What to Do When You Win the Game with Bill Bernstein

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 450 – “When You Win The Game, Stop Playing” with Bill Bernstein.

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All right, we've got a great guest today. You might know him. His name's Bill, Bill Bernstein. I think you're really going to enjoy this interview. But before we get into it, there's a few things I want to make sure you know about. You've noticed the new website by now, I hope. Please, if you have not been to the new website, go by the new website. Our entire staff put in like more than a year's work to make this up to date and serve you better. So check it out.

If you're having trouble finding stuff, we actually simplified the menus at the top of the website. It should be even easier to find stuff than it used to be. But if you don't want to go searching for the recommended list there, you can just go to whitecoatinvestor.com/recommended. You will find all kinds of recommended financial service providers from financial advisors to insurance agents to student loan refinancers, mortgage companies, contract reviewers, realtors, anything that you might need from the financial services industry, we have probably got a list up.

Now, occasionally I get asked for something really niche and I don't have it and I have to apologize to them by email. But when I get those requests, we start thinking, “Can we put something like that up there?” And it's helpful to get those recommendations from all of you. You can get to that on the website or you can go to whitecoatinvestor.com/recommended.

QUOTE OF THE DAY

Dr. Jim Dahle:
Our quote of the day today is from Jim Rohn who said, “Time is more valuable than money. You can get more money, but you cannot get more time.”

INTERVIEW WITH BILL BERNSTEIN

Dr. Jim Dahle:
All right, let's get into the interview. It's the moment you've all been waiting for. Let's find out what Bill really means when he says, “Stop playing when you win the game.” A lot of people over the years have asked for specifics on this. I tried to pin him down on what he really means when he says that.

My distinguished guest on the White Coat Investor podcast today is Bill Bernstein, who hopefully needs very little introduction to our audience. I've known about Bill for more than two decades. I've known Bill personally for nearly two decades. I think we met for the first time at a Bogleheads conference in 2007 or 2008. It was a conference where Jack Bogle was actually sick in the hospital. He spoke to us from his hospital bed.

But I didn't mind so much because I was so thrilled to meet Bill. I was a Bernstein head before I was ever a Boglehead. Bill is a renowned author of financial books. It's probably what he's known best for. Books like The Four Pillars of Investing, The Investor's Manifesto, Financial History books. He's got a dozen or more titles, I think. Also has worked as a neurologist and as a financial advisor. But I think probably you're best known for your writing, wouldn't you say, Bill?

Bill Bernstein:
Yeah, I think I probably am. I remember that Bogleheads quite well. Jack was in the ICU with listeria meningitis, and he's the only person I know who's actually survived that.

Dr. Jim Dahle:
Yeah, it was a pretty remarkable conference. The fascinating thing is there were some pictures taken of Katie and I there at the conference with one of our daughters, who was about one at the time, who is now in college. Every time that picture pops up on the snapshot reel at the Bogleheads conferences, I'm always taken right back to that conference.

STOP PLAYING WHEN YOU HAVE ENOUGH

Dr. Jim Dahle:
But at any rate, Bill, I asked you to come on here because we're going to talk about a whole bunch of questions that people have about a phrase you've been saying for a long time, which is “Stop playing when you have enough.” Stop playing the game, essentially. And they want to know what you mean by that phrase. They want me to pin you down to exactly what that really means. So, why don't we start by just throwing that concept out there and discuss it for a while.

Bill Bernstein:
Let's first start with what it doesn't mean, which is that when you've fully funded your retirement, you sell all your stocks. No, you don't do that. The real hard part is how you define won the game. I define winning the game as being able to pay with safe assets, that is treasuries, TIPS, SPIAs, you have it, for your basic living expenses. We're not talking about buying a Beamer or flying first class. We're simply talking about paying your groceries and your housing expenses and for your car and for your medical insurance and some other essential things.

And for most people, that's not a huge amount of money. When you have 25 years of those expenses paid up, you start taking some risk off the table and you start defusing that with safe assets. And my favorite safe assets in order of preferability are a TIPS ladder to cover your basic expenses. That's after you've gotten your social security check and your, maybe if you're lucky, a pension.

Start defusing that with those kinds of safe assets, TIPS, SPIA, and then the rest of it is your risk portfolio. And that goes to your bequests, to your first class travel and whatever other bucket list items you have.

Dr. Jim Dahle:
Yeah. For those for whom we're talking over your head already, TIPS, of course, are a Treasury Inflation Protected Security. It's a type of a treasury bond, a loan to the United States treasury, but it's indexed to inflation, which makes it unique from most treasury bonds.

A SPIA, of course, is a Single Premium Immediate Annuity, essentially a pension you're buying from an insurance company. You give them a lump sum of money and they pay you a certain amount of money every month until you die.

Bill, a few years ago, you could buy an inflation index SPIA. You can't really do that anymore, as far as I know. Does that change how attractive a SPIA is as a safe asset in your mind?

Bill Bernstein:
Yes, it does. And it's interesting to think about why they disappeared. They disappeared near 2019. I think New York Life was the last one who offered it. And they disappeared because no one wanted to buy the things. Why didn't they want to buy them? Well, because you could buy a regular SPIA, a regular annuity, and get a 7% upfront. Let's say you're 65 years old or 70 years old. You could get a 7% upfront payout. Well, an inflation adjusted annuity only pays 4% because it has to adjust for the fact that the payout increases with inflation.

It's a behavioral anomaly. It's a behavioral error. Because yes, you're getting 7% upfront. But if every year inflation is 3%, every year your spending power goes down by 3%. And if we have inflation higher than that, then within 10 or 20 years, you've got funny money, in 10 or 20 years from your regular SPIA. Whereas the inflation adjusted annuity will keep up with that. And that was the preferred product. But no one wanted to buy them because the initial payouts were so low.

Dr. Jim Dahle:
Was that really the reason no one wanted to buy them? I assume the insurance companies didn't want to take on the inflation risk.

Bill Bernstein:
No. If you're an insurance company, it's a very easy thing to protect yourself against. You simply buy a portfolio of TIPS. And then you annuitize that out and you've given mortality credit on top of that. It's riskless for an insurance company if you're defusing it with TIPS.

Dr. Jim Dahle:
Maybe it's not such a bad thing to have a little bit more money, early real money. I'm talking inflation adjusted money early in retirement. Those are your go-go years, right? You've seen the graphs of the retirement smile. People tend to spend more in their 60s than they do in their 70s. Is that such a bad thing that they're now getting less a decade later due to inflation?

Bill Bernstein:
Yeah. When you actually dig into the data on the smile and you're talking about David Blanchett's famous smile paper, what you find is that for people who actually have adequate assets, that smile disappears. So, yes, you maybe spin a narrative about go-go years and slow-go years and no-go years. But it turns out that when people have enough assets, their spending doesn't decrease into their 70s and into their 80s.

Dr. Jim Dahle:
So, they're decreasing because they have to.

Bill Bernstein:
Exactly. Exactly. And that's, to me, one of the untold stories of this myth that you spend less as you get older. No, you don't. If you have the money you're going to spend it.

Dr. Jim Dahle:
Let's get back to enough. Your definition of enough is to have a sum of money that covers all your necessary expenses. And you're saying when you get to that point, you should put that much money into safe assets or how's the transition work? We're saving along here with a 60-40 portfolio or an 80-20 portfolio. And my necessary spending is $100,000 a year and I get to $2.5 million. What do I do then?

