How to Be a Coffeehouse Investor | 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 212 – “How to be a Coffeehouse investor?” with Bill Schultheis.

Dr. Jim Dahle:

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Dr. Jim Dahle:
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Dr. Jim Dahle:
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Dr. Jim Dahle:
All right, thanks for what you do out there. We’re getting into summertime. It’s going to be kids coming home from school and family vacations. Life’s about to get a lot busier for a lot of us. And truthfully, I’ve noticed in my audience that you guys spend less time on finances in the summer than you do December through April or so. And that’s okay. That’s normal life. I want you living your greatest life, but if you still need help taking care of your finances, we’re still here for you all summer long.

Dr. Jim Dahle:
In particular, a lot of people are finding that they’re getting into more and more complex student loan situations. We have a new company this year at White Coat Investor called studentloanadvice.com, where you can meet for an hour for just a few hundred dollars with a student loan advice professional and get advice on your situation, your student loans, and make sure you’re in the right IDR program. Make sure you understand the implications of forgiveness programs or when you should refinance, how you should file your taxes to maximize the amount you can get forgiven, those sorts of issues. So, if you need help with that, check out student loan advice.com.

Dr. Jim Dahle:
The quote of the day today comes from Dan Cone. “I think some people get confused in thinking that deferring consumption is useful for its own sake. The only reason to save or defer consumption is to enable more consumption in the future. And I think Dan’s right about that. I think that is good advice.

Dr. Jim Dahle:
All right. we have an interview today. Let’s get them on the line. We have a special guest on the White Coat Investor podcast today. We have Bill Schultheis who I have known about for a long time, and he may not realize this, but he had a significant effect on my investing life, as well as that of my parents. But he is a financial advisor in the Pacific Northwest and an author. He recently published his second book, which we’ll get into in a second here, but welcome to the white coat investor podcast, Bill.

Bill Schultheis:
Thanks Jim. It’s an honor to be involved in your work.

Dr. Jim Dahle:
Well, let’s start with telling us a little bit about you and your upbringing and maybe how it affected your views on money.

Bill Schultheis:
Oh gosh, that’s a long story, but I’ll try to give you the abbreviated version. I grew up on a wheat farm in the Southeastern corner of the state of Washington in an area that the national geographic has eloquently described as a paradise called the Palouse. And anybody who has been through that part of the world, especially at this time of the year knows it’s just gorgeous. All you have to do is Google “Palouse in springtime”, and you’ll see what it’s all about. It grows more wheat than any other county in the nation and it’s all dry land.

Bill Schultheis:
And our farm was I think the most beautiful farm in the world. It was on the banks of the Snake River Canyon. And I was actually over there this past couple of days. My brother and I, we share a Cessna 182, and I flew that over to see her. My father passed away five years ago, but really, I share a lot of my experiences of growing up on the farm. It really formed who I am today, including how I look at money and how I manage assets and how I work with clients.

Bill Schultheis:
My parents were raised, they were born in the Great Depression. And my father really had kind of a scarcity mentality. The town I grew up in was 100% German Catholic. And that was kind of the mentality back then. And a lot of people continue to hold on to that scarcity mentality, even though they’re blessed with abundance.

Bill Schultheis:
Now, my mom on the other side, she’s got a good Irish heritage to her and she was, “Hey, we’re blessed with whatever we have”. And so, I had dealt with that struggle a little bit. I still do in my work today. But my dad was involved with the stock market. He loved buying and selling stocks, and I feel that was kind of the way he wanted to address his scarcity mentality.

Bill Schultheis:
And looking back, Jim, the tragedy of that was not that he never got rich trading stocks. The tragedy was that I’ve got seven brothers and sisters, he’s got four great sons or three great sons and me. He never took his sons fishing on the Snake River Canyon. He didn’t make time for that.

Bill Schultheis:
And so, it’s fun to connect with you because I think you talk a lot about the importance of creating balance in your life and keeping money in a healthy perspective. And we’ll talk more about that as this evolves.

Dr. Jim Dahle:
You’re absolutely right. Obviously, we don’t live to make money. I think money is to pay for the life we want to live. And I love that you mentioned the Snake River. I spent some time on the Snake River last year. It was not the Snake River that goes by your house though. Same river, just way, way upstream. I was up in Alpine Canyon, near Jackson Hole, but it is the same river that goes right by your farm. So eventually, it’s the same water there. Have you been down to Hells Canyon there, a little bit closer to your house?

Bill Schultheis:
Again, growing up on the farm, my younger brother had a fascination with airplanes. He was obsessed with becoming an airline pilot. He knew one thing for sure was that he did not want to chop thistles as the rest of his life. He wanted to fly airplanes. And so, when he was 20 years old, he got his pilot’s license and I was his first passenger. We took off from the Pullman-Moscow airport and assessed the 152. We flew down Hells Canyon. It was just a wonderful experience. And it’s a place that I visit on a regular basis.

Dr. Jim Dahle:
So, tell us a little bit about your education and career up to this point. At some point you left that farm.

Bill Schultheis:
I realized that I didn’t want to be a hired man the rest of my life working for my dad. And so, I got out of town. I spent three years, I graduated from Texas A&M, but I still was drawn to stocks and commodities. And so, I spent my first year out of college working at the Chicago Board of Trade. Lot of life lessons working at the Chicago Board of Trade. But then I got my first job working as a stockbroker at Smith Barney in Seattle, Washington. And the day after I got hired, I was making a hundred cold calls a day and did that for 11 years.

