 Welcome to Bogleheads on Investing, podcast number 19. Today my special guest is Dr. Jim Dolly, the White Coat Investor. Jim is an author, entrepreneur, blogger, speaker, dad, and full-time physician. He's a busy guy. My name is Rick Ferry and I'm the host of Bogleheads on Investing. This podcast, as with all podcasts, is sponsored by the John C. Bogle Center for Financial Literacy, a 501C3 Corporation. Each month we have a special guest. This month we have Dr. Jim Dolly, the White Coat Investor. I've known Jim for many years and watched him grow from a few small posts on the Bogleheads forum up to a multi-million dollar enterprise. He's done a fantastic job. He's written a couple of books. He's running conferences and he's still working as a full-time emergency room physician. With no further ado, let me introduce Dr. Jim Dolly. Welcome, Dr. Dolly. Thank you. Please don't call me Doc. Just call me Jim. Okay. You and I have known each other for quite some time. If I recall, we first met face to face at a Bogleheads meeting and I think it might have been San Diego. Do you recall that? It was probably in Texas. Oh, Texas. I'll bet it was Fort Worth in 2008 because that was the first one I went to. And you were just a couple of years out of residency. In fact, you were still in the military at that time, if I recall. Yes, I was. I was still in the Air Force. I was right in the middle of my service there, my four years of active duty. I think I had recently returned from a deployment to the Middle East. How did you go from college to medical school to the military and then what happened after that? Give us the whole picture. Sure. I grew up in Alaska. A middle-class family. My father was an engineer. My mother stayed at home. Had five siblings and we were never going hungry, but we certainly didn't have a lot of wealth. But again, it wasn't a hand-to-mouth existence by any means. Went away to college knowing that my parents would not be able to support me in college. I knew I was paying for it on my own. And so I went from Alaska, where I grew up, to Utah, where I went to Brigham Young University. And my interest at that time was all science. My major was molecular biology. Almost all the classes I took were science. I took nothing in finance or business. I graduated and, of course, got into medical school at the University of Utah. Spent the next four years there. I got married between college and medical school. And we had no kids. While I was in medical school, my wife got a master's degree during those years. Worked in a physical therapy clinic. Also taught some ski lessons. And then I matched into an emergency medicine residency at the University of Arizona down in Tucson. And so we moved down there for a three-year emergency medicine residency. From that point, I had a military commitment. The military paid for my medical school. So instead of money loans, I had time loans. I owed them four years of active duty. And the Air Force stationed me in Virginia, Langley Air Force Base. The Air Force needed me there for a team that they deployed from time to time. And so I deployed to the Middle East, spent about five months in Qatar or Gutter, depending on how you want to pronounce that. And then had a shorter deployment to Chile. So I really kind of lucked out a lot of people during my time period from 2006 to 2010 when I was on active duty. Were getting deployed for six out of every 20 months in the Air Force, for nine months at a time in the Navy, for 15 months at a time in the Army. And I really only spent about six months total deployed out of four years. So I kind of got lucky that way with the deployments. And then at that point decided we wanted to go live someplace with mountains. One of the things that bothered me the most being in the military was they tell you where you're going to live. And it turned out I did not like living in Virginia very much with no mountains. So I started looking for a job in places with mountains. I looked at Anchorage and Portland and Reno and Boise and Salt Lake and Denver and ended up with a job in Salt Lake. And I've been here ever since. I have to say that if anybody from Virginia is listening, I disagree with Jim. There are mountains in Virginia, but you've got to go very far west to see them. Yes, there definitely are mountains out there, but it's hard after living in places like Utah and Alaska to see them as the same type of mountains for sure. You know, about halfway through residency, I kind of got sick of feeling ripped off. At that point, I realized I'd been ripped off by an insurance agent, by a financial advisor, by a recruiter, by a lender a couple of times, by a realtor. And I just realized if I didn't start learning some of this financial stuff, this was just going to be a pattern throughout my whole life. And it was getting old. So I decided I would go across the street from where we were living to a used bookstore. And I started reading books. And I read a lot of terrible financial books. But I found a few gems. And I realized that the good books were all saying the same thing. And so I moved my money away from the commission to financial advisor I had to Vanguard and started investing in index funds at Vanguard, like the good books I'll tell you to do. And then stumbled a few months later on the Vanguard diehards forum at Morningstar. You first found out about the Bogleheads through Morningstar, but then the forum shifted off of Morningstar and it went to its own website at Bogleheads.org. I can remember the post that got me to sign up. And back at that time, people might not know this. You had to pay money to use the forum. You had to pay $5 to join the forum. And the post that convinced me to pay my $5 and become a Boglehead, make my first post, was called Something Like You Might Be a Boglehead If. And over the course of several years, some while I was in residency, not as much obviously because I was busy, but particularly while I was in the military, I made a lot of posts on the Bogleheads forum. At one point, I think I was the eighth most prolific poster there. In the beginning, I think like most people that come there, I was asking questions and getting answers and learning things and making tweaks to my portfolio and making improvements in my tax situation. I was learning. But as the years went by, I realized I was doing a lot more teaching than learning. And every time I'd find a doc, I was like, man, they got the same questions as the last doc. Same questions, same situations, over and over and over again. And that wasn't the only financial forum I was on. I was on a student doctor network forum in a forum called CERMO. And it was kind of the same story there. And I got sick of typing the same things over and over again into the internet. And so I decided, well, I'll just start a blog. And then every time I see these same 50 questions that every doctor has come up, I'm just going to post a link to the blog post that answers the question. They'll get a lot better answer. And I don't have to type the same thing in over and over again. And that was a major motivation behind me starting the white code investor back in 2011. But you've done pretty well financially as well. I said, well, I'm spending an awful lot of time online to not be making any money doing it. So let's start this thing as a business and see if we can actually make some money. Unfortunately, the problem is you can't