The Dangers of Robinhood – Podcast #173 | White Coat Investor

Transcription – WCI – 173
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:

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Dr. Jim Dahle:
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Dr. Jim Dahle:
All right, we’re recording this on the 18th of August. It’s going to run on the 27th of August. So those of you who like your content produced relatively close to the date you hear it, this one’s for you I suppose. This is only nine days between production and listening, which is pretty good for us. It takes a while to put these together.
Dr. Jim Dahle:
A few things we got going on. Our scholarship contest is coming to a close again. You have to have your applications in by the end of August, 31st of August, midnight mountain time.
Dr. Jim Dahle:
If you want to apply for the White Coat Investor scholarship, we’re giving away tens of thousands of dollars in cash and prizes this year. If you want that, make sure you get your application in. And you can find details at our scholarship page on whitecoatinvestor.com. So, whitecoatinvestor.com/scholarship will take you there.
Dr. Jim Dahle:
We need two other things as well from those of you who are not in school. First, we need some judges. I’m told we only have 40 something judges. We usually have 60 – 70 – 80, something like that, judges. And we don’t want the judges to have to read too many essays each.
Dr. Jim Dahle:
So, if we can get a few more of you volunteering, that would be super helpful. Please email [email protected] Put “Scholarship Judge” in the subject line, and we’ll get you in there. You can’t be a student or a resident, but if you’re a professional, practicing professional, retired professional, et cetera, then you can be a judge for the contest.
Dr. Jim Dahle:
We also need people to donate to the scholarship. Katie and I are matching every dollar donated by White Coat Investor listeners this year. So, your money will go twice as far as it normally would. You can also donate at that page, whitecoatinvestor.com/scholarship. There’s a link there that you can use to donate. So, thank you for what you do there.
Dr. Jim Dahle:
I have another request of you. We want to make this podcast as useful as possible for you. And so, we are going to survey as many listeners as are willing to fill out a quick survey. This thing probably takes three or four minutes. It’s mostly checkboxes. Just a survey of what you want out of this podcast. Podcast length, the guests, things like that.
Dr. Jim Dahle:
If you would be so kind as to go to whitecoatinvestor.com/podcastsurvey and fill it out, we would very much appreciate it. And it will make your experience even better on the White Coat Investor podcast.
Dr. Jim Dahle:
All right, let’s talk a little bit about Robinhood. Robinhood has been taking the investing world by storm the last few months. And I think it’s worth mentioning a few things about Robinhood on the podcast.
Dr. Jim Dahle:
First of all, Robinhood is just a brokerage account. It’s a brokerage account like you can it at Vanguard or Fidelity or E-Trade or Schwab or wherever else. At the end of the day, that’s what it is. It’s a brokerage account.

Dr. Jim Dahle:
It does a few nice things, right? It has no commissions which helps keep the costs down. They raise money in other ways, obviously, but no commissions. And they allow you to buy fractional shares, which is something that a lot of brokerages do. I think Fidelity’s brokerage allows you to buy fractional shares. So, it’s convenient for those with not a lot of money in that respect.
Dr. Jim Dahle:
But Robinhood has kind of gone above and beyond this, in order to become a bit of a cultural phenomenon and particularly attract young people who have never invested before.
Dr. Jim Dahle:
The problem with this is it also tends to inculcate them with a trader’s mentality. And so, it makes investing exciting and fun and all these things that may be good investing is not.
Dr. Jim Dahle:
And there’s a few dangers of it as well because they make it so convenient and so easy to do that there are a few people that are getting into trouble with it, which brings us to a really sad story that was run in Forbes recently with the title “20 year old Robinhood customer dies by suicide after seeing a $730,000 negative balance”.
Dr. Jim Dahle:
And the article reads, “The note found on his computer, by his parents on June 12th 2020 asked a simple question, ‘How is a 20-year-old with no income able to get assigned almost a million dollars’ worth of leverage?’ The tragic message was written by Alexander E. Kearns a 20-year-old student at the University of Nebraska, home from college and living with his parents in Naperville, Illinois. Earlier that day, Kearns took his own life”.
Dr. Jim Dahle:
So, this fellow had started trading on Robinhood because it was so fun and he was looking to get rich and Robinhood makes it fun and easy. It gives you free shares of stocks, makes the commissions free.
Dr. Jim Dahle:
And actually, in the first quarter of 2020, they added 3 million new accounts to their platform. That’s 1% of the United States population that was added to their platform in one quarter. And so, it’s obviously a huge trend.

