What Doctors Need to Know About Home and Auto Insurance with Jeff Wingate

Transcription – WCI – 482

INTRODUCTION

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:
Welcome to the White Coat Investor podcast, where we try to help those who wear the white coat get a fair shake on Wall Street. And let’s be honest, 95% of personal finance and investing is the same for everybody. It’s not that unique for doctors, but there’s a few things that are unique for doctors.

And we certainly cover those here on the podcast, but mostly we aim the information we talk about here at high earners, and not necessarily high net worth people, not wealthy people necessarily, but high earners. And a lot of us, especially those who went to medical school or dental school, and like 75% of us use borrowed money to pay for it.

A lot of us don’t have much wealth. We actually have a negative net worth, everything you own minus everything you owe. And we’re trying to get you back to the positive first. We have a sister podcast, a Milestones to Millionaire podcast. And the first milestone doctors tend to get to is just getting back to broke. And if you’ve gotten back to broke, you should be proud of yourself. That’s a significant milestone in your life.

Today’s episode is brought to us by SoFi, the folks who help you get your money right. Paying off student debt quickly and getting your finances back on track isn’t easy, but that’s where SoFi can help. They have exclusive low rates designed to help medical residents refinance student loans. That could end up saving you thousands of dollars, helping you get out of student debt sooner.

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All right. We’ve got a great discussion today. We’re going to be talking about insurance, not the usual insurance we talk about in this podcast. We’re not going to talk about life insurance. We’re not going to talk about disability insurance. We’re not even going to talk about health insurance.

QUOTE OF THE DAY

Dr. Jim Dahle:
Today, we’re talking about property and casualty insurance. We’ve got a great guest that we’re bringing on that we’re going to talk to about that. Before we get to him, let me share the quote of the day with you. This one comes from Jonathan Swift, who said “A wise person should have money in their head, but not in their heart.” I love that. Deep thoughts.

The truth is that most of us didn’t go into what we do purely for the money. We had more idealistic motives. Of course, most of us also thought we’re going to do well while doing good and that’s okay. But I thank you for what you do because I know a lot of you are motivated just to help other people. You really do still believe that essay you sent in to your medical school or dental school admissions committee that you just want to help people. You love science, you just want to help people.

And I thank you for that, for that help that you do, for the help that you do at 03:00 A.M. when you’re called from the emergency department, when you’re pulled out of your bed to come help somebody. Thank you for doing that. It’s not easy work.

By the way, if you have not joined our community online, you should. You can ask your money questions to others in the White Coat Investor community or better yet, help others out with their questions. You can find us on Instagram, you can find us on Reddit, on Facebook. We have an exclusive Facebook group. We have a White Coat Investor Forum. Join the community and you’ll feel much less alone in your money journey.

INSURANCE COSTS ARE CHANGING, MAKING REGULAR POLICY REVIEWS MORE VALUABLE

Dr. Jim Dahle:
Okay, let’s get our guest on the line. Our guest today on the White Coat Investor podcast is Jeff Wingate, the President of Rate Insurance. Jeff, welcome to the podcast.

Jeff Wingate:
Great to be here. Thanks for having me.

Dr. Jim Dahle:
Okay, we’ve had feedback in the past to always let you know when there’s any sort of financial conflict of interest. You should be aware that Rate Insurance is one of our sponsors. We refer people all the time to Rate Insurance to help doctors and other high-income professionals get a better deal on their property and casualty insurance.

So you should be aware of that, that Jeff and I have some sort of a financial relationship and if you go to Rate through White Coat Investor links, White Coat Investor is going to make some money probably at some point. That disclosure is out of the way.

Jeff, today we are responding to questions we’ve been getting about property and casualty. So, let me read one of these that came in shortly after our conference this year that kind of sets the tone for what we’re doing today.

And they wrote in and said, “I wanted to recommend if you have an insurance broker that would be willing to speak on your podcast, I think that would be helpful at this time to speak in regards to coverage needs for auto and home insurance at this time due to significantly elevated costs of these over the past few years.

At one of the lectures in Las Vegas, Andrew mentioned it may be beneficial to drop auto collision and comprehensive coverage and not sure if that would be right for me and for others and would be interested in hearing a professional speak about this and would like your thoughts regarding the above if you’ll feel comfortable commenting.”

We do feel comfortable commenting, so we’re going to comment all about these topics today. We’re going to talk about auto and home and even umbrella insurance, which usually gets lumped in with these sorts of coverages.

And I was surprised as part of onboarding Rate as a partner, might be close to a year ago now, I went and shopped all of my insurance and I was kind of surprised how much we pay in insurance. It was a very low five figure amount a year that we’re paying just in auto, home and liability coverage. So, it’s not an insignificant expense for lots of White Coat Investors out there. And people are saying maybe costs are going up lately. Is that true, Jeff? Are costs going up for these coverages?

Jeff Wingate:
Yeah, great question. And again, great to be on the podcast. Really with a couple of things is with home insurance. Home insurance is going up dramatically over the last few years. Absolutely and dramatically. It’s going up over even close to 100% in some cases.

But in the last year, home insurance in 2025 went up by 9% and we’re starting to see it to stabilize across the country because the insurance companies are starting to make money. They’ve raised rates dramatically. And the storm activity has been actually very low this year compared to prior years in 2024 and actually in 2023.

For home insurance right now, yes, it is expensive, but we’re seeing pricing stabilize across the country. With auto insurance, that’s another area where insurance companies have are starting to make a lot of money in auto insurance. They jacked up the rates a couple of years ago and auto rates are actually coming down.

In the first quarter of this year, they’ve come down on average about 7.5%. And so my advice is that if you have not had your insurance policies reviewed lately, is to get them reviewed because there is a high probability that you could be missing out on some proper protection in terms of coverage and then also missing out on opportunities to save money, especially for auto insurance.

Dr. Jim Dahle:
And obviously, we want you to go through Rate to do that. There’s a financial relationship here. If you go to whitecoatinvestor.com/rate, you can get with someone that essentially specializes in working with people like you and helping you get not only good coverage, but good coverage at a good price. So, when you’re talking about storms, hurricanes, what are we talking about? And why does that matter? Aren’t they just whacking Florida anyway? How does that really affect the rest of us?

Jeff Wingate:
Well, it’s amazing. I live in New Jersey and we did get whacked by a storm over the July 4th weekend. And me personally, I had a huge tree that came down on my neighbor’s house. And I called my insurance company. I actually work with an insurance company called Chubb. And they were absolutely tremendous and terrific to come to the table to help remove the tree, pay for the cost of that. And now I’m just working with them right now. Because there was some damage to my house.

So yes, storms are still occurring. But for hurricanes, last year, we just didn’t have any. We had a few. And then this year, the expectations are is that we’re going to have less hurricanes. So, knock on wood in states like Florida, the insurance companies are actually starting to make money. And we’re seeing some rates come down. So, it’s just it’s amazing out there is that losses are still happening, but they’re happening on a smaller case basis. And then the amount of hurricanes have also reduced.

I read an article the other day, it was like either La Nino or whatever was coming in. There was a different what kind of a weather pattern across the United States that’s causing this phenomenon. In summary, losses do happen. We had that July 4th storm happen in New Jersey. But across the United States, we’re just not seeing the hurricane activity that we saw in prior years. And we’re also not seeing all these convective storms happening in every single state like they did three, four years ago.

Dr. Jim Dahle:
Okay, so your tree fell on your neighbor’s house and your insurance covered it, not theirs.

Jeff Wingate:
My insurance covered the actual tree that fell down. They paid for the removal of the tree because it also damaged part of my pipes and other things that are attached to my house. So that’s where the coverage triggered. But the actual payment for the damage to my neighbor’s house is going to be covered by their insurance.

Insurance companies will work it out in terms of if there’s any subrogation going forward. But it was unbelievable where that tree came down. It came down on my electrical wires. It ripped up pipes in front of my house that landed on my neighbor’s house. And then we just worked together and it’s coming through.

Again, losses happen. And it’s really important to have good insurance and making sure that you’ve got the proper protection, you’ve got the proper limits. Inflation is still out there. So making sure that you’ve got the right replacement cost on your homes, you have the proper contents coverage, because these things happen. And this was a freak occurrence where there was a wind gust of approximately 80 miles per hour that knocked down this tree and hit our neighbor’s house.

Dr. Jim Dahle:
All right. While we’re talking about natural disasters, let’s refer a little bit to the fires in LA. And what that means for all of us, as well as for people rebuilding in LA.

Jeff Wingate:
No, absolutely. When all the fires happened, we definitely in our portfolio, we had a few insurers that had total losses. And they’re rebuilding right now. The California market, there’s been a lot of insurance carriers that have pulled out, very well respected insurance companies. But we’re seeing inclinations that they’re starting to come back into the market. So the market is starting to open up.

Like in California alone, we do have a lot of different options, especially surplus lines carriers. And it doesn’t have to be the California Fair Plan, which is the insurance plan of last resort. We do have other options. Again, I think my message here is that a lot has developed over the last year or so where the market is starting to open up.

