Putting It All Together: How Dentists Can Invest With Confidence

On this episode of The Dentist Money Show, Matt and Rabih wrap up their investing series by putting the pieces together and exploring how dentists can build and manage  smarter investment portfolios. They break down diversification, passive vs. active investing, rebalancing, tax-loss harvesting, and the importance of focusing on the investment decisions you can control. They also discuss why successful investing is about more than building wealth—it’s about protecting it and giving your money enough time to work to work for you.

Listen to part one & part two!

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Podcast Transcript

Matt: Welcome back to the Dentist Money Show where we have Dentist make smart financial decisions. I’m a guy named Matt. I’m here with the professor, professional chef, investment guru genius, Rabih Dimachki Rabih, how are you? I’m good. You we were just talking. I’m sitting here with my grapes. I got my bowl of grapes, my afternoon snack. This is our second show of the day we’ve done together.

Rabih: Hello Matt, how are you? Mm-hmm.

Matt: Which I love. I feel like we get warmed up and then we just we get going on the second one. But you just shared with me the gourmet meal you just had for lunch. You wanna share with the good people what the chef was cooking up?

Rabih: It’s not a gourmet meal, but I I’m I’m I’m the type of guy who likes to ⁓ give leftovers another chance in life. So I had a cold slice of pepperoni pizza in my fridge, but instead of just chew, you know, chewing on it, which is nothing wrong with a cold slice of pepperoni. It’s delicious, right? I just put it in the microwave for 15 to 20 seconds until it got some moisture back.

Matt: I beg to differ. I beg to differ. Yeah.

Rabih: Then I threw it in the air fryer until it was crisps. Then I have some freshly ground pepper on it. So I added those peppers and then drizzled some honey and I had a very delicious hot honey pepperoni fro out of the leftovers. For me, this is what I do on daily basis, but it seems like it’s gourmet. So here we go.

Matt: Yeah. I just know what I love about it is we were getting on. I was like, I’ve got my grapes here, I’ve got my afternoon snack, and you’re like, let me tell you about my lunch. I just took this Costco pizza. I just love that you revived it from the dead and you made it fancy, which I love. So ⁓ okay. Today, Rabih, we are talking ⁓ part three of our investment series. So ⁓ first of all, I will start with again, the show is brought to you by Dentist Advisors. We are a financial planning, investment management, tax, and accounting firm just for dentists all over the country. Our main focus is helping dentists make work optional sooner. You can go to dentistadvisors.com to click on the book free consultation button. We’d love to hear from you and talk with you and see how we can help. But beyond that, Rabih, everything we do is in the basis and foundation of education, which is what we’re here to talk about again today, and build upon the other two episodes we did. If you’ve not listened to part one and two, we we recommend it. However, in part three, as we wrap all this up, we’re gonna kind of bring it all together. We’ll recap some things and then again try to kind of close the loop. So if you don’t get a chance to listen to parts one and two, we can kind of do a condensed version of those as we wrap it up. Anything you wanna say, Rabih, as we jump into this. Are you pr are you intimidated by this topic? Are you kind of a bit nervous to talk investing?

Rabih: I’m kinda sad that this is the last episode. I was hoping that I at some point I’ll start pulling up papers and like reading the references in the footnotes for you, but here we go.

Matt: I know. Maybe we can go, yeah. Maybe if people request it, we can go, we can do even a deeper dive. But okay, so let’s let’s recap a just briefly what we talked about in episodes one and two. So the main components of part one, we introduced what gets confused a lot between different account types, ⁓ how accounts are are treated differently from a tax perspective, why it’s important to understand the difference between, let’s say, a brokerage account versus a Roth IRA versus a traditional IRA versus a R versus an HSA and kind of the different ways that the the those accounts can impact mainly things like taxes and then why you’d have certain investments within each of those accounts depending on your situation. Anything you want to highlight there or bring up again around just account types, Rabih?

Rabih: Yes, that ⁓ people sometimes just move over forget about the accounts and focus about the investments. But w especially when it comes to your after tax return in the long run, choosing the account is sometimes even more important than choosing the investment. And like nailing the account is more important than nailing the investment.

