The FinancialMD Show

Ep 023 - How Things Are Going In Your Finances

Summary:
What Happened To The Silicon Valley Bank? [0:02:13]
FDIC: Where Do They Come In? [0:05:33]
Other News: Stocks Are Holding Steady [0:07:10]
As A Resident, What Does This Mean To You And Your Personal Finances? [0:08:05]
Should You Buy A House? Student Loan Status During These Times [0:11:21]
Interest Rates Keep Rising – A Good Time To Put Your Money In A High-Yield Savings Account [0:14:25]
Download The Financial MD App – Its Free! [0:16:49]
 
 
Welcome to the Financial MD Show. This is the only podcast designed specifically for residents and young physicians to help you become educated on financial planning for physicians and avoid many of the common financial mistakes doctors make. Your hosts, Jon and Trevor, explore a different topic with each episode. Jon Solitro is a financial planner and certified financial education instructor. He’s been working with young physicians for the better part of the decade and lectures to graduate medical programs around the country. Dr. Trevor Smith is a board-certified ophthalmologist with a full-time practice and he has learned the ins and outs first-hand what it takes to make smart financial decisions as a young physician. And now here’s your hosts, Jon and Trevor.
 
Welcome to the Financial MD show. Today, your host is me, Jon Solitro. Today, we will be without Dr. Smith. He's a busy guy and I think just the effort to put something out because it has been way too long, we're going to go ahead and get something out. So, welcome to today's episode. Today, we're going to talk about how things are going in the market today, how things are going in your finances, and how things are just going. We need an update; a lot has happened in the world of finances. Some changes in personal finance, some changes in the economy as a whole, but updates are always good. So, let's dive in.
 
First, we're going to touch on some of the more pressing things in terms of banking industry right now so if you're listening to this – I don't know what the date is in your time – so, hello future you. Hopefully, things are going better when you're hearing this, but they're not going terrible right now.
 
What Happened To The Silicon Valley Bank? [0:02:13]
 
But the most news in the last couple of weeks has been Silicon Valley Bank essentially going belly up. First Republic Bank – same thing – but a little bit different thing happened. So, the gist of it is in terms of Silicon Valley Bank, the regulators came in and essentially bailed them out. The FDIC insurance, which is the Federal Deposit Insurance Corporation, which is sort of a government agency; that's where all of your cash is insured at the banks. Ever since the Great Depression essentially, you've had insurance on cash in the bank, so if the bank had gone out of business and your account balance said zero, you'd get reimbursed up to 250,000 per account type per account holder. So, we won't go super in-depth on that but if you had a joint account, you had a single account then you had an IRA and then you had a bunch of other things at this bank, that's how it would be protected. So, the FDIC came in and did that but there were a lot of other issues with Silicon Valley Bank that weren't necessarily as public but they all contributed to what happened to the bank. The bank was mainly involved with startup companies and venture capital as their clients so they had a lot of cash sitting; they had cash moving in and out at any given point in time; and so that being the case, banks are required to have a certain amount of cash on hand or some sort of assets to stay liquid because what they do with most of your cash – which, if you don't know this, you should – when you put cash at a bank, that bank is able to lend out that cash. They'll show you in your account that they have it and they can get to it but they're in the business of lending out money, and Silicon Valley Bank is no exception. And so they were a little upside down – a lot upside down, let's be honest – in the assets that they had to cover a lot of those liabilities. So when people started pulling money out, a lot of the assets they had to back up that cash was in U.S. government bonds which normally would be fine but in an economy like we have today where interest rates have gone up, they have bought a lot of these bonds a year ago with cash deposits that they had, so the bonds they owned were paying, let's say, 1 percent or 2 percent when interest rates were really low. So then new bonds come out this year paying 4 percent on the two-year – 4.5 percent sometimes – which means the value of all the other bonds out there goes down. So if they had to go sell this on the open market, the old bonds that they had, they wouldn't be able to get what they needed to get or what they thought they had. So, as new bonds are coming out, the value of their old bonds is dropping down, down, down, down so their balance sheet to their books are getting lower and lower and lower and they reach the liquidity ratio that was unacceptable, and it just became this domino effect. People started pulling money out to the point where they couldn't give them their money.
 
FDIC: Where Do They Come In? [0:05:33]
 
So FDIC government comes in, and normally, what we all knew was that 250,000 would be insured; anything over that was your SOL. But the government went ahead and you could say they overstepped or they didn't, but they said – yeah, every depositor will be covered; we've got money here somewhere that we've found. But let's face it – this is a podcast so I'm just going to give you my opinion – I think they overstepped. They have essentially effectively raised the FDIC insurance limit because of precedent. So like an illegal case when they say – well, the law may say this but this court ruled on this five years ago – so that's a precedent that says we should get this. So now should this ever happen again, you can go back to the FDIC and say – well, I know you say 250,000 dollars on paper is protected but I lost a million and you covered this guy at Silicon Valley Bank that had a million that he lost – so there you go. So you could say with precedent, they've effectively raised the FDIC limit to who knows what, and I think they overstepped. They just did whatever they wanted to do with money from somewhere and, of course, said it's not going to affect taxpayers but I don't see how it could unless the government has some other source of revenue that they started in the business of – I don't know. So, that's what's going on.
 
Other News: Stocks Are Holding Steady [0:07:10]
 
There other lesser news: stocks are kind of holding steady; typical ups and downs that's been going on for the last year or so. It was about this time when things started to really tank last year, going down in 10, 15, 20 percent depending on what you had and we're starting to see some recovery this year but it's not drastic but that's usually how recoveries go. Markets go down faster, then they go up but they have always come up since the beginning of time at least in terms of the S&P and the Dow Jones and the Nasdaq and those kind of things. So, we're going to talk a little bit about what you should be doing with that and how it affects you personally because again this isn't a show about the economy, it's not a show about investing per se, but it all comes back to what does this mean to you as a resident, as a young physician, and your personal finances.
 
As A Resident, What Does This Mean To You And Your Personal Finances? [0:08:05]
 
So, markets kind of doing okay. Housing market is starting to level a little bit. You're not seeing the bidding wars and the crazy high offers and all that kind of stuff like we used to a few months ago. Last year was nuts; year before was nuts. We are seeing some numbers with the CAPE Shiller Index with some other housing price indexes that we can see across that are starting to look a lot more normal. Now, the supply certainly isn't there and that's going to be dictating prices as a whole so the supply of houses available – new houses being built, houses on the market – is not what it needs to be to have things come back down to where they need to be and I get asked the question all the time: When will housing prices go back down to where they were? Should I buy a house now? Should I wait until housing prices come down? I don't know. There's really no way to know. All I know is the supply and demand is the same or is not what it means to be to get the prices back down there and the prices may never go back down to where they were. So, we have to be aware of that and just be ready for that, that may be the case, and this may be where prices are going to be. They're going up slower, but we all know that real estate goes up over time. It just depends how fast or how slow that goes up. There have been cycles where it's gone down, but should you bank on that when it comes to buying a house? I don't know. Rents are slowing down as well. Those rose quickly. They're pretty correlated so you can say, you know, because it gets expensive to buy a house, people decide to rent, so the more people renting so then rent goes up so the more people want to buy a house so it's this vicious cycle – housing and housing – which brings us to interest rates; essentially because housing prices have gone up so much because unemployment is so low; there's so many jobs out there because prices are going up on eggs, groceries, electricity, gas, what have you – all those things necessary to live; that's inflation. We've talked about that before; check out the Didactic Minute videos that we've done to see more information on that. But because of that, the Fed over the last year has been raising interest rates and a lot of people in the housing industry have hoped that that raising of interest rates would curb housing prices, and again, it slowed it a little bit but I can't say that it has curbed it to any great extent.
 
So, if you're transitioning from residency into attending or fellowship into an attending and you want to buy that house, should you wait? I don't know that the housing prices will drop. Should you wait until interest rates go down to get a more affordable mortgage? Maybe, but we don't know when that's going to go down either. If we look back in the 1970s and 1980s, there was a period of 10 years when interest rates were over 10 percent, and right now, they're around 7, 7.5 percent depending if your credit's decent and you get a 30-year mortgage.
 
Should You Buy A House? Student Loan Status During These Times [0:11:21]
 
So, here's the one thing that we could do. If you buy a house and rates go down, you can refinance later. Now, the issue becomes the cost of refinancing, the fees when you do that but, you know, if you got a million-dollar house or a 500,000 house becomes a lot more advantageous to refinance and get a lower interest rate. So, interest rates have dropped which makes refinancing student loans also difficult because if you have a 6.5 percent federal student loan which most of you do as you're waiting on Public Service Loan Forgiveness or you're just waiting for payments to start, there's been hardly any refinancing in the last two and a half years since they put a permanent or a universal deferment on federal student loan payments and interest accumulation. But as soon as that starts back up again – I don't know when at this recording of this podcast episode – but whenever they do, that's going to be the time when refinancing starts, but those refinance rates with SoFi and DRB and Laurel Road and Common Bond and Earnest and all these companies are based on that SOFR which is called the something overnight button rate – I don't know – but the Fed's interest rate, the Wall Street prime rate, all those things; what is prime – that's another conversation – but that's what mortgages are based off of and the Fed Funds overnight rate is what the Federal Reserve raises when they raise rates. That's what mortgages are based on and that's what private student loans are based on. So, two years ago, you could refinance all day long at 2 percent, 3 percent, 4 percent which is great when you're refinancing 300,000 dollars that's now at 6.5 percent – that's a no-brainer – especially when there was no cost to do the refinance. So right now, I haven't seen in a couple years but I have to imagine that student loan refinancing rates are up near 5 or 6 percent which makes it, you know, again, really no point in refinancing, but still a case-by-case basis of whether that makes sense. If you're going to be eligible for Public Service Loan Forgiveness which we started to see, we were just talking to a physician couple yesterday that was on the verge of getting their student loans forgiven. So I've been seeing several now of our clients getting their Public Service Loan Forgiveness, which is fantastic and a glorious day, and we've been waiting for that for a long time. So, that is a thing that's been happening and it's been real exciting to see. So that's the status of the student loan world, the mortgage world, housing prices, stock markets, banking – that pretty much covers it, would you say?
 
Interest Rates Keep Rising – A Good Time To Put Your Money In A High-Yield Savings Account [0:14:25]
 
Another thing just to keep in mind, though, interest rates are rising which we've said affects student loans, affects mortgages, but it also affects your credit cards. It affects your purse. It affects any debt. So if you've got credit card debt, they may not tell you because all they have to do is give you a range. When you first get that credit card, it'll tell you our interest rates will range from 70 percent to 29 percent and so if that falls anywhere in there, they may not tell you when that rate's going up. So if you're holding money on a credit card, maybe a good time to go ahead and pay that off which, on the bright side of interest rates going up, maybe a good time to take some of your cash and instead of keeping in a savings account – emergency funds too – move it into a money market account like at Charles Schwab or TD Ameritrade where you could get 4.5 percent per year interest on your cash all day long and it's available today or tomorrow just like cash is. So, be looking into that. You've probably seen advertisements for high-yield savings accounts like American Express or Marcus or Chase and those can be good as well. They're not going to be quite as high as the money markets – more like 3.5, 3.75, maybe 4, depending on where you go – but you're going to want to look into those as well if you've got some cash sitting. So if you've got some cash sitting, one, good for you; two, make sure it's getting the best rate possible. Again, it's March 31st today. You've still got 15 days – 17 days, I guess; tax day is April 17th this year – to get your Roth IRA maxed out for last year; for your backdoor Roth for last year. So, reminder to do that whether you're at Betterment or Vanguard or Fidelity or wherever you are, get that done. if you've got some cash and you've got over and above your emergency fund, you're three to six months of your fixed expenses like we talked about, then, by all means.
 
Other news: We had a graduate resident dinner in Royal Oak last Wednesday that went great; went to D'Amato's in downtown Royal Oak and spent a couple of hours just talking about the transition between residency and graduating into an attending and what to do with some of the personal finance decisions that come up. So, if you're in that area, let us know. We do two or three of those a year to try to educate as many graduating residents as we can.
 
Download The Financial MD App – Its Free! [0:16:49]
 
What else is news? I'd say that's the bulk of it. So, that's our update. Hope that helped. I would say be sure to do a couple of things. Number one, download the Financial MD app – that's a good place just to get started to help you making smart financial decisions. The personal finance app helps you budget, puts a quick little financial plan together for you. It's free right now, so why not. Get us on TikTok, Instagram, Facebook. Join the Financial MD community which is doctors only; trading financial thoughts, suggestions, tips. We post resources all the time there so get on that Facebook group. It's private and for doctors only. So that's a good place to make sure you're getting some good information and ask some questions. And always check out financialmd.com for our blogs and our updates. Subscribe to the YouTube channel here for this podcast and if you're on Apple or Spotify or Amazon or wherever you get podcasts, please leave us a review and give us the 5 stars and just, hey, shoot me a message. Let me know what you like, what you want to hear, any topics in the future. Comment on this video. Please like and subscribe. Be a part of getting the word out to young physicians to avoid doctors making dumb mistakes with their money.
 
This is John from Financial MD, we'll see you next time.
 
Thanks for joining us for another Financial MD Show. Be sure to head over to financialmd.com to get more in-depth resources on financial tips for physicians and don’t forget to join the Financial MD community group on Facebook, where physicians at all stages of their career gather to share tips and get ideas on achieving true financial success. We’ll see you next time.
 
The Financial MD Show is for informational purposes only and is not an offer to invest. It is not financial, tax, or legal advice. Be sure to seek financial, legal, or tax professionals when making any financial decisions. Before investing, you should make sure that any investment strategy or investment meets your individual investment needs, goals, and objectives. Financial MD makes no claims or guarantees to individual investment performance. All investing involves the risk of loss as well as the potential for gain.
 
 
Resources and Links:
About the FDIC – https://www.fdic.gov/
What is liquidity ratio? – https://corporatefinanceinstitute.com/resources/accounting/liquidity-ratio/#:~:text=A%20liquidity%20ratio%20is%20a,to%20cover%20its%20current%20liabilities.
S&P Global Ratings – https://www.spglobal.com/ratings/en/
Dow Jones – Business & Financial News, Analysis & Insight – https://www.dowjones.com/
Nasdaq: Stock Market, Data Updates, Reports & News – https://www.nasdaq.com/
CAPE Shiller Index meaning – https://en.wikipedia.org/wiki/Cyclically_adjusted_price-to-earnings_ratio#:~:text=The%20cyclically%20adjusted%20price%2Dto,average)%2C%20adjusted%20for%20inflation.
Public Service Loan Forgiveness (PSLF) – https://studentaid.gov/manage-loans/forgiveness-cancellation/public-service
SoFi | Refinance Student Loans – https://www.sofi.com/refinance-student-loan/
Laurel Road | Student Loan Refinancing – https://www.laurelroad.com/
CommonBond | Student Loan Refinancing and Consolidation – https://www.commonbond.co/refinance-student-loan
Earnest | Low-Interest Loans Designed For You – https://www.earnest.com/
Secured Overnight Financing Rate (SOFR) Definition and History – https://www.investopedia.com/secured-overnight-financing-rate-sofr-4683954
Prime Rate definition – https://www.investopedia.com/terms/p/primerate.asp
Overnight Bank Funding Rate – https://www.newyorkfed.org/markets/reference-rates/obfr
Charles Schwab | A modern approach to investing & retirement – https://www.schwab.com/
TD Ameritrade: Online Stock Trading, Investing, Brokerage – https://www.tdameritrade.com/
What are high-yield savings accounts? – https://www.cnbc.com/select/high-yield-savings-account/
Betterment: A better way to invest – https://www.betterment.com/
Vanguard: Mutual funds, IRAs, ETFs, 401(k) plans, and more – https://investor.vanguard.com/corporate-portal/
Fidelity Investments: Retirement Plans, Investing, Brokerage – https://www.fidelity.com/
Financial MD Website – https://www.financialmd.co/
Financial MD YouTube page – https://www.youtube.com/channel/UC6qEAQxK8L8JM7joy3wvdkA
Financial MD Facebook community – https://www.facebook.com/FinancialMD/
Financial MD TikTok – https://www.tiktok.com/@financialmd
Financial MD Instagram – https://www.instagram.com/financial.md/
Financial MD Twitter – https://twitter.com/financialmd2
Financial MD LinkedIn – https://www.linkedin.com/company/financial-md/?viewAsMember=true
Financial MD App – https://apps.apple.com/us/app/financialmd/id1507757039
Financial MD Apple Podcast –
https://podcasts.apple.com/us/podcast/the-financialmd-show/id1548024586

Ep 022 - The Benefits of 1099

Summary:
Pros And Cons Of Doing 1099 Work (Being An Independent Contractor Or Business Owner) [0:08:17]
Get Started On That 401(k) [0:11:01]
Super Roth – A Third Contribution To Your 401(k) [0:13:25]
Another Big Benefit [0:18:06]
By Being A 1099, You Can Buy The Insurance You Want (Plus Others!) [0:20:27]
Be Sure To Get A Financial Planner Who Always Touch Base With You Regularly [0:24:20]
If You’re Doing 1099, Don’t Forget To Pay Your Taxes! [0:27:55]
 
 
Welcome to the Financial MD Show. This is the only podcast designed specifically for residents and young physicians to help you become educated on financial planning for physicians and avoid many of the common financial mistakes doctors make. Your hosts, Jon and Trevor, explore a different topic with each episode. Jon Solitro is a financial planner and certified financial education instructor. He’s been working with young physicians for the better part of the decade and lectures to graduate medical programs around the country. Dr. Trevor Smith is a board-certified ophthalmologist with a full-time practice and he has learned the ins and outs first-hand what it takes to make smart financial decisions as a young physician. And now here’s your hosts, Jon and Trevor.
 
Pros And Cons Of Doing 1099 Work (Being An Independent Contractor Or Business Owner) [0:08:17]
 
Jon: Well that speaks to, I think, our topic today. We’re going to talk about alternatives like being an independent contractor or a business owner and the pros and cons of that and one of the big ones is you control your schedule a lot better – for the most part. Now, there’s certain like ER jobs where they give your schedule. You got to do it, but it’s still a 1099 pay but a lot of times if you’re doing shift work or locums or even self-employed, you’re kind of starting a little small practice, you got more flexibility on the schedule then.
 
Trevor: Yeah, there’s a lot of different ways to do 1099 work. Some people, it’s just picking up extra shifts and if it’s totally ad hoc, you get full freedom to just not do it for a month or two. Some places require a minimum and then they have a schedule, seniority of who gets to choose first and also and your stuck, not going out of vacation, six months down the road, just because you want to pick up some extra shifts here and there and you’re contractually obligated. All those like everything comes down to contracts and making sure you know what you get yourself into, but there’s a lot of money out there for a little bit of extra work on the side. You were just talking about how. We were talking about tax stuff. There are tax things you can do. That’s really, really getting into the weeds, I think, and even though or S corp and different things, you can read articles on that because it is pretty highly specific and even some of those benefits have changed over the years. They’ve changed enough like you have to talk to your CPA and find out if that’s even a benefit but the real one we were just chatting about that everybody loves is being able to do a solo 401(k). If you’re main gig is 1099, meaning, you’re an independent contractor, you run your own business and someone is paying you as a consultant to come in and do some work – medical work or otherwise – that is definitely a nice thing to be able to put money into your retirement account. It’s a super powered way of putting money away. If it’s at all possible basically to be 1099 or W-2, for me, I always want to be 1099 especially like last year, I didn’t have a W-2. I was just doing contract work, locums.
 
Jon: Okay.
 
Trevor: And that let me put away most of my salary other than what I lived on into my retirement account because you can put in like almost $60,000 between your own personal then you’re your own employer so then you can put in another almost 40,000 so 20,000 and then 40,000 roughly. These numbers vary by year and it doesn’t matter too much but it’s in the range of 20 yourself – that’s called an employee contribution – and then an employer contribution. For solo 401(k) can be another 40,000 as long as you haven’t put money into any other retirement. That’s like the total max amount you can do.
 
Jon: Yup.
 
Get Started On That 401(k) [0:11:01]
 
Trevor: And that’s one of the best perks and starting your own 401(k) is like $1,000, $1500 – something like that. It’s not too expensive. It’s a one-time thing. Some companies will do recurring fees to process paperwork and stuff but you can just do that typically on your own; has to get, I think, over 150k to have to file anything anyways. Maybe, it’s 250.
 
Jon: I think it’s 250, anyway, yup.
 
Trevor: So it’s just like some paperwork. We’re talking about like basic IRS documentations, very easy to do. Your CPA, your accountant, can do that for you. I didn’t think it was too tough. There’s a decent industry around solo stuff now like there’s also some scams, some scammy stuff out there, so you’d certainly want to do research on, making sure whatever company you use is a real place, but they end up contracting with the bank to kind of coordinate a lot of the stuff, so they end up doing a little bit of legal work on the front end to establish your plan and then you end up kind of just sending them some money and they put it in the bank. It’s not too bad. There definitely are some scammy things in that area who promise more than they legally can deliver. Personally, I don’t mind saying I used IRA Financial. I like them. They’re out of Florida. They’re out of Miami. Adam Neumann is the guy from WeWork. This guy’s name is Adam Kaufman.
 
Jon: Okay, yeah.
 
Trevor: So, I wanted to say, Adam Neumann, he’s the guy who did WeWork at the big publicly-traded company massive fiasco, you know, the whole thing. I just heard a podcast about him. Adam Kaufman is the guy who does IRA Financial. They’re great. He puts out a lot of free educational content on his YouTube page.
 
Jon: And they do a self-directed IRA or self-directed 401(k)?
 
Trevor: Yeah, they do all of the above. They kind of do all the self-directed stuff.
 
Jon: Okay.
 
Trevor: They do self-directed IRA, Roth IRA, solo 401(k). Solo 401(k) with them and what most people, you can have a traditional arm which is pretax contributions and post-tax contributions. You can do either one. Again, your max ends up being that like 60k. I believe that’s the vehicle with the maximum amount of Roth contribution is the solo 401(k). In terms of directly contributing, there’s ways of creating an account and then converting it – stuff like that – but you can do a true Roth contribution directly.
 
Super Roth – A Third Contribution To Your 401(k) [0:13:25]
 
Jon: And if they don’t get rid of it in any legislation, there’s this super Roth; it’s been called different things but basically, there’s a third contribution you can make in 401(k). It’s called just basic post-tax contributions or after-tax contributions that aren’t Roth so it’s kind of a hybrid where they would go in after tax but then the growth they get would be tax-deferred and tax-later. So you won’t be taxed on the principal when you take it out but you will be taxed on the growth or the gains. You could max out your 20,500 into a Roth contribution and then you could do the rest of it – so another 40,000 – in after-tax employee contributions which then you convert into the Roth bucket in your 401(k).
 
Trevor: Got it.
 
Jon: So there’s ways to get 60,000 and again, this has been on the table to be cut in legislation before but for now it’s possible. I have anesthesiologists doing that and a couple of reasons. They’ve got a unique situation. They’re husband and wife anesthesiologists, both 1099, and who, without going too deep in the weeds, they started a solo 401(k), maxing that out, both employee-employer and then they started a cash balance plan and doing that as well and then the husband is doing some moonlighting with a company that has a 401(k) so he’s doing that with some after-tax contribution, so they’re truly maximizing their income in that sense and it’s pretty cool. That warms my heart to see take advantage of all those different benefits of being a business owner, self-employed.
 
Trevor: Right.
 
Jon: Like Trevor said, there’s some paperwork to it and things, but I think once you get over the IRA limit of $6,000, it doesn’t take too much more to make the math work. If it costs you $1,000 or $2,000 a year to administer this 401(k), you know, at 30 percent tax rate, you have to put in another $6,000 to make that worthwhile to save that much of taxes, and so anything beyond that is just pure savings. Makes a ton of sense, and Trevor, you’re able to with self-directed ones. You could invest those in a lot of different things whether it’s real estate or other alternative investments, right?
 
Trevor: Yeah, you can basically do whatever you want with it as long as it doesn’t violate some pretty specific rules. There’s a number of them and they’ll be in your plan documents. If you got a good company like you’re working with IRA Financial, I can email them just their Compliance Department to say, hey, can I put money in this and if I do, how does that work? There’s some pretty creative ways of deploying money and then if you’re in a Roth, you know, like whatever you do with it, anything you make on, you never ever, ever, ever have to pay anything extra on that.
 
Jon: Yup.
 
Trevor: That’s a nice just piece of mind when I’m working with that portion.
 
Jon: Now the trick is the earnings have to stay in that self-directed, right?
 
Trevor: It’s all got to be. It’s like it’s sitting on an island. You can’t mix it with anything else and you can’t mix it with family stuff and you can’t mix it with your own businesses but you can do pretty much anything else you want with it. You can go into other people’s businesses which would be like buying a stock, I mean it’s like most, right, but it could be a privately traded company.
 
Jon: So you couldn’t invest it in something you own – real estate, something like that.
 
Trevor: No. There’s certain things you can do with real estate. I don’t mess with real estate. As you know, that’s just the territory that I don’t know well enough to be able to outcompete other very, very smart people. Winner take all to a degree in local real estate markets. I don’t mess with that but it does let you do alternatives. So if you want to get gold which is certainly being talked about right now, if you want to find inflation-hedging assets that are non-custody, meaning, like the bank doesn’t just hold the money on your behalf or like with stocks or basically certificates held two or three parties away. If you want other things like that like hard assets then you can use the money to buy the hard assets and then it’s just, yes, it’s part of your Roth IRA. So, if you make money off of them, that money has to stay in there. You can’t withdraw, you know. You get penalties for that kind of thing. That’s why you can’t be buying stuff in your own business and other things like that. But you can buy gold – physical, literal gold – silver. You have some freedom that you otherwise wouldn’t have when your 401(k) with your company. I tried to sacrifice and live like a resident so that I can put as much to my early career away into that knowing that I probably would be W-2 later and not really be able to put anything into that, not be self-directed necessarily for a long period of time. It’s probably my only funds I can do whatever I want with for a while, potentially.
 
Another Big Benefit [0:18:06]
 
Jon: Yeah, so that’s one of the big benefits obviously that comes to mind for us. I think equal to that depending on how you use it is just the ability to have business expenses and deduct more of your income typically than a W-2 can. It’s just so much more available to you. They greatly limit the tax deductions that a W-2 can make. There are a few things you can itemize and now with the standard deduction, it’s even less. So if you are a business owner and you have what’s called Scheduled C Income which is synonymous pretty much with 1099 income then you’re able to have a lot of leeway on business expenses, portion of your house or rent or utilities you can deduct or travel – all those kind of things – and last I checked with, say, travel, the mileage was at least 55 cents a mile – I don’t know what is now – but that’s a big thing. Maybe it makes more sense today if they haven’t caught up with it to deduct actual fuel prices but that can be huge. So those are the big things that at the end of the day even if you maybe end up making less as a W-2 or more as a W-2, you got to factor in all these other benefits that you’re getting long-term like Trevor was saying.
 
Trevor: Yeah.
 
Jon: Yeah, you’re putting away now more in your 401(k). You’re not keeping as much to bend on your things today but you’ll be glad you did later and then the things that you can deduct now is huge. I think most of the people that we talked to want to keep more money versus getting it to the government if they don’t have to.
 
Trevor: Yeah, I was just thinking about the benefits. It’s one of those – it’s easy to want to think that it’s simple so it’s like, oh, I got a W-2, these benefits are great, wow, like, man, you know. People like the safety of that. Okay, now I’ve got a job and it’s secure and now I’ve got these benefits. We’ll, I think very few people have or maybe even ever will sit down and do an apples-to-apples. If you’re a curious individual, make a chart and write down all the things you get from work and then all the things you have to pay. If you’re doing like locums and doing some travel and all that and then look at where your locums job would cover. So they covered pretty much everything except for food. If you do that apples-to-apples comparison, you’ll find like health insurance is “expensive,” right, but have you ever looked? Have you ever looked to see how expensive it is? Because for a doctor, it’s pretty unlikely that you’re going to look at it and go, oh my gosh, this is so expensive, I have to take this job.
 
Jon: Yeah.
 
By Being A 1099, You Can Buy The Insurance You Want (Plus Others!) [0:20:27]
 
Trevor: Because there’s a percentage of your income, you buy your own insurance as some on your 30s or 40s is substantially less than you probably would guess it is. It can be $350 a month and that’s kind of maybe an old school car payment. Car payments now are a little higher but $350 a month? Okay, let’s say it’s $500. Let’s say it’s $700 and you’re doing locums somewhere. If you’re a radiologist, you’re making $2500 a day and you’re worried about a $750 a month health insurance payment. I mean, you get the best health insurance that money can buy for probably $1,000, maybe $2,000 max deductible A to Z plan. So I think about these benefits. I think people just assume they’re good like a lot of things we assumed like oh, it must be, it’s benefits and I’m a doctor and I’m in a hospital so they must be good and that’s not usually the case.
 
Jon: No. I see a lot of benefits for our physician clients so I’ve seen enough examples.
 
Trevor: Are they good?
 
Jon: No. A lot of them they’ll take their spouses’ that are working somewhere else because it’s not great.
 
Trevor: That’s right. Yeah, the hospitals don’t usually provide that great of benefits unless you work somewhere like Mayo Clinic, certain like really well-known institutions that are known for treating their physicians well. They have ridiculous benefits that would take your breath away. I mean, it’s pretty wild. They might have two or three retirement plans or two retirement options and pension and all that kind of stuff. That’s a kind of a different scenario but your typical, just private practice or hospital, you’re getting the same insurance as the technician in your office that, you know, has a high school education and some credentials and they’re great. I’m not saying they’re not smart. They’re smart and you’re glad they’re there, but you have the same benefits as them because that’s what your company is required to do. It has to be equal distribution of benefits. By being a 1099, you can actually buy the good insurance that you want, for example. So let’s go through a couple other categories. Malpractice, you might think that’s really expensive. Well, it might be like $800 a month. That’s like a typical kind of early career amount. It’s more as you get through your career and they kind of balance it out but $800, it’s like not that crazy. They might have a promo then you first get out of residency.
 
Jon: Or always look at your associations for stuff like that too. You might find some decent discounts with joining associations.
 
Trevor: The doctors can always through shopping around because now you’re the only buyer, right. Even groups, they don’t switch very often but if you shop around, you can get a massive discount and sometimes they’ll even cover your tail coverage, you know, seal that previous malpractice.
 
Jon: Yeah.
 
Trevor: There’s all sorts of things you can do by just kind of shopping around a little bit. All that to say, that’s not that expensive either. Those are probably the top two things people would say like, oh, I’m so glad they cover my malpractice and my health and you’re talking about $1500 a month. It’s kind of silly and then you could for how much you’re going to save and what you can put away in your own solo 401(k) and if they have minimum matching, a lot of doctors get like 1, 3, 5 percent matching. Some places are generous. You know you might get 10+ but not that common. So I think people are often making this decision based on qualitative feeling of benefits rather than a quantitative apples-to-apples on how do I make my money, how do I want to keep my money, and what I spend the better than my company would spend it or my potential company, and that’s the real question. I don’t think people knew that. I don’t know why that is. It’s the same thing I always say like people will work their butts off to get their money and then they like almost don’t care what happens with after that. They just want to put it in the bank and they don’t want to think about it or they hire somebody to do it who just doesn’t have the same incentive to keep track so if you have somebody to help you set it up, you know, that’s kind of what you do. You set it up. You give a lot of great input. You check in periodically, but people don’t often prompt themselves to do those same things.
 
Be Sure To Get A Financial Planner Who Always Touch Base With You Regularly [0:24:20]
 
Jon: No, they don’t and that’s, I think, like you said, where a financial planner comes into play. Whoever you are using, make sure it’s somebody that’s going to touch base regularly and is reviewing everything. It should be comprehensive financial planning and you’re probably going to pay more as a business owner or self-employed because there’s more to it but you’re going to get more service. You’re going to have somebody who’s going to say, hey, we’re going to be doing some tax planning and looking ahead, taking advantage of some of the benefits of being a self-employed or business owner and we’re making sure you’re shopping this around. Even with our employee W-2 clients here, we’re making sure every couple of years, they’re shopping out their home and auto insurance, and so if you’re working with a comprehensive financial planner then if they’re doing what they’re supposed to do, they’re reminding you those timely things to say, hey, it’s been a couple of years, or even on a yearly basis and they will have contacts and people that they know to help you shop out these things or resources or places to go to. So, I think that also comes back to the idea of finding a specialist in terms of helping you with your financial planning; finding someone that you can sleep better at night knowing you’ve delegated this stuff, they’re keeping an eye on these things, they’re asking the right questions, they’re going through the right checklist every year. So, we’re not making this out to be an easy, simple thing, for sure. The W-2 is the dummy-proof turnkey way to just get paid and have a job but if you want to take a little bit more organization and thinking through and a little effort on the side, that can be financially better in the long run. But do that apples-to-apples like Trevor was talking about. Add up everything you get in your benefits – your employer matched the portion, the health insurance they paid for in malpractice – all those things, plus your salary. Compare it to a similar 1099 where they’re not covering anything. You’ll find it will be close and even if it’s close than the other ancillary benefits you get from being able to have more in a 401(k) or more tax deductions, whatever the case might be, it may be worth it.
 
Trevor: Right, yeah, absolutely. And if you’re running – if you have like a little booty practice, and you run it small, you may actually also get a lot more of your time back and be breaking even or making more.
 
Jon: Yeah. You at least have control over that for sure.
 
Trevor: Yeah, which is not everybody in a 1099 situation. I’d say probably most docs in a 1099 situation still kind of have more of an employer.
 
Jon: They’re working for somebody else, right.
 
Trevor: Relationship.
 
Jon: Paid under the table, so to speak, because they’re going to report it.
 
Trevor: Yeah, it’s very above the table, you know, on a 1099, but it’s definitely direct. It’s direct payment and you figure out your own expenses.
 
Jon: They’re not withholding, remember that.
 
Trevor: Right, yeah, so you work a week somewhere and they give you, you know, 12 grand or something. I guess, maybe even more probably for most 12 grand, 14 grand, and then yeah, you got to take taxes out on that yourself right away.
 
Jon: That’s not all your money, right.
 
Trevor: Yeah.
 
Jon: Oh boy, if I could tell you. A couple of years out of business, I met a guy who was an ER doc in Ohio, have been in practice two or three years and he said, yeah, I really can’t do anything right now. I’ve got to pay off this debt to the IRS. I owe them like $150,000 because I forgot to pay my taxes the last few years. I’m like, okay. You just thought this was all your money? Like okay, but that happens.
 
