Marketing Your Practice

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 378 – Marketing Your Practice.

Today's episode is brought to you by SoFi, helping medical professionals like us bank, borrow and invest to achieve financial wellness. SoFi offers up to 4.6% APY on their savings accounts, as well as an investment platform, financial planning and student loan refinancing, featuring an exclusive rate discount for med professionals and $100 a month payments for residents. Check out all that SoFi offers at whitecoatinvestor.com/sofi.

Loans are originated by SoFi Bank, N.A. NMLS 696891. Advisory services by SoFi Wealth LLC. This brokerage product is offered by SoFi Securities LLC, member FINRA/SIPC. Investing comes with risk, including risk of loss. Additional terms and conditions may apply.

All right, welcome back to the podcast. We're glad you're here. Thank you, thank you, thank you for what you do on a daily basis. It's important work you do. Thank you for spending your 20s in school or residency training. It is not a small sacrifice and commitment you have made to your profession. Thank you so much for doing it.

Here at the White Coat Investor, we want to teach you how to take that high income and turn it into wealth. It's so important to understand the difference between income and wealth. Lots of people are confused about this. They think that rich people have high income, and while they often do, that is not what makes them rich. Being rich, being wealthy, being comfortable, whatever word you want to use for it, is measured by net worth. Everything you own minus everything you owe.

So, if you're coming out of your fellowship and you're making $400,000 a year, but you have a net worth of negative $400,000, you are not yet rich. High earner, not rich yet. You are a Henry, and we want to take you from being a Henry to being wealthy. The reason why is not because we want doctors to have lots of money necessarily. It's that we think doctors that have their financial ducks in a row are better doctors, better physicians, better partners, better parents.

They take better care of people because they're not worried about having to make their car payment. They're not worried about the stress of their student loans hanging over their head, all these things that people are stuck with.

You listen to our Milestones podcast, and you hear about people who at one point were very much struggling, and the effect it has on their psyche and the effect it has on their day-to-day life, it is not a good thing. We don't want that to happen to you.

The net worth surveys show that about 25% of doctors in their 60s, these are doctors that have had physician-level paychecks for 20 or 30 or more years, 25% of them are still not millionaires in their 60s. I think that's a real shame, not that they need to be millionaires, but because they are holding on to so little of what they've earned.

By the time you're in your 60s, I think you ought to have an amount of money similar to what you've earned in the past, thanks to your money doing some of the heavy lifting and that effective compound interest. If you've earned five or six or eight million dollars during your career, by the time you're getting close to retirement, you ought to have something similar to that, that it just comes from saving 20% and investing it in some intelligent way. And I think if you do that, you'll not only have a comfortable retirement, you'll be able to help others, and you'll end up being able to be a better practitioner throughout your career.

All right, let's take some questions from you guys to start with. We're going to talk a little bit later about marketing your practice, which I think is pretty important. We've got a new partnership out. You can find details about that at whitecoatinvestor.com/marketing, but we'll bring on somebody to do an interview later in this episode to talk a little more about that.

First, let's take this question from Justin.

ROLLING MONEY FROM A ROTH 403(b) TO A ROTH IRA

Justin:
Hi, Dr. Dahle. This is Justin from New York. Firstly, I wanted to thank you for all of your teaching and guidance over the last several years. Much of your teaching has sprung to my interest in really taking command of my personal finance and promoting this kind of work to my fellow colleagues and peers. I'm indebted to your service and to all the teachings that you've done.

My question revolves around contributing money from a Roth 403(b) to a Roth IRA. I'm currently in my fourth year of residency. I have another year left, and I've been contributing to a Roth 403(b) through my academic center. I plan on eventually or hope to eventually contribute this money to a Roth IRA, but was not clear or sure if this is something that I'm able to do without paying any more sort of taxes. And so I was curious to get your thoughts on whether this contribution or conversion of a Roth 403(b) to a Roth IRA after training is something that I'm able to do. Thank you again for everything.

Dr. Jim Dahle:
Okay, Justin, great question. It allows me to talk about some stuff that's important for everybody to know. There are a few people in the audience that are like, “What the heck is Justin talking about?” Because they already know this, but there's a whole bunch of you out there that don't know this. So let me teach this to you, and you'll never get confused about it again.

Terminology matters. Precision of terms matters. What you say matters. Because each of these words we're throwing out there in questions and answers like this has an actual definition.

A contribution is when you put money into a retirement account, and there's limits to how much you can contribute, because it's such a good deal to be able to save in a retirement account, the government says you can only put so much in per year. For example, if you're under 50 in 2024, you can only put $7,000 into an IRA. You can only put $23,000 as an employee contribution into your 401(k) or 403(b). Those are contributions, and there's a limit on those. Often you have a choice between a Roth or a tax-deferred or traditional retirement account, but those are contributions.

Another thing you can do is to make a transfer or a rollover. Sometimes people use the term rollover when you take possession of the money for less than 60 days before it goes into the new account, but rollover is a pretty broad term that often includes direct transfers from one retirement account provider to another.

If you are moving money from a tax-deferred account of some kind into a tax-deferred account of some kind, whether that's going from a governmental 457(b) or a 403(b) or a 401(k) into another 401(k) or an IRA, that transfer or rollover, as long as it's the same type of account, has no tax consequences. There are no penalties. There are no tax consequences.

Now usually you'll have to separate from the employer before the plan will allow you to do that, but it costs you nothing but your time and a couple of pages of forms you often have to fill out. And this process is super intimidating until you've done it once, and then you're like, “That's it? All I had to do is put the account numbers on there and the addresses and it goes over?”

It takes two or three weeks for whatever reason, but it's really a super simple process, and you're going to have to do this a number of times during your career. So, just get used to doing it, figure out how to do it. Usually it's easier to pull the money into the new account than it is to push it from the old account. I usually start the paperwork process with the new account, but this is no big deal.

This is what you're going to want to do. Because you're going from a Roth account to a Roth account, your Roth 403(b) to a Roth IRA, there's no tax consequences. That money's already been taxed. You're not taking it out, so there's no penalties to pay. It just goes, you separate from your employer, you go to Vanguard or Fidelity or whatever, and you say, “I want to do a rollover from my Roth 403(b) to a Roth IRA”, and they say, “Fill out this form”, and three weeks later it's in the Roth IRA. That's it.

You also throw out another term, which is called a conversion. What you're wanting to do is not a conversion. A conversion is moving money from a traditional or tax-deferred account to a Roth account. And generally speaking, there is a tax cost to doing that. There's no penalty or anything, but there's a tax cost because that tax-deferred money, that pre-tax money has never been taxed, and you want it in an after-tax or post-tax or tax-free account. So, you got to pay taxes on it at some point, and you do that in the year you do the Roth conversion.

Now, you don't convert money from a Roth back to a tax-deferred account. Occasionally, you got to do what's called a re-characterization of a contribution, which feels a little bit like that, but you really don't convert money back from a Roth account. It's always a Roth conversion. You're going to a Roth account.

So, what you want to do is very simple. It's very smart to do. Occasionally in some states, you get a little less asset protection in an IRA than in a 403(b). Also keep in mind, as you're getting toward the end of your career, you can get into 403(b)s and 401(k)s after you separate from the employer at age 55, penalty-free, whereas you got to wait till age 59 and a half with an IRA.

So, you don't always want to go to an IRA, but for the most part, when you leave an employer, you do want to go from the 403(b) or 401(k), etc., to an IRA, particularly if it's a Roth account. Now, if you're doing backdoor Roth IRA every year, you don't want to have money in a traditional IRA, so in that case, you want to go from your old 403(b) or 401(k) to your new 403(b) or 401(k) rather than putting into a traditional IRA. But as a general rule, most Americans, when they leave an employer, they move the money into IRAs.