Dr. Jim Dahle:
A lot of lessons learned there too, I’ll bet. And I’m sure we’re going to get into some of those.

Bill Schultheis:
Lots of good memories.

Dr. Jim Dahle:
All right. So, most people that have heard of you before, know of you because of your book, “The Coffeehouse Investor”, and you have a new book out more recently, tell us about it.

Bill Schultheis:
So, I wrote “The Coffeehouse Investor”, the first book 22 years ago. I got out of the brokerage business, had no idea what I wanted to do with my life. And out of that wondering what I was going to do, I felt there was an enormous opportunity that was starting to evolve in the investing landscape that of investing in low-cost index funds.

Bill Schultheis:
Burton Malkiel had written his book. John Bogle was doing some great things at Vanguard and I felt there was an opportunity to share this investment philosophy with people like my seven brothers and sisters, people who are doing great things with their lives, they’re involved in their careers, their families, communities.

Bill Schultheis:
My brothers and sisters, they don’t want to pay attention to the stock market. They’ve got better things to do with their lives. And that was the audience that I focused on with my first book. And that’s a story in itself. I got a great editor and publisher, the folks who worked on The Millionaire Next Door, which is part of the coffee house story, “save more than you spend”.

Bill Schultheis:
And out of that came an opportunity to write a weekly column in one of the local newspapers in the heart of Microsoft country and Boeing country. This was about 1999. And people started coming out of the woodwork saying, “Hey, I’ve been reading your column. And after 30 weeks of reading it, it finally has sunk in and I want to connect with you. I want to work with you”. And so out of that, the RIA firm that I’m now a part of was formed.

Bill Schultheis:
And the second book is really an inspirational book that shares stories of people who have really embraced these three principles that are inherent in The Coffeehouse Investor.

Bill Schultheis:
“Don’t put all your eggs in one basket”. Diversify asset classes based on your ability and your need to take risks. The second principle is “There’s no such thing as a free lunch”. Whether or not the markets are 100% efficient is irrelevant. Markets are efficient enough so that our goal should be not to try to beat the market, but capture as much of the market’s return over a lifetime of investing.

Bill Schultheis:
And then the third principle is “Save for a rainy day”. Put together a financial plan so that if you’re working you know how much you should be saving to reach your retirement goals. And if you’re retired, are you spending at a clip that will allow your portfolio to sustain you through your lifetime?

Dr. Jim Dahle:
So, what was it that made you decide to write another book? What was it the message that you felt wasn’t adequately encapsulated in the first one?

Bill Schultheis:
Well, it’s interesting because as the book has come to market over the last three months, it’s got four stars on Amazon, but there’s a few folks on Amazon that say, “Hey, there’s nothing new in this book that he didn’t already share in his first book”. And they’re right. These principles are absolutely timeless. They are principles that we inherently know to be true.

Bill Schultheis:
The reason why I wrote the second book was because I wanted to share the stories of people who embrace these three principles with a passion, who really get on with their lives, who are focused, not on the stock market, but on pursuing their rich life and finding a way to use their financial resources to accentuate a greater life.

Dr. Jim Dahle:
So, the old book is The Coffeehouse Investor. The new book is The Coffeehouse Investor’s Ground Rules, both available on Amazon. And I suspect both are very readable. I’ve only read the first one, thus far, but it holds a special place in my heart because it is the only book I have ever been able to get my parents to read. It’s the only financial book they’ve ever read is The Coffeehouse Investor.

Dr. Jim Dahle:
Why do you think that so many investors, even wealthy investors, can’t find the time, the discipline and the desire to become more educated about money management? Why can’t we get people to read more books?

Bill Schultheis:
Well, I think that they’ve got other things to do with their lives. And I think that the financial services industry has a tendency to get things a little more complicated than they need to be. And it’s interesting because I have enormous respect for people who are “do it yourself” investors, and who do it successfully.

Bill Schultheis:
But there’s a little more to creating a financial plan to see you through your lifetime than just buying a Coffeehouse Investor type portfolio or a three-fund portfolio that is strongly advocated by Taylor Larimore, who was one of the founders and leaders of the Bogleheads group.

Bill Schultheis:
How do you do it in a tax efficient way? How much should you be saving if you’re a 25-year-old? There’s a lot of complexities that go into finding out those answers. And especially as you move on in your life, whether you’re a 40-year-old or a 50-year-old or 60-year-old, what are the planning things that you need to do or accentuate your chances that you live the life you want to live in your retirement years?

Bill Schultheis:
This is not a criticism of intelligent investors, but I contend that four out of five intelligent people couldn’t explain to you what a bond is because they’d say, “Hey, Bill, I really don’t understand these bond things. Can you help me work through it?” And now they’re more afraid of bonds than ever before, because we’re talking about inflation and spending that’s going through the roof and how it’s going to affect my bond portfolio. And so, I think that we can’t really appreciate complexities as we move forward in our life. But with that said, some people do a great job of it and more power to them.

Dr. Jim Dahle:
Well, in a lot of ways, The Coffeehouse Investor advocates for a fairly simple portfolio. “Get things set and then move on with your life”. How important is simplicity in portfolio management and financial planning? How much return should an investor be willing to give up in order to have a simpler portfolio?

Bill Schultheis:
Well, I would contend that investors who embraced the three simple principles, I have those three principles front and center on my website, coffeehouseinvestor.com, don’t have to give up anything in returns.

