Retirement Accounts and Asset Protection

INTRODUCTION

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

Dr. Jim Dahle:
This is White Coat Investor podcast number 381.

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

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All right, those of you on YouTube might've noticed that I'm wearing something different today. I'm wearing a cowboy hat. The reason why is because I recently bought a cowboy hat and I feel like wearing it. We actually went to a Kenny Chesney concert, which was really good as part of our 25th anniversary extravaganza. But before we went there, we had to stop at a Western wear store and get some cowboy boots and a cowboy hat.

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All right, let's get into your questions. Our first one comes from Carrie, and let's listen to it off the Speak Pipe. By the way, if you want to leave us a question, you go to whitecoatinvestor.com/speakpipe. You can record up to 90 seconds of a question. You don't have to use all 90 seconds, record your question, and we'll try to get it answered on the podcast.

WHAT TO DO WITH A CRUMMY 403(b)

Carrie:
Hi, Dr. Dahle. This is Carrie from Virginia. I am a project manager, not a physician, but you've provided a lot of information that's relevant and helpful to me. So thanks for that. I'm currently helping a friend review and evaluate the investment mix in her 403(b) account. I'm aware that a 403(b) is sort of the nonprofit world equivalent of a 401(k), but I'm not well-versed in the particular differences beyond that. I've read that whereas 401(k) accounts are typically held at investment companies, 403(b) accounts are often held at insurance companies.

Why is that? I imagine this has something to do with using annuities to replicate what a pension would provide, but in this modern era where pensions have become so much less common, is there a current reason for 403(b) accounts to be managed by insurance companies?

My friend's 403(b) is through her current employer, a nonprofit organization. The account is held at a major insurance company, but her investment mix is a collection of mutual funds. I have an inherent distrust of mixing investments and insurance, but in the 403(b) world, is it just normal for an insurance company to be involved? Should I set aside my bias beyond the investment mix of mutual fund investments themselves, which are all actively managed rather than my preference towards index funds? What would you be watching out for in this type of scenario? Thanks for your inputs.

Dr. Jim Dahle:
Thank you for that question, Carrie. That is a great introduction to a subject that we should talk about. There is a big mess not only in the 401(k) world, but in the 403(b) world. It is particularly bad for educators. It can be bad for nurses. Sometimes, it is bad for physician employers. There are bad 401(k)s too, though.

It is really a bad idea if you are an employer to offer a lousy 401(k) or a lousy 403(b). You actually have a fiduciary duty to your employees to offer them the best retirement account and investments that you can. They can sue you. And they have successfully sued their employers for offering crappy 401(k)s and 403(b)s. So, keep that in mind. If you have any power, any position, any ability to improve the retirement accounts at your job, you do have responsibility there.

403(b)s are technically annuities, I think, by their actual legal definition. That is more of a historical accident than anything. Obviously, they are more common in the nonprofit world, as you noted, but none of that really matters. All you have to decide if you are an employee is, is your 401(k) or 403(b) good enough to use? Is it good enough to use? If it is not, then you are stuck just investing in your Roth IRA, your spouse's accounts, and your own taxable account if it is truly not good enough to use.

That is actually pretty rare, though, in my experience, for a few reasons. One, if the employer is giving you a match, it has to be an absolutely rotten 401(k), and you have to be stuck with it for many decades in order for it not to be worth using at least enough to get the match. Your match is free money. If you do not put enough money into the retirement account to get the match, it is like leaving part of your salary on the table. It is just dumb. Don’t do that.

The second reason is lots of people are not stuck in that lousy retirement account for very long. If you are only there for one or two or three or five years or something like that, the additional fees of a crummy 401(k) or 403(b), the additional expense ratios of the crummy actively managed mutual funds that are in there don’t matter as much as the big tax deduction that you are getting for having the money in there and the additional asset protection you are getting for having the money in there.

The shorter the period of time that you are stuck in a bad 401(k), the more likely it is that you want to use it. But if you are stuck in something for many years, you are going to be with this employer for decades, you cannot get them to improve the 401(k), how bad does it have to be before you do not use it at all?

My best guess, my best estimate is if the total fees you are paying between the expense ratios of the mutual funds and the additional fees into the 401(k) is 2% or higher, then it is not worth using long-term. And most of them are not that bad. You are paying 0.8% or 1.2% in mutual fund expense ratios and you are maybe paying a little bit more in 401(k) or 403(b) fees, it is probably still worth using compared to just investing in a taxable account.

While you can try to get your employer to improve it, you can point out they have a fiduciary duty to you and they are opening themselves up to legal risk, in the meantime, you probably ought to keep using it and hopefully it improves while you are there as a result of your efforts or those of others.

I would not avoid this. I know you just looked at your friends' 403(b) and you are like, “Wow, these all suck.” And it is true. Some of them have all terrible mutual funds in them. But chances are, if it is like most of them, there is something in there that is reasonable. There is some sort of an S&P 500 index fund where the expense ratio is only 0.3 or something.

Well, maybe they can build around that. They put all their US stock money into that fund and they use their Roth IRA or taxable accounts or their spouse's accounts to round out their asset allocation for bonds or for international stocks or whatever else they want to own in their portfolio. And you can still find a use for that 403(b) with a halfway decent investment. That is the way I would look at it.

When I am talking about do not mix insurance and investing, yeah, that is a good use of that term, is to avoid having an insurance company running your retirement accounts. But mostly, we are talking about buying products like annuities and whole life insurance and that sort of a thing that are combined investing insurance accounts. It is just a place where there is a lot of products designed to be sold, not bought. A lot of high commissions, a lot of lack of transparency. In general, not a place you want to be with your retirement dollars. But in the case of a 403(b), you are probably still going to want to use that.

QUOTE OF THE DAY

All right. Our quote of the day today comes from Thomas Jefferson, who said, “Never spend your money before you have it.” It is interesting. He was much more conservative on that policy than Alexander Hamilton was. It was a big duel among some of our founding fathers. And it turned out that Hamilton actually ended up putting the financial system in place that helped our country. But I think on a personal note, there is a great deal of wisdom in not overextending your credit, not spending your money before you have it. It does not necessarily always apply in the same way to a nation as the ability to tax.

Our next question off the Speak Pipe, let us take a listen. We are going to talk about someone with multiple 401(k)s.

IS CONSOLIDATING MULTIPLE 401(k)s TO A SOLO 401(k) A GOOD IDEA?

Andrew:
My name is Andrew, and I live and practice in Indiana, which has some pertinence to my question. My situation, I am a 60-year-old physician whose career has led me to have three 401(k)s, the latest one a solo 401(k), as I am primarily a 1099 contractor now.

