INTRODUCTION

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:
Welcome to the White Coat Investor podcast.

This podcast is sponsored by Bob Bhayani of Protuity. He is an independent provider of disability insurance and planning solutions to the medical community in every state and a long-time White Coat Investor sponsor. He specializes in working with residents and fellows early in their careers to set up sound financial and insurance strategies.

If you need to review your disability insurance coverage or just get this critical insurance in place, contact Bob at whitecoatinvestor.com/protuity today. You can email info@protuity.com or you can call (973) 771-9100.

Okay, save the date to join us for the Physician Wellness and Financial Literacy Conference in Orlando, February 24th through 27th, 2027. This is WCICON. You get CME credit for it, you get continuing dental education credit for it, and the early bird registration opens on September 1st, so in just a few weeks when you can get the best possible price.

The conference, as I said, is eligible for CME and dental CE, but more importantly, it's a great way to use your funds to make a major impact on your life. We focus on two things at this conference. One, physician wellness, doctor wellness. The truth is you don't even have to be a doctor to need this stuff in your life. And second, financial literacy.

About half the conference is on burnout prevention, burnout treatment, having a better life, and half the conference is on getting your financial ducks in a row. And there's stuff there for people beginning their career, middle career, end of their career, retirees. There's stuff for everybody throughout their career, and we just get awesome, awesome reviews about this conference.

A recent one said, “I felt included and sincerely welcomed by all speakers and other attendees alike. There's a sense of camaraderie that I had not felt at any other conference.” I'm not surprised. That's the way it feels every time I go there.

And honestly this last year when I was there, I was sitting there going, “I'm really underselling this thing. This is an awesome experience. It's nothing like other medical conferences in all the right ways. And the speakers are available for your questions and experience the conference alongside you.”

So, whether you're gearing up for retirement, or you're in the thick of the accumulation phase, or just trying to get a handle on your finances, WCICON27 brings together physicians, trusted financial professionals, and wellness experts ready to answer your specific questions and help you take your next best steps. Go to whitecoatinvestor.com/wcicon, and you can sign up starting September 1st.

So be aware, it's coming. We've got some great keynotes this year. Obviously, I'm going to give some keynotes. I've wrangled in Tyler Scott, who's been on this podcast before to help me with one of those keynotes. And we've got Sandra Dalton-Smith coming. Rick Ferry's coming back. He hasn't been there since 2020. So it's great to have him. We're going to have a great time. whitecoatinvestor.com/wcicon.

PRIVATE STUDENT LOANS

Dr. Jim Dahle:
Okay, before we get into our already planned content, I told Megan, we needed to talk for a few minutes about private student loans. We're recording this on July 9th. OBBBA, One Big Beautiful Bill Act has basically been in effect as far as the student loan changes go for just over a week now. And for those who aren't aware, first years now have to take out some private student loans, at least if they need to borrow more than $50,000 per year. That's probably the biggest change is this cap on borrowing for medical or dental school.

But I am hearing from all kinds of people in the White Coat Investor community about these dilemmas the students are having. And I want to hear about more dilemmas. I want to see how many of these issues that you guys are facing that we can help you to solve. And so, let me give you a few examples.

I got an email from a fourth year who is at a Caribbean school, and she thinks she can finish up in just over a semester. She already owes $520,000. And for whatever reason, is not going to be able to borrow anymore in federal loans for whatever reason, she could get federal loans for her schooling up until this point. So, she's got $520,000 in federal loans. And she was wondering whether it was still worth it to finish school, knowing she's going to have to borrow a little more than a semester's worth of money, something like $50,000-something in private loans, and it was going to be at a double-digit interest rate.

And of course, she needs to finish school. At this point, she's too far along. And most importantly, she needs to match. She needs to get through residency in good standing and get the average or better job in her specialty and work full-time for a few years. And most of her loans are still going to qualify for PSLF, which was her original plan, but she's obviously going to have to pay some of them off, which is not that hard to do if you will live like a resident.

If you can learn to manage money and you can get through the medical pipeline and get a job and work full-time at it, it still makes sense to borrow money to go to school. And maybe not if you're going to get a puppetry degree or a basket weaving degree or something, but for medicine, it still makes sense.

Doctors are still earning on average $375,000 per year. You can pay off a lot of student loans with $375,000 per year. So, I encouraged her to go ahead and borrow that money, obviously borrow as little as she has to to get through school, but that she's right, it does make sense to finish up at this point and not drop out of school.

I talked with another medical student. This one just finished her first year and she is at a new school, this is a new DO school. And so, they don't qualify for federal loans. So she had to borrow for last year, all private loans. She's thinking that halfway through this year, the school's probably going to qualify to get federal loans. Maybe by the end of her second year, she'll qualify for federal loans, but she's like the first years in that a cap is going to apply when that happens.

So she's going to have a substantial portion of private loans. And so, she was shopping around, and I was asking her, “What rates are you getting?” And a lot of them were double-digit rates. They're not getting these loans all the time for just 8%.

And so, I encourage her to shop with some of the White Coat Investor partners. And I showed her the link to those guys. And you can find that at whitecoatinvestor.com/loans and to see what they would offer her. And I want her to let me know what they're offering. I'm not getting enough feedback from you guys about these partners. They're the best people we can find to get you private student loans. But if everybody's getting 11 and 12 and 13% loans, I want to know about it so I can tell you that that's what you should expect when you go there. If on the other hand, you're getting 5% and 8% loans, well, that's even better.

I've heard of people getting better loans than they can get as far as the interest rates go than federal loans. And I've certainly heard about people getting worse interest rates than that. So I want to know what your experience is. Give me feedback. See what you're hearing. You can email editor@whitecoatinvestor.com and let us know how that's going.

Another person I heard from by email, and this was a doc email, and on behalf of a soon-to-be med student who's going to be an MS1, was being told that she could not get loans without a co-signer, including from some of our partners. And so, if you're running into that, I want to hear about that as well. And we'll see what we can do to help with that.

Obviously, becoming a doc is still a pretty good bet. They ought to take you up on it without requiring a co-signer. If you can avoid co-signing for student loans, I think that's a really good idea. I think it's a bad idea to co-sign for somebody else's student loans because heaven forbid the student dies and you're stuck with the loans. This is not a good thing. I'm hoping that all of you are able to get the private loans that you need without having to get a co-signer. But if you're all running into that issue, I want to hear about it, see if we can do something about it to help that.

If it's only some of you, I want to figure out why some of you are being asked to have a co-signer and some of you aren't, whether it's credit score or credit history or what school you're at or what it is exactly, to try to sort that out and get this information out there.

This is like a whole new world. For 20 years, all doctors have done is borrow federal loans. And now, like back when I was in school, people are starting to use private loans again, and we all need to navigate this space together.

I also got a question recently, and this applies to MS2s, 3s, and 4s with Grad Plus loans. There are some people looking at a strategy where they basically get out of in-school deferment. That's the default, if you're in school, that you go into deferment and your loans, you don't have to make payments on them. So, that part's great.

The downside is that, unlike in residency, when you're in the new RAP program or in the old SAVE program, for instance, your loans weren't growing. There was no interest, basically, that was causing them to grow. And in fact, under the RAP program, your balance actually goes down by $50 a month.

But some people are looking to do that while they're in school. You can only do this if you're an MS2 through 4, and you can only do it with your Grad Plus loans, but you can apparently get out of being in in-school deferment. And then you have to make payments, obviously, but the payment should be pretty darn low, $100 or less. And they count, if you're employed full-time, they count toward PSLF.

And the more important thing is your loans aren't growing because you're now in the RAP program. And so, they're actually going down by $50 every month, rather than increasing as most of your student loans do during school.

So, keep all this in mind. There's a lot of change right now, a lot of flux right now in the private student loan market. And I need your information to help serve you as best we can. We have some partners that are doing private student loans that can help you. If you go to whitecoatinvestor.com/loans, you'll be able to apply with them, apply with all four of them. I think that's how many we have right now. And we're going to add more as we can. And if you find one that's really great, let us know, we'll reach out to them and see if we can get them on that list.

But I want to know what kind of loans you're getting, what kind of terms you're getting, and how that experience is, so we can make it as good as possible for you. It's obviously a relatively new product line for us. Now people are doing private loans again, but it's not that dissimilar from the refinancing market that we've been working with these lenders on for the last 13 or 14 years.

