For the first time in many years, we made some significant changes to our asset allocation this year. This is not something we do lightly nor frequently and we try not to do it in response to changes in the markets. These changes are changes we have been thinking and talking about for literally years and put down in writing for months before implementing to make sure we really wanted to make them.
Reasons for Changing Portfolio
Our goals with this restructuring were the following:
- Reduce overall number of asset classes
- Reduce number of accounts
- Maintain similar overall risk (both market risk and currency risk)
- Maintain a small value tilt with domestic equities
- Increase allocation to real estate
- Decrease platform risk and active management risk
- Decrease costs
As you will recall, our old retirement allocation looked like this:
75% Stock
- 50% US Stock
- Total US Stock Market 17.5%
- Extended Market 10%
- Microcaps 5%
- Large Value 5%
- Small Value 5%
- REITs 7.5%
-
Thoughtful meditation before changes to my portfolio.
25% International Stock
- Developed Markets Large 15%
- Developed Markets Small 5%
- Emerging Markets 5%
25% Bonds
- Nominal Bonds (G Fund) 10%
- TIPS 10%
- P2PLs 5%
There were 12 total asset classes, which seems okay until you realize that might mean closer to 20 different investments spread across almost ten different accounts. The portfolio complexity was overkill.
The new allocation looks like this:
60% Stock
- 40% US Stock
- Total US Stock Market 25%
- Small Value Stocks 15%
- 20% International Stock
- Total International 15%
- International Small 5%
20% Bonds
- G Fund 10%
- TIPS 10%
20% Real Estate
- REITs 5%
- Real Estate Debt/Hard Money Loans 5%
- Real Estate Equity, Small Businesses, Websites, and Other Opportunities 10%
That cuts us back to 9 asset classes and allows several accounts to be closed (eventually.)
Let's go through each of the significant changes and discuss the reasoning behind them.
# 1 Dropping Peer to Peer Loans
This was such a significant change it got its own blog post-Why I Decided to Liquidate My Lending Club Account. The bottom line is that the asset class, and particularly the way in which I was investing in it, was becoming less and less attractive as the years went by, especially when compared to the hard money lending opportunities out there. In addition, dropping this asset class will eventually allow us to close three accounts- the Roth IRA at Lending Club and taxable accounts at both Lending Club and Prosper.
# 2 Giving up on BRSIX
I have been a faithful holder of the Bridgeway Ultra-Small Market Fund for over a decade at 5% of the portfolio. My records show that my first purchase was shortly after walking out of residency. Over that time period, we have enjoyed an annualized return of 10.8%. I certainly would not call it a bad investment. However, there have been several things that have bothered me about it over the years.
First is the expense ratio. At 0.75%, it is approximately 15 times higher than many of my investment holdings.
Second, it has relatively high turnover and frequently sends out massive capital gains distributions. This doesn't matter much to me since I have always held it in a Roth IRA, but for a fund that is supposedly tax-managed, this has driven a lot of investors away.
Perhaps most importantly, the fund has shown that it really cannot meet its stated goal. I don't blame John Montgomery. He and his team sure tried hard. But I think they have chosen an impossible task. It is basically impossible to capture the return of the CRSP 10 (i.e. the 10% smallest stocks on the market.) The tracking error of this fund against its stated benchmark has been both positive and negative, but it was always much more than you would hope from an index-like fund.
In many ways, this fund is actively managed, and I'm not a big fan of active management. I think it's great that Bridgeway gives away half of its profits to charity and pays it's most poorly paid employee no less than 1/7 of the CEO's salary, but I would rather they passed that savings on to me as the investor and owner of the fund to decide which charity I wish to support. The bottom line is that I have been using this fund to help me get my small value tilt. I think I can maintain that tilt about as effectively by just moving this 5% of my portfolio into the small value allocation. A year ago when Bridgeway raised IRA fees I moved this holding to my Vanguard account. That makes the exchange for small value that much easier and eliminates one account to track.
# 3 Dropping Large Value
In a similar manner to the microcap fund, this was an easy target when it came time to reduce the number of asset classes in the portfolio. This 5% basically went into the small value allocation.
# 4 Dropping Extended Market
When I designed this asset allocation, a major chunk of my investments were in the TSP. However, as the years go by, the TSP becomes less and less of my portfolio since I am not making any ongoing contributions to it. The only small cap fund in the TSP is really an extended market fund, which is mostly midcaps. While that helped me some to get my small value tilt and perhaps also helped me capture a unique mid-cap factor, this asset class has somewhat reluctantly made its way to the chopping block. If I want to own more real estate, something has to give. Since it will take me a while to ramp up the real estate since I'll be doing a big chunk of it in taxable (a relatively small portion of my portfolio still), I'll use these mid-caps (specifically the TSP S Fund) to make up the difference until I get there.
# 5 Dumping Emerging Markets
We actually never had the intention to overweight emerging markets. We simply wanted to market weight the European, Pacific, and Emerging Market components of the international stock asset class. However, since the TSP was our main investing account, we were kind of stuck with the I Fund, a developed market only fund. So we added the Vanguard EM fund in the Roth IRAs to get the EM stocks. Over the years, as more and more of the international holding has moved out of the TSP and into various other accounts and I prefer the Total International fund to the relatively highly correlated Developed Markets Fund, EM has gradually been overweighted. Seems like a good place to shave an asset class to me. It's not like we don't still own all of the emerging markets stocks. We're just no longer unintentionally overweighting them. We plan to continue our 5% allocation to international small stocks as we have been pleased with this Vanguard fund since we first invested in it when it opened.
# 6 Figuring Out Real Estate
Although some people think I'm anti-real estate for some bizarre reason, I really view stocks, bonds, and real estate as the three major investment asset classes. In some ways, this formal real estate allocation is really just an acknowledgment of what we have been doing already. I have been running a separate (separate from our retirement allocation) allocation for our real estate empire. It currently includes some syndicated equity and debt investments and the administrative building for our partnership. In addition, I am going to fold the REIT allocation into this 20%, using Vanguard's excellent index fund of publicly traded REITs to assist with rebalancing between the other major asset classes. I plan to use 5% of this 20% for hard money lending, basically real estate-related debt investments. Many of these are available via the crowdfunded syndicated sites and through personal relationships I have. Holding periods are usually less than a year, often as little as six months, yet returns of 8-12% are routine and the debt is backed by the value of the asset. It seemed a great replacement for peer to peer loans in the portfolio. The remainder of the allocation will be dedicated to equity investments, both real estate and other business opportunities such as syndicated shares of my hospital or websites. Even with our 7.5% REITs we're not at 20% yet, but we should be able to get there gradually over the next year. While many of these investments are even less liquid than our P2PLs were, it is still only a small portion of the portfolio, they generally produce good cash flow, and they reward us appropriately for the illiquidity. I'll have an ongoing series of posts about what I'm doing with this section of the portfolio (since it is far more interesting to talk about than the 80% of the portfolio invested in boring old stock and bond index funds.)
Have you ever made changes to your asset allocation? What was your process and reasoning? What asset classes do you think belong in a portfolio? Do you invest in real estate? Why or why not and how? Comment below!
