Fixing Analysis Paralysis – Podcast #175 | White Coat Investor

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:

This is White Coat Investor podcast number 175 – Fixing analysis paralysis. Let’s see, we’re recording this on the 25th of August. It’s going to run on the 10th of September. Welcome back to the show. I hope you are finding it helpful. We get lots of great feedback on it, and thanks to all of you leaving us five-star reviews for us.
Dr. Jim Dahle:
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Dr. Jim Dahle:
Thanks to those of you who have been filling out the podcast survey. Please, as many of you as possible, please fill out that survey. It will help us tailor this content to what you really want. There’s something bugging you about the podcast? Put it on there. If there’s something you really love about the podcast, put it on there.
Dr. Jim Dahle:
We really need this feedback to help you get a fair shake on Wall Street. We don’t want to waste your time. We don’t want to waste our time. We want to be as helpful to you as we can. So please fill that out, whitecoatinvestor.com/podcastsurvey.
Dr. Jim Dahle:
If you want to get your questions on the podcast, the best way to do it is to go to the Speak Pipe. At whitecoatinvestor.com/speakpipe you can record up to a minute and a half long question. Don’t feel like you have to use the whole minute and a half, but you can record your question there and we’ll answer it on air.
Dr. Jim Dahle:
But our first question today that we’re going to answer it came in by email. The writer says, “I recently completed your Fire Your Financial Advisor course, and I’m trying to set up a spreadsheet to implement my desired asset allocation. Between my wife and I, we each have a 401(k) Roth IRAs and investments in taxable accounts. I additionally contribute to a defined benefit cash balance plan through work, which is managed by the practice of Wealth Management Group.
Dr. Jim Dahle:
How do you suggest I track and implement the asset allocation for my written financial plan? Being that the defined benefit plan is out of my control. Do I not include it in the spreadsheet and only apply the allocations to the remaining accounts? Or is it better to include the defined benefit holdings and adjust the other accounts accordingly to fit my desired allocation? Thanks for your help. The course provided me the boost I needed to finally hop on the path to financial literacy”.
Dr. Jim Dahle:
Well, I don’t actually include my defined benefit plan in my asset allocation. And the reason why is because it’s out of my control number one, and number two, it’s a trivial amount of my investments, frankly. Especially because we keep closing it and rolling it over into 401(k)s. And so, it’s a relatively tiny amount of my asset allocation.
Dr. Jim Dahle:
So, the first thing I asked to this writer was, well, how big is it compared to the rest of your asset allocation? And unfortunately, it turned out it was pretty big. He said he had about $40,000 between his and hers 401(k)’s and about $12,000 between his and her Roth’s and $3,000 in a taxable account, but $74,000 in that defined benefit plan.
Dr. Jim Dahle:
So, it’s a pretty big piece of their portfolio. And because of that, I said, you know what? You better build your asset allocation around it. So, we got the asset allocation for it and he is trying to be a little bit more aggressive in the 401(k) and Roth IRA to account for the defined benefit plan, being a little bit less aggressive.

Dr. Jim Dahle:
But basically, that’s the way I’d look at it. If it’s a tiny piece, I just ignore it. If it’s a big piece of your asset allocation, you probably need to build your portfolio around it and take it into consideration. You can usually find out what the asset allocation is in the plan even if you can’t control it yourself.
Dr. Jim Dahle:
Some plans allow you to control yourself. For example, mine allows me to pick between three Vanguard life strategy funds. The most aggressive one is 60/40. Then I think I can also choose the one that’s 40/60, and the one that’s 20/80. And so, if I wanted to include that in my asset allocation, I certainly could.
Dr. Jim Dahle:
All right, we’re going to take our next question off the Speak Pipe from Matt.
Matt:
Hi Jim, I’m a mid-career emergency physician and a long-time fan of the website and your podcast. My question is I have the opportunity to get in on a community bank IPO, and while I’m well aware of the risks of owning individual stocks, analysts seem to think this particular bank is a good investment. So, I’m wondering what percent of my portfolio is a reasonable amount to invest in an individual stock, recognizing it has a higher risk uncompensated risk, as you always say, but potentially higher reward. Thanks.

Dr. Jim Dahle:
Okay. A community bank IPO, or initial public offering. Well, what percentage of your portfolio do you think is okay if you think it’s going to be a good investment? I mean the general rule for any sort of investment that I don’t really approve of is keep it to less than 5%. If you want to put 5% of your portfolio into Bitcoin or whole life insurance, or individual stocks or some trading account, then knock yourself out, have fun.
Dr. Jim Dahle:
If you can’t be successful with 95% of your account, you’re probably not going to be successful with 100% of it. Let’s be honest. So that’s the general rule. If you just want to take a flyer on something is keep it down to a single digit percentage of your portfolio.
Dr. Jim Dahle:
But you start talking about this one. And I wonder if it’s a little bit more than that. If I have some control over a company or I can eat dinner with everyone who makes decisions about that company, I put it in a separate category. I put it in a small business category and frankly, those have been my best investments.