QUOTE OF THE DAY

All right, our quote of the day today comes from Henry David Thoreau. In Walden, he said, “The cost of a thing is the amount of life which is required to be exchanged for it, immediately or in the long run.” A lot of wisdom there, all the way back from the 1850s.

The next question comes from Dave.

HOW TO MAXIMIZE COMPLICATED RETIREMENT ACCOUNT SITUATIONS

Dave:
Hi, WCI team. I'm an incoming fellow newly matched into a three-year program, and my wife is a primary care physician. As part of our move from my fellowship, we are comparing retirement contribution options on my wife's new job, and one of the options for partners is a Keogh plan, which I am having trouble wrapping my head around.

The contribution levels are structured as a percentage of eligible compensation times a predefined contribution percentage. The contribution levels are 25, 50, 70, or 100% of the contribution percentage as actuarially determined each year.

What I'm struggling to conceptualize is how much of an effect this will have on our cash flow month to month, as each of these contribution levels would fill the employer contribution limit of $69,000 well before the end of the year, potentially creating a yo-yo effect and even some cash flow challenges depending on the actuarial adjustments year to year.

To make matters more complicated, while my wife would be on a three-year partner track and the Keogh plan only applies to partners, the decision to participate in the plan and the contribution level must be made within the first 180 days of employment, which is then permanent. The employer also has an unmatched 401(k) and a pension, which my wife is unlikely to qualify for as we are anticipating moving to be closer to family after my fellowship is completed.

So, how should I think about this plan as a potential vehicle for retirement investment, and do you think it would be a good idea in our current situation? My sense to date has been to avoid financial plans with components that I have difficulty fully understanding but I want to get my wife insight.

Dr. Jim Dahle:
Wow, complicated situation. I think you said she's not eligible to use it anyway until she makes partner and she's in a three-year partnership track and you're in a three-year fellowship and you guys are leaving after your fellowship. I don't know that any of this matters, does it? If she can't use any of that stuff. But I don't think that can possibly be true because you're not allowed to keep a full-time employee from being able to contribute to a 401(k) more than about a year.

After that, you have to allow them into the 401(k) or it won't pass testing. So I'm sure she'll be able to use at least the 401(k). I don't know about the Keogh. It's kind of an older term. People don't use it very often, but it works very similarly to a profit sharing plan. The $69,000 limit is probably combined with that 401(k) in some way to share the same $69,000 limit.

I think what I would do in this situation is I would go sit down with HR or the HR person or the managing partner or whoever it is and figure out exactly what this is going to look like. Okay, what's this look like? We choose the 25%, the 50%, the 75%, whatever. What's that going to mean for our cashflow? What's that going to mean for how much we get in there at the end of the year?

Decide what your goals are. Is your goal is to max this thing out as soon in the year as possible? If your goal is to spread it out as much as you can throughout the year, but still max it out. If your goal is just to get $20,000 in there during the year, figure out what your goals are first and then go to them and go, “This is what we'd like to do. What's the best way for us to do it? Which of these things should we choose?” And then you can maximize whatever benefit you're interested in getting out of that.

But when it's confusing, usually that's just because you don't understand how it works. And sometimes HR doesn't understand how it works, but the problem is every retirement plan is a little bit unique, has a little bit unique rules. And so, you can ask for the document, they got to give you the document, but even so a lot of them just aren't written that well. And you got to go in and get clarification of exactly how they work.

I'm also a little skeptical, this thing can never be changed. You've got to decide as a pre-partner, how this thing's going to work three years from now, that doesn't make any sense. I'll bet there's a little more flexibility there than you think there is, but you're not going to be able to figure out how much without going in and talking to HR.

And it sounds like you're kind of the finance person in the relationship, so the two of you probably ought to go in together to get this sorted out. It's well worth your time. Pay attention to these details, read your plan documents, figure out how your plans work on the front end, rather than just ignoring them because they're complicated. And you may decide that you don't want to use this plan at all, and that's fine, but let's get all the information first, so you really understand what your options are.

INTERVIEW WITH MARITA MCCAHILL – MARKETING YOUR PRACTICE

All right, I mentioned this podcast is going to be about marketing your practice. Let me bring on our newest partner in regards to that. This is Marita McCahill. Let's get her on the line.

I'm here today with Marita McCahill. She is the founder of PracticeGRO, does consulting for helping people marketing their practice, and has recently created an online course to assist physicians and similar professionals in marketing their business. Marita, welcome to the White Coat Investor podcast.

Marita McCahill:
Thank you, Jim. I'm excited to be here.

Dr. Jim Dahle:
Let's start by just telling us a little bit about yourself and how you got interested in the marketing of healthcare practices.

Marita McCahill:
Sure. My background is, I spent 10 years in marketing for large IT outsourcing companies like Fortune 500 companies. And then as I started growing my family, I wanted to scale back and do consulting for different smaller businesses. And at the time, I had a lot of friends and family who were in the healthcare arena, particularly physicians. And they would come to me and just ask questions about, “Hey, how do I get more patients? Or what do you think about this campaign?” And I just realized there was a huge lack of understanding around personal branding and marketing in terms of the individual physician. So that's kind of how I started this journey.

DOCTOR MARKETING

Dr. Jim Dahle:
What is it about doctors that makes us so terrible at marketing ourselves?

Marita McCahill:
Kind of very similar to finances. It's just a matter of there's no education around it in the med school process. No one really is exposed to some business courses, some simple personal branding and marketing courses. I don't think people are innately bad at marketing. I just think there's no education around it. You guys are so indignant with all the medical training that there's no time taken out to tell you how to build your finances, how to grow your practice so you are financially viable and you have a great life. Personally, I don't think doctors are particularly terrible at marketing. I just don't think they understand it.

Dr. Jim Dahle:
It's a major. People can major in marketing. Years of course work at learning marketing, but I imagine there's some principles that are high yield, and once you understand those, you get 80% of the benefit with 20% of the work probably compared to someone who gets a degree in it.

Let's talk about doctor marketing. What are the most effective ways to market yourself these days? Everybody talks about online reviews, talks about your website. Do docs still need to be going around in person? Specialists going to primary care docs, trying to get referrals, take an ER call. What are the best ways to market yourselves these days in the 21st century?

Marita McCahill:
Well, in my opinion, and there's data to support this, I believe that is a combination of having a strong online presence coupled with, yeah, I do think specialists still need to do outreach to referral providers.

I think there is some data, and I have this covered in my course, but the three main ways to grow your practice is, one, with a strong personal brand and online presence. Second is through referrals. And when I say referrals, it's referrals from other providers, as well as friends and family. People who know you or your patients, friends and family, that's a huge referral network for you. And then last is other doctors, other providers in the arena.

I am a big proponent of growing your practice in all three areas. And so actually, the methodology I use is grow, it's generate your personal brand, and then reach your target audience followed by optimize your marketing. I think there's so much providers can do that doesn't require a large spend monetarily. There are lots of things you can do to grow your practice that costs very little.

Dr. Jim Dahle:
I always get the sense being an emergency doc that some of us don't need to worry too much about our online presence and nobody's checking our reviews before they come to the ER or an anesthesiologist. What specialists really don't need to spend much time worrying about this?

Marita McCahill:
The two you just mentioned for sure. The way I look at it is anyone who requires patients to find them and look for them, then they need to market their practice. But even an ER doctor or an anesthesiologist, where you don't choose those providers, you just show up and there they are. If they ever want to pivot and go to a different kind of area of medicine, or if they want to go into concierge medicine at some later state in their life, they should still have some basic marketing knowledge. But for sure, anyone who needs to attract patients is someone who needs to market their practice.