Trevor: So that’s easy to do especially if you’re making big money in 1099, I think, that can happen to people pretty quick.
 
Jon: Yeah.
 
Trevor: They’ll figure it out later like, wait a minute. That was a lot of weeks of work. You have a lot of multi-thousand dollar checks and I owe a decent chunk of that to somebody else.
 
If You’re Doing 1099, Don’t Forget To Pay Your Taxes! [0:27:55]
 
Jon: Well, and quite frankly, if you don’t start paying quarterly after a year or two of that, then the IRS does have an issue with that because they don’t want that to happen. They don’t want you owing them boatloads of money so they’re going to say, okay, you need to start paying quarterly and if you don’t, there’s going to be some penalties there. So the paying quarterly helps but still every paycheck, set aside whatever your CPA is going to recommend there. A lot of things to be aware of. It’s not turnkey but it’s not hard either and you’ll get the hang of it and it may be worthwhile for some of you. So ask us questions if you’re considering it; if you want to know if it’s right for you. We’d love to talk about it more. If you’re considering some opportunities that you want to shoot our way, Trevor and I are both happy to look at it and give you some of our advice and just experience but we’re out here to eradicate physician financial illiteracy so hopefully this made you a little bit smarter today and maybe gave you an edge somewhere down the road and you’ll come back or just give us a five-star review.
 
Trevor: Yeah, I was going to plug a book, too, the Medical Entrepreneur.
 
Jon: Oh, cool.
 
Trevor: The Medical Entrepreneur – a plastic surgeon wrote it. He’s started and sold multiple companies and had practice the whole time and he does a good once-over. If you’re just thinking about starting your own private practice or your little side gig business or whatever it is, it’s very broadly applicable to just starting any business but from a doctor’s perspective so that kind of helps the doctors where they’re at. I found that one really helpful. It’s sort of like reading a lot of articles, just putting them all together into a book. Very topical, but he pulls in expert opinions like CPAs and lawyers on different components so I recommend that one. I enjoyed it and I’ve even bought it for a couple of people that are non-doctors and they found it like a nice, helpful, basic starting-your-own-business book for their non-medical businesses. It’s a good one.
 
Jon: Awesome. All right, we’ll have a link to that in the show notes. Lastly, I want to remind you please share these shows. If you’re finding any benefit in these, then somebody else is going to as well. So please help us to eradicate physician financial illiteracy and share these shows. It’s easy to do in your apps. Leave us a review, that helps, again, more physicians find out about these shows. Any other things that are out there, so if this is the only place you’re hearing about us, get on at social media. Our Instagram and TikTok are updated all the time. These videos, we do a weekly Didactic Minute video with some financial tips, so links to these cool articles. We have a Financial MD Community which is a Facebook group just for physicians where were talking and giving and getting tips there as well. So plenty of places to follow us. Last, but not least, go to financialmd.com if you’re not catching anything that I just said. It’s all there and we’d love to chat more. With that, we’ll be saying adieu. This is Jon Solitro and my pal, Trevor Smith.
 
Trevor: Thank you, Sir.
 
Jon: We’ll see you next time.
 
Trevor: Later Jon.
 
Jon: Bye everybody.
 
Thanks for joining us for another Financial MD Show. Be sure to head over to financialmd.com to get more in-depth resources on financial tips for physicians and don’t forget to join the Financial MD community group on Facebook, where physicians at all stages of their career gather to share tips and get ideas on achieving true financial success. We’ll see you next time.
 
The Financial MD Show is for informational purposes only and is not an offer to invest. It is not financial, tax, or legal advice. Be sure to seek financial, legal, or tax professionals when making any financial decisions. Before investing, you should make sure that any investment strategy or investment meets your individual investment needs, goals, and objectives. Financial MD makes no claims or guarantees to individual investment performance. All investing involves the risk of loss as well as the potential for gain.
 
 
Resources and Links:
10 Things You Should Know About 1099s – https://www.investopedia.com/financial-edge/0110/10-things-you-should-know-about-1099s.aspx
S Corporation – https://www.investopedia.com/terms/s/subchapters.asp
What is Solo 401(k)? – https://www.nerdwallet.com/article/investing/what-is-a-solo-401k
What is a W-2 Form? – https://turbotax.intuit.com/tax-tips/irs-tax-forms/what-is-a-w-2-form/L6VJbqWl5
What is employee contribution and employer contribution? – https://www.simpliance.in/provident-fund/contributions
IRA Financial Group: Self-Direct Your Retirement website – https://www.irafinancialgroup.com/
A Guide to Self-Directed IRAs – https://money.usnews.com/money/retirement/iras/articles/a-guide-to-self-directed-iras
Self-Directed 401(k) – https://www.shrm.org/hr-today/news/hr-magazine/pages/0300hoffman.aspx
Pretax Versus Post-tax Contributions? – https://www.ameriprise.com/financial-goals-priorities/taxes/how-to-minimize-taxes
Roth IRA Basics – https://www.investopedia.com/terms/r/rothira.asp
The Super Roth IRA – For Regular Guys (and Gals) – https://www.jdsupra.com/legalnews/the-super-roth-ira1-for-regular-guys-08219/
What is tax deferral? – https://www.bankrate.com/glossary/t/tax-deferral/
Tax Now, Tax Later, Tax Never: Understanding Tax Efficiency – https://www.teampinnacle.net/blog/tax-now-tax-later-tax-never-understanding-tax-efficiency#:~:text=Comprised%20of%20IRAs%2C%20401(k,paid%20upon%20funds%20being%20withdrawn.
Fact Sheet: Cash Balance Pension Plans – https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/fact-sheets/cash-balance-pension-plans
What is Schedule C Tax Form (Form 1040)? – https://www.freshbooks.com/hub/taxes/schedule-c-form
Tail Coverage Definition – https://www.thehartford.com/business-insurance/tail-coverage
The Medical Entrepreneur: Pearls, Pitfalls and Practical Business Advice for Doctors (Third Edition) – https://www.amazon.com/Medical-Entrepreneur-Pitfalls-Practical-Business/dp/0615407137
Financial MD Website – https://www.financialmd.co/
Financial MD YouTube page – https://www.youtube.com/channel/UC6qEAQxK8L8JM7joy3wvdkA
Financial MD Facebook community – https://www.facebook.com/FinancialMD/
Financial MD TikTok – https://www.tiktok.com/@financialmd
Financial MD Instagram – https://www.instagram.com/financial.md/
Financial MD Twitter – https://twitter.com/financialmd2
Financial MD LinkedIn – https://www.linkedin.com/company/financial-md/?viewAsMember=true
Financial MD App – https://apps.apple.com/us/app/financialmd/id1507757039
Financial MD Apple Podcast – 
https://podcasts.apple.com/us/podcast/the-financialmd-show/id1548024586

Ep 021 - Buying a Car

Summary:
Trevor’s Main Goal Out Of Residency – Pay Off Loans [0:01:35]
Financial Advisors Are Accountable, To Some Degree, For Our Financial Decisions [0:04:19]
Trevor Wants To Buy A New Car And Consults With Jon [0:06:03]
Trevor Found His Car! [0:10:20]
General Rule Of Advice: Buy A Two- Or Three-Year-Old Car [0:11:04]
Process For Buying A Car These Days [0:13:46]
Financing: What Are The Options? Interest Rate? [0:19:26]
Extra Important Tips In Buying A Car [0:26:02]
Cars That Depreciate The Least Can Be Part Of Estate Planning (Long-Term Care Planning) [0:27:32]
 
 
Welcome to the Financial MD Show. This is the only podcast designed specifically for residents and young physicians to help you become educated on financial planning for physicians and avoid many of the common financial mistakes doctors make. Your hosts, Jon and Trevor, explore a different topic with each episode. Jon Solitro is a financial planner and certified financial education instructor. He’s been working with young physicians for the better part of the decade and lectures to graduate medical programs around the country. Dr. Trevor Smith is a board-certified ophthalmologist with a full-time practice and he has learned the ins and outs first-hand what it takes to make smart financial decisions as a young physician. And now here’s your hosts, Jon and Trevor.
 
Jon: Alright, welcome to another episode of the Financial MD Show. We’re back and ready to talk about what’s relevant today in finances for young physicians and sometimes there’s very specific things that apply to you and sometimes they’re things that just apply to everybody. Like, for example, today’s topic of buying a car is something that applies to everybody. Now, certainly, when you get out of residency that’s when most doctors are definitely looking to buy a car. I don’t know about you, Trevor, but what was that like? Was that your new car purchase when you got out of residency or fellowship?
 
Trevor’s Main Goal Out Of Residency – Pay Off Loans [0:01:35]
 
Trevor: No. My goal was to pay off my loans. I was pretty aggressive on paying off my loans. I keep the same car I had in residency until it was totaled last year. I had a nice trip to Florida, flew back, snowstorm, driving home from the Detroit Airport, and there was a 19-year-old kid in a brand new 2021 Chevy Blazer, bright orange, just ripping down the right lane going about 80. Everyone else was going like 60 or so – really heavy snow condition – people from Michigan would know. And he just started spinning around in front of everybody. He hit an off-duty police officer first and two other cars including my own and so, yes, that car was toast.
 
Jon: How old was he?
 
Trevor: I didn’t get his exact age but he looked like he’s probably 19. I mean, he looked younger than 20. It’s possible that he was a little older than that but, yeah, pretty crazy. So I kept my same car. I just was like, you know, I like this car. It’s a solid car. I got a wicked deal on it in residency; didn’t really have many repairs. So I waited, but then I’ve just kind have been like bouncing around because that was still during COVID, you know, a year ago, that was 2021. So cars were like crazy so I just bought the cheapest used car I could find with good gas mileage and I have been driving a 2005 Toyota Prius for the last year. The air conditioning doesn’t work.
 
Jon: You started to feel that an hour or two.
 
Trevor: Oh my gosh, I hate to admit how much it drives me crazy not to have an air conditioning but when it’s like – you know, it’s humid in Michigan. So the heat’s one thing, but humid, it’s brutal.
 
Jon: I know, yeah.
 
Trevor: So, it’s windows down. It’s loud. I replaced the rear shocks. I just have been putting a lot of money into it. I’m like, this is crazy. So, yeah, what prompted this pod here, right, was I was like I’m going to buy a car and the funny thing about people even if they have financial advisors, they’ll usually buy a house or car and they’ll be like, “Hey, I just want to give you call, just a head’s up, financial advisor; I just bought 80,000 dollar Audi,” or something like that, and, like, “Oh cool, is that part of our plan that we put together?”
 
Jon: Oh my gosh, that is the same conversation I’ve had. I think folks what you’re hearing is Trevor’s been with us long enough to know what the quick and the dirty side of financial planning that nobody tells you. I’ve gotten to the point where I’ll put it in writing with clients before like please let us know of any upcoming financial changes or large purchases or any of that kind of stuff. I think sometimes they don’t think about it but I know there are some times where they didn’t want to tell me.
 
Financial Advisors Are Accountable, To Some Degree, For Our Financial Decisions [0:04:19]
 
Trevor: It’s really funny. Definitely, financial advisors are, to some degree, they’re like accountability for our financial decisions, you know.
 
Jon: Well, for sure.
 
Trevor: Like if you eat terrible and you start getting a belly and you still go to the gym and you got a trainer, you know, he’s going to be like, “Hey, we have been working at this like what’s going on.” You know like, “Are we achieving your goals? We can adjust them, but you know, this is what we said we’re going to do, so what’s the plan here?” It’s incredibly valuable to have that person to be able to check in.
 
Jon: Yeah, not that it’s not flexible but I’ve always said half the value of financial planner when I talk to people about how much it costs monthly to work with Financial MD or any of that kind of thing, they always think, “Well, what’s the value that I’m getting? Are they going to save me money? Are they going to make me more money because I work with a financial planner?” Well, probably, but it’s going to be intangible things that we can’t track because half the value of working with a financial planner is the accountability and we almost call it a financial coach so people can get that concept a little better.
 
Trevor: Yeah, totally.
 
Jon: I’m going to tell you to do stuff. I’m going to expect you to do it and when you don’t, I need to hear about it or that kind of stuff and, yeah, you’re totally right and I hope everybody listening to this, whatever the point is you work with a financial planner, if you’re disciplined enough to do it yourself, great, but that’s not the majority as the White Coat Investor says that 5 to maybe 10 percent of doctors are legitimate do-it-yourselfers and should be. The rest need to get some help and you need that accountability. I tell people this. This isn’t information that’s proprietary to me. I’m not some brilliant storehouse of knowledge that nobody else has. I have a lot of knowledge but it’s not stuff you can’t just Google either so why do you need a financial planner. So there you go. That’s my rant.
 
Trevor Wants To Buy A New Car And Consults With Jon [0:06:03]
 
Trevor: Yeah, exactly. I mean, I totally agree. Yeah, so that’s why I reached out. I was curious of what are your thoughts, what do you talk to about clients with cars because I’m about to buy a new car. I want to replace the one I have – well, I’m still going to keep it around as a backup because I basically repaired everything that needs to be repaired. It’s got 200,000-plus miles on it like it’s fully depreciated. It’s perfect. It’s a great backup car to just keep around, barely cost me anything on insurance. It’s sweet, and my family can use it – siblings, parents, whatever – running to the airport. It gets great gas mileage so I’m like, okay, I’ll just keep it around. It’s not worth trading in or even selling. But I want to upgrade something that I can kind of be a nice commuter car that’s more comfortable and just something nicer like I really focused so much on my loans that I’m like when I’m going to ever buy something that I like? Like just for me to enjoy because that’s supposedly part of the reason we make money but I’m kind of bad about spending money on things that I can just use that don’t have an explicit investment purpose; you know, growth plan. So I could just drive this thing forever into the ground and save some money here and there but I really would like to do something, you know, and get something nice that I enjoy that’s just fun and comfortable and easier on my back and stuff. I’m not that old but I’m getting old enough that I appreciate a comfortable seat if I’m driving a lot, you know.
 
Jon: So like back in the day are you like the Lincoln level, like Cadillac, like you want that nice, smooth ride?
 
Trevor: Yeah, so I’ve been prioritizing like a smooth ride and comfortable seat like good back support. The Prius that I have doesn’t even adjust up and down. It only adjusts back and forth. So I hadn’t been in a car like that in a while when I bought this one. So, you just end up at the same height, you know, no matter where you’re at. It’s just tough, yeah.
 
Jon: We’ve always been an old soul.
 
Trevor: Yeah, and the body catches up, right?
 
Jon: Yeah.
 
Trevor: That’s what I’m looking for and when I called you I was just like let’s make sure this is kind of what I have in mind. I’m thinking about a car payment in the range of 500 to 800 or something. Get something that’s 60- to 70-something a month amortization, the lease period, and that will get me in the range of 700 to 850 or so. The going rates for the insurance – sorry, for the loan – the interest rates are 3.5 or 4 percent, maybe higher depending on your bank and all that, but I’m getting quoted like around there. good credit is like 730-plus and I’m set on that. So, none of this obviously is bragging, I don’t know. I doubt that sounds like bragging to say my credit score is over 730 but I just want to be clear. I don’t’ really care. I’m not trying to sound like fancy or cool or anything. I’m just saying, here’s my example, you know. Four months out of residency, I paid off on my major loans. I want to drive something a little bit nicer and just enjoy that. I’m coming from the flip side like I’m having a hard time letting myself spend a little bit of money, so I’m finding, because I’ve been so nose down, pay off as much as possible my debt, and now I’m like, “Oh, is it okay if I don’t buy a Toyota,” you know, and it’s kind of almost like a psychological process to walk through like, “Oh, but this costs a little bit more,” and then I look at the miles per gallon for luxury cars. They’re not as good as like a Toyota Hybrid or like a Lexus Hybrid. I’m like, “Oh, it’s going to cost this much per year in gas and if gas doubles in price, it will be even more proportionally.” But at the same time like, you know, what am I working hard for and making money for, you know? So if I’m not going to spend it sometimes on something that I enjoy, it’s like, man, what’s the point, you know.
 
Jon: Well, my normal answer is you’re making more money to buy more Bitcoin.
 
Trevor: Yeah, right, right, right. That’s my normal answer, too, and I do love that perspective but you know what? Bitcoin goes down and up, right, so I think I’ve got a pretty rational regular plan on my investing and I got that portion of my income set aside so it’s like, well, I can do that. I don’t really want to buy a home and investment properties. I mean that’s investments – all that stuff. I keep thinking, oh, I could do more investments. Well, I’m already doing investments.
 
Jon: Yeah.
 
Trevor Found His Car! [0:10:20]
 
Trevor: I’m already being responsible. So, anyway, I don’t want to be too redundant but that’s kind of in the process. I found a car I like and now I’m just going through the, you know. I know the exact payments that’s going to cost. I just got quotes on the insurance and I compared the Toyota Hybrid car to this other kind of more like luxury car. It’s still not German. It’s still one of the lower cost ones but it’s like the Hyundai sub-brand Genesis. I’m like, “Oh, these are cool.” I kind of like the look of them. They’re a little more comfortable but they’re not like the cost of a Mercedes E-class or a BMW 5 Series or something like that and the maintenance won’t be quite as expensive. So I’m still being like very financial about it even if I’m trying to make more of a fun decision.
 
General Rule Of Advice: Buy A Two- Or Three-Year-Old Car [0:11:04]
 
Jon: So what’s the – I mean we’re going to talk about a couple of different things here in terms of what’s normal advice for buying a car and then what’s it like these days and how do we have to tweak that a little bit. Normally, when we’re looking at a car, I mean, general rule of thumb that I would say to anybody that can and I would say, you know, this is one of those Dave Ramsey would probably agree with – don’t buy brand new car. I think people know that in general but these days that may have changed and be a little bit different. Because the used car market is so tight and unprecedented and just availability and all those things, we may have to re-look at some of those things. General rule of advice? Buy a two- or three-year-old car, pay cash for it, but we’re still in a fairly low interest rate environment. You know, good two- or three-year-old cars are nearly as much as a brand new car so we’re getting one of those weird times where conventional wisdom doesn’t necessarily apply as much. Back in 2004, the government came out with this cash-for-clunkers deal like they were short on – I can’t remember what it was. If people were getting part of scrap metal, there were some issues there. There was just – I don’t remember what it was – but there was a- maybe it was to help the car industry or something like that but they did this Cash for Clunkers where the government was giving a certain amount for no matter what shape your car was in, you were getting money for these used cars and so that bumped up the used car price quite a bit and I ended up buying a brand new car for the first time because for like, you know, a few thousand more, I got the full warranty and a brand new car and all that kind of stuff. I was like, yeah, that kind of make sense.
 
Trevor: Yup.
 
Jon: But we’re kind of in an another time different reasons but similar outcome and things kind of have to go out the window. Yesterday, Trevor and I talked a little bit about how much of your- so let’s say you’re not paying cash, how much of your budget should be going towards this? So, he and I talked about student loans. We talked about other outstanding debt, if any; other payments, and one of the big things that I talk to any resident and any physician that I’m doing a budget with is what is the percentage that should be going to any debt – car payment included. So, all told, generally, 45 percent is what you want to be allotted; no more than that. I’m not saying that’s your goal. You won’t get up to that point, but that’s kind of the limit where you’re safe. So, 45 percent for any debt, that’s of your gross income; 25 percent of that is usually housing payment; again, these are maximums recommended. So, that being the case, we talked through some of that but that’s still, you know, I think the environment is still the same for something like that today. So, walk us through, Trevor, what was the process like these days for buying a car.
 
Process For Buying A Car These Days [0:13:46]
 
Trevor: Yeah, so what I learned is it’s definitely different than last time I was looking. I looked back in 2014 when I was switching out of a car that was just costing too much to repair and then had just one car between then and now until last year. It’s interesting. I went over and looked at a Kia Telluride. I’ll just give a couple of specific examples.
 
Jon: Okay. That’s a Crossover or?
 
Trevor: That’s a full-on SUV.
 
Jon: SUV, okay.
 
Trevor: It has a third row, bucket seats in the middle, really easy to get in and out of, good like family car but four-door SUV. So, great car, really highly rated – one of the highest rated on Consumer Reports. I’m really into Consumer Reports. It’s great to read about all the detailed testing they do.
 
Jon: Does Kia still have good reviews too?
 
Trevor: Awesome car. Yeah, they have great. Really, honestly, a lot of – I’m not seeing bad warranties really anywhere in the Toyota, Hyundai, Honda range. Honestly, it’s like the American automakers that have kind of like the worst ones like I remember when I was looking at Ford five years ago – I haven’t even looked at them this time – but it was like three-year, 36,000-mile, engine drivetrain, and Hyundai is 100,000, 10-year. They’re kind of known for being one of the higher end ones. So, yeah, I mean if you’re looking for warranties like…I don’t know that American cars have like good warranties but I can tell you the other – Toyota, Hyundai, Kia – they’re all pretty good. I think Kias might be a little less but, regardless, checking out the Telluride, really highly rated objectively by that source and it was on a lot of 61,000 dollars in the MSRP, meaning, like the price it’s assigned at the factory when they make it was 51,000 so it’s currently available and it’s 10,000 more than it should be new. So, I was just chatting to the guy about it – the salesman – and I came back a week later because they wouldn’t really budge on price. They were like, “Oh, we paid 6,000 over asking from another dealership to bring it here to sell.” I’m like, “Okay, all right,” whatever. So, I come back a week later. I’m like, “Hey, you told me the car would be off the lot in a matter of days yet it’s still there. You’re willing to come down on the price,” and they’re like, “Nope,” and I was like, “No problem, not interested.” But I picked their brains a little bit more like so interesting. Obviously, this is kind of new. It’s good and bad for you because you have less volume but you have to sell these cars and then you just basically have to charge more if you want to make the same. Obviously, most of the dealerships make their money on repairs, not on selling cars, but now they could do a bit of both but it’s low volume. He said if I buy a new one and I’m willing to wait – 10 to 12 months is the lead time from willing to wait – then I just pay MSRP and I can do a refundable deposit. So, I think part of the reason that cars are kind of gone is because people have been doing that like a year ago, they would buy and they put 500 down, fully refundable, and when the car would arrive, they could just buy it and they don’t have to buy it, they’re not obligated, fully refundable, but if the market is still tight, they can buy it and just flip it. They can sell it immediately for more. There’s got to be people out there that are speculating on these cars. There’s no penalty for not taking delivery when it arrives so you’ve got a little bit of cash here and there. There’s got to be people that are probably making decent money on that. I saw there’s an article about a guy who has been doing this with Tesla. He has bought like four or five in the last year and flipped them for 7,000 a piece on average and he was doing no work other than putting a hundred dollars down and then financing a vehicle and selling it immediately and he’s making seven grand a quarter doing that, you know. That’s no work – not no work – but it’s slow work and it’s a business, you know. He’s looked at all the details. Anyway, so, there are some ways to get them for cheaper as long as you’re super patient, you don’t have an immediate need. So, if anyone’s looking at cars and they’re like, “I want to wait a year,” I mean go look at cars now, decide, put down 100, 200, 500 or whatever it is, fully refundable. For any physician and healthcare workers listening, that’s a totally reasonable amount of your paycheck. If you’re thinking about a car a year from now, you should easily have that that you can put down and then you save, you know, what is that like, about 20 percent, a little bit less on that. if you’re going from sixty grand to fifty grand, that’s an amazing return on your money. You’re making ten grand over a year essentially versus buying it.
 
Jon: Just for waiting, right.
 
Trevor: Just for waiting. It’s really interesting. You can buy used but it ends up being almost the same price as the list price if it’s a year-old, two years old. Some of them sell for more even than a new car because of immediate availability. It’s variable, depends on the brand, depends on your area, but if you go on Carvana, CarGurus – these apps – searching around for cars, you’ll see. I mean, they’re really just…you just can’t find them. They’re super hard to find. If you want a hybrid, it’s like impossible. So, that’s the gist of kind of the market if you’re looking for what everyone else is looking for, when everyone else is looking for it. That’s going to be the hard thing to find so right now that’s high gas mileage, sedans, and SUVs, so hybrids are really tough to come by.
 
Jon: Yeah. So as gas prices have gone up, have you noticed more SUVs, full-sized trucks available – that kind of thing – or not really?
 
Trevor: Totally. You can go buy whatever Toyota 4Runner you want from any Toyota dealership right now.
 
Jon: Okay.
 
Trevor: You can get any color, any version, interior, exterior, different technology packages, and trucks are still pretty popular so they’re not necessarily as easy as SUVs, I think, because there’s just such a big market for trucks but, yeah, you can find like a Toyota Tacoma in a lot of different colors without driving more than 30, 40 minutes away because their gas mileage is like 18, 22 or something like that.
 
Jon: For what?
 
Trevor: Anything in that like teen range, it seems like it’s pretty easy to find them.
 
Jon: I know the thought…there was a thought crossed my mind to sell my Suburban a few months ago but then as gas prices have gone up, that’s not so appealing anymore. What about financing? What’s the process? Financing what are options like out there? What is interest like out there?
 
Financing: What Are The Options? Interest Rate? [0:19:26]
 
Trevor: Yeah, it’s not. I thought it was going to be higher. I was kind of nervous. I thought I’d walk in, learn, find a car I liked, and then it would match sort of the housing market. I was fearing 5 or 6 percent rates. I was just thinking, I might need to buy a less car, but it’s looking like…here’s certainly the trick. The lower you can go on the amount of months you’re financing for, the lower the rate – dramatically lower. I was looking briefly at a Mercedes just mostly out of curiosity like E350 is a really nice car.
 
Jon: Okay.
 
Trevor: Everybody likes some pretty reliable for a Mercedes, you know. It’s kind of the second nicest luxury sedan below an S-class – those are like 120,000-plus S-class. These are like 70 to 80, you get a used one from the 60s. So like Mercedes in the 18, 19, 20 car years, they’ll go down at 1.99 percent and those are certified pre-owned. So you’re getting basically slightly older car, all the warranties of a new car, you know. They check the tires, they do all of the stuff, the replacement if they have to, and you get 2 percent financing. Well, that’s at 36 months. So your payments are like 1500 dollars a month. It’s like I think a student loan payment for a lot of people. So, for a rapidly depreciating asset, maybe they haven’t been depreciating much for the last year and a half but I don’t think anyone thinks that will be the case over the long term. So most people finance for that reason because they don’t want a lot of their cash flow each month to go into a rapidly depreciating asset even if you’re going to get all the way down at 2 percent. Like if I get a 3.5 or 4 percent loan on a 45,000- to 50,000-dollar car, I’ll end up paying around five to seven grand, really more like 5500 in interest over a period of 60, 70 months or so. It’s not like…I mean, it’s a chunk of interest when you think about it. That’s 10 percent more in final cost, but it’s not terrible. It’s worth it to not be paying 1500 dollars a month even if I saved three grand over the life of the payments. At least to me. You know, that’s where it gets like just a personal decision of what do you want to look like.
 
Jon: And relative to your cash flow and stuff.
 
Trevor: Yeah. I’m personally leaning towards trying to get something in like the 700-something dollar range, 4 percent interest. You know, a couple of years ago, that would have been 2 percent probably which is nice but it’s totally doable and, yeah, I’ll probably go with that. It gives me some space. You know, I could do it shorter and ratchet it up to a thousand a month and probably get down to like 3 percent or something.
 
Jon: Yeah.
 
Trevor: I’m just glad it’s not 6 percent, you know, like the housing market.
 
Jon: Is it through the dealership or is that a bank credit union?
 
Trevor: Really either. So, my experience with the dealership is that they’re like, “Hey, we can just throw this out to the local credit unions. They get the best rates for preferred lenders.” It’s the same process going through them as it is going through the bank. They kind of do it for you. I mean that’s what I found. You can kind of pick your poison. Some of them like I’m looking at other types of loans like for business ventures and you don’t want to do a bunch of hard pulls on your credit when you’re applying for other things at the same time unless you’ve got great credit. Maybe, it’s okay, but it’s ideal not to.
 
Jon: Which you pulled off, you’re awesome.
 
Trevor: Yeah, so I’m not doing a shotgun approach. I talked to one lender that was like, “Oh, send it up to 72 loan companies and get quotes from all of them.” You know, they say it’s a soft pull, but I’ve had soft pulls that are actually hard pulls before and so I never really believed anybody. Tell me if you’ve had different experience but I have had people said it enough times where I’ve ended up with a hard pull that affects my credit. I’m just like, “I don’t’ need 72 quotes, you know. I need one that I’m okay with.” Sure, it’s great to shop it around and check and maybe get a quarter percent and a half a percent. But in 50,000 dollars at half a percent, yeah, you’re going to save a little, maybe like 5.
 
Jon: Especially on 4 percent. Yeah, if it’s 4 percent, how much could this spread on the range actually be.
 
Trevor: It’s not going to be big, there’s not a big difference. How much, you know, for 500 dollars, you want to spend an extra week looking at cars, that’s a lot of your time driving to dealerships dealing with all that stuff. So just to have to remember, your time is valuable as well so I’ve gone with a simple approach on that and I was already pretty happy with those rates.
 
Jon: Okay.
 
Trevor: I think I’m pretty close to pulling the trigger on one of these and getting back to the life of driving a car with air conditioning. It sounds amazing.
 
Jon: Yeah. It’s pretty sweet.
 
Trevor: It’s going to be great and I’ve saved a ton of money over the last year driving this kind of POS but also a great gas mileage car. So if you sacrifice for a while, eventually, you know, it’s okay to let yourself go ahead and spend a little bit of money and enjoy your earnings.
 
Jon: Yup.
 
Trevor: I’ll report back and let you know if I’m actually able to do that but that’s what I’m going to try to do is actually enjoy some of my earnings.
 
Jon: Good.
 
Trevor: Hopefully, I won’t regret it. I don’t think I will but…
 
Jon: No. You got a good job. You got a good, you know. Your life is finally stable again after Jamaica.
 
Trevor: Traveling, yeah. Lots of great experiences and in one spot…yeah. Well, it wasn’t even worth having a nice car then, and now, I’ll be using it. I think I’ll drive about 20,000 miles a year or so with the new job because it’s kind of jumping around different offices so this is a good time to be doing what I’m doing. It makes a lot sense.
 
Jon: Okay. I like it. Okay, so you’ll find out you said in September-ish kind of what they’re thinking or before then on the car?
 
Trevor: For which part?
 
Jon: And the car should be in by?
 
Trevor: Oh, yes. I’m actually going to buy a used car. I’m going to buy a 2021 used car that’s pretty hard to find and if I order it new, they don’t have any lead time on it.
 
Jon: Okay.
 
Trevor: And you can’t order – the car that I want, you cannot order currently for next year even because they haven’t finalized the model design. So, I’m like, “Okay, cool. I don’t need a brand new car.” I would be happy with a 2019 or 2020. They just happened to have a 2021. It’s a very limited selection so you just kind of get what they got and I looked online; couldn’t find any online, so there you go.
 
Jon: Okay. Gosh, it must have been- I think I was doing a review with a client with a similar thing. They’re like waiting for a text from the car to tell them the car is in, they’re on its way or something like that and stuff.
 
Trevor: Yup, they ordered ahead and then they pay in full when it arrives.
 
Jon: Okay.
 
Trevor: Yeah. Typically, a pre-approval letter when you apply for a loan, you can get a pre-approval letter and you just go around and show them the piece of paper and then you’re good to go. They’ll kind of take care of the rest.
 
Jon: Like shopping for a house?
 
Trevor: Yeah, like shopping for a house. They typically only last like 60 days and you potentially have to apply for the loan twice like when you first go looking and then if they don’t have it and you order a year out, you would have to apply again before they get it in.
 
Jon: Yeah, that’s fair.
 
Trevor: Kind of a weird thing, just told me that, yeah, that can happen. It’s all new territory to be able to or to have to order that far.
 
Jon: Yup.
 
Trevor: It’s kind of interesting.
 
Jon: Okay. Well, super. Any other tips or tricks for our young docs buying a car? Anything else that you feel like, “Hey, here’s one or two things you should know or just keep in mind, they’re super important?”
 
Extra Important Tips In Buying A Car [0:26:02]
 
Trevor: Yeah, my wrap on the summary would be like use reliable objective sources to pick a reliable car.
 
Jon: Okay.
 
Trevor: So, Consumer Reports is pretty solid. Kelley Blue Book has just user reviews and people posting like, “This car sucks, I had to do this and that,” and you can see if there’s a trend of those. Like Consumer Reports is great. They do one big annual issue every year that just came out and that goes through really almost all of the cars commonly on the road in the U.S. So I used that as a final reference of, you know, even certain model years of a car even if you got a Toyota Corolla or something, incredibly reliable. There’ll typically be one kind of weak year where they were tweaking and generally the best cars are like three years after a new model year because they kind of work through some of the kinks the first year or two. You don’t often want to buy the new model. You get the newest refresh of a model year.
 
Jon: Right.
 
Trevor: You often don’t want to do the last one either from what I’ve seen because they kind of tend to tail off they’re working on the other car. So something in the middle. Toyota seems to refresh like every 8 to 10 years or so, so it gives you a wide range in the middle. I don’t think you can really go too wrong with a Toyota typical sedan if you had to choose and then Lexus is still like the most reliable car brand. That’s the luxury brand also owned by Toyota – the most reliable car company plus sort of. They’re number one and usually number two with Toyota.
 
Jon: Okay.
 
Trevor: I think that’s a very valuable thing. Depreciating asset should at least be a reliable depreciating asset.
 
Jon: Yeah, maybe, if anything, depreciates slower than some other car potentially or something, okay.
 
Trevor: Yeah, exactly.
 
