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What Dentists Want to Know — Listener Q&A #6 – Episode 136

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The satisfaction of paying down debt vs. the satisfaction of having cash on hand? And the winner is…

Reese and Ryan knock out another round of questions on this Q&A episode of Dentist Money™. Hear their advice on what to look for in companies that provide after-tax investment services. And, in the always a “hot topic” category, you’ll hear them discuss the trade offs between paying down debt versus building liquidity. Plus, there’s a new wrinkle in this episode as Reese and Ryan pull quotes from a social media discussion on the same topic—so you’ll hear how other dentists view the debt and liquidity conversation.

Podcast Transcript

Reese Harper: Welcome to the Dentist Money™ Show, where we help dentists make smart financial decisions. I’m your host Reese Harper, here with my trusty old co-host, Sir Ryan Isaac.

Ryan Isaac: Yeah, good morning!

Reese Harper: You, young blood, have thinned out your beard today, which I noticed.
Ryan Isaac: Well I also hoped you noticed that I thinned out the beard and left the thickness in the mustache.

Reese Harper: (laughs) I’ve figured that– you are kind of becoming one with the mountains lately. I see you living up there… have you chopped down a tree with your bare hatchet yet?

Ryan Isaac: In my backyard, literally I chopped down trees this week, because my new puppy needs a place to go to the bathroom, and she chose this under the thick pine trees in my backyard, and they had low-hanging dead branches, and so I had to go saw off some of them. Pine sap everywhere…

Reese Harper: Okay. You really are rustic!

Ryan Isaac: Well I did it, and at first I thought, “Well a mountain man has a beard for sure; that’s a given; that’s the stereotype, okay? And I lived the stereotype. But then, you spend more time in the mountains and you see the mountain bike riders and the hardcore guys… they have mustaches. So, hardcore mountain guys, they do beards, they don’t do mustaches. And then I think, “try not to take financial advice from a guy with a mustache, I dare you.”

Reese Harper: (laughs) it’s just serious? You take him seriously.

Ryan Isaac: It is! It’s serious. Let it happen for a little while. I’ll get a monocle eventually, and a pocket stopwatch.

Reese Harper: (laughs) I’m excited for the date you show up in a vest to work. A vest and a cane.

Justin Copier: Your only workout at the gym is woodchoppers.

Ryan Isaac: Yeah (laughs) that’s all I do. I chop wood, in a mustache, on a podium, in a cut-off flannel. Alright, well that’s a perfect segway to today’s topic. Today is Q&A! A special one.

Reese Harper: Q&A day! We got some really good questions that came in. Here’s what we’re finding: you guys are hitting us up more on online forums, and Facebook groups, and personal texts, and some people are not going to the site as frequently to submit questions through the button on the site (laughs). Like, the button is there… I think in today’s digital world, going to the site and submitting a question through the button is just a little far… we’re going to keep it there, because there are a few people, you know, there is six to twelve per month that are clicking it–

Ryan Isaac: It needs to be an app though.

Reese Harper: But we’re getting like 50x the volume from social, so what we’re going to do is we’re going to anonymize all of these comments and conversations, but we’re going to bring you in to some of the conversations that have been happening on social this week, and some of the conversations that have been circulating, and bring you into some of the comments that dentists have kind of put on there, because we think it would be interesting for you to hear both the dental perspective and our perspective on these issues. So, that’s what we’re going to do today.

Ryan Isaac: So yeah, do you want to give a little intro, maybe just some background– these are forums where you moderate. So you’ll post questions and start topics, or sometimes, people will tag you in comments, and you’ll chime in to some comment threads, and give some answers or opinions.

Reese Harper: Yeah, some of these– like, one of these in particular, I’m a moderator at the Dental Success Network, and the Dental Success Network is a great group that has come together to build an online forum through Facebook’s new product call Workspace, and ultimately, it’s just like a big Facebook group that has a ton of different channels with topics in it, and you can post questions, and I am the moderator over the wealth management area. But also, some of the questions that we’re going to highlight today, and that I’m going to discuss with you today don’t come from that platform: some of them are going to come from other Facebook groups that I’m just a participant in. Sometimes I get questions there, and Ryan gets questions there as well, and then a lot of times, we get questions just directly to us in our social feeds, and that’s what we’re finding: we’re getting more of the questions coming through social, as opposed to making people go through the long, lengthy journey to travel to a website and submit questions through a button.

Ryan Isaac: Which, if you’re one of the old school button-clickers…, and you just go to the “Podcast” tab and click “Submit a Question.” But that’s three actions, as opposed to opening your app and submitting the question.

Reese Harper: A lot of people are doing it that way. So, let’s start off with the first question that we thought as a good one for this week.

Ryan Isaac: Yeah, so the question was– someone was just saying, “I want to start an after-tax investment account, but what are the best companies to work with, and what are the pros and cons of those companies?