And California is our second largest market at Rate Insurance, the second largest market. And we are writing a lot of home insurance and also a lot of auto insurance as well. It’s not an easy process. It takes a little bit longer, but we do have options that are coming to the table. And especially with the California wildfire exposures that are out there. Again, it’s so important to get your insurance reviewed. And sometimes we’ll review insurance. You might have a great deal. And we’re going to say, “You know something? You’ve got a great deal. Keep it with your current carrier and let’s stay in touch.” Other times we’re like, “Hey, we can do a much better job. We can improve the coverage, save you some money. And then also see if we can bundle both your auto and home together.”

Dr. Jim Dahle:
Wildfires are a real issue in Utah right now. We had probably our worst winter ever. The Colorado river is in trouble. The Great Salt Lake is in trouble and everything’s on fire. For the first time ever, we basically outlawed fireworks for the 4th of July which was shortly before recording this. It’s a real problem here in Utah this year. So, it’s not just these big widespread ones in California, you can have wildfires and all kinds of places in the country.

Okay. While we’re on the topic of homeowners insurance, let’s talk a little bit about how this changes as you get into an expensive home. A lot of people out there, a lot of White Coat Investors out there kind of have had the experience we had, where we had essentially what we thought was kind of a standard home. We went and got standard homeowners insurance, and then we did a renovation.

And so, I called up the insurance company when it was time to change the insurance a little bit. And they had me talk to a whole other division of the company because it was now a luxury home. So, tell us what that means and what that means for our insurance if we now live in a luxury home.

Jeff Wingate:
Sure. Sure. Yeah. I think the first thing you need to do is, for all the White Coat Investors that are listening is that you want to make sure that you’ve got the proper replacement cost for your home. And really that’s the cost to rebuild in the event you have a total loss. And it’s really important to make sure that you are reporting the proper coverage, A), which covers your dwelling. And then also making sure that you are reporting all your contents and working with your agents on a go forward basis.

And then if you’re doing a renovation, you definitely want to be talking to your agent and talking about that because you need to make sure that you have a coverage called builder’s risk, which covers the renovation as your home is being renovated going forward.

And it’s really important to making sure that, when you’re doing the renovation, people are asking you about your roof type and making sure that your roofs are not a certain age because you could get hit with an increase of premium. But in summary, when you’re doing a renovation make sure that you’re talking to your advisor. You may need a coverage called builder’s risk as part of your homeowner’s package and make sure that you’ve got the proper replacement costs, any event of a loss, and especially you want to cover it for inflation that’s happening out there right now.

UNDERSTANDING HOMEOWNERS INSURANCE, SPECIALIZED COVERAGE, AND PROTECTING YOUR PROPERTY 

Dr. Jim Dahle:
Now, a standard insurance policy covers fire. Your place burns to the ground in California or Utah or whatever. And that’s pretty much covered by every homeowner’s policy. But I find it fascinating that there are two coverages that aren’t standard, earthquake and flood. Talk to us about earthquake and flood, who should buy it, who shouldn’t buy it, what the issues with those coverages are, et cetera. Let’s start with earthquakes since I live not far from a fault line here. And this is a debate we’ve had over the years of whether to have this coverage.

Jeff Wingate:
Yeah, no, absolutely. So, most homeowners policies cover obviously your fire, your lightning, your windstorm all those perils. And it’s called an all risk policy. Everything is covered other than what’s excluded. And what is typically excluded under every single homeowner’s policies, as you just mentioned, Jim, is flood and then also earthquake.

We do have a host of carriers that can offer flood across the country. We’ve got the private market and we’ve got the public market as well. And we have the same thing for the private market for earthquakes. Again, we can get you quotes. If you’re in an earthquake prone area, we can get you quotes for earthquake that covers that exposure in the event that you did have a shake and there was as a result of the earthquake, it caused damage to your home. We do have the ability to provide that coverage to you.

And then for flood insurance, we’re seeing that with all the storm activity that I mentioned at the beginning of this call is we are definitely seeing more flood activity happen, especially in areas where they’re not typically a flood zone, where FEMA would say that you are living in a flood zone. And if you have a mortgage, you must buy flood insurance.

Again, we find it, it’s very, very important that you get a quote for flood insurance. If you’re in a zone, obviously you need it or with, when you’re out of a zone but just talk to the agent. There are a lot of different private options.

With flood insurance, it’s not just being near a river or being close to the ocean, but you can have just a deluge of water that comes down and that just builds on, let’s say next to your foundation and then rolls into your house. Well, guess what? That’s flood insurance. That’s not covered under the homeowner’s policy.

It’s really important to look at these perils on a go-forward basis. Again, you could buy earthquake coverage, you can buy flood coverage, and they would be in addition to your homeowner’s policy.

Dr. Jim Dahle:
Why are these excluded? Is this a historical accident? Why don’t they just throw these in for everybody and just charge more?

Jeff Wingate:
Yeah, it’s historical. Especially for flood insurance, it’s historical because you see a lot of claims out there. And historically, that’s always been excluded from the homeowner’s policy. They haven’t been able to price for it. But the good news is that there is a private market that now is able to price the risk. And that’s both for earthquake, and that’s also for flood.

There is a private market, but I will not see those in a regular homeowner’s policies because they’re also the insurance companies that issue the homeowner’s policies don’t have reinsurance which is actually another way of protecting their balance sheet, where they have to buy some reinsurance. They don’t have reinsurance for flood, they don’t have reinsurance for earthquake. That’s why there’s a separate market.

Dr. Jim Dahle:
When I lived in the Tidewater, Virginia area, we had one storm. We lived, I think we were 11 feet above sea level is where we were. And so, it wasn’t an insignificant cost to buy flood insurance, and we bought it while we lived there. But I remember one storm, I was actually out of town, I was on a brief deployment somewhere in the Midwest, I think at the time. And my wife ended up parking the car up on the curb up on the lawn, and the water literally got to the front little concrete porch thing. One more foot higher, and it would have been flowing through the first story of our house.

It has a lot of damage in a hurry, we had a water leak later in the house from the swamp cooler or something. And I was surprised how much it costs just the damage from the water leaking out of the swamp cooler. And that wasn’t a foot of water flowing through the first story of the house, you can do an awful lot of damage in a hurry with a flood.

Jeff Wingate:
Absolutely.

Dr. Jim Dahle:
I’ve always found it interesting with hurricanes. That they got to go through and fight about what’s covered by which insurance policy. If it’s from the wind, it’s one policy. If it’s from the water, it’s another policy, even though it’s all the same storm. Talk to us about these poor folks in Florida or on the Gulf Coast or whatever that have a hurricane claim and how that all gets sorted out.

Jeff Wingate:
Yeah, absolutely. I think that when you have a hurricane, and a high velocity windstorm comes through is that hurricane, if it damages your home, let’s say it rips off your roof, that is covered under the homeowners policy. The water then that comes down from the sky with the roof being off that damages your home, that is covered from the homeowners policy.

The actual flood that hits your foundation, and let’s say your first floor and causes a collapse, well, guess what? That’s a flood policy. A lot of times there is finger pointing between the flood carrier and the homeowners carrier, but it’s so, so important. This is one of really one of my takeaways on this podcast is look at your homeowners policy, making sure that you’ve got the broadest coverage available, make sure that you’ve got the proper replacement costs, take a look at flood insurance, and if you’re in a flood zone or not, and then you can look at the cost and say, “Yeah, I should buy this just protect my assets”, and even take a higher deductible on a go forward basis.

One thing I do want to point out is for auto insurance, is that there is not a separate flood policy, it’s covered under your comprehensive part of the policy. So let’s say your auto is sitting in your driveway, and then all of a sudden, you’ve got a flood, and your auto is damaged. Well, that’s covered under comprehensive. And that’s the other thing with auto insurance is versus home insurance is that that flood is included.

So it’s really important that when you look at your auto policies, even if you own your auto outright, and you don’t have an auto loan where with an auto loan, you’re definitely going to be required to carry some comprehensive and some collision coverage, because you have an auto loan. But if you don’t have a loan, it’s also very, very important to look at making sure that you procure some coverage, because these things do happen, or set aside some funds to for risk management in the event that you do have a loss from a catastrophe standpoint, you have a line of credit, or you have set aside some funds if you’re going to self insure.

Dr. Jim Dahle:
Now, let’s talk some more about earthquake coverage. I live on the Wasatch Front here in Utah, and they say we’re due for the big one. And the pricing when we went to price earthquake insurance, and I’ve had it at times and I’ve not had it at times, but the pricing is kind of silly, kind of ridiculous. I think it had some sort of a six figure deductible on it. And the premiums were still really, really high.

And so, I had a long discussion with the contractor about what damage my home was likely to see in an earthquake and what that was likely to cost to repair. And at the end of the day, I decided to drop it, I dropped my earthquake coverage and figured I was going to self-insure that. Why is the pricing so wacky when it comes to earthquake coverage?