Bill Schultheis:
In fact, I would say that by keeping things simple, they actually accentuate their chances of maximizing their returns over a lifetime of investing. Because the simpler you keep portfolios, the more you are apt to focus on things besides your portfolio, that actually matter. Like tax efficiency, like asset location, like creating a will. Making sure you have enough insurance so that it covers the unknowns that you will likely be facing as you move on in your life.

Dr. Jim Dahle:
Now you’ve written before that investors should not focus on picking top performing stocks and mutual funds, identifying leading industries and trends, predicting business and market cycles. I have a feeling that a lot of that came from your experiences at the brokerage. What experiences did you have there that led you to realize that your time is far better spent on financial planning issues rather than trying to beat the market?

Bill Schultheis:
Well, as investors, we may be talking a little bit more about this as our session unfolds, but there’s this idea that you can get rich by investing in the right stocks. That is kind of in our investing DNA. And it can be very challenging for investors to kind of switch gears and recognize that the goal isn’t to pick the top companies. The goal is to capture the market’s return over a lifetime of investing, especially in the short run.

Bill Schultheis:
Companies have no control over the price of their stock in the short run. It’s driven solely by the emotions of investors. And so, when you’re buying a Starbucks or a Boeing or a Microsoft here in the Northwest, you think, “Oh Microsoft it’s going to be, or Starbucks is going to be expanding their footprint across the world and I want to be a part of that and capture that growth”.

Bill Schultheis:
But that’s already built into the price of their stock. And so, what you’re really doing is you’re trying to be smarter than the thousands or the millions of investors that are out there. The top professional stock pickers have a hard time doing that.

Bill Schultheis:
So, what I learned in working as a stockbroker at Smith Barney was that it is pretty darn hard to beat the market over time and that the more you focus on the longer term, capturing the market’s total return, the better off you’re going to be.

Dr. Jim Dahle:
So, what was it like being a broker, making a hundred cold calls a day? Tell us what that was like.

Bill Schultheis:
It was a real fascinating experience. And one thing I learned early on is I’m not a salesman. Some of those folks that I worked with at Smith Barney, I still communicate with them. They’re doing great in the financial planning arena, but I actually gravitated towards bonds, tax-free municipal bonds back in the middle 80s, state of Washington tax-free bonds were yielding 8%, 9%, 10%. They were AA rated. And a lot of the high-net-worth investors back there, they didn’t want to invest in the stock market. They wanted that income stream of tax-free bonds.

Bill Schultheis:
And so, I was one of Smith Barney’s largest stock brokers. I had clients in about 35 states across the nation, and I built a real good business selling municipal bonds. But I was 32, 33 years old. I thought, “God, I don’t want to be a bond salesman the rest of my life”. And I had no idea what I wanted to do.

Bill Schultheis:
The decision to get out of the business was driven largely by a connection I had with a close friend of mine who encouraged me to get involved with Hospice of Seattle. And in working with folks who were looking at an embracing death, it caused me to kind of say, “Hey, I’ve only got one life to live”. And it was the force that encouraged me to move on.

Bill Schultheis:
And now as a financial planner and as an advisor, I look back on that hospice experience and with the clients we have embraced how they move through life, having the discussions of how are they going to live a safe and healthy and emotionally secure life as they grow older, really comes back to serve me well.

Dr. Jim Dahle:
It’s funny you mentioned that, that segues into my next question pretty well. One of the things that I thought was unique when I was looking at your website in preparation for this is you list among top financial planning considerations elder care planning as being an important financial planning issue. What does that mean? And what are the issues to address there?

Bill Schultheis:
Well, elder care planning just means smart, thoughtful planning so that you grow old in a safe environment and you address the needs and the risks that will be inherent in growing old. And the first thing I think is the importance of talking about. Having those conversations, not when you’re 80, but when you’re 60 and having discussions with hopefully both spouses so that we recognize that we’ll all be facing death at one point in our life, and it’ll come about in different ways. It may be through strokes. It may be through cognitive decline.

Bill Schultheis:
And so, as an advisor, we lead that discussion. And folks want to have those discussions, but it’s no nobody’s stepping up and saying, “Hey, we need to talk about this”. And so, it’s really gratifying to have that dialogue.

Bill Schultheis:
The second thing we do is after we have the discussion is we talk about who’s the team that is going to support them, their children, their tax specialists, their estate planning attorney. Who in their life can they trust to grow older in a safe environment?

Bill Schultheis:
I’ve got a story. I’ve had a client for probably 20 years now. And he connected with the whole Coffeehouse philosophy of investing back in 2000, 2001. It allowed us to focus on the things we’re talking about now. And about four years ago, he had a minor stroke. He’s healthy now. He’s doing great, but we were the first people that he called our wealth management firm, because he wanted to make sure that everything was in order.

Bill Schultheis:
He had already engaged with his children so that everybody was on the same page.
And Jim, this is especially important for spouses and in most cases, women or the wife. Because more often than not, it is the husband or the man that is kind of leading the financial planning.

Bill Schultheis:
And that’s a whole another topic that we can talk about, but it’s really important whether you’re doing it yourself or you’re in a team that you get both spouses involved because the statistics show that the man, the husband is generally the one that will die first, that will suffer cognitive decline first. And the wife, the spouse will be left saying, “Hey, how do I handle all this?” That’s not the time to make a decision to start building your team. It’s the start building the team when you’re young.

Bill Schultheis:
We connect with a lot of younger folks. We encourage them to have those discussions with their parents. So, how do you create an environment that’s safe? The whole elder care planning is fascinating today. In today’s Wall Street Journal, there was an article about Microsoft spending $16 billion to buy a company that’s going to help digitally addressed that elder care planning.

