Finance for Physicians

What do market downturns look like? Understanding what they look like or what they have looked like historically is helpful. We can't predict the future, but we do know what happened in the past in order to navigate better if and when history is repeated. In this episode of the Finance for Physicians Podcast, Daniel Wrenne talks about how market downturns look and feel based on market history and market factors. Topics Discussed: Long View: Have a financial plan that ties your goals to your actions Timing: What if it's not the right time? Maybe it’s the worst possible time to invest Franklin Templeton: People recover fast, the scariest time may be when to invest Financial Information: Where to get it and who to trust FOMO: Fear of missing out on what everybody else is doing with investments I Bonds: When inflation is high, investments are terrible, they look appealing Reminder: What is the purpose of the money and what's the goal? Alternatives: You're potentially moving away from the best route for your goals Links: Playing the Probabilities - Wealth of Common Sense Blog What If You Only Invested at Market Peaks? Bob - The Terrible Market Timer Learning from the Lessons of Time - Franklin Templeton Brochure What To Do When Your Investments Start Tanking The Power Of Diversification Investing During Wild Markets with David Blanchett Free DIY Financial Planning Guide for Physicians Dow Jones Industrial Average Contact Finance for Physicians Finance for Physicians Full Episode Transcript: What's up, guys? Continuing on with the theme of last time, we're going to be talking about downturns in the market. We talked about (last time) how to navigate a scary investment market, and I gave you some tips on actions you can take. I think the big takeaway from that conversation was making sure you have a solid financial plan that includes an investment plan. If you don't have one of those, that's important to create first. It's always good to consult your financial plan, especially when things get dicey and emotional like they are in scary markets. Try to avoid making changes or taking actions based on things that are out of your control and emotions that come into play. Definitely check that out if you haven't listened to that as a precursor to this. Today, we're going to be digging in a little bit more into what those market downturns have looked like historically. I think this is part of the education component. Understanding what this looks like or what this has looked like in the past is really helpful. It has been for me. Of course, we can't predict the future, but we do know what history has looked like, so we'll talk about what that has looked like historically so that you can have a little bit more of that education and be better armed to navigate it as this type of thing happens again in the future. Okay, we're going to be referring to a few sources today to give you guys some hard data. I'll link to the stuff that we mentioned today in the show notes. They have pulled together some of these numbers and concepts, so definitely check those out. We'll link to any of those sources, as I mentioned. The first concept I wanted to talk about was making sure to have a long view. We talked about it last time in the last episode about having a financial plan and making sure you tie your goals to your actions. With investing, if you have a long-term goal, that's where investment can work really well because investing is a long-term thing. You should not be investing for short-term goals. Using that approach, it's not about the short term. If you're looking at the short term, that's not really the right view for something that's not going to be needed until the long term. Also, looking at the investment data, the short term has been relatively unpredictable. The first source that I wanted to look at was the probabilities of how the market is done based on different time frames. The source that I have here is A Wealth of Common Sense blog. This is a blog from Ben Carlson and he's very much into investing and gets into some of the weeds of investing. If you're interested in that, this is a good blog to check out. He's a smart dude and writes a lot about this type of stuff. Anyway, he wrote a blog a while back where he shared the probability of positive versus negative returns based on different slices of time. He looked at the entire period from 1926–2015 of the S&P 500, which is the 500 largest stocks in the US. He looked at it for varying slices of time, was it positive or negative? First, he looked at daily slices of time. For every day, over that entire 1926–2015 time period, how many days were positive versus how many were negative. Positive was 54% and negative was 46%. Basically, a day in owning the S&P 500, it's almost a coin flip, slightly better than a coin flip. It's better than going to the casino, better than a lottery ticket, but not great, especially for your life savings. That's part of the problem. When you're looking at it daily, close to half the time, it's down. It's just unpredictable. When you go quarterly, it's 68% positive and 32% negative. One year slices of time over that entire 1926–2015 time frame, it was 74% positive and 26 negative. And the five-year period was 86% positive and 14% negative. Basically, the further out you go, it increases that positive percentage to the point where at 20 years, it's 100% positive. I think probably he has ten years as well at 94% positive, but it's got to be somewhere in between 10 and 20 years, which he did not calculate. Somewhere in between there, I would guess it's hitting 100% before 20 years. The takeaway is the longer you go out, the higher your odds of getting a 100% outcome positive returns, no matter which slice of time you look at up. The key is to take that long view and tie it to long goals. Really, you shouldn't worry about the short term because it is more like a coin flip. What you need to focus on is the long term. The next concept I wanted to hit on was timing. I think a common concern is what if it's not the right time? Maybe you're investing at the worst possible time and you just don't realize it or maybe you're worried that it's the worst possible time. The video that I will link talks about—it's a hypothetical example based on the actual returns of the market—they call him Bob, the Story of Bob, The Worst Market Timer. Anyway, they share Bob's journey as an investor who basically times his investments at the worst possible time. He buys at the peak of the market right before it tanks and it shows you how things turn out for him over a long period of time. Where Bob messes up, as he worries about it, and ends up investing when everything feels great, and typically that sometimes happens at the peak. Basically, he has bad luck and times it at the worst possible time possible every single time. He does that bad, but the good thing is he keeps his money in the market and does not change it. You'll see from the video that things still work out pretty well for him because he holds his money in there long term. That's the important thing. As I mentioned in the first point, you have to take a long view. It has to be a buy-and-hold sort of approach. Ideally, you're not trying to time it. That's the mistake he made. A much better approach is to remove that decision from the equation. You should not be trying to predict when the best time is to put it in the short-term period of time. Going back to the first point, we don't really know what it's going to do in a short period of time. You just have to invest based on your own circumstances, and it's generally best to put it in systematically over time. Maybe you're investing monthly at the same time every month. Ideally, you remove the emotion and the decision-making from the equation and systematize it and it just happens. You don't have to worry about this whole timing thing because most people that start to try and worry about the timing thing tend to get it wrong. They tend to gravitate towards this example of Bob timing it terribly. So that's Bob. The next example I wanted to look at was the reverse scenario. What if you're investing at the worst possible time when the market feels terrible? The Bob scenario was like he was investing only when it felt great and when the news was great, but what turned out to be the worst possible time. This example is looking at what if you invested when we looked back and we knew it was terrible? At the bottom of the market. What if you're investing at the worst possible time in reality? Maybe you don't know it at the time, but it's the bottom of the big market downturn. You can look at all the examples. This piece that I'll share is from Franklin Templeton. There are four examples in it. I'll just talk about the most recent one, which is 2007–2009. They all have the same sort of takeaway, but that was the big housing crash crisis in 2008. In that particular downturn, from the peak down to the trough, the S&P 500 index went down just over 50%. It was 50.95%. Check out the PDF link for all the details on that and the disclaimers are in there, too, so definitely read those. That was the 2008 crash from peak to trough. Then they look at what if you invested at that bottom point? The thing is, looking back, you're like oh yeah, duh, that's a great time to invest. If you were looking at it objectively and investing in that period of time, it felt like a terrible economy. Everything was negative. It just didn't feel like a good time. The world was telling you not to invest, but if you had invested at the bottom of the market, one year after your cumulative return was 53.60%, then five years after it was 137.49%, and then ten years after it was 367.39%. The takeaway is these downturns, it goes down fast and feels super scary. A lot of times people don't realize how fast it recovers and how quickly we can get back to where we started. Oftentimes, the scariest point in time is actually when it's a fantastic point in time to invest. Same sort of thing as I mentioned in the first point. I think the takeaway is you don't want to try to time it now, but if you do happen to have extra money, if you're going to be timing it lower when it's gone down, it's actually a better time to invest. At the end of the day, you want to have your dollars working for you and make sure you're investing that based on your financial plan and not based on where you're predicting the market might go. We don't really know what the short term is going to do, and these sorts of things happen. It's very difficult to predict at the moment. I think the temptation, though in that bad market is to maybe stop investing. You definitely don't want to do that. Or I guess a different temptation. Sometimes people that have even more fear might even be tempted to bail out. I think that’s probably the most important thing to try to avoid. Basically, if you had bailed out at that bottom in 2008, you're missing out on all that upside in recovery. You're basically cashing all your chips in at the worst possible time. If anything, do not go down that path, and really you should be continuing to invest based on your plan. There is a temptation to move away from the pain. It does feel painful when things are down, but you want to avoid that temptation and look at something like this piece I'll share with you and remind yourself how quickly things return to normal. Typically, when it feels like it's the worst period of time, oftentimes it's the best period of time to invest. The next concept, which is in the same PDF that I was just referring to, is oftentimes, when it's really bad or when you just feel unsure about things, I'll sit out for a few days. I'm just going to give it a few months. I'm going to stop investing for a few months or go to cash for a few months and let the dust settle, or something along those lines. This visual, this chart looks at the S&P 500 again, and it looks at 20-year periods ending December of 2021. If you're fully invested for that period of time, the return you would have had for that period of time is 9.46%. If you had excluded the ten best days, or 20, or 30, or 40, or 50, or 100 best days, it's basically looking at if you had excluded X number of days from 10–100, what would that have done to your returns? Just missing out on the 10 days out of a 20-year period of time, if you've missed out on 10 of the best days, it knocks your return down by down to 5.27%. If you miss the 40 best days, it knocks your return down to -1.57%. If you missed the hundred best days, it knocks your return down to -10.06%. Basically, you don't want to miss out on those good days. The problem is the days are really difficult, or really impossible (actually) to predict. You have to be invested fully for that entire period of time to get the maximum return. I think that's a very important takeaway. Sitting out for a few days doesn't work out well in the end. It's much harder to know when to get back in and oftentimes you start missing out on these good days. Now all of a sudden, it's too high to get in, at least that's what you tell yourself. You don't want to start going down that path. I think the other big temptation with any big story like this is to start tracking with the news. A lot of times, it's where people go for their information. Maybe it's not the news on TV, but maybe you're on social media, or wherever you're getting your information. Let's just call this financial information, to go to your sources of financial information and get the word from them. The problem with the general financial information out there is it's a terrible predictor of the future. This visual is kind of cool. It's the same piece from Franklin Templeton. It's a really good piece because it hits on all these concepts, but this goes through a really long period of time. This is going all the way back to 1972 and it goes through some of the big news stories and how the market behaved over those periods of time. It's looking at the Dow Jones Industrial Index, which is a pretty good measure of the market. It's not my favorite, but it's still an okay measure of the market. Anyway, what tends to happen is the worse the news gets, the better time it is to invest. In 2020—that's the recent one everybody remembers—unemployment and the pandemic. Unemployment is at the highest rate since the Great Depression. I think that was the big financial news story. There was a lot of talk of recession and all that stuff. It's like who in their right mind would want to invest? Those news stories get more amplified the further it goes down. Actually, if you go back in history and you look back, that's actually the better time to invest versus just a year before, there wasn't really much of any news. There weren't big-time headlines about the markets like there were in March of 2020. It's almost like the bigger the headlines get, the better it is to invest. It's the reverse of what you would think it would be. When the news says don't invest, at minimum, continue investing. That's the important thing because you don't want to get into this whole timing cycle, as I've already mentioned a million times and I'll continue to mention because it's important. You don't want to get into this trying to time the market mentality. It's super easy to get into, but we don't know what the future is going to hold, especially for a short period of time, so you just have to systematize it. The news is especially terrible, but it is a big temptation that can pull you away from systematizing this and trying to time the market. The temptation is going to be like things start to get negative, and the news starts to tell you it's negative. Right now it's getting negative. The news is saying that negative inflation is high. Everybody's going through a recession, the market, the war, all this stuff. You're going to be feeling a little tempted to say, maybe I should stop investing my monthly investment because it's going down. Definitely, you don't want to stop that systematized approach based on your plan. That would be a bad move, especially based on the news. They're terrible at this stuff. You can see from history, that it's very much shown through history over and over and over again that they're terrible predictors of the market and it's best to not make decisions based on what you're seeing in the news. You can also see this in, my favorite example is cryptocurrency, because it seems like cryptocurrency, everybody starts talking about how good it is. As the price goes up, people talk about how good it is, and as the price goes down, they question it. But it's the reverse of how it should be. Not that I'm endorsing cryptocurrency, but people talking in the news are a good representation of human nature, but a bad representation of what actually happens. The important takeaway, as I said, is not trying to time this stuff because it's incredibly impossible. It's just not possible. I think another common thought that creeps into the equation when markets get dicey, that I'll talk through before we wrap up today, would be this alternative that's creeping into the equation. Oftentimes—we hear this from clients and I felt this temptation with my own finances—clients will ask us on occasion what about the XYZ alternative? Like cryptocurrency, I bonds, real estate, or GameStop stock is an example that was popular a few years ago, or maybe investing in gold. Oftentimes those will come up. I think the question is to ask where is that coming from? Normally it's presented as an alternative, or diversification, or some sort of reasonable approach as a good investment. It's a little different than what we've talked about so far. It's not necessarily getting out of investments. It's not really necessarily timing investments. It's more of changing what you're invested in. Typically, if you peel back the layers, it's based on some underlying fear of whatever your primary investment is. Sometimes it's FOMO (fear missing out), everybody else is doing it kind of a thing. A lot of times it’s just fears of investments going down or not being as productive as the alternative. Lately, the most common thing that's been coming up is I bonds. Investments have been going down as of this recording, and inflation has been going up. An I bond is really the only thing that mimics or is pinned at inflation. It's a government bond that pays exactly what the inflation rate is. I bonds are the best possible investment that keeps up exactly with inflation. When inflation is high and investments are terrible, it starts to look more appealing. As I said, typically what happens is people are having greater fear with their investments as they go down because they're worried maybe they're not going to do as well, especially the further down they go. Then the further up inflation goes, they're thinking that's a better alternative. The temptation is to switch from investments to I bonds in just this example, you can use any example. The problem is it's based on short-term view and fear. If you peel back the layers, it's this fear that the market is not going to do as well and it's looking at this slice of time or really just not thinking about the long term. If you're investing, it should be for long-term goals. You have to remind yourself. That's why it's important to remind yourself what is the purpose of the money and what's the goal and the purpose? It should be some sort of long-term goal. Otherwise, it should not be invested. If it is long-term, you have to keep that long view in mind that I've been referring to. All this alternative stuff I've been talking about, at least so far, is kind of based on the short-term view and short-term fears. If I look historically at inflation and historically at investments, I think that's the best reminder of how these things work. Long-term inflation and long-term investments are good reminders. If you look at the short term, it's very emotionally prone to driving you to be fearful because right now inflation is high, investments are doing bad, but long-term investments will recoup. Long-term investments have considerably outperformed inflation over all periods of time if you look at it a long-enough period of time. Inflation or I bonds, for example, are not a great long-term investment. I think the key is to consult your financial plan. What are the goals? Focus on your situation and avoid this temptation to make changes to different things that are not in line with your goals and your purpose. That's the issue usually with these alternatives and really all these different concerns or fears around the market. The issue is that you're moving away potentially from what the best route is for your goals, so you want to really keep that focus on that. At the end of the day, short-term markets are very unpredictable, and you have to be careful not to tie that to a short-term need. You shouldn't be using investments for short-term goals and so don't let those short-term markets knock you off track. Remind yourself those investments are tied to long-term goals, and you got to take that long view because long-term markets are far less volatile and will really do well for you. History is such a great reminder of that. If you look back and you spread it out over a long enough period of time, those numbers start to look really solid. Even if, like we talked about today, you're timing it at the worst point in time possible, things will tend to work out and flatten out if we can extend that slice of time over a long enough period of time. I think that the key is really taking that long view and as I said several times, focusing on your plan and your goals, and not on these external factors and fears that inevitably crop up in our world from day-to-day, week-to-week, or month-to-month. All right, guys. That's it for today on market history and market factors. Next time we'll be talking a little bit about some of these behavioral tendencies and biases we have as humans. We'll go through some of these. I think these are super interesting. We're all prone to them and they can really cause some problems in our world, particularly in investing and personal finance. We'll look forward to talking about that next time.

If you have been watching the markets lately, like I have, it's gotten a little dicey. It's been a while since we've had volatile downmarkets. What should you do when your investments get shaky? In this episode of the Finance for Physicians Podcast, Daniel Wrenne talks about what to do when your investments start tanking. Markets do go up and down. If you've been investing long enough, you realize that’s just the way it goes. Topics Discussed: Downturns: People make big mistakes and lose a lot of ground—and money What to do? There are some things you should do and some things to avoid What is shaky market territory? People get emotional when it gets more volatile What are natural reactions? These feelings are normal: This time it’s different, but is it, really? Are you tempted to find winners and get rid of losers? Historically, people work through it and recover nicely What’s not normal? Things get completely backward sometimes: Past: Inflation was high, cash paid nothing, and mortgage rates were low Present: Cash pays nothing, inflation is very high, mortgage rates are up What are action items? Remember to refer to your financial and investment plans Give yourself a little space between the feeling and the action Educate yourself on how markets work Recognize that the market is out of your control for the most part Create awareness around human investing behaviors/behavioral finance Rebalance investments and benefit from tax-loss harvesting Change your pre-tax IRA or 401(k) to a Roth conversion If you have extra dollars, put them to good use and start investing What are questions to ask yourself: What is the underlying concern? What is the money that I'm concerned about? What's its purpose? When are you ultimately going to use it? What's it going to be for? Links: The Power Of Diversification Digging Into Tax-Loss Harvesting Investing During Wild Markets with David Blanchett Free DIY Financial Planning Guide for Physicians Vanguard Total Stock Market (VTI) Contact Finance for Physicians Finance for Physicians Full Episode Transcript: Hello, everyone. I hope you're having a great day. I have been watching the markets lately. It's gotten a little dicey. As of this recording, we're in about the middle of May, and things have gotten a little dicey lately. It's been a while since we've had volatile downmarkets. I guess the last time was in 2020 when COVID started happening. Before then, it's been a really long time. Even with 2020, that was really fast, and then it just shot right back up. Markets do go up and down. If you've been investing long enough, you realize that that's kind of the way it goes, but either way, even if you've done this a million times, it can get scary. There's a lot of fear, temptation, and stuff to think about potential changes to make. We're going to talk about that today—what to do when investments get shaky like they are now—go through some of the things you should be thinking about, and give you some tools to arm you as we go through shaky markets like we're dealing with now and inevitably in the future. Like I mentioned in the introduction, if you've been investing long enough or you've researched investments, you know the vehicles when you invest. Things go up and down, but it's different when you actually see your balance go down. It can get emotional when markets get shaky like this and fear is high. The problem with shaky markets like we're having now is this is when people are prone to mistakes. A lot of times, people think that when the markets are good, that's when they're excelling because it feels like they're doing good, but when the market is really good, the majority of people are doing really good. What separates people typically is in these big downturns. It's mainly when people make big, huge mistakes and where they lose a lot of ground. The question that arises is what should you do about it? The market's shaky. I know you're feeling like I need to do something about it. There are some things you should do and there are some things you should avoid doing. We're going to talk through that today. We're going to talk about what it looks like. When I say shaky market, I'm going to talk through a little bit of what I mean by that. We're going to talk about some of the natural reactions people have, and then we'll talk about some action items you can take to avoid some of these big mistakes I'm referring to. Just a quick story, my first experience investing was one of those big mistakes I talked about. I was 16 and had saved up a bunch of money working over the summer. I've always been interested in investing and thought it would be a good idea to invest the money that I had earned. I took my entire life savings, which was, I think, $4000 at that time. It still feels like a lot of money to me now, but then, it was all the money I had when I was 16. The year was about late 1999. I invested my life savings. I really didn't have any plan at all other than I just wanted to make my money return something. There was really no purpose and no plan beyond just that. I picked some stocks. Tech stocks happened to be really popular at that time. I started researching and that was what was out there. It was everywhere. Everybody was talking about tech stocks, so that's where my research led me and that's naturally what I settled on. I did research on what the best ones were, and I picked some of those. I'm like, okay, great, we'll have a few of these, I'll invest in them, and then things will be great. I'm going to buy them and hold them for a long time because that's what you do with investing. If anybody was around investing then, you'll know what I'm talking about. If you've researched it, that was the tech bubble. A lot of these tech stocks and dot-com companies got overinflated, and then they crashed around that time. Right around the time I was investing, I guess I caught a little bit of the upturn enough to be like, man, I'm awesome. That's how it felt at the time, but it quickly started to crash. Like any first-time investor, I felt the temptation to do something about it, so what my action was is as I started to trade, I'm like, I got to get rid of these losers. I'm going to find some winners. I started trading and looking for the winners. Unfortunately, I never found the winner and basically, after a few years of trading, had lost pretty much everything that I had started with. That was my first big investing mistake. I really didn't have the knowledge and experience at that time and basically made all the mistakes you could possibly make. Fortunately, it was an early phase in my life and I was able to learn when the stakes were lower. That is a good example of some of the mistakes that happen. Hopefully, you're not making all of them at once like I did, but people make mistakes. We're all prone to those. I think it's helpful to recognize those mistakes and ideally, you're learning from the mistakes of others. Hopefully, you can learn from some of these mistakes we'll talk about and some of the mistakes I made in my past. When I talk about shaky markets and downmarkets, what does that look like? If you look at the short term, right now, the market has been starting to get volatile. If you go to Google and you google VTI, what you're looking up there is the Vanguard Total Stock Market. That's one of the good metrics of the market. When I say the market, basically, it's an ETF that owns basically every stock in the US. I look at it as a pretty good metric of the entire market. It's a good way to look at the historical market. I guess the fund is not super old. It goes back to the early 2000s, but you can look at how the market is doing by just looking up this fund. As of this recording, I'm looking at it. If I go to the year-to-date view of how it's doing, the ups and downs are starting to get a little bigger, and as of this second, it's down 16.31%. That's going to change every second because I'm looking at Google as of literally the second, but call it a little over 16% down year-to-date for this fund. I would define shaky market territory as in that 15% or greater territory. Twenty percent loss or greater is when people start to get alarm bells going on. Then, when you get into 30% territory, I think that's when it really starts to get bad and people start to feel it. By my unofficial definition—there are much more official definitions—I gauge it just by how our one-on-one clients feel, the feelings I'm seeing them having, and the number of them that are raising issues. I think at this point in time, it's starting to get into the shaky market territory with this downturn. Not quite like it was in 2020 or in 2008, but it's starting to get into that territory. The market is starting to get more volatile and starting to have more ups and downs, and people are starting to get a little emotional. That's what I mean by shaky market territory. In 2008, that's a good example of an extended bad market. Once things settled out at the bottom like I was talking about the Vanguard Total Stock Market—like I said, that's a good example of the overall stock market—from the top of the market in mid-2007 until when it got to the bottom in early 2009, it had dropped over 50%. That's a pretty big hit. If you're 100% in that fund with all your money, say you have $1 million, it's now $500,000. You're going to see that statement. Basically, it's going to feel like you just lost $500,000. That's shaky market territory. I wanted to talk about the reaction that happens there because I think that's important to observe. When people see the statement as things come up or they start to see the news go out, the feeling that either the news tells or we naturally tell ourselves is this is different. This time is different. I know it's down and I know markets go down, but this time is different. And maybe even like, this is something we're never going to recover from maybe because it's different. The interesting thing about that storyline is it usually is different. That's why it happened typically in the first place, because we often as a society learn from our mistakes but not always. These big downturns typically are caused because some new big issue came up or something flew under the radar and caused it. Oftentimes, the downturn is caused by something completely new and different, but also, historically, we're able to work through it, come through, and recover nicely, so those feelings are normal. Also, when we get in that shaky market territory, things just get completely backward sometimes. Right now, for example, inflation is high, cash is paying nothing, and for a while, mortgage rates were really low. There was this time in March of 2022 when inflation had already crept up, but mortgage interest rates were super low and cash was paying basically nothing. Fast forward to today, cash is still paying nothing and inflation is really high, but mortgage rates have gone up quite a bit. That's not exactly normally how it is. Typically, as inflation goes up, your cash should pay a little more normally and interest rates on mortgages would typically go up. They've started to do that on mortgage interest rates, but things can get backward, especially when you look at the really, really short-term periods of time. Sometimes, if you've ever heard people talking about their reverse yield curve, that's an abnormal thing that happens, but typically, these backward sorts of scenarios happen in a really, really short-term timeframe. Also, in these scary markets, salespeople really leverage people's fear, and so does the news. You have to realize that there are a lot of people incentivized by that fear and they can capitalize on it. That's just another consideration. The focus or the temptation is to really hone in on the day-to-day. People get this pull to start watching the market, especially the worse it gets. You can find yourself checking the daily market report or maybe even checking hourly, or watching it. There's this pull to watch that short-term market movement. Not to say that the news is bad or whatever. I'm just saying this is just a tendency that happens. Feelings will come out. That's just a thing that happens. When things get bad, people will get nervous, scared, or fearful. I think it's important to emphasize that that's completely normal. That's how this works. You're going to want to search for solutions that are out there. It's natural to avoid the pain and try to stop the pain. What happens with all this is you're prone to actually making changes. For example, selling low and buying high. You're prone to making changes that are not exactly logical and very emotion-driven. When it comes to investing, this is oftentimes the worst time to make the changes we are pushed towards in this situation, maybe get rid of my investments, or change the investments to a different type of investments. They're just