By Dr. Jim Dahle, WCI Founder

Most of what we do here at The White Coat Investor is to teach you the nuts and bolts of how personal finance and investing work. We teach you the rules of the game, and you can do with them whatever you want. However, sometimes we actually tell you what to do. Generally, people appreciate that advice, but not always—particularly if what they’re told to do isn’t exactly what they want to do.

Today, we’re going to go over some of the more controversial pieces of advice we give, the things that people disagree with us about the most. I’ll be amazed if there isn’t at least one thing on this list that annoys you.

#1 Avoid Speculative Investments

I generally teach people to avoid speculative instruments, i.e., those investments that don’t have earnings, interest, dividends, or rents. These include cryptoassets like Bitcoin, precious metals like gold, empty land, and collectibles like Beanie Babies. If the only way you can make money from it is by somebody paying you more for it than what you paid—especially if it has ongoing expenses to insure and maintain it—I don’t invest in it, and I think you should limit any investment in it to a single digit percentage of your portfolio. Zero percent is my favorite single digit.

Based on the reaction I get to this advice from some people, you’d think I had just stolen their newborn baby from them. They shake their heads and claim I “just don’t understand, just can’t see the truth” or have some sort of bias that keeps me from recommending their favorite speculative instrument.

More information here:

6 Reasons to Invest in Bitcoin (and 5 Not To)

A Moderate-Income Physician’s Approach to Alternative Investments

#2 Don’t Buy Cars on Credit

When it comes to cars, people just want to hear that whatever they did is OK, even if it means a resident just borrowed $80,000 on a Jaguar. More likely it’s a Tesla these days. Well, that’s not true. A car is a tool and a necessary one for many people. But few people have a NEED for a car that costs more than $5,000, and nobody has a NEED for one that costs more than $10,000. Most people, and certainly most doctors, can easily save up $5,000-$10,000 for a car. So, there’s really no need to use a car loan. Ever. Even if it’s 0%. Get used to saving up for things you want to buy.

Now, there might be some unusual circumstances where you need a car right now and don’t have $5,000-$10,000 right now. Fine. Get a car loan for less than $10,000 and pay it off rapidly. But this nonsense about having $30,000 or $80,000 in auto loans? It’s silliness. But I can’t even keep WCI employees from doing it! Part of the issue, of course, is that a physician income covers a multitude of sins. You can make a lot of mistakes and still be OK when you have a mid-six-figure income. But that doesn’t mean it isn’t a mistake.

The arguments against this idea are varied. Sometimes, it’s a safety argument (“Why would I put my family in anything but the safest car on the planet?”), sometimes it’s a consumption smoothing argument (“I’m only going to be 32 once, I want to drive what I want to drive, YOLO!”), and sometimes it’s an interest rate arbitrage argument (“Why would I use my money to avoid a 0% car loan when I can make 5% in cash and 10% in the market?”). The counter arguments are easily made, of course, but people just aren’t convinced when it keeps them from getting what they want.

#3 Leave California

I love California, and I understand why people want to live there. The weather is nice, and there is a ton of fun outdoor stuff to do. There is lots of diversity, plenty of cultural opportunities, and gazillions of people—some of whom may be your relatives. But practicing medicine in California is bad for your finances. Housing prices are through the roof, the state income tax bill is outrageous, the cost of living is generally elevated, and physician pay is lower than in many other areas. It’s a recipe for financial disaster. Well, maybe not disaster, but you’re definitely hiking uphill through deep snow to get to your goals.

It can sometimes be hard to see that if you would just put some skis on and turn downhill, this would all be dramatically easier. The equivalent of that in the financial world is moving out of California—maybe to Arizona, Nevada, Idaho, or Texas. Pay goes up (especially after tax), and expenses go down. And voila! You’re rich. There are plenty of other “Californias” too: Washington D.C., New York, New Jersey, and Hawaii.

I’m actually glad some of you are willing to practice in those areas. Otherwise, I don’t know what all the people there would do for healthcare. But I can’t say I understand why a “typical doc,” much less a doc struggling financially, would do so.

#4 Don’t Buy a House During Residency

I gave up on this one a long time ago. Even though most people who buy a house for a three-year residency come out behind financially, doctors just keep doing it. Part of the problem is that sometimes they don’t come out behind financially, like when housing prices go up 40% from 2019-2023. That more than covered the typical transaction costs of 15% of the value. The good news is that even when it doesn’t work out, the graduating resident usually has a new attending income that can be used to overcome the error.

#5 Live Like a Resident

This one is more of a mindset than an exact prescription, but it probably gets more pushback than anything else on this list. The idea is that if you can front-load your lifetime financial tasks before you get used to your high income, you can then go on financial cruise control for the rest of your life. Instead of having to decide whether to max out your retirement accounts, save up for a down payment, or pay off your student loans, you can do all three at once.

The greatest wealth-building tool for most physicians is their income, and by combining an attending income with a resident lifestyle, they can free up a huge chunk of that income to build wealth. Heck, you can still give yourself a 50% raise when you get out of residency, and it’s probably still going to work out great. But after having deferred gratification already to age 30, 35, or even 40, some docs are just done with it and start spending their whole income. They then might find themselves living paycheck to paycheck when their student loan payments adjust upward.