Dr. Jim Dahle:
And then of course, people start staying at home, having lots of time and the stock market’s going up and down wildly with the Covid pandemic. And so, it really sucked a lot of people in to become day traders. For the first time, day trading seems to be popular again. This is the first time for this generation this has happened. Those of us who are a little older and I won’t tell you how old today, those of us who are a little older, remember the late 1990s.
Dr. Jim Dahle:
And I can remember, even as we went into the 2000 to 2002 bear watching some classmates, I don’t know how they had money before they came into med school, but they did, who are day trading in the med student lounge and talking to doctors who’d been day trading between patients and so on and so forth.
Dr. Jim Dahle:
But it seemed to go out of favor after the tech bubble burst for many years. It seems to be back now and Robinhood is not helping. Now they’ve had a couple of competitors that do similar things. I think Webowl is one of those that just makes trading stocks really, really convenient and seem fun.
Dr. Jim Dahle:
But you can see if you go to their website, they have cash management and stocks and funds and options and gold and crypto. It says you can tap into the crypto currency market to buy huddle and sell a Bitcoin, Ethereum Dogecoin and more 24/7 with Robinhood crypto.
Dr. Jim Dahle:
So, it just really sucks people into this trading mentality. Well, investing is not supposed to be fun. It’s not supposed to be exciting. You don’t need bubbles to burst every time, balloons to go up every time you buy or sell a stock or make a profit.
Dr. Jim Dahle:
All that does is make you think you’re in a casino. And then you start acting like you’re in a casino, which is generally detrimental to your wealth and sometimes even your health, as in the case of this Alexander Kearns.
Dr. Jim Dahle:
It’s really sad because when you get to the end of the story, you’ll see that there was a screenshot from his mobile phone showing a negative $730,000 cash balance displayed in red. But it turns out it was just a temporary balance until the stocks underlying his options actually settled in his account. So, he didn’t actually even lose the money that caused him to despair and take his own life. So really sad story all around.
Dr. Jim Dahle:
But not the only interaction I’ve had about Robinhood in the last month. I actually had one of my high school friends call me up or text me and ask, “Hey, what do you think about Robinhood?” And so, I got on the phone with them and spent a half hour or 45 minutes talking about investing and really teaching the basics of investing.
Dr. Jim Dahle:
And then at the end of the day, I think I sent them a link to this article about this young man Kearns, as well as a link to Bernstein’s “If you can”, that 16-page pamphlet. It’s a PDF on the internet. If you Google, “If you can”, you’ll pull it right up. And he read that.
Dr. Jim Dahle:
And so, I closed the loop about a month later and I said, “What did you end up doing after our Robinhood chat?” And my friends said, “I went back and looked at my two deferred compensation accounts and changed them to index funds. They’re doing better now. And I decided it would be better to just put more money into those accounts. I did put $1,000 into Robinhood just for fun and got $500 in Exxon and $500 in Royal Caribbean”.
Dr. Jim Dahle:
And I replied back, “Well, Royal Caribbean had a great month and it sounds like you’re doing all the right stuff”. And he said, “Thank you for the good advice. Sadly, I learned a lot from the articles you sent me. I was behind the game. But if I go broke, I’ll just move into your backyard”. So, a good friend, and it’s nice to be able to help people out. When a student is ready, the teacher will appear, right?
Dr. Jim Dahle:
But I’ve had those companies try to advertise with us here at the White Coat Investor in the past. And like many companies that we have turned down, just because we don’t believe in what they’re doing, we’ve turned them down as well. So that kind of tells you about how I feel about referring you to them and what they’ve been doing.

Dr. Jim Dahle:
All right, let’s get into some of your questions and answer those. This one comes in by email. “I’m a family medicine physician in the Northwest, 10 years out of residency. I’ve been working at a federally qualified health center since I left residency. And it’s been a privilege. I enjoy caring for underserved families, but it’s time for me to work in less chaotic environment and enjoy parenting my preschooler and make a more competitive salary.

