When Is It Time to Stop Being Cheap? | White Coat Investor (2024)

In This Show:

• When Is It Time to Stop Being Cheap?
• 10 Questions to Ask Before You Loosen the Purse Strings
• Asset Protection for Cars
• Brokerage Accounts
• Tax-Loss Harvesting Bitcoin
• Options Trading
• Investing in Art
• Don Wenner of DLP Capital
  • Correction
• Sponsor
• WCI Scholarship
• Quote of the Day
• Milestones to Millionaire Podcast
• Full Transcript

Transcription – WCI – 268
Intro:
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.

Dr. Jim Dahle:
This is White Coat Investor podcast number 268 – When is it time to stop being cheap?

Dr. Jim Dahle:

If you’re looking to Boost Returns, Lower Taxes & Build Wealth, join the WCI monthly Real Estate Opportunities list for tips and strategies to maximize your real estate returns and for introductions to exclusive investment opportunities. Expect educational emails that introduce you to syndicators, fund companies, online courses, and online real estate platforms. Go to www.whitecoatinvestor.com/reopportunities to sign up today.You can do this and The White Coat Investor can help.

Dr. Jim Dahle:

Welcome back to the podcast. We've been having a great summer here. I hope you have as well. Summertime means scholarship time here at the White Coat Investor. So, if you are a full-time professional student in good standing, you can apply for the White Coat Investor scholarship.

Dr. Jim Dahle:
We give away tens of thousands of dollars every year to professional students, usually medical students, but dental students and other professions can also apply. You can get more information about this at whitecoatinvestor.com/medical-school-scholarship, or you can find it under the WCI Plus tab at whitecoatinvestor.com.

Dr. Jim Dahle:
But we need not only applicants for the scholarship. We need judges because the White Coat Investor staff wants to be completely unbiased. So, none of us are judges. None of us are deciding who's getting the money. It's our audience that decides that. So, if you are a practicing clinician, practicing professional, retiree, etc, you can be a judge. No students, no residents can be judges, but if you'd like to be a judge email [emailprotected] with the words “Volunteer judge” in the title.

Dr. Jim Dahle:
Let's start this episode out with a correction. I got an email from a listener who said “I was just listening to podcast 262 when talking about getting bonus depreciation with the person who wants to use a second home as a short-term rental, the bonus depreciation is actually not through REPS.”

Dr. Jim Dahle:
Well, bottom line, we had a long conversation about this by email, but what you need to be aware of is what they call the short-term rental loophole. So, here's what it is basically.

Dr. Jim Dahle:
As you'll recall, REPS status, Real Estate Professional Status, allows you to use depreciation against your ordinary income if you work at least 750 hours a year in real estate, you and your spouse and you don't work more than that in anything else. And then you can use depreciation including bonus depreciation against your ordinary income. So that can be a huge tax break for those who do a lot of real estate.

Dr. Jim Dahle:
But you don't have to do that if you have a short-term rental. The requirement there is that you have to spend a hundred hours, which is a lot less than 750 hours, and you have to spend more hours on your rentals than anybody else. And so, you can't have a manager, but if you're actually doing it, you can use that bonus depreciation, which is the same depreciation you get if it's a short-term or long-term rental against your ordinary income.

Dr. Jim Dahle:
So be aware that loophole might make sense if you're going to have a rental property, even if you want in the long run to be a long-term rental, maybe you want to have it be a short-term rental for a year or two. So, you can use that depreciation against your earned income.

Dr. Jim Dahle:
The writer also pointed out that there are a lot of lenders out there that will allow you to use a second home mortgage and not use their due on sale clause when you transferred it into an LLC. You just have to talk to the lender. A lot of them don't require that, it's no big deal to them. But there are some that are kind of sticklers about it that aren't used to working with investors.

Dr. Jim Dahle:
All right. Let's talk about being cheap. That's the title of this podcast. When is a time to stop being cheap? And this comes from a request, from email. The listener writes in, “One topic I would be fascinated to hear you discuss on a podcast is not investing money, but spending it. For example, I've heard you discuss spending money on home renovations, travel, but you're still driving an older car and you're not getting a Tesla.

Dr. Jim Dahle:
How do you decide what to spend money on and what not to, especially after reaching FI? Is it after college, medical school, residency, fellowship, two to five years living like a resident? How does one transition to a degree to increase spending after never really doing this? If you haven't worked on your spending muscle, how do you approach this?”

Dr. Jim Dahle:
All right, let's talk about spending. There are really five money activities that you need to become good at in your life. The first is earning. The second is saving. The third is investing. The fourth is spending and the fifth is giving.

Dr. Jim Dahle:
Most of us are better at some of these than we are at others. Frankly, I'm a pretty good saver. I also earn a lot of money. So, I guess I'm pretty good at that too. And obviously, I run a blog called the White Coat Investor. So, I'm a halfway decent investor I like to think.

Dr. Jim Dahle:
I'm not as good at spending. It's something that is harder for me to do and to do well. And what do I mean by doing well? Spending well is spending money on stuff that's actually going to make your life better where you're trading money for time, more time in your life, where it is something that you would really value and yet you're still not spending the money on it. That's a problem. That's being overly cheap.

Dr. Jim Dahle:
I'm not that good at shopping, like comparison shopping. I shop like a hunter. I go out, I slay the beast and I bring it home. The first beast I find. And so, I'm not necessarily good at shopping. My wife is much better at it. She's far better at comparing deals, finding good flights. She's always in charge of planning our overseas vacations because she'll take the time to go through and look at the Airbnb’s and make sure they're close to what we're actually doing and get a good deal and make sure it's a nice place and all that kind of stuff. I tend to buy the first one I see.

Dr. Jim Dahle:
And so, there is a skill to spending money and you have to practice it and you get better at it as time goes by. But I think mostly what we're talking about here is when's it okay to spend more of your money. And let me give you a few guidelines that you may find helpful.