Reese Harper: Great question! This question kind of broke down into two parts: there was a thread that started going about platforms, like which banks are the best ones to work with, so let’s start with that, and then there was a little bit of question about product, like, “did you mean, companies, like, funds, or did you mean companies, like, the bank, or did you mean companies, like, advisors?” And I think it’s a good thing to break apart here, and just say, look, there’s a difference between the bank, or the custodian, the products, the funds, and the advisor.

Ryan Isaac: Let’s start there; start by giving us a general overview of what the job of a banker custodian is, just at a general level.

Reese Harper: Yeah, the bank, or the custodian, is going to hold your money and report on it using a sophisticated accounting back-office systems. So, that would be– Charles Schwab is a banker custodian; Fidelity is a banker custodian; TD Ameritrade is a banker custodian; Etrade is a banker custodian; there are dozens of banks, or custodians, that focus on holding money. And the thing that’s kind of crazy about this is this industry really didn’t even exist until probably like 1990–

Ryan Isaac: Yeah, it was all very proprietary. You go to one of three places to get a fund, but you pay the commission to the broker, who puts you into the stock. I mean, it was very closed.

Reese Harper: Yeah, like back in the day, you would have to go to the company directly to buy stock? Like, when there was no electronic market exchange, and no internet. Think about how you get physical pieces of paper from the company directly that gives you shares in their company, and you just, like, store them. I actually had an experience with a client where she found physical shares of IBM stock underneath a mattress that was years– I mean, it was like forty years old or something like that, and it was a very sizeable, life-changing amount of money that they just found in paper stocks that they didn’t know they had.

Ryan Isaac: I always hope to find that stuff. I don’t find that under my mattresses, or my kids’ mattresses (laughs).

Reese Harper: So, keep an eye out; go to some garage sales, you never know. Something tells me, though, that that wouldn’t make it to the garage sale box. If someone found something like that, they would start asking the questions; it looks kind of official.

Ryan Isaac: I don’t know… they have entire shows on cable tv about old stuff that gets found in garage sales, and storage lockers…

Reese Harper: Like your bitcoin jump drives that have, like, a billion dollars of bitcoin on it? Okay, so the banks and custodians, though, there are differences between them that I think are important. The main job you want them to provide is that you want them to be a really broad place to get lots of different investments to pick from; you want to have a breadth of investment offering that is really wide. The second thing you want is for them to have great technology for you to be able to execute trades quickly, to be able to report and track anything you want to see… see how your accounts are performing, track your taxes… what is another item that you care about with custodians?

Ryan Isaac: Well a lot of people talk about costs and fees, you know? Different custodians will give you different access to trade-free, or commission-free funds; different ones will have different cost structures, and annual fees; different banks or custodians will also have a different feel to their support and customer service. Some are kind of known for really excellent, high-end, 800-number customer support. You know, walking you through technology… they can’t give you actual financial advice, but they can walk you through a lot of the process that you’re trying to figure out. So, you can get a lot of help from a good custodian!

Reese Harper: Yeah, and I think the difference is that some custodians specialize in targeting really sophisticated futures traders, or options traders, some custodians are kind of targeting middle America, some are trying to target working with financial advisors as intermediaries, some are doing both… The thing I was going to say that I will caution people about: I don’t like a custodian who is also manufacturing their own mutual funds. So, I’m going to throw Fidelity under the bus right now; I think they are a great company, but ultimately, if you’re working with Fidelity on their 1-800 number line, they do have a conflict of interest there. They make freedom funds, they make a variety of fund products that they do make a lot of money from, and a lot of times their internal sales people are receiving compensation differently for presenting those kind of fund options to you then they are for just letting you see the breadth of the offering that’s out there, and so that is what we would call a hybrid custodian who is making funds and they are also being a custodian, and we prefer a purist custodian. I mean, you want a custodian who is really– like, Charles Schwab has that same thing: they have mutual funds and proprietary funds, but I don’t think they are known to be quite as aggressive in supporting those, but I do think that’s a conflict. TD Ameritrade is probably the custodian that currently I would prefer out of the big three; it’s the one we use. I think that because they don’t have proprietary mutual funds, and they are not making their own product, I feel like it frees them up to take their profitability and invest it into technology, which they have in a major way, and making the service response time much better… all of the tech is better. They are not the cheapest on trades. I mean, you can get four-dollar trades instead of six, but it’s like four, five, or six bucks for any custodian, and honestly, for the volume of trading most of you are going to do during a year, you’re going to want to prefer a higher-quality custodian than you are the cheapest trading option.

Ryan Isaac: This is a trick question; we don’t want you to have a high-volume of trading. Just some buys when you save money every month.