Dr. Jim Dahle:
I’d been planning on starting my own direct patient care practice for about a year, but it was delayed by Covid. So, I’m going to open next fall, instead of this fall. I’m a calm and disciplined investor who can tolerate risk well with planning. However, the uncertainty of life in the last few months, especially daycare as a single mom and potential sick leave needs make me want to be a little more conservative with my business plan.
Dr. Jim Dahle:
My previously well-researched business plan was starting with $120,000 in cash savings and a couple of small side gigs. This would cover a year of my living expenses, $65,000 annually, $20,000 to start up and eight months of practice expenses. I would have no staff to start.
Dr. Jim Dahle:
I’ll have an additional $20,000 in savings by waiting a year and continuing on my tight budget. I plan to not take a business loan, but have an array of options related to side gigs and assets if things go very slowly.
Dr. Jim Dahle:
Since it has been delayed by a year, what are your thoughts on where my written financial plan savings should be going for the next 12 months? Should I put the full 25% for retirement in the next year, funding my Roth, 403(b), HSA in taxable accounts, knowing I may need to borrow against them or use them in a couple of years.
Dr. Jim Dahle:
How about the $65,000 I typically put into the college fund annually? I have a lot in cash because of my business plan. And I planned not to fully fund retirement this year, unlikely next year, especially the taxable in 529, but I don’t like the idea of missing another year of tax advantage savings assuming I will not have the income to save for retirement for one to two years, once I start the business.
Dr. Jim Dahle:
Are there problems with having a backup then involves borrowing against the house or retirement plan short term, while I get a steady income? Does the recent likely future market downturn affect this substantially? Prior to this downturn, I also considered cashing out taxable investments if things were dire, but it seems like it may be a bad idea to plan for that given the market.
Dr. Jim Dahle:
Luckily, I did cash out $30,000 from my taxable account as the market hit its high in February. I no delusions about being able to time things in the future. So, I got a salary of $160,000, cash about $110,000. Taxable investments at $80,000. $40,000 in a Roth IRA, $30,000 in HAS, $370,000 in 403(b) and some money in a 529. I’ve got a mortgage and $100,000 in student loans”.
Dr. Jim Dahle:
Okay, well, let’s go through your questions one by one. First of all, investing in yourself, invest in your future earnings, investing in your practice is a great use of money. It might mean you miss a few retirement account contributions for a little while to do that, but it’s usually worth it.
Dr. Jim Dahle:
Especially if it means a higher income long-term going forward. And especially if it means you’re happier because that means that you will have more longevity in your career.
Dr. Jim Dahle:
That gives more time for your investments to compound, more time to make social security contributions, more time to actually save and invest. And you generally do better financially by being happier.
Dr. Jim Dahle:
I also love seeing the well thought out business and financial plan. When I see that I know you’re going to be fine, right? A doc who can live on $65,000 despite making more than twice that is going to be fine. And I think this doc is probably going to use less of that cash than she thinks and be profitable sooner than she thinks. At which point she can use that cash to pay off the rest of the student loans, which is probably what I’d do before I put too much more into taxable investments.
Dr. Jim Dahle:
But where should savings go in the next year? Boy, I’d really lean towards just keeping it in cash for now until the business is stabilized. I’d hold off on both retirement and college contributions until you know you’re there.
Dr. Jim Dahle:
If you’re going to fund anything, I’d fund the retirement accounts, but certainly not the taxable account or the 529s. Those can wait and you can always catch up on both taxable and 529 accounts. So, there’s not even really anything lost there, other than a year’s worth of tax protected earnings, which is not much compared to the benefits of having a little bit of extra cash around when you’re having a major life change.
Dr. Jim Dahle:
I think it’s okay to have a backup that involves borrowing against your assets, but if you really need it, you’re probably seeing so few patients that you’ll have time to do more side gigs and you really ought to be looking into those first.
Dr. Jim Dahle:
Couple of other things. You mentioned the recent and likely future market downturn. Well, my crystal ball is cloudy is always, but the recent market downturn is essentially completely recovered. There’s always a future market downturn out there. I don’t let it affect my plans. I have no idea what is going to happen in the short term.
Dr. Jim Dahle:
I would not consider cashing out in February to be a good sign. It suggests to me that you may have difficulty staying the course going forward. So, I’d spend some time really analyzing that decision and maybe even dialing back the risk in the portfolio.
Dr. Jim Dahle:
Obviously, in retrospect, assuming you reinvested that money in March that worked out great to pull the money out in February, but most of us are unable to time that well on both ends. And I suspect that money’s probably still sitting in cash.
Dr. Jim Dahle:
And so yes, you avoided the fall, but you also avoided the entire recovery. So, you didn’t really come out ahead there. So, I’d be careful with this idea of being able to pull money out and somehow time the market going forward. But otherwise, I think you’re going to be really successful and really happy with the direct patient care model.
Dr. Jim Dahle:
All right, let’s take our next question off the Speak Pipe. This one’s from Ray.