Bill Bernstein:
You start to very slowly unload some of your risky assets and you start to replace those with riskless assets. And that primarily being that ladder of inflation-adjusted securities, the treasury securities, and also the SPIA, the immediate annuity. I have nothing against SPIAs as long as you've got some inflation protection on top of them. And so, you start doing it very slowly. You don't do it all at once.

Now, it's important to realize who this does not apply to. If you're a pension aristocrat, if you're someone who's got a nice government pension and social security on top of that, and you can meet all of your basic expenses with the pension payout and with your social security, let's say, just to take a hypothetical example, you're a retired military doctor. This doesn't apply to you at all because your investment assets really don't belong to you. They belong to your heirs and to your charities.

Now, the next person this doesn't really apply to is the person who's got a very low burn rate. And that's the most important question you have to answer is “What is your burn rate going to be?” If your burn rate is less than 2%, if you've got a $5 million portfolio and you need less than $100,000 after your pensions and your social security, then you can make that 2% payout simply from the dividends on stocks.

Theoretically, you don't have to own any bonds or SPIAs or TIPS or anything, maybe just a very small emergency fund for when your car needs repairing or you need a new refrigerator. And so, that doesn't apply to that person as well. It applies to the person who looks like they're going to have a 4% or a 5% or a 6% payout because that person, if they own too much stocks, their first five or 10 years in retirement is subject to something called a sequence of returns risk, which you informed me of several months ago comes with a bunch of hyphens in the middle of it.

That's what you want to avoid. You want to avoid a 5% or 6% burn rate and then seeing your portfolio fall by 5% or 10% per year over the next 10 years, which can happen. And if that happens, you run out of money before the markets recover.

Dr. Jim Dahle:
So, a TIPS ladder. I don't know, two or three years ago, I got all excited about building a TIPS ladder and I had a treasury direct account. And so I started buying TIPS at auction every six months or something. And I think I bought eight or nine lots of TIPS. And then I told Katie about what I'd done. I said, well, this is what we have. If something happened to me, like I fell off a mountain and smashed up my head, is this the sort of thing you'd want to be dealing with or not? And she was very clearly not. She didn't want to deal with that sort of a thing. Do you think it's worth the complexity for most people to build a TIPS ladder or should they call it good enough if they just put it into a TIPS fund?

Bill Bernstein:
That's a very good choice. Setting up the TIPS ladder is complex. If you're interested in doing it, there are websites that will help you do it, tipsladder.com will show you exactly what to buy.

Now I don't think there's any complexity when it comes at the back end. Once you've set it up, it's fire and forget. I have, for example, shown my adult children what my TIPS ladder looks like. And I have told them, you've got these TIPS maturing every year. And this is how you're going to pay for my nursing home expenses. And they are financially competent enough to understand what that looks like.

Now, the key question is, are your kids familiar with dealing with financial services, corporate companies? And if you've done things right, they have their own accounts and they know how to deal with them and they know how to deal with the brokerage account and they know what happens when a treasury matures. That's the key thing. If you're not familiar with that, no, you probably shouldn't have a TIPS ladder.

Dr. Jim Dahle:
And what do you think? Do you think it's worth building it on Treasury Direct and buying them at auction? Or do you think you should just do it in your Fidelity or Schwab or your Vanguard brokerage account?

Bill Bernstein:
Yeah. Treasury Direct makes my heart freeze every time I log onto it. I closed my account the second or third time it locked me out. Because the last thing, it's hard enough for you to deal with it. You were right to deal with it when we have all of our marbles. If we lose our marbles, you're not going to be able to deal with it. And more importantly, your kids may find it almost impossible to deal with your Treasury Direct account.

I don't use Treasury Direct for that reason. I only buy TIPS in a brokerage account and I only do it with my tax deferred money. I don't put them in a taxable account. That's where stocks belong.

Dr. Jim Dahle:
Yeah. If you had an account that was 80% taxable, you'd leave them out of the portfolio just to avoid the phantom income, phantom tax issue, or what would you do if you were taxable Ted from the four pillars of investing book?

Bill Bernstein:
I probably wouldn't own TIPS. I would just keep it in short duration treasuries. If only 20% of your assets are sheltered then that's where the TIPS go. And maybe you fill that up entirely with TIPS and have a more conventional portfolio on the taxable side. Now I think I'm talking to an audience, mainly of physicians. And so, physicians tend to have a fairly decent sized sheltered account. Most of the physicians I've talked to, most of their assets, in fact, are sheltered.

TIPS are ideal for that population. If you're the kind of person who had $10 million dropped on you with the sale of a corporation and that's all taxable money you probably should not be putting most of your assets into TIPS, certainly not on the taxable side.

Dr. Jim Dahle:
Now a common term used out there, and I think you've used this a lot, is a liability matching portfolio, an LMP. Can you explain what that means and how somebody might go about constructing one of those?

Bill Bernstein:
Well, let's say for the sake of argument that you're a retired physician and that your living expenses are, let's say to be conservative, $100,000 a year. And let's say you're getting $40,000 of that from your social security and whatever pension you have, which is going to be about right. Someone who's high income, you're going to be really lucky to have a replacement rate of 40% from social security because of the way the bend points are structured.

Now you need $60,000 a year. Well, if you're 65 years old, I like to have 25 years in my liability matching portfolio. Let's further assume that only half of that $60,000 is necessary to pay for your basic living expenses. The $100,000 you're visiting the grandkids, you're flying first class every now and then, maybe you have a nice car, but $30,000 to get to $70,000, including your social security and pension is all you need to keep yourself in groceries and from being under a bridge.

That $30,000 times 25 years is $750,000. The fact is that is your liability matching portfolio. That's the money that you need to pay your basic living expenses. That's a TIP ladder of $750,000 or a SPIA can be part of that as well.

WHAT LEVEL OF WEALTH ARE WE TALKING ABOUT WHEN WE SAY “STOP PLAYING THE GAME”

Dr. Jim Dahle:
Okay. Let me give you some questions I collected off the White Coat Investor forum people wanted me to ask you, and I think we've covered a significant number of them already. And let's just clarify this one because I think I know your answer and I think you alluded to it earlier, but the question is when we're talking about stopping playing the game, what level of wealth is that advice targeted to? $20 million versus $4 million? Or if it's relative? At what withdrawal rate does the advice become relevant? 1, 2, 3%?

I think your answer was that it's really not about how much wealth you have. It's about the ratios and that it becomes relevant as you get closer to a 4% plus withdrawal rate. Correct?

Bill Bernstein:
Yeah. It all has to do with burn rate. If your burn rate is 5%, it doesn't matter whether you're spending $5,000 of a $100,000 nest egg, or if you're spending $500,000 of a $10 million nest egg. 5% is 5%.

Dr. Jim Dahle:
Yeah, absolutely. Okay. A lot of people, their big concern about putting that much money in safe assets is that probably they're leaving money on the table. Because stocks will probably do better than all those safe assets over the remaining period of their life. What do you respond to that criticism of this advice?

Bill Bernstein:
They're absolutely right. Five out of six times, you will do better with stocks than with a liability matching portfolio of safe assets. But we're talking about apples and oranges. One is safe assets. The other is risky assets. And I would point out to them five out of six times when you play Russian roulette, you win.

Dr. Jim Dahle:
Yeah, fair point.

Bill Bernstein:
You don't want to play Russian roulette with your retirement because the consequences are asymmetric.