Dr. Jim Dahle:
One, if you don't have the money, you should be very frugal. When you are spending borrowed money, like you're a medical student living on loans, that should be probably the most frugal time in your life. You should probably not be buying anything that isn't an absolute necessity. Maybe a little something, little splurge here and there, but nothing big.

Dr. Jim Dahle:
This is not the time in your life to be taking European vacations on student loan money. It's not actually even legal, right? Because you sign your promissory note that says you're just going to use the money for education. That's not the time to be spending tons of money.

Dr. Jim Dahle:
Same thing as you move into your training. When you are a resident, when you are a fellow, you're making the average American household income. You need to be living like the average American household.

Dr. Jim Dahle:
And if you've never done this before, I know many people grew up in the upper middle class or in the upper class and this is their first time ever living in a household with the average American household income. It might be a little weird for them to live on $50,000 or $60,000 or $70,000 a year.

Dr. Jim Dahle:
But I assure you, it doesn't involve brand new cars. It doesn't involve fancy vacations. It doesn't involve eating out all the time. It doesn't involve $2,000 handbags. It doesn't involve bottle service and heli skiing and all that kind of stuff that you can spend money on. That's another time in your life where really you got to be watching what you're spending.

Dr. Jim Dahle:
I tell people to live like a resident for two to five years after they finish their training. And it is more of a principle than it is a fixed prescription. The idea is that you live your lifestyle much more like what you could afford as a resident than what you can afford as an attending.

Dr. Jim Dahle:
And since there's a huge gap between an attending income and a resident income, you use the difference between those two to build wealth. To pay off your student loans, to pay off credit cards you might have had left over, to pay off your car, to save up an emergency fund or a down payment, to max out your retirement accounts and really get a jumpstart on your retirement savings to do all those kinds of things, all those great uses of money that we have when we come out of training. That's what you live like a resident for two to five years after training for. It’s to do that.

Dr. Jim Dahle:
Obviously, most people don't do that and that's okay. Give yourself a little raise, give yourself a 10% raise or 25% raise. Heck, give yourself a 50% raise. That would be huge in Corporate America instead of living on $50,000, live on $75,000. Assuming you've got a median or better physician job and don't have crazy student loans, that's probably going to work out just fine anyway.

Dr. Jim Dahle:
So, all this time you're spending a little bit more money as a resident than you did as a med student. You're spending a little bit more during your live like a resident period than you did as a resident.

Dr. Jim Dahle:
And then as you finish that period, you can also loosen the purse strings up some more. My recommendation for attendings is that they save 20% of their gross income for retirement. And this is obviously after the live like a resident period, presumably you've got medical school paid for at this point.

Dr. Jim Dahle:
But I believe that if you're saving 20%, you can spend the other 80% and should not feel guilty about it whatsoever. Go have a great time. You can have a wonderful life on 80% of what a doctor makes. You really can. It is pretty incredible. All the fun stuff that you can do and all the great stuff that you can have and all the wonderful people you can help on 80% of a physician income. So, go ahead and loosen the purse strings up a little bit more at that point.

Dr. Jim Dahle:
Now a lot of us who are good savers, we probably didn't do that. We were probably still saving 30%, 40%, whatever, of our income and rapidly building wealth, and became millionaires within a few years. Maybe multimillionaires, maybe became financially independent. And at a certain point, you go, “What am I doing? What's life about? How much is enough?” And you start loosening up a little bit more.

Dr. Jim Dahle:
I wrote a post on the blog in early 2015. I probably wrote it a few months before that and just didn't run it until then called “Loosening the Purse Strings.” Now, where was I at in 2015? Well, I'd been a partner at that point for about two and a half years and we'd become millionaires at the end of 2013. So, this was a year and a half or so after becoming millionaires. And I'd been a partner for two and a half years. WCI was starting to make some money, but it wasn't making a lot of money by early 2015.

Dr. Jim Dahle:
And we decided we're going to spend a little bit more money. So, we started splurging on stuff that we hadn't bought before. We bought a fancy dining room table set. It was a lot of money for us at the time. It was $10,000 or $15,000 or something for all this nice furniture. And we started buying some other stuff.

Dr. Jim Dahle:
We did a little bit of a home remodel. That was a relatively minor one. We went on some more expensive vacations, started spending more on trips. I bought a new mountain bike. It was a $5,000 or $6,000 bike, which was a huge upgrade from the one I'd had for years that I think I paid $1,000 for. We got a fancy new furnace. We upgraded our beater boat to a nice wake boat. So, we were clearly loosening the purse strings at that point.

Dr. Jim Dahle:
And in that post, I give 10 questions that you should ask yourself and your partner before you start splurging. And let me give these to you. Number one, are you keeping your fixed expenses as low as possible? So that in the event of an economic downturn, you can rapidly pair back your lifestyle.

Dr. Jim Dahle:
Two, have you honestly determined your needs versus your wants? And I'm amazed that even doctors can't figure this out. Your needs are surprisingly little. Most of your life, in the words of Mr. Money Mustache is an exploding volcano of wastefulness. And until you acknowledge that and recognize that, it's going to be hard for you to sort out needs versus wants. I'm not saying don't buy some wants, I'm saying understand what they are.

Dr. Jim Dahle:
Three, how many months have you been considering this purchase for? Good spending is not spending on a whim, it's planned spending. It's something you really want that you've been thinking about for quite a while.

Dr. Jim Dahle:
Four, do you have the money in cash to purchase this item? It's really easy to be able to tell if you can afford something. Can you buy it in cash? If you can, you can afford it. If you can't, you can't afford it. It's really pretty straightforward.

Dr. Jim Dahle:
Number five, is this item going to make you happier than any other use of this amount of money?

Dr. Jim Dahle:
Six, are you already saving 20% of your gross income for retirement and enough to meet your other investing goals?

Dr. Jim Dahle:
Seven, do you have any consumer or student loan debt at all?

