Speaker 1 (00:00.162)
From the peak of the stock market to a trough to the very next peak is on average five years. So if you don't have five years, you shouldn't be investing in stocks. Yeah. Because what if you get in the middle of that? That's right about three years. Yeah. And you hit a down market. Now you don't have money to buy a house. Welcome to the Physician Family Financial Advisors podcast.
where physician moms and dads like you can turn today's worries about taxes and investing into all the money you need for retirement in college. Hello, physician moms and dads. I'm Nate Renneke, Certified Financial Planner and Primary Advisor here at Physician, Family and Financial Advisors.
And I'm Ben Utley, Certified Financial Planner and the Service Team Leader here at Physician Family. So Nate, what do you have on on tab for us today?
All right, got some more questions. So first one comes from a cardiologist in Florida. Okay. And it's they asked, what is an investment policy statement? And do I need one?
Okay, I'll take this one if you don't maybe don't mind. So the origin of an investment policy statement comes from institutional investment management. So institutional is like imagine that you were the head of a large endowment fund like the Yale endowment or that you were you you're the head of a of an institution like a not-for-profit and you have some extra resources and you want them invested and you're going to hire a money manager.
Speaker 2 (01:39.214)
What you do is you'd write an investment policy statement and the policy means rules. It's the rules by which you'd want your money invested, right? So you wouldn't just turn this manager loose and say, just manage our money whatever way you see fit, right? Take as much risk as you want. Just get us as much money as you can. That's not how it's done, right? So an investment policy statement spells out all the details like your investment objective, your risk tolerance, your time horizon, your expected return.
might spell out your asset allocation. And so all those things is the parameters of how you'd be invested. so asset allocation is a fancy way of saying mix of stocks and bonds and maybe cash. Time horizon is how long is it going to be before you need the money? Investment objective is basically do you want it to grow or do you want it to generate income or do you want a little bit of both somewhere in between? Right. And risk tolerance is what's the downside before you squeal and bolt?
Right? those are kind of the four parameters that are typically in an investment policy statement. For an individual investor who's doing their own stuff, I would say that you don't really need an investment policy statement. But it's a good idea because what you do is you write down how I'm going to invest generally and how much money I'm willing to lose, what my downside risk is going to be. Not that it's going to be a permanent loss.
Right? If you're diversified investor, you're buying, you know, index funds, you're not worried about permanent losses. You're thinking about temporary losses. Okay. And so I would say for an individual investor, those are the two things that you want to have in your investment policy statement. So, if you're delegating your investment, so for example, clients delegate to us, then we create for them an investment policy statement or set of investment guidelines. And our guidelines say like,
we think that your asset allocation or your mix of stocks and bonds ought to be this. So maybe 90 % stocks, 10 % bonds, 60 % stocks, 40 % bonds, that kind of thing. That would be spelled out in investment policy statement and some statement of risk in terms of a percentage of loss would also be spelled out. Now you need that if you're going to delegate your investment to someone, but if you're going to do it yourself, you're kind of delegating to you.
Speaker 2 (03:58.862)
And having that written investment policy statement is one way of keeping yourself on track. It's a little record of when I started investing, I was thinking this. And now, you know, we have a new electoral regime, you know, new politics, we've got new economy. But if you're writing your investment policy statement correctly, you're writing it based on historical returns going back, you know, 50, 100 years, right?
So you wouldn't change it just because something flip flops in the legislature or because something changes in the economy that's small, right? Typically we change our investment policy statement when something changes in our household. Like we have a big inheritance or a person dies or our goal changes materially. So do you need one? I think it's a really good idea. Do you have to have one? No.
Yeah, right. And if you have this investment policy statement, helps you kind of stay the course. We talked about just a few episodes ago, you made a really good point about most investment strategies will work for positions as long as they choose one they can stick with. And this is just one tool.
Yeah.
One more bit of glue to keep you stuck to it. Yeah. That's right. Right.
