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White Coat Investor Podcast
WCI #437: Getting Your Work Benefits Right
00:36:56
Today we are answering a variety of questions including how to understand and select employee stock ownership plans. We talk about things to think about when signing up for benefits at work including selecting disability insurance and the tax...
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- [00:00]
Jim Dahle
This is the White Coat Investor podcast where we help those who wear the white coat get a fair shake on Wall Street. We've been helping doctors and other high income professionals stop doing dumb things with their money since 2011. This is White Coat Investor podcast number 437. Today's episode is brought to us by SoFi, the folks who help you get your money right. Paying off student debt quickly and getting your finances back on track isn't easy. That's where SoFi can help. They have exclusive low rates designed to help medical residents refinance student loans that could end up saving you thousands of dollars, helping you get out of student debt sooner. SoFi also offers the ability to lower your payments to just $100 a month while you're still in residency. And if you're already out of residency, SoFi's got you covered there too. For more information, go to sofi.com whitecoatinvestor SoFi student loans are originated by SOFI bank and a member FDIC. Additional terms and conditions apply. NMLS 696891 okay, I was supposed to tell you about all kinds of fun things today, but first what I want to tell you about is my doctor's appointment this morning. Okay. I met with my endocrinologist. I've got this adrenal incidentaloma they found when they did a bunch of scans on me for my trauma a year ago. Right. So I've been getting follow up scans to make sure this thing doesn't change and it's not changing. My labs are fine and all that. But it was a fun discussion. This doc, she was a little bit younger than me and I said, I'm working about halftime. She knew I was a doc. I work about halftime. And then I got to record some podcasts later today and she's like, oh, tell me about your podcast. Well, it was always fun to tell a doctor about the White Coat Investor podcast. I don't think there's a lot of doctors out there younger than me that have never heard about it. And indeed, she recognized. Oh yeah, I've seen that all over social media or whatever. So she did know about the White Coat Investor, but it never connected that it had anything to do with her patients. And that was a lot of fun. And I'm grateful for her care. I'm also grateful for telemedicine. Right. We had like a six minute appointment, which is great, right? Six minute appointment from my home. Awesome. Right? I'm not paying for her time or much less my time at her clinic. I'm paying for her expertise, and I was more than willing to do that. So, big fan of telemedicine, big fan of endocrinologists. Thanks everybody out there for what you do. Okay, Speaking of women, women physicians, we got a cool event coming up. It's not just for women physicians, but it is only for women. Okay. It's the financially empowered women, the few. We're having another live event. It's September 22nd, and I think this podcast drops on the 18th. So if you're listening to this the day it drops, it's only like four days from now. Okay, so September 22nd, that's Monday, 6pm Mountain. Okay, we're having Alyssa Chang presenting. She's a doc, she's a life coach. She was a WC Icon speaker last year. She talks about growing your wealthy mindset. But the topic for this is gonna be wealth and deconstructing social narratives for Financial Empowerment. Okay, you can sign up@whitecoatinvestor.com Few. Right? Few. It's totally free. Like 98% of what we do here at White Code Investor. This is totally free to you, but you're gonna discover where your money beliefs really come from, how they shape your decisions. Today, you're an uncover cover the hidden history of women's financial rights and what it means for you. Now they're going to dive into the gender pay gap, especially among physicians, break down the money messages that society pushes on men versus women, and learn some practical ways to reframe your money thoughts and step into financial empowerment. And we're totally into that at White Coat Investor. I don't care if you're a man or a woman or a doc or not a doc. We want you financially empowered. But this particular event is just for the financially empowered women. So sign up for that. Whitecoininvestor.com Few F E W. All right, let's get into your questions. This is your podcast, right? Leave us. Questions go to the speakpipe. Whitecoatinvestor.com speakpipe. We'll try to get them answered. Most of them I can answer just off the top of my head. Sometimes I gotta do a little bit of research, and I'm a little bit worried about this next one that I might have to do a little bit of research. So let's take a listen. Hey, Dr. Valley, thanks for all you do. Just had a question about employee stock ownership plans. Have you heard of any private practices transitioning into an esop? And have they been successful? Our group, which is a private practice, has recently transitioned into one. And so far it has not been very beneficial to any of the employees or the doctors that currently work with them. It's causing a lot of the doctors to be concerned and several are considering leaving the practice due to the