Okay, let's get into your questions now. And we're trying to make a little bit of a change on the podcast in that we're trying to not only take your questions off the Speak Pipe, you can leave those at whitecoatinvestor.com/speakpipe, but also questions off the Reddit and out of the Facebook group and out of the WCI forum and off Instagram and all these other places that we see questions in the White Coat Investor community. So we're going to mix it up a little bit. But our first question today comes from the Speak Pipe. It's from Pedro. Let's listen.

FINANCIAL INDEPENDENCE AND EARLY RETIREMENT CALCULATIONS

Pedro:
Hi, this is Pedro from Tampa. I sent you an email before with this question. I really enjoyed the answer, but I thought it would be a nice discussion for a podcast too. My question is for financial independence and early retirement calculation. How do you take into account rental properties that are cash flowing, evergreen real estate funds, and passive real estate syndications to plan for retirement? Thank you.

Dr. Jim Dahle:
Okay. Great question. And a lot of people have this question because they've heard of the 4% guideline. They've heard that you need 25X your assets to support you for at least 30 plus years. And they wonder, “Well, is this different for real estate investments?”

Well, I think there's two ways to look at it. The first one is don't treat them any differently. Treat it like everything else. Just take the value, take your equity probably, not the value of the property, but take it minus the cost of any leverage you have on it, any mortgage you have on it, and just add it into the portfolio.

So, if you've got $5 million total, including all your stocks and bonds and REITs and any properties you have, that's $5 million total. Well, you can take out a couple of hundred thousand dollars a year. However, that may come out of the portfolio. That's about how much you can spend and look at it that way. Just treat it like everything else. I think that's a very reasonable way to do it. That's kind of the way we mostly do it.

Another approach you can take is kind of the income approach. For example, if you were getting Social Security and you needed $200,000 a year to live on, and Social Security provided you $50,000 per year, well, you would say, “Well, I only need whatever that works out to be, $3.75 million is the math in my head, to provide the other $150,000.” And so, that's how much I need to provide the other $150,000 a year that I'm going to need from my portfolio to have $200,000 to spend.

The problem is real estate income is not as guaranteed as Social Security income. It's probably not even as guaranteed as pension income or a single premium immediate annuity, a pension that you buy from an insurance company income. So, you probably ought to discount it somewhat. How much do you discount it? Well, it depends on how much risk is being taken there, but it seems like a reasonable figure might be 25%.

So if you're getting $100,000 of income from your real estate portfolio, well, maybe you just count that as $75,000 of income when doing your calculations to account for the fact that maybe one year you might have to replace a roof or you might have a few more months of vacancy than you counted into your income.

I think if you take your best every year from your real estate property and assume that's the income that it's going to provide for you, I think you're likely to maybe overestimate it a little bit and get into trouble.

The other thing to keep in mind is sometimes that income goes down significantly. For example, one of my real estate debt funds recently decided to make some changes in there. They had about five of their 90 loans where they're having issues with getting paid for them. They're basically foreclosing on the properties. And for those properties in the fund, they basically become an equity investment, not a debt investment.

And while we're better off as the debt investors there than the old equity investors, all of whom were wiped out on those properties as they were foreclosed on, the truth is that income is not 100% stable and guaranteed. I think that fund, instead of having an 8 or 9 or 10% return like is typical for it, is probably going to have a 4% return this year and maybe only an 8% return next year.

And so, it's not guaranteed. It can go down substantially. And if there were 10 properties that went bad, maybe it'd be a 0% return instead of a 4% return. And you got to account for that. And I think that's a little bit hard to do.

Obviously, you can spend more than just your income when it comes to a typical portfolio with stocks and bonds and real estate. But if you're going to treat your real estate income as something separate from the rest of the portfolio, make sure you discount it somewhat when you're calculating to make sure you have enough to retire.

WHEN TO REVISE YOUR FINANCIAL PLAN

Dr. Jim Dahle:
Our next question comes off the White Coat Investor Forum. And if you've never been there, you should check it out. You can find it at forum.whitecoatinvestor.com. But here's the question.

“I wonder if you can help me with a second opinion as I think about revising our family's financial plan in the context of the historic stock market run. Briefly, we are a two-doc couple, both about 40 years old with about $2.5 million investable assets.” Nice work. 40 years old and already $2.5 million in portfolio, you're crushing it.

“Medium cost of living area, annual income a bit more than 500,000, pre-tax savings rate 30 to 40%.” All right. Well, that explains why they've got $2.5 million already. “Multiple young kids. We both like our jobs, and my partner has gone part-time.” Not unusual at all.

“I like my job enough to stay full-time and plan to work for many decades more. First made our financial plan in 2016 with assistance from the White Coat Investor books. The plan over the last 10 years was very simple, aligned to the Vanguard glide path. We can talk about the target retirement funds. Now, we are roughly 90% equities and 10% bonds, about $900,000 is in tax deferred, $400,000 in Roth, the rest in taxable. Now, the stock market run has helped us reach the Coast FIRE realm.”

Coast FIRE is basically when you don't have to save anything else. You just have to keep working for your living expenses. And eventually, in 5 or 10 or 20 years or whatever, you'll have enough to retire completely.

“I am wondering whether we should consider a more conservative plan for the next decade. I ran some simulations, and such a plan could protect us a bit more in the coming decades if the market does poorly. We would sacrifice some upside, but that is probably fine. We don't have a burning desire to be a decamillionaire family. We're planning to give away most of our savings anyway.”

Tough question. When do you change your asset allocation, this mix of your investments? When do you change your investment plan? Well, what I would encourage you to do is make sure you're making changes based on your life rather than the markets.

I don't like seeing people making changes because they think the stock market is going to go down or based on some vague feeling they have that value stocks are going to outperform growth stocks or this market timing stuff.

But when your need, your ability, and your desire to take risks change, it can make sense to change your mix of investments. Typically, what that means as you go through life is you become less aggressive. Some people write that into their plan originally, that at 40 years old, they're going to go from 90-10 to 80-20. At 45, they're going to go to 70-30. At 50, they're going to go to 60-40 or whatever.

You can put that all in advance if you want. If you don't, then you have a dilemma like this where you're like, “Oh, when do I change? How do I change?” And Katie and I have had this dilemma over the years of do we change our portfolio, which essentially is 60% stocks, 20% real estate, and 20% bonds. That's basically been our portfolio for two plus decades.

Because every time we go, “Well, we have less need to take risk now, but we also have more ability to take risk now.” How those cancel out, we've never been able to really figure out. We just stick with something we know that we can tolerate in a nasty market downturn like 2008.

Now, obviously, if we have another one of those, we're going to lose a lot more money than we lost in 2008. In 2008, I lost about $77,000. It was a big chunk of our savings, but it wasn't that much actual money. We'd lose far more money now if we had 2008 happen again.

One of my investments, I think the Vanguard REIT index dropped 78% peak to trough in 2008-2009 downturn. The overall stock market was down 40% something. We have some times, like 2022, when both stocks and bonds go down. We have sometimes, like 2020, when a global pandemic just has a severe decline and bounce back way faster than most of us ever expected it to do.

These bad times are coming. You definitely want to have a portfolio that you can tolerate the losses of, because you will have losses. If you've only been investing for a few years, and the fact that these guys are only 40 makes me think, well, they've never really had a lot of nasty bear markets. They had 2020 and 2022, but nothing like 2008, nothing like 2000 to 2002, certainly nothing like the stagflation of the 70s, certainly nothing like the Great Depression. Maybe they won't be able to tolerate the declines they're going to see with a 90-10 portfolio.

You need to be thinking about that and have your plan in place. When your life changes, you get some huge inheritance or whatever, it's okay to change your mix of investments, but do it because your circumstances have changed. Your need, your ability, your desire to take risk is not the same as it was a few years ago, not just because the stock market went up a whole bunch. Now, maybe coincidentally, it also happens to be at a time when the stock market went up a whole bunch, and that's fine. That often happens. Lots of people feel like they have enough to retire after three great stock market years, as opposed to after 2000 or 2002, when maybe they don't feel like they have a great amount to retire.

The truth is, because as the market goes up, expected returns go down a little bit. As the market goes down, future expected returns go up a little bit. It's probably all the same. Whether you retire at the bottom of the bear market or at the top of the bull market, it's probably about the same long-term.

Good question. Lots of discussion was had on White Coat Investor Forum on that topic. What a great place to be, 40-year-old, $2.5 million, one of you is already part-time, the world is your oyster. This is where I'm trying to get White Coat investors to be. Most of you should be multimillionaires by mid-career. Certainly, millionaires by mid-career, multimillionaires by the time you retire.