Dr. Jim Dahle:
I think these days, something like 78% of physicians and not quite that high of a percentage of dentists don't own the practice. They’re employees or they're partnering with the hospital like we do. We're our own business owners, but let's be honest, when you get an ER bill, 80% of it is going to the hospital.

How do you decide whose responsibility it is to do the marketing, whether it's the hospital or the group or yours individually? How does that get sorted out?

Marita McCahill:
My thought process is this. If you are part of a group or a hospital, they're going to take care of the large majority of your marketing. However, you want to be involved and you want to honestly build your personal brand, because if you don't, a lot of providers move practices. So you might be hospital-based for the first half of your practice. And then second half of your career, you go into private practice or reverse. A lot of private practices are getting bought right now. And so, you move to a hospital-based system. Maybe you decide you don't want to go with your group.

My concept is you need to future-proof your individual brand because you really don't know what's going to be thrown at you and where your career is going to move to. I highly recommend every provider own their own personal brand. And when I say that, they should be building their credentials online through reviews so they have their own online presence separate from their group, but not competing with their group.

An instance of that would be if you work for a certain practice, you wouldn't want to go off and create a brand that conflicts with that practice, like a totally different name. I work with providers to really understand their own brand and how to market it, but also not conflict with your hospital or not conflict with your private practice.

Dr. Jim Dahle:
I should go out and buy jimdahle.com and drdahle.com and maybe link those back to the practice website. That's sort of a practice, huh?

Marita McCahill:
Yeah, something like that. Yes. Because if you at some point decided you want to move cross-country and move to Connecticut or somewhere like that, owning your name allows you to do that a lot more seamlessly. And that is what I've worked with a number of providers is that the first half of their career, they didn't own their own reviews. And then when they decide to move, they're starting from ground zero. It just doesn't need to happen that way. You can really transfer those reviews with you wherever your career takes you and your online presence.

Dr. Jim Dahle:
We're talking with Marita McCahill. She has designed a course, developed a course to help doctors learn to market themselves better. You can learn more about this at whitecoatinvestor.com/marketing. This is a course you can buy with your CME dollars. It's eligible for 8 AMA category one hours. So it's a wonderful benefit there.

IMPACT OF ONLINE REVIEWS

Now, as far as online reviews, a lot of people don't get interested in their online reputation or online marketing until they get a bunch of bad reviews. They're not exactly proactive about it. So let's say you're starting from that point, like I suspect many people are, you've got a few bad reviews that you think are hurting your business. What can you do about it?

Marita McCahill:
One of the best things you can do is offset the negative reviews with a lot of positive reviews. So say, you have 20 reviews and five of them are negative. Really the only way to offset that percentage is by building up your positive reviews. And this is something I cover in the course quite extensively.

First off, if you get a negative review, how do you respond to it properly? And there's HIPAA compliant ways to do that. And a lot of times physicians aren't doing that themselves. It's someone in their office, which is great. But if you're in private practice or you own a smaller practice, you're going to want to make sure whoever is responding to those reviews is doing so in a HIPAA compliant manner.

Second, there's a lot of ways to deal with negative reviews. And one of them is just to reach out to the person, the patient directly and try to resolve it offline, if you have negative reviews and hope, maybe they take it down. If they don't, you're just going to need to bury bad reviews with a lot of really positive ones. And that's a great approach to doing that.

And then just another thing that I cover in the course is how do you just avoid getting negative reviews in the first place? Because a lot of negative reviews come from some very simple things that could be avoided. And one of them is you're running late. A lot of times people write reviews, “The doctor didn't respect my time, he was running late.” And there's some easy strategies that you can employ in your practice to get ahead of someone leaving you a negative review. So, those are some of the things I cover.

Dr. Jim Dahle:
Yeah, a lot of them don't have a lot to do with the doctor. They're mad they got charged for parking at the hospital, or they're mad that the front desk person didn't treat them well, or they didn't like the waiting room or those sorts of things. Do you get the sense that people reading reviews understand that that stuff isn't about the doctor? Or do you think they're just going, “Wow, five negative reviews?”

Marita McCahill:
I think they read the reviews and they do consider what's being said. However, most people want to have a positive experience. So, if you do have a lot of negative reviews, even if it's not on you, it still reflects on you. If there's a lot of reviews about a negative receptionist, people probably will say, “Well, I just rather go to a provider that doesn't have negative office experience.”

I know personally, as a patient, I left a provider's office because they had a very rude receptionist. And that caused me to take my business, and it was a pediatrician's office, elsewhere. And that had nothing really to do with the providers. As a patient, you deal with your front office staff quite a bit.

Again, I teach tracking how patients leave reviews and looking at if it is coming from the front desk, then you need to spend some time working with the people in the front desk on how to do a better customer service. Or if it's constantly that you're late, how do you avoid those issues so you don't get the negative reviews? Because at the end, people look at the number of negative reviews you have or your percentage of five-star reviews.

Dr. Jim Dahle:
Is there a way to get good negative reviews? Let me give you an example. One of the ski areas around here launched this campaign using all their one-star reviews. And there are lots of silly ones, just like there are for national parks. They had one-star reviews that said too much powder or the terrain is too steep or all the things that people come to Snowbird looking for. And they highlighted those as negative reviews. Have you ever seen that done by medical practice?

Marita McCahill:
No, I haven't. Although I do love Snowbird more than any mountain. No, I have not seen a practice do that. And in large part, because you don't want to get too creative with reviews because of HIPAA issues. So no, I haven't seen that. And I've never seen really great negative reviews left online either for providers. Those are kind of silly.

Dr. Jim Dahle:
You can't ask your patients to leave you a one-star review that says the doctor's always running early and waiting for me things like that.

Marita McCahill:
Oh yeah, that would be funny. Yes, that'd be hilarious. But no, I have not seen that.

PRACTICEGRO COURSES AND CONSULTING

Dr. Jim Dahle:
Well, tell us a little bit about what PracticeGRO does as a business. The business isn't just an online course provider. What else do you guys do?

Marita McCahill:
We honestly help small practices look at what they should do to grow their marketing and what tools you can use. For instance, we've worked with an orthopedic group, a chiropractor, and generally in a cancer clinic. And sometimes they already have their marketing team in place and they're just looking for a review of what they're doing.

And we can look at it top down and say, “Hey, you're doing really well in this area and you could probably improve this area. And let me give you some tools or resources that you can use to, say, grow your reviews or get better traction with patients through your word-of-mouth marketing.”

I look at things pretty holistically. Our practice is not like let's build your website. I think there's a lot of great medical website builders out there that really focus on that. And I would say we're quite different in that. I look at it from a strategic level and really understand what is the goals of your practice. And it might be launching a new area.

We worked with an orthopedic to build an ER. And so it had nothing, their practice itself was great, but they want to do an urgent care specific to their practice. We can take a program like that and build it, launch it, and then exit because we hand it over back to the practice to run.

Dr. Jim Dahle:
A lot of consulting kind of work.

Marita McCahill:
Yes.

Dr. Jim Dahle:
Tell us about your partner at PracticeGRO, Larry. What does he bring to the table?

Marita McCahill:
Oh, Larry is brilliant. He really is a visionary and he can look at graphically, let's make this so intuitive and easy for a patient to want to come to your practice. And he just brings a lot of business insights as well. We've been working together, we worked in corporate too for about 20 years. So we kind of are yin and yang and we just work together pretty seamlessly. Depending on what the client need is, we both manage clients and make sure that they're getting what they need and learning to grow their practice and make more money.

