Editorial Note: We earn a commission from partner links on Doughroller. Commissions do not affect our authors’ or editors’ opinions or evaluations. Learn more here.
It all started with a simple question about dividends and mutual fund fees. A listener to the podcast named Stephanie wanted to know if a fund’s returns were after fees and dividends. (They are.) After I learned more about Stephanie’s finances and career through several email exchanges, I popped the question. No, not that question. I asked Stephanie if should would be willing to share her story as a guest on the podcast. Today’s episode is my interview with her.
In this interview, you’ll learn that Stephanie is a doctor. We’ll discuss everything from how many years of school it takes to become a doctor, to how she paid for it, to how she invests her money today.
Topics Covered in the Interview
- Stephanie’s years in medical school
- How she began investing
- How she paid off her school loans
- How she found bank accounts she didn’t know she owned
- Her approach to asset allocation
- What tools she uses to manage her money
- What tools she uses to manage her investments
Resources Mentioned in the Interview
- Women and Money by Suze Orman
- You Need a Budget
- The Motley Fool
- The Wall Street Journal
Transcript of Interview
Rob: Stephanie, welcome to the show.
Stephanie: Hi Rob. Thanks so much for having me.
Rob: I appreciate your time. As I mentioned before you came onto the show, you had been listening to the podcast and we started emailing back and forth on investment topics, and one thing led to another. We had to work out our schedules, but I’m grateful that you’ve taken some time from your busy day to share with folks how you invest and what you’ve learned.
Why don’t we start with you giving folks a little bit of background? As much or as little of your background you’d like to share.
Medical School and Student Loans
Stephanie: I’ll give you a snapshot, I guess. In college I studied engineering – biomechanics – which, I think, is actually excellent preparation for medical school for teaching critical thinking skills. I always knew I wanted to be a physician. My dad is a physician, and I really love the field. I went from college to medical school in Boston and I had a fantastic time.
Medical school is actually a lot of fun. It’s a lot of work, but you’re learning so much. You’re working with great people. It’s very exciting. But medical school, as you know, is very expensive. I was extremely lucky to have parents who could help pay for college, so during medical school I actually did take out some student loans.
I had subsidized and unsubsidized loans. The medical school I went to had both research assistant positions and teaching assistant positions that would help cover the cost of tuition for those years. So I think for maybe four semesters of med school, I probably had my tuition paid by working which is a great deal, by the way.
Then, of course, the last few years in medical school you’re in the hospital doing rotations, so you don’t have time to do anything except those rotations. I finished medical school and started residency, also in Boston. I could not afford to pay— I think my loans went into forbearance rather than deferment.
The deferment period ended about 6 months after med school and at the time I didn’t actually know what forbearance or deferment was. I was completely and virtually unaware of the rules of how loans work. And—
Rob: What is the difference?
Stephanie: Well, deferment is when they’re not accruing any interest. So they give you a 6-month grace period. And they’re deferred while you’re in school too, so at least the subsidized loans… I think the unsubsidized are always subject to interest. I could be wrong—
Rob: No, I think you’re right. Deferment is where they defer the interest. You’re not accruing interest.
Stephanie: Right. And forbearance, you don’t have to pay the interest. You don’t have to pay the loan, but it’s accruing interest the whole time. So when you do start paying, there’s a lot more to pay.
Rob: A very important distinction.
Stephanie: Yes. And one I learned later!
Rob: Oh, so at the time you didn’t appreciate that distinction. Okay.
Stephanie: I’ve got to tell you: my dad and my brother are actually both very financially savvy, and I think they assumed that I was equally as financially savvy. And I was not at all. I remember the day after I graduated from medical school, I bought my first car. I bought my first house (it’s actually a condo). And suddenly I was a physician.
I’ve got an MD after my name. And I was thinking, “Wow, I’m a grown-up now. I really made it here.” And I remember thinking that the mortgage was probably the thing that made me feel the most grown-up — binding you to 30 years of…
Rob: That’s funny. I remember the same when I got my first credit card. It’s funny how your attitudes change. How were you able to get a condo as soon as you graduated?
Stephanie: That’s interesting. It’s a combination of (you’re going to laugh at this) my baptism bonds. I’m Greek, so a baptism bond is almost nearly as large as a wedding. The traditional thing when I was a kid were those bonds as gifts, and they were all matured, I guess is the word?
Stephanie: But really, what I used was what was in my Roth IRA contributions. It’s the Roth IRA that my dad opened on my behalf. Whenever I worked in high school or even in the summer jobs that I had in college, my dad would match what I earned up to the limit that you could put into the Roth, and he would put it into the Roth for me.
He told me about it, but again, at that time I was completely unaware what that meant. That money had accrued in the years, and I was able to take the contributions out to help with the down payment. Between that and my baptism bonds. I think my parents gave me a gift of $5,000 to help me.