Matt: Yeah, ⁓ such a good point. So and I love what you just said there, the after-tax wealth. That that’s the name of the game, right? I mean, that’s at the end of the day what we’re trying to to optimize for is your after-tax wealth. If we’re just talking about the the spreadsheet side of things, obviously there’s a lot more that goes into it in like real life. But the name of the game with investing and all of the things that that we do in our work is

Rabih: Yes.

Matt: maximizing and optimizing for after tax wealth. I just love that you highlighted that. Because and and that might sound obvious, but it’s crazy to it’s crazy how many people out there are not optimizing for that. They’re pitching other things that are fancy, sound great, that solve maybe one job to be done, but at the end of the day it’s not actually helping you with your after tax wealth. ⁓ okay so then the second piece of this if we’re differ if we’re differentiating between account types And then separately the investments that hold you hold within those accounts or the different ways that you can invest. And we highlighted in that section that we’ll repeat here. There’s really only three places to invest your money. That’s private markets, public markets, and then real estate. And there’s a lot of different things under each of those three pillars, but that’s really the only places. And we try to demystify that as much as possible. Each of those investment investment types have their different components, their pros and cons, their trade-offs. And it’s really important to understand those as you’re building out a strategy. Rabih, anything you want to add to this just around the investment types?

Rabih: Is that the the return of these investment types, whether it was stocks or bonds that we went over or your dental practice or real estate, what validates and justifies why one is riskier than the other and why one should be invested in a certain way ⁓ different than the other, is stems from your legal position in that in that investment. Are you someone who is lending money and if something goes bad, you have superiority to get your money back before the others? If so, you should not expect as high of a return. As someone who’s going all in, he’s the person who collects their money at the last, as a last resort, if anything is left, but they get the chance to act ⁓ anticipate higher returns and bigger upside. So depending on the type of legal document you go when you’re investing your money in, determines how risky your investment is and what returns you can expect.

Matt: Yeah, love it. ⁓ and then specifically we talked about on the public market side, specifically the difference. Again, we we highlight the difference between the custodian with the where you house your money, the account type, and then versus the investment. Those are kind of like the Russian nesting dolls, right? The investment lives within the account, the account lives within the custodian. And so understanding the difference is there. We then in part two broke down the differences between. Again, going further into the stock market or public markets, the difference between stocks, aka equities, actually ownership in a business, versus fixed income or bonds, which is you are lending money to some type of entity, whether that be the government or or ⁓ a busin you know, private business or a municipality, and the difference components there. Rabih, you just did a great announc or summary there of understanding the different components when it comes to the risk you’re taking on and the expectation of return there. and then we took it even further going into ta in owning those things individually versus within ⁓ a wrapper of whether it be an ETF or a mutual fund and the differences there and what that means. Okay. I think that’s a summary. Rabih, anything you want to add?

Rabih: That’s bring nope, that’s brings us to exactly where we wanna start today.

Matt: Yes. Okay. So in part two, I will say, I will admit, if you listen to part two, ⁓ we started kind of going deeper than we needed to or should have in part two. We wanted to save that for part three. We couldn’t help ourselves, nerd alert. ⁓ but we want to pick up where we left off when it comes to part two, specifically around ⁓ diversification and then taking that further ⁓ to or taking that a little bit deeper.

Rabih: Yep.

Matt: Talking about the differences between diversification, ⁓ application, asset allocation, asset location, rebalancing. We hear these things, I think. You know, Dentist hear these types of things, but really breaking down like the components of actually managing a portfolio. I think that’s what we want to do today is kind of the so what? Like, Okay, I I understand like the first two topic or first two sec sessions were just around or podcasts were just around like sort just in information, right? It’s more like, okay, here’s some education. I think today I want it we want it to be more like application. Here are the decisions that you have to make to start investing your portfolio. Does that sound sound good, Rabih? Anything you want to add to that?

Rabih: let’s get into it.

Matt: He’s you’re like, sh just let me go. Okay. So let’s let’s let’s pick up what we left off with diversification. We we hit this in part two, but I think it bears repeating. Let’s start with the diversification piece around size, sector, and region. Again, you hit it in part two, but just maybe hit that again and then it leads into the passive versus active discussion.

