Podcast #158 Show Notes: Which Physician Specialty is Best for Retiring Early?

If you want to retire early, which specialty would be best to go into? Let's get one thing straight from the beginning, medicine is not a great option for FIRE in the first place. With the long years in training, you won't even start making significant money until your mid-thirties with $300-400K in student loan debt. Traditional FIRE at 30 or 35 like all these FIRE blogs talk about is not possible in that situation. So if your goal is to retire early, medicine is probably not the right place for you. Not to mention if you are a medical student with this question, there is probably an issue with the career you chose. Maybe you should be thinking about getting out of medicine into a career you’ll be happier in the long term. But I still answer this question in this episode. Shorter residencies do get you to attending income sooner but those also tend to be on the lower end of salaries for physicians. It may not make sense to choose a specialty with a shorter residency if you will be paid significantly less each year afterward. In this show, I share which specialty I think is best for retiring early and why. I also answer listener questions about buying a home while in the military, timing the market, being over-leveraged in your real estate investments, disability insurance for military doctors, tax-loss harvesting, and more. I also bring on a guest for a few minutes, Ryan Inman from Financial Residency Podcast and Physician Wealth Services to answer a couple of listener questions about rebalancing and investing on the fixed income side. Lots of your questions answered in this episode!

 

This podcast is sponsored by Bob Bhayani at drdisabilityquotes.com. He is an independent provider of disability insurance planning solutions to the medical community in every state and a long-time white coat investor sponsor. He specializes in working with residents and fellows early in their careers to set up sound financial and insurance strategies. He is very responsive to me and to readers having any sort of an issue, so it is no surprise that I get great feedback about him from our readers and listeners. If you need to review your disability insurance coverage to make sure it meets your needs or if you just haven’t gotten around to getting this critical insurance in place, contact Bob at drdisabilityquotes.com today by email [email protected] or by calling (973) 771-9100. Just get it done!

Quote of the Day

Our quote of the day today comes from Bill Schultheis who said,

“Having the guts to say, “I don't know’’ can be refreshing”

That applies both in medicine as well as in finance. Once you realize that you don't know some things and you're not expected to know, you can start creating a plan. It doesn't require you to know in order to be financially successful.  That is the whole point of a fixed percentages for how you invest your money. You just rebalance back to those percentages every year, no matter what did well and that way you don't have to predict in advance what's going to do well. You just have to stick with your plan over the long term.

Which Physician Specialty is Best for Retiring Early?

This podcast topic came from a listener question,

“Does it make sense to pursue an area of medicine I don't want to practice in, just so I can FIRE faster? For instance, pursuing internal medicine or family medicine instead of a surgical subspecialty just to cut time out of residency”.

Yes, it makes me sad to hear that question. First of all, FIRE is Financial Independence Retire Early. Basically, punching out of medicine and going to do something else. I'm all for being financially independent, but I find it kind of sad when you're not even in your career yet and you're already planning to retire early from it. Medicine is not a great option for FIRE in the first place. You don't even get out of training until your early to mid-thirties and at that point you're probably $300,000 or $400,000 underwater due to your student loans. By the time you get those paid off and really start building wealth, I mean traditional FIRE at 30 or 35 or 40 like all these FIRE blogs talk about is not possible in that situation. If that is really your goal, I'd advise against medicine in the first place. It is probably not the best thing to do from a FIRE perspective.

But the question is not that. The question is “Should I choose a different specialty in order to FIRE faster?” Well, the problem with choosing a specialty with a three-year residency like internal medicine or pediatrics or family medicine is that the pay is also lower. So yes, you get out of residency sooner and you can start building wealth, but you also get paid less for that entire career. So, it's probably sixes, whether you get out earlier or whether you stay in training longer and make more money.

Now, I suppose if your goal is really to FIRE early, you have to be a little bit careful about those specialties that have long training periods and don't pay more. It tends to be things like internal medicine and pediatric subspecialties, infectious disease, nephrology. Those sorts of things where you train for longer but you don't really get paid for that additional training. Basically, all the subspecialties in emergency medicine – Toxicology, EMS, wilderness medicine, none of them actually increase how much money you make. If your goal is really just to get out as fast as possible, I would avoid those sorts of specialties. But I wouldn't necessarily pick internal medicine over general surgery. I think you're going to make up for the additional training with the higher income.

Personally, I think emergency medicine might be one of the best if you're really interested in firing early for a couple of reasons. You get a three-year training period. You also have a pretty high hourly rate and it is relatively easy to work a lot. If you want to work a lot early on and save up a whole bunch of money, that's relatively easy to do in emergency medicine. Now it probably leads to burnout, but if you're retiring at 40 anyway, I guess that's not as big of a deal to not have that career longevity that I encourage you to have.

But frankly, I think if you're really already feeling this at the time when you're choosing a specialty, meaning when you're a second or third or fourth year medical student, there is probably an issue with the career you chose and maybe you ought to be thinking about getting out of medicine into a career you’ll be happier in long term. I like the saying, I think it was Seth Godin that said, “Instead of planning your next vacation, why not plan a life that you don't need to take a vacation from?” It is like the classic saying of “find something you love to do and you will never work a day in your life”.

I'd encourage you to try to do that when you're choosing your career. I understand some people get halfway through a career and they're just kind of sick of it and start working toward FIRE. But from the beginning, why don't you go find something you really love to do?

Reader and Listener Q&As

Buying a House While in the Military

This is a classic question I get a lot. The easy answer is no. Don't buy a house while you're in the military. I cannot emphasize this enough. My father in law had a 20+ year career in the military. He probably bought 5-6 houses over that time period. He said they came out ahead on one of them and all of the other homes he lost money on. He wishes he could go back and do it over again.

It doesn't make sense to buy and sell a home every three or four years. It is just not enough time for appreciation to make up for the transaction costs. So then people keep the house when they move to another base and use it as a rental as a long distance landlord. Being a long distance landlord is not awesome. That is kind of the deal when you sign up with the military.

Yes, it is possible to get lucky and make some money every now and then, but on average you're not going to do well with buying a home everywhere you are stationed. If you're not going to stay in a house for at least five years, that's kind of the 50/ 50 break-even point in my view, it doesn't make sense to buy the house.  Unfortunately, most people don't run the numbers. They just look and see, “Oh yeah, I sold it for more than I bought it for”. But they don't take into account all the other costs of home ownership. When you do that, you realize that, financially at least, it is not a good idea to buy a house while you're in the military. Now if you are okay with spending some money, realizing it's a consumption item and you really just want to own instead of rent, buy a house. But realize that you're probably going to lose money on it. It's just really hard to build any sort of equity long-term while you're in the military.

Timing the Market

This question about whether to time the market or not comes in lots of forms. The most recent one looks like this,

“I'm a 35-year-old physician who recently switched jobs. I rolled over my 401(k) with about $200,000 in it from my prior employer in mid-March. My husband and I own a bit of rental real estate and we were saving up to buy our first multifamily property in a city that we do not live in, when the lockdown started. As a result of these two events, backing out of a property deal, since we would not be able to fly in for an inspection, and rolling over my old 401(k), I'm suddenly sitting on almost $600,000 in cash. I have a written IPS which would call for the bulk of this to be invested in low cost total stock market ETFs and international ETFs. I specifically planned on VTI and VWO, but I can't bring myself to dive in when I feel that the market is unreasonably bullish given the economic impact to the epidemic.”

She went on to say she anticipated months of volatility in the market and that if she was already in the market she would calmly wait it out but right now she wants to know if I have a rational approach to her situation. Enter gradually using dollar cost averaging, wait until the market dips down again, etc.  I hear these kinds of questions all the time and people don't really get that they're trying to get things two ways. I don't want to time the market, but I want to time the market is essentially what they are saying. You have $600,000 to invest, but you can't bring yourself to dive in because you feel the market is unreasonably bullish. So, what's the rational approach? Well, you said you have a written investment plan. What does it say you should do? If it says you should try to time the market when you think it's a little bit too bullish, then go ahead and do that. But I'll bet when you sat down and drafted a long-term investing plan, that you didn't write that in it. I'll bet the investment plan you wrote when you sat down and thought about your whole career, your financial goals, how much you were going to save, and what you're going to invest it in, I'll bet your plan was something like, “I'm going to put 25% of my money in this and 20% of my money in that and 10% of my money in this. No matter what, I'm going to stick with it”. That's what my plan says. And so, when I come up against these questions, that's what I do. I invest it according to my written investment plan. If something has done particularly poorly, I aim more money at that thing just to bring it back into balance with my new contributions. But I'm following the investment plan every month. That is the whole point of an investing plan, so you don't have to think about it every time it's time to invest.

Now, if you are looking at it and you just cannot stomach the idea of losing some of that money that you just put into the market a couple of weeks ago, chances are your asset allocation is too aggressive for you. So maybe you ought to dial that back. You know your asset allocation is set right with the stock to bond ratio when your greed is precisely balanced out by your fear. Your fear of losing too much money in stocks is precisely balanced out by your fear of missing out from not having enough in stocks. When you get to that percentage, that's about where you ought to be. If you are unsure exactly where to set it, set it a little bit on the conservative side until you go through your first bear market and understand how you react to losing real money that you used to have.