Bill Schultheis:
There was another article that I came across, where Biden has a plan for $400 billion for home care. There seems to be a big movement and COVID certainly has accentuated to allow people to grow older in their homes, in a safe environment.

Dr. Jim Dahle:
Yeah, I think that’s just about everybody’s goal. Everybody wants to be in their home. They want to be taken care of in their home. But what I find as a doc is when the rubber hits the road, they don’t have the money to do it. They can’t afford to get the care they want to have in their home. The only place that can afford to have it and oftentimes because Medicaid is paying for it is to be cared for in an institution. Once they require that level of care.

Dr. Jim Dahle:
What is it that people need to do in order to make sure they have the assets or the insurance in place to be able to stay at home and receive those higher levels of care in the environment they prefer to receive it in?

Bill Schultheis:
Well, the first thing is to acknowledge what you just said, Jim. The biggest unknown for most people from a financial planning standpoint, as they move through life is unexpected healthcare costs. And how do you address that either through insurance or through proper planning early in the game, so that you are building up a reserve? What does that look like? Does it mean that you shift assets to cover that later in life? But that’s certainly front and center from a financial planning perspective addressing that very issue.

Dr. Jim Dahle:
Let’s talk a little bit about financial planners and financial advisors in general. How can an investor know if they need a new advisor?

Bill Schultheis:
Oh, gosh. I think that it’s important to recognize that what we talk about from investing and financial planning and estate planning and tax planning, they shouldn’t be piecemeal. They’re all kind of work together. And if you’ve got an advisor that is focused on the markets, more than these other components of financial planning, you might want to think twice.

Bill Schultheis:
On a regular basis, we will sit down with somebody who reaches out to us because they feel like they may need a new advisor and there are interviewing maybe two or three different firms. And we’ll just sit there for that one hour. And we’ll just ask them questions and ask them more questions and ask them more questions.

Bill Schultheis:
And after you ask about 15 questions, stuff just comes pouring out of them. And they talk about their anxieties and their fears and their questions. And then at the end of the meeting, they say, “Gosh, you’re the fourth entity that we’ve talked to. And all the three other firms, all they did was they wanted to talk about the markets”. I think at that point, you might want to say, “Hey, I’m not getting served in a way that serves me well through my lifetime”.

Dr. Jim Dahle:
Everybody likes hearing horror stories. What’s the worst breakup you’ve had with a client?

Bill Schultheis:
There are two instances that I’ll share with you and you can probably relate. Jim, I have enormous respect with what you have done with the White Coat Investor. If I had your energy, I’d be dangerous. It’s just amazing how you have been able to touch people’s lives with the work that you do in allowing people to have clarity on what’s important to them.

Bill Schultheis:
But folks in the medical arena they’re interesting characters. And I’ll share a little bit more about how my RIA evolved because I think it’s appropriate for this discussion. But there are a few doctors that seem to always want to get the next hot thing, because they fear that they’re missing out on something.

Bill Schultheis:
And in two different instances, but one in particular, I connected with a doctor. Gosh, it’s probably 17, 18 years ago. He connected with the Coffeehouse Investor and he said, “Hey, I really liked this. I want to work with you, but I’m talking with another firm”. And he decided not to work with us. He ended up working with another entity. And sure enough, 8 years later, he got involved in this unknowingly Ponzi scheme, one of the biggest Ponzi schemes here in the Northwest. And I’m not going to share it with you, but you can Google it. And it costs him a lot of money. And so, he came back and he said, “You know what? I want to work with you”. And I said, “Sure, no problem. We will work with you”.

Bill Schultheis:
And six years later, he meets the woman of his dreams. And she’s got this financial advisory firm that are selling them all these different alternative hedge fund type investments. And he feels he’s missing out on something. And so, he leaves us for the second time. And there’s just, at what point does he have enough and he’s going to not worry about missing out on stuff and get on with his life and focus on what’s important?

Bill Schultheis:
And I’m really blessed Jim, because in writing the column in 2000, people started coming out of the woodwork and I didn’t have a place to meet them. I was working out of my apartment in Seattle and some friends said, “Hey, we’ve got this CPA firm that would allow you to meet with your prospective clients in their conference room”. And I said, that is great.

Bill Schultheis:
And so, I’d sit down with these people, these prospective clients who wanted me to work with me and they would ask me questions like, “Well, do I have enough insurance? And what about my mortgage? And do I need a will?” And I was like going, “Well, I don’t know. Let me ask these CPAs”. And it turned out the CPA firms focus is in the medical community, physicians, dentists, docs. They were just a wealth of knowledge to the folks I was connecting with. They were dealing with the financial planning issues that we’re dealing with today.

Bill Schultheis:
On the flip side, the CPAs Todd Flynn and John Bowler were working doing the CPA work and the tax planning work with their docs and dentists. And they were seeing the transactions that were going through their accounts saying, “Hey, we need to take Bill’s Coffeehouse Investor stuff and integrate it with our client’s portfolios.

Bill Schultheis:
And to make a long story short, my two co-owners John and Todd, we’ve now been working together for 20 years and we continue to have a focus with folks in the medical arena. And it just is enormously gratifying to see folks who embrace the Coffeehouse Investor philosophy and really focus on the financial planning issues that matter most of all.

Dr. Jim Dahle:
Now my mantra, when it comes to hiring a financial advisor is to get good advice at a fair price. What do you think is a fair price for financial advice?