financial state of matters. Can you shed any light on this? Thank you. Well, this is interesting, right? Typically when I think about ESOPs, Employee Stock Ownership plans, I'm thinking you work for Facebook or some other big corporation, some big publicly traded company, not necessarily, you know, a physician practice in an employee stock ownership plan. These come from section 401A. So it's a qualified plan. It's a defined contribution plan. That's a stock bonus plan or a stock bonus money purchase plan. Okay. If you ask the irs, they'll tell you that's what it is. It must be designed to invest primarily in qualifying employer securities. Okay. So what that typically means is stock, Right? It's stock options or the stock itself is probably more commonly that you put money into this thing and you get a little better deal on your company stock than you otherwise would if you were just buying it on the open marketplace. And then maybe you're required to hold onto it for a year or 10 years or until you separate from the job or whatever. The real risk with these things, of course, has always been that your whole 401 ends up full of your own company's stock. That's obviously very risky. If your company goes bankrupt, your 401 is wiped out and you lose your job at the same time. This is the classic Enron problem for those of you that are older, those of you who are younger have no idea what Enron is. But Enron is a company that went bankrupt 20 or 25 years ago, spectacularly a big company due to some fraud being perpetuated by the C Suite folks. And it really hurt a lot of their employees pretty badly. So that's the risk. So the advice with regard to these things is, yeah, if they're going to give you some free stuff or a super great discount on the stock, then take it, but get rid of it as soon as you can and diversify your portfolio. Don't have all your money tied up in your employer stock, but this caller seems to be saying there's some sort of an employee stock ownership plan for the practice and that nobody's happy with it. And I don't know what to make of that. I don't have the details of it. And diving into the details might give us a little better view into it. But here's the Deal, Right. If they're requiring you to pay into it, well, you can just say no, right? Or maybe not. Maybe they don't let you work there unless you pay into it. I don't know. But do the minimum. If it doesn't seem like a good deal, put as little in there as you can. If it seems like an okay deal, they're giving you a great deal on ownership, then go ahead and buy some, but divest yourself of it as soon as you can, because you don't want your investments and your job all tied up in one corporation. So I'd be pretty careful with that, but I just don't have enough information about your situation to know what you ought to do in this situation. But if it's really a bad deal for all the docs, well, why don't all the docs get together and start talking with management about why they have this terrible deal put in place? If it's not good for anybody but the person arranging the deal, well, maybe it's time to end it. But I think you just need a lot more detail about exactly how it's working. Maybe you're getting a ownership in a bigger company, not just the practice. A bigger company that happens to own your practice. I don't know. But if the company is not doing well, owning a stock is not going to do well. There's no doubt about that. So if they give you an awesome discount on it, or they're just giving the stock to you, of course, take it, but get rid of it as soon as you can. You know, you don't want to have a huge chunk of your portfolio tied up in your own company. My guideline would be something like 5% or less of your portfolio ought to be in your own company. But it sounds like you just got to get some more information about how this plan works. And if it's really terrible, start talking to people about maybe ending it, especially if it's not that big of a practice. Our quote of the day today comes from Ben Graham. Those of you who don't know who Ben Graham is, Warren Buffett considers him to be his teacher. And so Ben hasn't been alive for quite a while now. But he said in one of his books, the individual investor should act consistently as an investor and not as a speculator. What he meant by that is to buy productive assets with an expected positive return and a gap between how it looks like it's going to perform and the minimum it could perform and still be a reasonable investment for you. So it's worthwhile reading Ben's books. Jason Zweig did the foreword on one of the more famous ones. But lots of the teachings in there are still classic teachings on how to invest as a value investor. All right, our next question is talking about work benefits. Let's take a listen. I'm signing up for benefits for my first job at a fellowship. And one of the benefits is $15,000 a month of long term disability paid for by the employer. I'm given the option to either pay the taxes on the benefit or taxes on the premium. And I know you've talked before about using pre versus post tax money to pay the premium, but this seemed a little bit different. And I was hoping to get your thoughts on which option might be the best option for most people to use. Wow. I love it. I love that they're giving you the choice. I don't think that's the case most of the time. I don't think most people signing up for a group disability