I am sorry but this is too complicated and instead of going with this bizarre complex formula
You are trying to copy Robo investors like betterment and Wealthfront
I would use the KISS formula
“Keep it Simple Stupid” not directed towards the author though he can use this formula
Put 90% in VFIAX and 10% in Bond Index
Read Warren Buffet letter to his shareholders
or
30 % s and p index
30 % mid cal index
40% small cap index
There is no way any of the formula mentioned above will beat this in 10 or 20 or 30 years
Alternatively buy BRK A or BRK B and put a trailing stop loss
I have paid off real estate investments over 2 million and own a house worth 1.7 M still paying mortgage as a Psych MD and another investment home worth 300 k the renter is Paying mortgage
Learn to buy properties near where you live
Put 10 to 20% in the formula mentioned above
Read David Bach
the Automatic Millionaire
I am just 44
I am sorry I am such a critique of your post and possibly misleading younger MDs
I am sorry this makes me question your IQ and your intent of greed (read capitalism) which is not bad but not a well read well thought out advise for young residents just starting out
Sorry again to disagree
Don’t just put something out because you are experimenting
Read Buffets bet with Hedge Fund managers a simple passive S and p 500 index fund will outperform the best portfolios
Also why don’t you start donating portion of your earnings from this blog and be altruistic
I personally have a love hate relation with your blogs and will give my honest raw true opinion
Best
Every hardworking MDs well wisher
The main point of your post seems to be critical about my particular strategy and you already have a love hate relationship with my blog, so I’m not going to hold back on this one. Let’s go point by point.
# 1 “Overly complex” is in the eye of the beholder. Some would call a three fund portfolio overly complex because it is more complicated than a Life Strategy fund. Your suggested two fund portfolio is overly complex to others.
# 2 I am certainly NOT copying Wealthfront or Betterment. Perhaps they’re copying me since I was using this asset allocation before either company was formed. More likely, we both read the same data.
# 3 I’ve been reading Buffett’s letters to shareholders for years. I think Buffett’s use of the 500 Index Fund over TSM to be a poor recommendation. It is also worth pointing out that Buffett’s recommendation is for his spouse/heirs, not everyone. If you’re not in the same position as his heirs, you may not want to do the same thing.
# 4 I don’t like your 30/30/40 allocation any more than you like mine. That’s the fun thing about asset allocations. I’m not competing with you. I’m competing with my goals. If I make my goals, that’s all that matters to me.
# 5 I’m not buying individual stocks. Besides, I already own Berkshire as part of TSM, a major holding in my portfolio. I’m certainly not going to use trailing stop losses. The drops that trigger stop losses are buying opportunities for someone who doesn’t need this money for decades. I find that a poor risk control strategy.
# 6 I’m glad you’re very wealthy and live in an expensive house. I’m sorry you still have a mortgage. I don’t intend to buy properties where I live directly as I don’t enjoy doing that, I’m not good at doing that, and I find a more passive approach to real estate investing more attractive to me.
# 7 I have read The Automatic Millionaire. I don’t recall Mr. Bach recommending individual investment properties in that book. Nor do I recall him recommending any of the three investment plans you have proposed in this comment so far.
# 8 I’m sorry you feel I’m misleading younger MDs. I’m not sure what you think I’m misleading them from given your shotgun of recommendations at various places in your post.
# 9 I’m sorry you think my IQ is low and that I’m greedy. It’s beyond me why you keep reading my writing. I generally avoid wasting my time reading the writing of stupid greedy people.
# 10 Not sure why you think I’m experimenting any more than any other investor. In some ways life is an experiment. But my retirement portfolio is not play money for me. It’s serious business. When I invest in something, I do it because I think it will help me to reach my goals.
# 11 I’m quite familiar with Buffett’s bet from his shareholder letters that I have read. I do not invest in Hedge Funds, nor S&P 500 index funds as you can see above. But I’m not surprised by the outcome of the bet.
# 12 What portion of my earnings from this blog do you think I should donate in order to qualify as altruistic? More or less than the percentage of my practice earnings that I donate to charity? What percentage do you suppose that is? And what makes you think you should be the one who determines how I spend the money I earn?
Would you care to post your asset allocation for the rest of the crowd to criticize, or are you just going to sit up there in the peanut gallery and throw rotten tomatoes at the man in the arena?
Hey Listen
I am sorry Man
But please
1. Don’t be Defensive
2. Don’t visualize your self as a warrior in an arena
You want to experiment do it for yourself don’t put it out there so naive young MDs will copy you
3.
Robo advisors such as Wealthfront or Betterment will offer tax loss harvesting, rebalancing etc for the Naive investor based on their risk tolerance
4.
Don’t impose your risk tolerance
5.
I am sorry your house is paid off if that’s your implication and perhaps you live in a much cheaper house
That is another stupid thing, young residents please don’t pay off as it becomes an asset liability unless your State has good asset protection laws
God has blessed you and made you via blogging so be thankful to everyone including hardcore critics like me
Young MDs just follow my advise and do one these three things
If you have 10 years or more
1. Do weekly or bi weekly investing in S and p 500 index fund
Buy Vanguard S and P 500 index admiral with expense of 0.05 (Best Strategy)
2. Invest with Betterment or Wealthfront
3 My 30/30/40 portfolio has returned 20% so far and will continue to do so God willing
My personal philosophy is learn to buy and invest in real estate where you live, you leverage your money and it appreciates
Blog readers, Please do not follow someone’s advise or think they are an expert because they got lucky with a successful blog with first mover advantage
Put WCI portfolio and back test it with Buffet’s passive S and p 500 index over past 5, 10 or 20 years
Again your blog made me disappointed because you are putting your portfolio there as if it was absolute and naive MDs may copy it
I believe your blogs many of them are misleading MDs who are not good with finances to begin with, either work extensive hours or work too little and may rely on your advice
I am much more confident of my portfolio because it will beat yours any day because fundamentally it’s inspired by Buffet
Neither can “You” nor the Hedge Fund managers can beat a simple passive S and p 500 index funds
But maybe I am wrong, the warrior in this arena maybe smarter than Buffet!
Please read Maslow for your own wellbeing
Cheers
Wellwisher for all MDs
Ahhh…Another long comment from “Wellwisher for all MDs.” In fact, I woke up to find six of them. Six posts on one thread while I’m sleeping is enough for me to go “who is this guy?” So I looked you up. Since your email address includes your name and your IP address indicates your town, like most docs it is relatively easy to look up your work location. A little more work and there’s your home address. None of us are quite so anonymous on the internet as we think. At any rate, I’m not going to out you, but my point is that one of us is a easily identifiable by readers and has been workers for years to help them get a fair shake on Wall Street. The other one snipes anonymously (at least he thinks so) on the internet. I’ll let readers decide who the man in the arena is. I’m going to leave your comments as is because I think that’ll help readers to understand better who you are and who I am.
You suggest I’m defensive. If I were defensive, your IP address would already be blocked. A comments section on a website you own is relatively easy to defend. Psychiatrists should understand that when you they go on the offensive, the reactions they provoke might seem defensive.
If people want to copy me, they are more than welcome to. Alternatively, they can copy any of these 150 people: https://www.whitecoatinvestor.com/150-portfolios-better-than-yours/ I don’t recall ever saying in this blog post that others should invest as I do. Why you see that as “absolute” is beyond me. Some MDs have copied my entire portfolio or parts of it in the past. Others do their own thing. It’s all fine. You like Buffett’s 90/10? Great. That’s reasonable. You like 30/30/40? Great. That’s reasonable. Stick with it. You want to invest in BRK? Even that’s probably reasonable. Stick with it. Not sure why you think I’m a
As far as portfolio construction goes, I think it is wise to see what many other smart people are doing. Then take what you like, incorporate it into your own reasonable portfolio, and stick with it, always being careful of the limits of backtesting. Following a single “guru” seems less wise to me, but Buffett is a pretty good guru. I’m sure you’ll do fine. I like that you’re confident your portfolio will do well.
