What to do with a Dramatically Lower Income – Podcast #156 – The White Coat Investor – Investing & Personal Finance for Doctors

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 156 – What to do with the dramatically lower income. We’re recording this on April 14th, I think it’s going to go live on April 30th and this is a very exciting moment for us. This is our last podcast being recorded in the bedroom of our rental house and so we’re thrilled about this. We’ve had this podcast studio, a table in the corner with a bunch of lights and mikes set up for the last seven months while we’ve been in a rental property. Well, our home was being renovated and it’s caused a lot of funny moments.
Dr. Jim Dahle:
For instance, we had somebody come over, a young couple that lives nearby, come over and watch our kids while we went on vacation a few months ago. So, we cleaned everything up and moved out or didn’t move out but left for the trip and they came over that evening and they were standing in our bedroom because there’s the only place for them to stay.

Dr. Jim Dahle:
And what do they see? Well, they see a camera and a bunch of lights and a bunch of microphones. They’re like, “What are these guys doing in their bedroom?” We’re really looking forward to getting out of this space back into our house, especially with the dedicated White Coat Investor office space and a real recording studio. So, we’re thrilled to give back over there. It’s going to be a lot of fun. The kids are loving it. It’s mostly done now. We still need carpet and some paint, but by the time you hear this will be moved in over there. So, it’s going to be great.
Dr. Jim Dahle:
The kids are loving the fire pole, they’re loving the climbing wall, they’re loving the secret passageway. They’re going to like the theater and the game room and all that kind of stuff. And of course, there’ll be thrilled to have a little bit more space around. Katie’s loving her new kitchen. It’s all in. All the appliances and countertops and cabinets and flooring and everything’s all in. It’s going to be very nice. And of course, I’m thrilled about the updated garage and having some space for the White Coat Investor and getting all the crap out of the landscaping that I really didn’t like in the first place. We’re all very excited to be back over there and we’ll move next week. And by the time you hear this will be in the old new house.
Dr. Jim Dahle:
All right, so a word from our sponsor Contract Diagnostics. They’re a long-term advertiser with us here at WCI. I love this company because they’ve helped hundreds of White Coat Investors get a ‘fair shake’ when it comes to reviewing and understanding their employment contracts – It’s all they do there. All contracts are reviewed by an in-house attorney and presented in a simplified way back to you. Using a simple online signup, custom documentation, compensation data as well as weekend and evening hours. They make it easy for you. All packages are flat price so you know what you will pay upfront – Residents and fellows can even make interest repayments over time. So, look them up – contractdiagnostics.com 888-574-5526.
Dr. Jim Dahle:
All right. Our quote of the day to day comes from Benjamin Graham, the mentor for Warren Buffet who said, “It is absurd to think that the general public can ever make money out of market forecasts”. I liked that quote because it demonstrates just the futility of listening to the talking heads on CNBC.
Dr. Jim Dahle:
Thanks for what you do out there. I don’t know where we’re going to be at on April 30th. Our predictions around here are that that will be our worst week here in Utah for the pandemics so far. I don’t know if it’s because we locked down so quickly relative to our increase in cases or not, but it’s been a little bit underwhelming so far here. Our volumes are way down in the ERs and our numbers of sick and dying from Covid-19 is much lower than anybody expected.
Dr. Jim Dahle:
But by the time you hear this, we’re supposed to be at our surge at our highest level, that end of April. So, I hope those of you who are dealing with this across the country are doing well and are able to keep yourselves and your families safe and do all that you can for your patients. For those of you in the hot spots, hang in there. This too shall pass.
Dr. Jim Dahle:
I’m excited. I just got an email this morning that we have an in-house test finally for coronavirus so we’re thrilled to start using that. It’s been pretty wild to see all the changes in our ER. We put up some temporary walls, we have knocked holes in the outside walls and put in these huge five-foot by three-foot machines in each corner. We’ve got half the ER is now negative pressure rooms. You can’t hear a thing in there and when you combine that with the fact that we’re all wearing a mask or two and maybe even a paper over the top of that is really hard to hear anybody in any of the patient treatment rooms. But so far so good. I feel like we’re ready for our surge here and I hope you are feeling as prepared as we are.
Dr. Jim Dahle:
All right. A few things to be aware of here at the White Coat Investor. You may not be aware of all of the online courses that we either partner with or offer ourselves. You can find those if you go to the main website, under the main banner there, there’s a page called “Courses”. And under that, you can see all of our courses and it has the ones listed that you’ve heard of like “Fire Your Financial Advisor”, our course that helps you get a written financial plan. And our newest one, “Continuing Financial Education 2020” that we had the promotion of just a couple of weeks ago.
Dr. Jim Dahle:
I encourage you to check those out. But what you may not realize is there’s a lot of other courses there too with people we partnered with. For example, “How to Get Started in Telemedicine?” or “Learn the Business Side of Healthcare” or a negotiation course called “Planning to Win”. There’s also a medical coding and billing course which was put together by a urologist. That’s being offered right now at a 30% discount. So, if you’re still not able to go anywhere when you hear this and you’re still sitting around, locked down, this is a great time to take an online course. So be sure to check out all of our offerings there. There’s something for everybody, no matter where you’re at in your career and you might as well use this time to improve yourself and your knowledge and your finances.
Dr. Jim Dahle:
Thanks for those of you who’ve been leaving us questions on the Speak Pipe. If you would like to leave a question to be on the White Coat Investor podcast, you can do so at speakpipe.com/whitecoatinvestor. And lets go to our first question off the speak pipe. It is a frequent caller. It’s Tim from San Francisco again, so let’s hear his question.

Tim:
Hi Jim. Tim from San Francisco here. How is the Covid-19 pandemic affecting your real estate and hard money loan investments? Thanks.

Dr. Jim Dahle:
All right, real estate in the pandemic. How’s it affecting me? Well, I don’t really know yet. It’s kind of a little bit of a lagging market in that respect. You can see what your stocks are worth any day you want, but when you start talking about private real estate, you don’t really know what something’s worth. Clearly private real estate is worth less now than it was in February. Whether it’s a syndication or whether it’s a real estate fund or whatever, the value is clearly gone down.
Dr. Jim Dahle:
But in general, what the people who work in this space will tell you is that it doesn’t go down as quickly or as far as the public markets do and it doesn’t go up as quickly or as far as the public markets do. So, it’s a little bit moderated that way. But I saw one statistic that said one-third of the people paying rent, one-third of tenants did not pay rent in April.

Dr. Jim Dahle:
I can’t imagine that is a good sign for anybody who owns rental real estate. It’s a little bit interesting that way. I’ve been trying to keep up a little bit with what some of these guys are saying. Most of them are kind of holding off investing new funds until they see how this shakes out. And personally, I’ve been holding off investing in new real estate investments because in order to rebalance my portfolio, all my new money is going into stocks. And stocks have dropped. That’s where my new money goes. And so, I haven’t invested any money in real estate. Well, that’s not true. I had a capital call or two during this time period that I had to meet, but other than that, all my money is going into stocks the last couple of months just because I need to buy them according to my written financial plan to get back to the percentages I want in stocks. It’s nice because it forces you to buy low on buying stocks at a discount that way.
Dr. Jim Dahle:
One interesting thing that happened with one of my investments, this is one that there’s been some fraud involved in a syndication, not by the company. This was through a crowdfunding company, but by the sponsor. The sponsor went and got another mortgage on the property without actually telling anybody who was legally required to tell, ie the investors. And then, of course, he’s gotten in all kinds of trouble with his other properties and basically gone bankrupt. And so that new lender is foreclosing on the property. One possibility out of what’s going to happen here is a total loss for us as the equity investors. I think it was this one was a preferred equity deal, but still, it’d be a total loss for us. And so, the crowdfunding companies actually really put together a pretty creative solution to get the asset, get the property back in the hands of us as the investors.