insurance plan have that choice. Typically because it's a deduction to the employer, it's taxable income on the benefits to the employee. But it sounds like you're paying some money for it. Maybe you're a part owner. I don't know exactly what your employment situation there is. And so you have this choice. And I love that you have the choice because I would have loved to have the choice. I never had the choice. Throughout my career, I had an individual disability insurance plan that I bought myself, had nothing to do with my employer. And I was paid for with after tax dollars. And so all the benefits would be after tax. You know, that's good and bad. The bad is I never made a claim on it. Right. And so all that expense every year, thousands of dollars, whatever it was, I always paid for after tax money. It would have been much more beneficial to pay for it with pre tax money. The upside, if I had ever become disabled, at least while I had the policy in place, is I would have gotten a little bit more of a benefit. Right. I think the most I had from that policy was 7,500. I had a policy through my employer. I think that was also after tax. I think that was $10,000. I think that's the most disability insurance I ever had. And both of them would have been after tax. Obviously that goes a lot further, but I've thought about this a lot over the years. If I had the choice, I would probably pay for it pre tax as long as I could get as much as I needed pre tax, I would probably pay for it pre tax because yeah, lots of docs get disabled and it depends on who you ask exactly what the percentage is. It might be as high as one out of four for general Americans, one out of four before age 65 will have some sort of disability. Maybe it's one out of seven, something like that, but it's relatively high. But most people still don't become disabled. And so most of the time you're going to come out ahead paying for that with pre tax dollars. And if there's any benefit you get pre tax. But here's the other reason why that wouldn't be so bad even if you got disabled. Well, you're going to be in a much lower tax bracket. Your income is going to be significantly lower living on disability insurance than it would be with whatever you were making before because these never replace more than about 60% of your income. And given the progressive nature of our tax code, I think that's okay to deal with guaranteed tax break up front. And tax is probably not that bad on the backside. So I think if I had the choice, that's probably what I'd choose. But it's up to you if you want to maximize the benefit you'd get if you got disabled. Obviously pay with after tax money, get the benefits after tax, but I think it's reasonable for people to do either in your situation. So good luck with your decision and hopefully that helps you to think about it and decide what you want to do.
- [12:52]
Andrew
Jim, thanks for being such a reliable source of sound financial information. I was talking to a financial consultant about increasing my bond like holdings as I may retire in the next five years. He mentioned an insurance product, an spda, which I take to mean a single premium deferred annuity. On the Fidelity website you go to products, then fixed income bonds and CDs, then deferred fixed annuities. Define these things. They are state specific with slightly better rates than Treasuries. They're being presented as a savings vehicle that you just get your principal and interest back after the five year or whatever the length of your guaranteed interest period is. But the annuities that I know of and that you often Talk about like SPIAs are quite different products. This is a Fidelity item, so I doubt it is a pig and a poke. But I was wondering what you thought about them or what you know about them and what you thought about them as a fixed income instrument.
- [14:09]
Jim Dahle
Okay, great question, Andrew. First of all, not everything gets sold at Fidelity or that you can buy at Fidelity is necessarily a Good investment. That goes for Vanguard, too. It goes for Charles Schwab and certainly goes for lots of other places. So don't assume just because somehow attached to Fidelity that it's awesome. That's not necessarily the case. Let's talk about annuities. An annuity is an insurance product. It's got this insurance wrapper around it, and it can have all kinds of things inside it. And that insurance wrapper can have all kinds of special features on it. And in fact, lots of annuities are just super complicated. They're really hard to understand. That's one of the beefs I have with annuities, is not only are they a commissioned product, often designed to be sold and not bought, but they're often so frigging complicated that nobody can understand what's going on with them. That's one of the beautiful things about a pure annuity, the single premium immediate annuity, a spia. You buy one of these things and you know what you're buying? You're turning over a lump sum of cash to an insurance company. And in exchange for that, they will pay you a fixed amount every month until you die. Pretty straightforward deal. You die next month. They made out like abandoned. If you don't die for 50 years, you made out like a bandit, Right? That's just the way these things work. They basically, you know, it's a chance for you to kind of insure against longevity, if you will, and put a floor underneath your retirement income. It's a very safe