Ray:
Hi Jim. I’m a surgical subspecialist in South Florida, about four years into practice. I have a question about whether it makes sense to invest in bonds and a taxable account when somebody has a mortgage at 4% to be making payments. My wife and I have an annual gross income of $500,000. We max out all of our retirement allocations and tax deferred and backdoor Roth accounts.
Ray:
And after having paid down our non-mortgage debts, we have about $7,500 additional per month to put into taxable accounts or to throw at the mortgage. We have about $2,500 of that into the mortgage. That’s a 30-year fixed at 4% with a balance of about $625,000. And then we’ve taken about $5,000 of it to put into a taxable account, which is small, it’s young, but which has balanced at 100% into equity.
Ray:
Our thought was that it didn’t make sense to put money into bonds within that taxable account when we had a 4% mortgage. Does that make sense? Our retirement contributions are largely targeted funds that are balanced between stocks and bonds. Thank you for everything that you do. It’s been extraordinarily helpful.

Dr. Jim Dahle:
Okay. So, the question is, “Does it make sense to invest in bonds and tax, but when you have a mortgage?” And really it doesn’t. And the reason why is that mortgages function as a negative bond. So anytime you paid out a mortgage is just like investing in bonds, except for most of us, you’re getting a guaranteed return higher than what you can earn in bonds.
Dr. Jim Dahle:
So, it’s an even better deal than bonds. Even if you only have a 2.75% or 3% or 4% mortgage, it’s still better than what you’re earning in bonds these days, because bond yields are so low.
Dr. Jim Dahle:
So, I pretty much didn’t have a taxable account at all until my mortgage was gone. Now that taxable account is larger than all our other accounts combined. And it’s really amazing how much you can save when you have no other payments. So, I highly recommend that.
Dr. Jim Dahle:
But in general, it’s perfectly fine to go 100% stock while you have a mortgage, as long as you can tolerate the fluctuations of the market if you panic and sell from that portfolio, while you probably would have been better off having some bonds in it.