Rob: It’s fair to say that you had a lot of help.
Stephanie: I did. Oh, my goodness. There’s no way I could have done that without a lot of help and a lot of foresight from my dad, really.
Rob: But you were also working hard. I mean, you had a four-year degree in engineering and then you had four years in medical school as well. You see, lawyers don’t have to be as smart. We only have to go three years. You did four years of medical school and then how long was the residency?
Stephanie: Residency depends on the kind of doctor you are. I’m a subspecialty with internal medicine and a lung and critical care doctor. The residency in internal medicine is three years (at least currently). Surgery might be five to six years. Each specialty has a specific amount of time to be prepared. And then, the fellowship that I did after residency is what made me a lung and ICU doctor, and that was another three years.
Rob: Wow. So is that the typical course? You have the undergrad, you have medical school, you have residency… Do most doctors then go through some form of a fellowship?
Stephanie: If you want to be an internist, you don’t do a fellowship. That’s the basic. If you want to be a general surgeon, you do surgery. If you want to be an OB-GYN, you do OB-GYN residency.
If you want to be a cardiologist with a subspecialty in internal medicine, you get a fellowship. Same goes if you want to be a kidney doctor or a lung doctor. If you’re certain that you want to do vascular surgery, that’s another fellowship on top of that.
Rob: So you did three years of residency and three years of fellowship?
Stephanie: Yes. That’s the reason why we like to call ourselves ‘professional students.’
Rob: Yes. That’s 14 years if my math is right. Fourteen years of…
Stephanie: Yes. And then the whole time — I mean, you do get paid as a resident and as a fellow. It’s not huge, but you sort of feel like a student the whole time. You’re still training. And my brother, who’s in finance, went to college and had a job right away.
He was sort of shocked at how little I understood about workplace retirement accounts. And I was like, “I never had one. I’ve either been a student or…”
I think under the tax law where we are residents we were considered to be like apprentices. In fact, we got a FICA refund a few years ago. There was a big issue against the IRS for taking FICA out of our paychecks because of the fact that we were “apprentices.” I don’t know if that is the right word, but we weren’t wage employees at that time. I have a whole lot of other stories we can talk about.
Rob: Okay. So before we move to your investments and how you’ve — Like you said, you came out of residency and fellowship and your background was not in finance, so I kind of want to walk through all of that. I’m curious, when you were a resident… I’ve heard that the shifts can be whatever. You’re there are two or three days… Is that true or is that just urban legend?
Stephanie: It’s better now. There are work hour rules that cover all of us from the United States. It was conveniently passed right after I finished medical school or residency. But now there’s an 80-hour maximum workweek. There were no restrictions when I was a resident and sometimes in busy blocks like the ICU, we’d work for 90 to 100 hours. Looking back, it’s just insane.
Stephanie: We would be on the call every third day, which means that you work the whole shift on Monday. Then on Tuesday, you again, work the whole shift. A whole shift is about 12 hours, mind you. Then the next day you come in and work for something like 30 to 36 hours — overnight until Thursday.
Rob: So it’s a lot of work.
Stephanie: It is a lot of work. Not every rotation is like that, just so you know. We have outpatient rotation that is 8 AM – 6 PM or 8 AM to 5 PM.
The Affordable Care Act
Rob: Right. So before we get to investments, I have one last question. Do you have a strong opinion about the Affordable Care Act?
Stephanie: I don’t know if I have a strong one. I’m still waiting to see how it’s going to work. I do agree with you. I think that in one of your podcasts, you mentioned that the whole ‘no pre-existing condition’ clause was absolutely necessary. I can’t believe we made it this far without it.
I have women friends in their mid-30s who were refused insurance because they had abnormal pap smears 12 years ago, and that is just unacceptable. The more we learn about medicine, the more everyone is going to have a pre-existing condition.
Rob: The thing there is I think it’s an important part of what needed to change. What I don’t like about the way it changed is that the costs are not very transparent.
Stephanie: Oh my goodness. I totally agree. I have patients who ask me questions about it, and I will say that in Oregon the exchange where you get your insurance was a huge fiasco. But finally it seems like everyone’s on board. I’m at a university hospital, and we give a lot of free care.
We take care of people with zero insurance and that’s what university hospitals do. We have definitely seen a lot more patients who are now involved in our Medicaid which is great because it’s a lot easier to get people the services that they need even with a little bit of insurance.
Rob: Is Oregon one of the states that increased the Medicaid limit?
Stephanie: I don’t actually know the answer to that. You know, I guess the idea (which we have to see if it works) behind the Affordable Care Act is if people are insured, they will actually go to the doctor for preventive care. I don’t know if that’s true.
Rob: Yes, that is the theory.