Dr. Jim Dahle:
The White Coat Investor is definitely my best investment, but it’s not publicly traded and certainly accounts for more than 5% of my net worth. But if that’s not the case for this community bank, if this isn’t something your brother controls and your dad on the board of and so on and so forth, then I certainly wouldn’t go bigger than 5% of your portfolio. I’d keep it to less than that.
Dr. Jim Dahle:
All right, let’s take our quote of the day. This one comes from Thomas J. Stanley PhD of “The Millionaire Next Door” fame. He said, “Only one in four doctors in the high-income category has an investment portfolio worth $1 million or more”. That’s disturbing.
Dr. Jim Dahle:
Obviously that data is from when the book came out in the 1990s, but it hasn’t changed that much since. If you look at the surveys of physicians, it’s still only about 50% of doctors that have a net worth over $1 million. And that’s obviously a bigger number than their portfolio size.
Dr. Jim Dahle:

All right, let’s take another question off the Speak Pipe. This one’s an anonymous person asking, and this is the question I named the podcast for – Fixing analysis paralysis. Let’s take a listen.

Speaker:
Hey Jim, I really admire all you do and have achieved. Thank you very much for your help. I’m in a complete financial mess right now. I’m trying to figure my way out of it. We’re a physician couple. I have a two-year-old, we built to make around $300,000 each and be in practice around three years now. Paid off our student loans and we had started collecting money initially for a down payment on the house, around 2017.
Speaker:
Eventually, we didn’t end up buying a house and felt too nervous to invest in stocks. So, they kept going up. It was a complete paralysis of which I haven’t been able to come out to this day. Now we have a total of $750,000 in cash, and I don’t know what to do with it. I continue to feel like I’m too late in the game and I’m only going to lose going in at this time.
Speaker:
We’re maxing out 401(k)s and I’ve been doing the mega Roth conversions over the last few years. And our time in folio combined stands around $450,000. I’m really not sure where to go from here. Any help will be sincerely appreciated. I’m not sure how and where I should allocate this money. Any advice would be helpful. Thank you.

Dr. Jim Dahle:
Okay. You’re doing lots of things great here, right? You’re making $600,000 a year. You got $750,000 in cash. There are a lot of people that would love to be in your situation. Yes, you haven’t bought a house, but that’s not necessarily some crazy thing, right? Lots of people don’t have a house until late in life.
Dr. Jim Dahle:
It really doesn’t matter when you buy the house. What you want to do of course is buy it when your personal and professional situation are stable. And if that is in your thirties, that’s great. If that’s in your forties, that’s great too. But there’s not necessarily a rush there.
Dr. Jim Dahle:
It’s great that you’re maxing out your 401(k)s. It’s great that you’re doing make a backdoor Roth IRAs. It’s great that you got almost half a million dollars in retirement already.
Dr. Jim Dahle:
So, where do you go from here? Well, frankly, you need a plan. A written investment plan, a written financial plan that tells you what to do with your money. And these plans always start with your goals. So, figure out what you want to do first. How much money you need in retirement and when you’re going to need it. That’s usually the biggest goal.
Dr. Jim Dahle:
And then you can work backward from there to know how nice, how high of an investment return you’re going to need, how much you need to save each year, how long you need to work, et cetera.
Dr. Jim Dahle:
List your other goals out. How much money you want to have for kids for college, or when you want to buy the house. How big of a down payment you want. If you want to buy a Tesla or a boat. Throw those sorts of things in there too but build a financial plan starting with your goals and then go from there.
Dr. Jim Dahle:
After the goals, you set up an asset allocation for each goal. Then you choose which accounts you’re going to invest in for that goal. And then you choose the investments to fulfill that asset allocation. That’s the easy part.

