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.

Dr. Jim Dahle:
This is White Coat Investor podcast number 332 – Getting a financial plan in place.

Today's episode is brought to us by SoFi, the folks who help you get your money right. They've got exclusive rates and offers to help medical professionals like you when it comes to refinancing your student loans, and that could end up saving you thousands of dollars.

Still in residency? SoFi offers competitive rates and the ability to whittle down your payments to just $100 a month while you're still in residency. Already out of residency? SoFi's got you covered there too with great rates that can help you save money and get on the road to financial freedom. Check out their payment plans and interest rates at sofi.com/whitecoatinvestor.

SoFi student loans are originated by SoFi Bank, N.A. Member FDIC. Additional terms and conditions may apply. NMLS# 696891.

All right. Welcome back to the White Coat Investor podcast. We're recording this almost a month before it runs, and by the time you hear this, I'll be back from Yosemite, hopefully after a successful ascent of Half Dome next week. We hope so anyway. While a good portion of the White Coat Investor Company is off-climbing Kilimanjaro, not me, unfortunately.

But one announcement I've got to make to you today is we just opened registration. Registration for WCICON24 in sunny Florida is now open. Early bird registration goes through October 12th. It's going to be a fantastic conference. You can sign up at wcievents.com. This is the early bird period, so you get a great discount on it. And we've got some great speakers coming. Obviously, I'll be speaking there. Paula Pant is going to be doing one of our keynote talks there. And so, if you've followed her over the years, that'll be awesome.

We've got our usual tracks. We've got stuff on well-being and beating burnout. We've got stuff on finance, both simple and advanced. It's going to be a great conference. It's going to be a wonderful time to get out of the northern cold states like Utah and others will be at that time of year, and to get down to Florida and enjoy that.

It runs February 5th through 8th, 2024. You can use your CME funds to write it off if you are self-employed. This is a business expense. It is a legitimate deduction, so you can pay for it with pre-tax dollars. You can sign up wcievents.com. I look forward to seeing you there.

All right. We're going to be doing something new occasionally here on the podcast. We're going to be bringing on what we call friends of the White Coat Investor, friends of the podcast to help answer some of your questions.

And these friends are people that maybe we've known for a long time. Some of them are financial professionals, advisors, some of them are WCICON speakers, just different people to come in, get new perspectives, new voices on the podcast, and help us to answer your questions in a more in-depth way and to maybe give you additional opinions when an area is controversial.

It's not a paid sponsor ad, it's not a paid sponsor spot. It's not an advertisement, etc. These are what we call friends of White Coat Investor. So, today's friend is SC who, you may know as Sarah-Catherine Gutierrez. She has spoken at how many WCICONs have you spoken at now? Three of them.

SC Gutierrez:
Three.

Dr. Jim Dahle:
Three. And she is a financial planner, financial advisor out of Arkansas. I've been in her home. It's been a number of years since I've been there and worked together in Arkansas. They're helping to educate doctors, students, residents, etc. And so, SC, it's great to have you back on the podcast.

SC Gutierrez:
Thank you so much, Jim, for having me. It's great to see you again. And if I can, I want to do a huge shout out to my sister and my brother-in-law who's an anesthesiologist and a big White Coat reader. They just welcomed their first son, weighing in at 9 pounds, 12 ounces just two hours ago. So I am a happy, happy aunt.

Dr. Jim Dahle:
So we're going to refer to you as aunt SC for the rest of the podcast.

SC Gutierrez:
That's my name. Aunt SC.

Dr. Jim Dahle:
Yeah. Well, this is pretty exciting. You're also coming out to Utah soon, which I'm pretty excited about. You're going to be running down one of the canyons in my backyard for a half marathon. How did you end up choosing this half marathon to run? This is a long way to come from Arkansas.

SC Gutierrez:
That's right. Well, while you're going to be ascending, I'm going to be descending. So I'm not sure who's getting the better deal. But yes, a big group from Arkansas is going out there. It's a thing that they do. You can clock a little bit faster speed if you want to qualify for something else. I'm just there for the ride to have a lot of fun. And Utah is where my heart is. I love the beauty of it, so I can't wait to just enjoy the ride and try not to get injured.

Dr. Jim Dahle:
Well, September in the canyons here is a beautiful time. The leaves are starting to change. It's still great weather. Hasn't started snowing yet. You're going to have a great time and good luck on your race.

SC Gutierrez:
Thank you.

I hope you can still walk the next day. It is no small feat to run down 3,000 vertical feet over about 15 miles. So, you're in for a challenge I think.

SC Gutierrez:
Well, good luck sleeping on a ledge. Your first night in Yosemite.

Yeah. I hope it goes well. This will definitely be the hardest climb I've ever done. So, it's no small feat. I'll tell you all guys all about it when we record another podcast. By the time you hear this, I'll hopefully have already done it, but it's going to be a big deal for me, a climb I've wanted to do for the last 30 years.

Okay. Let's take our first question. Since this podcast is supposed to be about you guys, not about us, our first question off the Speak Pipe is about student loans. I just wrote a couple of blog posts. They haven't run yet but they'll be running either just before or just after you hear this podcast about all the changes in student loans. And there have been a ton of changes. But let's take a listen to this Speak Pipe and then try to address this question if we can.

STUDENT LOAN SAVE PROGRAM QUESTION

Neil:
Hi, Dr. Dahle. My name is Neil. I'm a first-year resident in the state of Georgia doing a transitional year right now. I'll start radiology training in Florida next summer. My wife and I are married with three young children and we have about $385,000 of total student loan debt mixed between my med school loans and some of her undergrad and graduate loans.

Right now we make $120,000 together as a married couple and our question is about this new SAVE plan for student loans. I'm not planning on going into public service loan forgiveness, given the job market for radiology and private practice just pays so much more.

But my question is, with the new SAVE plan, it seems like I can get the best of both worlds even without having to change my tax filing status where I could get 0% interest rate in a low monthly payment at least for this year and potentially next year re-up and still have a low payment even if I have to change to married filing separately.

Is there something that I'm missing here because it seems like trying to refinance with a private lender would get me a really bad deal with still 5 to 6% interest that might balloon up over my next five years of training since radiology takes a long time. Thanks for everything you do. I really appreciate the help.

Dr. Jim Dahle:
All right. Student loans. I don't even know where to start with this question. Where should we start, SC?

SC Gutierrez:
I think we start with, first of all, congrats on staying up on the latest and greatest. I think a lot of times physicians just think, “Oh, I have student loans. One day I'll repay them with all the money I have.” And so, looking at this so early on in your career is really phenomenal. And indeed, I think this is extremely exciting. It's extremely exciting for new residents, folks coming into training. Just imagine you have the opportunity to watch your student loans get to stay the same amount versus balloon up, which pre-COVID forbearance is what a lot of residents had to watch happen. Don't you think this is a great, great new exciting development?

Dr. Jim Dahle:
The blog post I wrote yesterday is titled “How to Go to Medical School Almost for Free” And it's a series of changes. This is a number of changes starting in 2007 through this year that have been made to the student loan programs. They are incredibly generous now. In fact, I would actually argue from a policy standpoint, we've probably now made them too generous. But that would not stop me from taking advantage of them. And I don't think it should stop you from taking advantage of them either.