Yes indeed, my house is much less expensive than yours. That’s no surprise, California is far more expensive than Utah. If you wish to leverage your house to invest, I’m okay with that. I don’t have a need to do that to meet my financial goals. My competition is with my goals, not your portfolio.
Thanks for the tip on Maslow. I’m familiar with his pyramid, but little else. It would be interesting to see what else he’s done.
Thank you for the well wishes and I doubt anyone on this forum disagrees with your basic premise – an investment in a Vanguard Index fund based on the S&P 500 is a reasonable investment.
Having said that, I want to protect the residents and young M.D.’s too.
Be careful with the statement:
“My personal philosophy is learn to buy and invest in real estate where you live, you leverage your money and it appreciates.”
When it comes to real estate, only the lending markets are national. Everything else is local. And since housing markets follow population cycles far more than economic cycles let’s take a look at the population declines in some markets between 1950 and 2010:
Youngstown, Ohio – 60.6%
Flint, Michigan – 48%
Pittsburgh, PA – 54.8%
Buffalo, NY – 53.4%
Gary, Indiana – 55%
Cleveland, Ohio – 56.6%
Detroit, Michigan – 61.4%
I could go on and on, but the story for these markets has been housing price declines and stagnation much more than appreciation. It’s great that you live in a market that is appreciating, but it isn’t automatic and we wouldn’t want our younger colleagues thinking it is. So let’s be clear for those doctors living in Flint, Michigan – it’s probably not a very good idea to be investing in real estate where you live.
You forgot the mic drop on that post
At a certain price/income/cap rate, it could still make sense to invest in property going down in value, no? I mean, would you rather buy a cap rate 4 property that will appreciate at 2% a year or a cap rate 10 property that depreciates at 1% a year?
You can find good deals in bad markets and you can find bad deals in good markets. Market risk is just one factor. Having said that my preference would be to remove as much risk as possible before investing. So of your two scenarios, I’d prefer to create a third in which I invest in an asset in a market that is stable with long-term historic population growth, good job growth not centered around one industry (military for example), in a state with favorable landlord-tenant laws, in a submarket with above average schools and below average crime rates, that has barriers to entry, etc., etc., etc.
Agreed. My only point was that price of entry matters like with any investment. Buying a rental property in an area like that is like buying a growth stock. You know, the great companies like Google, Amazon, Wal-mart etc. Buying a rental property in an area losing population with less favorable landlord-tenant laws is like a value stock. If you can get the property at a low enough price, it can be an even better investment. Obviously if you’re paying the price (i.e. cap rate) you want the better property/location.
Cap rates are a guide. Not an absolute. I would argue that in a declining market, can’t really trust the cap rate. Likely high cap rates anyways since renters are shaky…
Yes, cap rates have issues. But the point is that when you buy an investment, you’re buying a stream of future earnings. At a low enough price, even an investment that doesn’t appreciate or even goes down in value is a good investment. However you choose to measure that price, the principle holds.
Imagine buying a rental property for $10,000. It’s expected to be bulldozed and bought by the city in a year for $5,000 for an eminent domain issue. How much would you have to collect in that year for it to be a good investment for you? I would propose if it had a net operating income of $1,000 a month it is a very good investment. Might you have to rent it at a discount? Sure. But you take that all into account when you buy it and calculate your projected NOI.
That is all theoretically good, but doesn’t hold in real world. Your example of 120% cap rate has the inherent risk of tenants defaulting and leaving. And yes, for 10,000 if at 6 months – sure, you got 6k + selling price 5 k = 11K and came out ahead, but commercial REs aren’t that cheap. You stand to lose a lot more. Reason I was saying that is in a declining local economy this is a risky bet becasue you leverage your investment which cap rate completely ignores. You can get screwed real fast. So while it works on paper, I would like to see an investor execute on this for a 1 million dollar shopping center.
Your point of holding it till you are even is ok…if you buy it with cash and have long term horizon. Even then its risky – see Detroit et al.
It was an extreme example to make a point. I agree it would be very unusual to find something like that in the real world. And obviously leverage introduces additional risks.
Along that same notion, investing in expensive real estate can similarly become a nightmare. Just because your local market is hot today doesn’t mean you can or want to be investing in that market. If you enjoy sweat equity projects, then by all means buy that fixer and flip it. But if you are a lazy bum investor (like this writer), and you expect to outsource property management, you better be sure your properties can cash flow at least enough to cover the expenses of management fees, debt coverage, property taxes, and accountancy fees. That becomes harder when each residential door costs 200,000, and your city council starts passing rent control laws. You might find it easier, and just as lucrative, to just purchase an entire management team in REIT form.
Also worth considering is the granularity of your real estate investment. It takes a considerable cash outlay to gain control of a multiplex, for example, and as you accumulate that cash, it is sitting on the sidelines. Using the 200k per door example, assuming you need 25% down, your average 4-plex will cost you $200,000 in initial cash outlay. This may reflect 2-4 years of after tax savings from your medical practice, assuming you are earning 250,000 a year.
On the flip side (sorry for the pun), if you live in a depressed real estate market, perhaps purchasing and redeveloping an entire neighborhood becomes feasible. However, you are branching further and further out of the realm of passive investing, and more into a business venture model. Furthermore, securing a commercial loan can be harder than you anticipate, necessitating higher percentages of capital invested to acquire properties. If you are passionate about the urban revitalization of Youngstown, for example, and have deep family and community bonds, then this can be a great legacy you can bestow upon your city. But if your goal is to diversify your portfolio, and work as a physician, you may wish to reconsider.
The S&P 500 Index Fund
Allow us to set the market standard for you once and for all. Over the past 50 years, the S&P 500, an index of 500 of the largest and most profitable companies in the U.S., has risen an average of 13.6% annually (with dividends reinvested).
That means that if you invested $10,000 into the S&P 500 fifty years back, today you’d be able to call your discount broker, sell your position for $5.78 million, Step 4patriotically pay down your taxes of $1.62 million, and end up with $4.16 million. Sounds great, huh? But most people who have invested in equity mutual funds haven’t pocketed that market average (or anything close to it) — unless they have invested in a specific kind of mutual fund — the index fund.
I don’t think you understand what TSM is. It is the us total stock market. It is an index fund of over 2000 US stocks. It is the S&P 500 plus the small cap stocks. It is very highly corolated with the S&P.
I think you have learned just a little bit about investing and think you have the answer. There are many ways to invest. Some are better than others but only decades of investing will prove that. Your comments sound uninformed and dangerous to young readers.
FYI
With all due respect S and p 500 has beaten TSM or VTI hands down
Please follow the Gold Standard by Buffet, Bogle etc.
With all due respect they appear pretty damn similar.
https://tinyurl.com/l84lquy
I think you have learned just enough and been lucky enough living in a state where real estate has done well to be dangerous. I am glad you have done well, and wish you nothing but the best of luck. I think as a psychiatrist you have a very unprofessional way of communicating with people. You should know better than anyone how your tone is perceived.
As WCI stated before, retirement is not a competition between your and another’s portfolio. It’s a competition between you and your goals. Seems like you just need to keep the competition between you and your goals between you and you.
I apologize for the wordings in my comment to WCI and all readers but have to comment on what is not right
Years of investing experience has not made anyone Warren Buffet or Peter Lynch
It’s dedicated disciplined approach to investing
Vanguard S and p 500 index admiral once a month or twice a month should be more than enough
Many of my posts by John Bogle of small cap funds have been selectively not been posted
I have been a physician double Board certified for 17 years
I can tell you the power of real estate first hand and the power of leveraging money
I have paid off 2 M worth of real estate, live in a1.7 M house and have a rental condo of 300 k being paid by the renter
Don’t pay down your mortgage too quickly it become a liability in a law suit
Sometimes people in thE Peanut Gallery are right and the so called Warrior ?