Dr. Jim Dahle:
The downside is it’s going to require new money, about 50% of the original investment. It’s a little bit of a prisoner’s dilemma, right? They come to us as investors and say, if enough of you will put in money that we can come up with about 50% of what you put in before, we can get the property back. We think it’s a decent property and it’s going to return well. And we can get a decent return on the new money. But most importantly by putting in the new money, we’ll be able to get your principal back for the old money. And say you get your principal back, which you probably won’t anyway by putting in new money. So, it’s a little bit of a prisoner’s dilemma. Because if not enough people invest, they’re not going to have the money to do this deal, but nobody actually wants to throw good money after bad.

Dr. Jim Dahle:
I’m very interested and excited to see what people actually choose in this situation to do. I think we’re probably going to put in the money. It’s not a very large amount for us. I think it’s an interesting thing to participate in and hopefully, not only get the original principal back, but I make a good return on the new money. But that’s one interesting thing that’s happened in the last couple of months, but that’s been brewing for a year. That really doesn’t have anything to do with the pandemic, although I’m sure the pandemic is not helping.
Dr. Jim Dahle:
All right. Let’s take our next question from my email box. This one’s asking, “Most likely, or at least I hope physicians aren’t as impacted by the current health crisis as other nonessential areas are. With dentistry, we’re limited to emergency exams and treatment only which means we’re seeing a serious dip in income. I completed my backdoor Roth IRA for 2020 at the beginning of January. Things keep going as they currently are and I don’t make the modified adjusted gross income as a single guy of $124,000. Will there be penalties I’d have to pay or will this have to be reversed somehow? I can’t be the only one out there with this question. Any info is helpful and hope everyone at the WCI is safe and healthy and appreciate all you do”.
Dr. Jim Dahle:
Okay. The good news – Anybody can do a backdoor Roth IRA. High-income earners have to do a backdoor Roth IRA. But I did a backdoor Roth IRA in 2010 thinking I was going to be over the modified adjusted gross income limit and I was not. So, no big deal. It was one extra step and I had to fill out an 8606 that year, but it doesn’t hurt anything. So, there’s nothing wrong even if you don’t hit that income limit with doing a backdoor Roth IRA.
Dr. Jim Dahle:
The reverse is a much larger problem. When you contribute to a Roth IRA directly and then find out your MAGI is above the limit. Then you got to do all kinds of funky things like recharacterizing the contribution to a traditional IRA and then after a waiting period, converting it to the Roth IRA. So, a much bigger pain that way. No big deal for everybody to do a backdoor Roth IRA.

Dr. Jim Dahle:
All right, let’s hear our next question here. This one comes from a Kentucky urologist.

Speaker 1:
Hi Jim. I’m a urologist from Kentucky with a question about tax-loss harvesting my international stock index fund in my taxable account during this pandemic. We met last year when you spoke in Lexington. My wife and I completely turned our financial lives around two years ago when we pulled our heads out of the sand after I finished residency. I read your book and many of your recommended books and eventually become what you would call a hobbyist. Thank you so much. I am a Boglehead with the four-fund portfolio with 60% stock, 20% bonds and 20% in emergency fund in a money market account all with Fidelity. Out of my stocks, 75% are domestic and 25% are international in FSCSX in my taxable account. And I still have about a $10,000 loss since purchase. I assume you would recommend tax-loss harvesting. But correct me if I’m wrong, at this point, would you continue to keep international index funds or focus on domestics during this pandemic? And if so, with what? Most of my domestics are total market index funds such as FXAIX and FSKEX. Thank you very much for your time and everything that you do. Take care.

Dr. Jim Dahle:
Okay. First of all, anytime you’re asking questions to anybody by email, in person, the Speak Pipe – Don’t use ticker symbols. Nobody knows ticker symbols. You guys just heard all those ticker symbols ramble off and I would bet the 99% of you don’t know what funds those are. I didn’t know what the funds were. I had to look each of them up. Before we get into this too much, just recognize these are very commonly used funds. The first one was the Fidelity international index fund. The second one was the Fidelity 500 index fund and the third one was the Fidelity total stock market fund.
Dr. Jim Dahle:
Okay, so let’s get to the questions. Should you tax loss harvest something with a loss in a taxable account? Yes. If you’ve got a loss, sell it and swap it for something very similar, but not in the words of the IRS, substantially identical. At the time you sent this question in, you had a $10,000 loss. You might as well harvest that as $10,000 you can use to lower your future capital gains taxes and even can put up to $3,000 a year against your ordinary income. So, it’s never a bad thing to have a bunch of losses. I had a blog post recently that talked about nine times you might not want to actually take a loss. They might not want to do tax-loss harvesting, but for the most part, if you’ve got a loss in a taxable account, you pretty much want a tax loss harvest it.

Dr. Jim Dahle:
The other question was, would you keep holding international funds during the pandemic? I have no idea what the future holds. I don’t know if international is going to outperform domestic. I don’t know if the stock market is going to go up in the next three months or go down in the next three months. I really have no idea. My recommendation, anytime I get one of these questions of “How should I time the market?” or “How should I invest during this particular market scenario?”, I tell you I have a cloudy crystal ball and you should follow your written investment plan.
Dr. Jim Dahle:
If you don’t have a written investment plan, get a written investment plan. There’s three ways to do it. The first one is the way I did it. It takes a lot of time and a lot of effort, but it works. You can read some books. You can ask a lot of questions on internet forums. You can read blogs. You can write up your own written financial plan that you can follow.

Dr. Jim Dahle:
The second way is the shortcut I created – “Fire Your Financial Advisor” online course. This is about eight hours of coursework. But by the time you get out of it you will be done with a written financial plan that you wrote yourself that you can follow to investing success.
Dr. Jim Dahle:
The third thing that you can do is go hire a good fee only financial planner. A lot of times for a relatively low fee, like a couple thousand dollars or a few hours of hourly rate fees, you can have them help you draft up a written financial plan book.
Dr. Jim Dahle:
No matter how you do it, you need to do a written financial plan to follow so you never have these questions of what you should do with international funds during a pandemic. Because the bottom line is, I don’t know whether international is going to go up or down, etc.
Dr. Jim Dahle:
All right, next question. This one’s also by email.
“I’m getting conflicting information regarding backdoor Roth and I hope you can take a few seconds to clarify for me. I currently contribute to a pretax 401(k) because it’s matched up to 6% and I maxed that out at $19,500. There is an additional employer provided option for Roth IRA, but that is not mashed and apparently, I make too much so it’s off the table. I’m also doing a pretax 457(b) and HSA. I started 529s and opened up a brokerage account and post-tax traditional IRA with intentions of doing the backdoor Roth as you recommended. Fidelity reps and several online articles have said that any conversion from a traditional Roth will be taxed at the 35% tax margin, but the CPA and CFO I hired to do my taxes, who seems qualified by all reasonable standards, says I shouldn’t be taxed because it’s after tax money I’m using to fund this. This $6,000 is sitting in my traditional IRA and I’d really like to convert it and invested as soon as I can, but I’m reluctant to do so if it’s going to cost me another 35%. I feel like I’m missing something here because it doesn’t make sense to give the government 70 cents on the dollar before I even start investing it. But you seem pretty adamant that this backdoor Roth is a must do for almost all physicians. Please clarify”.
Dr. Jim Dahle:
All right, I think I can clarify this one. First of all, you never make too much to put money in a Roth 401(k). So, if your employer offers a Roth 401(k), there’s no need to go through the backdoor to do that. It’s just an option you have to do traditional 401(k) or Roth 401(k) inside your employer provided retirement account. Don’t confuse that with a Roth IRA. Very different things. The second thing is your CPA is right. If you are putting after tax money into a traditional IRA, basically you can’t take a deduction for it because you make too much and then you convert it to a Roth IRA. That is a taxable event. But the tax due is $0 because you never got a deduction on the money. And so, the cost to convert it is nothing. So no, you don’t have pay tax on that money twice.
Dr. Jim Dahle:
You should convert it. If you’ve got money sitting in a traditional IRA, convert it to a Roth IRA – That’s already been taxed. Now, if you’ve got some rollover IRA that you got from rolling over some old 401(k) or 403(b), that’s pretax money. Yes, if you convert that, you’ve got to pay tax on that at your ordinary income tax rate. And if that’s 35% is 35%.
Dr. Jim Dahle:
I think it might be really useful for people because people get this confused all the time to realize that the backdoor Roth IRA is a process. It’s not necessarily one step. It’s not one thing. It’s a process and the process has two steps.