at the point where they're at their lowest. That's the reverse of what we know we should be doing. I think it's good to recognize that those things are happening. It's normal. Ask yourself what is the underlying concern? Maybe think about what is the money that I'm concerned about for? What's its purpose? Think about when am I ultimately going to use it? What's it going to be for? You just think through those questions. The last thing I wanted to talk about in relation to these shaky markets is what can you do about it? What can you do to avoid some of the mistakes that I'm talking about? You got to remember your financial plan and investment plan. They're kind of integrated, your financial plan and investment plan. If you haven't made one by now, this is the prime time as soon as possible to have one because this is going to be the timeframe when you're going to really lean on it. Your financial plan allows you to connect your investments with your goals. It helps you to put a good purpose or tie in a purpose for your dollars and helps you to match up long-term goals with long-term dollars and avoid matching up long-term dollars with short-term dollars. For example, if you're investing money that really should be for emergencies, that's going to cause a lot more added fear and concern when you see them start to drop. You're going to be like, uh-oh, what if something happens and I need that money? That's my only reserve. A good financial plan is going to say, well, no, you should have an emergency account which should not be invested because you need to pair up short-term needs with short-term dollars. If you need it in the short term, you can't invest it because who knows what's going to happen in the short term? You're pairing up those dollars with those goals and putting a good purpose behind that money. On the flip side, for example, maybe you have a long-term goal of retirement. It's the most common one, retiring by age 50 or something. It helps you to think of dollars in terms of that goal and purpose and put it in a bucket. If you're 20 right now and all those dollars are tied to that purpose, that's a long time from now. You got 30 years. It helps you to not focus so much on the day-to-day. It doesn't really matter what's happening this week, day, or hour. You're not going to use those dollars for 30 years, so you shouldn't really be focused on that short period of time if you're not going to be using them. The big thing is having that investment and financial plan and consulting it in times when it gets shaky or you start to feel those emotions. If you work with a financial planner—especially if you start to feel nervous about it—talk to them about it. That's what we do or where we can help sometimes. As you feel those feelings and emotions, I think it's good to try to give yourself a little space between the emotion and the decisions or actions. The risk is you feel the fear, and then you make a move immediately or as fast as possible. It's better, especially with investing, to give yourself a minute to take some time to wrap your head around it and get some logic. Give yourself a little space between the feeling and the action. It's also great to always educate yourself on this type of stuff. For investing specifically, I would suggest educating yourself on human investing behaviors and behavioral finance. There's a ton of stuff out there on how people behave with investing, some of the falls or the biases we have, and that sort of thing. We've actually recorded an episode on that. I'll link to that in the show notes. It hasn't come out yet, but we'll have that linked up. You can check that out if you want to dig into that subject. It's helpful to understand how you're going to tend to behave and some of the behavioral risks you would have and educate yourself on that so you can gain awareness of it and avoid being as prone to those. Then, educating yourself just on how markets work too is a great step to take always as well. Same sort of thing, the more awareness you have of how these things work, the better you're going to be able to navigate this experience, especially when you're feeling the emotions. We're also going to do a podcast episode on that as well. I will have that linked in the show notes for you guys that want to dig in on that. I think the key though is just sticking to the basics of what your plan is and what the resulting investment strategy is to allow you to reach your goals. With investing, ideally, you're doing it as unemotionally as possible and sticking to pretty specific logical rules. In summary, the first step is if you don't have a financial plan or investment plan, I would suggest creating one as soon as possible. We've created a do-it-yourself guide. For those of you that lean toward that direction or are not sure which direction you want to take, I'll link to a do-it-yourself guide that we've created to help you work through that process. If you want one-on-one help, our planning firm does initial consultations at no cost. We're happy to do one of those. Step number one is having that financial plan you can lean on. That's going to be huge, especially the more emotional and scary it gets. Once you have the plan, you want to consult it, review it, lean on it when you start to feel that uncertainty and those emotions, and make sure that you're following it. It's going to be a reminder and a voice of reason for you, so you want to consult it. If you're working with a financial planner, you can consult the financial planner. The service they provide is going to be that voice of reason. But if you're doing it yourself, you want to consult your financial plan so that you can remind yourself of what that needs to look like. You don't want to make changes based on things you can't control like external market factors or emotions. Recognizing that the market is out of your control, for the most part, is really important. Separating some space between those emotions and the actions is helpful. Some last items I'll throw out if you're still looking for some actions are some (what I would consider) productive actions to think about when the market is shaky. These are not always applicable, but there are some potential considerations for you to at least think about. If you haven't funded all your tax-sheltered saving vehicles, when the market is down, it can be a fantastic time to do it. Ideally, you would have done that already or you already have a plan to do that. That's the ideal world because most of the time, the markets are good. But if it happens to be that today, you didn't really have a plan for dollars and it happens to be that you haven't maxed out those tax shelters, well, that's a good time to do that. Like I said, ideally, you have that plan, you can lean on it, you're already facilitating that process, and you're already on track to fund all those tax shelters. If you don't have that, you now are seeing yourself with lots of extra cash, and you haven't funded those tax shelters when the market is really, really down, it can be a great time to get caught up on all that. The second thing would be to tax-loss harvest. Tax-loss harvesting is when you're taking losses on investments intentionally to produce tax losses. It's a tax benefit that will come through on your tax return. We did an episode several shows back on tax-loss harvesting that I will link to if you want to dig into that. Then, just rebalance your investments. That's basically following your investment plan. Oftentimes, when the markets get shaky, it will pull you away from the target that you've established with your investment plan. What rebalancing is is rebalancing the categories of investments to stick with the plan you originally established. You're not actually changing the plan. You're just adjusting your investments because they've changed so much and they've gotten off track with your plan. Rebalancing and tax-loss harvesting can be really good. The more it changes, the more these can be beneficial. Another one that can sometimes be helpful is a Roth conversion. Roth conversion is when you're changing your pre-tax IRA or 401(k). You're changing your pre-tax account into a Roth account. You can always do this on your IRA, and then some 401(k)s allow you to convert from pre-tax to Roth. This is basically saying that on pre-tax money like a traditional 401(k) or IRA, you're not going to pay tax until you take it out. It's like, tax me later. On a Roth, you get taxed now, but then you never pay tax again. It's like, tax me now. With a Roth conversion, you're basically saying, I'd rather take the tax hit now. You're just like, let's just go ahead, pay the tax now, and get it over with. You usually do that because you think the tax hit is going to be lower now than later. That's usually why you do Roth. The Roth conversion can work well when the market is really low mainly because the values are down. You can use history as an example. It's not always easy to pinpoint this in real-time. It's actually very difficult to, but in some cases, say we're in 2008 at the bottom of a 50% drop, you are already considering this strategy of Roth conversion, and you just hadn't pulled the trigger yet. That can be an excellent time to do it because say you had $100,000 in an account. If you converted it to Roth, it would be $100,000 that was taxed. That triggers a tax on, say, 30%, which is $30,000, but you hadn't done it yet, so now, that account is dropped to $50,000. The same thing, you convert the $50,000 and it's taxed at 30%, but that's only $15,000 of tax. It's basically converting it at a discounted price which triggers less tax. Roth conversion looks slightly more appealing the more the market goes down. It's not a reason in itself to do Roth conversions, but it can add to the argument for Roth conversion. Then, the last thing is if you happen to have unaccounted-for dollars—this goes back to the financial plan—the most important thing is having the financial plan. But if you happen to have not had one, you have these unaccounted-for extra dollars that are just not being put to use good use, and let's say that they should be or could be used for long-term monies, it can be an excellent time to start investing those the further down the mark the market goes. Like I said, it's best if you're already putting those to good use, if it just happens to work out that you have, if you get a big bonus, or you have a good influx of cash, I'm going to lean slightly more towards getting that invested quickly, especially if I know we're in the middle of a huge downturn. As I mentioned, I think the biggest thing is having that plan and leaning on this as the market gets shaky. It's really pretty much always going to get emotional and scary for people as we go through this especially the worse it gets. It's hard to tell exactly how it's going to affect you until you're really in it, so I think it's good to recognize that that is something that's going to happen. It's okay to have some fear and concern around this, but just make sure that you're taking a minute, consulting your plan, and trying to put on that logical hat. I think it will save you some pain and regret later in life. Hopefully, you don't have to learn from your mistakes and hopefully, you can learn from this and some of my mistakes I made in the past. As always, it's been a pleasure. We'll look forward to catching up again next time where we dig into a couple of these issues I mentioned. We're going to dig into some of the behavioral tendencies we have when we invest. Then, in the next show after that, we're going to talk about some of the examples of how markets have worked in the past. We'll look forward to catching up on those topics next time.

There's a lot of crazy stuff in the news. If you're old enough, you've experienced these crazy times before. The investment markets' economies go up and down. These kinds of things happen. With all the craziness going on in the markets and the world, what news—financial or otherwise—are you concerned about? In this episode of the Finance for Physicians Podcast, Daniel Wrenne talks about how to make sure your financial plan is solid. Topics Discussed: What are I Bonds? Savings bond earns interest based on fixed and inflation rates Financial Plan: What is it? Foundation to going in good direction, making good decisions Why is it so important? Aligns values and goals for living out your ideal life What does it provide you? Clarifies your values, goals, and risks What does it not provide you? Path to getting rich Balancing Act: What’s most important? Think about today vs. tomorrow/priorities Components: Have/write a plan and clarify values to make progress toward goals Values Exercises: Every few years (at minimum) review your values Are your finances organized? Strive for balance, not perfection Awareness: Where’s your money going between saving, spending, and giving? Uncertainty: Be aware by knowing when you’re drifting from values and goals Links: Financial Vitals Check What Should You Do About Inflation Is Money A Tool Or The End Goal 3 Exercises To Help You Clarify Your Values White Coat Investor Dave Ramsey Contact Finance for Physicians Finance for Physicians Full Episode Transcript: Hello, everyone. Hope your day is going well today. We've gotten a lot of questions lately that revolve around a lot of the craziness going on in the markets and just the world in general. There's a lot of news out there that people are fearful of, concerned about, and that sort of thing. Today, I wanted to talk about your financial plan and how that ties into this. I think having a really good financial plan is the key defense against some of this fear. We'll help you navigate a lot of these questions that come up. I wanted to talk about the concept, explain what I'm talking about a little bit more, and go through that today. Hopefully, it'll help you in general, especially when things get a little hectic like they are now. There's a lot of stuff coming up in the news. It's a little bit of a crazy time. If you're old enough, you've seen these crazy times before. The investment markets' economies go up and down, so these kinds of things happen. By day, we're financial planners, we get to talk to people one-on-one, and we hear a lot of the concerns. The questions we often hear are like, well, should I change my investments? How do I deal with this inflation? We talked about that in the last episode. I'll link to that in the show notes. Should I buy into these XYZ investments? Lately, people are asking about I Bonds. Those kinds of questions are normal. They're good questions. Even not in scary markets, there are a lot of questions we get like, how am I doing? I want to make sure my investments are efficient. The challenge we have with questions like these and even other types of questions—you might think of a simple question like how much should I be saving, how much should I spend on a house, or those sorts of things—is if you ask a good financial planner, they're going to be like, well, it depends. I'm not sure. Or they're going to dodge the question. The issue with answering those kinds of questions is it really needs to be based on your financial plan. If you have a rock-solid financial plan, it is pretty easy to navigate these kinds of questions. I don't know about easy. Straightforward is probably a better way of looking at it. The answers to these questions can be very straightforward. I think that is the key to helping to address these sorts of questions. We're going to talk about what that is, why it's so important, and the outline of it. We talk a lot about it. I know you've heard us talk about a financial plan and the importance of it, but I want to focus on why it's important, what it provides you, and that sort of thing. I'm sure you know that in general, everybody acknowledges that a good plan is worthwhile. It's for anything, like a business plan or whatever. Having a plan is a good direction, but I think it's especially important with your finances. A lot of people agree with me. I've said it many times. If you look at the big financial voices in the world of medicine, [...] is a pretty popular voice in personal finance. If you read enough of his stuff, you'll get the sense that he agrees it should be the foundation. More than general personal finance, Dave Ramsey is a pretty popular voice. He definitely says you should have a solid financial plan and it should be the bedrock foundation of your decision-making. All of us agree on that, but why is it so important? Like I said, in general, with planning, if you don't have a plan, you're going to tend towards meandering and not knowing which direction to take. But before we talk about why it's so important, I think it's good to look at what we are not looking to do. What is a financial plan not going to provide you? A financial plan is not about showing you the way towards getting rich. It's not about the path to becoming rich and wealthy. That path is actually pretty straightforward. Basically, it's work and earn as many dollars as you possibly can in the hours that you have to work. Make as much as possible and as long as possible. Start work at an early age, make as much as you possibly can, work as long as you possibly can, spend as little as possible along the way, and invest as much as possible, and you'll be rich. I know that's not everything. Your profession and income is important, but you can have some control over that. By educating yourself and selecting a higher-earning profession, you can amp that up as well. That's a pretty straightforward route to building a ton of wealth, but if you take it to the extreme, you're going to just die with a bunch of money. Most people, if you peel back the layers, don't really want that out of their life. On the other hand, it's not about living in the moment completely. It's not about just spending as much as possible either, of course. Really, the financial plan is your plan for living out your ideal life. The purpose of it and what it's for is to help you identify what your values are. Your values are what's most important. They should shape your goals. Ideally, your decisions around money and life are in alignment with those goals and values. Your financial plan should help you be more in alignment with your values. Ideally, your values are driving the ship with your life in general and particularly for your finances for the sake of a financial plan. It should help you view money more as the tool to reach those values and to build out that best life. I talked about that as well. I'll link to that show on using money as a tool to live out that best life. Ideally, your plan is that mechanism for helping you to better do that, and on top of that, just being, in general, efficient with your money along the way and thinking about some of the risks that might come up that you might not always think about. A good financial plan is all those things. It's helping you align your values with your actions. It's helping you better use money as a tool to build out that best life. It's helping you be efficient with money. It's helping you think about some risks along the way and address those. You're going to be able to—by going through that exercise—start thinking about balancing today versus tomorrow or priorities. There are a lot of values people have. They're going to be competing with one another, so it's like, how do I balance all these important things? Which one of them is most important? Balancing today and tomorrow and also balancing which of these things are most important.  Which one is the highest priority versus the lesser? For starters, when people ask me these questions and I'm not their financial planner, if they're asking me what should I do with my investments, should I buy I Bonds, should I change my investments, and all those sorts of things, the question in my head I'm always asking is well, do you have a financial plan? Let's look at it. That's a weird answer to give somebody without some context, so I typically just brush off the question and have a surface-level conversation about the pros and cons or something like that. But a good solid financial plan, first of all, needs to be written. Maybe not on paper but in a document online or whatever. It needs to be documented and very concrete. Let's talk about the components of it. Some of you might be like, well, I don't have a plan. That's straightforward. It's going to be worthwhile for you to start there. Have a plan. Write a plan. You need to have a plan. That's step one. Others of you might be like, well, I think I might have a plan, I kind of have a plan, or I probably have a plan. Maybe you're not exactly sure if your plan is solid. Whether you're one or the other, I think it's good to understand what are the components of a good financial plan and what does it address? As I mentioned before, the big thing is, first of all, it needs to help you clarify those values, iron out your goals based on what's most important, and start to route out the specific steps to making progress towards those goals. Then, it asks you to also consider life especially if the future is not completely predictable and there are uncertainties. We got to address the risks. Ultimately, your plan should round out with a concrete action plan for executing the steps to get you on track. I think it would be good to just think about some of these questions. This will hopefully help you to assess where you're at in regard to a plan. Before I go through the questions, this is a lifelong thing. Nobody's perfect at planning. It's something that you oftentimes will do a really good job with, and then life changes and it gets stale and needs to be updated or things don't go as planned. Or maybe it's your first time and you're not as efficient as you could be. Nobody's perfect at this. It's a lifelong thing. Errors and mistakes are inevitable. It's more about are you working in the right direction? Some questions to think about to help you assess how solid your plan is: are you clear on your values? Do you recognize what's most important? That can seem like a weird or maybe an obvious question, but I think the ultimate would be you haven't written it down or you've at least spent some time thinking about it and you haven't written it down. Ideally, it's in priority order. The same thing, are you clear on your goals? Do you know what you want life to look like in an ideal world in the future? Ideally, all those are written down—your goals and your values—and you can refer back to those because you're typically going to be fine-tuning, adjusting, adding, or subtracting them over time. If you don't feel like you're super clear on values, check out our episode. We go through some values exercises. The intent is to help you have some concrete steps to iron those out. If you feel like you haven't done that in a while, that's always a good thing. I think every few years at the minimum—maybe even more frequently—it's good to just take a minute and go through that. Another question to think about is are your finances organized? How organized are your finances? Maybe yours are perfectly organized, but we're not going for perfection. I know I've said that already, but I'm reemphasizing that we're not going for perfection. We're going for balance. With organization, a lot of you probably have a lot of stuff. Really what we're going for is a general understanding of where everything's at and making some progress along the way, especially if you're feeling like you could stand to get more organized. Do you know where everything is? Do you know your balances for stuff? Do you know what your insurances are or who the contact people are? Do you have your logins handy? Like I said, I have struggled with this in the past. It's a work in progress. Perfection is not the goal here, but it is good to assess this every so often. It's like, how organized am I? What can I do to be better organized? That's going to be critical. It's really impossible to have a solid financial plan if you're completely unorganized. If you have no idea where you're at, what your financial stuff is, what you're making, generally where your money is going, and what type of accounts you have, it's going to be very difficult to have a good financial plan. Now, if you work with a financial planner, you can lean on them to some extent, so it is good to make sure they're keeping you organized, but that is one way to take a little bit of weight off your shoulder. If you are working with a financial planner, they should be able to produce a summary of, for example, your assets and liabilities. That's not to say you should not pay attention, but it is a way to shortcut a little bit, especially with organization. Another question asked is do you have a good awareness of how things are going? This overlaps with being organized, but day-to-day, do you have an idea of what you're saving versus spending versus giving? I think that's one that's easy to let fall by the wayside. The same thing with being organized, we're not necessarily going for perfection necessarily. General awareness, I think, is good. Maybe you don't know exactly where every penny is going, but do you know maybe rough percentages of how much you spend? Say you know your lifestyle is $10,000 a month and you can back it up through looking at a credit card statement, checking account statement, or something. Having a general awareness of some of these things that are happening in your finances is healthy and good. It is really necessary to have a good, solid financial plan. Are you addressing some of the risks along the way? Have you thought about worst-case scenarios and made plans to address those? It's not human nature to think about worst-case scenarios, so you have to sometimes force yourself to think about what is the worst-case scenario? Have I made a plan to address those things? The worst-case scenario examples are if I were to pass away unexpectedly, have I considered that in my finances? Another question is do you have an investment plan that ties into your goals? Ideally, with your investments and really with all your assets, when you have a good plan, what it does is it helps you equate or tie in assets to goals because that's really what it's about. The assets are not in themselves providing you anything. A good financial plan helps you map up where you want to go in life with the resources that you have. An investment plan is saying, okay, these accounts are for this purpose. Here's how we're going to manage them to help us move towards that given goal. A huge part of having a good financial plan is that you have a specific investment plan if you have investments. If you don't have investments yet, that's a different story, but having a concrete investment plan is key. Then, being able to answer the question, are you on track is a common question that people naturally think of. If you aren't sure of the answer, that's a sign that you probably don't have a solid financial plan because the plan—the exercise of going through it—is going to help you see how you're tracking basically. I mentioned awareness of things. In particular, I mentioned where your money's going between saving, spending, and giving. Let's assume you have good awareness. If you have awareness, it would be good to ask yourself, is that in line with what my ideal would look like? Ideally, your saving, spending, and giving—in other words, where your money is going—is in perfect alignment with your values and goals. Now, that's not realistic. It's more of let's work towards that, but it's worthwhile to ask yourself how close am I? Am I way off track? How am I aligning there? Once you have that awareness of where your money's going, ask yourself, is it in alignment with my values and my goals? You can see that a lot of this stuff intertwines together. Everybody's going to be in different phases within this. Maybe you have a good awareness of values and goals and you're pretty organized, but maybe you're not sure exactly where your money's going, maybe it's not going in the right places and you need to make some changes, or maybe you have all that going on, but you just haven't thought about some of the big risks that come into play. On top of that, it's worthwhile to look at how well you are following that. Whatever given plan it might be—let's use the investment plan, for example—the question I asked a minute ago was do you have an investment plan? Oftentimes, we have investment plans, and sometimes, we don't follow them exactly. One of the most valuable times to have a good investment plan is when markets get crazy. Going back to the question, should I change my investments, well, it depends on the reason. If you have a good, solid investment plan, you should do what it says and you should not change your investments because of external market factors. It's having a good investment plan and then following it. Are you doing a good job following that even when the market is scary? Just in general with all this, another good question is are you following through on some of these activities that come up as a result of going through these questions and going through the exercise? Did you buy the insurance you thought you needed or realized was important? Have you completed a will? Those are some of the harder ones that sometimes are very easy to procrastinate, so it's worthwhile to ask yourself, how well are you executing these follow-up steps, and in general, are you being efficient along the way? Sometimes, that's hard to self-assess. In all of this stuff, educating yourself will be helpful because you will be able to better define what efficiency looks like. It's a worthwhile question for anyone. I think by asking these questions, it's going to help you to better assess where you are today. If you don't feel good about, for example, some of these questions, that's probably a good sign that you ought to either do a financial plan for the first time or go back to the drawing board and reassess your financial plan. Now, if you work with us one-on-one and you feel some uncertainty about any of these questions, it's a good time to reach out to us and we can help you reassess. Maybe it's time to revisit your financial plan, update, or that sort of thing. It's normal to have uncertainty. Like I said, no one is going to be having perfect alignment with all these things at once. It's normal human nature to drift away from these things, but the key is having that awareness. As you follow a good plan, some of the things you'll feel as a result of that are very worthwhile. It's hard to put a price on it. It's priceless. What is it worth to live your ideal life depends on the person. It's difficult to quantify, but everybody would agree that it's a very worthwhile thing. The results of having a good plan are going to be you feel balanced, confident, and on track. You feel like you're being intentional with your finances. You feel happier. Greater happiness is going to be a result of having a solid financial plan. Maybe you're not rich, but you're moving in the direction of your goals. You're going to tend to view money differently than what the world tells you. You're going to compare yourself less to your peers or the world, and you're going to compare more to your plan, which I think is a healthy thing. You'll feel organized. You'll be less prone to shiny objects. Some of us are more prone than others. Human nature is to be enticed by some of these things, but you're going to be better able to navigate shiny objects and less tempted to make huge changes based on FOMO or scary markets. You're going to be less likely to view money as the end goal and you're going to be more likely to view money as a tool. When your money actions are in alignment with your values, doing a good plan will pull you towards that alignment of values and actions. If you don't have a good plan, you're going to be more prone to being pulled toward the world's values, your peers' values, or that sort of thing. Some of you might be a spender tendency and some of you might be a saver tendency. When you don't have a solid financial plan, the tendency for the spender type is to get pulled towards enjoying today and skip or not pay as much attention to saving for tomorrow. On the other hand, the saver type is going to be the reverse. You're going to be less likely to enjoy your money today and more likely to just stockpile for tomorrow. Ideally, you have that good plan to help you balance the two of those and you can lean more on it. Everyone tends to have a pull one way or the other there. All this stuff is not easy. It can be straightforward with a good financial plan, but it's never easy. Nobody's perfect, but I think the end goal is to have a plan. It doesn't have to be complicated. You can start small. In fact, it's probably better if it's not complicated. Ideally, it's straightforward. Starting small is better than not starting at all. The key is to have a plan and have it written so that you can have that awareness. It's going to pull you towards those values in an ideal life. If you take away anything from today, the key is to make sure you have a fresh, written financial plan, and over time, revisit it, adjust it, and update it so that it's fresh. Make sure you're using it over time. I think that's going to help you to navigate some of these normal questions that come up in life that can pull you away from it. All right, as always, I enjoyed chatting today. Like I said earlier, the fact that you're listening in is a huge deal. A lot of times, people will just bury their heads in the sand or not do anything about it, but as we all know, that is not ideal. The fact that you all are listening in, educating yourself, and working towards this tells me you're the type that's going to be down to having a plan. You're already ahead of the curve there. Give yourself a pat on the back for that. It's just a matter of where you're at in the journey and taking those next steps to continue to make good progress. All right, guys, we'll catch up with you next time. Hey, guys. I had one, quick announcement I wanted to throw out before we get off today. We have recently created an email series called The Vitals Check Series. The idea behind this is to help you guys have some concrete steps and tools to really have some concrete vitals financially. Ultimately, this is foundational stuff to help make progress towards having a rock-solid financial plan, so I wanted to throw that out there. It's at no cost. It's just a quick email series to really give you some concrete steps. None of this is too intense. It's not going to be extremely time-consuming but a quick hitter, high-level steps to start making progress towards having a rock-solid financial plan. I'll link to that in the show notes. I think that would be great for those of you that are not sure where to start on having a solid financial plan. It'll give you, like I said, some of those key starting steps ultimately to get you where you're confident in your financial plan.