Dr. Jim Dahle:
But the truth is that a mortgage functions as a negative bond. And so, it’s okay to put what you would have been putting toward bonds toward that mortgage to try to pay it off. And I hope that’s helpful.
Dr. Jim Dahle:
Okay. Next question comes in by email. “My question was about factor investing and tilting towards small cap value in particular. I understand that historically small value has done better than the total market, but it has struggled more recently. My question is isn’t it possible that small value stocks were priced too low historically then studies and articles came out about how great of a buy they were. Another pricing is correct as such that their long-term returns are consistent with the rest of the market”.
Dr. Jim Dahle:
Yes, that is possible. It is one possible way to interpret the data.
Dr. Jim Dahle:
“The market generally prices in all the public knowledge that’s out there. So, once it became widely known that small value historically outperformed, wouldn’t you expect the increased investment in that area to close that price gap and lead to performance consistent with the rest of the market?
Dr. Jim Dahle:
Or to put it in another way, I have a hard time believing that one category of stock will just continue to outperform everything else over a long time, because everyone would buy it and the price would go up. I know you tilt towards small cap value, so I’d love to hear your response to this. And if the answer is ‘there’s more risks and more reward’, then please clarify why small growth stocks, which are more risky, wouldn’t have even greater returns. Thank you.
Dr. Jim Dahle:
Okay. So yes, it’s possible. It’s possible that that phenomenon is just a result of data mining. Our data in finance is very limited. You got about a hundred years of good data and another 50 or 100 years of okay data and that’s it. And you’ve probably only got it in a handful of countries. And most of those countries, besides the U.S, you’ve only got it going back 30, 40, 50 years.
Dr. Jim Dahle:
And so, the data is really limited and it’s possible that you’re just finding a fluctuance in the data that is not actually a true thing. This isn’t physics, right? You can’t run the experiment a thousand times and really be confident in your answers. It’s investing. And it’s a bit of a social science in that respect.
Dr. Jim Dahle:
So that being said, those who really believe in and know about small and value, this factor investing, they believe that it is probably a risk story that small value stocks are riskier than large growth stocks.
Dr. Jim Dahle:
The smaller the company, the fewer products they have, the less cash they have, the less ability they have to weather a big economic storm. A value company, of course, is also generally in more precarious positions then a growth company. And so, in that respect, it’s also a little bit more risky.
Dr. Jim Dahle:
So, the idea is that you are paid more, your return is higher in the very long run for investing in small value stocks because you’re taking on more risk.

Dr. Jim Dahle:
Part of the story may also be what we call a behavioral story. Basically, people avoid these stocks. They like the sexy companies they’ve heard of. They like the FANG stocks, your Apples, and your Facebook and your Netflix and your Zoom kind of stocks because you’ve heard of them. And you know they’re growing rapidly and they’re in the headlines.
Dr. Jim Dahle:
And so, because of that, people are more likely to invest in those stocks and stay away from small value stocks. And I don’t see any reason why that would change either. I mean the risk story is not going to change, the behavioral story is not going to change.
Dr. Jim Dahle:
There have been long periods of time of course where small value did not pay off, where it was outperformed by the overall market and other segments of the market. And so, you have to expect that going forward. That even if over the 30 to 60 years, that you invest, even if small value wins over that time period, you should probably expect 15-20-year time period, somewhere in there where they underperform. So, it’s really a lifelong commitment if you’re going to invest your portfolio and tilted toward small stocks.
Dr. Jim Dahle:
So that brings us to small growth. What is the deal with small growth? Well, for a long time, people talked about small growth being a black hole. That it suffers from a lottery effect where people are essentially taking a gamble on these stocks and hope that they’re finding the next Facebook.

Dr. Jim Dahle:
And so, because of that, they’re willing to accept lower returns, just like people buy lottery tickets, knowing that they’re probably losing their entire investment, but maybe, just maybe, they’re going to strike it rich. And so that is why they have postulated that there has been this poor performance of small growth in the long run.
Dr. Jim Dahle:
Of course, in the last 10 years, the performance hasn’t been that bad at all. And so maybe that was just a factor that came from data mining and isn’t real either, but only time will tell. In some ways, you only get one ride around on this roller coaster and you got to make your bets and take your chances.
Dr. Jim Dahle:
And so that’s what you’re doing with small value investing. You might believe that over your time horizon, it’s going to pay off, but don’t tilt your portfolio more than you believe. Otherwise, you’ll panic in a moment like this, and ended up selling low just before small value starts doing really great.
Dr. Jim Dahle:
All right, let’s take our next question off the Speak Pipe this one’s from an anonymous listener.

Speaker:
Hi, dr. Dahle. Thanks for all that you do. I am currently an emergency physician working two different 1099 jobs, but one of those jobs will be transitioning to a hospital-based employee with W2. I’m wondering if there’s a way that I can decrease my amount of estimated tax that needs to be paid over the next five months, or do I have to continue with the estimated tax based on last year’s income? I also don’t know how this will affect my ability to max out my individual 401(k). Thanks for any advice.