Dr. Jim Dahle:
Yeah. It's obviously an important part of physician finances. I'm always talking to people saying, “Boost your income. This all gets way easier when you make more money. It's easier to pay off debt. It's easier to max out retirement accounts and save up a down payment and all the things you need to do in your life when you just have a higher income.” And for those in private practice, those owning their own practices, marketing's a big piece of that. So, what else can you tell us about the course? What can people expect from the course?

Marita McCahill:
The course is basically an online at your own pace course, and really it will teach you some really fast strategies you can use yourself to build your personal brand and to grow your patient base. I take it from an individual level because I do strongly believe every provider should understand how to market themselves as an individual practitioner. And then how do you adapt those strategies to a group without conflicting with the group or the hospital.

And depending on where you are in your practice, you don't need to know that much about search engine optimization or online ads. That's a component of the course that if you want to dig into, great, but I would say primarily the course is how do you individually build your brand so that you can attract more patients?

Some of that is online and a lot of it is through other strategies that I just don't think are covered enough in med school or covered at all in med school. It doesn't matter if you're a new provider or you're really an experienced provider, if you want to attract more patients to you personally, then you need to have some sort of branding strategy for yourself.

And that's really what I think people will walk away from this course with. If you get five new patients from this course, actually, if you get one new patient from this course, it will exponentially grow your business. And I cover that just because patients refer patients to their friends. So, word of mouth marketing is huge for providers, I believe.

Dr. Jim Dahle:
What can people expect? What results have prior clients seen? I know the course is fairly new, but you've been working with practices for a long time. What do they see? Do they see a 10% increase or a 5% increase or a 50% increase? What's kind of the range of results people see from focusing on their marketing like this?

Marita McCahill:
Oh, you would definitely see an increase in your number of patients coming to see you and specifically people will get responses from patients saying, oh, my friend referred me to you and I went and looked and you have great reviews. I've never tracked it to the exact number level, because again, something about marketing, which is very different from finance is there's less ways to track. There's a lot of intangibles with marketing that people don't understand and a lot of the intangibles, and particularly with marketing of practice is that word of mouth marketing, but you can track it and I can teach people how to track that. Referrals from other providers, you track those and those numbers will go up exponentially. And I have helped providers with that.

Spending some focused time on, say a specific referral base, you can double, triple easily your referrals from a particular provider if you track the numbers and you spend some time cultivating that relationship. I've seen that number grow tremendously with providers I've worked with.

And in terms of reviews, there are several tools out there that make collecting online reviews, very simple and automated. For instance, one provider I worked with went from five reviews to hundreds of reviews very quickly by using a tool. Those are some of the things I cover in the course.

Dr. Jim Dahle:
Awesome. The URL again, for that course is whitecoatinvestor.com/marketing. We're running a promotion for this from the 29th of July through the 6th of August. We're throwing in one of our courses for free. So, it's a two for one deal. We'll throw in our Continuing Financial Education 2023 course. That also comes with a substantial amount of CME credit once you enroll.

It's an eight hour self-paced online course, to help you to attract more patients, to leverage VIP patients, to be your best marketing channel, to solidify your referral network, future-proof your practice, and earn CME credit all at the same time. It's marketing 101. Again, that URL is whitecoatinvestor.com/marketing.

Marita, thank you so much for being willing to come on the podcast and tell us about the importance of marketing our practices.

Marita McCahill:
Thank you so much for having me.

Dr. Jim Dahle:
Okay. I hope that's helpful to you. A lot of times here at WCI, we're not sure exactly what partnerships are going to work out awesome before we do them. We think this is a great course. We think it'll help a lot of docs. We do know that marketing is very important for physician practices. But we have no idea if this is going to be super useful to a lot of you or not.

So, check out the course. Take a look. If you're thinking, “Man, I sure wish we were busier”, this is the sort of thing you ought to be looking into. Or if you're just looking for a better or different way to market the practice, check it out. And let us know what you think and send us that feedback and we'll adjust accordingly, whether it's adjusting the course or adjusting the partnership or adjusting pricing or whatever. Give us that feedback and we'll try to help you as best we can.

All right. Our next question comes from Bob.

WHAT TO DO WITH TRADITIONAL IRA WITH PRE-TAX AND AFTER-TAX MONEY

Bob:
Hi, Dr. Dahle. I'm Bob from the Midwest. I'm a fellow about to graduate and start my first attending position. My wife and I have both been making traditional IRA contributions for years. Recently, I've started listening to your podcast and learning a lot more about personal finance. I see now that some of our traditional contributions are tax deferred while our most recent six to seven years’ worth of contributions are post-tax contributions because our income surpasses the limit.

Currently, my wife has $350,000 in her account, $40,000 of which is post-tax contributions, and I have $75,000 with $25,000 in post-tax contributions. Our former financial advisor never advised us against this and we are now working with a new group recommended by WCI.

It seems that I am able to clear out our accounts by placing the tax deferred contributions into a 401(k) or other tax deferred account while simultaneously placing the basis into a Roth via the backdoor. I read this on IRS notice 2014-54. What are the logistics of doing this correctly so I avoid the pro rata rule and can make backdoor Roth contributions going forward and any documentation needed besides the 8606? Of note, my wife is self-employed and we plan on opening a solo 401(k) and I have a 401(k) with my current and future employer. Thanks for everything you do.

Dr. Jim Dahle:
Okay. This is all going to work out fine, number one. So reduce your anxiety level, wherever it might be. Two, you've got an advisor. They should be taking care of all this for you. You're paying them presumably thousands of dollars a year. Let them sort this out. You shouldn't have to deal too much with this other than sign in a few forms.

The general rule though is yes, unless you've got the money when you come out of training to convert everything to Roth, and some people do. I'm guessing you don't, given she has a $350,000 tax deferred account. That's an easy way to clean things up is just convert everything. Pay the taxes on the pre-tax money. And of course, you don't pay taxes on any after-tax money. And you move it all into your Roth IRA as you move into your career. That works very well for lots of people, but typically people with smaller accounts than yours.

In your case, you're almost surely going to want to roll your tax deferred accounts into new tax deferred accounts. So, there's no rush. Wait until you get the new accounts available to you. They have access to your new 401(k) or 403(b), and then go there and get the paperwork to do a rollover into there.

But it sounds like you've got some mixed money in those accounts. And I'm not sure if these are IRAs. I suppose they're IRAs. I don't know exactly why you've got mixed money in there. Typically when you are in a 403(b) or 401(k), they're kind of separate sub-accounts. But given how big these are, I'm guessing they are in 401(k)s, 403(b)s.

Basically the bottom line is you want to take the after-tax money and you want it to go to a Roth account. You want the pre-tax money, you want it to go into another pre-tax account or the tax deferred account. And the nice thing about that is when you do rollovers, you can typically do that.

Sometimes you have to isolate the basis. And if you have to isolate the basis, because it's all mixed into one account, you'll find that most 401(k)s and 403(b)s only accept pre-tax money or only accept Roth money. They don't accept after-tax dollars in any sort of a tax deferred account. So, you roll an amount equal to your pre-tax money in there into the new account and what's left is basis. And you can just convert that to a Roth IRA tax-free.

Like I said, your financial advisor ought to be able to walk you through this process. It's not that complicated. I did it once with the thrift savings plan when I got out of the military. And it's nice to get your after-tax money into a Roth account so that earnings are no longer pre-tax dollars, but are tax-free dollars. It's not that complicated. You'll be able to do it. Your advisor can walk you through it, but it's mostly the process is isolating that basis and then converting the basis to Roth.

All right. Let's take a question from Chris.

ROLLING 457(b) FUNDS INTO SOLO 401(k)

Chris:
Hi, Dr. Dahle. This is Chris from Colorado. I'm a physician's spouse and have just started my own business. I have $134,000 in a Colorado PERA 457(b) account from a previous employer that is invested in actively managed PERA advantage funds. I am planning to open a solo 401(k) now that I have a business and I'm wondering if I should roll the 457(b) money into the solo 401(k).