But the truth is done right, you can go to medical school for dimes on the dollar now. You might think medical school costs $200,000 or $300,000, but in reality for most people, if you do this right, medical school costs less than $100,000. It just does. Thanks to SAVE and all the little tactics you can use to keep your payments down and then getting public service loan forgiveness for the rest, medical school in some respects is cheaper than it has ever been. But you have to understand the plans and the programs and the opportunities to do that.

All right. So, SAVE. SAVE is the new thing. This is the new REPAYE. What are the basics of SAVE, SC?

SC Gutierrez:
Yeah. Basically, SAVE is replacing REPAYE and there's a couple of things that are pretty exciting about it. So, it takes the percentage that you pay previously in REPAYE and pay. You're paying 10% of your discretionary income's going down to five.

Dr. Jim Dahle:
Five, for undergrad, right? It's still 10 for graduate.

SC Gutierrez:
10 for graduate, five for undergrad. And then if you mix them, they give you a weighted average. Thank you for that. Yes. And then what's really cool too is they increase what they consider kind of the poverty line. So, what you're essentially doing is getting a lower payment.

And if you think about it in theory, what this means, especially thinking about it for a physician just coming into their training, you are literally going to be able to pay $100, a couple $100, just a very, very small amount.

And the SAVE program is adding in the ability to not accumulate interest. Any unpaid interest is going to be essentially taken away. So, you're literally going to have a small payment that counts towards PSLF. Even if you are not sure you're going into public service loan forgiveness, you're still going to be accumulating those credits toward it. Very, very small payment with SAVE. I don't know a ton of incentives to move into a different income-driven repayment because of how attractive SAVE is.

And so, this is just going to be great news. And even people that don't go into public service loan forgiveness, they can use SAVE to get ahead on other financial goals. They can be saving for retirement while they're in training or accumulating a lot of cash so that once they get out, maybe refinance the debt if they can get a better rate, pay off a big chunk of it. There's a lot of flexibility that we now have because of the SAVE program that we could not be more excited about.

Dr. Jim Dahle:
Yeah. This is really generous, right? There was all this press about Biden's forgiveness plan that you get $10,000 forgiven or if you had a Pell Grant, $20,000 forgiven. It goes to the Supreme Court, everybody talks about it. It's a big political talking point. Meanwhile, under the radar, doctors are saving $10,000 or $20,000 or $30,000 a year in interest.

Now, same thing as during the pandemic emergency where your payments were $0 and your interest rate was 0%. It's essentially the same thing now during residency. Essentially, your interest rate is 0% and you are saving how much. If you got $300,000 in student loans at 6%, that's $18,000 a year in interest you're saving, or most of it. You'll be paying a little bit of it. This is a huge benefit. It's incredibly generous and nobody's suing the Department of Education over this. Nobody seems to care. So, great for you. Take advantage. It's awesome.

SC Gutierrez:
It is great.

Dr. Jim Dahle:
But yeah. Look at this. Your payments are smaller because now they define your discretionary income more generously. Instead of your income minus 150% of poverty line, it's your income minus 225% of poverty line.

And under REPAYE half of your unpaid interest was waived. Now all of your unpaid interest is waived. This is super generous. Of course, you want to be in SAVE. If you are single, you want to be in SAVE. If you are married to a non-earner, you want to be in SAVE. If you are married to a lower earner, you want to be in SAVE.

Now, some of you married to an attending may not want to be in SAVE. It's possible you'll want to be in the old pay program. But even compared to REPAYE, SAVE has the benefit that you can file married filing separately, which you couldn't do under REPAYE. You used to have to go into the pay program in order to file married filing separately. Now you can do that under SAVE.

The only benefit of the pay program is that there's a cap on your payments, which usually matters once you become an attending for people with very low debt-to-income ratios that are still going for public service loan forgiveness. So it's really a very small percentage of people for whom SAVE is not the right IDR program.

I think that's one of the big takeaways of our discussion here, is if you're like, I don't know, ICR, IBR, PAY, REPAYE, SAVE, I don't know which one to do. The answer is probably SAVE. For almost everybody it's going to be SAVE. So, if you're not in that program, get in that program. If you're just coming out of medical school, enroll in that program. SAVE is the bomb. It’s this great new very generous program from the federal government because they want to make medical school and really college and education in general, a whole lot cheaper, a whole lot easier to do.

SC Gutierrez:
Can I just add one more thing really quickly to this? Because this is what I think listeners need to really understand about student loans. There's a lot in finances that you really can put into autopilot. And I think if we have any takeaways, what you were saying about the Biden forgiveness is that the SAVE program is not as simple to understand as the Biden forgiveness. And so that's why I don't think it's going in the news, but I also think it's one that people could actually miss out on.

And what I think any physician listening to this needs to hear, because I have been seeing this with my own eyes and I'm sure you've been reading tons of mail on this, is that putting things in autopilot on student loans typically does not yield better results.

It doesn't take a ton to get a good student loan plan. If you don't want to do the work yourself, I think you need to hire someone to do it, especially if you're going to public service loan forgiveness, yes, SAVE is really good, but when you come out into your attending level position before you get out of the ability to get a partial financial hardship and go back into payee, you need to be able to get back into that program to cap your payments at that 10-year amortization on the student loans.

I think the bigger message here is student loans are extremely complicated and you have to understand them. You can't just put your loans into something.

Dr. Jim Dahle:
Yeah, for sure. And in fact, a couple of years ago we realized that people just weren't doing it right. And we started studentloanadvice.com. And that's basically just gives advice about your student loans. That's all they do is student loans. And for one flat rate, they will meet with you, make sure you're in the right student loan plan, show you all the tips that you can do to maximize the benefits of those federal programs, help you know if and when you should refinance, etc.

I think the average they saved people last year was $191,000. So, it's been an incredible value for people to use that. And they're pretty busy right now, as you can imagine. But you can still book consults, studentloanadvice.com is where you do that.

All right. Can I be the bad guy? I feel like we got to address this elephant in the room here. With these generous student loan programs, there's a lot of moral hazard. And remember, moral hazard is not an ethical term. This is an economic term.

Moral hazard is when people make different decisions than they otherwise would because of an unintended consequence of a law or policy. So, we have made going to college and paying for it with student loans so attractive now that there's a lot of downsides to this.

So, let's think about a few of them. One is that people get really mad. Imagine all those people who paid off their student loans, and now they see all these doctors getting $200,000, $300,000, $400,000 forgiven. There's a fair amount of legislative risk when people realize what's going on. The doctors are going to medical school almost for free. That's one downside of these generous programs.

Another one is there's almost no incentive whatsoever for medical schools to keep their tuition down now. Because people can borrow the entire cost of attendance. Most of them won't even think about it because they just want to be a doctor, number one. But number two, if they're savvy about student loan management, they realize I'm probably not going to have to pay this back anyway. And even if I do, it'll be with dramatically depreciated dollars.

And so, this affects people. This affects people who pay for medical school using family money. People that worked their way through or their spouse helped them work their way through. People who are actually paying their loans back. People who go to schools where they couldn't get federal student loans, like Caribbean schools. People who don't match or people who can't get a PSLF-qualifying job. All those people are hurt by this increase in tuition that comes from these generous student loan programs.

I don't know if you've run into this either, because I don't know how many clients you've had that are medical students, but I have medical students emailing me all the time going, “I really only need this much money this year, but they're going to let me borrow this much money. I think I'm going to go for PSLF. Should I take it all?”