Cars That Depreciate The Least Can Be Part Of Estate Planning (Long-Term Care Planning) [0:27:32]
 
Jon: Good, but it kind of reminds of another story. My dad was working with some older folks on some estate planning and part of the name of the game there is Medicaid planning or long-term care planning. They’re trying to get assets – money, investments, cash – out of consideration for Medicaid because if you have too much money, Medicaid won’t pay for your long-term care and you can’t just get rid of it because they look back five years to see what your net worth was or what you had but anyway. So he said you can put money into cars which obviously depreciate but he would like around for doing a research on cars that depreciated the least where they could kind of park money for these people and get it out of consideration, and at the time – what did they buy? It was like a BMW X5 or something like that that is holding its value the best, and so, there’s other ways that is useful but, all right. Well, I think that’s hopefully helpful on buying a car and whether you’re listening to this five years from today’s podcast or five days from it, it might be in a different car buying and selling environment but there’s some good rules of thumb for you to remember regardless and then some just little nuances about the time that we’re in this year. Are we headed towards a recession? Will these prices be dropping soon? Where is gas prices going? All these things. Perhaps while you’re listening to this episode, you already know the answers to these questions that I’m asking about the future. But either way, the financial advice that we have here is always solid and we’re always trying to prepare for whatever the future may hold, planning all contingencies and if it and when we need to. So, if you got any further questions on that, you know how to get a hold of us. Go to financialmd.com. You’ll find all the free resources there. You’ll find our financial planning app designed for residents. You’ll find the links to our YouTube, to our TikTok, our Instagram. We’re trying to get videos out at least once a week. So, TikTok, Instagram are going to be the best place to catch those videos and subscribe and follow those but you’ll see this video on YouTube and Facebook and please not only subscribe to this podcast if you haven’t yet – I’m assuming you have. I never know why they always ask at the end of each podcast I listened to – you need to subscribe to this podcast – like I’m listening to it. But what’s big is two things: Please share and please leave a review if you want this info to get out to other doctors. If you feel like it’s good, if you’ve benefited from Financial MD at all, get the word out. We’d love to hear from you. Shoot us a message. As always, Dr. Smith, thanks for joining us. Always a pleasure to hang.
 
Trevor: Yup, great talking with you, Jon. See you on weekend.
 
Jon: Yeah. We’ll see you guys next time.
 
Thanks for joining us for another Financial MD Show. Be sure to head over to financialmd.com to get more in-depth resources on financial tips for physicians and don’t forget to join the Financial MD community group on Facebook, where physicians at all stages of their career gather to share tips and get ideas on achieving true financial success. We’ll see you next time.
 
The Financial MD Show is for informational purposes only and is not an offer to invest. It is not financial, tax, or legal advice. Be sure to seek financial, legal, or tax professionals when making any financial decisions. Before investing, you should make sure that any investment strategy or investment meets your individual investment needs, goals, and objectives. Financial MD makes no claims or guarantees to individual investment performance. All investing involves the risk of loss as well as the potential for gain.
 
 
Resources and Links:
The White Coat Investor website – https://www.whitecoatinvestor.com/
Dave Ramsey: Ramsey Solutions - https://www.ramseysolutions.com/
What is Cash for Clunkers? - https://www.investopedia.com/terms/c/cash-for-clunkers.asp
Consumer Reports: Product Reviews and Ratings – https://www.consumerreports.org/
MSRP definition – https://www.cornerstoneauto.com/cornerstone-finance/car-buying-tips/what-does-msrp-mean/
Carvana: Buy & Finance Used Cars Online – https://www.carvana.com/
Buy & Sell Cars: Reviews, Prices, and Financing – CarGurus – https://www.cargurus.com/
Depreciable asset definition – https://www.accountingtools.com/articles/depreciable-asset.html
Hard pull versus soft pull – https://www.creditkarma.com/advice/i/hard-credit-inquiries-and-soft-credit-inquiries
Kelley Blue Book: New and Used Car Price Values – https://www.kbb.com/
Financial MD Website – https://www.financialmd.co/
Financial MD YouTube page – https://www.youtube.com/channel/UC6qEAQxK8L8JM7joy3wvdkA
Financial MD Facebook community – https://www.facebook.com/FinancialMD/
Financial MD TikTok – https://www.tiktok.com/@financialmd
Financial MD Instagram – https://www.instagram.com/financial.md/
Financial MD Twitter – https://twitter.com/financialmd2
Financial MD LinkedIn – https://www.linkedin.com/company/financial-md/?viewAsMember=true
Financial MD App – https://apps.apple.com/us/app/financialmd/id1507757039
Financial MD Apple Podcast –
https://podcasts.apple.com/us/podcast/the-financialmd-show/id1548024586

Ep 020 - Using Real Estate in Financial Planning

Summary:
Let’s Talk About Real Estate [0:05:01]
Diversification: Alternate Investments [0:07:48]
Pros And Cons Of REITs [0:10:33]
If You Want To Get Into Real Estate, Start With REITs [0:13:50]
Jon’s Personal Real Estate History [0:16:51]
Trevor’s Preference Regarding Real Estate [0:22:44]
Why Do People Don’t Like Bitcoin [0:26:29]
Jon’s Recent Real Estate Saga (All The Juicy Details Here!) [0:28:15]
They Got The Property; However, Problems Arose (But All Ends Well) [0:35:00]
Government Regulate and Control Things; But It’s Usually For The Benefit Of the Consumers [0:40:41]
 
 
Welcome to the Financial MD Show. This is the only podcast designed specifically for residents and young physicians to help you become educated on financial planning for physicians and avoid many of the common financial mistakes doctors make. Your hosts, Jon and Trevor, explore a different topic with each episode. Jon Solitro is a financial planner and certified financial education instructor. He’s been working with young physicians for the better part of the decade and lectures to graduate medical programs around the country. Dr. Trevor Smith is a board-certified ophthalmologist with a full-time practice and he has learned the ins and outs first-hand what it takes to make smart financial decisions as a young physician. And now here’s your hosts, Jon and Trevor.
 
Jon: Welcome everyone to the 20th episode of the Financial MD Show. Today, Trevor and I will get into a topic that we get a lot of questions about and we’ve done a couple of Didactic Minute videos on and those are only 2 or 3 minutes and so we decided to dedicate a podcast episode to it because a lot of our doctors ask us this question specifically about real estate – When is the right time to invest in it? How to invest in it? What’s the right way? – and there are several different ways to do it out there and they all have their pros and cons so we’re going to go into that today from literally buying real estate or rental properties or flip properties all the way to just buying some mutual funds that have real estate in it. So, listen up, take some notes, shoot us any questions if you have them, please leave a review, and here’s the show:
 
Jon: Welcome again to the Financial MD Show. We’re so excited to be continuing and jumping into 2022. How’s it going Trevor??
 
Trevor: It’s going great. Yeah, I’m among the COVID-positive so that’s good. I’m on the other side of it and get to look forward to not worrying about getting other people COVID.
 
Jon: That’s right.
 
Trevor: It’s kind of nice.
 
Jon: Yeah.
 
Trevor: The not knowing is half the terror or the frustration or the whatever. I mean, my whole family has pretty much had it now so it’s like we can just go anywhere and do anything we want now. You know, it’s kind of nice.
 
Jon: That’s a beautiful thing.
 
Trevor: Yeah. The New Year brings gifts and new forms.
 
Jon: Yeah, good. Your holidays were good?
 
Trevor: The holidays were great. I got to do a little Florida trip. That’s not where I got the COVID, contrary to what people would probably guessed. A local brew, but yeah, so I had a good holiday; got to get a little bit of warmth pre-holidays. I got to do a trip to Jamaica, do some surgery done there. It was really good December, and January is kicking off, pretty busy already. How about you?
 
Jon: Yeah. We had a crazy time. On the 21st of December, we flew down to Florida with me and wife and four kids and spent a week in Fort Myers. During that week. we flew up to Orland, just my wife and I, to see some friends for dinner overnight, stayed there, came back in the morning and then we flew from Fort Myers to Austin, Texas and did five days there with some friends and their kids and then flew back to Michigan. In all, I counted it; my wife and I were on six planes over the course of two weeks.
 
Trevor: Wow, that’s a lot of planes.
 
Jon: It was just like had the process down.
 
Trevor: It’s lucky, I guess.
 
Jon: Yeah. So got a lot of miles but used a lot of credits and I did a TikTok video in the airport about using airline miles and doing all that kind of thing. Grand Rapids Airport, by the way, has massage chairs while you wait. They’re like five bucks for 10 or 20 minutes. It was nice; so a little plug for Grand Rapids Airport. I love it.
 
Trevor: I have to check that out. I go through there all the time. I’ve never noticed the massage chairs.
 
Jon: Oh yeah. So when you get to – let’s see. You go through security and you can basically go left to right. So if you go to the left, those gates, you’ll go up the hallway, take a right then you start to get into the gates. Right before you get into the gates section on your left, there’s about four of these massage chairs.
 
Trevor: Yup, all right now.
 
Jon: Well worth it. Check it out.
 
Trevor: Nice.
 
Let’s Talk About Real Estate [0:05:01]
 
Jon: Other than that, nothing too new or noteworthy. Life is good. Today, I thought we’d focus on how we talk about real estate in terms of financial planning and what kind of an allocation or a piece of your financial picture does it take and when is the right time to do that, what kind of ways there are to do that, and we could spend several episodes on this so we’ll just kind of do some quick overview. It may lead to a part two or three, etcetera. In general, I get this question especially when our attendings are getting to that point where they’re doing well. In fact, I just had this conversation with a couple. They’re both anesthesiologists, they’re in Nevada, and they’re killing it in terms of saving. I love this couple because they are making a high six-figure income. One of them is in the military, so a lot of things are cheap. They’re daycare their housing like all that kind of stuff. They’ve got two kids and they’ve kept their life pretty reasonable and have an enormous surplus that they’re saving and we’ve figured all sorts of tax free ways. I mean I think they’re saving a couple of hundred thousand a year pre-tax due to some self-employed business owner type of loopholes and things which is another conversation for another time. All that to say, they are well funding their retirement to when we have these every six-month reviews like we did yesterday, and I said, okay. They’re like, how are we doing towards retirement savings, and I’m like, you guys probably no surprise to you that you’re well over a hundred percent on track for your goal so you can basically retire a lot earlier than you planned on or you can plan on a lot more money in retirement than we had originally planned on but either way, you’re doing kind of all the normal stuff. You’re putting into mutual funds and stocks and IRAs and 401(k)s and defined benefit plans and they’re saving in a regular brokerage account and they’re doing all the stuff. I said this is about the time when we start having the conversation about diversifying more when we’re as diversified as we can be in an investment account. They’re very stable and have checked all the boxes, otherwise, how much should we put into something outside of the normal?
 
Diversification: Alternate Investments [0:07:48]
 
You might call them alternative investments and everybody’s got a different concept of what that means but for our conversation today, I said, have you thought about investing in real estate. And they said, yeah, you know, we’ve kind of thought about that but we didn’t know how and it sounds really complicated of buying property. Again, I think I did a video on this a few weeks ago – maybe a couple of months ago – about the different ways to get involved in real estate. And there’s the ways that everybody expects or knows how as far as you buy a house, you rent it out, you manage it, they call you when the toilet clogs – all that kind of stuff – and that’s “investing in real estate.” Then there’s the other end of the spectrum where you basically just buying real estate funds in your investment accounts, and we do a little bit of that anyway. Then there’s kind of this middle ground where if you’re an accredited investor, which means, basically last I checked, you’re making a couple of hundred thousand a year consistently or you have a net worth of at least a million dollars, then you can invest in these real estate – what would you call them, Trevor, syndications – is one way of thinking about it. It’s a fund but it’s not like a mutual fund. It’s a private fund. It’s a hedge fund. It’s a real estate fund. So you’re actually giving your money and a lot of these minimums are at least 50,000 to 100,000 dollars and this company like Cadre, you may have heard of; Fundrise, CrowdStreet. There’s a bunch of them like this now. We’ll post a list of – I think there’s 15 to 20. I found an article that was listing all of them but you get actual…it’s called a limited partnership essentially and so you get some shares and you can actually pick the actual property or project that you’re investing in. It might be apartment building or commercial and then you get a benefit from the investment growing so the value of it grows which helps you when you go to sell that investment one day. The other benefit is you get monthly rent, so you participate in the monthly rent from the project. And there’s different types of that. Some that are more focused on rent, some more focused on what they call capital appreciation, but those are kind of offhand a few of the ways. Anything to add to that, Trevor?
 
Pros And Cons Of REITs [0:10:33]
 
Trevor: Yeah, no. I mean, real estate is definitely not been something I’ve looked into too much. The only thing that I’ve read a little bit about was REITs, the real estate investment trust, and I’ve read a handful of articles just enough to know that I was not really at the point where I wanted to do that yet but there’s owning and then there’s sort of like somebody else owns it and manages it and it’s almost like just a stock version of real estate.
 
Jon: Right.
 
Trevor: That’s like a REIT, and so there’s more tax benefits on the direct ownership side.
 
Jon: Correct.
 
Trevor: There’s more responsibility. There’s more headache. And then the other end of the REIT is just like the least amount of headache, the least amount of tax benefits, least amount of work but still a decent amount of returns. I don’t know if they’ve been la lot higher but I feel like the returns I tend to hear about for REITs is like 10 to 13 percent, kind of what aggressive stock portfolios used to return and then maybe up into – if you’re getting lucky and you’re picking a really hot one – maybe gets up until like the upper 10s or low 20s. Individual stuff – that’s more like they own tons of stuff so you also get the benefit of the diverse portfolio of real estate versus if you buy the house down the street and you’re the landlord. If your local area tanks, you might get a minus 10 percent. You might get like a loss but if your local area goes crazy then you get like 30 or 40 percent return. You can pay a lot of taxes on it if you want to flip it because you can hold it for a year or whatever. Those are the pros and cons that I like, and those are on the extremes and then there’s like all these different real estate vehicles kind of in between those two.
 
Jon: Yeah.
 
Trevor: I read about them and I was like it sounds fine but I’m good so that’s something of a thing.
 
Jon: Yeah.
 
Trevor: It will be, at some point, my thing. It’s just I really like to know everything about the entire breadth of the spectrum of something so if I understand the pros and cons on the ends and I would probably go more towards a REIT personally because I’m mobile and I’m single and I don’t want to have to stay in an area or give up a substantial percentage of profits to hire somebody else. I’m like a hands-on. I’m that kind of person I like to have the control. I like to be unlimited, so location-wise, real estate has not been something of interest for me but incredibly powerful and I’ve definitely missed out on growing my net worth because of that, but I knew that when I kind of got of it. I’m also missing out on any sort of substantial drawdowns. We haven’t had any. So right now, it just looks like I’m missing out on all the wins and all the profits.
 
Jon: I know.
 
Trevor: I have buddies that have two houses from residency; almost like that military thing where people move around, they buy one and then they rent it out and they kind of build the thing. So when the market’s going vertical, everyone’s a genius, right?
 
Jon: Right.
 
Trevor: Yeah, that’s my two cents on it. That’s what I know – a surface-y level of pros and cons.
 
If You Want To Get Into Real Estate, Start With REITs [0:13:50]
 
Jon: Yeah, and I’d say that’s about right and I think most people if they want to get into real estate should probably start with these REITs and especially these publicly-traded REITs that are exchange traded funds essentially. So real estate investment trust is that you’re buying a share of a real estate company or project and you do often get some monthly income from it but the tax benefits aren’t as much as if you bought directly or directly invested in the project, but that’s good because you don’t want the liability and sometimes the minimum investments to get into the other things. So, the REITs are good. You get to experience that. You can get some monthly income, experience the growth, and just having that diversification in your account so that if you got all stocks and mutual funds here that are pretty much all equities, maybe some bonds and stuff but no real estate, having a little bit, let’s say, 5 to 10 percent real estate, gives you that diversification, and a lot of stuff that I’ve seen, now granted this is from real estate guys, that say real estate has beaten the market over time, maybe, but it’s worth looking into especially when you factor in rent and capital appreciation or the growth and the value of the actual investment. When you add those together, you could definitely make an argument that it could beat the stock market over time. Either way, it’s what you call a non-correlated asset, so something that if the market goes up and down, often you’ll see bonds go the opposite way. Market goes down, bonds go up and vice versa. With real estate, it’s not so correlated, and when you’re doing investment analysis which none of you probably are but when a money manager is doing investment analysis, you’re looking at things like beta which are the number that is or you guys probably know some of this from stats in undergrad – correlation coefficient. You’re looking at R squared to C. If it’s 1, then these two things are perfectly correlated. One goes up, the other goes up by the same amount. If they’re -1, they’re perfectly correlated but in opposite directions. One goes up, the other one goes down in the exact same amount. If they’re zero, then there’s completely no relation. One could go up, the other one could do nothing or could go up or down; it’s just there’s no relation. So the stock market and real estate probably had not exactly zero but closer than bonds or international stocks or other things like that. That’s something to keep in mind, too. That’s just whatever you do, real estate will help you diversify your investments, and again, there’s lots of ways to do that.
 
Jon’s Personal Real Estate History [0:16:51]
 
I have one example I can talk about personally and I’ll give you my real estate history. I first really learned about it when I was in high school, and during my summers, I lived in East Lansing or near East Lansing and my best friend in high school, his dad owned probably 8 to 10 houses in East Lansing in kind of the student ghetto where every house was rented by students. There were families here and there but it was pretty much that was what it was and they were getting great rent from these houses. Now, he took care of them really well – me and my best friend and our other friend would work there during the summers. We’d do kind of the turnovers, and when we weren’t doing the turnovers, we were painting, cleaning, refinishing floors, just doing all that. We saw some really gross stuff. We saw some really cool things that we weren’t allowed to see normally and we saw just how that whole system worked, and I was like, that’s interesting. I didn’t think too much about it at that point. But then he got into college, and then in grad school, I experienced property management again but working for a big company that did a lot in East Lansing with student housing. So I’d worked on the leasing side a little bit, some property management, some marketing but got a good scope of that and then a friend of mine a couple of years later, we did a house flip so this was when in 2010 it was easy to find foreclosures and we found one for 40,000 or 50,000 dollars, maybe; decent little house. We kind of rehabbed it, flipped it, and made a little bit of money. So I experienced it on that side and that was really my last exposure to real estate. I’ve always read about it and wanted to get a little bit involved but I’ve also heard horror stories of just landlords even around Lansing here where they just get in and they want to get out of it, and one case, I mean, you and I both know Reuben had bought a bunch probably back in ’08 or ’09, maybe 2010 and they just never performed the way he wanted them to and he has had a hard time getting rid of them. So I hear those stories too which I vowed never to…you know, I kind of know the area well enough to know which places I don’t want to be investing in.
 
Trevor: It’s kind of like that’s the pro and the con of a hard asset.
 
Jon: Yeah.
 
Trevor: Right now, real estate – just to go back to the correlation thing –pretty much all assets are correlated right now, right. All going up about the amount of money that was added, you know, the amount that was printed roughly. You can compare different assets or even currencies and you can kind of overlap them – what’s a good example – like Bitcoin and U.S. dollar and like U.S. dollar and Euro and you can kind of skip them, right, just like a chemistry equation. You can go from what if A then B, B then C, and you can just do A and C. So you can kind of compare a lot of these different assets and they end up being like if you compare them to the amount of money that was printed, everything’s up just slightly above just like the printing of the money. I think that’s part of the reason; we’ll have to see if that continues or what they’re doing. The Fed is threatening, tapering and increasing rate slowly and they kind of said specific amounts that they kind of changed after a week, didn’t they. They might actually enforce them and the market might not crash if they don’t. There’s a lot of interesting things going on there. With hard assets, you’re stuck with them and they cost you something if they’re not making you money or if you sell them for more than you bought them for. It’s worse than having a liquid asset that you can just sell. Like Tesla stock tanks and you lose 30 percent of your money, you can execute on that and get out before it goes down 20 percent more and then you have lost half. But the benefit is there’s only so many hard assets in the physical world or some sort of digital signature world, which is the whole crypto, Bitcoin.
 
Jon: Blockchain.
 
Trevor: Yeah. so real estate has that pro but I do think people forget how much that’s a con. You can’t sell that house. It’s your house and it’s worth nothing, right. like people don’t want to pay money for it. You still own it and guess what? You get to pay taxes on it.
 
Jon: Yeah. At least if you have a stock that you can’t sell, it doesn’t cost you anything to hold it typically.
 
Trevor: Yeah, it is like if things really, really go south, people are going to remember how much it hurts to have hard assets that people don’t want.
 
Jon: Yup.
 
Trevor: It’s like having a business. Let’s say you sell clothing and you buy just a ton of cloth, whatever, you know, you make it from and you’ve got all these different colors and then two seasons later, you bought purple and nobody wants purple. You can’t beg, so you have to pay somebody to take it to the dump, you know what I mean?
 
Jon: Oh, yeah.
 
Trevor’s Preference Regarding Real Estate [0:22:44]
 
Trevor: That’s the downside of physical good commodity or real estate and that’s like one level larger like just the big picture. It’s why I haven’t gotten involved in real estate. It’s not because I don’t think you can make money and I think I should probably have some real estate but for me, the only kind of real estate I want to have is the kind of specifically useful to me. I want to have me as the owner-occupier of the real estate. So when I diversify my net worth into real estate, it’s going to be me owning a home and that’s in line with my goals, so you got to have your written financial plan. White Coat Investor always says – I totally agree with that – you have your written financial plan and you stick to it, and for me, my written financial plan is going to be my first real estate acquisition is going to be to try to grow my net worth. Like I said, I have lost out by not doing that but I want to be me owning a house in the town that I want to live in for a long time.
 
Jon: Okay.
 
Trevor: That doesn’t mean lifelong, but five years, 10; something where you could have a 1930-level, 1929-level event depression and I’d be 1945 equivalent like I want to live in this house and I don’t mind paying taxes on it because I bought it to live in it.
 
Jon: You’re right and you don’t really care what you paid for it necessarily because it’s a long-term investment.
 
Trevor: Yeah, you essentially don’t – I don’t know. It’s sort of – I don’t know if that’s a millennial take on real estate but it’s a noncommittal take on real estate.
 
Jon: Yeah? That’s okay.
 
Trevor: Yeah, those are – I don’t know. That’s what I’ve been thinking about because I think a house would be cool. Property is nice. I like hard assets that’s why I like Bitcoin, but it’s not mobile. It’s not transferrable. It’s not liquid.
 
Jon: Yup. Liquid, and that’s the word, I wanted to emphasize too was illiquid versus liquid. Stocks are designed to be liquid because there is somebody on a particular stock exchange that no matter what – they’re called market makers – and they’re creating a market to make sure there’s always demand or someone to buy a particular stock. So if something is publicly traded, there’s always going to be somebody to buy it for the most part. But if you hold shares of a privately-owned company, there’s no market for that typically. There’s some real estate too. The market’s got to be there and the market, no one has control over the real estate market.
 
Trevor: Yeah, like Bitcoin can go to zero because it’s liquid, right, you know, can meaning it’s technically possible because there’s demand, just like any stock can go to zero.
 
Jon: Right.
 
Trevor: That’s a benefit, I think, and I’d rather be in a liquid asset than illiquid asset in general or at least a large percentage of my net worth I’d rather be in liquid. But that’s a philosophical decision, you know. When I’m 55, do I want to have most of my net worth being illiquid assets? Not really.
 
Jon: Yeah.
 
Trevor: It’s 65, I guess, I would say. Fifty-five still kind of maybe – it depends on what the world looks like.
 
Jon: Well, and it depends if those assets are providing income for you too like what are they doing for you at the end of the day is the question.
 
Why Do People Don’t Like Bitcoin [0:26:29]
 
Trevor: That’s right. That’s why people don’t like Bitcoin. That’s why traditional investors like Warren Buffet don’t like it.
 
Jon: Because they don’t pay dividends?
 
Trevor: They don’t pay dividends. It doesn’t pay you anything and it “isn’t a business that produces something.”
 
Jon: Yeah.
 
Trevor: Yeah, which is I totally understand that argument.
 
Jon: That’s sticking to a philosophy, right?
 
Trevor: Yeah, it is, and that’s you should do. He’s been very successful and he has been not beaten. I think I kind of like pooh-poohed this at some point in one of our talks but he’s been losing against the S&P for 10 years or longer, I think, but he’s doing it with billions of dollars. It’s really hard to do. The flip side is like easy to critique but if you have tens or hundreds of billions of dollars and you’re still able to grow it at over 10 percent, it’s like kind of insane. That’s really, really, really hard to do.
 
Jon: Yeah, totally. I love those conversations of people like, well, my advisor’s doing pretty well, I mean I got about 15 percent, 20 percent last year, and it’s just I kind of rolled my eyes like well, you’d have to be an idiot to not get 20 percent last year where you just got to stick in some index funds and good to go, and obviously, that has no bearing in the future. So that’s kind of the pros and cons of real estate. My latest experience with real estate is…
 
Trevor: This is the part you got to talk about.
 
Jon: Yeah. All right, I’ll tell them everything. I learned a lot in a short period of time so far.
 
Trevor: Give them the full story.
 
Jon’s Recent Real Estate Saga (All The Juicy Details Here!) [0:28:15]
 
Jon: So, I listen to Grant Cardone sometimes who does a real estate podcast. I’ve just always thought, you know, I could get into real estate. I’ve learned enough from other people’s mistakes in it that I think I could do okay.
 
Trevor: Yeah, classic.
 
Jon: Classic, and so it wasn’t something I was actively looking for but something came along. By came along, I mean a push notification from Zillow popped up on my phone and it was like, hey, there’s this five-unit building for cheap, like 225,000 dollars. So I was like, and the other thing was again, I would say, if you’re buying real estate as a rental or flipper, whatever, the number one important priority is you got to know the market and so I knew if I was going to get something, I was going to buy it local where I knew the market. This one was about 5 minutes away from my house so I was like, yeah, I know that market. So I went and checked it out like as soon as it hit the market. My realtor and I went and saw it. So the other realtor – the listing agent was there – and the owner of the building was there which was kind of odd but I guess, well, I guess it made sense. They had to have a property manager there to let us in, I guess. It was my first time looking at “apartment building” and so it was five units. It was this house built in 1920 that had four units in the one house and then a small one-bedroom unit by itself bungalow-style. So I checked it out and walked through really just two of the units and bathrooms were nice, updated. Kitchens were good. like things were taken care of pretty well. My realtor was like, yeah, you’re probably going to need a roof on that single building there. I was like, okay, and we went in the basement and it was an old, unfinished basement that had some water in it which was fine. Nobody was really doing anything down there but he’s like, yeah, you may want to look into waterproofing that. All right, so I said, and it had five units that were all rented, averaging about 500 a month each, some one bedroom, some two bedrooms and so at 225,000 with 2500 a month coming in, that’s pretty good, okay.
 
Trevor: Yeah.
 
Jon: So I made an offer. I borrowed some money from a family member to make a cash offer just to get it. So did that, offer was accepted so we’re moving forward. A week later, we scheduled the inspection and I started learning things. I learned that five units and above is considered commercial so commercial loan, commercial insurance, commercial inspection. I had to add a sewer inspection because of that which was another 500 bucks. The inspection itself – the normal inspection – was 400 dollars. So we did all that and then I had a guy that does property management come with me and take a look at it too. So we had all these people doing this inspection, and during this inspection – the owner’s never there at a house when you do this – but in this case he was and he was this old Greek guy in his 70s and I found that he’d owned the place for 50 years – not exaggerating – and he looks at me and he goes, what are all these people doing here, and I was like, this guy’s a sewer inspector, this guy’s the housing inspector, this guy’s a property manager. He’s like, what do you need all these people? He’s like, you don’t need any inspection. He’s like every building I bought I didn’t have an inspection. I just trusted my own gut and he’s like, are you Greek, and I was like, oh, I’m Italian. He’s like, okay, close enough. He’s like, you’ll do fine. You don’t need to have all these inspectors. I’m like, well, okay, this is what we’re doing though and he just like he wanted us to spend 30 seconds in each unit. He was just concerned about pissing off his tenants. So inspection went fine. There were a couple outside exterior spots and we patched up, getting a new roof like we thought. Then the sewer inspection came back and was like, yeah, you’re going to need to run a new sewer line through the house and then about 10 feet out from the house. So I was like, all right. Then a few days later, a four-unit, maybe two or three blocks away, again pops up on my phone and I was like, hey let’s go look at this. I’ve learned a lot so far about this process. I also learned that a commercial loan to get this five-unit place was going to be 25 percent down and 15-, maybe, 20-year term is the most that you would see and higher interest. So all this stuff just started adding up to where a lot of things are going to cost me more than I thought. So I go to see this four-unit one which was appealing to me because I learned in the process a four-unit is completely different than a five-unit. Four-unit is much cheaper insurance. You can get a normal mortgage. You can get like all the stuff. So we go to see this four-unit one. a bunch of people had already saw it. It just hit the market. It was listed at 250,000. So higher a little bit than the other one, but it was nice. There was no basement. It was built on a slab. It was a lot newer, built in the 80s instead of the 20s, and there were four 2-bedroom units, cookie-cutter, like mirror images of each other; had a wash and dryer in them, like just nice. Good shape. Three of the four rented. Good long-term tenants. So even just with three rented, it was fairly profitable. So my realtor was like we got to make an offer by 7 p.m. today and it was like 5 o’clock. So we go through, think about it and I was like, yeah, let’s do it. We offered a little bit over asking. I knew there was some other offers on the table and I think offered 260,000 and they called us the next day and they said, could you do 263,000 and I was like, yeah, fine. So we got it, and then I cancelled my offer on the other one basically saying, okay, inspection not up to par, we’re going to withdraw our offer.
 
Trevor: Yeah, for sure.
 
Jon: I actually found out a couple of days ago, that one is still in the market.
 
Trevor: Do you have a referral code for that?
 
They Got The Property; However, Problems Arose (But All Ends Well) [0:35:00]
 
Jon: Yeah. No, I would not do that to anybody. So we go to the closing process, inspection goes fine. We go to close and we closed quickly because we used cash and I was going to then refinance and pay back this family member once the house is purchased. I just like to make a cash offer because you can usually either beat out other offers at the same dollar amount or pay less or whatever. So we get to closing, everything goes fine pretty much. That was the Tuesday before Thanksgiving. Wednesday comes and we get the keys on Wednesday and I go into see the empty unit and this one, they all did their own electricity but we paid for water as the landlords. So we’re going to this thinking, my wife and I are like we don’t need a property manager, it’s only four units, close enough, they seem pretty easy, we can take care of this ourselves. So we wrote this nice letter, introduced ourselves to the tenants. We bought them some pie. We dropped off a pie to each of them and then I go this empty unit and it’s freezing. The electricity was already shut off. So I had to call Consumers Energy. I call them on this Wednesday 5 o’clock – they’re closed. I called first thing in the morning but it’s Thanksgiving. They’re still closed. They’re not going to open for another two days. I’m like, oh my gosh, and it’s here in Michigan and the nights are starting to get below freezing and for those of you not in the Midwest or up in the north, when stuff gets freezing, your water pipes can freeze especially if there’s no water moving through the pipes. When standing water freezes, it expands. Pipes burst – you guys know this. So I’m freaking out thinking, I don’t know what to do. I’ve got Thanksgiving and the Black Friday with no electricity in this unit but water’s on. So I go over there, turned on all the faucets and all the bathtubs just to get water running through the pipes and I go back two or three times a day and I was losing sleep and then halfway through that day, I realized, I forgot to get insurance. So I had no insurance and I can’t believe I’m admitting this as a financial planner but I forgot to get insurance. Because it’s like every other house I bought I had a mortgage and they make you get insurance. It’s just part of the process, right.
 
Trevor: Yeah, exactly, because of the cash offer.
 
Jon: Yeah, because of the cash offer. Nobody said get insurance. So I feel naked, exposed, liable; anything could happen in this property and I could be financially screwed for the rest of my life. I was like this is the day that somebody’s going to slip and fall and die and I’m going to get sued for 2 million dollars. So I’m over there taking salt and salting the sidewalks and just making sure everything’s fine and it just happened to be freezing rain that day too. So I called my insurance agent. He’s like sorry, I can’t help you until Monday. So I’m googling everywhere in the internet. There’s got to be some insurance company that does business on even Friday like every store in the world is open on Black Friday but no insurance agencies. It was finally Saturday morning 9 a.m. I get a hold of Consumers Energy. They turned the electricity on. Some insurance company calls me back. I’m able to buy coverage that day and I could rest a lot easier and then picked up the phone and called the property management company and said, yeah, I’d like to hire a property manager. I decided not to do this myself. Everything ended up fine but I overestimated a lot of things and didn’t take it super seriously in terms of like, my realtor said, make sure you call the utilities and get those switched today, and I was like, okay, but tomorrow’s probably fine too and it was not; just the wrong day. It’s the worst because it was a four-day weekend with Thanksgiving. It’s the worst time to do that. But now we’ve got them and the tenants are paying rent on time and we pay a property manager 10 percent to manage everything and they do the leasing and record keeping and books and accounting and service and all that stuff. There you go.
 
Trevor: Nice. That’s what I would do if it was me but everybody’s different.
 
Jon: Yup.
 
Trevor: I think you said too when you were telling me about it initially like right after Thanksgiving, you said there’s different – I mean, I know that there are too. There’s different rates that people charge. Didn’t somebody try to charge you a deal where they got a percentage of the sale or something?
 
Jon: Yes, they wanted 3 percent of the sale price if I ever sold it.
 
Trevor: Crazy.
 
Jon: And they’re like, well, it’s because, you know, we have to do a lot to get ready to sell and we help you sell it and show it.
 
Trevor: Three percent? That’s what a real estate agent makes after all their training and work and showing people.
 
Jon: Yeah, if I sold it for 300,000, that’s 9,000 dollars.
 
Trevor: That is the clause that keeps them in business if I was to guess.
 
Jon: Well, they didn’t get my business so I went to a different property manager.
 
Trevor: Amazing. Read the fine print with everything. It’s very annoying but very true.
 
Jon: Yeah. There you go, kids, so hope that helps.
 
Government Regulate and Control Things; But It’s Usually For The Benefit Of the Consumers [0:40:41]
 
Trevor: The cash offer that really got you, it’s interesting how, you know, it’s just funny because I would have never thought of that, and we do get handheld a lot like in the U.S. especially. We’re really fortunate to be here because things are so regulated and controlled. It’s kind of annoying in some businesses and we don’t like to be controlled by the government but there are a ton of things in place to protect the consumer.
 
Jon: Sure. As an advisor like I have to get errors and omissions insurance and I have to get a surety bond. That’s all stuff I have to get and it’s to my benefit but it’s also the consumers benefit, so it’s fine.
 
Trevor: It is, and I’m somebody I don’t like that kind of stuff but it’s often there for a reason.
 
Jon: Yeah, like you as a doctor, employers won’t hire you a lot of times unless you have tail coverage if you had a claims-based or policy and all that kind of stuff. That kind of thing.
 
Trevor: That reminds me, I need to get a paper copy of the tail that was paid because I put that in my last contract; made sure I negotiated that the tail would be paid by the practice that had me there.
 
Jon: There you go.
 
Trevor: It’s not too expensive. That’s one of those things that gets expensive if you’ve been working for 5 to 10 years.
 
Jon: Yeah, for sure.
 
Trevor: For shorter periods of time like I basically I did a locum’s position with an optionality to change to permanent and then I elected not to do that, being pretty short period of time for locums and that goes into account, but it was a good reminder because I need to get that in paper and put up my files.
 