Dr. Jim Dahle:
Okay. So, it sounds like this listener is going from a 1099 job to a W2 job and still some 1099 work. So, he wants to know, do I have to keep making estimated tax payments? Well, I don’t know. It depends. If that W2 job is the vast majority of your income now, and you’re having enough withheld from that, you might not have to make quarterly payments anymore.
Dr. Jim Dahle:
Chances are though that you’re probably still going to have to make at least some quarterly estimated payments. They’ll just be smaller. The idea is between your W2 withholdings and your quarterly estimated payments, you need to get into the Safe Harbor. And the safe Harbor for a higher earner is either paying 100% of what you owe this year, paying 110% of what you owed last year, or being within a thousand dollars of your tax bill. If you’re not in that safe Harbor, you will own some penalties. So, expect that. So, you make your best guess and you do the best you can.
Dr. Jim Dahle:
One really cool trick that you can do with W2 withholdings is that you can have more withheld at the end of the year, and it’s treated by the IRS as those withheld evenly throughout the year.
Dr. Jim Dahle:
That’s different from quarterly estimated payments. You can’t just pay all your taxes in your fourth quarterly estimated payment, or the IRS will nail you with some penalties because of that.

Dr. Jim Dahle:
The only way you can pay all your taxes at the end is if you make all your money at the end, otherwise, you’ll own some penalties. And so, keep that in mind, but you can do that with W2 withholdings. You just have to go in there toward the end of the year and increase the number or decrease the number of, whatever you call them, the exemptions that you’re claiming.

Dr. Jim Dahle:
Okay. Also keep in mind the rules for multiple 401(k)s. If you have two separate employers, write yourself on the 1099 income and your employer on the W2 income, you can have two 401(k)s. Each of those 401(k)s gets a $57,000 total limit for contributions, but you still only get one $19,500 employee contribution, no matter how many 401(k)s you’re eligible for.
Dr. Jim Dahle:
And so, what people typically do is they put $19,500 into their employer’s 401(k). They get whatever match they’re offering. Maybe it’s another $10,000. And then they put 20% of their self-employment earnings into that solo 401(k). And so that’s probably what you’ll end up doing, I suspect.
Dr. Jim Dahle:
All right, let’s do our quote of the day. This one comes from Charlie Ellis, who said, “Over the past 20 years, more than four out of five of the pros got beaten by the market averages. For individuals, the grim reality is far worse”. So, if you’re not investing in index funds, you better have a really good reason to do so.
Dr. Jim Dahle:
All right, our question comes in by email from Matt, from New York. He says, “My wife is leaving her job this month to become a full-time stay at home mother and I’m unsure what I should do with her 401(k).
Dr. Jim Dahle:
How would one calculate and make the decision between one, keeping the account open and continuing to make yearly backdoor Roth IRA contributions, or two, move her assets into an individual IRA, and contribute to a brokerage account instead of the backdoor Roth IRA.
Dr. Jim Dahle:
In our case, the existing average mutual fund and 401(k) fee is 1.3% per year. And the new average expense ratio would be 0.25% per year at the backdoor Roth IRA or the brokerage account. It seems to me that option two is mathematically a better choice, but I’m looking for a second opinion”.

Dr. Jim Dahle:
Well, it depends. It depends on how long that money stays in that 401(k). For example, let’s say your wife takes a job in a year and it has another 401(k). It’s a good 401(k). And you roll over that money into the 401(k). Well, in that case, you would have been better off doing the backdoor Roth IRA because you only had to pay that higher fee for a year.
Dr. Jim Dahle:
But on the other hand, if that money is going to sit in that 401(k) for the next 30 years, well, that’s going to add up quite a bit at 1.3% per year. In which case you may start wondering if it’s really worth it. But it’s not like there’s no benefit to having a backdoor Roth IRA for those 30 years.
Dr. Jim Dahle:
So, I think in this case, I would go for the backdoor Roth IRA, but I would consider few other options. First of all, if this is a relatively small 401(k), rather than leaving it in that 401(k), you might consider just converting it to a Roth IRA. Maybe wait until next year when you’re living off only your income, pay the taxes and do a Roth conversion, convert it to a Roth IRA.
Dr. Jim Dahle:
That’s another thing that allows you to do a backdoor Roth IRA, but also allows you to have a relatively low expense ratios on the remaining amount of money. And I think I’d try to do that if it was a relatively small 401(k). Now if this is some $400,000 – 401(k) maybe that tax bill is just too much for you to swallow at this point, in which case you’re left with your dilemma.
Dr. Jim Dahle:
But I think for now, I’d probably leave it in the 401(k) if that’s your only choice and start doing backdoor Roth IRAs. It’s not like you can’t change your mind at any given time and roll that money over to an IRA if you want.
Dr. Jim Dahle:
Our next question comes from Sam. Let’s take a listen on the Speak Pipe.