Jeff Wingate:
Yeah, I think there’s a couple things. I’m not the expert in the pricing standpoint, but one is they’re probably not able to gather as much premium to cover a lot of the risks out there. Two, they’re modeling. Everything is done with a model. So, for earthquake, for wildfires, for flood exposures, there’s a ton of models out there that the insurance companies are looking at. And the models and the algorithms that the models show saying that you need to charge X amount of premium to cover the risk. And then you need to also have some sort of a deductible to cover the exposure.

And so, with everything, you have to balance the two together. You have to say to yourself, but wait a second if this earthquake insurance is costing me $10,000, and it’s going to also have a high deductible, it’s better maybe at times to self insure, like you just did. And to put those funds off to the side so in the event, you do have an earthquake, that you can pay for it.

Because the earthquakes, they’re going to be there, hopefully, they’re not one in 10 year events, but they’re going to be one in 100 year events, or one in 50 year events. And then you can put that money aside. Or you can say “You know something? I’m just going to look at CAT coverage.”

That’s the one thing that we do as well is that we work with our clients, and we don’t want to trade risk with a lower deductible like with $1,000. We really want to look at how can we provide really good protection? How can we look at all the risks that are out there, and making sure that in the event a catastrophe happens, that you’re properly covered. For earthquake insurance getting back to that subject, it is expensive, it’s not cheap. And it’s really the underwriters trying to price for it in the event that a situation does happen.

Dr. Jim Dahle:
You alluded a little bit to the dilemma of choosing a deductible.

Jeff Wingate:
Yeah.

Dr. Jim Dahle:
And obviously, the wealthier you are, and the bigger your emergency fund, the higher of a deductible you can afford. But are there certain levels of deductible at which it’s a better deal? Where it just doesn’t make sense to have a higher deductible, or you might as well just have the $1,000 deductible, because you’re not saving much to have a $10,000 deductible.

Jeff Wingate:
Yeah, that’s a great question. Really ask your broker when you’re working with Rate or working with your other broker, ask for different deductible options. It’s really that we’re seeing in this marketplace right now is for homeowners insurance, it’s to get below a $2,500 deductible, it really doesn’t make sense, especially with inflation. We’re seeing more standard deductibles from $2,500 up to $10,000. And then there’s even some percentage deductibles on windstorm and some other perils as well.

But definitely ask for options and then we can get from the insurance carriers what the credits would be to go up to higher deductible. And if it doesn’t make sense, we’re like it doesn’t make sense. There also there are some products out there where you can buy down the deductible. So let’s say that we wrote a policy with one of the listeners here, and the deductible is $5,000. And we got a credit of $1,000 to go up that way. We could also buy it down with a separate product for less money. So, that’s also available as well. Again, there’s a lot of options out there. Our job is to work with you to make sure that we give you options, you can make better decisions.

Dr. Jim Dahle:
Now, I think one of the things that a lot of people find very interesting is if you get something stolen out of your car, someone smashes your car window and steals it, your computer or whatever was in your car, it’s not covered by your auto insurance, it’s covered by your homeowner’s insurance. Why is that?

Jeff Wingate:
Oh, it’s just because it goes back to the days when insurance back in London, way back, it’s considered marine. It’s a movable object, it’s not tied down to the actual car itself. So it’s a movable object. So it’s part of your homeowner’s part of your contents. And so, that’s the other area that, again, insurance gets confusing at times. It gets confusing. But that’s why you want to make sure that you have appropriate coverage on your homeowner’s policy to cover your contents anywhere.

Dr. Jim Dahle:
Yeah, let’s talk about contents coverage. I walked through my house, I look at all my stuff. And I’m like, I don’t know. I don’t know what this is all worth. Am I supposed to go through every book in my library, every shirt in my drawer, and figure out what all my stuff is worth? How do you estimate that? Number one. And number two, in a claim situation, you got to claim all that individually? How do you deal with contents?

Jeff Wingate:
Yeah, based on under the homeowner’s policy is you’re going to get coverage which is your dwelling, and then you’re going to get a percentage of your contents coverage which will be a broad amount. And usually that broad amount will cover all your miscellaneous contents. And so, in the event you had a loss, and the loss adjuster comes through, again, what I would do is you find your insurance policy, you’ve got your proper limits for cover J, you got your proper limits for your contents, you’ve got coverage for loss of use, for any additional structures, making sure you’ve got a pool, you’ve got that covered in your pool shed, all those different things, making sure that’s covered.

But then I would take a video, take a video of all your stuff, and then just document that. Because again, claims do happen. I was talking about the tree that hit my neighbor’s roof this past week, claims happen, and just make sure you’re documenting it going forward. I think the best way to document your stuff is to take a video of your stuff. Now, the other thing that’s important, though, is do you want to talk about jewelry, fine arts, and collectibles. On your policies, there’s only certain…

Dr. Jim Dahle:
Firearms too. Aren’t they on a separate list?

Jeff Wingate:
Yeah. If you have anti-golf clubs that you want to ensure. You got to look at your stuff and say I’m not going to ensure everything. I’m going to self insure if this thing loses, it’s on me. But you want to make sure that your valuables are properly protected, because you’re only going to get sublimits on your base homeowner’s policy.

So making sure that you’ve got fine arts, that they’re properly scheduled on your policy, work with your agent. Jewelry, you could probably get a blanket jewelry limit, but then if you’ve got individual items, you want to make sure that those are scheduled. Looking at firearms, if you’ve got a firearms collection, all those different things, again, talk to your agent about. They’re there to help you so you can make those decisions because it’s really, really important if you look at that.

And then one thing we haven’t talked about yet, and we’re probably going to move into it is umbrella coverage. And this is an area that we’re seeing on auto policies when there’s an accident, we’re seeing these primary limits erode. So meaning that if you have property damage at $100,000 and personal liability at $300,000 and you hit somebody and then somebody dies or you get sued, we are definitely seeing more penetration into umbrella policy.

So, it’s really important that you protect your liabilities from the umbrella policy. They’re normally very inexpensive relative to the exposure. But if you’ve got a few cars, you’ve got a couple of houses you’ve got kids, you definitely want to look at limits between a million to $5 million to cover yourself. And then you might even want to look at limits above that depending on your situation. But it’s really important that you look at your liability exposures and you buy a policy for umbrella.

Dr. Jim Dahle:
Yeah. All right. Well, we’re definitely going to get more into umbrella, but I want to talk about with homeowners still. I’m still fixated on this contents coverage, because this was a big deal when I was pricing out my homeowner’s insurance. How do I know what my stuff’s worth? Am I really supposed to go through and appraise everything that I want covered? It seems like a huge pain. Do most people just use some percentage of the dwelling coverage and go, “That’s good enough.”

And then how does that work on the backend? Will they just send me a lump sum of money if the place burns to the ground and go, “Yeah, your stuff’s worth $250,000, here you go, here’s $250,000.” Are we really going to go through every book and look it up on Amazon and see what it costs?

Jeff Wingate:
Yeah, no, I wouldn’t recommend. I would recommend going with the percentage off of the dwelling. Just like with my home being an insurance professional and a buyer of insurance, I’ve looked at my content limit and I’ve looked at my stuff and I’m like “You know something? That’s about right.” Like all my stuff, my furniture, my clothes, the rugs, all the stuff that’s in the house, I have it documented on a video. So it’s kind of push it aside and I’ve actually put together in the safe just kind of like one of those stick drives, it’s over there.

And then I look at any valuable articles that you want to schedule on a go forward basis. But Jim, I would definitely look at having a broad base limit for content and it’s not necessarily to look up like this, this, this, this, this, this. No, just go for a broad base and then walk around your house. And it’s like, yeah, any event I had a total loss, I would be comfortable getting this check.

Dr. Jim Dahle:
And that’s how it works at claim time. My house burns to the ground.

Jeff Wingate:
If this thing burns to the ground, you can document through your video all your stuff. The insurance company should be “Here’s the check” on a go forward basis, cause all your stuff is worth X.

Dr. Jim Dahle:
Okay. So, it’s not a matter of them nickel and diming me on every item you got in the house and walking through the video and going, “What’s the price of this? What’s the price of that?” You can buy a policy where you just say, “If this burns to the ground, I want you to give me $450,000.” And they say, “Okay, we’ll agree upon that being the value. If it burns to the ground, here’s your $450,000.”

Jeff Wingate:
That’s the way it should be done. They might nickel and dime you a little bit. But basically, the more you can document the better position that you will be as the buyer of insurance. Again, the more you can document, the more you can bring to the table, to the insurance company, the more that they should be willing to pay you. If you can’t document anything and say, “Hey my stuff was $450,000. – Well, show me.” So, you do run into a harder argument because you have no documentation.

Dr. Jim Dahle:
So, there aren’t policies where it’s just agreed upon value. You actually do have to show, I really didn’t have something in the house. It wasn’t an empty house that burned to the ground.