Speaker 1 (05:14.926)
Okay, next question is from a diagnostic radiologist in Florida. So these are clients of ours. have a college plan, sending three kids to private college for their undergrad degrees. They asked, does it make sense to front load a 529 instead of making taxable contributions in the beginning? So sometimes then we recommend making taxable contributions along with 529 contributions.
They want to know should they front load their 529. And I'm taking this one. So I believe this is a really good idea. When when written on paper, it makes the most sense because you can stick money into 529, get all that tax free growth. reason you use 529s and in the early years front loading these accounts, the money is more valuable in a 529.
Right. Because that compound growth, it's bigger. You can earn more money, get more compound interest as the earlier you put the money in. The reason you put money in the taxable account in the first place is really just one and this flexibility. So you lose some tax breaks and that's hard for people to hear.
Well, really, the way I look at it is you're buying flexibility. Right. You're buying flexibility and you can do that later on. So the reason you buy flexibility, what do you need to be flexible with? What school your child goes to? They go to an in-state school. You don't want to be overfunded in your 529. Yeah. And so you could use a taxable account for that reason. The key here is that you have to watch this more closely.
You have to watch your college plan very closely if you're going to front load versus taking a plan that maybe would last longer and wouldn't need to be a plan may not be need to be refreshed as often if you choose an investment strategy that you can take from beginning to end.
Speaker 2 (07:19.054)
You know what I like about the front loading 529 for college fund is let's say you have a newborn, right? Typically most of that account or most of that portfolio is going to be invested in stocks. so what that means is you're putting the growthiest investment into your 529 first. And so you're leveraging that 529 to the maximum for growing it, especially if you're front loading that, especially if you're putting like
five years worth of contributions in upfront. You really leverage the 529. And the nice thing about that is in your 529 gets about halfway full or two thirds of the way full and you're like, okay, my college fund is about halfway complete. Then you can put the rest of that money into a taxable account and you can put it in like, oh, like tax exempt bonds, like municipal bonds, that kind of thing. So that's a good place for those to go because you sell them, they're not likely to generate capital gains.
In the meantime, they're going to generate tax-exempt income. So it's just a good strategy. As you and I've seen, it's not a great strategy for everyone, especially people that are funding on a monthly basis. It requires more monitoring.
That's right. Yeah. And I have written plans both ways. And the reality is that this isn't one size fits all. If you're a bit unsure about your college goal, you're a bit unsure that you'll make it to retirement and you might need some of that money for retirement. It's OK to buy flexibility. Right. But if you're hell bent on an expensive college goal and you're on track for retirement, you don't really need the flexibility. Squeeze all the tax
benefits you can.
Speaker 2 (09:03.374)
All right. trivia. I just learned yesterday that South Carolina is a state where you can put in as much money into 529 as you want and get all the state income tax deductions. And know, Colorado used to be that way, but evidently they've changed. So that's, you can't do that in Colorado anymore.
Yeah, once again, watch out for that. The major changes in college plans have to do with state benefits. You do, it does change. it changes just like a 401k contributions change, except for they're still sort of figuring this out, it seems like state to state. And yeah, so I see the state benefits get bigger. And you certainly want to get
You gotta check that like every year, you know?
Speaker 1 (09:49.026)
the tax break every year. So if you're splitting between taxable and 529s. Yeah. In South Carolina, you most likely should front load that 529. Yeah. OK, next question is from a critical care doc in Ohio. They said, we want to move cities and buy a different house in three years. So they already have a house. We have $80,000 in cash that will be used as a down payment.
Should I invest the money or leave it in my savings account for three years?
I'll take the last one.
Okay, sounds good. The short answer is you probably shouldn't be investing this money. You'll hear many people on the team talk about cycles. from the peak, if you're watching on YouTube, which we do have a YouTube channel.
We're on YouTube right now. For those of you who are listening while you're on the show, I'm waving and making smiley faces in my hands. For everybody else, you could just see them like the dork in the view there.
Speaker 1 (10:45.678)
Bye!