Einstein it’s not that the world is a bad place because of evil but because of people who don’t do anything about it
Summary:
The S&P 500 Index Fund
Allow us to set the market standard for you once and for all. Over the past 50 years, the S&P 500, an index of 500 of the largest and most profitable companies in the U.S., has risen an average of 13.6% annually (with dividends reinvested).
That means that if you invested $10,000 into the S&P 500 fifty years back, today you’d be able to call your discount broker, sell your position for $5.78 million, Step 4patriotically pay down your taxes of $1.62 million, and end up with $4.16 million. Sounds great, huh? But most people who have invested in equity mutual funds haven’t pocketed that market average (or anything close to it) — unless they have invested in a specific kind of mutual fund — the index fund.
For the sake of squelching this back and forth banter (as this clearly was not the goal intended by WCI and this clearly is not the place for it), I’ll just say congratulations on your successful portfolio. I’m glad it worked out for you.
Now moving on ….. please.
You obviously like to follow
And are risk aversive
It’s not a competition between me and WCI
It’s education for Naive MDs as I have been reading finances for 15 plus years
Sorry you feel this way
Good luck
You’re entitled to your own opinion, but not your own facts.
http://www.moneychimp.com/features/market_cagr.htm
The annualized return of the S&P 500 for the last 50 years (Jan 1 1967 to Dec 31 1916) is 10.18% with dividends reinvested. Unfortunately, that reduces your $10K to $5.78M figure to just $1.27M. Less after tax. Still pretty good, but I don’t see any reason to make up facts to make it look better when it is so easy to look up the truth. It just makes someone look like they don’t know what they’re doing to use incorrect facts.
We are talking about last 50 years not 50 years of the time frame you quoted
Again this is what I call misleading
Last 50 years would be 2017 going back
Sorry again because I am not trying to bash your posts and every attempt to make a super successful MD look like I am talking without facts
Anyways best of luck my friend
I am advocating only two things which will make every MD very rich
Disciplined bi monthly investing in Vanguard S and p 500 admiral fund
Leverage income with Real Estates and see it’s amazing potential
Just because WCI is not good at it per his own words doesn’t mean you shouldn’t think outside the box
David Bach does recommend buying real estate close to where you live
Please read all his books
Anyways I wish I could stop correcting your data
People here think I am not coherent and want to praise you and that’s fine until they realize years from now your formula didn’t beat the passive admiral vanguard S and p 500 index
You need to overcome this “I am always right and judge your readers like me because I was harsh on you”
You were insulting To me as well saying I am from the peanut gallery
But you have your followers and wish all do well and succeed including you and me ?
Take Care
Young residents and MDs who want to become very Rich please follow the above advice about S and p vanguard index admiral and read all of David Bachs books
20 years from now with WCI PORTFOLIO I guarantee you, you will lost if not hundreds of thousands but perhaps millions
Anyways I have to fly overseas for a business trip and then come back to meet high ranking CEOs from Newport Beach to lead a HOSPITALIST group
First know the rules of the game and then play them better then anyone else
I have also been a CEO before just an FYI
Anyways my intent is for all of you to get very rich and WCI needs to come off his high horse that he is always right
I think PoF Physicians on Fire,his partner seems more mature and experienced, I would rather follow a more intelligent mature experienced man who knows principles of Graham etc
Again my apologies no intent to hurt WCIs huge ego which will lead to his downfall I predict but hope not
I thought you were done here. Apparently you’re still interested in reading what a greedy, stupid person is writing.
Enjoy your trip meeting with other high-ranking CEOs. Hope it is all you dream it will be.
I agree POF is a very mature and experienced person.
OMG…. thank you OCMD101 for once again proving that the only people crazier than psych patients are their own psychiatrists.
Hey, go easy on the Psychiatrists. This guy isn’t even coherent.
Humor me, if he is 44, and double board certified for 17 years, he must be 26 when he finished his Fellowship. (You complete boards roughly 18 months after finishing your Fellowship in sub specialty training in Psychiatry).
The fastest you can do Residency and Fellowship to be double boarded in Psychiatry – 5 years.
That puts him at 21 when he finished Medical School.
So he started Medical School when he was 17, and completed high school when he was 13. That’s really impressive.
Lol
I must comment on these two coherent geniuses
Yes I did finish high school from St Mary’s High and had a full merit scholarship for Med School
Did two years of internal medicine with track in cardiology but switched to Neuropsychiatry 4 years as it is fascinating and got certified in Sleep medicine as well
Anyways what is normal anyways
2 out 5 Americans most likely have latent mental issues and I would challenge both of you “Normal” guys to take the MMPI and MCMI
PLEASE tell me the results if you like
I can tell you for sure you most likely will not like what you see
If you decide to become patients find a local psych MD they will be more than willing to help if you get an appointment
Just kidding ?
This is all in good spirit folks
Take it easy
Still wish well for you guys
Maybe not
Still wish well for you guys
The maybe not was an error typo
Welcome back, that didn’t take long.
Getting an appointment with a psychiatrist is no small feat. There’s a reason these guys don’t have to take ED call or work in an inpatient ward. All insured patients or even all cash is a very viable business model. Unfortunately, it feels like the majority of psych patients are Medicaid or no-pay patients. Tough to get both categories into a real psychiatrist.
that sure made me chuckle, thanks for taking time to write that
Dude its not a competition. Sigh. Doctors and their type A personality. WCI is helping young doctors not straying them away. His philosophy is essentially that of index investing which works for everyone. Whats the beef?
This is basically an 80/20 portfolio or 70/20/10, how is that different than a 90/10? The risk and return are basically going to statistically be the same, and I would argue this allocation will do better due to the investing in businesses 10%. There is zero misleading about anything here and in no way was there some endorsement of this being “the way”, nor did I get the sense it was aimed at brand new residents. There are people here in all stages of their careers and retirements.
Not that its anyones business nor am I here to defend him, but he does give a lot to charity, and who cares? I could not care less if he never gave a penny to charity and kept it all to feed his unsatiable greed, its his he can do what he wants with it. What is with people feeling the need to tell others how they should spend their money? You have zero place to tell someone, anyone else whats enough for them and they should start to give it away. Why dont you focus on you and your personal mission instead of trying to insinuate a bunch of stuff in others?
You call someone greedy while at the same time bragging about your multimillions in RE holdings? Classy. Dont know what it is about some docs that makes them come across as so envious and act as if someone personally stole their success from you.
For small value would you recommend VB (small core) or VBR (small value) for an ETF choice? The returns seem so similar that I’m not sure it truly makes a difference but I may be wrong. Thoughts???
Any small value index etf will follow its index doesn’t matter which one
Not true at all. Every fund family will have a different definition of “small” and “value”. While they may perform similarly, this will impact your ability to capture any small premium if it exists, which I highly doubt. Its really a microcap premium and an index/exchange change phenomenon.
So between VB and VBR, which would you choose? Or maybe choose both?
John C. Bogle, the founder of investment management firm Vanguard, has estimated that the investment industry collectively shaves around 3% from stock returns each year. This stems primarily from the fees it charges for managing assets for individuals and institutions. Bogle has also openly questioned the value of actively managed funds over index funds. Exchange traded funds (ETFs) are another low-cost way to invest primarily in passive, indexed strategies. Not surprisingly, Vanguard was founded on low-cost index funds and has moved into ETFs, as have most other well-known firms in the industry.