Jeff Wingate:
Yeah, exactly. Jewelry. A lot of times with jewelry is you have an appraisal, the insurance company agrees to that appraisal and jewelry is covered for mysterious disappearance. All of a sudden, you lose it. You’re at the beach and you’re swimming and all of a sudden you lose your necklace or you lost your ring. That is covered fully by insurance. And as long as you’ve given the description to the insurance company and then they’re going to pay it and then they’ll try to figure out if they can find the object but they’re going to pay it.

Again, I think the message here is make sure that before you’re buying the policy and then after buying the policy, making sure that you have some sort of documentation in the event that there’s a total loss. It’s just proper risk management.

Dr. Jim Dahle:
Okay. So some people don’t own their home. So let’s talk a little bit about renter’s coverage. That’s basically just contents coverage. How much cheaper is that than buying a homeowner’s policy?

Jeff Wingate:
Oh yeah, it’s a lot cheaper. You can buy it depending on the limits for the contents for renter’s policy. You can buy it for $200 depending on it. And again, I think it’s just money that’s well spent because renter’s policies, it’s going to cover mainly, when you look at it, you want to make sure there’s two components of it. It’s the contents coverage, and it’s also the liability.

Dr. Jim Dahle:
And so, a lot of times with renters we do see water damage claims. In the event, let’s say that you’re on the top floor, there’s a leak in your shower or your toilet overflows, and then all the water comes crashing down to your neighbor below. They could sue you. And so, you want to make sure that you’ve got proper liability coverage going forward.

I think a key point people may not understand is that your landlord’s insurance policy does not cover your stuff.

Jeff Wingate:
It doesn’t.

Dr. Jim Dahle:
They’re not buying contents coverage for you. They’re only buying dwelling coverage, basically.

Jeff Wingate:
Correct. Landlords are only covering the corn shell and then all your stuff, if you had a burglary, obviously you see that the two top claims are water damage and burglary of your stuff. And then of course, if there’s a fire, all your stuff.

But definitely it’s for renters, it’s cheap. It’s good coverage. There’s a whole host of carriers out there that we can set you up with, and you want to make sure that you’ve got the contents coverage and you’ve got the liability. And then also if you buy an umbrella, that umbrella policy will sit on top of that renter’s policy as well, especially if it sits on top of your auto policies.

BUILDING THE RIGHT AUTO AND LIABILITY PROTECTION FOR LONG-TERM WEALTH

Dr. Jim Dahle:
Yeah. And we should talk a little more in depth about auto and umbrella coverage as well. For those just tuning in, we’re talking with Jeff Wingate, the president of Rate Insurance. If you’re interested in pricing out your insurance, which you probably should do every year or two, anyway, you can go to whitecoatinvestor.com/rate and get connected with them. Lots of White Coat Investors have been having great experiences with them.

But let’s talk for a minute before we move on to auto and umbrella, let’s talk about why you should use a broker in the first place, why don’t you just call up each of the insurance companies and ask them to price you out, for instance? Why use a broker?

Jeff Wingate:
Yeah, great question. With Rate Insurance, we’re an independent agency, we operate in all 50 states and we have access to over a hundred plus insurance carriers. So what we’re able to do is we’re able to work with you to really understand your risk, coming up with our game plan, making sure that you’ve got the proper coverages and then going out to the marketplace and shopping on your behalf.

Because you want carriers competing for your business and you don’t really want to go to an exclusive carrier because they only have one product. For instance, we’ve got access to travelers, we’ve got access to Chubb insurance, we’ve got access to Pure, we’ve got access to Liberty Mutual. A whole host of carriers that are just quality insurance carriers that pay claims and that are becoming much more competitive.

If you were just to go to an exclusive writer, such as State Farm, State Farm is an exclusive writer. Yeah, they’re competitive at times. Sometimes the independent can’t beat their price, but it’s just one option. And so for us, it’s really important to look at a variety of different options. And so, you know that you’ve got the best deal in the marketplace.

And then let’s say if you’re currently a State Farm customer or you’re let’s say with USAA, we will shop those policies. And they’re good carriers. Trust me, very strong carriers. And if we can’t beat the price or beat the coverage, then you’ve got a great deal. That’s awesome. And that’s the beauty of the insurance marketplace, because the insurance marketplace is one of the most competitive markets out there.

I know that when it’s claims time, people like you hear horror stories, you hear great stories, I had a great claims experience, but use an agent, they can get access to multiple carriers, multiple options, and then also we can be an advisor on your behalf, in the event you do have a claim.

We can talk to the insurance carrier, and especially with the volume of business that we do with the insurance carrier, we can give you some leverage in terms of that claims discussion.

Dr. Jim Dahle:
As part of bringing Rate on as a partner, I shopped my insurance around and actually bought my boat insurance for my new boat through Rate. And it was interesting I’ve got USAA insurance having been in the military, and indeed, we were able to save money versus USAA. I think my total for homeowners, auto and liability that Ray was able to find was 10 or 12% less total. It was $1,000 a year or so savings on my $10,000-ish insurance costs that they were able to find me.

And then of course, we had this big debate, “Do we leave USAA? We’ve had a great claims experience over the years with them. Is it worth 10%?” But they were able to save us money. There’s no doubt about that. They did find less expensive options and we certainly went through with it for the boat coverage.

All right, let’s move on to auto. I think about auto and I’m like, okay, well, White Coat Investors build wealth and become multimillionaires, the value of the car is not the big deal here. Most White Coat Investors, if they save up for a few months, they can buy a new car. It shouldn’t be that hard for people. This shouldn’t be a huge piece of your financial life, but the part that can be a huge piece is the liability coverage on your auto.

So, let’s talk about all things, auto coverage. We got to make sure we answer this person who wrote in with the question about when to drop comprehensive and collision and just have liability coverage, but teach us about auto insurance.

Jeff Wingate:
Yeah, sure. Absolutely. You’ve got really the three parts of the auto policy, just to be very simple. You’ve got your comprehensive, in the event that the auto is stolen. Any event you’ve got a flood, it’s covered under comprehensive, you bang into your own property, things of that nature. Then you’ve got collision. In the event that you hit somebody else, somebody else hits you and there’s collision to the car, and then you’ve got your liability.

If you are well-means, you don’t have an auto loan on the car. You want to make sure that, and you can’t drive the car without liability. Obviously it’s a state law across the country.

Dr. Jim Dahle:
Sure. You got to have liability coverage, but it’s like no coverage at all. In a lot of states, if you get the minimum, $500,000, it’s nothing.

Jeff Wingate:
I highly not recommend buying minimal limits. Absolutely not. Because especially if you’re high net worth, you’re a doctor, you’ve got good income, you’ve got a family, you don’t have a family is you get sued and you’re on your own if you don’t have insurance.

I think that the first recommendation is that for liability insurance, do not buy minimal limits. You want to buy the maximum limits on your primary policy for liability. And then also look at the umbrella protection.

On the comprehensive and also the collision, depending on your financial means, if you don’t have a lien on the automobile, that’s a personal decision. That’s a personal decision in terms of do you self-insure that exposure. And again, work with your agent, look at the pricing so if you did liability only, what would be the price and then what would be the price with a comprehensive and collision plus the liability.

And then you make a decision with your agent on a go-forward basis, because if it’s only $1,000, it might be worth it to spend $1,000 for the comp and the collision. But that’s a personal decision, but on the liability is highly recommend that you go for the higher limits on your autos, and then you schedule umbrella on top.

Dr. Jim Dahle:
I’ve always thought it was worthwhile having comprehensive and collision on at least one of your vehicles for when you travel.

Jeff Wingate:
Totally.

Dr. Jim Dahle:
Because then it generally covers your rental.

Jeff Wingate:
Totally. Oh, that’s another great point as well, because yes, it will cover your rental as well. And then also you’ve got to look at your credit card deals. Because a lot of times your credit cards cover your rental, but again, everyone’s different. And so have that conversation with your agent because the agent is there if you go an exclusive with your agent, or if you go with an independent like us, have that conversation with your agent in terms of what are the cars.

And the good news with us, we know all this stuff because we can pull it in from outside sources. And so, I don’t have to ask you, “Well, how many cars you have?” Because I already have it in front of me. Just give me your name and address. And I can pull that information automatically through our systems. And then the same thing with your property. I know exactly because you would say, “Well, how do I determine the replacement costs?” If you’re only talking replacement costs, I can determine that because we’re pulling in from third parties. So all we need is your name and address. We can pull this information together. And then let’s have a conversation of how you’re using those autos.

Are some of those autos antiques? Well, there’s a separate market to cover the antique side. And actually it’s a really inexpensive market because you’re really not using it to drive to work. You’re using it to for that car show or whatever it may be.

Dr. Jim Dahle:
Fourth of July parade, whatever.

Jeff Wingate:
Fourth of July parade and you’ve got the historic plate on the back and stuff like that. So again, it’s talk to your agent, talk about how are you using your automobiles, what are the issues, what are your financial means, and then the agent and you will make a joint decision in terms of what the best way is to go forward. We should be acting as an advisor, an insurance advisor to you, and again, to give you options to make better decisions.

