Investing Basics Every Dentist Should Know

On this episode of The Dentist Money Show, Matt and Rabih kick off a new investing series by breaking down the foundational investment concepts every dentist should understand before building a portfolio. They explain the three main types of accounts and discuss how each fits into a long-term financial strategy. They also explore the major categories of investments, including public markets, private investments, and real estate. Tune in to understand the foundation to make smarter investing decisions and avoid some common mistakes dentists make.

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Podcast Transcript

Matt Mulcock: Welcome back to the Dentist money show where we help Dentist make smart financial decisions. I’m a guy named Matt here with cash GPT himself the professor Rabih Dimachki Rabih. How are you? I’m great. It’s a great day because it’s Friday first of all on this recording and it’s our second episode of the day together so We are testing our limits. I this is actually number three for me total. I’m I also did ⁓ launch pad

Rabih: I’m good Matt, how are you? Yes, we’re testing the limits of how long we can talk. wow.

Matt Mulcock: With, ⁓ Dr. Daniel Crosby, was, it was a webinar, but I’m basically calling it a podcast, but I enjoy it, but I’m definitely, ⁓ we’re testing the limits of our brain capacities here and ability to yap. So we’ll, we’ll, we’ll see how it goes. ⁓ and also. We were just talking before this, but we’re reviving the topic of around the whoop because.

Rabih: I’m not sad.

Matt Mulcock: I’m, you’re not sad because mine, as if you’ve been following this drama from months and months ago, last year, ⁓ mine broke at an event and I just, it was actually at the airport. It broke and I never got it fixed. I know. I just kind of was like, how that sucks. And then kept meaning to get back on it and back on it. And I finally was, we were just about to get on and I was like, before you hopped on, I was looking at whoops to buy another one.

Rabih: Mm-hmm.

Matt Mulcock: And so we’re going to be back at it with the whoop content.

Rabih: Yeah, and you mentioned it to me and I made sure my word of right word of mouth advertisement is helping you to do you know, make the purchase again. It’s lonely in the world without you Matt, I want you I need someone to compare stats to every single week.

Matt Mulcock: Yeah. Yeah. I know every time we meet, you’re like, at the office, you’re like, look at my whoop stuff. I want to show you a new stat. And I was like, I got to get back on this. So, I’m going to do it. okay. Great episode today. There’s a reason why you’re here. You are the investment guru. ⁓ and this is going to be episode one of a series we’re going to do around investing similar to what we did with, ⁓ taxes. And we got actually quite a, a good response from that around people really enjoying kind of having this succession. of a topic within a series. So that’s what we’re going to do here as well. This is episode one, and we’re going to kind of call this the nuts and bolts episode. This is going to be kind of some basic stuff around investing and account types and things that get confused often. And we’ve talked about this on and off throughout our shows, but I think we want to package this together kind of in a coherent series. anything you want to say as we jump into this, Rabih, are you up for the task to talk about investing? I’m not totally sure.

Rabih: Dude, I’ll try my best. I’m now thinking if this is episode knots and bolts, the last episode of the serial would be like the full drill. Like we’re going all the way teaching people about everything about investments.

Matt Mulcock: Yeah. I like this. We’re going to, we’re going to go full in on the, on the dentistry metaphor there. Yeah. We’ll go full drill is episode four or five. I like that right now. We’re just assembling the drill. So, ⁓ let’s start with this. ⁓ I think one of the common confusions that is out there. And when I say out there, well, sometimes it’s a confusion and sometimes this is intentionally used as a weapon.

Rabih: Sounds good.

Matt Mulcock: So, and what I mean by that is misunderstanding the difference between an account and an actual investment. And the best example I can give of this is I’m not on any of the social media things. I’m really aging myself here, Rabih, and showing how lame I am. I’m not on the TikToks or the face chats or whatever, but…

Rabih: You could say I’m not on the TikTok that will pass, but when you say TikToks, you’re doing yourself a disservice,

Matt Mulcock: I’m just leaning into it, but I’m not on Instagram. I’m on TikTok. I will occasionally dabble on X, even that I’m kind of only during football season. So, but I do know that on social media, TikTok specifically, there’s a lot of this like your 401k is a terrible investment type of language and you know, rhetoric out there. In that sense, it is very much used as a weapon to try to sell you something. And it is a fundamental miss. If someone’s out there saying a foreman case about investment, they are either in there. They don’t know. They don’t know. Like they’re just there. They lack the knowledge of what that even means, or they’re being intentionally, ⁓ trying, you know, they’re intentionally lying to you to try to buy, try to sell you something. So that kind of sets up this discussion around the difference between account types and investments. We’re going to dive into this deeply, but Rabih, anything you want to say about that, the TikToks or anything.

Rabih: The TikToks and honestly, when you said that probably the person teaching you about it doesn’t know enough, it is true because I’m going to share my own experience with this. They are so many and so complicated. And here’s my perspective. I did not grow up in the U S where my parents were talking about their 401ks on the dinner table in middle school. Right. I studied abroad and then came to the U S. And even though I had with me a good strong foundation of investment knowledge, I came and I started learning the US system. The US system is complicated. I actually remember my first couple of weeks at DA, I had our buddy Will Go… Good old days. I had my buddy Will Gochner sit next to me and we listed down different types of accounts and he started explaining to me what each is because in my mind it’s like…

Matt Mulcock: Those are the good old days, the good old days.