ASSET ALLOCATION AND SAFE WITHDRAWAL RATE

Dr. Jim Dahle:
Yeah. Another question, it sounds like it's probably more personal than hypothetical, which is how it's phrased, but they ask “What asset allocation do you recommend for an investor who retires at 55 with $5 million in assets? And what would you consider to be the safe withdrawal rate for this investor?”

Bill Bernstein:
Well, the very best way to look at it is to look at your joint life expectancy, you and your spouse. That's the way the IRS does it when they calculate RMDs, which of course those don't start until you're 72.

But what's your joint life expectancy of a couple who's 55 years old? Good grief. It's about 40 years. So one over 40 is 2.5%. And even then, if you take 2.5% of your portfolio out every year, there's going to be some variability in that, which is not good.

So what I would do is I want to take some of that variability out. I would start with a 2% withdrawal rate and then raise that with inflation. The answer is if you're trying to retire at age 55 you better be able to make do with 2.5% or better yet a 2% withdrawal rate.

Dr. Jim Dahle:
Well, that's an incredibly conservative recommendation based on past performance of markets. If you look at data such as that published in the Trinity study, on average, if people withdraw 4% index to inflation every year, 30 years later, they've got 2.7 times what they retired with. If they're only taking out 2%, they have very lucky heirs, the likelihood is their heirs are going to have a massive inheritance and that they will dramatically underspend what they could spend.

Bill Bernstein:
Yeah. When I hear that sort of reasoning, it makes me want to reach for my revolver because the returns that we're talking about here were returns that were obtained by basically tripling the valuation metrics of stocks.

When the Trinity study starts in 1926 with data starting in 1926, well, good grief, stocks were yielding 5% then. Well, we've now gone from stocks going from a yield of 5% to a yield of 1.3%. That's a factor of four. In order to maintain those returns, that means that valuations would have to rise by another factor of four over the next several decades.

What you count on when you count on maintaining those returns, what you're basically predicting is that 40 or 50 years from now, stocks are only going to be yielding 0.3%. I don't think so. I don't want to bet on that.

Dr. Jim Dahle:
How much of that has been changed by the fact that stock buybacks seem to be a lot more popular in recent years than paying out dividends? Isn't the effect really the same and maybe even better after taxes for the company to be buying back its stock rather than paying dividends to the investors?

Bill Bernstein:
Yeah, that violates the Mickley-Anne Miller rule, which is that if they're buying back their shares with 1% or 2% of their earnings, then that is money they can't invest in their business. That's going to slow down their earnings growth. There are no free lunches here. It's not like the stock market buys back 2% of its value every year, and that's free money for you. No, that's money that's not available for investment. It's going to hit earnings growth.

And by the way, there are buybacks, but counterbalancing that is stock issuance. So there's roughly 2% net stock issuance every year. There's 2% buybacks, so that nets out to zero.

Dr. Jim Dahle:
Not really a good explanation for expecting higher stock returns.

Bill Bernstein:
Yeah, that's another fairy tale.

ARE WE IN AN AI STOCK BUBBLE?

Dr. Jim Dahle:
Okay, speaking of stock returns, we're recording this in November of 2025. The U.S. stock market, and particularly international markets this year, have had another banner year after a 25% return in 2024 and a 25% return in 2023. This is all led by the MAG-7 stocks, the stocks benefiting from AI. What do you think? Are we in an AI stock bubble? And if so, should we do anything about it?

Bill Bernstein:
I think it's more likely than not. And the easiest way to think about it is that, for example, Sam Altman talks about, if you want to talk about optimists, Sam Altman talks about the need to spend $5 trillion on infrastructure. Okay, well, the problem with the infrastructure for AI is that it's computer chips that depreciate in value faster than ice cream on a hot summer afternoon. These chips are going to be obsolete in 24 to 36 months.

So if you calculate the return you need, given the depreciation of that CapEx, that $5 trillion of investment is going to mean that you're going to have to generate $1 trillion of cash flow or of earnings every year. And you translate that into how much people have to pay for AI services, you're talking about several hundred, $1,000 worth of at least of AI expense every year. How many people who are listening to this podcast would be willing to spend $1,000 a year on AI? Not very many of them.

It's possible we're going to hit a singularity and earnings growth will explode. I think it's more likely we are looking at the sort of bubble and bust that we saw back in the late 90s, but I could be wrong. You don't know. There's a lot of uncertainty here, but I sure wouldn't want to bet my retirement on AI panning out.

Now, there's something else which is going on here. We might as well get out into the open, which is not just a couple of years of great stock returns. 2025 marks the half century mark for the beginning of the greatest bull market in world financial history.

US stocks have returned since 1975, about 8.4% real after inflation. That is simply unheard of. And the zeitgeist that is out there is people saying, “I'm investing only in stocks for the long run. I'm not investing in bonds. They're for idiots because their returns are so low. I'm 100% in stocks.”

Everybody I talk to brags about being 100% in stocks. Well, I'm old enough to remember what things looked like, not just in 2009, but I'm old enough to remember what things looked like in 1974, or in 1982, or 1979 when Businessweek wrote about the death of equities. There weren't a lot of people back then in 2009 or 1979 bragging about being 100% in stocks.

Dr. Jim Dahle:
Yeah, for sure. If this is the closest comparison we can make is to the late 90s dot-com kind of era, are we in 1996 or are we in 1999?

Bill Bernstein:
Beats the heck out of me. It could be either one. The trouble with bubbles is they can run for a very long period of time. I think the phrase that covers this best is “I can tell you what will happen. I just can't tell you when.” And even when it does happen, over the long run, stocks will still probably return more than bonds. I'm not selling all my stocks because I want to get better returns than bond returns. But my TIPS ladder now yields about 1.7%, 1.8% real. And I can easily see 10 or 20 years of returns being lower than that.

ESTIMATING FUTURE STOCK RETURNS

Dr. Jim Dahle:
Now, you've used a method in the past for estimating future stock returns. Remind me, it's basically dividend yield plus earnings growth. Is there anything else in it other than the speculative factor that can go back and forth?

Bill Bernstein:
Yeah, it's a simple addition. You're adding two numbers. Earnings growth, optimistically, is going to be about 2%. Or dividend growth is going to be optimistically about 2% real because that's what it's been for the past 20 or 30 years. And there's now a 1.2% dividend. So you add those two together and you get an expected stock return of 2.3%.

Now, the trouble is that's a forecast, not a prediction. And forecasts have very large error bands. And if you just simply do apply simple statistical model, what that means is the returns over the next 30 years can be anywhere between minus 2% or 3% on up to 7% or 8%. You just don't know.

Dr. Jim Dahle:
Now, if we went back 10 or 15 years, and you use that method to forecast returns, over the next 10 or 15 years, our returns, particularly in the US market, particularly in these large growth stocks, are dramatically higher than that. What should an investor take from that occurrence? What should they be saying? Should they be saying, “Oh, I got to get out of these stocks now?” Are they saying, “Oh, Bill's just a perma-bear, I'm going to quit listening to him?” What should they take away from the fact that returns were so much better than that forecast would have led them to believe 10 or 15 years ago?

Bill Bernstein:
Well, that's because what you take away from that is that 10 years is a very short period of time, just applying a statistical model to it. If the standard deviation of stocks is 16%, then the standard deviation at 10 years is going to be a bit more than 5%. Plus or two minus standard deviations gets you error bars that are 20% wide, 10% here on the upside, 10% on the downside.

10-year returns don't mean anything. Now, if you want to talk about 10-year returns, let's go back to the year 2008. When you take the stock returns from the beginning of 1999 to the end of 2008, that's 10 years. The real return of stocks for that 10-year period was something like minus 3% per year. That can happen. If you want to cherry pick your data, you can cherry pick it both directions.

