Improve Your Personal Financial Literacy – Podcast #134

Intro: This is the White Coat Investor Podcast where we help those who wear the white coat get a fair shake on Wall Street. We've been helping doctors and other high income professionals stop doing dumb things with their money since 2011. Here's your host, Dr. Jim Dahle.

Dr. Jim Dahle: Welcome to the White Coat Investor Podcast number 134, become financially literate. Welcome back to the podcast. I hope you guys had a great week. I wanted to tell you a little bit about the trip I recently took. The day I'm recording this podcast is actually the same day I recorded last week's podcast, the discussion about contracts and negotiation with Jon Appino. I just got back late last night, barely got a flight out of a very snowy Denver to come home to find it's 13 degrees in October in Salt Lake, so it's a little bit unseasonably cold.

Dr. Jim Dahle: But the first part of my trip was much more pleasant weather wise. I went down to Southern California, LA specifically, to the Passive Income MD Conference. The first time, Peter came to me three months ago and said, “You know what? I think I'm going to do a conference.” And I'm like, “That's great. We'll do a conference in 2020 for Passive Income MD.” And he said, “No, I want to do it in 2019.” And I said, “You're going to pull this off in three months?” Admittedly I was a little bit skeptical but he pulled it off and it was a fantastic conference.

Dr. Jim Dahle: The whole room was full. I think there was 200 plus folks there, I'd say white coat investors but I guess they're Passive Income MDers. But it was a really high energy, fun conference. He had some great speakers there. He had people talking about motivation and about coaching as well as about taxation. I gave a keynote there as well about my experience, real estate investing. We had some great panels there from some people that have done active real estate investing and some passive real estate investing. I moderated a debate there between the active investors and the passive investors. There was a lot of fun.

Dr. Jim Dahle: It was interesting to be able to call time on people that like to speak for a while if they can, but it's fun to cut them off after 90 seconds or 60 seconds. But it really ended up being a good time by all. The only bad side was I started talking at about 7 o'clock in the morning and didn't stop until 10 o'clock at night, so I didn't have much of a voice for the rest of the weekend. But after resting it for a while it wasn't too bad and I got through the rest of my talks.

Dr. Jim Dahle: I flew out early the next morning to go up to Denver and guardian to the American College of Emergency Physicians Scientific Assembly meeting there in downtown Denver at the big Convention Center with the big blue bear, if you've ever been there. They've got this 50 foot bear looking in the front window of the Convention Center. But the first thing I had there was to do a panel. It was kind of a Guy Raz style, how I built this panel that was done for one of the EMRA committees for a bunch of people interested in entrepreneurship and talked a little bit about White Coat Investor as a business and how I started that and what it's done over the years. We had a couple of other panelists and talked about their experience in entrepreneurship.

Dr. Jim Dahle: It was interesting. One of the panelists probably had five or six ventures that he had been involved in. And truthfully, it didn't sound like any of them had really worked out great or taken off. And I felt very lucky that way that the White Coat Investor, basically my first entrepreneurial venture, took off so well. I was able to get quite a bit of very useful CME in during that conference, which was great. Our hospital is telling us I got to get four hours of Stroke CME and four hours of Trauma CME in every year. So I went to every talk there was about strokes or trauma.

Dr. Jim Dahle: The next day, Monday, was the day I had three different presentations I had to do. The first one was a presentation I gave last year as well with two other people including the former president of the American College of Emergency Physicians, Becky Parker. We talked about how not to get fired. That was my section, how not to go broke, and then how not to get sued. That was actually Becky's section there. That was a good session, well attended.

Dr. Jim Dahle: That afternoon I had another session, which it turns out it's really good to have your session be early in the conference because it's the same talk I gave a year ago to a half empty room and this time not only was the room filled to capacity, but people were sitting three deep in every possible aisle and in the back of the room. So that was great to see you all there. I don't know how many hundreds of people were in that room, but it was everything I could teach you about personal finance in 25 minutes. And hopefully, it was pretty useful for the residents and early career docs that got to hear that.

Dr. Jim Dahle: That evening was my sponsored event. The reason I went out there, that was sponsored by locumstory.com and they'd bring me out and buy everybody a copy of my book and pay for the booze and the food. The talk is a lot better after people have a couple of drinks, I'm not going to lie, but gave an hour long talk and then answered questions for about a half hour there and then did book signings. It was really great to see you all. And that's always a fun event.

Dr. Jim Dahle: It's interesting because it's one after another, people coming up in line thanking you for your work and after a while you're like, “Okay, I got it. You appreciate it, you're very welcome. Let's talk about you for a while now instead of what I've been doing.” And that's what I really enjoy doing is hearing about them and their financial challenges and struggles and what they're wondering about and how they can be helped and so on and so forth.

