Nate Reineke (00:00)
Hello, physician moms and dads. I'm Nate Brennecke, Certified Financial Planner and Primary Advisor.
Chelsea Jones (00:07)
And I'm Chelsea Jones, also a certified financial planner and primary advisor here at Physician Family Financial Advisors.
Nate Reineke (00:14)
Chelsea, we didn't have a asking for a friend question today, which is a little sad, but ⁓ we march forward. If you have an asking for a friend question, please send them to us. These are really ⁓ what you might think are simple questions, but you'd still like to ask without exposing yourself to your friends.
Chelsea Jones (00:24)
Yes.
There's no question too simple.
Nate Reineke (00:40)
That's right. In fact, those are oftentimes the ones that ⁓ are best asked because it's the nuance and the simple questions that, you know, the simple questions are the ones your friends feel comfortable answering. And a lot of times your friends or your uncle or your neighbor, they're actually wrong. So yeah, because they're not you and they heard some ⁓ rule of thumb answer to something and
Chelsea Jones (00:58)
Because they're not you. Yeah.
Mm-hmm.
Nate Reineke (01:10)
So I like the simple questions. But we'll move forward. We have four ⁓ not so simple questions that we're going to answer today.
Chelsea Jones (01:17)
Yeah, the first one, first question says my current advisor has me in a 90 % stock portfolio. And while I understand in theory why it might be a good asset allocation for me given my age, it makes me uncomfortable. What should I do?
Nate Reineke (01:33)
So this is a question I got from a perspective client. And it was interesting because as I asked them more and more questions, I started to uncover really what was going on. First thing I must say is just because your friend's uncle or neighbor says you should be 90 % stocks doesn't make it true. And just because Vanguard, you know, if you choose a
target date fund, which is the one where it picks how much stocks and bonds you should own. Just because Vanguard says you should be in 90 % stocks doesn't necessarily make it true. ⁓ That doesn't mean that, I'm not saying Vanguard is wrong or that your neighbor is wrong. But what that means is if you have, ⁓ if being 90 % stocks is going to create a behavioral issue for you, meaning if the market goes through
⁓ a downturn for some reason and the fact that you are 90 % stocks would ⁓ result in you ⁓ having a knee-jerk reaction, let's say, and pulling your money out as the market's going down, ⁓ you need to account for that because you are an individual with your own feelings and understanding of the stuff. So first things first, you should certainly talk to your advisor about this. And if they aren't at least considering
Chelsea Jones (02:44)
Mm-hmm.
Nate Reineke (02:57)
how the psychology that you have about this, ⁓ you should find a new advisor. But if they do consider that, they should also consider something else. This is what I think ⁓ most people are missing. It's not just how much risk, it's understanding the risk in that 90%. I think it's very common.
for financial advisors just to say, I'm managing your risk by being 90 % stocks, 10 % bonds, and then 80-20, and then 70-30, and never going beyond that. But the reality is this family and many families did not understand what was in that 90 % stocks. So I asked them some questions. said, well, what is the 90 % stocks? Is it the S &P 500? They actually didn't know.
Chelsea Jones (03:34)
Mm-hmm.
Right.
Nate Reineke (03:53)
answer to that question, which is is problem in my eyes. Because the S &P 500, some advisors will call that a diversified portfolio because it's got 500 stocks in it. That's not what we consider fully diversified. That's not what we consider a true index. You can go S &P 500 versus Vanguard's index fund like VTI and there's thousands
Chelsea Jones (04:15)
Right.
Nate Reineke (04:22)
of stocks in there. So just because you own 90 % stocks doesn't mean you're 90 % in one position. You don't own 90 % of Apple or Google. So you have your money in thousands of positions within that 90%. And ⁓ to go even further, let's say VTI, that's the ticker symbol I just said, which is US stock portfolio.