Over Leveraged in Your Real Estate Investments

“I'm a physician who've been acquiring rental properties near a college campus quite aggressively with my payments over 10-year mortgages, roughly speaking $10,000 income monthly and $10,000 going out. Very little margin. I was going to make up for any disaster scenario with my income, which has come up due to coronavirus and other factors. I am at about 50% vacancy. I'm also changing jobs while my income is in question and perhaps down for the next year or so. I can go to the bank and maybe pay interest-only or refinance or do other things. But one of the things I'm considering is selling some after tax funds, about $4 million worth, in order to lower my mortgage payments to about $5,000 and balance. Is that a reasonable idea? There are lots of tax implications.”

This is a tough situation to be in. There is not a lot of margin. You can see why getting over leveraged into rental properties can be a bad situation. The good news in this particular situation is the listener has a lot of assets. When you have 4 million bucks in taxable assets, you can use that for a long time to pay the rent. While that is a relatively risky situation to get into, it's not terribly risky when you have 4 million bucks sitting around.

You can liquidate some of these assets and pay the rent until things come back and you have more rent and the properties are appreciated again. In real estate, time tends to heal all wounds. You just have to give it enough time. But in this situation, you have a handful of options. You can sell the properties, but now may not be the best time to be selling. You could refinance the mortgages. I mean interest rates are really low right now. They may give you a little bit of a hard time since your income is down, so it might be difficult to refinance them, but you can certainly look into that. Not only getting a lower rate might help, but extending the mortgage might help. If you're on a 15 year and you go to a 30 year, you've just reduced your expenses significantly on that property. You could sell enough of those taxable assets, your mutual fund investments, to pay off some of the mortgages. You sell off a million dollars’ worth of assets, you pay off a million dollars’ worth of mortgages, and you've again lowered your expenses on the rental property portfolio.

But what I would probably do in this situation is just sell investments as needed to cover the expenses. Chances are with some time income is going to come back up. You're going to be paying off these properties and they're going to appreciate. I think you have the resources to actually ride this out most likely. But be smart about it. Look at each property individually. If you realize that you bought a losing property, well, get rid of it. Maybe pay one off here and one off there to improve your cash flow situation. But the truth is you've got enough money to really ride this for a long time and probably be okay coming out the other side of this economic downturn.

Plus, the longer you're able to wait to sell either the properties or to sell your mutual funds that have gone down recently in price, the better price you're going to get and the more equity you're going to have in the property. Again, time tends to heal all wounds as long as you have the resources to be able to hold on.

Disability Insurance for the Military

A listener is working with an insurance agent that can't find a company that will ensure active duty military folks. He needs to go to one of our recommended agents who could solve this problem for him. All those people know how to get you disability insurance if you're on active duty. But I'm just going to tell you the secret. The secret is you're going to get it from MassMutual. It's the only company that will insure an active duty doctor.

Now I was a civilian resident and I actually got a policy as a resident while I was a civilian and they told me that it was still going to pay if I got disabled while I was on active duty, as an attending, as  long as I wasn't injured in an act of war. So I kept my policy that I bought in residency active all the way through my military service and that worked fine for me. Mine was with the Standard.

Transferring Investments in a Volatile Market

“I'm a private practice endodontist and also work part time at the VA. I currently have a 401(k) that I started when I worked for my previous employer as a general dentist. Now that I have a TSP account through the VA, should I transfer my 401(k) into my TSP? Is this a bad time to do that type of a transfer due to the time delay involved in having the money leave the 401(k) and entered into the TSP? What is the risk involved with that lapse occurring during a significant swing in the market? Would it be better to wait for the market to stabilize before initiating this transfer?”

I think this is a great question. You have a couple options. One is just wait. Wait until this is all over and a 1% day seems like a big day in the markets instead of a 10% day in the markets.

But there's another approach you can do if you don't want to wait. You take the stocks you're selling in the 401(k) and you buy them somewhere else. Whether it's your taxable account or whether it's your TSP or whether it's your Roth IRA, you just buy more stocks in that account, sell bonds and buy stocks in that account to make up for the fact that all the stocks you had in this 401(k) are now going to be in cash for a couple of weeks while you do the rollover. That makes it easy, you maintain your asset allocation if the market goes up, no big deal, you own all those stocks, you just own them in a different account. That makes up for the fact that the market moved on you.

The other thing you can do is take a gamble. It's entirely possible that the market falls while you're out of the market rather than goes up. But Murphy's law being what it is, you're probably better off hedging against that. There are other options to hedge against it. You can buy some options and that sort of a thing, but I would probably just make up for it in other accounts in your portfolio, if that's possible.

Rebalancing

Ryan Inman and I answer the next couple of questions together.  A listener asked about rebalancing for a retiree with no earnings and no interest in ever working again. Is there a point in a long bear market that he should stop rebalancing? The listener asks,

“At what point is sticking with rebalancing risking running out of cash in a prolonged draw down? And we've certainly had multiple historic drawdowns that lasted seven to eight years. I think the answer is to have enough fixed income to withstand at least a 10 plus year draw down combined with flexible spending, of course. Having enough cash so that you'll never have to sell stocks in the hole, which is basically a retiree version of the working physician having a six-month emergency safety cushion. But I'm interested in your thoughts.”

Ryan starts by giving a little bit of a history lesson. Looking at historical data the average bear market is down around 42% and it lasts about 22 months. The tech bubble in 2000 lasted two and a half years. The great depression, which is what's being kind of tossed around right now by the talking heads on CNBC is actually the outlier. It had like an 85% or 86% decline. It was about three years long. The longest bear market in history was five years long, really, during World War II.  Ryan points this out simply to say that this listener is planning for the longest bear market in our history. A lot goes into your risk tolerance like stage of life and whether you are making contributions to the accounts or not. Your Investment Policy Statement really should dictate guidelines on both how and what you going to invest in and also talk around the boundaries of how you would actually change your allocation based on rebalancing.

This is an interesting question he asks about rebalancing because obviously if something goes to zero and you rebalance into it, eventually your portfolio goes to zero too. This was a big discussion in 2008 on the Bogleheads forum and this concept of a “Plan B” started popping up.  Their idea behind it was that basically if everything just gets terrible you don't want to rebalance, you want to at least keep a minimum amount in fixed income that you could live on.  At some point you stop rebalancing. Now I never put that sort of a plan into my investment policy statement and I don't think most people did. I think they just got scared in the bear market and were looking for a reason not to buy in the depths of the bear market. I asked Ryan does he think an investment policy statement or written investment plan ought to include a “Plan B” for some terrible situation where asset prices drop 80% or 90% and you stop rebalancing into it?

“No, I don't. I don't think so. I think anything in extremes is bad and I think if you're going to go down the rabbit hole of this, where does that stop? I don't know if you've seen this in your groups, I know in my group, all of a sudden everyone was going to Passive Investing Index Fund for the win. Like we've got this and then we start seeing declines. It's like, “Hey, how do you think oil is trading? Should I buy this stock? And how much cash does Apple have? And is that good to throw money into?” It's like what happened? Like where did all these passive investors go? Why is it that when we're going to be influenced by something we can't control, we're going to make a ton of changes. It doesn't make any sense. If you honestly believe that the market is going to zero, well, you're going to have a much, much bigger problem than what your portfolio has done.”

 

Investing on the Fixed Income Side

“Cash and fixed income are the cushion protecting a retiree from selling stocks in the hole in a down market. What about with 0% interest rates? How does an investor protect against what happened in the 1970s that devastated fixed income? That's not the kind of cushion I want to be leaning on and the perhaps unlikely events that banks choose to inflate their way out of this quantitative easing. We talk a lot about equity diversification. What about fixed income diversification?”

At low interest rates, should you still have fixed income in the portfolio? Or how would you diversify it, especially with concerns about inflation? Ryan bring up the point about being flexible in regards to your spending, lifestyle inflation.

“Peak to trough, the top to the bottom, the average bear market takes about a year to hit that bottom and then about a year and a half to get back to even. So, let's just round it up to three years. If you're going to have a three-year spending plan, it should be cash short term bonds and that's the key to not panic selling. If you still think that we're going to have a prolonged recovery going out five years, doing some sort of bond laddering could be an option where you essentially are giving yourself a paycheck using bonds that expire each and every year.”

If  you were going to diversify across fixed income and you want to stay maybe short on the yield curve as rates rise, you could look at TIPS, Treasury Inflation Protected Securities. Ryan's word of caution would be don't go worrying.

“Just be careful adding too much credit risk to your portfolio in exchange for that interest rate risk. And what I'm getting at is high yield bonds. It sounds attractive, it sounds even potentially sexy depending on how excited you get about your money. But really, they're junk bonds. So, don't go chasing yields because interest rates are zero to offset that interest rate risk. Just be very careful.”

I think there are two aspects to this listener's questions. One is the 0% interest rate – “Should you buy bonds when rates are super low?” I find it interesting to be hearing this now because I have been hearing this question for the last 11 or 12 years. “Interest rates have nowhere to go but up. They’ve got to go back to where they were in, I don't know, 2005 or 2000 or 1985”. Or where do they have to go back to? Well, they don't have to. It's been 12 years and they basically have been super low the whole time. And so, if you're worried about where interest rates are now, you should have been worried for the last decade.

The other aspect, of course, is inflation. Yeah, high inflation devastates nominal bonds. So, how do you protect against that? Well, with money and things like stocks and real estate. But also, as Ryan mentioned, inflation linked securities of some kind, like TIPS. I've been thinking about this for a long time and I've got a portfolio that's very well designed for inflation. I have these short-term securities in the Government G fund and then I've got half of my fixed income in TIPS essentially.