Rabih: That’s an account and you invest in it. Why do we have like 20 of those? What is the difference? So what I’m saying is that the reason we’re having this podcast is because it is complicated with so many moving parts. And I it’s always helpful to go back to the whiteboard and it’s like, OK, what does each do? Just like when you look at your bank accounts, like what’s the checking out? What’s the checking account? What’s the savings account? But on steroids, right?

Matt Mulcock: Yeah. Yeah, yeah. I’m glad you brought that up because it does get complicated. And that’s why we want to bring this kind of content and sometimes take a step back from the interviews or the philosophy type things. We’ll get to those things. You can’t keep Rabih and I away from the philosophy of this kind of stuff. But I think just kind of taking a step back and being like, this is complicated. There’s a lot to know here just as the foundational type stuff. I can’t even tell you how many times Rabih, I get clients or dentists at events or whatever say, man, I know I’ve been told this so many times, but what’s the difference between a Roth IRA and an IRA again? Like, right. So I think we take it for granted because we live and breathe this stuff all day long and we’ve been doing it for years and years. But I’m so glad you told that story that you started at a place when you first got here of being like, what the heck? We’ll have to list these out for you and you were like, dang, there’s a lot here. It’s complicated.

Rabih: It is complicated and they share the same names Roth IRA IRA sup IRA simple IRA come on guys be more creative

Matt Mulcock: Yeah. Yeah. Yeah. Come on Congress. Can you fix this? ⁓ okay. So with that said, give yourself some grace, realize this is tough. There honestly is so much to know here. We’re going to be covering some basics here, but hopefully go deep enough to, to maybe give you a reminder, something you can save this episode. You can come back to, ⁓ to kind of break down the basics of these, again, these nuts and bolts. So let’s start first with Maybe the fundamental difference of accounts versus, versus investments and why it’s so wrong for someone to say 401k is a bad investment. That is because a 401k is not an investment. is the package, it’s the package, it’s the vehicle that you then put the investments in. So that’s as basic as I can put it, but anything else that you’d want to add. Rabih around this difference, fundamental difference of accounts versus investments.

Rabih: Yes, I like the idea of paper versus folder or versus a utensil versus the drawer, right? Like there’s a drawer in your bedroom, but there’s a drawer in the kitchen, right? And that is kind of what an account is. It’s something that you put stuff in it. An account like a 401k is like a drawer.

Matt Mulcock: Yeah. Ooh, your analogies are on fire today. You were dropping them in two cents today too. Holy cow.

Rabih: And you you put something in it. So it depends on what you end up putting in that drawer. You could take, you know, it would be weird, but you can take a fork and put it in the drawer in your bedroom, right? You can you can do it, but it is weird. Fork is does not belong in your bedroom drawer, but also the fork can or a spoon can be put in the kitchen drawer. So the relationship between an account and investment is very similar to that.

Matt Mulcock: Sure. Sometimes I snack at bedtime, yeah.

Rabih: box and item in box type of situation. The account, like a 401k and the others that we’re going to talk about, is nothing but the place where you’re holding your investments. It does not mean that the account grows or doesn’t grow. It’s the investments within the account that grow or lose money. An account is just the folder that you’re putting the papers inside.

Matt Mulcock: Yeah. Yeah. Yeah. That’s a really great analogy, honestly. And I think now is probably the time, or we can come, we can circle back to this, but, now would probably be the time if we’re making these, ⁓ kind of differentiating between the accounts, the investments that are in those accounts, and then the custodians of which those accounts live.

Rabih: Yes.

Matt Mulcock: I think this is a good time to just kind of, cause those are the kind of three big categories that I think people often get confused. We used to all, we used to have kind of a joke when I worked at Fidelity years and years ago, a whole nother lifetime ago, people we would talk to, we would talk about, you know, they’re, they’d come into our office, we’d be going over their portfolio and their plan. And they would, they’d say, oh, I’m diversified, totally diversified. I’ve got money here at fidelity. I’ve also got some money over at Charles Schwab. And we would look at their statements and they were invested all in Apple in both at both places. Right. And that happened quite a bit, like not specifically Apple, but that kind of thing. You were in vet, they were invested in the same stuff. They had all the same stuff in those drawers, but they had drawers in different rooms and thought they were diversified. And so, ⁓ I think the difference we are highlighting that. So the accounts, the investments that go into the accounts, and then the accounts can be housed at different places. Fidelity, Schwab, Vanguard. How would you take this? Would those be the rooms in this analogy, Rabih?

Rabih: Be own or you decided, you know what, I think it’s safer if I put my fork or my spoon in my neighbor’s kitchen drawer, right? Like instead of keeping it in your house, instead of keeping the money, you know, under the pillow in your house, you know, it’s a feature of this economic system, we put our money in a safe place called a bank, right? So due to literally nothing, the only reason it’s like

Matt Mulcock: There you go. Yeah.