Dr. Jim Dahle:
Certainly as the value of your vehicle drops out of the five figure range into the four figure range, I think that’s probably the time for most White Coat Investors to start asking themselves “Do I drop collision and comprehensive at this point? I can afford to replace this car using my emergency fund? Maybe it’s time to have a little bit less coverage on it.” I think that’s probably as good of a rule of thumb as we’re going to come up with for White Coat Investors.

Jeff Wingate:
If you’ve got an auto that’s been, you’ve owned it for many, many years, you don’t have a lean on it. And let’s say it’s worth $5,000. You just have to say to yourself “You know something? If I had got this car stolen or I got it in an accident, it was my fault, fine, I’ll just buy a new car.” And self-insure that $5,000 and not pay the insurance. But again, the recommendation is buy the liability.

Dr. Jim Dahle:
Let’s spend a minute on umbrella. People are telling me that the price of umbrella is going up. I used to tell people years ago that for $200 to $400 a year, you can get a million dollars of umbrella coverage. And it sounds like that might not be the case anymore. What are people looking at with kind of typical liability profiles for a million dollars in coverage?

Jeff Wingate:
Yeah. We’re definitely saying it’s a great question. And a great observation is we’re definitely seeing pricing going up. We’ve seen it for a million bucks, I think I’m trying to remember what I’m paying for my liability, but it definitely has gone up over the past years. And that’s because losses are starting to pierce the primaries like an auto, and then also we’re seeing some more claims activity on the personal liability side as well in terms of other suing individuals based on neglect things of that nature.

So, we’ve seen cases where we still can get a liability policy for $200. We’ve seen it for $500 and we’ve seen it for $1,000. And again, it’s all depends on the situation, but compared to prior years, it’s definitely a little bit more expensive than it has. But relative to the limits that you can get and the premium that you are paying, it’s worth it. It’s worth it. Because gosh forbid there’s an issue and you get sued is you want to make sure that you’ve got the insurance carrier on your side because that’s a lot of money if things go south.

Dr. Jim Dahle:
Yeah. Doctors typically understand this. They’re like, “Wow, I get a million dollars of coverage and it’s only $1,000. That’s way cheaper than my malpractice coverage.” Doctors tend to understand the liability issue here, but they may not understand though, is something like 80% of claims are auto related. These claims, are you hitting somebody and hurting them? That’s what these claims are most of the time, or your teenage driver hitting somebody totaling their car and putting them in a hospital. That’s where most of these umbrella claims are coming from. It’s not somebody tripping and falling on your property most of the time.

Jeff Wingate:
Yeah. And then also too, is the logistics climate they’re in. I live in the state of New Jersey and just driving from where I live into Manhattan, all the billboards of the personal injury lawyers are just stacked up and they’re just multiple billboards. And so, that has not changed. And that exists in every single state. I travel a lot to our headquarters in the Chicago area and you see the same exact billboards.

Dr. Jim Dahle:
Yeah. They’re in Vegas as well. And we’re starting to see more and more of them in Salt Lake too. Definitely a whole industry out there based on suing people once you get hit. And all of a sudden, amazingly, your neck hurts. It’s very, very interesting.

Well, the other question people have about umbrella coverage is, “Why shouldn’t I just buy more when do you move from a million to $5 million?” And the way I’ve answered that is when you’re starting to consider some of these more complex and expensive and uncertain asset protection techniques, when you’re starting to think about trusts and you’re starting to think about family limited partnerships and equity stripping and these sorts of complex asset protection techniques, that’s probably the time you ought to also bump up your coverage from $1 million to $5 million. It’s relatively cheap compared to all that other stuff as far as asset protection goes.

I kind of think everybody ought to have seven figures of liability coverage and maybe go from one to five as you gain assets. Although, you’re not trying to match your net worth because you’re trying to match your liability. But when it starts not being an issue in your financial life that now you’re paying $2,000 a year for your umbrella coverage instead of $700. Maybe that’s the time to bump it up to five. But you mentioned that some people are even looking into coverage of more than $5 million. Tell us a little bit about how that’s changed in the last few years.

Jeff Wingate:
Yeah. It’s a great point is that we’re definitely seeing much more demand other than a million to bump up the limits to three to five, and we’ve had some cases where the individual was very wealthy, had a lot of assets. And it wasn’t just about wealth. It was about how they had a lot of assets and they had multiple properties, multiple automobiles. They’re involved in multiple businesses. They sat on some boards of directors and stuff like that. And so, they really needed a much higher limit.

We have done some $10 million deals and stuff like that, but we’re not seeing a lot of those, but it’s becoming part of the dialogue, I should say going forward. And again, what you do is can you get it? Great, and let’s price it out. If it’s a few thousand dollars, then you might be willing to do it going forward, but the majority of the time we’re seeing limits between one and $5 million.

Dr. Jim Dahle:
The wonderful thing about this liability coverage as well is, you’re always worried someone’s going to clean me out and it’s not fair. Right. I didn’t really do anything wrong. Well, every now and then you do do something wrong and you hurt somebody. And sometimes it’s somebody you care about. Maybe it’s a passenger on your boat or a passenger in your car and the wreck was your fault. And here’s a chance for you to do right by them, for you to pay, not only for all their medical treatment, but also to be able to give them a lump sum money to make up for the fact that they’re now disabled the rest of their life.

When you look at your liability coverage, you recognize that this is a chance also for you to take care of those you care about in the event that you make some little mistake that just happens to have really high financial consequences.

Jeff Wingate:
Yeah, absolutely. And again, you just brought up another point is that with umbrella policies, it doesn’t just sit over your auto and your home, it also sits above and making sure you schedule your boat. If you’ve got a boat and you want to make sure your liability is scheduled to your umbrella, you want to make sure that if you’ve got some recreational ATVs and you’re buying insurance on that, just again, making sure that your entire portfolio is protected. You’ve got to look in it.

The way we look at insurance, we look at, “Okay, what are your assets? What’s your stuff? And then what are your liabilities?” In terms of making sure in the event that something happens and you get sued, making sure there’s proper protection on that.

So it’s looking at your entire balance sheet and making sure that you’ve got an insurance program that protects you going forward. And that program is going to be multiple policies. You just can’t get one policy that covers everything. Like we talked before, Jim, is you’ve got to look at earthquakes, you got to look at flood, you’ve got to look at homeowners, you got to look at jewelry and all this stuff, but that’s why you work with an agent because they can put it into a package for you.

Dr. Jim Dahle:
Yeah, very well. Well, we’ve been talking with Jeff Wingate, the president of Rate Insurance. If you’re interested in pricing out your insurance, if you haven’t done it in the last couple of years, it’s time to do it, go to whitecoatinvestor.com/rate, and you can do that today. Jeff, what else have we not talked about with insurance that White Coat Investors ought to know?

Jeff Wingate:
I think we’ve talked about a lot. And again, I just want to emphasize is that the market has changed. If you have not reviewed your insurance with an advisor, especially over the last couple of years, now is the time to do it. There is an opportunity to save some money out in the marketplace, we’re all looking to save money, but most importantly is making sure that you’ve got the right coverage going forward.

So, I look at it is we want to save you money, but it’s not just about price. It’s making sure that your assets and your liabilities are properly protected. There’s a whole host of products that are out there. We’re biased, meaning that work with an independent that has access to multiple carriers going forward and our job is to be your advisor and advocate in the marketplace.

Dr. Jim Dahle:
Awesome. Thank you for your time today, Jeff.

Jeff Wingate:
Awesome. Thanks for having me. Really great discussion. Appreciate it.

Dr. Jim Dahle:
I hope you enjoyed that interview. I think a lot of people have not thought about property and casualty insurance for years, or they get a new car and they add that to it, but they don’t look at everything in a comprehensive way. You might be surprised how much better coverage you can get and how much money you can save.

These insurance companies, they like sticky customers, people who don’t shop. But a thousand dollars a year compounded over 30 years starts adding up to a significant sum of money. It’s certainly worth a few minutes on the phone with an insurance agent, with a broker to get it sorted out. So, make sure you do that sometime soon. In fact, why not just get it done this week? It’s time. It’s been a while since you did it. Shop your insurance again.

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All right. For the rest of you, keep your head up, your shoulders back. You’ve got this. We’ll see you next time on the White Coat Investor podcast.

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Transcription – MtoM – 285

INTRODUCTION

This is the White Coat Investor podcast Milestones to Millionaire – Celebrating stories of success along the journey to financial freedom.

Dr. Jim Dahle:
Welcome to the Milestones to Millionaire podcast.

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Take your seat at our table at lightstonedirect.com/wci. All investments involve risk. Please visit lightstonedirect.com for disclosures.

All right, welcome back to the podcast. We love having you here. Without you it’s not much of a podcast. We need listeners or I’m just screaming into the void and obviously we need guests. And so, if you’re interested in coming on the podcast and sharing your story and sharing what you’ve accomplished, your milestones to inspire somebody else to do the same, you can sign up at whitecoatinvestor.com/milestones.