Dr. Jim Dahle:
Eight, do you have a plan to pay off your mortgage in less than 15 years total?

Dr. Jim Dahle:
Nine, are you buying this item at the best time of year to purchase it? There's lots of things that have a seasonality to them. You're better off buying a boat in November, for instance, then you are buying a boat on Memorial Day.

Dr. Jim Dahle:
Ten, how much time have you spent researching and shopping around for this purchase?

Dr. Jim Dahle:
And I think if you can go through and have those discussions with yourself and with your partner, if applicable, then you can have some better guidelines on whether it's a good use of your money. But as time goes on, you'll find yourself being able to spend much more easily most of the time. It's far easier for me to spend money than it used to be because after a while you get out of that scarcity mentality. You realize you have enough and to spare. And that means you can not only give some of your money away, but you can spend some of it on yourself as well, and should not feel guilty about it whatsoever.

Dr. Jim Dahle:
At a certain point in life, you will realize that time is the more valuable commodity, that health is the more valuable commodity, that you have far more money than you have time and ability to use it. And as you move into that stage of life, you'll start looking at some spending going, “How can I not buy that? How can I not do that activity? How can I not purchase my time back by purchasing whatever it is, a service or good or whatever?”

Dr. Jim Dahle:
I hope that's helpful to you as you consider spending, one of those five important money activities that you'll do in your life.

Dr. Jim Dahle:
All right, let's take a question off the Speak Pipe here. This one is about asset protection for cars.

Speaker:
Hey, Dr. Dahle. I was just reading your new book, The White Coat Investor's Guide to Asset Protection, which is awesome by the way. I think everybody listening should get a copy. And I had a follow-up question.

Speaker:
Both my wife and I are physicians. We are doubly concerned about medical malpractice. And we both also bought new cars relatively recently. Ideally those assets would not be exposed to our creditors, but unfortunately your book lists that in our state of Florida, you only have about a thousand dollars of automobiles protected. And a thousand dollars doesn't get you a whole lot these days with cars. But you also discuss how tenants by entirety is an option in our state.

Speaker:
When we purchased the vehicles, I thought I had set it up under tenants by entirety, but in hindsight, I think I did it incorrectly. So, I had the dealerships put both of our names on the car titles, but looking back at them, they put an “or” in between our names rather than an “and” in between our names. So, the car title says “husband or wife” rather than “husband and wife.”

Speaker:
Is this something that I could just go to the DMV to fix, or is it too late? Is this something that you have to do correctly from the start, or it's not going to work at all? P.S. I've listened to all the podcast episodes so I have a feeling what your first comment is going to be, and I'm going to proactively defend myself by saying that while we did buy two expensive new cars, we bought them in cash and we were both very overdue for new cars, previously driving beaters that were more than a decade old with lots of problems. So, it was well overdue. Thanks.

Dr. Jim Dahle:
All right. Let's talk about asset protection for a minute. Remember that asset protection strategies, once you get beyond insurance primarily, require you to declare bankruptcy in order to work, or at least be willing to threaten to declare bankruptcy.

Dr. Jim Dahle:
The idea that you have these assets that are exempt, retirement accounts, homestead exclusions, tenants by the entirety kind of strategies. The assumption here is that you go to the creditor, this person that has a judgment against you. And you say, if you keep pursuing this, if you don't settle for some tiny amount, I'm just going to declare bankruptcy and you're going to be stuck.

Dr. Jim Dahle:
So, this isn't something that you do willy-nilly. This is a big deal when you are actually using these strategies for asset protection. If you actually have to implement this strategy, life is not going well for you. It means you've got some huge judgment against you more than in the case of a car sort of thing, or a malpractice sort of thing, more than what you have in personal liability through your umbrella policy, more than you have in your malpractice policy, etc.

Dr. Jim Dahle:
So, this is a huge judgment against you. You owe somebody $10 million or something, and you're going, “Ah, I think I'll declare bankruptcy and keep whatever asset protection law allows me to keep.”

Dr. Jim Dahle:
Thinking of it that way, now we're talking about cars. Okay, how much is your car worth? So, you bought a nice car. You bought a new car. It's worth $30,000 or $40,000. Maybe it's a really nice SUV. It's $60,000 or $70,000. Maybe you got a Tesla X, maybe it's $120,000. But whatever it is, it's pretty small compared to that $5 million or $10 million judgment against you.

Dr. Jim Dahle:
Yes, state asset protection laws, they're all over the board how much they'll protect, but typically they're only going to protect a thousand dollars or a few thousand dollars of your car. And if you're having to declare bankruptcy, because you have this huge judgment against you, you're probably losing the car. Unless it's a total beater, you're probably losing the car. You're having to sell it at least and maybe you got to keep a thousand bucks of what it's worth and the rest is going to your creditor.

Dr. Jim Dahle:
This is pretty small change when it comes to the big asset protection picture. So, when I think about asset protection strategies, and Katie and I have put some asset protection strategies in place, the vast majority of our assets would be protected in the event of some huge judgment against us, but we didn't put the cars in there.

Dr. Jim Dahle:
You know what? If we have declared bankruptcy, they're going to get the cars. Enjoy. But it's such a tiny percentage of our wealth that it's really not going to move the needle. We'll turn around and we'll go buy new cars and that'll be okay.

Dr. Jim Dahle:
So, if you have serious asset protection concerns, because you have a serious amount of assets, your cars probably shouldn't be the thing you're worrying about. That said, when things are easy to do, when asset protection moves are easy, things like tenants by the entirety, that's an easy thing to do. It doesn't cost you anything. You might as well do it. And you would have to talk to an expert in creditor debtor law in your state as to how much of a difference this would make in your situation.

Dr. Jim Dahle:
But typically, when you title something as tenants by the entirety you title as Joe and Jane Smith, husband and wife, not husband or wife. It sounds to me like somebody just got confused at the dealership. So maybe that's worth spending a few bucks to change the title. I probably would.