Stephanie: Yes. I will grant you this… I mean, I work in the ICU, and we definitely see patients who are very poorly insured who show up very, very sick for things that probably should have been seen to earlier. But I don’t know if there is a direct correlation between having insurance and going to the doctor. I’m sure that they have other reasons to not go for primary prevention. We’ll see.
Starting to Invest
Rob: Right. That’s interesting. Okay, well, let’s sit down in the investing path. So I know from your emails that your first retirement plan at work was a 403(b), which is basically like a 401(k). There are actually some historical differences. So a lot of listeners have been there.
They get a new job. They sign in to the 403(b) or 401(k) and there’s a list of 10, 20, 30 investment options and their eyes glaze over. So how did you figure out how much you were going to invest? Maybe you just maxed out your 403(b)? But more importantly, what did you actually invest in? How did you figure that out when you were just getting started?
Stephanie: It’s actually kind of difficult because I moved across the country. I had my first real job. We had two different retirement plans because we had two different payers at that time, which is now gone. One was Diversified and one was Fidelity. And so I had two separate groups of funds to choose from.
When I first moved here, the hospital I worked for had a financial advisor who was on salary. All new hires can basically meet with that financial advisor if they wanted to. He was actually quite good at laying it all out for me and giving me options. But really, my brother sent me an email saying, “Talk to your financial advisor about this” and I said, “You are my financial advisor, right?”
He sort of walked me through a bit of it. Basically, the whole idea behind retirement accounts is no one is responsible for your retirement but you. If you have Social Security, that’s great. It may or may not exist the way it does in the future. It probably will not be the same way. So if you want to get to retire, and you don’t want to work until the day you drop dead, you really need to be thinking about this.
And he gave me some articles from the Wall Street Journal and I read from Suze Orman’s books. She has a very, very basic one called Women and Money. It’s embarrassing to think how little I understood about finance. It sort of starts with ‘What is a checking account?’ and ‘What is a savings account?’ But those sorts of things tell you about compounding and how that works, and I’m fine with it. I know math.
Rob: Do you find her book Women and Money to be helpful?
Stephanie: I did. Again, it’s very, very basic. But that’s exactly where I was in my early 30s. My brother and everyone else figure this out in their 20s. But when you’re in medicine, you live in this sort of insulated little bubble—
Rob: And your brother’s advice about nobody being responsible for your retirement but you is tremendous advice. I couldn’t agree more with that.
Stephanie: I never thought about it that way. Honestly, he kept saying little things like, “We should get you in the market soon.” I was like, “Yes, yes. Someday.” And then I realized that it’s not a “should be” it’s a “must be.” It was not an option.
Rob: Right. So when you made that realization? You read Suze Orman’s book Women and Money. You got Diversified and Fidelity to choose from. How did you pick those first investments?
Stephanie: I went through… Honestly, my brother told me to look at the expense ratios. And I started looking at some of them. And this is how he explained it to me (and I don’t know if this is helpful or not). But he said people often pick a fund they think is doing well. Just because it’s done well in the past doesn’t mean that’s going to do well in the future.
Remember that the expense ratio (let’s say at 2%) is taken off of what you’re earnings are. If the fund is at 10%, you lose 2% out of the 10%? He said, “No, no. That is 2% out of the 10%.” So you’re actually going to make 8%. So they literally skim a huge chunk if you think about that. For an expense ratio of 2% and you earn 10%, you lose a fifth of what you should have earned.
Rob: That’s true, by the way, if the return was negative 10. They still take their 2 percent cut.
Stephanie: Oh, I didn’t think of it like that.
Stephanie: So for me, he actually turned me on to index funds. I didn’t have any index fund options.
Rob: Right. Not a single index fund? Okay.
Stephanie: None in Diversified. In Fidelity, we did.
Rob: I see.
Stephanie: That’s why I was really excited when we got to move everything to Fidelity. I think Fidelity is doing a fantastic job improving our options each year.
But for the first year, I think the lowest expense ratio in my other funds was more than 1.5%. Nowadays, it’s like 3.5%.
Rob: Wow. Highway robbery, that’s what they call that.
Stephanie: Yes. That’s what it feels like.
Rob: Okay. So you got everything to Fidelity. Still, how did you pick your investments?
Figuring Out Asset Allocation
Stephanie: What I did was I have… I don’t know if this is more aggressive but I have 40% in international and 60% in domestic. Maybe it’s 35% to 65% when I think about it.
I found S&P index funds, and I’m trying to log-in right now back into my Fidelity account. It’s the Spartan one.
Rob: Yes. That’s your S&P 500 index fund.
Stephanie: We made a small-cap one. We have a mid-cap and a small-cap. I think the mid and small-caps are Vanguard mid and small-cap. You know, Total Stock Market, I think is one of them where they have them offered. And of course, Vanguard has very low expense ratios.
Stephanie: So that’s what I did for the domestic ones. At that time, to tell you honestly, I had no idea what mid and small-cap meant. I mean, I can’t believe how little I understood about those things.