Dr. Jim Dahle: In between all these speaking sessions, I'm trying to run to go to these Trauma CMEs and these Stroke CMEs. And then Tuesday, the last day I was at the conference, I got quite a bit more CME in, but still during a break was able to record a podcast with Ryan Stanton. He does ACEP Frontline Podcast, very professional podcast, by the way. I mean, he's got his background of decades basically in the production industry before he became a doc and so he's very good at what he does and we recorded a short podcast there before I caught the flight out and came home.

Dr. Jim Dahle: It's interesting, you come home, you're glad to be home, you're a little bit exhausted from all the travel although these flights were shorter than I usually end up doing. But it's really, really good to meet you guys in person and know how best I can help you. It does keep me going. After a while, let's be honest, you don't need the money all that much and it's really all about the mission of helping those with the white coat get a fair shake on Wall Street.

Dr. Jim Dahle: This podcast is sponsored by Pattern Financial Consultancy which you can reach at whitecoatinvestor.com/pattern. Pattern is the company behind Matt Wiggins. Matt Wiggins is an experienced specialist in disability and life insurance for physicians. I've sat down with Matt face to face and talked about doctors and insurance.

Dr. Jim Dahle: He knows what he's talking about and he can get you a high quality disability insurance policy that you can trust to deliver should the worst happen. Doctors get disabled all the time. Don't think it can't happen to you. If you don't have a disability insurance policy now, or just need a second opinion on whether or not your current one is still right for you, contact Matt today, whitecoatinvestor.com/pattern.

Dr. Jim Dahle: Our quote of the day today comes from Vladimir Lenin. “The way to crush the bourgeoisie is to grind them between the millstones of taxation and inflation.” And I like that quote, not because I'm a big Lenin fan, I mean I'm clearly a capitalist, but because it reminds the investor of what two of their biggest enemies are, and it's taxes and inflation. The third one is probably fees, quite honestly. Thanks for what you do. Medicine is not easy. I know you're on your way home, your way to work. Maybe you're working out, whatever. You had a rough day. If you didn't have a rough one today, you probably had one earlier this week or last week and if no one told you, “Thanks for making that sacrifice,” I want to be the first.

Dr. Jim Dahle: If you haven't checked out our social options, and when I say social, I mean our forums. We have three of them you may want to check out. The biggest one is actually the Facebook group. People love Facebook and they love Facebook group. The White Coat Investors Facebook Group is 34,000 strong. It's about 85% physicians. There's a fair chunk of dentists and some APCs in there, but they all share the goal of becoming more financially literate. So we try to break up the fights between them and I've had people help each other become better with their finances, better with their investments. It's a great place to be.

Dr. Jim Dahle: We don't allow financial professionals in that particular group. However, if you're interested in interacting in a forum that also has financial professionals on it, I encourage you to check out the WCI forum, that's hosted right on the whitecoatinvestor.com site and we just revamped it. You may have noticed a few problems with it in October. For whatever reason, which I'm not sure we can determine, it just seemed to stop working half of its functions. And so we installed all new software and probably did it the way we should have done it originally when we started three years ago, but it's back up and running now.

Dr. Jim Dahle: It's a great resource. We encourage you to interact with each other there and if you don't feel like you have anything to learn, please come and help others by teaching them what they need to know about personal finance and investing. If you're a Redditor, go to Reddit. We have White Coat Investor Subreddit. It's just r/whitecoatinvestors, which is perfect for those who enjoy that particular format.

Dr. Jim Dahle: So this week is continuing financial education week and that's a week every year in which I do some book reviews on the website and the blog posts and I try to encourage you to get financially literate. Now, I view getting financially literate as reading a handful of books and getting a financial plan in place. Whether that involves taking an online course like my Fire Your Financial Advisor or it involves meeting with a good financial advisor who gives you good advice at a fair price, or just drafting up your financial plan yourself. I consider that your initial financial education.

Dr. Jim Dahle: Your continuing financial education I say is following a good blog or podcast. I'm obviously partial to mine, but there are other good physician specific podcasts and blogs out there that you can follow if you like and reading one good financial book a year. And so, as I go through books, I recommend something that you can try for your continuing financial education.

Dr. Jim Dahle: If you've never read a finance book, I've got a list of recommended books on the website at whitecoatinvestor.com, under the books tab that you should probably check out first. The ones I review during continuing financial education week aren't always the ideal first book that you should read. Maybe the first book you should read is either the White Coat Investor or the White Coat Investors Financial Bootcamp, but I can't just have people read that every year. That's not going to work.
Dr. Jim Dahle: We also often offer some sweet deals to give you a little more encouragement to become financially literate. For this week only, if you buy our Fire Your Financial Advisor online course, we're going to give you the online version of the 2018 Physician Wellness and Financial Literacy Conference for free. So that's basically an $800 value for just 499. This offer is good through Monday, December 2nd at midnight, so that's next Monday if you're listening the day this podcast is released.