Dr. Jim Dahle:
Tenants by the entirety doesn't work in my state though. So, it's not really an option for me. We have to use a totally different strategy, it turns out, in order to protect our home equity. And obviously brokerage accounts, we haven't bothered doing anything with the cars. We just own our cars in our own names which is probably fine, I suppose, for my old beat-up Sequoia. But I guess if I had a really nice car, maybe I'd think twice about it.

Dr. Jim Dahle:
Speaking of which, going back to that first topic about spending. Why do I still drive a Sequoia? It's because you can't buy a new car. Have you tried buying a new car lately? I ordered a F-250 back in December. They haven't even started building it yet. You can't buy a new car these days, so I'm still driving my Sequoia. I like it. It's got 268,000 miles on it. I don't know what it's worth. $6,000 maybe. But it runs fine and it meets my needs and it'll even pull the boat. And so, that's why I'm still driving it.

Dr. Jim Dahle:
Just because you upgrade one area of your life, doesn't mean you have to upgrade all areas of your life. That's a total fallacy and it's kind of fun to just upgrade one part at a time. It was actually a really funny story. Some of Whitney's friends came over to the house one day and they drove by. We've done a nice renovation on the house. We did that a couple of years ago. And so, it's a really nice house now.

Dr. Jim Dahle:
And they drove by the house and they're like, “Oh, this can't be her house because we've seen her phone and we've seen her car. This must not be her house.” So, they went around the block once and came back and realized, “I guess it is her house.”

Dr. Jim Dahle:
They had assumed based on the fact that she had a crappy old dumb phone and that she was driving a beater car, that she must live in a crappy old house. And that's not true. You're not what you drive. You're not what you carry around in your pocket. You're not what your handbag looks like. And so, spend your money on what you care about, not trying to impress other people. I mean, what a shame to spend your money trying to impress people that you don't even care about.

Dr. Jim Dahle:
All right, let's take another question. This one's about brokerage accounts.

Speaker 2:
Hi, Dr. Dahle. I have a question regarding non-retirement brokerage accounts. I put monthly deposits into a total stock market index, an international stock market index and Vanguard intermediate tax-exempt fund. And the latter is probably about 25% of my contributions each month.

Speaker 2:
I'm just wondering if I should still be contributing to that Vanguard intermediate tax-exempt fund. It essentially just keeps going down and I guess it's essentially a bond equivalent. And I'm not sure if it really makes any sense to be owning that in a brokerage account right now. I'd like to get your input.

Speaker 2:
Is there anything else that you would do to replace that? Is there any other bond equivalent, which is worthwhile? Also, I have accumulated a decent amount within this Vanguard intermediate tax-exempt fund over the last several years. And is it worth selling this and buying stocks or something else? I'd like to get your opinion on this. I really appreciate your advice. Thank you very much.

Dr. Jim Dahle:
Interesting question. Let me rephrase your question so that you understand exactly what you're asking me. And it'll sound a little dumb when I rephrase it and there's a reason for that. And that's because it's a dumb question. That's not entirely true, right? It's a question we all have until we start realizing how investing works, but you're going to look back on this question and you’ll think, “Oh yeah, that is a dumb question.”

Dr. Jim Dahle:
What you are asking me, is to peer into my crystal ball and tell you if municipal bonds are going to go up in value in the next year or two years, five years. And the answer to that question is I have no idea. My crystal ball is cloudy. The reason why that particular bond fund, and that's what it is, it is a municipal bond fund. It is a tax-free bond fund and has gone down in value because the bonds in the fund have gone down in value.

Dr. Jim Dahle:
Why did they go down in value? They went down in value because interest rates went up. When interest rates go up, bond values go down. Now their yields go up and thus their future expected returns go up, but their value goes down.

Dr. Jim Dahle:
So, you have listed the three main holdings in my taxable brokerage account. Total stock market index fund, total international stock market index fund, and the Vanguard intermediate tax-exempt bond fund. Those are major holdings in my account. And guess what? In 2022, I lost a lot of money on all of them.

Dr. Jim Dahle:
You know what? They're all going down in value, but that is not a reason to sell them aside from tax loss harvesting. Tax loss harvesting is a way to make some lemonade out of lemons. And I have been tax loss harvesting all three of those funds in 2022, so that I can use those losses to offset ordinary income, to offset future capital gains, etc.

Dr. Jim Dahle:
But I'm not going to bail out of my chosen asset allocation because something went down in value. If you do that, that's called performance chasing and it does not work out well in the long run. You are far better off sticking with a static asset allocation throughout the course of your investing career. 30 years of working, 30 years of retirement, that's your investing career. Maybe 60 years.

Dr. Jim Dahle:
There will come a day when those muni bonds have their day in the sun. That day is not the first half of 2022. This has been one of the worst markets for bonds in years and years and years. They now have higher future expected returns than they did six months ago but they haven't had good returns. And anybody who tries to tell you they are, has no idea what you're talking about.

Dr. Jim Dahle:
They're probably down, I don't know, 6%, 8%, 10% at this point. Not as bad as stocks. Obviously, stocks are down 15% plus, but they haven't had a good return recently. But if you look in the long run, they've done fine and you should expect them to do better going forward than you expected them to do six months ago, given what the valuations were at that point.

Dr. Jim Dahle:
So, what do I do in that case when something has gone down in value that I think is a good, long-term holding for my portfolio? I buy more of it. Yes. I'm buying all three of those. I have been all year. I'm pouring money down the rat hole, just like I did in 2008, just like I did in 2011, just like I did in December of 2018, just like I did in March of 2020.

Dr. Jim Dahle:
This is what you do. When markets go down, you rebalance, you put money into the lagging assets. And you know what? Five years, 10 years, 20 years down the road, you're really glad you did that because those are the best returns you got on those assets.