Jon: Yup, there you go. I’m glad – see these little things a good reminder.
 
Trevor: Yeah, insurance. There’s always more things to insure. It seems like there’s more things to be thorough on no matter what.
 
Jon: Absolutely but I’m a big believer in that. I mean, we have the errors and omissions. We have cybersecurity insurance.
 
Trevor: Identity theft.
 
Jon: You’re right.
 
Trevor: You can get the tax thing you pay for that, make sure you get it all back and they help you with it.
 
Jon: Yup. I’m good with that. Well, all right, I think we gave them a lot of stuff, Trevor.
 
Trevor: Yeah, it was great. Good catching up with you as always.
 
Jon: Yeah, you too.
 
Trevor: Talk to you soon.
 
Jon: Thanks to our listeners. Hope you enjoyed it. Be sure to check out the Financial MD community on Facebook if you like what you hear here. There’s a lot of discussion happening there and if you want more videos, get us on TikTok and Instagram and if you want portrait mode, shorter, or if you like the landscape view, go to YouTube and Facebook and no shortage of stuff there. So hit us up if you’ve got questions on anything we’ve talked about in any episode at financialmd.com. Take care, guys. We’ll see you soon.
 
Thanks for joining us for another Financial MD Show. Be sure to head over to financialmd.com to get more in-depth resources on financial tips for physicians and don’t forget to join the Financial MD community group on Facebook, where physicians at all stages of their career gather to share tips and get ideas on achieving true financial success. We’ll see you next time.
 
The Financial MD Show is for informational purposes only and is not an offer to invest. It is not financial, tax, or legal advice. Be sure to seek financial, legal, or tax professionals when making any financial decisions. Before investing, you should make sure that any investment strategy or investment meets your individual investment needs, goals, and objectives. Financial MD makes no claims or guarantees to individual investment performance. All investing involves the risk of loss as well as the potential for gain.
 
 
Resources and Links:
Understanding defined benefit plan – https://equitable.com/retirement/articles/understanding-defined-benefit-plans
What is an alternative investment? –
https://corporatefinanceinstitute.com/resources/knowledge/finance/alternative-investment/
What is syndication? – https://www.1031crowdfunding.com/education-center/blog/92-what-is-syndication
Cadre | Real estate investing, reimagined – https://cadre.com/
Fundrise website – https://fundrise.com/
CrowdStreet: Online commercial real estate investing platform – https://www.crowdstreet.com/
Best real estate crowdfunding sites of 2022 – https://www.investopedia.com/best-real-estate-crowdfunding-sites-5070790
Real estate limited partnership – https://www.businessinsider.com/personal-finance/real-estate-limited-partnership-relp-definition
Capital appreciation definition – https://cleartax.in/g/terms/capital-appreciation
What are REITs? – https://www.investor.gov/introduction-investing/investing-basics/investment-products/real-estate-investment-trusts-reits
What is an ETF? – https://www.schwab.com/etfs/understand-etfs
What is a non-correlated asset? – https://insights.masterworks.io/finance/investing-strategies/what-is-a-non-correlated-asset/
Hard asset definition – https://www.accountingtools.com/articles/hard-asset
What is liquid asset – https://economictimes.indiatimes.com/definition/liquid-asset
Making sense of Bitcoin, cryptocurrency and blockchain –
https://www.pwc.com/us/en/industries/financial-services/fintech/bitcoin-blockchain-cryptocurrency.html
Liquid vs illiquidity – https://www.connectinvest.com/resources/blogs/liquid-vs-illiquid-assets/
Podcast Cardone Zone – https://grantcardone.com/podcast/
Errors and omissions insurance – https://www.thehartford.com/professional-liability-insurance/errors-omissions-insurance
What is a surety bond? – https://www.suretybonds.com/what-is-a-surety-bond.html
Tail coverage: What it is and who needs it – https://www.magmutual.com/learning/article/tail-coverage-what-it-and-who-needs-it/
Cybersecurity insurance: What it is, which businesses need it – https://www.nerdwallet.com/article/small-business/cybersecurity-insurance
Financial MD Website – https://www.financialmd.co/
Financial MD YouTube page – https://www.youtube.com/channel/UC6qEAQxK8L8JM7joy3wvdkA
Financial MD Facebook community – https://www.facebook.com/FinancialMD/
Financial MD TikTok – https://www.tiktok.com/@financialmd
Financial MD Instagram – https://www.instagram.com/financial.md/
Financial MD Twitter – https://twitter.com/financialmd2
Financial MD LinkedIn – https://www.linkedin.com/company/financial-md/?viewAsMember=true
Financial MD App – https://apps.apple.com/us/app/financialmd/id1507757039
Financial MD Apple Podcast –
https://podcasts.apple.com/us/podcast/the-financialmd-show/id1548024586

Ep 010 - Investing in Startups Part 1

Summary:
The Concept In Investing In Startups [0:02:11]
Good Ideas Fail All The Time In The Marketplace [0:06:50]
If You Cannot Put Numbers To It, You’re Gambling; Not Investing [0:09:25]
Everything Goes Up Including Housing [0:16:04]
Have A Specific Time Horizon When Investing [0:18:23]
Dunning-Kruger Effect – Expert Bias or Self-confidence Bias [0:23:10]
By The Time You Hear About It, It’s Too Late [0:24:39]
Fear Of Missing Out (FOMO) – Step Away From This [0:31:14]
 
 
Welcome to the Financial MD Show. This is the only podcast designed specifically for residents and young physicians to help you become educated on financial planning for physicians and avoid many of the common financial mistakes doctors make. Your hosts, Jon and Trevor, explore a different topic with each episode. Jon Solitro is a financial planner and certified financial education instructor. He’s been working with young physicians for the better part of the decade and lectures to graduate medical programs around the country. Dr. Trevor Smith is a board certified ophthalmologist with a full time practice and he has learned the ins and outs first-hand what it takes to make smart financial decisions as a young physician. And now here’s your hosts, Jon and Trevor.
 
Jon: The topic that came to my mind which I don’t think we’ve really delved into before is – I think people probably hear about investing in startups so I know some about that. I figured, you know, that’s something that comes up as people just…I don’t know. I seem to read about it all the time just in any kind of investing news about researching startups and ventures and tech startups and just all that kind of stuff so I figured that should give us a good amount of conversation on that. We’ll start up pretty basic and maybe get a little bit more advanced into what we know or what we’ve been experienced in the tip of things and what comes to mind and see if we can give some helpful information that would apply to people that are doing it currently or thinking about doing it or think about one day maybe down the road they’ll do it. In general, we talked about investing in terms of you put your money somewhere hoping it will grow whatever different purposes. Most people know of investing, they think of Roth IRAs or stocks or mutual funds – all these different words – which, yes, basically means putting your money somewhere to grow for a purpose.
 
The Concept In Investing In Startups [0:02:11]
 
And when we talk about investing in startups or small companies, most of the things that 99 percent of the public is invested in are publicly traded companies or funds through their IRAs or their 401(k)s or brokerage accounts or whatever, but they’re all typically publicly traded and that’s something we’ve kind of gotten into a little bit in previous episodes or if you watch any of the Didactic Minute videos from my YouTube or Facebook. We talked about kind of basics of investing and that would be explained in there, so reference that. But today we’re going to talk about investing in businesses that are very small businesses – sometimes brand-new businesses – and they’re not publicly traded so you can’t go in a stock exchange and get them and so they are technically a private transaction between you and this company getting shares of a company and there’s a lot of different ways and forms that this can take, and typically, your money’s going to be locked up for a certain amount of time and you’re hoping for drastic growth compared to, let’s say, you put into mutual funds or S&P 500 Index Fund or whatever. You’re hoping for a pretty steady rate of return, maybe some slight ups and downs, but long-term, shooting for maybe 10 percent a year growth, give or take, and so that’s predictable. What’s not predictable is when you invest in a small startup company because it’s really a gamble. It could go either way. The startup company has no history. It’s got a new idea sometimes, but you’re putting a certain amount of money and usually there’s minimums – 50,000, 100,000, whatever – so this is not necessarily geared towards residents typically but a lot of attending physicians that we work with get to the point where they’ve got this cash and they’re maxing out other things and they say what are some other creative things that I can invest in. And there’s tax benefits that we won’t necessarily get into but you’ll see these called private placements or Reg D, RD’s private transactions. A lot of times you do need to be in an accredited investor – so making 200,000 a year plus or net worth of a million dollars or more – those are the SEC’s guidelines for what is an accredited investor that can then invest in these private investments. They assume that you’re knowledgeable, experienced, and savvy enough with that kind of money to both: A. have a capacity to risk that, and B. you probably know a little bit about money given you’ve reached that point. Now, we’re talking to doctors here who just because they’re wealthy doesn’t mean they know a lot about money to be honest which is why Financial MD is here. So that’s not necessarily and all-encompassing, hey, you make decent money, you must know something about investing – no. So when you hear things like a tech startup or you see an IPO – an IPO is basically a startup that got a lot of investments over the years and has finally decided to go public – and again, that’s another conversation. This is before these companies go public and you’re getting kind of on the early stage or you’ll see things like the seed round or a series A, you know, these different terms that involve what phase of the business is it getting this money. When these investors invest, they get shares in the company, get equity so that when eventually it gets bought out for a billion dollars by Google or Amazon then everybody who invested early wins big. So that’s the gist of the concept. Trevor, what do I miss?
 
Trevor: Yeah, let me. For anybody that didn’t make sense to you because Jon’s kind of giving you like some different perspectives and different parts – different terminology – kind of like adding analogy throughout, so if that didn’t all make sense to somebody and they were just following like, oh, yeah, I know that…oh, I know what that is like, and you’re not investing in a company – don’t. I mean that’s not financial advice because I’m not an advisor. It’s definite not individual advice, but in general, you want to understand, you know, the market that you’re investing in. You want to understand the market for a startup for sure. You want to have some sort of kind of advantage to know whether something is BS or not.
 
Jon: Yeah.
 
Good Ideas Fail All The Time In The Marketplace [0:06:50]
 
Trevor: Good ideas fail all the time in the marketplace, like good ideas that are turned into businesses fail all the time. So you don’t want to invest in an idea so much as you want to invest in people and the application of a good idea, so the execution, and the business of the idea is what you want to invest in. My favorite book on the topic or maybe like the best book on running a startup and if you’re trying to be the startup guy would probably be Venture Deals which is kind of like the bible for raising any sort of capital from multimillion-dollar companies all the way down to smaller raises. It just gives you a good understanding of what all that mean like what are stocks, what is common stock, what is preferred stock, how do you want to structure a deal – that’s why it’s called Venture Deals. It’s a good book. It’s written by a couple like kind of Silicon Valley insider guys that wanted to educate themselves and other people on the system. They wrote a book and it sort of just…it’s almost like a how-to manual so it gets them into the nitty-gritty. That’s a solid one for people looking to do raises, for people investing. I haven’t done that but I know, you know, we know some people that do that. That’s like their thing, you know. They pull in people like me essentially so I’m hearing about things. I haven’t invested. I’m hearing about things and yeah, you want to big picture things like how big can a company get, you know, if you’re putting in 10 grand and it’s going to give you 10 percent and then the company is going to be 100,000 dollars so you got 10 grand for 10 percent. If you’re just even amount, then what’s that company at a 100 grand today, what it’s going to be worth later, what if it’s like successful because you’re ideally you’re getting in really early. So if it’s going to a million, you got like a potential 10 x return on your money. Now a 10 x sounds incredible and those are actually pretty rare even though you hear doing like a 50 bagger or 100 bagger or something like that. A ten bagger is still like ridiculous. You get a few times with a decent amount of capital and you’re going to crush it. But if you’re doing with 10,000, you know, and you get a 10 x, it’s only a hundred thousand, like that’s great, but like I think a lot of people think they’re going to get down on something or going to get rich, and you have to kind of look at numbers.
 
If You Cannot Put Numbers To It, You’re Gambling; Not Investing [0:09:25]
 
If you cannot put numbers to it, then you’re not investing. You’re just gambling. I think a lot of people end up gambling and they’re like, oh, it’s cool, I invested in a company. Don’t be cool. Be smart. Be cool. Do other things that are cool like get a new set of golf clubs or something.
 
Jon: Yeah, trying to be cool is how us guys get into trouble throughout most of our life.
 
Trevor: Yeah, yeah. That’s true in general. If you want to be cool, like buy a car and buy a 40,000-dollar Corvette, and at least you’re downsize is 40,000 dollars.
 
Jon: Yeah.
 
Trevor: Yeah, plus repairs and maintenance, but like at least it’s capped, right. But if you put the money in, you may end up investing more, you could get dragged through the mud. You got your emotions. You could lose a friendship if it’s a friend, so when I hear about startups I think high returns if successful, low likelihood of success. There should be a limit of size if they can articulate to you long list of risks and then the emotional toll of that.
 
Jon: And you’re not typically like involved in this company. It’s not like you’re all of a sudden…
 
Trevor: Yeah, you just give the money.
 
Jon: A partner.
 
Trevor: Right.
 
Jon: So you’ve got to be willing to a. this is money that you can part with and be ready for it to be gone forever, right. That’s the worst case scenario.
 
Trevor: Right, yeah.
 
Jon: But totally likely or, you know, also be ready to just invest it and not…like you said, the emotional volatility that goes into it too, like, don’t be following this company everyday seeing how they’re doing or checking up like…you don’t have that kind of stress sometimes so if this is something you wanted to get into at some point just know, yeah, it’s something, hey, I got this completely.
 
Trevor: Right.
 
Jon: Discretionary money that I can lose. It’s 5 grand, 10 grand…whatever it might be for you. I’m going to put it here and if it grows, great. I’m not going to pay…you know, I may get updates every month or quarter, whatever.
 
Trevor: Yeah, if you’re just the investor, that’s true. If you end up being a big investor or if you’re taking an active role, then it does get more interesting. You can do a lot of things. You can try to get on board. If you want to have control, you got to get a board seat. If you want to have like decision making that’s required to be considered by the rest of the group. You got to really have some things in a contract and then you’re like advisor and/or board seat and like there’s a lot of components. But if you’re like just giving your time, that’s another way people especially doctors can invest in a company. You can become an advisor. That’s nice because it just costs your time and potentially many have the emotional component. You have your own expectations. Expectation is like a huge part of this. It’s like what I’m getting to get out of it? How guaranteed is it? The answer usually not much and there’s no guarantee.
 
Jon: Yeah.
 
Trevor: That’s like business so doctors aren’t used to getting into business. Oftentimes, they’re like, I went to medical school and then I became a doctor and then now I get the salary and they always pay it to me and the only variability is how many RVUs or how much surgery I performed or patients I see and then maybe I get more or less but that’s not how everything else works out and that’s usually uncertainty and doctors often tend to go into medicine because they like certainty. Even though there’s uncertainty in medicine, there’s certainty and safety in the job.
 
Jon: Right.
 
Trevor: So I think there can be a…there’s a lot of doctors who have gotten ripped off, right, just in general, and especially I thin in investing. Not so much as financial advisors to be honest. I think it’s a lot more like people doing companies and doing raises or things that sound like a sure thing. I don’t about you but when I hear about something that starts to sound like a sure thing, my first response is skepticism. If I liked it and I’m interested and that still sounds too good to be true then my second step is research, thorough vetting and investigation about something. We’re not even talking about startups. I mean, again, the risk level, the likelihood of failure goes up dramatically. I’m just talking about like stocks that I’m interested in or something or cryptocurrency or whatever. I should say a Bitcoin because I don’t really endorse crypto in general.
 
Jon: Well, that is good. That’s a lot of…people talk about, oh I just got...I heard about this group or I heard about this on and this one… you know what I mean? That is getting as prevalent as any time of random...
 
Trevor: It is. It’s terrifying. Every time I hear it, I’m like RIP.
 
Jon: Yeah.
 
Trevor: Put in that just be ready to never ever see it to go on and on.
 
Jon: Yeah, so if you’re looking for tips and tricks on that, I mean that’s inventing a new cryptocurrency is just so easy to do that these things are popping up all the time – oh, I just heard about today. I must get in early because it’s going to grow and I’ll make money like no. For all these ones you’ve heard that have grown incredibly, I mean, how many dozens or hundreds have not?
 
Trevor: Oh, yeah.
 
Jon: That’s kind of like an IPO conversation, though – ooh, if I get an IPO today, it’s going to have to go up right? Not typically, honestly.
 
Trevor: Yeah most go down 30 to 40 percent before they end up and then now everything goes up but before they go back up, they usually are go down for a while.
 
Jon: That is not financial analysis right there.
 
Trevor: That’s just sarcasm.
 
Jon: Everything goes up. Everything goes up! Invest in whatever you want.
 
Trevor: Well, the Fed tends to buy everything right now so it’s a weird time to be.
 
Jon: Yeah, that’s true today.
 
Trevor: Yeah, it’s a weird time to be about specific investments because it’s hard to not to be doing well right now.
 
Jon: Well, everyone relates.
 
Trevor: Right, everyone…
 
Jon: To our conversation.
 
Trevor: In a bull market.
 
Jon: Yeah, and the problem with that is if you just started investing in the last 5 years then that’s what you know and that’s going to influence your bias towards how do you feel about the future of the market. That it just always goes up. You had such a good…that must be how it is, you know.
 
Trevor: Housing.
 
Everything Goes Up Including Housing [0:16:04]
 
Jon: Housing, for sure. You know, I have been alive long enough to see 2008, 2009 and 2010 and I probably told a story before but in 2012, I bought a foreclosure because they were everywhere and stuff was undervalued and so I was just lucky enough to be looking for a house for me and my family. We bought a 4-bedroom in Lansing area for 150,000 dollars and then sold it for 300,000 eight years later. So that’s not something you can expect, and if you buy a house this year or last year, you can probably expect that that’s possibly going to go down in value in the next 5 to 10 years. So, you know, a thing cycle and just understand what goes up does often come down and if we’re talking about basic long term like retirement planning, you know, we based that on things typically long-term do go up but there are ups and downs along the way. But when we talk about startups and we talk about cryptos, like any of these things like that that can just pop up and say hey, invest in me, that doesn’t mean anything, and when you’re investing in IPOs, say something just is going public, you think, great, I’m getting early. You’re not getting in early. There’s tens or hundreds of thousands of other investors whether it was the employees that got some shares, the founders, the early investors – they’ve all got shares that they’re going public because they’re ready to cash out and not everything but a good chunk like they get together and say, okay, I’m ready to become a millionaire or like let’s go public. So that means the public gets to invest in it. They typically are selling their shares now. That’s what you’re buying is their shares at a very high price.
 
Trevor: Right, somebody bought for you to be able to buy it.
 
Jon: Yeah, so that’s what like the early winners already got it. Now that’s not to say… like a lot of IPOs we see like start out high in spark and then come down and maybe gradually go up, it’s truly a good company but just be ready for that and investing in a startup early on with venture capital is even more so like that.
 
Have A Specific Time Horizon When Investing [0:18:23]
 
Trevor: One other huge factor – this is in general, this is a nice general point – investing in general, you want to have a specific time horizon of what you’re doing with this investment. So you want to look at if I’m getting in a startup – and it applies to all but startup is nice – how long am I…when am I looking at getting my money back? What’s my return on investment…the time to my return on investment? That’s an important factor too when you’re putting your money in because if you’re putting in 10,000 and you just have a gambling attitude – well, it’s gone and we’ll see what I get someday – but an investor who goes, I’m putting in 10 grand and that’s whatever percentage of my net worth or maybe a hundred grand and I expect to get such and such return and I think the chances of that happening are 25 percent. So when you start to invest multiple things at that level, you’re putting in a hundred grand, you think 25 percent chance of return, you’re just estimating; people who are really good at estimating could do this across the board. So essentially that, when you give that away, it’s worth 25,000 dollars to you. Like you do the math on that for the risk level of like okay, I just sunk 75 grand in the hole on this. I think I might get 25 back. Maybe nothing. And then back to the time horizon – you want to know how long like okay how long until I get it back and/or how long do I want to be willing to let go of the 100,000 dollars, so I want, you know, this portion of my net worth to keep cycling back to me in 5 years so I can make different decisions or, you know, this is a one-year plan. I just want to like stake you and then you’re going to give it back to me as soon as you have it or it’s 10 years or 20 years and just like I just want to hold this forever. like people who buy gold, they don’t really ever plan on selling it. They just want to have some percentage in their net worth and a less fungible asset.
 
Jon: Yeah, it’s a hedge, right?
 
Trevor: Yeah, it’s a hedge, right, so they have different purposes and they have different time horizons but startups tend to be high-risk, high-reward and I am currently doing a raise for like a bitcoin mining thing right now and one of the things I found is people want like a 5 x or higher return in 3 years, 3 to 5 years. Those are like the startup mind itself, and I don’t think there’s anything wrong with that but when I learned that I was like you guys are here to lose all your money. Like not literally, but you better have some winners because those are hard to find, you know, 5 x are pretty, pretty hard to find in general especially in the 3-to-5-year range. You got to be talking software and like what I’m doing is hardware, right, so you’re buying a lot of expensive machinery so has a different multiple but then in your portfolio maybe that goes in the more conservative range. Now Bitcoin sounds speculative and not conservative, so it’s hard to find an investor who thinks it’s conservative as the returns are – if that makes sense.
 
Jon: Right.
 
Trevor: I’m probably getting a little off track there, but I found that really interesting because I’m like I see this as a conservative bet, you can reliably get this but it’s not a startup return but it kind of requires the emotional or mental tolerance of a startup because to the guys with money, it’s expensive to start. To most of the average, say, like boomer kind of population – these are effectually not to say criticism, I know how that goes – but they have a different time horizon. Part of their reason, they’re like, I kind of want to do a 5 x in 3 years because I want to retire in 5.
 
Jon: Yeah.
 
Trevor: But a lot of these guys are like oh, they’re doctors late in their career and they kind of want to accelerate their retirement and they still wanted to feel low risk. I think startups feel low risk because, oh, that’s a familiar concept. Oh, these young guns, they’ve got a great idea. They’re going to triple my money and that’s not…I don’t know.
 
Jon: Why do you think people think that that is safer than it is? And I don’t necessarily understand that.
 
Trevor: People are persuaded by narratives. Why people get in these random other cryptos? Because they sound cool, oh, we’re going to solve that problem with a blockchain and, oh, I read something about the blockchain. I think I understand that. It sounds cool when I talk about it in my weekly coffee meeting with my friends, you know, what’s like.
 
Jon: Yup. Well, because they’re relative an expert compared to the people they hang out with, right, so they make them feel smarter than they are. It’s expert bias or self-confidence bias, we call it.
 
Dunning-Kruger Effect – Expert Bias or Self-confidence Bias [0:23:10]
 
Trevor: That is of the Dunning-Kruger effect.
 
Jon: Yeah.
 
Trevor: Well, as you know about something, the more you feel like you know more than you know. That’s the short version of it. It’s basically like you go in and you take a test and you’re like, oh, I nailed that, and it comes back and you got a D minus, you know, 68 percent or something – whoa, I didn’t know what I didn’t know so that’s I would bet in investments and startups especially if you got lucky with one.
 
Jon: Do you think it has to do with just the psychology of maybe optimism of you kind of convince yourself that?
 
Trevor: Totally.
 
Jon: Yeah.
 
Trevor: Gambling, right?
 
Jon: Yeah.
 
Trevor: Do people have a good understanding of their odds when they place a bet on a sports team?
 
Jon: I bet it’s a very similar place in the brain, right?
 
Trevor: It was for me when I…you know my story like I got into the crypto trading stuff in 2017 at the peak like an idiot, you know, and it taught me some lessons, but you kind of have to learn them on your own. I’ve talked to people who are like getting into it right now. Most things are at all-time highs.
 
Jon: Yeah.
 
Trevor: In general, not just in cryptocurrencies.
 
Jon: Yeah.
 
Trevor: So if you think you know more than the guys who are selling at all-time highs, what are the chances that you’re going to do better? I mean…
 
By The Time You Hear About It, It’s Too Late [0:24:39]
 
Jon: Yup, exactly, and it’s not like you walk on…Yeah, and for most of us, 99.9 percent of us, by the time we hear about it, it’s too late.
 
Trevor: Yeah, that’s a good rule of thumb. It’s kind of like it’s a misnomer, but if you heard about it, it’s too late.
 
Jon: Yeah, unless you work at a company, it’s not inside information, okay. It’s public. Unless you work at the company and then it is inside information and it’s illegal and you can’t invest in anyways so there’s no winners here.
 
Trevor: Yeah, so conservative investing over the long term is much wiser, but the trick right now is you have to put your money in something or else you’re like rapidly losing value from inflation so I just think today that like the U.S. like the CPI, right. They pull out basically everything that inflates and then they don’t include it in the inflation metric? Yeah, it does not include like housing, doesn’t include cars, doesn’t include some food items…yeah. There’s a good website on it. I’ll see if I can think of it but there’s been three versions of CPIs since the 80s and they just kept taking out things that were inflated. Germany doesn’t do that in their year-over-year inflation as a I think a month ago was 11 point something percent. That’s a more honest metric than ours which is 6.
 
Jon: Well, and it’s like we can all feel these things and if they put out these crap numbers like, oh, inflation’s normal this year like there’s no way like you’re looking at…I mean, freaking price of steak is going up and obviously, gas and houses. Now, there are other things that are obvious but, yeah, that’s another story for another time.
 
Trevor: It’s one of those things where it’s hard for me to understand how people can’t feel like…how people can’t be sure that they’re being lied to.
 
Jon: Yeah.
 
Trevor: We are all being lied to and the narrative is being controlled including the math behind the reality, right, and that’s not conspiratorial. You can just go and read about the changes to the CPI and what’s included. It’s a basket of goods is the term and they’re not representative of living costs and CPI is designed to tell us the inflation of living costs so that’s a direct manipulation.
 
Jon: No. Housing is the biggest one and they’re not including it. That’s crazy.
 
Trevor: So, anyhow, it was nice to hear like an apples-to-apples…
 
Jon: Yeah, no, that’s good to know. I didn’t know Germany was that way. That’s a huge help and makes me think I’m not so crazy like I feel like prices are going up everywhere but the government says they’re not.
 
Trevor: If you’re feeling like for me, it was one of my like spidey sense things because if I feel like I’m crazy, I’m what, okay, maybe I’m crazy but let me look into it first, right?
 
Jon: Yeah.
 
Trevor: It’s that I feel like I’m crazy usually also it’s like, ah, it’s probably fine. It’s either like it’s probably fine or you should be a little worried, you know. That’s kind of like the little red flag in your mind. Look into it and your mind attacks those things because it’s trying to protect you.
 
Jon: Yeah, I know there’s some truth to that for sure. We are built with a certain sense. You know we’re created with some good…there are things that set us apart but even animals like I feel like have some of that – you know what I mean? Like somehow dogs just inherently know when somebody is a good guy or a bad guy.
 
Trevor: Right, right. I had thought you’re going to say that because I was thinking the exact same thing. There’s just something there like, yeah, it’s a smart thing.
 
Jon: You know, how can residents and doctors apply this kind of knowledge like whenever you’re dealing with an advisor or an insurance agent or something like that and there’s like you’re starting to be like hmm, this seems great but something’s…this can’t be right…you know, and again, not that it can’t be but do some homework. Talk to somebody, you know. I mean, anyone listening to this, you guys can shoot us questions if you’re like, hey, I was told about this deal or this product or whatever, what do you think, you know. We’d be happy to debunk stuff.
 
Trevor: For doctors, there’s just like so much you can add for companies and startups and things like that like I can say from personal experience that it tends to just be networking, making friends in areas and talking to lots of people and listening to podcasts and just like throwing caution to the wind a little bit in terms of just reaching out and chatting with the if you’re curious.
 
Jon: True.
 
Trevor: I had a buddy in residency. He reached out to this guy. He was developing like an AI algorithm for something he found interesting with, with retinal imaging and he just like reached out to the guy and then he ended up doing an internship there for a year like kind of created a little mini internship dream job for himself. I have been able to work with some people and some companies I’ve really enjoyed just from reaching out or even doing a little bit of free work or like hopping on some calls and answer some questions – that’s just a specialty now. That doesn’t cost me a thing, you know, other than opportunity costs of my time if I wanted to try to go for it. You can do a little bit of that or you know just…I started out just doing stuff for free and giving away just a lot of time and then you build some connections and friends and it’s fun if you enjoy it and that’s a good form of work.
 
Jon: Absolutely.
 
Trevor: Yeah, so, just networking and have fun with it and then you can learn about a company too like if you’re like at a startup. In your knowledge base, you can tell it’s a waste of your time, it’s a waste of your money. So get in there and see how you like spending your time on it and then maybe invest from there.
 
Jon: Yeah, 100 percent.
 
Trevor: But just bumbling around and trying some things, wasting your time is like the perfect way to find out you don’t want to waste your money.
 
Jon: Yeah, I think that’s good and that’s how a lot of good things happen and we find opportunities and you know like you said opportunities that don’t create a lot of risk because you’ve invested the time and the knowledge and good things don’t happen overnight, I’m sorry. They just take time.
 
Trevor: Correct, and there’s one good deal.
 
Jon: Yeah.
 
Fear Of Missing Out (FOMO) – Step Away From This [0:31:14]
 
Trevor: FOMO-ing into a job, FOMO-ing into – FOMO meaning fear of missing out – FOMO-ing to an investment or a stock or a crypto or whatever, it’s just a false understanding of the reality of the decision of do I invest or not. It’s a biased mental space. So you step away from that, and then if the price goes up, that’s okay. Prices are going to go up in other things too. You have to miss out on things. Good investors miss out on things all the time. They get into the right stock and then they sell on the way up and it keeps going up after they sell and they call that missing out on profits or something but if their time horizon was, I need that cash or I want that cash for something else, they’re not missing out on anything.
 
Jon: Yes, that’s good.
 
Trevor: With their written plan.
 
Jon: And I tell people about that all the time that talking about stocks with my buddies and then like, oh I wish I would have stayed…Like you cannot beat yourself up over that or you’re going to lose. Accept that that’s going to be a part of that.
 
Trevor: And if you beat yourself because you’re afraid and you sold it at the last minute, bounced back well, examine your ability to trade or invest. I mean trading means a specific shorter time horizon. People are terrible at trading. Statistically, it’s like 99.9 percent of people, you know. I think it’s one in a thousand will be profitable traders or something like that.
 
Jon: Really.
 
Trevor: It’s extremely unlikely, yeah, so I guess that would be…
 
Jon: Yeah, good to know.
 
Trevor: That would be accurate.
 
Jon: All right. No, that was good. Yeah, I think we, as always, we came out with some good stuff. Let’s do a part two of this at some point and have Rueben on here from Washington Avenue Ventures and I think…
 
Trevor: Oh, that’s like the thing when we first started talking about him like man, this is the guy and he’s going to…I feel like I gave more of a con argument and he will give much more pro which is perfect. That’ll be a good convo.
 
Jon: That will be good. Yeah, the cons of startup investing and then episode two the pros of it. Yeah, that’ll be good.
 
Trevor: Cool.
 
Jon: All right, super. Well, anything else you want to add Trevor?
 
Trevor: No, that was great. I appreciate your time.
 
Jon: Okay so reminder to you guys, subscribe and share this. This is how we get the knowledge and good info out. If you like stuff you’ve heard, please share with your colleagues and friends and buddies and family. Join the Financial MD community on Facebook, look it up, and get in on there. That’s where we have continued conversations from these episodes and articles we shared. Any of our other social media is going to be out there – Instagram, TikTok, Facebook – is where we’re putting out new stuff in a hurry and then, yeah, shoot us a message if a question came up. If you’d like us to speak to your residency program about any of our basic financial topics, we do that as well. You can message us about that and for those of you in the Detroit area, we got our first graduating resident dinner of the season on December 15th in Royal Oak. Invitations will go out soon but get on the website or shoot us some email if you want to know more about that. It’s been fun. Again, this is Jon Solitro with my colleague, Dr. Trevor Smith. It’s been great. We’ll see you guys next time.
 
Trevor: Thanks Jon.
 
Thanks for joining us for another Financial MD Show. Be sure to head over to financialmd.com to get more in-depth resources on financial tips for physicians and don’t forget to join the Financial MD community group on Facebook, where physicians at all stages of their career gather to share tips and get ideas on achieving true financial success. We’ll see you next time.
 
The Financial MD Show is for informational purposes only and is not an offer to invest. It is not financial, tax, or legal advice. Be sure to seek financial, legal, or tax professionals when making any financial decisions. Before investing, you should make sure that any investment strategy or investment meets your individual investment needs, goals, and objectives. Financial MD makes no claims or guarantees to individual investment performance. All investing involves the risk of loss as well as the potential for gain.
 
 
Resources and Links:
What is a startup? – https://startupsavant.com/what-is-a-startup
What is a Roth IRA? – https://www.schwab.com/ira/roth-ira/what-is-a-roth-ira
What are mutual funds? –
https://www.investor.gov/introduction-investing/investing-basics/investment-products/mutual-funds-and-exchange-traded-1
What are private placements or Reg D? –
https://www.sec.gov/smallbusiness/exemptofferings/rule506b
Guidelines of an accredited investor –
https://www.sec.gov/capitalraising/building-blocks/accredited-investor
Definition of an Initial Public Offering (IPO) – https://www.investopedia.com/terms/i/ipo.asp
Seed round vs Series A – https://www.abstractops.com/seed-vs-series-a
Venture Deals (book) – https://www.venturedeals.com/
What is a Ten Bagger? –
https://corporatefinanceinstitute.com/resources/knowledge/trading-investing/10-ten-bagger/
What is venture capital? – https://www.business-standard.com/about/what-is-venture-capital
What is a blockchain? –
https://www.euromoney.com/learning/blockchain-explained/what-is-blockchain
Overconfidence bias –
https://corporatefinanceinstitute.com/resources/knowledge/trading-investing/overconfidence-bias/
The Dunning-Kruger effect –
https://www.verywellmind.com/an-overview-of-the-dunning-kruger-effect-4160740
What is Consumer Price Index (CPI)? – https://www.bls.gov/cpi/
Financial MD Website – https://www.financialmd.co/
Financial MD YouTube page – https://www.youtube.com/channel/UC6qEAQxK8L8JM7joy3wvdkA
Financial MD Facebook community – https://www.facebook.com/FinancialMD/
Financial MD TikTok – https://www.tiktok.com/@financialmd
Financial MD Instagram – https://www.instagram.com/financial.md/
Financial MD Twitter – https://twitter.com/financialmd2
Financial MD LinkedIn – https://www.linkedin.com/company/financial-md/?viewAsMember=true
Financial MD App – https://apps.apple.com/us/app/financialmd/id1507757039
Financial MD Apple Podcast –
https://podcasts.apple.com/us/podcast/the-financialmd-show/id1548024586
 

Ep 017 - Investing in Real Estate

Summary:
Let’s Talk About Real Estate [0:05:01]
Diversification: Alternate Investments [0:07:48]
Pros And Cons Of REITs [0:10:33]
If You Want To Get Into Real Estate, Start With REITs [0:13:50]
Jon’s Personal Real Estate History [0:16:51]
Trevor’s Preference Regarding Real Estate [0:22:44]
Why Do People Don’t Like Bitcoin [0:26:29]
Jon’s Recent Real Estate Saga (All The Juicy Details Here!) [0:28:15]
They Got The Property; However, Problems Arose (But All Ends Well) [0:35:00]
Government Regulate and Control Things; But It’s Usually For The Benefit Of the Consumers [0:40:41]
 
 
Welcome to the Financial MD Show. This is the only podcast designed specifically for residents and young physicians to help you become educated on financial planning for physicians and avoid many of the common financial mistakes doctors make. Your hosts, Jon and Trevor, explore a different topic with each episode. Jon Solitro is a financial planner and certified financial education instructor. He’s been working with young physicians for the better part of the decade and lectures to graduate medical programs around the country. Dr. Trevor Smith is a board-certified ophthalmologist with a full-time practice and he has learned the ins and outs first-hand what it takes to make smart financial decisions as a young physician. And now here’s your hosts, Jon and Trevor.
 