Dr. Jim Dahle: Just be aware that we're making some changes to our online course and after the first of the year, we're probably going to be charging significantly more for it. So this is a steal of a deal, whether you compare it to the cost of hiring a financial advisor or do some of the other physician specific financial courses out there that are selling for 1500 to 2,500 bucks. And going forward, the deal's never going to be any better than it is right now. So go to whitecoatinvestor.com and get it today.

Dr. Jim Dahle: This eight hour course is designed to take you from zero to hero and you'll leave the course not only with financial literacy but with a written personalized financial plan that you wrote with my assistance, and there's no risk to you. It's a one week, no questions asked, a 100% money back guarantee. All you have to do is email us, we'll give you your money back if you don't think it's worth it. But you know what? Very few people return it. In addition to those eight hours, you get the 12 hours of content, not just from me but from people like Mike Piper and Bill Bernstein and Jonathan Clements that was presented at the WCI Con, the original WCI Con in Park City.

Dr. Jim Dahle: All right. The next thing I wanted to do is talk about a few of the books. I'll probably have a little bit more comprehensive of review as blog post this week to go with these, but these are three books that I read, at least part of, on this trip. While flying from Salt Lake to LA, I read almost the entire Raising Private Capital book, and if you're listening to this or watching this on YouTube, you can take a look at it here. It's Raising Private Capital by Matt Faircloth. It's basically a BiggerPockets book. If you're familiar with the BiggerPockets forum and website, it's basically all real estate all the time over there at BiggerPockets.
Dr. Jim Dahle: But I thought this book was pretty interesting because it's about raising private capital. It's not written to me as the investor. It's written to the person coming to me trying to get my money for the real estate project, whether that's a fund or a syndication or whatever. So I thought it was really interesting to read about it from their point of view. And it's really interesting, right? They talk about how you can find sources of private capital and they tell you to go find somebody that had a really good paying job, especially one with a good employer match so they've got a 401k that can be rolled into a self directed IRA.

Dr. Jim Dahle: Or they tell you to go to somebody that has a paid for house or a big house that they can take out a home equity line of credit and use that to invest with you. Or then it tells you, go find some doctors, because the assumption of course is that doctors have money to invest. Well, here's the way I look at it, right? If you're a doctor, you have the money to invest, you don't have to go find somebody with private capital for you to borrow for your investments.
Dr. Jim Dahle: But I thought it was a pretty interesting book. If you're interested in real estate, particularly syndications and that sort of a thing, it's really good to get the perspective of the people on the other side. And if you're interested in becoming a syndicator, it would also be a great book to read. But just for general knowledge of even real estate investing, it might not be the first book you should read. However, if you're in one of those unique situations, this may be a book worth picking up. Again, it's Raising Private Capital by Matt Faircloth.

Dr. Jim Dahle: In route from the PIMD Con Conference to Denver, I read about half of a different book and this one is from Cory S. Fawcett. If you remember Dr. Fawcett, he is the general surgeon who basically started about 12 years before he retired, that 54 I believe, who started buying rental properties and he kind of jumped all in. I mean, the first one he bought was a four or six or eight door apartment complex and he basically bought these properties, I think about five of them, in 12 years during the latter part of his general surgery career.
Dr. Jim Dahle: He really enjoyed the deal making and the buying and after a while his wife's like, “You know what? We got enough cash flow from these that we never have to work again. Stop buying them.” She made them stop buying them and they just worked from that point forward, paying for them. But the nice thing about this book is not only is it written by a doctor from a doctor's perspective, but it's really a pretty good nuts and bolts guide. If you are interested in direct real estate investing, you want to go out and you want to own the properties and manage the properties yourself, I think this is a fantastic book and in fact it might be one of my favorites on real estate investing for doctors.

Dr. Jim Dahle: Now, it's not going to teach you anything about how to pick a good REIT mutual fund. It's not going to teach you anything about choosing syndications or picking a private real estate fund, et cetera. But it will teach you how to buy and manage your own properties. And I think he gives good advice in that respect. For example, in his view, and I tend to agree with it, it's really all about the cash flow, right? If this is not a positive cash flow property, you shouldn't buy it. And the reason why is, with negative cashflow, I mean you can only support so many negative cashflow properties with your practice income. But if the cashflow is positive, well, there's an infinite amount that you can have because it doesn't actually cost you anything.
Dr. Jim Dahle: But where I think Dr. Fawcett has done a particularly exceptional job, and it doesn't sound like he did this up front all at once, but over time he got better at it was putting systems in place to make the management easier, right? Because you think about the reason why I don't want to do direct real estate, I don't want anyone calling me at 3:00 AM to unclog the toilet, right? Well, he basically never goes and unclogs toilets. Not only because he says people rarely call that their toilet are clogged at 3:00 AM, but also because you can pay somebody else to do that. You don't answer the phones at your clinic, why would you be unclogging the toilets yourself, right, in this other business that you own.