post links to a for profit business, or at least you're not supposed to, on the Bogleheads forum. And so one of the main points for me starting the stupid thing, you know, to be able to not type the same thing into the internet over and over again, became outlawed, you know, within a year or so of me starting the website and putting ads up on it. And so unfortunately, that that was the case. And it still is, by the way. Yeah, still is for sure. Yeah. In fact, I've had a few interactions with, you know, Boglehead regulars and moderators over the years. And we've gotten very explicit as far as loud and what is not allowed. And occasionally I've stepped over the line. I think I even had a short banning. I think I had a two week ban at one point for something I said. I can't remember what it was. Well, you know, it was just barely over the line. And so whatever, you know, moderation is good without moderation. You end up with a forum that reads like, you know, underneath every single article on CNN. I've been banned. So don't feel bad. Yeah, I think I was banned for about a month or something. I said something or did something and upset somebody and I got banned too. So maybe if you haven't been banned, then you're really not trying for sure. All right. Well, so this whole website that you created, eventually you decided to write a book, I recall sitting down with you in Dallas and talking with you about the book, I think you were getting ready to write it at the time. Well, it was interesting. I have to give Mike Piper the oblivious investor some credit for this book. You know, one of the things about the website, when I started it, obviously, there was almost nobody else doing anything similar. And certainly nobody doing it as much as I was and promoting as much as I was on the website. And it was growing rapidly in 2011, 2012, 2013, doctors were going, wow, here it is. This is what I've been looking for. But what I didn't really know was how to run an online business. I really wasn't very good at it. And in fact, I told myself, if I can't figure out a way to make $1,000 a month from this thing within two years, I'm going to drop it. And I'm going to go do something else, you know, real estate side gig or something like that. And I just barely made that goal. At two years, I was making about $1,000 a month. And so I decided, well, I better take this more seriously. I better figure out this online business stuff. And I decided to go to a conference called FinCon. And at that conference, one of the sections was a panel on how to write a book. Mike Piper was one of the people on the panel. And as you know, his entire business is selling his books. And so at that point, he had self published several books, and it was essentially an expert in the process. And so I realized, you know what, what my readers have been telling me that I should write a book for years is absolutely right. I should go write it. And so a week or two later, I was driving to Denver with my wife, we were going out there for a wedding. And I wrote most of the white coat investor, a doctor's guide to personal finance and investing in route to Denver. She drove and I typed. And certainly the skeleton, if not the vast majority of the chapters in the book were written on that drive between Salt Lake and Denver. It then took three or four months to figure out all the other parts to writing and publishing a book. You know, Amazon makes it relatively easy to publish a book. If you want the book to be really pretty, it's not nearly as good of a place to go. But if you actually want to make significant money off a book, because the publisher, when you publish a book in the traditional way keeps a big chunk of what the book makes. If you actually want to keep the big chunk yourself, self publishing is definitely the way to go. The problem is, you also have to be the self marketer. So if you're not going to get out there and market your own book, it's not a great route to go. But certainly the book has been well received. It's interesting when you publish a book, you are instantly looked at as an authority. And so it led to lots of other invitations to write for other publications, to speak, etc. And it's been a fun journey to see a lot of people that wouldn't read a blog or wouldn't listen to a podcast, but will read a book, pick it up, and really get the message. I've written several books. The first one I wrote, I self published. And I didn't have very good luck because immediately after I self published the book, and I had ordered like 3000 books, I put it with a distributor and within a month, the distributor went into chapter 11 or chapter seven. So this truck backs up to my driveway and dumps off 3000 books, which I had a loaded in my basement. Nobody knew who I was. And those books sat in my basement for probably three or four years before I finally got them distributed. If you want to actually make money on a book, self publishing it is the way to go. However, you need a platform by which to promote it. Absolutely. You know, you had the platform, so you went that route and that then also drew in more readers. You ended up doing a second book. That's right. I just published a second book about a year ago. This one grew out of an email course. I found a lot of people were coming to my blog and they were lost, right? At that point, they had years and years of blog posts and couldn't tell what was most important, what was not as important. They had no framework to place the information into. And so I put together an email course. When you signed up for my newsletter, my monthly newsletter, you got a series of 12 emails. You'd get one a week for 12 weeks and each one would come with a task. For example, the first one was go get yourself some disability insurance. And so that was the framework for the second book. The second book, each chapter was one of those emails, essentially. It turned out not to be quite as easy to convert them from emails to book chapters as I originally thought it would be. But basically fluffed up each of those book chapters, added some anecdotes from readers and turned those emails into the second book, essentially, which is kind of a step-by-step nuts and bolts. Here's what you need to do to take care of business. Whereas I think the first book was a little bit more inspiration and less nuts and bolts compared to the second one. So the title of the first book was The White Coat Investor. And the title of the second book was called Financial Boot Camp with a forward by Jonathan Clements, who I had on as a guest also. By the way, also had Mike Piper on as a guest. So you're hitting all of the right people. And Financial Boot Camp, you talk about the 12-step approach to bring your finances up to speed. And I do give you a lot of credit right at the beginning. The very first thing that you put in chapter one is disability insurance. And then chapter two is life insurance. A lot of people that I speak with, they have that as like number 11, 12, or maybe not even on the list. And I give you a lot of credit for putting that number one and two. Yeah, I think it's important because you always run into doctors that get disabled or even died during residency before they even get started investing. And until you're kind of in a position to do so, you have no business whatsoever paying a bunch of attention to your asset allocation, you got to take care of the basics first. A