Nate Reineke (00:01)
Hello, physician moms and dads. I'm Nate Renneke, Certified Financial Planner and Primary Advisor.
Kyle (00:06)
Kyle Helsley, certified financial planner and retirement investment specialist.
Nate Reineke (00:12)
Nice. Kyle, we try to β bring in investing questions when you're on the episode. So we have a few of those. we also, β college, I don't know why, but this time of year we tend to talk about college. We got a little bit of that as well. So we're going to jump in. We have four questions for you today. First one, Kyle's from a urologist in Utah said, how should I decide how much US versus international stocks to buy? So just
Just a little bit on that. It's kind of easy to say like you should buy index funds. β You you should be fully diversified, but exactly how that's put into practice can be lost on some people. just talking about the stock sleeve today, everyone who's listened to our podcast or is interested in good long term investing usually says, I know I should buy some international and some US, but β many times they don't know how much of each. So how do we choose?
How much to buy?
Kyle (01:13)
Yeah, I like to take the guesswork out of it. Because when you're guessing, then you're kind of placing bets, if you will. And I don't like to do that with portfolios. So really, you just want to buy what's out there in the world so that you're capturing all the stocks worth having out there. And you are averaging those returns out based off of the global market weighting of those stocks out there.
Nate Reineke (01:22)
Yeah.
Mm-hmm.
Kyle (01:38)
and you just capture those returns and some are going to win, some are going to lose. You don't know who those are going to be from year to year. So, you know, for example, you could say, β I'm hearing noise in the news that the US stock market's overvalued right now and international stocks are undervalued. So I should buy more international stocks. So you might be tempted to sell a bunch of US stocks by international stock, but that might not ring true, you know, so don't make the gamble. Just buy what's available out there and let the markets provide what the market's going to provide.
Nate Reineke (02:02)
Mm-hmm.
Kyle (02:07)
Just take the guesswork out of it. I mean, who would have guessed that in 2018, Finland would have had the best stock market return?
Nate Reineke (02:11)
Yeah. Yeah.
Yeah,
we get reports on that and it's very interesting to see like even people who are watching their investments closely couldn't tell you year to year which country did the best. I mean, nobody would guess Finland, right? It's like nobody's going to go move their portfolio or most of their even their international sleeve over to one specific country.
Even if you chose five countries, you wouldn't have chose Finland. but exactly, you you said global weighting. What does that mean? Like if you're if you're deciding on a big U.S. stock fund versus a big international fund, like it's a good Vanguard or DFA fund that you like, β how much should be U.S. and how much should be international just amongst your stocks?
Kyle (03:17)
Yeah, like the actual percentages right now or you mean just like how do you how do you determine that? Yeah Well, I mean so there's a lot of different ways to measure indexes. Um, I like to kind of go to some of the original, you know index places to see what they're doing, you know, so I would look at vanguard index or state streets indexes um and see you know what what their breakdown is a lot of these companies have
Nate Reineke (03:21)
Well, like, how do you figure that out?
Kyle (03:43)
total world stock funds, where it's just one fund, mutual fund or an ETF. It's got just US International and you can see their breakdown and you can look into that fund deeper and you can kind of read their methodology and their practice. A really common one is weighting based off of market capitalization. So you take all the stocks international, all the stocks US and they all have a dollar value, right? know, Apple stock is worth this much. This company is coming all over the world and you total all that up and you go, what sector, how much of this total capital weighting?
Nate Reineke (03:45)
Mm-hmm.
Mm-hmm.
Kyle (04:13)
is the US stock market. How much of that is the international stock market in terms of the dollar amount that they represent for the total? And that's how you break down your portfolio because companies that are worth more are going to be larger, bigger, longer standing companies. You probably want to have more of those. that's why that's kind of one thing that part of that methodology is like, well, this company is so large, I should have more of it in my portfolio because it's making up more of that capital weighting.
Nate Reineke (04:31)
Mm-hmm.
Yeah, okay.