Reese Harper: Yeah, we don’t. And I think that most of you are going to have less than twenty trades a year, thirty trades a year at most, and that would be probably and active person out there. And so, you’re just not going to spend a lot of money on trading costs, and that’s kind of a “gotcha” in my opinion… you could get, like, 100 free trades as an offer from a custodian to go set up an account–

Ryan Isaac: I’d blow through that in an afternoon.

Reese Harper: Dude, we’d blow through that in a hot summer’s minute.

Ryan Isaac: That’s a joke; that’s high sarcasm.

Reese Harper: Well you don’t personally, but at the firm level, I mean, that’s a second, you know? So ultimately, I think that you just want to make sure that you’re picking a custodian because it accomplishes your personal goals as an investor. As a financial advisor, you have to pick the right custodian too, who accomplishes what your clients really need. Another reason I think you want to go with a custodian is their ease of access to other products like lending, or margin. To me, that plays a pretty big role in a dentist’s life to be able to borrow money against your investment account at a low interest rate, and be able to use that to pay off debt, maybe help you consolidate some practice debt, or consolidate some student loan debt–

Ryan Isaac: Or just have faster access to money without having to sell securities, or go through a bank, which is one of the main pitches of permanent life insurance is that you can be your own bank; you can lend yourself money without having to sell anything. Well, can do that in a brokerage account if you have enough money in there, so, finding a custodian who allows it and facilitates it where it’s kind of easy to do is a big deal.

Reese Harper: Yep, I think that’s great. And one who can do it at a competitive rate, you know? And the bigger and the more stable the custodian, often their products like margin and lending are a lot better, and I like things that don’t have proprietary funds, like we’ve mentioned, reporting customer service… all these things are critical.

Ryan Isaac: I was just going to jump in there too. We did an episode– it’s episode 78– look, I even have a visual! Look at that.

Reese Harper: Oh wow! Yeah, that’s nice.

Ryan Isaac: See? I didn’t have a mustache then. Episode 78: Is Your Custodian Messing with Your Money? A very ominous title, but we spent an hour talking about custodians and their role–

Reese Harper: Yeah, if you want more information on that one, episode 78. So, we’re going to assume– I mean, this question that we’re hitting right now, we’re just hitting the custodian side of it, but again, keep in mind that funds like Vanguard mutual funds, a lot of people assume, “I have to go to Vanguard to get Vanguard funds,” but you could open a Charles Schwab, a TD Ameritrade, a Fidelity and Etrade account, and you could buy Vanguard mutual funds just as easily as you can go and buy it through them.

Ryan Isaac: Now someone’s going to go, “but Reese, Vanguard charges me trades if I buy Vanguard through TD Ameritrade or Schwab, and they won’t buy me trade fees if I buy it through Vanguard,” but the difference is that if you’re at TD Ameritrade, or Schwab, or somewhere else, you don’t only have to buy Vanguard. You can buy Vanguard, but you can also buy hundreds and hundreds of other funds, too.

Reese Harper: Yeah. And it’s not true that Vanguard never charges trading costs when you buy Vanguard funds through Vanguard. So, you might not think you’re getting billed for that, but that’s not always the case, either. And so, there is always a cost to being a custodian, people. Holding someone’s money and reporting on it is a very different job than building mutual funds, and if you think you’re getting a free lunch, I promise you that you’re paying the cost somewhere.

Ryan Isaac: Okay. One of the little branches in that comment thread that you mentioned earlier and that I thought was really interesting was kind of more along the lines of service that you get; you kind of have this, “I can do bare bones custodian, do everything myself– open platform, just pick everything myself– I can do mid-range, what they call “robo-advisor,” you know, there are all sorts of apps and platforms that will do it, and then at the other end, I can just hire someone to do stuff.” So that was the other branch of this conversation that took off, and I don’t know if this is the conversation for the full scope of how to pick which one is best suited for you, but I don’t know if you want to touch on that a little bit? Because there were some comments that kind of branched off from there, too.

Reese Harper: Yeah, I mean there’s a hybrid model, I think, that most of you are probably aware of at this point where you can hire what we’ll call an intermediary who builds a portfolio for you at a lower cost than let’s say a traditional financial advisor. A personalized, custom financial advisory firm, which is more a firm like ours, we’re going to cost more than going online to a website that builds a portfolio for you.

Ryan Isaac: You take a questionnaire, it builds a portfolio, and I mean, to be fair, they are pretty well diversified, well allocated, good portfolios, low cost portfolios; they could work.

Reese Harper: And I think that’s a good solution. For most dentists, I would rather see you be in some hybrid middle solution as opposed to, “I’m going to go do my own trading, and my own fund selection at my own custodian.” But there are some dentists– like, there are a bunch of finance majors listening to this who are dentists, there are some MBA students who are dentists, and a lot of them want to manage their own money and they love it, and it’s fun, and it’s like an enjoyable thing for them–

Ryan Isaac: That’s how I feel about dentistry on myself, though; I have a huge passion for it. I just give myself shots, and drill a little bit (laughs). Totally different.