This stuff is not that hard to do. You don't have to save 30% to 40% of your income. You do have to save something like 20%. 20% of your gross needs to be going toward retirement. I'm not counting saving for college, I'm not counting saving up or down payment for your dream home. I'm not counting saving for your Porsche. For retirement, 20%-ish. If you save 40%-ish, well, you tend to get there a lot faster. That's the way it works.

Thanks for what you're doing out there. It is not easy work. If no one's told you thank you today, let me be the first.

HELPING FUND YOUR CHILD’S FIRST HOME

Dr. Jim Dahle:
This question comes in via email. I like this question. I've written a blog post recently on this question. The topic is helping fund a child's first home. “Long-time listener, I'm a 60-year-old retired physician with more money than we will likely need for ourselves.” Congratulations. Great place to be where I hope most White Coat Investors land.

“Probably already covered, but would like to read or listen to a podcast about the ways and advantages, disadvantages of helping to finance a child's first home. I find it to be much more complicated and a bigger issue among the folks I'm around. Many of our high net worth friends have approached this question in different ways. In one scenario, the parents have chosen to purchase their kids' homes. This seems to be laden with multiple risks and potential problems. At least one pays rent back to the parents. The other may at times.

One of the kids' utilities were shut off because the kid didn't realize they needed to be paid or that there was even a mailbox where the disconnect notices were being sent. I have another set of friends who have gifted down payments so the child could reach 20%. This does bring in gift tax issues, but in the long run, probably not a big deal.

Another set of friends have extended a personal loan, which again has its own issues. Not sure how the IRS applicable federal rate works, but would love an explanation. Seems to me that now for that pile of money, you're receiving a significant discount on your return, but taking on all the risks. I'm sure you can look at it as an investment in real estate and your kid's future, but you have given up a certain degree of control and taken on added risks that you may not have otherwise in a housing market that you may be unfamiliar with.

Another friend is setting up a family offset mortgage. Doesn't sound like a bad option, but uncertain about all the nuances. Lastly, I have a relative who thought it was a good idea to put his child's name on the title of his home, unfortunately, prior to him passing.” Yeah, that's a bad idea.

“I'm sure there are other ways people have approached this issue. My guess is given the high net worth of your audience, there are plenty of others who are considering financing a child's home or gifting the home money to do so.”

Okay, to answer this question, I want to turn to a blog post I wrote, I don't know, sometime last year and published November 11th, 2025 titled, “How to Help Your Child Buy a Home.” Yes, the truth is most of the questions you have out there in White Coat Investor Land already have a blog post written about them answering your question. And this one does as well.

And the truth is that years ago, parents worried about the rapidly escalating cost of a college education. So, parents started saving like crazy and the government came out with educational savings accounts, these Coverdell accounts, and later 529s to help parents to do it. And then they started financing college in weird ways. And it just became this big issue.

Well, nowadays, the truth is relatively easy to send a kid to college compared to getting them into a home later. The age of first home purchase has climbed from 31 a couple of decades ago to now something that's almost 40. Because it's just expensive. It's the housing crisis.

Even here in Salt Lake City, which has never been considered a high cost of living area, maybe a medium cost of living area, but it's starting to feel like it. The median cost of a house here is now almost $600,000. Meanwhile, the median household income in my county is under $100,000. 6X, that's not affordable. The median household income around here cannot be buy the median house. And I think that's the case in most places around the country, especially with mortgages in the 6% range.

You've got a number of possible ways that you can help your children get into a house. So let me go through these. We'll talk briefly about the pluses and minuses. The first one is to invite them into your home. Yeah. They can live in the basement.

This is a very commonly used method, is to let your child live with you. College students, college graduates, maybe even after they're married, maybe even after they have a kid or two, they move in and live with you while saving up for their own home or down payment or whatever.

They could theoretically stay there forever. And maybe as you have long-term care needs, they can help care for you. And then they inherit the house when you die. This happens a lot in lots of countries. In Japan or Europe, it's not unusual at all for multiple generations to live together. And then the younger generation eventually inherits the house. So that's one option.

Obviously, a second option is just to leave them your home. It's very tax-efficient because they get a step-up in basis at death. If you own it and they don't own it the whole time until you're dead, then they get a step-up in basis of death. The downside is most inheritances are received around age 60. And that's an awfully long time to wait to own your own home. But the price is right and it's very tax-efficient. So, it does have its pluses and minuses.

A third method is to co-sign for their mortgage. I don't like this method. Katie's parents co-signed for our first mortgage. Thankfully, they never got burned by that because we made all the mortgage payments ourselves. But basically, if you need a co-signer, what that tells me is you can't afford the home. And indeed, we couldn't afford that home. We shouldn't have bought it and we didn't make money on it.

We owned it for four years. We bought it for $80,000. We sold it for $83,000. It was a little condo close to my medical school. But when you include a couple of months of vacancy after we move out and you include the transaction cost, we didn't come out ahead buying that home. We should have never bought it. And the fact that we needed a co-signer should have been a sign that we never should have bought it.

So, not a big fan of co-signing for a mortgage. When it really stinks, though, is when things go bad. When your kid stops paying the mortgage, you're on the hook. Your credit score is going to tank. You'll end up in court, especially if you don't start paying the mortgage on their behalf. And now everybody has a foreclosure on their record. And now you got to sit across the Thanksgiving dinner table, owing them money. It's just not a good idea. Don't co-sign mortgages. That's not a great way to help them into a home.

The fourth option is just buy them a home. If you're going to give them money when you die, why don't you give them money now. Die With Zero suggests that surveys say most people would prefer to get their inheritance between age 25 and 35. Well, that's home buying age. When you're buying your first home. So, instead of leaving them millions later, maybe you leave them half a million at 32 and they buy a house with it. So that is an option.

Yes, if you give them more than $19,000 per person, you can actually give $76,000. If you and your spouse each give $19,000 to your child and your child's spouse, like you can give them $76,000 without having to fill out a gift tax return. But if you give more than that, you are going to be having to file a gift tax return and using up some of your exemption. That's probably not a big deal. For a married couple right now, the exemptions are $30 million plus an index to inflation. That's a totally reasonable thing to do to burn some of that earlier in life, especially for a good cause like this.

There are a lot of different ways you can do it. One of the smarter ways tax-wise might be to give them appreciated shares. Shares that you've owned for at least a year or more than a year, rather, and they're in a lower tax bracket than you are. Maybe they're in the 0% capital gains bracket. So, you can give them these shares. They sell them with no tax consequences and use them to buy a house. That can be a pretty slick way of doing it.

You could also form an LLC that buys the house and gift them shares of an LLC every year. It's a little more complicated, but you might be able to avoid having to file a gift tax return doing that.

Another option for gifting is to just do it years in advance. You could use a trust. Maybe you start funding this trust when the kid's 16 years old, and then when they're 30, there's enough in there that they can now buy a house with it. But you never had to file a gift tax return because you put it in the trust gradually over the years, so that would be a way that you could do it.

Another option is to take advantage of the IRA penalty exceptions. One of these is a first-time home. You can always take contributions out of a Roth IRA, but for the earnings, you can take up to $10,000 of earnings out, penalty-free, and of course, it's a Roth IRA, so it's tax-free as well, and they can use that to buy a first-time home. It doesn't have to be your first-time home. It can be your kid's first-time home, no problem. So, that's an option. They're probably not enough to buy a whole house there, but maybe if you've got a lot of principal in the Roth IRA, you can. And of course, if you're already 59 1⁄2, you can take whatever you want out of there, tax-free and penalty-free.

Okay, the fifth option for helping them into a home is to help them with a down payment, and I think a lot of White Coat Investors do this, and there's a lot of different ways you can do it. You can give them an outright gift. They're buying a $500,000 home. You can give them $100,000, and it has the same issues with gift taxes, of course, if you're giving more than $76,000 from one couple to another, but that's one way to do it is just outright gift it.

And that's how I prefer to help people. When I give money, I tell them there are no strings attached. You don't have to tell us how you use it. We don't even want to know how you use it. This is not a loan, et cetera. It's a gift. And the beautiful thing about that is it has very clear expectations upfront. Everybody knows what it is. Nobody gets upset about it, and if they want to gift it to somebody else the next day, they're welcome to do that. It's their money. So, that's one option.

Another option is you could do a match. Maybe this reduces what the Millionaire Next Door calls the economic outpatient care problem, where adults who get help from their parents maybe aren't as motivated to save and invest and earn, et cetera, so you offer them a match. Maybe for every dollar they save up for their home down payment, you give them a dollar to match it, or you could match it two to one or four to one or five to one or whatever. If they save up $20,000, you give them $80,000, whatever, and you could do it like match style and motivate them to earn and save their own money toward their house.

