Podcast #90 Show Notes: An Interview with Physician on Fire and Passive Income MD
Today's episode guests really need no introduction. You are all familiar with Physician on Fire and Passive Income MD . I asked for questions for this episode in the WCI Forum, Facebook Group, and Twitter. Readers and listeners did not disappoint and we got way more than we could answer, even with this week's episode being almost 90 minutes (Cindy is still cursing me for the length of that editing job). But I think it is all worth it and you will enjoy this episode. We give some differing opinions when we answer the questions. And some of the questions are pretty funny so I tried to give you a mix of those. Spoiler – we decided that Physician on Fire is the funniest one and I'm the meanest. But since we last recorded a WCI Network podcast episode both Leif of Physician on Fire and Peter of Passive Income MD are no longer blogging anonymously. That made Cindy happy as she didn't have to edit out their names when I accidentally said them. We discuss the ramifications of dropping that anonymity for both of them in this episode and how their blogs are growing. But more importantly, we answer a lot of important financial questions for you about real estate, bonds, where to invest cash, 529s, and more.
In This Show:
In This Show:
Podcast #90 Sponsor
The Financial Residency podcast is dedicated to helping physicians become better financially equipped and more confident in making the right money decisions. The host, Ryan Inman, is a fee-only financial planner who is married to a US Navy pediatric pulmonologist. Ryan's firm, Physician Wealth Services, is a White Coat Investor recommended advisor. I recently went on his show to discuss the trade-offs between paying off medical school debt or choosing to invest. It’s a great resource to learn about the most popular finance question we seem to get on a regular basis; and, plus, it’s on an awesome show. So, go find Financial Residency in the same podcast player you listen to me in, download the show he and I did together, and use it as a guide to help you with your decision to pay down debt or invest.
Quote of the Day
Our quote of the day today comes from Twenty One Pilots who said,
“Wake up, you need to make money.”
I think that is a great song. That is the line that stands out the most to me in it. It is a reminder that money comes from work!
Reader and Listener Questions
Investing in Real Estate
Tax Efficient Investing
“What is more tax efficient, putting money into the Vanguard Total Stock Market Fund or putting money into a passive crowdfunding real estate investment?”
Leif said the passive index fund is better in terms of tax efficiency. You pay taxes on about 2% of qualified dividends that come from that each year. And then you may pay capital gains on the gains later on when you sell depending on what tax bracket you're in when you do that. So, index funds are quite tax efficient and the crowdfunded real estate investments tend not to be. There are some where you can do a 1031 exchange so if you have an investment property with capital gains built in and you sell you may be able to roll that into another investment without paying the capital gains taxes at that time.
Peter said yes, Vanguard Index Fund is going be a lot more tax efficient. But crowdfunded real estate has now become this huge catchall term for all sorts of real estate investments, whether it is a debt where you are putting in money for a fix and flip, or you're investing in some of these syndications or in some of the funds. There are options for people to use some of their retirement accounts to invest in some of these crowdfunded opportunities. Some of the funds and syndications are quite tax efficient because those are kind of sheltered within those tax advantage accounts. But again some of these, the classic Crowdfunded investments, like the six month or twelve-month debt deals, those are just taxed as ordinary income. Not much tax advantage there.
With an index fund, it is really easy to tax law harvest it and you can reduce some of your ordinary income with that. It's easy to donate shares to charity and kind of flush those capital gains out of your portfolio. And then of course with the crowdfunded stuff it really matters whether it's debt or equity. Debt is incredibly tax inefficient. But with equity that depreciation is passed on to you and you can use that to reduce how taxable that income is. I think it's a little bit harder with crowdfunded real estate to do exchanges though than if you own the entire property yourself. So I don't think it's quite as tax efficient as a total stock market fund. But that shouldn't be your only question when you're choosing an investment to put in your taxable account.
REITs versus Actual Real Estate
Several people asked us to discuss investing in REITs versus actual real estate.
Peter said he tends to think of those as two pretty different entities. When you're investing in REITs it's definitely more of a passive type vehicle whereas investing in your own rental properties is considered passive income in terms of taxes. But really it's running a business. I think the potential when it comes to a lot of these tax benefits of owning your own real estate is extremely powerful. There are so many different ways to work that business not only to meet your goals when it comes to income and being smart with your taxes. REITS and real estate are two really separate things and so it depends on your goals, your disposition, time available, etc. But there is no reason why you can't do both. He invests in multiple different asset classes even within real estate.
Investing in Real Estate without Managing a Property
“How do I get started investing in real estate if I have zero interest in actively managing a property? What do I give up in terms of tax benefits by using these other real estate investments, like REITs, or crowdfunded real estate?”
There are definitely ways to get invested in real estate without being an active manager. All these crowdfunded opportunities, these syndications, these funds, these REITs are completely passive beyond the original or initial kind of due diligence. Peter said if you are not really interested in actively managing, and what he means by actively managing is that you have to manage a manager. He always has a manager, but that does involve following exactly what they're doing and being over them. If you don't want to actively manage you probably should be in some syndications or funds or REITs space.
You do give up some of those tax benefits but that's not the reason you should be investing in rental properties, just for particularly tax benefits only. If your time is what matters to you and you don't want to be involved in growing that business of owning your own real estate, Peter definitely would look at syndications, funds, and REITs.
“Can you do a 1031 exchange for sale of a rental property if you buy a duplex and live in one part and rent out the other?”
For those who aren't familiar with what a 1031 exchange is, it allows you to do a sale of a rental property and take that money and move that into another purchase without paying capital gains. You defer the capital gains. If you move into a property and you stay there for two years then it gets treated basically as a residence. If you move out of something and you rent it out then it gets treated as a rental property. There are advantages both ways. If it's a residence you can exempt up to $250,000 in capital gains, doubled if you're married. If it's a rental property, of course, you can do the exchange thing.
But what happens if you're living in half of a duplex and sell it? You treat the half you were living in as a personal residence, and you treat the half you were renting out as a rental property. So, it's actually two sales, as far as how you treat it tax wise.
% of Real Estate Portfolio Directly Owned vs % in Syndicated
Passive Income MD said 75% is, in terms of equity, in their own rental properties. 25% of what he allocate towards other types of real estate investments are in funds, syndications, and other sorts of crowdfunded opportunities.
Debt to Equity Ratio For Rental Properties
Peter doesn't like to over leverage his properties. He likes to get them to a point where there's at least even cash flow if not a little bit of cash flow. He feels a little bit more comfortable being in that position. The down payments on his places in California have been anywhere from about 35 to 40%, so there's a little bit less debt on those. Whereas some of the other properties in the Midwest he is more comfortable having a lower loan to value somewhere in the 20 to 25%.
Keeping Bonds in a Taxable or a Tax Advantage Retirement Account
I think the big focus I've had on this topic is to get people to realize that it's not just a question of tax efficiency, that the amount of the return actually matters too. You have to look at both of those factors. When bond yields are really low like they were two or three years ago when I wrote a post called, Bonds Go In Taxable, it's possible that putting your bonds in your tax protected account isn't actually the right move for you.
Leif thinks the most important thing to understand when looking at this question are the tax ramifications of where you do own your bonds. When you argue that bonds go in taxable, you're talking about having a municipal bond. And that saves you on federal income taxes on the yield, and if you have a fund for your particular state in which you live also the state taxes. That is a great advantage. A total bond fund, or a corporate bond fund, is not very tax efficient. And, if you are going to own that type of fund you want to own it in a tax advantage account like your 401(k) or IRA. It is going to depend on where the particular yields are at the time and what fund options you have available. The difference between owning municipal fund in taxable, and having the total bond or corporate bond fund in the tax advantage account, is going be a very small difference in your total return though. Just a few basis points here and there. As far as the big picture, probably doesn't make a difference to you.
I agree with Leif that it is a relatively minor effect, number one. Number two it often gets mixed up in the municipal versus taxable bonds question. And what a lot of people need to realize is that as interest rates go up it starts making more and more sense for your bonds to be in a tax protected account. And so it's only at very low interest rates that it makes sense to even think about taking your bonds out of a tax protected account.
Where to Invest Cash
Where to invest cash that you want to keep as cash and not other investments?
Peter keeps very little cash on hand unless he is saving for a bigger investment like a rental property. In that case he puts it in a high yield savings account online, currently using Ally.
Leif is saving to build a house. He said, “I've kept it in cash and for much of the year I was also in the Ally savings account online which was paying up to 2% by the end of the year. But then I looked at Vanguard's money market funds and they're actually giving now 2.3, 2.4% and some of them have some tax advantages. For example, the Treasury Money Market Fund is state income tax-free for most states. I'm in Minnesota and I pay a 9.8, or 9.85% income tax on state income above $250,000. So, it made sense for me to move my money from Ally at 2% to the Treasury Money Market Fund VUSSX at Vanguard for the 2.3% and the advantage of no state income tax on that money.”
My cash is actually in the Vanguard Municipal Money Market Fund. It is totally tax free, the yield is lower. I think it's 1.4 maybe. It previously was at Ally Bank but basically when the after tax yield of that municipal money market account became higher than what Ally Bank was offering this year I just switched over. I still have the Ally bank account and it's really easy to switch money back and forth if those yields change again.
Student Loan Management
“If you're pursuing Public Service Loan Forgiveness and you made 60 qualifying payments, toward the 120, and started a Public Service Loan Forgiveness side fund, you know basically a sum of money you could use to pay off the loans if something happened to Public Service Loan Forgiveness, and now your side fund is the same size or greater than your loan balance, what would you do? Would you continue to pursue Public Service Loan Forgiveness? Or would you just pay off the loan balance?”
Definitely keep pursuing the PSLF. The side fund was a “just in case fund.” It was meant to be used to pay off the loan if something happened to PSLF and you were not grandfathered in. Stay the course and wait for PSLF. In the end, you very well may have a taxable account that you get to keep all to yourself.
Peter does point out that if you are staying at a job exclusively because you're trying to hit that 10-year PSLF and you've wanted to pursue other things maybe you might want to just pay off the loans. Otherwise, there isn't a downside to staying in it and then using that just in case fund in the future however you want.
“Name a post each of your colleagues wrote that you wish you had written yourself.”
Peter said his favorite Physician on Fire post was the one about geographic arbitrage or why the Great Plains are so great. For the WCI he chose Stop Money Shaming Each Other.
Leif said his favorite for Passive Income MD was a series he wrote about true doctor stories, particularly his post with ZDoggMD. For WCI is was Six Tips for Those Who Have Enough
I chose Passive Income MD's list of Physician Side Hustles. And for Physician on Fire it was his Step by Step Guide to Doing a Roth IRA at Vanguard.
Vanguard Roth IRAs
“What is going on with Vanguard Roth IRAs this year? Why is it taking so long to get our money in there?”
Vanguard is no longer offering what they call a Mutual Fund Account, whether it's in taxable, or your IRA, or whatever. They only offer a brokerage account which has some advantages, it allows you to buy non-Vanguard funds, it allows you to buy any kind of ETF or individual stock, and it has a settlement fund. Whereas a mutual fund is really just, you buy Vanguard mutual funds and that's it, and there's no settlement fund.