Reese Harper: And the middle of the road– affectionately, a lot of the community is calling them a robo-advisor; I would not call them–

Ryan Isaac: Do you think of RoboCop? Every time I hear that– I mean, child of the 80s– I think of RoboCop every single time I hear that. Do you? (laughs)

Reese Harper: I just think– I mean, it’s a good marketing name, but there is not really–

Ryan Isaac: A robot. That’s the disappointing thing: I was expecting a robot.

Reese Harper: Well there is no advisor; I think that’s probably it. There’s a robot, but there is no advisor, okay?

Ryan Isaac: (laughs) the robot is a bunch of code, okay? It doesn’t actually have a big tin head.

Reese Harper: Yeah, and when you call in, you interactions are going to be very focused around the portfolio, and I think that depending on your income level and your complexity– I mean, our audience, most of the people here are going to get to a level of success in their life where the robo-solution won’t provide the level of service that they’re going to want to really feel like they’re confident in the direction they feel like their entire financial plan is headed. I think it solves a solution that is investment focused in nature, and it allows people to get a portfolio that can get off the ground, and start saving a little bit of money, but once you start thinking about tax management, and once you start thinking about cash flow planning–

Ryan Isaac: Multiple different types of accounts–

Reese Harper: Yeah, once you start thinking about corporate retirement, and personal retirement, debt, real estate, the scope of all your insurance policies… at some point, you’re only– you’re still paying something for this robo-advisor, and in my mind, you’re paying something that really doesn’t come with as much value. So, if you’re going to start paying an advisor, in my mind, you might as well get the full benefit of what they’re doing, and get the value out of it that comes from having someone be involved in your financial picture a little bit deeper.

Ryan Isaac: Yeah. And besides that, I always think about how the simple story of achieving good returns out of a well-built portfolio is that you have to do it for a couple of decades, at least. And getting someone to be able to build a good portfolio but then stay with it for 20+ years through all the ups and downs, and all the economic cycles, and good news/ bad news, and big decisions, and practice and family… over a long period of time, that’s the biggest value that an investor can get out of working with someone. And that’s still the hard part about an app, or a robo-advisor: there is not an accountability piece that guarantees that you are going to be more likely to stick with that. It will build a good portfolio in the beginning, but if it doesn’t get a high savings rate contributed to it frequently, and you don’t stay with it for a long period of time, it’s not relevant that you got well-diversified low cost funds, you know? That’s what becomes the difference over long periods of time with more wealth, more complexity, more income.

Reese Harper: I agree. Let’s go onto question number two!

Ryan Isaac: Okay, this one reminded me (laughs) this was your question that you kind of threw out to one of the forums, and it reminded me– does anyone remember the old SNL skit with Mike Myers “Coffee Talk?” Do you remember that? And I had to write this down– oh, it was Linda Richman, and she’d be like, “talk amongst yourselves,” you know, because she would get verklempt? (laughs) So, this reminded me, because you went and posted a question, and it was basically like, “hey guys, do you guys pay down your debt aggressively, or do you just let it ride on the amortization schedule? What say ye?” And then you left it there, and it went, like, dozens and dozens and dozens of comments! It was really cool. So, what I thought it would be kind of fun to do is to go through a few of the comments that people made, and then maybe you could just give some feedback on what you thought about that.

Reese Harper: The question was really, “hey, do you guys like to aggressively–” not aggressively. I think I said, “do you pay down your debt faster than the normal amortization schedule, or just let it kind of ride?” Like, “how do you approach debt?” And these are the responses we got.

Ryan Isaac: It was a cool talk. So, here is one of the first ones. It says, “I know the math doesn’t work out, but I like paying down even low interest rate debts over investing, because it just feels good to be out of debt.” So, one of the things that stands out to me– and you’ll hear this in a couple of comments, and you commented on this in this thread– is the emotional side to paying down debt. It’s a non-financial, but a very real component to why people decide to do what they do with debt.

Reese Harper: Yeah, it’s a big achievement! It feels good; it just really does. My comment back was, “of course it feels good! It’s an awesome thing. There’s not, like, a moment where investing will ever feel as good as paying off debt; it shouldn’t feel as good.” It’s not the same. One is literally, like, an institution that can come and yell at you if you don’t make a payment and you owe them something. You owe someone something, it’s like, “I did you a favor, you’ve gotta pay me back.” It’s like, “I don’t want to owe anyone anything. I want to be my own independent person!” I mean it’s like, if you have a guy chasing you down with a hatchet in the street, and he’s gone now, and he’s not chasing you anymore, it’s going to feel good, alright? It’s the same thing!

Ryan Isaac: It’s the exact same thing. Fight or flight.