Rabih: You don’t invest your money in a bank, you invest it with, you put your money with a custodian such as Rob or fidelity, et cetera, is nothing but because the legal system in the U S says that banks and investment companies should be separate. That is the only reason why it is. So just like you go and put your cash in a bank, your investments, because you can’t put stocks of Apple under your pillow. You have to take them to the equivalent of that bank, but for investments and it’s usually a custodian, they custody those investments of yours. That custodian will tell you, okay, let’s open an account and let’s put those investments in the account, but I’ll hold them for you.

Matt Mulcock: Yeah. Yeah. It’s really great. And I think understanding that difference. I love that. I love that. Like you might keep your fork at your neighbor’s house. there are reasons to choose different custodians. Like there, there are legitimate reasons, whether that be fees or service or the platform, but all of those big ones we mentioned and any, any custodian you’re going to have money is going to have access to all of the things, all the different drawers and all the different things you can put in those drawers being investments. Really, any of the big ones are going to be the same in that regard. Again, some differences as far as again, fees and service, but access is the same. So that’s the first thing. Let’s go to accounts. So account types specifically and try to demystify this a little bit. We’ll do the same thing with investing. But we talk about, when you were talking about you sitting down with Will and like writing down all these different account types, this is the, this is what we’re trying to bring to the, to this as well of demystifying, acknowledging that there’s a lot and then demystifying it a little bit. So the different account types, three broad categories. I think it helped people to realize like, they’re just categories. And if we, there’s only three of them. And then underneath those, there’s a bunch of a bunch of little accounts. So first category is taxable accounts. You want to talk about this, Ravi, when we talk about taxable accounts and kind of what fits in that category.

Rabih: Taxable account I would say is the most intuitive account because there is nothing special for it being an account and all the action happens with the investments. You can put money into that taxable account. You can take money out of that taxable account as long as it’s sitting in cash. Nothing is really happening. No action happens at the level of the account. The action happens once you’re inside of that account and you decide to use that cash to buy an investment and then use that investment and sell it and get your cash back. At that level of interaction within the drawer is when stuff happens in a brokerage account or a taxable account. A brokerage is an example of that. So in a taxable account, you open it just like you go open a checking account at the bank. It’s very similar. You go open it at the custodian. You deposit money in the taxable account and the money, the cash is just sitting there. What makes it different than a bank account is that you have access and you have the ability to go buy investments. We’re going to talk about what the investments could be, but you can go and buy the investment. After a certain period of time, if that investment gives you a return, whether it’s dividend or income, et cetera, once you receive them, you have to pay taxes on them. Also, if you chose to later on sell that investment and go back to cash, even if you’re still within the account, if you have a gain on the, you made a profit on your investment, you have to take, you paid a tax immediately when you finished the sale. Or if you lost money, you actually tax, get a tax break in the year when you finished the sale. So what is happening is that money, whether it comes into the account or leaves an account, it doesn’t matter. The investment, whether it makes money, loses money, or gives you a return, actually triggers a taxable event inside a taxable account.

Matt Mulcock: Yeah, it’s really great to it’s a really great summary and understanding the mechanics of that is critical as we as we develop or as we go down the road of this discussion of the the treatment of this from a tax perspective. That’s really the differentiating factor here. The reason there’s different categories is these are treated different from a tax perspective and understanding that will dictate as you build upon this foundation of the nuts and bolts. ⁓

Rabih: Yep.

Matt Mulcock: Will help you understand the different account, or sorry, the different investments you’ll have in these accounts. The way you’ll treat your investment strategy at different stages of your life. So for example, the reason, to your point, Rabih, the reason in these brokerage accounts, you wanna be careful around the taxability of the investments that you hold. for example, we’ll get to this later, but just as an example, a bond portfolio is gonna be treated, or is going to act differently as far as what it’s paying you out, how it’s paying you out, how those returns are captured versus let’s say an index fund and understanding the account type and how it’s treated from a tax perspective is the fundamental aspect of this, of which accounts and where you put things and all that kind of stuff. So we’ll get to that later, probably even in other episodes, but I think understanding the tax treatment of these and why there’s even different categories matters.

Rabih: Yes. And honestly, the broke the taxable account was the most intuitive one for me to understand. But when it came to the other types that are related to different taxes, I’d like you to explain that one because it still confuses me till this day. So, so how would we think about, you know, the, the, what we call a ⁓ qualified, a tax, a tax, a tax exempt account or a tax deferred account? Like, what are these?

Matt Mulcock: Yeah, for sure. Yeah. Yeah. So, ⁓ this gets, you’re totally right. This gets people the most confused when it comes to the next category. And I, the way I look at this, I’m not saying this is, this is perfect, but I think I put these next two categories. I would clarify, or I would designate them under an umbrella of what technically is called qualified accounts. And then there’s two categories underneath that being tax deferred and then tax free or tax exempt to your point. Those are very different things. So let’s talk about tax deferred specifically. Tax deferred being another way to put this, another way to phrase this is pre-tax. So you’re putting pre-tax money into a tax deferred account. So some examples, an IRA, a traditional IRA, a 401k, profit sharing, SEP IRA, simple IRA. Those are kind of the main cash balance plan. This is why you’re saying, Rabih, there’s like 20 of these things. ⁓ but these are all considered pre-tax or tax deferred accounts. So what do we mean by tax deferred? When you put money into, let’s just use an IRA as an example, and we’re not going to get into the, the fringe cases or what about income and being phased out? We’re not going to go into that today. Let’s just assume that you fit the category of being able to take a deduction when you make an IRA contribution. So you put money into.