Bill Schultheis:
Well, we could talk all day about that. Again, I wrote a book for “do it yourself” investors. I did put in there one line that said, “If you pay your financial advisor 1% and they do all the right things at all the right times, it might be worth it”. And so, what is a fair price? I think that there are people chirping that, “Well, we should only be charging by the hour” and blah, blah, blah.

Bill Schultheis:
And my feeling is that if you come to us with a $2 million portfolio and all the value that we can add is $500, it’s probably not worth your time, it’s probably not worth our time to spend that hour, if that’s all the value. So, you’ve got to look at what is the value that you add to a person over a lifetime of investing?

Bill Schultheis:
About two months ago, I got an email from a client of ours and they said, “Bill, we want to celebrate our anniversary, not our wedding anniversary, but our 20-year anniversary of working with you. And we know it’s about this time, because we reached out to you 20 years on President’s Day weekend”. And I look at them, they were probably 45-50 when we connected with them 20 years ago.

Bill Schultheis:
And we’ve worked with them through all different types of markets, bear markets, bull markets, we’ve addressed all planning issues with them. And I can’t quantify it, but in my heart, I feel like we’ve probably added to their financial well-being, not to mention their emotional wellbeing. And we charge what most in the industry charge, which is a tiered rate of about a percent up to a million dollars. And over that is three quarters of a percent.

Bill Schultheis:
And that’s where the industry is kind of at right now. And it’s not going to change because people who recognize it, say, “Hey, there is value in that over a lifetime of investing”. But some people say “There’s no way I would pay a financial advisor $10,000 a year, and I’m going to do it myself”. And I respect that. I have enormous respect for people who can do that successfully.

Bill Schultheis:
The reality is, it is a challenge when you’re sticking through the bear markets, especially, to stay the course with your asset allocation. I saved Wall Street Journal from February 6th, 2014. And you probably can’t remember that. I don’t know why I saved it, but on the same page people talk about the DALBAR study and it’s criticized.
And I get that.

Bill Schultheis:
But on the same page on February 6th, 2014, the Wall Street Journal had two different articles. And one is, investors, both from stocks funds into bonds. This market had dropped 5% for the first part of the year. Investors swapped out of US equity funds and into bond funds at the fastest clip on record.

Bill Schultheis:
So now, another article on that same page said, stock bulls charged back. So, the market was down 5%. It ended up 14%. So, I think it’s very, very challenging to put all the pieces of the puzzle together from a financial planning perspective. So, it serves you well over your lifetime. With that said the financial industry is doing some good things. I think target date funds, you can criticize them all you want, but if you’re a 25-year-old or a 35-year-old investor in a 401(k) plan, I think target date funds are terrific.

Bill Schultheis:
I think target date funds are integral to a person early on building wealth because they’re focused not on the stock market, but how much they’re saving. Especially for women. When I look at the evolution of the Coffeehouse Investor, you probably see it with the White Coat Investor, but women especially are drawn to the Coffeehouse Investor type philosophy because they want to be in charge of their financial destiny.

Bill Schultheis:
They don’t want to have anything to do with the testosterone driven energy of Wall Street that says, “Hey, I’m smarter than you. And follow me because I’m going to lead you to the promised land in retirement”. They want to take charge of their financial destiny. And whether you’re connecting through that type of philosophy of the White Coat Investor or a Coffeehouse investor, it allows you to really take charge of your financial destiny so that you were in charge of your destiny, not somebody picking stocks.

Dr. Jim Dahle:
A lot of people wonder if they’re capable of being their own financial planner and an investment manager. How can one know if they’re ready to do that? Maybe they want to do it. Maybe they want to save the $5,000 or $10,000 or $50,000 they’d pay to an advisor. How can they know if they’re really ready to do it?

Bill Schultheis:
Well, I think there’s at least three different types of investors when it comes to this discussion, Jim. One is “doing it yourself” investors. They are obsessed about doing it themselves and come hell or high water, they’re going to do it themselves. And again, I have enormous respect for them.

Bill Schultheis:
There’s another type of investor who is “doing it themselves” because they don’t know any alternative. And then the third type of investor is the investor who, “Hey, I just want to turn it over to a financial planning firm or a stock-picking firm and let them have it”.

Bill Schultheis:
But I think one of the challenges is to creatively educate and I’d like to think I’m addressing that, certainly the White Coat Investor is doing a fantastic job of addressing that. Creatively educate the investor of the difference in financial planning.

Bill Schultheis:
I was at a seminar, four or five years ago. And Schwab had this thing up on the whiteboard that I kind of stole from them. And it had an old world, new world. Old world is to pick stocks, predict trends, look at industries. New world, elder care planning, retirement planning accumulation, insurance planning, charitable giving, education planning, low-cost index, or passively managed fund, asset allocation.

Bill Schultheis:
And when clients or folks see that they say, “Okay, this is what I need to focus on”. If you have confidence that you can address all those issues, go for it. If you don’t have confidence and would like guidance and help, I think it’s really important to know that the new world is how you want to integrate your energies with a financial planner or with an RIA or even a brokerage firm. And there’s a lot of teams that are in brokerage firms that are doing the same thing we’re doing, and they’re serving their clients very well.

Bill Schultheis:
So, it’s kind of a tradeoff. I will say that if you’re working with a RIA or a wealth management firm that has a new world mindset focus over a lifetime of investing, you’re probably going to at least break even from a cost analysis standpoint. Because if they’re integrating the tax planning, the estate planning, the elder care planning into one unified package, there’s enormous value in that.