So, it's very well designed for inflation and for this sort of a scenario. And guess what? It has been the wrong thing to hold for the last 12 years. Because rates have not gone up, inflation has not gone up. That's the kind of portfolio if you really think is going up, you should hold, but if it doesn't go up, it's not going to be the best fixed income portfolios. So, you just have to realize that. Ryan said,

“You're going to be living off your investments the rest of your life. Some part of your portfolio should be trying to create more wealth in case you live longer than expected and you need to support yourself. But bonds are not where you're going to try to hit the home runs.”

I definitely have a safe portfolio as far as my bonds go. But I agree, you should take your risk on the equity side.

Tax Loss Harvesting

“We had a large capital loss on the sale of a property in 2012, about $300,000. We're also doing tax loss harvesting this year with the market downturn. Later this year we're slated to sell part of our practice as we merged with a PE backed large group and realize about a $600,000 capital gain. Can I use the prior $300,000 loss against the sale this year. That would be huge. If so, I wasn't aware you could deduct prior years capital losses against a current year capital gain.”

Absolutely. Losses carry forward and so they're wonderful that way to offset a capital gain. In fact, one of the reasons I'm still aggressive about tax loss harvesting, I have almost half a million dollars in tax losses that I'm carrying forward each year, is because at some point down the road I expect I'm going to sell the White Coat Investor for a significant gain and this will reduce the taxes on that sale. So yes, carrying forward, grab your losses when you can get them. They do carry forward each year and you can use them for things like selling your practice or even just realigning your portfolio. There are lots of great uses for tax losses. Worst case scenario? You use them to payback gains on the same securities before you liquidate them. I mean how bad is that? There's nothing bad about that at all.

Ending

Thanks to Ryan for joining me on the podcast. Check out his Financial Residency Podcast .  Thanks for sharing the podcast with your friends and colleagues as well.

Full Transcription

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

Dr. Jim Dahle:

Welcome to White Coat Investor podcast 158 – Which specialty is best for FIRE? This episode is sponsored by Bob Bhayani at drdisabilityquotes.com. A truly independent provider of disability insurance planning solutions to the medical community nationwide and a long time WCI sponsor. Bob specializes in working with residents and fellows early in their careers to set up sound financial and insurance strategies. He's always been responsive to me anytime there's been any sort of an issue, so it's not surprising that I get great reviews about him. If you need to review your coverage or if you just need to get coverage because you never have, give them a call (973) 771-9100. You can email him at [email protected] or just check out the website at drdisabilityquotes.com.

Dr. Jim Dahle:
Our quote of the day today comes from Bill Shouldice who said, “Having the guts to say, “I don't know’’ can be refreshing”. And that applies both in medicine as well as in finance. Once you realize that you don't know some things and you're not expected to know, you can start creating a plan. It doesn't require you to know in order to be financially successful. And that's the whole point of a fixed asset allocation, fixed percentages for how you invest your money. It is you just rebalance back to those percentages every year no matter what did well and that way you don't have to predict in advance what's going to do well. You just have to stick with your plan over the long term.
Dr.Jim Dahle :
Thanks for what you do. I discovered recently that the first emergency doc to get really sick with Covid-19 in Washington was actually a residency made of mine, Ryan Padgett. And he got really sick. He ended up on a ventilator the same day he went into the hospital after realizing he was siting 75% at home and then a few days later was on ECMO. Actually, he spent a couple of weeks on ECMO before coming off that and then coming off the ventilator and is now home recovering. So, congratulations to Ryan for surviving and recovering from this. And thank you to the doctors who took such good care of him up there.
Dr.Jim Dahle :
Those of you who are out there on the front lines who were seeing a lot more cases of this than I suspect I am in my emergency department – Thanks for what you do. And for the rest of you that have basically willingly cut back on what you do and taken a pretty significant income hit in order to preserve PPE for those on the front lines, thank you for making that sacrifice.
Dr. Jim Dahle:
All right. If you have not signed up for our monthly newsletter, our email newsletter, these are really useful. We include in them an update of what's going on here at the White Coat Investor, but more importantly, there's a market report that talks about how the various assets classes have done in the last month.
Dr. Jim Dahle:
We also talk about some of the best stuff that's been published on the blog as well as the podcast and on the forum and subreddit. You can also check out our list of the 10 best things we found on the internet for doctors in the previous month. And I also include a special tip there. What that essentially is, it's a blog post and nobody else ever gets to see unless they're subscribed to the monthly newsletter. So, make sure you subscribe to that. There's no commitment, there's no cost. You can unsubscribe at any time, but check it out. You can also sign up at the same time if you want to get the blog post by email, coming to your email box every day. You can just get a summary once a week of what's been published in the previous week. You can also sign up there for our real estate opportunities newsletter if you like. Again, totally free.

Dr. Jim Dahle:
All right, let's take some questions here. Our first question comes from Josh on the Speak Pipe. Let's take a listen.
Josh:
Hi, Dr. Dahle. I have a question about home ownership in the military. I am a family medicine resident on active duty and I've been wondering about the implications of purchasing a home while serving in the military. Obviously, the big hurdle is that I'd have to move about every three years and with all of the fees associated with home buying and selling, it normally doesn't make financial sense. I have two questions. What do you think about living on base and giving up all of your housing allowance? And what do you think about buying a house, living in it for three years and then renting it out after we move? I just really can't stand the idea of renting 20 years when you're totally capable of affording a house now. Thank you again for all that you do.

Dr. Jim Dahle:
Okay. This is a classic question I get a lot – “Should I buy a house while I'm in the military?” And the easy answer is no. Don't buy a house while you're in the military. I cannot emphasize this enough. It was interesting while I was preparing for this podcast, my father in law is over here helping us move in. This is actually the first podcast I'm recording at my new desk. We're in our studio, we're back in the new house, this is great, but he's helping us move in.
Dr. Jim Dahle:
And so, while I'm preparing this podcast, he's sitting there listening to this question from Josh on the Speak Pipe and he's like, “Oh, man. I wish I could go back and do it over again.’’ I asked him, “How much money did you make all those years in the military with all those houses you bought?” Because he probably bought five or six houses over the course of, I think it was a 26- or 28-year career. And he said, “We didn't make money”. And he didn't. He said, “We came out ahead on one of them and all of the other ones were money losers”. Because it just doesn't make sense to do either of the two things you do when you buy houses in the military.
Dr. Jim Dahle:
And the first thing you do is buy and sell every three or four years and it's just not long enough in there that the appreciation makes up for the transaction costs. And the second thing you do is you do a PCS, a change of station. You basically move to another base and you leave that house behind as a rental. And now you're a long-distance landlord.
Dr. Jim Dahle:
One of his long-distance land lording experiences was pretty interesting. He found out there was something like 25 people living in the house, all of whom were working in relatively low wage jobs. He thought he was renting it to one family and it ended up seriously being like six families in there, living in the house. And obviously it was pretty trashed by the time they got done.
Dr. Jim Dahle:
But you know what? Long distance landlord is not awesome. Buying and selling a house every three or four years is not awesome. But that's kind of the deal when you sign up with the military. Yes, it's possible to get lucky and make some money every now and then, but on average you're not going to do well with that approach. If you're not going to stay in a house for at least five years, that's kind of the 50/50 break-even point in my view. And unfortunately, most people just don't run the numbers. They just look and see, “Oh yeah, I sold it for more than I bought it for”. But they don't take into account all the other costs of homeownership.

Dr. Jim Dahle:
And when you do that, you realize that financially at least, it is not a good idea to buy a house while you're in the military. Now if you are okay with spending some money and realizing it's a consumption item and you really just want to own instead of rent or it's really for some reason difficult location to rent in, buy a house. But realize that you're probably going to lose money on it. It's just really hard to build any sort of equity long-term while you're in the military.

Dr. Jim Dahle:
All right. Our next question comes in via email. “Does it make sense to pursue an area of medicine I don't want to practice in, just so I can FIRE faster? For instance, pursuing internal medicine or family medicine instead of a surgical subspecialty just to cut time out of residency”.
Dr. Jim Dahle:
Wow. I'm kind of sad to even hear the question. First of all, FIRE is Financial Independence Retire Early. Basically, punching out of medicine and going and doing something else. I'm all for being financially independent, but I find it kind of sad when you're not even in your career yet and you're already planning to retire early from it. Medicine is not a great option for FIRE in the first place. You don't even get out of training until your early to mid-thirties and at that point you're probably $300,000 or $400,000 underwater due to your student loans. And so, by the time you get those paid off and really start building wealth, I mean traditional FIRE at 30 or 35 or 40 like all these FIRE blogs talk about is not possible in that situation. And so, if that's really your goal, I'd advise against medicine in the first place and it's probably not the best thing to do from a FIRE perspective.

Dr. Jim Dahle:
But the question is not that. The question is “Should I choose a different specialty in order to FIRE faster?” Well, the problem with choosing a specialty with a three-year residency like internal medicine or pediatrics or family medicine is that the pay is also lower. So yes, you get out of residency sooner and you can start building wealth, but you also get paid less for that entire career. So, it's probably sixes, whether you get out earlier or whether you stay in training longer and make more money.
Dr. Jim Dahle:
Now, I suppose if your goal is really to FIRE early, you got to be a little bit careful about those specialties that have long training periods and don't pay more. And you guys know who you are out there. It tends to be things like internal medicine and pediatric subspecialties, infectious disease, nephrology. Those sorts of things where you train for longer but you don't really get paid for that additional training.