Dr. Jim Dahle:
The first one is you contribute to a traditional IRA. Now because you make too much, that contribution is not deductible. But that’s step one as you contribute to a traditional IRA. You can do that anytime between January and the next April of the next year. You can contribute to this account and that’s great.
Dr. Jim Dahle:
The second step of a backdoor Roth IRA is to do a Roth conversion. That’s moving money from the traditional IRA into the Roth IRA. That can be done at any time. It can be done 10 years from now if you want to. You should do it pretty close together. It is certainly making your paperwork easier if you do both of them during the same calendar year and before there’s any significant gains in the traditional IRA. Especially any losses in the traditional IRA that can make your paperwork really complicated. The bottom line is you put it in the traditional IRA, let it sit there for a few days in the money market fund and then move it over to the Roth IRA is the way most people do it. That way there’s no losses for sure and the gains are trivial – A dollar or two maybe that you got to pay taxes on in that conversion.
Dr. Jim Dahle:
I think a lot of people that are asking questions about a backdoor Roth IRA in the process have just never even looked at form 8606. This is the IRS form where you report any nondeductible contributions to traditional IRAs as well as any Roth conversions. And if you walk through this form, it really demystifies the whole process. The first line asks, “What were your contributions for 2019?” If you put money in there for 2019 whether you did it in 2019 or in the first few months of 2020, that’s where that money goes. So, for most people, that line is $6,000.
Dr. Jim Dahle:
The second line is entering your total basis. Now if you’ve just been doing backdoor Roth IRAs every year doing the contribution, doing the conversion, this line’s always going to be zero. But in that situation where you put in money for last year but didn’t convert it until this year, then that contribution is going to be basis – Money that you’ve already paid taxes on. So, you put that on line two, you add them together for line three. Line four is just the money you put in after the first of the year of the next year, and then you subtract that from line three. Line six you simply put in the value of all of your traditional simple and SEP-IRAs at the end of the year. Hopefully, that number is zero on line six. Line seven is usually zero. Line eight is the amount you did a Roth conversion on.
Dr. Jim Dahle:
If you did this the right way, the easy way, you put $6,000 into a traditional IRA, and then you converted that $6,000 to a Roth IRA, that line’s going to be 6,000. Then you add six, seven and eight together, to get in line nine. That number again should be 6,000. Then you’d have to divide line five by line nine, just a math equation. That number should be 1 most of the time. Then you multiply line eight by line ten. Again, that’s going to be your $6,000. Line twelve is multiply by line seven by line ten. Again, that’s zero. You had those lines together. For line 13 as $6,000 again. You then subtract that from line three and again, that’s zero. So that’s your basis. That’s what goes on line two next year. And then lines sixteen, seventeen and eighteen is just where you report your Roth conversion. But because of the way you did that, their taxable amount should be zero.

Dr. Jim Dahle:
If you need to check something on an 8606 that was prepared by somebody else, by an accountant or whatever, look at line eighteen. If line eighteen is 0 they filled the form out right. If line eighteen is something like $5,500 or $6,000 or something like that, they probably filled the form out wrong. That’s where you check it. It’s line eighteen.
Dr. Jim Dahle:
Once you’ve walked through that form once, it’s really not that complicated. At least once you understand what basis is on line two. But it makes you understand that this is a process and is not just a single thing. A lot of times people are just using very imprecise terminology when they’re asking questions about a backdoor Roth IRA and it’s important to understand that it’s really the combination of two separate steps.
Dr. Jim Dahle:
All right, let’s talk for a minute about mortgage forbearance. There are some things you can do in this downturn, this economic downturn. Basically, you can stop paying your mortgage for a while. You can get mortgage forbearance. Under the cares act this is permitted. In fact, I think you can get it for up to 12 months with no actual proof of financial hardship.
Dr. Jim Dahle:
If you’re having trouble making your mortgage, guess what? You don’t have to make your mortgage anymore. But there’s a few things you need to understand about forbearance. Number one, forbearance is not forgiveness. You’re going to have to pay this money eventually. These payments are basically being tacked onto the end of your mortgage. It is also not a 0% period. This is not like what the federal government is offering right now for federal student loans where as 0% and no payments. This is just no payments. The interest is still accumulating. And so, realize that.
Dr. Jim Dahle:
The other thing to realize is that the mortgage companies, the banks, the lenders, whatever you want to call them, they are allowed to determine how they’re going to be repaid. And it varies by the lender. What you may find is that you don’t have to make any payments for 3 months and then you have to make all the payments at once with a big balloon payment. So, get into the fine print and find out how you’re going to have to pay on this later. Maybe they stack them onto the end of the loan. Maybe they’re all due after 3 months or 12 months or whatever.
Dr. Jim Dahle:
So, you need to look into that. The devil is in the details. You don’t want to assume that it goes to regular payments after 3 months or 6 months or 12 months. It might be a balloon payment, so read the fine print.
Dr. Jim Dahle:
And then the last thing to realize is that this is getting tacked onto the end of the loan. When you sell your pay off, it’s going to be higher. It’s going to take you longer if you’re going to pay off the mortgage and stay in it. Just realize there’s not a free lunch here. The only free lunch is you don’t have to make payments for a few months. It’s still going to cost you at least as much and probably significantly more in interest to do a mortgage forbearance.
Dr. Jim Dahle:
All right, our next question comes in via Twitter. A thing you got to love about Twitter is its brevity. Here’s the question – “Is AMC too risky of a buy?” For those of you who don’t know, AMC is a movie company. They make movie theaters. There’s the AMC channel, but that’s what they do. They do movies. As you can imagine with all the movie theaters closed right now, they are not doing very well. In fact, a lot of people are worried they’re going to go bankrupt and so the stock price has absolutely tanked. It’s down about as I record this in mid-April, it’s down about 75% from the peak in February. And in fact, I think earlier this week it dropped 25% in a single day, which makes you go, “Well, is this a great bargain now?” Well, you only know if you know the future. Yes. If this company recovers and does great, buying it at such a discount is probably going to pay off really well. But the reason the price is so low is because there is significant risk of this company going bankrupt. It may just not exist. Any investment you put into an investment that goes to zero is not going to perform well.
Dr. Jim Dahle:
I don’t recommend you buy individual stocks at all. Just buy all the stocks using an index fund, buy the whole stock market. Then you don’t have to worry about whether AMC is a good buyer or a bad buyer. You already own it. I own AMC along with every other stock in the world. And so yes, I own it. I owned it before, I owned it now. If it does great, I’m going to own it. If it does poorly, I’m going to own it. But I’m not going to get wiped out on my entire investment because I own 5,000 or 10,000 in stocks.
Dr. Jim Dahle:
Okay. Next question comes in via the subreddit. “I work for large contract management group in medicine. In response to a drastic reduction in ED volume. This is just like me. They have stated they do not have the revenue coming in to pay us as usual. They have taken measures like reduced hours, bonuses, 401(k) match, and even laid off or furloughed staff to minimum necessary numbers. Will they be getting a bail out from the government that should be passed on to us? Also, is there a good general strategy for being able to see the real numbers to justify this down staffing? With smaller groups I was in, these numbers were always discussed in monthly meetings but are not since joining this group.”