Jon: Welcome everyone to the 20th episode of the Financial MD Show. Today, Trevor and I will get into a topic that we get a lot of questions about and we’ve done a couple of Didactic Minute videos on and those are only 2 or 3 minutes and so we decided to dedicate a podcast episode to it because a lot of our doctors ask us this question specifically about real estate – When is the right time to invest in it? How to invest in it? What’s the right way? – and there are several different ways to do it out there and they all have their pros and cons so we’re going to go into that today from literally buying real estate or rental properties or flip properties all the way to just buying some mutual funds that have real estate in it. So, listen up, take some notes, shoot us any questions if you have them, please leave a review, and here’s the show:
 
Jon: Welcome again to the Financial MD Show. We’re so excited to be continuing and jumping into 2022. How’s it going Trevor??
 
Trevor: It’s going great. Yeah, I’m among the COVID-positive so that’s good. I’m on the other side of it and get to look forward to not worrying about getting other people COVID.
 
Jon: That’s right.
 
Trevor: It’s kind of nice.
 
Jon: Yeah.
 
Trevor: The not knowing is half the terror or the frustration or the whatever. I mean, my whole family has pretty much had it now so it’s like we can just go anywhere and do anything we want now. You know, it’s kind of nice.
 
Jon: That’s a beautiful thing.
 
Trevor: Yeah. The New Year brings gifts and new forms.
 
Jon: Yeah, good. Your holidays were good?
 
Trevor: The holidays were great. I got to do a little Florida trip. That’s not where I got the COVID, contrary to what people would probably guessed. A local brew, but yeah, so I had a good holiday; got to get a little bit of warmth pre-holidays. I got to do a trip to Jamaica, do some surgery done there. It was really good December, and January is kicking off, pretty busy already. How about you?
 
Jon: Yeah. We had a crazy time. On the 21st of December, we flew down to Florida with me and wife and four kids and spent a week in Fort Myers. During that week. we flew up to Orland, just my wife and I, to see some friends for dinner overnight, stayed there, came back in the morning and then we flew from Fort Myers to Austin, Texas and did five days there with some friends and their kids and then flew back to Michigan. In all, I counted it; my wife and I were on six planes over the course of two weeks.
 
Trevor: Wow, that’s a lot of planes.
 
Jon: It was just like had the process down.
 
Trevor: It’s lucky, I guess.
 
Jon: Yeah. So got a lot of miles but used a lot of credits and I did a TikTok video in the airport about using airline miles and doing all that kind of thing. Grand Rapids Airport, by the way, has massage chairs while you wait. They’re like five bucks for 10 or 20 minutes. It was nice; so a little plug for Grand Rapids Airport. I love it.
 
Trevor: I have to check that out. I go through there all the time. I’ve never noticed the massage chairs.
 
Jon: Oh yeah. So when you get to – let’s see. You go through security and you can basically go left to right. So if you go to the left, those gates, you’ll go up the hallway, take a right then you start to get into the gates. Right before you get into the gates section on your left, there’s about four of these massage chairs.
 
Trevor: Yup, all right now.
 
Jon: Well worth it. Check it out.
 
Trevor: Nice.
 
Let’s Talk About Real Estate [0:05:01]
 
Jon: Other than that, nothing too new or noteworthy. Life is good. Today, I thought we’d focus on how we talk about real estate in terms of financial planning and what kind of an allocation or a piece of your financial picture does it take and when is the right time to do that, what kind of ways there are to do that, and we could spend several episodes on this so we’ll just kind of do some quick overview. It may lead to a part two or three, etcetera. In general, I get this question especially when our attendings are getting to that point where they’re doing well. In fact, I just had this conversation with a couple. They’re both anesthesiologists, they’re in Nevada, and they’re killing it in terms of saving. I love this couple because they are making a high six-figure income. One of them is in the military, so a lot of things are cheap. They’re daycare their housing like all that kind of stuff. They’ve got two kids and they’ve kept their life pretty reasonable and have an enormous surplus that they’re saving and we’ve figured all sorts of tax free ways. I mean I think they’re saving a couple of hundred thousand a year pre-tax due to some self-employed business owner type of loopholes and things which is another conversation for another time. All that to say, they are well funding their retirement to when we have these every six-month reviews like we did yesterday, and I said, okay. They’re like, how are we doing towards retirement savings, and I’m like, you guys probably no surprise to you that you’re well over a hundred percent on track for your goal so you can basically retire a lot earlier than you planned on or you can plan on a lot more money in retirement than we had originally planned on but either way, you’re doing kind of all the normal stuff. You’re putting into mutual funds and stocks and IRAs and 401(k)s and defined benefit plans and they’re saving in a regular brokerage account and they’re doing all the stuff. I said this is about the time when we start having the conversation about diversifying more when we’re as diversified as we can be in an investment account. They’re very stable and have checked all the boxes, otherwise, how much should we put into something outside of the normal?
 
Diversification: Alternate Investments [0:07:48]
 
You might call them alternative investments and everybody’s got a different concept of what that means but for our conversation today, I said, have you thought about investing in real estate. And they said, yeah, you know, we’ve kind of thought about that but we didn’t know how and it sounds really complicated of buying property. Again, I think I did a video on this a few weeks ago – maybe a couple of months ago – about the different ways to get involved in real estate. And there’s the ways that everybody expects or knows how as far as you buy a house, you rent it out, you manage it, they call you when the toilet clogs – all that kind of stuff – and that’s “investing in real estate.” Then there’s the other end of the spectrum where you basically just buying real estate funds in your investment accounts, and we do a little bit of that anyway. Then there’s kind of this middle ground where if you’re an accredited investor, which means, basically last I checked, you’re making a couple of hundred thousand a year consistently or you have a net worth of at least a million dollars, then you can invest in these real estate – what would you call them, Trevor, syndications – is one way of thinking about it. It’s a fund but it’s not like a mutual fund. It’s a private fund. It’s a hedge fund. It’s a real estate fund. So you’re actually giving your money and a lot of these minimums are at least 50,000 to 100,000 dollars and this company like Cadre, you may have heard of; Fundrise, CrowdStreet. There’s a bunch of them like this now. We’ll post a list of – I think there’s 15 to 20. I found an article that was listing all of them but you get actual…it’s called a limited partnership essentially and so you get some shares and you can actually pick the actual property or project that you’re investing in. It might be apartment building or commercial and then you get a benefit from the investment growing so the value of it grows which helps you when you go to sell that investment one day. The other benefit is you get monthly rent, so you participate in the monthly rent from the project. And there’s different types of that. Some that are more focused on rent, some more focused on what they call capital appreciation, but those are kind of offhand a few of the ways. Anything to add to that, Trevor?
 
Pros And Cons Of REITs [0:10:33]
 
Trevor: Yeah, no. I mean, real estate is definitely not been something I’ve looked into too much. The only thing that I’ve read a little bit about was REITs, the real estate investment trust, and I’ve read a handful of articles just enough to know that I was not really at the point where I wanted to do that yet but there’s owning and then there’s sort of like somebody else owns it and manages it and it’s almost like just a stock version of real estate.
 
Jon: Right.
 
Trevor: That’s like a REIT, and so there’s more tax benefits on the direct ownership side.
 
Jon: Correct.
 
Trevor: There’s more responsibility. There’s more headache. And then the other end of the REIT is just like the least amount of headache, the least amount of tax benefits, least amount of work but still a decent amount of returns. I don’t know if they’ve been la lot higher but I feel like the returns I tend to hear about for REITs is like 10 to 13 percent, kind of what aggressive stock portfolios used to return and then maybe up into – if you’re getting lucky and you’re picking a really hot one – maybe gets up until like the upper 10s or low 20s. Individual stuff – that’s more like they own tons of stuff so you also get the benefit of the diverse portfolio of real estate versus if you buy the house down the street and you’re the landlord. If your local area tanks, you might get a minus 10 percent. You might get like a loss but if your local area goes crazy then you get like 30 or 40 percent return. You can pay a lot of taxes on it if you want to flip it because you can hold it for a year or whatever. Those are the pros and cons that I like, and those are on the extremes and then there’s like all these different real estate vehicles kind of in between those two.
 
Jon: Yeah.
 
Trevor: I read about them and I was like it sounds fine but I’m good so that’s something of a thing.
 
Jon: Yeah.
 
Trevor: It will be, at some point, my thing. It’s just I really like to know everything about the entire breadth of the spectrum of something so if I understand the pros and cons on the ends and I would probably go more towards a REIT personally because I’m mobile and I’m single and I don’t want to have to stay in an area or give up a substantial percentage of profits to hire somebody else. I’m like a hands-on. I’m that kind of person I like to have the control. I like to be unlimited, so location-wise, real estate has not been something of interest for me but incredibly powerful and I’ve definitely missed out on growing my net worth because of that, but I knew that when I kind of got of it. I’m also missing out on any sort of substantial drawdowns. We haven’t had any. So right now, it just looks like I’m missing out on all the wins and all the profits.
 
Jon: I know.
 
Trevor: I have buddies that have two houses from residency; almost like that military thing where people move around, they buy one and then they rent it out and they kind of build the thing. So when the market’s going vertical, everyone’s a genius, right?
 
Jon: Right.
 
Trevor: Yeah, that’s my two cents on it. That’s what I know – a surface-y level of pros and cons.
 
If You Want To Get Into Real Estate, Start With REITs [0:13:50]
 
Jon: Yeah, and I’d say that’s about right and I think most people if they want to get into real estate should probably start with these REITs and especially these publicly-traded REITs that are exchange traded funds essentially. So real estate investment trust is that you’re buying a share of a real estate company or project and you do often get some monthly income from it but the tax benefits aren’t as much as if you bought directly or directly invested in the project, but that’s good because you don’t want the liability and sometimes the minimum investments to get into the other things. So, the REITs are good. You get to experience that. You can get some monthly income, experience the growth, and just having that diversification in your account so that if you got all stocks and mutual funds here that are pretty much all equities, maybe some bonds and stuff but no real estate, having a little bit, let’s say, 5 to 10 percent real estate, gives you that diversification, and a lot of stuff that I’ve seen, now granted this is from real estate guys, that say real estate has beaten the market over time, maybe, but it’s worth looking into especially when you factor in rent and capital appreciation or the growth and the value of the actual investment. When you add those together, you could definitely make an argument that it could beat the stock market over time. Either way, it’s what you call a non-correlated asset, so something that if the market goes up and down, often you’ll see bonds go the opposite way. Market goes down, bonds go up and vice versa. With real estate, it’s not so correlated, and when you’re doing investment analysis which none of you probably are but when a money manager is doing investment analysis, you’re looking at things like beta which are the number that is or you guys probably know some of this from stats in undergrad – correlation coefficient. You’re looking at R squared to C. If it’s 1, then these two things are perfectly correlated. One goes up, the other goes up by the same amount. If they’re -1, they’re perfectly correlated but in opposite directions. One goes up, the other one goes down in the exact same amount. If they’re zero, then there’s completely no relation. One could go up, the other one could do nothing or could go up or down; it’s just there’s no relation. So the stock market and real estate probably had not exactly zero but closer than bonds or international stocks or other things like that. That’s something to keep in mind, too. That’s just whatever you do, real estate will help you diversify your investments, and again, there’s lots of ways to do that.
 
Jon’s Personal Real Estate History [0:16:51]
 
I have one example I can talk about personally and I’ll give you my real estate history. I first really learned about it when I was in high school, and during my summers, I lived in East Lansing or near East Lansing and my best friend in high school, his dad owned probably 8 to 10 houses in East Lansing in kind of the student ghetto where every house was rented by students. There were families here and there but it was pretty much that was what it was and they were getting great rent from these houses. Now, he took care of them really well – me and my best friend and our other friend would work there during the summers. We’d do kind of the turnovers, and when we weren’t doing the turnovers, we were painting, cleaning, refinishing floors, just doing all that. We saw some really gross stuff. We saw some really cool things that we weren’t allowed to see normally and we saw just how that whole system worked, and I was like, that’s interesting. I didn’t think too much about it at that point. But then he got into college, and then in grad school, I experienced property management again but working for a big company that did a lot in East Lansing with student housing. So I’d worked on the leasing side a little bit, some property management, some marketing but got a good scope of that and then a friend of mine a couple of years later, we did a house flip so this was when in 2010 it was easy to find foreclosures and we found one for 40,000 or 50,000 dollars, maybe; decent little house. We kind of rehabbed it, flipped it, and made a little bit of money. So I experienced it on that side and that was really my last exposure to real estate. I’ve always read about it and wanted to get a little bit involved but I’ve also heard horror stories of just landlords even around Lansing here where they just get in and they want to get out of it, and one case, I mean, you and I both know Reuben had bought a bunch probably back in ’08 or ’09, maybe 2010 and they just never performed the way he wanted them to and he has had a hard time getting rid of them. So I hear those stories too which I vowed never to…you know, I kind of know the area well enough to know which places I don’t want to be investing in.
 
Trevor: It’s kind of like that’s the pro and the con of a hard asset.
 
Jon: Yeah.
 
Trevor: Right now, real estate – just to go back to the correlation thing –pretty much all assets are correlated right now, right. All going up about the amount of money that was added, you know, the amount that was printed roughly. You can compare different assets or even currencies and you can kind of overlap them – what’s a good example – like Bitcoin and U.S. dollar and like U.S. dollar and Euro and you can kind of skip them, right, just like a chemistry equation. You can go from what if A then B, B then C, and you can just do A and C. So you can kind of compare a lot of these different assets and they end up being like if you compare them to the amount of money that was printed, everything’s up just slightly above just like the printing of the money. I think that’s part of the reason; we’ll have to see if that continues or what they’re doing. The Fed is threatening, tapering and increasing rate slowly and they kind of said specific amounts that they kind of changed after a week, didn’t they. They might actually enforce them and the market might not crash if they don’t. There’s a lot of interesting things going on there. With hard assets, you’re stuck with them and they cost you something if they’re not making you money or if you sell them for more than you bought them for. It’s worse than having a liquid asset that you can just sell. Like Tesla stock tanks and you lose 30 percent of your money, you can execute on that and get out before it goes down 20 percent more and then you have lost half. But the benefit is there’s only so many hard assets in the physical world or some sort of digital signature world, which is the whole crypto, Bitcoin.
 
Jon: Blockchain.
 
Trevor: Yeah. so real estate has that pro but I do think people forget how much that’s a con. You can’t sell that house. It’s your house and it’s worth nothing, right. like people don’t want to pay money for it. You still own it and guess what? You get to pay taxes on it.
 
Jon: Yeah. At least if you have a stock that you can’t sell, it doesn’t cost you anything to hold it typically.
 
Trevor: Yeah, it is like if things really, really go south, people are going to remember how much it hurts to have hard assets that people don’t want.
 
Jon: Yup.
 
Trevor: It’s like having a business. Let’s say you sell clothing and you buy just a ton of cloth, whatever, you know, you make it from and you’ve got all these different colors and then two seasons later, you bought purple and nobody wants purple. You can’t beg, so you have to pay somebody to take it to the dump, you know what I mean?
 
Jon: Oh, yeah.
 
Trevor’s Preference Regarding Real Estate [0:22:44]
 
Trevor: That’s the downside of physical good commodity or real estate and that’s like one level larger like just the big picture. It’s why I haven’t gotten involved in real estate. It’s not because I don’t think you can make money and I think I should probably have some real estate but for me, the only kind of real estate I want to have is the kind of specifically useful to me. I want to have me as the owner-occupier of the real estate. So when I diversify my net worth into real estate, it’s going to be me owning a home and that’s in line with my goals, so you got to have your written financial plan. White Coat Investor always says – I totally agree with that – you have your written financial plan and you stick to it, and for me, my written financial plan is going to be my first real estate acquisition is going to be to try to grow my net worth. Like I said, I have lost out by not doing that but I want to be me owning a house in the town that I want to live in for a long time.
 
Jon: Okay.
 
Trevor: That doesn’t mean lifelong, but five years, 10; something where you could have a 1930-level, 1929-level event depression and I’d be 1945 equivalent like I want to live in this house and I don’t mind paying taxes on it because I bought it to live in it.
 
Jon: You’re right and you don’t really care what you paid for it necessarily because it’s a long-term investment.
 
Trevor: Yeah, you essentially don’t – I don’t know. It’s sort of – I don’t know if that’s a millennial take on real estate but it’s a noncommittal take on real estate.
 
Jon: Yeah? That’s okay.
 
Trevor: Yeah, those are – I don’t know. That’s what I’ve been thinking about because I think a house would be cool. Property is nice. I like hard assets that’s why I like Bitcoin, but it’s not mobile. It’s not transferrable. It’s not liquid.
 
Jon: Yup. Liquid, and that’s the word, I wanted to emphasize too was illiquid versus liquid. Stocks are designed to be liquid because there is somebody on a particular stock exchange that no matter what – they’re called market makers – and they’re creating a market to make sure there’s always demand or someone to buy a particular stock. So if something is publicly traded, there’s always going to be somebody to buy it for the most part. But if you hold shares of a privately-owned company, there’s no market for that typically. There’s some real estate too. The market’s got to be there and the market, no one has control over the real estate market.
 
Trevor: Yeah, like Bitcoin can go to zero because it’s liquid, right, you know, can meaning it’s technically possible because there’s demand, just like any stock can go to zero.
 
Jon: Right.
 
Trevor: That’s a benefit, I think, and I’d rather be in a liquid asset than illiquid asset in general or at least a large percentage of my net worth I’d rather be in liquid. But that’s a philosophical decision, you know. When I’m 55, do I want to have most of my net worth being illiquid assets? Not really.
 
Jon: Yeah.
 
Trevor: It’s 65, I guess, I would say. Fifty-five still kind of maybe – it depends on what the world looks like.
 
Jon: Well, and it depends if those assets are providing income for you too like what are they doing for you at the end of the day is the question.
 
Why Do People Don’t Like Bitcoin [0:26:29]
 
Trevor: That’s right. That’s why people don’t like Bitcoin. That’s why traditional investors like Warren Buffet don’t like it.
 
Jon: Because they don’t pay dividends?
 
Trevor: They don’t pay dividends. It doesn’t pay you anything and it “isn’t a business that produces something.”
 
Jon: Yeah.
 
Trevor: Yeah, which is I totally understand that argument.
 
Jon: That’s sticking to a philosophy, right?
 
Trevor: Yeah, it is, and that’s you should do. He’s been very successful and he has been not beaten. I think I kind of like pooh-poohed this at some point in one of our talks but he’s been losing against the S&P for 10 years or longer, I think, but he’s doing it with billions of dollars. It’s really hard to do. The flip side is like easy to critique but if you have tens or hundreds of billions of dollars and you’re still able to grow it at over 10 percent, it’s like kind of insane. That’s really, really, really hard to do.
 
Jon: Yeah, totally. I love those conversations of people like, well, my advisor’s doing pretty well, I mean I got about 15 percent, 20 percent last year, and it’s just I kind of rolled my eyes like well, you’d have to be an idiot to not get 20 percent last year where you just got to stick in some index funds and good to go, and obviously, that has no bearing in the future. So that’s kind of the pros and cons of real estate. My latest experience with real estate is…
 
Trevor: This is the part you got to talk about.
 
Jon: Yeah. All right, I’ll tell them everything. I learned a lot in a short period of time so far.
 
Trevor: Give them the full story.
 
Jon’s Recent Real Estate Saga (All The Juicy Details Here!) [0:28:15]
 
Jon: So, I listen to Grant Cardone sometimes who does a real estate podcast. I’ve just always thought, you know, I could get into real estate. I’ve learned enough from other people’s mistakes in it that I think I could do okay.
 
Trevor: Yeah, classic.
 
Jon: Classic, and so it wasn’t something I was actively looking for but something came along. By came along, I mean a push notification from Zillow popped up on my phone and it was like, hey, there’s this five-unit building for cheap, like 225,000 dollars. So I was like, and the other thing was again, I would say, if you’re buying real estate as a rental or flipper, whatever, the number one important priority is you got to know the market and so I knew if I was going to get something, I was going to buy it local where I knew the market. This one was about 5 minutes away from my house so I was like, yeah, I know that market. So I went and checked it out like as soon as it hit the market. My realtor and I went and saw it. So the other realtor – the listing agent was there – and the owner of the building was there which was kind of odd but I guess, well, I guess it made sense. They had to have a property manager there to let us in, I guess. It was my first time looking at “apartment building” and so it was five units. It was this house built in 1920 that had four units in the one house and then a small one-bedroom unit by itself bungalow-style. So I checked it out and walked through really just two of the units and bathrooms were nice, updated. Kitchens were good. like things were taken care of pretty well. My realtor was like, yeah, you’re probably going to need a roof on that single building there. I was like, okay, and we went in the basement and it was an old, unfinished basement that had some water in it which was fine. Nobody was really doing anything down there but he’s like, yeah, you may want to look into waterproofing that. All right, so I said, and it had five units that were all rented, averaging about 500 a month each, some one bedroom, some two bedrooms and so at 225,000 with 2500 a month coming in, that’s pretty good, okay.
 
Trevor: Yeah.
 
Jon: So I made an offer. I borrowed some money from a family member to make a cash offer just to get it. So did that, offer was accepted so we’re moving forward. A week later, we scheduled the inspection and I started learning things. I learned that five units and above is considered commercial so commercial loan, commercial insurance, commercial inspection. I had to add a sewer inspection because of that which was another 500 bucks. The inspection itself – the normal inspection – was 400 dollars. So we did all that and then I had a guy that does property management come with me and take a look at it too. So we had all these people doing this inspection, and during this inspection – the owner’s never there at a house when you do this – but in this case he was and he was this old Greek guy in his 70s and I found that he’d owned the place for 50 years – not exaggerating – and he looks at me and he goes, what are all these people doing here, and I was like, this guy’s a sewer inspector, this guy’s the housing inspector, this guy’s a property manager. He’s like, what do you need all these people? He’s like, you don’t need any inspection. He’s like every building I bought I didn’t have an inspection. I just trusted my own gut and he’s like, are you Greek, and I was like, oh, I’m Italian. He’s like, okay, close enough. He’s like, you’ll do fine. You don’t need to have all these inspectors. I’m like, well, okay, this is what we’re doing though and he just like he wanted us to spend 30 seconds in each unit. He was just concerned about pissing off his tenants. So inspection went fine. There were a couple outside exterior spots and we patched up, getting a new roof like we thought. Then the sewer inspection came back and was like, yeah, you’re going to need to run a new sewer line through the house and then about 10 feet out from the house. So I was like, all right. Then a few days later, a four-unit, maybe two or three blocks away, again pops up on my phone and I was like, hey let’s go look at this. I’ve learned a lot so far about this process. I also learned that a commercial loan to get this five-unit place was going to be 25 percent down and 15-, maybe, 20-year term is the most that you would see and higher interest. So all this stuff just started adding up to where a lot of things are going to cost me more than I thought. So I go to see this four-unit one which was appealing to me because I learned in the process a four-unit is completely different than a five-unit. Four-unit is much cheaper insurance. You can get a normal mortgage. You can get like all the stuff. So we go to see this four-unit one. a bunch of people had already saw it. It just hit the market. It was listed at 250,000. So higher a little bit than the other one, but it was nice. There was no basement. It was built on a slab. It was a lot newer, built in the 80s instead of the 20s, and there were four 2-bedroom units, cookie-cutter, like mirror images of each other; had a wash and dryer in them, like just nice. Good shape. Three of the four rented. Good long-term tenants. So even just with three rented, it was fairly profitable. So my realtor was like we got to make an offer by 7 p.m. today and it was like 5 o’clock. So we go through, think about it and I was like, yeah, let’s do it. We offered a little bit over asking. I knew there was some other offers on the table and I think offered 260,000 and they called us the next day and they said, could you do 263,000 and I was like, yeah, fine. So we got it, and then I cancelled my offer on the other one basically saying, okay, inspection not up to par, we’re going to withdraw our offer.
 
Trevor: Yeah, for sure.
 
Jon: I actually found out a couple of days ago, that one is still in the market.
 
Trevor: Do you have a referral code for that?
 
They Got The Property; However, Problems Arose (But All Ends Well) [0:35:00]
 
Jon: Yeah. No, I would not do that to anybody. So we go to the closing process, inspection goes fine. We go to close and we closed quickly because we used cash and I was going to then refinance and pay back this family member once the house is purchased. I just like to make a cash offer because you can usually either beat out other offers at the same dollar amount or pay less or whatever. So we get to closing, everything goes fine pretty much. That was the Tuesday before Thanksgiving. Wednesday comes and we get the keys on Wednesday and I go into see the empty unit and this one, they all did their own electricity but we paid for water as the landlords. So we’re going to this thinking, my wife and I are like we don’t need a property manager, it’s only four units, close enough, they seem pretty easy, we can take care of this ourselves. So we wrote this nice letter, introduced ourselves to the tenants. We bought them some pie. We dropped off a pie to each of them and then I go this empty unit and it’s freezing. The electricity was already shut off. So I had to call Consumers Energy. I call them on this Wednesday 5 o’clock – they’re closed. I called first thing in the morning but it’s Thanksgiving. They’re still closed. They’re not going to open for another two days. I’m like, oh my gosh, and it’s here in Michigan and the nights are starting to get below freezing and for those of you not in the Midwest or up in the north, when stuff gets freezing, your water pipes can freeze especially if there’s no water moving through the pipes. When standing water freezes, it expands. Pipes burst – you guys know this. So I’m freaking out thinking, I don’t know what to do. I’ve got Thanksgiving and the Black Friday with no electricity in this unit but water’s on. So I go over there, turned on all the faucets and all the bathtubs just to get water running through the pipes and I go back two or three times a day and I was losing sleep and then halfway through that day, I realized, I forgot to get insurance. So I had no insurance and I can’t believe I’m admitting this as a financial planner but I forgot to get insurance. Because it’s like every other house I bought I had a mortgage and they make you get insurance. It’s just part of the process, right.
 
Trevor: Yeah, exactly, because of the cash offer.
 
Jon: Yeah, because of the cash offer. Nobody said get insurance. So I feel naked, exposed, liable; anything could happen in this property and I could be financially screwed for the rest of my life. I was like this is the day that somebody’s going to slip and fall and die and I’m going to get sued for 2 million dollars. So I’m over there taking salt and salting the sidewalks and just making sure everything’s fine and it just happened to be freezing rain that day too. So I called my insurance agent. He’s like sorry, I can’t help you until Monday. So I’m googling everywhere in the internet. There’s got to be some insurance company that does business on even Friday like every store in the world is open on Black Friday but no insurance agencies. It was finally Saturday morning 9 a.m. I get a hold of Consumers Energy. They turned the electricity on. Some insurance company calls me back. I’m able to buy coverage that day and I could rest a lot easier and then picked up the phone and called the property management company and said, yeah, I’d like to hire a property manager. I decided not to do this myself. Everything ended up fine but I overestimated a lot of things and didn’t take it super seriously in terms of like, my realtor said, make sure you call the utilities and get those switched today, and I was like, okay, but tomorrow’s probably fine too and it was not; just the wrong day. It’s the worst because it was a four-day weekend with Thanksgiving. It’s the worst time to do that. But now we’ve got them and the tenants are paying rent on time and we pay a property manager 10 percent to manage everything and they do the leasing and record keeping and books and accounting and service and all that stuff. There you go.
 
Trevor: Nice. That’s what I would do if it was me but everybody’s different.
 
Jon: Yup.
 
Trevor: I think you said too when you were telling me about it initially like right after Thanksgiving, you said there’s different – I mean, I know that there are too. There’s different rates that people charge. Didn’t somebody try to charge you a deal where they got a percentage of the sale or something?
 
Jon: Yes, they wanted 3 percent of the sale price if I ever sold it.
 
Trevor: Crazy.
 
Jon: And they’re like, well, it’s because, you know, we have to do a lot to get ready to sell and we help you sell it and show it.
 
Trevor: Three percent? That’s what a real estate agent makes after all their training and work and showing people.
 
Jon: Yeah, if I sold it for 300,000, that’s 9,000 dollars.
 
Trevor: That is the clause that keeps them in business if I was to guess.
 
Jon: Well, they didn’t get my business so I went to a different property manager.
 
Trevor: Amazing. Read the fine print with everything. It’s very annoying but very true.
 
Jon: Yeah. There you go, kids, so hope that helps.
 
Government Regulate and Control Things; But It’s Usually For The Benefit Of the Consumers [0:40:41]
 
Trevor: The cash offer that really got you, it’s interesting how, you know, it’s just funny because I would have never thought of that, and we do get handheld a lot like in the U.S. especially. We’re really fortunate to be here because things are so regulated and controlled. It’s kind of annoying in some businesses and we don’t like to be controlled by the government but there are a ton of things in place to protect the consumer.
 
Jon: Sure. As an advisor like I have to get errors and omissions insurance and I have to get a surety bond. That’s all stuff I have to get and it’s to my benefit but it’s also the consumers benefit, so it’s fine.
 
Trevor: It is, and I’m somebody I don’t like that kind of stuff but it’s often there for a reason.
 
Jon: Yeah, like you as a doctor, employers won’t hire you a lot of times unless you have tail coverage if you had a claims-based or policy and all that kind of stuff. That kind of thing.
 
Trevor: That reminds me, I need to get a paper copy of the tail that was paid because I put that in my last contract; made sure I negotiated that the tail would be paid by the practice that had me there.
 
Jon: There you go.
 
Trevor: It’s not too expensive. That’s one of those things that gets expensive if you’ve been working for 5 to 10 years.
 
Jon: Yeah, for sure.
 
Trevor: For shorter periods of time like I basically I did a locum’s position with an optionality to change to permanent and then I elected not to do that, being pretty short period of time for locums and that goes into account, but it was a good reminder because I need to get that in paper and put up my files.
 
Jon: Yup, there you go. I’m glad – see these little things a good reminder.
 
Trevor: Yeah, insurance. There’s always more things to insure. It seems like there’s more things to be thorough on no matter what.
 
Jon: Absolutely but I’m a big believer in that. I mean, we have the errors and omissions. We have cybersecurity insurance.
 
Trevor: Identity theft.
 
Jon: You’re right.
 
Trevor: You can get the tax thing you pay for that, make sure you get it all back and they help you with it.
 
Jon: Yup. I’m good with that. Well, all right, I think we gave them a lot of stuff, Trevor.
 
Trevor: Yeah, it was great. Good catching up with you as always.
 
Jon: Yeah, you too.
 
Trevor: Talk to you soon.
 
Jon: Thanks to our listeners. Hope you enjoyed it. Be sure to check out the Financial MD community on Facebook if you like what you hear here. There’s a lot of discussion happening there and if you want more videos, get us on TikTok and Instagram and if you want portrait mode, shorter, or if you like the landscape view, go to YouTube and Facebook and no shortage of stuff there. So hit us up if you’ve got questions on anything we’ve talked about in any episode at financialmd.com. Take care, guys. We’ll see you soon.
 
Thanks for joining us for another Financial MD Show. Be sure to head over to financialmd.com to get more in-depth resources on financial tips for physicians and don’t forget to join the Financial MD community group on Facebook, where physicians at all stages of their career gather to share tips and get ideas on achieving true financial success. We’ll see you next time.
 
The Financial MD Show is for informational purposes only and is not an offer to invest. It is not financial, tax, or legal advice. Be sure to seek financial, legal, or tax professionals when making any financial decisions. Before investing, you should make sure that any investment strategy or investment meets your individual investment needs, goals, and objectives. Financial MD makes no claims or guarantees to individual investment performance. All investing involves the risk of loss as well as the potential for gain.
 