Dr. Jim Dahle:
Now, if you decide you don't want bonds in your asset allocation, for whatever reason, then I guess you got to change your asset allocation. But doing that typically results in you buying high and selling low. I would submit that there's probably a reason you have bonds in your asset allocation. You ought to go back to your written investment plan and realize what that reason is, and then stay the course with whatever your plan is. I hope that's helpful.

Dr. Jim Dahle:
All right, let's do our quote of the day today. This one comes from Margaret Bonanno. She said “Being rich is having money, being wealthy is having time.” And that is certainly the truth.

Dr. Jim Dahle:
All right. Let's hear a question off the Speak Pipe about tax loss harvesting Bitcoin.

Speaker 3:
Hi, Dr. Dahle. I have a question regarding Bitcoin. I listened to your recent podcast on Bitcoin and I was interested in the fact that you stated that Bitcoin is not subject to the wash-sale rule.

Speaker 3:
So, my question is I bought Bitcoin at approximately $40,000 and now it's hovering approximately $30,000. If I were to completely sell my Bitcoin investment and then immediately buy it back at $30,000, can I go ahead and harvest that tax loss? The entire purchase was done in the last couple months. So, I guess this will not be subject to a long-term gain, but maybe you could tell me a little bit more about that as well. Thank you very much. I appreciate it.

Dr. Jim Dahle:
Great question. Well, I'm sorry for your loss, you lost $10,000. That sucks. And that's unfortunately something that happens a lot in highly volatile speculative investments like Bitcoin. I have no idea if it's going to go up from there or down from there, by the time you hear this podcast it'll have changed again, I'm sure.

Dr. Jim Dahle:
But here's the deal. At least it's really easy to tax loss harvest crypto assets, Bitcoin, Cardano, Ethereum, etc. Unlike stocks, there is no wash sale rule. You can sell that Bitcoin today, buy it back 10 seconds later and book that loss.

Dr. Jim Dahle:
Yes, this is not fair. Yes, this is a loophole in the tax system. Yes, congress has proposed changing this. In their Build Back Better bill they were going to eliminate this so that you had that 30-day waiting period before you could buy it back or else it would be a wash sale, just like it is with stocks and mutual funds, etc.

Dr. Jim Dahle:
But right now, with cryptocurrency, there is no 30 days wait. You can buy it right back as soon as you sell it. So, what does that mean? While assuming you're investing inside a taxable account, you should never be holding a crypto asset with a loss. You should tax loss harvest it. If it goes down again tomorrow, you should tax loss harvest it again. If it goes down the day after that, you should tax loss harvest it again.

Dr. Jim Dahle:
Now there may be some transaction costs to consider, but assuming the transaction costs are zero or minimum then yeah, you ought to tax loss harvest it every time you have a loss. And you don't even have to come up with a tax loss harvesting partner, you can just go right back into Bitcoin. And so, it’s kind of a cool feature of crypto assets. But that's the way it is until Congress changes the rules that's how it's going to work.

Dr. Jim Dahle:
All right, let's bring somebody on for a few minutes. We're going to talk a little bit about real estate investing in today's market conditions. Our guest on the White Coat Investor podcast today is Don Wenner, founder and CEO of DLP Capital. That's Dream Live Prosper Capital. Welcome back to the podcast, Don.

Don Wenner:
Hey, thanks, Jim. It’s a pleasure to be here.

Dr. Jim Dahle:
Times have been wild this year. There's been a lot happening in the markets. The stock market is down as we record this 18% or so, bonds are down significantly. Intermediate term bonds are down as much as 10% or 15% with the rise in interest rates. Inflation's gone through the roof. For those of us our age or younger who have never seen inflation like this, at least at a time period that we can remember.

Dr. Jim Dahle:
Cryptocurrency is down 50% plus in the markets. It's been a pretty wild ride in the last few months. What has impressed you the most about the markets so far in 2022?

Don Wenner:
What's impressed me the most? That's an interesting question after you laid out all those problems. I'd say what has been most impressive to me is the great reminder that when you go through inflationary times, which as you said, we're going through pretty significantly right now, a lot of different opinions to how significant it is, but it's significant.

Don Wenner:
Real estate is actually an inflationary hedge. And so, we've seen the fundamentals of rents soar, continue to soar, which is good for investors, not necessarily great for individuals who are renting and much of America's workforce. We've seen property values continue to climb both on the residential side and the multi-family or investment side.

Don Wenner:
From our world, these changes have been positive from that regard, from the fundamentals of the investments. And it's also been positive for us in terms of how many investors have felt that volatility and changes in their other investment asset classes and it's led to a significant inflow of capital to us as an alternative or hedge to some of the challenges in the marketplace today.

Dr. Jim Dahle:
Yeah, for sure. Real estate has got some great benefits in inflationary times, especially if you've already got your debt fixed at a low interest rate, then inflation obviously makes that debt more affordable. And then of course rents rising and the value of the property rising with those rents are a nice way to keep up with inflation. The fact that returns are relatively high also helps you keep up with inflation. Even if inflation is 9%, if you can make 9%, you're at least keeping up with it.

Dr. Jim Dahle:
Your firm offers real estate investments, both on the debt side and on the equity side. Have you seen pressures on the debt side, with your debt funds due to these rising interest rates? Is it harder to find people that want to borrow money to develop real estate or are you having to charge them more? How have these changes in interest rates and changes in inflation changed your debt funds?

Don Wenner:
Yeah. And thank you for framing it up because as you said we sit on both sides of owning real estate and lending against real estate. And the effects of interest rates and the effects of inflation are a little different for each case.

Don Wenner:
But a little bit larger side of our world today is our lending funds, where we're making short term bridge loans against real estate. And the great thing about that strategy, especially in times where rates are going up and inflation so forth is we're only locking in our interest rates to our borrowers for 6 to 12 months.

Don Wenner:
So, I'm not making a 30-year mortgage where I lock in that rate today. And now I'm stuck for 30 years at this low interest rate. If rates go up fundamentally, if they continue to go up, our rates are going to be able to go up so that we are able to lend money out first and foremost. Second, a real estate fund like ours is an alternative to banks or to traditional financing sources.