Dr. Jim Dahle: And so the systems he put in place I think are worth learning as well. This is his fourth book in the series. He calls them all The Doctors Guide to whatever, and this one's The Doctors Guide to Real Estate Investing for Busy Professionals. Perhaps the most interesting part of it I thought though was that I kind of viewed him as this Dave Ramsey for doctors. Very, very, very anti debt. One of his other books is all about getting out of debt as a doctor. And he's super anti debt. But apparently not when it comes to real estate investments. So I think he's still got leverage on most of his real estate investments and I thought that was interesting to learn that. But if you want to check that out, you can buy that at Amazon. The links to these books of course will be in the show notes.
Dr. Jim Dahle: Now, on the way home from Denver to Salt Lake, I got a chance to read all, looks like about half of this book by J. David Stein, Money For the Rest Us, and he has a podcast. It's about the same size as this podcast, fairly popular podcast. And apparently his podcast listeners were always telling him, is there a book I should read? What book should I read? And he decided rather than sending them to somebody else's book, he would write the book himself.

Dr. Jim Dahle: But he's a very common sense investor. He used to work in, I think it was a hedge fund or some other type of institutional fund. That's kind of his background. And he goes through step-by-step on how to kind of think about your investments. It's not really about personal finance, it's all about investments. But if you look at it, the book is structured around 10 questions. And the idea is, if you can't answer these 10 questions, you shouldn't be investing in that asset.
Dr. Jim Dahle: For example, the first one is, what is it? If you don't know what the investment is, you shouldn't be investing in it. The next one, is it investing, speculating or gambling? I thought this chapter was particularly interesting and he talks about somebody by the name Dr. Kingsley Jones, I don't know, who describes a gamble as a bed of prospective negative return with reasonable statistical reliability. But he talks about speculation, again with a quote from the same guy saying, “It is a bet about which there's buyable disagreement on the sign of the return.” You don't know if it's going to have a positive return or a negative return. That's a speculation.

Dr. Jim Dahle: And I think it's very much a useful construct to think about it. But he says this about one of the most prominent speculative instruments of our day, which is Bitcoin, right? So he gets an email from a listener asking what he thought about the Bitcoin dip last year and then a friend texted him about whether he should buy more Bitcoin and he says, “Speculation means there is extreme uncertainty about whether the asset will rise or fall in price. A 40% decline is not a dip. A dip suggests a temporary setback before the price continues to climb. But with a speculative asset there is no way to know if it will rebound or continue to plummet.
Dr. Jim Dahle: There isn't a correct price because there is no income to determine if the price is too high or too low. Investments differ from speculations because there are objective measures to determine if the asset is valued more or less than its historical average. For example, with the stock, you can observe the price that investors are willing to pay for a dollar's worth of earnings, which is known as the price to earnings ratio. An investor can compare a stock's current PE ratio with its historical PE ratio and with the PE ratio of companies in the same industry.

Dr. Jim Dahle: This allows the investor to make a judgment about whether the stock has a lower or higher valuation relative to its historical average or to its peers. With the speculation, historical comparisons are difficult because there aren't earnings or income streams to compare the price against to determine if the asset is cheaper or is expensive. All we have are the historical prices and perhaps some data on supply and demand for certain speculative assets like commodities, which obviously you don't even have for something like Bitcoin.”
Dr. Jim Dahle: The other questions the book goes over include: what is the upside, what is the downside? Who's on the other side of the trade? What is the investment vehicle? What does it take to be successful? Who is getting a cut? That's an important one. How does it impact your portfolio, right? Because you never look at an investment in isolation. And finally, should you invest? So I think this is a good book. I think he's giving good advice in it and if you're looking for a good financial book to read this year for your continuing financial education, this certainly is one of them. Money For the Rest of Us by J. David Stein. Links to those books will be in the podcast notes. All right. Let's do some questions from readers now. Our first one comes from David.

David: Hey Dr. Dahle. Thanks for all that you do. I'm a medical oncologist in my mid 40s. I married on the later side. I have two kids under the age of five who both have special needs, but I am hoping that they will both attend college one day. I work for a state institution. I have access to a traditional pretax 403(b), which I've already maxed out with an employer contribution. In addition to that, we have access to a 403(b) mega Roth. This is a tax sheltered annuity.
David: It allows tax-free qualified distribution starting at age 59 after a five year holding period. The maximum contribution out on this is 19,000 per year with an additional catch-up amount starting at age 50. So here's my question. After maxing out the traditional pretax 403(b), am I better off either focusing on the mega Roth or am I better off first contributing to a 529 account for the kids? Again, thanks for all that you do.
Dr. Jim Dahle: Okay. I'm not entirely sure what David is talking about. He's talking about a mega Roth 403(b) in addition to his tax deferred 403(b), should he use it or a 529? I don't really know what he means by mega Roth 403(b). As a general rule, you can do a mega backdoor Roth with a 401k. That's when you put in some after tax money, not Roth money, but after tax money and then immediately convert it to Roth money either by withdrawing it from the account and putting it in a Roth IRA or converting it inside the account. And I think he's trying to get at that.