Leif still has the old mutual fund account for his IRA. By virtue of not having a settlement fund, there's no place for the money to settle. So, one day he makes a contribution to the IRA, the next day he converts it to Roth and it lets him select which fund he wants it to go into that's already in the Roth account. So, it's really easy and straightforward and it takes two days.
But for those who have what Vanguard calls their brokerage account for an IRA and the money is coming by electronic bank transfer from an outside bank, even if it's been connected and you've used it many times, they'll make you wait up to seven days to actually invest that money in the Roth IRA. There is no legal reason for this to happen. It is just Vanguard's crummy customer service. I mean some companies have a backdoor Roth IRA button that you just click on. It doesn't have to be this hard. But the bottom line is that it isn't trouble, it's just a delay basically. So, if Vanguard gives you a little popup saying, “Please transition to our new and improved better brokerage account,” I wouldn't do it. If you have the mutual fund account, keep it.
Personal Finance Curriculum for Trainees
“If you were making a personal finance curriculum for trainees, name the three most important topics it must include.”
Physician on Fire:
- Investment Management
- Student Loan Management
Passive Income MD
- Real Estate Investing
- Cash Flow Planning
- A Written Financial Plan
- Asset Protection
- Retirement Accounts
Fire your Financial Advisor
“I'm almost 72 and my required minimum distributions are at 3.8% from three IRA wrap accounts, and one SEP wrap account. Several hundred thousand in each. I also have a Roth, less than a $100,000 and an Ohio National SEP that guarantees market returns or 8%. I'm still working part-time in Texas. Should I fire my advisor?”
Physician on Fire wouldn't fire an advisor based on the 288 characters we can squeeze into a Tweet. He didn't think that would be fair to the advisor. This investment plan does sound complicated and complex, possibly unnecessarily. Wrap accounts almost always have fees that are too high. And it sounds like there's some sort of a random insurance product here that's probably designed to be sold not bought. So there's a very good chance that this listener needs to fire their advisor and get some real financial advice. But, what they really need to do is go get a second opinion from a fee only financial advisor on what is going on. And I suspect they are probably going to move on once they do that.
Negative Impact of Index Funds
“Could you discuss some of the negative press that surfaced relating to index funds last month? I believe the concern was that index funds were becoming too popular and having some negative impact on the economy.”
There will be an issue if 80 or 90% of people are indexing. But I don't think that's going to happen, people will always want to beat the market and if there does become a situation where so many people are investing in index funds that other funds are more easily able to outperform them then people will start to switch the other way and problem ought to correct itself. I think it's a self correcting problem. You need a very small percentage of the invested money to be actively managed, to keep the market efficient enough that indexing is the right move when it comes to investing in stocks. And that number is probably a lot smaller than most of us think. We have to have a far higher percentage of assets and index funds before that is really going to have an effect on fair pricing of the market, just because that's not where all the trading is happening. And it's the trading that determines the prices.
Pros and Cons of 529s
All of us have 529s for our children either in Utah, Nevada, or Minnesota. Mine are invested very aggressively.
Peter has also purchased a rental property to pay for his children's college expenses. He will pay for college by either selling the property or by the income the property generates. It provides some diversification with the college savings.
The pros of a 529 are that all the growth is tax free. In Utah, we get a state tax break when we put the money in so that's another pro. There are some very low cost 529s like the Utah one, you pay very little fees, I guess the fees you do pay are a downside but they're not very high. And then it's kind of set it and forget it. You can even use kind of a target retirement fund approach for it. I'm not concerned about over funding it. You can just change the beneficiary to the grandchildren. You can also use the money to pay for K-12 private education.
“How do you handle household work, cooking, cleaning, etc, division of labor, what's outsourced, etc?”
We all approach this a little differently. There is no right answer. Physician on Fire and I have more traditional households with a stay at home spouse. We both divide the work pretty evenly. Leif does the cooking at his house and his wife the cleaning and in our home no one wants me to do the cooking, so I do the cleaning. Peter comes from a two-doctor family so they outsource the cooking and cleaning in favor of spending more time with their kids. Figure out what works best in your home.
“What percentage of doctors do you think are reachable with your collective message? What percentage do you think are immune to it and will always live in financial ignorance and/or frustration doing stupid doctor tricks?”
Peter said in his hospital it seems to be somewhere between 10 and 20% of people actually know about WCI. The people he talks to, about half seem really interested in finding out more and they'll go on the website and then half it will just bounce right off of them. So he thinks 50/50. But feels for some of that 50% that live in financial ignorance they are just so busy, nose to the ground type thing, that they don't even know these resources are out there. So it is up to us to spread the word.
I think the percentage we are reaching is definitely much higher in the younger docs than the older docs. A small minority of docs in their 50s and 60s. But students and docs in their 30s, it might be more than half that have heard of this message. They may not listen to it or follow it but they can't say they've never heard about it.
Leif made a good point that they have to have a reason to care. For some people it's career burnout, for others it's just realizing what fees they're paying, or being faced with “here are your fund options in your 401(k) choose one.” And they say, “Well I don't know.” So you have to have a reason to actually seek this information out and then hopefully once they discover it then they'll stick around.
Donor Advised Fund
Physician on Fire would like to take some credit for me finally opening up a donor-advised fund. He is hoping we can convince more people to be more generous and charitable with their money once they've reached the point of having enough. I've been impressed with how slick and convenient it is. Between that and the anonymity, I think it is great. I am at Vanguard charitable and Leif says it is even more slick at Fidelity with lower minimums and it is easier to do recurring payments. It is cheaper at Vanguard.
Greatest Financial Mistake
“What was your greatest financial mistake?”
Physician on Fire:
“I bought too much house or built too much house when I got my first permanent doctor job. And when we sold it I lost about a quarter of a million between the value of the home and the realtor fees. I learned that job security isn't what it used to be in the physician world and not to buy too much house.”
Passive Income MD:
“I think my biggest one was that I let my father manage my Roth IRA. He said, “Okay, you're gonna miss out if you don't invest in this stock. I think you should go heavy in this one stock.” And I said, “All right, I don't really know much about it. But if you're that confident here you go, I'll do what you say.” And I sold all my holdings and put it in a Canadian construction company and then of course, I lost about 80% of the value. A big crash started happening and I freaked out and I just basically sold it. My Roth IRA took a huge hit at that time. I tell people, “Look, don't follow the hot stock tips. I know. Don't let your family tell you what to do and don't necessarily follow their advice when it comes to the hot stock tips.”
I think my biggest financial mistake by dollar value, not necessarily something I regret or a life mistake but certainly a financial loss, was having the military pay for med school. I went to a cheap med school at a time when interest rates were very low. I could have come out of med school with probably $70,000 in debt and paid that off by Halloween coming out of residency. And so exchanging four years of my life to avoid a $70,000 debt was probably my biggest financial mistake by dollar value. But it was a great opportunity, I got a chance to serve my country and made a lot of great relationships and connections, and had a lot of great experiences. So I don't know that it was a life mistake but finance wise it wasn't a good move for sure.
Be sure to check out Physician on Fire and Passive Income MD . Thank you for listening to this interview and sharing this podcast with your colleagues. It helps spread the message of financial literacy. If you have questions this is a great community to find the answers. Ask in the WCI Forum or in the WCI Facebook group. Or if you want to have your questions answered on the podcast go record them here!
WCI: I recently went on his show to discuss the trade-offs between paying off medical school debt or choosing to invest. It's a great resource to learn about the most popular finance question we seem to get on a regular basis. And plus, it's on an awesome show. So, go find Financial Residency in the same podcast player you listen to me in, download the show he and I did together, and use it as a guide to help you with your decision to pay down debt or invest.
WCI: All right our quote of the day today comes from Twenty One Pilots who said, “Wake up, you need to make money.” And, I think that's a great show, or a great song, but that's the line that stands out the most to me in it. And, it's a reminder that you know what? That's where money comes from is work and you gotta get out there and get it done sometimes.
WCI: If you haven't checked out the White Coat Investor Facebook group be sure to do that. It is growing rapidly. I think we've got 12,000 members in it, and tons of great discussions going on in the Facebook group. It's open to all high income professionals but not financial professionals, other than the sponsor of the group for that month. And so you can get in there and ask your questions in a reasonably private manner. I mean obviously any Facebook group with 12,000 people in it isn't that private but it's a great place to get some quick questions answered and get inspired to take control of your finances.
WCI: Speaking of you, thanks so much for what you do. Your work on a daily basis is changing lives and I know sometimes people aren't thanking you for it so I wanted to do that today. Thanks for what you do. It is hard work, it took a lot to get there and I know a lot of you feel a little bit burned out on it. And so realize that there are people out there that appreciate what you're doing and recognize the sacrifices you are making.
WCI: Today we have two awesome people on the podcast that should need no introduction. The Physician on FIRE and Passive Income MD. We're basically going to be answering your questions today and so let's get into it.
WCI: All right, we've got our two favorite guests back on the podcast today. We have the blogger behind Physician on FIRE and the blogger behind Passive Income MD back here on the White Coat Investor Podcast. So, we're looking forward to answering your questions today and going over them, and maybe even giving you each of our different opinions. Some of these questions are pretty funny, but we'll try to keep a good mix of questions in there so there will be something that you find interesting.
WCI: First of all though I want to welcome both of these guys to the podcast. They're now officially out of the closet, not that closet but the anonymous blogger closet. And so welcome Leif of the Physician on FIRE and Peter Kim of the Passive Income MD blog. Welcome to the show guys.
PoF: Thanks Jim. Happy to be here.
PIMD: Hey, great. Thanks for having me too.
WCI: First of all, let's have each of you kind of give us a little bit of an update on what you're up to and any new projects you've got going that you want our listeners to know about. Let's start with you Leif.
PoF: Yeah. So, gosh the last few months of 2018 were really busy for me. I was working more than full time in October and November covering a medical leave and a military leave in a group of five. So, that was a challenge. And, the holidays and everything else just kept me very busy and I'm happy that 2019 is here, things have slowed down. I'm back to working part-time. I've got time to kind of get caught up on things that I've neglected with the blog. As far as what's new there, it's pretty much status quo. I'm continuing to publish a post every Tuesday, a guest post every Thursday, one from either of the two of you on Saturday, and my ever popular Sunday best roundup from some of the best stuff I find online on other sites every Sunday.
WCI: Now, what he means when he says status quo is that the Physician on FIRE blog is literally almost the same size as the White Coat Investor blog, just comparing the blogs not everything else we're doing.
WCI: So, it really has grown substantially in the last year or two and is really impressively grown.
PoF: Yeah, I saw 2.6 million page views last year, which is, that's a big number any way you look at it.
WCI: Yeah. That's pretty awesome, pretty awesome for sure. You're affecting a lot of lives and helping a lot of people although I think if you keep working like this, you know back and forth to full time we're gonna rename your blog Physician off FIRE.
PoF: Yeah, right. But, that's an exciting thing I can mention. August looks like it'll be my final date of actual work as an employee here in northern Minnesota. So, I'll maybe be done completely with anesthesia later this summer.
WCI: Pretty awesome. Pretty awesome.
WCI: I know there's a lot of docs out there that would love to be in your position, to at least have the option to do that.
WCI: All right Peter let's talk about what's going on over at Passive Income MD.
PIMD: Yeah. It's been an awesome year as you might've seen on my post that kind of recapped the whole year. I mean it was an amazing year for the blog, tremendous growth, a lot due to the partnership with you guys. So, thank you so much. And, yeah it was a learning year just in terms of how to run the business, how to kind of get the information on the site that I want to get out there.
