make a gazillion dollars a year. We want to hear from people that are more like us.” There's somebody still in training. Spouse isn't making tons of money and they're accomplishing what most who listen to this podcast would consider pretty modest goals. Maxing out Roth IRAs, paying off a car loan, that sort of thing. Throwing a few thousand dollars in student loans, getting a moonlighting gig. These are not deca millionaires by any means.

But the truth is milestone by milestone, we all make our progress toward our financial goals throughout our lives. And even those who accomplish relatively small milestones can inspire those working on the big ones. We're appreciative to them for coming on. And of course, if you want to come on this podcast, you can sign up at whitecoatinvestor.com/milestones.

FINANCIAL BOOT CAMP: CRYPTO

I mentioned at the beginning, we're going to talk for a few minutes about crypto. So let's do that.

We're going to talk about crypto, cryptocurrency, crypto assets. This is a huge category of assets out there. But when most people think about it, most people are thinking about the leader in this category, Bitcoin.

Most of the comments I'm going to make today refer to Bitcoin, but most of them also apply to other crypto assets. Obviously there's differences between the thousands of crypto assets available out there and Bitcoin. And if you really get into this space, you can learn an infinite amount of material about all of these. But I want you to understand the basics of investing in these sorts of assets.

Let's start with the pros. The first pro of investing in Bitcoin or Ethereum or any of these crypto assets is you might just get fabulously wealthy. It's entirely possible. If I had bought a few Bitcoin when I first learned about it in 2011 and waited until the beginning of 2025 to sell it, I would have made a great deal of money. Now I would have had to hold it through some seriously volatile times, but I would have made a lot of money if I could do that.

I've run into a few people out there that really got into this stuff a few years ago, put a lot of money into it, sometimes swapped around and traded a little bit and ended up being fabulously wealthy.

One guy, I think, was in his 20s, was worth $50 million. That's one of the exciting things about this. And let's be honest, the reason why most people get into it. They watch these exploding charts of it going through the roof and they say, “I got to get me some of that. And that's why they get interested in that investment.” Is it possible? Yeah, it's possible for this to happen to you. I think most people that invest in it don't get fabulously wealthy on it for various reasons, but it is possible.

Another pro about it is that you're going to learn more about it. When you invest in something, you pay more attention to it. So, if you really want to learn about this stuff, I'd encourage you to put a little bit of money into 10 or 15 different crypto assets or cryptocurrencies. You're going to learn. You're going to learn a whole bunch of money about it. You don't have to put a ton of money into it, but just a little bit and you'll pay a little more attention to it and you'll see how it really works.

Certainly, if you're thinking about getting serious, putting something like 5% of your portfolio into it, it doesn't hurt to mess around with little tiny amounts for a while to learn more about it. Better to make all your mistakes with a tiny amount of money, I assure you.

Another pro of Bitcoin is that you can smuggle money. Now, it sounds criminal to smuggle money, but you know what? Imagine you were in Nazi Germany in the 1930s and you wanted out and you wanted out with the substantial portion of your wealth. So you're sewing jewels and gold into your clothing and trying to get out of the country.

Well, you know what works a heck of a lot better than that? Bitcoin. Bitcoin works a heck of a lot better than that. It's way good for smuggling money. This might be why some criminals like to use it, but it works very well. In fact, that might be the best use case for Bitcoin is to flee a terrible political situation with some or most of your wealth. And so, I think that's a really cool use case for it.

And even if it's some tiny percentage of your wealth, I don't recommend, even those who are serious about this, put more than a single digit percentage of their portfolio into it. But even starting over with 5% or 10% of your money is huge compared to starting with nothing.

Another great pro of crypto assets is capital gains tax treatment. People wanted to say it was a currency. Everyone was going to be buying pizza and gas with it within a couple of years. That didn't really pan out. Nobody's buying pizza and gas with Bitcoin these days. Yes, there's probably a pizza place somewhere that'll sell you a pizza for some tiny percentage of Bitcoin, but nobody's really doing that.

Part of the issue is the US government decided, “Okay, this is an investment. We're going to give it capital gains tax treatment.” Okay. Well, that's cool because not all speculative assets like Bitcoin get capital gains tax treatment. Precious metals get collectibles tax treatment. That's a higher rate in capital gains tax treatment. So that's a really cool aspect of crypto assets.

Another cool tax aspect of them is that there's no such thing as a wash sale with Bitcoin. Your Bitcoin goes down 70% in some terrible crypto winter, you can sell it, buy Bitcoin back 10 seconds later and claim that loss on your taxes. Now, like any other capital loss, you can only use $3,000 a year of it against your ordinary income, but you can use an unlimited amount of it against capital gains and carry an unlimited amount of it forward over the years. That's better than stocks. Stocks, you got to wait 30 days, one month to avoid having a wash sale on a tax loss harvesting transaction. So, that aspect of crypto is a little bit better than mutual funds or stocks, et cetera.