Let’s say you max out an IRA contribution this year for 2026. That’s $7,500, assuming that you’re under the age of 50. So you make that contribution and let’s say you were making 100, your, your income this year is 100, $107,500. That’s your income. I know, cause I wanted to make my math easy. Uh, so you, you’re making $107,500. You make a contribution.

Rabih: Okay, very specific.

Matt Mulcock: Of $7,500, you now show on paper for this year as if you made $100,000. It actually is removing it from your income, your taxable income. So it reduces your taxable income whenever you make a contribution to these pre-tax accounts, again, outside of caveats. So when we say pre-tax, it’s because it’s, you’re not being taxed on those dollars that you contribute to these accounts. It’s tax deferred. Because at some point down the road, when you go to pull the money out, you will be taxed on this money. So you put that $7,500 in this year. Let’s say it grew to a hundred thousand dollars down the road in 20 years or whatever it is. And then you pull that money out. You are then going to be taxed a hundred thousand dollars of income. Someone might hear that and say, well, what the heck? Like I’m going to be taxed on all my money. Yes. But.

Rabih: Hmm.

Matt Mulcock: Along the way, you differentiate this from the first category of the brokerage account or the taxable accounts, you are insulated from all of the things happening with that account throughout the entirety of holding it in that pre-tax account. So capital gains, dividends, selling things, selling at a gain, you could make a million dollars in gains within that account and you’re not going to be taxed at the time of the gain only when you start pulling money out. So it gives you control in a different way compared to taxable accounts. I’ll leave it there, Rabih, kick it to you. Thoughts or cascade it back, Rabih.

Rabih: I’ll cascade back. So the main difference between those qualified accounts and a taxable account is that on a taxable account, you do not have control on when you pay your taxes. Every time your investment gives you dividend or you make a sale in that account, you will have to pay taxes on it accordingly. Whereas with those qualified accounts and the tax exempt account that you mentioned,

Matt Mulcock: Correct.

Rabih: Once I deposit money, I get a tax deduction. And then I do not have to pay taxes until I choose to withdraw money out of the account rather than creating activity. Like I can do any activity I want inside the account. I’m only taxed when I take the money out. Sounds like a good trade off. Okay.

Matt Mulcock: Yes. Yeah, it’s a good trade off. And again, we’ll get to this down the road, get more in detail. But the idea here is there’s different treatments of these different accounts. The goal is to have all of the buckets. You want all these accounts by the time you’re getting close to, like one of the key features of getting to financial freedom is having the flexibility from a tax perspective by building assets in all these different accounts because they’re treated differently. Another key feature here is taxable accounts are taxed at capital gains rates as long as you’re holding the assets longer than a year. So much lower rates than ordinary income tax brackets for most people. Whereas when you go, all of the treatment of a tax deferred account, like a qualified account, all lives in the world of ordinary income tax. So ⁓ pre-tax accounts, qualified accounts are exempt from capital gains activity. Again, none of that even applies. We get this question a lot of like, man, if I sell that within my IRA, I’ll get capital gains. No gains do not matter within a, within a pre-tax account and IRA, 401k, whatever it may be. But again, it lives in the world of income tax. so yes, it gives you more control, but you’ve got to be really careful about how you’re, how you’re approaching these things when you’re pulling money out of something like an IRA or 401k.

Rabih: You can control when you pay the taxes but because it’s not a capital gain tax you’re paying a higher tax rate.

Matt Mulcock: Generally speaking, Yep. It’s going to fall, usually fall into a higher ⁓ rate. So yes, third category, I’d still say technically fits under a qualified account umbrella, but we would consider these tax free accounts ⁓ or tax exempt, if you will. So I’ll break this down. If you compare

Rabih: And then there’s the third one that you mentioned.

Matt Mulcock: This category. So the main one you’ll hear is Roth. So anything Roth IRA or Roth 401k. The other one that fits in this category is HSA. And I’ll hit that here in a second. But if we compare a Roth, so that I just gave the example of traditional IRA, put the money in, take the deduction, pay taxes on the backend. A Roth is the exact opposite. You put that $7,500 in. So I’ll go back to my example. I’m making $107,500. I contribute $7,500 to that account. My income on paper is still $107,500. I still made the same money on paper. The government taxes me the same. Someone hears that and says, what the heck? Why would I ever pick Roth? That sounds so stupid. Take this example even further. What I said before is that $7,500 now turns to $100,000 down the road.

Rabih: Yes.

Matt Mulcock: You go to pull that a hundred thousand dollars out as long as you’re over the age of 59 and a half or some of the caveats we will go into that money tax free, completely tax free. All of your growth has not only been insulated from capital gains activity or dividend activity within the account. It also is free of tax, ordinary income tax, as long as you’ve met some requirements. The number one requirement being after 59 and a half.

Rabih: Alright.

Matt Mulcock: So I call them tax-free accounts in that sense of they become tax-free when you pull the money out. Really powerful tool.