Kyle (04:41)
Which is why like when
you look in like S &P 500 funds and stuff like that, you see the largest companies that kind of have the highest holding percentage in those. Yeah.
Nate Reineke (04:50)
got it. So this
β this isn't exactly US versus international. But, you know, a lot of times we will try to pick based on sectors, which sectors they think are going to be the best or which, you know, which country they think is going to be the best. The reality is that all that work that either you're doing or you're paying someone to do a lot of times is somewhat for not I mean, it's not a great return on your investment in that in those fees or that
time because let's say you thought tech stocks were going to do really well. Well, everyone knows tech stocks are doing well because they are doing really well. And so β it's already weighted. If you buy into the US stock β fund, there's a whole bunch of tech stocks in there. So you have to worry that if you take this approach, you wouldn't have to worry that you're going to miss out on some giant sector because it's already in there. That's good, though. So β however big the
Whatever international stocks, however much it represents of the total market, that's how much you buy. So we're not even choosing that. We're not even choosing how much device the market is choosing for us.
Okay, β next question's from an emergency medicine doc in New Jersey. We want to have a third child, but saving for college is expensive. Can we afford having another baby? β I hate hearing this question. I mean, I get this question a lot. I understand this question, but it makes me sad. And β the reason for that is I don't like to think that...
especially for physicians and physician families who make plenty of money to raise however many children they want to raise. I don't think whether or not you can pay for every single dollar of college should dictate if you have another child. So I just want to get that out of the way. But β some more practical ways to handle this is you have more children. You can just adjust your goals. We don't need to be dead set on exactly
maybe what college your parents paid for, you should also pay for. Because everyone's situation is a bit different. And the reality is that if you're saving well enough for retirement, you're going to have some money to help your children if they really needed it. you know, at a worst case scenario, I feel like you get on the right foot with college and if they choose a more expensive school,
Maybe you just work a year longer. It doesn't have to be, you need every nickel to send your β three or four kids to Harvard, because a lot of them probably won't get into Harvard. And maybe they do choose an expensive school and you cross that bridge when you get there. We're going to help people prepare for college. But when I hear this, I almost want to throw the college plan out the window and say, hey, look, like your
The families we work with are just so great, but they're also just too practical. They're so practical about how much they can pay for college and what kind of house they need. mean, you know, when I was growing up, it was not even a big deal for someone to share a bedroom with their brother or sister. It's OK. Like having children is more important than this. But also, you know, if that is a major concern for you.
You really just, I mean, it's just a competing goal with everything else. You need to decide on if it's worth having a child, which I think it is, worth having a child β that shares a bedroom, worth having a child that maybe goes to out of state public rather than private, worth β having it adding someone to your family member versus having nicer cars. To me, those are all trade-offs worth making, but β I don't want people to get into the trap in their head that β
I want to live the exact same life before I had four kids versus when I compared to when I had three kids and that's going to be what makes this decision for me. It's like have those babies. I want more doctors babies in this world anyways. So maybe it's a little selfish.
Kyle (09:10)
I always tell people, β if I waited to start my family or have children when I was financially ready, I would never have started my family. You just have to just, it's a decision, like you said, made with the heart. what I mean? the rest falls out at the end. You figure the rest out.
Nate Reineke (09:18)
Never. Never.
Yes. Yeah.
Yeah, well, it's okay. You just said it. I had a, I would not consider him wise counsel. Okay, but I had this person in my family and I, course, as being a personal finance guy, when I first got married, I was thinking about how much it would cost to have a baby. And I was like, I don't know how this is gonna work. know, childcare is expensive. And he's like, you'll figure it out. You'll just always figure it out. And I thought that is so stupid. And then sure enough,
had babies and you just figure it out. You know, β it just, you got to make it work and life is a little different.
Kyle (10:03)
Yeah.