Rabih: Yes. So f following up on where we ended last time, we said it’s better it’s better to have many stocks versus one stock because if you lose if if your all your holdings are in one stock and that one bankrupt, then all your life savings disappear. If you hold two stocks and one of them bankrupt, then your chance of bankrupting yourself drop to fifty percent. If you have three stocks, 33%. And as you keep increasing the amount of stocks that you have, ⁓ your probability of completely bankrupting yourself shrinks. Doesn’t go away to zero, but it shrinks to a very small number. But the question would be: what are these additional stocks that I’m going to be adding? We know that when you add multiple stocks, they might come from either the same industry or from different industries. And depending on what you add, Actually changes that risk conversation in your portfolio. If you decided to hold all the magnificent seven in your portfolio, yes, if Apple goes bankrupt, you’re fine because you’ve got Amazon and Google and Netflix and NVIDIA in your portfolio, correct? But if the stock AI bubble c suddenly collapses, then all of these seven are impacted equally because they are all ⁓ coming from the same industry. So what happens is as you’re buying ETFs that include multiple stocks in them, you need to make sure that those ETFs actually also have some differences amongst each other in terms of the risks that they are exposed to. That there are so many ETFs on the markets that slice up the investment universe into these sectors, like an ETF for the technology sectors or an ETF for healthcare, or an ETF for consumer discretionary, energy, etc. You wouldn’t need to make sure that your ETFs are diversified on the front of sectors. But not only that, but also ETFs that are diversified across geographical regions. When we’re buying, for example, the Russell 3000, which is an indicator of the US stock market, you are buying all the stocks, but only the stocks that are in the US. Well, what about other stocks such as emerging market stocks that include South Korea and China and and Singapore, etc., and Brazil and South Africa. What about developed market stocks, which include countries such as the UK, all of the European Union, Canada, Japan? So it is very important that when you’re buying ETFs, you look at it from the lens of sectors and you make sure they’re not all concentrated in one sector. You look at it from the lens of a geographical region and you make sure they’re not all concentrated in one geographical region. And then probably the third one you would look at is that you make sure that you’re invested in companies of all different shapes and forms. There are companies that are larger than others. Think of like the Nvidia’s and apples of the world, but there are smaller companies ⁓ around. And the risks that each of one is exposed to are different. Larger companies can’t keep growing forever because at some point they become larger than the the country that they’re in. They have a ceiling on them. Whereas smaller companies have a longer way run to keep growing, which makes them attractive. Similarly, or or on the flip side, I would say, larger companies are more immune to like, I don’t know, interest rates going up, whereas smaller companies they are less immune to that. So because how much runway you have to grow remaining and how you react to external shocks is different between a large company and a small company, that provides an opportunity to diversify because When one is doing better than the other, you’d rather be in both. Also, last one, sorry, I just you open the gates and I’m flooding in. The last one would be ⁓ related to like the attractiveness at a certain period of time. You’re going out there, you want to buy all these stocks, but we know that the markets are, you know, constant constantly fluctuating, and some have higher prices than others. So you might actually go and look and diversify across companies that.

Matt: No, I love this.

Rabih: Are expensive relative to the average of the market price-wise, and the other companies that are cheap relative to the companies of the average march. This is what we call about growth stocks versus value stocks. And the one about size, ⁓ like big companies, large companies, is small cap small, ⁓ small cap versus large cap tilts. So these are all different lenses that you can look at the portfolio. And whenever whether you’re buying a bunch of individual stocks yourself, a bunch of ETFs that hold these stocks. Or one ETF that holds the whole world, you need to make sure that once you view that investment from all these different lenses, that you are scattered around across all of these different sectors. Or else you might think you’re diversified, but you’re really concentrated in a risk hidden behind the layers of football.

Matt: That’s a such a well done explanation of diversification. And I think so I actually had a a while back, Rabih, something I’ve never forgotten. I was on a client call with ⁓ a CPA. So client and and their CPA, and we were talking about investing. Some somehow it got to the topic of investment strategy. And this particular CPA said,

Rabih: Mm-hmm.

Matt: Well, I f some I mentioned something about diversification being the foundation of a of a portfolio and our our approach. And the CPA said, ⁓ no, I don’t believe in diversification. That’s just admitting that you don’t know what’s gonna happen. And I was like, Yeah, that’s exactly what that’s exactly what it is. Yeah, it’s like but he’s he said it almost like negative like he was like almost like trying to get me with a gotcha, like, ⁓

Rabih: Yeah. To the contrary off.