Dr. Jim Dahle:
If you’ve got an asset allocation that says you’re going to put 25% of your money in U.S. stocks, you can just go buy the U.S. total stock market index fund, right? It’s available at Fidelity or Vanguard or Schwab or iShares or whatever. It’s very easy to pick investments once you have an asset allocation.
Dr. Jim Dahle:
When you get analysis paralysis, what often happens is you’re so worried about making a mistake and this gets worse the more money you have. You’re so worried about making a mistake that you don’t do anything, which is also a mistake.
Dr. Jim Dahle:
And so, obviously leaving money sitting in an account, earning nothing or 0.8%, maybe 1% if you’re lucky. And it’s not going to give you the same long-term returns as getting that money invested into stocks, bonds, and real estate.
Dr. Jim Dahle:
Yes, it might go down temporarily, but in the long run, these sorts of long-term investments are going to outperform keeping the money in cash. And so, when you don’t make a choice to invest, you are making a choice. You’re making a choice to invest in cash. And if that’s not the decision that you want to make, then you better change it.
Dr. Jim Dahle:
Keep in mind, if you really want to stick with safe investments, CDs, bonds, whole life insurance, cash, you have to save like 50% of your gross income for an entire career in order to be able to maintain your standard of living in retirement. You really do need your money to do some of the heavy lifting and that means you have to take some risk.
Dr. Jim Dahle:
And every time you buy stocks, it feels like, “Oh, they’re about to go down”. It feels like that every time. It’s been doing that to me for last 16 years. Every time I buy them, it feels like they’re about to go down. At about a third of the time they do but most of the time, they go up after I bought them.
Dr. Jim Dahle:
And certainly, in the long run, they’ve all gone up since I bought them since the market’s at all-time highs now again. And frankly, the market is at all-time highs most of the time. And so, that shouldn’t necessarily be a reason not to invest.
Dr. Jim Dahle:
Now, some might say, “Well, quantitative easing” or “Well, we’re in the middle of a pandemic” or “Well, stock market’s at all-time highs, it has to fall”. My crystal ball is cloudy. I don’t really know what the future’s going to hold. So, I made a written investment plan that did not require me to know what the future holds in order to be successful. And I’ve been following for the last 16 years, and guess what? It worked. I’m financially independent. I’m successful. I can do whatever I want with my life.

Dr. Jim Dahle:
If you will put together a sensible written investment plan and you will fund it adequately and you will stay the course with it, you will also be at that point eventually. Maybe mid-career, maybe late career, certainly by the time you retire, you will be able to basically eliminate your financial worries.
Dr. Jim Dahle:
What you can’t do is sit around, leaving all your money in cash with analysis paralysis, trying to decide what to do for an entire career and expect to be successful. That you cannot do.

Dr. Jim Dahle:
All right. I got another question by email asking me to talk about this article in Rolling Stone on the podcast and want to know what I thought about it. Well, the article is called “Wall Street is looting the American retirement system. The Trump administration is helping”.
Dr. Jim Dahle:
So, you read a title like that and you start wondering, “Well, how bias is the source?” So, I thought I’d check with that. You can go to a website called Media Bias/Fact Check and what it says about Rolling Stone is that they generally don’t lie.
Dr. Jim Dahle:
They have not been caught in failed fact checks, but that they editorially almost always favored the left. In 2016, they endorsed Democratic presidential candidate Hillary Clinton. The Guardian has described Rolling Stone as a liberal cheerleader.
Dr. Jim Dahle:
In general, Rolling Stone reports news, factually, and with proper sourcing. However, their opinion pieces are consistently left biased. When it comes to political news, Rolling Stone does not shy from using loaded emotional wording that conveys a left leaning bias, such as this “Trump is awfully sensitive about his confusing immigration deal with Mexico”.

Dr. Jim Dahle:
Okay. So, kind of par for the course for Rolling Stone. This is what they do. A little bit of a left bias on their editorial stuff, but let’s take a look at the article and see what we can get from it and see what the listener is concerned about.
Dr. Jim Dahle:
The subtitle for the article says, “The Trump administration is opening up retirement funds to private equity at workers expense”. Okay, well, that’s not exactly new news to most of us. Most of us knew this was happening a few months ago that private equity funds were going to be an option in 401(k)’s.
Dr. Jim Dahle:
Not a huge deal to me. A lot of people are really worried about this. If you don’t like the option in your 401(k) don’t use it, right? You can still buy publicly traded stocks, be a low-cost index funds inside your 401(k). You don’t have to use a private equity fund, just because it’s there. There’s a lot of crap in 401(k)s that I wouldn’t use. And I would love to see actively managed funds pulled out a 401(k)’s. And so, I’m not going to flip out that somebody puts a private equity fund in there.