SEE: Mutual Fund Or ETF: Which Is Right For You?
Mutual Funds
The industry also likes to divide up stocks by market capitalization. Generally, active managers of large capitalization stocks have the worst track records when compared to their underlying index. An industry report from late 2011 estimated that two-thirds of large-cap mutual funds underperformed their index over the past three years. The best category was in the small-cap space, but 63% of active managers still underperformed. The only space where managers steadily beat their bogey was in the small cap international space of the market. The small-cap value category was also a relatively strong category.
Based on the above data, for the most part, investors would be well served to invest in index funds that simply look to match market returns. Standard small-cap indexes include the Russell 2000 and S&P Small Cap 600. These can be further divided into growth and value components. Internationally, the MSCI EAFE Index also offers a small-cap option.
Actively managed funds seek to outperform the above small-cap indexes, but have a mixed track record of doing so. High expense ratios are partially to blame, and small-cap funds generally carry higher expense ratios than other market-cap weighted options. A sampling of funds tracked by mutual fund rating firm Morningstar, consistently showed expense ratios above 1%, with a large number charging rates above 1.50% and as high as 1.65%, which it characterized as a high overall level.
SEE: Stop Paying High Mutual Fund Fees
Exchange-Traded Funds
Small-cap ETFs generally charge much lower fees than actively managed alternatives. The expense ratio for the iShares Russell 2000 Index Fund was recently listed at 0.26%, while the iShares S&P SmallCap 600 Index Fund was even lower at 0.20%. The small-cap ETF category still charges higher fees than the other market-cap options. For example, the iShares S&P 500 Index Fund charges only 0.09%. However, the fees are still much lower than for actively managed small-cap mutual funds.
Vanguard offers a small-cap ETF that charges a fee of only 0.16%, which it states is lower than 88% of similar funds out there. Its passive, small-cap index mutual funds also charge reasonable expense ratios between 0.13% and 0.43%. Its small-cap value fund charges only 0.21%. Generally, both passive ETFs and mutual funds make sense in the small-cap space.
There are standard differences between ETFs and mutual funds to consider. ETFs are designed to trade like stocks and can be bought during stock market trading hours at similar, or even identical, commission rates that brokers charge for stocks. There are also certain tax benefits that come with more active trading. In contrast, mutual funds can generally only be purchased at the end of the day, after a day-end price has been established. They don’t always have trading commissions attached, especially if investors buy or sell funds offered by the brokerage firm where their account is held.
SEE: The Benefits Of ETF Investing
The Bottom Line
Individual investors could easily conclude that a passive strategy is best when investing in the small-cap realm of equities. Most active managers underperform their respective index, which comes in good part to charging fees that are too high. ETFs can offer among the lowest-cost alternatives, though indexed mutual funds are also a good option to consider.
At the time of writing, Ryan C. Fuhrmann was long shares of HP but did not own shares in any of the other companies mentioned in this article.
Read more: Mutual Funds Vs. ETFs: Small Cap Stocks | Investopedia http://www.investopedia.com/financial-edge/0712/mutual-funds-vs.-etfs-small-cap-stocks.aspx#ixzz4bxEmjT3F
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My goodness. Did you just post on a Boglehead-centric forum who John C. Bogle is? C’mon, we’re not medical students or residents under your stewardship. A lot of us have been in practice just as long as you. If your goal is to gain experience in doing what WCI is doing, trust me, you’re bed side manner is all wrong.
You are right, I must not read stupid things from a person who self admits that greed is the main intent which will make me upset and disappointed
Please unsubscribe me from your Blog so I don’t get the emails and read these articles which mislead MDs, hardworking MDs and young residents etc
I hope I don’t read anything in future out of sheer curiosity which is again misleading and make me compulsively respond
Best of Luck my friend
My apologies for being so direct
Compulsive response is right. What a thankless, bitter and misguided person. Jim – you are a very big person to be able to allow the kind of comment above to even appear.
My apologies to WCI, you all the WCI BLOG readers
Every email you’ve ever had from this site has an unsubscribe, manage your subscriptions, or manage your preferences link at the bottom. It should be relatively easy to unsubscribe.
I’m sorry to see you go, but will go ahead and unsubscribe you from this thread. I have also removed you from the email list. You’ll have to take care of any of the other FREE sources of information you have subscribed to. Alternatively, you can block emails from my email address if you prefer. Let me know if there is anything else regarding your email that I can help you with.
Best of luck to you as well. Apology accepted. I’m sorry you feel I’m misleading MDs. I don’t think I am.
This is by far the best site for a financial education for professionals. This poster is the one in a million that feels the way he does. No reason to even reply to his posts
He’s a little cheeky and insulting, but at least he’s a real doc and my mission is to help docs get a fair shake on Wall Street. Hopefully the replies will help others to see the holes in his arguments and the back and forth will be helpful.
Actually I was enjoying that! Wanted a Guest post from him 🙂
But thats a good point. This sort of back and forth – though the other party made no coherent sense (was he advocating S&P or RE or both?) – still benefits WCI right? (free content … oh an open evidence for everyone to see). Interesting phenomenon.
OCMD, I’m not sure what’s your goal here. WCI worked extremely hard to create this “house.” So don’t enter it and try to set it on fire. Assuming you are in the medical field, you are fully aware of job professionalism and courtesy with your peers. Every investors strategy is different, and none is perfect, and neither is yours. Thousands have benefited from WCI’s sound advice, and,yes, he does make money from it, but that doesn’t classify him as greedy. I would too if I were him. It’s hard work. But personally I haven’t been charged a dime yet for what I would consider invaluable financial advice. I am just thankful for people like him to guide people like me. I’d say it’s your responsibility to screen what you read on the net, not the other way around. Again, thank you WCI for being you.
Sincerely, Dr. Warren Ho
First off WCI thanks for being so personal and honest. This is why people read your blog. Not only for your great advice but showing how one does it personally.
I’m glad to see you are simplifying and not focusing on tilting. The more complex your portfolio, the less your readers think they can emulate you, scaring them from making the first steps on investing themselves. (Love the bare minimum article)
Even though this is well thought out and within your plan’s rules after a pause, do you think you will continue to tinker? Is this part of your glide to a more conservative portfolio as you near the “I won” number? Once again, it is all personal, but you seem to be giving points to financial advisors because many of your readers are going to think they don’t have the knowledge or know how to tinker with a portfolio like this.
This is why I am personally comfortable with a vanguard target retirement fund. It takes me out of the stock picking, rebalancing, and gliding to a more conservative approach all at a low cost. “Me” is my biggest risk. Your response will be that is “reasonable”, but this infers that you have figured out a more complex higher yield less risk portfolio that your readers will desire as well.
What is meant by tilt? I think I know the answer but I am not certain, so a simple explanation would be greatly appreciated. Thanks.
If you just buy all the stocks and bonds at market weights, that’s the market portfolio. If you hold more of a certain type of stock (such as small value) compared to the market portfolio, that’s a tilt (toward small value stocks.)
Perfect explanation!
When creating a tilt, why choose small and value?
– Is there a particular reason to tilt small instead of medium or large? Historically do these small companies have a higher tendency to go under, does this make it riskier?
– Why tilt value vs growth?
Also, did you consider instead of using total stock index, take those funds and allocate to Large, Mid, and Small cap indexes in whatever proportion you desire to have more granular control over how to slice/dice, and reduce redundancy in the small stocks already including in the total stock index? I was weighing this idea with the increased control over “buy low sell high” when re-balancing vs the simplicity of just having total stock.