And so, people are borrowing money they wouldn't otherwise borrow and probably not investing it. They're probably spending it. And so, people are living their lives differently than they would because these things are so generous.

We also have these other things. We got a few medical schools that are free at least for people of a certain income. We got MD-PhD programs, we got the military HPSP program. We got Indian Health Services. We got the National Health Service Corps. Why would you sign up to go to Iraq for four years to pay for your medical school when you can get it all forgiven via public service loan forgiveness?

I predict in a few years all of these programs, these contract programs, these MD-PhD programs are going to have a lot more problems recruiting people into their programs because the loan programs have become so generous. What do you think about all these moral hazards that have come from these changes to the federal loan programs?

SC Gutierrez:
I think the moral hazards are significant. The interesting thing though, just taking non-MDs. We do retirement plans and so we see a lot of people in hospitals who work the front desk and have $50,000 in student loans from a college degree they didn't even finish. And we'll never have any hope of actually paying it off.

I think that these folks are saying, “Oh my God, I was sold a bill of goods and what am I ever going to do?” PSLF comes around and they're crying in relief, but they're also saying, “I will never ever let my kids go through this.”

SC Gutierrez:
I do think that the relief is good in a variety of different ways. And I think for people who have actually suffered under the payments, under student loan defaults, I think that's great too.

I also hate student loans even as much as I love the incentives for our physicians. You can't bankrupt them. I think they're quite un-American. I think it's a terrible way to do debt. We don't do this in the US. We don't hold debt that you cannot ever repay over people like this.

I am hoping that at least on the undergrad level, that we are already getting that message feedback back, that people are not going to just keep paying increasing tuitions funded by student loan debt.

On the med school side, yes. And in fact, I have two med schools where I actually speak to the first and second years and I see them taking out these loans and I'm begging them to set a budget, one that they can use through residency and then into their attending level pay, which minimizes the student loan debt because you don't know what the future is in your first and second years of med school.

How many people actually know that they're going to go into radiology versus a job where they're likely going to work at a PSLF-eligible institution? I just don't think it's that many. I think it's playing with fire.

As you and I have seen, we're seeing debt loads now that are more than one times income. And at that level, you're making very significant life decisions around that debt that you wouldn't have otherwise. And I don't like seeing physicians do that.

I think there are moral hazards around the borrowing, but I do think if we can get enough education to the borrowers that they really don't have a huge incentive to rack up because of the potential risk that they're not going to benefit from PSLF.

Dr. Jim Dahle:
Yeah, there certainly is risk there. Not every job qualifies, but there are a lot of jobs that do. If you're willing to go to a different area of the country and work in a VA, work for the military, stay in academia, those jobs all qualify for PSLF.

We need to talk a little bit about refinancing too. Part of the question we got on the Speak Pipe was about refinancing. This is another one of those possibly unintended effects of not only the student loan holiday during the pandemic emergency, but also these new generous rules for PSLF, this new SAVE program.

This has decimated the student loan refinancing industry. Absolutely the volume of loans being refinanced is a tiny fraction of what it was just a few years ago. All these companies. I think our sponsor for this episode was SoFi. They're just seeing a whole lot less people. And that's not only because it's more attractive to stay in the federal loan system, but also because interest rates also went up dramatically over the last year or two.

So, let's talk about when it actually still makes sense to refinance. And I think the first takeaway message that everybody ought to take is if you have private loans, if you have loans that are not federal loans and you can get a lower interest rate, you should still refinance them. You should refinance early and often.

We have links at the White Coat Investor where you get cash back. Currently, we're still giving away our Flagship online course for anybody who refinances through our links. It still makes sense to refinance those loans. People coming out of Caribbean schools with 10% student loans. Yes, you can still knock off 4 or 5% off your student loans. You're not going to get the 2% that people were getting a few years ago but it's still well worth your time to refinance. However, I think it is a more difficult decision for those with federal loans.

SC Gutierrez:
I agree with this too. We were running some numbers on this as well. We're seeing some refi rates that are really good for our clients right now. And if you have a 6% or 6.8% federal loan, you know you're not going into PSLF, you ruled it out. You're coming out of residency going into what I call the big doc pay.

You can knock $12,000, $13,000 off a $300,000 loan. It makes a lot of sense in that situation, especially given that we're seeing fixed rates now that are 5%. If you can get that 5.5% even, it still can make a lot of sense. And it's not just for five-year loans. We're seeing them for 10-year.

The other thing too is I'm starting to see some physicians who accidentally have gotten into some credit card debt and we're seeing a lot of lifestyle inflation that's happened during COVID that was really unintentional.

It happened to me. It is really serious just how much things cost more. And so, we've seen some physicians get into some credit card debt and I was working with one yesterday and we realized, “Gosh, $30,000 in credit card debt. Let's look at one of these personal loans.”

I think that that's also something that people need to realize. Don't let that sit there and pay that interest, the 19%, 20 to 25% interest month after month after month. Really, really knock that down as quickly as possible.

Dr. Jim Dahle:
Yeah, absolutely. A lot of people just don't realize what a debt emergency looks like. And when you've got debt that's 10% plus that is a debt emergency. That debt is doubling every seven years at 10%. At 20% is doubling every three years. That is a fantastic guaranteed return to pay back a 10, 20, 30% loan.

It makes less sense to carry debt now that interest rates are higher than it used to. You may be more likely to pay on your mortgage, more likely to pay on your student loans, more likely to pay on credit card debt rather than invest as a few years ago, people struggled all the time with “Do I pay back this loan I've refinanced to 2 or 3%.”

But to the questioner's point, it basically didn't make a lot of sense before to refinance federal student loans during residency. You're generally better off in REPAYE than you were refinancing those loans at the beginning of residency. Not everybody. If you're married to another high-earner, that's not necessarily the case. But for most people, that decision for your federal loans happened when you left residency. Or maybe if there's a lag in certifying your income a year after you left residency or fellowship.

But that's probably still going to make sense for a lot of people that are paying back their loans, going from 6.8% or as loans go up now because they'll be higher next year for borrowing medical students to get that down to 5% or 5.5%. That's still a good deal to knock a couple of percent off your interest rate.

All right. Well, I think we spent enough time talking about student loans. Let's get onto our next question here. The next one is about HSAs and down payments.

HSA QUESTION

Chip:
Hi, Dr. Dahle. My name is Chip. My partner and I are both early career psychiatrists. We are in weekly psychotherapy and currently pay out of pocket for these sessions. We are also saving to purchase our first home in the next few years. Our high deductible insurance plan comes with an HSA account.

Should we use the money from the HSA account to immediately pay off these sessions and save separately for a home in our money market account, or pay out of pocket for the sessions now and pay them off in a few years using the HSA funds? Thank you for all you do and we are both avid listeners of your podcast. Thank you.

Dr. Jim Dahle:
All right. This is one of the downsides of the Speak Pipe format. You can't ask follow-up questions. You get the information you get and you got to riff off of that. What advice would you give in this situation?

SC Gutierrez:
Okay. This is so common. I have fallen into the HSA trap. And let me just explain, first of all, to make sure that everybody's on the same page of why this caller has just a great understanding of the dilemma that he's in.

When you open an HSA, it's not like the old FSAs where you put money in and you lose it. HAS, you put money in, you get a tax deduction and the government doesn't have any time horizon where you have to spend it. You have an advantage to keep the money in there, particularly knowing that as long as you use it on health expenses, when you take it out, you pay no taxes then. You owe no taxes. And then if you put the money in investments over time, you also don't have to pay capital gains tax when you take it out. We call that a triple tax advantage.