Rabih: I like that. And it seems like these different three categories of accounts that you’re talking about, you can invest in this, mainly the same stuff in all three. It comes down to the trade off of the tax situation. So between the last two categories, you talked about like the tax deferred and the tax exempt. One is telling you in both of these situations, you have to wait until you’re 59 between quotations to take your money out. But one is telling you pay taxes now.

Matt Mulcock: All of it, yep.

Rabih: And then, whenever you withdraw money, it’s tax free. The first one is telling you, get a tax deduction now, but once you withdraw the money, you pay taxes on them. This is these. And then the initial trade off is, you can get your money anytime you want versus you have to wait till 59. So these are the three categories and it’s about how you balance the trade off. How do you balance the trade off in real life?

Matt Mulcock: Yep. Yeah. Yeah. It’s a good question. I mean, we get so many questions about pre-tax, like a traditional or Roth IRA or traditional 401k or Roth 401k. And all of this stuff includes some level of guesswork. and, and, and there’s also philosophical and personality aspects of this, meaning some people are just like staunch Roth people. out Jake Elm. ⁓ and then there’s people who are, who who believe in maybe more nuance or they’re saying, no, I’m all about taking the deduction now. The guesswork comes down to, we’re trying to decipher this is, well, what are tax rates going to be in the future? We have no idea. No clue. Anyone who tells you they know is the same people trying to tell you they know what’s going to happen in the market. They have no clue. I will say increasing taxes in America has proven to be quite difficult. So for anyone that’s saying taxes are going to be higher in the future, I say good luck. But even if that’s the case, so that’s some guesswork when you’re trying to figure out which to use. What is also a little bit of guesswork, but you can kind of be a little bit more precise with than tax rates is your personal situation. So if I’m talking to a 45 year old dentist who’s making 700 grand a year right now, I can guess pretty closely that on paper, they’re not making 700 grand a year when they’re retired and they no longer own a practice or their business kicking off all this money. So with that one piece of information, I can kind of help them navigate, hey, traditional might make more sense because here’s your tax bracket, here’s what you’re getting in deductions, here’s what we can, if we just use the same tax rates, what you could probably be getting as you pull that money out down the road. So it’s some guesswork, but you’re kind of using variables that you can somewhat control and try to predict in regards to like what your income is gonna be.

Rabih: So it’s more like depending on your situation, when do you need your money? You’re trying to optimize the location of that money in the three different categories we talked about.

Matt Mulcock: Correct. Yeah. And also consider this in these two categories, two and three, there’s limitations placed from the government. So you can only put so much money into these accounts. naturally, like with the brokerage account, the first category, you can put as much money as you want in a brokerage account. To your point, Rabih, it’s a savings account that you can invest in. So you have to consider that as well. Which buckets are you filling up and when? A lot of it comes down to what are you limited to? When it comes to the, to the pre-tax accounts, that’s category two, IRA, traditional IRAs, or in this most cases for practice owners, 401k profit sharing or like a cash balance plan. ⁓ there’s only so many things a dentist can do to like actually reduce their taxes and keep the money. And so that category is really powerful. These, these accounts, we really advocate for filling up those buckets. But at a certain point you’re maxed out and then you have to fund the money somewhere else like a brokerage account. So yeah, considering all those things and considering the limits is also critical here of like where you’re going to be filling up the buckets.

Rabih: So it seems to me it’s not like there is one account better than the other. Depending on the situation, you would prioritize filling one before you fill the other. But in the best case scenario, you would want to have money in all of them. It’s just the order that matters.

Matt Mulcock: Exactly right. That’s the ideal is the end of the day, you’re going to have a broad spread of assets by the time you get to work being optional to give you maximum flexibility. Uh, and then it turns into strategies around withdrawals down the road. Like that’s a whole other story, but yes, the idea is, I fill up as much money in these different buckets and account types as I possibly can, just like we talk about diversification. Again, we’ll talk about that in a later episode. It’s the same thing when it comes to location of your money in these different account types. The last thing I’ll mention too on the qualifier, the, the tax free accounts, I mentioned, would say HSA it’s somewhat in the category of its own a little bit. I still fit it in the tax free even more so tax free. Cause the HSA is the only account in existence that actually has triple tax benefits compared to these other, all the other ones we’re talking about basically has two, two tax benefits, right. Or less. The HSA, you put the money in. So I’m going to come back to my same example. I make $107,500. I contribute $7,500 to an HSA. I now show on paper, I made $100,000. So just like the IRA, I got the deduction. In the HSA, if you invest that money in the HSA, it also grows tax free. It’s just like a Roth IRA, and it’s also insulated from capital gains and dividend activity. So you have no tax liability within an HSA if you were to utilize that account similar to an IRA, triple tax benefits, and then you go to pull the money out of that account, it’s tax free. So deduction grows tax free, comes out of the account tax free, as long as you’re using it for medical expenses.

Rabih: Okay. Interesting. for if we want to sort them from the order of least tax efficient to most tax efficient, the worst would be a brokerage account because anytime a dividend, ⁓ a sale happens, you have to pay taxes. And then after that would it’s a tie between like the IR the tax exempt versus the Roths ⁓ depending on the client situation. And the most tax efficient would be the HSA, right? But

Matt Mulcock: Depending on the situation. Yep. Yep.