Dr. Jim Dahle:
Welcome to the world of contract management groups. When you give up ownership to a private equity funded group or even a group that’s not funded by private equity, you lose a lot of control over the group. Now, maybe you don’t have to go to monthly business meetings. Maybe you don’t have to take quite as much risk as you had before, but the downside is in those situations when you want control, you don’t have control. In my small democratic group, when I want to see the books, when I want to see how much money’s coming in, when I want to see what somebody else’s productivity numbers are, I can see all that stuff because I’m the owner of the business as a partner. When you join a contract management group as an employee, you have given up that right and there’s not a lot you can do about it.

Dr. Jim Dahle:
And now you can ask what the volume is and you can ask what the RVUs are and maybe they’ll tell you if it’s to their advantage to tell you or maybe they’ll just lie to you. You never know. But the point is, once you’ve given up that ownership and you don’t really have the option of getting that information. So, good luck with that. Maybe you can get it, maybe you can’t. I agree. I much prefer being in a group where you can get that information. And that’s why when I came out of the military, I went looking for a small democratic group.
Dr. Jim Dahle:
Now as far as the bail out from the government – Yes, it is highly likely that they will be getting a bailout. Will they pass it along to you or should they pass it on to you? That’s up to them. You’ve got to realize the way these things work is they’re giving to a business. And I’ve talked about these on recent blog posts. There’s the disaster loan program, the EIDL where the first $10,000 to the business can be forgiven. I think it’s only about a $1,000 per employee up to $10,000.
Dr. Jim Dahle:
The other programs probably more well-known and more likely to be used in this sort of a situation is the paycheck protection program. And this one works out to be where the business can get about two and a half months’ worth of payroll expenses as a loan, which is forgivable if you then spend it on payroll. Their incentive is to keep you on the job, keep all their employees, keep paying them exactly what they’ve been paying them because basically the government is paying their payroll for the next two and a half months. Yes. As you negotiate your new salary, this lower salary you now have, you can point out that they should be getting the PPP loan and that they ought to pass that along to you, but they have no obligation to do so.

Dr. Jim Dahle:
Certainly, my partnership is applying for this and we plan to keep paying our employees the few that we have using that money. But the truth is we’ve got to pay the employees either way or we got to fire them. And so that money basically goes in our pockets. It is where it’s going as the owners of the business. And I suspect that is going to go to the shareholders of your contract management group rather than to the employees themselves. But like I said, the devil is in the details with these things and when you have become an employee, you’ve given up the right necessarily to see those details.
Dr. Jim Dahle:
Okay, next question, also off the subreddit. “My company has the option to make some 401(k) contributions as Roth 401(k) contributions. How the Roth 401(k) contributions work? Should I be putting some 401(k) dollars toward the Roth partners and stick to the regular 401(k)? I’m early career and currently contributing the max to the 401(k). The employer contributes through a profit-sharing model that I don’t qualify for yet because I have to be employed two years plus first.
Dr. Jim Dahle:
Okay. Here’s the way they work. If you put money into a tax deferred 401(k), that money is not taxed that year. As it grows over the years, the money is not taxed on the distributions. It kicks out capital gains and dividends. As well as if you buy and sell anything in there with the gain you don’t have to pay any capital gains taxes on that.
Dr. Jim Dahle:
When you the money out in retirement, you have to pay taxes on it at your then ordinary income tax rates that you can use those withdrawals to fill the buckets. You take out enough to fill up the 10% bucket and the 12% bucket and so on and so forth, but if they’re taxed as ordinary income tax rates.
Dr. Jim Dahle:
With a Roth 401(k), you basically pay taxes on the money as you make it. Then you put it into the Roth 401(k). It grows tax protected. Meaning you don’t pay taxes as it kicks off dividends, as it kicks off long-term capital gains distributions or any capital gains you might have as you buy and sell within the account. Then when you take the money out in retirement, you don’t have to pay taxes on it. Okay, so it’s a pretax versus essentially an after tax or a tax-free account.
Dr. Jim Dahle:
Which one should you use? Well, there’s a lot of variables that go into it. It can actually be pretty complex. One of the more complex things in personal finance. But the general rule of thumb is that in any year where you are not at your peak earnings years, meaning you’re a resident, you’re a fellow, it’s the year you leave your training, it’s a year you’re on sabbatical, it’s a year you take a big long maternity leave or something. That is a year you should do Roth contributions. And all the other years your peak earnings years, you should use tax deferred contributions.

Dr. Jim Dahle:
Now there’s some other things that go into it. For example, if you’re a super saver and you expect to have $15 million in retirement – Well, maybe you want to start making Roth contributions a little bit sooner. There are some other variables that go into it, but that’s the general rule. I hope that’s helpful.
Dr. Jim Dahle:
All right, our next question comes in from the Facebook group. It’s an interesting one. It’s pretty simple as are many of the questions in the Facebook group – “Why do you invest despite a good income from your job?”
Dr. Jim Dahle:
Well, the main reason is because you don’t want to have that job until the day you die. And as many doctors have learned recently, the income from that job isn’t as guaranteed as you might think. The benefit of investing is it provides you options. It provides you money down the road. The nice thing about it is if you save enough, eventually your money makes more money than you do. And that’s a wonderful feeling to watch those dividends and watch those capital gains roll in in a given month and realize you made more from your portfolio than you did from your earned income, from going into the hospitals, seeing patients or whatever it is that you do. So that’s why you invest. In case something goes wrong you have some money and of course, because you don’t want to work until the day you die.
Dr. Jim Dahle:
And another question from the Facebook group – “Would someone explain what is the timeline when your Roth IRA or traditional IRA contribution starts counting toward the $6,000 limit? I heard the deadline is typically April when tax is due. So, is April to next year April?”
Dr. Jim Dahle:
Now you can contribute to an IRA from January 1st until April 15th of the next year. And if taxes are delayed, like in this pandemic, you don’t have to pay your taxes until July 15th. You have until July 15th to make your IRA contribution. Whether you’re going to use it for a backdoor Roth IRA or whatever, you have until the tax date of the next year to make it for that year.

Dr. Jim Dahle:
All right. We’re going to bring a special guest on the program now.
Dr. Jim Dahle:
All right, I’ve got a special guest on the podcast today. We’re going to go over some of his questions. Dr. Kay, welcome to the White Coat Investor podcast.

Dr. Kay:
Hey Jim, thanks for having me. Great to be here.