Dr. Jim Dahle:
The article goes through, talks about several changes to retirement accounts, and there’s kind of a lot of inflammatory wording in the article, but it talks about three changes.
Dr. Jim Dahle:
The first one of which is this PE thing, right? Private equity can be put into retirement accounts now. It talks about that being an issue. This was one of the Trump administration’s plan changes to retirement rules. It’s a major break with past practices, but it wasn’t done through a formal rule process that would allow for scrutiny and public input.
Dr. Jim Dahle:
Instead in early June, the department of labor sent a high-profile information letter to Pantheon Ventures, a private equity firm, codifying conditions, such as a 15% cap for a 401(k) to invest in private equity. So, you can’t put more than 15% of your 401(k) into these new private equity funds that you’re going to start seeing in your 401(k)s.
Dr. Jim Dahle:
Talks about the risks of private equity, long-term illiquidity, astronomical fees, et cetera, capital calls that can happen with these. But I suspect that when you dumb them down to put them into a 401(k), you’re probably not going to have as many of those issues.
Dr. Jim Dahle:
Is it a great thing to have them in the 401(k)s? I don’t know. I’m not totally against it, but I agree that most 401(k) investors are not particularly sophisticated investors. For the same reason, I would argue maybe most of them shouldn’t even be offered to build their own asset allocation. Maybe they should only be offered target retirement funds, if that’s the case.
Dr. Jim Dahle:
At a certain point, you got to allow people to make their own decisions and decide what they think is a good investment, and what is a bad investment. So, I can kind of see both sides of this, both protecting workers who have 401(k)s as well as allowing people to invest in what they want to invest in.
Dr. Jim Dahle:
Kind of interesting but for the most part, if you’re a reasonably educated financial literate investor, you got to be able to look at that private equity fund and decide whether that’s something you want to put up to 15% of your 401(k) into or not.
Dr. Jim Dahle:
A couple other things that talk about these other changes in 401(k) is that the article talks about the fiduciary duty rule. This was a big deal, I don’t know, a year ago or so. I remember when I was talking about how awesome it was that there was a fiduciary duty now that financial advisors finally had to their clients, but only in their retirement accounts. It didn’t apply to taxable accounts for some dumb reason.
Dr. Jim Dahle:
I think this was passed under the Obama administration. But basically, the Trump administration came along and de toothed it. They made it so basically, they don’t even have to have this fiduciary duty to you inside retirement accounts, which is unfortunate. I didn’t think the Obama rule went far enough, so of course, I’m not thrilled about the Trump rule making it less strong. This is a bad thing all around, in my opinion.
Dr. Jim Dahle:
It’s interesting about the fiduciary duty though, you know who does have a fiduciary duty to you if you have a 401(k)? The employer does. So, if they’re putting crappy stuff in your 401(k), you can actually sue them for it.
Dr. Jim Dahle:
Keep that in mind, if you were the owner of the company, if you are a partner in a partnership, if you are a sole practice owner and you offer a retirement plan to your employees. It better be a good retirement plan, or you have a real liability there to your employees, they can sue you for it.
Dr. Jim Dahle:
We’re in the process right now, putting together the White Coat Investor 401(k) plan. And you better believe we’re thinking about that liability and making sure we have an awesome 401(k).
Dr. Jim Dahle:
Another change in there from the Trump administration is that they are trying to pass a rule that essentially outlaws ESG funds. These are environmental social governance funds. Funds that try to invest only in those stocks that have good environmental records and social records and good governance records. I had a blog post about this a little while ago.
Dr. Jim Dahle:
And the nice thing about it is there’s a lot of these funds that are actually having reasonably good returns. In the past when you looked at these funds, they often lag behind the index funds because they’re actively managed. But more recently, the funds are looking a little bit better. And it’s hard to say whether that’s just because some of these big growth funds that make up a lot of the index are considered good companies. And so, I keep those returns high.
Dr. Jim Dahle:
I don’t know but keep that in mind, if this is something you want to invest in, the Trump administration has made it a little bit harder for these funds to be in your 401(k). I think, let’s see. It was one of the officials at the labor department Scalia.
Dr. Jim Dahle:
I don’t know if there’s any relationship to the justice or not, but it just said basically, “Private employer sponsored retirement plans are not vehicles for furthering social goals or policy objectives that are not in the financial interest of the plant”.
Dr. Jim Dahle:
Well, I kind of agree with that statement. The point of a 401(k) is provided for the retirement of the employees, not necessarily to further social goals. But it does makes you wonder the Rolling Stone points out rightly that it’s a little bit goofy that we’re going to allow plans to be put in private equity holdings, but not putting ESG funds.
Dr. Jim Dahle:
Are we going to allow people to have the freedom to choose, or aren’t we? I think that’s a good criticism from Rolling Stone about that particular rule. So those are my thoughts on this Rolling Stone article. I hope that’s helpful.