My question is about consolidating all the 401(k)s to my solo 401(k) at my favorite brokerage. The benefit is simplicity and better options for investing. My specific question is in two parts. The first part is, is there a significant risk from hackers or criminals? If I had my eggs in three baskets and there was a cybercrime, only one basket would be breached.

The second part of the question, is there an asset protection risk? The main old 401(k) is over $2 million. Your book, The White Coat Investor's Guide to Asset Protection, page 42, states “Individual 401(k)s have not a risk of status and have limited protection from creditors and bankruptcy.” Restating the second part of the question, should I keep the old employer 401(k) for asset protection?

Dr. Jim Dahle:
What a great question. Thanks for coming to us with that. One great reason a lot of people hold on to a 401(k), well, a couple of reasons. Traditionally, most people, not white coat investors, but most people, when they leave an employer, they roll their 401(k)s into IRAs. Just for convenience, just to consolidate, just to reduce complexity, to have more investment options and better investments, lower fees, etc. Most people, that's what they do.

White Coat Investors don't do that for the most part because they want to preserve the option to do a backdoor Roth each year during their earning years, a backdoor Roth IRA. In order to do that, you can't have any money in a traditional IRA or your conversion step of the backdoor Roth IRA process gets prorated. That's reason number one.

Reason number two is if you've separated from your employer, you can actually get into your 401(k) starting at age 55 with no penalty, as opposed to an IRA where you have to wait until age 59 and a half. None of that applies to you as a 60-year-old doc who's talking about rolling money into a solo 401(k) anyway. That doesn't apply to you.

As a general rule, yes, you want to reduce complexity, not increase it. Is there a risk there that somehow your 401(k) is going to be stolen from? I guess there's some tiny possibility of that sort of a thing. Have good online security practices. Use good 15-digit long random passwords in a password manager like LastPass or something. Use two-factor authentication.

For instance, I got an email from Vanguard last week. Vanguard's like, “Hey, somebody tried to get into your account, so we've locked it down. You don't have online access anymore.” I'm like, “Well, that doesn't sound good.” So, I called them up. Sure enough, someone had gotten my username or figured out a username and was trying to get into my account. Well, they couldn't guess my 15-digit or whatever it is password, so they didn't get into the account, much less they couldn't do the two-factor authentication. But it seemed like a good time for me to change both my username and my password. And so, I did that.

I think that risk is really, really low. It's not worth the complexity of maintaining three 401(k)s when you don't need three 401(k)s. When you leave a job, what most White Coat Investors do is they roll a 401(k) into their new 401(k) or 403(b).

If the one you're using now is a solo 401(k), for the most part, I would do the same thing. There is a difference in asset protection, though, in some states. A solo 401(k) is not an ERISA account, so it gets essentially the same asset protection as IRAs do in your state. It doesn't get the federal ERISA 401(k) 100% protection in the event that you declare bankruptcy.

I don't think that matters very much in your case for a couple of reasons. One, you're 60. Presumably, you're not going to practice until you're 85. It sounds like you may not be practicing all that much longer anyway.

When you stop practicing, a lot of your risk of being sued goes away. Yes, you can still be sued from an auto accident or someone trips and falls on your property or gets hurt on your wake boat or whatever, but a lot of the risk we worry about as docs is malpractice risk. And when you stop practicing, that goes away pretty quick. There's a couple of year statute of limitations. If you work with kids as an OB or as a pediatrician, they could go until they turn 18 in two years or whatever. There is some ongoing risk there, but it gets lower and lower and lower each year.

The second reason is you're in Indiana. In Indiana, not only is your 401(k) 100% protected if you had to declare bankruptcy for some above policy limits judgment that wasn't reduced on appeal, you get to keep that entire 401(k). And in Indiana, you get to keep your entire IRA. In Indiana, you also get to keep your cash value life insurance cash value. You get to keep your annuity. You get to keep your HSA, and then you get $19,000 of your house. Not much house protection in Indiana, but if you'll thumb in the end of your book to the Indiana specific asset protection laws, you'll see that they're pretty darn good compared to most states.

If I were you, I'd just roll it all into the solo 401(k). I would not worry about it. I think you've got plenty of asset protection there. I don't think it's a huge risk of your solo 401(k) being hacked and all your money being taken away, but if you're really worried about that, I guess it's reasonable to split it between a couple of accounts.

Make sure you're using real passwords, different password for each account, obviously, different usernames for each account if you can as well, and use two-factor authentication. That way they've got to not only have all your information, but also your phone. And I think that's adequate. How many sleepless nights you want to have worrying about risks like this? If these are the biggest risks in your life, you need more risk in your life.

MEGA BACKDOOR ROTH IRA

Okay, the next question comes in by email. Mega Backdoor Roth is the title.

“I have a question for you regarding the Mega Backdoor Roth IRA. My wife and I have W-2 incomes that put us at a marginal tax rate of 37% federal plus 10.75% New Jersey state for a total of 47.75%.”

That kind of stinks, $0.50 of every dollar that you're making is going away to the tax man.

“My wife has a 1099 side gig. Depending on the year, she has $42,000 to $46,000 of additional gross income with $5,000 to $8,000 of business expenses or deductions. My question is whether it is better to deduct the business expenses and invest that money into a taxable account or forgo the deductions and put the entire gross income as a Mega Backdoor Roth contribution, pay more taxes now, but get tax-free growth going forward. We're in our mid to late 30s to give you a sense for investing horizon.”

Dr. Jim Dahle:
And presumably some mega savers if you're in your mid 30s already and thinking about this stuff. Well, first of all, don't pass up business deductions. A bigger 401(k) contribution is not worth missing out on a business deduction. The best income you can have is business deductions. You don't want to spend money the business doesn't need to spend, but a business deduction is not susceptible to any sort of tax.

You don't pay income tax on it. You don't pay payroll taxes on it. Nothing. It's great. So, claim all of your business deductions. There is very little reason not to claim a business deduction. As a general rule, you pretty much claim anything you can that is a legitimate business deduction every year.

Okay. That's unrelated though. You've somehow related these two things, to deduct the business expense and invest the money in a taxable account or forgo the deductions and put the entire gross income as a mega backdoor Roth contribution.

Now, these are totally separate things. Claim your deductions, then decide how you're going to invest your money. And even if you claim the deductions, there should still be something you can put into the solo 401(k).

There's three options. If you don't have any other income, and any other job with a 401(k) there, you can make your employee contributions into the 401(k) as basically the first $23,000 you make. It can be Roth, it can be tax deferred, your choice.

After that, you could either do, or a combination of the two, but either do employer tax deferred contributions, and that works out to be about 20% of what you're paid, of what your profit is in that sole proprietorship. Or you can do mega backdoor Roth contributions. These are after tax contributions that you then convert to Roth. And you can typically, if you're not making $200,000 or $300,000 in the sole proprietorship, you can make bigger mega backdoor Roth contributions than you can employer tax deferred contributions.