Dr. Jim Dahle: If you can do that in your 403(b), and I've never seen one that you could, but I suppose it's possible, then sure, that's okay to do it. Just make sure that it allows both in service withdrawals and conversions and after tax contributions. But if you just have a 403(b) with a Roth option, it's one or the other. You only get 19,000. It is either tax deferred or it's Roth. You don't get both. You could do 10,000 tax deferred and 9,000 Roth if you want, but you're still limited to that 19,000 total.
Dr. Jim Dahle: Now, his question though sounds more like, should I do that or a 529. Well, these accounts are not for the same goals. A 529 is for education. A 403(b) is for retirement. So, if you have not yet met your goal for saving for retirement, and I usually recommend 20% a year for attending physicians, then you probably ought to put the money into the 403(b). If you are trying to save for college and you haven't yet met that goal, then I'd put that money in a 529. So I hope that helps. That's basically the way I would look at that question.

Dr. Jim Dahle: Okay. My next one comes in via email. I was wondering if I could make a podcast recommendation on anonymous question. A lot of us are coming out of school with a lot of debt and I was wondering how others are budgeting for weddings. The average wedding in the US cost around $30,000, which is a pretty large expense. I just want to know if other people are spending this financing it, having parents pay, having ultra cheap alternative weddings or just skipping it all together.
Dr. Jim Dahle: My boyfriend and I both have large student debts coming out of private medical dental school. With our attending salaries, we could pay cash for a wedding or use it to pay off debt. My family is traditionally Indian and we have large, multi-day wedding celebrations, which in a high cost of living area can be costly. What does the White Coat Investor recommend? I don't want to wake up one day and regret not having a wedding, but I also wonder how other people in the fire communities are dealing with this.

Dr. Jim Dahle: Well, wedding is like any other expense, right? If you can afford it, go ahead and buy it. Have a nice time. I'm sure it will be a wonderful day. $30,000 sounds like a ton of money given that I think $5,000 is what was spent on my wedding. Now, granted, one of us hadn't even graduated from college yet, and the other one had just left, so it basically came down to what parents were willing to spend for the wedding in our case. If $30,000 is an average one, we must have had an ultra cheapo one, but I'm sure there's lots of listeners out there who can relate to my particular experience.
Dr. Jim Dahle: We obviously didn't come in on elephants or I'm not sure what they're doing these days at these large multifamily Indian weddings, but it seems like if you are trying to save money, you can probably get it a whole lot cheaper than $30,000. How do you get it cheaper? Well, you look at all the expenses and then you go and choose a cheaper alternative. For every $100 a plate dinner, there is a $50 a plate dinner. For every $50 a plate dinner, there is a $20 a plate dinner. If $20 a plate is too much, you can have it be potluck, right? People actually have potluck weddings.

Dr. Jim Dahle: Now granted, maybe not a lot of physicians, but it is certainly something that can be done to cut expenses. But the real way you cut expenses is you don't have it be a destination wedding where everybody has to fly some other place and you just do cheaper flowers and cheaper invitations and cheaper reception hall, et cetera, et cetera, and you just cut expenses. A cheaper dress, whatever it's going to be.
Dr. Jim Dahle: I think what you really ought to do is just say, “Hey, we want to have a wedding. We don't want to go in debt for our wedding. We can afford this much.” Well, that's the budget. That's what you spend on the wedding. And two attendings I think can cashflow a $30,000 wedding relatively easily. You ought to be able to save that up in just a few months. It's like buying a car, there's no reason to finance that. So I think you have to decide how much you're going to spend. I think you ought to save it up cash and just pay for the wedding and move on with it. I think that's a great way to do it.

Dr. Jim Dahle: What are other people doing? I think people are spending that. I think some people are financing it. I think some people are spending a lot than that, but I'll bet in a lot of scenarios the parents are paying at least a significant chunk of it. Obviously a super cheap alternative wedding is something some people choose as obviously in some of the posts I've done on the website, there are people that are just skipping it altogether. But you know what? If you're going to spend your life together and you want to get married, I think you ought to get married.
Dr. Jim Dahle: All right. Our next question comes from Anthony on the SpeakPipe and if you want to leave us a question on the SpeakPipe, you can do so. It's speakpipe.com/whitecoatinvestor. You get up to 90 seconds to record your question and we'll get it on the podcast and get it answered. Let's listen to Anthony's question.
Anthony: Hi Dr. Dahle. My name is Anthony. I'm a sports medicine doc from the Midwest. I have a couple of questions regarding HSAs. I have two old HSAs that each have a couple of thousand dollars in them from residency and fellowship. I think the amounts are probably too small to invest, but at the same time I don't plan on using them. I'm 34 years old and healthy and don't have any medical bills and I'd rather use them as investment tools. I wasn't sure if I should roll these old HSAs into my current HSA or what my other options might be.