Dr. Jim Dahle:
I got a question via blog comment on the blog from somebody who calls himself Shmuel. “My wife has an HSA qualified plan. It is her and our son. I am separately insured. Can she contribute on the family rate or just the individual?”
Dr. Jim Dahle:
It’s the family rates, remember? As far as HSA goes, it’s not married and single. It’s single and family. So, one adult and one kid count as a family. Two adults count as a family, okay? I hope that’s clear so you can make the full $7,100 contribution this year for 2020 to your HSA.
Dr. Jim Dahle:
All right. Another blog comment comes in from Undercover MD who asks, “We’re obviously in uncertain times and the upcoming presidential election only serves to make the street more nervous”. I’m not sure if we’re talking about main street or Wall Street there.
Dr. Jim Dahle:
“I’ve currently got about $70,000 in student debt. I owe $30,000 on one vehicle. The other is paid off and beyond that, the only debt I have is my home mortgage. Between my 401(k) and a trading account, I’ve got about $1.4 million invested in the market.
Dr. Jim Dahle:
I’m considering taking $100,000 out of my trading account, paying off my student debt, paying off my car, and then refinancing my house hopefully at 2.5% for 15 years. Paying off my student loans and car will save me about $1,500 a month, which I can start pouring into my home mortgage or possibly buy another rental investment property. So, I guess this plan would qualify as taking some money off the table, but I still think it’s a reasonable plan. What are your thoughts?”
Dr. Jim Dahle:
Well, if I had $1.4 million, I certainly would not have a car loan, nor would I have student loans. I might not even have a mortgage. I’m not sure when he says trading account, if he means just a taxable investing account or whether he’s actually trading stocks left and right.
Dr. Jim Dahle:
And if that’s the case, if he’s in their day trading stocks, I certainly think he’d be better off liquidating that account and paying off the mortgage, the student loans and the car loan. And probably buying another rental investment property. I think what we’re looking for here are long-term investments, lowering your leverage throughout your career by paying off debt and going from there.
Dr. Jim Dahle:
Certainly, if you’re afraid that stocks are going to go down in value, paying off debt is a great use of that money you currently have invested in stocks. If you are afraid that stocks are going to go down in value and rental income is going to go up and rental properties are going to go up in value, then sure, it makes a lot of sense to move from stocks to rental property.
Dr. Jim Dahle:
My crystal ball is cloudy. I don’t really know what’s going to perform well going forward. I don’t know if stocks are going to make money or lose money for the rest of the year. I don’t know how they’re going to do next year. I certainly don’t know whether real estate or the overall stock market is going to outperform over the next year, two years or five years.
Dr. Jim Dahle:
So, my crystal ball is cloudy. I can’t tell you exactly what to do with your money, but certainly, it seems like there’s some room here to take some of those assets and pay off debt with them.
Dr. Jim Dahle:
All right, here’s another question that came in via the blog as a comment. “I need some feedback from my current situation. I have BCBS, PPO insurance through my employer, but they only offer an FSA at this time. Even though the policy is through my employer, I meet the deductible and maximum out of pocket as defined in the eligibility criteria for an HSA. Can I apply for an HSA on my own? Even though my health plan is through my employer, is it still considered a high deductible health plan? Any piece of advice will be very helpful. Thanks”.
Dr. Jim Dahle:
Okay. Here’s the deal. It’s not about the deductible. It’s about whether the government calls the plan, has rated the plan, classifies the plan as a high deductible health plan. If it qualifies as a high deductible health plan, you can use an HSA. If your employer doesn’t offer one, you can go open it on your own.
Dr. Jim Dahle:
If the plan is not designated as a high deductible health plan, you can’t use an HSA. It’s really that simple. So, you’ve got to find out if the government classifies it as a high deductible health plan. Probably the easiest way to do that is to check with HR. Go to your human resources department, ask them, does this qualify? Is this designated by the government as a high deductible health plan?