lot of people don't know how much disability insurance they should have. Do you have some sort of rule of thumb? What do you suggest? Well, I think the first thing you need to know is how much you're spending. Because certainly your disability insurance benefit has to cover that at least in order for you to keep the same lifestyle if you become disabled. But what a lot of people don't realize is disability insurance only pays until you're 65 or 67. And so after that point, if you don't have anything saved up for retirement, you're going to be all on social security. And so I tell people that you need to have enough of a disability insurance benefit to not only maintain your lifestyle, but also enough to save for retirement. The nice thing about it is because you generally are paying for at least individual disability insurance policies with post tax dollars, the benefit is also post tax. And so you don't need to have enough to cover your entire gross income by any means. But you need enough to cover what you're spending and enough additionally to save for retirement and meet your goals. So for a typical physician, I would suspect most of them have a monthly benefit of something like 10 to $15,000 a month. And life insurance is somewhat the same calculation, correct? To determine how much a physician would need in life insurance. If it's a family and it's a husband and wife, just one of them is a physician. Do you have a recommended amount of life insurance if they're sort of the breadwinner of the family? Yeah, in that sort of a situation, you need a lot of life insurance. It's going to be a seven figure amount, probably something between one and five million. Now it's going to vary depending on what you want the life insurance to actually do. If you're the only breadwinner in the family and you want your family to have the exact same lifestyle with or without you, you need to have enough in there to pay off the mortgage, to pay for college, to create a nest egg at your death for your spouse to live the rest of their life, essentially. And so that's going to be in the higher kind of numbers, three, four or five million kind of number. On the other hand, if your goal is to just provide enough for your spouse until the kids are out of the house or give your spouse a few years to transition back into the workforce and maybe pay off the mortgage, you might have a little bit smaller amount. But I think there are very few attending physicians that should have less than a million dollars if they're the only breadwinner in the family. Now you're under some other situations where you got two docs married to each other and they might actually function as each other's life insurance in some ways. And so I think it's okay to have less insurance and maybe if you want to roll the dice a little bit to not have insurance at all. But of course that doesn't ensure against the possibility of both of you being wiped out at once if you have children. One of the insurances that I talk a lot about with my clients is an umbrella policy. Once you start to accumulate wealth, especially if you start accumulating wealth outside of tax sheltered retirement plans or accumulating wealth outside of your home, it could be attached by creditors. What are you recommending for an umbrella policy? You know, it's interesting. Everybody wants a formula for umbrella insurance, like some multiple of your net worth, for instance. And I don't think that's necessarily helpful. And the reason why is the amount you want is a little bit more than the biggest judgment that will ever be taken out against you during your life. And you simply have no idea what that is going to be until that incident occurs, if that occurs. And so I think the main thing you want to do is kind of the same approach you take to malpractice insurance. You want a big, big policy that will not only pay for a robust defense because the insurance company has a lot of money on the line, but there will also be enough money that if you settle something at policy limits, that person will feel satisfied and their attorney will not feel a need to come after your personal assets. So in general, again, I think that's a seven figure number, something between 1 and 5 million. And the good news is it's dramatically cheaper than malpractice. I might be paying $16,000 a year for malpractice insurance, but my umbrella policy for twice as much might only be $300 or $400 a year. And so I think it's pretty wise to raise up those liability limits on your auto policy and on your homeowners policy and stack a nice big, fat umbrella on top of it. It's really not that much money. And I think it's important coverage to have. What a lot of people don't realize is about 80% of the claims on those umbrella policies are auto related. So that is your big risk is that you run over somebody that makes a lot of money and drives a nice Tesla or, you know, your 16 year old runs over somebody's kid or something like that. Those are your big liability risks, not so much the person tripping and falling on the sidewalk in front of your house. One area you spent a lot of time on is student loans, which is a big interest for a lot of people. Yeah, for sure. The student loan crisis is a big deal. You can tell just from looking at what our politicians are talking about these days. It really is the elephant in the room of certainly young physicians, about 75% of physicians graduate from medical school with student loans. It averages about $200,000 for MDs, $250,000 for DOs. It's about $270,000 for dentists these days. And then those loans usually go up during residency before they even get a chance to start paying them off. They're higher than that. And I've run into DOx, lots of DOx with $400,000, $500,000, $600,000 in student loans. My record is about $1.1 million. How did somebody accumulate $1.1 million? Well, the amazing thing is this is a DOx who came out of undergrad without any student loans at all, then went to USC for dental school followed by orthodontics residency also at USC. So it's a relatively high cost of living area, very expensive school. And then he let it ride for a few years at 7% or 8%. And so the interesting thing about dental residencies as opposed to medical residencies is medical residencies pay you a salary. It's only $50,000 or $60,000 a year, but it's a salary. Whereas you go to a lot of dental specialties and you go to a dental residency and you're still paying tuition. And so it's like going to three more years of medical or dental school in a lot of ways. And of course, all the old loans are continuing to compound interest. And so it can grow pretty quickly. And then if you ignore it afterward and you don't refinance it, boy, it's not that hard to get over $1 million. How do you pay a $1.1 million school loan? That must be tough. Yeah, I don't think you do. I mean, the plan of this doctor, and he was on the front page of the Wall Street Journal for it a year or two ago, his plan is to run it out for 25 years and take advantage of the income driven repayment programs forgiveness. So you make payments for 25 years and the rest is forgiven. The issue is you get the tax bomb from that forgiveness. So you have to be saving up on the side to pay the tax bomb. And by the time that runs out for 25 years, he's probably going to have an $800,000 plus tax bill due from it. So I hope he's saving for that. All this has to be done even before