Another option is to give them a loan and then slowly forgive it. This has the same effect in the long run as a gift but might have a little bit better tax consequences for you to do that. You don't have to pay any capital gains when you sell the assets for the money you give them maybe and they still end up getting the gift.

Be aware when you set up any sort of a loan, whether it's a mortgage or some sort of a loan for them, that there are applicable federal rates. The IRS requires you to charge them interest. You can forgive the interest if you want, but if that's more than the gift tax exemption amount, you have to file a gift tax return. And if I look at this, this was back in October 2025, but the long-term rates, the applicable federal rate back then was 4.73% annually. And so, that's what you'd have to charge them. And if you don't, it's considered a gift, and the gift tax rules will apply.

So, you can give your family member a better interest rate than the bank will give them. 4.7% beats 6.3%, but it's not dramatically better, and then each year you could forgive it using the gift tax exclusion amount.

There's another option. You can use 529 money to help them buy a house. What do I mean by that? Well, you can't actually buy a house using 529 money because mortgage payments are not an approved expense, but the parent can buy the home and the child can pay the parent rent using 529 money. And then at the end of college, the home equity that's generated by this process can be gifted to the child.

Now, obviously, the downsides are all the same as just gifting them the money in the first place, plus you get this additional complexity, but it's possible you get a little more money out of overfunded 529s tax-free this way. Be sure you're not charging more rent than the school's cost of attendance figures.

Another option, loaning them the down payment. Maybe a parent has enough money to loan them the down payment but not enough to gift it to them. Obviously, you have to still charge them interest at the applicable AFR, and the downside is many lenders do not allow for borrowed funds to count as a down payment.

So, even if you gift them the down payment, it's best to do it a few months in advance so the lender doesn't ask too many questions about that and doesn't find out where that down payment really came from. Because if they find out that money is really a loan, the lender is going to charge you a higher interest rate for the mortgage, plus they're going to charge private insurance, maybe they won't give them mortgage at all, so it's not a matter of just getting out there a few months in advance fraudulently, but you also need to keep in mind the ways this is going to change your relationship when they owe you money.

The next option is to be their mortgage lender, to not have them go to a bank at all, but for you to lend them all the money for their house, and boy, I hate this option. I hate the idea of kids owing their parents money. I just don't think it's great. If you do choose to do this, make sure you formalize the agreement and the documents and that you pay taxes on the interest you're earning. Treat it like a real loan. Both parties need to do that.

Here's another cool thing that I learned about not that long ago called a family offset mortgage. And this is sometimes called a parent offset mortgage. Basically, the kid's mortgage is linked to a special bank account with the parent's cash in it. So, the cash functionally reduces the mortgage amount, lowering the loan-to-value ratio, and that means the kid borrows less for a home and has a lower monthly payment.

So, here's how it works. Let's say it's an $800,000 home, you put $200,000 into this special linked account, the kid now has a $600,000 mortgage. So, it reduces their monthly payments or the term on the and there's no gift made. And sometimes the account still allows the parent to access some of their savings.

But there are downsides. The parent is not paid interest for their savings; there are serious opportunity costs there. The interest rate on the loan probably isn't that great, and these aren't really all that widely available. Mainly, though, you're just losing the opportunity cost on that money. Instead of that money earning you a whatever 10% return in the stock market, it's now earning you nothing. It's just offsetting your kid's mortgage.

And now we're down to the 10th option, which I think is the worst option, which is put your kid's name on the title of your home. And this means when you die, the home becomes your kid's. Great. Well, what's the downside? The downside is you just lost the step-up in basis of death.

So, let's say you bought the home for $200,000, by the time you die, it's worth $600,000. If you had just left it to them in their will, the IRS would assume that they paid $600,000 for it and they could sell it right after you die and pay no taxes on those $400,000 in gains. By putting them on the title of the home, they don't get the step-up in basis. And now they owe capital gains tax on $400,000 in gains that took place over your entire lifetime. So, don't do that. That's a lousy option.

And in fact, if I had to rank these options from best to worst, I'd probably put them in this order. Using a trust to gift them a down payment or the entire home, inviting them into your home for a defined period of time to save up for their home. Leave them to your home if they're still struggling with buying one in their late career. Use a match for their down payment savings. Give them an outright gift for their down payment, possibly using appreciated shares.

This co-ownership thing via an LLC with regular defined gifts of equity to the kid. A family offset mortgage. A slowly forgiven loan to the down payment or the entire home. Using Roth IRA money as a gift or a loan, being a long-term mortgage lender for part or all of the entire home. Using 529 money. Co-signing for the loan, and then the last one is putting their name on your title.

So, I don't like much beyond the first three or four or five options there, but it's your life. It's a free country. You can do whatever you want to do. We're probably just going to use money that we already have in a trust, which is part of their inheritance, to help them to buy homes when it comes time to do so.

Right now, the way their inheritance is set up is they get a third at 40, a third at 50, and a third at 60. After reading and applying, Die With Zero in our lives. We may lower those ages a little bit and try to get them money a little bit sooner in their lives, and maybe part of that's going to be a down payment at 25 or 30 or 35 or something like that, but we're still batting it around. I understand the dilemma. There really is a housing crisis out there, and this is a big deal for a lot of wealthy parents that are planning to leave their kids money anyway. So, be careful with it.

QUOTE OF THE DAY

Dr. Jim Dahle:
Okay, let's do our quote of the day. This one comes from Chris Brogan, who says, “The goal isn't more money. The goal is living your life on your own terms.” Don't forget, money is a tool.

IS A ONE OR TWO INCOME HOUSEHOLD BETTER?

Dr. Jim Dahle:
Our next question comes from an Instagram post about deciding whether to be a one or a two-income household. I'm just going to preface this by saying this is a very, very individual decision that every family has to make, and it's a very personal decision. You may decide it one way for a year and change it to another way a year after that, and five years after that, change it again, and that's all okay.

Here are some things to think about while making this decision. You lose some things when you go from a two-income household to a one-income household. You lose income. You lose the most highly taxed income though. Because you're still filing taxes, married, filing jointly.

And so, you're losing income at the highest marginal tax rate, which if you want to use a highly paid doc, that might be the highest tax rate. It might be 37% federal plus 5 or even 10% state. It's not insignificant, so maybe you're only losing half the income you think you're losing. If you pay tithing on income as well, that's another 10%. Maybe you're saving more than half.

And so, there can be substantial savings, and this particularly kicks in if the spouse that's leaving the workforce is the lower-paid spouse. Our classic example in residency, we had our first child after my intern year, and we looked at the price of childcare, and Katie was teaching. Teachers are not exactly a highly paid profession, and we ran the numbers and figured out she'd be getting paid like $2 an hour to teach by the time we paid for childcare and all the other expenses of her working, including the additional tax burden, the commuting burden, and all that. It was like $2 an hour, and we looked at each other and said, it's not worth it to me to work for $2 an hour, so she stayed home with our first child.

And that was great for lots of reasons, including she was able to help watch one of my co-residents' kids at times, because in that couple, he was the resident, she was an ICU nurse, and so they often had these night shifts, evening shifts, where it's impossible to get childcare, and Katie was able to help with that because, hey, it's no big deal. She's already watching a kid that age, what's one more? And so, she did that, and I think we actually got a little bit of income from that, which was good, but mostly it was just a way to really help somebody else out that really could use it.

And so, it worked out very well for us, and probably for most of the next 10 years or so, Katie was a stay-at-home parent. We lived on one income. I went in the military. Obviously, I got deployed from time to time. We really needed somebody at home. We had young kids, and one of us was on the far side of the planet, and so it was really hard to hold down a career at that point, but we got all kinds of benefits from doing it too.

Yes, there's a cost. We lost that income. Maybe you lose some 401(k) contributions, the employer match, future social security benefits, all kinds of things besides just the paycheck, but you also gain all kinds of things. We were able to specialize. I was able to specialize in a career in providing for our family, and that not only, as the years went on, not only allowed me to be successful in my physician career and to make partner in an emergency medicine group, but to start the White Coat Investor, which in the long run has had a lot of financial benefits for our family because we specialized.

Meanwhile, Katie picked up all these awesome skills that I'm still not even close to being good at. Her ability to manage our household, and she's a far better spender than I am. I'm not talking that she spends more money. I'm saying she's much smarter about the way she spends money and planning trips and vacations and taking care of the household and getting the kids where they need to go and carrying that mental load of knowing who needs to be where when, which is not insignificant. If you've tried to do this, it's a lot harder than it looks.