What happens is, you think, “Oh, this is great. I'll put money into the HSA and that's awesome. Maybe one day I'll have this nice little nest egg in retirement.” But then you start paying health expenses out of pocket. And I think that there's something that lights up in the brain that tells us “Alarm, alarm, alarm. This is too much money. I'm having to pay up to $1,500 on my high deductible healthcare plan before my insurance kicks in.” Or in my case $4,000 or $6,000.

And so, it feels so bad that you want to look to your HSA, even though you kind of had this vague notion that it's good to keep the money there. This is what I would recommend to the caller and to anybody on here. If you have an HSA strategy where you're taking advantage of this triple tax advantage, you are essentially putting money into your retirement plan. It's part of your retirement nest egg. And so, you really want to avoid using it as much as you can and you want to keep funding it at the maximum levels that the government allows every year.

And so, what's difficult about this is that yes, you then have to put those sessions, the costs into your budget. And the way I do it, and if this is helpful for folks, I create my own savings account next to my checking account and I just auto deposit $500 or more every single month into that account. So that when my kid has strep throat and we end up in the emergency room like we did last month and I get a bill for $1,000, then the money is sitting there and I'm less tempted to go out and use it.

It's very, very difficult to move from the FSA where the government is like, “You better spend this or you're going to lose your money,” to this different system. And I think that's why our wires are crossing when we're not sticking to the course on the HSA. So, if you can, I would say put off the savings on the house or lower the savings in favor of this HSA and stay that amazing course that you originally set out.

Dr. Jim Dahle:
All right. I'm going to push back on this one a little bit because there's really two schools of thought here. First of all, we got to explain a few things with an HSA. If you take the money out before age 65 and spend it on something besides healthcare, you not only have to pay taxes on it, but you have to pay a big penalty. If you take it out after 65 and spend it on something besides healthcare, you don't have to pay that penalty, but you do have to pay taxes on it. If you take it out at any time and spend it on healthcare, then you don't pay a penalty, you don't pay taxes on it. But obviously, the longer you can leave it in there to benefit from this tax-protected growth, the better.

There's really four things you can do with HSA money and the first two are obviously worse than the last two. The first one is take the money out and spend it on something besides healthcare before age 65. That's clearly a bad idea. Don't do that.

A second option is to take money out after age 65 and spend it on something besides healthcare. Not ideal, but it's no worse than your 401(k) or your IRA. This is a stealth IRA for you. This is not a terrible thing to do with your HSA, but it's not ideal. Ideal is to spend this money on healthcare so you get the full triple tax-free advantage. That leaves you the two options.

SC's preference is that you leave the money in there, yes, you save your receipts so that any money you spent on healthcare, you can then take out later and spend it on a sailboat or whatever, tax and penalty-free. But mostly you're trying to keep the money in that account and you're spending your taxable money or your general earnings, your cash flow on your health expenses.

The other option is just spend as you go and what you don't spend stays in there and multiplies over the years. This has the advantage of not having to keep track of all those receipts. Not having to worry about having this massive HSA in retirement that you're not sure what you're going to do with.

Let me tell you about my HSA and why I think about this problem. I have $160,000 HSA. $160,000 HSA. Because I've just been putting the maximum into it for the last 15 years and never took any money out. And I'm doing a crappy job keeping track of the receipts. Let's be honest. I've got receipts, but I don't know that I have all the receipts. I'm not doing a great job tracking them.

And this is the worst account to leave to your heirs because when your heirs inherit your HSA, it is all taxable income at their ordinary income tax rates when you die in that year. It's all in one year, the whole thing. And so, this is not awesome to inherit.

It's fine if you're charitably inclined and your plan, anything you don't spend on healthcare and retirement is to leave to charity, that's fine. But if that's not your plan, then you want to have this money spent before you die.

And if you're starting to get a really huge HSA, it's okay to spend it as you go along. I don't think you should feel bad that you're using your HSA for what it was designed for. And it certainly is a lot less hassle than keeping track of all those receipts for many, many years because you might not have enough expenses in retirement to spend $300,000 or $400,000 HSA in retirement. And then you end up with this less-than-ideal account to leave to your heirs. What do you think? Did I convince you, SC?

SC Gutierrez:
No. No, you didn't. The biggest expense in retirement is healthcare. It is literally one of the biggest swing factors in budgets. Even if you didn't save your receipts, I think there's a really good chance that you would end up with enough expenses for an HSA. And it's so funny. It is pretty shocking to hear the amount in your HSA. I've got about $60,000 in mine. I thought that was a lot from doing this strategy. But yes, I guess there's at some point where maybe you stop saving into it and just use it for retirement.

Dr. Jim Dahle:
I don't know if that's okay. There's no point in stopping saving, right? Because at worst it's a stealth IRA or you use it for your charitable bequest. I don't want to tell people don't put more money in your HSA, I'm just saying maybe it's okay to spend it on healthcare.

SC Gutierrez:
And also saving receipts is not crazy anymore. A lot of these companies do make it easier for you just to upload them. I actually have just an old-fashioned file or I just throw them in and I just note when I paid them. But if you have an easy-to-adopt system where you're not having to do anything really arduous, I also think that we believe in really good processes and systems that don't require much thinking at all. And so, maybe adopting something like that could also help mitigate the risk.

Dr. Jim Dahle:
Yeah, for sure. I need to systematize it better because your file idea seems great until you go back in there five years later and you realize all those receipts, the ink fades on them. So, it's got to be electronic if you're saving receipts. You've got to scan them in or take pictures, keep a file on Google Drive or whatever. You got to have a system. I know some of the HSAs automatically build this into the HSA. I don't think mine at Fidelity does. I don't think they have a system for saving receipts, but I know some of them do. I think Lively does where they help you save the receipts.

SC Gutierrez:
I think my old one at HSA Bank allowed us to do that there. And now you have me freaked out. Now I'm going to go look at my oldest receipts and see if they're starting to fade.

Dr. Jim Dahle:
Yeah. They might be faded. Yeah. Maybe I just don't do a good job taking care of receipts. This is an ongoing issue for me.

SC Gutierrez:
Do you keep them in the sun?

Dr. Jim Dahle:
Yeah, I just lay them out on the driveway. I don't know why that keeps disappearing.

INVESTING WITHOUT A WRITTEN FINANCIAL PLAN QUESTION

All right. Let's get to our next question. This one is by email and they ask,

“You won't like this, but I don't have a written financial plan yet.”

You're right. I don't like that. But surveys show about 50% of White Coat Investors don't actually have a written financial plan. The questioner continues,

“I've started working on it. I've listened to many of your podcasts and read many blogs and really value your suggestions. I have an extra $200,000 extra in cash and I'm thinking about investing it.”

Well, that's probably a good idea.

“As we know, the current market situation is not great. Stocks, bonds, and real estate are falling.”

Did I miss something? Because the stock market's up like 14% year to date. But bonds have not been awesome. They've been okay this year, but were terrible last year. And real estate certainly has its challenges. At any rate, goes on,

“Usually, bonds have a long bear market when the Fed raises interest rates.”

Okay. Well, if they keep raising them, that's certainly going to impact bond prices.