I’m told by our staff that people are refinancing loans again. That is a good thing. That means rates have come down a little bit and people are able to get lower interest rates on their student loans.

Now, sometimes you can do that just because you got in a better financial position. Your credit score is better. Your debt to income ratio is better. So you just qualify for a better rate. If you’re paying off your student loans, you might as well refinance them and get the lowest interest rate you can get. You can get the best deals out there on student loan refinancing at whitecoatinvestor.com/student-loan-refinancing. So, check that out.

INTERVIEW

Dr. Jim Dahle:
All right, we’ve got a great guest on today. Let’s get him on the line.

My guest today on the Milestones to Millionaire podcast is Alec. Alec, welcome to the podcast.

Alec:
Thanks so much for having me.

Dr. Jim Dahle:
Tell us what you do for a living, how far you are out of training, what part of the country you’re in, and maybe most importantly, what you’ve accomplished recently.

Alec:
I am an orthopedic surgery fellow for another couple of weeks. I finished the end of July. I live in the Southeast right now and headed to the mid-Atlantic for my job. And we are back to broke.

Dr. Jim Dahle:
Awesome. That’s pretty cool. Back to broke and not even quite done with training yet.

Alec:
Yeah.

Dr. Jim Dahle:
All right, you say we, who’s the other person in the picture here?

Alec:
My wife and I, we’ve been married over 12 years. Been together a long time. Through the whole journey, she’s seen it all. And then we’ve got three kids at home with us.

Dr. Jim Dahle:
Awesome. So there’s really a lot of we. There’s five of you.

Alec:
Yeah.

Dr. Jim Dahle:
All right. So, give us the breakdown. Back to broke means your net worth is zero, meaning you have as much assets as you have in liabilities, in debts. So why don’t we start on the liability side of the ledger. Tell us about your debts.

Alec:
I have right around $300,000 in government student loans right now.

Dr. Jim Dahle:
Just student loans?

Alec:
Yeah, that’s it. Just student loans. And then the other side of that is about $300,000 in different investment areas.

Dr. Jim Dahle:
Tell us about the investments.

Alec:
We’ve been able to do an HSA ever since I started as a resident. So that’s one of our larger ones. We have about $80,000 in that. We’ve had a high yield deductible plan for all of residency and fellowship. So five-year residency, one-year fellowship. And then I have a Roth that’s just around about $100,000 that I’ve contributed to most years, not every single year over the last six or seven years.

My wife has a similar, she has a Roth as well, around $50,000. I have a 403(b) from my current fellowship that’s about $30,000. And then we have some money in a 529, which I guess sort of ours, not really ours. That’s about $20,000. Then we have some cash on top of that.

Dr. Jim Dahle:
Okay, this is substantial. Is there an additional income here? Was there a moonlighting income? Is your wife working while you guys are raising three kids? Did you really do all this on just a resident kind of income or tell us how you did this income-wise?

Alec:
Yeah, we did have a home sale at the end of residency, which has made some of the contributions over the last, I guess, year and a half possible. The other thing we need to remember, though, is I looked this up because I wanted to be as active as I could. When I started getting a match in residency so that we did have a 403(b) match, the Vanguard’s total stock market was selling at $90. When I wrote my notes here, it’s $180.

Dr. Jim Dahle:
So a lot of this is your money working.

Alec:
Yeah, the money has been working. Yeah, exactly. Yeah, I do want to say we’ve done a good job, but the market’s probably done better than we have.

Dr. Jim Dahle:
And meanwhile, you’ve been part of that. You were during the student loan holiday. What IDR program do you have these student loans in?

Alec:
Let’s see, what was I in for? I was in PAY for most of it. I think that’s one of the biggest things. When I graduated medical school with about $300,000, I anticipated by the end of residency to owe somewhere close to $500,000 or more. But with the pause, I’ve really benefited from that, obviously.

Dr. Jim Dahle:
Okay, what do you guys invest in? You said total stock market is some of it. You just stick it all in total stock market and keep it simple, or what do you do?

Alec:
Yeah, that’s essentially all of it. I think somewhere along the way, I heard you say, as long as your portfolio is under $100,000, keep it simple, stocks for us the whole time. When I had the 403(b) for a long time, that was in a target retirement. So I just picked the highest one that was available. I think it was 2065. When the 2070 became available, I started investing in that. And so, we are 100% stock right now, just trying to take advantage of the time horizon.

Dr. Jim Dahle:
Very cool, okay. Even so, you still put a fair amount of money in on a resident income. Was your wife not working?

Alec:
My wife was not working when we were residents. We had our first at the end of medical school, and we had our second about a month before starting residency. So she’s been at home for about five, six years now. And so, we were pretty frugal. We did buy a home the second year of residency and got a really great rate as far as cash flow goes. We had pretty limited expenses.

Dr. Jim Dahle:
Yeah, you probably got a 3% mortgage or something, huh?

Alec:
Yeah, it was under 2%, which was absurd, which was great. We went from renting my intern year around $2,000 to our mortgage being around $1,200 for most of residency.

Dr. Jim Dahle:
It helps when you don’t have to pay any interest.

Alec:
Yeah, exactly, yeah. That obviously freed up some money. And then we were pretty frugal with essentially no vacations, no real expenses outside of diapers and groceries for the years that we were in residency.

Dr. Jim Dahle:
Okay, your wife’s been holding on here for a while, all right?

Alec:
Yeah.

Dr. Jim Dahle:
Five or six years, she hasn’t been working. You’ve been gone for 80-plus hours a week, and now you’re coming into soon an attending income. What’s going to change? What’s your financial life going to look like next year? Have you planned it out at all?

Alec:
Yes, we’ve definitely looked at this. Often on this podcast, you talk about what’s your secret to success or so forth. It’s having my wife on board with me or being on the same team. I think that’s the biggest thing for us. We obviously know things will change, that income goes up, but we have a pretty solid plan. We had a plan of residency of following kind of the residency waterfall, and there’s an attending waterfall as well that we know where every dollar goes first, and then there’s leftover, and we know what to do with the leftover. I think we’re very excited for that change, but I think we’re also ready for it.

Dr. Jim Dahle:
I imagine after five years or plus years.

Alec:
Six, yeah.

Dr. Jim Dahle:
Okay, what do you think your first really big splurge is going to be?

Alec:
Oh, geez. We have this kind of funny notes tab that we have together, and there’s a category we have that’s called “Buy When Rich”, which is basically essentially things that we would like when we have a little bit more spare money, and it’s kind of what you’d expect, though. It’s simple things that we’ve neglected, like I really want my car to get detailed, and my wife wants a car wash subscription. So, it’s small things.

I think the big one that’s definitely on there is I told her when the student loans are paid off, which will be some more time, obviously, pick anywhere in the world and we’ll go. So that’s kind of one of our kind of carrots out there is that we’ll do something big kind of once we have this thing hanging over us gone.

Dr. Jim Dahle:
What is the plan for your student loans? You owe 300-ish now. How long is this going to take you to wipe these out? Are you going for PSLF, or what’s the plan?

Alec:
I was planning PSLF for a long time, thinking I was going to go into academics, so I was maximizing what would have been a big forgiveness. I’m actually joining a private practice, and so my plan is to refinance this fall. I refinanced earlier, but I can’t afford the refinance monthly until I probably start, just because of the large sum.

And so, I’ll refinance this fall, and then aggressively pay off and refinance every six months or so. The most common debate probably on the podcast is invest or pay down debt. And I’m squarely right in the middle of that. If I can get it to a number, both a value and an interest rate that I feel comfortable with, that I can just kind of know that it’s going to go smoothly and it’s guaranteed returns by investing, then I think I’ll be happy. But for a little bit, I’ll be aggressively paying down, spare money and stuff going towards it.

Dr. Jim Dahle:
What do you think, two years, three years, five years? How long are you going to make it up?

Alec:
I think under two, for sure.

Dr. Jim Dahle:
Under two, okay, so pretty aggressive pay down.

Alec:
Yeah, I think we’ll be pretty aggressive with it.

Dr. Jim Dahle:
All right, there’s somebody out there that’s hanging on. Maybe like your spouse has been in some respects. They’re first year residents, second year residents, whatever. Maybe they can glimpse a little light at the end of the tunnel. They’re worried it’s a train. They want to do what you’ve done. They want to get back to broke. They want to have this written plan that they’re going to put in place as they come into their attending money. They want to have some money on the side in case something bad happens.

They want to put together a tab on their spreadsheet to do when rich. What advice do you have for them?

Alec:
One of your lines is personal finance is personal. You need to find that balance of what can we realistically do. It’s kind of like people with their dieting. If you try to go out and be really strict on your diet, I found that I end up eating a whole box of Oreos or something.

And so, if you really are super frugal and you’re counting every single penny, I feel like it can be very hard to maintain that for a long period of time. The rule that we followed that I forget which book I picked up that you’d recommended that had it in it was kind of this 10% rule. That any extra money you get, you do 10% with it, whatever you want, no questions asked, no guilt.