you start thinking about investing. And where are you going to put your money and how are you going to save it? But at some point you're living below your means, you're making money, you want to start putting money away. Where do you start? What do you tell people this is where you begin? I think the place to begin and a mistake a lot of investors make is they try to begin with the individual investments. But the place to begin is with your goals. And if you talk to most financial advisors, they'll tell you they spend a great deal of time trying to get their clients to determine and say what their actual goals are. Because once you have a goal, it simply becomes a math problem. But until you have a goal, everything is so vague. It's hard to make any sort of recommendations about what accounts to use, what asset allocation to use, what investments to select. So I think you start with your goals first. And then you choose what accounts you're going to use to invest for those goals. For example, if you're a physician and you are saving for retirement, you're probably going to be using a 401k of some type, maybe a defined benefit cash balance plan, a personal backdoor Roth IRA, maybe a spousal backdoor Roth IRA, and maybe a regular old non-qualified taxable brokerage account. And so once you determine those accounts that you're going to invest in, the next thing you need to come up with is some sort of a reasonable asset allocation or mix of your investments. And that's likely some combination of stocks and bonds and real estate. And once you have that plan written out, picking the investments is actually the easiest part. But that is where people tend to go to first. They go, should I invest in this fund? And without knowing what their goals are, what accounts they're in, or what their desired asset allocation is, that question can't really be answered effectively at all. Because you're a buglehead, I have to believe you're a big into index funds. And this is what your philosophy is. I'm absolutely a huge fan of index funds. And I have to credit you, Rick, for a lot of my investing philosophy, quite honestly. I read several of your books early on, and they had a big influence, I think, on my asset allocation originally. And so thank you for that. I think there are a lot of bugleheads that owe you a great debt for your writings in that regard. All about asset allocation was a particularly useful book to me. It's not the newest book these days. But when I started investing, it was fairly new and very, very useful. Thanks for reminding me that I need to update it. It actually was on my bucket list to do. But yes, I invest in index funds. I basically don't use actively managed funds at all. I don't pick stocks. I don't invest in individual bonds. When I am investing in publicly traded securities, I'm basically 100% index funds. So yes, I think that's the best way to get exposure to an asset class. It eliminates a lot of risks. You're no longer running manager risk. You don't have this underperformance risk. You're always going to get the market return in that particular market. And you're going to keep your costs very, very low. It's going to be very, very tax efficient. And the nice thing about it is you don't feel like you have to watch it. I don't even have to look at my investments when the market goes up or down to know what I'm up or down because I know more or less what the market has done. And so I think index funds are great. I had Paul Merrimanon as a guest recently. And he was talking with me about a conversation he had with Jack Bogle. And what Jack Bogle said to him, I thought was very enlightening. Of course, a lot of things Jack Bogle said were very enlightening. But Paul is what we call the slice and dice guy. He likes to go to the four corners of the markets and do value growth, small, large, and so forth. And put all these things together in a portfolio. And Jack listened to Paul. And then he said, the problem with that, the problem with doing that slice and dice and type of an account is that people will accept the return of the market. So if the market goes down 10% and their stocks go down 10% because they're in index funds, just flat out straight market funds, that people will accept that. And you just said that. So that's what just reminded me of something. But what Jack told Paul was that if your account goes down 15%, but the market's only down 10%, people won't accept that. And they'll eventually leave that strategy. And when they do, they basically locked in there under performance. And so this is the problem. I thought it was interesting that you basically said the same thing. You don't even have to look at your portfolio. The market's down, you know, you're down. It's no big deal. But if you were doing active management or you were doing some sort of a slice and dice portfolio, you're going to want to know, well, where am I? And that alone, you going there looking at that and finding out that you're actually performing less than the market could cause you to capitulate on your strategy and that will lock in your under performance. So I thought it was just interesting what you said just fell right in line with what Jack Bogle had told Paul Merriman. Yeah, let's talk about that for a minute because I probably find myself somewhere between the total market purists and the crazy asset class junkie slice and dicers like Paul Merriman. I'm probably somewhere in the middle. I do have a small value tilt in my portfolio over the last decade. That has not paid off. There's no doubt about it. And the question you were left with after that decade of under performance is, is that because the small value factor isn't real? That it was just a product of data mining of using retrospective data? Or is this just one of the periods of inevitable underperformance that you would expect with tilting your portfolio to something like that? And of course, I'm sticking with it. And so I obviously believe the latter, but it's entirely possible that it is the former. People talk about evidence based investing and looking at what has worked in the past. And the problem is we don't have a lot of data. You know, we've only got 100 years of decent data, maybe another 100 years of okay data. And the problem is it's such a complex system. This isn't physics. Investing is not physics. There are no guarantees that small and value stocks or whatever tilt you want, momentum stocks or whatever, is going to work out over your 30 to 60 year investment horizon. And so in some ways, you are making a little bit of a bet doing that. But I do believe the risk story behind small and value stocks. I think in the long run, I'm probably going to be rewarded for that. But I think it's really important not to tilt your portfolio more than you believe, because the worst thing you can do is, you know, stick with a small value tilt, for instance, for 10 years, and then bail on it just in time for small value stocks to outperform the market. You've got to stick with the plan in the long run. If this sort of a factor tilt is going to work, it's only going to work in the very long run. I call it a lifelong investment strategy. If you're going to go down that path of saying, I'm willing to take more risk with small cap value, because I want to potentially get a higher rate of return. It's not something that you can just do for a few years. You have to make it a career, like a