Rabih: This is if you want to sort them from tax efficiency. But if you want to sort them in terms of flexibility and access to liquidity, it’s just the opposite direction, right? And then HSA, the money is only for medical purposes. And Roth and a qualified tax exempt and tax deferred, the money is growing and you’re getting a tax deduction, but you have to wait till 59. And then in a brokerage account, the money is available for you any day.

Matt Mulcock: Brokage. Correct. Yep. Any day, yeah.

Rabih: And that is how you have to balance both together.

Matt Mulcock: Yes. And the most restrictive of these from a flexibility standpoint would be the pre-tax accounts. So IRAs, 401ks, profit sharing, those types of accounts. A Roth actually has an element of flexibility in the sense of any contribution you make to a Roth, specifically a Roth IRA, you can get those contributions back at any time because they’re considered after tax, but from the government standard. So the government’s not going to hold that money. Like you can get that money back.

Rabih: Okay.

Matt Mulcock: If I contribute a hundred thousand dollars over the next 10 years to a Roth IRA, I can get the a hundred thousand dollars back whenever I want. That’s actually a huge misconception with Roth IRAs. You can get contributions back at any point.

Rabih: Yeah, I… Okay, I’m glad you corrected me because I even forget that at some point. So it’s going to be brokerage and then the Roths and then all the tax exempts, but amongst the tax exempt, the HSA sits on the throne in terms of tax efficiency. That is how we would look at it. Okay.

Matt Mulcock: Yes, for sure. Yes. Yep. Yeah, nailed it. What a cascade back. ⁓ Now we’re going into your world, Rabih. We’re going to jump into, so we’ve highlighted anything else you want to add on the account type, so the drawers as we would call them.

Rabih: No, no. No, it’s like drawers come in all shape and form. Here’s a good analogy for ⁓ you. You don’t want to put your boxers next to your forks, so it’s better to have multiple drawers.

Matt Mulcock: Yes. You that was perfect. That was perfect. So we’re going to talk about the boxers and the forks now being so within those drawers are the investments. And when we talk about, again, when someone says a 401k is a bad investment, we just highlighted, 401k is just a drawer. What dictates the ups and downs ⁓ of the portfolio of the numbers you see? Within that drawer, right within that foreign K IRA Roth, whatever it is, what dictates that up and down those up and down numbers are the investment types. So Rabih, I’m gonna kick it to you to start breaking down the types of investments within these drawers.

Rabih: Types of investments. And I think this is why people sometimes get confused because if you were limited with certain types of investments for each account, it would have been an easier life. It’s like, these accounts can only hold these investments. These accounts can only hold these investments. But in reality, all these accounts that we went through in the three main categories, to a very good extent, 95 % can hold the same investments. You can have Apple stock in your taxable brokerage account. You can have Apple stock in your Roth IRA. You can have Apple stock in your HSA. You can have Apple stock in your simple IRA. Across the board, you can have ⁓ most of the investments out there. So for us to stay organized in that situation, we would want to categorize investments just like we categorize different accounts. how do you, where would, what are the categories where you put your money? and that money grows and gives you a return back. there are, you know, this is not really a science, but more of an art and how we would think about it. But at DA, I really like the way we divide it. We divide the investment world into three main parts. A private investment, a public investment, and then real estate, which, you know, is the cousin. It has a lot of similarities to them, but it’s distinct enough for it to be its own category. So… when it comes to private investments, those are investments that are very hard to buy and sell. When we think about a private investment, we think about, you know, your own practice as a dentist. It’s a business that is owned by a handful of people that you can’t just sell its shares today or tomorrow. Our company, Dents Advisors, is a privately held company. Those are private investments. And just like a dental practice or, you know, an asset manager like us, and it could be any small business. It could be a tech startup. Those are private investments. So when you hear the words venture capital, which is very new startups that get invested in, or when you think of private equity, which is a bunch of rich people providing money for a company to purchase a part of it, and that company is… ⁓ You know private or pub private debt where you know a bank is loaning a business money these are all private investments and the kind of the criteria about these types of investments is one They’re not liquid. You can’t buy them and sell them whenever you want. You have to wait for a seller to take your purchase Another thing about them is because we do not have a lot of transparency about their value. So just like you can’t know what is the value of my house today, but you can always go and check on your portfolio. This kind of feature is a feature of private markets, which is lack of transparency. You can’t have immediate valuation of that asset. ⁓ Private investments are the riskiest type of investments, by the way. They are the ones that could make you so much money. You could be a very successful dental practice, multiple practice owner, right? You have multiple practices and be making so much money. And you could also be an owner of a private practice or a private investment that is struggling and there’s no way you can get out of it. And you’re stuck with it just because someone sold you it and they ran away with the money. private investments are the riskiest part. This is category one. Do you want to talk? Did I miss anything about that one?

Matt Mulcock: No, I would just say when you’re going through this, when you say like the lack of transparency, I would imagine it’s really, this is one of the challenges I think from when people compare these different categories. When you talk about private investing specifically, it’s really hard to get data on returns and valuations to your point. And so it’s really easy because of that to tell stories that may or may not be true about this type of category, ⁓ like when people are selling stories around like this, that this investment or the other, ⁓ you compare that to public markets, really hard to compare just from even just the components of returns, right? One is super transparent and one is really not transparent. That makes it really hard to compare these things. Wouldn’t you say?