And so for us, extra money, it’s like, “Well, what’s extra money as a resident?” Well, we couldn’t moonlight as residents. So I did get a couple travel awards. We have a few things in there. So there’s a little bit of money here and there. And so when that money came around, you got 10%, you get to do whatever you want with it. And then 90% goes towards building wealth, whatever you categorize it as. So, paying down debt or investing or whatever. And so, for some people, that number might be more like 50% or 60% or whatever it is. I think that’s why it’s personal, finding the number that makes sense for you that you can live with.

And so, I start in September. The first paycheck will be sometime maybe in October. If we look at that number that’s left over after our expenses and we decide 10% is the number or another couple decides it’s 50%, then I think that’s kind of where you find that balance of, “We can do whatever we want with this and we have the opportunity to do that.”

Dr. Jim Dahle:
Well, we’ve talked about what you’ve done. We’ve talked about your future financial goals. We’ve talked about your advice for others. Anything we haven’t covered today that you feel like White Coat investors ought to know?

Alec:
I think that the one thing that I would harp on is, and I know this is more for a specific crowd, but for medical students, I look at fourth year as the best opportunity for a lot of this education. I don’t think there’s a ton you can do as a medical student as far as investing and things like that. And a lot of the advice that I got from you in your book, there’s not a lot you can do when you don’t have an income. There are some wise things you can do certainly. And I encourage everybody to do that.

But you have a fourth year of med school. If it’s anything like my fourth year, it’s almost the biggest waste of medical education in history. You pay full tuition. You’re gone half the year. You have all these easy classes and you have all this free time. And so, I encourage everyone I meet to self-educate as much as you can.

And that’s in general, but especially as a medical student, you have all this time to travel to interviews or some people spend a month in Cambodia or Bali or whatever they do. And there’s all this opportunity to get ready for the next step. And so, I always tell people get the podcast, get some books on, some audio books, get some hard books, whatever you need to just start reading and educating yourself. Because again, to your advice, nobody’s going to care about this more than you will. And so, you need to take ownership and take control. And I think that’s the best opportunity to do so.

Dr. Jim Dahle:
Yeah, that’s good advice. Well, you’ve been very successful. You should be very proud of yourself. This might be the first big milestone you hit when you get back to broke, but I have a feeling you’re going to get through a whole lot of others in a pretty good hurry. So, congratulations to you, Alec. Well done. Be proud of yourself. And thanks so much for being willing to come on the podcast.

Alec:
Thank you so much. It’s been awesome to be here. Really appreciate it.

Dr. Jim Dahle:
All right, I hope you enjoyed that interview as much as I did. It’s wonderful to see that it works. There’s nothing really terribly complicated about what we tell people to do here with their finances. And a lot of the benefit, I think, of this milestones podcast is that we just get to trot people out at different points in their career and say, “Hey, look, if you just do this stuff, it works.” Here’s a doc back to broke already before even being done with training. It’s way ahead.

And sometimes you feel like you’re behind when you’re in something that has a long training period, like orthopedics five years of residency and a year of fellowship. Well, the emergency docs out there have already been earning $350,000 or $400,000 a year for three years by the time you come out of training. And so, it’s good to see people making progress even while they’re in training, particularly when they’re in these longer training programs.

Now, obviously an orthopedist generally makes more money than an emergency doc and most other specialties. He’s going to be fine. But the fact that when he gets money, it hits prepared hands goes a long way. He already knows what to do with it. He’s got a plan for the next year.

And as you come out of training, if you will just have a written financial plan for what you’re going to do with those first 12 monthly paychecks, you’re ahead of 95% plus docs. You’re actually got something you’re working toward. And when you have a plan, you achieve your goals. It’s amazing. It works very well.

I encourage you to do that. I’m bringing people on here that are not me that are doing that as well to demonstrate this works and look how much peace of mind they have because they know they’re on a pathway that leads to financial success. Even if we’re still celebrating their first milestone. His net worth is zero. He’s worthless. But look at his future. It’s going to be awesome. And so will yours if you also take care of your finances.

FINANCIAL BOOT CAMP: NET WORTH

Dr. Jim Dahle:
Let’s talk about net worth for a minute. Net worth is perhaps the most important number, certainly one of the few important numbers in personal finance and investing. A lot of people get fixated on their credit score. Your net worth is dramatically more important than your credit score as far as financial numbers go. Don’t worship at the altar of FICO. If you’re going to concentrate on stuff, concentrate on things like how much you have in investable assets and your savings rate and your net worth rather than your credit score.

Net worth is everything you own minus everything you owe. Technically it includes everything, your clothes, your computer, your vacuum, everything. But in practical speaking, what most people include on the asset side is their investments in bank accounts and that’s usually about it. Your investments in your home and those are kind of the big chunks. If you can calculate that much each year, that’s probably enough. You don’t have to go crazy assigning values to your cars, your RVs, your boats, or your clothing or your jewelry or anything like that. If you want to, you can. It’s technically is part of your net worth, but a lot of people leave that out of any sort of annual net worth calculation they do.

On the other side of the ledger is your liabilities, your debts. Credit card debt, auto loans, your mortgage. So your net worth includes your home equity, but you got the value of the home on one side, you got the value of the mortgage on the other side of the ledger. You subtract the liabilities from the assets and that’s your net worth.

If you’re like most doctors, your net worth starts out negative. 75% of doctors pay for medical school loans. So when they come out of their residency or fellowship and they’re 31 or 35 or whatever, their net worth is negative because they got $200,000 or $300,000 or $400,000 in student loans and $10,000 in assets. So they have a negative net worth and that’s okay. The point is not where you start, it’s the direction you’re moving in and the speed you’re moving at.

Now, I get lots of questions about net worth. People want to get into specifics of what should be included and what shouldn’t be included. For example, they ask about accounts like 529s and UTMAs and your children’s custodial Roth IRAs and your donor advised funds.

The truth is you can include those if you want, but I think the important thing is to be consistent because what you’re really looking for here is the trend that you’re moving in. Now, technically in one respect, the 529 belongs to you. Even though your kid’s the beneficiary, you could pull all the money out, pay any taxes and penalties on doing so and buy a sailboat with it or put it in your taxable account. It’s technically your money. It’s interesting though, for estate tax purposes, it’s already been considered a completed gift to your kid. So, a little bit interesting there with 529s.

A lot of people look at these sorts of things for their children’s accounts and they don’t count them in their net worth because they consider them, it’s not mine anymore, it’s my kid’s. 529s, UTMAs, these custodial accounts and custodial Roth IRAs, for instance, they don’t count in their net worth because they view it as their kid’s money and I think that’s very reasonable.

When it comes to a donor advised fund, a DAF, that’s particularly true. You can’t take that money out just like you can’t take out your kid’s Roth IRA or your kid’s UTMA account and put it in your own account. It’s gone. It’s definitely a gift you’ve already given away. But if you want to include that in your net worth, I think that’s okay too. Just be consistent year to year.

A more important number than net worth is probably your investable assets. This is a number that you can actually use for something important and make decisions with. Net worth is more like kind of interesting and neat to know and make sure you’re moving in the right direction and that sort of a thing. But your investable assets is a number you actually use to do financial planning.

For example, as a general rule, you can take out about 4% of your investable assets per year and expect your money to last in retirement for at least 30 years with a very high probability. That’s not your net worth though. That’s your investable assets that you multiply by that number. That generally just includes your investments.

Most people don’t include their home in that. They typically don’t include their debts in that. They typically don’t include something like 529s or UTMAs or donor advised funds or something like that. It’s just your investments. If you have rental properties, you’d include that. If you have retirement accounts, you’d include that. If you have taxable brokerage accounts, you would include that all in your investable assets.

What I wouldn’t necessarily try to do though is somehow put a dollar value on income streams you have. If you have bought a single premium immediate annuity, this is a pension you buy from an insurance company. I would not include the value of what you paid for that any longer in your investable assets.

Same thing with social security. Don’t try to assign a dollar value to it and put it in your investable assets or your net worth. Same thing with a pension. If your pension, you’ve already annuitized it, it’s now an income stream. I wouldn’t include it in your investable assets.

When you go to calculate how much you need out of your portfolio, you subtract all those sources of guaranteed income from the amount of income you need. So if you say, I need $150,000 to live on and I’m getting $20,000 from a pension and I bought an income annuity that’ll pay me $20,000 a year and I’m getting $40,000 from social security. Well, now you only need your portfolio to provide you $70,000 a year, not $150,000 a year.

But I wouldn’t try to assign a value to any of those assets and put them into your investable assets. I would leave them out and just subtract the guaranteed income from the amount you needed.

So, net worth is worth calculating once a year. You or your financial advisor certainly needs to know what your investable assets are so you can do financial calculations, financial planning with that number. But these are numbers worth calculating once a year, whether you’re a do-it-yourselfer or whether you’re not, just to track how you’re doing, where you’re going.

The question we get a lot is, do we pay down debt or do we invest? And the truth is, both of those are good things to do. Both of them increase your net worth. And they generally increase your investable assets as you go along as well.