Don Wenner:
And in the past couple of years, when rates have been at these all-time lows, if a bank was charging 4% and we're charging 9%, that gap between 4% and 9% is significant enough that we can't win all the business that we'd like to win. A real estate investor will look and say, “Yeah, it'd be much easier to work with DLP. They're going to do a much better job. They'd be better to work with. They're going to bring up all this other value, but 5% is a big difference.”

Don Wenner:
When all of a sudden, interest rates go up and banks are now, say at 6%, and we're at 9%, or maybe we went up to 9.5%, that gap closes a bit. It's worth not the frictional kind of value of you working with us versus bank, the speed, etc, will drive more business to us.

Don Wenner:
The volatility that's coming from the change in interest rates has been all positive for us. In fact, last month in our lending fund, which is our longest standing fund, the DLP lending fund, we're running it for about eight years now. We had our best monthly annualized return, our best monthly return in three and a half years last month.

Don Wenner:
So, for us, it's been a really nice, positive, great inflow of additional borrowers and needs. Because not only rates have gone up, a lot of lenders out of fear have stopped lending or cut back leverage, so it's created a lot of great opportunities for us to bring in new borrowers, to pick up a larger amount of their business. And then ultimately this is putting a little bit less pressure than what we've faced over the last number of years on our rates. So, it's been a net positive for us in our lending funds.

Dr. Jim Dahle:
That's always good to hear. When stocks and bonds, when cryptocurrency is down to have something that's making money, that's awesome.

Don Wenner:
12.89% last month annualized returns net and distributed to the investors. And that's all-actual earned income, not on paper. It's actual earned and distributed to investors last month.

Dr. Jim Dahle:
Awesome. And how about on the equity side? Here in Salt Lake, property values, whether they are multi-family, whether they're single-family homes, they're up. This has been one of the fastest growing areas in the country. And people are starting to wonder, where does this end? Are you seeing any decrease in opportunities that you find attractive in the markets as you look on the equity side?

Don Wenner:
As we sit here and talk here today, we're in a very interesting time in that regard in that we're starting to see, it's really only been the last few weeks, that we've really started to see brokers who are out selling these properties, missing their target prices, their strike prices. We're seeing sellers taking offers that then the buyer ends up trying to re-trade. And the reasoning is their proceeds on their loan or the interest rate is higher so now they need to get a lower price.

Don Wenner:
We're seeing some of that starting to happen. Usually, we're still seeing right now that if one group gets nervous or gets lower leverage and they pull out, there's still a line of other buyers who are willing to get comfortable. There's still so much liquidity.

Don Wenner:
So, we haven't yet seen it translate into any lower prices. But I think at minimum, it's going to start lowering the broker expectations that they set with sellers. And I don't think we're going to keep seeing the kind of growth and values that we've been seeing since COVID. I think things are going to at least level out a bit.

Don Wenner:
I think we might see cap rate starting to soften meaning go up, but I don't really think we're going to see a huge drop in values, or maybe any drop in values. And the reason for that is because the fundamentals of what drives real estate values is income. And the fundamental thing that drives income in our world is rent.

Don Wenner:
The average rent in most markets such as Salt Lake City, but just about anywhere else that's attractive for people to live where there's a growing population, there's a supply that is significantly less than demand, and we're seeing historic levels of rent growth. And that hasn't slowed down at all.

Don Wenner:
And frankly, with the inflation and the fact that for a lot of really good reasons wages are going up, we don't see any lack of demand for housing or any slowdown in the growth in rent. So, we may not see cap rates grow as quickly or decrease quickly, but because the income keeps growing, even if cap rate softens due to interest rates, values are going to still stay very, very solid.

Don Wenner:
So, it's an interesting time. It's one that you have to be on top of and be paying attention to and looking for what kind of opportunities create in this rising interest rate environment and the fear that that creates. We're in an environment that's kind of never existed and quite the way it does today.

Don Wenner:
And so, we're finding it exciting and fun. We're certainly not struggling to find opportunities. We've closed over a billion dollars in transactions year to date and have a full pipeline. But most of what we try to buy and what we look at doesn't work, it doesn't hit our return profiles, but we're finding opportunities regularly.

Don Wenner:
And then the other thing that we're focused on doing, because of the incredible demand for housing, the incredible undersupply of housing in most markets, and where rents have gone and values have gone, we think one of the most interesting opportunities today is in development. The development of new housing.

Don Wenner:
And I held a big event for real estate developers. A big event. I brought in about 120 successful real estate developers and builders around the country last week in St. Simons Island, Georgia. And I started off the event with a presentation where I said construction costs have never, ever been higher. Supply chain has never been slower. It's never been harder to get projects approved. What a great time to be in development.

Don Wenner:
But the reality is it's never been a greater time to be a developer. And if you know what you're doing, and you’re able to manage the cost and build efficiently, the margin between what you can build something for today and what it's worth when it's complete, that spread, that value creation has maybe never ever been greater. It's pretty, pretty amazing. Even though costs are so much higher, the values have grown so much that there's an enormous value creation available. And frankly it feels great as well from a market standpoint to build affordable housing in these markets.

Don Wenner:
And when we say affordable, I'm talking building housing for the local workforce. These are $1,200 a month, $1,500 a month, $1,600 a month apartments, which are in so many markets, such as Salt Lake City desperately need. So, that's been a big area of focus for us over these past couple of years.

Dr. Jim Dahle:
Awesome. And of course, you have a new fund out in the last year doing just that, ground up opportunities. We've been talking with Don Wenner, who's the CEO and founder of DLP Capital. If you're interested in learning more, we recommend you go to whitecoatinvestor.com/dlp. They have opportunities to invest on the debt side, on the equity side, and then as well as in ground up building opportunities. So, be sure to check that out. Thanks for being on the podcast, Don.