My wife and I are in our early 40s and will likely have the option to retire by our early 50s. We have about $1.5 million dollars invested in low cost funds in a taxable brokerage account that will be used for our early retirement. And I was thinking about using the 457 funds also. However, a solo 401(k) seems like it will give me better investment options and even the option to invest in alternative investments, like private real estate funds, but has early withdrawal penalties.

What do you think is the best option for the 457(b) money? Is it worth it to trade the penalty free early withdrawals in the 457(b) for better investment options in a solo 401(k)? Also, I just want to say, I am very grateful for what you've taught me over the years and the substantial positive impact you've had on my family's finances. Thanks.

Dr. Jim Dahle:
Okay. Good question. You're saying this 457(b) is from Colorado. I'm assuming the state of Colorado. So, this would be a governmental 457(b). That's the first thing to check. If it's a non-governmental 457(b), you can't roll it into an IRA or a 401(k) or a 403(b), but a governmental one, you can.

I think this is an option for you. And I probably would take the option. I'll tell you why. It's because you already got $1.5 million dollars in a taxable account. How much money are you going to need from the time you retire in your early 50s until age 59? The taxable account is probably going to cover it.

And chances are between now and then it's going to grow some more anyway. And even if it doesn't, there's all kinds of reasons why you can tap into tax deferred and tax-free accounts before age 59 and a half. If nothing else, you can take advantage of the substantially equal periodic payments rule. But you can also get in there for things like health insurance and a first home for you or your kids in the event of disability or death.

There's all kinds of excuses you can use to avoid that 10% early withdrawal penalty. So, I wouldn't worry too much about this. I'd roll it into the solo 401(k) and get into some better funds. If you told me that you're going to retire in a year and you want to spend 457(b) money first, and you didn't have any taxable money, then I might say, “Well, it might be worth it to leave that money in the 457(b) for you to avoid that age 59 and a half issue.”

But I think you've got enough money to get you at age 59 and a half without touching this. I don't know for sure. I don't have all the details. We haven't sat down and created a financial plan for three hours, but I'm guessing if you run the numbers, you don't actually need this money before age 59 and a half. And if that's the case, I would have no qualms whatsoever about rolling it into your solo 401(k).

And chances are it's worth doing anyway, because it's not that hard to get money out of retirement accounts before age 59 and a half. And in fact, the 401(k), it's age 55. If you stopped working, you got money in your solo 401(k). It's age 55, not 59 and a half. So if you're retiring at 52, that's only three years you got to live off that taxable account. You already got $1.5 million in there. No big deal.

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Don't forget, if you're interested in that marketing course, whitecoatinvestor.com/marketing. You can learn proven practice management techniques and marketing fundamentals to establish, grow, and future proof your practice.

Thanks for those leaving us five-star reviews and telling your friends about the podcast. The latest one comes in from GreenMed, who said, “Terrific, no hype resource. The podcast is great for commutes, but make sure you combine it with the fantastic WCI webpage. They've got clear, concise articles on nearly any question you have. This is one of the single best financial literacy sources I've found in years.” Thanks for that great five-star review.

Keep your head up, shoulders back. You've got this, we're here to help. We'll see you next time on the White Coat Investor podcast.

DISCLAIMER

The hosts of the White Coat Investor are not licensed accountants, attorneys, or financial advisors. This podcast is for your entertainment and information only. It should not be considered professional or personalized financial advice. 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:
This is Milestones to Millionaire podcast number 181 – Dental Specialist Pays Off Student Loans.

This podcast is sponsored by Bob Bhayani at Protuity, formerly DrDisabilityQuotes.com. He's an independent provider of disability insurance 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 whitecoatinvestor.com/drdisabilityquotes today. You can also email [email protected] or you can call (973) 771-9100.

All right, there's only a few days left to nominate the White Coat Investor podcast for a podcast award. We're trying to win the People's Choice Award for best business and or the best educational podcast of the year. We need your help. We need you to help us reach more doctors and spread financial literacy.

Really, I don't care if we win this award, but I do know that winning this award is going to help more people hear about the White Coat Investor and thus help them. And so, this is a great and totally free way to give back and support WCI.

All you need to do is go to whitecoatinvestor.com/vote. And that link will take you right to where you go to nominate the White Coat Investor podcast. And I think if we get nominated, that same link will be used to vote for the podcast in the competition. But the more nominations we get, the more people we can help.

So please do that if you can. If you can remember when you get done listening to this podcast, next time you're online or on your phone or whatever, whitecoatinvestor.com/vote. Just give us a quick vote. Help us win that award.

All right. Stick around after our interview today. We have got a great discussion we're going to have. We're going to talk about the truth about investing. In fact, we're going to go over a number of the truths. And some might think these are basic, but I bet at least one of them won't be basic to you. So stick around afterward.

Meanwhile, enjoy this interview with somebody that did just about everything right. It's nice when people hear how to do this early on in their career and just nail it. And this doc really has. So let's get him on the line.

INTERVIEW

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

Tim:
Thank you. I’m happy to be here.

Dr. Jim Dahle:
Now, Tim, we've met before. You've got one of our WCICON shirts on. Which WCICONs have you been to?

Tim:
It's the 2022 and the 2023. Those are the two I've been to.

Dr. Jim Dahle:
Okay. The ones in Phoenix.

Tim:
Yeah.

Dr. Jim Dahle:
Very cool. Well, tell us where you're at in life. What do you do for a living? How far are you out of your training? What part of the country you're in?

Tim:
I'm a dental specialist, and I have been out of training for two years now, and I am in Texas.

Dr. Jim Dahle:
In Texas. Okay. Very cool. Let's talk about what we're celebrating today. You've got multiple milestones here. Tell us about them.

Tim:
Yeah. Last year I paid off my student loans. So that was the first big milestone that we're celebrating. And then another milestone I put in when I applied is just talking about a cash balance plan, that I maximized my cash balance plan for the year.

Dr. Jim Dahle:
And I understand you also paid off a car in there somewhere.

Tim:
I also did pay off a car. That is true.

Dr. Jim Dahle:
Tell us about the car. What car is it?

Tim:
It's a Toyota Corolla Cross. So, it looks like a RAV4, but it's just a little bit smaller. I regret buying it, but it's okay.

Dr. Jim Dahle:
You regret the car or you regret the way you bought it?

Tim:
A little bit of both. I wish we would have bought a bigger car, and then I wish I wouldn't have had to finance so much of it.

Dr. Jim Dahle:
How much did you end up financing?

Tim:
I financed the entirety of it. It ended up costing, after all the fees and everything, it was about $35,000.

Dr. Jim Dahle:
Okay. And if you'd paid cash, how much of that do you think you'd save?

Tim:
Oh, I think my interest rate was at 5%. Well, I first financed with a Toyota dealership and ended up refinancing with just a private credit union. So, that dropped my interest down to, I think, 5.5%.

Dr. Jim Dahle:
Okay. But you paid on that for a year or so or how long?

Tim:
Yeah. I think I got the auto loan in January and I ended up paying it off in December. So, it was my Christmas gift to myself, actually, as I paid off my car.

Dr. Jim Dahle:
Very cool. All right. Well, let's talk about the student loans. That sounds like that was a bigger deal. If you're a dental specialist, I imagine you had significant student loans. How much did you owe when you got done?

Tim:
Yeah. When I left residency, I owed $489,562.98. But who's counting?

Dr. Jim Dahle:
But who's counting?

Tim:
Yeah, right.

Dr. Jim Dahle:
How'd you pay for dental school? It was all you? You borrowed it all or what?