Nate Reineke (10:07)
Okay, next question is from another emergency medicine doctor in Texas. I just discovered my advisor is double dipping, charging 1 % assets under management plus an $1,100 a month planning fee. When I tried to leave, he claimed I'd owe $100,000 in taxes to move my money. Is he telling the truth or is he holding my portfolio hostage? I actually got this question from a
prospective client. β I changed it a little bit, but they're really worried. They're like, man, this seems like an absurd amount of fees, which it was. I didn't even add this, but they're also charging them somehow on their 401k that they don't directly manage. β And the $1,100 a month, I believe, was from before the physician had any money, they charged him a flat fee. And then when they started to have money, the 1 % started to kick in, but they never dropped.
sort of that baseline fee of $1,100 a month. And so on 2 million bucks, they're paying over 3 % in fees. I mean, it was remarkable. And then they dropped that on them like, β it's $100,000 a year, which by the way, would only take three years for them to get their money back at those fees. But β is this true? Like, when I hear this, I think that sounds like manipulation.
But can you think of a scenario where it would cost him $100,000 in taxes to move the money?
Kyle (11:38)
Hmm. Well, definitely would not involve a qualified account because you know IRA or something you just liquidate that there's no taxes on that. So we have to talk about a taxable account here. I mean, I can think of two situations I've encountered in the 11 years I've been doing this and they're pretty rare. I mean, they're not common at all. I would say extremely uncommon. One is that the
Nate Reineke (11:43)
Mm-hmm.
Kyle (12:03)
the financial custodian backbone for the trading and the transfers, know, the β
you know, the actual custodian of record, they don't have, they're not on the automated ACATS transfer system or the DTC transfer system, which is the systems that allow you to transfer in kind assets to other firms, other custodians. And so if you're not on those systems, then you can't move the assets in kind. And then the only way to move them would be to sell the cash and move the cash, in which case you're stuck at this place because of that.
Nate Reineke (12:40)
So you're saying, just to make sure the audience understands, you're saying normally with a big institution, you can just move, you don't have to sell anything. Therefore, you don't have to pay any taxes. You just move exactly what you have over to a different account either with an advisor or in your own self-directed account. And then you can decide if you want to sell and pay the taxes later. Okay.
Kyle (13:04)
Yeah.
Exactly.
And majority, I think every minute, every day that goes by, like the custodians who don't, who are on these in-kind transfer systems, they're not, you know, they're not around anymore. They're getting, closing their doors, they're getting absorbed because they're just, highly inefficient and people get stuck there and words start to spread, like don't take your money there. It's stuck there forever. And it just, it just doesn't, it's not, it doesn't survive. And so I'd be so surprised if that was the case here, but I mean,
Nate Reineke (13:20)
Yeah.
Mm-hmm.
Kyle (13:35)
I get surprised all the time. These 1 % exceptions, I do see them. β And then the other scenario I can think of would be the type of investments that are held in the taxable account. So there's two that come to mind. One would be some sort of β shares with a fee load on it, like a B class shares with a back end load β fee on it. the advisor gets a fee once they sell the fund.
to get out of it. And it's part of the agreement when you buy the fund. You buy into it, you don't pay a fee to buy into the fund, but the fee is paid when it's sold. So oftentimes I see these back end load shares have to be sold before they're transferred because it's part of the agreement and the advisor gets their back end fee off of that. β And then kind of touching on that same concept is oftentimes these back end load shares are kind of, they're
Nate Reineke (14:04)
Mm-hmm.
Kyle (14:29)
The way that the fees wrap in it, they don't always transfer through these automated systems. So they have to be sold before they can be transferred. Regardless if there's a backend or front load fee, it's just these proprietary funds. mean, sometimes these advisors have these, these specialty funds that are only offered at this where they keep the accounts that they manage. And as a result, none of these other custodians out here will hold those funds. They don't recognize them as a...
Nate Reineke (14:37)
huh.
Mm-hmm.