Sam:
Hey, Dr. Dahle. My name is Sam and I’m a brand-new intern in ENT this year. I was fortunate over the last three to six months to have a lot of free time at the end of my fourth year, as well as the quarantine era to dive into my financial education, which I exclusively give the credit to you for after reading your book and listening to your podcast.
Sam:
I have a philosophical question for you about investing. A classical three fund portfolio has a one to one relationship of U.S. stocks to international stocks. In my mind, this seems a lot like it’s just an international stock fund with a really heavy U.S. tilt. Is there a reason this is so common? Does the U.S. just have that much better returns to where it justifies this?
Sam:
To me, that seems like it’s going against the common wisdom, not putting all your eggs in one basket. It also seems similar to how you’re often encouraged to not have a significant portion of your portfolio and the company you work for. I just wanted to see if you had any thoughts about this. I appreciate all your insight and I’m so appreciative of all you do. I prophesize you to anyone that’ll listen to me that’s in the medical field. Thanks again.

Dr. Jim Dahle:
You guys are getting really good at asking the harder questions on these last few podcasts. And nobody’s asking me the same ones I’ve answered a hundred times over and over again. Those ones are much easier.
Dr. Jim Dahle:
So, Sam’s a new intern. He is already pretty smart about money and investing. He’s saying, why would you tilt toward U.S. stocks? Isn’t that the same as home country bias and investing in your own employer stocks?
Dr. Jim Dahle:
Well, not entirely. First of all, the U.S. has a few advantages, right? For all its problems, it is the most financially successful country that has ever existed in the world and has some unique freedoms and liberties and institutions and cultures that make a difference compared to some other countries. And so, if for no other reason, tilting a little bit toward the U.S. is not entirely crazy because of that reason.
Dr. Jim Dahle:
In fact, Jack Bogle doesn’t even think international stocks are necessary at all, because U.S. companies do so much business overseas. Obviously, lots of people disagree with him.

Dr. Jim Dahle:
The other thing that would suggest maybe you should tilt your portfolio a bit toward U.S. stocks is that you’re going to spend dollars in retirement. And so, by doing so you reduce the amount of currency risk that you have. For example, if the dollar weakens dramatically or rather the dollar strengthens dramatically, and you have a bunch of money in overseas stocks, those returns are going to be relatively poor.
Dr. Jim Dahle:
Now, my portfolio is not one to one U.S. to international. It’s actually two to one U.S. to international. So, in that respect, because I have more than the market weight of U.S. stocks, I suppose I have a U.S. tilt to my portfolio. And I’m perfectly happy with that. I think reasonable is anywhere from about 80% of your stocks being U.S. stocks to market weight, which is around 50/50. But lots of people disagree on this topic.
Dr. Jim Dahle:
The most important thing is whatever percentage of international stocks you decide to have is to pick something and stick with it. Knowing that over the long run international stocks are going to outperform U.S. stocks in some years, and U.S. stocks are going to outperform international stocks in some years. And you want to make sure you own the winning class when the time comes. So, don’t get caught performance chasing, doing whatever has done well in the recent past, because you get burned doing it.
Dr. Jim Dahle:
Thanks so much for what you do. Medicine in particular is not easy these days. Walking into a hospital or a clinic sometimes feels like you’re going to war. I could sense that when I went to the dentist recently. You walk in there, masks are mandatory, they’ve taken all the chairs, but three out of the waiting room. The place is getting sanitized like crazy.
Dr. Jim Dahle:
And you should’ve seen the dental hygienist, how she gowned up before taking care of me. I mean, she’s got twice the PPE on that I had intubated patients in the ER. Everything is short of a PAPR respirator mask, but we all feel a little bit like we’re going to a war zone these days.
Dr. Jim Dahle:
So, thank you very much for what you do. It’s not easy, it is risky and it’s certainly not the easiest way to have a high income. But if nobody’s told you thank you today, let me be the first.