Beyond that, some of your 90 % of stocks that you own is some of the international stocks. And at the end of the day, if you have a truly, what we would consider truly a diversified portfolio, you're going to own a few thousand stocks within that 90%. And this has come to, ⁓ if you're paying close attention to this, you would realize this year alone that there have been multiple, like,
Chelsea Jones (04:58)
Mm-hmm.
Nate Reineke (05:19)
We're only a few months into the year and there's been months where certain sectors of your 90 % worth of stocks have gone up and certain sectors have gone down and that kind of flip-flops as we go along. So ⁓ understanding truly what the real diversification means usually, this isn't for everyone, usually makes you ⁓ more confident and calm in owning a lot of stocks.
Chelsea Jones (05:31)
Mm-hmm.
Mm-hmm.
Nate Reineke (05:50)
And the reason to do this, own more stocks, is actually just to keep up with what your retirement plan or your college plan calls for. You need some returns. You can't get to retirement ⁓ having your money all in cash. So there's a good reason to do it. But if you understand the risks and you're still uncomfortable, you understand the diversification hopefully that you have and you're still uncomfortable,
Chelsea Jones (06:07)
Right.
Nate Reineke (06:20)
you need to protect yourself against behavioral issues and potentially reduce the amount of stocks you own.
Chelsea Jones (06:27)
Mm-hmm.
Nate Reineke (06:28)
So have a real honest to God conversation with your advisor about this. And if they don't discuss this with you at a reasonable level, you're never going to be comfortable with them. You should probably move on.
Chelsea Jones (06:42)
Yeah.
Yeah. And I just want to reiterate the importance of understanding diversification, which you just talked about a lot there. Cause, ⁓ there's this saying whenever I was in school and I was learning about all of this and the saying is the only free lunch and investing is diversification. Like that's the, it's the one way that you can reduce risk and not add costs. Right. so understanding diversification.
Nate Reineke (07:01)
Mm-hmm.
Mm-hmm. Yeah.
Chelsea Jones (07:13)
Maybe digging a little deeper into systematic and unsystematic risk, which, you know, that's a question for your advisor. We could talk about that another time, understanding that diversification and how that plays into your risk, I think would bring a lot of, of clarity to this person. So.
Nate Reineke (07:21)
Mm-hmm.
Yep.
The unknown is always scarier. If you just have no idea what's going on inside your accounts, of course you're nervous. But everybody, yeah, and everybody just wants to not seem scared. They don't want to give up the returns. But the way you, ⁓ you don't necessarily have to run away from the opportunity. You have to understand it better.
Chelsea Jones (07:35)
Mm-hmm.
Yeah. And it's so easy to assume the worst, the scariest.
Mm-hmm.
Yeah, that's a great question. The next question that we got from a doctor says, my kids have graduated and I actually have money left over in their five to nine. I'm thrilled to pass this gift down to my grandkids, but I'm wondering how should I be investing the leftover money? So this, this is a question that I've actually heard some form of recently too. More so looking forward to.
Nate Reineke (08:25)
Mm-hmm.
Chelsea Jones (08:28)
Like I think I'm going to have some money left over. should I, how should I invest it? and you know, we just talked a lot about understanding your risk tolerance and this kind of, it was a good, that was a good segue into this question because, one of the major things or major, ⁓ aspects that kind of informs your risk tolerance, excuse me, is your time horizon. And so if this is for grandkids who haven't even been born yet.
then there's a, you know, minimum, very minimum 18 year time horizon, most likely closer to like 20 or 30, depending on how old your kids are. If they're just graduating college, they're probably in their early 20s. So there's most likely a long time horizon, undetermined time horizon. So it makes sense to invest it more aggressively. And then
Nate Reineke (09:04)
Mm-hmm.
Mm-hmm.
Chelsea Jones (09:28)
⁓ really revisit it once there are grandchildren that are born. Because it's kind of, the situation changes when the grandkids are born unless you decide to use the money for something else. Just kind of investing it aggressively, ⁓ which I would, you know, mostly stocks. Investing aggressively could mean 90-10, it could mean 100 % stocks. ⁓
Nate Reineke (09:33)
Mm-hmm.