Tim:
Yeah, I just borrowed everything.

Dr. Jim Dahle:
You borrowed everything. Okay. Nothing from your family, nothing from a spouse. You didn't have any cash saved up. You're not a trust fund baby, nothing.

Tim:
No, I did have a traditional IRA when I was a dental assistant before. And I probably shouldn't have done this, but I just applied it towards my dental school fees and everything for the first year. It was only a couple thousand dollars though. So, it wasn't much.

Dr. Jim Dahle:
Wow. Well, what did you think while you're taking out all those loans? You're a second year, third year dental student and you're like, “Yeah, I'll take another $100,000, please?”

Tim:
Why not take it on? I remember my very first day of dental school, just looking at my loan, just the start of my loan balance and thinking, “This is a lot of money. Do I really, really, really want to do this?” I remember having a little bit of hesitancy and just thinking I could still run. I could still get out of this without too many problems. But the first week I went back and forth a little bit, like, “Do I really want to do this?” But then I ended up staying, obviously.

Dr. Jim Dahle:
And then I committed.

Tim:
Yeah.

Dr. Jim Dahle:
Was it worth it? Do you like what you're doing now?

Tim:
I absolutely love what I do. I'm so happy. But in the moment I think my brother said he should have made tallies of all the times I called him worrying about something my first year of school. But in the end, I'm super happy. Yeah, I'm really grateful to be where I'm at today.

Dr. Jim Dahle:
Did you ever consider any of the forgiveness programs, IDR forgiveness or PSLF or anything else?

Tim:
Yeah, I did actually apply for two years for the rural physician type of scholarships where you go to an Indian reservation or just somewhere that's more remote, more rural, to have them pay for a portion of. I applied before I began and I didn't get the scholarship. And then I applied for a few years after. And then my third and fourth year, I just said they're obviously not going to give it to me. So I just stopped applying.

Dr. Jim Dahle:
Did you say you're two years out of training?

Tim:
I'm two years out of training.

Dr. Jim Dahle:
Half a million dollars in two years.

Tim:
Yeah.

Dr. Jim Dahle:
Okay. Tell us about that.

Tim:
It was kind of painful, but it was worth it.

Dr. Jim Dahle:
You literally you just sent in $10,000, $12,000 a month.

Tim:
More than that. Yeah, significantly more than that. What happened is, I graduated at the end of June.

Dr. Jim Dahle:
It got to be twice that. So, you're sending $20,000 or $30,000.

Tim:
Yeah, yeah.

Dr. Jim Dahle:
I can't do math in my head today.

Tim:
It's okay. I graduated end of June. And then I started from July until December. I just tried to get everything under control because I started a business essentially. I didn't sign with anyone. I wasn't an associate with anyone. And so I started my own business. And from July to December, I tried. I also took out $30,000 from my in-laws. And then I financed the car and then I maxed out a credit card to $10,000. My first six months, I really just focused on paying off my in-laws, paying off my credit card, paying off the car. And then from January till October of the next year is when I did my student loans.

Dr. Jim Dahle:
So, you're open to practice.

Tim:
Yeah, I work mobily. I actually visit different dentists as a specialist. And they just contract with me for a day. And so I don't actually have a physical location. I wasn't ready to sign another big, get more loans out. I just decided to go mobile.

Dr. Jim Dahle:
So you carry a little bag into their clinic and otherwise use all their stuff?

Tim:
Correct. Yeah. I just go in with all the equipment I need for the day. And then I just do it every day. I just come home, I unpack my car, and then I repack my car for the following day.

Dr. Jim Dahle:
Give us a sense what your income has been like the last couple of years doing this.

Tim:
Yeah, for the half year for when I graduated residency, my income was $225,000. And then for the year before, when I was in residency, it was $90,000. I was moonlighting when I was in residency as well. My first year of residency, my wife worked actually for the first six months until we had our first son. And then I was moonlighting. And so yeah, it was $90,000. And then for the half year I graduated, it ended up being $225,000. And then last year was $740,000.

Dr. Jim Dahle:
When I look at the average incomes for dental specialists, they are not $740,000. They're like $300,000, $400,000 maybe. Why is this not a more common path for dental specialists to do this? It dramatically reduces your risk to not take out these practice loans and all that. And you still made good money. Do you even know anybody else doing this? I've never even heard of this.

Tim:
Yeah, I do know. I do know quite a few other people doing this. And it's not common. Definitely not common. But I think it's worth it.

Dr. Jim Dahle:
Clearly it's worth it. It's brilliant. It's brilliant.

Tim:
Well, $740,000 before taxes and before paying all my supply costs and everything. So, I probably ended up taking around $500,000, $550,000 home maybe.

Dr. Jim Dahle:
Still, still considering there was not a practice startup cost for the most part. Some equipment obviously you got to have. It's pretty cool, man. That's awesome. Okay. So you decided you've become financially literate clearly at some point in this process and you got a solo 401(k) and now a personal cash balance plan or what?

Tim:
Yeah. I have a solo 401(k) for myself and my wife and then a cash balance plan for just myself currently. We've considered adding my wife, but we're still debating that.

Dr. Jim Dahle:
Okay. Is she working in the practice somehow?

Tim:
She is. Yeah. She does all my scheduling. I actually have one employee that travels with me. And so, my wife will do the payroll for her. My wife will do the schedule for me. Yeah, just quite a few of the behind the scenes helping with billing of certain things. So, my wife does a lot of the behind the scenes.

Dr. Jim Dahle:
But the employee doesn't qualify to contribute to the 401(k) yet.

Tim:
Currently not because of her age. I decided in that regard that I was just going to give her more money. And then when she turns 21, then we'll roll her into the 401(k) and into the cash balance plan. So that's coming up next year.

Dr. Jim Dahle:
Yeah. Yeah. Just make sure you don't break those rules. The penalties can be nasty.

Tim:
Yeah. I'm already working with one of your recommended people for the cash balance plan.

Dr. Jim Dahle:
They're keeping you on track.

Tim:
Yeah.

Dr. Jim Dahle:
I was just worried you were doing all personal stuff and then starting to have employees, which would get you in trouble. So the cash balance plan, you're still young. How much of a contribution are you able to make to it?

Tim:
It kind of depends on how much you pay yourself because I have an S Corp. And so you have to pay yourself a certain amount. The cash balance plan depends on how much you're paying yourself as W-2 income. And so last year, because we were so focused on student loans, I was able to do $80,000 in the cash balance plan. Had I paid myself more, I could have contributed more.

Dr. Jim Dahle:
Yeah. Well, that seems like a big contribution for somebody as young as you. I'm glad you got somebody helping you make those calculations and keeping you compliant in that respect.

Tim:
Yeah. I think that if I paid myself the maximum that they recommend, it would end up being around $100,000 for my age. If I paid myself more than I could have got up to about $100,000.

Dr. Jim Dahle:
Well, very cool. So which of these are you most proud of yourself for?

Tim:
Oh, definitely the student loans. No question.

Dr. Jim Dahle:
Yeah. That's a pretty serious accomplishment. What percentage of your income was going to the student loans?

Tim:
Probably 50% or more. Yeah.

Dr. Jim Dahle:
Gross. 50% of gross.

Tim:
Yeah.

Dr. Jim Dahle:
Yeah. You're living on 10 to 20% of your income after paying taxes, probably.

Tim:
Correct. Yeah. I think our monthly budget, it's kind of climbed. It's just natural for the creep to happen as you increase your lifestyle a little bit, but we've tried to minimize it. And so, our monthly budget currently is around $7,000, $8,000. It's going to climb up to $10,000, $11,000 starting in about a week because we're buying a house. We're buying a house in the next few days.