Thanks!
Small and value have higher long-term returns than the overall market. Are you familiar with the work of Fama/French?
https://www.marketwatch.com/story/this-is-why-almost-everyone-should-invest-in-small-cap-value-funds-2017-12-14
Yes, I’ve considered that. I used to do it a bit more than I do now and found it wasn’t worth the hassle when I could get to basically the same place with two funds- TSM and SV.
Thanks that’s a helpful read.
Which fund do you end up using for your small cap exposure?
– I was looking at VBR but noticed morningstar xray shows it has a lot of mid cap,
– VIOV looks like a more favorable compilation, but it has ER of 0.2 instead of the 0.07 for VBR.
– The other one I see mentioned a fair bit on the boglehead forums is IJS, which seems pretty similar to VIOV but has ER 0.25, however, morningstar ratings are much higher on it, for whatever that is worth. IJS also trades at a higher volume ~182k instead of ~12k for VIOV, again for whatever that is worth, the spread is the same on both.
– Finally, as my account is with Schwab I considered their Small Cap fund SWSSX, nice ER of 0.05 and no fees to purchase like the other ETFs (though $4.95 is not so bad), it doesn’t have any value tilt though, but it does have a nice weighting toward small cap even more so than VBR at least according to morningstar.
Trying to do some calculations over a 30 year span the ER difference between the high and low options alone could make as much as a ~$30,000 difference if I maintained a fixed allocation here and experienced an average return of 10%. Not sure how much factor exposure in VIOV/IJS would be expected to benefit compared to the known saving of a lower ER with VBR/SWSSX.
With your experience what are your thoughts on which funds offer best exposure to the small value factor and what price (ER) is that worth?
Thanks!
I use the Vanguard small cap value index fund.
If I used something smaller/more valuey, I’d probably hold a little less of it.
My second choice would probably be the DFA SV fund, but I’d have to work out a special deal to get it. I have enough business associates that are advisors that I could probably get it for next to nothing above and beyond the ER, but I prefer to stick with Vanguard for now.
If you’re getting to the point where you’re comparing one small value ETF to another, you’ve already won the game as far as investing knowledge goes. You’ve identified the right questions, but like you, I don’t have the answers as to whether the increased tilt will be worth the higher expense over your investing career.
I’m curious about your thoughts on an idea I have seen come up a few times while talking with others about asset allocation. Essentially an assertion that the benefit of small value factor tilt is well known enough that it’s priced into the index fund costs.
There is some debate about whether the SV premium is due to risk or due to behavior. If risk, it shouldn’t be priced in. If behavior, it could be, but that seems unlikely given, well, investors. Of course, maybe it doesn’t exist at all and it was a historical anomaly. But you’re saying it’s “priced in”, that is that people are paying too much for small value stocks. The data doesn’t seem to bear that out. If a stock becomes too attractive (i.e. people are willing to pay more per dollar of earnings) it is no longer a value stock. Regarding size, that doesn’t seem to shake out either. The Vanguard 500 index fund has a P/E of 19 and the small cap index has a P/E of 15.8. I’d expect those to be more similar if it was priced in.
I think what you’re seeing with recent underperformance is just the natural ebb and flow. I think the small value premium is real, but it can hide for long periods of time. However, those periods are shorter than my investment horizon.
But let’s say it is priced in and small value doesn’t return any more than the overall market over my horizon. So what? I’ve lost 5 basis points that I paid over TSM to get it. The only real tragedy is if SV underperforms the market significantly for the next 50 years, and that seems unlikely. I’m obviously willing to take that bet, but not go all in on it.
Thanks for the speedy reply! I appreciate the thought out response.
Dear WCI and the readers on this Blog
I am signing off
I owe sincere apologies to WCI and all of you for the way I have communicated and the content targeting WCI’s Ego, IQ etc
I will still adhere to my advice to make future Millionaires with a time frame of 10 to 30 years and we can agree to disagree
As a CEO before and now as a real estate entrepreneur I can proudly say God has made me very successful healthy and wealthy
By 50 my net worth will be 5 to 10 million dollars or more, I am 44
I am ashamed of the way I have responded as this is not my true nature
Hopefully this is my last response as I am unsubscribing myself but at the end my heart is in the right place to help all of us become Rich God willing
Take Care
Remember
Family First
Then Health
20% savings from your salary
etc etc
Bye Now
Will miss you all on this Blog
I must exit since I am the odd one out
Amen.
Odd yes, but out only by choice. You’re welcome back any time.
Congratulations on your success. We disagree about precious little.
I don’t think having multiple asset classes necessarily makes a portfolio “too complex” to manage. All my investments, except for LendingClub (which is on auto pilot thru LendingRobot), are through Fidelity. My non-retirement account has only TSM and a bond fund, which I rarely trade. My Traditional and Roth IRA’s do have multiple ETF’s, but these take only minutes each month to review, and trades are now only $4.95. So I think the key issue is not “complexity” per se, but designing a portfolio that maximizes diversification, the efficient frontier, and alpha. BTW, I recommend Swedroe’s new book, “Your Complete Guide To Factor Based Investing”.
Thanks again for a great blog!
I’ve been meaning to get to Larry’s book. Think about submitting a review of it as a guest post would you?
I agree it is not really that complex but if you wish to rebalance or glide you really must have some discipline. When do you rebalance or when do you glide away from equities? You can in theory setup exact dates to do so in your plan but if you don’t or fail to meet the timeline, you might be timing the market. Could WCI subconsciously be timing the market because currently the front page news is that “everyone” thinks the stock market is overvalued and he just dropped his stock exposure? The value of the added complexity (as simple as it is) must outweigh the set costs plus the behavioral costs. My point is if WCI is making the call to become more conservative based on his personal timing, good for him. (But he should have known this at the plan’s beginning and not a few months ago.) But if he thinks the market is ripe for this tweaking, he is frankly timing the market to a degree. I must note I agree with WCI on nearly everything other than this minor thing of asset allocation changes.
Man, you make one change in 15 years and people call you a market timer. Can’t win around here. 🙂
At any rate, I see the risk level of the two portfolio as very similar. A small amount of equities (a risky asset class) were replaced by real estate (another risky asset class.) It’s not like I went from 67.5% equities and 7.5% real estate to 25% equities and 25% real estate. I went to 60% equities and 15% equity real estate.
I compared the stock allocation of the “old” approach to a common all-stock asset allocation an experienced financial advisor would manage going as far back as we have data: http://bit.ly/2nC1Paq
The DIY approach has actually cost about 1.4% per year in missed-out-on returns, or 0.4% after deducting a 1% advisory fee. And that is before accounting for all of the additional services an advisor can help you with and the incredible amount of time you save not having to read, research, manage, worry, stress, etc.
DIY investing is a lot more expensive than people realize.
So you found something you could backtest a portfolio against that performed better? That’s not exactly surprising. I noticed you also picked your time period. Maybe it’s random, maybe it’s not, but it’s not the same as my time period, which is the only one that matters to me.
At any rate, if someone got to within 0.4% a year of the very best a great advisor could do using backtested data, I’d call that a win, not a loss.
Not to mention it was not possible to have anywhere near the majority of that money during my time period in DFA funds. They weren’t available in my 401(k)s where the majority of the money was. So now we’re down to 0.1-0.2%, rounding error territory. And that assumes you would have taken me as a client with a four figure portfolio.