What are pros and cons of physician mortgage loans? What do you need to know before taking one out, especially during a crazy market and changing rates causing sticker shock? In this episode of the Finance for Physicians Podcast, Daniel Wrenne talks to Doug Crouse, mortgage lender that specializes in physician loans and author of Hippocratic House: Do No Harm When Purchasing Your First Physician Home. Topics Discussed: Advantages: Low down payments, lack of PMI, and new job qualifications House Poor HENRY? Don’t go into major debt to keep up with the Joneses Hippocratic House: What to ask/expect as a first-time physician home buyer Disadvantages: Some lenders price their physician loans higher due to upsides Due Diligence: What to consider with lenders—service, rate, and closing costs Doug’s Predictions: Rates will continue to climb but not at same pace ARM: Makes sense if you don’t stay in the house and you make enough money Links: Historical 30-Year Mortgage Rates Doug Crouse - Physician Loans at BMO Harris Bank Hippocratic House: Do No Harm When Purchasing Your First Physician Home by Doug Crouse (Amazon) Hippocratic House: Do No Harm When Purchasing Your First Physician Home (Free Copy) The Big Short Movie Contact Finance for Physicians Finance for Physicians Full Episode Transcript: Daniel: What's up, everyone? Welcome to the Finance for Physicians podcast. I'm your host, Daniel Wrenne. Join me as we dig into what it looks like for physicians to begin using their finances as a tool to live better lives. You can learn more about our resources at financeforphysicians.co. Let's jump into today's episode. Hey, guys. I hope you are having a great day. I am excited to have a special guest joining me today, and that is Doug Crouse. He is a mortgage lender who specializes particularly in physician loans. When it comes to physician loans, Doug pretty much knows all there is to know. He actually even wrote a book about it called the Hippocratic House: Do No Harm When Purchasing Your First Physician Home. He offers that as a gift. I think you can buy it on Amazon, but he will offer it as a gift if you contact them. Anyway, Doug knows physician loans backwards and forwards. We're going to be talking about some of the pros and cons of the physician loan and some of the things you need to know before you go about taking one out. We'll also talk about some of the crazy market stuff going on with mortgages lately. If you haven't been paying attention, the rates are through the roof. We're going to talk a little bit about what's going on there and how that might change over time. Without further ado, let's jump into today's episode. Doug, what's up, man? Doug: Hey, Daniel. Thanks for having me on. Daniel: How you been doing? Doug: Doing good. Daniel: Are you surviving all this mortgage craziness? Doug: It has been a little chaotic with the Fed move. It's a little shocking when I talk to some people and they see rates are two points higher than they were three months ago. That's kind of a sticker shock to some. Daniel: I guess it's been two months, three months time has been up about 2% on average? Doug: Yeah. I think, probably end of January, 1st of February, I had 30 year fixed rates hovering around threes, low threes even, and our upwards of five for 100% no money. We're a little different than most in that our jumbo rates are quite a bit better than our conforming rates. If it was below the 6.7 limit, mine's actually mid- to high-5s, where if it's a jumbo 5% down, then I might still be in high 4s, but big jump. Daniel: That's a really unique setup. I guess I want to get into that because that's (I think) an important point we'll circle back to. Today, I was thinking maybe we should talk about the pros and cons of physician loans. A lot of you guys listening, or physicians are thinking about the physician loan quite naturally, but there are multiple options out there. A lot of cases, the physician loan is going to make the most sense, but there are plenty of cases where it doesn't make a lot of sense. Doug already kind of started to sprinkle in one of those scenarios, which like I said, we'll circle back to. Maybe before we get into that, let's start with the advantages of the physician loan just to kind of get that out there. Doug: There are three main reasons why people take physician loans. One, low down payments. Normally, you couldn't borrow a 7-figure loan without putting 20% down. In my case, every lender is going to have different rules for their program. But mine, we go to a million dollars with no money down, a million and five with 5%, and $2 million with 10% down. That's going to be 20% down on a typical jumbo loan. There's your first advantage. The second is lack of PMI. It means our default rate on doctor loans is zero, so we don't really need PMI to insure us against loss. That's a big savings compared to a jumbo loan that was going to have PMI. The other almost main reason that people utilize a doctor loan is when they're moving across the country and taken a new job, this one actually lets you start with just an employment letter with a signed contract showing your salary. This is something that varies. Everybody's got their own set of rules again, but mine's up to 90 days before your job starts. If you've got a signed offer letter, then that's what you qualify on as your future income. That's really your three main benefits of a doctor loan. Daniel: No money down or less money down than the typical loan, you get to avoid PMI. PMI (Private Mortgage Insurance) is the annoying cost that you pay normally when you don't have 20% down. Doug: That's quite expensive, and that one's credit-driven, too. Daniel: And it sucks because it's just a pure expense. It's just straight up. Doug: It's using insurance to protect the bank. You're getting nothing out of it except a loan. The bank's the one that's getting the benefit out of it that somebody else is sharing in their risk that if you default, they're going to take on part of the loss. That's what it's for. Daniel: Yup, and then the simple underwriting or simple process, less rigorous requirements, to qualify would be the third big one, right? Doug: No. The other one would be being able to close before the job starts. A regular jumbo loan, you'd have to have a job in hand and pay stubs, where this one you can close just on that future job. Daniel: Most banks, like the average bank that doesn't do a physician loan, if you're in training or going into practice, you're like, hey, I got this contract, they're going to be like, you're crazy. Like, show me a pay stub or maybe two, right? Doug: And something else I see a lot is people are like, well, I'm already attending, I'm already making $300,000–$400,000 a year. It doesn't matter if you're leaving Ohio and moving to California and buying a house in California. You can't use your Ohio income to buy a California house because it's obvious if your primary residence is California, you're leaving that job at some point. Even with the income and you say I've got a future job starting in California in two months, I'm going to state this job until then, so there's no gap in income, you can't get that with a regular jumbo loan, because the other job hasn't started. The one you're talking about saying, I'll make my payments with this income, it's going away. Daniel: In some cases, I guess that third reason in itself could kind of make it a good deal in itself. Sometimes, you got to do what you got to do and make it work. You're moving across the country, there are a lot of moving parts of that as it is. I know those time crunches can get pretty tight there. Doug's got a nice set up because he can work in 49 states, right? Doug: Everywhere but New York. We're actually adding them here in another month or so. Daniel: That's really nice because you can kind of maintain a relationship. I know a lot of you guys are moving quite a bit, especially if you're in training. Even beyond that, there's typically some moving going on. That typical mortgage can cause some problems in that setup. Now the no-down scenario is (I think) an appealing one as well for an earlier career or maybe to have another house, potentially? Doug: Yeah. Somebody could have a house that has their down payment on it, that they need to move, get their kids settled or whatever, and then sell them after the fact. That way, you're doing no money down. You don't have to have that equity. You do have to qualify both payments, but you don't have to strip the equity out of that one by pulling out a HELOC or something to bring the money to the table on the new one. Or maybe once you sell it, the better use of your money is you want to spend it to pay off your student loans or something else anyway. Daniel: I think that's probably the most common reason we're seeing with our one-on-one planning with people. The most common reason we're seeing people go for that 0% down is they just need to catch up on investing. They want to make sure they're maxing out all these tax shelters and they got student loans they want to pay off potentially. There are a lot of things that they want or maybe should do from a financial standpoint to catch up on those things. Being able to put zero down is appealing because they can put the money to work elsewhere. But I think that can also get into one of the downsides of it. You have to be careful with that, putting 0% down. Doug: Yeah. If the market pulls back here, you could be underwater, and then you're stuck. You don't want to be in the same people from 2010–2012, where they owed 100% and then houses went down 20%, 30%, 40%. Then you're really underwater and you don't have the option of selling unless you're just sitting on cash on the sidelines. You could write a check to get rid of it. Daniel: I guess that makes us old guys knowing that we both are around in the last real estate downturn. Maybe not that old. Doug: Well, I am. Daniel: We'll say season veterans. Doug: I started in the business in 1999, so I've been around. Daniel: So real estate can go down, by the way, and can go down a lot, but it's been a really good run. I'm going to try not to make predictions, Doug. You can make predictions if you want, but I have no idea what it's going to do in the future. I don't think it's going to crash like it did. Doug: I think we're in a different environment than then. I'm going to blame Wall Street. Not the mortgage guys; we were just the middleman. There were just some garbage loans out there that were packaged. If anybody's ever watched The Big Short Movie, it's a very telling, a very accurate portrayal of what happened. Daniel: That's a great movie. Doug: Somebody that worked at McDonald's making $10 an hour and said, hey, you can go buy 10 investment properties. Daniel: I bought my first house in 2006 or 2007 and they're like, we don't need anything. I mean, I don't even remember if I showed. I might have. It was very, very little financial requirements. In fact, I probably should not have bought the house. Fortunately, my life improved financially. I was okay. The lender, and it was actually Countrywide, loaned me the money, but it was a very easy process. I was surprised. Doug: Yup, stated income, stated asset is like, hey, I make this much money. Daniel: Stated income, that's where I make all of it. Doug: Yup. I make this much money, it's like, okay. Then I don't have any down payment, like, no problem. We don't really need to see a pay stub and you don't have any down payment. You don't have any reserves, no problem. Here, how many houses do you want to buy? That was the market then. Daniel: It was a different market. Doug: Things are QM now (qualified mortgages) where banks are actually responsible to make loans that they can see that the borrower has the means to repay, which is a good thing. I hope we don't end up with short-term memory and bounce back to Wall Street getting greedy and saying, well, let's start selling this crap again. We'll make a bunch of money on it and then the market implodes, because that's exactly what happened. As soon as the first person couldn't pay, then it just rolls uphill to the point of, if they can't pay, then there's nobody to sell their house to to buy the next more expensive one. Then got to the point where there are people like, yeah, I can afford to pay my mortgage. But heck, if nobody else is going to pay theirs, why would I want to pay off my million dollar house that's only worth $700,000 now? And then they strategically walked away. I don't see that happening again. Aside from the doctors and veterans, most people, if they're buying a million dollar house, they're putting $200,000 down. The veteran and the doctor are really the only ones. When I say doctor, I'm including dentists and a few other professions they lump in, the professionals that I joke about. My wife's a doctor, too. If she loses her job, she's got five more offers at the end of the day. Only an unemployed doctor is one that chooses not to work. She's going to have the means to continue to pay her mortgage. If something happens, she's not going to be in the same boat of a recession and, hey, we don't have a job for you. There's always going to be a job for doctors. That's why banks are excited to get them as clients. That's why we offer no money down, and no PMI, and, hey, we'll even let you close three months before your job starts. Everybody's rules are different on that. These are portfolio loans where it might be a little quirk here and there that one bank goes to 750, the next bank says we only do 60 days. Some other bank says, hey, we include pharmacists in our program. As a rule, the idea behind it is zero risk pharma because they have the ability to pay. They do pay. I've been doing doctor loans for several years and not one has defaulted. The banks love that kind of book of business. Daniel: Did you? Were you doing them in 2008? Doug: No, I didn't start probably until 2013–2014. Daniel: I worked with physicians then. We had a handful of people that were stuck with two houses. They were underwater on houses or they got kind of stuck in an area. Unwillingly-ish like a long story, those sorts of situations. But they definitely were not in danger of foreclosure, which is the nice thing about a physician. You have a higher income and you're in demand. You typically can make the payments. It might negatively affect your planning if the market were to turn. Doug: Even physicians, though, part of my book is from my wife's perspective. I'm sure you probably fully agree with this. Not to buy the McMansion and put yourself in a position where you have a great income, but then you're still married to your job because you took out a 45 debt ratio. I don't think that's a good idea for anybody, but I especially don't think so whenever you're making really good money to go to that same level of Keeping Up with the Joneses. If you're making 300,000 a year, you should not be at a 45 debt ratio. It's just not something I like to see. I hate for people to feel like they can't take a vacation, or afford a new car if they need it, or whatever the case is. Daniel: Can you clarify the 45 debt ratio? Specifically, what's that mean? Doug: If somebody had an income of let's just say, for argument's sake, $120,000 to keep the math simple, then they make $10,000 a month, then you can spend $4500 a month towards all of your credit reportable debts, which are going to be your house payment, your car payment. If you have a child for alimony, anything like that, but not your car insurance, your groceries, paying your taxes, all of that's coming out of the 55%. The bank's looking at what's going to show up on your credit report, subtract all that, and whatever's left can go to your mortgage. What I'm saying is, great. If you're making $600,000 a year, then don't go buy a $2½ million house just because one of my competitors says you can afford it. If you make $600,000, you can pay off a house in 10 or 15 years if you buy something for a million or a million-and-a-half, where you spend $2½–$3 million, you're going to be just like everybody else. Drug out 30 years and scraping by to make the minimum payments. Daniel: Yeah, 45% equals house poor. Doug: Exactly. Daniel: Because that's partially how the lenders set the limit, because house poor means you're still in the house. You can afford the house, but just barely afford the wealth. Doug: Right, 45% is you can just barely pay your bills. You have to remember, if you're in a high income, as you know, you could be in a W-2 situation paying out nearly 50% of your paycheck, your probably take home is 50%-55% if you're lucky. That doesn't leave much if you're taking 45% of it to pay everything that shows up in your credit report, because you still got to eat, pay car insurance, take a vacation, and whatever. Daniel: What does that get you? I guess at $100,000 income, let's assume you have no other debt. I mean, that's like a million dollar house, right? Doug: $4500, you can probably buy $800,000. That's kind of a loaded question, because in Colorado, it'd probably buy $900,000. In Texas, it'd probably buy $600,000 or maybe even $500,000. The reason being, Colorado, an $800,000 house, the property taxes might only be $2500 a year. Daniel: I get it, the total payment. Doug: Yeah, five times that. Daniel: Because they have crazy property tax. Doug: Yeah. I mean you don't have to pay any state income tax. You have to get it somewhere. Daniel: Illinois is the double digit. Doug: You mean in most places. Daniel: Yeah, it's high income tax and high property taxes. Doug: Texas is right up there with the highest property taxes. A million dollar house in Dallas is probably $25,000 a year in property taxes. A million dollar house in Denver is probably $5000, $6000 max. Daniel: You mentioned the book. Some of you listening might not be familiar with Doug's book. Doug actually wrote the book on this stuff, which is even better. Hippocratic House, right? Doug: Yup. My wife, again, she's a physician. We have a podcast on financial residency, but that's where this is branded through. hippocratichouse.com or dougcrouse.com. We just give it away. It's definitely not a Grisham novel. It's a couple of 100 pages. Especially a first time buyer, a physician buyer, everything in it kind of applies to you. There's a chapter in it about credit. There's a chapter about realtors, definitely something about the settlement, what to expect. Again, it's not a riveting read, but it's a very good read for somebody that wants to learn. The problem is that you could call me and I could talk to you for hours on end. But if you don't know the questions to ask or if I'm not available at 2:00 AM when you have time to read this book, then there are just things out of this that if you read it ahead of time before you call somebody like me or one of my competitors. It gives you kind of a, hey, I should ask them this. Daniel: Yeah. Doug's unique in that. Of course, you are in this business as well. You do have financial incentive to work with people. But Doug is about as objective as you can get from the standpoint of someone that's working in that industry. That's going to be a more objective assessment of that process. Doug: Yeah. I tell my wife all the time. She refers business to me. Daniel: That's always a good sign. When your wife refer you business, that's a good sign. Doug: But I always tell people, there are just niches that certain banks, like one bank might be, hey, our niches, we want loans under $500,000, and they're going to price aggressively. The other banks are going to be like, we don't really want that business, we want $2 million loans. That's where they're aggressive. In my instance, I don't have probably as good a rate as you're going to find with somebody else if it's a $500,000 loan. But if you're over 650 with the jumbo limit in most parts of the country, we're super aggressive. I just tell people that. They just call me like, hey, here's my rate. But do your due diligence. Make a few phone calls, because you might do better. I don't want to close a loan just for the sake of winning the business. If you have an opportunity to save money, I'm actually going to tell you that. Daniel: We covered some of the upsides of the physician loan. Let's talk about some of the downsides of the physician mortgage relative to other alternatives. Doug: Really, based on some lenders, they're going to price their physician loans higher. Meaning they're going to look at a Fannie- Freddie-type rate or their jumbo book of business and say, well, we're not making them put money down. There's no PMI, so they're going to build it into the rate, and the rates are going to be more expensive. Not the case with my bank. My bank looks at it and says, hey, these guys don't default, so we don't need to rely. Daniel: It's a 0% default rate. Doug:  Yeah. They look at it and say, these are loans that we really want. They're borrowing the right amount of money. It's a good diversified product for us. We actually take our jumbo product, and then cut the rate nine-eighths of a point. Even if it's 100% financing, we're cheaper rate on the doctor loan. That's not true of all my competitors. Most of them are looking at the downside being the rates. Sometimes, some of them are charging extensive fees. Also not the case with mine. Our underwriting processing fee is $1150, ut if you're a million dollar loan, we're giving you $1800 credit. We're actually paying you to take a loan from us. It just depends. You have to do your due diligence. When you're asking the three things that you're looking at when you're choosing a lender is service, obviously. You have to find somebody you like, thinks going to get the job done. Rate, and then the closing costs. The closing costs and/or rate with some of my competitors are higher, and that's the downside. Daniel: If you're comparing a conventional with 20% down versus a physician loan, it's on average, a touch, what would you say higher percentage-wise? Do you have a rough idea on average, like conventional 20% down versus typical physician loan with zero down? Doug: Normally, I would say that a physician loan is going to be an eighth quarter higher, but like I said, in my case— Daniel: 8% or quarter percent? Doug: For the physician loan, but in my case, we're looking at whatever. Hey, if you're 20% down and here's the rate, doctor loans that rate minus an eighth. That's just the way we price our doctor loans. Daniel: Do you take an eighth off the jumbo or both conventional and jumbo? Doug: We take an eighth off of whatever you price out as a non doctor loan. It's an eighth lower if you take a doctor loan. If somebody comes to me and says, hey, I want a $2 million house at 20% down, you think you want a jumbo loan, but really, it's like, no, you're a doctor. I'm going to give you that jumbo loan, but I'm going to call it a doctor loan because you're getting an eighth off the rate. It's just a cheaper product. I think the only thing that probably is going to compete with a doctor loan would be a veteran that's disabled. If you have that 10% disability and you waive the funding fee, then VA rates, oh, my god. Back in March of 2020, my 30-year VA rates at the time got down to like 2.1% for 30 fixed. This bank I'm at doesn't even do VA loans. It takes special training for the underwriters and they don't have it yet. That's really the only one I find really competitive with a doctor loan, unless you're at a bank that is upcharging their fees and/or rate because it's a doctor loan. That's going to almost always be the case if it's a broker. Brokers are a fantastic outlet for 80% of the population for a loan. But for a doctor loan, they just don't have the access. Banks don't really offer this through the broker channel. If they do, I know any of your listeners ran into this back around Mother's Day. NorthPoint was doing them, and they pulled the plug, and it's like, we don't care if you're closing tomorrow, we stopped doing doctor loans. Huntington Bank is another bank that offers their products through the broker channel that goes directly to Huntington. You're going to get half a point to a point better rate than you would through a broker. Brokers are fantastic for 90% of the people that are not in this space just because they just can't compete because banks are like, this is our bread and butter. Why would we give this to a broker? Daniel: That makes sense. Downside, in general, sometimes interest rates can be higher overall in the market. But with your products, it sounds like they're a touch lower. It's worthwhile to compare. Especially, if you're not working with Doug, you want to compare alternatives. Especially if you can put 20% down, you can ask, how's this compared to conventional? We have had clients that the lender kind of pushes them to a physician loan, and they had 20% down. We're like, no, no, ask about the conventional loan, because in that instance, it was quite a bit lower cost-wise. It's good to look at your options. I think one of the other downsides is not like a product downside, it's more of psychological. I guess there's a temptation with going 0% down to kind of maybe get a little overextended and have 0% equity there. If you have $0 elsewhere, that can be a problem. If you're really pushing the envelope of this, you can kind of get into more trouble the further you go with all this stuff. What I'm trying to say is if you're going to get into trouble, I'd rather you have 20% equity than zero. Doug: It's human nature. People have a tendency to not necessarily be tied up but just spend the money. If you're not going to be somebody diligent, invest it, save it, and have access to it if you need it, then 100% finance loan, as you're saying, and then you don't have an emergency fund and/or if push came to shove, say I need to move across the country and I owe 100% here by the time I pay a realtor, you need to write a check to get rid of your house. If you're in that boat, then you probably shouldn't have taken the 100% loan. I joke about the acronym, we call them HENRYs, which is higher earners not rich yet. Some new attendees, of course, fall into that. That's partly what doctor loans exist for too, is, yes, you can make the payment. But no, I don't really have any money just yet. You're going to get there. But I am definitely in the camp that if you're taking 100% financing and you don't have a lot of money, then start gaining some money quickly. Don't buy a house to where you can't then start setting aside a decent chunk of money to build up your emergency funds. If you're going to close on a house and you're at a 45 debt ratio, you're not really able to then say, now, I'm going to save another $2000, $3000, $4000 or $5000 a month for that instance, where I do want to move across country and I have to write a check, get rid of my house. It's got its pros, but it's also dangerous if you don't use it right. Daniel: Yup, that's like anything. We're always trying to talk people into tracking their net worth just as a kind of good financial discipline. It's maybe not the coolest thing in the world to track your net worth, I don't know. I'm a financial planner geek. Anyway, the nice thing about it is when you start tracking it—I would always suggest it quarterly or even monthly—you can really see your progression in how you're doing and how things are growing. Going back to what we were just saying, a lot of people get overextended on the house, which limits their ability to grow their net worth, or maybe just their home is the only asset that's growing. That's a problem sign. Doug: Yeah, and hopefully the home does keep growing because like you said, the last 20 years, yes. Well, not the last 20 but since the implosion corrected and since 2012 (the last decade), we've seen nothing but appreciation. It doesn't necessarily mean that's going to be the case for the next 20. Daniel: Yup, so if your net worth is not growing aside from the house. A lot of people have nice houses in medicine, real expensive houses, and they've been growing a lot. You get a million-and-a-half dollar house all of a sudden. But what I'm trying to say is if everything else has not been growing because you kind of got a little overextended with the house, I think it would be helpful to be aware of that. That's why it's good to track your net worth because what happens in that scenario is if things go south, you have a lot less wiggle room in that scenario. You can't really take as much of a downturn. And you're not even able to save for things like retirement, education, traveling and those other things in life. There are other things in life and I'm sure many of you have other areas you want to focus on, but it is a personal decision. Different people put a much higher value on having a nicer house. I'm not the guy that says move to the lowest cost of living area just so that you can save money and try to save as much as possible. I think there are reasons to move to high cost of living areas like around people and family, if that makes sense. I think that's what really matters in people's lives. That's what it's really about. It's like being able to match this sort of thing with what you consider most important. Doug: I just talked to a doctor the other day. He was saying several of his friends in Salt Lake bought houses for $350,000 five years ago, and they're selling them for $900,000 right now. That's where you're going to invest in the market with that kind of return, but not this year. Daniel: No, that's crazy. That's abnormal. Doug: That is abnormal. Don't expect to replicate that. Daniel: Those kinds of numbers make me think that there's some bubble going on there. Most areas are not quite. Salt Lake City has exploded growth-wise. It's been a hot market. Anyway, do you see any short-term? I'm going to try to make you do a prediction here. I just said we're not going to make predictions, but I'm going to make Doug make a prediction. Maybe not a prediction, but what are your general thoughts on where things are going from here? With the lending world, do you see any trends? I'm curious about your observations. Doug: Before we started, we were just joking about it. I think an expert weatherman is going to be right 60% of the time, so I'm going to preface my guts here. Daniel: That's why I want to know. Most people are 40%. Doug's going to be 60%. This is great. Doug: Flipping the coin 50/50, you're going to be right half the time. I might be right 60% of the time. I think rates are going to probably continue to climb the rest of this year, but not at a pace that we've seen year-to-date because I think we've seen a huge move. If you see rates go up another three quarters of a point between now and the end of the year, I'm in the camp of it. It's just as likely that next summer rates will be lower than they are at the end of the year than they are higher. The reason I think that'll happen is they've got to do something, because as we were talking, Salt Lake or Austin, some of the prices there went up 35%, even 40% in a year's time, something's got to give. They got to put the brakes on that. That's going to happen with the Fed stepping in. When they do it, I think they're going to do things to a point where it's not an exact science, so they're probably going to overshoot. That's where I think there's just as good a chance that as rates are potentially higher at the end of this year, I could see it being 50/50 that next summer, they actually might have to come back and say, oh, we overdid it, and we just don't want to crash the market, so here, we're going to lower rates back down. Time will tell. That's my 60% guess. But housing prices, there are too many factors that rate is not the only that's driving them that nobody can sustain. I don't care if you're a cardiothoracic surgeon making a million dollars a year. If prices keep going up 20% a year, the surgeons coming out five years from now aren't even going to be able to afford a house. That's got to stop. I don't personally think that we're going to see anything close to what we did in 2012 or 2013. I think if you see a correction, it's going to stop seeing 20% appreciation and if it's flat, then that's a win in my opinion. Daniel: Yup, and it is very location dependent too. Historically, these downturns have been a big time location. I live in Lexington, Kentucky. Historically, Lexington, Kentucky at least has had much less volatility than the average market. That's not to say it's going to change, but Las Vegas, for instance, has had super volatile. Doug: Right. Florida, Texas, California, for sure. Those markets that you see the big swings, when they go up, they do come down. The ones that go up the most— Daniel: Like in Salt Lake City? Doug:  In fact, speaking of that, we do finance in 49 states, but there are seven states that we limit to 95%. That's the states that they're looking at and saying, hey, if something's going to happen, it's going to be one of these seven states. Daniel: Can you tell us the seven states? Doug: It's Florida, California, Maryland, Idaho of all states. Daniel: Idaho is hot. Doug: Is it? That one surprised me. Daniel: It's super hot. Doug: And then Nevada and DC. Those states are states that my bank is saying, hey, we're just going to limit these to 95%. We don't think the market is going to come crashing down either or we wouldn't still be doing 100% loans. But we're looking at and saying, if something's going to happen, it's probably going to be the states. I don't even see that happening there. I think you're going to stop seeing 20% and maybe see flat or 5%. As you said, you're in Lexington, I'm in Kansas City. It's a Steady Eddie market. 0%, 3%, 4%, was the norm. Kansas City saw 20% last year, and it saw 18% the year before that. That's just so unheard of for back-to-back years like that. Daniel: Yeah. Historically, houses kind of gravitate to inflationary rates. I guess inflation is high lately. Doug: Yeah, for sure. Daniel: Real rates. That's still too high, 20%. One other question I just thought of before we part ways, I've been hearing people mention the ARM more lately. I guess the reasoning behind it is that they're thinking or the lenders are thinking that rates are going to go back down. They're telling them, hey, let's do this ARM product and get that for 5, 7 years, whatever 10-year ARM, and then that way, you have that period of time locked-in. But sometime from now until then, rates are bound to go down back to where they were or below, and then we'll just refinance them. I'm curious if you've been seeing that or what your thoughts are on that. Doug: I see a lot. From a bank expense standpoint, obviously, it mitigates the risk. If you're giving somebody a 30-year note, you're locked in if they actually stay 30 years, which nobody does. But if they did, the banks are on the hook, and then they have to answer to regulators that they keep enough on their balance sheet to account for that. If they do an ARM, then after 7, 10 years, or 5, whatever length of the ARM you take, then we can just adjust our rate to the market so we're not on the hook, so we don't have to keep as much. Of course, an ARM rate, there's no reason to take it if you're not saving enough to mitigate the risk you're taking. I will say 23 years doing this that 90% of people do not keep a mortgage longer than 10 years. That may change as we move forward, because in the past 20 years, rates were falling. Part of what drove that fact that mortgages didn't stay on the books 10 years was take whatever today because next year, you're going to be refinancing to a lower rate anyway. Daniel: Yup. Everybody was refinancing over, and over, and over, and over. Doug: Those days, I think, are gone. I think we're going to see an ascending rate pattern for a decade. You're always going to have a pullback. If you close today at 5, then there might be an opportunity to refinance at 4½. If rates go to 6, they might pull back to 5½ for a while, but maybe. Really, I like ARM for two reasons. One, either you know that you're not going to stay in the house. Who cares what happens to the rate if you walk in for 10 years and this is especially a resident? Four years now, I'm moving across the country and not staying wherever I'm doing residency. This is not where I want to live. Or two, you make enough money and you were conservative enough that, if my rate does jump 2%, 4%, 5%, on me, I could just write a check and get rid of my mortgage. Those two reasons are why I think an ARM makes sense. But otherwise, if you're saying, I'm going to save $200 a month times the next 10 years, that's $24,000. You'll actually save, in that scenario, another $7000 or $8000 that the cheaper rate will pay down equity faster. That's all going to disappear on you in two years. If your 11-year rate jumps 3%, 4%, in year 12 it jumps another 1% or something, then that's great. You save $30,000 and then starting year 13, you're way in the hole. The only other reason would be somebody that, hey, this is the only way I can afford the house right now, I'm on the resident salary in two years, and I'm going to be on an attending salary and my income is five times as much. $200 a month savings today means a lot more to me than a $400 increase might hurt me later. As a rule, I only like ARMs if you fit into the category of either you're conservative and I can write a check, or I'm not going to be here so it doesn't matter. Daniel: I think the problem I have with the whole approach is it's built on this assumption. For it to work, rates have to go back down. That's like a known— Doug: That's not given like it used to be. Daniel: As it's been coming up, I don't just send them this, I kind of give them some breakdown of it. I like to send them the historical 30-year fixed mortgage rates, like a chart of it. If you look at it, it's like back in the 70s and it's way high. It's been a pretty consistently reducing percentage rate from the 80s until just not long ago going downward. Rates, like Doug was saying, for a long period of time have been consistently going down. It wasn't huge. There was a little bit of up and down, but there weren't huge, massive changes. My point is, the reverse can happen. We could have the same exact thing happen in the reverse, where it's slowly going up for 10–20 years. In that situation, that's a train wreck if you get the five-year or seven-year ARM, and you end up with the house for a really long period of time. It's not worth taking the risk. In most cases now, I agree with your exceptions there. Doug: Something that comes up a lot is, my book definitely points this out as you should be asking if there's a prepayment penalty, which they almost don't exist anymore. Those types of loans were what we were talking about in 2012 and 2013, the Wall Street loans. You don't have those types of penalties. But even without a prepayment penalty, the first thing I hear is, why wouldn't I just take this ARM, save the money, and if rates go up, I'll refinance? I'm like, stop and think about that. If your ARM started at 4½ and let's say that's a half cheaper than 30 fixed, then you want to refinance because your ARM went to 6½, it's like, what do you think 30 fixed is? Thirty fixed, if your ARM went to 6½. Thirty fixed is probably 7½ now. Daniel: Everything goes up. Doug: Yeah, so yes, you can refinance. No, there's not a prepayment penalty. But your flawed logic of you could just refinance is true, but all you can do out to refinance is start the clock over and stretch it out to 30 years again. But you're not going to go from, hey, my rate went 6½, I'll just refinance to a new 4. Once you get to 6½, 4 is way in the rearview mirror. Daniel: Awesome. Doug, it's always fun talking about mortgages with you. I've enjoyed it and I appreciate you coming on chat. Doug: Thanks for having me. Daniel: As always, thank you so much for joining us today. If you found this valuable, please give us a review on iTunes and share with a friend. Also check out our website at financeforphysicians.co for all sorts of additional content. See you next time.