Dr.Jim Dahle:
Basically, all the subspecialties in emergency medicine – Toxicology, EMS, wilderness medicine, none of them actually increase how much money you make. And so, if your goal is really just to get out as fast as possible, I would avoid those sorts of specialties. But I wouldn't necessarily pick internal medicine over general surgery. I think you're going to make up for the additional training with the higher income.
Dr. Jim Dahle:
Personally, I think emergency medicine might be one of the best if you're really interested in firing early for a couple of reasons. You get a three-year training period. You also have a pretty high hourly rate and it is relatively easy to work a lot. If you want to work a whole bunch early on and save up a whole bunch of money early on, that's relatively easy to do in emergency medicine. Now it probably leads to burnout, but if you're retiring at 40 anyway, I guess that's not as big of a deal to not have that career longevity that I encourage you to have.

Dr. Jim Dahle:
But frankly, I think if you're really already feeling that at the time when you're choosing a specialty, meaning when you're a second or third or fourth year medical student, there's probably an issue with the career you chose and maybe you ought to be thinking about getting out of medicine into a career you’ll be happier in long term. I like the saying, I think it was Seth Godin that said, “Instead of planning your next vacation, why not plan a life that you don't need to take a vacation from?” And it's like the classic saying of “Find something you love to do and you will never work a day in your life”.
Dr. Jim Dahle:
I'd encourage you to try to do that when you're choosing your career. I understand some people get halfway through a career and they're just kind of sick of it and start working toward FIRE or something like that. But from the beginning, why don't you go find something you really love to do?
Dr. Jim Dahle:
All right, our next question, it comes off the Speak Pipe. Let's take a listen. This one is from an anonymous listener.

Speaker:
Hi, Dr. Dahle. I'm a 35-year-old physician who recently switched jobs. I rolled over my 401(k) with about $200,000 in it from my prior employer in mid-March. My husband and I own a bit of rental real estate and we were saving up to buy our first multifamily property in a city that we do not live in, when the lockdown started. As a result of these two events backing out of a property deal, since we would not be able to fly in for an inspection and rolling over my old 401(k), I'm suddenly sitting on almost $600,000 in cash. I have a written IPS which would call for the bulk of this to be invested in low cost total stock market ETFs and international ETFs. I specifically planned on VTI and VWO, but I can't bring myself to dive in when I feel that the market, it's unreasonably bullish given the economic impact to the epidemic.
Speaker:
I anticipate months of volatility, not just with the coronavirus but also with an upcoming election. I know no one can time the market and if I was already in, I would calmly wait it out. But as it stands, I'm suffering from a bit of paralysis by analysis. Is there a rational approach to this situation? Should I enter gradually over the following year using dollar cost averaging? Should I at least wait until the down dips back down below 20 as I feel it inevitably must? I think I know the right answer, but with the bulk of my portfolio on the line, it would be helpful to get some affirmation. Thank you so much for all that you do.
Dr. Jim Dahle:
Okay. This one ought to be addressed. I hear these kinds of questions all the time and people don't really get that they're trying to get things two ways, right? I don't want to time the market, but I want to time the market. It is essentially what we're saying here. You have $600,000 to invest, but you can't bring yourself to dive in because you feel the market is unreasonably bullish. So, what's the rational approach? Well, you said you have a written investment plan. What does it say you should do? If it says you should try to time the market when you think it's a little bit too bullish, then go ahead and do that. But I'll bet when you sit down and you draft up a long-term investing plan, that you didn't write that in it, that you're going to try to time the market, that you're going to try to avoid jumping in when the market is overly bullish or when you think it's going to go down.
Dr. Jim Dahle:
I'll bet the investment plan you wrote when you sat down and you thought about your whole career and your financial goals and how much you were going to save and what you're going to invest it in, I'll bet your plan was something like, “I'm going to put 25% of my money in this and 20% of my money in that and 10% of my money in this. No matter what, I'm going to stick with it”. That's what my plan says. And so, when I come up against these questions, that's what I do.
Dr. Jim Dahle:
For example, in February I had money to invest and I invested it according to my written investment plan. Right? The end of February, the coronavirus bear hits, and in the first week of March, I had money to invest again. And what did I invest it in? The same things I invested money in February. Along comes the first week of April, I got money to invest again. What am I going to invest it in? The same stuff that I invested it in February and March.
Dr. Jim Dahle:
Yes, if something's done particularly poorly, I aim more money at that thing just to bring it back into balance with my new contributions. But I'm following the investment plan every month. And that's the whole point of an investing plan is so you don't have to think about it every time it's time to invest. It's like when I was a kid and I decided I wasn't going to do drugs. Every time somebody offers me drugs, I don't have to make that decision all over again. I only made it once. And so, it's a much easier decision going forward. So that's what I encourage you to do.

Dr. Jim Dahle:
Now, if you are looking at it and you just cannot stomach the idea of losing some of that money that you just put into the market a couple of weeks ago, chances are your asset allocation is too aggressive for you. So maybe you ought to dial that back. And if your asset allocation, when you know what set right that stock to bond ratio is when your greed is precisely balanced out by your fear. Your fear of loss of having too much money in stocks is precisely balanced out by your fear of missing out from not having enough in stocks. And when you get to that percentage, that's about where you ought to be. And I think that's a pretty good guideline. If you are unsure exactly where to set it, set it a little bit on the conservative side until you go through your first bear market and understand how you react to losing real money that you used to have.
Dr. Jim Dahle:
All right, our next question comes in off Twitter and it's a question – “So, if I made some money to relate it to my website enough to trigger a 1099, then would it be fair to maybe pay for Canva Pro?” – That's some software. “I assume I can now write off my web hosting fees, Canva Pro, and maybe even some of my internet”.

Dr. Jim Dahle:
All right, here is the way it works. If you're in business and you have legitimate business expenses, they are deductions against your business income. You don't need to have income to take them. You can have a loss in a business for a couple of years before the IRS starts coming and go on. Maybe that's not really a business, maybe it's just a hobby, but if it's a legitimate business expense, take it as a legitimate business expense. You report all this stuff on Schedule C if you're a sole proprietor. And you put that stuff, you put all your income on Schedule C, you put all your expenses on Schedule C and what comes out of the bottom line is your profit and that's what you pay taxes on. But if you have a legitimate business expense, take it whether you have income or not, you can use that as a loss.
Dr. Jim Dahle:
All right, let's take our next question off the Speak Pipe. This one is about rental properties.

Speaker 2:
This question stems from your recent podcast recommending not selling equities low. I'll give you my situation briefly and then pose my question. I'm a physician who've been acquiring rental properties near a college campus quite aggressively with my payment over 10-year mortgages, roughly speaking $10,000 income monthly and $10,000 going out. Very little margin. I was going to make up for any disaster scenario with my income which has come up due to coronavirus and other factors. I am at about 50% vacancy.
Speaker 2:
I'm also changing jobs while my income is in question and perhaps down for the next year or so. I can go to the bank and maybe pay interest only or refinance or do other things. But one of the things I'm considering is selling some after tax funds, about $4 million worth to in order to lower my mortgage payments to about $5,000 and balance. Is that a reasonable idea? There are lots of tax implications, tax is paid on that, tax implications to not paying the interest. It's a complicated question, but I like your input. Thank you very much.

Dr. Jim Dahle:
Okay. This is a tough situation to be in. You've gotten yourself probably over levers in some rental properties. You didn't have a lot of margin. If you have $10,000 coming in income and $10,000 in expenses going out each month, and those are pretty much fixed expenses, then the income goes down, you are kind of in a lot of trouble. If you only have one of these, maybe you can feed it from your clinical income unless it's the corona bear and your clinical income just went down too. But you can see why getting over leveraged into rental properties can be a bad situation. The good news is this particular caller has a lot of assets. When you got 4 million bucks in taxable assets, you can use that for a long time to pay the rent. And so, while that is a relatively risky situation to get into, it's not terribly risky when you got 4 million bucks sitting around, right?