PIMD: I spent a lot of the time in the later part of the year, since I did come out on the blog I think it was around August, just really kind of interacting with the community and figuring out what the community really wants to see on the site. I spent a good amount of time, especially here in my local area getting together with people, and I thought that was awesome. And, I hope to kind of continue to grow that across different parts of the country. We talk about it on our Facebook group Passive Income Docs, about kind of having these get togethers. And, I think it's a huge thing because it really helps to kind of feel connected to a community of people that are doing different things and you get motivated by hearing what other people are doing. So, that's what I spent a lot of my time on in the latter part of the year.
PIMD: And, as opposed to Leif I actually ended up spending a lot less time at work. I've been intentionally trying to cut down, my family and I got to take a few vacations which was really nice. And, the funny thing though, as you know Jim is that when you spend less time at work, a lot of times with your free time, you know apart from the time with your family you end up spending more time on the blog and your other businesses. So, that's kind of what ended up happening. I think again we've made some tremendous strides with Passive Income MD. With my other company Curbside Real Estate, that has been growing as well, keeping me busy. And, really just hanging out with family as much as I can.
WCI: Yeah. I don't think all my listeners realize this, but Passive Income MD is not your only side gig. You've got a whole bunch of it going. You're a passive income machine over there and so it's been fun for Leif and I to get passive income from Passive Income MD but what's most impressive is just watching how you've kind of handled all these businesses and juggled them in your life along with your practice and your family. So, congratulations on doing that. I think you mentioned in your post that you had seven-exed your income this year compared to the year previous. I know there's a lot of business owners and a lot of physicians frankly who would love to do that with their income. So, congratulations on doing that with the blog anyway.
PIMD: Aw great, thanks. I mean again it's not really all my work, it definitely had a lot to do with the partnership with you guys and just really kind of awesome, awesome readership base that's just been really committed to helping me grow this thing.
PoF: Yeah. Keep up the great work there. And, I did hear or read on your site, that you are maybe gonna have a podcast of your own in 2019. Is that still on the docket?
PIMD: Yeah, I think so. I mean, that's something that I put on as a goal this last quarter and I failed at that. But, I think sometime in this year, I mean Jim makes it look so easy, right, but I know it's not.
PIMD: He makes it look easy, you just pick up and do a podcast. But, not everybody can do that. So, it's in the works. I think I have a few other projects that I'm trying to get going in the beginning of the year that I can't quite talk about yet. But, I think towards the latter part of the year hopefully a podcast will be out there.
PoF: All right.
WCI: Looking forward to hearing it. Certainly, we can use some more voices in that space. There are dramatically fewer podcasts than there are blogs out there, talking about physician finances, that's for sure.
WCI: All right, so you guys kind of both became un-anonymous this year. How has that changed things? Have you been surprised at the differences it made, or lack of differences? You want to take that one first Leif and then Peter?
PoF: Yeah, I'll go with the lack of differences. I guess, at first nobody at work knew about this and then, I think it was when Business Insider published a picture of me with an article that I wrote about our weekly spending. And, people at work saw that and a few commented on it. And, now people know I have this site, I don't think they spend much time reading it. I've had a few questions here and there about finance stuff but, and I remember telling Peter before he went public that, you know you think it's a big deal because it's a huge deal to you, but to most people, it's not a big deal at all. And, for better or worse, probably for worse but most people aren't going to read much of your site even if they know you well in real life. So, I haven't seen many changes, and that's quite all right with me.
PIMD: Yeah. For me, I think the downside was much better than I probably imagined. I kind of had like a doomsday scenario in my head, oh my gosh if I came out all these things might happen. And, like Leif said not much happened. In terms of downside I mean, just a few people at work figured it out. If anything there's been a lot of upside in the fact that I've been able to kind of get out there and really interact with people. And, I think that's part of the whole mission of the site and why I wanted to have a site, in the beginning, was to be able to talk to people and kind of just get excited about this whole thing. And, being anonymous was keeping me back.
PIMD: And so being out in public has really allowed me to kind of get out there and talk to people on a personal level and not feel like I'm hiding behind some veil here. A couple things that have been probably cool is that, yeah people have been excited, I've had some people reach out to me who were school classmates of mine, you know residents, co-residents as well as at least, some colleagues at my hospital. But, I mean a lot of them have been excited by the fact that I know you guys actually, so yeah.
WCI: Leif you gotta tell the story you told I think first on Twitter about meeting with your 401(k) person.
PoF: Oh, yeah yeah. So, I'm going to be retiring which is really strange for a 43 year old person to be doing. But, I sat down with the Transamerica rep and we started talking about what my future plans were. And, she asked if I had any other sources of income. And, I said “Well, I do have this website that I write for, and yeah we'll probably earn enough there to cover our expenses going forward.” And she said, “Well, who are like White Coat Investor or Physician on FIRE?” And I was like, “Well the second one.” She's like, “What? No way, oh my gosh.” She's like, “I gotta tell my husband.” And her husband's a doctor, and yeah. So, that was a lot of fun. Yeah, she made me feel far more popular than I really am I think but yeah it was cool.
WCI: Yeah, you're internet famous, internet famous.
PoF: Yeah, that's right. That's the word.
WCI: All right let's get into some reader and listener questions. Let's start with some questions from Facebook, first from Lance Castle who asked, “What is more efficient, putting money into the Vanguard Total Stock Market Fund, or putting money into a passive Crowdfunding real estate investment?” You want to take that one Leif?
PoF: Sure. And the answer is going to be the passive index fund in terms of tax efficiency. You know, you pay taxes on the about 2% of qualified dividends that come from that each year. And then you may pay capital gains on the, you know, well capital gains taxes on the gains later on when you sell depending on what tax bracket you're in when you do that. So, index funds are quite tax efficient and the Crowdfunded real estate investments tend not to be. There are some where you can do a 1031 exchange so if you have an investment property with capital gains built in and you sell you may be able to roll that into another investment without paying the capital gains taxes at that time. So, yeah I think it's a pretty easy answer. I'd be curious to hear Peter's take on that too. I know you have more experience with Crowdfunded real estate investments than I do.
PIMD: Yeah. I think for the most part you're right when it comes to kind of putting your standard money into those things, I think the Vanguard Index Fund is gonna be a lot more tax efficient. Now, the cool thing is Crowdfunded real estate has now become this huge kind of huge catchall term for all sorts of real estate investments. So, when it comes to Crowdfunded real estate really a lot of it now has to do with kind of the ability to put it online and kind of get it out to lots of people. So, it can mean all sorts of investments whether it's like a debt where you are kind of putting in money for a fix and flip, or you're kind of investing some of these syndications or it might even be some of these funds.
PIMD: And so some of the opportunities that are out there now because people, especially businesses have realized that this is a great way to get the word out about their investments is that there are more options for people in that Crowdfunded space how they want to invest. There are options for people to invest using some of their retirement accounts to invest in some of these Crowdfunded opportunities.
PIMD: Or some of these funds, or some of these syndications. And those can be quite tax efficient because those are kind of sheltered within those tax advantage accounts. And so there are opportunities for people depending on what they want. But again some of these, the classic Crowdfunded investments like these quick you know, six month or twelve month debt deals, yeah those are just taxed as ordinary income. So, you're right there's not much tax advantage there.
WCI: Yeah. I think you really have to get into the weeds to really answer that question. I mean with a index fund it's real easy to tax law harvest it for instance and you can reduce some of your ordinary income with that. It's easy to donate shares to charity and kind of flush those capital gains out of your portfolio. And then of course with the Crowdfunded stuff it really matters whether it's debt or equity. Debt is incredibly tax inefficient. But, with equity you can, that depreciation is passed on to you and you can use that to reduce how taxable that income is. I think it's a little bit harder with Crowdfunded real estate to do exchanges though than if you own the entire property yourself.
WCI: And so I don't think it's quite as tax efficient as a total stock market fund. But, that shouldn't be your only question when you're choosing an investment to put in your taxable account you know.
WCI: Which I think is probably the underlying question here. All right let's move on to the next one. This one, I actually had several times from people. They really want the answer to this one and I've got a pro/con post planned on this coming up in a few months. But, this one let's give to Peter first. Investing in REITs versus actual real estate. Can you give us your thoughts on that?
PIMD: REITs versus actual real estate. I tend to think of those as two pretty different entities. When you're investing in REITs it's definitely more of a passive type vehicle whereas investing in your own rental properties it's considered passive income, I guess in terms of taxes. But, really it's running a business. I think the potential again when it comes to a lot of these tax benefits I think owning your own real estate is extremely powerful. There are so many different ways to work that business not only to kind of meet your goals when it comes to income, when it comes to kind of being smart with your taxes. I think those are two really separate things, with two different ultimate, it kind of depends on your goals.
PIMD: Now, I don't see a reason why, any reason why you shouldn't do both or you can do both. You know, I personally invest in you know, multiple different asset classes even within real estate, whether that's owning your own properties, whether it's having REITs. But again I think they're two really separate entities and you have to look at kind of your own goals and your own, really your own disposition and time, and how you want to use your resources to kind of get there. It's kind of a, sorry it's kind of a vague answer but it's really hard to compare those things really apples to oranges, I mean apples to apples.
WCI: As a follow up to that question Ashish Doshi in the Facebook group asked, “How do I get started investing in real estate if I have zero interest in actively managing a property? What do I give up in terms of tax benefits by using these other real estate investments, like REITs, or Crowdfunded real estate?”
PIMD: Oh yeah, there are definitely ways to get invested in real estate without being an active manager. I mean I, all these Crowdfunded opportunities, these syndications, these funds, these REITs are completely passive beyond the original or initial kind of due diligence. That's probably where it sounds like the reader really wants to be in that kind of space. I would say if they're not really interested in actively managing, and what I mean by actively managing is that you have to manage a manager. I mean I particularly never manage any of the investment properties myself. I always have a manager, but that does involve kind of following exactly what they're doing and kind of being over them.
PIMD: I would say they probably should be in the space where they're in some syndications or funds or in that REITs space, and there are definitely a lot of opportunities. Now, you do give up some of those tax benefits, and especially when you're trying to figure out how you want to you know, do something like depreciation or things like that. There are definitely some offsets that you give up on but at the same time, it depends on what you're, that's not the reason you should be investing in rental properties for particularly the tax benefits only. You know, if your time is what matters to you and really you don't want to be involved in that kind of growing that business of owning your own real estate, definitely I would think more in terms of some of those passive investments like I mentioned, syndications, funds, and REITs.
WCI: All right, let's turn to Physician on FIRE for this one. Leif, Bryan Patrick writes, “White Coat Investor and Physician on FIRE seem to disagree on whether to keep bonds in a taxable versus a tax advantage retirement account. I'd love to hear you guys discuss the pros and cons of both.” I'm not sure that's actually an accurate representation of my opinion on it.
WCI: I think the big focus I've had on this topic is to get people to realize that it's not just a question of tax efficiency, that the amount of the return actually matters too. You have to look at both of those factors. And so when bond yields are really really low like they were two or three years ago when I wrote a post called, Bonds Go In Taxable, it's possible that putting your bonds in your tax protected account isn't actually the right move for you. What are your thoughts on that topic?