Rob: When I started investing, I didn’t know the difference, either.
Stephanie: Well I will tell you a little embarrassing side story. I emailed my brother one day when I was brand new to learning. He was sending me articles.
I think I emailed him something like, “What is the difference between a mutual fund and a money market account?”
He was like, “They start with the letter M, and that’s about as much as they have in common. It’s like comparing an apple and a giraffe.” And so that’s when he started sending a little more basic articles.
Rob: It sounds like you started with an asset allocation plan, and you wanted 60% in domestic and 40% in international. You just picked specific investments to execute that asset allocation plan, and your focus is primarily on index funds.
Stephanie: That’s pretty much it. I mean, right now, I have Vanguard Total International Stock. I have Spartan 500 Index and Vanguard Mid-Cap and Vanguard Small-Cap.
Rob: Did you start with everything in stocks or did you have anything in bonds?
Stephanie: No. It was completely in stocks. I didn’t know what bonds were. I remember reading asset allocation things. My brother was always saying that I’m just getting in the market right now so I got to have a 25 to the 30-year horizon so I want to be in stocks. You have time to have risks. And this was in 2007 or 2008.
Rob: Just in time for a bad market.
Stephanie: Exactly, yes.
Riding Out the Rough Times
Rob: Okay so you’re just starting out. You’re in 100% stocks. You’ve got a lot of years to invest. I’m just curious, when the market tanked, how did you react?
Stephanie: Well, when the market went down and crashed, my brother basically reminded me (on a weekly basis) that you want the market down when you’re just getting in. That’s the best time ever to be down because you’re basically getting everything at a bargain rate.
So I had the ability to actually put more into my 403(b) and a greater percentage of my salary at that time. Certainly by no means that I had maxed it out, but I tried to push a little bit more into it. And again, it’s much easier to be calm during a crisis when you don’t have very much in the market.
I’d been in for a year. I wasn’t watching hundreds of thousands of dollars go away. It was five or ten thousand, which is still a lot of money. But it’s not nearly as scary as it would be had I put in more money.
Today, I’d still be very nervous, although I have to say that going through that immediately after getting into the market taught me to be very smart. It taught me a very strong lesson about riding it out and about sticking to your asset allocation.
Rob: Right. It is a good lesson to learn. If you’ve gone through it, you don’t ever forget it. It really teaches you a lot about who you are as an investor.
Stephanie: You know what? The people I worked with at the hospital… When the market was down, they were taking everything out. And I thought, “If you take it all out, you lose all that money and you’re not going to get it back.”
And they’d say, “But, if the market keeps going down…” If you really think that it’s the end of the United States — I mean, if the market never returns and there’s a general collapse in our economy – our nation’s economy – and it’s damaged beyond repair, I’m not betting on that one.
If the market does collapse completely and the country goes to pot, why is money going to be helpful? What makes you think money is going to mean anything in that kind of situation?
Rob: Yes. And if you think historically, even with all of the things we’ve been through (The Depression, World Wars), the country bounces back. They’re not easy times, of course. I imagine the friends who took their money out of the stock market later regretted it.
Stephanie: Yes. A lot of them did. I think a few of them managed to get back in at a good time. Like you said… I think it was in another good podcast I listened to last night, or one of the podcasts in the last few weeks that you mentioned, if you’re very, very lucky twice, that will work for you.
Rob: In each market cycle, you have to guess correct twice – when you pull it out and when you put it back in. And over a lifetime of investing, you’re going to have to do that many, many times, and I’m just not that smart.
You mentioned that you invested some Vanguard funds through your Fidelity account. How do you do that?
Getting More and Better Options
Stephanie: There are options. There are all within the 30 options that we had.
Rob: Okay. That is interesting.
Stephanie: I think what happened was, luckily, there are a lot of very smart people I work with who are more vocal and have been bugging our HR to improve our options. Each year, they do. They give better options.
Let me see if I can pull it up here. We have 30 different options. Here they are. We have the Fidelity Freedom Funds, which are the targeted retirement fund.
Stephanie: If you retired in 2000, 2005, all the way up to 2050, I think. Gosh. And then, there is the . . . which includes the Spartan 500, the Vanguard Mid-Cap, Vanguard Small-Cap, the Internationals, the Total World Stock Market and the Vanguard Total Bond Market. And they are all Signal Shares.
Similar to invest Admiral shares but not quite. And then there is the Core Active which has social, equity investment and the Contra fund. Actually, I don’t understand what half of these are.
I used to be in some of these, but they have much higher expense ratios. Honestly, that’s one of the bottom lines for me. I want something that I’m sure is going to beat its index which I’m never sure of with index funds.
Rob: You mentioned that you started out at 100% stocks. Are you still at 100% stocks?