Dr. Jim Dahle:
Now you wrote in saying, “Hey, I got some questions I can ask on the podcast”. These are pretty up to the minute questions because a lot of it has to do with changes you’ve had in your finances in the last month in light of the pandemic and the bear market and the economic downturn and all that. So, let’s get into your first question. You want to give that to us?

Dr. Kay:
Well, sure. I’m an ophthalmologist and our clinics and our practice is made up mostly of elective cases. A lot of that has been shut down. We’re not taking much revenue in the practice. And so, because of that, we’ve had furlough some of our physicians. And in my case, I’ve had to take a pretty significant reduction in pay. As we’re going through this process with this pandemic and not really sure, a lot of unknowns, just kind of wondering if you have any general advice of how to get back on track once things kind of pick back up, get back on track with your finances. But also, kind of mentally, this is a big step back I think for a lot of us that had a financial goal and financial plans that we were striving for and this is quite a setback in that sense.

Dr. Jim Dahle:
Yeah, I totally agree with you. As I mentioned before we started recording, you are not alone. There are a lot of docs out there in this situation that have had their income decrease, that have been told “You’re going to take your paid time off”, that had been told, “You’re not coming back”. And then the self-employed docs, of course, are worried too about covering their overhead. They’re wondering, “Do I need to let people go?” And they’re applying for these EIDL and PPP loans through the small business administration.
Dr. Jim Dahle:
I think that’s probably the most black swan part of this whole economic downturn is the docs are out of work. You would have thought in this terrible pandemic that someone working in healthcare would be the only person still working. But that’s absolutely not the case. Even for those of us on the front lines, we’re seeing our volumes go down. And I don’t know where they are heart attacks and strokes and CHF and COPD are, but it’s not in my ER. I think that’s one of the most difficult things to do.
Dr. Jim Dahle:
But at the end of the day, it comes down to your personal family budget and what are you going to do personally about this. Despite the fact that there’s hundreds of hundreds of thousands of other docs in the same situation, that doesn’t necessarily change anything in what’s got to be paid in your household. I think that’s where we got to get down to it. I think you mentioned you’d taken something like a 50% or so decrease in salary and it’s possible that even that could go away.

Dr. Kay:
Yeah, that’s true.

Dr. Jim Dahle:
Where are you at in your career? How far out of residency are you?

Dr. Kay:
I’m second year out of training.

Dr. Jim Dahle:
Okay. So still relatively early career. Kind of still in those live like a resident kind of years. So hopefully, and I have my fingers crossed as I ask you this, are you living like a resident now or something similar to it or do you feel like you’ve kind of already grown into that income?

Dr. Kay:
No, I definitely was taking your advice and trying to live like a resonance, trying to pay down our loans. I would say since this is all come about, I’ve definitely been living like a resident. We’ve cut all our discretionary spending at this point and really been sticking very strict to a new budget. Previously before this was going on, I was throwing as much as I could at student loans and I’ve had to actually put all those into forbearance now. So, I put those in the forbearance. I refinanced through private company, so I didn’t get the federal government forgiveness on the interest, but they’re allowing us to do a forbearance for 90 days. So that’s what we’ve been doing. We put all those loans into forbearance currently and then trying to scrap by until things pick back up.

Dr. Kay:
The one thing that I didn’t do, I didn’t take your advice on was make an emergency fund. And I think the reason why I was as trying to attack so much with the loans that I just didn’t really think that an emergency would come like this. I didn’t put as much cash aside. We have a little bit of cash savings, but not enough to really get us by to three to six months. So, we’re living off the 50% income that I have now. And fortunately, we’re able to still pay the bills, but we’ve had to cut back quite a bit.

Dr. Jim Dahle:
So that’s the good news, right? That you weren’t living on your whole income. Even though your income got cut in half, you can still keep the lights on and keep the roof over your head and keep food on the table and all that. That’s the good news. There’s a lot of docs that just instantly grow into their income and they’ve all of a sudden got this massive, huge house and two payments on a Tesla. Really, it would be a big deal for them to live on half their income. And it doesn’t sound like you’re in that situation.
Dr. Jim Dahle:
You’ve done some good things here. I think putting your loans on forbearance even for 90 days was probably the right move. You are cash poor because you’ve been trying to get out of debt. You are putting all your money on after your student loans and trying to save that interest. The downside of course, is that now when you need cash, you don’t have any cash. You’ve done exactly the right thing and then you’ve cut your spending. You can drop a lot of variable spending right away. Your variable expenses tend to go away. And in fact, the economic downturn is probably forced a lot of those to go away. You can no longer go on vacation, you can’t go out to eat, you can’t go to the theater, you can’t go to the show, you can’t go to the game. You’re hired not driving around as much. You’re forced to spend less money. That’s one thing, but putting them into forbearance I think was a good move.
Dr. Jim Dahle:
If you are still having income problems in 90 days, I think you ought to consider refinancing those loans. Not for a lower rate but for a longer term. All these student loan refinancing companies, they will give you a 20-year term. You’re going to have a higher interest rate. You might be going from 3% to 5.5% or something like that, but what you need right now is low payments. And that is one way you could get low payments.
Dr. Jim Dahle:
The other thing you get is a cash back, right? If you go through the links on the White Coat Investor, even $300 or $400 always helps when you’re on a lower income. You get a little cash back. You get lower payments. And if you go to a new company you might get another forbearance period. The only downside you might have as you go to a new company and they’re going to look at your income when they decide whether refinance you. And so, they might not refinance you at all or you may just end up with a little bit higher rate.
Dr. Jim Dahle:
But the idea here is that these higher rates only for a few months. When things come back and you’re working more on your incomes back up, then you can refinance again into a five-year loan and get that interest rate back down. It’s almost like partial forbearance kind of situation.
Dr. Jim Dahle:
Obviously, those of you out there that have federal loans, you’re not in this situation because your loans just disappeared for six months basically. No interest and no payments. But for those who had done the right thing and actually tried to decrease the amount of interest they’re paying and actually plan to pay off their loans, they’re kind of getting hosed in the situation like you are. And that’s unfortunate, but not much you can do about it.

Dr. Jim Dahle:
You’ve also cut your discretionary spending, which I think is great. I think that was exactly the right move. You’ve stopped investing, which I think is also great. You’re not making 401(k) contributions. I think you basically cut all the fat out of the budget and you’ve taken all the savings and the extra debt pay down and all that kind of stuff out of the budget. I think you’ve done exactly the right thing as far as that goes. Just trying to weather the storm. It’s like when you see something coming, what do you do? Well, you cut your expenses, you try to save up as much cash as you can in advance. And then once you’re in the storm, which we kind of are now, it’s like in a startup company, they talk about a runway.
Dr. Jim Dahle:
You have so much cash and you got to get the business off the ground and have to be profitable in a certain time period. Whether that’s a year or two years before you run out of cash.
Dr. Jim Dahle:
Basically, the less you spend, the longer your runway is. That’s why a business is bootstrapped from the beginning can essentially take years to take off because you never run out of cash. But the idea here is the less you spend, the longer the cash that you do have will last. I think you’re doing the right things there.
Dr. Jim Dahle:
I wish I had some awesome suggestions to you. I think there’s a few things you can do. One is start looking around for other work. It might be worth looking into some locum tenens. Maybe there’s someplace that really does need an ophthalmologist and that would be one thing you could do. Some people are trying to do more surveys. There are still survey companies out there doing doctor surveys and you might be able to get a few hundred dollars from. Some people are doing telemedicine. I’m not sure how well that would work in ophthalmology, but maybe there’s an opportunity there. I don’t know.