PoF: Well I think the most important thing to understand when looking at this are the tax ramifications of where you do own your bonds. So when I argue that bonds go in taxable, you're talking about having a municipal bond, you know a municipal bond fund in a taxable account. And, that saves you on federal income taxes on the yield, and if you have a fund for your particular state in which you live also the state taxes. And that's a great advantage. And, a total bond fund, or a corporate bond fund is not very tax efficient. And, if you are going to own that type of fund you want to own it in a tax advantage account like your 401(k) or IRA. So, yeah I read the post, Bonds Go In Taxable and followed the math and it makes sense. But again it's going to depend on where the particular yields are at the time and what fund options you have available.
PoF: Now with my 401(k) I have the total bond fund Vanguard's institutional version of that. So to me, that was a no-brainer, it's simple, bonds are kind of boring. I think that was in one of the similar questions. Bonds are boring, how do I understand them? And, I've read a book on bonds, I've looked at all my options. And, to me, it made the most sense just to buy that total bond fund and put it at 10% of my portfolio. And, the difference between owning muni fund and taxable, and having the total bond or corporate bond fund in the tax advantage account, it's gonna be a very small difference in your total return. We're talking you know, just a few basis points here and there. As far as the big picture, probably doesn't make a difference to you.
WCI: Yeah. I agree it's a relatively minor effect, number one. Number two it often gets mixed up in the municipal versus taxable bonds question. And what a lot of people need to realize is that as interest rates go up it starts making more and more sense for your bonds to be in a tax protected account. And so it's only at very low interest rates that it makes sense to even think about taking your bonds out of a tax protected account.
WCI: All right let's go on to some of the questions from Twitter. This one from Brian Canes who asked, where to invest cash. And, I think he's talking about money that you want to keep in cash, not other investments. Peter you want to take a stab at that?
PIMD: Oh, you think the reader's asking where to keep their cash, you mean to keep in cash?
WCI: Yeah. I think they're asking money market fund, or CDs, or high yield savings. I think he's asking, where do you have your cash right now? Where are you keeping it?
PIMD: Oh, okay. I can just tell you where I keep it. I mean again I keep cash on hand, well I like to keep very little cash on hand. I think that's the answer. But, when I do keep cash on hand that's really me saving to possibly put in a bigger investment like a rental property. That's currently what I'm doing right now. I have actually a decent amount of cash in a, just in a regular savings account, high yield savings account online. Actually, mine's in Ally. But the reason I like putting it there is that, it's I want it completely liquid, I want it to be in a position where I can actually use it and utilize it right away. And so I am actually saving towards you know, buying another investment property this year hopefully. And, that's where I put it. Again I don't mess around with anything else.
PoF: And, I can speak to this because I am also saving to build a building, build a house. And so for the last year I haven't really invested much of my income, I've kept it in cash and for much of the year I was also in the Ally savings account online which was paying up to 2% by the end of the year. But then I looked at Vanguard's money market funds and they're actually giving now 2.3, 2.4% and some of them have some tax advantages. For example, the Treasury Money Market Fund is state income tax free for most states and I think California might be one that's not, you might be half taxed or something there. I think there are two states where it wasn't tax free. But I'm in Minnesota and I pay a 9.8, or 9.85% income tax on state income above 250,000. So, it made sense for me to move my money from Ally at 2% to the Treasury Money Market Fund VUSSX at Vanguard for the 2.3% and the advantage of no state income tax on that money. So, that's where I'm at right now.
PIMD: Awesome. I'm gonna take a look at that. Cool, thanks Leif.
WCI: Yeah. It's good times I tell you, paying taxes on Physician on FIRE income in Minnesota and paying taxes on Passive Income MD income in California. I'm really looking forward to doing that California income tax return this year.
WCI: But, my cash is actually in the Vanguard Municipal Money Market Fund. You know, it's totally tax free, the yield is lower. I think it's 1.4 maybe but it's totally tax free, for federal, state tax isn't. So that's where my cash is right now. It previously was at Ally Bank but basically when the after tax yield of that municipal money market account became higher than what Ally Bank was offering this year I just switched over and I've still got the Ally bank account and it's really easy to switch money back and forth if those yields change again.
PoF: Yeah. There was a crossover point. It did make sense for a long time to be with Ally, I think Vanguard's money market fund paid as low as 0.01% a couple years ago.
WCI: Yeah, it was pathetic for years, I don't know six or eight years it was just pathetic.
WCI: And, I think I wrote a post early on on the blog about you know, basically why I'm leaving. But, anyway it's back, one nice thing about interest rates going up you can actually make money saving again now.
WCI: All right this question comes from Doctor McFrugal. It's a student loan questions but it's less on the actual student loan management than on philosophy. It says, “If you're pursuing Public Service Loan Forgiveness and you made 60 qualifying payments, you know toward the 120, and started a Public Service Loan Forgiveness side fund, you know basically a sum of money you could use to pay off the loans if something happened to Public Service Loan Forgiveness, and now your side fund is the same size or greater than your loan balance, what would you do? Would you continue to pursue Public Service Loan Forgiveness? Or would you just pay off the loan balance?” You want to start with that one Leif?
PoF: Yeah. I would definitely keep pursuing the PSLF, you know money is fungible so you may have this side account that's your taxable account where you could pay the fund balance off but assuming that things continue with PSLF and it's not taken away or we're grandfathered in if we're already in the program, you're still going to get that benefit and then you'll have a really nice retirement account in taxable of money that you were setting aside. Now, that's just a bonus of you know, taking that approach and building up that side account is that you may get to keep it and have it all for yourself someday.
WCI: What do you think Peter? Do you agree with that?
PIMD: Yeah, I think so. I mean, there's very little downside to it unless you're, I guess you're staying at a job exclusively because you're trying to hit that 10 year PSLF and you've wanted to pursue other things. Otherwise, I don't see any downside to kind of staying in it and keeping that loan balance growing, and yeah using that in the future however you want.
WCI: Yeah, I agree. I mean you've always got the fund there, if something happens to it and you don't get Public Service Loan Forgiveness you can pay it off. So, that was the whole point of having the side fund, and not necessarily to pay it off if Public Service Loan Forgiveness looks like it's still working. You know?
PoF: That's right. Yeah, it's a just in case fund.
WCI: Yeah, exactly. All right this one comes from Side Hustle Scrubs, one of the physician financial bloggers out there. “Name a post each of your colleagues wrote that you wish you had written yourself.” You want to start with that one Peter?
PIMD: Yeah. I'll do one for each of you guys. I think Leif's, one of my favorite posts that got me thinking so much was the one about geographic arbitrage, or why the Great Plains are so great. That made me think, I mean that's somebody that, you know, that's a lot of people in my state and my situation think about. I mean, we are you know, I'm on the coast I'm in Los Angeles and you know, we made x amount and the cost of living is extremely high and it becomes quite difficult. And so the kind of concept of geographic arbitrage is something that I think everyone kind of needs to take into account.
PIMD: I mean there are other factors and that's the reason why I'm not moving. But, it really got me thinking about, even within my own area you know, can I do some mini geographic arbitrage even close to where I am? You know, whether moving to a different county, whether to do these kind of things, and really take advantage of that whole you know, change in cost of living with the different incomes. And, I thought that was awesome. And I know that you know, Leif has done an amazing job kind of really just honing in on that concept and I know that if you Google geographic arbitrage I think Leif if I'm not mistaken, you're number one. Is that right?
PoF: Yep, yep.
PIMD: Yeah, that's right. So, that's been a powerful post. And I kind of point people to it all the time when they start. People in California hear all the time when I'm with my colleagues, “Oh, man I want to live, or I want to work somewhere else because it's just, the cost of living's too much.” I kind of tell them, “Hey, read that post on geographic arbitrage.” You're right, it's kind of that mindset.
WCI: And now all your friends are leaving you?
PIMD: Yeah yeah. Hey, some of them are. And, I know it's tough, it's tough living here. You know, people ask us all the time, you know “Why don't you move?” But, you know we have our family here, we have a lot of different things here. And so we built our life in our community, and I couldn't imagine leaving it. But, for financial reasons, but yeah I think that's that.
PIMD: And, for your post, I came up with two. One for you Jim is I think one of my favorite posts of all time is the one, Stop Money Shaming Each Other.
WCI: Yep. I kind of wrote it in your defense, I'm not surprised you like it.
PIMD: I think that's why, I think that's why it's my favorite. I kind of wish I had, I kind of wish I had the guts to write that myself. But, you know I thought that was a powerful kind of statement to kind of again, put it out there to tell people that we should be kind of sharing, we should be sharing each other's successes and really not putting each other down for it. I think that we have a lot to learn from each other.
PIMD: I'm still constantly learning and I don't think I write the things I do to kind of put necessarily the spotlight on myself so much or kind of say I'm doing these amazing things and here I am living this amazing life by myself. I mean a lot of it has to do with the fact that I'm trying to share, share what I'm doing and really say that really, at the end of the day I'm not anything special and anybody else can do this. And that's just kind of the difference is that I've started to take some of these steps and here, here's what I'm learning. And so I love that post and you know, of course yeah it felt nice that, to feel supported.
WCI: You mentioned another post.
PIMD: Oh, that was two posts.
PIMD: Yeah Stop Shaming Each Other for yours, Geographic Arbitrage for Leif.
WCI: Perfect. Leif you want to answer that one?
PoF: Yeah. Yeah, I'll start with Peter. And, when he was a very new blogger, I think some of his very first posts were these true doctor stories where he has people that have been on television, have competed on some of the, I don't know if it was Survivor or some other programs.
PoF: Yeah, and I was like wow that's really cool, like he's connecting with these people that are not just internet famous but television famous. You know, I guess living in LA does have it's perks like you mentioned. And most recently you had ZDoggMD on there with how YouTube is helping change healthcare as we know it. So, yeah I think it's really cool that you're able to connect with these you know, physician celebrities in the way that you have. So, that's my favorite I guess series I'll just go with the Zdogg one since it's probably most people listening to this will have heard of ZdoggMD, it's a very cool post and a neat series that you do.
PoF: And, Jim one that really resonated with me fairly recently was a post you wrote called, Six Tips for Those Who Have Enough. You know, and that's kind of where I'm at and I'm working through, you know what I want to do with my life and my money and all of that. And, you talked about the guilt side of things, you talked about spending a little more, taking time off, working less, taking care of your health and your body. And all those things are really like, right what I'm wanting to do right now. And so I could've written something similar but you wrote it very very well.
WCI: Yeah. You know, I think the ones that I would choose are the ones that I wish I'd written myself. I see you guys publishing them and I'm like, “Oh, why didn't I write that?” But, I think the one that I'm gonna take from Peter's side is the List of Physician Side Hustles, I think is excellent. I don't know that it's necessarily a post so much as it is a page on the site. But it's easily found there on his extra income tab.
WCI: And for Leif it is the Step by Step Guide to Doing a Roth IRA at Vanguard. And in fact that's gonna be our segue into our next question. One of the listeners asked, “What is going on with Vanguard Roth IRAs this year? Why is it taking so long to get our money in there?”
WCI: You want to talk about that one Leif?