Matt: Well, diversification is just admitting you don’t know what’s gonna happen. And I literally said, yes, that is correct. Diversification is humility in action. It’s saying that we don’t know what is going to happen. We just are gonna make a bet on all of humanity continuing to progress and innovate and try to make their lives better. But we’re not gonna try to guess when the next war is and in what region and what’s going to happen with this currency over here, it’s it’s literally impossible to know those things and to to guess ahead. And that’s been proven time and time again. But I think so would you so hu ⁓ diversification is humility in action. But I think that in and of itself highlights why it’s difficult. Because we all have an ego. We all want to believe we can outguess these things at time or believe someone who says they can. I think that therein lies like the issue with this of why it’s so hard to do it.

Rabih: Yeah. I I have some beef with the ⁓ if you allow me, we can crop all of this out. But I have some beef with the idea of like if you’re diversifying you don’t it means that you don’t know what is happening. Well, first of all, what made this kind of statement go mainstream and now some people use it as a, you know, counter argument is that they’ve heard it from ⁓ hedge fund managers and the Titans of Wall Street who were trying to justify whether it was Warren Buffett or

Matt: Please.

Rabih: Stanley Duncanmeyer or Bill Ackman or these guys who are investors with significant influence and control over the companies that they invest in. They have a way to control the path of the company, which allows them to feel like if something goes bad, I have control over. So I don’t really need to diversify as much. You don’t need to diversify your dental practice. You don’t own 500 dental practices because you have one, you have control over it. This is a different game for you know, the the I would say the dentists out there. Because once you’re buying a company, you’re not buying enough shares that you have control over its management. You can change the CEO whenever you want. You can control the board of directors by voting. You have no control. And because you don’t have control, you’re you’re concentrating your position in one company means that you’re at the mercy of that one co company. They have control over you rather than you have control. So from our perspective, where you have to you have to really separ you can’t separate control and diversification from each other. If you have control, then yeah, the difference if diversification is not necessary. If you don’t have control, then diversification is absolutely important. So the question would be like what control does the CPA have about the ⁓ on the on the future of the portfolio? The other point I wanna highlight, and stop maybe I’m going too far. But it is related to the idea if you’re diversifying, it means that you do not know what is going. And it is part of your humility, that is correct. But also diversification tells you that I know something. I know that if I put all my money in one company, my risk of total collapse is higher. I know that company-specific risk is much larger than the macroeconomic risk. If I’m not diversified, I’m exposing myself to Unnecessary risks, such as the fact that I don’t know, the CEO ⁓ had too much to drink the night before and made a very bad decision. I’m exposing my s I’m exposing myself to the possibility that the marketing team really flopped with an idea about a company and now suddenly the stock price is down 12% and my wealth is down 12% because a team of five people that should have been hired pushed a certain marketing campaign. So I know that I when you’re diversifying.

Matt: Classic.

Rabih: It’s not like, I don’t know anything about the future. And frankly, no one knows anything about the future. Like, even the big titans of Wall Street, they know how the country company is run, but they don’t know what inflation is going to be next year. They don’t know whether the next new technology is going to be in robotics or AI. They really don’t, they no one can predict the future, or else we would have made them gods, right? So the whole idea with diversification is like, I am accepting that there are things I don’t know that I don’t know. Which when you try to not diversify, you’re following trap to that part.

Matt: Yeah. ⁓ so glad you went down this road. That’s perfect. to come back to the well, really both parts of that. I think what you’re speaking to is a fundamental mindset shift for so many dentists they have to make when you’re talking about concentration of wealth and the things that you can control and then spreading spreading out your risk and the things that you don’t. I think that’s a perfect characterization. The other part of this that I think gets really confused is.

Rabih: Okay.

Matt: That like what is the purpose of investing outside of yourself and your practice and your business? Right. Cause I think these things get confused a lot. And what actually builds wealth? So concentration in something leads to a higher likelihood of building wealth, but with a caveat of you control it. So if we talk about what is a dentist, what’s the highest probability of success of building wealth for a dentist? It is. Building an incredible practice that’s profitable, that you continue to focus on, grow, put your time, time, focus, energy into it, and grow it for 10, 15, 20 years, right? That that’s what’s gonna be the engine of your wealth. What protects your wealth and your future is diversification in other asset classes like the public markets. And I think that gets confused. Invent so if you compare another component add to this is insurance. Insurance and investing are doing the same thing, just at different timelines. Your insurance is protecting yourself now. It’s protecting some component of your life now, whether it be your actual life or disability or your business. It is risk management today. Investing is risk management in the future. You are protecting your future. And I think there’s not enough focus, or I think it requires a mindset shift for a lot of dentists. ‘Cause they just think the risks are the same. No, investing is not necessarily about growing your wealth. It’s about protecting your wealth. Anything you’d add to that, Rabih?