Dr. Jim Dahle:
The fact that they are offering a flexible savings account makes me suspicious that it is not a high deductible health plan, despite the fact that it has a relatively high deductible and maximum out of pocket. But check with HR and find out.
Dr. Jim Dahle:
All right, do you still have money in your CME fund that you need to spend by the end of the year? We think one of the greatest uses of that money is to purchase the Continuing Financial Education 2020 course.
Dr. Jim Dahle:
This is the course we recorded mostly back in March at the White Coat Investor conference. It includes six hours of stuff that wasn’t even presented there. In fact, it’s 34 total hours of material from some awesome people that were at the conference and who recorded their presentations from home.
Dr. Jim Dahle:
It offers 10 hours of continuing medical education credit. That’s AMA category one credit, the good stuff. It offers 10 hours of dental CE. So, if you’ve got a continuing education fund that you need to spend by the end of the year, and you’re looking to update your financial education, this is a great opportunity. You can get that just by going to white coat investor.com/cfe2020.
Dr. Jim Dahle:
Our next question comes from Twitter. “Jim, I know the rule is that single stocks are too risky, but the Airbnb IPO coming up is very enticing and they have proof of concept and should thrive after Covid. Do you think a $50,000 investment within an IRA is too much of a gamble?”
Dr. Jim Dahle:
Well, I’m glad you recognize it’s a gamble. I mean, I don’t really gamble any of my money. All my money is serious money. I don’t have a play money account, but if you want to have a play money account, try to limit it to 5% or less of your portfolio. So, is $50,000 too much? I don’t know. Do you have a million-dollar portfolio? If you don’t, it’s probably too much.
Dr. Jim Dahle:
Honestly, the idea is to keep these gambles so low that they don’t have any meaningful effect on your portfolio. And if they’re not going to have any meaningful effect on your portfolio, why are you bothering anyway? So, I’ll leave that up to you, but I probably wouldn’t invest in it at all. I don’t know what Airbnb is going to do. And it certainly surprised a lot of people this spring, both hosts as well as guests, as well as stockholders to see how poorly that something that seems so awesome could do.
Dr. Jim Dahle:
I feel most bad for the highly leveraged hosts that all of a sudden had their source of revenue cut off. Luckily the government also passed rules that keep you from getting foreclosed on. So, it gives them a few more months to come up with the cash to keep that mortgage intact. But for the most part, this is a pretty risky bet.
Dr. Jim Dahle:
I asked him, why do you think you know more about the future of Airbnb than the combined information of the millions of other market participants? There are millions of people that make up the market. And they think that this is what Airbnb is worth given the future scenarios and given the current events.
Dr. Jim Dahle:
So, basically when you buy this individual stock, especially at an IPO, which oftentimes unless you’re an insider, you end up with an inflated price. But you’re saying that you know more than the entire market knows. I think that’s a pretty gutsy bet to make you’ve got to be somewhat cocky to think you know more than everybody else.

Dr. Jim Dahle:
So, on this question he replied, “I just think it’s got a ton of upside. Its evaluation got hit by a pandemic that hopefully won’t happen for another hundred years. Young people seem to love it. And people’s gravitation toward experiences over material goods”.
Dr. Jim Dahle:
Boy, if that’s the reason you’re picking a stock, I think you’re making a big mistake. You really need to be diving into the financials a lot more than that if you want to pick individual stocks. I don’t think it’s a good idea, even if you do that, but certainly, you shouldn’t be buying them because young people seem to love it. I mean, that is not a reason for a stock.
Dr. Jim Dahle:
Okay. Next question also via Twitter. “What do you think current equity evaluations and extremely low interest rates mean for medium and long-term returns? Do you think we’re in for a long period of mediocre returns? I’m not suggesting market timing at all. I’m just wondering”.
Dr. Jim Dahle:
Well, my crystal ball is cloudy. I don’t really know what returns we’re going to see in the future. Certainly, it’s very cloudy in the short to medium term. But do I think that when we’re starting at a period of all-time highs that the bond yields are very, very low, equity valuations are pretty significant, especially considering we are at a pandemic.
Dr. Jim Dahle:
Do I think that that means short term returns over the next decade are probably going to be pretty subdued? Yeah, I do. They probably will be pretty subdued. I would not expect the same returns from the stock market in the 2020s that you saw in the 2010s. I think to do so is probably naive. Are they going to be as bad as they were in the 2000s? I don’t know. They could be. They could easily be.
Dr. Jim Dahle:
In the long run, and by long run, I’m talking about your whole investing career, the next 30 to 60 years, I expect returns to be much closer to historical returns, but there’s going to be good times and bad times in that time period. And when they’re going to be, I have no idea. I would suggest you put together a written financial plan that doesn’t require you to know that information. And then if you find out you’re lagging where you need to be work harder and save more money to make up for it.
Dr. Jim Dahle:
The next question comes in to be in the Facebook group. “Hey, I’m a first-time writer. I’m a hospitalist. I graduated in 2018 from residency and I’ve been working ever since. I have a mortgage of $235,000 at 2.3% and student loans of $103,000 at 2.2%. A reason I started working locums in addition to my full-time job, given Covid, this opportunity came up nearby and I took as many days as possible. I maxed out my HSA, 457(b) and backdoor Roth. Two-part question. What should I do with this extra income I’ll make in three months? It will be a large extra chunk of cash”.
Dr. Jim Dahle:
What does your written investment plan say you should do when you get additional income? This is something you should address in your plan. Every month I get additional income. It’s called the profits from White Coat Investor. It’s called the paycheck from my physician practice. It’s called income from dividends and interest and other businesses I own I get income every month. It would be terrible to have to go to the Facebook group and ask them what to do with this income every time I got it. Wouldn’t that drive you nuts? It would drive me nuts.
Dr. Jim Dahle:
So, what I did 16 years ago is I wrote up a written financial plan that tells me where to put my money. It works out for my long-term money. It’s about 25% in the U.S. total stock market for instance. I put about 15% into a small value fund. I put another 15% into a total international stock market fund. I put another 5% into a small international fund. About 20% of the money goes into real estate. Another 20% goes into bonds.
Dr. Jim Dahle:
That’s my asset allocation, right? This is my asset allocation for long-term money. That tells me when I get money that I don’t need for short term stuff to pay taxes or buy a car or whatever that it goes into this asset allocation. So that’s what I do with it.
Dr. Jim Dahle:
If you also have debt, if things get a little bit more complicated, because another option is just to pay down the debt. And these days, especially if you’re investing in bonds that are only paying 1% or 2%, even paying off a mortgage at 2.3% and student loans at 2.2% might be attractive compared to that.
Dr. Jim Dahle:
So, it’s okay to use some of that money to pay down debt as well. And I’ll let your own tolerance for debt dictate whether you pay off low interest rate debt like that or not. It’s certainly reasonable to invest and carry debt at that low of a rate. But at the same time, many of us hate debt and want to be out.
Dr. Jim Dahle:
For example, I recommend most people get rid of their student loans within five years. So, if you can do that and still invest money on the side, then invest money on the side. If your student loans are so large that you can’t do that. Even if they’re low interest rate, I would be throwing more money at them.