 
Resources and Links:
Understanding defined benefit plan – https://equitable.com/retirement/articles/understanding-defined-benefit-plans
What is an alternative investment? –
https://corporatefinanceinstitute.com/resources/knowledge/finance/alternative-investment/
What is syndication? – https://www.1031crowdfunding.com/education-center/blog/92-what-is-syndication
Cadre | Real estate investing, reimagined – https://cadre.com/
Fundrise website – https://fundrise.com/
CrowdStreet: Online commercial real estate investing platform – https://www.crowdstreet.com/
Best real estate crowdfunding sites of 2022 – https://www.investopedia.com/best-real-estate-crowdfunding-sites-5070790
Real estate limited partnership – https://www.businessinsider.com/personal-finance/real-estate-limited-partnership-relp-definition
Capital appreciation definition – https://cleartax.in/g/terms/capital-appreciation
What are REITs? – https://www.investor.gov/introduction-investing/investing-basics/investment-products/real-estate-investment-trusts-reits
What is an ETF? – https://www.schwab.com/etfs/understand-etfs
What is a non-correlated asset? – https://insights.masterworks.io/finance/investing-strategies/what-is-a-non-correlated-asset/
Hard asset definition – https://www.accountingtools.com/articles/hard-asset
What is liquid asset – https://economictimes.indiatimes.com/definition/liquid-asset
Making sense of Bitcoin, cryptocurrency and blockchain –
https://www.pwc.com/us/en/industries/financial-services/fintech/bitcoin-blockchain-cryptocurrency.html
Liquid vs illiquidity – https://www.connectinvest.com/resources/blogs/liquid-vs-illiquid-assets/
Podcast Cardone Zone – https://grantcardone.com/podcast/
Errors and omissions insurance – https://www.thehartford.com/professional-liability-insurance/errors-omissions-insurance
What is a surety bond? – https://www.suretybonds.com/what-is-a-surety-bond.html
Tail coverage: What it is and who needs it – https://www.magmutual.com/learning/article/tail-coverage-what-it-and-who-needs-it/
Cybersecurity insurance: What it is, which businesses need it – https://www.nerdwallet.com/article/small-business/cybersecurity-insurance
Financial MD Website – https://www.financialmd.co/
Financial MD YouTube page – https://www.youtube.com/channel/UC6qEAQxK8L8JM7joy3wvdkA
Financial MD Facebook community – https://www.facebook.com/FinancialMD/
Financial MD TikTok – https://www.tiktok.com/@financialmd
Financial MD Instagram – https://www.instagram.com/financial.md/
Financial MD Twitter – https://twitter.com/financialmd2
Financial MD LinkedIn – https://www.linkedin.com/company/financial-md/?viewAsMember=true
Financial MD App – https://apps.apple.com/us/app/financialmd/id1507757039
Financial MD Apple Podcast –
https://podcasts.apple.com/us/podcast/the-financialmd-show/id1548024586

Ep 019 - Market Update

Summary:
Are We Heading Towards A Great Depression? [0:03:39]
Current News Update On Crypto And Bitcoin [0:06:33]
Just What Happened To The Luna? [0:11:16]
Trevor Shares His Personal Strategies In These Unique Times [0:17:37]
Leverage: An Interesting Strategy [0:20:16]
Sometimes, It All Boils Down To A Person’s Emotional Well-being [0:23:16]
 
 
Welcome to the Financial MD Show. This is the only podcast designed specifically for residents and young physicians to help you become educated on financial planning for physicians and avoid many of the common financial mistakes doctors make. Your hosts, Jon and Trevor, explore a different topic with each episode. Jon Solitro is a financial planner and certified financial education instructor. He’s been working with young physicians for the better part of the decade and lectures to graduate medical programs around the country. Dr. Trevor Smith is a board-certified ophthalmologist with a full-time practice and he has learned the ins and outs first-hand what it takes to make smart financial decisions as a young physician. And now here’s your hosts, Jon and Trevor.
 
Jon: Welcome to The Financial MD Show. We’ve got an exciting show for you today. We’ll, it’ll be an interesting show anyway. I’m here with my ever-present partner, Dr. Trevor Smith. How are you, Trevor?
 
Trevor: Been well, Jon. Good to see you.
 
Jon: Yeah, you too, buddy. Excited to be back in the saddle and back on the mic and we’re coming in hot with all sorts of things on our mind and we’ll try to give you some good financial info that’s going to help you. They might not be necessarily connected topics but we’re going to talk today and you’ll get to listen to our thoughts and expertise in different areas but hopefully you can walk away with something that will help you out just by spending a few minutes with us. So, today, on the Financial MD Show, we’re going to touch a bit on some market commentary about what’s been going on. As of today’s recording, it is May 16th and it’s been a rough year, pretty much every sector – for stocks, funds, crypto – whatever you want to talk about, there is nowhere safe.
 
Trevor: Except commodities, if you bought them last year.
 
Jon: That’s right, and we’ll have to probably educate some people on what commodities are but that’s okay. That’s the point of the Financial MD Show. As of today, at any given point in time, S&P 500 is down probably 15 percent, give or take, from its high in December. What does that mean for you? Most of you listening to this are young physicians and that really means nothing to you and if you’re a resident and you’re putting money into a Roth IRA and you’re saving into your residency’s 403(b) or 401(k) – keep doing that. At end of the day, if history tells us anything, it’s a great time to put money into the market. I’m just going to be honest. We need to chill out and if you’re older and you’re listening to this, kudos to you for finding podcasts and you’re probably a little more concerned and maybe rightly so, but if you were aggressively invested, meaning, if you had a lot of your investments in stocks and Bitcoin or whatever, then you knew this could happen, and that’s always a possibility. So let this be a lesson to you. This is why we say aggressive because it’s risky. This is what risky means, and even this isn’t drastic. I mean, it was worse during pandemic, worse in 2008. Could it get worse still? Sure.  We can talk about recession, but there’s really between stocks, bonds, crypto like all of those things – what’s causing this. In the stock market, at least I can speak to that and then Trevor’s going to touch on Bitcoin and just kind of state of the Bitcoin address.
 
Are We Heading Towards A Great Depression? [0:03:39]
 
Things are weird as we’re coming out of the pandemic and recovering from that. Some of the big companies that really had some gains last year – your Zoom, your Amazon, your different things – I’ve had to pull back because they haven’t had the same scenarios. It’s not the same atmosphere. We’re getting back to “normal.” People are going back to the office. Zoom isn’t used as much. Peloton’s not being used as much. You know, all these things that are hitting some lows that are affecting the market and the interest rate increase, I think, is leading to a lot of this. You’ll probably see it affect the housing market shortly, not as drastic as buyers want it to but some and we may be looking at a recession which means two consecutive quarters of negative GDP – gross domestic products. Basically, the country is going down for two consecutive quarters, that means a recession. Now, again, we’ll get through it. We have every time. This has happened before. It’s not a Great Depression type of scenario, but just be prepared that that may be a thing and I’ll just say it. I said this three years ago that the Feds needed to start raising interest rates. The economy was doing well. I didn’t know why they were waiting but you’ll probably all say it because of politics and you’re probably right which just is one of those frustrating things that pisses me off when politics get in the way. This is people’s money. These are mortgages – it’s people’s livelihood – and the Federal Reserve is supposed to be a fiduciary, meaning, I don’t know if they’re technically a fiduciary but like their job is to handle things like inflation and interest rates and all those things and then they come in like they have recently and jumped them drastically which we see it in reflection in things like mortgage rates that go from 3 percent up to 5.5 percent. It’s insane, and it just hurts, I think, the average consumers. I think they should have raised rates years ago. We still would have gotten some inflation but it wouldn’t be as drastic and we still would have had interest rate increases but it would have been more gradual and so this is them being reactionary because they didn’t want to raise them during an election year, right before an election year or all this kind of things. So that’s stuff, just kind of pisses me off. So we could be heading for recession, increased unemployment, high inflation, things like that. You’ll see this concept called stagflation which means rising prices without rising income and that’s a thing. So who knows but that’s my explanation for why stock markets looking like they have bonds have been doing poorly because when you look at current bonds out there, they weren’t paying great interest rates and then when the Federal Reserve raises the interest rates that these bonds are paying, that makes current bonds out there look even worse so they lose value so there’s just no place to get any steady rate of return right now. Some of you guys have been watching Bitcoin or Ethereum or any crypto. Trevor, can you speak to that at all or what are your thoughts on that?
 
Current News Update On Crypto And Bitcoin [0:06:33]
 
Trevor: Yeah, absolutely. I mean, in my circle, people know that I’m a Bitcoin fan, right, so I often get the question why did the Bitcoin price do this or that. I’d say, first, it’s interesting that people – we talk about price of Bitcoin because really it’s an exchange rate like it’s another currency rate.
 
Jon: Yup.
 
Trevor: It’s really is an exchange rate, but we think of it as an investment so we talk a lot about price. Bitcoin is one of the most volatile assets out there. It goes up and down a lot. That is what it means for it to be volatile. So, usually I just say Bitcoin’s just being Bitcoin. That’s how it works. It’s a true free market so it really follows the psychology – the human psychology of markets very, very closely. You can Google image search the human psychology of markets and see a very obvious trend of what spikes and troughs look like and they don’t always match up, but the 2018 cycle matched up pretty well for how fast it went up and the pace and the ups and downs even along the way. It’s just kind of doing one of those things where, you know, why did the price go down like the answer is there’s more sellers than buyers like that’s the reason. It doesn’t get propped up in the same way. If there’s a lot of selling in the stock market, they’ll actually halt trading. If it’s going up too fast in the stock market, they’ll halt trading and it’s a really manipulated system and the idea there is just to control volatility because then investors don’t get nervous or buy too much or sell too much. There’s some good intentions there but it’s not truly a free market. So, Bitcoin’s going to be inherently more volatile because it’s a global free market. It’s pretty much the last free market. These other cryptocurrencies can be manipulated, that is absolutely true, just based on the size and it’s based on who controls the creation of new coins so similar to the Fed in the U.S. The Federal Reserve prints money. I don’t get to print U.S. dollars. They get to print U.S. dollars. But with these alternative cryptocurrencies, non-Bitcoin – some would call them unregulated securities because you’re creating a token and then you’re raising money potentially from other people and then you can sell it in an open market. Regardless, that’s not really been enforced totally by the SEC so that’s to be determined, but those are more manipulatable because they’re centrally controlled and their supply is controlled. So if I made a new currency and I had 50 percent of it sitting here in my house and then I sold a bunch of it to other people and I gave it to some people and then more people wanted it because they thought my business model of how I was going to somehow use this makes a lot of sense starts to go up, and now I have this 50 percent pile here and everyone else is buying and buying, I can just sell as people are buying it so people would be like selling into retail or selling into bull market or whatever it is. It’s not full-on like pump and dump. Even the name doesn’t even matter but if you’re pumping it and you’re selling your own, I mean that is kind of the definition of a pump and dump. So that is where you’ll see the legitimacy of a market is oftentimes seen in the downturn and what happened in the 2018 cycle after the big crypto top end of 2017, early 2018 is you saw 95, 99 percent drawdowns in these alternative coins – cryptocurrencies – and if you have a similar bear market which were pretty much undoubtedly in for Bitcoin and other digital assets, yeah, it’s going to get rough. It’s probably going to get – if you haven’t been through it before, you know, it’s rough. I don’t feel it emotionally after being through it before. Part of that is because experiencing how unregulated all these alternative coins are. It’s not that there’s no value in them or there can’t be another new thing in the future but Bitcoin is very well established. So, for me, I don’t have to really worry too much about that portion of my holdings because I understand it. I know what it is. I know that it does these quick highs and lows and I’m not in it for the short term and that mental framework translates to not being too stressed out about it.
 
Jon: Yup, yeah, exactly. If you know the purpose of it why you chose the investment you did or the strategy you did whether it’s Bitcoin or stock market or whatever the case might be, then it all comes back to that same concept. I think that’s a great reminder.
 
Trevor: There was another event too. Should I tell them about the Luna thing we were talking about?
 
Jon: Yeah, I think that’s worthwhile. Explain what that means.
 
Just What Happened To The Luna? [0:11:16]
 
Trevor: There was this company that came along that – I’ll try to keep it as brief and digestible as possible and you can listen to other podcasts or check out on Twitter – but there’s this company called Luna and their goal was to create an algorithmic stablecoin so we’re getting into the weeds a little bit already. So we’ll just say they create these coins that are supposed to match the price of the dollar and you can trade in and out of them and it’s just faster, it’s more efficient than sending your dollars around, and the idea is if you think Bitcoin is going to go down, you could sell into this coin and it’s just a little bit faster than really settling out into true U.S. dollars and then the real trick – the reason people were buying this – is because you could go on to a certain platform and you could get a 20 percent yield on your stablecoin. So you’ve got – it’s this feeling, this idea of I can take my U.S. dollars, not have the volatility risk literally none ideally, sit in a stablecoin and earn 20 percent. It’s like if you could earn 20 percent on your cash that you put under your mattress, it’s kind of that similar feeling that people would get about this. It feels secure, and then the question is what is that backed by? Well, Luna kind of tapped into the Bitcoin safety, the stability of Bitcoin that people like which non-Bitcoiners would laugh at, but in this space, Bitcoin is seen as a true long-term store of value. So, if it’s backed by that, people kind of like that – oh that’s interesting, okay. So, now it feels extra safe and plus they’re buying Bitcoin as people put more and more U.S. dollars in there. They’re kind of like matching it up and they’re going to use Bitcoin as their reserve – kind of like this idea of a Bitcoin standard rather than a gold standard. So they’ve got this narrative. It sounds pretty nice and plus you’re earning a 20 percent yield and people when they’re earning a 20 percent yield don’t always ask as many questions as they should, right?
 
Jon: You’d think you would at 20 percent, like doesn’t that sound a little too good to be true?
 
Trevor: In the Bitcoin space, in the digital assets space, it’s a little unclear as to how it works until one of them blows up. So, what happened in this one is they got a bunch of people in and they had about 70 billion dollars, I believe, is the number of value. This, in the last week, was what people would have read. This got erased all the way down to about two. So, how did that happen? The way they were backing the coin so like if I bought hundreds of millions of dollars in the stablecoin and then I decided to sell it, they would have to be able to back it up to trade like dollar to dollar.
 
Jon: That’s the definition of a stablecoin, right?
 
Trevor: Yeah, right. So, they have to match it up. So, if you exit it, when you trade one thing for another, there has to be like a shift. They’re backing it up with their own coin that they made called Luna and then their reserves were some in Bitcoin as well. So somebody decided – it’s very obvious how they would do this. I guess people were publishing articles on how you could basically attack the system and break it and somebody went and did that. So they shorted Bitcoin to bring the price down and they shorted Luna and they sold the stablecoin. When they sold a bunch of the stablecoin, it had to be switched out for something like Luna and Bitcoin but as Bitcoin was losing value this last week and Luna was losing value, now the thing that they had to kind of like hold that stablecoin at a dollar, they didn’t have enough money to back it up. So, people were trading out of it and they couldn’t trade them back. They basically were like – it’s like a bank run. They couldn’t make these people whole so as they couldn’t make them whole as they tried to exit, the value of that currency drops dramatically, and in a matter of hours, it went from basically worth a dollar worth nothing. It was kind of associated with Bitcoin so maybe that news got misinterpreted and Bitcoin went down a little bit further – irrelevant. I mean Bitcoin is volatile but this was a specific attack on Luna is what failed in that scenario and not Bitcoin. It should be reason for everybody to be very, very cautious for any of these new projects, for things that have too good to be true yields, and there’s also a lot of big-named folks that were involved in the project. Frankly, you should know better. Anyways, it’s good reason to be cautious the whole YOLO-ing approach to the spaces. It is not wise and know what you’re buying. I mean, know what you’re buying with stocks, with the diversified portfolio. This is your money. If you’re investing, it’s ultimately your responsibility you can have a great guide like Jon here and he’ll help you and it’s still ultimately your responsibility to understand what you have and what you’re buying and creating your own plan and your own reasons for having what you have.
 
Jon: Yeah, and full disclosure. If you are simply looking for Bitcoin advice, I would contact Trevor.
 
Trevor: Not financial advice for me, but I’m happy to discuss the technology and the features.
 
Jon: How about Bitcoin consultant? How about that?
 
Trevor: Sure. No problem.
 
Jon: I think that helps a lot. I mean that was the gist of what we wanted to mention today is some reasons for what’s going on in the market and some of you are staying on top of that. Some of you – I think most of our listeners know what’s going on but I wanted to have us come in and give some perspective on the various markets of why and ultimately not to panic but I think that Trevor’s point, too, like know why you’re getting into what you are – this YOLO approach or just whatever it is. When you’re getting into something that is potentially risky or volatile, fine, if that’s money you can stand to lose, but if you’re investing your life savings or retirement savings or whatever the case might be, everything’s kind of a purpose. We talked with our clients about at a certain point we put together an investment philosophy statement which basically says regardless of the market or our emotions or whatever, we want these guidelines to guide what my family, my company, invests into and why, and so it just helps to maintain some stability at least of emotion and thought through ups and downs. Be aware that I think long-term investment strategy doesn’t change. This has happened before. It will happen again. We are certainly in unique times in terms of – it’s hard to say, gosh, where I can turn to the find stable growth. I don’t know, but where most of us are just staying the course because we had a strategy and a plan and this doesn’t change that. Anything else to add to that, Trevor?
 
Trevor Shares His Personal Strategies In These Unique Times [0:17:37]
 
Trevor: No. I don’t have anything else to add to that. Yeah, I’ll just share a little bit of my own personal strategy that I’m obviously into Bitcoin and I am heavily weighted in that in my portfolio. I won’t say exactly how much unless I said it before which I may have. I’ll just use it as an example for the purpose of having a specific asset or equity or stock in your portfolio or combination or ETF. When you know something’s going to be volatile, you want to size it appropriately and if you think Bitcoin is going to 10x in five years which I think is totally possible from a point of 30,000 – could be wrong – but that’s kind of like my thesis. So 10x from here in five years, I would totally consider that reasonable. So, if I have 10 percent of my net worth, let’s say, in that and we get a 10x, we’ll, that portion of my portfolio will now be 100 percent value. I don’t need to have 90 percent of my wealth in asset that I think is going to go up really high, and if I know it’s volatile and it could drop in half or 80 percent then I can tolerate from 10 percent down to 2 percent and my overall portfolio could drop a good 8 percent or something if it goes down 80 percent, and for me being 35 and losing 8 percent of my net worth is not a big deal. It’s not going to ruin me. It’s not going to affect my payments and I am not YOLO-ing into any sort of investment. I am looking at this soberly knowing it’s going to suck when I see it go down and I’m going to put in 10 percent because 10x should be plenty good for me and having 100 percent return over five years for my entire net worth would be ridiculous. It’d be amazing especially in the current inflationary world we live in, that’s great. That’s going to keep up with inflation and that’s one of my goals and I only have to really “bet”, stand to lose 10 percent of my net worth. My dad’s like at retirement. Do I want him to have 50 percent of his net worth in Bitcoin? No, that would be crazy. If it drops down by 80 percent, then he could lose 30, 40 percent of his net worth. That’s too much. You know, that’s irresponsible, unquestionably. But 5 percent, 2 percent Bitcoin and then at 10x’s and then now he’s got a 20 percent boost with such an extremely low risk, that’s where it’s valuable and it’s outside of the current system and the Fed can’t print in a way that can manipulate Bitcoin as much, although it’s a liquid asset. It's going to be affected, at least in the short term, but yeah, just to land the plane on that.
 
Leverage: An Interesting Strategy [0:20:16]
 
With that in mind, leverage is an interesting thing. So you can have a 100 percent net worth but if you leverage your money, you actually can have a higher percentage than 100 so you can invest like 120 percent of your net worth if you have 20 percent leverage in. People are, well, that sounds crazy. Well, most of you are doing that because you have a home so it’s balanced out by the debt but if the value of your home goes down then you are actually leveraged above. So, let’s say, you got 100 percent net worth and then you borrow against the home and you get a 400,000-dollar loan for a 400,000-dollar house. So you’re still at 100 percent because those cancel each other out, right?
 
Jon: Yeah.
 
Trevor: If your house value drops in half and you got now 400,000 dollars you owe and 200,000 dollars of house value left and you’ve got a million dollars, well, now you’re minus an extra 200,000. So you’ve got 1.2 in assets but you have 400,000-dollar loan, so now you’re at 800,000. So, yeah, it’s right about 20 percent. People might not be leveraged right now but depending on what you own, you could be. So, with that same kind of thing in mind, I have student loans and I have been investing so there’s always that discussion – should I be investing or should I pay off my student loans or a little bit of both – personal decision. Talk with the financial advisor and then scope it out, maybe two different directions, know where you’re headed and pick the one that sits well with you. Well, recently, what sat well with me was, I’d like to kind of de-leverage. I’m basically when I’m making payments and I’m investing at the same time, it’s almost like I’m borrowing to invest that money because I’m effectively not paying off the loan. You can do some mental gymnastics. My loan was at a 5 percent rate. That’s not too bad with inflation. Some people would say borrow that money all day long and there’s been times where I felt that way and I was just like, you know what, there’s a peace of mind I could just feel myself desiring and I wanted to pay it off and I had the funds and then looking at the environment of recession – potentially – I did this before where, you know, a year ago, all my assets were up a lot higher than they are now because I was in volatile assets and I could have paid it off with a smaller percentage of my net worth than I had to do this last week. But I just thought, you know what, that percentage of my net worth I would have to sell to pay this off could double again in the next year if things keep going down. I just want to de-leverage myself and have that peace of mind and so I decided to pay off. I still have some student loans remaining but I paid off about 50 percent of what I owe and that lowers my monthly payments and making the cash flow more comfortable. It allows me to more conservatively pursue the career that I want to have so I don’t feel as limited by that and that was my financial decision.
 
Sometimes, It All Boils Down To A Person’s Emotional Well-being [0:23:16]
 
Jon: Sometimes, I recommend that. I usually, in the interest rates we’ve had in the last several years, have said, don’t pay off your loans early. We can get a much better rate of return in the market or investments, but there have been times when I knew it had to with a person’s emotional well-being. We had a client that really hated their job, hated where they were at, just a bunch of stuff, and it was affecting his family and I just said, hey man, I think you’re going to be happier if we switch, alter course a little bit and try to aggressively get these loans paid off, then you can move, you know, because he was a thousand of miles away from home where he grew up and he’s trying to raise a family away from his parents and their family. It’s like all these things that – I’d been a financial planner long enough to say and a therapist for a little bit to say – yeah, I think you’re going to be better served. The numbers are not going to make sense but your happiness and emotional well-being just outweighed the numbers.
 
Trevor: If you can’t do stuff like that and you’re making money and you’re saving money, you got to remember what’s the point of the money? It’s not just to get more of the money. It’s you want to preserve your buying power.
 
Jon: To what end, yeah.
 
Trevor: Yeah, part of it I was like what I’ve sacrificed lots of emotions, learning and investing in a volatile market and assets and taking on lots of debts and stuff. I was like, you know, I’ve paid the price for this, and occasionally, you just need to reap the rewards. I’m not going out and buying a car. I still like driving my old used cars. They’re great, but this is a big goal and I don’t regret it at all and then the market dipped 25 percent so that was particularly satisfying. I don’t think that usually happens but I was like, well, there you go. I would have otherwise had to just wait another year because I’m not going to sell down at that. I’m not going to sell at the bottom, but selling in the middle – the middle-ish – that’s all right.
 
Jon: I can get onboard with that. All right, well, it seems that covers it for today. Trevor, thanks for sharing. Your perspective is always valuable and I appreciate you doing this with me, and for the rest of you out there in Financial MD world, just keep at it one day at a time. Stick with the plan. If you’re unsure, consult your financial planner. Find somebody you like and you trust and you feel like has your best interest in mind. You know how to reach us at financialmd.com. We’re coming out with new Didactic Minute videos every week; kind of blowing up on TikTok and Instagram so if that’s convenient for you, follow there. Otherwise, we’re still always on Facebook and YouTube for the video piece but if you haven’t yet shared the Financial MD Show, please do. If you care about somebody, you’ll share the Financial MD Show. Get this information out to as many people as possible and share the love. Subscribe on iTunes and Spotify and Google. Other than that, until next time, it’s Jon Solitro saying goodbye, and Dr. Trevor Smith. We’ll see you next time.
 
Trevor: Good to see you, Jon. Bye.
 
Jon: All right, see you later.
 
Thanks for joining us for another Financial MD Show. Be sure to head over to financialmd.com to get more in-depth resources on financial tips for physicians and don’t forget to join the Financial MD community group on Facebook, where physicians at all stages of their career gather to share tips and get ideas on achieving true financial success. We’ll see you next time.
 
The Financial MD Show is for informational purposes only and is not an offer to invest. It is not financial, tax, or legal advice. Be sure to seek financial, legal, or tax professionals when making any financial decisions. Before investing, you should make sure that any investment strategy or investment meets your individual investment needs, goals, and objectives. Financial MD makes no claims or guarantees to individual investment performance. All investing involves the risk of loss as well as the potential for gain.
 
 
Resources and Links:
What is a 403(b) plan? – https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-403b-tax-sheltered-annuity-plans
The 401(k) plan: Complete Guide – https://www.investopedia.com/terms/1/401kplan.asp
Gross domestic product (GDP) definition – https://www.bea.gov/data/gdp/gross-domestic-product
Current Federal Reserve interest rates and why they change –
https://www.thebalance.com/current-federal-reserve-interest-rates-4770718
Federal Reserve website – https://www.federalreserve.gov/
What is stagflation? – https://www.investopedia.com/terms/s/stagflation.asp
Bitcoin website – https://www.bitcoin.com/
Ethereum website – https://ethereum.org/en/
Stock Market Psychology – https://www.dailyfx.com/education/understanding-the-stock-market/stock-market-psychology.html
All about Terra with it’s token, Luna – https://www.cnbc.com/2021/12/27/what-investors-should-know-about-terra-and-its-token-luna.html
The great Terra Luna crypto crash – https://indianexpress.com/article/technology/crypto/5-things-you-need-to-know-about-luna-crypto-crash-7919632/
Terra 2.0 – https://www.euronews.com/next/2022/05/26/terra-luna-2-0-how-backers-of-the-project-want-to-revive-the-failed-cryptocurrency
Stablecoin definition – https://www.investopedia.com/terms/s/stablecoin.asp
Leverage trading: Pros and cons – https://www.wealthwithin.com.au/learning-centre/leveraged-trading/leverage-trading-the-pros-and-cons
Financial MD Website – https://www.financialmd.co/
Financial MD YouTube page – https://www.youtube.com/channel/UC6qEAQxK8L8JM7joy3wvdkA
Financial MD Facebook community – https://www.facebook.com/FinancialMD/
Financial MD TikTok – https://www.tiktok.com/@financialmd
Financial MD Instagram – https://www.instagram.com/financial.md/
Financial MD Twitter – https://twitter.com/financialmd2
Financial MD LinkedIn – https://www.linkedin.com/company/financial-md/?viewAsMember=true
Financial MD App – https://apps.apple.com/us/app/financialmd/id1507757039
Financial MD Apple Podcast –
https://podcasts.apple.com/us/podcast/the-financialmd-show/id1548024586

Ep 016 - What Happens After You Die?

Summary:
What Happens After You Die (Financially-Wise) [0:02:50]
What Is An Estate? [0:06:07]
Aaron Spelling – An Example Of A Well-Managed Estate [0:08:51]
What Is SECURE ACT? [0:11:16]
Bitcoin As An Early Inheritance [0:16:17]
There’s Something Called A Step-up In Basis [0:19:18]
Gift Tax – What Is This? [0:23:17]
How Do I Dictate What Happens After I Die? [0:27:07]
Who Should Have A Trust? [0:30:15]
Role Of Regulatory Bodies Like FINRA And SEC [0:32:48]
It Pays To Invest On Life Insurance [0:36:33]
 
 
Welcome to the Financial MD Show. This is the only podcast designed specifically for residents and young physicians to help you become educated on financial planning for physicians and avoid many of the common financial mistakes doctors make. Your hosts, Jon and Trevor, explore a different topic with each episode. Jon Solitro is a financial planner and certified financial education instructor. He’s been working with young physicians for the better part of the decade and lectures to graduate medical programs around the country. Dr. Trevor Smith is a board certified ophthalmologist with a full time practice and he has learned the ins and outs first-hand what it takes to make smart financial decisions as a young physician. And now here’s your hosts, Jon and Trevor.
 
Jon: Hey everyone! Welcome to the eighth episode of the Financial MD Show. Hope you’ve been having a good time listening through all the episodes and learning stuff. Today, we’ve got a fan favorite. This is a highly requested topic both through emails and correspondence, and after getting requests on podcast topics as well as just getting straight up questions in the webinars and lectures and things that we do. Disability insurance is what we’re talking about today, which is great, because I’m knowledgeable on it, Trevor is knowledgeable on it, and we’ve had some good and bad experiences, but there’s a lot of mixed information out there and we hoped to straighten some of that out today. We’ll give you some tips on how to buy it, how to shop for, what to look for, what not to do, and ultimately how do you feel you’ve done well and just protect your finances. Without further ado, here’s today’s show.
 
Trevor: Need to go back a little further.
 
Jon: Okay, let me think a topic today. Your thoughts on topics today?
 
Trevor: What have I been thinking about lately? I’m thinking about life or death. We could not talk about that.
 
Jon: I don’t know.
 
Trevor: I think it’s bad up there. This is good. What have you been talking about with clients? We can talk about bitcoins. It’s almost at an all-time high if you want.
 
Jon: Yup. What have I been talking about lately? Well, a lot of wondering if Biden’s going to make any big tax changes.
 
Trevor: Certainly. Do you get calls about that stuff right now?
 
Jon: Yeah. I mean mainly emails, text, whatever. Clients just like, hey, should I be doing anything, or what should we do or etcetera. And, you know, the answer is still at this point like it’s too early to tell, really and so that run maybe we can do yet so anything else would be preemptive until we have a better idea what’s going to be passed and all that stuff.
 
Trevor: Yeah, that’s a little premature.
 
Jon: Yeah. I mean I can kind of run that. We can chat about it.
 
Trevor: We chatted about that last time.
 
Jon: I think we did.
 
Trevor: That was the last topic we did.
 
Jon: I’m kind of curious about...
 
Trevor: What about…yeah, go ahead.
 
Jon: Well, let’s talk about…let’s have a show called, “What happens after you die?”, but let’s talk about it more specifically with financially like what does happen to my stuff after I die? How do I…do I know? How can I know? When should I be thinking about that or making moves on that? I think that’s probably a good question we haven’t really addressed.
 
Trevor: Yeah, sure, like wills, estates.
 
Jon: Estate planning, basically, yeah.
 
Trevor: Well, I will be honest. This would be mostly you. I know almost nothing about that. That’s something I’m going to start looking into.
 
Jon: Well, that’ll be a good…you’ll be a good person to talk to because that’s what most of the doctors we have are like I’m not – anything about that.
 
Trevor: Okay, yeah. Sure, let’s do it. That’s great. I can ask you questions. Yeah, please, go for it.
 
What Happens After You Die (Financially-Wise) [0:02:50]
 
Jon: So what happens after you die is the question that we’re addressing today and we’re going to try to keep it nearly in the scope of financially. Spiritually, that’s probably out of the podcast, we can recommend for that, but on Financial MD, we’re going to talk about what happens after you die and the answer to that is our typical legal approach of, well, that depends. So on our show, of course, we have Dr. Trevor Smith giving us as always the valuable yet slightly more informed physician opinion and experience and then myself, Jon Solitro. We’re going to talk about this. So we’re in a unique situation where Trevor may be in the position that many other physicians are in from a knowledge standpoint of estate planning. So he’s going to approach it as though he is an estate planning dummy and ask some questions and we’ll try to do kind of an estate planning for dummy show and try to keep it very simple because it can get very complicated. You know, people get entire degrees in this thing. Alright, so first question that pops into your mind, Trevor, when it comes to what happens to your money after you die? Or your stuff?
 
Trevor: Big picture – I’d like to know in terms of…I think the main thing is a question of when you see a lot of this in the news right now, we were just talking about taxes and potential buying tax. Changes that are coming up the pipeline, we don’t if they’ll occur so there’s not really much to do. Maybe get to read about. Maybe click bait – probably a lot of articles are click bait on this kind of stuff – but what gets taxed after I die. I mean that’s the question I’m in. If you’re going to leave your money to somebody else whether it’s a charity or individual, children, spouse, partner – whatever it is – not everything gets taxed, even if you have a lot of money as far as I understand. But I’m early enough in my career and I don’t have dependents so it’s not something I spent a lot of time thinking about but, you know, right now for me as a single adult it’s, you know, filing a single…it’s pretty simple, you know. Just like the accounts I have are going to go to somebody else and a lot of the banks and whatnot, you just write a beneficiary down – brother, sister, parent, whatever. For any, you could just pick friends. You could pick whatever you want. You can give things away to people, and you barely even as far as I understand need a will but I know there’s frozen accounts of having one for specific items. So I would like to know first what is taxed and then I would like to know what is an estate and then after, it’s right into that.
 
What Is An Estate? [0:06:07]
 
Jon: Yup. So what if tax…maybe I’ll start with the second question. What is an estate? So most things when you die will be in your estate. Estate means anything that really needs to get settled or given to somebody or dealt with after you die. Now there are some things that are inherently out of your estate specifically the 529 plan if you started one for your kids or somebody else, that will be out of your estate as soon as you die and doesn’t get counted in terms of... When you say out of estate, that’s typically…what that means to an attorney or even who’s dealing with this is what counts towards estate planning – or not estate planning – estate taxes, we’re in an environment right now where it doesn’t get talked about that much because currently the threshold of your net worth above which you would have to pay estate taxes and estate taxes are typically about 40% is 11 million and some change for a single individual or basically 22 million/23 million for a couple. So if your net worth is more than that when you die then, yeah, you have to think about estate taxes and what’s in your estate and that’s everything – house, land, bank accounts, IRAs, life insurance – any kind of assets that you own or have any ownership in whatever your worth. More specifically, if you’re a business owner, this really comes into play because if you don’t have a lot of stuff, right, just got a house and some money, you know, I got 5 million bucks in savings and house and all those things, okay, that’s not that uncommon in this world, but then so what do you do for a living. Well, I own a company that’s probably if I had to value it is worth 50 million, but, you know. Well, that is part of your estate. That’s part of what you own. So that’s a big deal. So a lot of estate planning when it comes to business owners is how do I get this business out of my name before I die essentially or just be prepared to pay the estate taxes because whoever inherits it is going to have to pay. I mean we’ve got stories and you can see horror stories of…Michael Jackson’s estate to what other estates were terribly managed? Oh one interesting example who I think did it well – do you remember Aaron Spelling? TV producer – Melrose Place, Beverly Hills 90210 – that kind of stuff?
 
Trevor: Oh, nice.
 
Aaron Spelling – An Example Of A Well-Managed Estate [0:08:51]
 
Jon: Yeah. So he died recently and his estate was structured in such a way his daughter, Tori Spelling, was kind of a mess growing up and he had set aside a trust that was very specific as it was multimillions of dollars, but all she could get was a certain salary every year out of that. She couldn’t just pull a million bucks out and do something with it, but she could pull a million bucks out to donate it or start a business or do stuff like that. So he had very clear trust and estate planning documentation set up. Now, not a lot of us have to go to that extent but you could have any kind of jackass in your family that if you got a hundred thousand dollars that goes to him and you know they’re going to blow it. So back to the original question, what’s in an estate? Anything you have ownership in, frankly. There’s a couple of things that are specifically at this estate and then kind of more specifically, what is a probate asset and what’s out of probate. If something clearly has a beneficiary on it – life insurance, IRAs, 401ks, stuff like that – that is stays out of probate. But if you don’t have a will or trust and you have stuff that does not have a beneficiary on it – house, bank accounts, cars, that stuff – that’ll go into probate and a probate judge will decide who gets what and how much and that kind of thing plus you typically will pay 3 percent of what goes into probate as a probate tax and stuff. So people want to try to avoid that, but a lot of…you know, so when it comes to what’s taxable in a worst-case scenario, there’s probate tax but then in a scenario where you own a bunch of stuff – business things, whatever – totaling over 11 million, there’s estate tax. But what most people are going to deal with is things are going to get transferred fairly without tax unless it has never been taxed. So we have two scenarios there. So a qualified account of 401k and IRA – things like that basically or retirement investment account – those have usually never been taxed, right? We’ve talked about before. Money goes in pre-tax. Then you die – your son, daughter gets it.
 