Rabih: No, I I love it. So the and if if we want to come back with with what we’re saying about diversification, is that ⁓ on one hand, if you don’t have control over the fate of what you’re investing in and you’re hoping that you’re betting on the people to make our lives better and a sense and in a sense recoup that reward, diversification in that sense is a no-brainer answer. What the second layer of that is that how is that diversification done then? Because if we all agree that, yeah, if we have zero control over the companies, we’re better, we’re better off being diversified. Now, how are we going to say it? Because you come to this industry as a dentist and you, I don’t know, ask and interview so many financial advisors out there, and they all tell you, we believe in diversification. The question would be, okay, how do you do it? Because diversification is one name for something that could be could be done. In completely different ways. The best analogy I can think of is that you go to a grocery store and it’s like, I want to buy some chocolate. And then you open that rabbit hole. Of course I’m going to go with food analogy, right? You go and you say, I want to buy chocolate. And then just like there are those baking bars that starts with like 40% chocolate to like 100% chocolate, but then you read the ingredients, and some of them are made with this type of chocolate, others are made with that type of chocolate, some that are

Matt: course you’d go with the food analogy.

Rabih: You know, processed with alkaline, others aren’t a lot of sugar, no milk, etc. The same it’s all called chocolate. The label says chocolate, the label says diversification. But then when you actually look at the ingredient list out there, it’s like the way it was created, the ingredients that are there are completely different from one or another. So how does then how do I know which is the proper way to do diversification?

Matt: Yeah. Yeah. That’s such a great analogy. I love that. I also love chocolate, so I’m biased. So I think that does like le lead into this next piece of this, which is the is what you’re referring to is what is s ⁓ oftentimes kind of ⁓ viewed as counter to each other being passive versus active. Those are kind of the two broad categories people are out there kind of fighting about out there in like the the

Rabih: Ha ha ha.

Matt: Twitter world, let’s say, around philosophy and implementation, exactly what you’re saying, of these components of an investment portfolio, active versus passive. So let’s break those two down, Rabih, and then also highlight maybe a third option here that people don’t often think about, because we don’t believe it’s just passive or active. There’s a way to actually blend the two. So you want to speak to this.