“Should I divide $200,000 in 12 and invest each month with a plan of investing more when the market has a larger drop? Invest $10,000 each month and add 5,000 or $10,000 more if the market has a large drop? What would you do if you had to invest $200,000 in the current market? I'm aware that you are not a financial advisor.”

Well, I guess that only applies to me.

“But I value your opinion more than a financial advisor.”

Dr. Jim Dahle:
Well, how about we give you an opinion from both? All right, who wants to go first? You want to go first on this one, SC?

SC Gutierrez:
Sure. I say don't do the financial plan. It sounds like you're paralyzed by it. Sometimes in finances, perfection gets in the way of progress. And so, what I want to emphasize here is that a financial plan is great. It's great for goal setting, it's great for figuring out how much you need to save in order for you to retire at a certain time. For creating your own personal investing statement, whatever.

But really, in the end, it's the financial planning process that's going to bring you value. And this just like I was talking about with the HSA, you need a process more than you need a plan.

If you were to write a financial plan and have it be successful, 90% of that financial plan that is important is being able to spend less than you make. That is what alludes so many physicians. And so, I just want to take a minute to say, first of all, congratulations. You are executing on a financial plan, whether you realize it or not.

Now, if you're 50 years old and you have $200,000 in savings from a 15 or 20-year history, you're probably not saving enough. But let's say you're still pretty young and you're maxing out your retirement plans. And if you were to add the trailing 12 months of deposits into your retirement plans and in the savings deposits and you divide that by your trailing 12-month income and it's more than 20%, then I would say pat yourself on the back. That is really, really great. Hard to do. That is the majority of a financial plan right there.

But then you've got the next hurdle, which is the easiest one. When we have people who come in and their big problem, it's a very high quality one, is “I've got cash laying around.” That's fantastic because now all you need is a good system in place for getting that money out of there, getting your brain out of the investing game and just dollar cost averaging all of your new dollars, and in this case existing dollars into the market.

I liked your original plan, divide by 12. Put that money. Automate that dollar amount into a brokerage account. If you use mutual funds, you can even automate the investing. Get it in there, but at the same time have all new money coming in there at the same time.

And Jim, I'm sure you have an opinion on trying to guess market cycles. I have an opinion on that. It can't be done. It really can't. Even people who do this all day long really can't do this well. And the data supports that.

And so, the fact is, is that anything we think is happening bad in the economy, the market knows and it's priced it in already. What you're trying to do is not invest for a 12-month horizon. You're investing for a decades-long horizon. So, your goal is to get that money working for you as quickly as possible, but also as behaviorally, the way your brain can behaviorally tolerate it.

Obviously it would be better if you just threw the money in now regardless of what's going to happen in the market, but a lot of people have a hard time tolerating that. And so if you just set your clock, the 12-month one, get it in over 12 months, I say congratulations, that's a fantastic financial planning process.

Dr. Jim Dahle:
I agree. This questioner should be congratulated. Having $200,000 in cash is no small accomplishment. If I brought you on the Milestones to Millionaire podcast, I'd be screaming how awesome you are and how we can use your example to inspire others to do the same. Lots of people retire with less than $200,000. You're wealthier than the vast majority of people in the world and many, many Americans just by having that $200,000. So, congratulations on that.

But I'm going to push back on this. I think it's really important to have a financial plan. And I'll tell you why. Because this dilemma you have, I would have every single month. Now, it might not be $200,000, it might be $5,000, it might be $10,000, it might be $100,000. It just depends on what kind of a month and how much money you make. But every month you've got this dilemma. “I got cash because I live on less than I earn. What should I do with it?”

And when you have a financial plan that tells you, “I am putting 25% of my money in the US total stock market fund and 20% in real estate and 20% in bonds”, that's just what I'm going to do every month.

When you have that plan, you don't have this question because every month I have cash to invest and I invest it according to my written financial plan without regard to whether stocks are going to do well in the next few months, or bonds are going to do poorly in the next few months. I don't know what's going to happen. I need a plan that doesn't require me to know that in order to invest. And if you have a plan that requires you to know that and you don't know that, you're going to be paralyzed and you're going to be sitting on $200,000 in cash not knowing what to do with it.

But behaviorally speaking, your fear is that you're going to lose money. You're going to put a bunch of money into the stock market and then the stock market's going to drop 10% next month. When you really dive deeply into your psyche on this issue, that's what you're afraid of. And I want you to quit being afraid of that. You need to just get rid of that fear.

You are not investing this money for next month. You're not investing it for next year. This is money you won't be spending for 20, 30, 60 years. It's not going to be down in 60 years I promise. It will be up in 60 years. Even if it drops the day after you invest it, you're still going to be okay because you're not investing it for tomorrow. If you needed it tomorrow, you'd leave it in cash. You need it in 30 years and it's not going to be down in 30 years. So, put it into stocks, put it into bonds, put it into real estate.

People are afraid to put money into the market when the market goes down, because they're like, “Oh, the market's probably going to keep going down. It's been going down.” People are afraid to put money in the market when it's at all-time highs. Quit looking. Who cares? I promise it will be worth more in 10 or 20 or 30 years than it is right now. I don't know how much more. Maybe you'll only get 2% returns over the next 10 years. Maybe you'll get 12% returns over the next 10 years, I don't know.

But in the long run, you're going to make money. Quit being paralyzed by this fear of short-term loss. Get your money invested, at least your long-term money. Get your long-term money invested and quit being fearful about short-term loss.

That's why I think when we get into this dollar cost averaging versus lump suming, I'm a huge fan of lump suming for just that reason. If you believe the market goes up, most of the time, you want your money in the market as soon as you can, and the soonest you can is lump suming. Because even if you dollar cost average, this big sum of money you have over six months or over 12 months or whatever, at the end of that six months or at the end of that 12 months, all your money's in the market. It's all in there.

And if you're not afraid of having it all in there then, why are you afraid about having it all in there now? It doesn't make any sense. This isn't logical. But if it makes you feel better and actually gets you investing, fine, spread it out over 12 months. It's better not investing it at all. But I think it's definitely an inferior solution to lump suming.

I would encourage you to get a grip on your emotions. Get a grip on what your real fears are about investing and just lump sum the money in. That's what I'd do with it. If I had $200,000 in cash, that was long-term money for me, it would be invested tomorrow. It really would.

Not convinced? I mean, what do you do? If this were your $200,000, that you just inherited, let's say you inherited it. Would you spread it out over 12 months or would you invest it tomorrow?

SC Gutierrez:
I'd invest it tomorrow. But the thing is, that's obviously the best financial decision, but what we're talking about here is getting over the hurdle to take action. So, what if he's listening to us and he is like, “Okay, I'll do the lump sum.” And then he's like, “Okay, next week, and then next week.” Puts it off.

But then alternatively saying, “Okay, let's just do $10,000” and that gets you to do it today. And then you set up an automation that on the 18th of every month, my checking account is going to shoot this money into my brokerage account. I won't even see it, and it's going to automatically invest those mutual funds that you talked about. Maybe that's what he needs to get over the hurdle.

In the scheme of things, I'm not sure it's going to really have a huge financial impact one way or the other. And if it gets you to take action, I am all about what can you do to take action? Which is why I love financial plans. My God, I'm a financial planner.

But if a financial plan and writing the perfect plan is standing in the way of action, then why not just start taking some action? Get some positive momentum towards that action. Learn a little bit about yourself along the way and let that kind of inform your financial plan.