We were able to specialize for about 10 years, and then she started working at White Coat Investor. A few years later, she ran for office. Now, she's gone all the time. She's doing all kinds of meetings. She's got meetings in the evening. She's got meetings in the morning. She's got all these things she does. I think today, she's meeting with the governor or something today.

She's having that opportunity to have a career and to be out there in the community making a difference. And yet, for those really critical financial years and those really critical child-raising years, we benefited from having one-income households. There are obviously benefits both ways.

Now, one of the downsides of doing that sort of thing, particularly for somebody that's like a physician or a dentist or something like that, is it's really hard to go back. Imagine you don't practice at all for five years, and then you try to get a job. The jobs you're going to be allowed to do are going to be fairly limited because people are going to go, “Well, what are we going to send you to residency again? What are we going to have somebody supervise you for six months?” That's hard to do. Possible, but hard to do.

In a lot of ways, stepping out completely has serious career implications. Even just going to part-time for a few years has serious career implications. Your next job interview might be someone asking you, “How much money were you making in your last job?” If you can't dodge the question, which you probably should, it's going to look like they don't have to pay you all that much in order to get you. It might be a little harder to negotiate it when you go back to full-time work.

It's interesting. I saw a study recently about docs who are no longer practicing and the reasons why. It was very interesting because some people, it was financial reasons why they weren't practicing. They had enough money or they got an inheritance or whatever, but the vast majority were no longer practicing because they were taking care of family.

Whether that was their parents, whether that was children, that was the reason why these docs were no longer practicing. In fact, in this survey of docs that had left medicine, 11% of them never practiced after residency. These are docs who did college, med school, completed residency, presumably in good standing for most of them, I would assume, and then never practiced after that.

It does happen. It happens all the time. There are lots of different reasons why a family or individual might choose to do that, but there are definitely financial ramifications of doing so.

Run the numbers, talk about your values, and figure out what the right answer is for you, recognizing that sometimes the change is fairly permanent. A lot of times, it is not. Obviously, the lower earning spouse staying home usually works out best financially, but not necessarily for every household. Sometimes it makes more sense for the higher earner to stay home.

Now, some people worry about some specific issues, so let's talk about those. Here's one. “What financial protections should the lower earning or stay-at-home spouse have in place, and how do you address the power imbalance in money and time?”

Well, first of all, I think the financial protections, we're talking about life insurance here. Because the economic value of a stay-at-home spouse is not insignificant. Think about if you continue doing your career after your stay-at-home spouse died, what you'd have to pay for that they're doing now. There's probably some child care costs, there's some home maintenance costs, there's shopping and meal preparation and laundry and home maintenance and all this stuff that the stay-at-home spouse is doing that you have to pay for.

It's not a bad idea to have a life insurance policy on them as well, at least a few hundred thousand dollars in term life insurance until those kids are old enough that they'd be able to function reasonably well as latchkey kids. So, consider that.

Now, this other question, “How do you address the power imbalance in money and time?” I think that's more a relationship issue than it is a financial issue. Just because one spouse is not working does not mean they're not contributing to the family and contributing equally to the family.

Both of these jobs have value. Your value is not defined by your paycheck. I would hope most families, whether there are two earners or one earner, are managing money together. It's not his money and her money or his money and his money or her money and her money or anything like that. It's our money, it's our expenses, it's our debt, it's our investments, it's our earnings, and you manage it together.

When you do that, I think the power imbalance in money goes away completely. Is there a power imbalance in time? I guess so, but you work that out, you negotiate it like everything else in your relationship.

Now, how do you decide if it's worth it? Well, you sit down, you run the numbers, and you talk about your values. You don't put an economic price on the work of the stay-at-home spouse. I think that's kind of ridiculous. Obviously, they're going to provide value. You're saving childcare, and you're saving cooking and cleaning and home maintenance and these sorts of things.

Maybe the stay-at-home spouse is managing the finances. Maybe the stay-at-home spouse is balancing the checkbook. There's all these things they're doing, but I wouldn't try to put a price on it. Manage your money together, then you don't have to put a price on it. Hopefully, that's helpful, and we address that in the sensitive way that it should be addressed.

SPONSOR

Dr. Jim Dahle:
Okay, this podcast has gone long enough, so let's start wrapping it up. This particular podcast was sponsored by Bob Bhayani at Protuity. One listener sent us this review. “Bob has been absolutely terrific to work with and has always quickly and clearly communicated with me by both email and or telephone with responses to my inquiries usually coming the same day. I have somewhat of a unique situation and Bob has been able to help explain the implications and the underwriting process in a clear and professional manner.”

Contact Bob by emailing info@protuity.com or by calling (973) 771-9100. You can also go to whitecoatinvestor.com/protuity and get your disability insurance in place today.

All right, don't forget about that early bird pricing for WCICON. Tickets go on sale on September 1st. Go to whitecoatinvestor.com/wcicon to get that.

Thanks for leaving five-star reviews and telling your friends about the podcast. It really helps spread the word. A recent one came in from Woof755 who said, “Essential financial podcast. Dr. Dahle's been looking out for docs for well over a decade and provides evidence-based and influence-free advice in order to help docs get their finances in line. Absolutely essential listen.” Five stars. Thanks so much for sharing that.

All right, keep your head up, your shoulders back. You've got this. We're all here to help you. There's a whole White Coat Investor community behind you. Let's help us all do this right and get our financial ducks in a row so we can concentrate on what really matters in life. See you next time on the podcast.

DISCLAIMER

The White Coat Investor podcast is for your entertainment and information only and should not be considered financial, legal, tax, or investment advice. Investing involves risk, including the possible loss of principal. You should consult the appropriate professional for specific advice relating to your situation.

INTRODUCTION

This is the White Coat Investor Podcast: Milestones to Millionaire, celebrating stories of success along the journey to financial freedom.

Dr. Jim Dahle:
Welcome to the Milestones to Millionaire podcast.

This podcast is sponsored by Bob Bhayani at Protuity, an independent provider of disability insurance planning solutions to the medical community in every state, and a longtime White Coat Investor sponsor, Bob specializes in working with residents and fellows earlier in their careers to set up sound financial and insurance strategies. If you need to review your disability insurance coverage or just get this critical insurance in place, contact Bob at whitecoatinvestor.com/protuity. You can also email info@protuity.com or call 973-771-9100.

All right, those of you interested in learning more about real estate investing, we have a free resource for you that we call our Real Estate Opportunities List. All it is is an email list, so we send you some emails. It costs you nothing. You can unsubscribe at any time. You can sign up whitecoatinvestor.com/reopportunities. Okay, and what you'll do is you'll get emails. Some of them come from us. They're just educational emails, newsletters about real estate investing. I tell you about my real estate investments, etc. Some of them come from our sponsors. Obviously, they want to tell you about the real estate investments, but they also put all kinds of educational content in there, and you can learn a lot about real estate investing. Whether you want to do it directly, whether you want to do it passively, it's a great opportunity to learn totally free. You can unsubscribe at any time. Go to whitecoinIvestor.com/reopportunities to learn more.

All right, we've got a great guest on. Let's get her on and hear from her. Our guest today on the Milestones to Millionaire podcast is Rachel. Rachel, welcome to the podcast.

Rachel:
Hi, thank you for having me.

Dr. Jim Dahle:
Introduce yourself a little bit to our audience. Tell them what you do for a living, what part of the country you're in, how far you are out of training?

Rachel:
Sure, I'm a generalist OB/GYN. I'm in Texas, and I'm six years out of residency. But I did apply to be on the podcast about a year ago. It's just taken some time.

Dr. Jim Dahle:
Yeah, that that happens a lot. We have lots of people that want to come on the podcast. If you want to come on the podcast, you can go to whitecoinvestor.com/milestones and apply. Sometimes it does take a few months or years to get people on, but let's go back a year now and talk about what you accomplished a year ago. What milestone did you hit?

Rachel:
Yeah, about a year and a half ago, I was able to pay off all of my student loans from medical school.

Dr. Jim Dahle:
Awesome! How much did you pay off?

Rachel:
About 200,000,

Dr. Jim Dahle:
$200,000 in four and a half years or so.

Rachel:
Yeah, it took a little bit of time just because of bureaucracy and nuances of the program I was in, and so it was a four-year program. It was a student loan repayment program.

Dr. Jim Dahle:
Tell us about that.