marriage. I mean, you're marrying it for the rest of your life. I will say also that I agree with you on the idea, evidence-based investing, smart beta, strategic beta, all of these very scientific sounding ways of investing have made it appear as though this stuff is a certainty when it is not a certainty. It is a risk. If you're going to go down this path, you have to realize that it is a risk and you may not be rewarded. But no matter what happens, you have to stick with it for the long term. If you're not going to stick with it for the long term, then don't do it to begin with. Absolutely. Just do total stock market, U.S., total international, bond fund on your public markets and be done with it. Absolutely. I agree with that. If you cannot stick with the long term, you are far better off with even something more simple, maybe even a target retirement type fund. The other thing a lot of the slice and dicers don't realize until they've been running a slice and dice portfolio for a number of years, especially if they're like the typical physician and they have their assets spread across six or eight or more different accounts, is this is a management nightmare to have 10 asset classes spread across eight accounts. You've got a seriously complex spreadsheet just to rebalance your portfolio, and that's going to cost you some time, maybe some errors, maybe some tracking error, and there's some additional expenses, buying and selling across all of those accounts, especially if they are in a taxable account. Don't underestimate just how much work it's going to be to manage a really complex portfolio going forward. I do want to get into one area though that you have a big interest in, and I can tell by going to your website and just looking at your sponsors and your advertisers. It's real estate. I find it interesting that you are a proponent and a pretty big proponent of doing real estate. Could you get into this in quite a bit of detail if you can of how do you view it? How do you get into it? Why should people, if they're going to get into it, do it the way that you're talking about on your website? Sure. Well, let's talk about real estate and there's obviously a lot of different ways to do it if you want to do it. But the first thing I think that is worth saying is what drove me to start looking a little more closely at real estate in the first place. Now, my investing background is kind of bogal head-ish. It came from books like yours, like those of Larry Swedrow, those of Jack Bogle and William Bernstein, and a lot of time spent on the Bogle Heads Forum. My background in investing is certainly mutual fund and index fund in particular based. But I kept running into these people who had built substantial wealth, substantial passive income and had substantial success investing in real estate in various different ways. And I said, you know what? This is not a flash in the pan. This is not Bitcoin. These are serious investors who are taking this seriously, who are managing risk and who are having good returns and who are finding success and they have 80% or more of their portfolio invested in real estate. And so I thought, well, let's look at it a little bit more closely. And real estate has a few big advantages. The first is that the returns are both high and relatively less correlated with the stock market, and which is exactly what you want when you're adding an asset class to your portfolio. It's great to have something that doesn't have any correlation to your portfolio, but if it's beanie babies and there's no actual long-term return, that's not actually going to help all that much. You need high returns and low correlation with your stocks. And so real estate meets that requirement. Another exciting thing about real estate is the fact that it is much easier to leverage safely than a stock portfolio. You know, as you know, if you go decide to invest on margin, you can only invest so much if the market really tanks, you're going to get a margin call and you're going to have to come up with cash at the worst possible moment. But when you're leveraging real estate, you're often doing it with a fixed mortgage that might go out 10, 15, 30 years, which gives you time to write out any inevitable downturns so long as the property is cash flowing. So that leverage, I think, is a big advantage. Another big advantage is depreciation. And a lot of people don't understand just how valuable of an advantage that is. The idea is as you carry this investment through the years, you're getting income from it, but most or even all of that income is sheltered by depreciation. And then, so over the years, five, 10, 15, 20 years, you're depreciating this property. And then instead of selling it and having to recapture that depreciation, even though you're able to recapture it at a lesser at a lower tax rate, instead of recapturing that, you exchange the property. You know, it's the classic monopoly thing. You go from houses to hotels, you exchange the property, and then that depreciation isn't recaptured at all. It's basically moved into the next property. And so you exchange, exchange, exchange, exchange, die. And at the end, your heirs get the step up and basis at death, and nobody ever recaptures that depreciation. And so that's a really big tax benefit. One of the big downsides of mutual funds is they don't pass through a lot of the tax benefits that I would love to see them pass through. You know, it just doesn't happen because of the way they are structured. And so those are, I think, the big polls with real estate. The question then becomes, well, how? How do you invest in it? And what most people think about is they think about buying the property down the street. They think about buying a single family home, managing it, getting tenants in there, taking care of the tenants 3am, toilet calls, you know, evicting the tenants when the tenants stop paying rent. And it sounds like a big headache. It sounds like a second job. And so people go, I don't want a second job. I'll just stick with mutual funds. What they don't realize, especially for an accredited investor, is there are other options. You know, you can look at two options. If you're a non-accredited investor, the two options are basically buy single family homes or duplexes, manage them yourself or hire a manager. And on the other end of the spectrum, just going to the publicly traded markets and buying a real estate trust index fund. Very passive. You don't get all the benefits of real estate. You know, for example, you don't get the depreciation passing through, etc. It's not very tax efficient. It tends to go up and down with the market a lot more than individually held real estate, but it's very hassle free. So if you put that on one side of the spectrum and you put these single family homes on the other side of the spectrum, you start asking yourself, well, what is there in between? And there's a number of things that are in between. They're generally only available to accredited investors. They tend to be syndications or funds, which basically buy multiple syndications. So by a syndication, I mean that you get together with 20 or 50 or 100 other investors and you buy an apartment complex. Maybe it's 300 doors in the apartment complex. You're never going to have enough money to buy this $20 million apartment complex by yourself. But if you pool your money together with 100 other investors, you know, just