Another cool thing about it is that it has low correlation with other asset classes. Yes, it tends to be viewed as a risky asset. When risky assets go down, stocks and real estate, et cetera, it tends to go down a little bit more. But in reality, it doesn't have much correlation with anything else you invest in. Stocks, bonds, precious metals, real estate, whatever. It has pretty low correlation with all that stuff. And that's a good thing in a portfolio when your asset classes have low correlation with each other.

Another really cool thing about crypto, Bitcoin in particular, is blockchain security. It's a really cool invention. There's lots of ways it could be used. People are still trying to sort out all the ways that it can be used. But decentralized records of ownership, it's never really been hacked in that way. Exchanges have been hacked and Bitcoin has been stolen that way. But as far as the blockchain breaking down, it's never really happened. That feature is really pretty cool. And it's an exciting invention.

Another pro of crypto and crypto assets is you can trade them 24 hours. You don't have to wait till the markets are open. Basically, four times as often as you can trade a typical security, you can trade crypto assets.

Naturally, there's lots of cons. The first one that comes up on my list is that it's a speculative asset. What do I mean by that? Well, I mean, it doesn't produce anything. In that respect, it's like gold or other precious metals. It's like Forex investing in other currencies. It's like empty land that you can't rent out for whatever reason. You're basically relying on somebody else to pay you more for it down the road. It's not going to produce any interest, any profits, any earnings, no rents, nothing like that. It's just value. You're speculating on future value when you invest in this. And that's not a place lots of us like to put lots of our money.

The second one is that it's just super volatile. The downturns are huge and they seem to come every couple of years. Now, nobody minds volatility so much when it's going to the moon and skyrocketing, but this sort of an investment requires you to be very tolerant of volatility. And most investors are not. They panic sell when things go down sharply. And if that's you, this is not an investment for you.

I'm not sure I can tolerate the volatility of Bitcoin. I've been investing for two decades relatively successfully, but I don't know that I can tolerate that volatility. You've really got to have what those in this world like to describe as diamond hands in order to hold on to it through the frequent downturns in its price.

The third downside is it has a fairly long, steep learning curve. I suspect I know more about Bitcoin than most of the people that own Bitcoin, but it's relatively complicated. By comparison, it makes a typical stock or bond mutual fund just look downright simple. Don't invest in stuff you don't understand. And I suspect only a tiny fraction of crypto asset investors really have more than a superficial understanding of their investment.

So, if you really want to invest in this, I would recommend you spend some time learning about it. I think that'll help you stay the course, the serious volatility it's got. But people who are in it say, you got to read for a thousand hours before you really understand it. I don't know, maybe I've read a thousand hours about Bitcoin over the years, but if you don't want to spend a thousand hours reading about this stuff, then maybe this isn't the asset class for you.

Another issue with it is counterparty risk. Where are you going to put your Bitcoin? All of these crypto brokerages, for lack of a better term, don't have the greatest reputation. A number of them have been hacked. Many of them gone out of business, gone bankrupt. Turned out their founder was a fraudster, whatever. That's a pretty serious risk.

Now, if you take it off the exchange and put it into what's called cold storage, that brings its own risk. It's easy to lose the keys and that sort of a thing, but you can't eliminate that counterparty risk. Otherwise you're going to be dealing with this counterparty risk. And you buy a mutual fund at a brokerage, it at least gets some securities investor protection corporation, SIPC protection. It's only up to half a million dollars, but at least there's some fraud protection there that doesn't really exist at Coinbase or other crypto exchanges.

Another big downside is there's a lot of manias and scams. People just go crazy, “It's going up, I got to get some.” Well, that's not generally a great time to be buying investments. And of course, anytime you have some sort of an alternative, it attracts the scammers, it attracts the fraudsters. And so, there's quite a bit of that. Crypto investing really is the wild, wild west still, and you got to be careful about that.

Another downside is regulatory issues. Some issues have been worked through in the last decade, there's still plenty that haven't. And they're still trying to sort out how it's going to be regulated, how it's going to interact with our government and other governments. And sometimes there are surprises in how things get decided. As the rules change over the years, that can have serious effects on the value of your investing.

Okay, another downside is it's relatively unproven. This stuff hasn't been around that long. Bitcoin was invented in 2009, lots of people didn't even hear about it until 2015 or even 2020. This is not the same as stocks that have been around since the 1600s.

We've got very good stock market data that goes back a century or two centuries even, you just don't have that sort of investment history with crypto assets. It's all relatively short time period, feels like could be easy come easy go.

We'll look back on it 50 years from now, and a lot of these projects are just going to be gone, they'll have gone to zero. We don't know which ones will still be around. The real winners may still not have been invented yet, we just don't know, it's unproven. So, that's a downside of these investments.