Rachel:
So it's called the Physician Education Student Loan Repayment Program. It's a mouthful, but it's a Texas-based program, and you have to work in a health profession shortage area, and/or depending on their guidelines, on a yearly basis, you have to be able to see a certain number of Medicaid patients in the clinic, so it's an outpatient-based type of student loan repayment program. So if you're in the emergency room or you're a hospitalist, unfortunately you don't qualify, but it is a clinic-based type of loan repayment program. And basically, each year you're in the program, you get a graduated amount of student loan repayment. So the first year was only 30,000 that was repaid. The second year was 40,000, 50,000, 60,000, and so on. It did add up to about 180,000 after the full four years, and so I was able to qualify for all four years of the loan repayment program. And to me, that was worth it. You had to do federal loans, obviously. You couldn't do private loans, and you just had to meet those criteria.

Dr. Jim Dahle:
And it's money from Texas, is that right?

Rachel:
Yeah.

Dr. Jim Dahle:
Where's the money come from?

Rachel:
The state.

Dr. Jim Dahle:
Okay.

Rachel:
Yeah. Okay. And I didn't know about the program. I didn't know about it until I was looking for a job, and it was just kind of part of some recruitment efforts that the job told you about it. It was advertised.

Dr. Jim Dahle:
I'm shocked, actually, that more jobs don't talk about you know public service loan forgiveness, right? I mean, it's like for these docs with $300,000 in student loans. I mean, this is like an extra $75,000 after tax in pay. I'd be if I was a recruiter, that would be like the first thing out of my mouth, not the last thing out of my mouth.

Rachel:
Exactly.

Dr. Jim Dahle:
But that's pretty awesome. So, did you have to go to like a rural community or practice in the inner city to qualify for this? Sir, what kind of what kind of practice do you have to have?

Rachel:
So that's a really good question. I feel very lucky in the sense that I was able to practice in a county that was just outside of a city, and it's close to family. So I was able to find kind of a suburb type of setting.

Dr. Jim Dahle:
Yeah. So it's not like you're you're 200 miles away from the nearest city, or you know, it's not like anybody's getting shot outside your clinic door or anything like that, right?

Rachel:
Correct.

Dr. Jim Dahle:
All right. You just had to see what percentage of Medicaid patients did you have to see? It was a number. It was an absolute number, and I can't remember. I think it was about 100 patients in a year that had Medicaid. That doesn't seem very hard to me. I feel like I see three or four Medicaid patients a shift. Yeah, yeah. Okay. So I mean, I guess a lot of gynecology jobs would qualify if that's the only requirement. Are were there other requirements as well?

Rachel:
Just primary care in general. So OB/GYN is considered primary care, pediatrics, and family medicine and internal medicine. So you had to be a primary care physician as well.

Dr. Jim Dahle:
Primary care specialty work in Texas, see at least 100 Medicaid patients here, and federal loans. Okay, everybody that lives in Texas or is willing to relocate to Texas, I hope you just heard about this. Okay, well that worked out really well for you because it was almost 200,000, and that's what you owed. You still had to pay some off yourself, though.

Rachel:
Yes.

Dr. Jim Dahle:
Right.

Rachel:
So I did make some payments toward interest in residency, and then of course it froze. You know during the pandemic, so then I stopped making payments, and then yeah, towards the end I only had a few 1000 to pay off from my savings, and I just decided to wipe it, wipe the slate clean. I just wrote a check.

Dr. Jim Dahle:
Yeah, very cool. Congratulations! I'm being done with student loans. Does it feel like you weren't really done with medical school until you were done paying for it?

Rachel:
Yes, it loomed over my head. It felt like, and I know people have different mentalities about their student loan debt, but I felt really relieved, and it felt amazing to pay it all off.

Dr. Jim Dahle:
Did you feel like you had to take a job that paid less in order to get this benefit, or was this the sort of job you were looking for anyway, and you got paid about what you expected to get paid anyway?

Rachel:
Correct. I would say the latter is true. I had a you know 18 people in my graduating residency class, and we kind of talked numbers a little bit. And I found out I was I got offered probably one of the top offers. On top of that, I was able to do my student loan repayment program, so I felt just really lucky in that way. And this was a practice that I was looking at joining anyway,

Dr. Jim Dahle:
and of course you're in Texas, so there's no state income tax, and you get pretty nice asset protection benefits. There's lots of nice things about being in Texas. Okay, so give us a sense of what knowing you had this going for your student loans allowed you to do financially with the rest of your income.

Rachel:
So that's a great question, and I like how you asked it. Just because I wasn't that confident that I would get the money, if that makes sense, that I would get my student loans paid off. Like every year, I was kind of just biting or gritting my teeth just to see if the loan repayment would come through.

Dr. Jim Dahle:
It was like for real.

Rachel:
Like I was like, I'm not going to believe it until I see it, until it hit my account. Because the fact that it was a state program made it a little bit difficult to get in touch with people that I needed to get in touch with. It's not like my company paid off this student loan. I had to separately apply for the student loan repayment program through the state. So then it was an online application, and anytime I emailed or called, it seemed like I was getting the runaround. And so I was like, “Is this really real? Is this really going to happen? I had to search, you know, find my find out my own answers for myself to like really solidify that I'm doing it right, that I'm filling out the application right, that I'm making the deadlines, that I'm communicating with who I need to communicate, and just trust the process. And so I had this mentality of like I'm not going to live like I'm going to be have all these loans paid off. I'm gonna live like I still have this debt kind of looming in the back of my mind, and then I'm not gonna believe that my student loans will be truly paid off until I see it. And so I just feel relieved that I was able to complete the program because I just, with the pandemic, it was frozen for a little while. The whole program wasn't really operating like it should, and just depending on you know how the state works and everything, and so how it impacted how I spent was we did buy a home, our first home in 2021, and a lot of. Our savings did go towards the down payment for our home, and then since then, any extra money that we've made, we're trying to invest it wisely and max out our retirement accounts.

Dr. Jim Dahle:
Now you're using a plural. There's a there's a spouse or a partner here. It sounds like

Rachel:
yeah. So my husband is in IT. He was unemployed for over a year during that four-year time frame after residency. The industry is kind of competitive now in IT, but he now has a pretty stable job, and we make about just over 500,000 in a year as a combined household.

Dr. Jim Dahle:
And you're six years out now because you paid these off like a year and a half ago. What's your net worth up to up to now? If you had to estimate it,

Rachel:
we are over a million in assets, retirement accounts, home equity. We just added it up this morning, and we're pleasantly surprised to see that.

Dr. Jim Dahle:
Pretty awesome! Congratulations on becoming millionaires. We got kinds of milestones today. This is great. Yeah, it's amazing when you get the payments down, right? When you're not having to make student loan payments, you're not having to make you know huge mortgage payments or car payments or whatever payments. How quickly you can you can start building wealth. But that's pretty awesome. Okay, so at some point in the last five or six years, you two had to kind of get on the same page about finances. Tell us a little bit about how you did that.

Rachel:
So we do keep pretty separate finances, and we do split the bills, but we have a little bit different philosophies when it comes to investing. I would say we're both pretty risk averse when it comes to spending and investing, and we both live well under our means. So I think we're on the same page with frugality, but when it comes to knowing what to do with our money, we're a little bit different.

Dr. Jim Dahle:
You know it's interesting because most financial gurus, financial advisors, whatever they say, you know, combine everything, combine everything. Any particular reason you decided not to do that?

Rachel:
No, it's just how we've always done it. I mean, we've been together 10 years, married four years,

Dr. Jim Dahle
Inertia mostly.

Rachel:
Yeah, it's just like it's been working, and we haven't found a reason to combine our finances. I do think that it's easier for us to have a combined checking account, at least you know. But other than that, we do keep things a little bit separate.

Dr. Jim Dahle:
Okay, so tell us a little bit about the what's what's your retirement situation? Where does your retirement money go? What what's being offered by the employer versus what you do on your own.

Rachel:
Yeah, through the employer, there's two different retirement accounts. It's a nonprofit, and then I do the backdoor Roth IRA every year. Other than that, that's all I have, and then I have my own brokerage account through Vanguard.

Dr. Jim Dahle:
You said you're you said you're relatively conservative. What does your your mix of investments, your asset allocation look like? How much do you put in stocks and bonds and cash, et cetera?

Rachel:
It's about 60% in stock and about 20% in bonds right now. And then I have some other individual investments.

Dr. Jim Dahle:
Very cool. Okay. Well, looking back on all this, how does it feel to have paid off your medical school loans to be a millionaire six years out of training? Give people who are working toward the school a sense of how they are going to feel when they get there.