Anthony: My other question is with regards to my current HSA. I have about $10,000 in it and I plan on investing it soon, but I wasn't sure if there was any specific strategy to use when investing within an HSA. There's some good index funds available, but I wasn't sure if I should just invest as it fits into my current asset allocation plan or if you had any other advice on this? There's a reit index fund available that I like better than the one that I'm currently invested in my 401k. I had considered using this. There's also Vanguard Intermediate Tax-Exempt bond fund that I had considered, but I wasn't sure if there's any specific approach when it comes to investing within an HSA. If you have any advice or anything you'd offer me, that would be very much appreciated. Thanks for all that you do.

Dr. Jim Dahle: Okay. Anthony has got a couple of old HSAs and wants to know what he should do with them. Should he roll them over? Should he invest the $10,000 he has within his HSA? What should he invest the money in? And he's talking about a reit fund he's got in there. Here's the deal. You don't need four HSAs. One HSA is plenty, and they all accept rollovers. You can do a rollover from one HSA to another once a year. So I would roll all your HSAs together and keep them consolidated.
Dr. Jim Dahle: If your employer's HSA sucks, open your own fidelity or lively and you can have a good HSA that's easy to invest as low cost, et cetera. Bear in mind if your employer will take the money directly out of your paycheck and put it into an HSA, you save payroll taxes on those contributions as well. So that's a very good way to do it.
Dr. Jim Dahle: So, should you invest the $10,000 you have within your HSA? Well, if you're not planning to spend it this year, I probably would. If you're actually spending your HSA as you go and you expect to have expenses, then maybe leave that money in cash. But even investing it in cash is an investment. You can make almost 2% these days in cash, so I'd keep it somewhere besides the 0.1% that you can get in a lot of crummy HSAs.

Dr. Jim Dahle: What should you invest the money in? Well, that's a great question. If it's, again, money you're going to be spending relatively soon, leave it in cash. If you think you need some of it relatively liquid and accessible because you may tap it sometime soon, leave that much in cash or short term bonds, that sort of a thing. If you're just using it as a stealth IRA like I am and you expect you're going to use it to pay Medicare premiums or something, then I think you can invest it pretty aggressively. Mine is 100% in the Vanguard Total Stock Market Index. Not that I think that's the best HSA investment, but it's just very simple for me.
Dr. Jim Dahle: It's the biggest holding in my overall portfolio. My overall portfolio has 25% allocated to the Total Stock Market Index Fund, so I just chose to put everything in the HSA in that. And so far that's actually been a really good decision because large cap grows stocks, which influence the Total Stock Market Index Fund more than anything else have done so well the last five or 10 years. That bet I guess has really paid off well for my HSA, and I know I have a pretty sizable HSA. But I wouldn't necessarily say you have to invest in that fund. If you want to put your international stocks in there or your small value stocks or your real estate investment trust, that's all fine to put inside an HSA as well.

Dr. Jim Dahle: If you feel like keeping that HSA because it's a significant part of your money or whatever under its own allocation, then you got to decide what asset allocation you want for your HSA and maybe it's more conservative than your retirement portfolio. Maybe it's less conservative. Maybe it's more like your education portfolio. Only you can decide on that asset allocation and then choose funds to round out that asset allocation.
Dr. Jim Dahle: It's probably one of those things if you want to keep it simple, you can just use something like a life strategy moderate fund or a target retirement fund too, if you like it. It just depends on what's available in the HSA and what kind of asset allocation you're really interested in. But honestly, most people's HSA is such a small part of their financial world. It just about any way you want to invest it is probably fine. Okay. Our next question also from Anthony.

Anthony: Hi Dr. Dahle. I have a question about investing in bonds. I read several internet threads, forums, listened to several things that talk about the argument of investing in bonds and a taxable account versus a retirement account. My bonds are currently within a good Vanguard Bond Fund in my retirement account. I'm trying to figure out if it would ever make sense for me to invest in a good Vanguard Bond Fund in my taxable account versus my retirement account. As I said, I like the bond fund that is available within my retirement account, but I'm not sure if there's a point that it would ever make sense for me to stop investing in this and do it in a taxable account. Thank you.

Dr. Jim Dahle: Yeah. So he's asking the classic question, bonds and taxable or in a tax protected account. And this is a big source of confusion for a lot of people because I wrote a blog post once that was called bonds going taxable, and admittedly it was pretty click baity but it was written at a time of very, very low interest rates when a case could be made pretty well for putting your bonds in a taxable account. There are really two things that come into play when it comes to where to put your bonds.
Dr. Jim Dahle: The first is what is the expected return? And when the expected return is high, it's generally good to have that sort of an asset in your tax protected accounts because it increases the ratio of tax protected to taxable accounts. So as a general rule, you want high returning things in your tax protected accounts to make them larger.
Dr. Jim Dahle: And then the other factor is the tax efficiency of the asset class. Bonds are notoriously tax inefficient. Although of course if you switch to municipal bonds, those are very tax efficient, but generally come at a significantly lower interest rate such that you lower yield makes it so it's equivalent or maybe slightly better than a taxable account after paying taxes on it.