I would claim all your business deductions, and you can make the rest as a mega backdoor Roth contribution. That likely makes sense in your case. I hope that's helpful. I hope I answered that. Yes, it stinks that you have to pay 48% on your money before you put it in there, but at least after that, it's never going to be taxed again.

Now, a little bit more difficult question might be worth, are you better off putting some money into a tax deferred employer contribution and the rest in taxable, or all of it into mega backdoor Roth? My sense in your case, from what I know from the paragraph you sent me, is you're probably better off in the mega backdoor Roth, but it's possible it could be the other way. And you'd have to run the numbers with all the various assumptions that apply to you. It would be a really complex calculation requiring numbers that are not only unknown, but unknowable. But you could do that if you wanted to, but my sense is the mega backdoor Roth is going to be smarter for you.

Okay, let's take another question off the Speak Pipe. This one from Nicole.

GETTING YOUR RETIREMENT ACCOUNTS SET AFTER CHANGING FROM W-2 TO 1099 WORK

Nicole:
Hi, Dr. Dahle. I’m Nicole, and I'm calling from the Pacific Northwest. I’m an ER doc. I just had a question I was hoping to answer, and we do really appreciate all the financial information that you've given us over the years.

We recently moved and transitioned from a large corporation that was a W-2 job to a tiny little independent ER that I am contracted as a 1099 contractor. I found your information about financial information for 1099 contractors, and I've been finding it very helpful for this transition.

I have some healthcare for my husband, pay the estimated taxes, have my own disability and life insurance, and we seem to have figured out some of the little pieces that go along with this transition. But I do have a couple of questions.

One, what do I do with the 401(k) from my old employer? I know that this is typically rolled over into an IRA, but I don't know what happens if I do a backdoor Roth IRA and how that affects it. And two, I also started a Roth 401(k), a solo Roth 401(k), and I was wondering how this is normally set up, because it seems like there's a lot of options.

Do you just use one investment option? Do you try to use a lot of investment options? Are all of the options that are put into it tax deductible? Is it a matter if I put more money towards an employee or the employer side? I really appreciate your help. Thank you so much. Bye.

Dr. Jim Dahle:
All right. Congratulations, Dr. Nicole, if you can call me Dr. Dahle, I'm going to call you Dr. Nicole, on your change to being self-employed. It is scary the first time you do this. After a while, it's routine. All these questions that you have that seem so hard right now, you're going to look back on a year or two and go, “How did I even have that question? That's so simple. I can't believe I didn't know that.” But at the beginning, none of us know this stuff. And so, you have to learn.

First of all, the 401(k) from the old employer. As I mentioned earlier in the podcast, doctors, White Coat Investors, are high income earners. The only way they can do their Roth IRA contributions is indirectly via the backdoor Roth process. And as part of that, you don't want to have any money in an IRA.

We don't roll our 401(k)s into IRAs until we're done working. We roll them into the next 401(k) or 403(b). In your case, since you're no longer an employee, your next 401(k) is a solo or individual 401(k). And so, you will roll your 401(k) from the old corporation into your new solo 401(k).

One reason you may not want to do that is in your state, you said Pacific Northwest, but I don't know exactly what state. I guess we can look up Oregon and Washington and see what their laws are. Let's do that really quickly. I've got my asset protection book. If you haven’t bought this yet, by the way, I think it's a great deal. You ought to buy it just for access to the list at the end of it.

But let's go to that list for Oregon. And we see that the IRAs in Oregon are protected 100%. So, that pretty much applies to non-ERISA retirement accounts, like a solo 401(k). No big deal for you to roll your 401(k) into a solo 401(k) if you're in Oregon. Let's look at Washington. In Washington, IRAs are also 100% protected. So, go ahead and roll your money into your solo 401(k).

All right. Now that is the main retirement account that you are going to want to use as a sole proprietor, as self-employed, as a 1099 contractor, whatever you want to call it, is a solo 401(k). So, you want to establish one of those.

It sounds like you already have. I don't know who you opened up with, whether you got a customized one from one of our sponsors, like mysolo401(k).net, whether you got a cookie cutter one at Schwab or Fidelity. But either way, most of them will offer both tax deferred contributions and Roth contributions.

And so, you said you'd established a solo Roth 401(k). That doesn't happen. That means you also have a tax deferred 401(k). There's two sub-accounts in there. In a really nice one, you have a third sub-account, the after-tax account, and that's where you can do mega backdoor Roth contributions if you want to.

But yeah, this is the way it works. There is a certain set of investment options in there. If you've got a customized solo 401(k), they should all be good. If you're going to the most part to Fidelity or Schwab, there's plenty of good ones available. You don't have to use them all.

But remember, when you're putting together a written investing plan, which I'm pretty sure you don't have based on the way you asked your question, the first thing you consider is your goals. You make SMART goals. Specific, measurable, time-relevant, time-bounded goals. Things like, “I want to have $4 million on January 1st, 2037 in my retirement accounts.” That's the sort of goal you want to have that you're working for.

Then you choose which accounts you're going to use. In this case, one of the most important accounts is going to be this solo 401(k). Next, you decide on an asset allocation or mix of types of investments. And maybe you decide, “I want 30% US stocks and 20% international stocks and 20% real estate and 30% bonds or something like that.” So, you've decided on a mix of investments.

Then finally, you select investments that will put your money into those categories to distribute your money among the various investments, the various asset classes that you want to invest in. You don't have to invest in every mutual fund in your 401(k). In fact, it would be really weird if you did that. But some people who don't know anything about investing, that's what they do because they don't know what else to do. And they feel like, “Oh, well, that'll diversify me.” But you really want to have a plan. And you choose the investments to implement the plan in an appropriate way.

If that's very confusing to you, I would recommend you do one or both of two things. The first one is take our Fire Your Financial Advisor course. This helps you write your own financial plan. Although the first module in it is how to interact with the financial services industry.

If that still seems overwhelming after taking a look at that, and you can take a look at it. It comes with a one-week 100% money-back guarantee. If you're like, “No, this is too much for me. I need a financial advisor.” Well, go hire a good financial planner. We keep a list of those at whitecoatinvestor.com. If you go to the Recommended page, you can check those out. You'll pay somebody a few thousand dollars to help you draft up a financial plan. And then they can help you implement it. You can implement it yourself. Obviously, the more they do, the more you pay them. But that's how you get your investing plan in place.

And I'm guessing that would be beneficial to you. To meet with somebody this year and put a plan in place and have them teach you more about investing and portfolio management. And you may be able to do it on your own after that. Or you may say, “Hey, you know what? I want someone walking with me in this journey and I'm going to pay you something each year to help me with this decision.”