Dr. Jim Dahle:
You can liquidate some of these assets and pay the rent until things come back and you got more rent and the properties are appreciated again. And in real estate, time tends to heal all wounds. You just have to give it enough time. But in this situation, you've got a handful of options. You can sell the properties, but now may not be the best time to be selling. You are kind of selling a fire sell prices at this point and is it really worth it to sell if you're going to take a large loss if you don't have to? Well, maybe not. You could refinance the mortgages. I mean interest rates are really low right now.
Dr. Jim Dahle:
They may give you a little bit of a hard time since your income is down, so it might be difficult to refinance them, but you can certainly look into that. Not only getting a lower rate might help, but extending the mortgage might help. If you're on a 15 year and you go to a 30 year, you've just reduced your expenses significantly on that property. You could sell enough of those taxable assets, your mutual fund investments to pay off some of the mortgages. You sell off a million dollars’ worth of assets, you pay off a million dollars’ worth of mortgages, and you've again lowered your expenses on the rental property portfolio.
Dr. Jim Dahle:
But what I would probably do in this situation is just sell investments as needed to cover the expenses. Chances are with some time income is going to come back up. You're going to be paying off these properties and they're going to appreciate. And I think you've got the resources to actually ride this out most likely. But be smart about it. Look at each property individually. If you realize that you bought a losing property, well, get rid of it. Maybe pay one off here and one off there to improve your cash flow situation. But the truth is you've got enough money to really ride this for a long time and probably be okay coming out the other side of this economic downturn.
Dr. Jim Dahle:
Plus, the longer you're able to wait to sell either the properties or to sell your mutual funds that have gone down recently in price, the better price you're going to get and the more equity you're going to have in the property. Again, time tends to heal all wounds as long as you have the resources to be able to hold on.
Dr. Jim Dahle:
Okay. Next question comes in via email – “I am an MS4 and an incoming resident in internal medicine due to start up in June, 2020. I'm also a four-year Air Force HPSP scholarship recipient and I've been working with an insurance agent who's been trying to help me secure some disability insurance, but has not found any companies who are willing to insure active duty military folks. Understandably so. I know you were an HPSP guy as well. Any advice on how to pursue disability insurance for someone in my position?”
Dr. Jim Dahle:
Yeah. Here's how you do it. You go to an independent disability insurance agent who knows what they're talking about. You're apparently seeing somebody, and I don’t know if they're independent or not, but if they have no idea who to go to, they're clearly not very experienced. So, go to whitecoatinvestor.com, go to the recommended tab, select the recommended insurance agents. All those people know how to get you disability insurance if you're on active duty. But I'm just going to tell you the secret. The secret is you're going to get it from MassMutual. It's the only company that has given an active duty doc. And so, you'll talk to them, they'll get your MassMutual policy and that's what you'll use because you are an HPSP person.

Dr. Jim Dahle:
Now I was a civilian resident and I actually got a policy as a resident while I was a civilian and they told me that it was still going to pay if I got disabled while I was on active duty, as an attending. And that was so long as I wasn't injured in an act of war. And so, I kept my policy that I bought in residency active all the way through my military service and that worked fine for me. Mine was with the standard. But I don't think you're going to be in that situation because it sounds to me like you are going to be training at a military residency program. So, you're probably going to be going with MassMutual I suspect, but talk with an independent insurance agent like Bob Bhayani. He’s sponsoring this podcast and he can help you line up that policy.

Dr. Jim Dahle:
All right, our next question comes in via email. A bunch of questions here. “I'm a private practice endodontist and also work part time at the VA. I currently have a 401(k) that I started when I worked for my previous employer as a general dentist. Now that I have a TSP account through the VA, should I transfer my 401(k) into my TSP? Is this a bad time to do that type of a transfer due to the time delay involved in having the money leave the 401(k) and entered into the TSP? What is the risk involved with that lapse occurring during a significant swing in the market? Would it be better to wait for the market to stabilize before initiating this transfer?”
Dr. Jim Dahle:
Okay. I think this is a great question. You got to move money around and crap, the market has gone to pot. It's really volatile. I don't want it to go up significantly in between the time I sell in the 401(k) and in between the time I buy in the TSP. And so, you got a couple options here. One is just wait. Wait until this is all over and a 1% day seems like a big day in the markets instead of a 10% day in the markets.
Dr. Jim Dahle:
But there's another approach you can do if you don't want to wait. What you do is you take the stocks you're selling in the 401(k) and you buy them somewhere else. Whether it's your taxable account or whether it's your TSP or whether it's your Roth IRA, you just buy more stocks in that account, sell bonds and buy stocks in that account to make up for the fact that all the stocks you had in this 401(k) are now going to be in cash for a couple of weeks while you do the rollover. And that makes it easy, you maintain your asset allocation if the market goes up, no big deal, you own all those stocks, you just own them in a different account. And so, that makes up for the fact that the market moved on you.
Dr.Jim Dahle:
The other thing you can do is you can just take a gamble. It's entirely possible that the market falls while you're out of the market rather than goes up. But Murphy's law being what it is, you're probably better off hedging against that. There are other options to hedge against it. You can buy some options and that sort of a thing, but I would probably just make up for it in other accounts in your portfolio, if that's possible.
Dr. Jim Dahle:
He also asks, “I know nobody can predict the future or how the medical dental field will rebound after Covid, but what are your general predictions for how private practices will be affected financially? I've been given notice that my contract as an associate will be terminated at the end of May, but I will still be working at the VA a day a week and I'll have some semblance of an income. Once the VA fiscal year rolls over this fall, I should have the ability to add more days to my schedule. In my mind, this seems like a good option even though I will be making less at the VA. It will be guaranteed income compared to private practice, especially if Covid spikes again in the fall and winter. What are your thoughts? Is this a good time to make a move into the government sector while the economy recovers or should I double down and look to purchase a practice from a retiring doc who's probably now more desperate than ever to sell and get a rock bottom deal on a practice?”
Dr. Jim Dahle:
Well, my crystal ball is cloudy as always. I don't really know what's going to happen either with Covid or with the economy over the next year. But if I had to guess, I would guess that volumes are going to be down for most of the rest of the year for most medical and dental specialties. I mean, our volumes are incredibly down in the ER right now and if the ER isn't seeing patients during a pandemic, I don't know who is. I expect things to be pretty slow all summer and probably most of the fall. I'm hoping by fourth quarter our volumes are getting back to normal, but it wouldn't surprise me if a year from now we still weren't back to normal volumes in most practices.
Dr. Jim Dahle:
But I don't know that I'd bet the farm on that prediction. I don't have any information to say that's for sure the way it's going to go. I just think there's probably going to be two or three waves of Covid-19 going on and that's kind of how it's going to play out in my prediction for the future. But that's worth about what you paid for it.
Dr. Jim Dahle:
So, should you move to the VA full time because things are going to be rough going forward? I don't know. It depends on what happens in the future. I'm generally a big fan of ownership. If you're going to be in something for a long time, being an owner is a good thing. I like owning homes despite what I said in that opening bit about military docs buying homes. I like it. If you're going to be in a home a long time, then buy it. I think it works out well.
Dr. Jim Dahle:
Likewise, I like owning my job because I like having the control over it, deciding who I'm going to work with, how I'm going to be paid, how we're going to take vacations, how we're going to divide up the shifts. I like having that control. And when the business does well, I like making the profit. And so, I'm a big fan of ownership. I wouldn't necessarily run off to the government sector or some sort of guaranteed salary because what you may realize is a lot of people with relatively guaranteed salary contracts are also being asked to take pay cuts these days.

Dr. Jim Dahle:
I've been surprised how many university employees have been facing that in my email box being asked to take 20% or 50% pay cuts. There are no real guarantees in life. Even when you have an employer, you can always be fired, but obviously a job at the VA is going to be more stable than a job in private practice. So, you've got to look at yourself and what kind of a person you are and how much risk you're willing to take. And I wouldn't necessarily run away just because there's an economic downturn and do something you wouldn't otherwise do long-term.

Dr. Jim Dahle:
Our next question also comes from email. And the question you asked, “I'm wondering how you determine whether to invest in Vanguard Total Stock Market Index Fund or Vanguard Total Stock Market ETF. VTSAX versus VTI. I was listening to your podcast with Rogue Dad MD and heard him say he was invested in VTI. I did some reading. The ETF has a lower expense ratio, trades in a brokerage account and may be more tax efficient. I did not know how to interpret this information and what it meant. I'm currently invested in Vanguard Total Stock Market Index Fund. Admiral shares is I have 10 months until graduation from my residency. Can you provide some clarification? I know 25% of your portfolio is in this fund, but I did not know if it was the ETF or the Index Fund.
Dr. Jim Dahle:
I got news for you. It's both. I've owned both of these things. I have owned them at various accounts. In fact, even in the same account, I owned both of them at one time or another. And so, it doesn't matter. These are two share classes at the same fund. The underlying investments are exactly the same. They're both equally tax efficient for all intents and purposes. And so, it's okay to own either one, but what you should do is just look at which one's more convenient for the account you're investing in.

Dr. Jim Dahle:
For example, if I'm buying these funds at a 401(k), that's at Charles Schwab. I'm probably going to buy the ETF version because the commissions are going to be lower. If I'm buying them at Vanguard and I don't like to hassle with putting in buy and sell orders during the market open during the day, I'm probably going to go with mutual funds. I actually prefer mutual funds. I find them easier to tax loss harvest because you just put in all the orders and it all takes place at four o'clock at the same time. But you do have more flexibility with the ETF. So, you can buy and sell it during the day. And there are more options to swap into when you're doing tax loss harvesting in a taxable account if you're using ETFs.
Dr. Jim Dahle:
But honestly, the difference between these two is so small. I cannot in any sort of way recommend one over the other. They're both fine and do whichever one is more convenient and cheaper for you to do in whatever situation you're in.
Dr. Jim Dahle:
All right. Our next question comes in off the Speak Pipe from an anonymous listener. Let's take a listen.

Speaker 3:
Hi Jim. I'm employed at a state academic medical center and I’ve been fortunate to have access to a 457 deferred compensation plan through the state public benefits authority. I've been contributing the maximum allowed amount and with it being state supported, I have had few concerns about the security of my funds down the road. However, given the current budgetary crisis many medical schools are experiencing as well as state governments facing with the current coronavirus outbreak, it does have me thinking about the stability of these funds over a period of decades. My question is, do you think there's any reason to question the stability and security of these states supported 457s to the point to where one should have concerns about investing in them fully? Thanks for your time and thanks for the support you provide to our community.