Yeah.
Yeah.
Well, if you look at ⁓ the recommended, this is like most 529 fund managers recommend mostly stocks at age 0, 1, 2, and even 3. 4, right? ⁓ So, if they're not even born yet, that just means you have a like you said, longer time horizon beyond that. So, there's no reason not to
Chelsea Jones (10:02)
Mm-hmm.
Nate Reineke (10:19)
invest at least as aggressively as if the child had just been born. taking a step back and kind of reflecting back on the first question too, the reason to take more risk that I mentioned is that you need the opportunity. can't really, gosh, I hear physicians
Chelsea Jones (10:24)
Mm-hmm.
Nate Reineke (10:45)
squirm and get uncomfortable with how much they have to save for college even with investment returns. Imagine paying for college without it. It's really difficult to afford these things without getting the returns. That's why we invest. It's opportunity and risk tolerance. The longer amount of time that you have, the larger your risk tolerance could be.
Right? Because you have time for the market to, if it goes down, for it to come back up and rebound. So you got 20, I mean, I think ⁓ I have noticed in my journey of raising my own children that parents seem to be getting older and older. And it's especially true with highly educated ⁓ professionals like physicians. And so if your children follow suit,
Chelsea Jones (11:12)
Mm-hmm.
Mm-hmm.
Nate Reineke (11:40)
they probably won't have kids until their early 30s. So they just graduated school, depending on their age. They have, I mean, most of the time you probably got like 25 years. And so you kind of think of it as 25 year time horizon is very similar to a physician's career. Right? And so just because it's for college doesn't mean you should necessarily
Chelsea Jones (11:44)
Mm-hmm.
Mm-hmm.
Nate Reineke (12:08)
take less risk with the money. It's a similar time horizon and similar asset allocation you would choose for retirement when you're just getting started.
Chelsea Jones (12:16)
Yep. And I'd be remiss to not mention the earlier, the better for five two nines. Like imagine the tax free growth you can get over the next 25 years with this account.
Nate Reineke (12:22)
Mm-hmm.
Okay, hold on. is blasphemous
for me to pull out a calculator during a podcast. But let's imagine they had like $50,000 left, right? That's a pretty successful plan. know, college is really expensive. $50,000 left. It's like it's too much. You probably overfunded it a bit. But in all likelihood, you'll have more than one grandchild. And this is just going to be easily spent. But $50,000 is
Chelsea Jones (12:32)
You
Mm-hmm.
Mm-hmm.
Nate Reineke (12:56)
about, it's a little less than two years of in-state public school cost right now. And if you got, you know, even a 8 % return for, let's see, 8 % return for 25 years, it's going to be $342,000 by the time
Chelsea Jones (13:04)
Mm-hmm.
Nate Reineke (13:25)
you're ready to spend it. And the key here is, I could back into the math, but I'll just cut to the chase, that's probably equivalent. with the rising cost of college, it's probably equivalent to $50,000 today. The cost of college is going up by over 7 % per year. So, you know, if you don't invest aggressively, it's going to be worth almost nothing to that child in 25 years.
Chelsea Jones (13:27)
Mm-hmm.
Mm-hmm.
Mm-hmm.
Nate Reineke (13:56)
Right? So I think it's required with this goal unless, you know, because ⁓ it's either you show up with the whole 50 and it doesn't really get them very far. Or, you know, with people who are nervous about being more aggressive. ⁓ Let's say you lose all the money, which I don't ever see happening. ⁓ But let's say you lost the money. What's the difference?
Chelsea Jones (14:16)
Mm-hmm.
Nate Reineke (14:22)
that you have to take risks. Risk is required to achieve these goals.
Chelsea Jones (14:26)
Mm-hmm.