As far as the employee versus employer side, what most people generally do is they put as much in as they can as the employee contribution. And then they put in as much as they are allowed to as an employer contribution. And then depending on the solo 401(k), you might also be able to make a mega backdoor Roth or an employee after-tax contribution and get even more in there.

The total amount for 401(k) for those under 50, which I'm guessing you are, is $69,000. And so, most people are trying to get as close to that as they can if they're saving that much or more for retirement in a given year.

I hope that's helpful to you. If that didn't clarify it, shoot me an email, [email protected], and I'll try to walk you through any other questions you have about that.

All right, our next question is also about retirement accounts.

SHOULD YOU BE CONCERNED WHEN YOUR 403(b) IS REFERRED TO AS AN ANNUITY?

Speaker:
Hi, Jim. I'm wondering if you can help me clarify a point of anxiety about my husband's retirement account. We will both be staying at our institutions as attendings after graduating residency in June 2024.

While in residency, his hospital offered a 401(k) match, but mine didn't. So we just invested a combined amount of our available income in his retirement plan, in addition to maxing out Roth IRAs while on resident salaries.

His plan is through TIAA, and employee contributions go into a tax-deferred annuity retirement plan. Employer contributions go into a separate retirement plan in the same account and online system.

Your warnings about annuities on your podcasts have made me concerned about this being called an annuity, but I'm wondering if it being in a tax protected retirement account makes it not the typical annuity that you warn us about.

From what I can tell, it functions just like any other retirement account and there are good investment options. Can you help either dispel my anxiety or guide me on what I should do if this is a bad thing? Thanks for all you do.

Dr. Jim Dahle:
All right. Very similar question to the one we had from Carrie earlier in the podcast. Yeah, let me dispel your anxiety. This is not something you need to spend a lot of time worrying about.

As a general rule in the retirement account world, TIAA is generally considered one of the good guys. Having TIAA do in your retirement account is usually not a bad thing. Are they my favorite? No. Would I rather see a whole bunch of Vanguard investment options in there instead? Yes, I would. Or iShares or some of the low cost Fidelity index funds or some of the low cost Schwab index funds or ETFs. Would I rather see those? Yes, I would. But TIAA is not considered a bad provider of retirement accounts.

When you're at a nonprofit like you are and you typically have a 403(b) like you do, those are technically annuities. And so, you're going to see that word anytime you're reading literature in your retirement account.

Good job, by the way, on a couple of things. One, reading the literature about your retirement account. Two, figuring this out during residency that you were better off just contributing to your husband's retirement account and doing Roth IRAs. A lot of people can't figure stuff like that out, and you did. So, good job. Good on you for doing that.

But this is not something you need to be worrying about. Go ahead and use this retirement account, max it out, and put your money in there. When you get a chance to roll it over to a solo 401(k) or a better 401(k), then be sure to do that, of course. But this is not something you should feel any anxiety whatsoever, much less avoid, because the word annuity is there in your retirement literature. As a general rule, we're talking about annuities being products designed to be sold, not bought, and things that you avoid. We're talking about other things than 403(b)s.

By the way, for those of you out there dealing with this stuff, thank you so much for doing it. The fact that you're having to deal with TIAA or a 403(b) means that you are in some sort of service profession. You're a teacher, you're a nurse, you're a doc at a non-profit. Those sorts of things are the places that have 403(b)s and TIAA. So, not only are you out there dedicating your life to the healing of the sick and afflicted, but you are doing so often in a non-profit kind of capacity. Thank you so much for doing that.

All right, next question. This one's on a 401(k) from Will. Maybe Will isn't at a non-profit, but let's take a listen.

CAN YOU HAVE MORE THAN ONE 401(k)?

Will:
Hey Jim, this is Will from the Midwest. I have a question about 401(k)s. I work primarily in a K-1 partnership, making approximately $350,000 per year. I also have a 1099 gig, which I just started, which I could make up to $200,000 annually if I work a lot of hours. I still occasionally moonlight as a W-2 employee in a hospital PRN, which I make up to around $20,000 annually.

My K-1 partnership offers a 401(k). I'm maxing out traditional contributions with that. What that looks like on my pay stub each month is that I'm contributing $1,900 and I have a “match” of $3,800, even though it's all my money.

A financial planner I worked with has advised me to open a solo 401(k) to contribute my 1099 income towards. He says I can contribute up to 25% of my earned 1099 income into that solo 401(k), meaning about $50,000 of traditional contributions. I didn't think I could do that because I thought I'm already contributing to my K-1 401(k) as both the employer and employee, but he advised this is not true.

If that's how it works, I'm wondering if I can also contribute to my W-2 403(b). There's no match for my W2 PRN gig, but it allows me to contribute up to 80% of my earnings into the traditional 403(b), which means I can contribute about $16,000. Thanks again for all that you do.

Dr. Jim Dahle:
Okay. Great case study of a not atypical physician situation. This sort of situation is super common among docs. It is not common among typical Americans. And so most financial advisors don't know how to deal with this. For the most part, your advisor actually gave you good advice. So, it is true. You can have more than one 401(k).

I have a blog post on the website you should read. If you just go to the website and search “Multiple 401(k) rules”, you will find it. And it walks you through all of these rules for using multiple 401(k)s.

But the two main ones to keep in mind are that there are two contribution limits. One is the employee contribution limit. And for those under 50, this limit is $23,000 per year. And that limit applies no matter how many employers you have or how many 401(k)s you have. It's $23,000 per year. It can be Roth, it can be tax-deferred, but you only get $23,000 per year.

Technically, if you have multiple 403(b)'s, you can actually put in a little bit more. You just don't get a tax deduction for it. So, putting in a little more gets you more employer match. It may be worth it, even though you're not getting a tax deduction for it.

Okay. So, here's the deal. In your case, what you would typically do is you'd use the partnership 401(k). You'd put your employee contribution in there and then you'd use self-matched money to the employer contribution. You'd get up to $69,000 a year. I think that's what you're doing with your K-1 partnership. Nice work. That's great.

For the 1099 income, you have to open a solo 401(k), an individual 401(k). And you've already used your employee contribution. So you can't make an employee contribution in there. This is where we come to the second important rule about multiple 401(k)'s. And that rule is that for each individual unrelated employer, you get a separate 415(c) contribution limit. The 415(c) contribution limit is $69,000 a year for those under 50 and it includes all contributions to the 401(k). That's employee contributions, employer contributions, and employee after tax contributions limit $69,000 a year.

So, in your case, you could make employer contributions, not employee contributions, but employer contributions to that solo 401(k). You made about $200,000 in profit. That means you can put in about $40,000 into that solo 401(k) as a tax deferred employee/employer contribution.