Dr. Jim Dahle:
But again, that’s something that should be addressed in your written investing plan. How fast you’re going to pay off the mortgage, how fast you’re going to pay off the student loans, what’s your plan for that is. I hope that makes sense. That way you don’t have to wonder all the time what to do with money when you get money. Your plan tells you what to do with the money. All you have to do is follow the plan. It makes life a lot easier.
Dr. Jim Dahle:
If you need help with the plan, there’s three ways to get one. The one I recommend to a lot of people is taking the Fire Your Financial Advisor course. This is a $499 course. We offer it at the White Coat Investor. It’s about eight hours long. It’s audio/video with some tests and quizzes. And at the end, you leave with a written financial plan that you have written that you can follow the rest of your life.

Dr. Jim Dahle:
A more expensive option is to hire a financial advisor. We keep a list of recommended financial advisors on the website. A cheaper option is to write the financial plan yourself. If you need help, you can ask questions on the White Coat Investor forum, the White Coat Investor subreddit, the White Coat Investor Facebook group. And you can kind of craft that over time by reading books, thinking about it, writing it down, asking questions about it and kind of modifying as you went.
Dr. Jim Dahle:
Basically, that’s what I did. It didn’t cost any money other than the cost of a few books, but it certainly took a lot of time and effort. So that’s also a reasonable option. But however, you get a written financial plan in place, get it in place.
Dr. Jim Dahle:
Okay. The second question from this person in the Facebook group is, “This is my first-time making money as an independent contractor. Should I go ahead and find a CPA and get oriented in regards to taxes making an LLC or S Corp? Is this something I could figure out on my own?”
Dr. Jim Dahle:
Well, it’s certainly something you can figure out on your own. I mean, I filed my own taxes for years and years. I formed my own LLC. I formed my own S Corp. You can do this on your own. If you’re not sure what to do paying a CPA for advice is not a bad thing. You can certainly pay a CPA for advice.
Dr. Jim Dahle:
Most of the time, if people are just moonlighting, they’re just doing some locums and getting a relatively small percentage of their time is generating 1099 revenue, they usually don’t need an S Corp, right? The costs of maintaining the S Corp probably outweigh the advantages, which are primarily saving Medicare tax. And you certainly don’t need an LLC.
Dr. Jim Dahle:
I mean your liability when you’re practicing medicine is all personal. Malpractice is always personal. An LLC is not going to shield you from that personal liability. So, if you’re making $20,000 or $50,000 or $100,000 as a 1099, you probably don’t need to form an LLC or an S Corp.
Dr. Jim Dahle:
If you’re making $500,000 as a 1099 contractor, it’s probably worth the hassle to form an S Crop and try to reduce your Medicare taxes. You can probably reduce them by more than it’s going to cost you in time and hassle and money to deal with that S Corp. That’s probably what your CPA will tell you I would imagine.