Dr. Jim Dahle:
All right. Should you be worried about a governmental 457 at a state supported University? No, I wouldn't be worried about that at all. They are about as un-risky as you can get in a 457. Now if you're working for some Podunk hospital and it's a non-governmental 457, I think it's entirely reasonable if you're skeptical of their financial condition to not invest in that fund. Remember 457 is deferred compensation. It is not your money. It is the employer's money. It is not subject to your creditors, so that's good for an asset protection standpoint for you. But it is subject to your employer's creditors.
Dr. Jim Dahle:
The less stable your employer, the less money you probably want to put into that account. But at a big University 457 plan or a big municipality 457 plan, I mean, things have to get really bad before you're going to lose money in that due to their creditors. So, I would feel perfectly comfortable doing that.
Dr. Jim Dahle:
We're going to have a special guest come on now and help answer some of your questions. We're going to have Ryan Inman, CFP on the podcast. He is a financial advisor on our recommended list. He has a practice called Physician Wealth Services. You can find that on physicianwealthservices.com but that's not probably where you know him from. You probably know him from his podcast and he actually have a couple of podcasts.
Dr. Jim Dahle:
His main one is called Financial Residency. But he is also a co-host on the Physician Philosopher, Jimmy Turner’s podcast Money Meets Medicine. And so, you probably know him from one or both of those podcasts, but we're bringing him on here so you can get to know them a little bit better in case you're in the market for a financial advisor, I think he's one of the good ones. One of the good guys in the industry and so, that is why I have him on our recommended page. You can find that at whitecoatinvestor.com/financial-advisors.
Dr. Jim Dahle:
But he feels very passionately about financial planning. His wife is a doctor. He is a big fan of unbiased quality financial advice for flat fees. And so, let's bring him on the podcast and talk with him about both his practice as well as some of your questions and we'll answer them together.
Dr. Jim Dahle:
All right, so we've got Ryan on the podcast. Welcome to White Coat Investor podcast, Ryan.

Ryan Inman:
Thanks, Jim, for having me on. I appreciate being back.
Dr. Jim Dahle:
Or rather welcome back to it. I guess we had you on just a few months ago talking about your new podcast with Jimmy Turner, The Money Meets Medicine podcast. How's that project going for you?

Ryan Inman:
Oh, it's fun. Let's teach Jimmy how to podcast. That's awesome. He's got lots of great ideas so I have to throw it all back in his excitement, but it's been really fun.

Dr. Jim Dahle:
Yeah, he certainly has a lot of energy. There's no doubt about that. He's got all kinds of things going on these days. But you're still keeping up with the Financial Residency podcast?
Ryan Inman:
Yes.
Dr. Jim Dahle:
And in fact, for a while there, are you still doing a daily podcast? A little short, daily one?

Ryan Inman:
So, it depends when this air, but for right now, like I thought, at least for the month of April, let's try to just put out some answers to a lot of questions that come in from listeners and in our group and everything. So, I've been doing daily shows through April and Covid keeps going and pandemic is there. I’m happy to help if people have questions and all that. But no, it's not sustainable. You know how hard it is to put on a podcast. On those daily ones, there's no editing. That is just me just answering people's questions as they have them.

Dr. Jim Dahle:
Yeah, I was amazed when you started doing that because there was no way I'm doing more than one a week. No way.

Ryan Inman:
I was amazed that I somehow convinced myself to do it as well.

Dr. Jim Dahle:
Awesome. And your practice is going crazy right now, it sounds like, with the whole market downturn and all the doctors having all kinds of interesting stuff going on in their lives and also homeschooling two kids.

Ryan Inman:
Yeah, I think that's the hardest job. And I think if we learn anything as a nation coming out of this is that teachers are one, underpaid, and two, their job is really hard. I have a five- and a three-year-old and I will admit what I'm not good at things and this is something that I love my kids, but I'm not a great teacher. I try so hard. We can talk money all day long, but it's very tough.

Dr. Jim Dahle:
Yeah, I feel the same. It's been challenging. I was working with my son on a writing project this week and boy, I lost patience long before he did. I can tell you that. All right, well let's introduce readers to you for a minute and then just answer some of their questions together. So, why don't you tell them for those who don't know you, tell them why you became a financial advisor.

Ryan Inman:
I am a true money nerd in its own right. I was the one that worked summer jobs when I was like 13-14-15 and then begged my mom to open up a TD Ameritrade account so I could trade stocks, which at that time I had no idea what I was doing. I made every error in the book. Happy to admit I made those errors because it was fun to learn. But I was that kid. So, then I went to college and got two masters degrees. I start working for Merrill Lynch and was like, “Oh, this is pretty terrible, actually. This is all sales, not what I thought it would be at all”.
Ryan Inman:
But it was in 2008 when I left grad school and left the industry for like a year. And I was like, “I'm just going to work in accounting”. I went to work at KPMG and I was like, “I'll just go through public accounting” and my bachelor's was in accounting. And then I was lucky enough to find a fee only planner and I didn't technically do real planning. It was still kind of massed as sales and investment advice only, but it was at least significantly better than working at Merrill Lynch. It kind of came up as, I mean, anyone that's married to medicine or in medicine, you know you move around a lot, you have a lot of things going on and training. It was one of those, like I could commute an hour away when my wife went into fellowship and still work for them, or I can branch off on my own and start my own practice, working with the clients, all that I wanted to work with. And that's kind of what happened.

Dr. Jim Dahle:
So, at what point in there did you marry into medicine?

Ryan Inman:
As everyone likes to make fun of me for, and even during the best man speech, it took me 10 years to marry a doctor. So, we'd been together since freshman year of college. We went to college together. She did med school back in Kansas where she's from at KU. I lived there for a little bit, then realized the Midwest is not for me. And then I convinced her, twisted her arm, if you will, to move out to Orange County where she did her residency at CHOC, Children's Hospital Orange County. She's a pediatric pulmonologist for those that don’t know. And then a fellowship down at UCSD.

Dr. Jim Dahle:
Very cool. What is the fee structure you’re practicing and why did you choose that one?

Ryan Inman:
Yeah. We've been kind of being over the head as we go through training that AUM is the only model. That's it. Like this is the most profitable way. This is the best way to scale a business. And so, when I launched, I actually was an AUM model and then realized I would never pay anyone that way. Why would I want others to do that? And so, I've really built the whole business as if my wife was sitting on the other end of the conversation. There's no hard sales pitch. You come, you book a call with us, I don't even follow up with you. Like it's up to you to follow up with us if you'd like to work with us. Our fee structure is if you have under a million dollars, it's $500 a month to work with us. If you have over a million dollars, it's $833 a month.

Ryan Inman:
And the reason there's a distinction is because I don't feel comfortable actually charging you money. I manage your money until you have enough of it for it to matter. And what we're doing is actually going to make a difference. A lot of our clients starting out, some of them never even opened up an investment account, but I don't care if you have $800,000, you're still going to pay that same flat fee. And you could have $2 million sitting in a company 401(k), we're not going to charge on it. It's only what we truly manage. And I felt like it's just a way to strip out a lot of conflict of interest and of course, fee only. We don't sell products and you sign a fiduciary oath for all of our clients. We only work with MDs and DOs, which unfortunately upsets quite a few dentists, but it's just something that we've kind of put our foot down and so this is who we truly want to serve.

Dr. Jim Dahle:
Yeah. There's at least one planner out there that has limited themselves just to anesthesiologists. So, it can be even more limited than just MDs and DOs. But what do you see as the most unique aspect of your firm?

Ryan Inman:
Yeah, I think there's a couple pieces that make us unique. One is I'm married to a physician. I've been around medicine pretty much half of my life with my wife. All our friends are doctors, all our clients are doctors. I'm married to a doctor. So, a lot of what we do, even the way we deliver plans is based on a soap note. Like we take literally the way that you're charting and writing notes and that's how we're delivering plans to you. From how we built the practice to how we deliver information is I think very unique and different.
Ryan Inman:
And then we just started this Financial Fellowship membership community. And I seriously think of it as like group planning. And so, you get some videos just like a course would have that you'd watch prior to the call. And then we've got some actionable templates or flow charts or spreadsheets. Heavenly forbidden, I said the word spreadsheets to some people, but then you come and then we do two one-hour-ish, maybe a little longer coaching calls a month. So, you're getting like 24 hours of live video Q&A content with myself and my partner Casey throughout the year. And it's really meant for those that want to DIY a financial plan, but don't want to work with a planner one-on-one and want to spend thousands of dollars doing that. So, I think having that program also makes us quite unique.

Dr. Jim Dahle:
That's very cool. All right, let's get into some questions here. These come from listeners and the first couple are from Steve and come up at the Speak Pipe. Let's listen to the first one now.