PoF: Sure. Yeah, that's interesting. It actually started coming up last year. I had some people talk about a seven day hold, which just doesn't happen when I do my backdoor Roth. And, what I've come to realize is that Vanguard is no longer offering what they call a Mutual Fund Account, whether it's in taxable, or your IRA, or whatever. They only offer a brokerage account which has some advantages, it allows you to buy non Vanguard funds, it allows you to buy any kind of ETF or individual stock, and it has a settlement fund. Whereas a mutual fund is really just, you buy Vanguard mutual funds and that's it, and there's no settlement fund.
PoF: I still have the old mutual fund account for my IRA. And by virtue of not having a settlement fund there's no place for the money to settle. So, one day I make a contribution to the IRA, the next day I convert it to Roth and it lets me selects which fund I want it to go into that's already in the Roth account. So, it's really easy and straightforward and it takes two days.
PoF: But, a lot of people are funding into trouble, and I know you did Jim. I know other people on my Facebook group have had the same issue where they have what Vanguard calls their brokerage account for an IRA and the money that's coming by electronic bank transfer from an outside bank, even if it's been connected and you've used it many times they'll make you wait up to seven days to actually invest that money in the Roth IRA. So, Jim maybe you can explain a little more on your side because I know you transfer your money from Vanguard taxable account from your money market fund and still had to wait at least a couple days.
WCI: Yeah, it was a little bit of a pain. It's kind of disappointing. I agree, the change happened when they stopped having mutual fund accounts and changed to these brokerage accounts. I mean, there's no legal reason for this to happen. It's just Vanguard's crummy customer service basically in that respect. I mean some companies have a backdoor Roth IRA button that you just click on, you know. This doesn't have to be this hard.
WCI: But the bottom line was you know, it's not trouble it's just a delay basically.
WCI: You know, on the second I put in the contribution to the traditional IRA and for whatever reason they wouldn't let it settle until the fourth. And then once it settled I was able to convert it to a Roth IRA but the conversion had to go from the money market fund it was in, in the traditional IRA into a money market fund that was in a Roth IRA. And then it wasn't until the next business day which was the following Monday that I could actually take it out of a money market fund and move it into the actual index fund that I was investing it in. But the problem was the stupid market went up over 3% in the meantime, so.
PoF: Oh yeah.
WCI: So, I'm really not happy about it. I lost, I don't know 100 bucks, a couple hundred bucks because Vanguard couldn't get their act together.
PoF: Right. And that's weird.
WCI: So, that was kind of frustrating. To be fair it could've worked the other way I mean the market could've dropped and I would've been glad that there was a delay. But you know, it's just frustrating because that's not something they have to do. And so I think you're gonna have to redo your nuts and bolts post.
PoF: Yeah. I write about it, I just revised it the other day.
WCI: Yeah. I saw you republished it.
PoF: So, I wrote a little bit about that, how that's affecting people. I know Fidelity has a five day wait. Most people are experiencing something similar there.
PoF: So, it's not just specific to Vanguard necessarily. But, I didn't actually make mine until the third, we were traveling and we were at a wedding on New Years Eve. And so the second wasn't a good day for me. But I was able to make my contribution on the third and buy into, well I should say convert to Roth and buy my refund on the fourth. So, I went from the third to fourth and was done. So, if Vanguard gives you a little popup saying, “Please transition to our new and improved better brokerage account.” I wouldn't do it.
WCI: Yeah. I kind of wish I hadn't done it.
PoF: We're grandfathered in right now, and I expect they will kick us out of those eventually. But if you have any mutual fund account, keep it.
WCI: Yeah. Okay, let's take another question from Twitter. This one comes from the Frugal Physician who we just published a guest over at White Coat Investor from her. But she asked a complex question I had to actually look up the answer for her. I'm gonna give it to Peter, he might know it without looking it up, but I had to look it up. “Can you do a 1031 exchange for sale of a rental property if you buy a duplex and live in one part and rent out the other?”
PIMD: Oh, Jim you're gonna have to tell me what you found out.
WCI: Yeah, I didn't know.
PIMD: This is, as far as I know, 1031 exchanges I've definitely looked into quite a bit. Now for those who aren't familiar with 1031 exchange is, it allows you to do a sale of a rental or income, or rental property and take that purchase and move that into another purchase without, and defer your capital gains and not kind of pay it on the spot with the sale, that initial property. You're able to take it to the next one and defer that until who knows when.
PIMD: I think the simple answer, when it comes to these kinds of things is no. You can't take a rental property 1031 to a rental property that you actually use for personal use. As far as I know you can't do that. Now, there are some other rules around it that sometimes you know, I mean things happen in life where you might buy a rental property, do a 1031 exchange to a property, something happens to you and you might have to go live in it. And I think these circumstances and things do happen in people's lives.
PIMD: Now I think a lot of it has to do with intent. If the government sees that your intent was to do that initially then I think that kind of negates a 1031. Now if it happens by circumstances somewhere down the line as far as I know then it doesn't really negate the 1031 exchange. There are ways to kind of make sure that that happens, that you document things upfront as far as I know to show that this, your intent is not to make this happen. Some people say there needs to be some sort of waiting period just to make sure, to make sure it doesn't look sketchy. But, I think that the general answer is no you're not supposed to do that. Is that what you found Jim.
WCI: I think. Well I actually found something slightly different. I think everything you said is right. You know, if you move into a property and you stay there for two years then you, it gets treated basically as a residence. If you move out of something and you rent it out then it gets treated as a rental property. And of course there's advantages both ways. Right? If it's a residence you can exempt up to $250,000 in capital gains, I think that's doubled if you're married. If it's a rental property, of course, you can do the exchange thing.
WCI: But what happens if you're living in half of a duplex and sell it is you treat the half you were living in as a personal residence, and you treat the half you were renting out as a rental property. So, it's actually two sales, as far as how you treat it tax wise. So I thought that was interesting, I learned something looking that one up.
PoF: And if you've got capital gains then having it as a residence is a good thing. If you've got capital losses having it as a rental property is a good thing.
WCI: Yeah, that's exactly right.
PoF: We took some pretty big losses on a house we sold but I had been renting it out and so I was able to take out some of those losses from our ordinary income that year, that's a big chunk of money.
WCI: Yeah we did that as well. All right the next question on Twitter comes from another physician financial blogger, Physician Philosopher who asked, “If you were making a personal finance curriculum for trainees, name the three most important topics it must include.” And I responded to them student loan management, student loan management, student loan management.
PoF: I saw that.
WCI: So, he called me out on that and he said, “I agree that's most important maybe I need to add a qualifier. All three of you must answer and you can't repeat a prior choice. Think a lecture series here.” So, let's have you start with this one Leif and then Peter and then I'll see if I can come up with three more that you guys haven't come up with.
PoF: Well, we're talking about trainees so these are people who will be starting their first real jobs and making real big bucks for the first time soon. So, I would actually talk about budgeting and relative frugality. I don't actually budget but you know, just talk about savings rates. Did I just name three things?
WCI: I'm not sure that might just be one. Frugality, all right there's one is frugality.
PoF: Anyway there you go.
WCI: What are your other two?
PoF: Oh, I'm supposed to do, I thought we were each doing one.
WCI: Heck no man, you gotta come up with three on your own.
PoF: Okay. Well, investment management.
PoF: So, learning how to do some basic simple DIY investing and all three of us have some pretty good lessons on that, as does the Physician Philosopher. He's got a good site too, and is a good writer, and believes in a lot of the same principles that we do. Number three, student loan management. You like that?
WCI: All right. Yeah, you got the easy one. All right so he said frugality, investment management, student loan management. What can you come up with Peter?
PIMD: I mean I've given a few lectures to some of the residents and trainees in this area. And the biggest topics always come up of course student loan management, so I can knock that one off right off the bat. That's easy how to manage your student loans and that's your particular situation. Number two is insurance.
WCI: Insurance is big, I agree.
PIMD: That tends to come up quite a bit. Yeah, I mean whether it's disability, life, whole life, and you know that's kind of what you built a lot of your site on initially, right? And so that's a lot of the discussion that needs to happen, understanding all these different types of insurances, how much to get, when to get, that sort of thing seems to be a big topic. And then the last one, kind of what Leif mentioned. I would probably call it more like understanding cash flow is kind of the general term that I like to call where you under, it's about budgeting income, expenses. A lot of those topics kind of branch into how to make additional income to increase your cash flow. Investments would be somewhere in there, talking about real estate, talking about your stocks and the market, and that would be the main things.
WCI: All right, no more or I'm not gonna have anything to name.
WCI: All right, so we'll give you real estate, insurance, and what was the third one you said? Oh, cash flow planning.
WCI: Okay, so what's left for me? Well, I would say a written financial plan. You know, if a resident can just hit the ground running with a plan for their first 12 paychecks I think they're way ahead of their peers. So I think having a written financial plan and becoming financial literate during residency is pretty big.
WCI: I think another topic that is really helpful for people to hear believe it or not, is asset protection. And mostly to reassure them that the chances of them actually losing personal assets in a malpractice suit is really really low. And a lot of doctors just have a lot of fear about that and I think that starts in training. And it affects the way you train and the way you practice. And I think actually realizing just how low those numbers are, of actual outcomes that are above policy limits is really helpful for people to hear at all stages of their careers. What else would I add in there? I think I would probably add something about retirement accounts. You know, getting their match if there is one in the residency program using Roth accounts during residency, etc. I think those are pretty important topics for trainees.
WCI: All right let's go on to the next one. This one's for the other end of the spectrum. Let's send this one over to Leif. “I'm almost 72 and my required minimum distributions are at 3.8% from three IRA wrap accounts, and one SEP wrap account. Several hundred thousand in each. I also have a Roth, less than a $100,000 and an Ohio National SEP that guarantees market returns or 8%. I'm still working part-time in Texas. Should I fire my advisor?”
PoF: Well, I wouldn't fire an advisor based on the 288 characters we can squeeze into a Tweet. That would not be fair to the advisor. That does sound complicated and complex, possibly unnecessarily. But I don't know a lot of the details there. I'm curious about this Ohio National SEP that guarantees market returns or 8%.
WCI: Right, yeah.
PoF: That sounds too good to be true, which means it almost certainly is. So there's something that we're not getting. But, yeah.
WCI: Right. It's almost assuredly some sort of equity indexed annuity or something. The problem here, I mean I agree it's just a Tweet, it's hard to know much.
WCI: But, wrap accounts almost always have fees that are too high. And any, it sounds like there's some sort of a random insurance product here that's probably designed to be sold not bought. So there's a very good chance that this listener needs to fire their advisor and get some real financial advice. But, what they really need to do is go get a second opinion from a fee only financial advisor on what is going on. And I suspect they are probably gonna move on once they do that.
PoF: I like that idea, a second opinion. And he's still working part-time at 72 and is taking RMDs you've probably got plenty of money would be my guess. But again we don't know based on, other than it says several hundred thousand in each of three or four accounts.
WCI: Okay, here's a question from Armand Gideon on Twitter. “Could you discuss some of the negative press that surfaced relating to index funds last month? I believe the concern was that index funds were becoming too popular and having some negative impact on the economy.”