sort of income product. Think of it not necessarily as an investment, but more of a way to spend your money. But the returns on it are similar to what you'd get from high quality bonds. So that's the classic annuity. And if you understand what that is, you kind of understand what an annuity is. But there's lots of variations on the theme. Now, one of the common annuities that a lot of people think is not too bad is called a multi year guaranteed annuity or a myga. And maybe that's what this thing is as you describe it. That's what it sounds like. And what this is, is it's the annuity industry's answer to CDs, certificates of deposit you'd buy at a bank. Okay, so the downside to a cd, aside from you got to go to a bank to buy them, but the downside of, well, that's not true. You can buy them at a brokerage too. But the downside of a CD is it pays you interest whether you want the Interest or not, it pays you interest and you have to pay taxes on that interest as it goes. And then when it's up, you got to buy a new one and if it pays all the interest at the end, well, you got to pay taxes on that. Well, the beautiful thing about these mygas, these multi year guaranteed annuities, is you get this guaranteed rate on them like you do with the cd, but it doesn't pay you out the income as it goes along, nor if you roll it into another annuity when the term ends one year, two years, five years, eight years, whatever, you don't pay taxes on it then either. You don't pay taxes until you want to take the money out and spend it. So you just take advantage of that feature of an annuity where it's kind of tax deferred growth. And so that's a cool feature of it and why some people look at it and go, well, that's more attractive to me right now. I want a very safe and CD like investment. But I'm in a high tax bracket now, I might not be a little bit later and I'd rather defer the taxes for a few years until this thing pays out. And so I think that's what you're describing. There's another reasonable type of annuity to buy. It's usually called a diagram, a deferred income annuity or delayed income annuity. Depends on who you ask. But this is basically longevity insurance. It pays you nothing in the year you buy it, unlike aspia. And it might not pay you for a while, might not pay you for five years, 10 years or 20 years. But when it does start paying you, it pays a lot because it had all that time to grow in a tax deferred way. And for a bunch of people who bought it to die, and because of that, that means those who are still alive after 10 or 20 years or whatever, they can pay more to them. And so the yield on this thing might be 30 or 40% a year of what you put in there originally. And so it's kind of longevity insurance. If you live a long time and inflation's gone crazy, well, it's going to pay you a whole bunch of money starting when you turn 85 or 90 or 95 or whatever. So it's longevity insurance. And that might be what you're talking about as well, but I don't think so. I think you're talking about more of a MYGA kind of product. But the key to all these annuities is you have to Understand what you're buying and you have to want what it is they're offering. If that's not the case, don't buy it. It's okay to use bonds, it's okay to use CDs if you want. You know, it makes sense as you're approaching retirement in the first few years of retirement to reduce your sequence of returns risk with a little bit more safe investments. That makes sense. But whether you want to do that with traditional investments like bonds or a bond fund or a TIPS ladder or I bonds or those sorts of things, or whether you want to do it with an insurance product like a SPIA or a MYGA or whatever is really up to you. But it's not unreasonable to look at and to do. Just make sure you understand what you're buying, understand the downsides, understand how it's taxed, understand the worst case scenario of what can happen, and you may be very happy with what you're buying. All right, I'm gonna bring one of my friends on here and one of the sponsors for this podcast and the White Coat Investor in general, Don Wenner with Dreamlive Prosper Capital, or DLP Capital. They've been sponsoring us for a long time. I've been investing with them for a long time. They often come to wcicon and sponsor there often the, the first day, well, the day before really. The day we have just an evening opening reception for the conference. They often put on an event, talk about how to build your legacy and those sorts of things. So if you're interested in that sort of thing, feel free to come early to WC Icon. They're doing it again next year in Las Vegas, but we're going to talk with Don for a few minutes about real estate environment these days as well as DLP in particular. My guest today on the White Coat Investor podcast is Don Wenner, principal CEO, founder of DLP Capital. That's Dream Live Prosper Capital. He's been sponsoring the White Coat Investor now for years and also manages some of my money. Don, welcome to the podcast.
- [20:58]
Don Wenner
Thank you, Jim. Pleasure.
- [20:59]
Jim Dahle
Let's talk a little bit about why DLP is unique. And perhaps the most significant is your commitment to, to your mission. You are not just investing money for people like me and other White coat investors. You are trying to accomplish something that I think is noteworthy and worth a great deal of time and effort. Tell us about what you're doing.