Dr. Kay:
Yeah. We’re doing it some within our practice, but it is a little bit tricky. You can’t really get a great exam over the phone, but we are trying to do that to generate a little bit of revenue for the practice. And also, for patients, I think they really appreciate seeing their provider and kind of talking with someone.

Dr. Jim Dahle:
The other thing to keep in mind is whether you realize it or not, you’re in a negotiation right now with your employer. They’re trying to decide how little can I pay you and not have you leave without us going out of business. They’re going, “Well, let’s apply for the PPP loan and let’s try to keep doors open and let’s try to get as much revenue in there as we can”.
Dr. Jim Dahle:
This is the time to show that you’re the team player. You’re the guy that is going to try to bring in that telemedicine consults. You’re the guy that’s ready to go and when as soon as patients start coming back, you’re the guy who’s willing to do Friday Evening Clinic or whatever it is and to really be that valuable person. So, when this comes back that you’re the last guy they want to fire and the first guy hire back et cetera, et cetera.
Dr. Jim Dahle:
Because as you’ve mentioned, some of the part-timers in the practice are already gone. You as the full-timer kind of got the priority because the full-time guys committed more to the practice. I think every opportunity you have to kind of show that it would be helpful in making sure that you’re, like I said, seen as a very essential player in this business.
Dr. Jim Dahle:
Because what I worry about is that incomes are not going to snap right back, that we’re not going to flip a switch, open the country and all of a sudden, clinics are all full or incomes are exactly what they were. I think there’s going to be at least a ramp up over a matter of months and maybe years before we’re back to where we were.
Dr. Jim Dahle:
I’m just amazed in the emergency department how much less abdominal pain and chest pain I’m seeing in the emergency department. I think there may be a reset among the population of just how much health care they really need. I worry that maybe they will consume a little less healthcare than they used to, which may be good for our national budget, but it certainly isn’t going to be good for physician incomes. So, I don’t know that this is necessarily going to snap right back in just a few months, although I expect it to be a lot better three months from now than is for most docs this month.

Dr. Kay:
Yeah, a lot of unknowns.

Dr. Jim Dahle:
Yeah. Any other questions about start restructuring your budget for the dramatic drop in income?

Dr. Kay:
No, I think that’s great advice and I think also just trying to stay mentally sane and optimistic about the future, I think is what we’re planning on doing. And take a one day at a time.

Dr. Jim Dahle:
Yeah. As bad as it is for us, it’s way worse for so many people. We could sit around and complain all day and certainly, even with the White Coat Investor, we’ve had significant drops in revenue. My clinical revenue is way down and so it’s definitely affecting everybody but to different degrees. But even half of an ophthalmologist salary sounds really good to an awful lot of people in the country right now. It’s hard to complain too loudly.

Dr. Kay:
Yeah, exactly.

Dr. Jim Dahle:
All right, let’s get into your next question.

Dr. Kay:
The next question is about some of the investments that we made. We did a backdoor Roth for myself and my spouse in 2019 as a first time that we’d ever done that. We contributed the max each. We did $6,000 for each of us. For my spouse’s backdoor Roth, we ended up investing that in the stock market through some index funds. That’s where it is right now. But for the investment or the contribution ended on my backdoor Roth, I wasn’t sure exactly what our investment plan was going to be as far as what we should invest for the long haul. We’re still trying to figure that out. I never actually put it into stock market investment. It’s just been sitting there. My question now is I still have $6,000 in this kind of money market fund and I’m wondering is there any strategy for if I should be putting that into the market right now or should I be putting that into something else like bonds? Or should I just hold off and wait for us to really figure out, what our finalize investment plan should be? Any tips or strategies that we should be thinking about during this particular time with the current circumstances?

Dr. Jim Dahle:
Well, when cash is at a premium this might be money you need to spend in the next few months. I’m a little hesitant to tell you to invest it at all. If you think you’re going to be okay without having to spend that money, then I think it’s time to look at a written investment plan. Do you have any sort of a written asset allocation or mix of investments that you want for your retirement money? Have you guys ever sat down and thought about that or written anything down?

Dr. Kay:
We have. We actually going through your “Fire Your Financial Advisor” course right now. Those are some of the things that we’ve been talking about. I think we’ve been looking a lot at like a traditional three fund portfolio that we’ve kind of talked about a little bit but haven’t really said it into to writing yet as a finalized plan. But that’s one of the things that we’re looking at.

Dr. Jim Dahle:
What’s her Roth IRA invested in?

Dr. Kay:
Hers is invested in a Fidelity market index fund.
Dr. Jim Dahle:
Just a total stock market fund?
Dr. Kay:
The total stock market fund.
Dr. Jim Dahle:
And what about the 401(k)?
Dr. Kay:
The 401(k) is invested in a Fidelity international index fund.

Dr. Jim Dahle:
Okay. You’ve got a two-fund portfolio right now, right?
Dr. Kay:
Yes.
Dr. Jim Dahle:
If your goal is a three-fund portfolio, what percentage were you planning to put into bonds?
Dr. Kay:
Maybe about 25%.
Dr. Jim Dahle:
Yeah. It sounds like most of this is going to go into a total bond market index fund if your goal is a three-fund portfolio where 25% of its in bonds. Because right now you don’t have any money in bonds.
Dr. Kay:
Right now, I don’t have any money in bonds.
Dr. Jim Dahle:
This is the nice thing about having a written investment plan, right? Every month I’ve got this decision, I get money to invest. Whether it’s profit from the business or whether it’s money we didn’t spend out of my clinical paycheck or whatever. Every month I’m faced with this decision of “What do I invest in?” What I always do, I go back to my spreadsheet and it says I’m going to put 20% or mine says 25% in total stock market index, 15% into small value index, 15% into total international index and 5% into international small. Then we’ve got about 20% in bonds and 20% real estate.
Dr. Jim Dahle:
I just look at whatever’s behind on those percentages, my goal percentages, and I add the money there. I don’t have to make this decision every month. Market’s up, market’s down, this is the plan, this is where the money goes. In a time like this, my last two contributions, the one in March and the one I just made yesterday for April, it is going all towards stocks because stocks have just been pummeled lately. I got more bonds than my percentage and I got less stocks than my percentage. All of my money’s going towards stocks, but it goes into the same four or five stock index funds every time, just based on which one’s the lowest right now. Small value’s been getting killed the most. That’s where a lot of my money went this month.

Dr. Jim Dahle:
But once you have that written investment plan, it totally gets you out of having to wonder what to do with the money or how to time it. You just follow the plan. What’s amazing is after a decade or two of doing this, you’re like, “Wow, I’m a multimillionaire. This really worked. All we had to do is keep putting the money in and forgetting about it.”
Dr. Jim Dahle:
I tell people all the time, “Buy stocks every month and never sell them”. That’s the way you become a successful stock market investor. You pick a low cost broadly diversified index fund. You buy stocks every single month and you never sell. That’s basically how it works. Yeah, you sell them sometimes to rebalance or to tax loss harvest in a taxable account. But for the most part, the idea is that this stuff’s going to grow and grow and grow for decades.
Dr. Jim Dahle:
I think you guys just need to finalize your plan. It sounds like you’re almost there and then follow it. That’s really all there is to it. And in your case, it sounds like a good chunk of that’s going to go into bonds, which is in the event that you do and haven’t forbid, you need to raid that money for living expenses in the next few months that at least it’s going to be a bond. It’d be much less volatile than if you put it right into stocks. Does that make sense?
Dr. Jim Dahle:
Everybody always asks, “How should I invest in this market?” And what they’re really asking and they ask this question in a hundred different ways, but when you boil right down to it, it’s “What is going to happen in the market in the future?”. And the truth is, I don’t know and neither does anybody else. When people ask, “How should I invest in this market?”, what they’re really asking is, “Is the market going to go up or down?” And if you don’t know the answer to that question, the only logical answer is, follow your written investment plan. That’s what I recommend you do.
Dr. Jim Dahle:
All right. Let’s talk about your last question about life insurance.