Rabih: Yeah, not only the returns are going to be hard to compare between private investments, such as the one that we listed and public investments, which we’re going to talk about as well. But the fact that they are very hard to flip around makes them very expensive to invest in. Just like that’s why we’re saying real estate is kind of a cousin, just like there’s a commission for you to pay for your broker. If you sell your dental practice, there’s commission for you to be paid. If you are investing in, you know,

Matt Mulcock: Yeah, fees.

Rabih: The new Bill Gates around the corner, well, for you to be able to actually draft the documents that say now you’re an investor with them out of their garage trying to help them out, you’re going to be paying a hefty commission. So it’s a very expensive investment to get into and get out of. Public investments, on the other hand, are kind of the exact opposite. Just like we had two categories that are opposite of each other, public investments are kind of the exact opposite. Public investments is what we think of when we think about the stock market, when you talk about individual stocks or you talk about funds like a mutual fund or an ETF or a bond. These stuff that happen on an exchange are usually what are public markets and public markets is, you know, the difference kind of between a private market and a public market is the number of participants in that market. If it’s just me and Matt over here, he wants to buy the whoop off my hand and I’m telling him, you have to pay me that much money, right? You have to pay me that much money and we’re bargaining and we’re arguing with each other. It’s an expensive conversation. It takes time. This is what a private market is. A public market is if Matt and I are standing in the middle of Times Square and everyone is holding their whoop and other people are holding cash in their hand and they’re trying to, you know, try to look around and bargain and talk to different people and try to find the cheapest way for each person.

Matt Mulcock: I would. I would.

Rabih: To settle their transaction. This is where public markets are coming in. And to keep on to the analogy with people in Times Square making it like a market, at that point, because there’s a lot of people that you want to organize, probably the city of New York will try to organize it. And it would require every seller of their whoop to disclose how much money they are making, how well their whoop charges. In business terms, what are the earnings of your company? How are your insiders buying and selling stocks? How are you being transparent so you don’t rip people off in this market because we want the market to maintain its credibility? How do we ⁓ create standards that would uphold a certain level of safety net to allow a market to function naturally? Because a market requires informed buyer and informed seller. And if there’s one trying to screw the other over, which happens in a private market, that makes a public market weaker and allow it to fail. So what I would want to say about public investments is that the public investments are traded on exchanges. It’s a big market, multiple participants, and with that comes benefit. The benefit is that the prices are always available. You know exactly what you’re paying in cost, and ⁓ it’s very easy to get out of. There’s immediacy, there’s liquidity. A con of it probably is that it is behaviorally or emotionally heavier to deal with than to deal with a private market because you know what Matt could buy the whoop off my hand in a private market just between him and I and he would not know how well the battery of that whoop lasts like it could go for a while for a long time whereas if he’s doing it on a public market he’ll be able to know what the battery is doing every single day because competition drove everyone to properly report battery percentages. I’m going with that analogy. to make a comparison to that towards, you know, a stock, imagine your dental practice, you just went on and you bought a practice as a new associate and you bought a practice. In a private market, well, you will not know how well that then practice is doing until a couple of months have passed by and you saw how much turnover you have and how many of your patients are returning and

Matt Mulcock: I love it. I love it

Rabih: How much headache do the hygienists give you in that establishment, right? Like there are a lot of stuff that will only reveal themselves with time. With the public market, imagine that dental practice that you’re buying is on the stock market next to Apple and Nvidia, et cetera. Every single day, you’re going to see what the price and what the value of that dental practice is. If it’s going up, it seems like stuff are going in the right direction. If it’s going down, what is going on? What is happening? How can we improve on it? And it is emotionally taxing because you’re going to be sticking your eyes on that, you know, screen, trying to understand why it’s going up, why it’s going down. But at least you have the transparency of it. So that is kind of the main difference between public markets and private markets. It’s not, you’re still buying companies in both of them, or you’re still lending money to other people in both of them. It’s just, what is your interface with them? Is it liquid? You can interact with it easily costly or is it, you know, there’s information asymmetry, you could be ripped off, but the upside is higher because you might be, you might identify something that other investors haven’t already.

Matt Mulcock: Yeah, that’s great. I’m going to cascade this back to you, but before we do, I think let’s add the third category. Cause I think this is the most intuitive for dentists and for really anyone, being real estate. And I think that’s, I don’t even know if we have to go too much into this other than just saying there’s various ways to invest in real estate, different types of real estate you can, you can buy that, whether that be the building that you keep your practice in or that be single family home rentals or commercial build, like obviously different types, but I think that’s the most intuitive of the three categories. Anything you’d add specifically to real estate before we kind of summarize the feature and differences here.

Rabih: You could be someone who is owning the piece of real estate, or you could be someone who’s giving the mortgage to someone else. You’re lending someone money for them to invest to buy the real estate and you would, you know, you’d be the bank making money off that real estate mortgage. Those are mortgage backed securities 2008 if anyone recalls. that is, go watch the big short, but you can invest in real estate as either the lender who allows people to buy or the person buying it themselves.