Are you stressed out about inflation? There's no reason to worry. It's better to focus on what you have control over and apply it to your situation. If changes need to be made, start making some good changes. In this episode of the Finance for Physicians Podcast, Daniel Wrenne talks about what you should do about inflation, your concerns, and your assets. Topics Discussed: Inflation: What is it, why is it occurring, and how are recent events amplifying it? How much should you have in your pocket versus in other places? Financial Components: Consider income and assets when it comes to inflation Short- vs. Long-Term Inflation: Ups and downs of volatile times and emotions Steps to Take: Solid Financial Plan: Pair up your goals and purpose for your resources Cash: Maximize efficiency to be far less concerned/susceptible to inflation Key Takeaway: Worry less about inflation to have more confidence in decisions Links: Navigating High Inflation Periods How Will The Russian And Ukraine War Affect Your Planning Historical Inflation Rates: 1914-2022 For most U.S. workers, real wages have barely budged in decades Stocks vs. Bonds: Differences in Risk and Return Make a Case for Both Contact Finance for Physicians Finance for Physicians Full Episode Transcript: Hey, everyone. I am looking forward to talking about a hot topic today. It seems like it keeps coming up in our conversations with people. It's definitely in the news and the topic is inflation. We're going to be talking about inflation. Really focus today would be on applying it to your situation, just some things to be thinking about. The goal here is to not stress about it and make sure you're making good decisions at the end of the day. We're going to talk about that and hopefully, you'll get some takeaways to put you at ease here or if changes need to be made, start making some good changes. We'll jump into that now. Okay, so we're talking inflation. A few episodes back, I got into inflation and a little bit more of the why behind it and how it works. Definitely check that out. If you want to learn more about what's going on, what is inflation, why is it occurring now, and how's the recent events tying into that and amplifying it, so definitely check that out. I'll link to it in the show notes. Just a summary or quick review on that, basically, inflation is when prices, or the cost of goods and services increase over time. Whether it be like the gas prices are going up, over time, or the cost of bread and milk goes up. If you think about it, I'm sure you've seen those little books that they show the year you were born. I always remember seeing them in the Cracker Barrel, if you're from the South, you hopefully know what that is. They had to have these books. It shows 1983, that's when I was born. You can buy the book and it shows what was going on in 1983. One of the things they have in there is the cost of bread and milk, cost for a movie ticket, and all those sorts of things. It's always interesting to look at that because it's surprisingly low. If you especially talk to your grandparents or anyone that's older, they're going to remember the day when things were very inexpensive. That's basically inflation over long periods of time. The end result of it is that your money, especially like a dollar in your pocket, is going to lose value. The government targets to keep inflation, ideally until 2.2%–3% ranges. Their target, which they've done a pretty good job at until recently. I think the pandemic, at least that's what a lot of people say is. That set off this recent increase in inflation. As of this recording, it's closer to 8.5%, 12 months ending. That’s considered higher inflation. That's about, I think that was as of April of 2022. Most people consider that high inflation. If you're not careful, the concern here is that inflation is another element, like adding into the mix. If inflation was just consistently 2% exactly forever every year, that would simplify the world a little bit, and it would make it just one less thing to think about. But when you add it into the mix, when things change, it's just one additional factor to take into consideration that can potentially cause problems or mistakes. It can be an opportunity, as well. We're going to talk through that a little bit more like how you can take some steps to make sure you're doing what you need to do. The big issue is things are getting more expensive. I think the question to ask is are you keeping pace? Are you being efficient? You have to have a dollar in your pocket, or I guess, these days as much but most people like to keep some cash—pure straight up currency in their pocket. But that is going to, for sure, lose value as inflation goes up and it's going to increase. The higher inflation is, the faster it's losing value as it's sitting in your pocket. I think the question is how much should you have in your pocket versus in other places and that sort of thing. So we'll talk about that a little bit more. But first, I think the way I would look at it is there are two main components of your finances to think about and keep an eye on in regards to inflation. The first would be income, and the second would be assets. Income is really a great inflation hedge. Historically, wages keep up with inflation, maybe even slightly outpace inflation. I'm talking for the masses. Maybe your pay has not quite gone up with inflation. But overall, historically, wages are a great inflation hedge and they keep pace very well with inflation, which is a very good thing, as long as you're working and earning an income. If you're retired or you're not currently working, that amplifies the effect of inflation on you. But if you're working, I think the key takeaway here is just to make sure your compensation is keeping pace with inflation, that will allow you to at least maintain your ground. Assets get a little bit more complicated. I guess, let's start out with cash. It's straightforward. It's like a dollar in your pocket, like I was talking about, or just a checking account that pays nothing. If inflation is 10% per year, prices are getting higher by 10% a year. In that example, your cash in your pocket or in your checking account is essentially losing 10% of value per year. On the other hand, if you have an investment, that's a different type of asset. If you have an investment over that same 12 month period of time, it loses 10% of its value. Inflation is 10%. That compounds it. It's really like a real loss of almost 20%, like 19%. Inflation has a way of eating up the value of your assets, especially if you're not careful. I think it's good to look short-term, long-term and start to parse them out. Short-term, the numbers can get really scary to look at. Right now inflation is over 8%, like I mentioned. Cash is paying nothing and investments lately have been down. Even bonds have been down. Bond values have gone down lately. A lot of that is due to fears about inflation in the future. But either way, cash is paying nothing, investments have gone down lately. Inflation is over 8%. That's a very concerning peckish picture. Because if you look over the past 12 months, your checking account has lost 8% of value just by inflation eating it up. Your investment account maybe is down 8% percent before even incorporating inflation. It's even down more than your cash accounts, but we have to remember that the short-term very easily can get all backwards and tons of emotion. That's when a lot of the errors happen, when people make big decisions based on short-term, volatile times and emotions kick in, especially when we're talking about long-term oriented things. I'll circle back to that in a second. Be careful with the short-term. Short-term periods of time get wack. That's normal, like things get backwards and don't make much sense. Because if we only looked at this 12 month period slice of time, it would not make much sense. That's very highly unlikely. Historically, this thing does not last for the long-term. You have to keep the long view in mind also when we look at all this stuff. It's good to understand what's going on, but you have to  remind yourself of what that long-term tends to historically revert to. Historically, the long-term reverts to basically some sort of sanity. It cuts out a lot of this emotional volatility that we're seeing. Long-term—I have a link to some long-term return reports and graphs and that kind of thing. But if we look at the long-term, long-term inflation tends to be pretty, pretty low. There are spikes in time. Right now it's 8.5%, past 12 months. But the past multiple years, it's been below 5%. I guess all the way back to the 1980s. The last time it was high, the last time it was in the range of what it is now was back in the early 80s, maybe 1982. In January 1982 it’s 8.4% 12 months, and then 1981 had over 10% inflation. That was a spike. But if you look at long-term averages of inflation, it ends up flattening out to be relatively low. Some things you can compare it to if we're looking long-term, might be stocks and bonds, or maybe cash or real estate or those sorts of things. If we compare it to stocks, like I mentioned just a minute ago, if we're talking short-term, it's all over the place. short-term right now, it's like inflation is higher than even the performance of stocks. you're losing ground, but I'm talking about the long-term now. So let's say, 10+ years, and this all linked to a chart that's all the way back, I think this thing goes back to 1926. This visual I'll link to, it’s going all the way back to 1926 before the Great Depression. Stocks do exceptionally well. They outpace inflation dramatically. Over long periods of time, stocks can be volatile, but they dramatically outpace inflation. They're historically a fantastic inflation hedge. They outpace inflation considerably. They perform very well, historically relative to inflation. Bonds even do very well. Their historical long-term performance is below stocks, especially longer term bonds historically perform very well relative to inflation. They tend to outpace inflation. There are types of bonds that are designed to keep pace with inflation, like an I bond. I'll talk a little bit about an I bond that's been coming up lately. I bonds are designed to be exactly like inflation is. I bonds are basically equal to inflation. But historically, they're at the bottom of the returns, they're like neck and neck with inflation. They're not doing as well as long-term bonds or stocks. Real estate tends to do well, versus inflation, especially real estate as a business. Just owning real estate itself tends to be around inflation, but when you're running it as a business, that can outperform inflation very well. Then cash, we've already talked about cash. Cash, historically, underperformed inflation quite a bit. In other words, cash is losing ground to inflation. The interesting part about it is what are you doing about this? What are your concerns? How many of these different assets do you have? I think, before we get into specifics, I would think about some of these questions and ask them of yourself, or even before that, are you concerned about inflation? What is the underlying reason? Why are you worried about inflation? I think that's a good question to ask yourself. Why might you be worried about inflation? Because maybe you have a very good mix of all those assets, and you're basically doing the best you can. In that case, there's no reason to worry about this stuff. You're doing all you can, and you're good. But in a lot of other cases, maybe you're not, or maybe you're just not sure. Common concerns we see pop up, people will say something like I'm getting killed on my cash. My cash is not returning anything. I need to do something with it, maybe buy I bonds, or something else. Maybe people are saying my investments lately are getting killed, which they have been. Short-term, it's a downturn. Maybe I need to make some changes on how I'm investing or not invest as much of my new cash into investments. The news amps this all up, they tell you, you should be worried. We take that in a little bit, and it can amplify our fears. How do you address those concerns? Well, looking at cash, I think the big killer in inflationary times is cash. What can sometimes happen when there's fear, people make changes towards the direction of safety. They like to flock to safety, and safer assets, in particular, like cash, or savings accounts, they long-term perform the worst relative to inflation but there's this short-term pool towards them. No matter what crazy markets are going on, but with inflation, people are concerned. Maybe people are worried about investing so that a lot of these problems where people lose ground tie in to having too much cash. Or the other big mistake is making changes to how you're investing because of inflation changing. I think the key to all of this is having a solid financial plan. This goes back to when you got to peel back the layers, ideally. A solid financial plan is where you're pairing up your goals and the purpose for your resources together. In other words, you're partnering your resources with or matching your resources with their given purpose and tying it into your goal. It helps you have better answers to some of those questions I was throwing out. It gives you some intent and some purpose. Inflation concerns are normal. They come up but it gets really, really amped up when you don't have a solid, clear financial plan. A good financial plan is going to help you, like I said, pair up those goals and purpose with the resources you have. First part of a good plan is, it's going to help you map out a good short-term reserve plan. A lot of this stuff about inflation is external, factors you have zero control over. It's better to focus on what you have control over and make a plan based on your goals. In the short-term, there's only so many things you are going to need. Short-term wise, typically, cash is a fantastic resource to pair up with a short-term goal. For these short-term plans, oftentimes, a common one is emergencies, like who knows what's going to happen, or like a big major purchase in the next year. You can map out what all that short-term stuff is that you need to earmark cash for. Ideally, you should have an exact cash number that is based on your plan. It is what it is. Cash is a fantastic place to put resources that are tied to those short-term reserves. Inflation is what it is. I mean, it's going to happen, and it's going to eat up the value of that, but it still doesn't change the fact that you need to have it in cash. Then long-term, a good financial plan is going to help you map the long-term goals and your long-term game plan with your resources as well. Investing is the most common vehicle or approach to help people maximize or make progress towards those long-term plans. It's efficient. It works really well, like I was mentioning before it outpaces inflation considerably. Ideally, you have all that matched up where your dollars are doing its thing. Your cash makes sense. You don't have too much cash. You don't have too little. Everything else is  earmarked for long-term stuff, and it's invested in doing its thing. You should be maximizing efficiency and you're going to be far less susceptible to inflation, or even concerns about inflation. When you don't have a plan, you're going to be prone to worrying about all these scary news stories in the markets, and maybe you take action on that fear, or maybe you don't take any action, which can also be potentially an error. The key, though, I think, is having a plan, your plan. I think a lot of these concerns that people are having are rooted in the fact that they have these dollars that are just not exactly accounted for, or they don't have a clear purpose. One of the common scenarios is maybe you have a lot of cash, maybe you feel like it's a good amount, or maybe you're just not sure, but you have a lot of cash. Right now you're like, man, I'm getting killed with inflation. Common solution is I need to do something about it, and I'm going to buy something like I bond. I bonds are designed as the best way to match inflation. They're a great tool for doing that. Maybe you start buying I bonds with that cash. That is a better solution than just sitting in cash, because it does return more, especially right now. It's going to be right with inflation. The problem is you had too much cash potentially or you're not even sure. Maybe a large chunk of that cash should have been paired up with longer term goals. May have been better suited going into something totally different than either one of those things in the first place. If it has a long-term use, you pair that up with something like a longer term investment, then it's not even a consideration for I bonds. I think a lot of times, the problem is that there's not an underlying plan. There's not a purpose for the dollars. When there's not a purpose for the dollars, it's very scary to see them. It makes it almost scarier to see them losing value. If you haven't invested and it's for your retirement, you're like, yeah, no big deal. I mean, I'm not going to use the money in the short-term anyway. It's for retirement. That's a long time away. I get the markets going up and down, not a big deal. But when it's in your cash accounts, and you feel this inflation eating it up, well, that really stinks. It just really gets to you. I think the takeaway is if you don't have a financial plan, this is a very good reason to have one. Make sure you're pairing up those goals that you have with all these resources that you have available. I think that the end goal will be you'll worry less about things like that, like inflation. You'll have more confidence in the decisions that you're making. Alright, that's enough inflation for today. Hopefully, we don't have to talk about it much in the future. Hopefully, things revert back to this lower inflation phase but you never know. I'm terrible at predicting the future. It's best to assume we don't really know what the future is and if it keeps continuing, we'll keep talking about it. Make sure you're navigating it as best as best you can. As always, good catching up with you and we'll talk to you next time.  

What’s your perspective on money? Do you view it as a tool? Do you know how to use that tool? Is it like a hammer that you use to build a house, murder somebody, or that sits on the shelf and collects dust? In this episode of the Finance for Physicians Podcast, Daniel Wrenne talks about using money as a tool and what happens when people don't view money as a tool. Topics Discussed: Money Spectrum: Some people go to extremes, but most are in the middle Temptation: What is more important—more money or more time with family? Money is a tool that does not buy happiness but helps you attain happiness 3 Ways to Recognize Money as a Tool: A tool for what? What are you building? Learn to use the tool. Are you using money to build your ideal life? Maintain awareness about the outcome. Are you using money effectively? Key Takeaway: Money should not be the end goal—you can't take it with you Links: The billionaire who refused to pay kidnappers to save his grandson’s life The Man Who Quit Money: An Interview with Daniel Suelo The Young Physicians Complete Guide To Creating A Financial Plan Financial Vitals Check Part 1: Clarify Values 3 Exercises To Help You Clarify Your Values The Key Process Behind Using Money To Live Better Lives with Jennifer Quire How Can You Become More Financially Competent What’s Your Relationship With Money Contact Finance for Physicians Finance for Physicians Full Episode Transcript:   What's up guys? I hope you're having a great day. I was talking with a client the other day and he was sharing what I thought was a really interesting perspective on money. He was talking about teaching his kids about money. He described money like a hammer. You can use a hammer to build a house. You can also use it to murder somebody, or you can just let it sit on the shelf and collect dust. Most people don't exactly view money like a tool, like a hammer, for instance. Maybe they don't even know how to use the tool, like a hammer. If you see somebody swinging a hammer and they've never done it before, it's pretty obvious that they don't know how to use it. What he was sharing is that he wants to make sure that he's teaching his children to view money more like a tool, and help them to learn how to use the tool. I thought that was a fantastic concept to understand and remind ourselves of not only for our children, but really, it's a good reminder for most adults. I thought today, we would talk about that a little bit, talk about using money as a tool, maybe go through what this might look like, and how you can make sure you're continuing to move that direction. Before we get into using money and viewing money as a tool, what happens when you don't view money as a tool? I think that's a good starting point to think about that. One thing that can happen is you start to, or at least the temptation is to start to view money as the end goal. It's almost like you worship money. That's the extreme, but it can easily become the most important thing in your life like your number one. It can drive everything you do. Along those lines, one interesting story that comes to mind. I'm sure many of you have heard this story. They even made a movie about it. This is a true story. There was a rich oil tycoon and his grandson was kidnapped. I think he was a teenager, maybe like 16 years old or something. Probably because they knew his granddad had billions of dollars so the kidnappers ultimately wanted money to return their grandson. They went after the granddad. I think they were asking a few million dollars or something along those lines. Basically, it was the amount that the grandfather could have easily paid to release his grandson. He refused to pay the kidnappers eventually. I think he made a deal with him and paid him, and this is after months. He made a deal with him and paid him. I think it was like the max tax deductible ransom which I didn't even know was a tax deduction. But pay them a couple million dollars because it was the max tax deduction. Then the agreed upon amount was a little higher than that so he considered that a loan to his grandson which made him or tried to make him pay back afterwards. He eventually paid them some money. The grandson came out of it or was released and had a super rough time afterward. I think he ended up overdosing on drugs and having a rough stretch in between them. That to me comes to mind is the classic example of the person that has become so money consumed that they're not even willing to give up money to get their family member back. It's one thing to negotiate. I don't want to dig too much into this and I wasn't in that situation so I don't know what was all going on. To me, there's months and months of negotiation, and not budging pretty much at all. Taking that long tells me that guy had to have put a pretty high view on his money. I think that if I was in that situation, I would give all my money. I think of my child, if somebody kidnapped my child, I just write a check and you can have all of it because having the people in my life that are most important have a much higher ranking than the balance in my accounts. That's an extreme example. Maybe you're thinking, well, I'm good there. I'm not like the oil tycoon. I'm doing a good job using money as a tool. This is really more of a spectrum here. I think most people are probably somewhere in the middle. It's not as easy as you might think on the surface to see. It's one of these things that’s hard to self identify sometimes, to see where you are on the spectrum. The other extreme would be, I found a story about a guy who basically quit using money completely. I'll link to it in the show notes. It's an insane story as far as how far the other direction can go. This guy lived without money for 15 years in the wilderness, like they lived off the land. He basically gave up money completely. He's like, I don't even want to use it at all. He advocates that we can get by completely fine. He  proved it, and even be happier without even having money at all in the equation. That's definitely, a bit too extreme or way too extreme, probably, as well. Like I said, it's a spectrum and a lot of us are going to be somewhere in the middle there. Probably a better example for us, and I've felt this temptation is, maybe we're deciding to work a little more, just a little bit more. We're already fully committed. We have a family at home. We're already pretty busy but we agree to a little bit more. Say yes to one more thing, just to make a little bit more money. What is that saying? I know, everybody's probably had that and felt that temptation, but what does it really say at the end of the day, especially if you have kids? It's easier to think about it from their perspective, because they're just innocent, and they just want to spend time with you. It's easy to justify that, I'm working hard to support my family. That's easy to justify. At the end of the day, what are we teaching our kids? I think what that is teaching is or at minimum, I would think it would be safe to agree that it's a slippery slope that we're starting to teach them that money is important, or maybe even money is the most important thing. Like I said, it's a slippery slope. I've been there. I'll confess, it's easy to do. It's a constant temptation out there. It's the temptation to earn more, work more, that thing to have more. It's easy to slip up on, but I think the key or the most important foundation is being aware of this. That's mainly what I wanted to talk about today is just having a little bit better awareness. That's always a great starting point. Then taking some proactive steps, because if we're not, the world's going to pull us in the other direction. The world pretty much teaches us that saving money is good and spending money is bad. In other words, money is the end goal. But, is that really true? I mean, most people agree that saving money is good and spending less is generally good, but that would also mean that the people with more money are more successful. The takeaway from that is that I have to work really hard to get more money so I can become more successful and happier, but there's a big part missing there in what the world teaches us. The problem is money itself. It's easy to see money as the end goal—more work makes more money equals a happy life. That's so if we're not careful, that's the way the world is going to tend to pull us. There are all these temptations out there. The problem is the money itself is not going to bring you happiness. It's everything else that's important. In fact, the pursuit of the money pulls you away from everything else that's far more important. Money is not irrelevant. I mean, I don't want to get that confused. It's just a valuable tool to help you live out whatever else is most important. We have to keep those things in order and remind ourselves that money itself does not equal happiness. Money can be used as a tool for attaining happiness but that's a very different thing. I'm convinced that this is the root issue for a lot of the unhappiness in our world today. I think there's a really important thing. There's not enough attention put on this, like on teaching us to view money as a tool, and reminding us that money does not equal happiness, money itself does not equal happiness. That's important to recognize, I think, seeing money as a tool. Beyond that, I think, the next question is what else can we do? We'll talk about three things that you can do beyond just recognizing money should be used as a tool. The first thing is asking yourself, a tool for what? What are you building? You need to know what the end goal is. You need to be clear on what's most important. Otherwise, you're going to be susceptible to getting knocked off track, and all the temptations that we just talked about. Having a clear idea of your values is key. We talked about that. I'll link in the show notes. We talked about exercises for clarifying your values, if you're not clear on that, but being clear on what's most important and what are you trying to build. Then what are those logical steps to get there? If you're looking at the house analogy, what's the floor plan? What's the building plan for actually building the thing? In finance, it's a financial plan. The financial plan is basically the process of putting all this together. We'll link to another show we've done where we cover what a financial plan actually is. At the end of the day, it's building out those steps to use money as a tool to reach that ideal life that everybody's going for. Then just look at how you are tracking in your plan. I think that's a good first step is thinking about well, what's a tool for? What are you building? Asking yourself those questions, making sure you're clear on your values, having a written financial plan, and how are you going to track progress along the way. The second big thing is learning to use the tool. You can't just let it sit on the shelf and collect dust. But you also have to be careful, if you don't know how to swing the hammer, that's going to cause some damage. The question to think about is, are you using money, the tool, to help you build your ideal life out? Think of it like the hammer. Are you using the hammer effectively to build a house? So, learning to use the tool. Well, what does that look like? Regularly referring to your financial plan, gaining financial competency, educating yourself, working on the skills and behaviors. We'll link to some shows on that as well. There's a lot of different ways to fine tune those skills. It's not just about the knowledge and the skills. You have to focus on the behaviors as well, which is like the definition of competency. Having a good relationship with money, we also cover that in another episode, I'll link to that. Practicing money decisions that align with values so it's a little easier to clarify your values, but when you get in your day to day, the problem is you revert to the norm. Practicing in your day to day decision making, practicing moves that align with your values, is a good way to begin to use that tool effectively. As you make these values based decisions, no need to regret, you got to watch out for the guilt and regret. Because if you're using it as a tool, say, you're spending money on something you've planned for and saved up for, and you're feeling this guilt about spending money, don't do that. That's a fantastic thing to do because you're something you value. You've taken the right steps, and you're basically using money as a tool to enjoy time away. Then just being efficient with money. I mean, that's just making efficient money decisions that helps you more effectively use the tool. At the end of the day, it's about moving towards that ideal life, and feeling confident and on track, and well balanced along the way. When you're using the tool effectively, that's how it's going to feel. The third big thing is maintaining awareness. Over time, there are all these pulls and temptations along the way. If you're not intentional about this, you're going to get pulled the wrong direction. This is not something you can set and forget. It's like a lifelong thing. Even sometimes, as you start to see success, there's an added temptation. As you build wealth, for example, as you have more money, there's this additional temptation, it's building wealth in itself can become alluring. Every once in a while, it's good to just remind yourself, am I using money effectively as a tool to live out my values, avoiding the temptation to think about having money, or spending money as good or bad? It's more about the outcome. I think it’s the important thing. If you're saving and investing, you're not actually saving forever, you're just saving to use the money later. At the end of the day, I think the one big takeaway or a thought I'll leave you with, I think it's helpful to remind ourselves every once in a while, you can't take it with you. I think I've talked to older people that have some regrets, or have some wisdom to share. They're typically not like I wish I had more money. A lot of times, it's like I wish I had spent more time with my family because at the end of the day, when you're in your final moments, that doesn't matter. It's irrelevant, because it's gone. You can't take it with you. Money should not be the end goal. Otherwise, you're going to have a letdown at some point. The end goal should be really leaning into what you are going to use this tool for? Focusing on what that looks like because that's much more exciting, more rewarding, and less regrets, that sort of thing. Okay, so make sure you're using that hammer effectively. Remember to use money like a tool. Don't beat yourself up too much on this like this is a lifelong thing. Like I said, I feel the pull, I'm guilty of making some poor decisions along the way. But I think the bigger thing is doing your best to move the direction of what we're talking about today. As always, I enjoy chatting with you. I hope it's been helpful and we'll talk to you next time.  