Stephanie: Not exactly. So now, I have 90% stocks and 10% in what I call ‘Other.’ That includes real estate and bonds.
Rob: REITS and bonds. Okay.
Stephanie: I have REITS. And I have something from Vanguard that is not a REIT, but is a real estate fund. We’re not allowed to have REITS within our— It’s not an option with my brokerage, let’s put it that way. There are some rules about what is and is not allowed in our . . .
Rob: Your connection broke up there just a little bit. I missed that.
Stephanie: Oh. Sorry. Better?
Rob: Better now.
Stephanie: What I’m saying is that there are different options within… Sorry, the BrokerageLink that is associated with my 403(b) doesn’t have access to REITs.
Rob: BrokerageLink is a Fidelity term. It’s a way you can invest in things in your 403(b) other than what your employer lists for you. It gives you access to other investments. Is that right?
Stephanie: Exactly. It works just like a brokerage account, only with limited options.
Leveraging a Roth IRA
Rob: I got you. Okay. Now, I know that you also opened up a Roth IRA (and maybe this is a continuation of what your father had started for you).
Where did you have that? Where is it now? And how did you pick investments for your Roth IRA?
Stephanie: Yes. I think it was originally with a bank in . . . so suddenly I have a Roth IRA at the Bank of America. I ended up losing it to Fidelity just to consolidate. And then, I had a traditional IRA and that ended up with some Vanguard.
I had a traditional IRA . . . Vanguard and a Roth IRA with Fidelity. This year, I converted my traditional IRA to a Roth at Vanguard. So now, I have two Roth IRAs.
Rob: So with your conversion from traditional IRAs to Roth, will you owe some taxes?
Stephanie: I will.
Rob: How did you make that decision as to whether that was a good move to make or not?
Stephanie: It was tough. And actually, I remember listening to your podcast talking about converting your . . . I really had to get my head around the fact that I can’t just… If I have a pot of money . . . choose just . . . For me . . . sort of a certain percentage every time I wanted to convert to Roth was really complex.
So before I put any money into a post-tax traditional IRA, what I did was turn the whole thing over. It was under $20,000, maybe close to $15,000. I’m going to have to pay taxes on that. But, it cleans the slate for me in a way that gives me a lot of peace of mind.
I don’t have to think what’s going on, like, when I convert this, is it going to 40% or 60%? It’s done. Everything now outside of my workplace . . . is in a Roth. This year, I managed to cash some money from traditional and immediately converted it to Roth.
Stephanie: Hey Stephanie. I’m going to stop the recording for a second. You’re breaking up off and on, and I think the problem is with the way I’m calling you which is through Skype, but it’s the only way I can record.
So let me… I’m going to hang up on you and call you right back. Okay?
Rob: All right.
Rob: Let’s see how this works.
Stephanie: I’m sorry about that.
Tools to Track Investments
Rob: That’s okay. Let’s just pick up where we left off. So how do you track all of this? Do you use tools to track all of your investments? You have your 403(b). Is the Roth that you converted still at Vanguard?
Stephanie: Yes. And actually, I also have a 529 Plan for my niece at Vanguard, too. So that’s another account that I have there.
Rob: And do you have any investments in taxable accounts?
Stephanie: As of this year, I do. That was one of my financial goals. Every year, I come up with some basic financial goals, whether it’s saving money or a down payment for a house or paying off student loans.
And this year it was to get my tail into the water with a brokerage account outside of my retirement accounts. I started listening to your podcast right around tax time. Of course, that’s when everyone starts thinking about money. And that’s when I sort of got myself into— I wanted Ameritrade.
Rob: And why did you pick the Ameritrade?
Stephanie: I actually already had one there. I don’t how I opened up… I had a Money Market account with them. And since I already had it with them and they have brokerage options, I figured that it was simple to do it that way. So it was really more of an ‘it was already there.’
I think I opened the Money Market account with them with some promotion that they had where, you know, they match you for a certain amount of money. It’s been there a few years ago. It’s just sitting there quietly.
Rob: So is this TD Ameritrade?
Rob: Okay. Are the investments in your taxable accounts mutual funds as well?
Stephanie: No, they’re ETFs.
Rob: Okay. They’re ETFs. But you’re not investing in individual stocks?
Stephanie: Not yet. I haven’t sort of… Well, again, like I said, I’ve never bought individual stocks. ETFs make me feel like I’m buying a slice of an index fund, which I’m not very familiar with. Ameritrade I think owns their own, which have commission-free ETFs, so I chose within the commission-free ETFs.
Rob: Why did you pick ETFs as opposed to just sticking with mutual funds?
Stephanie: It seems like they’re tax-efficient.
Rob: Yes, they can be.
Stephanie: I’m still getting my head around it. They actually sent me a great email about how to find the tax cost ratio at Morning Star. I actually used that before I put anything into my Ameritrade, which is great. Thank you.