Dr. Jim Dahle:
Now, you’ve had the opportunity to work with lots of physicians and dentists over the years. What do you see as some of the classic mistakes that docs make?

Bill Schultheis:
Well, again, I’ve been fortunate to work with my business partners, because they have worked their entire professional careers with the physicians, with the docs, with the dentists. And what they do first of all, is they create an awareness for the professionals on whether or not they are on track. If you’ve got a physician’s group, they may be making a lot of money individually, but that may not translate into being able to sell the business 10, 20 years down the road.

Bill Schultheis:
And so, it’s important that folks in that profession recognize that they may have lifestyle creep that doesn’t translate into a lifestyle at retirement that they’re saving towards. So, giving them clarity on that, I think is enormously valuable.

Bill Schultheis:
I think that there is a tendency for professionals in your arena to always be looking for a solution, a better answer. And this fear of missing out, I think, is prevalent with many folks in that industry. And to recognize that you’re capturing the market’s return over a lifetime of investing, if you’ve got your asset allocation, correct between, that broadly reflects the risk that you can, and you need to take.

Bill Schultheis:
You’re better off pursuing things away from the markets. And even if you want to accentuate your financial wellbeing, you’ve done a great job of looking at the side hustle, accentuating what are the opportunities.

Bill Schultheis:
When I look at professionals that are really accentuating their financial net worth, it’s not through picking stocks or getting the latest alternative investment or hedge fund. It’s using your ingenuity to provide a better service or to bring something to market in that arena.

Bill Schultheis:
I had to say the same thing with the youngsters of America. If you want to make some money and build your net worth, the last place you want to turn to is at Robinhood. Use your creativity to bring your ideas to the marketplace.

Bill Schultheis:
There was a great article in the Wall Street Journal out four or five years ago, they were interviewing one of the founders of Home Depot. And he had a book out called Capitalism and they asked him, “What are those types of opportunities available today for somebody to start a business?” And his response was just so spot on. He said, “Hello? Look at what’s going on in the healthcare industry. Look at how we have not been able to figure out an aging population.

Bill Schultheis:
There are unlimited opportunities out there to bring your creativity to the marketplace. And the whole Coffeehouse investor thing is to use your ingenuity, your bandwidth between your hears, for something that’s productive, not to try to pick the next hedge fund or hot stock.

Dr. Jim Dahle:
I run into a lot of people that want to play little tricks with their finances. Sometimes they’re bloggers, sometimes they’re FIRE advocates. But I’m talking about things like travel hacking, or trying to sell some covered calls or cash secured puts for some extra income or bouncing money around from one brokerage firm to another, to try to collect the transfer bonuses. What are your thoughts on all these little tricks that people do to try to make a little bit more money?

Bill Schultheis:
I guess I go back to how much money they are going to make by doing that, and how much bandwidth do they need to spend on making a few extra bucks. And could that time be better spent fishing with your four sons or connecting with people in your community to share the inherent gifts that you do have?

Bill Schultheis:
I totally respect people. John Bogle said, “Hey, cost matter” and I get that. But at what point do you want to say, “Hey, if I’m spending 20 basis points or 15 basis points on an index fund, how much effort am I going to try to switch everything to another fund and get on a fund with 13 basis points?” At some point it’s like get on with your life and focus on things that are more important.

Dr. Jim Dahle:
You mentioned earlier Robinhood, talking about this new brokerage app that is in some ways gamified investing. A lot of people talk about it being good, that it’s democratized investing for the masses. What are your thoughts on it? Do you think it’s overall good or bad for investors?

Bill Schultheis:
Well, I think that it is important to recognize what it is. Yes, somebody who is buying and selling stocks on Robinhood has this ownership of a common stock. I as an investor have ownership in common stock through low cost passively managed funds or index funds.

Bill Schultheis:
So, we’ve got the same thing in our hands, but they’re two completely different animals. One is gambling. And let’s just call it what it is. It’s not building wealth to sustain you through your retirement years. And I don’t have anything against gambling. I mean, I go to the casino two or three times a year, and I probably set a limit of $200 or $300 loss before I go home. And there’s nothing wrong with that if you’re not addicted to it, but it has nothing to do with building long-term wealth. And people say, “Well, you want to get him, get people involved in the stock market and be aware of what’s going on in the economy”.

Bill Schultheis:
In my opinion, the way to do that is not by picking individual stocks. The way to do that is, is through looking at opportunities that are out there for you to use your ingenuity either to up your career or something to the marketplace that might add value. I think it’s an enormous opportunity for myself and my platform at the Coffeehouse Investor, your work with the White Coat Investor, but also for moms and dads and grandmas and grandpas and uncles and aunts to say, “Hey, it’s gambling”.

Bill Schultheis:
For every person that gambles and goes on Wall Street to buy and sell stocks, there’s a quiet majority and there’s a silent majority of investors like my brothers and sisters, and now their children. And in 20 years, it’ll be their children’s children who want to do things the right way, who want to have clarity on what it takes to be responsible with their financial assets so that they can, at some point in time, which we’re all going to have to do retire and live a lifestyle similar to the one that they had built up when working. And so, it just gives us an enormous opportunity.

Bill Schultheis:
My goal in creating the Coffeehouse Investor or the White Coat Investor is to have two people sitting next to each other on an airplane. And this actually happened to me. I was flying down to Atlanta, Georgia, and the market dropped a bazillion points. We got off the plane and somebody had gone into a brokerage firm and had taken the lives of some people. And I don’t know what day it is, but you can Google it.