- [21:21]
Don Wenner
Yeah, thank you, Jim. You know, dlp, which stands for, as you say, Dream, Live, Prosper. Our purpose is to transform lives through the Building of thriving communities. And the most applicable and obvious meaning of that is the physical housing communities that we invest in. And we'll talk about that. We want to build thriving communities where people are, we call living fully, where they're having opportunities for both success in their lives and significance helping others. But we also invest heavily in building a thriving community with our, within our employee base, within our 3500 family investor base and then with the sponsor, developer, builder, operator space of those. We deploy our money with housing developers, builders, operators. And so we take a very, as you said, mission driven approach to really bringing and creating, creating as much impact as we can in the lives of those we do business with.
- [22:12]
Jim Dahle
Yeah, it's pretty awesome what you're creating there. And you mentioned your investor community. 3,500 plus investors, I think 800 plus of those are white coat investors. They are. You've been trusted by a great deal of our community and I think a lot of that comes down to the integrity people see in you and in your team and in the mission you're trying to accomplish. Yes, people want to do well, but they also enjoy doing good while they're doing well. So tell us what's unique about DLP as an investing firm compared to some of the other private real estate funds out there?
- [22:49]
Don Wenner
Yeah, thanks, Jim. I think first thing I'd say that's unique is the starting point of. Well, first is the purpose, the mission we just talked about. And second is that we chose early on in our journeys. We're on year 19 now, early on in our journey to run private investment funds and to do so in Evergreen Structures, which provide flexibility to you as investor, liquidity to you as an investor, but give us the ability to maximize each investment and not be under the timing of a traditional close ended fund, which is how most real estate fund managers operate. So the decision to be structured that way was one of the biggest decisions we made and has changed kind of the position we're in, especially through times of volatility. And then I'd say that the next really unique part about our business is that we've put a tremendous amount of focus around building what we call an extraordinary organization. And I've written a couple books on this topic. Building an Elite Career. It's actually sitting right over my shoulder. Building elite organization and building an elite career and writing the book right now called Building Extraordinary Organization and we built this disciplined system we call the elite execution system. How do you scale a high growth, high profit business? How do you set clear strategy, execute on that Strategy, solve problems and drive clear communication. When in our case we've grown by about 50% a year for 19 years in a row. And so that system we've built is built around people. It's built around developing and retaining the best leaders. And it's allowed us to execute at a really high level and generate really, really consistent, as you said in our recent conversation, almost boring performance. And how consistent span. But what's really unique is not only do we do that in our business and our company, but we help the organizations we deploy our money with do the same. Increasing their performance, increasing their growth, decreasing our risk. Which brings me to sort of the final note, which is the majority of our investments we make. Even though we are a direct developer, builder, operator of housing communities, we own 23,000 housing units today. We deploy the majority of our money as a partner and a lender to other developers, builders and operators with all of their capital in subordinate to our capital, further reducing our risk, further increasing the consistency of our returns.
- [25:22]
Jim Dahle
Yeah, I'd add a few things to that. You actually send your K1s out on time, for instance. I mean, your accounting team deserves some kudos for this. I've been involved in a lot of these investments and most of them do not send a K1 out in early or mid March. Most of them don't even make the April 15 deadline.
- [25:39]
Don Wenner
So yeah, to that point, yeah, we've never missed a deadline. We have a 35 person accounting team. So unlike a lot of real estate syndicators, small managers, it's really a small group of people and then they're hiring third parties. We have a total of 800 people executing on our strategy every day, including 35 accountants. We've never not gotten our K1s out on time. We've never gotten a distribution not out on time. We pay out our distributions every month. We pay them out before we even earn a preferred return or even before we earn our management fee. We pay out preferred returns, which is quite unique. And we distribute our reporting, our distributions, our returns, our tax forms, all on time, consistently, almost boringly so, as you have said. But that boringness is quite unique.
- [26:24]
Jim Dahle
Yeah. And highly desirable to this investor and hopefully many others. Give us a brief description of the four DLP capital funds that are available to invest in.