Reese Harper: But I mean, you take it to another level, and you’re like, “okay, well should paying down debt and investing feel like the same?” No! Paying down debt feels way better! It just does. And for all of us. Investing comes with a whole different set of psychological challenges, but it doesn’t necessarily mean that you won’t get a good feeling, not from investing, necessarily, but it’s the fact that you have liquidity; it’s the fact that you have an investment account with money in it then you can get at, and borrow from, and use. I always encourage people, before you aggressively pay off your student loan, get some liquidity built up; get $100,000 saved. For the average person, that’s a ton of money. It really is. For a dentist, that’s not a ton of money, because it could go very quickly, but get some liquidity saved up. It could be 50 to 100 to 200, and I still don’t think that 200 would be too much where I’d be like, “you have to be paying down debt.” I mean, if you came to me with $200,000 of investments and a 7.5% or 8% interest rate on something, I would still be like, “you’re in great shape, it’s okay.” Now, if you had that high of an interest rate and a lot more cash, maybe we should start paying it down, but I don’t think a few hundred thousand dollars for most dentists is so much money that they have neglected paying off debt.

Ryan Isaac: Well let me read you a comment. It was one of the last ones I was going to read, but this is exactly what you’re saying. One person said, “debt doesn’t bother me if I know that I’m saving more than my debt payments and I have liquidity,” and he said, “cash is king.”

Reese Harper: That’s what a dentist said?

Ryan Isaac: Yeah, it’s what a dentist said, and we’ve argued this for a long time, because we have seen this in real people’s lives for ten plus years, that there is a different feeling between having very little debt– like, you got rid of debt, but you also have no cash– versus, “I still have debt around, but I have a lot of liquidity around.” Those are two different feelings, and I would argue just from having seen it that people generally feel better having more liquidity and more cash, even if they still have their debt.

Reese Harper: Yeah, they are just different feelings. I think if you had two choices, one is invest money, or pay off a debt, most people will emotionally feel better paying off the debt. But if you say, “how do you feel about your debt today on a scale of 1-10, 10 being the worst,” and someone says, “I feel like it’s a 9 or an 8. It sucks; I hate it,” and then give them some money in the bank, give them a lot of liquidity in the bank and say, “now how do you feel about your debt?” They’ll be like, “a 4 or a 5!” or, “a 3.” Our point is, the more liquidity you build up, the more investments you build up, the pressure of the debt starts to release, and I think you can be more objective about it at that point.

Ryan Isaac: I was just going to say, you can start going, “well, this debt afforded me this income, or this opportunity,” or “I wouldn’t be able to have this other location, or this nice of a building, or this new technology without it.”

Reese Harper: Yeah! I think a pragmatic side of it is like, “even if I don’t make money for the next year, I’m okay,” or, “even if my practice declines, and I don’t have as much income, I’m fine for awhile.” That’s a side of it that I think immediately occurs to anyone when you have liquidity: it’s like, “geez, I’m okay for a while.” That’s important, you know?

Ryan Isaac: Yeah, it’s a big deal. Another one: someone made this short comment, and this was another dentist in this thread, and it was meant to be kind of funny, but in reality, this is how things go. When you asked, “do you pay down debt or invest?” someone said, “it depends on my mood,” and that was kind of meant to be a joke, but we have used the phrase for years around here where we say “random acts of money,” and even though it was meant to be a joke that it depends on my mood, that’s actually what ends up happening with a lack of organization, or a lack of a plan, or a lack of accountability: you end up making debt paydown, investment into business… all those decisions get totally randomized based on mood every few months. So, it was a joke of a comment, but that’s a very really strategy for a lot of people out there! (laughs)

Reese Harper: What do you think about this one? The response was, “the difference between getting a higher return in an investment account and paying off debt is peace of mind, and I prefer peace of mind.”

Ryan Isaac: Again, it’s feelings. Someone is saying what the first quote was, which was “even if I can get a higher return, I’ll take the lower return guaranteed because I want the peace of mind.” It’s so emotional. So, you have to acknowledge that, for sure.

Reese Harper: What about this one? There was, “debt snowball first, invest second.” That was a comment.

Ryan Isaac: Yeah. So that’s more of a tactical thing. For all of our spreadsheet nerd friends out there, that’s something that someone put on a spreadsheet, and let play out over the next ten to fifteen years and go, “see, if I snowball this stuff, and then I invest this large some of money fifteen years from now, or twelve years from now when it’s all gone, my net worth can accumulate higher than if I may it off according to the “am” schedule.

Reese Harper: For risk of stating the obvious, I know there are some people who are not really clear on exactly what the debt snowball means. So, the debt snowball is just the smallest debt paid off first, and you kind of don’t really look at the interest rates, you just kind of pay off the smallest debt first. The logic is, if you get rid of smaller debts first, your ability to have higher amounts of cash to put towards the next debt… you just have more money.

Ryan Isaac: Keep paying them off. Roll those payments into the next debt until they’re gone.