Note that that is 20% of your profit, not 25%. This is where your financial advisor gave you bad information. When you read the tax forms, a lot of times it says 25%, but what they mean is 25% not including the contribution. So, 20% of $200,000 is $40,000. 25% of $200,000 is $50,000. But if you take out the $40,000 contribution, you're left with $160,000. 25% of that is $40,000. So, that's how it works out.

In your case, you can max out that one at your partnership. You could also put $40,000 in tax deferred employer contributions into the solo 401(k). If you wanted, you could put another $29,000 in after-tax employee contributions. These are mega backdoor Roth contributions. And the plan has to allow it. That's why a lot of us get customized solo 401(k) plans, but that would allow you to put in another $29,000 in Roth into that solo 401(k). Great deal for you. You're making lots of money. You want to save lots of money. This is a good option for you.

Now let's talk about the other gig. You got a W-2 gig where you're making $20,000. And you're telling me they're going to let you use the 403(b). I'm not 100% sure that's true. You better go talk to HR and make sure that's actually true. A lot of times, part-time workers do not have access to a 401(k) or 403(b). But if they let you, great.

However, what they are talking about, they're talking about an employee contribution. And you already used that up at your partnership 401(k). You would either have to decrease how much you put into your partnership 401(k) as an employee contribution and increase how much you put in there as an employer contribution, or you couldn't contribute to this other W-2 401(k) or 403(b).

Now, if you talk to them, they may allow you somehow to have employer match put in there, some sort of employer contribution, even if you don't put anything in, but that seems unlikely.

There's one other rule to keep in mind, and it's kind of a little bit of a complex one, but if you have a 403(b), not a 401(k) and a solo 401(k), those two actually share the same 415(c) limit. It's just this weird quirk of 403(b)s. So, if that W-2 retirement account is a 403(b), that shares the same limit as your solo 401(k). And maybe it's not worth bothering with. But I think you should definitely get the solo 401(k). I think that's a good move. I'm not sure it's going to work out for you to do anything with that other side gig you've got.

I hope that's helpful. I hope that's not confusing. Those of you who are confused by this discussion, go to the website, go to the search bar, put in “Multiple 401(k) rules”, that blog post will pop up. It goes into great detail on all these things I've talked about as well as some other related things.

Okay. Let's take a question from Chris who wants to talk about cash and bonds.

CASH VS. BONDS IN A RETIREMENT PORTFOLIO

Chris:
Hi, Jim. I have a question about the use of cash versus bonds in a retirement portfolio. Specifically, I've noticed some approaching retirement who use a portfolio split of equities and cash, they cut out bonds altogether. This deviates from the traditional allocation that typically would have a split of equities and intermediate term bonds with maybe a touch of cash in there. I know there are many roads to Dublin, but what are the trade-offs in using this cash over bonds method? Thanks for what you do.

Dr. Jim Dahle:
All right. A good way to think about cash is that it's just a very, very, very short-term bond. They're both fixed income, both pay interest. The principle fluctuates with a bond. The interest fluctuates with cash. They're not dramatically different.

For the last year or so, you might be pushing two years now, we've had an inverted yield curve where the yield on cash and short-term bonds is actually higher than the yield on intermediate and long-term bonds.

That tempts lots of people to go, “Well, if I can get a higher yield, why don't I just use cash instead and not take that interest rate risk?” And that's a great question. That works as long as the yield curve doesn't change. But if the yield curve does change and interest rates fall, we would have actually been better off buying the bonds. Obviously, if interest rates rise, you'd be even worse off with the bonds.

That decision a lot of times depends, which one's going to work out better for you over whatever time period, depends on what interest rates do. Without a functioning crystal ball, that's very hard to tell. The traditional teaching is, “Hey, stocks and bonds, maybe a year or two or three worth of withdrawals in cash in a portfolio.” That's a very traditional way to manage money. That's basically what my parents do with the money I manage for them. It works just fine.

Some people are like, “Well, I want to try to time this decision a little bit. I'm going to stick with cash because cash is paying 5% and my bonds are only paying 4.5% and they're riskier. If things change, well, I'll change what I have.” That's not a crazy thing to do. Just realize if interest rates fall, especially if they fall rapidly, you would have been better off in the bonds.

That's about all there is to it. Cash isn't wrong. Some people do go, “Well, I'm going to have stocks and cash and that's it.” Sometimes because the cash is such lower risk than bonds, they decide, “Well, I can have less cash and have the same amount of risk.” So, they have 80% stocks and 20% cash instead of 75% stocks and 25% bonds.

Maybe there's something to that, taking your risk on the equity side where it's a little bit more tax efficient, but that's the traditional teachings. There are many roads to Dublin, as you say, neither of those is right or wrong. Those are my current thoughts on cash versus bonds. If I knew what interest rates were going to do, I'd tell you which of those you should be holding right now. But since I don't, it's anybody's guess. I just pick percentages you're comfortable with sticking with long-term and rebalancing back to that once a year or so.

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All right, don't forget WCICON25. I got to put the cowboy hat back on here. We're going to Texas, y'all. We're going to have WCICON down there, Physician Wellness and Financial Literacy Conference. They're on sale now. Best price you can get, August 19th through September 10th. It's $300 off. Don't forget to go. You can sign up at whitecoatinvestor.com. wcievents.com is actually the place you end up signing up for.

It's going to be awesome. We're having some great wellness activities every day in the afternoon. It's just a lot of fun. It's a big party. It's either tax deductible or you can use your CME money to pay for it. You're going to come back feeling more well, feeling like you have tools to deal with burnout. You're going to come back with some ideas for improving your financial plan that are likely going to pay for the conference itself, as well as all your time down there.

You're going to be inspired. And perhaps most importantly, you're going to make some friends that can help you stay the course with your financial plan and reach all of your financial goals. And this year, you get to wear cowboy hats. I'll bring a cowboy hat, I'll wear mine, and we'll have a good time.

wcievents.com is where you sign up. You have until September 10th to get the best price on it. Obviously, we're going to let you pay right up until the end, unless for some reason we sell out. We don't think we're going to sell out completely. We've got enough space there. We think we can expand as needed. But if we do, you'll really regret not signing up early. We have sold out in the past before, but it's been a few years.

All right. Thanks for those of you leaving us five-star reviews and telling your friends about the podcast. One comes in from Doug, who said, “Great podcast. WCI should be required reading and listening in med school and residency. I started listening around 2016. I've listened to every episode. Since I've learned so much, I'm now retired from medicine but I still enjoy listening, reading, and learning from both the WCI podcast and blog. Thanks for the great work helping us docs keep our finances on track.” Five stars.