Okay, the next question comes from a urologist in Washington. This one's pretty straightforward. They said, is it wise for us to buy a $2 million house?
Nate Reineke (14:37)
I got this question yesterday ⁓ and I kept in the amounts even though that requires me to tell you kind of a backstory, but ⁓ they're in Seattle and we have a urologist and a tech, their spouse works in tech. And so the $2 million house part ⁓ makes for a spicy podcast question, but really what they're saying is, should I buy a really expensive house?
Chelsea Jones (14:55)
Mm-hmm.
Mm-hmm.
Nate Reineke (15:06)
And ⁓ the word that I thought was so interesting that they used was wise because this isn't some low-level ⁓ tech employee. The tech employee makes more than the urologist, so you can do the math. ⁓ At least will for the next 10 years. And so when they said, it wise, they didn't say, can I afford it?
Chelsea Jones (15:24)
Mm-hmm.
Nate Reineke (15:35)
because when you make $2 million a year as a household, I think you can afford a $2 million house. The question is, is it wise? And I thought that was a cool question. ⁓ Since most physicians don't marry ⁓ someone who makes more money than them, I'll just pull this back a little bit. Housing for physicians is almost...
Chelsea Jones (15:42)
Mm-hmm.
Mm-hmm.
Nate Reineke (16:02)
After years and years of looking at this, it's almost exclusively about cash flow. Can you afford this house, meaning pay it off before you retire, while still funding retirement, college, and being comfortable? Because I've seen physicians who say, well, we could stretch it and we could cut down on door dash and yada, yada, yada. They don't want to live like that. That's something you say when you have a shiny object in front of you and you just want it really bad.
And you make promises to yourself about how you'll change your behavior, even though we all know that's not gonna happen because you've been living like this for 10 years.
So get real with yourself. Can you afford this payment without much pain? And if there's really much pain at all, you should probably just pass, right? ⁓ In my humble opinion, it's a better life to have a reasonable house and be comfortable with money than it is to have this like grandiose house, but be uncomfortable with money.
Chelsea Jones (16:46)
Mm-hmm.
Mm-hmm.
Nate Reineke (17:03)
No house is worth money fights with your spouse. It's just not. So that's where I usually start. But this question is about a family that's simply saying, I never imagined buying a $2 million house, but technically we can afford it. What should we do? So that's a real question. It's not just, well, hey, if you can afford it, go buy it. ⁓
Chelsea Jones (17:07)
Yeah.
Mm-hmm.
Nate Reineke (17:29)
I think it's really important for high earning families to look at the housing market in their area. So they're in Seattle, houses are really expensive. And the reason they're really expensive is because doctors aren't the only people making money in that town. Right? So you have tech people, have physicians, you have lawyers, it's a very affluent area. so ⁓ wisdom here,
Chelsea Jones (17:36)
Mm-hmm.
Nate Reineke (17:56)
part of it is looking at if you need to sell, if something bad happens or you need to move or you just don't like the house, is there going to be someone who can buy it from you? ⁓ We have several examples of physicians in Eugene, Eugene, Oregon, where ⁓ the company was founded in Eugene, Oregon. Now we're kind of spread out, but where
Chelsea Jones (18:08)
Mm-hmm.
Nate Reineke (18:26)
physicians could comfortably afford a home, but when they went to sell, there wasn't a lot of people that could buy unless they were selling it to their partner at work. The big doctor house has to be purchased by a doctor. And so they had to take a pretty massive haircut when it came to selling. had to reduce the price a lot. Some of them even had to write checks to get out of the house. And that is so uncomfortable. So look at...
Chelsea Jones (18:37)
Mm-hmm.
Nate Reineke (18:54)
the average price of a house in that area, see how fast they get sold, and always know that you're taking a risk because the housing market could go down, you could go through a slump. But at the end of the day, if you're buying a $2 million house and you got a move and the next house was $2 million and the market went down, your house went down and so did the other house. So for physicians, it is about... ⁓
Chelsea Jones (19:20)
Mm-hmm.