I think we've got somewhere that's closer to us agreeing on where he's going to land. But I just believe in just a little bit more kind of immediate action. Whatever you have to do to get over your brain hurdles is what I would do.

Dr. Jim Dahle:
Yeah, I agree. Getting moving is what we need to do here. And if DCA, dollar cost averaging this lump sum in over a number of months gets you moving, that's great. But I agree this is someone who would really benefit from an automated investing plan. That money going in without looking at it, without having to worry about what the market's doing. And then you pick your head up in a couple of years and you're like, “Wow, I'm wealthier.”

SC Gutierrez:
Do you know he's probably already doing that? He's probably already doing that in his retirement plan. A lot of people don't think of retirement plan as your own investing, but it really is. The money is coming out of your paycheck and it's every single month going into that account and buying.

And so, what I was also suggesting is not just having that plan for the old money, but if you know that you're going to have an additional $5,000 after you've maxed out all of your tax advantage savings, just sitting in a savings account, have all $5,000 of that transferred out automatically. Automate it. You can literally set this up with Schwab, Fidelity, Vanguard. They'll pull that money for you and then they'll make the investments and you never even see the money.

Dr. Jim Dahle:
Yeah. I think that helps a lot of people that are having trouble getting over the hurdle of investing for sure. Because it's a chore. It's a chore for me to go in every month and invest the money. It's like, okay, I got to figure out what's been lagging. Where's the money got to go? How much do I put in the orders? It's a bit of a pain. There's some real benefits to automating it.

QUOTE OF THE DAY

Okay. Our quote of the day today comes from Margaret Bonano who said, “Being rich is having money. Being wealthy is having time.” Ask yourself, would you trade places with Warren Buffet? I wouldn't. I wouldn't trade places with Warren Buffet. I'd be dramatically wealthier as far as money goes, but not necessarily as far as time goes. Would you trade places with Warren Buffet, SC?

SC Gutierrez:
No. Time. Time.

Dr. Jim Dahle:
Time. Time is valuable.

SC Gutierrez:
That's it.

Dr. Jim Dahle:
All right. Our last question today is about defined benefit plans. And most of the time when we're talking about these with doctors, we're talking about cash balance plans. But let's see what they're talking about.

DEFINED BENEFIT PLAN QUESTION

Ben:
Hi, Jim. My name is Ben. I'm an anesthesiologist in Arizona. My small practice has a defined benefit plan that allows almost unlimited contributions. It also allows this money to be invested in a self-directed manner and it's not limited to a certain stock-bond ratio. I can place it into my choice of brokerage. I use Vanguard.

Some of my partners are putting $150,000 a year into this plan, and I'm becoming a partner this year. I plan to do the same. Does this sound too good to be true? All the other defined benefit plans I have heard about have much more limitations. We have an actuary and an account manager who's the fiduciary for the plan, and our practice has no other employees, just the partners. Thanks for your help on this question. Thank you for all you do.

Dr. Jim Dahle:
Wow. There's a lot of red flags with that plan. First of all, what's a defined benefit cash balance plan? This is like an extra 401(k) masquerading as a pension. So, it has to follow the pension rules, but it can be invested in stocks, bonds, etc. And what most people end up doing with these is after 5 or 10 years or whatever, for whatever reason, they find an IRS valid excuse to close the plan and they roll the money into their 401(k). That's what most people are doing with these big defined benefit plans.

Why the contributions can be higher is because they're actuarially determined. And so, they're often higher for people in their 50s or 60s and maybe not so high for people in their 30s or 40s because it has to act like a pension due to all these pension rules.

And so, the contributions are definitely not unlimited, particularly if you're young. Maybe if you've got a whole bunch of older partners, somehow you're sharing the same plan. But that makes me worry a little bit that somebody that's young and early in their career is allowed to contribute $150,000 into their plan.

Just by comparison, the people in my plan that are just coming out of residency are allowed to put $5,000 or $7,000 into it. Our previous plan, they were allowed to put $30,000 into it. $150,000 is a big contribution into a defined contribution plan. So I worry about the validity of this plan from that aspect, not even talking about the investments that are allowed in the plan. What worries you about this plan, SC?

SC Gutierrez:
Yeah. I would just be worried. The devil's always in the details on these plans, and so I echo a lot of what you've said. It is possible that you can put quite a bit into the plan by not having any non-highly-compensated participants. That's going to help with discrimination testing, which often does limit what partners can put in. Also limits the cost of it.

So, it's a really potentially good setup because it is only partners that are participating. But I just really think that's a lot of money. And I would not go into this without an independent person who is not making any money on this, administering this plan to be able to ask the right questions and be able to look at what kind of plan it is, how it works, why you should trust it and go from there. So, hire a flat fee advisor. Someone who you can just pay by the hour, by the engagement.

Dr. Jim Dahle:
Yeah. Yeah. And we're talking about a retirement plan expert here. Somebody who sets these things up. Here's the deal with the investments. A defined benefit cash balance plan is generally invested pretty conservatively. In fact, putting it into even a 60% stock, 40% bond portfolio is considered pretty out there for a defined benefit plan. And we're talking about this just being self-directed by the participants. They can invest in Ethereum and Bitcoin.

SC Gutierrez:
Real estate.

Dr. Jim Dahle:
Apple stock and whatever, right?

SC Gutierrez:
Yes.

Dr. Jim Dahle:
The problem is if your investments lose money here, the company has to put more money in. The company in this case is you. So, that might not be such a bad thing for you. You may not care if you got to contribute another $200,000 this year into this plan because of investment losses, but that is the risk, is that you got to come up with this cash and put it in the plan.

As a general rule, what people do, they have 401(k)s and defined benefit plans is they invest the 401(k) a little more aggressively and they invest the defined benefit plan a little less aggressively. That's where their bonds tend to be, and they're less aggressive allocations. So, this idea that people can just invest willy-nilly, this would make some of the people that set up these plans that are on our recommended list go ballistic to see a plan like this. I can tell you that.

I think what I'd do is I'd go to our retirement plan page, talk to a few of those people about your current plan and the risks of doing it the way you are doing it because I think they are not insignificant in this case. Yes, everybody wants a huge contribution, because you can save all this money on taxes, but you got to do it right too. And I worry this plan is just way too aggressive.

All right. Well, it has been great having you with us, SC, to talk about these listener questions and to offer a different perspective than I often have. I'm not going to call it an argument, but I think it's useful. It's valid to have more than one perspective on especially controversial questions. I like controversy, so we try to make things as controversial as we can sometimes, but it's been great having you here with us. And I wanted to wish you all the best on your training for your half marathon. How many half-marathons have you done?

SC Gutierrez:
Three.

Dr. Jim Dahle:
Three. So, this is old hat for you.

SC Gutierrez:
Well, not running all downhill. And I wish you the best too on climbing Half Dome. That is quite the lifetime achievement.

Dr. Jim Dahle:
Yeah. Hopefully it all goes well. But thank you so much for being with us today on the podcast.

SC Gutierrez:
Yeah, thank you for having me.

Dr. Jim Dahle:
All right. Well, that was really fun. I enjoyed that a lot. We're going to try to do a few more of those with various friends of White Coat Investor. Let us know how you like them. Obviously, we like negative feedback in private, so send us an email, editor at whitecoatinvestor.com if you don't like this format for some of our podcasts. You can use that method too if you do like it or just give us five-star reviews.