Thanks for the great review, Doug. That really actually does help us spread the word to other people, still listen to the podcast, get their financial ducks in a row, and have all the happiness that money can buy in this life from getting that taken care of.

Keep your head up, shoulders back. We'll see you in San Antonio, y'all. You've got this. We'll be here for you. See you next time on the podcast.

DISCLAIMER

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

INTRODUCTION

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

Dr. Jim Dahle:
This is Milestones to Millionaire podcast number 184 – Orthopedist hits $3 million.

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All right, don't forget, early bird. I should put my cowboy hat on when I talk about this. I got my cowboy hat right here on my desk. Early bird, WCICON. We're going to Texas this year. It opens today, the day you're here in this podcast. You can get your tickets. This is the lowest price they're ever going to be. You're going to save $300 off the regular price. This early bird sale goes through September 10th or until we're sold out. I don't think we'll sell out, but we might. We've sold out before. I don't know that we've sold out in the early bird except just one time, but it could happen. So, I'd recommend if you want to come, you register as early as possible. Go to wcievents.com.

This is the Physician Wellness and Financial Literacy Conference. It is the biggest event in the physician finance space every year. It's a wonderful conference. You can pay for it with CME funds or if you're self-employed, you can write it off as business expense, but it's just a lot of fun. You learn a lot. You come back with real techniques that are going to help you avoid burnout and be more financially successful.

Yeah, it's in the Hill Country outside of San Antonio. You're going to love it. It's a great facility. The conference team has done a bang up job getting this lined up. We're in the middle of the country for the first time. So, those of you who don't want to go to the West Coast or the East Coast, here's your chance. We're right in the middle. And I hope to see as many of you there as you can. Bring your cowboy hats. I'm going to bring mine.

We've got a great interview today. Stick around afterward. We're going to talk a little bit about how you don't have to invest in everything. So, stick around after the interview, but this is going to be good. You're going to like it.

INTERVIEW

Our guest today on the Milestones to Millionaire podcast is going to remain anonymous, but welcome to the show.

Speaker:
Thank you for having me, Dr. Dahle. It's an honor to be here with you.

Dr. Jim Dahle:
Let's first of all talk about what you do for a living, how far you are out of training and what part of the country you're in.

Speaker:
Yeah, I'm an orthopedic surgeon with a subspecialty fellowship training in hip and knee surgery. And I'm a little over three years out of training or in due attending hood.

Dr. Jim Dahle:
Okay. High cost of living area or low cost? Where are you at?

Speaker:
I'd say medium cost of living area.

Dr. Jim Dahle:
Tell us, you've hit a milestone, a net worth, a pretty impressive one for being just a little over three years out of training. Tell us what you hit recently.

Speaker:
Yes, sir. My wife and I just passed three million, about three and a half years out of training.

Dr. Jim Dahle:
Wow. Three million, three years out. That's pretty awesome. You mentioned you're married. Any kids?

Speaker:
Yeah, we have a toddler.

Dr. Jim Dahle:
Toddler. Okay. Is your wife working?

Speaker:
She's currently not working. She's been a big part of this though. And so, she's not working at the moment to pursue some entrepreneurial interests and spend more time with our son.

Dr. Jim Dahle:
I love it. I love it. Entrepreneurial doesn't count as work.

Speaker:
Currently not paid work.

Dr. Jim Dahle:
I understand that very well. What was your net worth when you finished med school?

Speaker:
I didn't really keep close tabs on this until I became an attending. I would have to speculate. I think I graduated with around $120,000 of student loans.

Dr. Jim Dahle:
So, you was minus $120,000?

Speaker:
Yes, sir.

Dr. Jim Dahle:
Okay. How about by the end of residency? What was your net worth? About the same or a little better?

Speaker:
Yeah, it was definitely better because by the end, I was married. And so, I always joke with my wife. The only thing that I brought to the table was a bunch of student loan debt. But she had been working for a long time. She's an MBA, a high earner. And so, I think by the end of it, I'd have to speculate. Maybe we're at plus $50,000 or plus $100,000. We were definitely in the positive, but that was 100% thanks to her.

Dr. Jim Dahle:
Significant increase, but you weren't rich yet, for sure.

Speaker:
No, no, no. She was rich. I wasn't.

Dr. Jim Dahle:
Okay. So what has your household income been approximately over the last three years?

Speaker:
Yeah. I was trying to timeline all of this. I think in residency with her salary, we were probably in the $180,000 to $200,000 range. We got married the last year of residency. In fellowship, I think we made around $300,000. And I can go into that later, how that happened. And then three years as an attending, we've been anywhere from $700,000. The last two years, we've been over a million. But going forward, we'll definitely be less than that since she's currently not working a W-2 job and I'm taking more time off.

Dr. Jim Dahle:
Okay. You say over a million. Are we talking like 1.1 million or are we talking like 1.9 million?

Speaker:
No, no, no, low seven figures.

Dr. Jim Dahle:
Just over a million. Well, this is impressive. You make just over $3 million, maybe $3.5 million. At that income, you're paying a ton in taxes. You're probably paying a third of your income in taxes. And yet you still have $3 million left.

Speaker:
Yes, sir. Without a doubt, a lot of it has just been time in the market and compound growth and both appreciation in our stocks, in our primary residence. And then I front loaded a lot of the sacrifices with paying off my loans quickly before I even started fellowship.

Dr. Jim Dahle:
Yeah. Well, you can only get so much appreciation in three years. A lot of this was just brute force savings.

Speaker:
Yes. Yeah, absolutely right. And like I said, we did a lot of that early on. We've definitely had a lifestyle. I wouldn't say explosion, but we definitely spend way more now, particularly over the last year since we've had our son.

Dr. Jim Dahle:
Yeah. A couple of years kind of a “live like a resident” period, would you describe or no?

Speaker:
Yeah, I think our “live like a resident” period was probably about one year, one and a half.

Dr. Jim Dahle:
All right. But you set yourself on a path to success. So, tell us what you did. Somebody is sitting out there and maybe they're a highly paid specialist like you are, and they're like, “Wow, that's cool. I'd want to do that. Tell me how you did it.”

Speaker:
A lot of this was fortuitous. I don't want to say it was totally luck because we were intentional in trying to follow a lot of the things that you suggested. But one thing that was unique with getting rid of the loans early is that I graduated in July when you finish residency. And I decided to pursue an international fellowship in Australia for a year.

And so, their cycle is a little bit off in the American cycle. Fellowship began in February. And I had this six month period of time with more or less nothing to do. And I didn't just want to sit there and do nothing. I wanted my surgical skills to stay sharp. And so, I decided to do locums for four and a half months. And that was an amazing experience, both surgically in terms of my own confidence. And it paid pretty well. That four and a half months, I was working in rural Wyoming, more or less knocked out all of my student loans. And that gave us a month and a half to really travel the world before we started the fellowship. We spent a month and a half in Australia and New Zealand before we began.