What is one of the best opportunities you have to take back control of your professional life and avoid burnout from happening? Physician entrepreneurship. In this episode of the Finance for Physicians Podcast, Daniel Wrenne talks to Dr. Myrdalis Diaz-Ramirez about how to get started as a physician entrepreneur. Dr. Díaz-Ramírez is a fellowship-trained, board-certified pain medicine physician and anesthesiologist with more than 20 years of experience. One of her passions is to help other physician entrepreneurs and future physicians design their lives to avoid burnout and be happy physicians practicing under their terms. She is the founder of maxAllure Mastermind and host of the Design Your Physician Life Podcast. Topics Discussed: Physician Entrepreneurship: What is it, and why is it beneficial? maxAllure Mastermind: Physicians talk, advance, and acquire momentum Either entrepreneurs or not? Everything can be taught and learned Happiness = Significance, control, and contribution of what you do in life Entrepreneurship Opportunities: Investor, inventor, coach, etc., to regain control Mission/Vision: Treat your life as a business and find/define your ‘what’ and ‘why’ Plan Priorities: Burnout is unsustainable and makes you unhappy, miserable Action Items: Recognize the problem and that change is needed Surround yourself with those who are successful and willing to help Join and participate in Facebook physician groups and masterminds Read/listen to Rich Dad Poor Dad and The Ultimate Jim Rohn Library Links: Dr. Myrdalis Diaz-Ramirez on LinkedIn maxAllure Leverage and Growth Summit for Physicians White Coat Investor Rich Dad Poor Dad by Robert Kiyosaki The Ultimate Jim Rohn Library Breaking Away From Traditional Primary Care to Start a Concierge Medical Practice Contact Finance for Physicians Finance for Physicians Full Episode Transcript: Daniel: What's up everyone? Welcome to the Finance For Physicians podcast. I'm your host, Daniel Wrenne. Join me as we dig into what it looks like for physicians to begin using their finances as a tool to live better lives. You can learn more about our resources at financeforphysicians.co. Let's jump into today's episode. Hey guys, hope you're having a great day. I'm excited to share my conversation I recently had with Dr. Myrdalis Diaz. We're going to be talking about what I would consider one of the best opportunities many of us have to really take control back in your life professionally and potentially move away from some of the burnout that's commonly happening. That's physician entrepreneurship. Dr. Diaz has been through this herself. She started medical practices, she sold them. She has started an entertainment business even, and has recently started a practice in innovative medicine and has a business where she helps lead physicians and facilitates a mastermind group, which if you're not aware of what a mastermind group is, that's a fantastic way to kind of move this direction. You'll definitely get something out of that. She also has a podcast called Design Your Physician Life, where she helps, throughout nuggets along the lines of physician entrepreneurship. She definitely has worked in this area and has experienced it herself. I think you're going to get some takeaways. At the end, she even shares a few specific action items to help you start making progress towards that, if that's the direction that you want to go in your life. So excited to share that. Without further ado, let's jump into it right now.  Hello, everyone. I am excited to be joined by my guest, Dr. Myrdalis Diaz today and we're going to be talking about physician entrepreneurship, which I love as a topic. I'm an entrepreneur myself. Dr. Diaz is an entrepreneur and has been through many, many different experiences. We're going to get into all that sort of experience and what that looks like to be a physician entrepreneur. Before we jump in, Dr. Diaz, I'd love it if you could give our listeners just a brief background about your story, how you got where you are today. Myrdalis: Well, thanks a lot for having me on the program. I'm so excited to be here. I know that you work a lot with physicians struggling with this precise topic—entrepreneurship and finances—and that's what we've been doing. We have what we call the Physician Entrepreneur Exclusive maxAllure Mastermind. I created that because of my experience. As we discussed before, I've been through different entrepreneurial endeavors myself. At some point not too long ago, we discovered this concept of mastermind where you basically meet to talk about one topic and to advance to acquire momentum for whatever your entrepreneurship or your activities. We decided to do that for physicians because as a physician, I'm truly concerned about what's happening in healthcare in terms of burnout. We have physicians committing suicide 300–400 a year. That's 3–4 medical classes, and I've been burned out myself. I've experienced burnout and through entrepreneurship, we found that to be a great tool to get us out of that and then regain control and remain in control of our physician lives. That's where we have our podcast, Designed Your Physician Life. We give physicians specific tips on how they can regain that. Then our mastermind where we’ll meet for six months. First, since I was very little, I was always entrepreneurial. When I was 7 years old, my father had businesses and I was always wanting to sell out of their businesses at a children's boutique. They have many different things going on. Besides the children’s boutique, they have an ice cream parlor. I would love to go there and take care of the clients. I'm telling you, I was already only 7 years old when I was doing these things. Then throughout my life, I was always so happy when I was working and I don't know if that's something that I had in me. I always visualize when I had my job as a physician to have my office, out of the example of my pediatrician. My pediatrician would go to his office and it was so happy and they were really entrepreneurs, him and his partner. That whole concept of ownership and taking care of your clients, in our case, our patients was always really dear to me. When it came to the time for me to have our clinic—I say “our” because my husband helped me do that clinic. By that time, I had already been designing pain clinics. I'm an interventional pain physician out of anesthesiology, and then we had our clinic. We develop them. We won prizes for them. Eventually, we successfully sold it so that we could take care of our family as our growing family, just trying to take advantage of oh, I'll just be a doctor for now and let somebody else deal with the business so I can have time for my family. It's been seven years of that and I truly learned that really, that's not me. We're back. We had other clinics. We had another anti-aging clinic. Then we got into the entertainment business. I own songs, we were on TV, and media tours with our artists. Then we decided just for us to be the talent. Now the latest project, besides our mastermind for physicians, is really that we're putting together an innovative center, innovative medicine wellness center here in Sarasota, Florida. Daniel: Yeah, it sounds like you've had a lot over the years and have experienced quite a bit. That's entrepreneurship, I think of quintessential. It sounds like you're an entrepreneur from a very, very early age. Some people kind of notice that early or see that they have the gift and pour into that. But I'm curious, especially being someone like you, do you think people are either an entrepreneur or they're not? Or do you think anyone has that in them? What are your thoughts on that? Myrdalis: One of the things that we've studied about mindset, I think everything can be really taught, we are taught to be physicians. You might not want these responsibilities in one way but you want some other things. You might want to have a good experience for your patient or you have an idea and that comes to you. I think it can be learned on how to do that. Like everything, we learn medicine. We are not born physicians. We know that we're healers. For the most part, we don't know how to do it, so we learned that. I think anybody can learn entrepreneurship like medicine, the same way that we invested time, learning all those things that took us to the point where we are physicians today. You still have to learn a lot of things to be an entrepreneur. The fact that as a little child, I was so excited about all these things doesn't mean that I'm really an entrepreneur because I didn't know about finance, I didn't know about how to get money or get loans or get paid, this and that, and develop products. These things can be taught. Obviously, you have the people who have the tendency, who are more in their spirit, a little bit more restless about what they want to do and more defined. I think as physicians, if we're physicians, we can learn entrepreneurship. It's a great tool to really regain and remain in control of our physician lives. Daniel: Tell me about that. I'm curious about regaining control, because I think that's a lot of the issue behind burnout. That's the challenge in the career. It's like I got into medicine because I love it, but now I'm hating my work. Can you talk about that regaining control aspect? Myrdalis: Well, when we have our physicians come and I was there myself, we feel like we have so many people in between our plans or thoughts that we have for that patient. That patient, they experienced the physician, patient experience is really lost. We have no control nowadays—between the expectations from the government, insurance, hospitals, all these other costs, and things that are putting. You've been trained to do something, then you get there, and you have some many obstacles to do them that when you get through entrepreneurship, you’re it. You're the head of the vessel, and then you're doing it. Now, what we find is that you're able to be a physician for pleasure, for joy, you're not a physician for need. That's what we've been trying to do. Then regaining control is when you talk about the definition of happiness, the things that make people happy. One of them is to have significance and control of what they do in their lives and contribution. This is how the tool that we've identified really gives physicians that sort of freedom again. Once you learn these concepts, it's hard to go back, so you're able to regain control of your life and then you're able to remain gaining control of your physician life. Daniel: Yeah. I think back, we had a prior episode, where my friends, Dr. Brown—both their last name is Brown, they're a married couple—but they were really kind of burned out in primary care and mainly because it was not how they saw, ideally medicine being practiced. That was their number one issue. That drove them to explore. They would not consider themselves like natural entrepreneurs, but that drove them to consider alternatives or solutions or whatever. They explored and found concierge medical practices and started going down that route. Then basically started their own practice from scratch, where they could have practiced medicine on their terms. Now they're like, five years later, as happy as could be in their medical practice and can't imagine even retiring. It has become the solution to their burnout by actually starting business for themselves. I'm sure that a lot of people's stories in several years. Myrdalis: Yes. We have them in our mastermind. You can find entrepreneurship within the medical practice, which is ideal for many. We still want to remain doctors. You can also find entrepreneurship by becoming, for example, a real estate investor, like we have many physicians who have as examples to come as coaches to our practice, and they decided that they wanted to invest it in one to really be in the part of doing so much of the work. They found passive income through real estate investments like syndications and things like that. They become entrepreneurs that way. You have to have your own company. You have to learn about the laws of that, the taxes, and the benefits. You really have to learn that aspect and you're an entrepreneur like that, and then when they come back to be physicians, they don't have to worry about the income that the physician's life will give them. They will be happier going to work. All these obstacles we have, that's okay, it doesn't matter, because I know I have something that I can leave out of by achieving financial independence and ideally, financial freedom through these other investments. You can do that. There's some other physicians who are also like, you know what, I'm just going to completely step out of medicine, but still use my physician skills and they might be going to become coaches directly for different sorts of topics, like I'm a coach right now for physician entrepreneurs. That's what they want to do. Then some want to do a combination or outside. Some might find that they decided to invent the greatest next thing in medicine in terms of devices and they learn how to get money and get investors and laws through that process. The stories are amazing for how you can get that control back like your friends, Dr. Browns did. Daniel: How do you start to find that or how do you start that path? Myrdalis: Well, some people know what they want already. What I see is that many of our maxAllure Mastermind members are really burnt out. You're numb with the pain of this and you get lost, so you have to really do some work. One of the things that we do is that we try to define the vision and try to find you. We go through a series of exercises where we find your vision. We treat your life as you would treat a business like trying to find the meaning, defining your mission, your vision, and then defining your why. Because if you will tell you, oh, you have to find your why. But you cannot think to find what these why they're talking to me about. Daniel: What do you mean? Myrdalis: Why? Why are you talking? We go through a series of exercises to define first the things that you would like to lead your life like you want to live your life based on what so we go through that exercise. Then let's go through your day. Let's define the analytic, find what you want out of life. Then once you know that, then we go into the different things that are your interest, maybe you have an idea, and you haven't explored it before. Maybe you already have a business but you are kind of stuck. Maybe you want to learn a different skill. Then that's when we get into those but you really have to work on defining these things before being successful. Because it's not going to be based. One of the things that I found out when I was burned out is that you're so tired, you want something to happen. One of the things that you might want to get to is that I don't care what it is. I'll just add it into my life, and I'll see if it works. But it's not going to work if you don't have a solid plan, a solid base. In medicine, we have all that, like we've been trained for so many years. That's there, the solid bases of knowledge. But we don't necessarily have the entrepreneurial concept. For example, somebody might come to you and say, as a doctor, do you want to be medical director for this? Then you’re thinking, oh my goodness, I'm so tired of this. This thing on the side could give me some extra money, and then I could get out of it. But do you really know what medical directorship would entail? Still, it’s not your business so we get all these things. We have to define that first. Then you get to see what things you want to do and you can be successful. Daniel: Yeah, you mentioned real estate. A lot of people we work with bring up real estate or try or start into real estate, whether they start buying rental houses or syndications, or there's a bunch of different flavors of real estate. A lot of them struggle with it. I like what you said about values and purpose and leading with that. I think the number one reason where they get hung up on is like, you were also saying, it's like they're adding on, especially if you're buying real estate, like if you're buying a rental property, it's a completely new thing. Myrdalis: It’s a business. Daniel: A business, yes. Myrdalis: One rental property should be seen as a business. One rental property should ideally have its own LLC, for asset protection, for tax purposes of business. Then you have to make sure that the rental you're buying, what the restrictions of the area are. Maybe you're going to get your rental, and then they're going to suddenly say, oh, we're not accepting any of that type of rentals anymore in the area. Then you have to have your team that's going to help you say you don't have to be with the toilet thing in the middle of the night. Daniel: What if they leave? What if they don't pay? What's your late policy? Do you have a lease? What do you do when I've got one rental property and then now, I have none. I've got the call in the middle of the night, it's like the toilets are overflowing. Who handles that? Then what happens when it causes marital problems is your spouse is like, this is ridiculous. You don't get calls in the middle of the night to deal with the rental property when you already have a job. I think the issue is that, well, there's a bunch of issues, but it's like adding on top of an already full plate. Like when you add stuff, you have to say no to other stuff. When you say yes to new stuff, you have to say no to other stuff, unless you have extra capacity. But if you're the type of person like all of us that's always saying they're busy all the time, in order for you to add a new thing, you have to say no to something else, because it's just like time and time out. The values part is the other big thing. They don't have a passion at all. In fact, they have the reverse, they hate it. They're not interested or maybe they have a soft spot where they're not going to be able to collect rent or something or they just haven't gone through the process like you're describing.  Thinking about it, what's the purpose of it? What's my why? What's my values? What's the values of the business, and getting that right on the front end? First, before they even get into the business. It's just more like I did the business because my buddy said so or I did it because my parents did it and they made good money in it. Myrdalis: Would you choose Urology because your parents said so? Daniel: I mean, it's common. People do it all the time. Myrdalis: Well, you wouldn't choose a medical specialty because your parents said, right? You wouldn't be into OBGYN or pediatrician. These are things that deliver passion to some extent, and for any business to be longer lasting, you should have some sort of passion. One of the things that physicians don't know is well, first, maybe your friend who has this successful house, well, they probably have a passion for it. They have been loaned the knowledge that they have acquired somehow because to have a successful business, either do it through coaching or experience that you've had for a long time. It's a process. It's not just successful. The other thing is that your friends, they chose that and maybe they didn't choose something else because they didn't like that something else. For you to be able to choose, you have to know your options. If you don't know your options, and you just grab whatever comes to you, you don't know if you're really doing a good investment. You have to learn about that to be successful. One thing is that nowadays more than ever, we have ways as physicians of learning these things. There's tons of people who are successful at this. I would tell you, don't do any financial investment without knowing about it, without being coached, without really finding your bases, covering them, then do your plan. These are not emergencies. It's not an emergency that you have to buy. Nobody's bleeding. If you don't buy that house right now, and then that deal, it might tell you, this is going to be what the next deal is going to come. That sounds like there's no urgency for that. Oh, but she did. The numbers are changing. Things are just better, then you know what you want and how to do it before you invest that sort of money. Oh, actually, it's not an investment. It’s losing your money. Daniel: Yeah, and none of us want to do that. Are there specific stories that come to mind for you of people that are hung up? I've had times in my life where I'm really overworked, and I'm thinking more of the hours—my plate’s full scenario. I know we work with some people that are in this situation. There's something about when you have, say, it's your work and your work is 50–70 hours a week, or whatever, and you have a family at home with kids and commitments. That and you don't like it, or you're burned out, but there's no space in your life to even start to make any progress. How do you work through that if there's no space, because we know we've kind of gone through that hardship? Myrdalis: We make the space. We have to learn about priorities. What's the priority here really, to get out of that situation, that burnout, because you're going to die. Either you're going to commit suicide, or you're going to be so unhappy, something bad's going to happen. You can lose your marriage. You can lose your children. Daniel: It’s not sustainable. Myrdalis: It's not sustainable. I'm going to give you this example, a wonderful example—bariatric surgeon, female, three children, with problems at home, on call, going to the hospital every single day for five years in a row, no vacation. With all these challenges coming with COVID, problems coming where the volumes went down, the pressures of the hospital, then wanting to partner with people who were really not quality physicians, and having directorship of three different programs. She started these programs, brought a lot of resources for the hospital and more income, and still hasn't made any extra money on those positions that she has. She has no control over those things. Once we still remain in the community, how can you talk to somebody who every single day goes to the hospital? The other day, going out, goes out to dinner, goes home to her children and gets called to the hospital, goes home back again at four in the morning to start again at eight in the morning rounding for five years. You tell it to somebody like this, they're exhausted, they don't know. You have to turn to them and tell them, you know what, this is what you're going to do. Sometimes that's what it takes. That's what it took for this physician. Now, with one hour of these meetings a week, they find out, once they define what they have to do, what they can do, what the possibilities are, that you can remain, then the time will come. You will make the time, trust me. If somebody calls you that your house is burning, you're going to make the time. You're going to leave everything or something's happening to your child, you leave everything. Then you go there. This is what's happening. Our homes are burning. We're burned out. Our relationships are burned out—our relationships with ourselves, with our family, with our friends. We just have to make the time. If you make these commitments of one hour a week, you'll see how you make the time for the rest. Then you learn where you have to prioritize. Now you learn what to say yes to and what to say no to. But it's a commitment you have to recognize. Like somebody who's sick, unfortunately somebody who is with an addiction, or a mental problem in some sort of way, which is this mental health. Burnout is mental health. Once you recognize that the problem is there, you have to seek the solution. It has to really come from you. Then we have the resources to do that. Then after all this is taken care of, that's when you go to Daniel. Hey Daniel, where can I put my money? Which type of property? Is this a good deal? Because you're not going to invest in a good deal before you talk to Daniel, your financial adviser, and then you run the numbers by Daniel. Then he will tell you that deal doesn't sound good, don't invest there or this deal. Please don't let this one go. This is your time. But you have to solve all those things first. Daniel: You got to get that balance. I mean, there's never a perfect balance too. That's another thing like perfectionism is kind of common itself. That's a separate problem. That's why I'm hesitant with the word balance, because it's not really possible. Myrdalis: Well, it’s not perfect. For example, do I exercise every day? Do I meditate every day? I don't. I know the days that I do and I know that it's a priority. You have to do it everyday. That comes into habits. That's another section that we teach about habits and the things that you have to make you successful, but you have to be aware. These things have to come where you are intentionally planning your life, intentional planning your day, and it's not like you're going to go crazy doing the planning, but you're going to go crazy if you don't plan. Daniel: Yeah, you got to take a timeout. I think even just having some silent time, maybe once a week, or I don't know, a little bit is key. If I take a day off of work and I'm solo by myself, and less interruptions, that's when most of the ideas start coming. You can kind of think outside your day-to-day but it does tie in to time, which is difficult, because time is already already in your head. You're used to these commitments. You have to carve it out at the end of the day. Myrdalis: Yeah, but think about this. Do you want to be an information consumer all the time where you're consuming a movie that somebody else made, a TV show that somebody else made, and a news that somebody else made, whatever it is, all day long? Or do you want to be creative, free to be creative, you need that time, space, like nothing. It's not only talking about the cell phone or social media, anytime on your own, in the shower, whatever. You need to have some time, or you can create something. You cannot create if you have noise in your head all the time and that you have to carve out. You have to carve out time for you to get out of the hole. You cannot get out of the problem if the hose is right there on top of you and you're staying under that hole. How are you going to dry it? You're never going to get dry. You're never going to get out of the problem. You have to get out of there. Daniel: I mentioned perfectionism. I think it seems like that's common. I don't know, everybody's got a little bit of it. I have some of it in me. In medicine, I think that maybe they attract people that are perfectionists or maybe it's furthered in training. I don't know, but I think that makes it even more challenging, possibly to go the entrepreneurship route. Because entrepreneurship is like failures guaranteed pretty much. You're like putting yourself out there, in some ways, your idea, or whatever, you're putting it out in the world, and there's a chance it's going to completely flop. Myrdalis: It's a combination of both things. The way that we go as physicians, we develop a career that you're expected to be the best from before. You're a doctor, right? The screening to be a physician, you have to be so good at so many things, or otherwise you won't be a physician. It starts way before from when we're very young. That's not to say that there's people who don't have the best reasons till they make it to medical school, and they're probably better physicians than anybody else. But it starts from there. Then once you're in, forget it. If you make a mistake, something bad's going to happen. You don't want anything bad to happen. In terms of entrepreneurship, this is the same thing, like you fear. However, it's crazy, you have this doctor or somebody told me they purchased this home, I'm going to buy one and then just make it a rental but you know it doesn't make sense. Then they have more work instead of just trying and not being afraid at that point of failing because they think that they see one to one kind of thing too, which is not in this case. But perfectionism, yes, it keeps us from doing a lot of things. One of the things that I mentioned is like this is not an emergency. So you can train yourself  and there's a lot of teaching and resources and coaching that you can prepare yourself the same way you did for