Kyle (14:58)
security they'll receive and manage and hold. And so then you can't move it because no one will accept it because it's special. Those are the only two scenarios I can think of that would kind of get you stuck in a taxable account and not double transfer without selling. I mean, 95, 98 % of the time what I'm seeing with clients is you just do an ACAT or DTC, is less.
Nate Reineke (15:02)
Understood.
pretty uncommon.
Yeah. I don't believe that that's the case for this person. just want to, you know, we just we just said like the 1 % chance. Most most physicians that I see that come through the door, their advisors at some big institution and at a minimum β they can move their accounts over to retail. You know, so even if you have these B shares and you just think like, β I don't want to sell.
Kyle (15:22)
don't get the same job done.
Nate Reineke (15:52)
for some reason, especially, know, yeah, for whatever reason, there may be even if it's not a great fund, but it's okay, and you just don't want to pay $100,000 in taxes now, you can still move the money over to the retail side and just stop paying the advisor fees. Doesn't mean you get out of those funds. But let's just imagine all of this was true.
There's no chance I would recommend staying with an advisor who puts you in these B shares. Imagine paying 1 % and paying a planning fee and getting sold B shares. There's no chance. This person is not, it's just an egregious amount of fees. You might have to gnaw your arm off to get out of this, but I highly doubt it.
Okay, last question of the day is from a dermatologist in Washington. Every time I get a statement from my current financial advisor, I see dozens of different funds and tickers. If the goal is just to track the market and grow my wealth, why is my portfolio so busy? Are they actually doing something sophisticated here to beat the average or are they just making it complicated for the sake of it? This is a loaded question.
And I have to be careful when answering it because I actually don't know. Right. I don't know. I haven't. This is another prospect that asked me this question. I don't know for sure exactly why there's so many tickers, but I can make I can tell you what I usually see. First things first. This advisor's goal is to is not to track the market. There's much easier ways just to track the market. And usually
Usually when that happens, what they're selling you is I can beat the market or I can outperform whatever benchmark you're thinking of. Let's just imagine they said I can outperform the S &P 500. Well, they can't do that by buying a broad market index fund or buying the S &P 500. So they have to try a whole bunch of different things. And the question is, can they do it? Do you think they will be able to successfully do it? Our take on this
as a firm is that the answer is probably not. That's what the data says. β Every reputable β data set that we've gotten, every reputable book that we've read about investing β says that something like 90 % of fund managers, this isn't even like a low old financial advisor in your backyard. This is like institutional fund managers can't beat the market for
10 years. But on top of that, you're talking about, you're not talking about an institutional investor. You're talking about just some guy like you or me, Kyle. β And not only can they probably not beat the market for 10 years statistically, something like 90 % can't, they can't do it on a risk adjusted basis. And they certainly can't do it net of fees. And the people who can do it, usually you won't have access to them as a retail investor.
So, you know, maybe there is one person out there that has somehow cracked the code, but I highly doubt it. And the point is their goal is not to track the market. They are selling you more than that. That is their value proposition. I can think of some other reasons why this might be the case, though, like if I'm trying to be charitable to the advisor. But what's your take on advisors who try to beat the market?
Kyle (19:29)
I don't I don't lean on like my real experience, you know, so like the 10 years of looking at portfolios and analyzing funds and clients accounts, you know, I love it. I love a nice robust 401k pick list, you know, because I get to see lots of different types of funds and lots of comparisons and β you know, I'll see. This seems like I see this all the time. You know, I'll be looking at a fund. I can tell right away it's got an active management component, you know, from it and
I'm looking at the returns and I'm comparing it to an Apple's, another fund that's just an index fund of kind of the same, an Apple's, Apple's comparison of the same goals of these funds and see which one outperforms net of fees. And so many times I see like, oh wow, this fund actually did outperform the index by X basis points, but oh, the higher fee for that fund after the return net of fees was less than the index.
Nate Reineke (20:27)
Mm-hmm.