Nate Reineke (19:23)
you know, if you're going to buy a more expensive home, you want to have a good down payment. You want to make sure the area can support the cost of the house that you just purchased. And you want to make sure that you're comfortable in your day to day living. ⁓ Beyond that, there's obviously, you know, the right time to buy with mortgages. You could talk about that, but I don't really get into that game because ⁓ you can't control it. In fact, when mortgage rates are higher, I view that as
Chelsea Jones (19:35)
Mm-hmm.
Nate Reineke (19:52)
in an odd way as an advantage for a physician because they can still afford the house and then when mortgage rates get lower, they can refinance. Most people need that. I mean, there is no striking it just right because as rates go down, housing prices go up. So if you can afford the payment, the only way to do this right, usually you can't, is to buy when rates are maybe a little high and then refinance when rates ultimately go down over the next 20 years.
Chelsea Jones (20:00)
Mm-hmm.
Mm-hmm.
Nate Reineke (20:22)
catch a lower rate. And last thing, okay, nobody wants to buy a $2 million house and put an Ikea couch in it. So is it wise to buy a $2 million house if you got the cash for the down payment and the furniture and upkeep?
That's the last thing I'll say. Furniture is expensive. Nobody accounts for the $100,000 in furniture you got to put in that $2 million house.
Chelsea Jones (20:41)
Okay.
Yeah. Well, my question is what is good furniture? Is that like, it's not Ikea apparently. Is that like Ashley? Is it, I don't know, some local store that I don't even know the name of?
Nate Reineke (20:56)
haha
man.
Yeah, you're such a frugal financial advisor. You're showing your cards to everybody. ⁓ Good furniture is furniture that you and I can't sniff because we don't know the right people. ⁓ I actually do have a friend that's in the furniture business and ⁓ they shop that they really people are really into furniture. They will go have a designer pick it out for them. And the designer has the connects.
Chelsea Jones (21:08)
You
Nate Reineke (21:31)
to all the good furniture makers. So, but that's just not our world.
Chelsea Jones (21:31)
Gotcha.
No, wish it, part of me wishes it was because I want, whenever I have a home that I want to invest in, some good furniture, I want it to look nice, but I am so bad at interior design that I gotta outsource it or my house is just gonna look like, you know, the like...
Nate Reineke (21:47)
Yeah.
Yeah. Yeah. Yeah. There's some really cool apps
now. I actually use this. ⁓ It's not even really an app. It is an app, but it's not like technology. You take pictures and designers will call you back and make recommendations for you. So that's the cheap way to get a designer. That's the Nate Renneke way. yeah, Chelsea and Nate not so good at furniture, better at...
Chelsea Jones (22:12)
Yeah.
Yeah.
Nate Reineke (22:21)
investing in taxes, that's for sure.
Chelsea Jones (22:22)
Exactly. All right.
Our last question is from a radiologist in Texas. They said, have a bunch of cash in a high yield savings account that I feel like is not doing much. Should I invest it? So this is a question that I got recently and it is of course nuanced because people are, everyone has their own individual situations, circumstances, what have you. ⁓
Nate Reineke (22:35)
Hmm.
Chelsea Jones (22:49)
But the main question you want to ask when you have extra cash and whether or not you should invest it is are there any short-term goals coming up that would need cash? So that would be, your emergency fund full? If it's not, then fill it up and then consider investing.
Nate Reineke (22:59)
Yeah.
Yeah, I think
a rule of thumb for emergency funds is a minimum of four months for physicians. Everyone says three to six months. I like four. Three is kind of too low because disability insurance usually actually get a payment after four months. So four months of expenses and for the love of God, don't go back to your expense sheet and start saying like, we wouldn't need that. We wouldn't need that in the case of an emergency. You'll probably need more.