What Is SECURE ACT? [0:11:16]
 
What changed in 2019/2020 was the SECURE Act which changed it so that as soon as you inherit something, you get 10 years to get it out of there and pay taxes on it. So 401ks, IRAs – things like that specifically. Life insurance death benefit is not income taxable when you get it. Now if it’s over 11 million then yes, there’s a portion that would estate-taxed.
 
Trevor: Interesting.
 
Jon: Yeah, the whole beauty of life insurance is the tax-free nature of it for the vast majority of people.
 
Trevor: Okay. I didn’t realize that.
 
Jon: Yup. So it’s kind of...and some people look at it, a lot of middle America will have a lot of money in 401(k)s and IRAs at the end of their life and that they say, here, son or daughter, you can have this after I die and also here’s a little life insurance policy that cover the taxes on this. That’s kind of a strategy sometimes.
 
Trevor: Interesting. So I thought that retirement accounts were not taxed actually.
 
Jon: They are, you know, when you pull them out and it used to be you’d get what’s called an inherited IRA or an inherited 401k which would then have a or rightly called a stretched IRA which means you could stretch it to your life expectancy and the IRS has this formulas and tables to say, here’s how long we think you’re going to live based on how old you are and we’re going to give you a formula so that if you make it to your estimated life expectancy, you will have completely liquidated that account and paid taxes on all of it.
 
Trevor: Got it.
 
Jon: So for example, typical 65-year-old has what’s… well, a typical 72-year-old, we’ll say, because that’s the age when you have to start taking money out of your IRA or your 401(k). That’s called a required minimum distribution but at that age, 25.6 is the typical multiple, I guess, or divisor, but you basically take if you have a hundred thousand dollars in your IRA, you divide it by 25.6 and that’s how much you have to take out this year and then each year that amount goes up a little bit. It comes to about 2.7 to 3% the first year and then bumps up a little bit every year after that. The point is you got to take that out and then pay taxes on it, that’s why. So IRA is taxable, 401k is right. ROTH IRAs – different story. That’s all tax-free.
 
Trevor:  Inherited, is that free too?
 
Jon: If you inherit a ROTH, you still got to take it out but you don’t have to pay taxes on it because the government can find…
 
Trevor: Okay, so it can’t keep growing tax-free.
 
Jon: Exactly.
 
Trevor: You can take it out immediately all at once?
 
Jon: No, it’s still with 10-year window, I believe.
 
Trevor: Okay, got it. So the new SECURE Act made everything a 10-year window?
 
Jon: Correct, for almost everybody.
 
Trevor: Okay.
 
Jon: There are what’s called eligible designated beneficiaries which are disabled beneficiaries, spouses, and any beneficiary that’s less than 10 years younger than you. In that case, they keep the spread provision that says, here, you have to take some out every year but you can stretch it out over your lifetime.
 
Trevor: Okay, that’s make sense. I’ll give you a specific context, just to add a little flavor here. I like to jump in the clubhouse. I think my handle is the same there – trevorsmithmd@trevorsmithmd.
 
Jon: Yup, I’ve been there some times.
 
Trevor: Occasionally, I’ll hop on stage and chat with big-pointer people about stuff and we were talking about ways to pass on your bitcoin and the bitcoiners are not afraid to get creative and there’s like a small contingent of bitcoin folks that are basically willing to break the law. We don’t like the tip, okay, so that’s a bad luck for a great asset. It’s like avoiding taxes is not part of the ethos of bitcoins. Must be a good store value. You could buy more later with it than you can buy today. I mean that’s a simple kind of…that’s like where good money would be regardless if it’s bitcoin or not. So we we’re talking about how do you give it to your kids, right, especially once it’s going to be worth more later down the line, let’s say, 30 years from now, what’s it’s going to be worth. So one of the things we talked about was gift taxes so you can give up to 15,000 dollars per year to anybody in your immediate family.
 
Jon: Correct.
 
Bitcoin As An Early Inheritance [0:16:17]
 
Trevor: And we’re just kind of saying like 15,000 dollars of bitcoin if it keeps going up in an exponential or parabolic manner, it’s almost like you can give substantial pieces of wealth to your children just by giving them whatever amount 15,000 is at the time of the gift. So like earlier this year, bitcoin is like 30,000 so you could give half of bitcoin to your kids and nobody would have to pay any taxes on it.
 
Jon: Yup.
 
Trevor: It’s kind of like a workaround, almost like an early inheritance and the context was, okay, what would make that make sense. But you have to have a great relationship with your kids, you with your parents or your parents with you to do that and then you also want to…like the idea there is that’s inherited so like don’t spend it. But if you have the context where your kids are responsible they’re not going to spend it, bitcoin is unique too because you can gift it to somebody and then somebody else can custody it as well. So you can almost do like trust level gifts where it’s controlled, pay no taxes, and then actually not really physically handed off to them and then withdraw until later. That was a little more advanced than I intended it to be, but just in general, I think of it in U.S. dollar terms, just giving cash. You can give 15,000 a year and they don’t pay taxes on it and you can kind of just… If you have 30 million dollars, that’s not going to move the needle for you, right, to limit your taxes that you pay after death. But if you got like 5 million and you think you’re going to double again in 10 years and you might be flirting with that level of 10 million/11 million and then they’re going to gouge 40 percent, you know, 4 million roughly out of 10, then like certainly give some early tax-free with gift tax. We’re just talking about that. I’d be curious what your thoughts are, and do people do that often or do they just kind of not mess with it and just do like trusts? How do you transfer wealth to your kids?
 
Jon: Is it kind of capitalize that to where if you buy and sell, it’s a capital gains tax or income tax?
 
Trevor: Absolutely. It’s treated just like real estate long-term and short term gains. The other thing is you can spend the bitcoin? That’s the same thing as a sale so like anytime you transfer it to somebody else, it’s a taxable event, it’s a capital gains event. It just depends on how long you’ve held that whether it’s long term or short term and then you get a higher or lower tax bracket based on that. Those are googleable on the IRS website and currently there are like if it’s short term, less than a year, you pay your income tax rate generally if you’re making good money like a doctor, and then if it’s long-term after a year, then you’re paying either 15 or 20 percent. The more you make then you’re on the 20 percent category. Usually long-term gains 20 percent.
 
There’s Something Called A Step-up In Basis [0:19:18]
 
Jon: Correct. So it depends on the type of assets. So most capital assets like that – stocks, real estate, bitcoin. As of today, October 20, 2021, there’s something called a step-up in basis, which is one of the most advisable things is to not gift stuff before you die because when you gift something, your basis becomes their basis which means, okay, great, you didn’t gift it to them to sell, but if they do, they’re going to pay taxes on the growth that you had. So you bought it, you know, you bought bitcoin at 40,000 and they sell it at 60, they’ve got 20,000 in gains, that’s taxable gains. That’s a recognized gain that they have to pay taxes on. But if you wait till you die and bitcoins at 60,000, their new basis is 60,000 and if they sell it that day when it’s 60,000 then no taxes for them. Same thing with the house, same thing with stocks in a brokerage account.
 
Trevor: That is critical information. That’s very helpful because that shifts... You could kind of do a bit of both. I mean I’m one of those guys I think bitcoin is going to…each one is going to be worth a million dollars plus; somewhere between a million and 5 million each at some point in the future. It could be, you know, in the range of 12 years from now is kind of what I picture just based on the supply and demand curve but it could be well down the road. But hitting some office good but like having a step-up in basis, that’s massive. That is incredibly massive if you’re going to sell it at some point.
 
Jon: Well, and that’s why… that’s been a very longstanding law and the Biden administration has discussed eliminating step-up in basis, so that’s a big deal.
 
Trevor: Wow. Huge deal.
 
Jon: And that’s a thing that wouldn’t just affect high net worth people. That affects anybody. I mean if you inherit your parent’s house and, you know, everybody does that, then there’s a step-up in basis issue there. So that’s why it’s typically better to inherit or bequeath something rather than gift it because if you give something before you die, they take on your basis which means more taxes for them. I have had clients ask me all the time about, hey, should I just put my house in my kid’s name? Would that be easier when I die? Well, if you do that, you effectively gifted it to them and now they have your basis. No step-up in basis and you’re going to hold the government more than you should so step-up in basis becomes a huge question.
 
Trevor: Okay, so just to like hammer it home, make sure I understand, so if one of my parents passed away and they had shares of Tesla and let’s say they had one share there and it was 200 dollars and they bought it 10 years ago and then now it’s worth a thousand. If they gifted it to me before they passed away, I would have the basis of 200 dollars?
 
Jon: Exactly.
 
Trevor: Okay.
 
Jon: Now that’s outside of an IRA or qualified plan. That’s like a broker’s, just Robinhood or whatever.
 
Trevor: Taxable account.
 
Jon: Taxable account.
 
Trevor: Yeah, well, they’re technically all the taxable accounts but you might just call it like a regular, non-retirement account.
 
Jon: Yeah, kind of taxes-you-go account you could say where you have to taxes every year.
 
Trevor: Taxes you go, that’s actually a very helpful common sense term. Okay, cool. That’s helpful. Were the other…? Go ahead.
 
Gift Tax – What Is This? [0:23:17]
 
Jon: Well, the gift tax…your gift tax point is another one. Gift tax is not a thing until 11 million dollars either so you got an 11 million dollars of stock you can gift. The reason the 15,000 is there, if you keep it under 15,000 a year, you don’t have to report it. But if you gift something that’s worth more than 15,000 dollars, you have to fill out a gift tax return schedule on your tax returns that year and the IRS keeps track and if you get to the point where you gift more than 11 million dollars’ worth of stuff then you got to pay taxes on that.
 
Trevor: Oh, so you can give more. Do you have to pay taxes on it though if you give more?
 
Jon: If you give more than what? 15?
 
Trevor: Yeah. I thought you had to pay taxes on it.
 
Jon: Nope. I thought so too, but you just have to report it.
 
Trevor: Just have to report it and that’s maximum of 11 million.
 
Jon: And it starts counting towards what they call a gift tax exclusion or exemption.
 
Trevor: Interesting.
 
Jon: Yeah, pretty sure. Disclosure – I’m not a tax professional. I’m just deep in the weeds of the CIP right now and I hope that’s true because that’s how I may answer on the CIP exam next month. But that’s what’s had been. That’s what I understood in the tax planning course that I’ve been going through. You know, I don’t see issues like that that often that’s why. So when I try to keep clients under that 15,000 and it comes up like I had a woman that wanted to gift 15,000 into her granddaughter’s 529 plan that’s a gift. She wanted to just…so she was 72/73. She had to take a required minimum distribution from her IRA and she said instead of taking this, can I put it in my granddaughter’s 529 plan? Yeah, you can. You still have to count as income so it’s not like you just bypassed you, but it still comes to you and you can put it on a 529 plan but her RMD was like 18,000 dollars or something which was going to be over which meant we were going to have file a gift tax return. So what we did was we had, the investment company, withhold the taxes on that like 20 percent for taxes. So it came out to like 14,000 or something was the actual check that she got, which is great, because now it’s in the 15,000 and she can kind of standard rate with that. So that’s how that works. There’s a gift tax exemption amount as well as an estate tax exemption amount and they’re both kind of around that 11 million. In fact, we can kind of confirm this with the ultimate tax planner Google.
 
Trevor: Yeah, 11,580,000.
 
Jon: There you go.
 
Trevor: It’s the limit.
 
Jon: They’re similar because people, you know, would try to gift stuff to get it out of their estate. Just like well, here’s how we fix that.
 
Trevor: Oh, interesting. No incentive.
 
Jon: Yup.
 
Trevor: Yeah, that’s wild.
 
How Do I Dictate What Happens After I Die? [0:27:07]
 
Jon: So, in general, for most people with estate planning, the question becomes then, how do I dictate what happens after I die with my stuff? A will is the most basic way to do that, that just gives directions to an executor, but if you’ve got young dependents or you got some other specific plans or things like that, you can establish a trust and when you die, a trust creates a separate entity with its own social security number where all of your assets if they’re properly named and titled and beneficiary and everything, go into that trust, so now this trust pulled that this trust has to file on tax return. It has a trustee whom you’ve given specific instructions on what to do with this and when and how, and you know, it would bypass all the probate stuff potentially because there’s some things that just have to go through probate unless you set up a trust. So that is something you want to…I recommend typically just getting a trust done. It can be 2 to 3 to 4,000 dollars but when people are at that point in life where you got a spouse or dependents or enough stuff that they want to, you know, make sure some very specific directives are done when they die then that’s where a trust makes sense and I recommend using an estate planning attorney rather than just a random attorney, you know, just helps to make sure they are specialists and a lot of experience in what this is.
 
Trevor: How much money do you have to have to make it worth having a trust?
 
Jon: You got to think of life insurance face amount in there as well, a death benefit. So let’s take, for example, if you’re a resident and I’m talking to you, most of my residents especially if they’re married, even if they don’t have kids like they’re going to have a million bucks or 2 million bucks in life insurance and assets and everything altogether. So at that point, yeah. Gosh, what’s the dollar amount?
 
Trevor: Because there’s been a couple grand for it, that’s the context I’m thinking in, you know, like if I have… yeah, I don’t know.
 
Jon: I would say it’s not so much dollar amount but complexity of your estate and your assets and your whole make up of what you have. You know if it’s just house and car or you’re renting, you just got a car, then yeah. But as you start to accumulate assets, you know, that’s a different story. So, I don’t…I don’t know. That’s a tough question. I just say, probably, I don’t know. I guess I can’t answer that.
 
Who Should Have A Trust? [0:30:15]
 
Trevor: Let me ask you differently. How do you determine who of your clients should have a trust?
 
Jon: For sure, if you got minor children.
 
Trevor: And what’s the reason behind that? If I don’t get the money like immediately or something just knocks on them.
 
Jon: Yeah. The other option is if you don’t then the court’s going to establish a guardian or custodian that’s going to have more freedom and flexibility around whatever assets that you set or that you have left over.
 
Trevor: Got it.
 
Jon: It’s just safer for the trustee. It’s safer for the kids, if you just put it in a trust, that’s very kind of regimented and controlled, and has specific language. Because then with a trust, you can say, okay, I want my kids to get this much at 18, this much at 25, this much at 30, like you can dictate directions like that.
 
Trevor: Got it. You can probably even do like percentages or absolute amounts, things like that like if it grow super fast, then you’re like, oh, I didn’t know this account was going to be 30 million dollars. I mean that’s a great problem to have, but you probably don’t want an 18-year-old getting a third of that like upfront or something.
 
Jon: I mean even a hundred grand to an 18-year-old.
 
Trevor: Yeah, so true.
 
Jon: Right?
 
Trevor: Just a massive amount of money. I mean, can you imagine? It won’t last very long.
 
Jon: Nah, I know and it’s been so many times.
 
Trevor: I bet. It’s kind of the default, right?
 
Jon: Yeah. I mean it is the default if you don’t set up any other rules.
 
Trevor: Yeah, that’s important to remember – the defaults. The defaults on how money is treated is pretty horrendous.
 
Jon: You can’t just kind of let it go and be like, well, I’m sure the government’s set up different defaults that’ll make sure this gets handled a different way.
 
Trevor: They haven’t.
 
Jon: The government will say that’s on you buddy like we just want to get our taxes.
 
Trevor: Yeah, it is important to remember the IRS isn’t there to…There is no benefit really to individual. They just collect taxes.
 
Jon: Their job is to generate revenue for the Unites States government.
 
Trevor: For the government. Yeah, that’s the way to say it. Yeah, that’s absolutely right. That is their job.
 
Jon: For-profit arm of the Federal Government.
 
Trevor: Huh! I’ve never thought of it like that either. Those are both really good.
 
Role Of Regulatory Bodies Like FINRA And SEC [0:32:48]
 
Jon: Well, that was like, yeah. When I’ve had dealings with regulatory bodies like the FINRA, the SEC or something like that like take FINRA for example. FINRA is the Financial Industry Regulatory Authority. Every advisor or at least broker is regulated by them to where they can levy fines and penalties on you for different stuffs and sometimes dumb stuff, and I don’t mind saying that, but I was talking to an attorney about it one time and I was like, you know, what’s the likelihood… You know how do they typically look at this attitude-wise? And he said, well, you got to look at it this way. FINRA is what’s called a… it’s actually a private organization, so to speak. It’s a self-regulatory organization that doesn’t necessarily get funded by tax reg. It gets funded by fines and penalties so you can imagine that there are little one…you know they’re not going to be just like, ah, sure. We’ll let that go without a fine or penalty, you know. It’s like that’s how they make money so is that a conflict of interest? Probably, like yeah. So if it’s an easy opportunity for them to collect the penalty or fine, then probably will.
 
Trevor: You think the SEC is similar. Like the SEC – Securities and Exchange Commission – the positive optimistic view is that they’re trying to protect investors from malinvestment.
 
Jon: Correct.
 
Trevor: A common example I hear is like you can’t…Burger King can’t claim that the Whopper cures cancer. So because of that, people can trust a lot of marketing in the United States. There’s like make a false sense of security that like if somebody says something is true, you can trust that it’s true and that’s not always the case but they’re one of the ones that enforce that type of thing and then they also determine like you can’t sell snake oil, and I’m saying that in the sense of like people selling shirts of a company like you can’t fleece people. You can’t say, oh, buy into my company. We’re going to do this and then just disappear. They determine that you selling parts of a company is a security and so they’re trying to protect American investors from being ripped off. So there’s some good… I’d say the SEC is not all bad but there are certainly because there’s rules and there’s a lot of money to be made, it gets gamified a bit so there ends up being certain ways to play the system and have winners and losers in terms of companies going public and being tradeable and all that kind of stuff.
 
Jon: Oh yeah, the whole conversation on us back is where allowed companies to go public without really going to the whole IPO filing process and then filing their S and filing just all that kind of stuff that’s a way to kind of get around that sort off. They kind of would go public in a bundle sort of, you know, when they get around some of those – what do they call these – the name of the disclosures that they would have to have file when they go public.
 
Trevor: That’s right, yeah. They don’t really have much.
 
Jon: Yeah.
 
Trevor: It’s cheaper, it’s faster is the main thing, I think.
 
Jon: Faster, right. All right, well I think we are probably out of time, but yeah. That had been a really beneficial conversation. It’s amazing.
 
It Pays To Invest On Life Insurance [0:36:33]
 
Trevor: Yeah. It seems as if there’s a lot to think about and just the basic big picture stuff that you shared on retirement, accounts, and life insurance not being taxable, I mean. Again, you know, I say this all the time I’m like not a normal person in the sense that I think insurance is amazing and really interesting. It’s such a good product like for the things that we buy, like we buy a car and it’s so worthless so quickly or you buy a computer and it’s out of date in 2 years like you can spend money on insurance year after year and man, nothing’s going to pay you out like for what you’re paying, you get a lot out of it and yeah, the industry, the people at the top of those companies, they make a crap ton of money. They could charge less, sure, but like man…I mean you get a lot out of a contract with an insurance, the really reliable long-term insurance company, and the fact that it’s not taxable for life insurance is just a pretty remarkable product. We’re fortunate to be a country where you know it’d be enforceable. Your family would get paid. It’s sweet. That’s a level of assurance you can have that a very large portion of the world does not get to know that your family will have the money that they need to survive.
 
Jon: As long as you made the right choices along the way, right.
 
Trevor: And it’s not even that expensive. Some already get approved. It’s like… that’s a sweet product.
 
Jon: Yeah. Now I mean it’s just a general advice that I’m giving like life insurance for sure is a no-brainer. Term insurance – a 20-year term policy – for a 30-year-old male, let’s say, is probably 60/50 bucks a month for 2 million dollars of 20-year term like it’s so cheap and these days, there’s a couple of companies out there that will get it. Sometimes you can get approved in 10 minutes if you’re healthy and boom, you got a policy. Like that’s all over the world now so there’s no excuse. If you die without life insurance, it’s like that’s…It’s so easy and cheap to make sure that your family is taken care of. Or a charity or a ministry or mission or any of these kind of things like I grew up always believing in life insurance because my dad was in a life insurance business and just always felt like, boy, that’s a cheap way to make sure that, you know, things you care about, people you care about are set. And I still feel that way. So I wished it was a mandatory thing. There will be a lot less people dependent on the government, I think, on just different programs because what if every parent had life insurance for their kids and, you know. I’ve just heard so many stories where, yeah, my Dad died when I was young and my mom had to work 3 jobs and he didn’t have life insurance and I was raising my brothers and sisters and you know it’s…oh yeah, all the time.
 
Trevor: Yeah.
 
Jon: All right, well, thanks for joining me, Trevor. Love the conversation as always.
 
Trevor: Thank you.
 
Jon: For those of you out there listening, hope this helps. Be sure to get the financialmd.com for more info. Join us for our weekly didactic minute videos. Those can be found on YouTube and Facebook and then we’ve got some upright versions on TikTok and Instagram to get just here, your weekly 2 minutes of good financial info. Join the Financial MD community on Facebook where the conversation is happening. We’re sharing articles and resources that will be helpful to you as physicians and then subscribe to this podcast and please share this stuff if you think the information’s good. Get it out there. All right, so have a great week. We’ll see you next time. Trevor, stay healthy and get back in shape.
 
Trevor: Thanks Jon. See you.
 
Jon: All right, see you later.
 
Trevor: Bye.
 
Thanks for joining us for another Financial MD Show. Be sure to head over to financialmd.com to get more in-depth resources on financial tips for physicians and don’t forget to join the Financial MD community group on Facebook, where physicians at all stages of their career gather to share tips and get ideas on achieving true financial success. We’ll see you next time.
 
The Financial MD Show is for informational purposes only and is not an offer to invest. It is not financial, tax, or legal advice. Be sure to seek financial, legal, or tax professionals when making any financial decisions. Before investing, you should make sure that any investment strategy or investment meets your individual investment needs, goals, and objectives. Financial MD makes no claims or guarantees to individual investment performance. All investing involves the risk of loss as well as the potential for gain.
 
 
Resources and Links:
What is Probate? –
https://www.americanbar.org/groups/real_property_trust_estate/resources/estate_planning/the_probate_process/
What is the SECURE ACT? – https://www.investopedia.com/what-is-secure-act-how-affect-retirement-4692743
What is an inherited IRA? – https://www.investopedia.com/terms/i/inherited_ira.asp
What is an inherited 401(k)? – https://smartasset.com/retirement/inherited-401k
Internal Revenue Service (IRS) website – https://www.irs.gov/
What is Step-up in Basis? – https://www.thebalance.com/how-the-stepped-up-basis-loophole-works-357485
FINRA website – https://www.finra.org/about
SEC website – https://www.sec.gov/
Financial MD Website – https://www.financialmd.co/
Financial MD YouTube page – https://www.youtube.com/channel/UC6qEAQxK8L8JM7joy3wvdkA
Financial MD Facebook community – https://www.facebook.com/FinancialMD/
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Ep 015 - What Are Employee Benefits?

Summary:
What You Need To Know, What You Should Look Out For [0:03:17]
What Are Employee Benefits? [0:05:08]
Generally, Large Companies Pay Less; Private Groups Pay More [0:06:56]
Let’s Start With Health Insurance [0:09:03]
Look Out For A Retirement Plan; 401(k) Vs 403(b) [0:12:29]
Next Up: Disability Insurance [0:15:48]
Life Insurance: Not Only For You But Sometimes For Your Spouse And Kids As Well [0:17:43]
Footnote On Insurances: Don’t Rely On Your Employer [0:18:44]
Other Benefits: Continuing Education, Concierge [0:20:24]
In Summary: Ask, Get, Compare, Decide [0:21:11]
 
 
Welcome to the Financial MD Show. This is the only podcast designed specifically for residents and young physicians to help you become educated on financial planning for physicians and avoid many of the common financial mistakes doctors make. Your hosts, Jon and Trevor, explore a different topic with each episode. Jon Solitro is a financial planner and certified financial education instructor. He’s been working with young physicians for the better part of the decade and lectures to graduate medical programs around the country. Dr. Trevor Smith is a board-certified ophthalmologist with a full-time practice and he has learned the ins and outs first-hand what it takes to make smart financial decisions as a young physician. And now here’s your hosts, Jon and Trevor.
 
Jon: Actually, it’s just Jon. Welcome to today’s episode of the Financial MD Show. Today, it’s going to be just me. Trevor is off in Jamaica doing some good medical work down there, and so today, I thought I would riff a little bit on something that every doctor needs to know about whether you’re in residency, fellowship, or you transitioned into practice. These are going to affect you, and that is your employee benefits. You could possibly be missing out on some big dollars here and not fully maximizing your benefits. So I’m going to tell you several tips – what they are, what you need to know, and how to fully maximize them and sometimes reduce taxes, which is always good. So, if you haven’t yet, subscribe and leave us a review. Share it with another doctor and share the love and the info. Here’s our show:
 
Jon: All right, welcome everyone to The Financial MD Show. We got a great show for you today. I’m excited because I’m all by myself, which is not necessarily a good excitement, but it’s excitement. I basically have to fill the time all by myself which is not impossible. In fact, it’s quite simple. I can talk for 45 minutes at a time – no problem – but it probably will be shorter. Most of my lectures tend to be quick and to the point so I’ll treat this kind of like one of my resident lectures and I do probably 100 of those a year so we should be fine. But this will be a little bit of a different format. Our friend, partner in crime, co-host and partner, Dr. Trevor Smith, is doing some mission work in Jamaica, slaving away for the kingdom, serving, and I’m sure he’s enjoying a little bit of beach time as well. So, we’ve checked in with him. He’s doing good. He sent me some pictures. Life is good for him. Life is good here in Financial MD world. We got a lot of great stuff going on. Lectures are happening all over the country. We’re doing workshops for the residency and fellowship programs, teaching financial literacy, getting the word out, getting residents to make smart financial decisions before they jump into the big six-figure income.
 
What You Need To Know, What You Should Look Out For [0:03:17]
 
 So we’re going to talk a little bit about that today, getting into this concept of employee benefits. Specifically, I want to cover what does employee benefits mean. You hear the words like group or qualified plan or employer plan – all these different things. I’ll break down what they mean, what’s kind of the mumbo-jumbo garbage jargon and what you need to know, what you should be looking for. We do a lot of lectures specifically on employment contracts to our residency and fellowship programs with our attorneys and so a piece of that talk is often on the employee benefits and understanding what role that plays in your job offer in your compensation. And so that’s not something to be ignored by any means. It’s something that you need to know more about and you need to take advantage of because there’s potentially some money on the table. As we’re putting this out there, we’ve got coming up a financial wellness – Prepping For Residency – so if you’re listening to this and you are in your final year, let’s say, you’ve just gotten matched during your last year of med school, we’re going to be doing an event that’s going to be both live and streamed. It’s going to be based out of Detroit, Michigan. We’re going to stream it. It’s on May 4th. So shoot us a message if you want an invite to that. It’s going to be kind of a guest panel so it’ll be myself. It will be a physician mortgage and physician loan specialist and we’re also going to have a realtor. We’re going to talk about a lot of things like getting your residency, buying a house, renting, other smart financial decisions to make along the way. So check out our website for that. Look at LinkedIn and other social media but the quickest and easiest way to get the info on the invite is just shoot us a message – info@financialmd.com.
 
What Are Employee Benefits? [0:05:08]
 
So that’s what’s going on here. Let’s dive into employee benefits. If you’re listening to this whether you’re in residency or fellowship or training or you are into your attending position, there’s about a 90 to 95 percent chance that you have some sort of benefits, and what are benefits? Essentially, you’ve all seen the job offer in the contract. You may have gotten this 18-page employment contract and you kind of skimmed through to try to find that heading that said compensation or salary – that six-figure number that you’ve been waiting and slaving for years and years and a decade plus to get to. You finally get it, you see the number, it sounds good, great, accept the offer and you move on. What so many residents and fellows don’t look at is what can often be a large piece of the compensation is the employee benefits. Why is that? Well, let’s say you’re going to make 250,000 in your first year. Okay, that’s great, and let’s say you’re comparing job offers too. Let’s say you get two or three job offers. One is 250, one is 275. The 275 one sounds good, but if you were to look a little bit deeper, flip on through the contract more. It’s not always in there. A lot of times you have to ask for it but ask for what’s the benefits are. Here’s why: Employers often will spend a lot of money on benefits to try the three R’s – recruit, retain, and reward great physicians. So you’ll see these in a couple of different formats. You’ll see them in private practice and you’ll see them in hospital settings, and they tend to have some common denominators between the two.
 
Generally, Large Companies Pay Less; Private Groups Pay More [0:06:56]
 
In general, the large employer – the university, the hospitals – are going to have a lot more negotiating power and so they’re going to be able to get better benefits dollar-for-dollar for their employees than a small group or a private practice might, which means what you often see in these settings – and you guys can probably vouch for this just as much as I can – that the academic world and the hospital settings are going to pay less often than you’re going to make in a private group depending on your specialty and so they’re going to make that up in benefits, so they think. So, let’s dive into that. Let’s say we have two jobs that have even the same compensation, so we’re looking at two jobs – 250,000. You’re trying to figure out – everything else is the same – which job do I want? Let’s say, they’re same city, where you want to be, with your family, same hours, same kind of requirements, duties, responsibilities, etcetera, you’re definitely going to want to flip through the benefits. Step one: Look in the back. There’s either exhibit pages. Hopefully, they sent an attachment – a PDF – that says like 2020 at a glance, gives your benefits. Half the time you may have to reach out to the person you’ve been speaking to or to the HR person or whomever and get more details on the benefits themselves. They’ll often send you a PDF and it will go through all the details. So, you’ve asked for it, you found it, you’ve got the benefits handbook and you’re looking through it. So let’s find out exactly a lot of times they’re going to tell you what the employer pays but sometimes they won’t. So especially let’s start with this: Health insurance.
 
Let’s Start With Health Insurance [0:09:03]
 
Health insurance is one of your employee benefits. Now, it may mean a lot to you or you may be like me where it’s like, hey, if they’ve got coverage and it seems decent and fine, I don’t go too much into the details versus my wife who likes to know this kind of things. She is looking deeply into them to see what kind of health insurance is available to us, what kind of providers, kind of networks are they in – all those kinds of things. What’s the copay? What’s the deductible? All that stuff. So a quick breakdown on that – we’ll go deeper into health insurance in a subsequent show – but for all intents and purposes, you want to look at what the deductible is and if it’s a high deductible health plan – so if it’s over a certain limit, they call it a high deductible health plan – you can then get an HSA with it which honestly can be nice for a couple of reasons. Most employers with an HSA what we’ve seen for a lot of our physicians will put some money into the HSA for you. So they’re going to put 1000, 2000, 5000, whatever, into the HSA and then you might put some of your own money in as well but it’s basically going to cover the bulk of the deductible that you would have to pay. Deductible means you have to pay this much before the insurance company would start kicking in, and the idea behind it is that it’s meant to make you a smart shopper so you’re not just going everywhere, getting all sorts of unnecessary procedures with the really expensive physicians and not shopping around. So that’s kind of what the point of a deductible is. Now there’s also an out-of-pocket max. So what an out-of-pocket max means often once you reach your deductible then you’re going to be on the hook after that for maybe 10 percent and the insurance company will pick up the other 90 percent. So if your deductible is 5000 dollars but your out-of-pocket max is 10,000 then you’ve got to pay 100 percent up to 5000 then the insurance company would kick in and they have some rule it might be 10 percent or 20 percent – whatever what they call the cost-share, a copay is. But no matter what happens, an out-of-pocket max is basically like a stop max limit type of thing and so that means that you will not have to pay over and above this certain amount. If you get into some sort of situation where you have to go more than that, then the insurance company will pick up 100 percent. So that’s something to know. All right, along with that, you’re going to see vision insurance, dental insurance – those kinds of things. So just things to know, things that are often included in there and can be important and what you want to look at is what you’re going to have to pay for the premium, if anything, and then what the employer picks up and what the employer is going to pay, you can basically stack on top of your salary to say what’s the employer actually paying for me as an employee to work here. There’s the salary which is the vast majority of it but then let’s tack on the health insurance premium, that’s another piece.
 
Look Out For A Retirement Plan; 401(k) Vs 403(b) [0:12:29]
 
After that, I often look at the retirement plan, that’s the second biggest cost to an employer because they’re going to put just straight up dollars in your account usually. Then again, this is usually. And typically, the universities tend to have the best matching in a 401(k) or a 403(b). Now what’s the difference between a 401(k) and a 403(b)? Really for your sake as the employee – nothing. There’s some difference on the employer side. Usually, a 403(b) is for non-profits; typically, non-profits – academic institutions, things like that, hospitals – but they can also have a 401(k). They don’t have to have a 403(b) and the 401(k)s are typically in the for-profit – the private groups, things like that. Either way, as of this recording, 19,500 is the max that you can put into it on your own which may seem like a ton to you right now if you’re still in training, but if you are an attending and you’re making 250,000 plus then that’s going to be a lot more valuable and you’re going to save on taxes. That’s one of the biggest deductions that a W-2 employee can have on what they call an above-the-line deduction. So that means that if you make 200,000, you put almost 20,000 into the retirement plan, you’re only taxed on 180,500 technically. So that’s something to know. But the value as far as compensation and what the employer puts in is all in the match or in the profit sharing or whatever they call it, that’s the piece where the employer is pulling money out of their accounts and putting it into yours and it can be high. Michigan State used to do this. It’s cut back recently in light of some other expenses they’ve taken on. Wayne State University does this where you put in a dollar, they put in two dollars. Usually, it’s up to 10 percent. So if you put in 5 percent, they’ll put in 10 percent for a total of 15 percent of your income going into the 403(b) but it’s only costing you 5 percent. So that’s super nice. If you put in 19,500 then that’s 38,000 that the employer is putting in. Boom! Stack that on top of 250,000-dollar salary, that’s 288,000. So that’s money right there, that’s something to think about. It’s not like something that you feel in your paycheck necessarily, but it’s still your money. It goes into your account. You’re just not using it yet but you’re going to be super glad that you did it when you get your retirement. We’ll go further into 401(k)s and 403(b)s in a different topic but basically you want to look at what the retirement plan is, what the match is, how much you have to put in to get the full match and we usually recommend you do at least that. Beyond that, how much you put in is totally up to you. You may have a different tax situation. You may be working with your financial planner to figure out something else, but in general, that’s free money and you can’t beat that.
 