PoF: Yeah. I saw the headlines, you know that Bogle wrote a piece in the Wall Street Journal and then a lot of other people kind of sensationalized the headline and saying, “Bogle sounds a warning.” But, what he's really talking about is if a few companies own say 30 or 50% of the US stock market then they can start to control those, you know the US stock market and that's not a good thing. But, yeah I think it was a big headline and I think that there will be an issue if 80 or 90% of people are indexing. But I don't think that's going to happen, people will always want to beat the market and if there does become you know, a situation where so many people are blindly investing in index funds that other funds are better able, or more easily able to outperform them then people will start to switch the other way and problem ought to correct itself.
WCI: That's exactly right. I think it's a self correcting problem. I mean clearly part of the issue is Vanguard has become huge. I mean it is too big to fail you know? I mean if Vanguard runs into a problem the government's gonna have to prop it up. Same with Fidelity and some of these other companies, you know. And so I think that's part of it, but I think there's an underlying concern there that, what if everybody indexes?
WCI: Well the truth of the matter is, you need a very small percentage of the invested money to be actively managed, to keep the market efficient enough that indexing is the right move when it comes to investing in stocks. And that number is probably a lot smaller than most of us think. It's certainly smaller than 50%, because bear in mind it's not so much who, where the assets are held as how the assets are traded. And most of the trading going on is being done by actively managed funds even if they only have a minority of the shares of the stocks.
WCI: You know, just because the index fund traders aren't trading all the time, they're much more passively held. And so I think it's, a lot of it is much ado about nothing to be quite honest. And I think we've gotta have a far higher percentage of assets and index funds before that's really gonna have an effect on fair pricing of the market, just because that's not where all the trading is happening. And it's the trading that determines the prices.
WCI: Okay, next question. This one from Jet Set Rehab Education, I think that's also a blogger. I think that's a physical therapy blog, or physical therapy podcast rather. “529s for college savings, the pros and cons and which funds you like.” Do you have a 529 Peter?
PIMD: I do.
WCI: Why don't you talk to us about that?
PIMD: Yeah, we have a 529. And, my wife and I, we've talked a lot about how we want to manage our college savings. I think her parents never had a 529 plan for her, my parents never had for me. And so it's kind of new for us to figure out exactly how this works and we've learned a lot about it. We've spent a lot of time. California doesn't have the greatest 529 plan. So I think we are invested, if I remember, in a Utah, I think if I remember, or is it Nevada. I have to look back at it right now, but we don't spend a lot of time. I'll be honest with you, we do our kind of like a minimum investment into our 529s. We have talked about kind of front loading it to kind of take maximum, the benefit of having that you know, invested as long as possible.
PIMD: At the same time, I'm also not necessarily a huge fan of 529s, meaning that I don't want, I can't, I don't want to rely on 529s only to kind of have all the savings ready for my kids when it comes to college investing. So, one thing that I've done also on the other side is that I've bought a property actually. I bought a property with the intent that this will be part of the college savings for my kid.
WCI: You'll pay for college with the income or by selling the property?
PIMD: No, possibly by selling the property. Or possibly by the income as well. I think there's a couple different options for that. And I've read a couple different things online about it. I'm not saying this is the only way to do it. But it's one way that I've diversifying apart from just the 529. I think a lot of people just put all their money in the 529, that's it, right. That's their hope, they hope that the 529 will get them where they want to be. I don't think that necessarily always will be the case.
PIMD: So, I've also kind of sectioned off, kind of allocated some other funds towards other things to kind of pay for college. Now, I think there's a possibility that some of these investments may do quite well with some of these rental properties. You know, down the line it appreciates, I have different options exactly how I want to do, exactly how I want to spend those funds. And so, I do invest in the 529, my wife and I do. We're not super aggressive about it. And, we've also again found other places that we want to use, other vehicles that we use to invest for our kid's college.
WCI: Yeah, so pros and cons of 529. The pros is, all the growth is tax free, in some states not California unfortunately. But Utah, we get a state tax break when we put the money in so that's another pro. You know, there are some very low cost 529s like the Utah one is one that's really low cost so you pay very little fees, I mean I guess the fees you do pay are a downside but they're not very high. And then it's kind of set it and forget it, you know. You can even use kind of a target retirement kind of approach for it.
WCI: We've invested ours very aggressively, it's half in small value stocks and half in international stocks. So you can imagine the last couple of years it hasn't been doing awesome. But we're funding it pretty well and there should be quite a bit of money in there. Our intent was never to pay for all of their education with that 529 it's just kind of our philosophy on it. We invest it pretty aggressively.
PIMD: Do you have any sort of worry, I mean I wouldn't to say worry, I guess a good problem to have of kind of over funding that?
WCI: No, no. I mean you just change it to their kids is my plan if that happens, right change it to the grandkids, change the beneficiary.
WCI: How about you Leif? How are you using 529s?
PoF: Yep, yeah. A year ago I was able to brag that we had two six-figure 529 plans and now I can brag that we have two very high five-figure 529 plans. One for each of my kids. Yeah, the benefits are there. It acts similar to a Roth IRA as long as you use the money for education. And for many of us with the added bonus of a state income tax break when you put the money in. So, I'm happy to be funding those.
PoF: And, you know I think, yeah I think over funding is not a huge issue. You can always pay the 10% penalty and then I think tax on the gains if you do end up wanting to get the money back. So that ends up not being ideal. But, you can use it on yourself. You know, you can name yourself as a beneficiary and learn culinary cuisine in Sicily and pay for your housing and your tuition or something like that. People talk about doing that.
WCI: Yeah. There is a list of approved institutions I think you have to use.
PoF: Yeah, so things to do with that money that you might not have ever thought about doing. But, most likely I would let my kids' kids use whatever is left over.
PIMD: I mean there is a new added benefit that I heard that with the 529 you're able to fund some private education as well. Right?
WCI: Yeah. K through 12.
PoF: K through 12, yeah.
PIMD: Yeah, so I think that is an added benefit that actually does make it a little bit more attractive to us. At this point we're not going the private route, we've gone public. But, I think having that kind of option as another out for your funds, does make it a little bit more attractive for us.
WCI: Yeah. I like Peter's approach too. I wrote a post about that, I don't know five or six years ago about using real estate for college. I think it's a far better idea than using whole life insurance for it. But, one idea I had was buying a condo down in the college town and not only does that give your child, you know some equity that appreciates between now and when they go to college but it gives them free rent when they're there. And also gives them a job, you know the opportunity to find tenants and to manage those tenants that are living in that condo with them you know, roommates or whatever and that sort of a situation. Never got around to doing it but something I think about every now and then. And certainly, it is a way that you could save up for college. And the nice thing about it is if you change your mind well it's just in a taxable account, you can do anything you want with it with no penalty.
WCI: Okay, next question this one also on Twitter from Merochna who I think is asking about our marriages is what's going on here. “How do you handle household work, cooking, cleaning, etc, division of labor, what's outsourced, etc?” You want to start Leif?
PoF: Sure, yeah. I do most of the cooking I would say. My wife prepares salads and I prepare most of the meals unless I'm on call and then I'm probably not home for dinner anyway. My wife definitely does most of the cleaning. And as far as raising our children that's not exactly 50/50 but we both do quite a bit with our kids. So, it just depends on the day, depends on what's happening in my life and hers. But yeah we both contribute and she, I mean to be honest my wife does the bulk of the household work, I do the bulk of the income earning.
WCI: Yeah. I think we're just the opposite as far as cooking and cleaning. She does most the cooking, I do most the cleaning. So, how about you Peter? You're in a little bit unique situation, you're in a two doc family.
PIMD: Yeah, we're a two doctor family. We've kind of talked quite a bit about what we're, what we like to do and what we're interested in. And we are fortunate to be in a situation where we can outsource a lot of the stuff that we don't enjoy. And so when it comes to cooking and cleaning we actually outsource pretty much all of it, or most all of it. We do have, we have a nanny that helps us actually do some cooking as well. And so we actually, well neither of us actually really enjoy it.
PIMD: We like spending time with our kids. We like taking our kids out kind of on a plane with them, doing these kind of different things, kind of showing them new experiences and that sort of thing. So that's kind of where we spend a lot of our focus on. But we've outsourced again those things that we kind of don't enjoy doing, which is the cooking and cleaning. And the cool thing is in this area especially there are some really great resources for it. And so we don't even, sometimes like you know, even going to get the groceries and things like that, again we live in an amazing area where you can just literally with a few clicks you can get all the groceries that you want.
PIMD: And so I'm all about you know, using your time efficiently and effectively. I've talked about outsourcing using different types of assistants and these kind of things and you know, some people have accused me of being kind of lazy when it comes to that kind of stuff. But I tend to not see it as being lazy but more like, more using your resources how you want to use it. And so, and your time which I think is extremely limited. So you know, when it comes to that, especially taking the kids and those kind of things I think my wife takes primary responsibility when it comes to making sure the kids are you know, things in school and these kind of things. And I'm primarily the income driver, but you know, we do split a lot of that and you know, we outsource the rest.
WCI: Yeah. Awesome, awesome. Three different pathways there, no right answer. All right a specific question for Physician on FIRE. “Are you going to work locums after your current job?”
PoF: I will keep my license and credentials for at least a year or two. I was just asked last night by one of my colleagues who curls with me if I was gonna keep my privileges at the hospital. I said, “Yeah, I'll hang onto them as long as it's easy enough to do for at least a year or two.” Because I know situations come up where they need a little help, and I mean if I was gonna do locums anywhere I'd just as soon come back to the place where I'm very familiar with it.
WCI: Yeah, for sure. All right a question for you Peter. “What percentage of your real estate portfolio is directly owned real estate, and what percentage is syndicated?”
PIMD: Yeah, I had to go back and, I actually saw that question which is cool, glad I got some advance warning. But, I decided to kind of take a look at my current portfolio and see where everything is invested. And it looks like at this point about 75% is at, in terms of equity or in terms of equities in our own rental properties. And 25% of what I allocate towards other types of real estate investments is in, are in funds, syndications, other sort of Crowdfunded opportunities.
WCI: All right, here's one for you Leif on insurance. “Disability, life insurance, how much, what type, and when can you ditch it?”
PoF: All right, start with disability. If you want true Own and Occ, I had that, I got it in residency through MetLife. And then when I finished residency I increased the amount that I could receive as a benefit and increased my premium. And I dropped it about the time I realized I was financially independent and that was at age 39 about four years ago. And yeah I was self insured at that point. As far as life insurance, we're all gonna have the same answer term life. And I was probably, well I know I was a bit underinsured. I had a one million dollar ten year policy and I would probably change that up if I were to start over again. But, I got this back when I was just out of residency. And again I stopped paying on that once I realized that my family would be just fine, without me.
WCI: Gambled and won there huh? Gambled and won.
PoF: Yeah a little bit, a little bit.
WCI: All right. I agree with you, I just dropped my disability insurance last month, wrote a blog post about it. I'm probably gonna drop life insurance in another year or two, it's so much cheaper than disability I figured, we'll just make sure, hold onto it one or two more years.
WCI: Okay, another question for Physician on FIRE about craft brewing. “Beer making inputs can vary greatly in price in different years, especially the Hops. Do you adjust for that by using different recipes, such as more IPAs when Hops are cheap?”
PoF: That's a funny question. There was a hop crisis, like back maybe seven or eight years ago. I know some breweries really did struggle and they were paying triple or quadruple what they normally paid. You know, that's how commodities work I guess. But, no I haven't made much, I don't brew on a massive scale I do five gallons every once in a while. So if I have to pay $1 per ounce or $3 per ounce on the hops it doesn't really affect my bottom line.