Reese Harper: Yeah, and I think– I don’t know. It depends on how long that’s going to take, you know? It’s easy to say, “debt snowball first,” in my opinion, if you’re talking about something that can be accomplished within a few years–

Ryan Isaac: I totally agree! And I have seen people with high incomes be able to pull that off. Like, “look, clearly with my seven-figure income, in three years, I go and wipe out these four debts completely, and then have 50 grand a month to save…” it’s like, (laughs) okay.

Reese Harper: Yeah. I mean, for the clients we have for whom that’s the reality, that’s great, and they can honestly make a lot of mistakes with their money, and it won’t matter (laughs). But then there are clients who are the average dentists, and you have to be pretty tactical about this, because if you say, “I’m going to commit to debt snowball,” and we’re talking like an eleven year plan?

Ryan Isaac: If. If! The big if. If everything goes perfectly.

Reese Harper: Yeah, perfectly, and you don’t need more money, and you don’t even want to remodel your house–
Ryan Isaac: No kitchen remodel. No vacation. No business investments (laughs)–

Reese Harper: And your idea of a vacation is your son’s tipi in the backyard, and your idea of a new car is still fourteen years old. I mean, because a lot of people’s debt snowball if a perfect scenario, you’re looking at like, five to six years for the student loans at best, then you’re looking at eight to nine to ten years additional for the practice debt, and then it’s like, “okay, so your debt snowball plan is a fourteen-and-a half year debt snowball?”

Ryan Isaac: Also keep in mind that most dentists, by the time they have all the debt in place where they start thinking about this, are in their 30s, so we’re talking about, for the average person, a timeline that would push you into your 40s before you have this theoretical large sum of money, being debt free, to start investing. The other side of this that I don’t think gets enough attention is that even if that plan worked perfectly… it took you a decade, you stuck to it, nothing came up, nothing derailed you… you’re now in your 40s, where in your 30s, you had a decision to start investing 2,500 bucks a month; put it away in some IRAs, some brokerage accounts, learn what markets feel like when they go up and down, and when your savings goes down. Now, we have 20 grand a month, and you haven’t invested for ten years. You haven’t learned the emotional toll that public markets can take on you. My argument is that I think, and we’ve seen it, it’s really difficult to just wait until the sum of money is so large to start testing out this really foreign thing that late in your career.

Reese Harper: In my experience, I mean, just my own personal investment experience started more in my late teens, or early 20s, right?

Ryan Isaac: You started investing in potato crop.

Reese Harper: Yeah, it was a potato speculation on the commodities markets. No that was at eleven! When I was eleven.

Ryan Isaac: You were in the futures market at eleven? (laughs)

Reese Harper: So, I want to say that my first decade as an investor, I think I was pretty fidgety. Like, even as a person that was a professional, I mean, I was starting my professional career in financial planning in my–

Ryan Isaac: You max out a $5,000 IRA and see it go to 4 grand and you’re just like, “what was that?”

Reese Harper: Yeah, I mean it’s scary, like, you feel it, right? And I think it takes a while; it takes years and a lot of knowledge to get to the point where I am today where I’m really unemotionally affected. I don’t want to say completely; I’m still affected by the fact that there is going to be a market decline that’s going to come in the next… who knows how many years, I’m not going to call it.

Ryan Isaac: Prediction alert! Prediction alert! We’ve gotta have some sirens going off (laughs).

Reese Harper: And so, you just– statistically, you know, there’s a market that’s a three-year decline recovery, it could be a four-year, it could be a two-year, it could be once every five years that we see a little one-year decline recovery… we don’t know how it will shape out. But I don’t like going through those times, and I also don’t like the phone calls I receive; I’m worried about the emails I’m going to get; I’m worried about people wanting to jump off a cliff; I’m worried about that stuff. But, I’m unemotionally affected by how my plan will change when that happens. I know my plan is not going to change, but it took a decade or more to develop that confidence.

Ryan Isaac: And you can think– and I can do the same thing as well– you can think of specific clients who went from a phone call once or twice a month in their first few years of investing– always wanting to bail, always worried about it– to now where that’s not even a conversation anymore, and they’re saving a higher percentage of their income, they’re often times more aggressive than they were when they first started out, and they don’t think about it, because they’re like, “it’s 20-year money, and I know what this is now.”

Reese Harper: It takes experience to do that, though.

Ryan Isaac: It takes years to get over it!

Reese Harper: And you have to go through a market decline, and a market cycle, to really believe all these things we’re telling you. Like, if you have never been through one with a significant amount of money and come out on the other side, it’s really hard to be able to relate in quite the same way.

Ryan Isaac: Stay the course doesn’t work in a bull market, meaning the philosophy… there’s not anything to it.