Don’t worry so much about where your money’s going in that respect, more about how much of it’s going toward these good things that build your net worth. I hope that’s helpful to you.

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All right, we’ve come to the end of the podcast once more. Keep your head up, your shoulders back. You’ve got this. We’re all here to help you be successful. See you next time on the Milestones podcast.

DISCLAIMER

The White Coat Investor podcast is for your entertainment and information only. It should not be considered financial, legal, tax, or investment advice. Investing involves risk, including the possible loss of principal. You should consult the appropriate professional for specific advice relating to your situation.

This is the White Coat Investor Podcast: Financial Bootcamp, your fast track to financial success.

Dr. Jim Dahle:
Asset allocation is a fancy term for your mix of investments. We’re talking about how much of your portfolio is in stocks versus bonds versus real estate versus cash versus alternative kinds of investments. That’s your asset allocation, right? These are all assets, and this is how you allocate them.

Now, some people use a tactical asset allocation, where they’re changing that mix of investments, trying to time the market and figure out which one is going to do best going forward. I’m not a big fan of that technique because I’ve found my crystal ball is not very functional, and so I need an investing technique that is going to work no matter what the markets do. That doesn’t require me to be able to predict the future in order to be successful, and that’s called a static asset allocation. So you actually decide what percentage of your portfolio is going to go into each type of investment, each asset class. They’re called like international stocks, or U.S. stocks, or small value stocks, or real estate, or tips bonds, or regular nominal bonds. Right? You decide up front what percentage of your money is going to go into each of these types of investments, and then all you have to do is maintain those percentages.

But it turns out when people study this, the actual mix of investments, the asset allocation, matters more than the individual investments you pick. It’s not about whether you pick Nvidia versus Amazon, or it’s not whether you pick, you know, a Schwab index fund versus a Vanguard index fund. We get focused on that stuff too much. What really matters is the overall mix of investments. How much is going into stocks? How much into bonds? How much into real estate? That drives something like 80 or 90% of your returns, rather than the actual investments that you choose. So try to zoom out a little bit and focus on the forest and not the trees.

It’s important to recognize that risk and return are connected here. Now you don’t always get a higher return for taking on more risk. You want risk that you’re compensated for, right? Just gambling with your money is very risky, but that doesn’t necessarily have a higher expected return. But getting higher expected returns generally do require you taking on more risk. It is a necessary but not sufficient condition for higher returns, if you will.
Now, the downside of higher risk investments is not only volatility, where the value of the investment goes up and down over time, but also the actual risk of loss in the long run can be higher as well. And so it’s a bit of a trade-off. If you want to take less risk, you’re going to need to save more money because you’re not going to have as high of a return on the money. If you take on a little bit more risk, maybe you can get away with saving a little bit less money, which is obviously very attractive to lots of people. So you’re balancing your ability to deal with that volatility and the risk of real loss with the benefit of possibly being able to save less and still being able to reach your goals or being able to reach your goals a little bit faster.

So, how do you set your asset allocation? You do it by determining your need, your ability, and your willingness to take risk. Okay. For example, you might run the numbers and calculate that you need 9% returns to reach your financial goal in 10 years from now. That’s going to require you to take a significant amount of risk.

Then, if you run the numbers and you find you only need 3% returns in order to reach your goals, well, the person who needs 9% returns has a lot higher need to take risk.
Ability to take risk refers to a few things. It refers to your risk tolerance, your emotional makeup that allows you to tolerate that volatility of your investments going up and down in value. It also reflects your practical ability to deal with downturns. You know, for example, when you have a larger emergency fund, a larger chunk of money sitting in cash, you have a greater ability to take risk with the rest of your portfolio.

So we talked about your need and your ability, and sometimes you know your willingness to take risk also affects it. For example, imagine somebody that’s very, very wealthy compared to how much they spend. Let’s say they have $10 million and they only spend $150,000 a year in retirement. Right. This is the sort of person that it really doesn’t matter what their asset allocation looks like. Any asset allocation is going to allow them to spend $150,000 of 10 million with pretty much zero chance of ever running out of money. So that person is then asked, “What’s your willingness to take risk? You know, what are you going to do with?” Extra money that comes from your portfolio having higher returns. Are you going to be able to leave more to charity? You’re going to leave more to your heirs. Maybe you’re more willing to take risk, more risk than you actually need to, to reach your goals. So you have to determine your need, and your ability, and your willingness to take risk.

Okay. So the core building blocks for most portfolios is a risky asset class, usually stocks. Right, these are shares of the most profitable companies in the history of the world, and bonds. You know, a safer investment that pays a fixed amount of income. You know, these could be substituted for cash or CDs or something like that. But generally, stocks and bonds are the two basic building blocks. The stocks provide the growth because they generally have higher long-term returns, and the bonds provide stability and income and help reduce how volatile that portfolio is.

And so you can change that mix, that stock to bond ratio. It could be 90% stocks, or it could be 25% stocks. The 25% stock portfolio is probably going to have lower long-term returns, but it’s going to be dramatically less volatile and less risky as far as long-term loss goes.

Now, obviously, the lower your returns, the less likely you are to reach goals, especially if you need high returns to reach those goals. And you know, and inflation, of course, is also going to have a more substantial impact on a portfolio with lower returns. So that’s a pretty individual decision: how much money you put into stocks and bonds, and can be challenging for a lot of people to come up with. But the truth is, if you pick something reasonable, and reasonable for most people means something like 50 to 90% of your portfolio in riskier investments like stocks and real estate. That’s probably about where you need to be.

It’s important to be diversified. You want to be diversified between asset classes, stocks, bonds, real estate, etc. as well as within an asset class. So I generally recommend people have at least three asset classes in their portfolio. There are probably some significant benefits in going as high as seven. Maybe there’s some minor benefits as you go into eighth, ninth, and 10th asset classes. Beyond that, you’re clearly just playing with your money. Okay, so at least three, no more than 10, is my guideline as far as how many asset classes belong in your portfolio, and within each of those, you need to be diversified enough that if one investment gets wiped out, if one of your you know private real estate investments goes to zero, it’s not going to have a substantial effect on your portfolio.

Within publicly traded assets like stocks and bonds, you can own 1,000s of them. When you buy a total U.S. stock market index fund, you’re buying 3500 or 4000 different stocks. If one of them goes to zero, even if it’s Google or Nvidia or Amazon or something like that, it’s really not going to have a big effect on your overall return. And so that’s a that’s a wonderful thing about being diversified, and it matters. Diversification matters. Don’t put all your money into one real estate property. Don’t put all your money into one stock. Don’t put all your money into a cryptocurrency or something like that. Right? When you hear financial tragedies, often they’re caused by a portfolio that just wasn’t diversified. Someone was essentially gambling, not investing.

One of the most important aspects of your asset allocation is that you have to be able to stick with it.

Nobody can know in advance what the exact perfect right asset allocation is, so you need to pick something reasonable and stick with it. You know, whether you invest some money into real estate or whatever, real estate will have a stay in the sun, right? But it’s going to have some bad years too, where stocks and bonds outperform it, and you’re going to go, ah, why do I even have this real estate in here? But it’s important in the long run. You have the static asset allocation that you rebalance back to those percentages each year, that you can stick with it. You are the most important part of your investment plan. The biggest risk to your plan is the person looking back at you in the mirror every morning. Your own behavior is the biggest risk. So, the most important thing when choosing an asset allocation is choosing one you can stick with, one you’re not going to get FOMO about and go making it more risky at just the wrong time, or one that you panic sell when the market goes down in value, it needs to be an asset allocation that you can stick with, and don’t fall into the trap of performance chasing.

So many people, when they put their asset allocation together, they look at what did great the last two or three or four years, and they don’t realize that there are cycles in all things, right? So a lot of people in in 2026 when they’re putting together portfolios after five or 10 years of large U.S. growth tech stocks outperforming, they have a lot of those in their portfolio. Whereas somebody who put a portfolio together in 2010, after a decade of those stocks doing very poorly, might not. Very many of those at all, so be careful about performance chasing.

Really try to take a long-term perspective, and not just focusing on recent winners that are likely to disappoint you if you’re arriving late to the party.
And don’t forget, of course, to rebalance the portfolio periodically. You know, studies show that you don’t have to do this very often. Every 123, years is probably plenty often, and try to do it inside tax-protected accounts like 401ks and Roth IRAs and those sorts of accounts, so you don’t have to pay any tax costs for that rebalancing.

But rebalancing allows you to bring the portfolio back to your desired risk level. No matter what is done well in the last year, you’re back to where you started at the end of the year, as far as your percentages. Hopefully, it’s significantly higher amount in the account, but the percentages are back where you started them.

And remember this: there is no perfect portfolio. Settle on good enough. That’s what you’re looking for, and then fund it adequately, and it’s highly likely to allow you to reach your financial goals.

The White Coat Investor Podcast is for your entertainment and information only, and should not be considered financial, legal, tax, or investment advice. Investing involves risk, including the possible loss of principal. You should consult the appropriate professional for specific advice relating to your situation.