Dr. Jim Dahle:
Yeah, for sure. There are a lot people out there that advocate for having not 25 years of assets and safe investments, but more like three to five years or three to six years, almost a bucket-like approach to dealing with sequence of returns risk. I think the idea is if terrible stock market things happen for the next three to six years, you're going to just spend the money from the safe assets. What's your response to that crowd when they say, “I don't need 25 years of safe assets, I only need three to five years in safe assets?”

Bill Bernstein:
Yeah, stress-test that portfolio. When you're talking about three to five years of safe assets, you're talking about basically an 80% or 90% stock portfolio. Stress-test that, let's say 85% stock portfolio, beginning in the year 1966. What you find is that with a burn rate that's anything much in excess of 4%, you run out of money. That's the risk is that you run into that sequence of returns risk where you get the bad returns first. Nine out of 10 times that doesn't happen, but I'm personally not willing to take a 10% chance of that happening.

Dr. Jim Dahle:
Yeah. The other thing that has not been cool for the last 15 years is small value tilting. For at least 15 years, might be up to 20 now, that has underperformed a total market approach to investing. What are your thoughts on small value tilting at the end of 2025?

Bill Bernstein:
You need a very long time horizon. The easiest way to analyze that, and you can make an even bigger objection to it, it's what I call Rekenthaler’s rule after John Rekenthaler of Morningstar, which is “If the bozos know about it, it doesn't work anymore.”

Fama and French published their study, which showed the high returns of small value stocks in 1992. In 1993, they set up a small value fund at Dimensional Fund Advisors. You can look at the live returns of that fund. This isn't some theoretical index. This is a real mutual fund based on their strategy. Since 1993 or 1994, it has handily beaten the S&P 500.

How did it do that? Well, it did that with awful returns for the first 15 years and poor returns for the last 15 years. Again, if you let me cherry pick the data, I can show you that any given return is either a runaway winner or an awful loser.

Dr. Jim Dahle:
Somebody designing their portfolio today, maybe after an era of large growth outperformance, do you think they'd be wise to add a small value tilt to the portfolio or would you be better off sticking with that total market approach?

Bill Bernstein:
I would put it in terms of odds or statistics. I think that a small value tilt to your portfolio is maybe a 55-45 bet. You can do it and there's a 45% chance you'll come out behind. The question is, are you willing to make that bet? I am, but I'm prepared for it not to pay off.

Dr. Jim Dahle:
I like the way you phrase that, being prepared for it not to pay off.

Bill Bernstein:
Now, there's one other thing I want to talk about small value though, which is that it's actually worked very well abroad, even over the past 10 or 15 years. Why has it worked better abroad than in the US? Well, the US is only one market and in one market, there's a lot of noise. But if you own an international or emerging markets, small value portfolio, you've got many different countries, many different markets, and that noise averages out over shorter periods of time. Over a five or 10-year period, an international small value tilt is much more likely to be a winner than just a US-only one.

LIFE AFTER “ENOUGH”

Dr. Jim Dahle:
Good advice. Make sure you're doing it on both sides of the border. Let's talk just for a minute, maybe a little bit more philosophically. We've talked a lot about nuts and bolts and portfolio construction and so on and so forth. But let's talk a little bit about life after enough. Hopefully, most people who listen to this podcast for a long time, who've been White Coat Investors, who have a career of any significant length in medicine and saved and invested wisely during that career, will have more than enough. What advice do you have for them, both how to invest as well as how to live after they hit enough?

Bill Bernstein:
Well, you just said the three magic words, which is “more than enough”, which is the title of a marvelous little booklet, which I think you can get for three or four dollars from Mike Piper, who we both know quite well and admire.

He talks not only about values and what your values should be looking like when you have more than enough, and it's also probably the best single estate planning guide that I've ever seen. It's very easy to understand. He gives you priorities as to how to give away your money and how to allocate your assets among your different pools, among your requests and among the money you're going to spend on your own.

It's all about your values. If you think that money is to buy stuff, then you're going to have a miserable retirement. The money is there because it buys you time on autonomy to do the things you want to really do. Money is not there to buy you the Beamer or the McMansion. It's to buy you time with your grandkids, it's to give to your charities, and it's to do the things that you really want to do with your life that you may not have done during your working career because you had to earn the money and you may not have liked what you had to do. That's what it's all about.

Dr. Jim Dahle:
Have you read the book by Bill Perkins, “Die With Zero?”

Bill Bernstein:
No, I have not. I react viscerally to the title, but maybe you can convince me otherwise.

Dr. Jim Dahle:
That was my first reaction as well because I thought, “Oh, this is about spending it all before you go.” Well, that's discussed a little bit. He actually talks about why it can be a little bit difficult to do that. Mostly, the focus in the book is recognizing that it's a whole lot easier to turn money into fun at 35 than it is at 85.

He points out that there are chapters of your life that you can read a book to your kid when she goes to bed when she's six years old, but when she's 16, she does not want you to do it. If you didn't do it when she was six, you have missed that chapter. You've missed that experience, that opportunity. Make sure you're taking advantage of those as you go through life and recognize that there are some times in life to spend besides just retirement, and you've got to balance the needs of current you with future you later.

There's some other criticisms that can be made of the book, but that's the basic ideas behind it. How would you recommend people figure out that balance?

Bill Bernstein:
Yeah. Well, obviously, you don't want on your tombstone that he spent 40 hours a week in the OR. You don't want that on your tombstone. You have to ask yourself, what are my kids going to say about me at my eulogy, or are they even going to want to speak at my eulogy? That's the single most important thing in your life, is your kids. If you're religious, your religious affiliation, those are all very important things. Those are much more important things than the money in your life or the gadgets that you own. If you can use your money to purchase those things, then I'm all for it. Gosh, I'm going to go out and buy the book now, or at least because I'm a Boglehead, I'll just try to reserve it at the library.

Dr. Jim Dahle:
Yeah, I think you'll enjoy it more than you thought when you saw the title, because I had the same reaction to the title that you did, and I think you'll appreciate the book. You'll find a few things to criticize in it, for sure, but you will enjoy it and find it worth reading.

Bill Bernstein:
By the way, just one thing, if I can continue my anti-materialist rant, there is a theory out there called consumption smoothing, that you should be having a level of consumption over your entire life. That is neuropsychologically illiterate, because there's something called the hedonic treadmill. If you get used to flying first class when you're 35, by the time you're 50, you're going to want to fly private, and that is the road to bankruptcy.

Dr. Jim Dahle:
Amen to that, especially because it involves all kinds of leverage risk as well, usually. It means borrowing a whole bunch of money early in life, and sometimes that blows up on you. It's interesting when you hear about people losing large amounts of money, borrowing fraud, it's usually as a result of just taking on too much leverage risk, and that's basically advocating doing that for your entire life. Not a big fan of consumption smoothing either.

100% EQUITY PORTFOLIO

Dr. Jim Dahle:
Okay, we talked a little bit about this, but I think people would like to hear a little bit more about your response to the 100% equity crowd. You mentioned that we're hearing it more than ever. The last time I heard it, as much as it's going on now, might have been the 1990s. People are saying 100% stock, you're taking on too much longevity risk, having money in bonds. What would you say to someone that's coming to you, maybe they've got half a million dollars invested, they're 35 years old, and they're saying, I think I ought to be in 100% equities, not only now, but probably later too. What discussion would you have with a young doctor making that case to you in the doctor's lounge?