medicine. You don't have to wait as long. Obviously it is much quicker, like for us is six months and people are really doing great things within six months. Then you can prepare yourself before you go to failure. Like anything else, if you do enough medicine, they say that you're going to be sued. I give people over 90% chance if you get into your 78th into your 60s, and you're practicing medicine, that at least you're going to be sued. It's not failure, but it's just something that’s not a good outcome that you have in your life. But the same thing with business, yes, you can fail. The important thing is that if you educate any of your plan, you're really going to mitigate the losses. That's where we have resources, and you really have just to carve that little time out. That's it. Daniel: Yep, carving that time out. Do you have specific actions people can take to move? Maybe in doing the traditional practice, I'm grinding it out, working, and I'm like, ah, I got to change this. Something's got to change, something's got to give. Do you have specific actions that that type of person can take? I'm talking today, like quick steps? Myrdalis: Well, first is recognizing that we all have a problem there. If you don't recognize that you really need change, you're not going to be because people can say, oh, you know what, that's okay. I have all these things, I can take it, and I can do it. I can just keep going. But we really have to take, like you were saying, that pause, and then think about ourselves first. So that would be the first thing that I would say. Number two, we're really the sum of who we associate with. You are who you are hanging out with. If you're hanging out with people who are burned out, or negative all the time, that's the vibe that's going to surround your life. That's how you're going to behave. So you have to really surround yourself with people that you see more successful. Maybe you identify somebody around you who's happier, maybe they have that rental that's really working really well for them. But he's not just going about to get a rental because they have one. It’s really asking them. Ask the people around you. They’re really willing to help. They're really wanting to tell people nowadays, what they've done that they're successful at, and they can hook you up with other learning opportunities so that we learn before you do. In terms of resources for physicians, online for example, you can go to Facebook and LinkedIn. For physicians specifically, there's quite a few groups and you can explore that. There's a lot of physicians wanting to help each other. To mention some, if you're a female physician, there's female physician entrepreneurs. That’s one group. There's physician side gigs, where any physician, for the most part, can join these types of groups. There's Leverage & Growth Summit, a meeting that happens once a year. That's where I started my first mastermind. You can look online. Daniel: The conference, Leverage & Growth. Myrdalis: That's it. That's a conference here and there's many different conferences that are happening. I know why cold investors are very popular and they have tons of financial topics. Daniel: Then they have like total wellness and they seem to cover a lot of topics there. Myrdalis: Exactly. Then you have coaches, like our coaching group is maxAllure Mastermind. We get in small groups. We coach small groups of 10. We want to coach in a group because you really grow in a group. But we want to coach in small groups because we want everybody to have the opportunity to participate. There are some other groups that are bigger, and some other physicians are really teaching and coaching for bigger. The other thing is that in our group, you can call it holistic. We don't really call it holistic, but we have six pillars where we help you to really figure out your vision and get you through these steps. Then we take people who already have businesses and were very successful. For example, we have this particular mastermind coach, she's financially free. She handles over $200 million in assets through syndication. She did this process within less than five years, really closer to three years. She's been on our mastermind as a member and now as a coach. We've talked about branding, for her case so I don't have to teach her about business, but we talk about branding. Then we bring an expert for branding, and we help them so it doesn't matter which stage people are at, they can benefit from the work that we do in terms of either defining what they want for personal change, defining their business that they want, or acquiring momentum for their current business. Those things you can do is first, identify that you really have a problem. These are like two years. That's like anything. Burnout and being in control is really a mental situation. Then finding and surrounding yourself with people who really are useful, going to groups that can help you and then seriously considering coaching. Unlike other things, medicine was very long time to become a doctor. We can really help physicians within six months to have these plans, and they're ready to go for whatever it is in their personal or business life. Daniel: Right. Then the sky's the limit. I mean, I completely agree with you. You made me think of a few things as you were going through that. It seems like you were saying, recognizing is always the first step, and then committing to make a change. I do volunteer work sometimes at a homeless shelter in Lexington. I was doing it this morning, actually, that's why I'm wearing a baseball cap and a T-shirt. Myrdalis: He's wearing a baseball cap backwards, by the way. Daniel: But anyway, I was doing that this morning. I do outreach, which is like we go out and talk to homeless people and try to help them come up with solutions, basically. There was a guy we were talking to. He's addicted to drugs and went through rehab, had a slip up, and was back on the streets because of it. He was telling his story. I've talked to a bunch of homeless people on the streets but what was unique about this guy this morning is he was like, I'm ready to go. Because the guy I'm with is like the resource guy. He's like, I'll connect you with this rehab or we can get you here, we just got to plug in. When we find a guy like that we plug him in. So that's what I've learned in it is like 95%, the majority of them are not ready. But this guy was on it and ready. He's just like, I know I need to get help. I'm ready to get up. That's what I was talking to the other guys I was with about it. They're like, yeah, when you get somebody like that, when they recognize it, it's just about plugging them in with the resources, which is just exactly what you were saying.  Myrdalis: That's the main predictor of success. Once you have somebody who wants to do it, you just give him. There was something that they didn't mention that when the student is ready, the teacher will appear. That's what happens. That's exactly what happens. Daniel: Yeah. Then the second part about it, I thought was interesting. I always say, you're the average of your five best friends. That's like a Jim Rohn quote. I don't know if you've seen that before.  Myrdalis: Yes, you have to lead. Actually that's another tip. Okay, before you tell me the rest. Jim Rohn. The ultimate Jim Rohn library. So read that edition. It's not a reading but an audio power review. Daniel: Oh, yeah. Jim Rohn everything is fantastic. Myrdalis: But the ultimate Jim Rohn library. If you do that, and you also do like Rich Dad Poor Dad, those two things and you're like, fired. That's another thing you can do right away today. Go and buy those. Daniel: And put it in your car. You can listen to it in your car too if you have a CD player. Do people still have CD players? I have a CD player in my car. You can listen to it on your mp3 or whatever in your car. Jim Rohn is great. I listened to his stuff for like a year straight in my car as I was driving. Myrdalis: My whole family—16 years old, know Jim Rohn. Daniel: Really? Myrdalis: Yeah. The whole family knows Jim Rohn and Rich Dad Poor Dad. Daniel: Yes. Those are two great resources. Myrdalis: The books that we read and that we listen to. But yeah, those two are like the Bibles.  Daniel: That's like getting your mind right. The philosophy is like getting your head in the right spot. Myrdalis: Philosophy. Daniel: Yeah, he's an old guy, kind of talks a little unique, but it's fantastic content, I promise. But yeah, you're the average of your five best friends. This guy is about to go to rehab again. The guy that the connector that I was with, he's like, we got to find the right one. It's all about getting him into the right rehab place because we want him around the people that are going to lead them in the right direction. You can even be proactive about it too. When I realized I could, I mean, it's not like you want to fire friends, but you can choose your friends. Myrdalis: You can love your friends, you can love your family, you can love them. Don't stop loving them. But hang out with people with similar interests, like-minded people, and then you have the time for your family and friends. Then you have the time where you're going to be growing and getting out of this burnout experience. That's going to be where you're going to be spending most of your time if you really want to heal and if you really want to take control of your life again. Daniel: Yeah, so if your buddies you sit around after work, and they're like, oh, work sucks, I'm doing nothing about it, stop hanging out with them. Go. I mean, you could still love them, but you got to the time that's terrible for your mentality. It just rubs off onto you, even if you don't really realize it. I love those action items. They're very good. So where can people find you if they're interested in learning more about your coaching and your services? You got a great podcast too, you get all kinds of stuff. Myrdalis: Thank you. I love my podcast, I have to say. I like it. It’s called Design Your Physician Life. So you can find us on any platform, Apple, Google, Spotify. It comes through Buzzsprout. For those who know Buzzsprout, it's called Design Your Physician Life. And there, you will learn specific tips and you can work right away and try to define what you really want to do. We have alternatives. We have successful physicians for the most part who have done this before. They have nothing different than you have as a physician. We just decided to take action. We decided to learn about ourselves and just decided to go for it so that we can either continue to be servicing our patients or decide on a different pathway as physicians. The other one is the main one, maxAllure. It’s maxallure.com. That's our mastermind, our physician entrepreneur mastermind. Actually, our next cohort is starting at the end of August. We only take 10 people, so we’re please recommend that if you want it, we do 10 people per cohort. It's a six month commitment once a week. We get to really meet each other. We became friends to the point that just last week I was at one of them's wedding and we met online. Daniel: You're involved in it with the mastermind. Myrdalis: Absolutely. I learned the same with everybody. I'm the facilitator of the mastermind. Different from other masterminds is one it’s for physicians. Number two is the small groups and we have one on one coaching with different coaches that you're going to go through one on one with. You get coached privately by me, by a project management expert, you also get coached in front of the group by an expert who has done what you want to do. Once we identify what you want, or something that could help you. We get you a coach that you either want to get, if I can get them I'll get them from you for you, or I know who's going to help you and we bring them and everybody goes that way. At the end, you leave with a blueprint—a specific blueprint of what your next three months can look like after you leave us. By then, you've learned so many opportunities, alternatives that's really mind opening. People are transforming their lives in control. They're not lost. They tell you like I was so lost here and now that I'm doing so much better. So maxallure.com. Come and join one of our webinars that are coming now later in July. Then you can also see us in 2022. Then you can also go through our signup. We start at the end of August 2022. Daniel: Yeah, I'm a big fan of masterminds. The setup of study groups or working with your peers, especially mastermind is great because when you have a facilitator, if you can pair it up with what you're looking to do, you can leverage other people and you know their success and learn from them. A lot of times we try to do things alone. That's not a great way to go. We can only get so far alone. We have to ultimately work with other people. I think that's where it's at, especially intentionally selecting these other people that are right in the wheelhouse. Then there's the accountability of working through that process. For people that are really wanting to move that direction, the mastermind setup is fantastic. Myrdalis: I’ll make you accountable. Every week, we report in front of each other so we have accountability. Every week, we have what we call the minute of accountability. You have a minute to tell us what you've done—exactly what you've done for your business in the last week. Then we have the support of the community. We have the support of all these coaches, and then the coaching itself that happens. You have a curriculum that we've identified based on our previous masterminds, things that people really ask regularly. We have workshops and challenges and our Facebook groups and things that you really have to grow. Daniel: Yeah. I love it. Awesome. Well, it's been fun and I appreciate you coming on today. Myrdalis: Well, thank you very much for having us. Thanks for all you do for us physicians. Thank you for having this podcast. Daniel: Yeah, definitely. Myrdalis: Have a great day. Daniel: As always, thank you so much for joining us today. If you found this valuable, please give us a review on iTunes and share with a friend. Also check out our website at financeforphysicians.co for all sorts of additional content. See you next time. Finance For Physicians is not an investment, tax, legal, or financial advisor. All content included in this podcast is for informational purposes only and should not be considered financial, tax or legal advice.  Material presented is believed to be from reliable sources and no representations are made by Finance For Physicians as to other parties, informational accuracy or completeness. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation. If you don't have an advisor or like a second opinion, feel free to check out our website for recommended advisors.

What does financial competency look like? What are its fundamentals? Everybody wants to be competent, especially when it comes to competency with money. In this episode of the Finance for Physicians Podcast, Daniel Wrenne talks about the components of and how to gain financial competency. Topics Discussed: What is competency? Ability to do something successfully or efficiently Competency Components: Knowledge, skill, and behavior Competency Challenges: Knowing what you need, but not getting it done Overconfidence: Thinking you’ve gained wealth, but really, you have not Humans are Humans: Ask questions, ask for help, don't be too hard on yourself Warning Signs: Take literacy quiz to understand your relationship with money Links: Financial Capability Study: Take the Financial Literacy Quiz Financial Capability Study: Take the Investor Literacy Quiz What’s Your Relationship With Money? Contact Finance for Physicians Finance for Physicians Full Episode Transcript: Hello, hello. I hope everyone's doing well today. I was reading an article recently about competency, how to gain it, or what the different components of it were. I thought it was really interesting. The article was not about finances, but I thought it would be great to explore financial competency and what that might look like. That's what I wanted to talk about today. Going through what financial competency looks like. I think this is really important as far as fundamentals go. Everybody wants to go in that direction. Most people at least like the idea of competency with money. Exploring this, I think, will be helpful at a minimum as a refresh in some of the concepts. That's what we're going to dig into today and we'll get that going now. For starters, what is competency? That would be, as you might think, the ability to do something successfully or efficiently. This article I was reading was breaking down those components. There are three main components. Number one was knowledge. What is knowledge? Knowledge is what is known of a particular subject. It's kind of theoretical. That’s like the book smarts. The second component is skill. That would be the ability to do something. You're applying that knowledge to a specific situation. It's developed through experience and practice and is very much practical. The third component of competency is behavior. That would be like the way a person acts in response to a particular situation or stimulus, particularly in respect to others. Behavior, skill, and knowledge are all necessary components to gaining competency in any given subject. If you think about people that are highly competent in something, you're going to notice they should be solid in all of these three areas. I thought that was a good order, knowledge first, then skill, then behavior. I think you have to gain that knowledge first or at least some level of it before you start to work on the skill. Then when you get to the final level, it's like fine-tuning those behaviors and being aware of those. You got to learn the subject, you got to do it, then you got to learn those associated behaviors. I think that's a good order to follow for starters. Some people have gained some knowledge but they're definitely not yet competent. Say you're a baseball wiz or something like that, but you can't actually play baseball or maybe you're a baseball wiz and you can play baseball really well. You can hit home runs all day long, but when you actually play a game, this mental block causes you to just shut down completely. The behavioral part is causing problems. Competency is very difficult to achieve, but it can also be very rewarding especially when we're talking about your finances. A lot of you probably know competency with your profession. That's something you worked towards as you train. We're talking about money today. In order to do this, you have to learn to use money competently. That's obviously the goal. As we start to talk about money, let's look at some examples of what it might look like to be competent with your finances. Knowledge, knowing what a backdoor Roth IRA is. The skill will be correctly funding a backdoor Roth IRA. Then the behavior maybe is recognizing you're going to forget it and creating some sort of automation and reminder system so that you're continuing to fund it. Another example is, knowledge will be a financial plan, here's what it looks like and here's why it's important. Skill will be knowing how to create a financial plan for my situation. The behavior will be I have an updated financial plan that I follow to the tee, even when life is crazy. Another example is knowledge will be like this is what a will is or an estate plan. The skill will be these are the steps to create one for my family. The behavior will be I've created a will, it's signed, and even though it's very uncomfortable to do. There are a million examples of this that you can come up with around money. When you look at all three components, it becomes very difficult. Classic examples of the struggle, maybe you know you need to save money, but you're not saving. Maybe you need a will, you're not getting one. Maybe you need a financial plan, but you don't have one. Sometimes you're not even aware of it at all. Knowing that you have an issue is actually better than having an issue and not knowing about it at all. That's probably the most dangerous situation at all. Also, overconfidence can be an issue too in the struggle here. That would be thinking you got it going on and really not. That's a natural tendency for people to not be more confident than they really should be. These are the things to watch out for. Also, maybe you're thinking you made the end goal of becoming rich without realizing it. That struggle can happen where it's all about gaining wealth and that sort of thing. Another thing too that we're always kind of battling on is you have to have some space, I guess, some capacity, to think in this view. When you're just crushing it at work, you don't have any capacity outside of that. It's to go to work and then in the few hours outside of work, it's like family or taking a break. When you don't have any capacity at all, it's difficult to dedicate time to any of these things. That's the thing, all these things of gaining competency in anything is going to require a considerable amount of time and attention. These are the struggles. It's good to be aware of these things. How do you work in these areas? I'll throw out some ideas depending on which of these you want or need to work on. Knowledge, the first component. Obviously, Google, blogs, and you're listening to podcasts right now so that's good. Podcasts on personal finance, reading books, or learning shortcuts from other people, those can all be good things. I think if you're not sure where you're at, maybe take some sort of a quiz. I'll link to a financial literacy quiz. It's pretty good, like a baseline foundational quiz, or I'll link into another one like an investor knowledge quiz that gives you an idea of where you stand there. I've had a few people ask me this question, but ask someone who knows what it looks like to be competent financially for people like you. Ask them how competent you are if they know you. Our clients we work with one-on-one, they've asked us this question before. How am I doing? Am I very financially literate? I don't know if they've ever asked it exactly like am I financially competent? People should word it that way, but people have definitely asked us how I am doing? How is my financial literacy? That sort of thing. Asking someone that knows what it looks like and how you're doing. If they're honest, they can provide some good feedback on what you might need to work on and that sort of thing. Skills are a lot about just practicing and being aware of where you're falling short, learning from mistakes, and not repeating mistakes. Asking for help is always good. When people tell you you made a mistake, listening and actually trusting that. At the end of the day, sometimes people get hung up on the knowledge and never really get into the skills because you want to master the knowledge. I think it's good to have baseline knowledge, but you definitely have to get into the practice of it and work on skills that will complement things. As you experience it, that's where you can really start to get traction there. If you have the knowledge and the skills, yet you're still having problems in terms of feeling good about finances, there's a really good chance it's related to the behavior or the psychology, whatever you want to call it, whether you admit it or not. Typically, if you're still not feeling good or making progress and you do know the knowledge, you do know the skills, and you've verified that it's typically behavioral. Recognizing those warning signs and learning about your relationship with money, understanding what that looks like, and understanding what behavioral finance really is. Behavioral finances are all about the bias and tendencies we all have naturally as humans that can get in the way of us making good financial progress. Just some quick takeaways to think about, as I mentioned, it will be good and helpful to take a financial literacy test especially if you're curious where you stand or ask other people that might know what it looks like to give you some feedback. If you're training or early in practice, some topics to focus on, I would say, in that stage are maybe learning how to make a financial plan or what a financial plan actually is and focusing on student loans, budgeting, insurance, and basics of estate planning. Those are good knowledge-based topics to focus on in an early career. Now let's say you're established, further along, things I would add on would be investing taxes, compensation, and contracts. If you have your own practice like running a business, there's a lot of stuff that comes along with that as well. I think the big thing though is don't throw in the towel on this stuff. It's like small steps. It's one of these lifelong things and there's no shame in asking for help. Ask us. Part of this podcast, the intent of this podcast, is to be something that helps you gain additional competency in personal finances. If you feel like you want to learn about a particular topic, throw it out there, and we'll be happy to cover it. We try to focus on these three areas. I think it's important to focus on all three areas because you have to be solid in all three. No shame in asking for help. If you're working with us one-on-one and you feel concerned about any of these areas, feel free to reach out and ask questions about that or get a little feedback. We're happy to provide it. If you're not working with a planner, we can help shortcut this. As a planner—I can speak from first-hand experience—it's pretty easy from the third-party view to see where people are on these things. If you're talking about financial planners in general,  a lot of them don't actually do this kind of stuff. That's probably good to point out as well. Keep an eye out for that. A lot of financial people are really just zeroing on one particular area or maybe they're selling financial products or that sort of thing. You have to make sure you're talking to a more holistic planner that is working on your interest and broadly looking at your overall financial plan and financial well-being. If you're working with somebody like that, one of their main goals is to help you gain competency and essentially, you're leveraging their competency to help apply to your situation. That's a potential add-on. Not everybody needs help for sure. You all have 100% capability to do stuff on your own. If you can get through medical school, you can completely learn this personal finance stuff, but it's okay to work and see the help. That can be a great thing for some people. Even if you are working with someone to help you, you still have to have some level of competency on your own. Otherwise, you're not going to know how to gauge where you're at in working with that person. Feel free to reach out with questions if you want us to help in certain topics to help you gain competency, whether it be knowledge skills or behavior. We'll be happy to get into that. Ultimately, it's a lifelong thing like I said. That's part of what makes it so complicated. If we just look at the knowledge, for example, it's pretty straightforward. It's like give me the book, I'll read it, I got it. It still requires attention and time, but you all know how to learn a subject and that's straightforward. Then we add skills and it gets a little more complicated. It's like applying the subject can get dicey, less straightforward. When things go off the book like I haven't seen this scenario before. It's easier to get locked up. Then you have the behavior on top of then it can easily become a mess because humans are humans. This is, I think, what makes money so complicated. Just mixing all these things together and it's kind of a lifelong thing. Don't be too hard on yourself. Nobody is doing this perfectly. That's a mirage, we're not going for perfection here. Everybody is going to be making mistakes along the way. It's more about making steady progress on this type of stuff. I think that's the goal. Just by listening to this right now, that shows me you're into making progress. Don't forget to give yourself a pat on the back. Definitely don't be too hard on ourselves either and we'll keep working towards gaining competency in personal finance. As always, I enjoyed chatting with you. We will talk to you next time.