Reese Harper: Yeah, like the last ten years, basically, from right now, have not been scary, okay? They have not been scary. There was been one or two years out of the last ten where we have had six to nine month either medium-term to, you know, 15%- 18% declines, or flat markets, like we have seen, I mean, somewhat year-to-date! And I think there is just an experience that you can’t really talk to people about; they have to go through it.

Ryan Isaac: No. So, back to the point: if you’re debt snowball, then it takes you out a decade plus. You have to take into account the fact of how hard it will be to forego that experience emotionally and mentally right now with smaller amounts of money, and then all of the sudden with no experience chuck huge sums of money at it every month, and just expect that you’re going to be fine with it.

Reese Harper: So, my advice to people who are going to be doing the debt snowball, even if you have a larger balance and you’re like, “I don’t care, I relate more to these other comments,” then I would just say, make sure that you’re investing along the way as well. Get some experience with investing: set up an IRA; set up a Roth IRA; set up a brokerage account, and put it all in stocks. Own all stock, don’t own any bonds.

Ryan Isaac: Could we say– do we have the little disclaimer guy’s voice?

Reese Harper: Except if your risk profile doesn’t allow for that– no. Consult your investment advisor; do you own due diligence before– okay, I just gave advice, and I can’t do that. But ultimately, I want you to experience what it means to be in a stock index and just feel that. Get used to it. It’s like working out: I need you to just do it every day for a while–

Ryan Isaac: Get sore deadlifting.

Reese Harper: Get sore. Okay, so the next comment was, “stash cash away until it seems right to throw large sums at the debt.”

Ryan Isaac: Yeah, there were a few comments like this, which were like, “I like to just hold on to it, and then when the timing’s right, I’ll jump in.” Again, this is another discussion for another time, but this kind of goes back to this idea that timing things is possible, and that you will know when to get in. Now here’s what I would say. There were a few people that said, “I want cash to get in either to the public markets, stock markets, or when things slow down in the dental practices, and they get a little bit cheaper in my town, to jump in, or with real estate.” I would say you have a lot more control to take some cash and take advantage of a slow or a down market in local dental practices– like, you can see that in your community: they’re not moving; this seller isn’t quite aware of what he’s got; I can get a better price than he thinks because it’s an inefficient market with very very few buyers and sellers– I would argue that your ability to take cash and time that a little bit is far higher than you’ll ever be able to do trying to time a down public stock market. I don’t think that’s possible, and that anyone should ever be sitting on cash with the idea that that’s their plan. I don’t think anyone should ever do that.

Reese Harper: Yeah. The next comment was, “I’d like to pay off debt aggressively, but I heard it’s not the best path to financial independence.”

Ryan Isaac: Yeah, I’d be curious to hear what you would say to this. The thing that came to my mind– and you were just kind of alluding to this about, like, even if you’re paying off debt to try to invest along the way– the advice we give to clients generally is that we understand the priority of wanting to pay of debt. We would strongly encourage someone to maintain a steady, respectable savings rate for their income level along the way. So, if for your income, a good savings rate would be 15%, we would say, “look. Let’s try to automate and stick to and be consistent with a 15% savings rate. As you make more money, if you want to stay at 15% but take than next 5, 7, 10% of income and put it towards aggressive debt reduction, I can live with that, because you’re maintaining good savings first. So, that’s the thing: when someone said, “best path to financial independence,” that’s what I thought about it.

Reese. Yeah, I think that Ryan and I just prefer a balance, because we think that you’re missing time to learn things; we think you’re missing time to grow your portfolio; there’s an important time value of money factor here. If you just look at the math… I mean, there is no way to really know if paying off debt or investing is actually going to be the best financial outcome; there’s know way to really know that. Like, the day you start investing might be the worst ten-year period of the stock market’s history that you’re about to go through–

Ryan Isaac: Or it could be triple what your loan interest rates are going to be.

Reese Harper: Or it could be that. There is no way to know that, except in hindsight; you could look back and feel frustrated, or you know, beat yourself up over it, but I would say you should just move forward knowing that the balanced approach of saving at least some percentage of your income– like Ryan is saying, target a reasonable savings rate. Ryan’s giving you a low savings rate at 15%; most people would probably try to target 20%-25%–

Ryan Isaac: I think our average client base is like 24%.

Reese Harper: Okay. And so, what you’d say is, “look, I mean go 15%, and then go 10% extra towards debt.” You’re already putting probably like 27% towards debt, right?

Ryan Isaac: Of your income.

Reese Harper: Your income does– I mean, reducing debt is paying down debt, even if it’s on a schedule.