Bill Bernstein:
I would say that theoretically, that he or she is 100% correct. If you are a 35-year-old doctor, you probably have $10 million of human capital ahead of you, which medicine is a fairly safe profession, and you're a bond. You've got $10 million worth of bonds. If you've got a half million dollar investment portfolio, theoretically, that should be 100% in stocks.

On the other hand, when you're 65 years old, and good Lord willing, and the creek don't rise, you're retired, then you don't have any human capital left. You want to be a little more careful with your allocation.

The question I would ask of that 35-year-old doctor is, have you ever invested through a real bear market? The answer is always going to be no, unless they were investing from the time they were 20 and they were heirs, and they inherited a lot of money when they were 15.

I would say to them, “Well, okay, you can invest 100% in stocks, just see what happens with the next bear market, see how you really, really feel.” There's a wonderful quote, which you've heard me say many times, Jim, which comes from Fred Schwed's marvelous book, Where Are the Customer's Yachts, which is there are some things that cannot be explained to a virgin, either by words or with pictures. More than any words that I can describe to you here, describe what it feels like to lose a real chunk of money that you used to own. So, it's one thing vaporizing 50% of your net worth in a spreadsheet. It's another thing watching it happen to you in real time with real money.

Dr. Jim Dahle:
Yeah, it's not a logical experience when you lose that money that you invested instead of using to upgrade the kitchen.

Bill Bernstein:
Yeah, there are a lot of really good investment analogies that have to do with aviation. But the analogy I use is I can go into an aircraft flight simulator and dial in an aircraft fire, and I can see how I'll respond as a pilot. I can guarantee you, I'm not going to respond as well when I see flames licking the cockpit.

LIABILITY MATCHING VS. STOP PLAYING THE GAME

Dr. Jim Dahle:
Yeah, for sure. Okay, another question from the crowd, and we talked a little bit about this, but the question is, “I, for one, would be very interested in hearing how Bill thinks liability matching stacks up to his famous advice to stop playing the game.” My impression is those are kind of the same thing. But how would you respond to that question?

Bill Bernstein:
Well, except for the exceptions that I talked about, the person with no burn rate or a very small burn rate, you want to liability match your basic living expenses. You want to avoid running out of money because your portfolio was too heavily invested in stocks, and you ran into a bad sequence. They are the same thing. That's what liability matching is all about.

Dr. Jim Dahle:
Okay, I've got an article up here that just came out this month, I believe. It's got your name on it and Ed McQuarrie's name on it. The title is The Peter Bernstein Rule, Beware Empty Memory Banks. What message were you trying to get across to people when you tell them, beware of empty memory banks?

Bill Bernstein:
Well, the thing that triggered the article was another article that I had read in The Economist about a strategy that was popularized by Barry Nalebuff and Ayers, I forget his first name, Vic Ayers, I think. The strategy feeds off the example I gave much earlier, which is the person who's got a huge amount of human capital and a very small investment capital. What they recommend that person do is not just invest 100% in stocks, but invest 200% in stocks.

The Economist article was written because that strategy has gotten a whole lot easier than when Nalebuff and Ayers first wrote their book on it 15 years ago. They described a 35-year-old who was executing the strategy. When Ed and I saw that article, we had to stifle a laugh because someone who's 35 years old, by definition, has never lived through a real bear market and has been completely margined out by a 50% loss in stocks if they're 100% margined.

That 35-year-old investor, if the market falls by 50%, as it did, almost did from 1973 to 1975, or by more than 50% between 2007 and 2009, that investor got completely wiped out. Almost certainly, that guy, it is a guy because they identified it as male in the article. Only men are stupid enough to do something like that.

Dr. Jim Dahle:
The data is very clear that women are better investors than men. Every time we study it, it looks that way.

Bill Bernstein:
One of my female colleagues, neurology colleagues, like to say that testosterone does wonderful things for muscle mass and reflex time, but not so much for judgment. That's what we were writing about, is that investor has never lived through a bear market. They've never had the experience of losing a real chunk of money that they used to own.

Only someone who has never had that experience would ever think that it's a good idea to be 200% in stocks. In other words, the bottom line is his memory banks were totally devoid of bear market, real bear market experience. The memory bank was something that was popularized by a guy named Peter Bernstein, who unfortunately has no relation to me.

Dr. Jim Dahle:
Now, you're glossing over a few events in the last 15 years. There was about a 20% drop in stocks in 2011. Again, I think in December 2018. Of course, March 2020 had some rather interesting events. When interest rates went up 4% in 2022, stocks dropped relatively precipitously as well. How come you don't think those qualify as real bear markets?

Bill Bernstein:
Because they recovered so quickly. What happened in March of 2020, I think that entire sequence lasted for less than two or three weeks. 2022, that's still a walk in the park compared to the other bear markets that I was talking about. I'm talking about bear markets that saw long lasting returns from a loss of half a value over 18 months or 24 months. That's a completely different experience.

Dr. Jim Dahle:
Even 2008, 2009, it was really going on what? August to March was really the dropping, recovered right at the end of the year and then dropped again through March. That was a relatively short time period compared to the grinding 2000 to 2002 bear market.

Bill Bernstein:
Although it still took you about six or seven years to get back to par. That was still a fairly grinding experience. 1929 to 1953, that was 17 years to get back to par. To get back to par after 82, that took another seven or eight years, I think. The experiences that you're talking about were picnics compared to what the markets can really dish out over the long term.

Dr. Jim Dahle:
Yeah. This doesn't even look at international markets, which historically have far more interesting events than US markets have had, of course.

Bill Bernstein:
Yeah, like Japan. I think we're just back to par in Japan from what happened in 1990, started in 1990. We're talking about 35 years to get back to par.

STUDY FINANCIAL HISTORY

Dr. Jim Dahle:
Yeah. Now, you made a case for that every investor really ought to study financial history. This was a major pillar in the Four Pillars of Investing book that you wrote two plus decades ago. Do you feel any differently about the importance of knowing financial history today? Is it even more important than it used to be, do you think, now that we've got another 20 years of history?

Bill Bernstein:
Yeah. You've stolen my punchline, which is I've changed my opinion dramatically, which is it matters even more. It matters both on the upside and the downside. The most important key thing you take away from financial history is that the most dangerous times, the times when your long term risk, the deep risk is the highest is when there's plenty of blue sky out there. Conversely, the best fishing is done in the most troubled waters. The most profitable purchases that I've made, I made at a time when I felt like throwing up.

Dr. Jim Dahle:
Now, I'll bet that of all the books you've written, the one that has been read the most times is If You Can, which is a 16 or 17 page pamphlet, PDF mostly, that you gave away for free. Tell us about the origins of that book, why you decided to write it, and if you have any idea how many times it's been downloaded or read, et cetera.

Bill Bernstein:
Well, the last question, I have no idea how many times it's been downloaded, but I'm reasonably sure it's between 200,000 and a half million, and I wouldn't be surprised if it was downloaded a million times. It's done very well because it's free. I gave it away for free out of guilt for being a financial professional and earning and having such a good living for it. I wanted to embark upon an Eleemosynary project.

I still get one or two emails every month for people thanking me for saving their financial life with that little booklet. It's been a very gratifying experience.

Dr. Jim Dahle:
Of all your books, which one was your favorite one to write?