Dr. Kay:
Yes. I have a licensed life insurance policy at $3 million term life and policy that’s just on myself and my wife is the beneficiary. But I guess I’m wondering what would happen in the incident of both my wife and myself were terminated in some car accident or something. Could that potentially go on to anybody else? Like my children for example? Or is that policy just wiped out? And when I put together this policy, I asked them as that was possible to put a child on it and they told me that it wasn’t. I believe that’s what I understood that you couldn’t put a minor on the policy. I’m just wondering if there’s any work around or any solution to that or that’s just the way that those policies work?

Dr. Jim Dahle:
Yeah, I think you got some bad information. Any policy, whether it’s an annuity, whether it’s a life insurance policy or any retirement account like a Roth IRA or a 401(k), there’s always a primary beneficiary and then there’s a secondary beneficiary or beneficiaries. When I go look at any of my life insurance policies or retirement accounts, they all list my wife as my primary beneficiary. And then usually it’s something like to all of my children per stirpes. And what that means basically is that it’s divided equally among them. But if one of them happened to be deceased as well, it would be divided. Their portion would be divided among their kids is basically what that phrase means. But that’s the way most of them are. You can name a secondary beneficiary. If for some reason you couldn’t, what you would probably do is form a trust or direct that a trust be formed at that time and that is paid into the trust.

Dr. Jim Dahle:
But you would not want to name a caretaker for instance. You wouldn’t want to do that because if you leave money to your sister or to your neighbor or something and your idea is, they will use it to take care of your kids. There is no legal requirement that they use that money to take care of your kids. Whereas if you leave it to your kids or you leave it to a trust that’s formed to protect your kids’ interest, then they can only use it. The caretaker can only use it to benefit the kids rather than to go buy their own Corvette or whatever they want to do. That’s the way you’d want to set that up. But almost surely you can just name a secondary beneficiary. My kids are named on all of mine, so I don’t see what the big deal is.
Dr. Jim Dahle:
Now, what that usually means is that somebody has to manage it for them in that sort of a situation. But your will or other state planning documents can outline who that’s going to be. Do you have a will in place?
Dr. Kay:
No, we don’t.
Dr. Jim Dahle:
Yeah, you need to get a will like stat. That’s obviously the big deal. The main reason you need the will isn’t so much to say who gets the sofa, right? The main reason you need the will is to name who’s going to take care of your kids in the event that you’re both wiped out. And who’s going to manage the money on their behalf in the event that you’re wiped out. That’s the main point of a will for you and you guys need to do it right away.
Dr. Jim Dahle:
If the whole go sit down with an estate planning attorney thing is an obstacle, just go online and get a will done. The wills are on us or whatever the latest thing is, legal Zoom or there’s a half dozen of these companies out there that will put together a basic will that is totally valid in your state. And if nothing else, you leave everything to your kids and you name somebody to take care of them and somebody to manage the assets. And sometimes that’s the same person, but I think there’s some benefit in having those be different people. But as far as the life insurance policy, they ought to just be able to name secondary beneficiaries. That shouldn’t be an issue at all.
Dr. Kay:
Okay.
Dr. Jim Dahle:
I hope that’s helpful.
Dr. Kay:
Yeah, very helpful. I’ll check into that again.
Dr. Jim Dahle:
Any other questions for me while we got you on the podcast?
Dr. Kay:
No, I think that’s it. Yeah, I think you answered the questions I sent in and I really appreciate all the advice.

Dr. Jim Dahle:
You’re very welcome and I hope your income’s back up very quickly and that this all just becomes a little blip and a little learning incident. When I first saw your question, I’m like, “Oh, no emergency fund”. But then when I realized the reason why was because you were so aggressively paying down your loans, it’s pretty hard to fault you for that. There has been lots of people that have learned in the last month or two, the importance of an emergency fund.
Dr. Jim Dahle:
To point that out at this point it feels like a mean thing to do. You know what I’m saying? – “I told you so. I told you so”. But where would I have been at paying off student loans a year out of residency, I probably wouldn’t have had a lot of cash sitting around either because I would have been aggressively trying to pay off those loans. I totally get where you’re at and I think you guys are going to muddle through okay.

Dr. Jim Dahle:
The good news is, you are savers and you’ve been living like a resident. You’ve been very proactive rather than keeping your spending where it was, you quickly cut it back to as low as you can to try to make and do with the income you’ve got. I think you guys are doing great. I think you’re going to come out of this just fine. Stay safe in the pandemic.
Dr. Kay:
Yeah, thanks Jim. I don’t think we’d be in the place we are if we hadn’t been listening to you and reading your books and listened to your podcast and stuff. We really appreciate all that you are doing for us and for your work. It really changes lives, so thank you.
Dr. Jim Dahle:
You’re very welcome. It’s a pleasure to serve.
Dr. Jim Dahle:
Okay. That was great to have a reader on the program. If you have some questions that you’d like to come on live and ask questions, I know readers or listeners really enjoy those segments. So, shoot [email protected]hitecoatinvestor.com an email, include the questions you’d like to ask on the podcast and we’ll try to get your write on and get them answered.
Dr. Jim Dahle:
My next question comes in via email. “Hey Jim, I just finished your book. Many, many thanks for helping get us on the right foot. I’m very new to this. My questions will reflect that, but I have a quick question about getting my retirement started. I know you and many others recommend a broad-based index fund like a target fund and just leaving it alone. But assuming that I’d be working for 20 to 25 years and can stomach the ups and downs, why isn’t a better approach to just swing for the fence for the next 10 to 15 years and go 100% stocks? It seems like they have lower expense ratios and have always outperformed over that long of a period. Then once we’re within decade of retirement, sell it on an uptick and dial it back down to the target fund”.

Dr. Jim Dahle:
All right. Well, there are a couple of reasons and many people have learned those reasons in the last few weeks. The first reason is that it’s entirely possible that bonds might outperform stocks over a very long period of time. Yes, there have been periods of time 10 years or longer where bonds outperformed stocks. So far in the U.S. markets, there hasn’t been a period of time where bonds outperformed stocks for longer than 20 years, but it’s entirely possible that it could happen.