One of the issues with cryptocurrencies in particular is most of them do not scale well. Everybody can't use them all at once. Slow transactions cost money, they subtract value, it's a serious limiting factor in the everyday use of crypto assets of any kind. Hopefully this can be solved with further technology and computing speed, but at present, it's just not there yet. It works at scale for a speculative asset, it doesn't work at scale for any sort of a real currency. Another issue is there are some security risks. I mentioned losing keys, I mentioned exchanges can be hacked, etc. So you got to be careful with those as well.

Now the real question everybody has is what's going to happen with crypto? Is it going to go up? Is it going to go down? What's it going to be worth in 10 years or 50 years? The truth is I have no idea. I have no idea. If I was forced to guess, I would expect that it continues to be around in some form.

I think cryptocurrencies are going to become more useful as time goes on. I don't know which one's going to be the best one, 10 years or 20 or 30 years. The Bitcoin fanatics believe there's no way anybody's ever going to catch up to Bitcoin. I'm not so convinced, but have I seen its replacement? I certainly have not. So, I have no idea.

If you want to speculate on its price, I'd recommend you limit it to no more than five, maybe at the most 10% of your portfolio. That way, even if it goes to zero, you've still got 90% or 95% of what you saved and invested for retirement. And it's not going to cause you to be eating alfo in retirement.

On the other hand, if you believe in this stuff, you think it really is going to be worth a million dollars 10 years from now, you think that's a very good chance that's going to happen, I would recommend that you don't just put like $500 or $5,000 into it, put 5% of your portfolio into it. Make it enough that it's actually going to make a difference in your financial life. Not so much that it's going to tank if you're wrong, but enough that it's going to make a difference. And I think that's probably something like 5% when it comes to a portfolio.

I hope that's helpful to you and helps you to understand crypto.

SPONSOR

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

Contact Bob today at emailing [email protected], calling (973) 771-9100 or going to www.whitecoatinvestor.com/protuity. Get your disability insurance today. And if you're not sure if you have the stuff, it's a great opportunity as well to have it reviewed and be 100% sure.

Keep your head up, shoulders back. You’ve got this. We’ll see you next time on the Milestones to Millionaire podcast.

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

Hello. My name is Tyler Scott with White Coat Planning, and Dr. Dahle has asked me to come share a principle with you today. I’m excited to talk about target date funds. Target date funds are the ultimate in “set it and forget it” investing because they do three really useful things for us that require no additional work or management on our part. First, they give us an appropriate asset allocation for our age. By asset allocation, I mean our mix of stocks and bonds. For example, I’m 40 years old, so I invest in the 2050 target date fund in my Vanguard 401(k). The year 2050 is about when I’ll turn 65, so the fund knows I’m roughly 40 years old and gives me an allocation of about 90% stocks and 10% bonds. About two-thirds of the stocks are U.S. and the other third are international, giving me a very reasonable, highly diversified, low-cost mix that’s appropriate for my age.

The second thing target date funds do is adjust our asset allocation automatically as we age. It’s one thing to have a 90/10 stock-to-bond portfolio at age 40, but it’s very different to maintain that same level of risk at age 60. When you’re younger, a market downturn isn’t a big deal because you have time to recover. But as you approach retirement, you want more stability. Target date funds handle this by gradually shifting your allocation over time, moving from something like 90% stocks toward a more balanced mix like 60/40. This gradual shift is called a glide path, and the fund manages it for you automatically.

The third benefit is automatic rebalancing. Over time, different parts of your portfolio will grow at different rates, which can throw off your intended allocation. Normally, you’d have to manually sell some assets and buy others to get back to your target mix. But target date funds handle this for you, regularly rebalancing so you stay aligned with your intended allocation without lifting a finger.
Now that I’ve hopefully sold you on the benefits, let’s talk about a few nuances. These are sometimes called target retirement funds, but I don’t love that term. The date you choose shouldn’t necessarily be based on when you plan to retire, but rather on your expected longevity. Financial planning often assumes you’ll need money until around age 95, so many investors choose a fund aligned with their 65th birthday instead. If you’re investing as a couple with different ages, a simple approach is to use the average age and choose a fund based on that.

Risk tolerance is another factor. If you want to take more risk, you can choose a fund with a later date, which keeps more money in stocks for longer. If you want less risk, choose an earlier date. Also, not all target date funds are created equal. You need to pay attention to what’s inside the fund and especially to the fees, known as the expense ratio. Low-cost providers like Vanguard, Fidelity, and Schwab often offer excellent options, while higher-cost funds can significantly eat into your returns over time.

One underrated benefit of target date funds is simplicity, especially for estate planning. If something happens to you, there’s nothing for a spouse or family member to manage—the fund keeps doing its job automatically. That said, one important caveat: avoid using target date funds in taxable brokerage accounts due to tax inefficiency. They’re best used in tax-advantaged accounts like 401(k)s, 403(b)s, HSAs, IRAs, and even 529s. If you’re looking for a simple, low-stress investing approach, target date funds are a strong option worth considering.