Matt Mulcock: Yeah, you recall that, go watch the big short or read the big short. Yeah. So lot of different ways to do it. I think you said something really intuitive and I think insightful when we talked about the account types. I think it applies here too. We’re not necessarily saying one is better than the other inherently. We’re saying there’s different features of this. And this is where I’m cascading back to you, Rabih, everything that you said. I want you to confirm anything that I’m saying and tell me if I’m wrong. But I think what you’re highlighting here is there’s different features and depending on what you’re optimizing for, one would fit better than the other. So between real estate, public markets, private markets, some of the broad categories of features we’re talking about would be things like fee structure. So how do you access, like what does it cost to access these markets? Transparency, you highlighted that as a broad category. Barrier to entry. how much, not even from a fee perspective, how much money do I need to access this? So for example, you’re not going to go access public or private markets with a thousand dollars or real estate, unless you’re, unless you’re doing it via the public market. So the public markets, much lower, lower barrier to entry. Um, what else am I missing here? I those are the big ones. Uh, access to money. So access is big. So we’re talking barrier to entry, transparency, fee structure, access to your funds different across returns, expected returns is gonna be different across these different categories. Anything else that I missed there, Rabih, that we should add to like features we’re optimizing for?

Rabih: No, I think that is these are correct and these are your trade-offs so it really depends probably the duration until you get your money back is to statistically speaking between the two markets so just like there wasn’t a like right account type there isn’t really a right investment but once you did understand your situation just like you do with accounts you understand how, when do I need the money back? What do I need it for? And what are my contingency plans? Would I need it earlier? Would I need it later? ⁓ What would happen if I lost that money? Will that be like, how much can I afford to lose in that money? Determines how much you would put in each bucket of that.

Matt Mulcock: Yeah, it’s really great. What I’m hearing you say, and it’s the same thing with the account types is it doesn’t mean that any of these categories are inherently good or bad, but sequencing of how you use these things matters. And that could be improperly like you could improperly sequence this of like which, which markets you’re trying to access before the other. And we’ll just not make this a secret at all. We firmly believe in public markets being the core category of this for, for most dentists for a lot longer than you think. So sequencing of like, if you’re going to be in one area of the other for a dentist, especially a practice owning and real estate owning dentist, public markets for sure would be generally speaking, number one place to sequence your money. And again, for a lot longer than you think before you ever go out and explore the other categories, anything that you’d say to that.

Rabih: No, I would actually double down actually for for human for humans for individual investors. We’re not talking about ⁓ countries or big pension plans or big insurance companies or, you know, ⁓ I don’t know, an airline company or Walmart or like big companies that have money on the side that they want to invest for humans for an individual. The right way to start is always through these public markets, because that’s the one that requires least knowledge, I would say, and ⁓ protects you and allows you to grow to a point where anything overflowing from the, you know, the road of the public markets can be dumped onto the private markets and to the real estate, where the investment itself is not right or wrong. But when you combine the person who’s investing, is it a company? Is it a human? Is it a country? Is it a wealth fund, whatever, the individual investing, the legal entity investing combined with the type of investments, then at that point there are rights and wrongs.

Matt Mulcock: Yep. Love it. Yeah. That was a good double down. Rabih, should we leave it there? We covered a lot, a lot of details. ⁓ So we were going to go deeper on this, but I think actually as we’re going through this, I’m thinking we could take this further in episode two. We’ll tease this around going deeper into public markets specifically and still covering some nuts and bolts, but taking you a little bit further and deeper and then saying, then expanding into things like philosophy and strategy and those kinds of things. Does that sound okay?

Rabih: I love it. I think it’s a good point to end it here because we said this is an episode about investing. And usually people when they think of investments, like, okay, which stock, which bond? And we went on for 50 minutes talking about investing, telling you what investing is. And we never mentioned a stock, which tells you, have to take a step back to properly understand what an investment is before we jump directly into what we see at the end. Yeah.

Matt Mulcock: Woo! Yeah. That means we’re either doing something really right or something really wrong. I don’t know. There’s no one between there. So no, it’s great. I love talking this stuff with you. with that said, we’re going to end episode one of our, I was going to say taxis of our investment series, much more to come. And we’ll go a lot deeper, broader and deeper at all these different topics and start getting into philosophy and strategy. Rabih will go as deep as you want on this topic. I can guarantee you that. so let us know. If you have specific things you want to cover, you want us to cover on investing, can always send us questions or comments at podcast@dentistadvisors.com And we’d be happy to hit those things on this series. ⁓ but with that said, if you want more of this live and in person, you want to listen to cash GPT and Rabih, at the Dentist money summit, you should check it out. dentistmoneysummit.com. Come hang out with us in Midway, Utah, June 11th through the 13th. It’s around the corner, Rabih. Are you prepared? You ready to go? Feeling good? I’m excited. I’m excited for years. And then of course, as always, if you’re wanting to chat with us, dentistadvisors.com book free consultation button. We’d love to talk to you about your investments or your business, cashflow, anything we can help you in your, in your life with money. We are here to help. We’d love to talk to you for now. Rabih, thanks for being here as always. Everyone. Thanks for listening.

Rabih: Yep. Hopefully. Yes.

Matt Mulcock: Until next time, bye bye.

Keywords: investing, account types, tax strategies, public markets, private markets, Roth IRA, 401k, HSA, diversification, financial planning

Finance 101, Investing