Don Wenner:
Thank you, Jim. It's been a pleasure.

Dr. Jim Dahle:
All right, let's take another question off the Speak Pipe. This one's about options trading. Let's take a listen.

Robert:
Hey Jim, this is Robert calling from South Carolina. My question is you had a guy on the podcast a while back Big ERN, who talked about doing options trading with the S&P. And I've talked to several White Coat Investor fellow listeners who are very curious as to how that is working out now that the S&P is tanking.

Robert:
I would really appreciate a follow up on that either with Big ERN or just some stats and sort of how that would look at this point. Because I thought it sounded risky at the time and now it sounds downright crazy. But I would love to hear that. Thank you.

Dr. Jim Dahle:
Great question. And it's important to remember anytime I bring a guest on the podcast does not mean I endorse what they're doing. I'm not a fan of option investments. In fact, my first investment was actually an option. Somebody at my dad's work had talked him into buying options and I had some money from Alaska Permanent Fund Dividend. And somehow, he talked me into investing in the option as well. It was like $500. It was a lot of money to whatever I was, a 12-year-old kid at the time or something. I lost the whole $500, a complete loss on my first investment.

Dr. Jim Dahle:
So, I'm not a big fan of investing in options, to be honest with you. And just because I bring somebody on the podcast, and we talked for two minutes out of a 45-minute podcast about options, don't think that this is something I think you ought to be doing. I don't think you should be messing around with options. Period.

Dr. Jim Dahle:
But let's talk about what Big ERN was doing. What Big ERN strategy was, was selling PUTS on the S&P 500 index, meaning he is selling insurance to other people that want insurance in case the S&P 500 falls in value. As long as the value is going up or sideways or only going down slightly, he makes money. He makes income doing that.

Dr. Jim Dahle:
If it goes down, well, now he's got to provide the insurance that he's been selling. And so, obviously in 2022, the S&P 500 is down. This insurance he's been selling, he's basically now paying out. So that strategy is not doing well in 2022 with the S&P 500 down as much as 18% so far at the time that I'm recording this.

Dr. Jim Dahle:
It's probably not very nice of me to call him up and ask, “How's it going there with your options?” But I'm sure the strategy is not working well this year. And it's a significant chunk of his portfolio. It was 30% of his portfolio, he said in the podcast. So, I would assume that he's lost some significant money on that portion of the portfolio and that he would tell you that in the long run he'll make up for it or has made up for it. but in the short run he is not doing well. So, I hope that answers your question.

Dr. Jim Dahle:
No matter what you're doing as you listen to this podcast, whether you're on your way into work, on your way home from work or you're out jogging or whatever, if nobody's told you thanks for what you do today, let me be the first. Your job is hard and the stupid pandemic just keeps going on and on.

Dr. Jim Dahle:
I was noticing in my last few shifts that we had a bunch of COVID patients back in the ER. And I'm like, “What is going on?” I went back and looked at the case counts and we're up from like 100 cases a day in the state to 800 cases a day in the state, which explained my recent canyoneering trip where seven of us were off canyoneering. Three of us, including me, had COVID in the previous month or so. One had family members with COVID and the other three came home from the trip with COVID.

Dr. Jim Dahle:
So, it's still out there and it can be transmitted even outside, as we discovered on our canyoneering trip. Thankfully, everybody recovered completely uneventfully and was only minimally sick for a few days. But as you know, that doesn't happen to everybody and it can sure make for some busy times at the hospital.

Dr. Jim Dahle:
As I record this on the Friday before Memorial Day, I'm looking at going in Saturday, Sunday, Monday. I'll be working the whole holiday weekend, and I know a lot of you will be working that as well. And it's hard. Medicine, dentistry, law, these are hard professions and I appreciate you doing them.

Dr. Jim Dahle:
All right. Let's take another question off the Speak Pipe. This one's about investing in art.

Justin:
Hey, Dr. Dahle. First of all, thank you for WCI and all your company does for us. I'm a psychiatry resident from Indiana, and I have a question. I spend a lot of time on the internet. I've seen ads for Masterworks, which is a fractional ownership investment platform for what they call “blue chip” art.

Justin:
I wonder how good the investment is if I'm seeing so many ads for it, as that has been in my past experience a bad side. Then again, art is a very difficult sector to diversify into which might make fractional ownership attractive.

Justin:
What do you think of masterworks or of art as a diversification strategy in general? Correct me if I'm wrong, but to paraphrase you in the past, you've said that if someone is 95% or 98% invested wisely, that the last 2% to 5% wouldn't make much difference. Would you consider art speculation to be best in that 2% to 5%? And if so, how would you go about it? Thank you.

Dr. Jim Dahle:
All right, Justin. Good question. Here's the deal. Art is a speculative investment. I don't invest in speculative investments. I don't invest in Bitcoin. I don't invest in gold. I don't invest in platinum. I don't invest in commodities. I don't invest in empty land. I don't invest in art.

Dr. Jim Dahle:
I like to see my investments producing something. Whether it is earnings, like you'd see with stocks, whether it's interest, like you'd see with bonds, whether it's rents like you see with income producing real estate. That's what I like to see from my investments. At least some component of it is producing something rather than all of it just being speculative.

Dr. Jim Dahle:
Art of course is completely speculative. Now, you are right. That if you have a play money account, you should limit it to 5% maybe of your portfolio. And if you want to put 5% into Bitcoin or you want to put 5% into arts, or you want to put 5% into Mongolian oil futures, knock yourself out.

Dr. Jim Dahle:
Because if your strategy isn't good enough that 95% of what you're expecting out of it isn't going to be more than enough, then you probably have bigger issues with your investing strategy. So, if you want to do this, go ahead and do it.

Dr. Jim Dahle:
I can tell you this. Masterworks applied to advertise at the White Coat Investor. We did not take their money. We don't have a full-throated endorsem*nt for everybody that's ever advertised at the White Coat Investor, but we do feel some obligation to our listeners to put our money where our mouth is.