Dr. Jim Dahle:
I like the way you timed that. Got rid of the student loans, now buy the house. I like that.

Tim:
Yeah.

Dr. Jim Dahle:
Wow. But you just had a $20,000 or $30,000 a month raise.

Tim:
Yeah.

Dr. Jim Dahle:
Where's that going to go?

Tim:
Probably do the house.

Dr. Jim Dahle:
Oh, you're going to pay off the mortgage.

Tim:
Well, once again, we're working with the cash balance plan. I have to pay myself and save enough to maximize out the cash balance plan and the 401(k). And then I think everything above and beyond that, I'm going to put towards the mortgage. I've considered doing some real estate investing, but I don't know, I’m thinking about it. I'm not quite ready.

Dr. Jim Dahle:
Yeah. Wouldn't surprise me if you got into that soon. It's very cool, man. You've really not only built a great income, congratulations on that. But you have demonstrated control over it. You've taken that income and you've forced it to do the things you want it to do. And I'm really impressed with that. I think you did a really nice job doing that.

Tim:
Thank you.

Dr. Jim Dahle:
Yeah. Be proud of yourself for that.

Tim:
It's represented a lot. It's been a lot of work, obviously. I work six days a week. My wife has asked me to cut that down. During the middle of it, we rewarded ourselves with a piano and we tried to reward ourselves along the way. And she eventually asked me to just stop working so much, which I've happily said yes to. But yeah, last year represented a lot of six days a week, long days, long hours, but worth it.

Dr. Jim Dahle:
Can you go back and tell us about the conversation the two of you had about this plan? You guys are clearly working a plan. You're on the same page with this. Tell me about that conversation when you put this plan in place and negotiated what you were going to do with all this new income.

Tim:
Yeah, we did start or write a financial plan before we graduated. We did the Fire Your Financial Advisor course. I should say I did the Fire Your Financial Advisor course. And then I tried to summarize it and my wife and I would watch short clips of different sections that we wanted to talk about. But we did get a written financial plan before I graduated, which helped us springboard into this.

Initially, our plan was for three to five years to pay off student loans. But every time I would get additional income and I had said we were going to put it towards something else, like investing in a house, I just couldn't swallow the fact that I was going to keep paying 7%, or eventually, because I guess my student loans were deferred and they were in the 0% interest rates. But I knew that eventually that would come back to 7%. And so, I just couldn't swallow that pill. I just couldn’t handle that. So, I decided to keep paying towards student loans as opposed to splitting the money. We just decided to be hyper-focused on one thing before instead of split in so many different ways.

Dr. Jim Dahle:
Yeah. Well, it's clearly worked. That focus has worked and now you've got the freedom to do all kinds of cool things with that income. And also showing yourselves that you can control your spending and not have a lifestyle explosion. So, tons of good stuff you've done here. Sometimes we have people on here that had an interesting journey and maybe made a few mistakes on the way. I'm not hearing anything you guys did wrong. Did you do anything wrong? Are there any financial mistakes in your life at all?

Tim:
I just wish we wouldn't have bought that car and would have bought a different car, but otherwise I think we've done pretty good. I have to thank you and your team for a lot of it because I was in my second year of residency when I came across you. One of my attendings actually recommended the WCI podcast.

And so, I started listening and I was just about to pull the trigger on a $500,000 house. I was about to be in debt a million dollars. And I scrolled through and I listened to one of your episodes about residents and buying houses. I made it about halfway through the episode and I turned it off because I was frustrated because I didn't want to be told no. I just didn't want to be told no at the time. I wanted to do what I wanted to do. And then about a month later I was at the gym again and I listened to the episode all the way through. And from that point, I've just been a big follower.

Dr. Jim Dahle:
That's awesome. The worst part about it, of course, looking back, real estate went crazy in 2021, 2022, et cetera. And who knows, you might've been okay buying it, but certainly on average, that's usually not a great move. But that's pretty awesome. Congratulations to you.

Tim:
Thank you.

Dr. Jim Dahle:
You really have done a great job and thank you so much for coming on here and showing people that the program works. If you just follow the program, it works and you get exactly where you want to be. Thank you so much.

Tim:
Of course. Thank you so much.

Dr. Jim Dahle:
All right. I hope you enjoyed that. Pretty awesome. Not only the business model, awesome what they've done with their income and just knocking it out of the park when it comes to reaching financial goals. Those guys are going to do so well with their finances, learning this stuff early and obviously being really disciplined as well. That's pretty awesome.

FINANCE 101: THE TRUTH ABOUT INVESTING

All right. I told you at the beginning, we're going to talk about investing. So let's do that. I just want to give you a few principles to think about when it comes to investing. The first one is don't buy investments that you don't understand. I run into people all the time and they're like, “I didn't know this investment could do that. Or I didn't know there was a surrender fee or I didn't really understand how that worked or I didn't understand the tax consequences of that investment.”

I run into people all the time. Don't buy stuff you don't understand. And while that often is something like whole life insurance, it’s not always. There's lots of investments out there that are fine investments, but you need to understand how they work. What the risk of the investment is, what likely returns are, how it's taxed, who's getting a cut of fees and all that sort of stuff. You need to understand it.

The next principle is to limit speculation with your investments. Now, what's a speculative investment or speculative instrument? It's something that doesn't generate any rents or interest or dividends or earnings. We're talking about stuff like precious metals, gold, platinum, silver. We're talking about a lot of crypto assets like Bitcoin, Ethereum. We're talking about empty land. We're talking about beanie babies. We're talking about commodities.

If you want to speculate in these sorts of investments, you need to limit how much your portfolio goes into them. And the usual rule of thumb I throw out is 5%. You want to put 5% in Bitcoin? Fine. You want to put 5% in gold? Fine. No big deal. But if you're putting 50% of your portfolio into these sorts of investments, that's a mistake. Don't be doing that. Limit the speculation with your investments.

You've heard that more risk equals more reward or more return. But what you may not understand is that higher investment risk is a necessary but not sufficient condition for higher returns. Just taking on more risk doesn't necessarily mean you're going to get higher returns.

For example, some risks are not compensated. The classic uncompensated risk is buying individual stocks. You're trying to pick the next Nvidia. But the truth is you can diversify away that risk. And if you can diversify a risk away, why should you be paid for it? You don't get paid for it. It's uncompensated risk. It doesn't mean it can't pay off, but you shouldn't expect it to pay off, at least on average.

Speaking of diversification, that's the next principle. Diversify your portfolio. It seems super obvious, but people don't do it. I hear about people complaining that they lost $100,000 in a hard money loan. You don't have to put $100,000 into a single hard money loan. You could have put that in a fund that had 80 loans. These things do go into foreclosure. Some 2% or 3% of them or so go into foreclosure. You usually don't lose all your principal when that happens, but diversify. Use a fund. Own enough of them that if one of them tanks completely, you don't get hurt.

It's the same thing with stocks. Diversify them. You can buy them all for three basis points by using a Vanguard ETF. You can have 4,000 US stocks. Buy them all in 30 seconds. Diversify, diversify, diversify, not only within an asset class, but between asset classes. The classic ones, stocks, bonds, real estate. If you want to add some other stuff in, that's okay too, but diversify.

Here's another important principle. Invest when you get the money. Timing the market is really hard. It's probably impossible in the long term. But if you're like most stocks, you're going to have something to invest every month for the next 10, 20, 30 years. So, when you get paid, invest. What will happen over time with this periodic investing you're doing, a lot of people like to call it dollar cost averaging, but it's actually technically something else.

This periodic investing is that sometimes you're going to get a really good price on the investments you're buying. Sometimes you'll get an okay price, and sometimes you'll pay a little too much, but on average, you're going to end up getting a more favorable price.