What is the behavioral component and psychology of money? How do you deal with it tactically and practically? Your relationship with money is a big deal and makes a significant impact on your day-to-day decisions.    In this episode of the Finance for Physicians Podcast, Daniel Wrenne talks to Danielle Seurkamp, Certified Financial Planner (CFP®) and founder of Well Spent Wealth Planning. Danielle focuses on the behavioral side of financial planning and personal finance and helps individuals and families to effectively achieve their financial goals. Topics Discussed: Financial Literacy: Ability to use knowledge, skills to manage financial resources Mental and Emotional Errors: Get in the way of ability to use knowledge/skills Financial Flashpoints/Money Scripts: Experiences shape relationship w/ money Financial Memories: Think about your past to identify your own money beliefs Financial Half-truths: Problems and promises can be positive or negative Financial Fears: Money is how you provide yourself food, shelter, and stay alive Financial Patterns: Be aware of reasons you spend money based on behaviors Awareness Exercises: Intentionally notice, track, and document feelings via journaling Make a counter-argument to push against your promises and beliefs Create genogram/chart of your family’s financial history Take money script inventory quiz Gain clarity on your values Financial Therapy: When to seek out help with money and relationships Links: Danielle Seurkamp on LinkedIn Financial Planning & Sustainable Investing - Well Spent Wealth Planning Genograms for Psychotherapy (Guide) - Therapist Aid Start Money Script - Your Mental Wealth Advisory Using a Journal Can Change Your Life - Jim Rohn Personal Values What Is Financial Therapy With Ed Coambs 3 Exercises To Help You Clarify Your Values Contact Finance for Physicians Finance for Physicians Full Episode Transcript: Daniel: What's up everyone? I am excited to have a guest with me today. We're going to be talking about money, of course, but talking about your relationship with money. My guest today is Danielle. Danielle, can you give us a quick intro? Say hello to everyone. Danielle: Everybody, I'm glad to be here with you. My name is Danielle Seurkamp. I'm a CFP. I am the founder of Well Spent Wealth Planning based in Cincinnati. I am fortunate enough to be in a study group with our illustrious host, Daniel. Daniel: Yeah, illustrious. It's good work. Danielle's not given you the full story. She's got an incredible background. She has all these designations and has all sorts of great involvement in our industry. If I was to boil down, Danielle has kind of gravitated towards the behavioral side of financial planning and personal finance. You have certified financial behavior specialists, that's one, and then you have a Master's. Danielle: Right, yup. Actually, my Master's was my first kind of introduction into the psychology of money, and behavioral finance, and the relationship we have with money. I'm really happy that I took those courses, and then that just started my interest in IT. I went from there. I got involved with the financial behavioral specialists, which is through the Financial Psychology Institute. I was able to learn a lot in that program by just going right up to the edge of psychology and bringing in some of that information into the way that we deal with money. It made me move to the practical side. Daniel: Yeah, we're both financial planners by day. Most financial planners you talked to will acknowledge this whole behavioral component and the psychology of money. We have an appreciation for it. We realize it's a big deal, it's something you should be paying attention to, and that sort of thing. For example, for me, when it gets into the tactical aspect of it, or problem solving, or how to work through it. I'm not an expert by any means. That's what's been cool about Danielle. What you're doing is you've dug in more to that aspect. It's a big deal. We're going to talk about it today, what we're talking about as far as behavioral finance and relationships with money. When I think of relationships, I know I think about people. I'm like, what are you talking about, relationship with money? But everybody has a relationship with money. We see it every day in our work with people one-on-one. Danielle has just taken that initiative to really dig into that. It's impactful stuff, because once you understand this, you'll start to realize this is the undercurrent for a lot of the things that we do day-to-day and the decisions we make. Danielle: Absolutely, yeah. I guess maybe just to kind of kick off, what does this even mean? What does the relationship with money even mean? What do we think about it? The way that I think about it is, okay, let's talk about financial literacy. The definition of financial literacy is the ability to use knowledge and skills to manage financial resources for a lifetime of financial well-being. You hear knowledge and skills there, and that's the part that a lot of people focus on. But the part that has more to do with our relationship with money is the ability to use the knowledge and skills. That's the important piece that this relationship with money brings in. When you think about that, you might think of our relationship with food and exercise, just that basic idea of, okay, I know I shouldn't have had doughnuts for breakfast, I know I should have probably got up and worked out. These are the basics of having a healthy body and mind. If I'm feeling crummy, I'm tired, I'm stressed, I'm lonely, whatever it might be, I'm not going to be able to use that knowledge. I'm not going to get up and eat the thing that I should. I'm not going to get up and work out. It's the same way with money. Really when we think about the relationship, you said it was about people, and it is, but it's about our knowledge of ourselves and how we relate to money. Daniel: Yeah. It seems like everybody or the general focus, like you said, tends to start on that knowledge and skill. That's where a lot of people go, and a lot of people stop there in terms of what they focus on. They focus on educating themselves, which is all good stuff. That's important. Learning the skills, and the tactics, and the proper technique and of maxing out accounts and whatever, and making more money. People spend countless hours focused on those sorts of things, and building wealth, and whatever. It's also kind of more of a shiny object. People enjoy, I think, reading about that kind of stuff or understanding that stuff. It seems like this is more of one of the things that has a tendency to be overlooked. People look at how they relate and it's, like we said, super important. We both said it's really important, but why is it so important? If we boil it down, why is this so important to understand? Danielle: I think it comes down to, knowledge is pretty useless if we're not able to apply it. The things that get in the way of our ability to apply it are either the mental biases we have, cognitive biases that are just errors and thinking that apply to everybody. Everybody has these normal things, where our brains just don't necessarily always reflect information the right way. Just as an example, if you've seen three news stories about an airplane crash, you're probably going to think their plane crashes are going up in likelihood or they're happening more often, even if statistically, they're becoming less often. They're just errors and thinking around our brain that all of us experience, but then there are these emotional biases as well that don't apply to everybody the same way, that have a lot more to do with our individualized experiences, our day-to-day well-being. Either one of these things can get in the way of our ability to use good financial knowledge and skills. If we're not able to get over the hurdles of those things, then all of the best financial planning, or all of the reading online, or whatever we do to educate ourselves and try to do the right things, aren't going to be as effective and may not be effective at all, depending on how intense some of those things are. Daniel: Right, yeah. I've seen it in working with families one on one. It seems like it commonly surfaces or comes up. They're articulating these values or priorities. We have given them concrete steps to make progress towards the goals, values, and that sort of thing. In other words, they have the knowledge of what steps to take, but they're continually failing to execute on it over and over again. A lot of times, there are some underlying issues in regards to their relationship with money. Danielle: Absolutely, yeah. I think that one of the themes of being able to hone your relationship with money is noticing things. If you are having an experience where an advisor has told you something to do, and you have felt resistant to do it for whatever reason or you haven't taken action on it, that's actually a really good indication that there might be something around that topic that is causing you to have a little bit of resistance, or hesitancy around implementing those recommendations. Or, you've just been stuck on something that is a good place to start digging in, looking at what's going on there, and what that might be for you. I was going to give you a little story here just to illustrate what we're talking about as we start to explore these emotional biases or these things that come up in our relationship with money, just to give us a framework of a place to start. Does that sound okay? Daniel: Yeah, I always love stories. Danielle: Okay, this is about Billy and Bobby. They were eight years old. Both of them saw a bike that they wanted to buy in the store window. Both of them decided to save money for it. Billy kept his money that he got from birthdays and holidays. He asked his mom to do extra chores if he could make his own lunch, save his lunch money, and even do some things for neighbors and grandparents. Finally, he got enough money to save, and he bought this bike. He loved it, he rode it for years. That's Billy. Now we have Bobby. He also started to save money. He did extra chores and he sold some of the CDs. One day when he went to put some of that money into his little piggy bank, he found that everything was gone. His older brother had taken it from him, and there was no way that he was going to get it back. His brother actually threatened Bobby and said, if you tell anybody, I'm going to make you really sorry. Bobby was afraid to even say anything about it, so he didn't. He just started basically saving again on the side, but hid his money a little bit better. Finally, he gets up enough money to buy the bike. Then less than a week later, the bike was stolen. You have two situations here that are very different. I'm just curious. Daniel, what do you think about when you hear that story? What do you think the impact of Billy and Bobby would be in that situation? Daniel: It developed some skepticism around or at minimum towards other people. Maybe you even put blame on the money. I don't know. Having money causes these problems. You can connect the money to the problem, I think. More money, more problems—the little little kids version. Danielle: Exactly, yeah. Right, the eight-year-old version of this. That's exactly right. Most people are not going to think back to childhood and necessarily think, oh, my whole relationship with money boils down to what happened when I got this bike when I was eight years old. But these are the kinds of experiences that end up shaping how we interact with money. I would say that experience for Billy and Bobby, I would describe that as a financial flashpoint. That basically just means that is a moment in life or something happened that was significant enough to shape your views about money. It can be a one time thing like this. This was an isolated incident around this bike, but it can also be something more just every day.  You saw a parent consistently in debt, overspending, or whatever it might be. It doesn't have to necessarily be a huge deal. But what happens is, then, we have these flash points. We're kids, we're growing up. We don't have the framework to necessarily talk ourselves through the rationale there. We just know, this experience, if you're Bobby, was painful, and I don't want to feel that way again. What happens is we make a promise to ourselves something like you said, Daniel, I'm never going to be stolen from again. I'm not going to be a victim of that again or whatever. You're trying to avoid that feeling of fear, so the behavior that might come out of that is that Bobby might not save money anymore because in his experience saving up money, got his brother steal from him, buying the bike, got someone else to steal from him. He may have a negative feeling about saving money. Going forward, just from that, it could carry through his whole life. That's just one example of how these experiences, these financial flashpoints, can then turn into these promises that we make to ourselves or these beliefs that we have that are sometimes called money scripts, because we replay them over and over in our head. That's just one little example of how you can flow through in the behavior. Daniel: Yeah, I like it. It's basically equating money to painful experiences. Everybody wants to avoid pain in the future. I think the issue is that we often bury it and aren't aware that it's affecting your day-to-day world. Everybody has a past that is affecting their day-to-day world. Sometimes it causes problems and you're burying it. That's where therapy can come into handy and digging into the past. Maybe before we go down that route, what's a good way to start to identify your own flashpoint? Danielle: I would say, first things first is just start to think about your past. In light of hearing how a story about a bike can have that big of an impact on you, start to think back. What are the financial memories that come to mind? What do you remember about money and your childhood? Just to give you a little more of a prompt to think about that, there are a variety of different things that could impact your beliefs about money or these experiences that you've had about money. A few things to look for as you're going back and analyzing your history. Things like gender roles in your family, who was responsible for paying bills? Who was responsible for earning money? Who did those things? Those types of things can carry forward into the future. Even gender norms in our society can affect how we feel about money. There's actually a really interesting study that T. Rowe Price did about boys and girls as kids and the relationship parents had with them. Boys were talked to by parents about investing and in starting businesses. Girls were talked to about money, with paying bills, coupons, and stuff like that. Even little things like that. Again, this doesn't necessarily draw back to one significant event, but it does sometimes shape how we think about ourselves in relation to money. Am I really someone who can start a business? Am I somebody who should be paying the bills? Looking at the professions and education history of your parents and family. What kind of spending behavior did they have? Did anybody have debt? Were they good savers? Even stuff like what were their relational issues in the family, like addiction, enabling, secret keeping, all of this stuff can flow through to how we relate to money. Those are just some thoughts in terms of where to go back into the past and start to think about, where do my money beliefs come from? There might be specific moments in time that relate to these different things. It also just may be the way that you were raised and brought up everything from the socio-economic status of your family to just the individual roles and challenges that parents had as you grew up. Daniel: Yeah. I've done an exercise before. I don't remember what it is called, but draw a visual representation of your youth. I guess you started by thinking back in the past, all the way growing up, and the financial key points, I guess, from your memory. Then you draw a picture about it, and you kind of map it out like a timeline or something along those lines. What are the takeaways, that sort of thing. My parents were very unwell or they had a lot of financial challenges. I think some people come away from that. You get in the cycle of that's how it is, and then other people come away with that. It's like, I have to work really hard to avoid that situation. That completely is part of what has caused me to be how I am financially. It's probably what drove me into the profession I'm in, which is helping people with money. I was basically acting like a financial planner in middle school or something. Looking back at that type of stuff is really helpful. Also you can find underlying issues, like you said, and identify maybe these hurdles that are holding you back in life. Danielle: Yeah. I actually relate a lot with that, Daniel. I had a lot of financial insecurity growing up as well. Those are moments, again, where what comes to my mind is I'm going to make a promise to myself. For me, I can think back to a very specific moment in college where I was going to school full time and working full time, and I was balancing my checkbook, and I had $7 for the next two weeks, and I was just feeling really broke. The stress of that was meaningful for me. The promise in my mind is I'm never going to let myself be broke again. I'm not going to let this happen. It may have been different for you in what kind of thing that you decided on or whatever. What happens from that can be positive or negative, in my case. It sounds like in your case, too, it drove you into a successful profession, made you focus on earning money, all of those things. That's good. But I think that tricky part is, when we make these promises to ourselves, sometimes we only focus on the part of the truth that suits what we've been through. In my case, where, as an example of where this promise to me came into conflict with something that I wanted to do, was I had this feeling of never wanting to be broke again. Then at some point along the way, I started having the urge to have my own business. Those two things do not go together. Giving up a nice, consistent W-2 income to go out on your own, start a business, and take risks around money does not really align with this fear that I had or this promise that I made to never be broke again. This is where we start to run into our own promises that we've made. We have to work on that. It took me a long time of working on that, to be able to go out in my own business and take the risk financially, and be able to tolerate the fear that went along with that. The part of what helped is doing kind of the devil's advocate against your own argument. For me, it was, I don't want to be broke again. If I start a business, I'm going to be broke. I'm going to have financial insecurity again. What sometimes can be helpful is to say, what argument could you make to me about starting my own business where I wouldn't wind up broke? There are plenty of things that you can say to me, like, you may earn more money, you may have more control over your job security. There are lots of arguments you can make on the other side. But when we have this emotional block, we don't make that counter argument. That is another place to start. If you feel really strongly about something financially, just try to play devil's advocate. I call them financial half truths. Another one might be like, all debt is bad. If you really have a bad experience with debt, all debt is bad. But if you don't take debt, you can't go to college. Sometimes, you can't buy your first home. You can't necessarily start a business. There's good debt and there's bad debt. If you have a stuck belief in there somewhere, it helps to kind of make that counter argument to yourself. Daniel: For me, coming out of one of the effects of my childhood is I guess a promise I made. It was like, I'm going to work extremely hard, professionally, or whatever. Like in high school or whatever, manual labor or whatever I could get. Work extremely hard to make sure I never have that financial stress or problem ever again. Fast forward, that inevitably causes problems, because that's not my only value. If I work extremely hard, eventually, and I have a family, three children, and I am not seeing them any, for example, that starts to cause problems. Maybe I already have plenty of resources financially and I'm still working hard. That's where you get into that cycle and all of a sudden, you are having marital problems, maybe you're divorced, or maybe potentially, one of the causes might be that I worked so hard. That was the sole focus, because for me, it was a big, huge focus. I was like, this is a high priority. It has caused problems in my marriage here and there. I'm fortunately still happily married. Fortunately, I married a woman that will bring up problems, raise them to my attention, and that sort of thing. Even me, personally, it could have gone several different ways. This hard work ethic could have been ultimately causing tons of problems in life, especially when I'm not aware of it, or I'm making excuses for it, or that kind of thing. Danielle: Yeah, I think what you're talking about is so common. In our experiences when we're young and we think about it, how can I fix this? How can I fix this problem? I don't want to be financially insecure really, really hard and never feel that way again. Sometimes that works, and you've seen that. You've seen positive things come out of that. You have a successful business, you're able to take care of your family, and all of these things. Eventually, this same solution to this problem can become a hindrance in other areas. What we've been doing doesn't work anymore in the same way that it used to. That is sometimes the time when we become aware of the fact that we've been holding on to belief. I don't want anyone to say that they should throw away the beliefs that they've held. It's not that. There's another side to the story that you need to make to yourself and say that, yes, working hard is important. I will continue to work hard, but there's no point in me working hard if I'm not going to be able to see my kids, my family, have time with them, and that sort of thing. What you're describing is often what happens when we would come up with a system to fix the problem, and then eventually, that system doesn't necessarily work for us in our current situation. Daniel: I think a good place to be is where you're aware of this underlying relationship with money—your background and the cycles of how you believe around money. Then on the other end, having awareness of what you value. I think if you can look at the two of those, your relationship with money on one hand and then your values in life on the other hand, it seems like those two things, together, is where you can really start to make good progress. I find that all of it conflicts with each other. When you're not aware, that's the problem. When you're not aware of either one of those, we're talking about the relationship with money today, but either one of them, when you're not aware of it, that's where it's dangerous. Danielle: Right. Yeah, and I think that part of the reason, a lack of awareness is challenging, is that whatever we believe or whatever we're doing is probably to cope with some kind of feeling that we're having. If you're not aware of that and you're not aware of how you might be using money to cope with that feeling, then you're not able to necessarily understand your own needs, and find another way to cope with it. As an example, you might have a fear around spending money. That's a pretty common one, I think, that we sometimes see in our business. People have saved a lot. They've worked hard. They've pinched pennies and all of that stuff, but then they have a hard time spending that money. A lot of times, it comes back to some of the stuff like we were talking about, financial security and our past, that sort of thing. If you really drill down to that at a deep level, money is how we provide food for ourselves. It's how we provide shelter for ourselves, and it is how we stay alive. To not have money is a huge, huge fear for people. That fear runs pretty deep. It may not necessarily be financial insecurity that you necessarily had that's feeling it, but there are also things like fitting in. We grew up in a certain socio-economic world. That's what feels comfortable to us. Sometimes being wealthier, that doesn't feel comfortable. That gets down to being ostracized from your group. Again, this gets down to survival instinct, where we're doing things in a sense to keep ourselves safe, so we have to find that awareness around that to say, how can I make myself safe in a different way? Just understanding that there is depth there. A lot of times, if you're not spending money or if you are spending money, it can be in response to those deep emotional feelings. But we have to find another way to sort of address them in order for us to make our better choices, financially. Daniel: Yeah. Do you have any suggestions for gaining better awareness? I know, we've thrown out some ideas for people. That's a hard thing to do. It's easy to talk about, but blind spots are hard to see. Danielle: Let me throw out a few. I'll throw out a few examples that may resonate with people. Then we can talk about some ways to work on this if you need to raise awareness or keep digging into this a little bit. Here are some examples. Again, if the feeling that you're having is fear and your behavior is not spending, you might look at things like financial insecurity in your past. That behavior that could come out of that might be not spending money, it might be keeping secrets from somebody, hiding money, that kind of stuff. Look for that sort of thing. If you're feeling sad, stressed, guilty, bored, your behavior might be to spend money. Things you might look at there are spending as a coping mechanism. I spend it when I'm sad. I spend it when I'm bored. I get online and shop. Coping with those feelings is one thing we often do, so look for those patterns there. Look for when we're spending money to fit in and stay safe. This is the Keeping Up with the Joneses thing, but it's at a deeper level. It's like we want to be accepted by the Joneses, so we need to spend money to look like our neighbors and all those things. Looking for the patterns around that can be helpful. Looking for things like status. Like, okay, one of my guilties is I like to give really nice gifts to people, which, okay, does that sound so terrible? No, but I stress out about that. I will probably spend more than I have in my budget, because what someone thinks about me when I give them that gift matters to me. That's a status thing, just like it is to drive a nice car, or have a nice house, or have nice clothes, or whatever. That's a status thing. Maybe that sounds shallow, but really, it's about my self-worth and being accepted from other people. Those are the kinds of things we can look at in terms of reasons why we might spend money. Coping with a negative emotion, trying to fit in and stay safe, trying to demonstrate our worth or fit in with people. It even sometimes can be as simple as like, I deserve this, I worked my butt off, thoughts like that. I know you have a lot of doctors that listen to this, and you struggle through residency and you're broke. Then it's like, okay, I finally got the job, I have the money. The feeling might be that I finally deserve to spend this money. All those kinds of thoughts can get in there. Just paying attention to those a little bit is really helpful and bringing that back to, where is this really coming from? Where is this need in Danielle to give fancy gifts? Like, why do I even care about that? Where does that come from? Just kind of thinking about that a little bit more. Also, keep in mind, none of these behaviors are necessarily problematic, unless they're causing problems in your financial plan or causing problems in relationships. Spending or not spending is not inherently bad or good. It's just, how is it working for you and your situation? Daniel: Yeah. I think that you hit on a couple of good ones that are, I think, a lot of you listening probably have felt the pull of or experienced before. The desire to reward yourself or it's been a long, hard road and I deserve to pat myself on the back, some people take that. First of all, that's not a bad thing, like Danielle was saying. It could be a great thing, but some people take it way farther than other people. It seems like a house decision. A lot of people have that right around that time, too. In my experience, I noticed that a lot of the struggles, physicians, especially, a lot of it comes down to those decisions made in the transition points in time. But what happens is, say it's like the ultimate underlying desire is patting myself on the back, I need to take care of myself a little bit, and maybe they go a little too far on that. It seems like what sometimes happens is that you bury your head in the sand. Some people get it and are like, okay, a mistake or I'm aware and it's causing problems in my plan. But other people are aware of it, but they're not really recognizing that it's causing problems. They just work through it or maybe work more hours to try to make more money. It can cycle down the other direction. Maybe I'm listening and I'm feeling like I'm aware of it. I'm like, I got that. I realized I need to pat myself on the back, and that's what I did. I don't think I took it that far. I don't think I have any problems in my plan, but I'm kind of not saving anything or I hired a financial planner and didn't take their advice. We see that sometimes as if people don't take our advice. It's like, are you working with us? It's hard to self-identify that sometimes. Danielle: Yeah, and I don't know that it happens immediately. I think it's just noticing, noticing, noticing. Practice noticing what you do and when. If you just went through an experience where you did YOLO and went for something, because you really felt like you deserved it, worked hard for it, and that's what happened. You're like, I don't know if that's bad or good, or indifferent, or whatever. You might just pay attention, like, how was I feeling around that time? Maybe you're really tired. You're exhausted from overwork. You're just not feeling the good stuff that you need to feel or you're not balancing something else. Then start to think about, okay, what do I do when I feel like that? When I'm tired, and I just like worked my butt off all week, and I just really don't have the energy to go coupon clip or whatever the thing is, what do I do in that moment when I'm ordering dinner? Do I go shopping online? What do I do in those moments when I feel that same way that might have led me to make that decision? It's really just thinking a little bit more about it. I can give you an example of something that I did if that would be helpful. I had a habit of every time I was invited to a big networking function, where I wasn't going to know a lot of people, I had a habit of going out and buying myself a new outfit. This outfit was super important, because to me, it was my armor going into these events, and I needed to fit in. That was what made me feel okay to fit in to these things that I was going to. I go and shop. Even though I have financial insecurity in my past, and financial security is a big deal to me, that need got subjugated to the need to fit in at this event. Sometimes we even have ones that contradict each other. This is an example for me, where I have things that are contradicting themselves. The need to fit in was more urgent for me at that moment than the need to have financial security, so I went out and I'd shop. I would stress out and walk around the mall. I'd always spend more than I needed to, and it will kind of mess up my budget sometimes. I finally started to just have the negative emotions of like, oh, I'm running through this mall, my feet are killing me. I've worked all day, I'm just trying to find this outfit. Why am I doing this? What I started to do was just say, okay, I'm going to pay attention to what happens to me when I get invited to these kinds of things. What I noticed was I have the urge to go out and get my armor. In those moments, I started to do something differently. I would say to myself, all right, I have a networking event in a week, I'm going to go through my closet and search to pick something out that might feel appropriate for me. Sometimes I would still go out and shop, but I knew what I was doing at that point. I knew I was doing this to make myself feel better. That helped, even when I did it anyway, because I knew what I was doing. That doesn't come up for me as much anymore. But it took me time to figure out that I was doing it, first of all, and then to figure out, why was I doing it? Why was this need so important? And then, how to take care of myself in a different way? It's not just, don't feel like that anymore, Danielle. It's, okay, I'm going to feel this way a little bit. How do I care for myself in a different way that doesn't necessarily mess up my finances the way it would have if I just went out and blew a bunch of money on clothes? Daniel: Yeah. That's just good awareness in general. Like you said, even if you continue doing it, to some extent, awareness is the key. Was this one of the symptoms like, maybe the closet is getting full of the stuff that I'm not wearing? That could be an observation you make. Danielle: For me, it was the negative emotions. I am putting myself through this insane shopping marathon. Why am I doing this? I'm not happy. This is making me unhappy. Again, what I was doing was working for me and making me feel safe, but now it's causing me to stress out, go crazy, and make myself nuts about what I'm wearing. Something will come up, maybe, something that doesn't feel great. That is a time to just dig in and notice a little bit more. There are a number of different exercises and things you can do as well. I'm happy to share any of that if you want. Daniel: Yeah, I would love to. I'll go back to that. I wanted to throw something out there. The career track of medicine is a challenging one and that it takes you through the training, especially. Sometimes the training, rigorous hours carry forward or you get used to it and you just keep doing it. I think the challenge there is, for me at least, when I'm killing it, grinding it out on whatever it might be, like work especially the one that can take over, when it's taken over, it's like I don't even have any capacity to be aware of anything. It's like I get in this zone, I guess. I feel like this type of awareness requires having some space or something. I don't know how to describe it, but I feel like it's much more difficult to get in that mindset when you're so overwhelmed. It might even be something different at work. It might be some challenge, or emotion, or grief. I think when people are going through grief, they just can't. They are totally overtaken by it. Sometimes that's okay, but I just think that's a good thing too—because in training, for example, a lot of times, you do much about that, so you just have to do the best with what you have, and work through it, and don't be too hard on yourself. Has that been your experience, Danielle? Danielle: Yeah, and I think part of what you're talking about is there are moments where we don't have the capacity to be thinking rationally, and be self-analyzing, and all of that. That capacity for that is really important. It's actually why this relationship with money matters, because when we're regulated, calm, and feeling good, our thinking brain is able to make more of our decisions for us. Our thinking brain is the one that understands, like, okay, I need to delay gratification, I need to save for the future, I need to do whatever I need to do for myself rationally. But as soon as we're overtaken with emotion, and whether that's the stress of grinding it out at work, or grief, or whatever it might be, panic about an event you're going to, it is very difficult at that point to use our thinking brains. They go offline. Our emotional brains take over. When our emotional brains take over, and we're trying to protect ourselves, or soothe ourselves, or whatever, it's very, very difficult to make wise choices that are based on the future. Daniel: In any area. Danielle: Yeah, exactly. You can't expect yourself in those moments necessarily to be able to do anything about them, but it's what we do when those moments pass. We reflect on them when we think about what's going to happen, when another moment like that comes, when we can try to decide to do something differently. We do have our wits about us. Daniel: Right. It's like taking a minute. For example, with the training, taking a minute in between training and starting your first job might be a healthy exercise. I've worked with many people that go straight into practice, but taking a month or at least a few weeks. It's going to be chaotic anyway, but give yourself some time to take a silent break or something and observe it. Maybe you look back and you realize this kind of thing in your case, and you're like, oh, that's important to know as I look at future jobs. I don't want to get myself in the exact same situation as I was before, where I got the blinders on and I'm just crushing it at work, but that's it. Danielle: Right, yeah. I think, like what you said earlier, that's a great opportunity to sit with your values for a little while and say, okay, I'm looking for a job, what do I need out of this job? That might be financial security. It could be a certain level of income or whatever, but it might also have these other things. That's a great opportunity to check those decisions in those moments with values and things like that. Daniel: Yeah. I think it's hard in our culture or maybe even professions you choose. Sometimes it's very difficult to just have that space. Everybody's afraid of boredom or with all that stuff going on. You have social media and smartphones—I'm guilty of it. You're looking at your phone when you're bored, and it's difficult. You almost have to be really intentional about allowing for a minute to think about stuff like this, observe awareness, journal, or whatever. It's possible. You can do it, you just have to be intentional. The other thing I wanted to mention was I think it's been helpful for me to listen to other people. Maybe that sounds obvious, but I have been guilty of not listening to other people, kind of warning or raising the red flag. Especially the people that are direct and honest, that you trust. For instance, my wife is super honest and direct. When she says something, it's more than likely very true. It's hard to hear that. I want to not listen, but listen to those people because they'll throw out the warning signs, those people in your life. They'll be hints, I guess. Maybe there's this issue and I think, sometimes, it can tie in to all this stuff. Danielle: Yeah. The other thing is sometimes we find out about some of our struggles from other people, because it's a lot easier for them to see it than it is for ourselves. Even in marriages, a lot of these things come up, a lot of the stuff we've talked about. Imagine if one person is motivated by an intense fear of going back to being poor, and someone else is super motivated by wanting to have nice things and fit in with their crowd. One's going to save, one's going to spend, generalizing, of course. The reason that's so hard to reconcile in a relationship is because the needs are very intense for both of them. It looks like, oh, my God, you're so cheap and, oh, my God, you spend too much money. Really, it's a lot more than that. Even when we hear it from someone else, it's like, oh, you're being cheap. Well, I can't just stop saving money, because that's what keeps him safe. In my mind, that's what keeps me safe. Even sometimes, when we get the message from somebody else, it's hard to reconcile or take it in, because letting go of that behavior feels like letting go of what's keeping you safe. In reality, some of that is keeping you safe and some of that is causing you conflict in your relationship, or in other areas, or whatever it might be. The hard part is then examining that and seeing what you're doing maybe isn't serving you the same way it used to. Daniel: Yeah. Let's go back to some of those exercises. As we wrap up, maybe we can talk about you mentioning some exercises or tactics to kind of help. Danielle: Yup. The basic one is just notice, notice, notice—pay attention. How do you feel? How do you act when you feel that way? Some people will actually do a journal around that and say, I went shopping, because I was feeling stressed about going to an event or whatever, so keeping track. Even journaling around that can be really helpful. Daniel: And writing about your feelings? Danielle: Yes, the horrible thing of paying attention to our feelings. Daniel: I am not very in touch with my feelings. It's important, I think, to clarify that I have to be very intentional if I'm going to write about my feelings and remind myself, because I have journaled for years, and years, and years. If you read my journal, it's probably not very feeling-oriented. It's going to be difficult for you to get an idea of what I was actually feeling, unless I was really intentional about it. Reminder for those of you that are like me, you have to remind yourself to talk about those feelings. Danielle: Yeah, and to think about it. It's hard. A lot of us do avoid our own feelings. Like you're saying, it's easier to get on social media than it is to think about how we feel, because sometimes it's not great how we feel. It's hard to go there. It doesn't have to be a long journal. It could just be what happened, how did I feel, what did I do about it? All it is is just trying to raise that awareness. How will you keep track of it? Is that a work for you? Just paying attention to it can be really helpful. Another thing, we've been talking about these promises we make to ourselves. If there are any promises that you've made yourselves or beliefs that you hold strongly, if you don't think about it as a promise, whatever it might resonate with you, write it down, and then think about how that flows through financial behavior, and then try to make the counter argument. Again, just being devil's advocate in a very intentional way of pushing back against what you consider truths, but might actually be half truths. Daniel: Yeah, even though it goes against every grain of your inner being. That makes absolutely no sense. I'm not going to justify the opposite of my belief. That does not even make any sense to me. But go against that, like the urge, that it makes absolutely no sense to make a counter argument about something you've already made your mind up about completely. I can tell you, it's worthwhile to make a counter argument about something you're already 100,000% committed to or believing in. At a minimum, you can start to gain a little bit of understanding of appreciation or even seeing other people in how they view things, but sometimes it'll surprise you what you come up with. Danielle: Right, exactly. It's a lot easier to argue with ourselves than to have someone else tell us the other side of the argument, because we're pretty much guaranteed to ignore the other. We need to come to run our own, which is hard. Okay, a couple other things. You can do a genogram, which is basically a chart of your family history. Just google genograms. Basically, you would just draw out your family history. There's a lot of detail you can add to it, it's up to you. But if you're really trying to figure out patterns or things that might have been held over from previous generations or upbringing, it can be really helpful to look at something like that just to see what comes up. That's another technique. There is a quiz you can take. It's called a money script inventory. If you google that, you can take a quiz and find out. If you fall into one of the main four kinds of money scripts, avoiding money, seeing money as status, seeing money as the solution to everything, and then being very vigilant about money, those are the big four that you'll fall into. You can kind of see, does any of that resonate? That's another thing you can do to gain awareness. There's also just that value piece. I don't know if you have anything, Daniel, but if there's a miller values exercise out on google that has basically a huge list of all the values that you might hold, and if you're trying to get clarity around what those values are, that can be helpful, and then looking at that against what your current financial behavior. Daniel: Those are good. Coincidentally, I think the episode that's going to come out before this one, I talked about different values exercises. Danielle: Oh, perfect. Daniel: There's a bunch of different ways to dig into that. I'll link to each of these in the show notes so you guys can see that. There's a bunch of different ways to tackle this. The last thing I wanted to ask you or I was thinking about is we talked with your friend, actually, many episodes ago about financial therapy. You know what that is, and we cut into some of this stuff a little bit, too. In your view, at what point do you seek out help specifically for this? Danielle: If you're looking at the situation, and your finances are in trouble, or your relationships are in trouble, and you're just not finding resolution in the things that you're trying, then financial therapy can be really helpful. It's basically just a format or you and your partner to be able to talk about these things with a professional that knows all of the details, that can walk you through some of this more intentionally, and do it in a way that holds space for both people's feelings, and those people's needs, and all of that. They also have the expertise around money to bring into it. That's the unique thing about financial therapy. You get the emotional component, the psychological component, but then you also have the financial component, at least, understanding there to bring that into play as well. The moment that I would seek someone out is if you're really in a situation where there's a problem that you're just not finding resolution toward, and maybe something like this could be helpful. Financial planners are helpful too, financial coaches are helpful too, but definitely financial therapists or certified financial behavioral specialists are going to be the most experienced with these particular issues. We all have them, so don't feel bad. Every single one of us has beliefs about money. It isn't like there's one for all of us. It's so many different ones that make up how we feel about things. Really, it's just about getting to know yourself better. That's sort of the thing with life, right? Daniel: Yup. It's sometimes complicated. Sometimes we don't want to dig into it, but it is worthwhile to dig in at least, especially if it's causing problems. Even if it's not, it's just good awareness, because eventually it can. That's how it's been for me. It's like, oh, some of these issues or past experiences weren't causing issues, and then they were a little bit, and then now they're not. It's a cycle. Danielle: Yeah, absolutely. Sometimes the consequences aren't that easy to see. For me, if I go back to that hole of financial insecurity and wanting to start my business, if I hadn't dealt with that fear that I have, I may never have started my business then. Would that be a problem in my life? Maybe, maybe not. I probably would have been fine in a lot of ways. A problem can also just mean you're not fulfilling something that you want. It can just be a barrier in that sense, too. It doesn't necessarily mean like, oh, your finances are in shambles and you're on the verge of divorce. That's not the only situation where you might need a little bit of extra time here. It can be just when you're trying to take something new on or like you said, in a moment of transition can be helpful things to think about. Daniel: Right. Awesome. Danielle, it's been fun. I enjoy talking about this stuff. We could go on for hours, and hours, and hours. But we both have lots going on. Thank you for coming on. I really appreciate it. Danielle: My pleasure. Good to be with you.