Steve:
First off, I can't thank you enough for all the wisdom and education you provide at the White Coat Investor. Question about rebalancing. It’s certainly relevant to any retiree that is any investor with no dry powder, no earnings, no interest in ever working again. Sure, “Stick to your plan” is great advice whether once a year or upon some significant departure from policy, but what about a severe bear market? Much worse than the one we've experienced so far. If one's plan is to rebalance or even overbalanced down 40% that plan just called for shifting a significant chunk of cash from bonds to equity in mid-March.
Steve:
A return to those lows or significant new lows, say down 50% or 60% would entail another sizeable reallocation. Bill Bernstein would surely ask, “At what point is this rebalancing, retire, recording's disaster?” At what point is sticking with rebalancing, risking running out of cash in a prolong draw down? And we've certainly had multiple historic drawdowns that lasted seven to eight years. I think the answer is to have enough fixed income to withstand at least a 10 plus year draw down combined with flexible spending, of course. Having enough cash so that you'll never have to sell stocks in the hole, which is basically a retiree version of the working physician having a six-month emergency safety cushion. But I'm interested in your thoughts. Thanks again.

Dr. Jim Dahle:
All right. So, Steve is asking about rebalancing and over rebalancing. What would you say to Steve?

Ryan Inman:
So, I think Steve is interesting here. I think we need to actually look at a little bit of history before we jump into answers. From what I heard from Steve was that he's looking at a seven to eight year decrease in pricing of the market and 50% to 60% off of the lows we had in March. Now that would be down or around 10,000 or sub 10,000 just for perspective and that's like 70% peak to trough. I look at every quarter like a lot of planners do. JP Morgan, this is the one thing I could probably give them prompts too, it’s their guides to the markets and they break down tons and tons of data, Jim. I don't know if you look at this, but it's fascinating for number nerds. They basically said the average bear market is around 42% being down and it lasts about 22 months.
Ryan Inman:
For clarification, a bear market is defined as 20% or more of a decline from the previous market highs. So, if we think about some of the other bear markets we've had, most of us were alive during the tech bubble in 2000. It lasted two and a half years. The great depression, which is what's being kind of tossed around right now on the talking heads on CNBC is actually the outlier. It had like an 85% or 86% decline. It was about three years long. The longest bear market in history was five years long, really during World War II. And what was interesting about that one is that the S&P fell like +50% in a year.
Ryan Inman:
And I say all this because what Steve is referencing would be extremely tough to have planned for. You're planning for the longest bear market in our history because nothing's ever been eight years long and you want to see drawdowns compared to almost the great depression.

Ryan Inman:
He says something in there in his question that's sticking to the plan is a great advice, and it is. Understanding what your true risk tolerance is. Like there's so many factors, stage of life and are you making contributions to the account or not? And your IPS or Assessment Policy Statement, which you think you just did some content on, really should dictate guidelines to how you're going to invest in what you're going to invest in, but should also have some talk around the boundaries of how you would actually change your allocation based on rebalancing.

Ryan Inman:
So, I think if you're going to have a counselor you're not adding to, that have a significant shift in allocation are causing rebalancing, you need to look at taxes like long-term, short-term gains before rebalancing with any potential new cash or anything. But with markets experiencing significant volatility like we're seeing. I don't think you should be looking at this more than monthly or quarterly and not letting things kind of go out of whack and trying to actually trade. They trade this stuff.

Dr. Jim Dahle:
This is an interesting question he asks about rebalancing. Because obviously if something goes to zero and you rebalance into it, eventually your portfolio goes to zero too. This was a big discussion in 2008 on the Bogleheads forum and this concept of a “Plan B” started popping up. And if you Google “Plan B Bogleheads”, it'll bring up a half dozen threads from 2008 from October through about March, 2009 of people talking about “Plan B”.
Dr. Jim Dahle:
And their idea behind it was that basically if everything just gets terrible, terrible, terrible, you don't want to rebalance, you want to at least keep a minimum amount in fixed income that you could live on. That was the idea. That you at some point you stop rebalancing. Now I never put that sort of a plan into my investment policy statement and I don't think most people did. I think they just got scared in the bear market and were looking for a reason not to buy in the depths of the bear market. But do you think an investment policy statement or written investment plan ought to include a “Plan B” for some terrible situation where asset prices drop 80% or 90% and you stop rebalancing into it? Do you think that ought to be included?

Ryan Inman:
No, I don't. I don't think so. I think anything in extremes is bad and I think if you're going to go down the rabbit hole of this, where does that stop? I don't know if you've seen this in your groups, I know in my group, all of a sudden everyone was going to Passive Investing Index Fund for the win. Like we've got this and then we start seeing declines. It's like, “Hey, how do you think oil is trading? Should I buy this stock? And how much cash does Apple have? And is that good to throw money into?” It's like what happened? Like where did all these passive investors go? Why is it that when we're going to be influenced by something we can't control, we're going to make a ton of changes. It doesn't make any sense. If you honestly believe that the market is going to zero, well, you're going to have a much, much bigger problem than what your portfolio has done.

Dr. Jim Dahle:
Yeah, absolutely. I agree with that. Let's take Steve's next question here. Let's take a listen to it.

Steve:
At the risk of overstaying my welcome I have a second question. This is Steve again. It's about investing on the fixed income side. Cash and fixed income are the cushion protecting a retiree from selling stocks in the hole in a down market. What about with 0% interest rates? How does an investor protect against what happened in the 1970s that devastated fixed income? That's not the kind of cushion I want to be leaning on and the perhaps unlikely events Central Banks choose to inflate their way out of this quantitative easing. We talk a lot about equity diversification. What about fixed income diversification?

Dr. Jim Dahle:
Okay, so this one's more about fixed income. What do you think? At low interest rate should you still have fixed income in the portfolio? Or how would you diversify it especially with concerns about inflation?

Ryan Inman:
Yeah, so I think one thing is you're not a financial advisor. I am a financial advisor, but we still have to have our disclaimer, right? But we're not giving investment advice. This is entertainment purposes only. This is not specific to Steve, but I think others that could be in a similar boat. I actually think that it really depends on how flexible you're going to be with regards to your spending. It might seem kind of weird, but lifestyle inflation, I know you talked about living like a resident in the beginning of the career, but lifestyle inflation I think could be a much bigger problem than someone actually being affected by the bear market.
Ryan Inman:
And so, coming back, I think on a little bit of history, again coming from JP Morgan’s guide to the markets. Peak to trough, right the top to the bottom, the average bear market takes about a year to hit that bottom and then about a year and a half to get back to even. So, let's just round it up to three years. If you're going to have a three-year spending plan, it should be cash short term bonds and that's the key to not panic selling. If you still think that we're going to have a prolonged, basically recovery going out five years, doing some sort of bond laddering could be an option where you essentially are giving yourself a paycheck using bonds that expire each and every year. I won't mention fund names, I don't want to get too close to compliance issues, but Doctor Google will tell you everything, right?
Ryan Inman:
And I would look at it as like, if you were going to diversify across fixed income and you want to stay maybe short on the yield curve as rates rise, you could look at TIPS, right? Treasury Inflation Protected Securities. And those are really the principle value of the TIPS just from CPI or Consumer Price Index.
Ryan Inman:
Vanguard's got one, as we all probably know Vanguard as you listen to the show, that might be something that you might look at. I guess my word of caution here would be don't go worrying. Just be careful, I guess, adding too much credit risk to your portfolio in exchange for that interest rate risk. And what I'm getting at is high yield bonds. It sounds attractive, it sounds even potentially sexy depending on how excited you get about your money. But really, they're junk bonds. So, don't go chasing yields because interest rates are zero to offset that interest rate risk. Just be very careful. And I've seen some talk around, in the group, and that's my word of caution to this.

Dr. Jim Dahle:
Yeah. I think there's two aspects to this that he's talking about. One is the 0% interest rate – “Should you buy bonds and rates when are super low?” I find it interesting to be hearing this now because I have been hearing this question for the last 11 or 12 years. “Interest rates have nowhere to go but up. They’ve got to go back to where they were in, I don't know, 2005 or 2000 or 1985”. Or where do they have to go back to? Well, they don't have to. It's been 12 years and they basically have been super low the whole time. And so, if you're worried about where interest rates are now, you should have been worried for the last decade.
Dr. Jim Dahle:
And the other aspect of course is inflation. Yeah, high inflation devastates nominal bonds. So, how do you protect against that? Well, with money and things like stocks and real estate. But also, as you mentioned, inflation linked securities of some kind, like TIPS. And so, I've been thinking about this for a long time and I've got a portfolio that's very well designed for inflation. I've got these short-term securities in the Government G fund, the DSPG fund. And then I've got half of my fixed income in TIPS essentially.
Dr. Jim Dahle:
So, it's very well designed for inflation and for this sort of a scenario. And guess what? It has been the wrong thing to hold for the last 12 years. Because rates have not gone up, inflation has not gone up. That's the kind of portfolio if you really think is going up, you should hold, but if it doesn't go up, it's not going to be the best fixed income portfolios. So, you just got to realize that.

Ryan Inman:
Past performance does not indicate future results, right?
Dr. Jim Dahle:
Yes, absolutely.
Ryan Inman:
Something that I think to think of before we go to the next one is, you're going to be living off your investments the rest of your life. Some part of your portfolio should be trying to create more wealth in case you live longer than expected and you need to support yourself. But bonds are not where you're going to try to hit the home runs.