Ryan Isaac: Now here’s what’s funny about that that I find so fascinating: every quarter for our clients, we send out quarterly net worth progress reports; every quarter, we’re showing someone the last handful of quarters on what has happened with your net worth, what your assets are doing, and what your debts are doing. It’s always surprising to see the dollar amount that is paid down every quarter in debt that people don’t realize, because everyone always feels like, “I pay the payments, and the thing just sits there.” What people don’t realize is that in a lot of scenarios, there is $20,000 or more easily every quarter that is going down in principal, and it’s hard to see that sometimes unless you’re measuring and tracking it, but that’s always fascinating to me, and when I bring that up to people, they’re saying, “oh wow. You’re saying I’m reducing debt by six figures every year? I had no idea.” By minimum payments!

Reese Harper: Yeah, I have a client right now who is in such a high– I mean they bit off a really large commercial real estate project, and they don’t have any liquidity to save money besides what is going to this massive building, alright? Their net worth, though, on a quarterly basis, is going up by almost six figures, but there is like, no liquidity. But the financial planning strategy… I mean, just being able to consciously report and track everything the way we’re doing it lets them see that they’re making pretty significant progress. They are always feeling bad about their situation; they are always frustrated; they are always telling me, “my gosh, we’re not making any progress.” And then we sit down, I record a video, I kick it out to them, they look at how much debt they have paid down in the last three or four months, and they are like, “dang!” It’s actually getting better, because on an amortization schedule, you always pay off more debt next quarter than you did this quarter, so it always feels like you are heading in the right direction, and it’s pretty psychologically empowering to see that! So, I always find that if you can get more liquid and pay down more debt– not faster than your “am” schedule, but just let your “am” schedule be your “am” schedule! You’re paying down debt, and then getting more liquid… you have a double whammy! You feel good about the debt reduction, but then you also feel good that you are building up reserves that allow you to be more aggressive in your marketing, allow you to be more aggressive in your retirement investing, you can hire people and not be so worried about salaries and payroll… you’re a better entrepreneur! You’re a better practice manager. You’re just a better owner.

Ryan Isaac: Yeah, well and like you said, the more cash someone has, the less pressure they feel, and I think you can just make more and better objective decisions as you go along doing that.

Reese Harper: Yeah, true. Okay, last couple of comments on it. “I’d rather have cash to invest at the next market correction, or to buy more real estate or practices.”

Ryan Isaac: Yeah, this is similar to the other one I was talking about.

Reese Harper: Yeah, I think it’s good– I like that this person is focusing on the liquidity issue. We have a few podcasts that we would want to cover on the “next market correction,” alright? I’m getting a sense that this person feels like it might be possible to know when that’s going to be… like, when is it that you would deploy the money? Now, this person could be– you could get lucky and get it right, and just time the market’s bottom–

Ryan Isaac: Which I think is actually worse for you long term if you get lucky (laughs).

Reese Harper: Yeah, which would not necessarily sent the right message to your brain about your own ability to predict the future again–

Ryan Isaac: That is like Vegas then! You get lucky, and you’re like, “I got this!”

Reese Harper: That is. So I would say– if we were giving advice to this person– rather than saying, “I would rather have cash to invest at the next market correction,” we would just say, “you’d rather have cash to invest consistently into the market rather than at the next market correction,” or “buy more real estate, or practices,” I agree with that. Buying more assets, like a practice, or more real estate, and investing more money, those are all good things. I’m not trying to push back too hard on this, but the next market correction, I think it’s important to clarify.

Justin Copier: Yeah, so real quick plug for episode 104: for those that are interested, it would relate to a lot of these questions. It’s called “When Will the Stock Market Bubble Burst?”

Ryan Isaac: Do we have predictions in that one? Were we right? Was your call right? You had a hot call in that episode, 104.

Reese Harper: I usually get it wrong.

Ryan Isaac: (laughs) we’ll see if it was right.

Reese Harper: You can’t really predict anything. You can just work really hard, and it will eventually work out. Do smart things (laughs).

Ryan Isaac: Alright, well that is a pretty good place to end. We want to remind everyone, if you’d like to submit a question the old-fashioned way, you can go to, click on podcasts, and then the button that says, “Submit a Question.” That’s the old way; some people like writing letters on typewriters, or sending carrier pigeons.

Reese Harper: Otherwise, we’ll see your emails, texts, group chats, Facebook forums– we’ll see you guys wherever you want to post your questions.

Ryan Isaac: Wherever we’ll see you; we’re always watching.

Reese Harper: Just know that we will anonymize the stuff, but if we like your question, we may use it, because it will help other people. So, we will really try to be respectful of not highlighting anyone’s big mistakes or anything, but we really think that this is a good way for a lot of people to learn.

Ryan Isaac: Okay. If you would like to get in touch with us, if you have questions you would like to just ask us directly, you can go to our website and schedule a consultation with us; go to, click on “Book Free Consultation,” and hopefully that’s an easier button to click. I think it is; there are a lot of clicks there. You can also call or text us at our fancy phone number, which is 833-DDSPLAN, and thanks for listening! See you soon.

Reese Harper: Carry on!

Debt & Financing

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