Dr. Jim Dahle: But the other factor of course is the tax efficiency. At very low interest rates, the tax efficiency doesn't matter much. So, if interest rates are super low, you can put bonds in taxable, it's fine. It's really not much different from putting them in a tax protected account. And in fact may even be better. But at higher interest rates, it probably makes sense to put your bonds into a tax protected account. So we're currently at pretty low interest rates. This question just doesn't matter much. Wherever you want to put your bonds is fine for now, but realize that bonds start paying 5 or 6%. You're going to want those in a tax protected account. All right, our next question comes from Neil.
Neil: Hi Jim, this is Neil. I'm a high income professional that follows your podcast. Thanks for what you do. I had a question regarding stretching 529 plans. I have a child in high school and I have funded her 529 plans. I am thinking about over-funding her 529 with the intention of using leftover funds for my grandchildren down the line when they are born. I wanted to get your thoughts on pros and cons of the strategy. On the pro side, I can see that I would get some extra years of tax-free compounding. I wanted to understand or get your thoughts if there are any cons or pitfalls to the strategy, whether instead of over-funding my child, I should just wait down the line until my grandchildren are born to then open my 529 plans for them. Thanks for what you do.

Dr. Jim Dahle: Okay. Neil wants to know about over-funding a child's 529 when you know the kid's not going to use it. I think this is not a great idea if your intention is to retire on that money, to spend it yourself. You probably shouldn't be putting more in a 529 than you actually want to spend on education. But there's this great option with a 529 of changing the beneficiary, and it's very easy to do that, to change it from your kids to your grandkids. And so, that's a fantastic way to keep that money growing tax protected for decades until they have kids and then changing the beneficiary to the grandkids.
Dr. Jim Dahle: So yes, I think that's a great strategy. If you have lots of money and are done saving for your retirement and you're done saving for your kid's college and you're ready to start saving for your grandkids college, well, you can certainly do it inside your kid's 529s knowing you can change the beneficiary later. All right, our next question comes from Mike.

Mike: Hi Dr. Dahle. First I'd just like to say thank you for taking the time to listen to my questions. I really appreciate it. I am a third year medical student at an expensive DO school in Florida. I don't know how familiar you are with the manipulative treatment that DOs learn, but I'm very hopeful to use it in my practice one day. So I guess this question pertains more so to moonlighting, I was wondering if you've come across any physicians who use their hands on manipulation treatment as a side gig or moonlight with it to make more money and pay also loans and other expenses. I'm actually interested in emergency medicine myself. So perhaps you could tell me if I'm being naive for thinking I would even have time to do that as a resident physician.
Mike: Second question off of that. My fiance goes to the same school, but she's in dental school, also very expensive. We're going to come out with a decent amount of debt, but we do know that we're going to be moving back with family in a couple of years to save some money and pay off some loans. So my question to you is, should we take her salary, which will be good out of the gate and my resident's salary which we can use to contribute to our loans. Should we contribute as much as we can to our loans in those first couple of years living with family or should we put our faith into the public service loan forgiveness. Thanks for your time and thanks for all you do.
Dr. Jim Dahle: And Mike is asking about their life with lots of debt. We've got a DO student married to a dental student and he wants to know, can I moonlight doing osteopathic manipulation as a resident? Well, I guess it depends on the residency. If your residency allows you to moonlight, then I suppose you can moonlight with any skills you have. And I suppose those are probably covered by the malpractice policy that you have while you're moonlighting. And so, I don't see why you couldn't do OMM. As a resident moonlighting, it seems very reasonable.

Dr. Jim Dahle: Whether it's super profitable or not, I have no idea. You'll have to look at the business case for that. I'm not sure I would open a clinic and say, “All I do is OMM in this side clinic.” I'm not sure that's super profitable, but I could be wrong. Maybe there is a place for that and it's worth trying. But in general, most people when they're moonlighting, they just kind of slot themselves into something else that's already kind of set up, somebody else's clinic or in my field of emergency medicine or urgent care or an ed where there's double coverage. Those are the typical places where people go to moonlight. But in different fields that can vary quite a bit.
Dr. Jim Dahle: So why not explore it, find out what other residents in your residency are doing, see what options you have. But in general, I think moonlighting shouldn't be a huge focus during residency. I think residency is the time when you should be learning medicine. You do not need to become rich as a resident. The money you save as a resident is not going to make a dramatic difference in your financial life like your savings rate your first two to five years out of residency is going to make. So I would put most of your financial focus into those first few years as an attending rather than trying to make the maximum amount of money or trying to squeeze the maximum amount of money out of your budget as a resident.
Dr. Jim Dahle: Mike's second question was, should they try to pay off debt quickly or put faith in a public service loan forgiveness? Well, I think it's okay to put some faith in public service loan forgiveness, but if I were going for it, I would do three things. Number one, I would keep track of every payment I make, either a bank statement, show when I made it, a canceled check, whatever, and I'd put it into a folder, all 120 payments. The second thing I'd do would be keep every annual certification form, copy of every one of them and I'd get them as I went along.