Dr. Jim Dahle:
Yeah, for sure. I've definitely got a safe portfolio as far as my bonds go. But I agree, you should take your risk on the equity side.
Dr. Jim Dahle:
All right. Our last question to talk about together today comes via email and this comes from some parents of a medical student. I say, “We have a son in medical school for reasons I won't go into. We are gifting him $15,000 per year for five years. We helped him set up a Roth IRA and a traditional IRA. That's right. A Roth IRA and the traditional IRA. Of the $15,000 gift, we put $6,000 into the traditional last year and $6,000 into the Roth this year. He's 25 years old on an HPSP scholarship through the USA and is in his third year. He'll be debt free at the end of medical school. So, the question is we cannot contribute to both the Roth and the IRA. Which should we be contributing to?” Would you like to take stab at that one?

Ryan Inman:
Yeah. Interesting question. I'm not an expert by any means on the HPSP, which is the Health Professionals Scholarship Program, but in order to have any income for those that aren't familiar with that program, they get a stipend. They have some income that's coming in and that's how they're actually being able to put money into the IRAs because you have to have earned income in order to put money into the IRA. Whether it's Roth or traditional, it doesn't matter.
Ryan Inman:
But I think it should be without getting into investment advice, I think it should be in the Roth. That wouldn't make any sense otherwise. And then the rest of the savings could be in a money market for a house down payment or other short-term goals. If they need it using the next couple of years, have it been conservative. And yeah, it's not going to knock it out of the park and hit a home run if you're investing it more aggressively. But it should be in the bank if you're going to use it in the next couple of years. And if it's not needed, if you're going to also help him with a down payment on a house and some other stuff, one, come adopt me, but two, put it in a taxable account. Start investing right now and having them learn good financial behaviors and financial habits. I think it'd be fantastic and hopefully, he's appreciative of the gifts you're giving them. And hopefully you're adding in some financial literacy with that.

Dr. Jim Dahle:
Yeah, I think the first thing to realize, if people don't realize this – You have to have earned income to make an IRA contribution. You cannot put gift money in there. So even though these parents are giving a gift, it's not the gift money going in there. It's the money that he has earned via the HPSP scholarship and that's taxable money. And so, because it's taxable earned income, it can be used to make an IRA contribution. So, I think it's important to distinguish that.
Dr. Jim Dahle:
Now, money is fungible and you can't really tell the difference between what is what. But in reality, what's going on here is he's living off the gift and he's putting the earned income into the IRA. But I totally agree. I mean, you're in medical school. Yes, the HPSP stipend is twice what it was when I was in medical school. I think it might even be $2,000 now a month that you're getting as a stipend, but it's earned income.
Ryan Inman:
I looked it up just because I didn't know the exact amount. It's $28,000 a year.
Dr. Jim Dahle:
It's $28,000 a year now. Yeah, that sounds pretty good. But the truth is, what you're just doing is you're getting part of your future attending pay early as what you're getting, because then the military just pays you less while you're on active duty.
Ryan Inman:
You got that nice multi-year commitment that you got a job.
Dr. Jim Dahle:
Yeah, it's a contract. It's not a scholarship. A scholarship doesn't come with strings like that. But hey, if you got it, you might as well take advantage of it. You're coming out of school debt free. You'll have some investments and so that'll give you a little bit of a head start among those who are $300,000 or $400,000 in the hole, which helps make up for the fact that your salary is a little bit lower. So good on you guys for helping him out. Good on him for serving the country. But yeah, for sure, this is a Roth situation. I mean it’s $28,000 a year. Yes, you pay taxes technically, but you're not really paying taxes. So, take the Roth while you can.
Dr. Jim Dahle:
Thank you so much for being on the White Coat Investor podcast, Ryan, and thanks for all you do. For those who are interested in getting more information from Ryan, you can listen to his podcast Financial Residency or you can go by his website for his practice at physicianwealthservices.com. Thanks again Ryan.
Ryan Inman:
Thanks for having me on.
Dr. Jim Dahle:
That was great having Ryan on. Cindy and I actually just spent an hour talking to him. We only shared 15 minutes with you, but it's always good. He's a good friend. He's helped us out a lot with the quality of this podcast and we appreciate that.

Dr. Jim Dahle:
Let's do a few more questions here before we wrap up. This next one comes from email. “I just listened to the latest podcast regarding tax loss harvesting. It was great as usual, and I have a big question. Feel free to answer on an upcoming podcast”. – Okay, we will. “We had a large capital loss on the sale of a property in 2012 about $300,000. We're also doing tax loss harvesting this year with the market downturn. Later this year we're slated to sell part of our practice as we merged with a PE backed large group and realize about a $600,000 capital gain. Can I use the prior $300,000 loss against the sale this year. That would be huge. If so, I wasn't aware you could deduct prior years capital losses against a current year capital gain, but in the podcast, you mentioned that”.
Dr. Jim Dahle:
Absolutely. Losses carry forward and so they're wonderful that way to offset a capital gain. In fact, one of the reasons I'm still aggressive about tax loss harvesting because I've gotten almost half a million dollars in tax losses that I'm carrying forward each year is because at some point down the road I expect I'm going to sell the White Coat Investor for a significant gain and this will reduce the taxes on that sale. And so yes, carrying forward, grab your losses when you can get them. They do carry forward each year and you can use them for things like selling your practice or even just realigning your portfolio. There are lots of great uses for tax losses. Worst case scenario? You use them to payback gains on the same securities before you liquidate them. I mean how bad is that? There's nothing bad about that at all.
Dr. Jim Dahle:
Our next question also comes in via email – “Thank you for your post today about student loan managing during Covid-19. My husband and I are both psychiatrists in private practice and while we have had a slowing of requests for new evaluations and had to forgo putting a plan Airbnb rental on the market. We're fortunate to still be bringing in close to our usual income by switching to virtual appointments”.
Dr. Jim Dahle:
Good for you guys. There have been a lot of doctors scrambling to maintain their incomes these days. “We were in the process of refinancing our mortgage loan for a lower rate. We're less than a year in on a 5% fixed 30 year conventional plus a smaller variable HELOC. Before Covid hit it was delayed because of an unrelated holdup with my husband's transcript that should be fixed in the next few weeks. We're still hoping to go through as refinancing the mortgage loan as soon as possible. I also have a high student debt burden $340,000 at a 5% fixed, 15 year so far with about 13 years left. I'd like to refinance my student loans now to get a lower interest rate.
Dr. Jim Dahle:
That said, I'm hesitant to do so because I don't want to risk A) adding a hard credit pull to my record and jeopardizing a better rate on our mortgage, which is larger than student debt and at a point in the term where the lower interest rate would make a bigger difference. And B) since I'm in between the 10- and 15-year point of my student loans, either having to extend again to a 15-year loan or taken on a higher minimum monthly payment to get the 10-year rate in such an unstable economy. My husband's loans are significantly smaller – $70,000 at a variable seven-year term with four years left. Any suggestions or advice would be appreciated”.
Dr. Jim Dahle:
Well, I'm big on refinancing. If you can get a lower interest rate, you get a lower interest rate, both on student loans and on mortgages. In this case, you have private loans already. So, even though we're at 0% on federal loans from now until September 30th you're not on private loan, so you might as well refinance them if you can get a lower rate. I'm not a big fan of dragging out student loans for 10-years, much less 15. I'd love to see in a 5-year loan and really cranking hard on those by ratchet in your lifestyle down and sending them a lot of money each month. I mean it's a two-doctor income. You only owe $410,000 in student loans. You ought to be able to knock that out in like two years, not 12 years. So, I would encourage you to see what you can do to reduce your lifestyle a little bit and be out of debt sooner as far as student loans go.
Dr. Jim Dahle:
But your main question is, “What should I do first? Should I fix the mortgage or should I refinance the student loans?” Well, if your credit score is close enough, that one hard money poll is going to drop your score down below where you can get the top mortgage rate, then you might want to do something about that credit score to start with. But yeah, do the mortgage first. Get your mortgage all lined up and then refinance your student loans. So, what if it takes a month longer and you pay a little bit more in interest? If you're worried, you're going to screw things up by too many hard credit poles just before refinancing, don't do it.
Dr. Jim Dahle:
As a general rule, you don't want to mess with any of your credit stuff if you're coming up on a time to do a mortgage. You just don't need to be answering the questions, you don't want a borderline credit score to drop below that border. So, get the mortgage taken care of and then refinance the student loans.
Dr. Jim Dahle:
But I would encourage you to be a lot more aggressive with those student loans. When I see two doc couples that are talking about dragging out student loans for more than a decade, I think the main problem is not the interest rate. The main problem is the percentage of your income that's going toward building wealth. So, I hope that's helpful.

Dr. Jim Dahle:
This episode was sponsored by Bob Bhayani at drdisabilityquotes.com. An independent provider of disability insurance and a longtime the WCI sponsor. He specializes in working with residents and fellows and early career attendings to set up sound insurance strategies and has been extraordinarily responsive to me anytime, any readers had any sort of an issue. So, I do get good reviews about them. If you need someone to review your disability insurance coverage to make sure it still meets your needs or if you just haven't gotten around getting this critical insurance contact Bob at (973) 771-9100 or [email protected] or just go by the website and leave your contact information in their form there at drdisabilityquotes.com.
Dr. Jim Dahle:
If you are not subscribed to our monthly newsletters, make sure you go and sign up for those. You can find that under the WCI plus tab on the main website and that's a great way to get that monthly newsletter as well as anything else you want to get by email from the White Coat Investor. Thanks to those of you who have left us a five-star review and told your friends about the podcast. It really does help get this message out there. Keep your head up, your shoulders back. You've got this and we can help. We'll see you next time on the White Coat Investor podcast.

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

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