WCI: All right, here's a question for everybody. “What are the areas of the largest financial planning disagreements between the three of you?” I sat on this one and I couldn't really think of any real disagreements. Anybody else think of something you can point out?
PoF: Yeah, disagreement's not the right word, it's different approaches right. We have different approaches to how we invest our money, and how we approach where we're living, and how we approach work, and everything else. So, obviously Peter goes from the passive, or semi passive income approach with a little heavier real estate allocation than we do. I think Jim, you're kind of somewhere in between with, but your investment philosophy and mine are very similar. I think you have done a little more like I said in real estate, Crowdfunded and otherwise. But, yeah.
WCI: Yeah, I think it's all the same strategy just different tactics. Same questioner, and this is MPMD from the White Coat Investor forum actually, who asked says, “White Coat Investors made a big splash in this space and the network only increases that influence. What percentage of doctors do you think are reachable with your collective message? What percentage do you think are immune to it and will always live in financial ignorance and/or frustration doing stupid doctor tricks?” You want to take a stab at that one Peter?
PIMD: That's a good question. It's funny, just even in my own network I guess we do sometimes live in, since I'm in this world I just tend to think everybody knows who you are Jim. Right? Everybody knows and in fact I think they should know about well the White Coat Investor, they should know about the site and Physician on FIRE and what the message is.
PIMD: To be honest with you I tend to find, I mean I guess it kind of goes different by age group. But, I would say maybe in my own hospital it seems to be about somewhere between 10 and 20% of people actually know, maybe 10%. And I was actually kind of shocked at that. I mean the good thing is, there's a good and bad to that, the bad is not enough people know about it. But the good is there's still a lot of people that are out there to reach.
PIMD: And so your mission is, you've still got a big mission ahead of you and we all do. I think that, I mean but even the people that I talk to and mention about it to be honest with you half seem really interested in finding out more and they'll go on the website and kind of look and say, “Hey, this is amazing.” And then half will just, it'll just bounce right off of them. So I tend to find like, I would think that most, 50/50 is kind of where I would put it where 50% like even if you put it in front of them, they're not gonna care about it.
PIMD: But out of the 50% you know, a lot of them just don't haven't had the opportunity to see it. They're so busy they're kind of nose to the ground type thing that they don't even know these resources are out there. But, yeah I mean it's up to us to kind of continue to spread the word.
WCI: Yeah the percentages we've reached are definitely much higher in the younger docs than the older docs.
WCI: It's a minority, a small minority in docs in their 50s and 60s for sure. But you know, students and docs in their 30s it might be more than half that have kind of heard of this message. And so you know, I think some of them don't really listen to it or follow it but you know, but they can't say they've never had any sort of you know, knowledge about it. I think a large percentage of at least US medical students have at least had some minimal exposure to it I think at this point. Or else they just have their head in the sand you know.
PIMD: Yeah, I mean people are better connected to it now because through, Doximity obviously has been pushing a lot of this content and some of these other sites. And so everyone seems to be pretty well connected through there, and through on Facebook, especially the younger generation. So a lot more of them are seeing it.
PoF: I think you have to have a reason to become reachable, right. Like you may be reachable but you don't care until you have a reason to care. So you know, for some people it's career burnout, for others it's just realizing what fees they're paying, or being faced with here are your fund options in your 401(k) choose one. And they say, “Well I don't know.” Right. So you have to have a reason to actually seek this information out and then hopefully once they discover it then they'll stick around. But yeah our reach is probably out of, I think there are about a million licensed physicians in the country, you know we reach a pretty small percentage of them.
WCI: Yeah. Another question here from the forum. This one from Saildog. And it's for Physician on FIRE and he's already answered most of the question but it talks about retiring and leaving medicine and refers to the strife of the decision making process to give up your skills and your license. Have you felt strife as you kind of stare into the end of your career as a physician? And how has that been to deal with?
PoF: I've done by best to mitigate that by going part-time over a year ago now and seeing what it's like to not work for a few weeks at a time. And as I mentioned I'll keep the ability to continue working here for at least another year or two until I decide that I'm okay without it. You know, I don't know I've never gone more than a few weeks without actually doing this job so I just take it one year at a time.
PoF: But, yeah I mean I can't do like one or two weeks a year and feel comfortable in a procedural based specialty.
WCI: Yeah, for sure.
PoF: So, I know that's not an option.
WCI: I'm not sure that's any different for a knowledge based specialty, quite honestly.
PoF: No, you're right.
WCI: You need a certain minimum practice to really, or you shouldn't be doing it, you know. All right another question from Nachos31 on the forum. This one also for Leif. “What was your reaction upon hearing the White Coat Investor open the Donor Advised Fund?” And I just wrote the post about doing this and it'll run in a few weeks. But, what's your reaction?
PoF: I'd like to take some credit for it because we did do our pro/con where you argued against it and I argued for it. But, I know when you write those you could easily write either side. And so I like that you'll be highlighting some of the less talked about advantages, which is being able to really easily make anonymous donations. And also like you mentioned earlier flushing out some of those capital gains. So, yeah I think it's pretty cool. And I hope we can convince more people to be more generous and charitable with their money once they've reached the point of having enough.
WCI: Yeah. You'll see my post on it coming up on the blog. But I was pretty impressed with how slick it was and just how convenient it was. But between that, I'm with Vanguard charitable yeah. And between that and the anonymity it's great.
PoF: It's even slicker.
WCI: Is it even slicker at Fidelity?
PoF: It is, yeah.
WCI: I know the minimums are lower.
PoF: It is, but it's also much easier to do the recurring, I don't know. I mean they're both pretty simple but Fidelity's got a leg up there.
WCI: Was it easy to take Vanguard assets and move them into the Fidelity DAF?
PoF: I haven't done it yet.
PoF: What I've done is moved, because I have both so I just moved Vanguard funds to the Vanguard DAF and then I donate from Vanguard DAF to Fidelity Charitable.
WCI: Yeah. The other thing I found is my fees are very slightly cheaper at Vanguard just because I only have to keep money in there for basically one month a year and pay AUM fees on $15,000 for one month whereas there's a $100 minimum at Fidelity.
PoF: Oh, sure.
WCI: And so it was slightly cheaper at Vanguard too.
WCI: But it's you know, basically it's about the same just lower minimums and lower amounts you can donate at Fidelity.
PoF: Yeah, ratios at Fidelity are like .015 so one and a half basis points on their big index fund, yeah. Vanguard's like .06, .07, maybe it's .04 now I don't know. It always goes down, the race to zero.
WCI: Yep, hopefully they get there sooner rather than later. All right, this one for you Peter. “How mean is White Coat Investor behind the scenes?” Nachos31 wants to know.
PIMD: Where does he get that, he or she get that idea?
WCI: I don't know.
PIMD: No, I don't know. Jim I think, my impression of Jim is exactly, not a lot has changed from the time you know, because I knew you as the White Coat Investor prior to getting to know you and now I feel like I've gotten to know you now as a business partner and a friend. I think you're one in the same. I think the person you present yourself as on the site and all this stuff is the same person that you are in person. I think you're, you know you've got your principles you stick to them, you know what you know and you're very clear about it. And I think, I don't know where the mean word comes in. But I think that even with the whole stop shaming each other, I think you're very, you're not afraid to be vocal about what you feel. And I think that's a good thing. And I think people need more of that so.
WCI: Thanks, that's very kind of you. All right, a question for me from Vagabond MD, who's written a bunch of guest posts for Leif and very active on the White Coat Investor forum. He asked, “What are your favorite hiking trails in the state of Utah?” They're all canyons and most of them are unpublished and I'm not gonna put them out in public. “Have you ever been to Snow Canyon State Park?” Yes, I have. Oh, and one here for Leif. “What is your favorite style of beer? And are there injuries associated with curling?”
PoF: I like hoppy beers, IPA is my go to. And curling, yeah actually you can slip on the ice. And a friend of a friend is apparently in the ICU with probably a head bleed right now after slipping and falling on the ice at another club just this week. So, yeah you gotta be a little bit careful out there. It's ice, you know.
PoF: You work in the ER Jim you know that people slip on ice, right?
WCI: That's right.
PoF: Hit their heads, break their bones. We actually had a lawyer in our club fall on his face and he had to have I think tens of thousands of dollars worth of dental work. And you know, you don't want that to happen to anyone but especially a lawyer. But I'm pretty sure that went through insurance and was taken care of.
PIMD: Yeah, Leif tell people, I'm just curious how hard is curling from your opinion? I mean I think whenever, I don't know, I've had friends who've watched the Winter Olympics?
WCI: I think he's asking is is curling a real sport or a drinking game?
PoF: No, no, no.
PIMD: Yeah. I play a lot of other sports that maybe not because they're not sports either, but I think I get a lot of people that say, “Hey, you know I should just go learn curling so I can make it into the Olympics.” So I mean you've been doing it for a long time.
PoF: You can compare it to bowling, you can compare it to shooting pool. Like it's not difficult to do, it's very difficult to do really well. And you're taking a 44 pound stone and sliding with it and throwing it 150 feet away at a target that you want to hit within a couple inches. So you know, it's easy to do, it's not that easy to do well.
WCI: All right, here's another one for Leif from bmac on the forum. “If I recall Physician on FIRE is in his early 40s with two children.” That's right. “And is budgeting roughly 20,000 a year for health insurance. This seems like one of the most difficult items to plan for over 20 years or so until medicare. I'd like to know what his thoughts are with regard to it's impact on his early retirement.”
PoF: Yeah. He's right on all accounts, as far as my age, two kids, and the budgeting for insurance being difficult. You know, one option we're looking at and be looking at pretty closely here in the coming months are the healthcare assuring ministries which you know, if that's the best option for us we might be spending less than $10,000 a year initially. But, they don't cover everything and they're not true insurance you know, they don't cover like say you know God forbid if one of our kids ended up with a substance abuse problem they don't cover that because that's you know, not a moral thing to do to illicit drugs.
PoF: Yeah, so I'll be looking at catastrophic plans, I'll be looking at the plans on the exchange, and plans that we can buy on the open market. I've over saved, I still have some income coming in and it is a challenge though, absolutely. And if health insurance starts costing 30 or $40,000 I mean a lot of people aren't going to be able to afford well, retirement or insurance or any of those.
WCI: Or to get healthcare in the first place, you know.
PoF: Exactly, right.
WCI: I mean if the average household income is 60,000 and health insurance costs 40 it's just not gonna work.
PoF: No, right so something's gotta change.
WCI: Yeah, yeah.
PoF: But, yeah my main plan like I said is to budget a lot for it and to have more money than we actually need to cover in that high expense.
WCI: All right, we got two questions from Ann. I think she wants an answer from all of us on these. Let's start with the first one. “How often do any of you get writer's block while thinking up your next post and think, ugh I wish I could just go see some patients today instead of thinking up something new to write about?” Peter you want to start?
PIMD: Yeah. Coming up with topics is actually not a difficult thing for me, I mean I've got a running list. There are things that constantly happen in the daily life where I'm like, ah that would be good to know about. And I think a lot of things that I write about are things that I'm trying to figure out myself, not necessarily that I know always well myself.