Dr. Jim Dahle:
Wow, what a fun beginning to your career.

Speaker:
Yeah, yeah. Not having the student loans before you begin your last year of training is an amazing feeling. And then we were able to make significant income in fellowship as well, which I can get into as well.

Dr. Jim Dahle:
Now, what's your job situation right now? Are you a partner in a group? Are you in solo practice? Are you an employee in the hospital? What are you?

Speaker:
Yeah, I'm in a private group with 12 partners.

Dr. Jim Dahle:
And you've made partner at this point?

Speaker:
Yes, sir.

Dr. Jim Dahle:
Was it a cash buy-in or a sweat equity buy-in? Or how did you become a partner?

Speaker:
It's a sweat equity buy-in. Whenever you feel like you can cover your own overhead, then you can become a partner.

Dr. Jim Dahle:
Okay, very cool. When I look at income surveys for doctors, orthopedists are usually near the top, but they're not seven figures on average. You're making significantly more than the average orthopedist. Tell us how you do that.

Speaker:
Yeah. The beauty of, like you say, private practice and being an owner is there's literally no ceiling. I think with any specialty, the beauty of what we do is that if you work hard, then you take good care of patients, a lot of the success tends to follow. And I've always taken a lot of pride in my work.

I spent a lot of extra time in residency trying to be as good of a surgeon as I can be. I scrub the extra cases. I watch technique surgery videos all the time. I even do that now. My wife thinks I'm a crazy person, but I'm really passionate about what I do. And I think that kind of translated to becoming a new attending. I took a bunch of extra call.

I met a ton of people and I kind of became the referral person within the area. I took on a lot of the cases that none of the other docs wanted to take care of, the infections, the revisions and stuff like that. And I think that helped with my reputation with patients and other docs in the area. I think it helped me build my practice pretty quickly.

Dr. Jim Dahle:
Now, a lot of new docs are scared to take those because they have more bad outcomes. It's just natural when you're seeing sicker people or people with more complicated problems, you're going to see more bad outcomes. How come you weren't afraid of that?

Speaker:
I have a lot of confidence in my training. I think I had excellent residency training. I think my fellowship training was excellent. And that's not to say there are no bad outcomes. Anyone who does surgery, if someone tells you they don't have bad outcomes or complications, they're either lying or they're not operating. That's part of the work that we do. It's learning how to deal with them, how to learn from them. I have a good support team too. I have senior partners that I bounce ideas off of. I've had them scribe with me on complex cases and I've helped them and vice versa. So, I've been in a really good practice setting up and happy with.

Dr. Jim Dahle:
Very cool. All right. What do you invest your money in and why?

Speaker:
I keep things pretty simple. You're one of the first folks that I've listened to in terms of the personal finance blogosphere. And so I'm pretty much 100% index funds. I kind of follow the lazy Boglehead three fund portfolio. And I don't really veer from that. I like to keep things as simple as possible.

Dr. Jim Dahle:
So, you invest your time actively and your money passively?

Speaker:
Yes, sir.

Dr. Jim Dahle:
All right. Have you started to give much thought to things like state planning, asset protection? At the rate you're going, you're clearly going to have an estate tax problem someday.

Speaker:
We're starting to go down that path. We finally met with a financial advisor to consolidate and clean up the various accounts that we've had. And the last prong of that meeting has been estate planning. That's something we need to accomplish before the end of the year, without a doubt.

Dr. Jim Dahle:
Have you given much thought to your investing goals and determining how much is enough for you and what things you want to accomplish financially in your life?

Speaker:
Yeah, for sure. My wife and I have talked about this. We're trying to think about big picture for our son and potentially more kids if we decide to have more kids. At some point, I really love my job. But like any job, there are parts of my job I dislike. And so, trying to take steps to take out the bad parts of the job, as you have, are going to be the next steps for me.

I do want to be working while we have kids in the house. I think that really helped me with wanting to work hard. At least while I got kids in the house, I'm planning on working. But maybe once they're out of the house, we may consider some early retirement things.

Dr. Jim Dahle:
Yeah. Well, that means at a minimum, you got at least 16 or 17 more years.

Speaker:
Yeah, at a minimum.

Dr. Jim Dahle:
Yeah. Unless you scale it back significantly, we're talking about retiring with $50 million at the rate you're moving.

Speaker:
Substantially, yeah. Well, a lot of the steps that I've already taken have been about working less. And so, things to buy back our time. We hire a lot of help now that we didn't used to do. We have someone that helps with the lawn stuff, someone that helps us cook and things like that. I'm making a conscious effort to take more time off. And I've already done that in 2024, and more so than I've done the last two years combined.

Dr. Jim Dahle:
Yeah. I really like how you front-loaded your financial tasks in your life though. You've already got a great retirement nest egg going. You've taken care of your student loans. You're even knocking out your estate planning. You're only three and a half years out. This is still in the “live like a resident” period for many docs. You should be very proud of that. And you've done a great job doing that.

Speaker:
Thank you.

Dr. Jim Dahle:
Any other tips you have for White Coat Investors that you can share from your success?

Speaker:
No, I think other than picking the job that you're passionate about, that really excites you. The only other thing I can think of is marrying the right person. I know that's obvious. Everyone wants to do that. But I think being generally frugal helps early on. But at least if you guys have a clear picture on what you value, I think that helps the marital finance discussions. I knew early on, my wife and I love to travel.

And among the things that we spend money on, we spend a lot of money on travel. We don't mind blowing a good amount of money doing that. But now that we have a toddler, it's not as easy to travel. And so, now we spend a lot of money on things that make our life easier, whether it's convenience or buying back our time. And so, being on the same page with the right person. And my wife is another high-income professional as well. She's very much been a part of this.

Dr. Jim Dahle:
Yeah, very cool. Well, congratulations on all your success. And thank you for being willing to come on the podcast and share it with others to inspire them.

Speaker:
It's my pleasure. And like I said, finding you is taking me down this rabbit hole. And I do a lot of commuting, getting from site to site. Listening to podcasts, including yours, has helped my financial knowledge quite a bit.

Dr. Jim Dahle:
Awesome. Thank you very much.

Speaker:
I appreciate it.

Dr. Jim Dahle:
I hope you enjoyed that interview as much as I did. One of the things I learned about when we weren't recording is this fellowship he did in Australia. You would love doing this sort of a thing. It was very interesting, though, what he got paid there. He got paid about $150,000 as a fellow. So, making twice as much, a little more than twice as much as a fellowship in the US.