Do you get nervous when the stock market goes bad? Where are good places to invest? Discover the power of diversification to conquer volatility and uncertainty.  In this episode of the Finance for Physicians Podcast, Daniel Wrenne talks about diversification of your portfolio in order to keep more dollars in your pockets. Topics Discussed: What’s diversification? Spread money across investments for risk mitigation Options/Odds: Should you spread eggs into more baskets to grow a nest egg? Benchmark: How to track and measure success with investments in stock market ETF Tickers: What to search for/consider for spread of diversification categories Cryptocurrency: Is it a good way to diversify? Maybe, too new to know for sure Real Estate: Not good way to diversify if actively involved, not passively Links: What is Passive Investing? Investing in Digital Gold Vanguard Funds List Google Finance Morningstar Contact Finance for Physicians Finance for Physicians Full Episode Transcript: Hello, everyone. Hey, I hope you're having a great day. I was talking with a buddy two days ago and a conversation came up. The same sort of conversation happens with me a lot. The gist of the conversation was, "Oh, you're in finance?" (This is the guy talking to me.) "Oh, well, I've been investing in stocks. I have this one that I've been investing in since the stock market went down in the Covid downturn in early 2020." He told me this specific stock—I can't remember now—that he was buying. He wanted to make sure he wasn't making the same mistake that a lot of his family or friends had made and getting nervous when the market was bad, and instead, invested in something that he felt was a good place to invest. He proceeded to tell me about his experience investing in this stock. It did very well a year or so after, but lately it hadn't done as well. That's kind of what brought up (I think) his thought about this stock, is he was asking me about how we're handling the recent market volatility, which is a common dinner party conversation or question people ask me. This stock in particular he was describing, he was sharing, has been doing not so well, but he was still optimistic about it. Over that period of time—March, April, May of 2020, till now—it's still above breakeven, so he's still made some money on it. Overall, he felt pretty good about it, especially given the weak market that we're in now. As I'm recording this, this is close to them. It's early May 2022, and the market's been a little shaky. Given the market uncertainty, he felt pretty good about it. That is a conversation I've had too many times. I can't even remember how many times I've had it with people usually at social events. They're sharing about their experience in investing. Generally, it's a favorable lien. This example I just gave was kind of a little bit of a negativity creeping in but still overall favorable. It wasn't like they were asking my advice or opinion. They were trying to make conversation with me, knowing what profession I was in. I'm sure you all have had similar conversations about your profession as it comes up. After having that conversation and just seeing it come up so many times, I thought it would be good to talk today about diversification and this temptation for the opposite of that, the FOMO temptation or the shiny object. We're all susceptible to it. I don't know. Maybe you've had a better experience. But most people I talked to—including myself—had examples of situations where we probably made a poor decision, went away from diversification, and went after the shiny object. I fortunately learned a lot of those lessons earlier when I was younger, when the dollars weren't as big. I think a lot of the questions normally come up are like, how do I avoid this? I think the key here is—at least from a starting point—is education. Educating yourself, that'll go a long way. It's not everything, but it'll go a long way. Just understanding the basics of how this works and how it plays into the results and your situation, I think that'll get you a long way. What we're going to do today is just talk about some baseline education along the lines of investing, foundational investing, and diversification in particular. Hopefully this will help you keep a little more dollars in your pocket in the end. Okay, so what is diversification? Let's just clear that up real quick. When I say diversification or the definition of diversification would be spreading your money across multiple investments in an effort to reduce volatility and risks. I'm sure you've heard that before, spreading your eggs in different baskets. It's a risk mitigation tactic. Ultimately, the goal is to be more efficient with your investments. Let's assume you had $10,000 and you want to invest in some company stocks. You want to put it to work for you. Hypothetical example, let's just say each company has exactly a 1/3 chance of going completely bankrupt. You got a choice of stocks, each company has 1/3 chance of going bankrupt, and then the remainder of the companies, so 2/3 are going to do really well. But the catch is, you have no idea which one will be which. Option one, maybe you take $10,000 and you buy one stock. You just pick one, I don't know. Since you don't know who's going to do what, you are just flipping a coin, basically. In this scenario, 1/3, obviously, chance of losing it all, 2/3 is the chance of doing really well, which sounds okay (I guess) if we're thinking from a casino kind of viewpoint. It's better than Blackjack. It's better than going to the track or a roulette, but probably not adequate for your retirement. Most of us would agree, I think, that that's probably unreasonable for a nest egg and trying to build it, because a 1/3 chance of losing it all is just too much risk. Let's say option two is you buy $1000, so you spread your eggs in different baskets by 10 stocks, $1000 each. In that scenario, by spreading it out into 10 different stocks, you decrease your chances of losing it all by a ton. I think it's like one in 60,000 or something like that, like one in tens of thousands chance of losing it all. A pretty small chance of losing it all just by spreading it out into 10 different stocks. So that's good. Maybe even option three, you buy $100 and 100 stocks. That makes it incredibly small chance. It's basically pretty close to zero, but there's a tiny chance you're going to lose it all. The concept of diversification is you're spreading out the investment so that you're reducing those chances of having poor outcomes. There are some issues people run into that make it a little harder to diversify, so we'll circle back to that. But that's diversification. I'm sure you've heard the market thrown around, the word the market, and I've probably thrown it around a bunch of times before. I wanted to clarify that since we're going to be digging into this a little bit more. When I say the market, the market is the collective of all companies you can invest in. Anyone can invest in them. They call them public. That means anyone can buy stock in these companies, whether they buy it directly through directly ownership of the stock, or maybe they buy an ETF that has that company stock in it, or maybe even a mutual fund. When you hear the market, that's the collective of all the companies that are able to be purchased by anyone through any of those vehicles. When you look at the market overall and you kind of like smoosh it all together, it's actually a pretty solid investment in itself. At a minimum, it's a good benchmark for how are you doing. Sometimes people struggle with knowing how to measure success in investing, because it's like, well, what's the alternative? One really good example of an alternative or a benchmark to compare would be the market where all stocks that are available. There are a bunch of different measures of the market. There are even stocks that track the market, like the Vanguard Total Stock Market. That's meant to be a pretty good representation of the total US stock market, or the Total World Index or something like that. There are mutual funds and ETFs that track the market. In other words, their intent is to own all the stocks. That's a good kind of benchmark for what are we tracking against for buying stocks. Nowadays, it's pretty easy, or I guess easy and inexpensive to buy the entire market. Or you can buy slices of the market, too. That's where it starts to get complicated. You can buy small companies, you can buy tech stocks, you can buy everything in between—an individual stock and owning the entire market. But when I say the market, I'm talking about owning everything, just owning all the stocks in the market. The other thing I wanted to point out is, with diversification, one of the primary goals is to reduce risk. I think it's good to clarify, there are a couple of different categories of risk. There is systematic risk in investing. That's the stuff you can't get rid of from diversification, the market risk. It doesn't matter how many eggs you have in different baskets. You could own a million stocks or all the stocks in the world, and you're still going to have market risk, either the market itself, inflationary issues or stuff like that. There are some stuff that we just can't diversify away from. Those are just there, that's a baseline. Systematic risk, you can't really get rid of it. It is what it is. This stuff, though, with diversification, we're trying to reduce or even avoid. They call it unsystematic or idiosyncratic risks. This is like the non market risk. This is what you can reduce by diversification. Examples of that would be company-specific risks. Every company has risks, whether it be having a bad CEO that nobody realized, or a lawsuit, or a product that just doesn't work out. Those are things companies cannot always avoid. They're going to always be there. Sometimes they're completely unpredictable. There are industry-specific risks, like big regulatory change related to an industry or just market factors. The pandemic had more negative effects on the entertainment industry. Those types of things are risks, too, but you can diversify to help reduce them. Back to the pandemic, like I was saying, entertainment companies were much more susceptible to that risk. If you had one stock, let's say you had Carnival, all your money was in Carnival, that would be a problem when the pandemic hit, because they're getting crushed. Even if you had all cruise liners, all their stocks, and even all casinos and all the entertainment industry, you're still getting a huge hit when the pandemic hits, like major. What diversification does is you're going to be owning multiple different industries and diversifying away from that risk, so that it's softening the blow, basically. The stock market, when we look at this market, I think it's good to look at history doesn't always repeat itself, but it's really the best thing we have to understand things and how they work. Going back to that market, I'm talking about the market overall. For this example, I'm going to talk about the S&P 500. That's one measure of the market. What that technically represents is this 500 biggest companies in the US. It's definitely not a complete measure of the entire market, but it's a pretty good slice of the market, so S&P 500. We're going to look at this a little bit to understand how this works. Historically, what tends to play out is a pretty small percentage of companies end up influencing the performance of the overall market. In other words, the big winners pull up the rest of everybody else. It's substantial. I found some statistics on this. It was surprising even to me. The statistics were on the S&P 500. From 2000 to 2020, the majority of stocks underperform the S&P 500 returns. The S&P 500, of all those 500 stocks, the majority of them are underperforming basically the collective return of all of them. The percentage of those, some do over outperform, but the percentage that does outperform is 22%. Basically, it's 80/20 roughly, 80% underperform, 20% over outperform over that period of time. Those 20% are basically pulling the weight there. Another view of that is over that same period of time, the S&P 500 gained 322% while the median stock rose by just 63%. Basically, the takeaway there is only 20% of the stocks are really outperforming. Then the average stock, if you just pick a stock, there's a very good shot it's underperforming. Picking stocks randomly has a very high likelihood of underperformance. You might be asking like, well, okay, why not just pick the winners? How hard can it be? It's actually super difficult. The more you dig into this, you'll start to see this. If you look at all the research on this, even for the investing pros or experts, it's extremely difficult for them to pick those winners. We talk a lot about this. I've done some shows in the past on passive investing, so we'll link to those. We dig into that a little bit more. Basically, having the winners or having those stocks that do really well in the past, it's been like Amazon and Apple. Those stocks have killed it. Having them in your portfolio or in your basket of stocks is pretty huge for a long-term success, but they're really, really hard. On the back end, they're easy to pick. But on the front end, they're very difficult to pick, even when you are super smart and do tons of research. Diversification is basically saying, I'm going to buy multiple stocks, many stocks maybe, maybe a ton of stocks, to help reduce my risks of underperforming the market. Now in passive investing, I mentioned that already. Passive investing is not exactly the same thing as diversification. Passive investing is more like a style of investing, approach, or philosophy. Passive investing is like the ultimate of diversification, which I'll link to that. If you're not clear on what that is, you can dig into that. Passive investing is a good example of diversification because it's basically owning everything. Let's look at a market-specific example. You could buy Zoom stock. I was looking at it. I was using Zoom, so it popped into my head. Zoom stock has done really well. Also, people have asked about it or looked into it. If you look at Zoom stock, and I just pulled it up for a year, it's not that you should look at a longer period of time, but the concept I think I wanted to make it'll be good for it. I just pulled up Zoom stock on Google Finance. The one year return as of when I'm looking at it now, which is May 2nd, 2022, and this is on Google Finance, was -67.02%. It's had a rough year or 12 months ending today. I guess this is as of the minute. Google Finance is pretty cool because they have a very good tool to look up stocks, securities, and mutual funds. You can just type in the ticker, or Zoom stock quote, or whatever, and it'll go straight to that. I think it's showing you the return one year as of the most recent quote today, so it's changing. It's already down. It's 66.82% now. It's changing as I'm talking, which is funny. Anyway, it's way down, it's 60%+ down, we'll say, over that one year period of time, which is pretty lousy. Obviously, that's a killer. Now if you look at the Vanguard Information Technology Fund (VGT), that's a good kind of tech sector. It's more of like a big basket of technology stocks. That's a really good example of company diversification, not sector diversification, because you're just buying a tech ETF. It's just a bunch of tech stocks. If we're comparing Zoom stock and we look at a technology sector ETF—I'll use this ETF called QQQ. It's basically a pretty good slice of the technology sector or whatever—it's not nearly as bad. It's down, I guess. As of one year, it's like 6% or so down. When you compare those two, it's much less volatile. Basically, you're owning the entire tech sector. You're diversifying away from that company-specific risk. I'm not sure what's happening with Zoom, but they've had a rough stretch, obviously, since after the pandemic. Before the pandemic, they had a big upturn, but since then, they've had some downturn. Owning a technology sector ETF is going to be a way to diversify away from that company-specific risk. And then you can go further with it. You can say, okay, well, if diversification is helpful, why not own all the different sectors so you can buy the Vanguard Total Stock Market. For investing in the US, that's very well-diversified. Basically, the intent is to own the entire US stock market, so it's going to own all the sectors. Since you're able to diversify not only away from those company-specific risks but also industry-specific risks. It's the best way to reduce that unsystematic risk and ultimately will provide better outcomes. If you're on board with that approach, I think the common question is, how do I actually do this? I think the first thing is to look at what you're investing now. Also, on top of educating yourself on just this, you can dig into this concept a lot more. I'm still scratching the surface. It's good to educate yourself on the topic, especially if you're not familiar with a lot of this stuff. But once you feel good about it, you start to look at your specific situation and understand what your overall percentage of types of investments looks like. They call it asset allocation. What percentage of your total investments are in stocks or bonds? What types of stocks do you have? Do you have technology stocks? Do you have real estate? Do you have whatever? Are they big companies or small companies? That's a simple thing, understand your asset allocation. That's a good small step to see how you're doing on this whole diversification thing. You might be thinking, how do I do that? An easy way to do that, it depends on what you own, but hopefully you own either ETF, a mutual fund, or a stock. If you own a mutual fund, ETF, or stock, it has what's called a ticker. That's a letter abbreviation of the fund. You can google it. That's probably the easiest way. Let's say you own VTI, that's one of the biggest ETFs. You can google VTI. Click into Vanguard and it's going to have pretty good info. Let's do this. I'll show you a good way to do it that'll work for any type of ETF stock or mutual funds. You can go to a website, morningstar.com. Morningstar is nice because it's a free to the public website. Anybody can get on it. Go to Morningstar. At the top, it has search quotes on it. You can type in VTI or if you're not sure what the ticker is, you can type in Vanguard Total Stock Market, and then you just have to pick whether you have an ETF or something else. If you have the Vanguard Total Stock Market ETF, you click that. That's going to pull up their summary of that particular fund. You can click on to portfolio. When you scan down a little bit, you'll see a tab for portfolio. That's the one to look at, I think, if we're talking about how well it's diversified. I'll show you a few helpful things to look at. If you go scan down a touch, you'll see on the left asset allocation, and on the right, stock style. The asset allocation will tell you how much of it is US versus international versus fixed bond–type investments. This investment, the Vanguard Total Stock Market, is basically 100% close to 100% US stocks, which makes sense. Now on the right side, stock style, you can see this map. I like to click weight, switch it to weight. You'll see that's the percentage of each category that you have. I don't know what they call this thing, but it's nine boxes showing which. If you look at the top left, that's basically showing you own 15% large cap value. Those are larger companies that are categorized as value companies. That's one of the things you can categorize by when you're looking at diversification. Then medium is in the middle and small is on the bottom. For diversification purposes, you're looking for a general spread across this. You definitely don't want any one of these categories. That'll show you the size, spread, and the value versus growth spread. Then you can scan down a little bit more. Scan down to exposure on the left and sector. You can see what percentage this particular ETF owns between technology, financial services, real estate. This ETF owns 25% in change of technology stocks, and then it owns 13%, financial services. Then three, almost 4% real estate. A lot of people don't realize they own real estate within their fund. You want this to be spread out. You can look at all this stuff, but the last big thing I typically take a peek at is holdings right below that. You can see equity holdings listed there as of the most recent date. This particular fund as of March 31st, 2022, has 4119 equity holdings. That basically means this fund, when you buy it, you're going to basically own over 4000 individual stocks, which is great. You want a high number there. If you're looking to diversify, you want a big number. Some of these mutual funds have 50 or less stocks. That's much, much less diversified. If you're going for diversification, higher numbers are generally better. It's also interesting. Sometimes, if you're curious more specifically, below it, it'll show the holdings. A lot of people don't realize they own all these stocks, like you're going to own Apple almost 6% in this fund. You can look at each of those funds that you own and see where it's invested. You can do a spreadsheet and say you own four funds, and you have the dollar amount, and then you can plug in which asset class each of them have, and how many securities they have. All those metrics I just pointed out, you could map that out on a spreadsheet, and then pull that all together. There you have it, you're going to have a very good view of how you're invested, how well it's diversified, what your asset allocation is, all those sorts of things. That's a good exercise, especially if you're doing this yourself. This is the way you really want to be. If you're working with a planner or if you're working with us, it's more of making sure that's something that's being addressed and understanding it, or asking questions, or having the education level to know good questions to ask, that sort of thing. Any of you guys that work with us, feel free at anytime, bring this up and we can dig in as much as you'd like. It's good either way, I think, to understand the basics. If you need to make changes, say you go through this and maybe you own three stocks or something, if you own three individual stocks, I think it's obvious. It will probably be a very good idea to diversify, own maybe more than three because you just don't really know. You have to be careful with it in some instances. Don't just sell everything and go buy new stuff. Make sure you're keeping an eye on the tax consequences. That's one thing, especially if you have it in a taxable investment, if it's not in a retirement plan. There can often be tax consequences when you sell things. Just be aware of that. Talk to your accountant or talk to your financial planner before you just go selling stuff. If you're working with those people, lean on them. That's the big thing. It's saying, what does my asset allocation need to look like and am I in line with that? That's really what it comes down to. How well am I diversified? It would be good to see that. Then, what are the categories of how it spread. Is that as efficient as it needs to be? If you need to make changes, you're just making changes over time. A lot of people have anti diversification, I guess. I don't know. At least, maybe they don't say it that way, but a lot of this stuff that's out there is against diversification. Some of the questions we see come up, I wanted to throw out and talk over briefly. I've heard the question posed of, is diversification going to make it harder for me to hit goals? Maybe I'm not going to hit any homeruns, because diversification is hitting a single and a double. It's like a base hit. The question would be, well, maybe I want to go for homeruns because striking out is bad, but if I go to bat enough times, it will eventually work out good. With investing, that's not really true. I'm talking to a group of you all. There's maybe one of you. I'm sure there's someone you've talked to before that hit home runs and just crushed it with not diversifying, like picking winners. But if you look at large numbers of people, even super smart people that know what they're doing, it's incredibly difficult to do well not diversified or just hit a home run. Since I'm talking to a group of you all, no question. Diversification is actually going to make your goals easier to hit. One of you might get lucky, or whatever, or hit that home run, but the bulk of you all will be better off by diversifying, actually. It will make it easier to hit those goals. It's common to hear this from a buddy that just had something good happen. It's like, my buddy just bought Gamestop stock, so I want to try it out, too. Before you go about doing something based on a contact or a friend, consult with the research. Do some homework. Odds are, your buddy doesn't really know what he's doing. He just got lucky. It's not like winning the lottery lucky. If your buddy made some money buying stocks, that's not like going to the track and hitting it big, or winning the Powerball or whatever. It's more like speeding and not getting caught. If you speed enough, you're going to get pulled over, but not everybody. You know the person that just has not gotten caught and you're like, dude, you're going at 50 over. The researchers would all agree that would be luck. A lot of it is luck. There's always going to be that person, though, that hits a home run, even though it is luck. Another question that comes up is, is cryptocurrency a good way to diversify? Cryptocurrency is interesting. It's still so new. We covered it a while ago. I'll link to that in the show notes. It's a very new thing. The verdict is still out as to how that's going to shake out. I guess you could call it maybe a sector, but it's not a traditional investment in the sense of there's no underlying business. You're investing in a currency-ish. It's more in the category of currency or really, I guess, NFTs (non-fungible tokens), those types of investments. It's a very new type of investment. There's a lot of uncertainty. The verdict is still out. I guess it could be a potential new way to diversify because the diversification works really well when you find different things you don't already own and you own them as well. Cryptocurrency could be an additional way to diversify, but I'm not sure of that yet. I think it's really early and I think time will tell. What about diversifying into passive investments like real estate? That's a question that comes up a lot. It's like, I get the whole diversification thing, so let's take it to the next level and let's diversify into my local real estate market. It makes sense on the surface, but in reality, that's actually going the other direction, away from diversification. Most people already own real estate. They don't realize it, but they own real estate in their investment funds, like within their investment funds. Like I was talking about earlier, the Vanguard Total Stock Market owns real estate. Most people already own real estate, they just don't realize it. Most people own it as passively as you can own it, which is just in a fund. What I mean by the other direction, if you're picking one particular market, in one particular city, in one particular type of real estate like long-term rentals, and you're deciding to invest in that, that's the opposite of diversification. That's picking one stock. It's like going all in one specific direction, as opposed to owning all sorts of real estate. The difference between owning real estate like this, like I'm talking about, like directly owning it, is that you are more actively starting to participate in the business. That's a little different. I think the same question comes up sometimes. It's like, what if I'm investing in my business? That's different because you're involved in it. At least in my view, I'm a huge fan of diversification. The exception I give is for my own business, really. That doesn't mean I'm not going to diversify my business, but I am okay not being nearly as diversified in my own business because I'm directly involved in it. I have my finger on the pulse. If I'm going to go away from diversification, it's going to be in something I'm actively involved in, as opposed to just picking a stock that I have no involvement with. All right, that's diversification. I know we can go a lot of different directions with this. I'll leave it up to you guys. If you want to dig into different topics or go different directions on this, feel free to reach out. I appreciate the questions you all been throwing out. I'll continue to take those in, and as they come up we'll cover those topics. All right, as always, good catching up. We'll see you next time.