Speaker 1 (10:56.27)
Yeah, so from the peak of the stock market to a trough to the very next peak is on average five years. so if you don't have five years, you shouldn't be investing in stocks. Yeah, because what if you get in the middle of that? That's right about three years. Yeah, and you hit a down market. Now you don't have money to buy a house. Right. Right.
I get wanting to get the most out of it. It's just not money that you can risk. if you can't wait it out five, seven years, probably just don't invest and you really just need to be putting this money, doing the best you can with this money. That would be CDs, I yield cash accounts, even S-gov or something like that.
High yield savings accounts. That's H-Y-S-A. That's what I keep seeing in Reddit when I read about this stuff.
That's That's what you're sort of stuck with, I guess you could say, but it's not really stuck. This money has a goal, it has a purpose, and you should put it in an account that aligns with that goal.
For those listeners that are clients, we recommend a high-yield savings account at Betterment called Cash Reserves, and it has FDIC protection behind it. I think the yield on that right now is like four and three quarters percent. And I look at yields on bank deposits and certificates of deposits and short-term government bonds. I look at like a composite of that on a monthly basis.
Speaker 2 (12:29.46)
It's pretty much every time I look at it, their yields are in the top quartile, sometimes they're in the top 10%. So that's a pretty good place to park stuff. And I've parked emergency fund in there in the past, and I've parked college money in there in the past. it's a good safe place to put stuff. I'm careful in using the word safe. I don't describe bonds as safe. yeah, it's a decent place if you're a client listener to.
and you have questions, contact your primary advisor and ask them about it.
That's right. Then I would probably still 30 or 40 % of the time during an annual progress check. Find money that should be in high yield savings.
Yeah, exactly. I found a client who skipped their annual progress check, so I'm talking with them two years after they're supposed to, and in there they got an inheritance like seven months before the thing. They inherited $200,000. Okay, so over a six-month period, that was like $5,000 that they missed in easy-peasy interest because they were sitting around getting nothing. So, one, if you have six figures in a checking account, you don't know what it's for, call us. And two, don't skip your annual progress check.
That's where we pick up tax breaks and all that good stuff. You should be there. If you're paying for that, you ought to be there.
Speaker 1 (13:46.55)
Yeah, sometimes it's simple, but five grand is five grand.
Yeah, that's right. I'll take it. If you don't want it, let me know.
Yeah. Okay, last question. Spouse of a critical care doc in Washington. How much cryptocurrency is an acceptable amount to own?
Okay, I'll take this one. Okay. Zero.
Zero.
Speaker 1 (14:19.33)
zero.
zero is acceptable for me. I have owned some crypto. I own like, I think it was five or 10 different species of crypto. And I bought it. read three books before I bought it. I talked to a friend of mine who was deep in the, what do call them, the NFT patch. I have another friend who actually minted an NFT, which is not exactly crypto coins. But I looked at all that stuff and I owned it.
And I never knew when I should buy more of it or when I should sell some because it doesn't have a fundamental economic value like a stock or a bond does. There's not really a fundamental inherent basis value. mean, if you want to get technical about it, it's worth the electricity that it would cost to produce it. Because that's what is the barrier that makes these real.
And I feel like I thoroughly understand this. Like I understand blockchain, understand governance, understand hard forks. I mean, all that good stuff. I read all those things in the same way I would have studied chemistry. But at the end of the day, I owned it I just never felt comfortable with it because there's nothing behind it. There's, in fact, there's no more behind cryptocurrency than there is behind United States currency, right? Or any other currency. It's a...
The US dollar is a fiat currency, which is to there's no hard asset behind it, and so is crypto. That's not to say you shouldn't have US dollars because you got to pay your bills, but those US dollars are liquid, where crypto is not necessarily liquid. And as yet, I haven't been to Safeway where they asked me, which form of crypto will you be playing with? I haven't paid any college bills with crypto. So it's not a currency that's in circulation at the moment.
Speaker 2 (16:08.366)
If it was a circulating currency, then yeah, I'd say maybe you need to have some of it. But right now, the Securities and Exchange Commission regards this more as a security or as a commodity. We don't invest in commodities here. We invest in stocks that use commodities as a form of inflation hedge vis-a-vis the S &P 500, the FTSE, other indexes. But I've looked at this and I'm not against it.