Rob: I’m trying to think. I mentioned that tool, I think, in yesterday’s podcast. I’m losing track of numbers. I think it’s Podcast 85.
Yes, ETFs are generally more tax-efficient than mutual funds, although an index ETF (which most of them are compared to a mutual fund index like Vanguard or Fidelity)…
Stephanie: They’re pretty close.
Rob: Yes, they’re pretty close.
Stephanie: Yes. That is what I found out.
Stephanie: One thing I love at Vanguard is that you can look up the fund and they automatically say the comparable ETFs. I love that.
Rob: All right. So you got a lot going on here. You have TD Ameritrade. You have Vanguard. You’ve got Fidelity.
So I have two questions for you. One is, I mentioned the tracking so why don’t we start there? How do you track all this? Or do you not use any tools to track it?
Stephanie: I have a finance spreadsheet where I basically… You know YNAB?
Stephanie: I sort of made my own little budget with the money going in and money going out. And I have a timeline which shows when my paycheck is going to come, when I have to pay my AmEx bill or my car payment or whatever.
I bring it up and make sure I have a look at it once a week or so just to make sure that everything is accounted for. And then on the spreadsheet, I have a section where I put in what my balances are in all my accounts like Ameritrade, Capital One 360 (where I saved for my house down payment), Vanguard accounts—everything like that. Then once a week I go in and put all the numbers in myself. Now, I use Empower.
Stephanie: It’s so nice because you’re talking about looking at your asset allocation across different things. There’s almost no way for me to do that by myself trying to…
“In my Ameritrade it’s 90% X and 10% Y. And then in my Fidelity, it’s 30% and 40% …” That’s was crazy. Now, I use Empower which is fantastic. Thank you for that.
Rob: I’m anal about this. I log-in almost every day. I’m curious, how often do you actually log-in and check your Empower?
Stephanie: Daily. It’s an app on my phone. On my way back from work — I actually check it at the end of my workdays, which is well after the stock market has closed. I always like to check my ‘You Index’ to see how my investments are doing relative to the market.
Rob: Right. Sometimes I’m happy to see that but sometimes I’m not.
Stephanie: Yes. But it’s nice to get an idea about what’s going on.
Rob: The ‘You Index,’ right?
Stephanie: Yes, it’s the ‘You Index.’
Rob: It’s funny. They calculate that in an interesting way. It’s kind of involved, so I won’t get through it all. I actually spent some time reading all of that…
Maybe I’ll see if someone from Empower will come on the show and explain the ‘You Index’ because it’s a little complicated. But it compares your returns to the S&P 500 or whatever.
Stephanie: To international, and bonds, etcetera…
Actually, one thing I really like, not on the app but on the actual website (I don’t go nearly as much as I go to the app), is that it tells you your expense ratio across all your funds. And I think you mentioned that. I managed to get mine down to under .09%. That’s what it is now.
Rob: Wow! Holy cow! That is tremendous.
Stephanie: They’re almost all index funds.
Rob: They’re practically paying you— nine basis points. That is fantastic!
Stephanie: That’s what I’d like to hear.
Rob: I have to look mine up. I’m sure mine’s not quite that good. I think it was under 20 basis points, and I was patting myself on the back. But man, you got the gold standard there.
Stephanie: I think back to when I had my ones and the expense ratios were at 1.5% to 2%. I was like, “Oh, my goodness.”
Rob: Yes. All right. The second question that I wanted to ask you is on how you track all this. You have different accounts going on (like many people do).
The second question is, do you worry about or think about asset allocation between what you will invest in your taxable account versus what you will invest in your tax-advantaged accounts?
Stephanie: I do now. Again, I didn’t have an investment account outside of my retirement accounts until this year. I didn’t really pay attention because all of this was growing either tax-deferred or tax-free depending if it’s a Roth or not. But now that I have some in there, I think I actually sent you an email, and you answered some great stuff with terms like tax cost ratio and other things like what should be not in my retirement account.
I think real estate and bonds funds that can give you a lot of dividends are better off in my retirement accounts where I’m not going to pay taxes on all those dividends. And things that are much less in dividends should be in my taxable accounts.
I’m a buy-and-hold person. I think I’ve sold once in the last three years. I’m basically just putting money in, and if I want to rebalance, I usually change what’s going in. Of course when you’re almost entirely in stocks, there’s not a lot of rebalancing to be done.
Rob: First of all, rebalancing in a tax-advantaged account like a 403(b) or 401(k) or IRA, you can move things around without tax consequences. That’s easy. So yes, I oftentimes rebalance. I’m doing that now.
I’m slowly trying to move a little more into bonds. I’m at about 18% to 20%, and I want to get to about 25%, given my advancing years. I try to do that with my contributions. I particularly try to avoid tax consequences and taxable accounts.