Bill Bernstein:
Oh, Splendid Exchange, which wasn't a book that had anything to do with, or very little to do with finance. It was the history of world trade. It was an enormous amount of fun to write. It's also gotten me invited to some very interesting conferences, one on marine archaeology, another I got invited to one on fashion, although it had to be canceled because of the financial crisis. I even got invited to one in Washington, DC that I could tell you about, but then I'd have to shoot you.

Dr. Jim Dahle:
Well, very interesting. Bill, this is probably going to be listened to by 30,000 or 40,000 people, mostly high income folks, most of them in their 30s, 40s, 50s. Is there anything we haven't talked about today that you feel like ought to be emphasized in their lives?

Bill Bernstein:
It's something that can't be said often enough, which was said by a very wise guy, which is when you're fresh out of training, live like a resident.

Dr. Jim Dahle:
Thank you. I appreciate that. All right. This has been an interview with Bill Bernstein. If you've never read his books, you should go read them all. They're fascinating and very helpful in assisting you in building wealth and reaching your financial goals, so you can concentrate more on the things that matter most to you in life. Thank you, Bill, for your time on the podcast today.

Bill Bernstein:
It's my pleasure. This was great fun. Let's do it again.

Dr. Jim Dahle:
All right. I hope you enjoyed that interview as much as I do. I always love talking to Bill. It never makes me feel like I'm the smartest person in the room, for sure, but I always learn something and gain some new perspective. People have called Bill a perma-bear over the years, and not quite so much as other people, but he's certainly a realist, and he's certainly a financial historian.

He knows his history. He's seen what has happened in the past, and he understands that it can happen again, because it typically does. History doesn't always repeat, but it often rhymes. There is certainly not even a guarantee, but not even a likelihood that the returns we've seen in 2023 and 2024 and 2025 are going to continue for one, two, three, five more years. It's just very unlikely that it's going to happen.

If your expectation of your investment returns is anchored in the last few years, I would caution you to recognize that that's not normal. It's far more normal to have a real, after inflation return from stocks, more on the order of 4 or 5, maybe 6%, than 8, 9, or 12%, like you might have seen in the last few years.

When you recognize that, bond returns don't look so much dramatically lower than what you're getting out of the stocks, and once you adjust them for risk, maybe you're not as unattractive as you might think. Cautiously build your investment portfolio, your asset allocation.

Recognize that it needs to be able to reach your financial goals, despite passing through a significant number of potential future economic outcomes. Fund it adequately, stick with it for the long term, and you'll be surprised how well it does over the course of your earning and investing career.

SPONSOR

Dr. Jim Dahle:
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Don't forget about that recommended list I mentioned, whitecoatinvestor.com/recommended, whatever you're looking for. We've got it there. Whether it's books, whether it's financial advisors, whether it's real estate investing companies, we've got some firms there you can check out.

Thanks for leaving five-star reviews, not just because we like to hear how awesome we are, although that's kind of fun too. Mostly because we know they spread the word about the important information we're talking about on this podcast. A recent one came in and said, “Real deal, this guy knows what he's talking about, no hyperbole, no scams, just a common sense, evidence-based and rational guide to personal finance and investing. I've been listening for two years, it would have saved me literally six figures had I discovered him earlier. Oh well, better late than never, definitely geared toward high-income earners, but anyone will be wiser and smarter with their money by listening to this one.” Five stars. Very kind review, thank you for leaving that.

Keep your head up, shoulders back. You've got this. The whole White Coat Investor community is standing by to help you be successful in your life, in your career, and with your finances. 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.

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 253 – A dentist acquires enough to run for mayor.

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All right, don't forget about our champions program. This is for the medical and dental first-year students out there. Other professions also welcome. We're trying to give away copies of the White Coat Investor's Guide for Students. It's really important to us to get this into the hands of people at the beginning of their career, and this is the best way we've been able to think of to do it.

All you got to do to be a champion is go to whitecoatinvestor.com/champion, put in some information, which is like your mailing address, so we can send you a box or two of books, one for everybody in your class, and you just got to pass it out. That's it. That's the whole program.

If you'll do that, we'll give you some swag, and more importantly, you're going to contribute to your classmates becoming financially literate. That's probably worth a couple million dollars a piece. So if you got 100 people in your class, we're talking about providing a $200 million value to your classmates. That's pretty awesome. Pretty awesome. You can do that just by signing up at whitecoatinvestor.com/champion.

You get one for yourself too. So it's a free book, free book. All you got to do is pass out some books. I should promise a free lunch. Medical students and dental students will do anything for a free lunch, but it's basically the equivalent. It doesn't take much, makes a big difference. Thank you for being willing to do it. Our deadline this year is February 15th. We just need time to be able to get these books out.

Okay, we got a great interview today. It's a little bit unusual. We got somebody who's actually running for mayor right now. Well, running for mayor, well, when we record this, the election's over by the time you hear this podcast. I don't know if our guest won the election or not as I record this, but it's pretty exciting stuff to be running for office.

All right, let's get them on. Stick around afterward. We're going to talk a little bit about giving, charitable giving, some of the changes in charitable giving, things you ought to know about charitable giving. It's the end of the year. That tends to be when most charitable giving is done. So let's talk about it.

INTERVIEW

Dr. Jim Dahle:
Our guest today on the Milestones Millionaire podcast is John. John, welcome to the podcast.

John:
Thanks, thanks for having me.

Dr. Jim Dahle:
Okay, tell us a little bit about yourself, how far you are out of school, what you do for a living, what part of the country you're in.

John:
All right, I'm going to make this a little bit fun. I'm 17 years out of training, but my profession, I'm going to give you some clues first. Then it's a little bit biased, but it's the most difficult profession. We do microsurgical procedures dealing with fractions of millimeters and hundreds of, or maybe thousands of nerve endings.

The procedures almost always are done while patients are completely awake, even though we discovered and introduced anesthesia. We have no physical or mental therapists that we routinely refer to for post-treatment therapy or counseling, and our surgeries are best done in a dry environment, but it's almost always wet.

I kind of like to use the analogy of, we're like fixing a windshield, a little chip in the windshield while driving through the carwash. And this one may give it away, may resonate with some of the listeners, hopefully not, but often we hear the phrase from patients, “No offense, but I hate you. I mean, not you, but what you do.” So I'm a general dentist.

Dr. Jim Dahle:
Yeah, yeah. Very, very well described as well. Okay, tell us a little bit, this is a unique milestone in some ways. Tell us what we're celebrating today.

John:
I am celebrating a milestone. Well, okay, in full disclosure, I applied about one or two years ago, I applied to come on the podcast with the milestone of paying off my student loans, but you guys never called me, so I still haven't done it yet.

But anyway, the milestone today that I'm celebrating is, I have enough to run for mayor in my city. And that's kind of a weird, vague milestone, and we can talk about some other things, but man, it's crazy. Once you put yourself out there in the community and you're no longer the respected dentist, you're somebody who wants to move people's cheese, and that definitely took some thought, it took some prayer, and it takes some fortitude.

Dr. Jim Dahle:
Very cool. It's a financial podcast, so we got to talk about the finances behind it. What does enough to run for mayor look like? Are we talking about funding your campaign? Are we talking about enough that you can cut back to part-time and work as mayor as well, that you have time to campaign? What do you mean by you have enough to run for mayor?

John:
Enough to run, I guess part of it is, as I've listened to your podcast over the years and read some of the books you've talked about, like Die With Zero, and even I've met with some financial advisors, which we could talk about later too, but basically I crunched some numbers and said, look, if I don't contribute any more to my retirement account, if we were to sell everything, liquidate today, we could live off of our assets for the rest of our life and still probably be in a situation where we're giving things to our kids or charity. One question you didn't ask, which you usually do, is what part of the country do I live in? And I'm totally happy to share that.