Bill Schultheis:
But if you’re on an airplane and the market is down a thousand points, you turn to someone and say, “It doesn’t matter. I’m a Coffeehouse investor, or I’m a White Coat investor”. And that other person will know exactly what they’re talking about.

Dr. Jim Dahle:
Yeah, it’d be pretty awesome. So, another hot topic, controversial topic out there that a lot of people have some interest in is cryptocurrency. What are your thoughts on cryptocurrency as an investment?

Bill Schultheis:
Well, first of all, I don’t spend a whole lot of time trying to understand it because I don’t invest in a currency. So, the fact that it has crypto in front of it, I don’t know if it makes it more special or not. I do know that there’s some technology that is unfolding within that space of blockchain technology that, again, I don’t fully understand, but I know that there are corporations across America that are looking at how to integrate that into their platforms.

Bill Schultheis:
So, I invest in that, in those types of companies. And the companies that rise to the top are going to be part of my portfolio over the next 20 years in the context of my passively structured portfolio. But to sit there and try to figure it out from an investing standpoint, it’s a waste of time number one, and number two, I’ll probably lose my money.

Bill Schultheis:
It’s interesting because when I was working at the Chicago Board of Trade, I thought I had the commodities market figured out. I created a software program that was making money on paper. And then I put the pedal to the metal and I opened up an account for $4,000 and I lost it all. And to that day, I don’t think I’ve ever bought an individual stock in my life because I worked too hard for that money.

Bill Schultheis:
And again, with cryptocurrency, the non-fungible tokens, I don’t know how it’s going to evolve, but I don’t give it a second thought because I know how it rises to the surface and the impact it has. I’ll be owning the companies that are the leaders in that arena.

Dr. Jim Dahle:
All right. Let’s talk a little bit about factor investing. Tilting a portfolio maybe to small stocks or to value stocks or to momentum stocks. What do you think about that? Do you think there’s merit to that?

Bill Schultheis:
Yeah, that has been an ongoing topic in the financial services arena, and it’s fascinating to see it unfold. And I think the most important question that we need to ask ourselves in deciding whether or not I want to have factors in my portfolio, tilting it to smaller value or whatever factor it may be is, “Do I have the tenacity to stick with whatever I embrace?”

Bill Schultheis:
And let’s keep this very simple. The easiest way to build in a portfolio is the three-fund portfolio. Total stock market index fund, total international index fund, total bond market index fund. Let’s keep it real simple. Question that I asked myself is, do I have the tenacity to stick with that when it doesn’t work? And you’ve got other dimensions of the market that are doing better than themselves.

Bill Schultheis:
One of the best responses I have heard in the past 30 years that answers that question was at a Bogle head conference in Philadelphia. John Bogle, I think, was a big fan of “Hey, you just need to buy the US market”. But Joel Dickson, who is one of the senior members of Vanguard’s strategy team says he invests in international for one reason, to hedge his emotions. Long-term over the next 20, 30, 40, 50 years, they’ll all probably return about the same, but can you stick with what you have over the next 10 or 15 years when it’s underperforming? I would gamble to say that many investors cannot stick with them.

Bill Schultheis:
I look at the portfolios that we create for our clients. I wrote about it, the Coffeehouse Investor portfolio has a tilt towards value and small, a dose of international, some REITs. And it paid great dividends from 2000 to 2010 when the large cap domestic stocks didn’t do anything. In fact, that was an eight-year period and when the S&P 500 actually lost money. But over the last 10 years the S&P 500 has done much better than those other dimensions.

Bill Schultheis:
We haven’t had two clients that have really addressed it because they recognize the value of sticking with a game plan over the duration. Now, I saw yesterday on Bogleheads website. I follow the Bogleheads very closely, although I don’t contribute much, but they talked about an investment advisor that manages a value fund named Bill Smead. And Bill Smead came out and said, “Hey, indexing is dead. It looks like value’s coming out”. And now everybody on the Bogleheads side is saying, “Well, Smead doesn’t know what he’s talking about”, blah, blah, blah.

Bill Schultheis:
Well, I’ve known Bill Smead for 30 years. I worked with him very closely at Smith Barney. And what Bill Smead is really saying is the same thing that Vanguard is saying, “Hey, these large cap stocks, they may not do as well as they’ve done, because the value that they have, it is kind of pricey. And you might want to invest in different dimensions of the market to diversify yourself”.

Bill Schultheis:
It’s fascinating to see what has evolved in the marketplace of the different dimensions of the stocks. These companies like the Microsoft’s and the Amazon’s and the Apple’s it’s gotten so big that they just can’t keep up that rate of growth going forward. Again, this article where Microsoft has been trying to go out and buy companies over the last six to eight months, because they’re looking for opportunities to expand their growth. And it’s very challenging for these big companies to sustain that rate of growth going forward. And so, we say, we don’t know, let’s diversify. And we’re going to stick with what we embrace, because the last thing you want to do is chase hot performance.

Dr. Jim Dahle:
Yeah, for sure. That’s a recipe for underperformance. Now, we’ve talked a lot about publicly traded investments. A lot of people liked getting out of the public markets. They like looking at things like real estate, like becoming landlords and having direct real estate investments. What are your thoughts on that?

Bill Schultheis:
I think that real estate can be a great diversifier for a portfolio, but if you’re going to go out and buy a rental house or apartments, you’ve got to be prepared for the hard work that goes into that. And it is the market may not be as efficient in the rental markets as it is in equity markets or the commercial markets. But it is a challenge to integrate that into your portfolio. Is that really how you want to spend your time? We’ve got some folks who do it very successfully and more power to them. You just have to look at, “Hey, does this make sense for me where I’m at in my life?”