REITS, by law, enjoy certain tax advantages, but to qualify for that they’ve got to basically distribute 90% of their income in the form of dividends. That’s the reason why they generate…
There are a couple of things—not that I dive into REITS so much but there are two things…
First is, they throw a lot of income that if it’s in a taxable account, it’s going to hit you each April 15th they don’t have retained earnings. They can’t keep their money to invest in a new property, so they have to borrow.
So REITS are ones that throw off a lot of interest. Obviously bonds or dividends from bonds can do the same thing. So good. You mentioned student loans. Are you still paying your student loans?
Stephanie: I am happy to tell you that I’m not. I paid them all off about two years ago. That was a big step.
In fact, when I moved out here— When you finish your residency, your fellowship, your training or whatever, you get your first real job, and your salary goes up because you’re no longer working 90 hours a week and getting paid very little. My salary more than doubled when I came out here.
And the best piece of advice someone gave me when I finished is, “Live like you did when you were a resident, with a few extras. Use that money to pay your student loans, and do the things that you need to.”
Because, if you immediately start spending all your salary, you’re going to be in a bad position with all the loans and debts. We all have debts. I’m trying to remember anybody I knew from medical school who graduated without debt. It’s nearly impossible with the cost of medical school nowadays. And it’s only gone up.
Rob: How much is medical school a year?
Stephanie: Oh, gosh. I don’t even know anymore. When I was there, it was in the $30,000 range, and that was 14 years ago.
Rob: It’s got to be over $50,000 at the top schools. I didn’t mean to cut you off. I just want to give people a frame of reference.
Stephanie: Private school tuition is at $50,000.
Rob: I know law school is about $50,000. I went to Boston University, and I think its tuition now is $55,000. I think I paid $15,000, but that was in the 80s.
So you moved out, and the goal was maybe to enjoy a few extra things but try to spend money like you did when you were in your residency and fellowship?
Stephanie: Yes. I still had my beat-up car. I mean, I just sold my car this past year. It’s a 14-year old car, which I loved. I did not get a new car when I just moved out. The last thing I wanted was another loan. It was a serviceable car and was great.
I put the extra money that I could get into my student loan. Actually, at that time, that was before I understood about maxing out my 403(b), so I was putting money towards my student loan.
And then I— I think I told you in one of my emails that I actually came into some of what they call ‘found money’ through missingmoney.com.
There was this old bank account that my mother opened for me when I was a child – I think I was eight or nine at that time – that we had forgotten about. The states are obligated to hold on to the properties and money in perpetuity. They basically hold it and hold it until you can claim it.
And I think it was an old Roth IRA that I found in Boston using the same site. For that one, there was a requirement for me to show proof of residence like a utility bill and a bunch of other things so I could claim it.
This one, though, is easy though, because I was only eight at that time. They didn’t make me prove that I had a utility bill from where I lived.
Rob: Let me make sure that I get this straight because you’ve got to be the luckiest person in the world.
Stephanie: I know. I feel like it.
Rob: By the way, I have forgotten this but I remember now that you’ve mentioned it because it was one of the Money Tools of the Day that I mentioned in a previous podcast.
It talked about using missingmoney.com in finding your money. So you found your money not just once, but twice. Lightning does strike twice.
Stephanie: Actually, I found it all together. I first found the Boston one, and then the Massachusetts one. And then when I went back to look at it, I found the other one.
Rob: And then you found money for your brother?
Stephanie: Well, I just found that actually, and I emailed him about it just recently. Like I said, they just hold on to it forever.
Rob: You didn’t find any money for the Dough Roller, did you? Do you have anything for me? Nothing…?
Stephanie: No. I looked up your name but I didn’t see anything.
Rob: Seriously though, it’s a very easy-to-use website, and you can go quickly…
If you’re like me, you can get there quickly, put in your information, and be disappointed. Hopefully if you’re like Stephanie, you’ll put in your information, and you’ll find some money.
Stephanie: I encourage people to go more than once because they update it.
Rob: Well, I have to take that advice and check that again because it didn’t work for me the first time. I’ve got one more question. I appreciate your time today.
I still have one more question though on the student loans. So it sounds like there was a period of time when you were both paying off your student loans and contributing to your 403(b) and other investments. Is that right?
Setting Financial Priorities
Rob: How did you figure out between those two priorities? How did you figure out how much to put into your debt and how much to put towards saving?
Stephanie: Initially, I just put the same minimal amount that I had in my student loan. It took me probably six months to a year to figure out how my salary was going to work, what my actual take-home pay was going to be to change my withholding because as a resident or as a fellow, I had a lot of deductions, and I wasn’t making very much.
So I wanted to get a handle on my 403(b) and figure it out before started doing more. Once we got extra options in our 403(b) and I felt comfortable living off my take-home pay, that’s when I knew how much I could put in to start paying my student loan.