Our most recent five-star review said, and this one comes from Tactical Magic. It said, “Best Financial podcast, period. I have been listening to the podcast for years, and can easily say this is the best financial podcast out there. Objective, carefully researched, and accurate. Whether you’re an MD, an MBA (like me), on the path to FI or just trying to figure out whether the Whole Life Insurance policy your brother-in-law’s friend is trying to sell you is a good idea, the White Coat Investor is the best place to start. Thank you to Dr. Dahle and your team for everything you do.” Five stars. We appreciate that review. That helps us to spread the word about this podcast.

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All right. Don't forget, it's time to sign up for WCICON. WCICON is going to be awesome this year. It's in Florida, not Arizona. Don't go to Arizona, you'll miss us. It's in Florida, February 5th through 8th. We've kept the pricing about the same. This is the cheap pricing. This is early bird registration. It goes from now through October 12th unless the conference fills. We have had some conferences sell out. Whether this one will or not, I don't know. Changing it to the East Coast, maybe it will sell out, but we'd love to meet you there.

I love meeting White Coat Investors in person. It's an experience. It's almost like, all right, not to be religious, but a trip to Mecca, if you will. And you get to meet your people. Who else can you talk to in your life about finances? It's a great conference. It's people from all kinds of different specialties. When was the last time you went to a conference with people from more than your specialty?

And there's all kinds of great material. The networking is great and it's fun. It's a wellness conference. You're supposed to go home feeling better about your life and your job than when you went. And so, that's our goal. And I look forward to seeing you there. I hope you sign up, wcievents.com. We'd love to have you.

Till next week, keep your head up, shoulders back. You've got this and we can help. See you next time on the White Coat Investor podcast.

DISCLAIMER
The hosts of the White Coat Investor are not licensed accountants, attorneys, or financial advisors. This podcast is for your entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.

This is the White Coat Investor podcast Milestones to Millionaire – Celebrating stories of success along the journey to financial freedom.

Dr. Jim Dahle:
This is Milestones to Millionaire podcast number 135 – Podiatrist opens a franchise.

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All right, welcome to the Milestones to Millionaire podcast. And there are a lot of milestones in life, a lot of financial milestones, and we celebrate them all the time here. It might be just getting back to broke. It might be becoming a decamillionaire or anything in between, but we like to do unique ones as well. And today we've got a bit of a unique one.

But if you'd like to celebrate your milestone with us, you can apply whitecoatinvestor.com/milestones and we would love to celebrate that with you and also use it to inspire others to do the same.

Stay tuned. After this interview, we're going to talk about what it means to tilt your portfolio after we finish this interview. All right, let's get our guest on today.

GUEST INTERVIEW

Our guest today on the Milestones to Millionaire podcast is Dr. Rikhil Patel. Welcome to the Milestones to Millionaire podcast.

Dr. Rikhil Patel:
Thanks, Dr. Dahle. I've been a big fan of the show and I'm proud to be on here right now.

Dr. Jim Dahle:
All right. Well, let them get to know you a little bit. Tell us what you do for a living and how far you are out of your training.

Dr. Rikhil Patel:
Yes. I'm a podiatrist, trained in foot and ankle surgery. I graduated med school 2013, residency 2016. I did a fellowship in 2017. First I started off my career in Florida and moved up to Maryland to be closer to family about three years ago, and I'm still here.

Dr. Jim Dahle:
Awesome. Now, I often tell people on this podcast that we'll celebrate anything with you and we like having unique milestones. It's great when people pay off their student loans or become financially independent or a millionaire or whatever. Those are great milestones. Those are also important milestones in my financial life.

But it's also fun to do some of the maybe less common episodes that we do on here. And your milestone's a little bit unique. It's really kind of a career change. So, tell us what happened with your career and what was going on in your mind and your life that caused you to embark on this career change?

Dr. Rikhil Patel:
We've heard so much about burnout in all aspects of medicine and my burnout didn't really come from the pandemic, it just came from my workload. And last year I felt like I just said yes to everything and working late hours and not paying attention to my own mental physical wellbeing. And I had every symptom of burnout from light stage to the serious stage. I've been seeing mental health experts for it. I can at least say I'm on the recovery for that, but it kind of kicked me in the butt saying I can't do this for 10, 20 years this way.

I had to find another revenue stream not all reliant on this job, which in itself is not really secure, which we'll talk about later. But my true passion ended up being golf. I made a decision with a friend to start a golf simulator franchise in our hometown.

Dr. Jim Dahle:
So, tell me about this business. What does it do exactly?

Dr. Rikhil Patel:
It's an indoor golf simulator. There's bays, you could play a full 18. You could do driving range. There's a full bar, there's food, it's like almost indoor Topgolf. And we were tired in the wintertime not having a place to golf. And then we said, “You know what? Let's just make our own.” We tested the waters about doing from scratch, but we didn't want to leave our day jobs. The franchise opportunity was the best thing. And we took the plunge in March, 2023. And we just signed the lease for the space last night actually.

Dr. Jim Dahle:
Awesome. So, how long does it take to play a round of indoor golf?

Dr. Rikhil Patel:
Comparatively to the outdoor golf, you take four hours. In indoor golf, you could do 18 holes in one hour and you're not tired. You could be home to your kids and you could still have a drink or two and have some food and bring your friends on. And it could be maybe maximum three hours, but typically an hour for 18 is much better time commitment.

Dr. Jim Dahle:
So, if I walk into your shop and I want to play a round of golf, what do I pay for that? What's it cost?

Dr. Rikhil Patel:
Depending on off peak and peak, it's from $40 to $60 an hour. You could choose up to six people per bay. You just pay for the hour and then the food and beverage is separate. You can choose to spend all day with us or just come in for an hour, you don't even need your own club. We have our rental clubs that we have for you.

Dr. Jim Dahle:
Did you say it was $3 to $6 an hour?

Dr. Rikhil Patel:
No, no, no. It's $40 to $60 an hour.

Dr. Jim Dahle:
$40 to $60. All right. I couldn't figure out how you stay in the business making $3. All right, so 40 to 60 an hour. That's a round of golf you can play it in an hour. That's cheaper than a lot of places around here.

Dr. Rikhil Patel:
Exactly. And you don't have to brave the weather, the hot sun or the raining or the bugs, the controlled environment. So, I think it's a way for us to maintain our golf skills all year round.

Dr. Jim Dahle:
What part of the country are you in?

Dr. Rikhil Patel:
Mid-Atlantic in Maryland.

Dr. Jim Dahle:
Okay. So do these do better in New England than they do in Florida? Or do people are more in the summer in Florida,

Dr. Rikhil Patel:
They are. They are mostly started in Midwest, Chicago, Michigan and all that area. But now we're finding that the heat and the sporadic weather, a lot of warm weather places are now trying to pop up indoor simulators as well. Independent franchise, whatever. Probably every state has something. We thought in the future golf accessibility is the key. So, if we could bring golf to more people, more days of the year, I think it's just going to grow the sport and help us just be active.

Dr. Jim Dahle:
Tell me about this franchise. We had a non-food franchise guy on the White Coat Investor podcast a few months ago. Tell us about this franchise. You have a partner it sounds like. How much money did you put down and what kind of income are you guys seeing out of this franchise?