Dr. Jim Dahle:
Sure, tell us about it.

John:
Okay, also another fun thing. It's a part of the country with four seasons. We have five skiing areas within an hour's drive. We have several lakes for water sports, mountains. Hiking, biking trails. We even have a theme park, maybe not as good as Disneyland, but it's pretty impressive. It draws people from several hours away. We have very few bugs in the summer and we have a golf course with a famous floating green, meaning the green moves around. Okay, this may give it away and if it hasn't given away yet, the city is Coeur d'Alene, Idaho.

And the reason I say that is because, for one, the largest employer in our city is the hospital and the hospital is hiring. Some of your listeners may be looking to move. They may want to come here, but we do have a lot of good physicians and there's room for more. And also a little bit selfish, but I'm also recruiting for my dental practice.

Dr. Jim Dahle:
Yeah, yeah, no surprise. Very cool. Well, you're going to be a good advocate for your town if you get elected as mayor, I can tell already. All right, let's talk a little bit about your financial life up to this point. You mentioned that you paid off student loans not too long ago.

John:
No, I didn't pay them off.

Dr. Jim Dahle:
Oh, you didn't pay them off?

John:
No, I didn't, because you didn't invite me on for that. I was waiting for you.

Dr. Jim Dahle:
You got to be kidding me. So you still have student loans because you didn't get invited on the podcast?

John:
Yeah. Dave Ramsey, he makes fun of people like me. They say, you keep it around like it's your pet. And my wife is really annoyed too. It's like $6,000 left, payments $300 a month. It's 1.87% interest. I've never missed a payment. I paid off all the high interest ones years ago like you would probably encourage when we were living like residents. I got rid of the high interest rate loans and we got it done. So, still a little bit left.

Dr. Jim Dahle:
So if I allow you to celebrate this milestone as well, will you write him a $6,000 check and be done with it?

John:
Oh, man, maybe.

Dr. Jim Dahle:
It really is a pet student loan. I think you like having it.

John:
Yeah.

Dr. Jim Dahle:
Okay. Well, tell us about the rest of your financial.

John:
Graduating dental school, I came out with $300,000 in student loans. We whittled away at those. I started out making like $100,000, I think in the first year. I started practice with my dad and he told me in dental school, “Hey, when you get done, you're going to make like $120,000 a year in your first year. Pretty much, I can promise you.” And I thought, “Wow, that's amazing. That's a lot of money.”

And it's gone up from there. It's probably gone into like the mid six figures over the years. But I've also been investing in real estate. We've kept our previous home. We try to own the real estate that our practices are in. We've definitely been very blessed and grateful to be able to be in a position where I feel like, okay.

It's interesting. You've probably felt this and some of your listeners have too. But you set these goals like, “Hey, we want to get our business to do $1 million a year or $2 million a year.” And then when you get to $3 million, you want to get to $5 million. And every time we've hit some major goal, the satisfaction is just so temporary. I think people call it the hedonic treadmill.

And so, reaching this point where it's like, “Well, if that's never the answer, what is? How else can I give back? How else can I serve?” I've looked at many different things over the years and this is the latest one that I've been engaged in city issues for 10 years. And we thought, hey, let's see if we can make the city better by engaging that way.

I see patients two days a week right now. And I have been for the last several years. And so, I have time and I have enough money. I'm not taking donation. I didn't want to go around to my neighbors and say, “Hey, will you donate to my campaign?”

One thing my dad taught me early on is no matter how much money you make, even when I came out of school with $300,000 in student loans and making $120,000, which is a terrible investment initially. He said, “No matter how much money you make, you're always going to be a rich dentist. So, keep that in mind.”

And so I've thought, “Well, as I go around doing this project that I'm doing right now, I'm not going to ask for people's money. I'm just going to pay for it myself. And whatever happens, happens.” And hopefully I can influence the community for better.

Dr. Jim Dahle:
Yeah. The way I figure is everyone's going to assume you're a rich doc, so you might as well be a rich doc.

John:
Right.

Dr. Jim Dahle:
For sure. Okay. So we're really talking about post-FI life here and how we decide how we're going to deal with this existential crisis of what we're going to do the rest of our lives. And your decision so far has been some part-time work, which is very common among doctors that become FI, as well as a little bit of a stint into politics. So, let's talk a little bit about what inspired you to spend some of your time and money in making change around you.

John:
Sure. Yeah. I'm happy to do that. One thing, when you say post-FI, I will say it doesn't feel like that. I don't feel like I'm there. And maybe it never comes. But for one thing, for my net worth, probably 35% is in my dental practice. And another 35% is in my primary residence. 10% is in retirement accounts, which is not that much really. And 15% in other real estate and 5% in cash. 70% is in one physical residence and one business.

It feels to me, and maybe I'm just looking at it wrong, but I often feel like, man, that could disappear tomorrow. I don't know. My house could burn down. Insurance is never enough to rebuild a home exactly how it was. I don't know. Not to be dismissive of your question, but I just wanted to throw that out there. Even though I feel like I'm in a position where I can take the foot off the gas, it still feels a little bit risky.

Dr. Jim Dahle:
Defining enough is a challenge for most people. And especially when that enough fluctuates in value, like a closely held family or small business does, it's a lot trickier for sure. It feels a lot better for some reason when it's sitting in cash or some bond funds or some stock index funds for sure. It feels easier to value, but the numbers are what the numbers are. And while your practice might not be that easy to sell, it's probably sellable. Certainly it's real estate is.

John:
Right. Yeah. When you talk about the numbers, for example, my 401(k), I think this year we barely surpassed a million dollars in our retirement accounts and I'm 42. I'll be 43 in a couple of weeks. The way I look at it, if I don't touch it until age 75, that should be pretty big.

Dr. Jim Dahle:
Yeah, it's going to double four or five more times probably.

John:
Right. So it's like, okay, if that's really true and the markets don't… whatever World War III doesn't happen, America doesn't fall apart. And maybe this gets into your question, what inspired me to run. Ever since COVID was a big wedge for a lot of people. Masking, no masking, vaccines, no vaccines. Why are we taking our kids out of school? Why are we shutting them down? And in our community, it was really rough as well. It's gotten a little bit better, but it's still, there's still a lot of division.

And so, as professionals, as healthcare providers, we never consider any details about patients or people that we treat that are related to their political leanings or their gender identity or their sexual orientation. We don't use those as a litmus test for how we treat people.

As I consider a city that provides water, sewer, streets, first responders, those things are the same. There's no such thing as a Republican street or a Democratic park. We need people, good people to step forward and say, “Hey guys, look, we need to get over our differences and let's be informed as a community. Let's be engaged as a community and let's find solutions that work for everybody.” That's kind of the main impetus.

And then I saw the city budget is out of balance the last two years. So that's something, as a business owner, if there's no profit at the end of the year, guess who doesn't get paid? Me. If the White Coat Investor is not doing hot, Jim doesn't get any money. I'm sure that's how it is. As a mayor, I would do the same thing. I'm campaigning on, I'm not going to take the salary because we're in the red and let's donate that money to first responders.

Dr. Jim Dahle:
Awesome. Well, that hits close to home. I've got a spouse that's also an elected politician doing something similar with the salary. It's interesting, these issues out there, they need people to work on them. And they've got to be people that have enough money that they can spend the time, instead of earning a living, working on these issues. Because for most people that go into these political positions, they're getting paid dramatically less, even if they're taking the salary from the political position. It's not a profit move the vast majority of the time. Maybe if there's some real estate developer and they can influence the laws in that way or something, maybe. But most of the time, you're working on other issues.