But really, I put in a little bit more each month. And I used windfalls to put it down. Like, if I got that money, I would put it down in a chunk. When I got a refund, I put it down in a chunk. I got tax refunds.
That’s how I ultimately paid it off. I think the year I got a FICA refund and my tax refund, it was enough to cover it. I felt so good doing that. It just gave me such peace of mind.
My student loans were 4.5% or maybe down to 4% when financed. I don’t know if that is high or low compared to today’s standards. I know that some of my friends who took out student loans have a 6.5% range. It’s a lot of money.
Rob: I think your approach is a good one. I know that some who suggest that you should pay off all your debt first or non-mortgage debt first. Unless your interest rates are crazy, I think it’s generally a mistake.
Some people could be paying off their student loans for 10 years or five years. You’re not going to invest and save anything. You took a really good approach, and it has obviously worked out for you.
So before I let you go, you mentioned Women and Money by Suze Orman. Any other books related to finance and investing that you’ve read that you think really resonated with you and you think others might enjoy?
Stephanie: I wish I could tell you. I do most of my reading online now. I read a lot of articles and other things. I actually read quite a lot of your articles. I haven’t actually sat down with a book since I’ve first started learning (mostly because of the timing).
Rob: How about websites and blogs? What do you like to read when you’re online? Where do you go for your financial learning needs?
Stephanie: Well, I love your blog now that I found it. I have gone to The Motley Fool, and they have articles that I sometimes find helpful. But I found out that when I signed up, I got a lot of ‘buy this investment’ sort of thing. I don’t like getting things telling me to buy or invest in something.
But I think that some of their basic articles explaining how things work are good. I also go to Investopedia. It breaks it down for me. And my brother sends me great articles from the Wall Street Journal.
Rob: Okay. Well is there anything that I haven’t asked you that I should have or is there anything that you want to share with us?
Stephanie: You know, actually, when you talk to the Empower people, see if they can make a feature where it will segregate out your Roth and non-Roth so you have a good idea of what your allocation is between non-taxable and taxable. That’s one thing I hope they would do some time.
Rob: I think they can do that.
Rob: Hang on. Yes. I’m trying to see it here. Do I have…? Is this my asset allocation? I’ve actually got my Empower account up. So for those listening, go to Investing, then go to Portfolio, then you can select Allocation. I’m looking at my allocation now.
It’s 40% US stocks, 30% international stocks, 11% in alternatives, 17% US bonds, a little bit of international bonds and some cash. When you get there, Stephanie, above the pretty box with all the colors that show you your allocation, you’ll see a dropdown that says ‘All Accounts.’
Stephanie: Let me see. Are you in Allocation?
Rob: Yes. Investing – Portfolio – Allocation and you see this pretty box.
Stephanie: Yes. I’m getting there.
Rob: It will be the page with the pretty-colored boxes. It says ‘All Accounts’ above it. If you click that, you can now unselect all these accounts and go and just pick one account.
Rob: It shows you your allocation just for that one account.
Rob: There you go!
Stephanie: Thank you!
Rob: Actually, I use that a lot when I’m doing my monthly update in my spreadsheet when I just want to look at my Roth. The way I use it most of the time is when I want to separate out retirement versus taxable accounts. The other way I use it is on the cash flow.
For those listening, if you’ve never used Empower, I recognize that this may not make a whole lot of sense, but if you do use it, this is a handy tool. If you go to Banking and then Cash Flow, what I can do is that by choosing the accounts that I want (I usually just focus on investment accounts), the date range and look at Income.
What it will show me is just my income for my investments. If you select All Accounts, it will show my paycheck because I connect my bank account. But if I just limit it to investments (and maybe that’s all you have connected anyway)… Like for example, I’m looking at my dividends and my interest that I earned in June.
It’s something which is so easy to forget about because you just reinvest it. Frankly, it’s fine to forget about it. You reinvest your interests and dividends. You don’t have to worry about them, but, like I said, I probably spend too much time on this than I should.
So I want to see a particular month when it’s the end of the quarter where more dividends are paid (June for example). It shows me my dividends and interests for the month. But again, being able to select the accounts is what makes that really happen. There you go! We’re good!
Rob: Hey Stephanie, listen, I appreciate your time. It sounds like you’re doing fantastic. Good luck with your career.
Stephanie: Thank you. Thank you so much for all the great advice and the fantastic podcast. I listen to it as much as possible and then I started re-listening to some of the older ones. I learn something new every time I listen to even your old podcasts.
Rob: Well, I appreciate that. It’s fun to do. And like I tell everyone, if there ever are topics or questions that you want me to cover, don’t hesitate to shoot me an email. I will be happy to do that. Listen, Stephanie. Thank you so much.
Stephanie: Thanks, Rob. Have a great day.
Podcast of the Article:
(Personal Capital is now Empower)