Rachel:
I mean, it feels like I'm living the dream, to be honest, in the sense that money isn't everything, right? But it's your perspective on it, and having to reflect on how far you have come, and realizing that you're the same person you were that entered medical school, but you now have this monetary success that's tied to it, and it feels amazing. It really, it really does. And you have to sit back and kind of relish in those accomplishments and those moments of success. It's indescribable in the sense that there's so much more I want to do and see and be, but I have to sit back and just relax and relish in this accomplishment. It feels amazing.

Dr. Jim Dahle:
Okay, what advice do you have for somebody out there? There's somebody out there, you know, they're medical students or they're pre med, and they're worried about borrowing money for medical school, or they're just finishing up residency. You know, as we're recording this at the end of June, and now they got to do something about this 200 or 300 or $400,000 in student loans, what advice do you have for that person?

Rachel:
Just keep your eyes open. There are student loan repayment options out there that are not as readily advertised as you think they might be or should be. That might be through the state or through the federal government. And just take those opportunities to research because, yes, you might not want to pay off your student loans right away. Maybe there's something that get gets a higher rate of return than your interest rate, or you've refinanced and you just kind of keep your student loans on the back burner. But if you have the opportunity to pay them off, pay them off because it's just a great feeling.

Dr. Jim Dahle:
Yeah, awesome. Well, thank you for being willing to come on the podcast. Thank you for being a white coat investor, and congratulations to you on your success so far.

Rachel:
Well, thanks for all you do. I feel like I learn a lot from you, and so I'm going to be an avid listener from now on.

Dr. Jim Dahle:
Hope that's helpful to you. You know, it's a demonstration of what happens when you pay attention to your finances. All of a sudden, you find some other resource that's going to help you. Right? We all have, you know, pluses and minuses in our lives. We all have opportunities and challenges, upsides and downsides. You know, some people borrowed $400,000 for medical school. Other people only had to borrow 100. That's great. Take advantage of what worked well for you.

You know, this particular doc was in Texas, lower tax costs to live there, and she qualified for this great student loan repayment program. Take advantage of that, right? Maybe she had some disadvantages as well, right? That she had to work at and overcome. All of us have that situation. Take advantage of the good things, deal with the bad things, keep pressing forward. Remember, it's a one-person game. It's you against your goals.The whole point here is to help you be successful financially, so that you can be a better doc, so you can be a better partner, so you can be a better parent, so you can be better at everything else you do in life. Let's make it so you never have to worry about money again. Then you can start concentrating on what really matters in life.

FINANCIAL BOOT CAMP: INDEX FUNDS

Dr. Jim Dahle:
An index fund is a type of mutual fund that, instead of trying to beat the market, just tries to match the market. Now, mutual funds are a great way to invest. Right? You get economies of scale. You get professional management. You get daily liquidity. You get broad diversification with only having to buy one investment. They're wonderful.

There's two types, right? There's the type that's actively managed, trying to beat the market. There's the type that is passively managed, or just trying to match the market or the index. And it turns out, in the long run, that just matching the market beats most investors because most investors, including most professional investors, including most actively managed mutual funds, do not beat the index in the long term, and that's before taxes.

Once you add in the effect of taxes, even more funds underperform index funds. So index fund investors tend to acknowledge that I'm better off just taking the guarantee that I'm going to beat the vast majority of investors, even if I'm not going to you know beat all of them or I'm not going to outperform the index. Those returns are going to be good enough for me to reach my financial goals. Now, index funds can be traditional mutual funds; they can also be exchange-traded funds, right? There are just two different types of mutual funds, really.

And index funds can use either type, but they differ from actively managed funds. And actively managed funds can also be traditional mutual funds or exchange-traded funds. So, you know, it's not index funds and ETFs. It's not index funds and mutual funds. Index funds are a subcategory of both mutual funds and ETFs. Okay, the indices, these indexes, whatever you want to say, the plural of that is, are created by index providers. Okay, so there are classic ones, right? They've been around for decades and decades, like the Dow Jones Industrial Average, right, or the S and p5 100. There are others, the Russell 2000. There are all these different kinds of indexes, and they were produced for different reasons historically. These days, many of them are produced so the index funds can be used that follow them. So you got to be a little bit careful, right? When I'm talking about index funds, I'm generally talking about pretty broad-based index funds. Right, things like the total stock market index fund that tries to track all of the U.S. stocks. You know that fund might have 3,800 different stocks in it, whereas there's probably an index fund out there that just follows, you know, kitchen stove makers, you know, that sort of a thing, where it's a very narrow index and thus a very narrow and non-diversified fund. When I'm talking about investing in index funds, those are not the type of ones I'm talking about. I'm talking about the broad-based ones.

Now, so maybe you want to put a slice of your portfolio into real estate or something, and you want a an index fund that focuses on those real estate companies in the stock market, and I think that's fine. But recognize that there are indexes out there that are not very broad at all, and that's not what we're talking about when we're saying most people should invest most of their money into index funds. Talking about buying all the stocks as a strategy, recognizing that yes, you'll own the losers, but you're going to own every single one of the winners, and over the long run, it's going to get you the market return, and that's going to get you to your financial goals. Part of the reason why these index funds outperform active funds is because they have low costs, right? It isn't that it's impossible to beat the market. It's just that it costs a lot of money to beat the market.

You got to hire all these analysts. You got to send them out to research these companies and talk to these people working these companies and do all this research and have all these high-powered computing resources, right? And it turns out when you add in the costs of doing that, you can't outperform by enough to cover your costs, and that's not because these people aren't smart. They are smart. There's just too many smart people, and so at the end of the day, the market is the compilation of all these smart people and their opinions about what stocks are worth, and so the index fund investors are essentially free riding on all these people trying to beat the market and all the effort they're putting in to try to make sure stocks are are priced appropriately or to buy them if they're maybe a little too you know underpriced or to sell them if they're a little too overpriced and that makes the market efficient enough not perfectly efficient but efficient enough that the right thing to do as an investor is to act as though the market is perfectly efficient.

The way you do that is just by buying all the stocks within index funds, and it turns out that this is relatively easy to do, right? It's not hard to match the market. I mean, there is some expertise involved in it. You know, there's some computing resources, and if you talk to the people who run these big index funds at Vanguard or wherever, there's a little bit of nuance to doing it, but the bottom line is it's dramatically less expensive than running an actively managed mutual fund, and so the expense ratios on these funds can be very low. You know, it's not unusual to see them at point zero 3% or three basis points. They might be five basis points, or 10, or 15 basis points. A few of them, Fidelity, are even zero basis points. But the point is, when you've gotten your expenses for running that fund down below about 15 basis points, it's essentially free, right? Investing is free.

You can buy every stock in the world in 30 seconds for free, right? Essentially free, right? And so that's why index funds are so inexpensive because it just doesn't take that much in resources to match the market, especially as the fund gets really big and you get all these economies of scale. Now fees do matter, right? They matter over a long investing lifetime. You've heard about compounding your returns. Well, you also compound your costs over time, and a lot of people talk about you know 1% 1% is like what the average mutual fund charges. 1% is what a typical financial advisor charges, and over the course of 30 years, that adds up to having about a third less money than you would otherwise have if you were investing for free. So fees do matter.

The only place they can come out of is your return, right? And and fees, when it comes to a mutual fund like an index fund, are generally expressed as an expense ratio, right? So of the assets in the fund, what percentage of them was spent on running the fund this year, and that definitely ought to be less than 1% It probably less than point 1% when it comes to an index fund, but that's what the expense ratio is. I mentioned taxes earlier. Index funds are generally considered more tax efficient than actively managed mutual funds, and that's simply an effect of the turnover, right? Because you're just trying to track the index. You're not trying to beat it.

So you're not constantly buying and selling different stocks. Well, when you do that, you generate capital gains, and by law, those capital gains have to be distributed to the investors in the mutual fund every year. So if you're an actively managed fund with 60 or 90 or 150% turnover every year, you're going to send out a lot of capital gains to those investors, and they're going to have to pay taxes on them, and they're going to have lower after-tax returns.

Whereas if your turnover is 3% like is often seen in something like the total stock market index fund, they don't have to distribute hardly any capital gains to you, and might not distribute capital gains for literally years or even decades, and so it's very tax efficient compared to active funds, and that makes it even harder for these active managers to beat the index funds in the long run on an after-tax basis when you're investing inside a taxable account. Sometimes people wonder if there's a point in which you have so much wealth that you need to do something different than index funds, and the truth is you don't. You can invest, you know, $50,000, or $500,000, or $5 million, or $50 million into a total stock market index fund, and it works about the same, right?