Dr. Rikhil Patel:
We had an initial $30,000 franchise fee. And then our cash injection will probably total up to $150,000 between both of us. We have a SBA loan for about a million dollars and then we plan to gross rent revenue about a million for the first couple years and it'll go up and up from then.

Dr. Jim Dahle:
So pretty highly leveraged, but pretty darn good income from it, it sounds like.

Dr. Rikhil Patel:
Right. Yeah, yeah. My goal was to become a part-time doctor, a part-time golf instructor/enthusiast.

Dr. Jim Dahle:
Yeah. So, what has this allowed you to do with your practice? How much have you cut back at your practice?

Dr. Rikhil Patel:
Well, cut back was actually forced upon me since I lost my job actually, because I was forced out my contract six months early. Mike Tyson said you have a plan until you get punched in enough. I got punched in enough pretty hard. So, my plan became accelerated. Because right now I'm doing part-time work in a nursing home two days a week.

But I've also made the decision to start my own practice. I'm going through that while starting another business at the same time. So, it’s a lot of learning along the way, but everyone tells me it's going to be worth it in the end. I wish I had that income I had in the first part of the year, but luckily we did all the groundwork beforehand, so it's not too bad.

Dr. Jim Dahle:
Yeah. What advice do you have for somebody that wants to do this sort of a thing? They want to mix it up, they want to leave a job or cut back to part-time or open a business thing on the side. What advice do you have for somebody that's maybe sitting there with a little bit of paralysis by analysis?

Dr. Rikhil Patel:
Finding what really works for you. When my schedule was overrun, was late night waiting in the hospital or working seven days straight, we had to realize that if we look for a new job, it had to be more on our terms. Something that I don't have to spend so many hours with. I can still do things with my family and then I can still give time for myself.

The biggest takeaway is don't ignore yourself mentally and physically because burnout will affect your patients negatively even if you don't know it. Because it was definitely about to start affecting my practice and luckily I made changes to make a positive impact.

Dr. Jim Dahle:
Tell us a little bit about your financial situation. It sounds like you'd been out six-ish years. Five-ish, six-ish years.

Dr. Rikhil Patel:
Yeah, about seven years I would say. Yeah.

Dr. Jim Dahle:
Where were you? Had you paid off student loans? Had you saved up any sort of a nest egg at that point? Had you bought your house? Where were you at?

Dr. Rikhil Patel:
Yeah, luckily we saved. I got into the financial literacy game a little late, probably 2017 when I was a fellow, when I was around more high income people in Florida. But luckily we bought our house here in Maryland with a physician loan, so that was very nice. Not have to put anything down.

My wife's salary, she works in real estate logistics. All her money goes right into savings. We try not to touch it. And we're living off of my income, which range from $50,000 from residency to $250,000 as an attending. And now, that has all changed because of the job loss. But luckily we've used the principles of the White Coat Investor to save, we've knocked down our card debt. We don’t have no more car loans. We don't have any credit card debts. Only debt we have is the house and student loans.

Dr. Jim Dahle:
So, now with you opening the practice, do you plan to just have that practice always be part-time?

Dr. Rikhil Patel:
That would be nice. I don't know how sustainable it will be at first, but that would be a perfect goal of mine. We'll have to see how that works.

Dr. Jim Dahle:
Awesome. Well, Dr. Patel, this has been great. I appreciate you coming on and sharing this milestone with us. Maybe inspiring others to make some career changes, whether they are forced upon them or whether they are desired for whatever reason. But we thank you for sharing your story. Any other advice you'd like to give people who are experiencing this sort of a career change?

Dr. Rikhil Patel:
Yeah. Basically be careful of who you trust and in any business venture, sometimes you have promises that you think are actually written down, but they're not. So, make sure you review all your contracts and keep the people you trust close and just make sure you look out for yourself first.

Dr. Jim Dahle:
If it's not in writing, it didn't happen.

Dr. Rikhil Patel:
Exactly.

Dr. Jim Dahle:
Awesome. Well, congratulations on your success and thank you so much for coming on the podcast.

Dr. Rikhil Patel:
Thank you.

Dr. Jim Dahle:
All right. I hope you enjoyed that interview. I thought the most interesting part of it was just seeing a dock go out and with no fear whatsoever, do something different. In this case it was opening a franchise and it's not an insignificant amount of debt. I think he said they put down $150,000 and had about a million dollars’ worth of business debt for this thing.

So, there's some risk there. There's some time and obviously some expertise. When it's your passion, it's a little easier to come up with that expertise. But what a blessing, especially at a time when the main career is having some changes with the job loss, opening a practice, et cetera. It's great to have a little bit of income on the side to help support you through those transitions, and I suspect eventually allow him to practice part-time exactly as much as he wants. Lots of great lessons there that I think we can all take from this.

FINANCE 101: TILTING A PORTFOLIO 

Okay, lets shift gears and talk about tilting a portfolio. What do I mean by tilting a portfolio? Well, if you start with the basic market portfolio, let's say we're talking about stocks here. You just buy all the stocks. That's the market portfolio. A tilt is when you hold something in a different percentage than the market.

Why would people do this? Well, they do this primarily because they want to have higher returns and they think their tilt is going to give them higher returns. Maybe it lowers risk as well, but for the most part, the goal is to boost your returns.

So, what do people tilt their portfolios toward? Well, a common one is to tilt your portfolio toward smaller stocks or value stocks. Well, a small stock is just a smaller company. It's more vulnerable. It has fewer products, it has fewer product lines. It has less cash usually. It's not as well known, it doesn't have as well known of a brand. And historically these smaller stocks have shown slightly higher returns than larger stocks that are more well known. Your Disneys and your Exxons, et cetera. And so, some people have more small stocks in their portfolio than the actual market portfolio does.

Also value stocks. What's a value stock? Well, a value stock is one that is not growing as quickly. That doesn't sound good at all, does it? But the truth is value stocks have had greater returns historically over the long run than growth stocks. These stocks that are growing quickly. And the reason why is because people overpay for growth stocks. And so, you're getting a better deal on a value stock. You're buying more earnings for what you paid for the stock.

And so, what do people do? Well, they may have a total stock market index fund and they may also have a small value index fund. Maybe they have 50% of their money in a US total stock market fund and 10% of their money in a small value fund. And that would be a tilt of the portfolio.

Now should you do this or should you not do this? Well, nobody knows for sure how well these tilts are going to perform going forward. You're for sure going to have more complexity and usually at least a little bit more expense in dealing with your portfolio management.

But whether that will pay off or not, well, the jury's still out on that. We can say it paid off in the past but we can't say it paid off going forward. There are all kinds of other factors out there. Profitability, momentum, other things that people tilt their portfolios toward. You can even tilt it toward one part of the world. You may tilt your portfolio toward China or something like that, for instance, because you think China's going to have fantastic returns. Lots of ways to tilt a portfolio but when we talk about tilting, that's what we're discussing.

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All right, we've come to the end of another episode of the Milestones to Millionaire. I hope you're enjoying these podcasts. Let us know what you'd like to see more of, what you'd like to see less of. We're always responsive. You can email [email protected]. But we appreciate you listening. We know your time is valuable and we're grateful that you spend it with us.

Keep your head up, shoulders back. We'll see you next time on the Milestones to Millionaire podcast.

DISCLAIMER

The hosts of the White Coat Investor podcast are not licensed accountants, attorneys, or financial advisors. This podcast is for your entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.