PIMD: But, sometimes actually I mean the topics are easy, sometimes actually sitting down and actually writing the post it doesn't necessarily come naturally to me. I mean, I feel like a lot of times when I see your guys writing I'm like, man they, writing comes really naturally to those guys, you know. But for, I definitely think it's a skill that I've been working on and it's not always easy but yeah, there are sometimes where I'm like, ah I'd rather just talk about this with somebody personally face to face. And so I do run into it quite a bit, I'll just tell people that writing a content for a blog, like even for me it's not always easy you know, particularly for me but. So I do, there are times where I'm like, man this is kind of difficult. So I do run into that quite a bit.
WCI: What do you think Leif?
PoF: Yeah. I've got a big long list of posts that I would like to write so writer's block isn't a problem. And if I wasn't feeling up to writing my thought would definitely not be, I wish I could go see some patients today. It would be, I wish I could go play and do something fun.
PIMD: Well that too, yeah exactly.
PoF: Maybe something different. You know those things are completely separate and I don't need to write the posts.
PoF: Like if I were in a position where I'm like, I don't want to do this and there's this other thing going on I'm gonna go, so then a post doesn't get published. You know, it's optional even though I have stuck to a schedule pretty rigorously now for a couple years.
WCI: Yeah. This is rarely an issue for me. I've been months ahead on posts for years now. And so when I don't feel like writing I don't write. And sometimes I go weeks without writing anything. And so you know, and other times I'm writing three posts a day for a week you know, and then I'm months ahead again you know.
PoF: Right. Yeah I can't do that.
WCI: But finding content's not hard. I mean just look at this you know, I put out a message saying, “What questions do you want me to ask the Physician on FIRE and Passive Income MD?” You know, and here we've got this list of eighty questions, half of which would make a good blog post.
WCI: And so, there's no shortage of content, maybe I worried about that a little bit in the beginning but certainly that did not have that issue at any point during my blog's history. All right same questioner, from Ann she asked, “If you'd all been in the same class in med school together what would your dynamic had been like, close friends, barely knowing each other, competitors?” What do you think Peter, you want to take that one?
PIMD: I definitely wouldn't say competitors. People know me know that I'm not a, I don't really have a, I mean I get competitive in certain sports and all that but when it comes to academics and all that stuff I was never the guy known to be extremely, the gunner or competitive. But, yeah I was I would say in my med school class I felt like I got to know a lot of my classmates pretty well. So, I think we definitely would've, especially when it comes to topics of like, if we found out that we're all interested in kind of like business or entrepreneurship oh we would've been talking all the time.
WCI: Of course none of us were, in med school right?
PoF: I know, that's the thing right.
PIMD: That's the funny thing. And so, you know I hung out with a lot of guys who were into you know a lot of sports and watching that and it sounds like you know Leif definitely you, you know the football thing right.
PIMD: We probably would've bonded a lot over football. And yeah I mean I'm into some of these now, gotten into a little bit of these winter sports and stuff like that, skiing, and snowboarding that sort of thing. And Jim probably would've bonded over that. I don't know what else do you guys think?
WCI: Well I'll tell you what, at my med school the competition was pretty downplayed. It was a pass/fail school, it was pass/fail and honors. And I don't really feel like there was ever really any competition except for the other people going into your chosen specialty. And so while I am a very competitive person, I love competition just for the sake of competition. That mostly plays out at the foosball table in med school. And so, I think that's the only place I was really competitors with anybody.
PIMD: I was one of the foosball champions at my school too, so.
WCI: There's no doubt we would've known each other then.
PIMD: Oh, okay. I think we should play sometime.
PoF: I think that Jim and I would've been good friends because the way we set up our anatomy lab is you had your body buddies and those are the people you spend hours a day with you know, the entire first semester. And it was alphabetical and so everybody else I think also had a last name with d.
WCI: There you go. That's right.
PoF: And we share the first same five letters of our last names. So, we would've been body buddies.
WCI: We would've been good friends from week one. Yeah for sure.
WCI: Okay, this one from SLCOB who asked, “I feel like I know White Coat Investor and Physician on FIRE more than I know Passive Income. So for Passive Income what's your comfort zone on how much debt to equity ratio you use for your rental properties?”
PIMD: Yeah. That's a good question. I don't like to over leverage my properties. I like to get them to a point where there's at least even cash flow if not a little bit of cash flow. I feel a little bit more comfortable kind of being in that position where I'm not, especially when you know, the property goes unrented or it's vacant I'm paying and huge huge fee and I haven't saved up anything in terms of some sort of reserve fund. So I will go kind of as far as necessary to kind of reach that point.
PIMD: So obviously here in LA and Los Angeles the properties I've invested in to kind of meet that point you have to put in a little bit more in terms of a down payment and have a little bit less debt on the property. And so I think on somebody's properties here I've been I think the down payments have been closer to 35, anywhere from about 35 to 40% so there's a little bit less debt on those. Whereas some of these other properties that have been invested in let's say in the Midwest I'm very comfortable going at a lower, having a lower loan to value kind of somewhere going into the 20 to 25%, whatever the bank will allow me to do, the lowest.
WCI: Very nice. And another question, this one for Leif, same questioner. “Do you think your volunteer work would keep your skills up enough to return to work if you desired? How much time would you need to work to not lose the skills?”
PoF: Yeah. I'd have to volunteer quite a bit more than I do now. Last year we went to Honduras for a week and did a medical mission and I was able to bring my kids with me and my wife, and that was really great. We're going back again in May of this year and I think it's a great thing to do but I would probably have to do it on a very part-time basis. But a lot more than I really care to do and plan to do. And just like we talked about locums, I'd have to do it a fair amount at least a third time to half time or not at all.
WCI: Yeah. Okay, let's get this last, well let's do a couple more questions here. Let's do this one, this one from Hatten1 on the forum. “What was your greatest financial mistake?”
PoF: I bought too much house, or built too much house when I got my first permanent doctor job. And when we sold it I lost about quarter of a million between you know the value of the home and the realtor fees. So, like I said I did get some of that back on my tax return by having it be a rental property. But yeah I just, I learned that job security isn't what it used to be in the physician world and not to buy too much house.
WCI: Yeah, for sure. How about you Peter?
PIMD: I think my biggest one was that I let my father manage my Roth IRA. There was a point where, I think it was back in the mid 2000s where my father he was part of this investment club, he's a physician by the way. He was part of an investment club and they were talking about a bunch of different hot stocks. And he came to me and he said, “Okay, you're gonna miss out if you don't invest in this stock.” I think he was like, “What different stock accounts do you have?” And I mentioned, “Oh, this or that and I had my Roth IRA.” And he's like, “Okay, I think you should go heavy in this one stock.” And I said, “All right, I don't really know much about it. But if you're that confident here you go, just you know, I'll do what you say.” And I sold all my holdings and put it in a Canadian construction company and at that time I had a lot of tech stocks, I had Google, I had Apple, I had a lot of those stocks. And then of course, yeah that thing went from, yeah.
PIMD: I lost I think it was about 80% of the value. And it was kind of, of course the big crash started happening in retirement and I freaked out and I just basically sold it. And so my Roth IRA took a huge hit at that time. And so that's kind of something looking back that's where I tell people, “Look, don't follow the hot stock tips. I know. Don't let your family tell you what to do and don't necessarily follow their advice when it comes to the hot stock tips.” And so that was probably my biggest, here's the thing I have a, I always kept it aside kind of like a tracker for what my Roth IRA could have been. And so I just stopped looking at that.
WCI: Yeah, you should quit doing that for sure it's gonna drive you crazy.
PIMD: Yeah, yeah, no no I stopped doing that.
PoF: It would make a great blog post though.
PIMD: Yeah I don't even think I still have that.
WCI: Oh man.
PIMD: I've gotta look for it, I stopped looking at that I'm worried I kept that tracker on Google Finance. But oh man it was, yeah it was painful to look at.
WCI: I think my biggest financial mistake by dollar value, not necessarily something I regret or a life mistake but certainly a financial loss was having the military pay for med school. I went to a cheap med school at a time when interest rates were very low. I could've come out of med school with probably $70,000 in debt and paid that off by Halloween you know, coming out of residency. And so exchanging four years of my life to avoid a $70,000 debt was probably my biggest financial mistake by dollar value. But it was a great opportunity, I got a chance to serve my country and had made a lot of great you know, relationships, and connections, and had a lot of great experiences. And so I don't know that it was a life mistake but finance wise yeah it wasn't a good move for sure.
WCI: All right let's do one last question here. I think we're about out of time. All right “I'd love to hear an argument about who has the best sense of humor. It's not a financial topic, but it comes across in your posts. I do appreciate the funny pictures and references that give the posts some lighter air, it's one of the things that keeps me following these blogs and not some others.” The answer is certainly not me, I am not known for being funny. I always wanted to be funny but I'm not funny. So it's not me.
PIMD: It's not me either, this is Peter. It's not me, it's definitely Leif. I think, yeah. I think Leif comes across, his humor comes across really really well in his posts.
PoF: I think I do well with the written word. In person, I will say Jim you have a lot more personality than I thought maybe you would before I listened to your podcast
WCI: Wow, wow, wow, I'm apparently better in live than I am in writing.
PoF: Well, your initial stuff. Now, you've changed a lot in the last few years. Your writing has taken on more personality and you definitely see more of that. But the first couple years your posts were pretty dry.
PoF: They were, and then going back to the question about you being mean. You know you would get in arguments with people and a little bit adversarial in the comments.
WCI: Oh, yeah.
PoF: You know, so I could see where people might get that impression, which is pretty funny. But, no so when I flew up to meet you for the first time we had not spoken on the phone we had only emailed and I only had you know, what you write on the website to know you by. And I actually thought you were much more personable and friendly in person than I expected so, there is that.
WCI: Oh, that's interesting. Well, thank you very much Peter Kim of Passive Income MD and Leif Dahleen of the Physician on FIRE for being back on the White Coat Investor Podcast. We'll have to do this periodically. I think people really like these podcasts. And so we'll do it again in a few months or later this year at some point. Thank you very much.
PoF: It was a great chat, as always. Thank you.
PIMD: All right, cool. Thanks guys, that was fun.
WCI: This episode of the White Coat Investor Podcast was sponsored by another podcast, the Financial Residency Podcast which is dedicated to helping physicians become better financially equipped and more confident in making the right money decisions. The host Ryan Inman is a fee only financial planner who is married to a US Navy Pediatric Pulmonologist. Ryan's firm Physician Wealth Services is a White Coat Investor recommended advisor.
WCI: I recently went on his show to discuss the trade offs between paying off medical school debt or choosing to invest. It's a great resource to learn about the most popular finance question we seem to get on a regular basis. And plus it's on an awesome show. So, go find Financial Residency in the same podcast player you listen to me in, download the show he and I did together and use it as a guide to help you with your decision to pay down debt or invest. Or if you're looking for a financial advisor, the great thing about Ryan and his firm is it is a flat fee firm. And so you know upfront exactly what you're gonna be paying for that financial advise. So if you need a second opinion or you need a financial advisor, Ryan's a great one at Physician Wealth Services. Head up, shoulders back, you've got this, we can help. We'll see you next time on the White Coat Investor Podcast.
Disclaimer: My dad, your host Doctor 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.