like in a mutual fund, you can go in and you can buy this apartment complex. You get some efficiencies of scale there rather than trying to buy two or three single family homes. You get, you're bringing in enough money there to pay for professional manager, and you still get the depreciation and other benefits passed through to you. And once you select the syndication, it's essentially passive, you know, just like an index fund would be, that you're just getting mailbox money every quarter or every six months or whatever the deal is with the syndication. The downside, of course, is that there are a significant level of fees, you know, that people running the syndication are not going to do this for free. And they're going to charge some of those fees, whether the, whether the syndication or the fund does well or not. And then some are typically performance based. And then, of course, the other big downside is these investments are not liquid. You cannot go and sell these any given day in the markets. Once you invest, you are basically stuck for two, five, maybe 10 years in this investment. And so I think you probably get paid a little bit of an illiquidity premium for doing that. But I can't prove it. And if you're giving up your liquidity for no additional premium, that might not be that smart of a move. So you need to limit it to enough of your portfolio that you're okay being being illiquid on that. You talked about having these limited partnerships in an account. Do you find that they're better in a tax deferred account or a taxable account? Well, in general, the equity syndications, I like having in a taxable account. And the reason why is if you put them in a self-directed IRA, you end up with an unrelated business tax. And so this UBIT tax that affects, and now you can get out of that in a self-directed 401k. But most people, if they're trying to put these things into a, into a tax protected account, they're doing it in a self-directed IRA or self-directed Roth IRA. And so the equity deals, I kind of prefer in a taxable account. But other deals are actually debt deals. For example, if you go to a private lending fund and you give them $50,000 or $100,000 or $250,000, and they are using that, they pooled it with a bunch of other investors, and they are using that to lend to developers, you know, people that are basically taking out these short-term loans, six-month loans, 12-month loans, and these people borrowing the money might be paying 10 or 12% plus a couple of points on the money. And then of course, this fund has got 50 or 100 different of these loans in it. But then basically all of this income is taxable at your ordinary income tax rate every year. And so it's not a very tax efficient investment. So if you're investing in a debt fund or a debt deal, that's probably a pretty good thing to put inside a self-directed IRA or a self-directed 401K just because it's not very tax efficient. Now, most IRAs and 401Ks do not allow these type of investments. How do you get around that? Well, you're not going to be able to go to Vanguard or Fidelity or Schwab and open up your typical IRA and be able to invest in these sorts of investments. You have to go to a smaller shop that basically offers a self-directed IRA or a self-directed individual 401K. These are checkbook IRAs where basically it forms an LLC with a bank account. And you can write checks out of the bank account. So anytime you invest in something, you write the check out of this bank account inside the LLC that's owned by the IRA. And when it pays off income, it goes back into that bank account that's owned by the LLC that is owned by the IRA. And so obviously this can't be a summer home that you're going to live in that's not permitted. And you can't take the money out and spend it. That's an IRA withdrawal. So you're going to end up paying taxes and penalties if you take the money out of there, at least while you're in the accumulation stage. So you have to be very careful to keep it separate if you're going to do that sort of a thing. But there are plenty of people that have these self-directed IRAs, the fees are a little bit higher than you're going to pay at Vanguard. For example, you go open a Roth IRA at Vanguard, there's basically no fees other than the expense ratio on the mutual funds. But if you go to one of these shops, it might cost you $500 to open the fund and you might be paying something like $125 a year to keep that self-directed IRA open. So the fees are definitely coming down. There's a lot more of these around than there used to be. But there's no doubt that it costs a little bit more to invest this way. And you've got to make sure that it is worth it to you to have the additional diversification and to have the potentially higher returns. Whether that's actually the case or not, it's hard to tell because there is no morning star for these investments. There's no Jack Bogle database, common sense on mutual funds, that has looked at all of these. And so in a lot of ways, it's a little bit similar to being out there trying to choose the winners and avoid the losers, which as we've seen with picking stocks in particular is a very difficult thing to do. So that was actually my last question on real estate. And that has to do with how many of these deals do you want to do? I'm thinking, okay, if I want to put $250,000 into these real estate limited partnerships, personally, I would say what's the minimum? Is it $25,000? If it's $25,000, I want to buy 10 different ones. Right. Well, that's exactly the issue is the minimums tend to price a lot of people out. And so if your nest egg is $500,000, I mean, you probably shouldn't be investing in these things at all because they're almost never may have minimums less than $25,000. Those minimums are often $25,000, sometimes $100,000. The really high end ones are sometimes $250,000 or a million dollars a piece. And they often require you to be a qualified purchaser, which is even more than just being an accredited investor. And so you have to be realistic about this. You want to be diversified. You're not going to put 40% of your portfolio into one limited partnership. For example, my portfolio calls for having 5% of my money in these private lending funds. And so if you're going to have 5% of your money in a fund and you want to have at least three of them or so, so you're at least somewhat diversified there, then you're obviously going to have to have a portfolio that is substantially sized. Because if you only have a million dollar portfolio, 5% of that is only $50,000. If these things all have $50,000 minimums, you're not going to be able to be diversified in that asset class. And so I think there's some wisdom in avoiding this until you have a portfolio of a certain size, not necessarily because you have to invest differently at a large portfolio size, but simply because you have to have something that big in order to maintain a reasonable level of diversification. So Jim, just to put a cap on this real estate, you've mentioned different ways in which you can invest in real estate through REITs, through debt funds, through private limited partnerships that invest in apartments and so forth. Could you tell us with your own portfolio how much you have allocated and how it's allocated? Sure, absolutely. So my portfolio is still 85% index funds. So it's 60% stock, 40% of the portfolio is in US stock, a total stock market