The truth is that time in the market matters a lot more than timing the market. Having bought stocks at any point in 2004 is a better deal than timing it exactly in 2019. That time in the market matters. It gives your money much more time to compound. Likewise, if you can invest the beginning of the year instead of the end, do that. Don't delay purchases if you can, so you can invest first.

Some people have a hard time putting things on autopilot. If you can't resist timing the market, at least try to do the opposite of what the crowd is doing. Buying something after it just went up 1,800% in the last year is probably not a great strategy to invest. We're talking about meme stocks and Bitcoin after it goes up 4X, that sort of a thing. The time to buy this stuff is when nobody's interested in it. It doesn't feel right, but it's at least more likely to be right.

At the same time, you got to be careful with what they call catching a falling knife. Just because something went down in price doesn't mean it's going to go back up. Sometimes it's just on its way to zero. Just because it went from $80 a share to $20 a share doesn't mean you should buy it because the next stop might be $2 a share or $0 a share. So, be careful catching falling knives.

Another important principle is that past performance does not guarantee future performance. They're required to put that in a mutual fund prospectus. There's a reason for that. It's because it's true. Unfortunately, the natural thing to do is look back at the last year, three years, five years, 10 years, whatever, and just pick out whatever did the best. That's not a great way to invest because there tends to be a cyclical nature.

What did better last year doesn't necessarily do better this year. In fact, when something's relatively underperformed, it's probably becoming a more and more attractive investment over time. Like when interest rates go up, the price of bonds falls, but bonds as an investment become more attractive. They're now paying higher yields.

Just because bonds had a lousy 2022, you don't want to be pulling your money out of bonds in 2024 because they had a lousy year a couple of years ago. They're now much better investment than they were in 2021 when you are more than willing to buy them. Don't chase performance.

Here's another principle. If you're not using an index fund, you'd better have a darn good reason. The data is very clear, especially after tax and in the long term, that index funds outperform active managers, whether those are active managers of mutual funds or people just picking stocks on their own. If there's no index fund in the asset class you want to invest in, okay, well, maybe that's reasonable, or your 401(k) doesn't offer index funds, okay, maybe that's reasonable. But otherwise, there really isn't a great reason to not use an index fund.

Another important principle is to stop playing when you've won the game. Investing is a single player game. The goal is to reach your goals. You win if you reach your goals. It doesn't matter if you beat the S&P 500. It doesn't matter if you beat your brother-in-law. Nothing matters. You don't have to beat the market, all you need to do is reach your goals.

As you get close to your goals, maybe you can dial the risk back a little bit and you don't need to go to 100% cash or anything. But don't take risks you don't need to take to make money you don't need to impress people you don't care about.

All right, here's another principle. Be careful adding new asset classes to your portfolio. When do we get all inspired to add a new asset class, whether it's real estate or whether it's Bitcoin or whatever it might be, small value stocks, emerging market stocks, who knows? When do we do that?

Well, we're humans. We do it after they've done really well. And so, what often happens is as soon as you add a new asset class to your portfolio, it does poorly for the next few years. This happened to me in 2007. I decided we're going to add real estate to our portfolio in 2007. You can imagine how great that timing was. We added the Vanguard REIT index fund.

Subsequently in 2007 and 2008, it fell, that initial investment fell 78% in value. 78%. Four fifths of every dollar we put in there disappear. It happens all the time when you're adding new asset classes to your portfolio. Now we stuck with it. We still have real estate in our portfolio. And 20 years later, we've done just fine. Not only that money that lost 78% come back, but lots of other money that we added over time has done just fine in that asset class. But be careful when you're adding new stuff. Make sure you're not performance chasing.

Another principle, rebalance your portfolio every now and then. The data is not entirely clear of how often you should rebalance, but it suggests that you don't need to do it any more often than once a year. But you should do it every now and then. Rebalance back to your original percentages so the risk you're taking on stays about the same.

Okay. Another principle is there are many roads to establishing a successful investment portfolio. There are many roads to Dublin. You don't have to have a perfect portfolio. It doesn't have to be the same as anybody else's. You just need good enough and you need to stick with it in the long run.

Okay. Here's another one. There's an old joke about the economist that is walking with the students, who points out there is a $20 bill on the ground. The economist doesn't believe it. Says it can't be there. That wouldn't be efficient. Well, every now and then there is a $20 bill lying on the ground. Go ahead and pick that up. It's not going to be there for long, but there will be a few times in your investing life and maybe a little more frequently in your business life while you're running into a sort of situation where there's just a free lunch sitting there.

Go ahead and take advantage of that. Do your due diligence, but don't wait too long. Sometimes there is some free money out there. Maybe it's a property being sold by a busy heir who doesn't know or care what it’s worth. Maybe somebody wants your house or your boat more than you do. Who knows? But just like there's really bad deals out there, sometimes there's really good ones too.

Another important principle is to stay the course, both in bull markets and bear markets. I find the beginner investors really struggle in the bear markets, but intermediate investors often struggle in a bull market. They say, “How much longer can this last? I better sell now.” And they missed the last six months or a year or two years of a bull market. A successful investor stays the course, both in bull and bear markets.

Don't mix investing insurance. You usually end up with inferior insurance and an inferior investment. Lots of weird, complicated annuities and cash value life insurance. The agent's going to tell you “It's not an investment, but invest in it.” Believe him when he tells you it's not an investment. It isn't.

Another principle, use retirement investment accounts. Your money will grow faster because it's not getting taxed as it grows. Whether it's a Roth account, whether it's a tax deferred account, use them preferentially over a taxable account. You also get a couple other benefits. It's easier estate planning. You can just name a beneficiary. It stays out of probate and it can be stretched for 10 years by your heirs. Also, you get significant asset protection in every state from at least some types of retirement accounts. If you get in a terrible situation and end up declaring bankruptcy, it's nice to be able to keep some of your assets.

Don't let the tax tail wag the investment dog. A lot of people make this mistake. They start worrying about taxes and they try to figure out how to pay less than taxes and they end up giving more than they're gaining by doing so. So, consider the investment first, then look at the tax consequences.

Remember that it isn't just your returns that compound. Compound interest also works on your costs and the costs matter. So pay attention to your fees, pay attention to what you're paying for advice and remember those compound over time as well.

Simplicity is valuable. It's been called the majesty of simplicity. You don't need complicated portfolios. Some of the most sophisticated investors I know have used a one fund portfolio. It might be a life strategy fund or a target retirement fund or another balanced fund. You don't need 28 different mutual funds, 34 individual stocks and 800 individual municipal bonds in your portfolio. It can be much more simple than that and be still very sophisticated and very successful.

And finally, I want you to remember that the investor matters more than the investment. Your own investing behavior is a big determinant of your investing returns. If you want to see the enemy of your investments, look in the mirror.

Stick with your plan. Get a written plan, stick with it. Don't take too much out in retirement each year. Avoid performance chasing, avoid greed, avoid fear. All that is going to matter a whole lot more than a few basis points in extra fees.

All right, I hope that's helpful to kind of go over some of the basic principles you need to understand to be a successful investor.

SPONSOR

This podcast was sponsored by Bob Bhayani at Protuity, formerly DrDisabilityQuotes.com. One listener sent us this review. “Bob has been absolutely terrific to work with. Bob 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 underwriting process in a clear and professional manner.”

Contact Bob at whitecoatinvestor.com/drdisabilityquotes today. You can also email him at [email protected] or you can just pick up the phone, (973) 771-9100. Get that disability insurance in place today.

All right, that's the end of our podcast. Keep your head up, shoulders back. You've got this. See you next time.

DISCLAIMER

The hosts of the White Coat Investor are not licensed accountants, attorneys, or financial advisors. This podcast is for your entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.