Chelsea Jones (23:16)
Mm-hmm.
Yeah.
Nate Reineke (23:37)
Right? Like we wouldn't eat out in the case of an emergency. I'm like, you're to go cook a home cooked meal if someone's in the hospital. Come on. Like get a real, yeah, get a real emergency fund in place. Okay. So emergencies and ⁓ another big one. I always hear about extra money after tax season because everyone hoards their cash. ⁓ So a good emergency fund should account for a bad CPA.
Chelsea Jones (23:44)
Yeah, you're going to find time to go to Publix and...
⁓
Mm-hmm.
Nate Reineke (24:06)
Right? Like you need something that can pay that tax bill. You obviously want to do your normal withholding and everything and not pay it. But you shouldn't be hoarding too much cash for taxes because that's what an emergency fund is for. You know? Okay. What else could people need? Cars?
Chelsea Jones (24:21)
Mm-hmm.
cars, tuition payments, like if your kids are in private school, you gotta write a check for 30k. You know, might as well set that aside. Renovations. This client in particular had a kitchen renovation coming up where they got to hire contractors. And I'm like, listen, you're going to want cash for that because it's going to be more than you think, more than you originally plan. And you don't want to have to take money out of your investments to pay for that.
Nate Reineke (24:30)
Mm-hmm.
Yeah.
Mm.
Chelsea Jones (24:55)
And a note for this client in particular, they're approaching retirement. They're like, they're a couple of years from retirement and it is not a problem to have cash as you go into retirement. It's actually really helpful. ⁓ cause it prevents you from, you know, needing to sell stocks or bonds in your taxable account to pay for expenses that first year that you're retired. ⁓ cause the first year that you're retired is always iffy.
Nate Reineke (25:08)
No.
Chelsea Jones (25:25)
You know, I don't know. can't tell you how many times I've seen a client quote unquote retire. And they're like, ⁓ my practice is, you know, keeping me on for an hour a week. And I made 50,000 last year or this year when I'm supposed to be retired. ⁓ and so it's just, it's when you're approaching retirement, it's, nice to have some cash. You don't want to put everything in cash, of course, but if it's like,
Nate Reineke (25:40)
Yeah.
Yeah.
Chelsea Jones (25:53)
A year's worth of living expenses, not really an issue because if you invest that and the market goes down in the short term and you turn around and you need to take it out next year when you retire, could not work out in your favor.
Nate Reineke (25:57)
Yeah.
Yeah.
Yeah. And there's other things too, like, you know, we do this, this tax planning and these conversion planning and income planning. And then you get to the first year of retirement, you've successfully done this plan where it's like, we're going to spend, you know, $11,000 a month. And then you, you don't realize that when things come up while you're working, you just pay for it.
Chelsea Jones (26:12)
Mm-hmm.
Nate Reineke (26:30)
You need a new set of tires, you need a new dishwasher, you need all new appliances, you need a new roof. It doesn't really come up. That year, you probably just didn't invest extra as a physician. Having an extra $50,000, you're not going to lose much in returns if you wait a year to invest that extra cash as you're heading into retirement. Let's say you successfully get to retirement, you're 18 months in, you still have the extra cash. Great, let's invest it then.
Chelsea Jones (26:41)
Mm-hmm.
Mm-hmm. Yeah, because I mean it's sitting in a high yield savings account earning at least 3 % right now. So it's not like it's earning nothing.
Nate Reineke (27:07)
Right. Yeah.
That's right.
Okay, that's our time for today. Thank you everybody for listening. ⁓ If you like this episode, please be sure to subscribe so you don't miss when a new release comes out every week. You can also leave us a rating wherever you're listening or you can send us questions at PhysicianFamily.com to schedule an interview. If you aren't ready for that, send us a question at Podcast at PhysicianFamily.com. We'll answer the question even if it doesn't make it on the episode. Until next time, remember, you're not just making a living.
you're making a life.