fund and a small value fund. 20% of the portfolio is in international stocks, basically the total international stock market fund, and the international small fund there at Vanguard. And then I've got 20% in bonds. I use the TSPG fund for most of them, but I've got some money in the Vanguard Intermediate Muni Bond index fund. And then 10% of my portfolio in a TIPS fund. And then the last 20% is in real estate. So 5% of that is in the Vanguard real estate investment trust index fund. And then the last 15% is in these kind of private investments that I've talked about, about 5% in debt funds and 10% in equity deals, whether they're individual syndications or private funds that are basically 8 or 10 or 15 syndications rolled up into one big fund. Jim, we hear a lot about the FIRE movement, financial independence, retire early. Everything you write about, the 12-step program and that is the FIRE movement. Do you consider yourself part of this movement? You know, I don't think I'm actually part of the movement. I'm technically financially independent. I don't need to work for money at this point, but obviously I'm not only working, I'm doing two jobs. You know, I'm running the white code investor and I'm still practicing medicine. And so the retire early part doesn't quite fit me. I think I'd probably be bored if I wasn't working at all, although I have lots of outside interests. Mostly I just feel really passionately about what I'm doing, both at the hospital and in helping high-income professionals like physicians and dentists and attorneys, etc., to get a fair shake on Wall Street. And so I don't know that it fits me so much, but certainly the principles are all the same. I mean, FIRE is really just a matter of saving up 25 to 30 times your annual living expenses and then realizing you don't have to work for money. Now, you might still work for money, but you don't have to work for money. And that's really all FIRE is. That said, I think a lot of people that are into FIRE might just need a different job, a job they feel more passionately about that is more fun. I meet a lot of burned-out docs and you know what, if they would just cut back to full-time even, you know, because so many were working more than full-time, they just cut back to full-time. They would remind themselves of the joy they found in their career in the first place and why they spent their entire 20s training to do it. And so I think there's a lot of people that are, you know, maybe not in jobs they enjoy, that if they could just find out what they want to do for their life, they might realize that it actually does come with a paycheck and that's okay. So I don't know that I'm a specific, you know, FIRE groupie by any means. I understand the principles. I think it's useful, but it just would seem sad to me to punch out out of, you know, the workforce at 35 and spend the rest of my time rock climbing and traveling around the world. What I suspect would happen is I'd be back by 40 trying to do something that I found meaning in with the life. But the nice thing about being financially independent is you can choose something that you find meaningful that doesn't come with a paycheck or doesn't come with much of a paycheck. And so I think it would be good if more people understood the principles of FIRE, even if they choose not to necessarily retire early. Jim, every time I have a guest on the show, I'll post who that guest is going to be a couple of weeks prior to the interview and the Bogleheads on Bogleheads.org will come up and ask their questions that they would like me to ask you and the other guests. So the following questions I'm going to ask you came from the Bogleheads forum. And of course, one of them has a near and dear to my heart. And so I'm going to ask the question, what's a fair fee to pay an advisor for both the asset under management model and under the hourly fee model? Now be careful because you know I'm an hourly fee advisor. Yeah, I think the general advice for somebody who wants to hire somebody to do both financial planning and asset management is that a fair price is a four figure amount per year, somewhere between $1,000 and $10,000. If you are paying more than $10,000 a year, I can almost surely find you an advisor who will do at least as good of a job for less money. But whether that is charged as an asset under management fee, an annual retainer or an hourly rate, I am not as particular on so long as you do the math each year. The problem is some people don't do the math each year. When you have $100,000 portfolio, paying 1% a year is a screaming deal. When you have a million dollar portfolio, it's not nearly as good of a deal. When you have a $5 million portfolio, you're being ripped off. And so you've got to do the math each year and compare that to what you could get it for as a flat fee or as an hourly rate. Certainly, there is more of a push in the last few years to move from asset under management fees toward hourly rates or toward a set annual fee for asset management or for creation of a financial plan. And I think that's a good thing. I think having more options there is very, very helpful. And I think that we're going to see a lot more financial advisors charging under that model, maybe being a little bit more transparent and encouraging people to actually understand what they're paying in fees. So a lot of people these days are really anti AUM. I don't think we necessarily have to be anti AUM. But the problem is a lot of AUM charging advisors do not scale back those AUM fees as the portfolio grows nearly as fast as they should. And so at that point, as your portfolio grows, you've either got to be able to negotiate that rate down, or you've got to start looking for another advisor because it just doesn't make any sense to be paying $30, $40, $50,000 a year in advisory fees as that portfolio grows. AUM itself isn't inherently a bad way to charge. It's just that it has to be aligned with the amount of work the advisor is actually doing. And as you said, for $100,000, it is aligned. But when you get up to a million dollar account and you're paying $10,000, it's no longer in alignment. But it doesn't take any more time to manage a million dollar portfolio than it does $100,000 portfolio. It's just that the fee is 10 times more. But let me get to another issue here. It has to do with robo advisors. I'm talking about Wealthfront, Betterment, and a number of others. How do you feel about these robo platforms where you just send them money and they invest in a series of ETFs and do rebalancing and tax management and everything else? I think they're great for a few reasons. First, they kind of put some downward pressure on advisory fees, on asset management fees. When somebody says, well, I can go to Betterment for 0.3 or whatever they're charging right now, and you want to charge me 0.8, what are you doing that's better than what Betterment's doing? So I like that aspect of it. The problem is, I don't think these are very practical for very many physicians. And the reason why is they generally don't do your 401k or other employer plans. So they'll do your taxable account, they'll do your IRA or Roth IRA, but they generally won't do your 401k, et cetera. And so that leaves you in a position of, what am I going to do with the 401k? And you either have to learn to do it yourself, which brings on the question, well, if you can do the 401k yourself, why