Kyle (20:27)
right about
there. You know what I mean? It's like, well, okay, they did good and they were able to earn their feedback that period, but what's going to happen in the future? You know what I mean? And so I see that a lot. then, you know, every once in a while, like I think, you know, your, research that you were talking about showed about 90%. I mean, I think that's, that's pretty close to what I see in real time too, is when I'm comparing active actively managed funds that I come across versus the index I see.
Nate Reineke (20:35)
Mm-hmm.
Kyle (20:54)
more times than not, it's just, it's underperforming. And oftentimes it's the fees, know, they might not, it really, that really has a big effect on it because a lot of times, especially mutual funds and things that I see, a lot of times the active component is there's just some slight tilts, you know, in the portfolio. They're not going too far from the index and they do, they do get that better performance, but then the fees come out and it's, you're kind of right back to buying the index and you know, yeah.
Nate Reineke (20:57)
Yeah.
Mm-hmm.
Yeah.
Yeah. And
maybe they are tilting somewhere and that works for a few years, but you have to ask yourself the question, will they be able to tilt in the right direction forever?
Right. And I know that and talking to you about this for years, it's, know, the lost opportunity or let's say the years that inevitably they get the tilt wrong. like most the average investor is going to look at it and say, well, nine out of 10 times or set it only has to be six out of 10 times that they get it right. But that's actually not true, because sometimes if they get the tilt wrong enough.
that you missed out. It's the opportunity cost of getting it wrong. And so let's say one year you underperformed, by how much? Like you might have underperformed by so much that it wipes out all the overperformance they've gotten, especially net of fees. So, you know, everyone's heard us beat this drum. We believe in investing in the whole market, participating in just the growth of the world.
But there are some reasons why this might be happening that maybe aren't so damning, which is a lot of times β clients are the ones driving the ship, the investor, not the advisor. And sometimes advisors just take orders from clients. β I heard India is the next big sector. I want to be in India. Or I heard tech stocks. And the advisor just says, OK, well, it's your money.
So, and that, I mean, it is your money. So, I don't know if that's the case here just because the nature of this question and the way they asked it, it's almost like they didn't ask for this, but that could be the case. β
And then let's see, there's another part of this here where if you, let's say your advisor rather than picking three funds or four funds like we might, let's say they just, they're an advisor that thought they should pick six funds or seven, you know, and that's just the way they do it. But then if they're also β harvesting your losses, so market goes down and you sell a position and then you buy into the market with a different position, over decades that can turn into
two dozen positions really easily. So it is true that if you're harvesting losses in your account, β your portfolio is going to get more complicated or it's going to appear more complicated. The idea is that it's a similar portfolio, but you just have more positions. But the thing people really need to know is that β you don't need to rely on the ability of some β wonder kind
advisor. You can retire well, send your kids to college, have a paid off house and live a nice meaningful life just investing in the whole market, but investing often and trying to control taxes. We've seen that over and over and over again. It starts with a plan and it ends from beginning to end, just takes a ton of consistency. And that isn't the case for everyone.
But for physicians, they make a good enough income where we've seen hundreds of success stories and just taking a more simple approach, which doesn't feel that simple sometimes, but β it doesn't have to be overly complicated in your portfolio. So, and most of the time, what we hear from people is that they don't even consider or think about
what they may have lost by missing out on some β terrific investment opportunity. Sometimes there's like, you people missed out on missed the boat on a couple things in the headlines and they don't like that. But at the end of the day, the goal is to is to invest in a regret free way. And if you're constantly trying to pick the right stock, β you will be met with regret one way or another. Didn't buy enough. Didn't buy it all like
I just would ask everybody to try to avoid that altogether. You'll live a happier life, hopefully.
Okay, that is everything for today. Thank you everyone for listening. If you liked this episode, please be sure to subscribe so you don't miss when a new episode gets released every Wednesday. You can also leave us a rating. We would really appreciate that on any β platform that you're listening to this episode on. β Or you can schedule an interview if you'd like to work with us at PhysicianFamily.com. But if you're not ready for that, you can send us a question, a podcast at PhysicianFamily.com.
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