Dr. Jim Dahle:
One reason that people invest in bonds is just because they don’t know what the best performing asset class going forward is going to be. Yes, most people bet on stocks outperforming bonds in the long run. That’s probably the way it’s going to play out, but there’s no guarantee there. That’s the reason number one.
Dr. Jim Dahle:
The reason number two is that it’s hard for lots of folks to hold 100% stock portfolios in a pandemic or other stock market downturn. Just look and see how many people are abandoning their plans in the last month or two. It’s like a daily event on the Bogleheads forum when somebody bails out of stocks. It’s better to have a less aggressive plan you can stick with then a more aggressive one that you can’t when you’re losing real money.
Dr. Jim Dahle:
Now, in March, I lost seven figures in the stock market despite a 60-20-20 portfolio. No problem. I’ve lost a lot of money before and I’ll do it again. I hope to lose even more money in the next stock market downturn. But lots of people panic sold at the market bottom after losing money. Don’t overestimate your risk tolerance.
Dr. Jim Dahle:
All that said, yes, the expected return on 100% stock portfolio is higher in the long run. But no promises that that’s going to actually show up. And this idea of timing the market later in life is a little bit wishy washy. You realize you can only identify an uptick in retrospect after it goes back down. That’s the only reason you knew it was an uptick. If that’s your plan to sell it on an uptake, you better define what that is in your written investing plan.
Dr. Jim Dahle:
He has another question as well – “For those of us willing to give it a crack, where does one go to get a copy of the tax code? I can only find expensive online selections of the code and links to historic codes”.
Dr. Jim Dahle:
Well, most people don’t actually read the tax code itself. What they do is they read the IRS publications and the instructions for each form. And those are written not so much in legal ease accounting language. It’s maybe a little bit hard to understand, but it’s supposed to be in layman language, in the IRS publications and instructions.

Dr. Jim Dahle:
When I talk about reading the tax code or doing your own taxes or learning about taxes, that’s what I’m talking about. I’m talking about reading the publications and the instructions that are designed for you as a normal human to read. Not the tax code itself. Very few people actually read the tax code.
Dr. Jim Dahle:
And the final question was, “My fiancé is also a physician. We couple matched into radiology though she left residency to be a mom and now she stays home with the kids. We both came out owing the max about $300,000 each and or an IBR 0% for her and 10% for me on my way to the public service loan forgiveness. We’ve been wanting to get married, but I’ve been unable to find a way to get around having to pay back her loans if we did so and filed jointly. It seems like our only option is to stay on married and for me to file head of household and filing separately would cost me so much more in standard deduction. Have you heard of anyone in a similar position who found a way to marry file jointly but not have to double their monthly student loan repayment in the IBR program?”
Dr. Jim Dahle:
No. I don’t know of a scheme that’s going to allow you to do that. The only potential thing you might want to think about is, and I probably don’t recommend this, but one thing you could do is you could file married filing separately for years for the next two decades and have her get forgiveness through the pay program. That’s pay as you earn. The IBR program requires 25 years of payments. The pay program requires 20 years of payments and whatever is left is forgiven. The problem is that forgiveness is taxable and chances are by that point the tax bill is going to be pretty similar to what the loan is at this point.

Dr. Jim Dahle:
In general, in this sort of a situation, what I’d tell you to do is why not you refinance these loans? Obviously, in September when the 0% interest goes away on federal loans and then pay them off. Yes, every marriage is different. But if this were my marriage and my wife owed $300,000 in student loans, she’d be working full time for a year or maybe part time for two years in order to pay those off before she’d get to go on the parent track. And yes, my wife did go on the parent track for a decade plus before she started working at the White Coat Investor. But she didn’t have $300,000 in student loans. When you commit to borrow that sum of money for medical school or dental school, you’re committing to work for at least a little while to pay that off. It’s just not a very practical situation to wait 20 years and hope for IBR or PAYE forgiveness nor to put that burden necessarily on your spouse.
Dr. Jim Dahle:
Now, if you marry a high earning physician, maybe you guys can actually swing $600,000 in student loans just on your income and maybe you guys choose to do that. That is your choice. But I can tell you in my marriage, that’s not the way it would go. She would have to work at least for a little while at least to pay off the student loans.
Dr. Jim Dahle:
All right, this next question come in via email – “I’m a third-year general surgery resident with roughly $200,000 in debt. I’m relatively new to your work, but I appreciate very much all the help and information you made available. I’ve planning on trying for the public service loan forgiveness, but just spoke to another resident whose financial advisor informed him that many, if not most physician groups would not qualify as qualified employment because they are for-profit contractors under a nonprofit hospital system. I did some research and confirmed that on studentaid.gov. So, my question is this – Would a private physician group working for a hospital qualify for the public service loan forgiveness program?
Dr. Jim Dahle:
No, it does not. It’s a private groups contract with the hospital. They would not qualify.
Dr. Jim Dahle:
“Do I have any light to shed on this matter?”
Dr. Jim Dahle:
Yes, you do. If you want to get public service loan forgiveness, you must work full time four 501(c)(3) or a government employer. It means you’re an employee of the DOD or you are active duty military doc. You are an employee of the VA. You are an employee of some other public entity. But what that usually means is you’re an academic doc. You’re an academic doc because most university hospitals are 501(c)(3). So, you’re their employee and you’re a qualifying doc in that manner.

Dr. Jim Dahle:
Now there are nonprofit hospitals that are not University hospitals. If you are their employee, yes, that job would count toward public service loan forgiveness. Same thing if you’re an employee of a community health center or something like that. These jobs count, but just contracting with a nonprofit hospital does not count.
Dr. Jim Dahle:
In my area, in my specialty here in Salt Lake City, about half the hospitals are nonprofit, but the emergency physician group that provides services in those hospitals is a private group that contracts with the nonprofit hospitals. That job does not count for public service loan forgiveness. And the other half of the hospitals are for profit hospitals that have a for profit physician group contract with them to provide emergency physician services. Those docs don’t qualify for public service loan forgiveness.

Dr. Jim Dahle:
The only job in town, that is for emergency physicians that qualifies for public service loan forgiveness is at the University hospital. Were there academic docs on faculty, they’re employees of the University. That job counts. The rest do not. Including the VA. Even the VA is emergency physician services in my town are provided by a private group that contracts with the VA.
Dr. Jim Dahle:
But when I pulled doc’s on Twitter not that long ago, I was surprised to see that 60% or so of those who responded to the poll said their job does qualify for public service loan forgiveness. There’s lots of jobs out there. It’s specialty and location dependent, but you can certainly find a job if you must or you really want to and you’re willing to live wherever and take a job wherever. You can certainly find a job in almost any specialty that will qualify for public service loan forgiveness.
Dr. Jim Dahle:
But if you want to control your destiny, you want to control your location, you want to control exactly where you’re going to live, then you may not necessarily be able to get a job that qualifies for public service loan forgiveness. So, keep that in mind. Don’t borrow any more than you have to. Make sure it’s an amount that you’re going to be able to pay off with your specialty in job choice. And then if you do end up in academics or you do end up qualifying for public service loan forgiveness, then that’s just icing on the cake.
Dr. Jim Dahle:
I hope those questions are helpful to you. It’s always a pleasure to answer them and to help you out and to serve you. It really does bring a lot of meaning to my life to be able to serve such a great group of people out there.
Dr. Jim Dahle:
This podcast was brought to you by Contract Diagnostics. This is a company that specializes in contract reviews. Specialization is something that we can all appreciate here. So again, when you have contract needs, give them a call. There are long-term sponsor and have helped many thousands of your White Coat Investor colleagues. They’ll help you understand your contract and make sure it lines up with your interests. You can reach them at contractdiagnostics.com, or 888-574-5526.
Dr. Jim Dahle:
If you haven’t checked out our online courses page, now is a great time while you’re in lockdown to take an online course. Check that out. It’s under the whitecoatinvestor.com under courses.

Dr. Jim Dahle:
Thanks for those of you who have left us a five-star review and told your friends about the podcast. Send us any questions by email or preferably on the Speak Pipe at speakpipe.com/whitecoatinvestor. Send us any negative feedback or suggestions for improvement by email to [email protected] Keep your head up, your shoulders back. You’ve got this and we can help. Stay safe out there. We’ll see you next week on the White Coat Investor podcast.

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