It's not only is it a cool international experience, you get to make more money. I don't think that's the case when you're in attending, you go work in Australia. But apparently as a fellow, it is. So maybe a cool way to arbitrage it a little bit, finish training there and come back and work here, and you get the best of both worlds.

He also mentioned that he got a signing bonus from his group while he was in that fellowship, kind of a fellowship stipend. And that sure is nice. You get it while you're in a little bit lower tax bracket and when the money's a little more useful to you.

FINANCE 101: YOU DON’T HAVE TO INVEST IN EVERYTHING
All right, I told you at the top of the podcast, we're going to talk a little bit about how you don't need to invest in everything. You don't have to do everything that somebody else is doing successfully. And that sure is the truth. Stocks tend to be the mainstay of most people's portfolio. And that's fine.

Stocks are the basically most profitable corporations in the history of mankind. That's what stocks are. You're an owner and you can buy them all very quickly. In 30 seconds, you can buy all the stocks in the world. You go to Vanguard or your favorite brokerage and you buy VT. This is the worldwide stock index. Or you buy the US and the international one separately or whatever, you own all the stocks. There's like 4,000 traded in the US. There's like 8,000 traded overseas, 12,000 most profitable companies in the history of the world, you own them. It's a great mainstay for your portfolio.

I think most people own stocks. If they don't, I'd encourage them to buy some. It's so easy to invest, so easy to diversify. They're great investments. Even if one or two or 300 of them go broke, you're still doing fine because you're so diversified with them. I think that's a pretty good thing for just about everybody to be invested in.

But after that, lots of people invest in things that I don't invest in and vice versa. You don't have to invest in everything to be successful. There's lots of people out there that are young. They still have most of their earnings ahead of them. And they're like, “I'm not going to panic sell. I'm not even going to own bonds or have much in cash other than my emergency fund for a few more years.” Great. You don't have to invest in everything to be successful.

Real estate, I've talked to you about all the time about being optional. I think real estate's a great asset class. I find a lot of things very attractive about it, both tax-wise as well as return-wise in correlation with my stocks and bonds. But it's optional. You do not have to invest in real estate to be successful. I think there's lots of things going for it, but you don't have to invest in everything.

I often get feedback on a blog post. I read a blog post about some sort of investment. Maybe it's the way the person's investing in that investment, or maybe it's just the asset class itself. And I'm not super keen on it. I'm not investing in it. And it's almost like they take personal offense to it, that I'm not doing what they're doing. They think I'm crazy, that I'm leaving money on the table, that I'm misleading those who listen to this podcast by not telling them about what they're doing, because they just think it's the best thing in the world.

It might be picking individual stocks. It might be timing the market or using some sort of a momentum strategy. It might be one specific tilt, some sort of factor investing. It might be the method they're using to invest in real estate. Maybe they're buying individual properties, for instance, or perhaps they're into syndications or whatever.

More recently, it was somebody that buys individual municipal bonds. I invest in municipal bonds. I let Vanguard manage it for nine basis points a year. I let them run my bond fund. And this person couldn't believe I let them do that. Couldn't believe I was leaving all that money on the table, not managing my own bond fund. Never mind, this person was entirely invested in municipal bonds and relatively small portion of my portfolio. I'm not going to spend several hours a week this person was spending managing their bond portfolio. I don't even look at my investments, but about once every couple of months. So, it was very interesting there that he thought I was crazy to not be managing that actively.

Another one was a fellow that was into buffered ETFs. And after about four or five emails swapped back and forth, he told me he was spending several hours a day trading these buffered ETFs. If you don't know what a buffered ETF is, it's basically four types of options wrapped up in an ETF wrapper. And it's got some cool things about it, but it's kind of like Bitcoin. I think it's cool. I think it's interesting, but I'm more than content to stand on the sidelines and watch what happens with it.

And that brings you to the Bitcoin bros. They can't believe I don't invest in Bitcoin. Well, you know what? I've reached my financial goals without using Bitcoin. And I have no idea what's going to happen with Bitcoin in the future. It might be incredibly successful. It might go to zero. I don't know, but I don't need to take that risk to meet my financial goals, so I don't. You don't have to invest in everything to be successful.

One asset class I was very interested in a few years ago, I don't know, 10, 12 years ago, something like that was Viaticals. These are basically people selling their whole life policy. They don't want it anymore. They go to the company and they're like, “What can I surrender this for?” And the company gives them a number and they're like, “That sucks.” And they're like, “Well, I don't want to keep feeding it. I don't want to hold onto it for 10 or 15 or whatever more years. So what are my options?”

Well, there are people that will pay them funds, essentially that will pay them more than the company is offering, less than the death benefit, obviously. And then they pay the premiums until the person dies and then collect the death benefit. It's a Viatical investments. And some of these funds have pretty good track record.

I was very interested in it. I thought it was really cool. Obviously no correlation whatsoever with your stocks and bonds and real estate and that sort of thing. Katie says, “Heck no, we're not investing in that.” So we didn't. It's important to be on the same page with your spouse, but you don't have to invest in everything to be successful.

Avoid having FOMO, this fear of missing out because you're not investing in something somebody else is investing in. When they talk to you about their investments, they're going to be telling you about the ones that have been doing well lately. That's natural for you to feel FOMO when that happens. But it's far more important that you stick with your written investing plan. If you're diversified, something in your portfolio isn't going to be doing great and you're going to be like, “Why did I buy that? Why do I invest in this?” But if you stick with it two or three or five years later, it's going to be the best thing in your portfolio.

And so, that's the whole point of having a diversified portfolio. But don't go chasing your tail. Don't go chasing returns. Don't go chasing what other people are doing. You don't have to invest in everything to be successful. This is a single player game. It is you against your goals. Never forget that.

SPONSOR
Our sponsor today is Wellings Capital. They hear from many white coat professionals who spend most of their free time, lunch breaks, evenings, weekends, and even vacations, chasing elusive deals or doing their own labor on real estate properties. They're often disappointed with the returns they get for the time and money they invest. Other passive investors have been burned because they didn't do the due diligence necessary before writing a check. It's hard to know who to trust and you could get burned.

Wellings Capital is your professional due diligence partner helping you invest in private real estate with projected mid-double digit returns. They take an extreme approach to vetting each operation by visiting their offices and properties in person, doing in-depth background checks, analyzing their debt structure, and much more. To learn more, go to whitecoatinvestor.com/wellings.

Thanks so much for listening to the Milestones to Millionaire podcast. If you'd like to apply to be on the podcast, go to whitecoatinvestor.com/milestones and apply today.

Until next week, keep your head up, shoulders back. You've got this. We'll see you next time on the podcast.

DISCLAIMER

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