Per se, I don't think there's anything wrong with it. I'm certain blockchain is going to be a piece of our economic future for the kind of representing real assets. Maybe someday we'll trade a blockchain certificate for the ownership of a home or a partial ownership of a home. But right now as an investment, I don't see it as an investment. don't see... For me, an investment is a vehicle that generates... has the capacity to generate income
or accrue value independent of the owner's behavior, so like not like a rental property, where there's an economic underpinning to it. And so my take on crypto is zero. Now, if your client, you're listening to this and you're playing around with crypto, that's fine. Don't lie to me about it. Let me know that you got it there, right? We'll put it on your balance sheet so we can track it for estate planning. We might put some of it in your plan, but we're not going to recommend it because we just think it's
It doesn't have inherent value like stocks and bonds do and real estate.
Yeah, I can't earn money. Yeah. I think it's important to say too, I don't have any numbers to back this, but I get the strong, strong feeling that the people you hear talking about crypto probably don't even have 1 % of their net worth in crypto.
Speaker 2 (17:55.406)
Well, you know what I think? What I find is fascinating is I do follow the price of it tangentially as I'm listening to the news, right? They just announce it and I don't know, once a week or something I hear. So crypto right now is at least Bitcoin is at its all-time high. I think it's like $29,000 a coin or $290 or something like that. Some high price, okay?
so i mean it's you promised that is a hundred k
Okay, 100k. Alright. Some astronomical, have one, buy a whole car, house one. Okay, right. So, what I find fascinating about this is I've been hearing about it lately, and I was hearing about it three years ago, but I didn't hear about it in between, and that just happens to be when it was hitting the highs. Okay? This reminds me of real estate. I heard a lot about real estate three years ago. I don't hear about real estate hardly at all anymore.
Now, there are sometimes when I'll talk to six to eight prospective clients in the course of a week, right? And it used to be that three quarters of those people had the word real estate or passive income on their lips. And now I don't hear about that anymore. And what that tells you is how frothy things are and how much people are speculating and following what's going up. But if you're going to be smart about this, you buy stuff when it's down or when it's going down. So one of our clients is a crypto miner.
This is a guy I've had for a bazillion years before I started specializing in doctors. And he buys when it's hitting its low and has done so fairly well. Now, we're not advising him about that at all. I've backed away and put my hands in the air, right? But if you're serious about one of these asset classes, you need to be buying it when it's down, not when it's in the headlines. I let's not be whipsawed by the price movement of it, right?
Speaker 1 (19:46.222)
That's right.
Yeah, so if that's not you, should probably just stay away from it.
That's right. Let some of your companies you own shares and buy some crypto. There you go.
Yeah, yeah, absolutely. Let them let them take all those risks and stuff like that You know the fact of the matter is it pretty much every physician who's listening has the the capacity to achieve all their goals Based on their income and ordinary stock and bond investing without getting fancy at all Right, and if you feel like you have to get fancy the fact of the matter is you're probably just spending way too dang much money Yeah, yeah, so you just you don't doctors don't need this stuff, you know so
That's my take.
Speaker 1 (20:29.07)
All right, that's it for today. want to take us out?
Yeah, I'll take us out. So we're financial advisors. We edge on the conservative side. You can tell a little bit here. So we're looking for clients. We love new docs, especially those who have children. If you want to hook us up, you can go to physicianfamily.com, find out what we're all about. You can see all of our prices listed there. We don't charge a percentage of assets on our management, so you don't pay more when you invest more. If you're not ready for that, maybe it's time for a retirement well check. So to get that, you can go to physicianfamily.com.
forward slash quiz and until next time remember you're not just making a living you're making a life. Thank you.
Thank you for listening to the Physician Family Financial Advisors podcast. Are you getting all the tax breaks you really deserve? To find out, get your copy of the Overtax Doctors Retirement Investing Checklist, available at physicianfamily.com forward slash go. Thank you for listening. Read the show notes for disclosure.
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