Dr. Jim Dahle:
Okay. And kind of related to that, particularly for doctors and other accredited investors, they get interested in private real estate investments that are more passive. I’m talking about syndications. Going in with 99 other investors and buying a big apartment complex or a private mutual fund, a private real estate fund that does the same thing with 15 different apartment complexes. What are your thoughts on diversifying a portfolio using those sorts of investments?

Bill Schultheis:
Again, my experience has been engaging with folks who have participated in that is that they can be good investments. But I think it’s really important to know who you’re dealing with and what they’re investing in because not all of them work out.

Bill Schultheis:
And I think you have to be prepared for the worst. So that if this property, if this facility goes south, if this indication goes south and some of them do, can I continue to live the life that I want to live going forward? Because no one knows what’s going to happen. And certainly, this past year in the world, dealing with COVID we’ve had to address that front and center.

Dr. Jim Dahle:
Now, I have found it to be exceedingly rare among financial advisors, among an RIA firm, that they will even provide advice about direct real estate or passive private real estate investments. It seems like an easy opportunity to add a lot of value to somebody that’s interested in that sort of stuff. Do you have any idea why RIA firms generally shy away from those sorts of investments?

Bill Schultheis:
I think that one reason is that the due diligence is overwhelming from a securities and exchange commission standpoint. Certainly, we have discussions with folks on what’s out there in the world, but to integrate that into a portfolio from a due diligence standpoint can be overwhelming. And then you run the slippery slope of “Well, what’s authentic and what’s not”.

Bill Schultheis:
And so, I’m sure that a lot of RIA look at that and say, “Hey, it is not worth our time and energy to address it front and center”. There are RIAs that provide those opportunities that are out there. And if you’re dealing with folks that have $700,000 to $4 million or $5 million portfolio, how much are they going to put in it and what will be the added return of will it really accentuate their life?

Dr. Jim Dahle:
All right, well, we need to wrap up here soon, but you’ve got the year of, by the time this is all said and done, 30,000 or 40,000 doctors and other high-income professionals. What do they need to know that we haven’t already talked about today during this podcast?

Bill Schultheis:
I would say that keeping your investments as simple as possible so that you can focus on the financial planning matters that do matter most of all is imperative. Things you see out there, the exchange traded funds that are focusing on cryptocurrency. You’re not missing out on anything by keeping those out of your portfolio. If you want to take risk in your life, use your own creativity, your own imagination.

Bill Schultheis:
And most importantly, embrace a spirit of abundance. I’m working with a professional coach in the second chapter of Coffeehouse investor for the past two years. And she’s had me every day, I write down three things that I’m grateful for. It’s just had a huge impact on the way that I look at my life in the spirit of abundance. So, that taking time to embrace the friendships that you have in your life, the gifts that you share with them, the gifts that they share with you, because life is short.

Bill Schultheis:
And it’s those experiences with those people in our life that matter most of all. And boosting your financial resources, not to get rich from a bank account statement, but using your financial resources to get rich from an emotional standpoint, with the people in your life that matter most of all. So, I encourage everyone to pursue the message that’s inherent in the Coffeehouse Investor, that’s inherent in the White Coat Investor – Live your rich life.

Dr. Jim Dahle:
Awesome. Well, Bill Schultheis, author of the Coffeehouse Investor’s Ground Rules: Save, Invest and Plan for Life of Wealth and Happiness. That’s available now on Amazon. Check that out. Bill, thank you for coming on the White Coat Investor podcast today.

Bill Schultheis:
Jim, thanks for having me.

Dr. Jim Dahle:
All right. That was having Bill on with us. I hope you kind of got a sense of what the Coffeehouse Investor philosophy is, which is essentially get your money taken care of so you can focus on living. Which I think is really important. It’s something I talked about in the April newsletter that I sent out to all of our subscribers.

Dr. Jim Dahle:
I hope you’re signed up for that, by the way. If you’re not, you can go to whitecoatinvestor.com/newsletter and get that. It’s basically a secret blog post. So, you don’t get it, unless you’re subscribed. I send that out every month with a market report and some news and announcements and things like that as well. So, make sure you’re signed up for that.

Dr. Jim Dahle:
The bottom line is you’re not living for money. You’re probably, if you’re like most people, when I survey them, you’re not even living for your job. It’s interesting. I did a survey not that long ago, and it turned out about 35% of the docs answering the survey said they would quit tomorrow if they had $20 million. Basically, they’re working entirely for the money.

Dr. Jim Dahle:
And another 55% of doctors said they’d cut back. So, the vast majority of us are working either completely or at least partially for the money. We’re not living for medicine. We’re not living for our finances. We’re living for something else. And figure what that is, and use money as the servant for that master and determine what you’re living for. And I love that part about the Coffeehouse philosophy.

Dr. Jim Dahle:
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Dr. Jim Dahle:
All right, thanks for those of you who have left us a five-star review or told your friends about the podcast. We really appreciate that. It does spread by word of mouth, like everything else around here at the White Coat Investor.

Dr. Jim Dahle:
If you’re needing advice about your student loans, if you’re in a complex student loan situation, go spend an hour with studentloanadvice.com. It might save you tens of thousands or even hundreds of thousands of dollars, well worth a few hundred dollars and an hour of your time.

Dr. Jim Dahle:
Keep your head up, shoulders back. You’ve got this and we can help. We’ll see you next time on the White Coat Investor.

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.