Dr. Jim Dahle:
And so, we pass up a lot of advertising dollars from companies that we don't necessarily believe in their mission. And I suppose that applies to Masterworks. I don't know this is necessarily bad what they're doing. Obviously, there's lots of things to invest in. And I don't know that there are any worse than anybody else investing in art, but we just didn't feel like it was a service that we felt comfortable plugging to our listeners.

Dr. Jim Dahle:
So that's why you're not hearing about it here, because we don't think it's a great idea. But if you want to do it with 5% of your portfolio, then knock yourself out, we really don't care. It's your money anyway. So, you can do whatever you want with it and you don't need our permission to invest in something. Just because I don't invest in it, it doesn't mean you can't invest in it, but it does dictate how we advertise.

Dr. Jim Dahle:
Now, if you wanted to invest in art and we're talking theoretically here, we're talking hypothetically, how should you do it? Well, my understanding of art is that the high-end pieces have very good returns and the low-end pieces do not have good returns. So, if fractionally investing in it allows you to buy more high-end pieces than low-end pieces, maybe that's a good way to do it, assuming you don't have whatever it is, $200,000 or something to buy a high-end piece.

Dr. Jim Dahle:
But the truth is in investing you don't have to invest in everything. I think you mentioned you were a resident. It's okay to not invest in everything. There are no called strikes in investing.

Dr. Jim Dahle:
Look at my portfolio. It's a pretty boring portfolio. 85% of it is in index funds. It's index funds. That's all I'm investing in. Yes, there's 15% in some private real estate. And I've done pretty well in private real estate, both on the debt side and the equity side. But 85% of it is in boring old index funds. I'm not in a bunch of cryptocurrency and art, etc. And where am I sitting in life? Well, I'm in my mid-forties, I'm financially independent. I can do whatever I want with my life. I've won the money game.

Dr. Jim Dahle:
You don't have to get into all this minutia in order to be successful as an investor. You can do it with a very boring portfolio funded adequately using your high income. And that's the whole point of what we're doing here at the White Coat Investor. We want you to be able to focus your life on your patients, on your family, on your practice, on what matters most to you and a minimum part of your life on your investments.

Dr. Jim Dahle:
The goal isn't to just play with your money all day long. The goal is to do something meaningful with your life and have your financial ducks in a row on the side. So, I hope that's helpful to you. Let us know how it goes if you do choose to invest and send us a Speak Pipe in a year or two and let us know how it's going.

Dr. Jim Dahle:
If you’re looking to Boost Returns, Lower Taxes & Build Wealth, join the WCI monthly Real Estate Opportunities list for tips and strategies to maximize your real estate returns and for introductions to exclusive investment opportunities. Expect educational emails that introduce you to syndicators, fund companies, online courses, and online real estate platforms. Go to www.whitecoatinvestor.com/reopportunities to sign up today.You can do this and The White Coat Investor can help.

Dr. Jim Dahle:
Hey, if you want to come to the White Coat Investor conference, WCICON23, March 1st through 4th of 2023 in sunny Phoenix, you can do so. You get to sign up in October. But if you want to come for free and you actually want to be paid to come, you have to give a talk there. And guess what? It's time to apply to speak. June is when you apply to speak at WCICON. So, you go to www.wcievents.com and you can apply to speak.

Dr. Jim Dahle:
Let me tell you how to get accepted as a speaker. This is actually a competitive process. The way you do it is you apply with a whole bunch of different subjects. And that way we might pick you to give more than one talk, which is attractive to us, because if you give two talks or three talks, we only have to fly you out once. So, it saves us a little bit of money and that's attractive to us.

Dr. Jim Dahle:
But most importantly, what often happens is somebody only applies for one talk and 12 people applied to give that talk, whatever it might be on real estate investing or disability insurance or whatever. We're not going to give 12 of those talks at WCICON. And so, 11 of those people are going to be hosed. They're not going to be able to come speak. But if you apply to speak on multiple different subjects that you are expert on, you're much more likely to be selected at all to give a talk.

Dr. Jim Dahle:
So that's my suggestion to you. Apply early, apply often. And we try to have both favorites. People who've gotten great reviews at previous conferences and we try to have some new voices. So whether you're talking on a wellness topic or a basic investing topic, or a more advanced investing topic or some sort of niche topic, apply at www.wcievents.com.

Dr. Jim Dahle:
What I would recommend against you doing, however, is applying with a topic like what you would give to your residency program. These are the talks I give all the time when I travel around the country, but it's a very broad talk, it tries to encompass all of personal finance into one 45 minute or one hour talk. And we're looking for a little bit more specialization at the conference. People are there for three days. They're going to listen to a whole bunch of different talks. And so, we're looking for a little bit more fine-tuning on those talks.

Dr. Jim Dahle:
But we'd love to have you come speak. It's a really great group of faculty that we have every year. It's the who's who of the physician finance space and we'd love to welcome you into that club.

Dr. Jim Dahle:
Thanks for those who are leaving us a five-star review or telling your friends about the podcast. Our most recent review came in from Alpheus06 and said, “I am generally not a podcast person, but have never missed an episode of this podcast. Between Dr. Dahle’s blog, podcast, and books, I have gone from financially illiterate to comfortable managing my own finances without a financial advisor.

Dr. Jim Dahle:
The content is listener driven and covers topics of varying complexity, so people at all levels of financial literacy are able to learn something from each podcast. I find myself just as interested in his content now as I was 6 years ago when I first found his blog. If you haven’t listened yet, get started now!” Five stars. Thanks so much for that generous review.

Dr. Jim Dahle:
Keep your head up, shoulders back. You've got this and we can help. We'll see you next time on the White Coat Investor podcast.

Disclaimer:
The hosts of the White Coat Investor podcast are not licensed accountants, attorneys, or financial advisors. This podcast is for your entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.