Not implying you haven’t done well. Just that usually, even the “best” DIY portfolios come up short of a professionally designed and implemented one. Which, of course, renders all the other services you get from a financial advisor as basically free.
I didn’t, fwiw, cherry pick the portfolio. See it here in the 1998 DFA Matrix Book (after page 50): http://services.ifa.com/books/$versions/dfa_matrix_books/1998.pdf
And the time period was the longest available for all of the live funds.
With a weak 401k, of course, you’d want to use an index and then torque as heavily as you can outside of it with SV, Micro, Int’l Small Value, EM Value, and EM Small. A skilled advisor knows just how to dial this up right.
You’d also want to leverage your entire life maximally to invest even more. I mean, when you have a retrospectoscope, the task is relatively easy. I’m sure you and I could both go back to 1993 or 1998 and find something that outperformed your suggested DFA portfolio. That tells us precious little about what will do better going forward.
Then of course there is the issue that most DIYers don’t do very well at all and most who call themselves “financial advisors” aren’t. So you’re really looking at somewhat ideal situations, either of which are likely to work out very well in the long run.
And you’re ignoring the fact that when someone is an engaged DIY investor, perhaps they change other things in their lives that enables them to be more successful- they earn more, they save more etc. In my case, for instance, paying attention to my investments helped me to realize what really mattered for me to be successful, particularly in the first decade, was making more and saving a larger percentage of it. I’d rather earn 7.6% on contributions of $400K a year than 8% on contributions of $50K a year.
Interesting. Will check validity. 0.4% lower, but skills gained by doing it yourself? Priceless.
Nevertheless, I believe in numbers, and you may have a point here: DIYers may be missing out.
It’s simply the age-old DFA vs Vanguard issue discussed here: https://www.whitecoatinvestor.com/dfa-vs-vanguard/
Eric is a DFA super-fan and true-believer. I remain skeptical but I figure if you’re going to hire an investment manager anyway, why not get one that can offer you DFA funds. When small and value bets/tilts pay off, DFA usually beats Vanguard because their funds have higher tilts to those factors as well as a couple of other minor tweaks to the classic index fund approach. In other periods of time, Vanguard’s lower costs win out. I’ve never been convinced DFA is worth 1% of AUM unless you derive significant value from the other aspects of having an advisor. But I wouldn’t be surprised to learn the DFA advantage was something in the 0.25-0.5% over the long term. Wouldn’t surprise me a bit. 1.4%? Not convinced. But hey, many roads to Dublin.
Thanks WCI. Didn’t know the background at all. Will take a look. Totally buy your post above though. Almost feels like paralysis by analysis.
I just read the entire comments section in one sitting. I’m exhausted myself, can’t imagine how WCI must feel after all those replies. You’ve mentioned in previous posts getting more diversification and wanting some more real estate while decreasing the overall number of asset classes, but any particular reason why the shift now, when what you’ve done previously has worked well?
I think probably the precipitating factor was dumping the P2PLs. It just made me take a good long look at everything else I’ve been brewing about changing for years.
That’s right
Your blog is sort of addicting
I am beginning to like you as a person and can see the intent to help others which makes me happy
?Cheers
Going overseas to pay off a Million dollar plus property giving passive income in USD of 5 to 8 k per month and close off another losing investment
Wish me luck ☺️
Based on including home equity
40% stock
20-30% fixed income
20-35% property
5-10% alternative
Looking for some advice on my portfolio. Currently a 1st year fellow. Don’t plan to retire for >30 years. Willing to accept a lot of risk now.
Hospital 403B – (ROTH)
$4000 (TLLPX – TIAA-Cref Target 2050 Fund) Expense Ratio .30%
IRA – ROTH
$13,000 VFINX – Vanguard Index Fund – Expense Ratio .05%
1) My Hospital plans to offer VEXAX Vanguard Extended Market Index Admiral expense ratio .05%, they also have they TIAA CREF 500 index fund TISPX – Expense Ratio .05%
I plan to start contributing 18k/year into 403B then use backdoor to fund vanguard roth personal account. Should I switch from the higher expense ratio target fund to VEXAX to broaden assest allocation, or just go with another index fund?
Thoughts appreciated. Thanks.
First congrats on nailing this down so early. I wish I had started in residency or earlier.
Assuming you may be PGY 4 with average salary of $60-70k a year gross, you should aim for $12-14k a year pretax savings (20%). If your plan is to max out your 403b at $18k per year then I’d say your savings rate is tremendous. Let alone thinking about contributing to a Roth IRA. Wow! Nice job.
I’d definitely make sure you try to max out that 403b before doing your backdoor conversions for Roth, especially since your are doing 403b Roth (which again may be the smartest decision given these are some of your lowest income earning years. The best is still ahead for you).
In terms of the investments, probably get out of that target date fund with expense ratio of 30 basis points. Either VEXAX or TISPX would be better in my opinion as long as you are a committed self investor. If you just plan to view your 403b account once or twice a year, maybe staying in the target date fund might be best for you. If not, definitely go Vanguard or TIAA-CREF index fund.
Just keep in mind once you reach attending level, consider transitioning to traditional 403b if you feel you may be close to maximal lifetime income. Deferring may be a better option in that case.
Again. Congrats. I wish I were you at your level.
Impossible to give advice without knowing more about you. Certainly your investment plans are low cost and offer quite a bit of diversification and are aggressive as you have requested.
I’m not a big fan of the 500 index fund when the Total Stock Market fund is available as in your Roth IRA, but that’s a very minor point.
I’m not clear why you need to do a backdoor Roth IRA as a fellow. Maybe if you’re married to an attending or moonlighting like a crazy fool I guess.
Basically, you need goals, and an asset allocation for each goal. Then select investments. You’re jumping straight to step 3.
https://www.whitecoatinvestor.com/how-to-be-a-do-it-yourself-investor/
Appreciate that Warren, I’ve been saving a lot but I do moonlighting ~30k/year, my savings rate from both incomes is closer to 13%, but I’ve been increasing by a percentage every few months as I get used to the saving, with the plan to hover around 20% sometime next year.
Still a fine savings rate for a first year fellow. And a nice plan to increase in the future. Still, assuming you’re maybe a PGY 4 with $60-70K annual gross income + $30k annual of moonlighting income, that puts you at roughly $100k annual (assuming there is no Mrs. Dr. Reich contributing to your total gross).
At 13% savings rate, thats $13k a year. Not enough to max out your 403b Roth, but certainly enough to get your employers full match. Congrats!
I fail to see the point in contributing to a Roth IRA at this juncture, since you haven’t yet maxed out your 403b Roth. Your 403b will offer more ironclad protection from creditors then an IRA ever will (depending on what state you live in). So put your savings in your 403b Roth, until the time you cannot.
In regards to choice of investments, please see WCI’s prior post on doing the bare minimum.
https://www.whitecoatinvestor.com/the-bare-minimum/
In it he suggests to exit any target-date-fund and find any other fund that has the words “index fund” or “Vanguard.” Finding one with both even better. I like this advice.
Keep up the good work.
The reason to do a Roth IRA over a Roth 403(b) is due to lower costs. In some states, that comes at the cost of slightly less asset protection.
Very good points WCI. I didn’t even catch the fact that his income level (I’m guessing here) would be too low to think about a Roth conversion. He would qualify to directly contribute to Roth IRA if he so chose.
I suppose if his 403b Roth offered a brokerage window, then maybe he could utilize it to obtain the many cheap fund options that a Roth IRA would and keep the better asset protection that the 403b would offer.