- [26:33]
Don Wenner
Yeah, thanks Jim. So what they all have in common is they're all evergreen, meaning they're open ended, meaning we expect to run these funds five years from now, 10 years from now, 20 years from now. But you don't have to be A part of the fund all that time, all of them are investing in housing that's affordable for working families. That's our mandate to our funds or all impact funds that that's what they, they all pay out a preferred return to investors before we earn any returns, including any management fees. With all of them you can invest qualified and non qualified monies, retirement money and otherwise. You can invest through Schwab and Fidelity and self directed IRAs. So all of them have all that in common. All of them provide liquidity. But each one invests in housing that's affordable for working families. Slightly different and then have slightly different characteristics for you. So the first is the DLP Lending Fund. That fund makes first position mortgages to professional full time developers, builders and operators of housing communities. We've made over 4,000 loans in this fund. We've never written off a dollar of interest or principal on a single loan. We've generated double digit returns, annual returns distributed monthly, two distributions a month, a preferred return of 8% paid out on the first of every month and then all the additional profits paid out the middle of every month with 90 day liquidity. So that's the DLP lending fund. Very easy. First position mortgages similar to a bank. We own actually a bank outside of this, so understand the banking space well. But this is a non bank but doing loans very similar to that of a bank but able to generate double digit returns net to you as an investor. Then we have the DLP Preferred Credit Fund which is our other lending fund. That fund has a 9% preferred return. So 1% higher has a 1% higher target return. Everything else in terms of liquidity and distributions is all the same as the lending fund. We've never even had a delinquency in this fund. And then we have two equity funds, the OP Housing Fund which owns existing housing communities. We own 13,241 rental units in that fund today at an average rent of about $1,300 a month. We've generated 17.4% net returns to investors with monthly distributions and annual liquidity and to date all of the income sheltered from tax while you're invested. And then finally we have the DLP Building Community Fund which invests equity in building brand new housing communities that are affordable for working families. That has an 11 to 13% return target. We're north of 12% net to investors and those returns actually should only get better. And I could certainly explain more why that is. With an 8% preferred return and annual liquidity, building brand new affordable Housing communities.
- [29:08]
Jim Dahle
Very cool. Now this year people are seeing some volatility in the publicly traded markets. You know, the last couple of years the S&P 500 has gone up 25% plus in 2025, people aren't quite seeing that sort of a situation. And there's a little bit more interest in other investments such as real estate. What would you say to somebody who is, who's disappointed with the, you know, the volatility they're seeing in the public markets? And what would you say to them about considering some private investments, considering putting some portion of their money into real estate?
- [29:45]
Don Wenner
Yeah, I'd say, you know, the great thing about real estate investing, generally speaking, especially private investments, is consistently, if you look at the last 40 years, 50 years, probably last hundred years, but the charts I look at are usually the last 40, 50 years. Rent has gone up almost every year the last 40, 50 years. Regardless of volatility, regardless of where, in a time of inflation or rarely a time of deflation, regardless of interest rates, regardless of all the noise in the markets, rents continue to go up. And that's fundamentally what drives up the increase of value. Housing that's affordable for working families has been in undersupply virtually at all points in our history. So better consistency. In short, less volatility, less worrying about the day to days and the value of your investments. I've had the great joy over the last few weeks of hearing from lots of our investors saying how glad they are to be invested in our funds and not worrying about some of them and for any of their investments, but at least their investments with us. What's going on in the news and in the markets, all that, you know, is, is important to everybody and when you're part of the economy, but less important and has had very little effect on our ability to generate, you know, regular consistent distributions and double digit returns net to investors. So I would just say, you know, considering taking some of that, some of the money that's in public markets and putting in a place where you're going to have more consistency, less volatility, better distribution, but still retain, in our case, good liquidity can be a great alternative to the public markets.
- [31:26]
Jim Dahle
All right, well Don, thank you for your time. Thank you for being willing to come on the podcast. For those looking for more information about investing with DLP, go to whitecoatinvestor.com DLP and again, appreciate your time, Don.
- [31:39]
Don Wenner
Thank you, Jim. Appreciate it.
- [31:41]
Jim Dahle
Okay. I hope you enjoyed that interview. It's always great to chat with Don and as I'VE gotten to know him better and his family over the years. Really a pretty good spectacular person. Alright, we got a question that's not terribly unrelated to that interview. This one comes in on the Speak pipe about Private Real estate funds.