You know, you can do it with $500 or $1,000, right? Whatever the minimum might be for that particular fund. With ETFs, the minimum is usually just one share price, whatever the price of one share might be. And so, there really is not a time when you have to stop investing in index funds and you have to do something more complicated or go into private investments now. Sometimes there's a role for some of that stuff in a portfolio, and that's okay. And oftentimes, it only makes sense to consider those things once you reach a certain level of wealth. But you don't have to stop using index funds, even at our current level of wealth. I still have the vast majority of our money invested in boring old index funds.

Some people worry that indexing is getting too popular, and that that could create problems. When everybody's indexing, well, now the market's not efficient. Stocks aren't priced properly, and and now we're running up the prices of you know the popular stocks way too much. Well, I suppose that is a risk if everybody is indexing. But the truth is, you can have the vast majority of people be indexing. You don't need that many active managers to make it to make indexing the right thing to do. You just need enough that the market remains efficient enough that the right move is to just buy the market.

And so, I wouldn't worry about indexing being too popular until certainly upwards of 90 or 95 or maybe even 99% of the money in the market is indexed because there's still going to be plenty of opportunists and entrepreneurs out there trying to make a buck by finding stocks that are not properly priced by the market that they will move those prices to where they ought to be and and make indexing the right move, so don't make the mistake that lots of investors do in abandoned index funds, thinking that actively managed mutual funds are better in bull markets, or better in bear markets, or better once you have a certain amount of money.

It's just not the case, right? The data is very robust. Index funds outperform, you know, traditional actively managed mutual funds, so don't be afraid to invest in them, and you probably ought to be investing the vast majority of your of certainly your stock investments into index mutual funds. Hope that helps you understand the benefits of index funds and what they are. Top of Form
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SPONSOR

Dr. Jim Dahle:
This podcast was sponsored by Bob Bayani at Protuity. One listener sent us this review. Bob's been absolutely terrific to work with. Always quickly and clearly communicating with me by both email and/or telephone, responding to my inquiries the same day I send them. I have somewhat of a unique situation, and Bob has been able to help explain the implications and underwriting process in a clear and professional manner. Contact Bob by calling 9100, emailing info@protuity.com or by going to whitecoinvestor.com/protuity to get disability insurance in place today. Thank you for listening to the podcast. Without you, it's not much of a podcast.

Keep your head up, your shoulders back. Thanks for what you do. We'll see you next time on the Milestones to Millionaire Podcast.

DISCLAIMER
The White Coat Investor Podcast is for your entertainment and information only, and should not be considered financial, legal, tax, or investment advice. Investing involves risk, including the possible loss of principal. You should consult the appropriate professional for specific advice relating to your situation.

Dr. Jim Dahle:
Let's talk for a minute about two different types of loans: fixed versus variable interest rate loans.

What's a fixed-rate loan? It's simply a loan where the interest rate stays the same for the entire life of the loan, so the monthly principal and interest payment remains predictable. It's the same payment month after month after month for however long the loan term is, whether it's three years or 30 years. Same, same, same, same, same.

It's a nice benefit. Essentially, you're paying for the lender to run interest rate risk because, as interest rates change, that's either more beneficial or less beneficial to the lender, but it's all the same to you. You're basically protected from interest rate risk.

On the other hand, a variable-rate loan is where you take on the interest rate risk. The interest rate on this loan can change over time. If interest rates go up in general, your interest rate goes up and your payments become larger. You still pay it off in the same length of time, but you might be paying more interest every month.

On the other hand, if interest rates go down, more of your payment is going toward principal, and so you actually pay the loan off faster.

This is a difficult decision for a lot of people. They start going, well, should I take a variable rate or should I take a fixed rate?

The truth is, a variable rate usually has a lower rate, at least initially. Because you're taking on more risk, you should get a lower rate. There should be a benefit to you for taking on that interest rate risk so the lender doesn't have to. You're accepting the possibility that rates will go up while you still have this loan.

But if they don't go up, which they often don't, or, better yet, if they go down, you actually come out ahead with a variable-rate loan. It's a bit of a trade-off. You're giving up certainty in exchange for maybe a little bit lower cost on your borrowed money.

So what do you really have to ask yourself? You have to ask whether you can afford the worst-case scenario.

A lot of times, a variable interest rate might have a cap. Maybe you're starting out with a loan of 3.5%, and it can go up every year by as much as 2%, but it never goes higher than 10%.

Well, can you afford those payments at 10%? If you can, then maybe it makes sense for you to take a variable-rate loan. If you can't, and that would be devastating to your financial situation, keep you from accomplishing your financial goals, or would just irritate you a lot, then pay the lender to take that risk and take a fixed-interest-rate loan instead.

Maybe instead of getting 3.5%, you get 4% or 4.5%, or whatever. This is the same whether we're talking about student loans, mortgages, or car loans. There can be fixed-rate and variable-rate loans for all of these things.

People often use a fixed-rate loan for long-term home ownership because interest rates are almost surely going to go up at some point while you own a home for 15, 20, or 30 years. A lot of people get a fixed-rate mortgage because of that.

It's also a relatively large payment in the financial life of most people, and so the consequences of that rate going up are much higher than the consequences if your car loan went up a little in interest rate and you're going to have it paid off in six months anyway.

Maybe that's not as big a deal compared to a mortgage, where you might be making 25 years of payments at a higher interest rate. The longer the loan is going to be, the larger a piece of your financial life it's going to become.

If you highly value predictability, maybe a fixed-rate loan makes a little more sense for you. It definitely makes sense if you have very tight monthly cash flow.

But a variable-rate loan can make sense as well, especially if you don't expect to have it for very long. A lot of times, people use an ARM mortgage, an adjustable-rate mortgage, when buying their home.

For example, if you knew you were only going to be in the home for five years, you might get a 5/1 ARM. What that means is that the rate will be fixed for five years, and then it can change once a year after that.

Well, if you're only going to be there for five years, a 5/1 ARM is exactly the same as a fixed-rate loan. I mean, I guess there's a risk you might stay there longer than five years and the interest rate might go up. But if you're pretty darn sure you're only going to be there for five years, a 5/1 ARM might be a discount compared to a 30-year fixed mortgage, and so that might be a good way to go.

There are 3/1 ARMs, 1/1 ARMs, and 7/1 ARMs, so you can sometimes pick that period and get a little bit of a discount compared to what a 30-year fixed mortgage might cost.

Variable interest rates get a bad rap, and that's because every now and then there's a period of time like 2022, when interest rates went up 4% in about six months. It was the greatest, largest, fastest rise in interest rates I think the U.S. has ever had.

Of course, bonds had a terrible year because the value of a bond goes down when interest rates go up. Those who were borrowing money at variable rates didn't have a very good year, either. They did not enjoy 2022 at all.

In fact, a lot of people who had borrowed a little too much money at variable rates got into trouble. Many real estate investments that had done this got into trouble, and they had to call capital from their investors or scramble to refinance into anything they could find that would allow the investment not to completely blow up.

So variable interest rate loans get this reputation as being something to always avoid. I don't think you always have to avoid them. You simply need to pay attention to the worst-case scenario.

Can you handle the worst-case scenario? If you can't, maybe it's time to lock in that interest rate and use a fixed-rate loan rather than a variable-rate loan.

On average, though, most of the time you actually come out ahead with variable-rate loans, and you'll see that in lots of spaces. Real estate investing is one example. Business loans are another. A lot of times, you can't get the money unless you accept the interest rate risk.

My point is that you need to look beyond the initial rate. You need to understand how any adjustment caps work, what the rate ceilings might be, what the worst-case scenario is going to be, and evaluate the real cost and your ability to take on that interest rate risk.

Don't take on debt you don't understand. Don't take on interest rate risk that you don't understand or can't handle.

Make sure you match the loan structure, when you do have to borrow money, to your financial plan, your timeline, and your risk tolerance rather than trying to guess future interest-rate movements. Trying to predict interest-rate changes is about as difficult as trying to predict the movements of the stock market.

It's not a game you should try to play. If you have a crystal ball that works well enough for you to do that, you should be a gazillionaire managing other people's money rather than trying to figure out what to do with your loans.

Hope that's helped as you decide whether to use fixed-interest-rate or variable-interest-rate loans.

The White Coat Investor Podcast is for your entertainment and information only and should not be considered financial, legal, tax, or investment advice. Investing involves risk, including the possible loss of principal. You should consult the appropriate professional for specific advice relating to your situation.