Thanks again Warren, No Ms. Reich yet, but one year from now there will be one. Unfortunately no match from my hospital, fellows don’t qualify for it.
Don’t worry. It’ll all be over soon lol. Attending income will be a real eye opener. But saving correctly now will allow you to avoid growing into your new found riches too quickly when the “real world” starts. Doing all Roth and saving as much as you can is the best you can do right now.
Can you share where you keep the different asset classes (taxable, tax deferred or roth)?
Since most employed physicians probably have less than 50K in tax advantaged accounts, i think a post on your recommendations about this issue would be great.
Thanks for all the CFE you provide to physicians!
This is a little old, but it hasn’t changed that much:
https://www.whitecoatinvestor.com/how-i-currently-implement-my-asset-allocation/
You may also find this link useful:
https://www.whitecoatinvestor.com/my-two-asset-location-pet-peeves/
I meant access to less than 50K in tax advantaged accounts
I like the thoughtful approach you’ve taken to managing your asset allocation, as well as the change you made this year to shift some funds toward REITs and away from stocks. I do have two comments/suggestions for you to consider:
1) You seem to have 2/3 of your stock holdings in US markets and 1/3 in international markets. I know that it’s very difficult to accurately carve out US exposure from “ex-US” exposure, since most of the largest companies are multinational regardless of where their stock is traded. That said, I personally would steer closer to 1/3 US and 2/3 international because that’s more in-line with the total market cap of those respective markets. In other words, US equity markets constitute only about 1/3 of global market cap. Another argument for increasing international exposure, even further than that point, is as a hedge. As Americans, our economic fortunes are partially tied to the performance of the US economy and the US dollar.
2) Have you thought about keeping 2% to 5% of assets in precious metals (gold, silver, and/or mining stocks) as portfolio insurance? I think it’s prudent to do this because stocks, bonds, and real estate can become highly correlated during financial crises. Gold doesn’t produce cash flow, but there are ways to generate some income from it such as selling covered call options on a gold ETF.
Great post – I enjoy reading your blog!
I’m not comfortable with 2/3 international. I am comfortable with 1/3 international. Either is probably fine if one sticks with it in the long run, but in my mind, the reasons to overweight US outweigh the reasons to market weight it.
Sure, I’ve thought about it and decided against it for the reason you note- it doesn’t actually produce any income. If you wish to hold 2-5% of your portfolio in metals, I think that’s fine. I had someone come up to me at the end of a talk I gave last week advocating for bitcoin. It old him the same thing. It really doesn’t matter much at all what you put 2% of your portfolio in.
When you run your new allocation through the Morningstar Instant X-ray tool, is it significantly different from the old one you posted 2/3/17, “Understand What You Own?”
Shouldn’t be.
Hi,
I recently found your blog and thank you for the information, thank you for keeping us updated. Which brokerage do you use and what funds do you use? I went over your “150 Portfolios”,where you go in-depth what ticker symbols and what allocation, do you use the same? Also, have you tried Dan Wiener’s newsletter?
Thank you
This post may help, although it’s a little out of date: https://www.whitecoatinvestor.com/implementation-of-my-asset-allocation-an-update/
We currently have funds at Vanguard, Fidelity, TD Ameritrade, and Schwab.
No, I don’t use Dan’s newsletter but am quite familiar with it.
Great post. Quick question: which funds do you use to get your small/value tilt?
Reading the comments above, looks like Vanguard VSS ETF for the international…what about for US stocks?
Thanks a lot.
I don’t tilt to value internationally, just small. I use the Vanguard Small Value Fund for a small/value tilt domestically.
Greeting WCI
Thank you for updated file I have been thinking of taking over my investments from my financial adviser ( 401k, among other accounts) and your website
always provided abundant information !
I have 2 questions here .
1. Knowing that you increased your real estate investments to 20% , what will be the consequences of a report crash in 2008-2012?
2. Do you have any comments regarding holding any money for investing since the market is optimistically high for example what mark cuban stated in interview that he liquified multiple assets and that Berkshire Hathaway surplus off cash more than 100b as if waiting for the right moment to invest ?
1) Report crash? 2008-2012? You mean what happens if real estate goes down in value? I lose money. So I’d sell bonds/stocks and buy real estate.
2) I don’t take financial advice from Mark Cuban. What I have discovered is that “the gurus” don’t know any more than the rest of us about the future. Market timing is difficult. Going to cash too early has significant consequences. How much has Berkshire’s decision to hold $100B instead of investing it cost them so far for instance? That can be calculated and it isn’t insignificant. I knew I needed a financial plan that didn’t require me to predict the future to be successful. That plan is a fixed, broadly diversified asset allocation. I hold the same asset allocation at the bottom as at the top.
Thank you wci for you reply
I meant repeat the 2008-2012 crash.sorry typo.
I presume you mean buy real state debt and equity from crowdfund not actual real estate ?
Lately I am reading a lot of historic indicators of a downfall market.
Commodities and equities ratio .
The warren buffet indication
Total stock market capitalization of the stock over the gdp and just wondering what the big players are doing.
Interestingly buffet did sell his entire stock portfolio along with dissolving his partnership in 1966 when he noticed that the market was too high to sustain his profit. The entire portfolio was about 22million, so having a surplus of 100b and waiting for the right moment is not a stranger for him.
At the end no one really can predict how and when the market will shift .
Thank you again.
I don’t own 100% of any properties directly any more other than the one I live in. It’s all syndicated (either directly or through a crowdfunding website), private funds, or the Vanguard REIT index.
Hi. For Roth IRAs, Roth 403Bs, and HSAs, does your portfolio change? If so, how?
No. I look at all accounts as one big portfolio and manage it across all of my accounts designated for retirement. If you’re really going to tax adjust all of your accounts (and almost no one does) then it doesn’t matter. Since nobody does, sometimes you can trick yourself into tolerating a more aggressive portfolio by putting high expected return assets preferentially into Roth accounts. More details here:
https://www.whitecoatinvestor.com/my-two-asset-location-pet-peeves/
Thanks. The reason why I ask is that my Vanguard Personal Advisor Services folks have recommended that I preferentially hold most (if not all) of my bonds in my Roth IRA that I want to open (thereby moving my bonds out of my taxable investment account) because bonds are more tax heavy because they pay out “income” than ETFs which will count as long term gains. Overall, my allocation recommendation is 90% ETFs and 10% bonds given my age and risk tolerance. But, now that I am opening up a Roth IRA with them, they’ve recommended that my Roth IRA hold basically all the bonds. My overall allocation with them is still 90% ETFs and 10% bonds — but they recommend moving all the bond funds out of the taxable portfolio and into the Roth IRA for tax purposes.
Any thoughts on this rationale? I haven’t really heard that before but it seems interesting.
This is their website explaining this rationale:
https://investor.vanguard.com/investing/taxes/managing-accounts
Thanks for your insights
Asset location is complex and doesn’t matter all that much. As you can see in that post I linked to above, this blends both of my asset location pet peeves. It’s possible that bonds in your Roth IRA is the right move, but that assumes you’re tax adjusting your asset allocation (you’re probably not). It’s only 10% of your portfolio, so I wouldn’t worry too much about it.
That article from Vanguard is simplistic and doesn’t actually provide a rationale for what the advisor is recommending you do. If you really want to get into the weeds on this, lots of folks will talk to you about it for a long time. But don’t expect it to make much difference in your case. Muni bonds in taxable. Taxable bonds in your 401(k). Taxable bonds (but less of them) in your Roth IRA. It’s all about the same and the things that might not make it the same you either haven’t provided to me, you don’t know, or they’re unknowable.