can't you do the IRA yourself? Or you hire an advisor, which brings on the question, if you need an advisor for your 401k, why aren't you just having that advisor manage the entire portfolio? And so I think that's actually a pretty small niche of people for whom a RoboAdvisor is the right solution. The other issue I think people run into, particularly in a taxable account, is they might have these rather complex portfolios, and they're usually low cost and they're usually reasonable, but they're fairly complex. And so all of a sudden you've been in this RoboAdvisor account for two or three years, it's made some money, so you have some capital gains in there, and you decide you don't want to do that anymore. But now you've got 15 different holdings to unwind, because that's how the RoboAdvisor has been managing it between all the tax loss harvesting and trying to be diversified and trying to be complex enough to earn their fee. And so I think people run into a few problems like that, if their goal was only to use the RoboAdvisor for a couple of years, and then either go to a regular advisor or do it on their own. I think in a lot of ways people would be better off just choosing a life strategy or target retirement fund for those years when a RoboAdvisor is the right thing for them to do. I think you're absolutely right about RoboAdvisors in tax deferred accounts where when you decide to leave the RoboAdvisor and go do something else after a while, you could sell all those securities and not have to worry about taxes. But I just looked at a, one of the RoboAdvisors did a portfolio for a client of mine, 40 different, 40 different ETFs in a taxable account. I mean, it is so convoluted and so confusing. This was a well-known RoboAdvisor, and this is not an obscure one. And as you're doing this tax loss harvesting and taking losses here, taking losses there, and swapping from these funds to those funds in a taxable account, it becomes a growing furball. And if you try to get out of it, it's just a mess. You really lose track of what this thing is. So I'm all for the Robos and IRA accounts and SEP IRA, simple IRAs, things like that. But when it comes to a taxable account, I just prefer a total stock market index fund, total international index fund, leave it at that, do all the other stuff and tax deferred accounts, my view of it. Yeah, I think there's a lot of wisdom there. And in fact, if you look what's actually in my taxable account, it's total stock market, total international stock market, municipal bond fund and some real estate holdings. Well, let's get into the last bogal head question before we wrap up. And it has to do with investments for the future and particularly cyber currencies. Do you see a future for this? Wow, my crystal ball is cloudy as always. I thought it was fascinating to watch the Bitcoin bubble a year ago or so. I mean, it was a classic mania. But instead of it happening over a few years or at least a few months, it happened over a few weeks. It was like something out of all these financial history books you've been reading over the years, but you got to watch it in real life. As all of a sudden, the nurses at the hospital and the housekeepers were talking about their Bitcoin, and it went very rapidly up to, I don't know, 20,000 of Bitcoin and then collapsed and lost, I don't know what it was, 75, 80% of its value over a matter of a couple of weeks. I thought it was really fascinating to watch. I don't think it's a good investment. It doesn't have a place at all in my portfolio. It's entirely a speculative instrument, and I try to avoid putting serious money into speculative instruments like that. I like things that are actually productive assets like stocks in profitable companies and real estate that pays rent and interest-bearing investments like bonds, et cetera, rather than just pure speculative investments like gold and Bitcoin and Beanie Babies. It doesn't really have a place in my portfolio. We've got a big conference coming up. You've got an online course that people can take. I watched the preview. It looks very interesting. It's about the 12-step program. So just tell us a couple more of these other things that you're expanding into. Sure. Well, my idea is just to get this same information into whatever format people prefer. If they read blogs, that's great. If they like forums, we've got a forum. If they like Facebook groups, we've got that podcast. If you like listening to podcasts, you name it. But the conference, this will be our second one. It's going to be in Las Vegas. And I thank you for being willing to come out and speak at it. We've got almost 800 people coming. Most of them are physicians and dentists, and it's called the Physician Wellness and Financial Literacy Conference. And it qualifies for some continuing medical education credit, mostly the wellness stuff, not so much the financial stuff. But it's a great three-day rendezvous where you can come and talk to people about money, a subject that maybe there's nobody else in your life that has a similar situation that you can talk to about money. You hear from some of the best speakers out there. We always have a sweet swag bag. Our swag bag this year has six or seven books in it. And so you leave with plenty to read on the plane home, which by itself would provide a fantastic education to an investor, even if you do nothing but show up, pick up the swag bag and read the books. And so we're excited for that. The other thing you asked about was the online course. And I came up with the online course because I found a need for people that wanted to be do-it-yourselfers but weren't quite ready to do it. And so there wasn't a lot in the space between sending them to an advisor, a full service advisor that might charge them several thousand dollars a year, versus telling them go ask some questions on a forum and read some books at the library. But this, the idea here is to help somebody put together a written investment plan by themselves that they understand and that they can follow. And so it takes them step by step through how to write a financial plan. And it's about eight hours of videos of my voice over screencasts, slides, and that sort of a thing. Each section has a quiz. There's a pre-exam and a post-exam to show you how much you learn during the time period. And the idea is that at the end, you come out with a written investing plan, a written financial plan for your student loans, your insurance, your investments, et cetera, that you can follow to investment success. I called it Fire Your Financial Advisor, which didn't make a lot of the financial advisors who advertise on my site happy. But the truth is the whole first module is how to interact with a financial advisor. And a lot of people take that course and just say, you know what, this isn't for me, but now I'm much better prepared to select and work with my financial advisor. And I'm perfectly fine with that. I think that's a good use for the course as well. Sounds like all great stuff, Jim. Thank you so much for your time today. And we're all looking forward to great things ahead. Awesome. Thank you for having me on. This concludes the 19th episode of Bogle Heads On Investing. I'm your host, Rick Ferry. Join us each month to hear a new special guest. In the meantime, visit boogleheads.org and the Bogle Heads wiki. Participate in the forum and help others find the forum. Thanks for listening.