Dr. Jim Dahle: Although you can fill that retroactively, I'd just get them as I went along and I'd keep those in the folder as well, because you may have to have all that documentation because fed loans and Navient, these federal loan servicing companies are having trouble counting to 120. So you want to make sure that you can prove that your count is accurate because it may come to that. A lot of arguments on the phone about how many payments you've actually made or hiring an attorney to get them to give you the public service loan forgiveness that is included in your promissory note, it's possible you could have those troubles getting your public service loan forgiveness, so keep very good documentation.
Dr. Jim Dahle: Then the third thing I would do is start saving up what I call a public service loan forgiveness side fund. And what that is is instead of making these huge payments, 5,000, 10,000, $15,000 a month to your student loans, that I recommend somebody that's not going for public service loan forgiveness due to get rid of their debt within two to five years, instead make those same payments, still living like a resident, make those payments, but make them into your own investing account.
Dr. Jim Dahle: That way if you change jobs and you're no longer working for a 501(c)(3) nonprofit or just if Congress changes the rules on you somehow, or you're just sick of fighting the man to get your forgiveness, you can take that money out of your side fund and use it to pay off your loans and move on with your life. But if public service loan forgiveness materializes, that side fund becomes a big addition to your nest egg and you can move forward a little bit better off financially. Okay, next question comes from Matt.

Matt: Dr. Dahle, thank you for all that you do. I am an endocrinologist in the Southeast and I am currently a W2 employee. I do still have student loans, which I have refinanced now for the second time and received another bonus from your website for doing that twice with different companies. I have maxed out our work 403B and I've started doing some 1099 work with surveys and another medical side job, just providing information and guidance.
Matt: I'm wondering, once I'm done with the student loans, this money I'm getting from the side job I want to put towards a retirement account. But my question is, the next step, do I need to just put straight in a personal 401k and then eventually do a Roth IRA conversion as I have a Roth IRA and a traditional IRA from residency that I'm not currently contributing to? Or do I need to make an LLC in order to do this first? So that's, my real question is if I need to make an LLC before starting a personal 401k outside of work. Yeah, and thank you for all that you do and thank you for the wonderful links on your website.

Dr. Jim Dahle: Well, first of all Matt, thanks for refinancing through our links. For those who don't know what he's talking about, under the recommendations tab in whitecoatinvestor.com, we have student loan refinancing links, and these are affiliate links, meaning we get paid if you go through them. But if you go through them, you get a better deal than you would going directly to the company, whether it was SoFi or Laurel Road or CommonBond or whoever. You get usually 2 or 3 or $400 cash back in addition to a lower interest rate on your loan. So thanks for doing that Matt.

Dr. Jim Dahle: All right. What should you do with your 1099 money after your loans are paid off? Well, get an EIN for the business. That's like a Social Security number for your business. It's free. It's very, very fast. I mean, it's literally like three clicks on a webpage to get your EIN and it's very easy. They give it right to you. You don't actually need an LLC in this sort of a situation, because remember that LLCs and corporations don't protect you from malpractice. It's really just business related liability there. And then of course you can open a solo or an individual 401k.
Dr. Jim Dahle: If you want to do a backdoor Roth IRA, you'll need to roll your traditional IRA into a solo 401k. And of course, if you're maxing out your 401k at your main gig, then you're only going to be able to put 20% of your net 1099 income into the individual 401k. Now, a lot of people get confused about this because they read in the IRS publications that you can put 25% in. It's really the same number. It's either 20% counting the contribution or it's 25% not counting the contribution, but it's the same amount of money either way. So 20% of your net income you can put into the individual 401k.

Dr. Jim Dahle: All right. That was a pretty long podcast, I hope that was enjoyable to you. This one was sponsored by Pattern. You can get access to them at whitecoatinvestor.com/pattern. That is Matt Wiggins, an experienced specialist in disability and life insurance for physicians. I know Matt personally, we've sat down face-to-face. He's come out to Salt Lake and we've talked about doctors and insurance. He knows what he's talking about. He can get you a high quality disability insurance policy that you can trust to deliver should the worst happen.

Dr. Jim Dahle: And doctors get disabled all the time. Don't think it can't happen to you. If you don't have a disability insurance policy now or you just need a second opinion on whether your current one is still right for you, contact Matt today at whitecoatinvestor.com/pattern. Be sure to check out our Facebook group, the new WCI forum and the Subreddit. Thanks for leaving us a five star review and telling your friends about the podcast. Head up, shoulders back. You've got this and we can help. See you next time on the White Coat Investor Podcast.

Disclaimer: My dad, your host, Dr. Dahle is a practicing emergency physician, blogger, author, and podcaster. He is not a licensed accountant, attorney or financial advisor. So this podcast is for your entertainment and information only and should not be considered official, personalized financial advice.