Next Up: Disability Insurance [0:15:48]
 
So we talked about health insurance – that’s an employee benefit that can be expensive and costly and valuable to you. We talked about 401(k)s and 403(b)s. The next thing I would look at that cost money that ca be valuable is the disability insurance. Now we’ve talked to you guys enough but we’re not going to stop about how important it is to get the right disability insurance for you. Disability insurance with your own occupation that’s going to protect you as a specialist is super important but you first want to see what your employer is providing because it costs them something. Now they’re going to pay less for that policy than you would pay as an individual because they’re operating on a large scale group kind of bulk discount type of fashion. But it’s still there and it often covers between 65 and 70 percent of your income which is great. So then all you have to do is go out in individual marketplace to your Guardian or Principal or Ameritas. Get your own policy to bridge the gap in the other 20 to 25 percent. You’re going to be hard-pressed to find 100 percent of your income covered even between multiple policies because they look at each other. They communicate. They’re going to ask you how much you get it at work and limit what you get based on that. That’s something that can be a valuable benefit. It certainly reduces the cost you’re going to have pay for your individual policy and often that long-term disability at work is free or at least very cheap. So that’s LTD. Short-term disability – that’s another thing that basically would pay for the first typically 90 days to maybe 12 weeks that you’re off work and then your long-term disability would kick in but there’s a cost to that as well and that’s not something you’re going to just be able to go get on your own.
 
Life Insurance: Not Only For You But Sometimes For Your Spouse And Kids As Well [0:17:43]
 
The other piece we’ll look at is life insurance, and it’s life insurance for you but many employers also offer the ability to get very cheaply life insurance for your spouse and sometimes your children as well. So this is stuff, again, they’re paying the price for some of that to help defray that cost. You may have to pay some, but whatever they pay is just something you can stack on top. Now, typically, they’re not going to give you a flat dollar amount. They’ll give you a multiple up to a certain cap. For example, Henry Ford will cover four times your annual salary so if you make half a million dollars a year and they cover four times in life insurance, that could be potentially a 2-million-dollar life insurance policy. But their limit is a million dollars, so no matter how much you make, you’re not going to get more than a million dollars in life insurance. But again, if you had to go get that on your own, that could be potentially fairly expensive. So nice benefit.
 
Footnote On Insurances: Don’t Rely On Your Employer [0:18:44]
 
I’ll kind of put a footnote on the insurances especially. Don’t rely 100 percent or even the vast majority on your employer group benefits or your perks that you have at work especially for your life and your disability insurance. Get life insurance on your own as well. Get disability insurance on your own as well. In fact, get a little bit more than you think you should because at any time employers can take away the life insurance. Let’s say, times are tough and maybe they were hit by a giant lawsuit; they’ve got to come back at different areas. Typically, they don’t cut pay first for employees. They’re typically going to cut benefits first. And so if they cut life insurance and you said, oh, I got a million bucks at work, I don’t need anything else, or let’s say you said, yeah, I need 8 to 10 times my income like Jon said, so I may get a million at work and I get another million and a half on my own in term insurance; that’s cool but if they take away that group insurance, you’re left with a million and a half of term insurance which is not as much as you need and then something could have happened in your health between now and you can’t get more insurance because on the individual insurance whether it’s disability or life insurance, you’ve got to get underwritten. You’ve got to qualify for that health-wise and you guys know better than I do as physicians, anything can change. We’re all just one doctor’s visit away from having some news that can change our lives. I stress that because we’ve seen it here. Life insurance, disability insurance – get it early. Lock that in and then you’re golden.
 
Other Benefits: Continuing Education, Concierge [0:20:24]
 
We’ve covered health insurance and we’ve covered retirement plans. We’ve covered life and we’ve covered disability insurance – all of those have a cost associated with them that the employer is picking up and adds on to what the actual value of the compensation and the job offer is. So, something to think about there: There are also other benefits. It may be helping to pay for continuing education. It may be paying for some other out-of-pocket things. There’s employers that offer a concierge type of service where the physicians and some of the more higher-level senior employees can have access to people that will get their dry cleaning done or go get their oil change in their car – things like that. Those obviously have a cost that the employer is picking up.
 
In Summary: Ask, Get, Compare, Decide [0:21:11]
 
So when you’re looking at job offers, look at the employee benefits. If they didn’t get it to you in the job offer or the employment contract, ask about it. Don’t be afraid to ask because that’s an important factor when you’re making a decision. Hopefully, like we recommend, you’re doing a few things. You’re doing the legwork ahead of time to get multiple job offers. The more job offers you get, the more you can come at it from a position of confidence saying, hey, this is my favorite job. I’m going to negotiate with this one, but if it doesn’t work out, that’s okay. I’ve got a lot of fallbacks. The second reason to get multiple job offers is it gives you some context to say, okay, this is my favorite one. I like this job offer but I want to get some other offers just to see what else is out there and see if this one is reasonable, usual, customary – those kinds of things. So get those multiple job offers. When comparing, don’t skip the benefits. They’re not just a nice thing to add on. They can be 50/60/70,000 dollars’ worth of compensation that a lot of people don’t think about.
 
Hopefully that was enough detail and information for you. If you have any further questions on these then email us at info@financialmd.com. Check us out on the Facebook community – Financial MD Community. It’s where doctors get together and ask questions and give advice and share ideas and learn more about some of the just quick questions that we’ve got or little tips or all those kinds of things. Hope that helps. Join us next time on the Financial MD Show where Dr. Trevor Smith will be back, a little bit tanner, and we’ll see you guys next time.
 
Thanks for joining us for another Financial MD Show. Be sure to head over to financialmd.com to get more in-depth resources on financial tips for physicians and don’t forget to join the Financial MD community group on Facebook, where physicians at all stages of their career gather to share tips and get ideas on achieving true financial success. We’ll see you next time.
 
The Financial MD Show is for informational purposes only and is not an offer to invest. It is not financial, tax, or legal advice. Be sure to seek financial, legal, or tax professionals when making any financial decisions. Before investing, you should make sure that any investment strategy or investment meets your individual investment needs, goals, and objectives. Financial MD makes no claims or guarantees to individual investment performance. All investing involves the risk of loss as well as the potential for gain.
 
 
Resources and Links:
What are employee benefits? – https://www.questionpro.com/blog/employee-benefits/
What is health insurance? – https://www.investopedia.com/terms/h/healthinsurance.asp
Copay vs deductible – https://www.singlecare.com/blog/difference-between-copay-and-deductible/
Definition of health savings account (HSA) – https://www.healthcare.gov/glossary/health-savings-account-hsa/
What is an out-of-pocket max? – https://www.cigna.com/individuals-families/understanding-insurance/what-is-an-out-of-pocket-maximum
Meaning of retirement plan – https://www.dictionary.com/browse/retirement-plan
401(k) vs 403(b) – https://www.forbes.com/advisor/retirement/403b-vs-401k/
What is an above-the-line deduction? – https://bench.co/blog/tax-tips/above-the-line-deductions/
Disability insurance definition – https://www.guardianlife.com/disability-insurance
Own-occupation disability insurance definition – https://www.guardianlife.com/disability-insurance/own-occupation
Life insurance guide – https://www.investopedia.com/terms/l/lifeinsurance.asp
Financial MD Website – https://www.financialmd.co/
Financial MD YouTube page – https://www.youtube.com/channel/UC6qEAQxK8L8JM7joy3wvdkA
Financial MD Facebook community – https://www.facebook.com/FinancialMD/
Financial MD TikTok – https://www.tiktok.com/@financialmd
Financial MD Instagram – https://www.instagram.com/financial.md/
Financial MD Twitter – https://twitter.com/financialmd2
Financial MD LinkedIn – https://www.linkedin.com/company/financial-md/?viewAsMember=true
Financial MD App – https://apps.apple.com/us/app/financialmd/id1507757039
Financial MD Apple Podcast –
https://podcasts.apple.com/us/podcast/the-financialmd-show/id1548024586

Ep 014 - Investing in Startups Part 2

Summary:
What’s In a Name? Venture Capital Firm Or Venture Studio [0:04:20]
Reuben’s Startup Journey [0:07:03]
What Areas/Sectors Do Venture Studios Look For In Startups? [0:11:23]
Steps Doctors Can Make To Invest In Startups – First, Be An Accredited Investor [0:14:33]
You Have The Opportunity To Do Impact Investing [0:17:36]
Places To Go For Startups [0:22:38]
A Success Story [0:24:49]
 
 
Welcome to the Financial MD Show. This is the only podcast designed specifically for residents and young physicians to help you become educated on financial planning for physicians and avoid many of the common financial mistakes doctors make. Your hosts, Jon and Trevor, explore a different topic with each episode. Jon Solitro is a financial planner and certified financial education instructor. He’s been working with young physicians for the better part of the decade and lectures to graduate medical programs around the country. Dr. Trevor Smith is a board-certified ophthalmologist with a full-time practice and he has learned the ins and outs first-hand what it takes to make smart financial decisions as a young physician. And now here’s your hosts, Jon and Trevor.
 
Jon: All right, welcome to the Financial MD Show episode 17. We’ve got a little bit of a surprise for you today. It’s a follow-up from our last show where we discussed investing in startups and we thought what better way than to get you an actual conversation with someone in the venture capital world – the funding, the startup world – none other than Reuben Levinsohn. You know him, you love him and you’re going to hear him talk specifically about what he’s doing with Washington Avenue Ventures, what to watch out for, what to know when you’re looking for startups, and just some good info whether you’re getting into it now or you hope to get into it someday. So please leave a review. It helps more young physicians find this show and get some good financial information. Listen up.
 
 
Jon: All right, well, welcome to another episode of the Financial MD Show. Today, we have your normal hosts, me, Jon Solitro, and Dr. Trevor Smith in the house. What’s up, Trevor?
 
Trevor: What’s up? What’s up?
 
Jon: Right on, and today’s show, we got a special guest with us who is kind of a guest, he’s kind of a host. He’s been a friend of Financial MD for a long time. Mr. Reuben Levinsohn is here to help us get into some more personal examples and stories and some specialized expert insight into what we started last episode so today is part two of talking about startups. How are you doing, Reuben?
 
Reuben: Good, Jon. Thanks for having me. Happy to be here.
 
Jon: Absolutely. We’re stoked. Trevor and I have known Reuben for quite a while and we’re all buddies outside of this and enjoy a good bourbon from time to time but we’ll be just drinking virtually right now although none of us are drinking, I don’t think.
 
Reuben: Would like to; just coffee.
 
Jon: Right. That’s kind of made me think about that – why don’t I have any bourbon around here? Oh, well, another problem for another time. Okay, so last week we started startups and there’s a lot of conversation – it has been for years frankly – as the internet has made tech startups more common, more prevalent, more well-known and profitable for a lot of people and bankrupting for a lot of people. Last week, Trevor and I dove deeply into what some of the downsides are from our standpoint – me as a financial planner; Trevor as definitely a financially experienced and knowledgeable individual but he’s had some of his own experiences with that and still does. We got to talk a little bit about some of the things we know and as I talk to clients about a lot of our physicians bring ideas or want to get into things or hear some other doctor at the watercooler talking about this or that or read something online or in a Facebook post – all sorts of things. We went into that into our last episode but today, we thought we would talk with Reuben who was one of the founders and partners of Washington Avenue Ventures, a Michigan-based, would you say, a venture capital firm or a venture – how would you describe it Reuben?
 
What’s In a Name? Venture Capital Firm Or Venture Studio [0:04:20]
 
Reuben: Yeah, we’re a venture studio. It’s a newer term here in the States is that certainly a newer term in the Midwest but it came out of Europe more. I think there’s a lot more of it there but it’s venture studios. We connect that space – that kind of black hole or abyss between angel investors and VCs because a lot of these startups think they go right from an angel round to a venture capital round and it’s not that simple. They’re not always ready. The other thing that’s a little different – there’s accelerators and incubators out there that usually lasts for a couple of months that these startups can apply and get themselves into then those are great but they’re a couple of months and then they’re on their own again. So the venture studio, we partner with early stage companies, startups, and even sometimes precede before they’ve even had revenue and work with them to help build that solid business foundation. So they’ve got something they can scale off of it and we also, I would say, that were really good at helping tee them up better or package them up so their investable before they go out for those investor rounds.
 
Jon: Perfect. So it’s not only maybe connecting them with money but also maybe even more importantly getting them ready for that point and just taking – I mean, kind of an incubator but also more of a facilitator or support consulting, would you say?
 
Reuben: Yeah, we’re definitely on there. I usually hold a seat on their advisory team whether it’s formal or informal. I’m usually one of their go-to advisors for anything to do with fundraising, legal, finance, cash flow, forecasting, cap table management. I just got up a call with one of our founders and we’re setting them up on our system to manage their cap table so they always know what the notes – convertible notes – and everything, because these guys are brilliant. These founders we work with are brilliant at whatever they’re doing but they generally haven’t held a lot of these basic business experience and they don’t realize until it’s too late how critical that is and then they start having meetings with investors; investors are asking questions that these guys have never heard of and we fill in those gaps for them really well.
 
Jon: Okay. Trevor, you got any questions off the bat?
 
Trevor: Yeah, I’m curious. What was your first experience in the startup world? Were you already working with the same studio group? I mean, how long have you been doing it? What got you interested in it? Just tell me a little bit about the beginning of your story.
 
Reuben’s Startup Journey [0:07:03]
 
Reuben: If I went way back, it starts with just having entrepreneur in my blood like at 9/10 years old, I was running the biggest paper route in the area by having my brother and all his friends do all the work and I was just running the business. So I told that story to some entrepreneur groups at the local university here but I think it’s just entrepreneurialism in the blood first and foremost and then I’ve launched and exited my own companies. My most successful one was around my late 20s when I exited my painting franchise and that did pretty well. From there, it was more starting to angel invest here about 7/8 years ago. I’d say right around late 30s, early 40s I started realizing like I’m probably not going to be the entrepreneur who’s going to found and launch a bunch more companies and if I can’t do that, the only other thing that keeps me in the game is investing in others or advising others who are doing it and working off their energy and their brilliance. So that’s angel investing, I guess. Informally, I was angel investing. I made my first angel investment – my first official angel investment – in a Denver-based company, probably that was 2015-ish, maybe 2014, and that one failed and you learn a lot on the failure and you can look back and say like that well, what did I do wrong. That one for me was pretty easy to identify years later is that I invested in a founder who didn’t know how to build a team or was just not a good leader. So from there, I start selecting better and you start learning and there’s a lot of things you wish you could go to school for this and learn and I’m sure there’s a ton of great resources I’m not aware of but I’ve learned a lot of it just by making my own mistakes, generally how I learned most of my stuff in life. So I started informally angel investing 25,000 here and there. You could take a couple of hits on those and you’re like, okay, if I’m going to be in this game, I got to play it better. And so a few years ago, I formalized it with Washington Avenue Ventures where we – I was starting to realize the reason most of these were failing were not always just that the person didn’t have the drive or didn’t have the leadership skills, it was also they just did not have good business background – business experience – the basic business functions whether it’s accounting or finance or legal. They just didn’t have any of that experience. They could be a brilliant software engineer who can solve some pretty big problems but didn’t know how to build a foundation of a business or maintain that. So I reach out to Angie, someone I had worked with for years in the past. She had her MBA and she was running a pretty big division of a large corporate company in Grand Rapids and she was looking for a change. She wanted to go back in a small business and I said, how about we go really small, let’s work with startups. They need more than money, they need our expertise, so let’s put together a team that can help advise and help them build solid companies and that’s what we’ve been doing for the last three years. We’ve gone really deep with one company that we took on at pre-seed stage and we’ve got half a dozen other companies that we’re advising and working with now too. To answer the question, full circle there Trevor, it was informal angel investing and realizing you can throw checks at these and be a passive investor and have a high likelihood of loss or you can increase your chance of return by actually working with these companies that you’re investing in. All of them that we work with I made a personal investment or we’ve made an investment as a venture team into them financially but more importantly, it’s the investment of time and expertise we’re putting in.
 
Jon: I see.
 
Trevor: Go ahead.
 
Jon: Well, I was going to dig deeper into some of the people investing into startups but finish yours, Trevor.
 
What Areas/Sectors Do Venture Studios Look For In Startups? [0:11:23]
 
Trevor: I was just going to ask what areas do you invest in? Most investors a classic thing so people only invest in things they feel like they have some sort of edge. What sectors do you look for startups? Are you just doing tech? Are you just doing software as a service like the SAS kind of stuff?
 
Reuben: Yeah, no, we’re all over.
 
Trevor: Local, national?
 
Reuben: So far – I can’t say this will be forever – but so far I’m going at it like Jon would as a financial advisor. I’m saying to my team and to our investor network that diversification is important so we’re not going to go after just SAS. We’re not going to go after just deep tech or AI. I know there’s plenty of VCs and accelerators out there that honed in in that niche. We are still going with the philosophy that diversification is important and we are smart enough to pick the exact sector that’s going to be the dominant one. For instance, we’ve coffee shops. There’s very little to no tech. We’ve got Lingco Language Labs which is SAS, software as a service, in language learning built for the classroom so that’s more of a B2B-focused. And then we’ve got REZA Footwear. REZA Footwear is IoT of wearables so internet of things for wearables and that’s a very different play. There’s tech for sure but not like SAS at all; very different. And then we’ve got V.One which is an app builder. They are an app for building apps for people who don’t know how to code. It’s a no-code, low-code app builder which is a pretty hot space, definitely high tech; and then we’ve got Halo out of Indianapolis area. Halo is a community-based microfinancing company. They don’t focus on tech but they’re using tech as their platform; they’re more of a FinTech. And then the Advisor2.0 which is a group that does gap assessments and consulting for financial advisors. So it’s all over the board. We have not picked a sector yet.
 
Jon: Nice. So for our listeners, specifically, we have doctors either doctors in training or a lot of times younger and we’re surprised at how many older physicians are listening to this but it’s across the board. Getting into it, we talked a little bit about some of the downsides but you would know, Reuben, more specifically. Let’s say somebody has talked with their advisor and they’re at a position where they can do something like this. They’ve got some discretionary income. A lot of questions that people might ask is how much do I need to have to invest in a startup? How do I do it? Where do I find it? So what are the first steps for an investor who wants to and should, you know, or it’s okay for them to get into this space?
 
Steps Doctors Can Make To Invest In Startups – First, Be An Accredited Investor [0:14:33]
 
Reuben: Yeah. First step is probably not going to suitable for someone who’s still in residency. They’ve got to be an accredited investor; household income of – what’s the current rules here – 200,000 plus.
 
Jon: Yeah, a million of net worth.
 
Trevor: A million.
 
Reuben: Yeah, or a million of net worth of investible net worth so we do make sure that they’re accredited. We only work with accredited investors in these. For someone who’s accredited and they’ve got the basics in place with their financial advisor or they’ve got their liquid money they need, they’ve got their retirement on track, I think this is a great alternative space to play in and it’s becoming more of a movement than it was even just a couple of years ago. It’s like real estate used to be the only other alternative people knew about or wanted to look into. Then there’s things like cryptocurrencies, of course. Don’t get Trevor going, right, but startups, you’ll be surprised. I would not be surprised if there’s a crypto exchange or coin that is backed by venture capital at some point or there’s some really interesting movements where venture capital – I think that by end of next year, you will see exchange traded funds (ETFs) or something similar that are all into early stage venture companies. I think it’s going mainstream so I think it’s going to be talked about more and more. But, again, if you got the basics in place, I think it’s a great space if you’re working with someone who understands it. Don’t just go out and throw your money around at everyone that pitches you because that’s the typical problem we see. Doctors or other high-net worth people make is that they’ll just throw money at everybody that pitches them because they all sound good. But there is a process of picking them. There’s a process of eliminating them; knowing who to make the bets on and how we can actively track or monitor their KPIs and how they’re doing for a while before we invest in them. There is a good due diligence process we use and we are starting to introduce it to more and more financial advisors for their clients because it’s a nice alternative investment with high impact, especially your high net worth investors who want to know where their money’s going and they want to have some impact. Maybe it’s social impact, maybe it’s environmental impact. Maybe they just love the idea of helping young, brilliant founders and entrepreneurs and they want to make a return but they can speak with these founders and teams. They can advise these founders and teams. The investor can even use some of their background and expertise to influence their investment which is a really neat thing. You can’t do that when you throw your money at basic stocks, bonds in the market.
 
Jon: Yeah.
 
Trevor: Say that again? Say that one more time.
 
You Have The Opportunity To Do Impact Investing [0:17:36]
 
Reuben: Well, I’m saying that it’s neat to be able to share with other financial advisors and their clients that you have the opportunity to do impact investing. We call it impact investing because you can either pick the area you want to have an impact on with your money or the person you want to have an impact on and you have a direct line of communication with the people running these companies because they’re early stage companies.
 
Jon: You can feel like you have some influence?
 
Reuben: Yeah. I mean, maybe you don’t have voting rights. Maybe you don’t have a lot of shares enough to have an influence but these are early-stage companies and founders and teams who value their investors and value the investors’ experience and credentials that any way that can help them or even if it’s just networking or introducing other investors, there’s a lot of ways you as an investor can have an impact on your investment in this space.
 
Trevor: I’m thinking about like your investors that invest in these startups or really any, especially, alternative assets, what percentage you think of their motivation is just like that connection? Because it’s got to feel a little bit more special, right, to be investing in people who you’ve met and heard their story. I mean, it’s so compelling, that’s why the SEC exists, right. There’s the downside of these regulations where you have to have a certain amount of money or make a certain amount to be able to invest in specific types of investments and assets and the Securities and Exchange Commission regulates all that and it’s supposedly in order to protect investors, and to a degree, it certainly has at times. Right now, it’s kind of laughably restrictive in some ways where you could be educated and you’re still not allowed to invest your money and there’s lots of people writing and talking about that sort of thing right now. But back to my first thought, what do you think people get excited about it? I mean, part of it is the narrative, right? It’s fun, it’s exciting, it’s interesting, it’s new. You’re building something. What percentage do you think is that part of it for investors like?
 
Reuben: Yeah.
 
Trevor: Because it’s definitely 99 percent financial because they’re looking for something else. It’s 99 percent financial.
 
Reuben: Yeah, I agree. They are still highly interested in a return I would say that. The most the network of investors we introduced to these startups and these investment opportunities, they’re definitely motivated by return, but I’d say it’s more, you know, whereas if they’re throwing money in the stock market with their financial advisor, that’s like 99 to 100 percent. All they care about is return, right, because they don’t know anything about where’s the money’s invested or what it’s doing or what company. But in this case, I’d say, it’s probably more 80/20 like the 80 percent, they’re doing it because they want a chance at a higher return in something but 20 percent at least is about they love the fact that they’ve got that. They get that investor update monthly from the company they’re invested in. They get to see what this company is doing. They could come sit down with the team and meet with them and they’re very close to them and they can see the impact that their money is having much better than you can in traditional investments.
 
Jon: Yeah, makes sense.
 
Trevor: Yeah, which makes communication by founders critical.
 
Reuben: Yeah, and I was just on a call last week with a small investment group, a group of retired guys and ladies that came together with some money and they threw together about a million bucks of their money and that’s a group, I would say, they are more like 50/50 like 50 percent care about return; the other 50 percent was about social impact. They specifically wanted me to only introduce them to social impact. So they came in and invested, matched us on some investment with Halo because Halo has a very clear social impact. They’re fighting off the predatory payday lenders for underserved markets – underserved people – who don’t have access to capital. That’s a social movement. And so this company was specifically – this group was specifically attracted for that reason.
 
Jon: All right.
 
Trevor: That’s interesting.
 
Jon: Are there places to go? I don’t know. I mean it seems like there’s a lot of online places to invest in a real estate syndication or private placements or limited partnerships or things like that. Are there places to go for startups like this?
 
Places To Go For Startups [0:22:38]
 
Reuben: Yeah, more than people realizing it’s happening fast. There’s more and more of it coming out, but an easy place to start is like AngelList. Go to AngelList. The AngelList, they run syndicates. You can lead a syndicate there and use them as a platform or you could join us and get there, get in for as little as, I think, 2500 dollars. That still requires you to be accredited but there’s also, of course, crowdfunding. Crowdfunding is where they kind of let anybody – if they broke the Reg D issue and let anybody be somewhat of an angel investor through crowdfunding campaign like Kickstarter. But there’s several out there. AngelList is a popular one. If they’re not connected with a group like us who tee up the deals and do the due diligence; in some ways, we are like a syndicate. We just haven’t formalized it because we’re teeing them up. We’re doing the deal flow. We’re doing the due diligence. We’re most likely investing ourselves before we even present it to investors.
 
Jon: Yeah.
 
Reuben: By the time we’re presenting to investors, there are people in our network that it’s like a syndicate. We’re generally dealing with minimum checks of 25,000 whereas you can go to AngelList and get on a small syndicate for 2500 dollars. You make that commitment so as the investor you’re making a – to be in a syndicate, you have to make some sort of a commitment that, you know, I will make 10 investments in the next 24 months at 2500 each or something.
 
Jon: Okay. I see. Can you give us some kind of success story? Again, last episode we talked a little bit about some of the downsides and things but I’d love to hear from you as you look back over the last several years of getting into the angel investing whether it was with WAV doing some of the consulting piece or you individually investing or whatever the case might be or just things you’ve seen. Do you have any success stories that you can point out to and say, here’s where it was done well and it worked out well?
 
A Success Story [0:24:49]
 
Reuben: Right. Yeah. Well, like I said, my first one was a bust and that’s probably normal when you just impulsively invest in the first one you see and it sounded cool. I was out in Denver and I think we’re having some whiskey and I met the founder and I said, yeah, I’m in. That one didn’t work out so well but I would say statistically – actually, that company is still going so it’s still a chance. My money is still invested and they’re active company; they just have never learned how to build a team or expanded beyond Denver. They’re an Uber-type company for moving stuff instead of people so it’s on-demand light moves like your apartment furniture or whatever. Anyways, I love the concept and now other companies, competitors, have started to scale across the country but this one hasn’t. I just chose the wrong one; not the wrong idea, just the wrong one.
 
Jon: Okay.
 
Reuben: Anyway, statistically, the way you look at these is for every 10 you invest in – and I tell people diversification is important and I tell people that doing enough of them is important because there is a bit of a number’s game here. Now by working closely with these companies, we can eliminate some of that number game or we can optimize it to our advantage, but in general, you need to be prepared to get into about 10 of them if you’re going to play the game at all. It’s kind of like real estate. Don’t go start getting into real estate if you’re just going to either stop with one or two that you can manage or go to like 30 or 40 where you can hire a manager.
 
Jon: Yeah.
 
Reuben: But in this I think, you can get stuck and if you get into two or three, you could have easily picked two or three bad ones. If you go to 10 and you are being pretty smart or you’re working with a syndicate, there’s a pretty statistically is a chance that in 10, you’re going to have three or four complete busts; two or three are going to be just break even on your money, and then you’re looking for one that could be a 3 to 5x your money and you’re looking for that one shining star that’s going to give you 10x plus on your money that makes up for the losers. I tell people compared to traditional investments where you’re trying to double your money about every 8 to 10 years in the markets, this should be something that because of the higher risk, higher reward profile, you should be looking to three to four times your money if you play it right about every 10 years. Otherwise, that extra risk isn’t worth it.
 
Jon: What could we do in the stock market over 10 years or the S&P, right?
 
Reuben: Yeah, if you get really good at it, you’re looking to 5 to 10x your money overall. Then there’s definitely angel investors and good VCs who would say, I wouldn’t be doing this if I didn’t think I could 10 times every dollar I put in. And that’s where the risk-reward – once you get good at it like anything, you mitigate the risk side and optimize the reward side. I know people who have gotten really good at it like that.
 
Jon: Of course.
 
Reuben: Yeah. A good resource would be Jason Calacanis’ book, Angel Investing. Jason Calacanis is known as one of the greatest, most accomplished angel investors in the world. His book, Angel Investing, kind of shows the numbers in how you can literally go ahead like it’s your job. He has had people quit their jobs and go angel investing full time by following his program.
 
Trevor: I listen to his podcast of All-In podcast.
 
Reuben: Yeah.
 
Trevor: It’s funny because they all make fun of him, kind of.
 
Reuben: Yeah.
 
Trevor: Yeah, he’s like definitely big in the angel world.
 
Reuben: He can take it. He’s pretty arrogant and pretty successful. I think he can take it.
 
Trevor: Yeah. He can handle it but it’s just funny. It’s a great podcast, listening to people rip on each other that are good friends. I mean they can take it but all four of them are sensitive to a degree as well which is really interesting. You can hear it when they talk about different things, how accomplished they are and how wealthy they are. Yeah, exactly. They care.
 
Reuben: Yeah. it’s funny. Even when you read his book, you can see where his strengths and insecurities are like you can feel it in the book.
 
Jon: Definitely. Trevor, any last questions?
 
Trevor: No. Reuben, thank you so much for your time. It’s great to learn from you and your experience in this area so thanks for coming on.
 
Reuben: Yeah, I’ll be sending you both some pitch decks after this and I expect your investments to come wired through.
 
Jon: That’s right. Yes, obviously, let’s preface.
 
Trevor: Absolutely.
 
Jon: This is not a solicitation to invest or purchase in any startup or any syndication of any kind.
 
Trevor: Or securities, yeah. This is not individual investment advice.
 
Reuben: And this is completely unsuitable for 99 percent of people and you are very likely to lose every dollar you put in to startups.
 
Jon: That’s right, and we are not specifically endorsing Washington Avenue Ventures and we have no formal financial relationship with them at all.
 
Trevor: There you go. Got your disclosures out there.
 
Jon: Reuben, if someone wants to learn more about WAV or Washington Avenue Ventures, where can they go?
 
Reuben: They can get connected to me through you or on our website, wa.ventures.
 
Jon: Awesome. Well, we may have some doctors in the crowd listening that have a startup. Maybe there’s a device or something that we see that quite a bit over the years, so cool. Well, thanks so much for joining us guys, Trevor and Reuben. This has been super great. It’s been a different dynamic having a third person in here and hopefully a nice refreshing change for our listeners who are probably tired of hearing just Jon and Trevor all the time. But for those of you who loved just Jon and Trevor, stick around. The next episode will be that again so we’re not necessarily doing away with that but I think we’ll bring some more guests on to mix things up a little bit and makes us have to talk a little bit less which is nice.
 
Reuben: Let me know any input – your feedback – you get if there is more interest in diving deeper into this world at all. I’m happy to do it.
 
Jon: Yeah, that would be great and we love to learn more about this stuff and just be a resource. So for any of you physicians out there listening, again, we’ll be posting more resources that Reuben has talked about as we get more articles and things like we always do on the Financial MD community which is a Facebook group and then we keep things updated through our social media through Instagram, Facebook, Twitter, and TikTok. So with that, you guys have a great week and we’ll see you next time here in the Financial MD Show.
 
Thanks for joining us for another Financial MD Show. Be sure to head over to financialmd.com to get more in-depth resources on financial tips for physicians and don’t forget to join the Financial MD community group on Facebook, where physicians at all stages of their career gather to share tips and get ideas on achieving true financial success. We’ll see you next time.
 
The Financial MD Show is for informational purposes only and is not an offer to invest. It is not financial, tax, or legal advice. Be sure to seek financial, legal, or tax professionals when making any financial decisions. Before investing, you should make sure that any investment strategy or investment meets your individual investment needs, goals, and objectives. Financial MD makes no claims or guarantees to individual investment performance. All investing involves the risk of loss as well as the potential for gain.
 
 
Resources and Links:
Reuben Levinsohn, Partner, Financial Advisor, Washington Avenue Ventures – https://www.waadvisors.com/team/reuben-levinsohn
Washington Avenue Ventures LinkedIn Account – https://www.linkedin.com/company/washington-avenue-ventures/about/
Venture Capital – https://www.investopedia.com/terms/v/venturecapital.asp
What is a venture studio? – https://www.applicoinc.com/blog/what-is-a-venture-studio/
Everything you need to know about cap table management – https://www.heavybit.com/library/blog/founder-101-almost-everything-you-need-to-know-about-cap-table-management/
What are convertible notes – https://techcrunch.com/2012/04/07/convertible-note-seed-financings/
Angel investing: What it is and how to start – https://www.nerdwallet.com/article/investing/angel-investing
What are exchange-traded funds (ETF)? - https://www.investor.gov/introduction-investing/investing-basics/investment-products/mutual-funds-and-exchange-traded-2
What is impact investing? – https://thegiin.org/impact-investing/need-to-know/
Securities and Exchange Laws and Rules – https://www.sec.gov/investment/laws-and-rules
AngelList Venture: Invest in startups – https://www.angellist.com/
Crowdfunding explained – https://ec.europa.eu/growth/access-finance/guide-crowdfunding/what-crowdfunding/crowdfunding-explained_en
What are private placements or Reg D? –
https://www.sec.gov/smallbusiness/exemptofferings/rule506b
Kickstarter – https://www.kickstarter.com/
Jason Calacanis personal blog – https://calacanis.com/
Angel: How to invest in Technology Startups by Jason Calacanis – https://www.amazon.com/Angel-Invest-Technology-Startups-Timeless-Investor/dp/0062560700
All-In podcast (Jason Calacanis) – https://podcasts.apple.com/us/podcast/all-in-with-chamath-jason-sacks-friedberg/id1502871393
Financial MD Website – https://www.financialmd.co/
Financial MD YouTube page – https://www.youtube.com/channel/UC6qEAQxK8L8JM7joy3wvdkA
Financial MD Facebook community – https://www.facebook.com/FinancialMD/
Financial MD TikTok – https://www.tiktok.com/@financialmd
Financial MD Instagram – https://www.instagram.com/financial.md/
Financial MD Twitter – https://twitter.com/financialmd2
Financial MD LinkedIn – https://www.linkedin.com/company/financial-md/?viewAsMember=true
Financial MD App – https://apps.apple.com/us/app/financialmd/id1507757039
Financial MD Apple Podcast –
https://podcasts.apple.com/us/podcast/the-financialmd-show/id1548024586