Dr. Jim Dahle:
Thanks so much for what you do. Medicine is not an easy thing, as you can tell just when we try to branch out into the business world, right? Medicine requires a certain level of dedication that a lot of professions don’t have. Quite frankly, we traded our 20s away in order to learn how to do this. And if nobody’s told you “thank you” for that today, let me be the first.
Dr. Jim Dahle:
All right, let’s take another question from the Facebook group. “I’m currently interviewing for private GI practices and a recurring theme I’m running across this is taking out large loans to buy into the ASC and endoscopy centers at the time of partnership. I’m very, very wary of this and I’m wondering if anyone has been able to buy in without taking on massive debt. Is there any way around this? The practices are otherwise perfect aside from this.
Dr. Jim Dahle:
Well, here’s the deal. I’m a big fan of ownership and many doctors will tell you their best investment is their outpatient surgical center or their endoscopy center because you’re making money on both sides of the ball here. You’re getting a physician fees and you’re also getting the facility fees. And as you’ll quickly learn that facility fees are way higher than the physician fees.
Dr. Jim Dahle:
And so, if the business is run well, if it’s busy, if it is doing a good job keeping its expenses down and its profits up, this is probably a great investment for you. Even if you buy it with some debt, okay? It’s not that different from a dentist coming in and borrowing some money to buy a practice. It’s not crazy. This debt is expected to make money. It should make you more than enough to pay off the debt. If you buy into a bad surgical center, can you lose money? Absolutely. But I wouldn’t necessarily be wary of taking on debt for this.
Dr. Jim Dahle:
Now, what other options do you have? Well, you can offer them sweat equity. You can work for less for a couple of years in order to make up for the fact that that can be your buy in. If you really want to avoid taking on the debt, you can bring cash to the table as well. If you have some cash and you can use that to buy into the endoscopy center. But some combination of that are just probably appropriate.
Dr. Jim Dahle:
I’d love to see you pay off the debt quickly after you take it out. But I wouldn’t necessarily say this is a bad debt to take on. This is probably a good debt, that is probably going to make you more money, in the long run, assuming the center is run well.
Dr. Jim Dahle:
Okay. That’s the last question we’re going to do. It comes out of the Facebook group. “Does it make more sense to refinance our mortgage and use the equity to pay off my student loans or put it back on the mortgage for lower monthly payments?”
Dr. Jim Dahle:
Well, I don’t know. I don’t have all the details. If you’ve got really high rate student loans, yeah, it can make sense to refinancing your mortgage. The downside is it increases how much you owe on the house, right? You’ve got a bigger debt now. Basically, you haven’t actually paid off the student loans you just changed debt from one bottle into another one on your shelf, right? So, if you save a little bit of interest, that’s good.
Dr. Jim Dahle:
But truthfully, the way you pay off student loans and other debt is by throwing a bunch of money at it each month. If you want to get rid of your student loans, rolling it into your home mortgage doesn’t get rid of it, it just disguises it. You actually got to throw money at it if you want to pay it off.
Dr. Jim Dahle:
But it could make sense if the interest rate is much better than what you have on your student loans. But honestly, you can refinance student loans so low right now that you could probably get them about as low as your mortgage are anyway. And then you don’t put your house at risk.
Dr. Jim Dahle:
As far as putting it back on the mortgage for lower monthly payments, yeah, it always makes sense to refinance to get lower payments if you can. It allows you to pay off, if you keep making the same payments, you can pay off the house faster. In fact, a lot of people bring money to the table when they refinance. And so, the resulting mortgage is much smaller than the initial mortgages, obviously, that lowers your payments, but can also, if you keep making larger payments, you can speed the time it takes to pay off the mortgage.
Dr. Jim Dahle:
So, it really comes down to your goal. Is your goal to get a lower payment each month, like it is for a lot of people? Is your goal simply to pay less money and interest as you go along? Is your goal to pay off the mortgage faster than you otherwise could? It really comes down to your goals for the refinance as to what you do with the money. So, I hope that is helpful to you.
Dr. Jim Dahle:
As mentioned earlier, if you have some money burning a hole in your pocket for that CME fund of yours, a great use of it is our CFE 2020 course. You can find that at whitecoatinvestor.com/cfe 2020.
Dr. Jim Dahle:
Thanks to those of you who’ve been leaving us a five-star review about the podcast and telling your friends about it. This most recent one that came in is from SNP. It says, “Amazing. It changed my life when it comes to managing money as a high income professional. I highly recommend this. Five stars”. Thank you, SNP, for that review.
Dr. Jim Dahle:
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Dr. Jim Dahle:
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Dr. Jim Dahle:
Keep your head up your shoulders back. You’ve got this and we can help. Stay safe in the pandemic. We’ll see you next week 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.