- [31:59]
Early Career Doctor
Hello, I had a question regarding the money used for private real estate investments. I'm an early career doctor. 2.5 million in assets, mostly in index funds. I ventured into private real estate funds for the last year or so and have money in a few different funds. Regarding the money used for these investments, I have been parking the amount required in a high yield savings until the capital call. I recently thought of just continuing to invest in the market in a standard fashion and whatever funds are close to being due for the fund. Just selling whatever index funds are just over 12 months old to cover the amount due. Given that I've typically been doing about a fund or two a year, I figure that on average this seems like a better move than having that amount of money parked in a high yield savings account waiting for the capital call. Obviously there would be a small risk of needing to sell in a downturn, but I would figure that on average one would be better off with the money in the market. Does this sound reasonable to you?
- [32:52]
Jim Dahle
Good question. I think you understand the issues involved very well, right? Sometimes when you commit to a fund, they don't want your money for a little while. It's not unusual for you to have to wait 30 or 60 or 90 days before they call your capital. And the reason they're doing that is because they figure the money's better sitting in your account earning interest for you than sitting in their account earning interest for them. It's nice of them to do this. This is a good practice for the investor. I don't complain about this whatsoever. If you can't put my money to work right away, well, I'll just leave it working for me in my account until you're ready for it and then we'll wire it over. So this is not a bad thing, and this is pretty typical. Lots of funds do this. There's a delay in between when you commit to the fund and when you got to have the money. The downside, of course, if you leave the money fully invested is that a worldwide pandemic starts or the Fed raises interest rates 4% in a few months, or the entire global financial system melts down and you've got this commitment to invest the money and now you only have 60% of the money you thought you were going to have and you can't make up the difference from your earnings or some other investment without selling low. So I don't typically invest the money for this relatively short period. I know I need a fixed sum of money. I know I need it sometime between 30 and 90 days from now, so I leave it in cash. Now I don't use a high yield savings account these days because I've found money market funds tend to pay more right now that wasn't the case three years ago. Three years ago a high yield savings account paid more than a money market fund, but right now money market funds are paying more. So that's where my cash sits. I think at Vanguard it's paying 4.1% or 4.2% or something right now. And you also have the option to use a municipal or tax free money market fund if you like. And so that's typically where my cash sits that I know I'm going to have to use to pay a tax bill coming up next quarter or to meet a capital call for a private real estate fund. That's where I sit the money. And I console myself with, hey, you're making 4%. It's way better than a few years ago when you were making 1% on your cash. So is there some cash drag there? Yes, it's not for very long and it's not very bad these days, so I just leave it in cash. But if you really wanted to, you could invest it into some sort of real estate like fund. You could invest in it into vnq, which is Vanguard's real estate ETF or some other real estate like fund if you wanted to. But I think I'd just leave it in cash. I mean these capital calls are typically not that far away from the time when you're going to need the money, so hope that's helpful to you. As I mentioned at the top of the podcast, SoFi could help medical residents like you save thousands of dollars with exclusive rates and flexible terms for refinancing your student loans. Visit sofi.comwhitecoatinvestor to see all the promotions and offers they've got waiting for you. One more time. That's sofi.com whitecoatinvestor Sofi student loans originated by Sofi Bank NA member FDIC. Additional terms and conditions apply. NMLS 696891 don't forget about the few event Lyssa Chang's Presenting wealth and Deconstructing Social Narratives for Financial Empowerment. You can sign up@whitecoatinvestor.com Few it's totally free. Thanks for leaving us five star reviews. Thanks for telling your friends about the podcast. A recent review came in from Lake Lawyer said Life changing. I'm an attorney, not a doctor, but this podcast has been a life changer for me and my family. I've learned so much good, effective and powerful advice. I have my kids listening to this as well. 5 stars. Thanks so much. And hopefully this does, in the words of Dave Ramsey, change your family tree. Keep your head up, keep your shoulders back. You've got this. We're here to help. Thanks for being a member of the White Coat Investor community. The hosts of the White Coat Investor are not licensed accountants, attorneys or financial advisors.
- [36:41]
Don Wenner
This podcast is for your entertainment and information only.
- [36:44]
Jim Dahle
It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.