The big issue in the school district right now, where Katie's on the school board, is we lose about an elementary school worth of children every year. They're just no longer in the district. People that have young families can't afford to buy houses in our district. So they don't. And of course, that means fewer and fewer kids at the school.

Eventually, school's got to be closed and combined. And nobody wants their neighborhood school closed. Nobody wants it closed. It's a very divisive, very emotional issue to start talking about school closures. She's dealing with lots of that right now. I don't envy you if you get elected. Some of these other issues that are hot-button issues for local people. It's challenging work. But it's work that somebody needs to do. And taking care of your finances can allow you to do it.

So, let's say there's somebody out there, maybe they're 10 years younger than you. They'd like to get into politics. What advice do you have for them on how they should be managing their financial lives now?

John:
I can't give great advice to physicians. You have many people who do that. Other high-income earners. It's tough for me too. But for dentists specifically, I can give a lot of great advice.

Number one, you have to have a good mentor. Whether it's somebody you're working with or somebody that you hire to be your mentor or coach. That is a good idea. Secondly, you have to continually invest in yourself. And that means continuing education. The requirements for dental school have changed dramatically since I graduated in 2008 until today, which is post-COVID. Patient care has been different.

We used to have live patient exams for people to pass their boards and become licensed in our country. Now it's all on mannequins and plastic teeth. And so, the experience that people are getting right out of school is a little bit limited. I'd say take as much continuing education as you can.

And then follow a lot of the principles that are being taught right here on the White Coat Investor. You have to save. You have to live like a student and get out of debt as quickly as you can and invest, make smart investment decisions.

A lot of people, and I know you've had some podcasts about become an owner, buy a practice. And that is a great way to wealth. However, for most, and I'm a little bit biased. Because I have two partners in our dental practice and we have eight other dentists that work for us and we're recruiting. Obviously for me to say, “Owning a practice is the best way to go”, I can't really say that.

Once you buy a practice, you own a job that kind of owns you. You're a slave to your business. That's kind of why so much of my net worth is tied up in the businesses. I've just put money back in, time back in, money back in, time back in. And I imagine that if I put the same amount of money and time into other investments like stocks and bonds it could be worth a lot more. It's a little safer to invest in your own business. You're leveraging based on what you can do and what your partners can do. But yeah, I don't know. I've never invested on options or things like that.

Dr. Jim Dahle:
It turns out you don't have to do that to become a very financially successful multimillionaire who's got enough money to run for mayor. Congratulations to you on your success. Thank you so much for being willing to come on the podcast, share your success with others to be able to inspire them to do the same, to chase their passions, to make a difference in the world around them. Thank you so much.

John:
All right, thanks.

Dr. Jim Dahle:
Okay, I hope you enjoyed that interview. He's apparently recruiting for people to join his practice and move to Coeur d'Alene and fix all the problems in Coeur d'Alene. Coeur d'Alene's a nice place. I like Idaho. There's a lot of really cool stuff in Idaho. So I'm a big fan. And you know what? It's not a very expensive place either. So if you're looking for some geographic arbitrage, check out Coeur d'Alene. We love Coeur d'Alene. Coeur d'Alene's great.

FINANCE 101: CHARITABLE GIVING

Dr. Jim Dahle:
All right, enough about Coeur d'Alene. Let's talk about charitable giving. Some changes this year. The One Big Beautiful Bill Act had some changes. Basically three of them, three big ones.

One, there is a deduction you don't have to itemize for. It has now been made permanent for charitable donations. It's $1,000 if you're single, $2,000 if you're not single. People have been calling it an above the line deduction. It's technically not, it's below the line, but it does not require you to itemize on Schedule A. So you still take the standard deduction and deduct another $1,000 to $2,000 in charitable giving. Has to be cash, can't be run through a daft. It's not donated shares. This is just you give cash to charity and you get a deductible. Okay, that's number one change.

Number two and number three changes are not good for high earners and high givers. The first one encourages low earners to give more money. The next two discourage high earners from giving money. The first one is there's a floor on your charitable giving deduction. The first 0.5% in your AGI that you give, you cannot deduct on Schedule A starting in 2026. So, if your adjusted gross income is $300,000, that's the first $1,500 you give is not deductible. So that's kind of lame. But that's the way it's going to work in 2026.

The other change for those of you in the top tax bracket is you're not going to get a 37% deduction. You're going to get a 35% deduction. It's being limited, capped, whatever you want to call it, at 35% of what you give.

So what does that mean? That means if you want to give to charity, you want to support charity, you should give in 2025, not 2026. Now I know it's already mid-December. You're running out of time. So you better hustle and start getting stuff done this week. I'm a big fan of using DAFs because even if you don't want the charity to get the money this month, you can still get the deduction this month.

Now that's a little bit of a jerk move. Please don't just put money in a DAF, take the deduction, never give it to the charity. That's lame. But it can be helpful. It does a couple of things. One, it simplifies your record keeping dramatically. Two, it gets rid of charity porn in your mailbox. Charity porn is those glossy flyers that look like they cost $10 to produce that start showing up in your mailbox. As soon as you give to one charity, you're getting it from 30 charities. You can avoid all that by giving anonymously.

It's super easy to give anonymously via a DAF, a donor advised fund. So, I’m a big fan of those. And you can delay the period of time between when you get the deduction and when the charity gets the money if that's important to you for some reason. Okay, those are the kind of changes coming up.

Now, as far as giving, a lot of people are like, “Oh, giving, I'm going to lower my taxes.” Well, it's true. You do lower your taxes by giving, but you don't come out ahead. You only get back some of what you gave away as a deduction. So basically you get a third of it back. If you give $100, you get $33 back. That's not a winning formula. You're not coming out ahead by giving to charity. So, give to charity because you want to give to charity because you want to support that cause. And basically being able to get a deduction for it, being able to give to charity with pre-tax dollars just allows you to give more.

So, don't get confused about that point. This is not some sort of wealth building tip. This is helping you with the fifth of those money activities out there. Earning, saving, investing, spending, giving. They're all important to master in your life. Most of us are not good at all five of those. But if you're going to give, you might as well get a tax deduction for it. Unless your favorite charity is the US government. In that case, I guess just pay the taxes and you can skip the rest.

But I hope that's helpful to you as you plan your year in giving. Lots of other cool giving tricks out there, of course. One of my favorite is I do tax loss harvesting on a taxable account. I grab the losses and I flush the gains out by using them to donate appreciated shares instead of cash to charity. You can donate up to 30% of your AGI and take a deduction. Even if you donate more than that, you can carry it forward for five years.

That's a great move if you have a taxable account is never give cash again to charity, give appreciated shares. It allows you to increase your basis. Future tax bills, assuming you ever have to sell them before you die are lower.

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Dr. Jim Dahle:
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Thanks for being a member of this community. Without you, there's no point to this podcast. If you want to come on the podcast, you can apply at whitecoatinvestor.com/milestones. We'd love to have you.

Apparently we don't take everybody that ever applies immediately, as you learned from John talking about his student loans, but we do try to get just about everybody that applies with a reasonable milestone onto the podcast and share your story with others because we want to inspire others to do what you've accomplished, no matter how small your milestone. Whether it's getting back to broke or becoming a decamillionaire, we want to celebrate with you.

Thanks for what you do. Keep your head up, your shoulders back. 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.