Dr. Jim Dahle:
Let’s take another question. This one comes from Anchor.

Anchor:
Hi, dr. Dahle. Thank you for everything you do. I wanted to know if there was a way to set up a brokerage accounts to be able to invest in syndications. I tried pulling for that but at the end, I tried setting this up myself. However, I was told that this can’t be done. I know we can invest in real estate through the IRA, but I was wondering if something can similar be done to the taxable account.
Anchor:
The main reason for me to do this is our taxable account is housing tenants by entirety. And I would like that as a production benefit of that. If you could provide some guidance. Thanks.

Dr. Jim Dahle:
Okay. This is an interesting question because it reflects a little bit of a lack of understanding, right? He wants to know how do I set up a brokerage account to invest in real estate? Fidelity won’t let me do it. Well, you don’t need to go through Fidelity.
Dr. Jim Dahle:
If you want to invest in private real estate, you can just go to the person offering the private real estate investment. If that’s a syndicator, right? You’re basically buying into an LLC is what you’re doing. You’re using a private placement memorandum.
Dr. Jim Dahle:
So, what is formed when you do that? A new company, an LLC, that’s what you’re investing in. You’re not investing in through an account at Fidelity or an account at Vanguard or an account at Robinhood, right? You’re just going straight to the syndicator.
Dr. Jim Dahle:
Same thing if you go to a private real estate fund or a company that offers private real estate funds, you’re opening an account with them. And that works really well for taxable accounts, because you can have 15 taxable accounts all over the place. It’s no big deal.
Dr. Jim Dahle:
It’s a little bit trickier if you want to invest in these investments through an IRA or a self-directed 401(k). In that respect, you’ll need a special account that you go through. Some sort of a checkbook account where all the money that goes into that investment comes out of this account and all the income from that investment goes back into that checking account, because it can’t go to you personally.
Dr. Jim Dahle:
So, it’s a little more complicated if you want to do it inside a retirement account. It’s very easy if you just want to keep it in a taxable account, but you don’t have to go to Fidelity or E-Trade to open anything special to do it. You can just go straight to the investment.

Dr. Jim Dahle:
I understand what you want though. What you want is to title that account as tenants by the entirety. So, try to provide you with some asset protection if one or the other member of the couple gets sued above policy limits, and that a judgment is not reduced on appeal. Although that’s very, very unlikely, it isn’t 0% that that can happen.
Dr. Jim Dahle:
But I think you will find when you go to these private real estate investments, whether they’re funds, whether they’re syndicators, whatever. I think you will find that they will let you buy that share of that LLC, become a member of that LLC with whatever entity you want.
Dr. Jim Dahle:
It can be an IRA. It can be a trust. It can be in your name. It can be your name and your spouse’s name. It can certainly be in your and your spouse’s name tenants by the entirety. I’m sure they’ll let you invest in that manner. And so, I don’t think that’s going to cause you any problems at all with this.
Dr. Jim Dahle:
Thanks for those of you who’ve been leaving us five-star reviews and telling your friends about the podcast. It really does help us get the word out about this. One of our more recent reviews said this. This is from Meg. And thanks for this, Meg.
Dr. Jim Dahle:
“Dr. Dahle provides detailed yet easy to understand financial advice for the high income professional. I’ve been listening to his podcast for years. I appreciate episodes number 137 and 139, tutorials for those paying off their student loans and others who have achieved financial success so much that they finally motivated me to write this five-star review. I hope dr. Dahle will make these podcasts an end of the year tradition. Thanks for all you do. Five stars!”
Dr. Jim Dahle:
Thank you for that, Meg.

Dr. Jim Dahle:
Remember, if you would like to win the White Coat Investor scholarship and you are a medical or dental student, and other professional student, please apply. You have until August 31st to do so.
Dr. Jim Dahle:
We need more judges, okay? Email [email protected] We need people to donate to the scholarship. You can do that at whitecoatinvestor.com/scholarship.
Dr. Jim Dahle:
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Dr. Jim Dahle:
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Dr. Jim Dahle:
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Dr. Jim Dahle:
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.