Another big error people make is assuming this is some sort of long-term idea. It’s not. The “live like a resident” period often only needs to be a year or two and never more than five. If you’re doing things right, you’re getting wealthier every single month, and you can soon choose a more moderate path.

More information here:

A Financial Love Letter to My Wife (and the Realities of Living Like a Resident)

#6 Don’t Buy Whole Life Insurance

Although I occasionally get pushback from docs on this one, it more often comes from the financial services industry, particularly those who sell these policies for large commissions. They love to point out all of the interesting things that can be done with a whole life policy (or one of its cousins), ignoring the fact that the way policies are generally sold (bad policies to people who have a far better use for their money) is basically financial malpractice. Expensive insurance combined with a poorly performing investment, what’s not to like?

#7 Pay Off Your Mortgage Before You Retire

Over the years, I have met a ton of people who advocate for carrying around debt. The arguments are usually mathematical: “Why not carry debt at 2% when I can earn 8% on my portfolio?” Risk is usually ignored, as are the cash flow considerations. A bigger issue is the behavioral counterargument: people simply do not invest the difference; they spend it. The truth of the matter is that people who build wealth both pay off debt and save money to invest. It’s not an either/or for them. The same impulse that leads them to save a big chunk of their income leads them to pay off their debts. So, their mortgage is usually gone in 15 years. Or 12. Or even 7. They’re not thinking about taking it into retirement with them because they got rid of it 15 years before they retired. They’re like, “A mortgage? How quaint.”

If you have mismanaged your financial life so badly that the only way you can still reach your financial goals is to continue to carry leverage risk into your 70s, we’ve failed in our mission at The White Coat Investor.

#8 School, College, and Weddings Cost What You’re Willing to Pay

Some people think they need to spend a certain amount on big-ticket items, particularly for their children. The classic example is a wedding. In Utah, the minimum cost for a wedding is $100, $50 for the license and $50 for the ceremony. Yet it’s possible to spend $500,000 . . . on flowers alone. There may be no other item with such a massive range of pricing. K-12 school is close. It ranges from free to $50,000 per year. Including preschool and kindergarten, that’s a total cost of $700,000 per kid.

College is similar. Two of the schools I was accepted to were the University of Chicago (with a current cost of attendance of over $84,000 per year) and Brigham Young University (with a current cost of attendance of less than $14,000 per year). That’s a sixfold difference in pricing. It’s even more egregious if you just look at tuition. When you consider how many available scholarships and tuition reductions there are out there, college truly costs what you are willing to pay. There are plenty of other items in life that are this way: vacations, cars, children’s activities, hobbies. If you can’t build wealth because you’re spending too much on this stuff, it might be because you can’t tell the difference between a need and a want, or you may just have a hard time saying, “No, we can’t afford that,” to yourself and other family members.

More information here:

Justifying and Cash-Flowing a ‘Selective Extravagance’

From Fourth Year to the Real World: An $80,000 Wedding Causes a Downward Spiral

#9 Don’t Time the Market, Pick Stocks, or Pick Managers

The pushback on this one is what I find most surprising. The data is exceptionally clear . . . crystal clear . . . that the best way to invest in publicly traded stocks is to buy and hold a static asset allocation of low-cost, broadly diversified index funds (including ETFs). Market timing in particular has a nasty tendency to rear its ugly head in strange places, like the lump sum vs. DCA arguments people make or when discussing methods of reducing sequence of returns risk. If it looks like market timing, smells like market timing, or feels like market timing, it probably is. If you could reliably time the market, why in the world would you just be doing it with your money instead of everybody’s money?

#10 Nobody Should Have a 100% Stock Portfolio Until They’ve Been Through a Bear Market

The historical data suggests that if the future resembles the past, those who can handle a more aggressive asset allocation will be rewarded for doing so. Some people take that to mean that all people, certainly all young people, should have a 100% stock allocation. That’s a huge error for some people.

First, the future may not resemble the past. It is entirely possible for bonds or cash to outperform stocks for long periods of time, even over your entire investing career, especially when adjusted for risk. Second, there’s a big assumption that you won’t sell low in a nasty bear market. That’s much easier to avoid when you can console yourself that 10%, 20%, even 50% of your money isn’t in the market. You really don’t know what your risk tolerance is until you’ve been through a nasty bear market.

There is also a weird underlying premise that somehow your risk tolerance falls as you get older. While I agree your financial ability to take risk likely goes down, your emotional ability to handle it probably goes up as you become more experienced and begin to realize with each bear market that you’ve “seen this movie before and know how it ends.” Investors will be far better off with an 80/20 portfolio than a 100% stock portfolio that they sell low just once in their 60-year investing career.

#11 You Can Invest in Both Stocks and Real Estate

Don’t fall for bizarre arguments that suggest that investing in publicly traded securities is just “buying paper assets.” You also shouldn’t assume that there are no advantages to investing in private investments, like your own little real estate empire. Both methods of investing have their advantages, and you can mix and match to get your own perfect recipe.

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All right. Let’s have it. I expect at least one comment in the comments section telling me I’m wrong about every one of these. Comment below and tell us what you think!