Rabih: Yes, hundred percent. So if we start at the first layer of our of your philosophy, there’s going to be the passive philosoph philosophy and the active philosophy. The passive philosophy, and those actually stem from a theory. So, you know, the the finance academics created a theory, and then some people agreed with it, others didn’t, and it created two political camps. And this is where it stands down. So there was a theory that says markets are efficient, which means when we see a certain stock price at a certain level. For example, stock XYZ trading at a thousand bucks. The market, because it’s the average of every p person’s opinion out there, is indicating that the correct price is a thousand dollars. The correct value is a thousand dollars and the price of a thousand dollars reflects it. And they think that the source of knowledge is already reflected in these prices. ⁓ if we think the value of the company is not a thousand, then we’re the one who are wrong because the market is the average of everyone’s opinion. And for that reason, they take the prices of the market as granted and that they invest accordingly. It’s like, the market is indicating that this should be at a thousand, the market’s indicating that this should be at 700, etc. This is what we call the passive approach or the passive investing. You believe the prices the market is giving you and you invest accordingly. The other camp is the one that says, yes, the market is the average of everyone’s opinion out there, but there are so many anomalies and people are affected by their behavior. And there will be a lot of times, a lot of times, where ⁓ this price is not the correct indicator of the value. The value of the countr company could be 1500, but the price that we see in the stock market is only a thousand. So we think it’s it’s misrepresented. We know better than the market. This is an opportunity for us to go buy, and once the price reflects the true value of 1500, we would make money. Those are the active approach where the value or the actual knowledge stems from the investor’s opinion rather than being reflected from the market’s price. Those are the two camps. And there are people who invest based on one philosophy or the other. To set, I wouldn’t settle the debate, but to like settle or tell you or get you up to date on where the argument is, is that the markets are semi-form efficient. This is what they got to at the end. So markets. With the current regulation that we have are more passive than they are active. There will be a couple days, a couple weeks in on an index level, or at a stock level, maybe a month or two, where the market isn’t really reflecting the true value and it’s not being following the passive philosophy as it’s supposed to be. There because it’s influenced by humans. Sometimes people are not trading a certain stock, or some suddenly, or perhaps people are not informed on correctly on political events on what’s happening. There will be some bursts in our timeline where the market is not grinding information as efficiently. So what happens is I would say like 80, 85% of the time the market is ⁓ efficient and the passivists win. And then 15% of time during panics, during euphoria with bubbles, the activists win. Like I mean we’re not saying there’s a clear winner there. But more often than not, the passive investment Has done much better than the active investment. Research has shown it. Active managers of ETFs and mutual funds tend to outper underperform a passive investment that just buys the index over a five-year horizon by a 95% probability that they underperform. So, this is what the data has been showing us. This is the first level between active and passive. At DA specifically, because our clientele are Dentists that have a practice that is already their wealth creation engine and they want their portfolio invested for the long run. On the long run, the passive investors win. So this is why our main philosophy is targeted to be more passive in nature than it is active. So you don’t see us cherry picking stocks for you, thinking that we know what the true value is and how different it is from the market. Simply because as a dentist, that’s not the game that you need. You don’t want a financial advisor out there who’s implementing an active strategy. It does not fit well with the idea that you have a practice that will funnel into your portfolio. So between active and passive, there’s the passive aspect. But this is only on how you approach investing. Like what is the philosophy that it’s stemming from? Are you going to take the prices in the market as the true source of knowledge, or are you going to assume the market is always wrong and you know better and you wanna ⁓ try to cherry pick on these opportunities. Do you have anything to say on this point?

Matt: No, I I love this. ⁓ I think y perfectly highlighted between passive or or we’re talking about the philosophy itself, just our general belief about the markets. Perfect. And then the other aspect of this is the actual implementation of that philosophy. I’m guessing you were gonna go there next. You’re like, heck yes, let’s do it.

Rabih: I can I can hit on it. Yeah. So obviously. So you know, obvious you have to you you have two ways. You you can either ⁓ you can choose to be an active investor or a passive investor. This is your choice of how you wanna approach investing. But then how do you do investing from within? ⁓ there is like actually like the buttons you’re clicking, the the spreadsheets you’re refreshing, etc. There are people who just do a set it and forget it type of approach. Whether it’s active or passive, or ⁓ people who ⁓ are ⁓ actively monitoring and tweaking every single day, although their philosophy might be active or they are passive. So they’re mutually exclusive, right?

Matt: So so let’s start really really quick, Rabih. So a a traditional, so someone who thinks of passive investing, I think the classic ⁓ SP set it and forget it, would be the passive philosophy. I believe that just markets are efficient and ⁓ long term it’s just gonna, that’s gonna win. And then imp they implement it this with a passive mindset as well. This is just kind of that. Broad based, I’m gonna just buy an index fund and never look at it for the next 30 years. That’s like the classic passive investor, the vanguard approach. Right. But we’re we’re highlighting that there’s more to it or or there’s more nuance to someone who, even like us, has a passive philosophy, but we certainly don’t sit on our hands and just implement like a set it and forget it approach. There’s different implementations.

Rabih: The Vanguard approach, right? Yep. Exactly. So a hundred percent. So under the umbrella of passive, you can have the set it and forget it approach like Vanguard, which what they do is that every quarter they have a new list of ETFs, they buy those, they refresh it, and then they forget about it for three months and then they do it again. Takes a day or two, end of story. The active ⁓ not the active, but more the active implementation, the intentional implementation approach to a passive ⁓ philosophy, ⁓ would be what we kind of follow we cherry pick ETFs that actually do follow such an approach as well, like as dimensional fund advisors. So what we’re doing is that we understand that between on the long run, the market’s going to do fairly well, but in between, ⁓ markets are going to fluctuate. And in between, those 15% of active, 15% of the duration, the actives are gonna happen. For example, it could be that a certain market gets concentrated. We talked about this on two cents this morning, right? the emerging market index, right, is concentrated in ⁓ mainly ⁓ Taiwanese and Korean stocks. And in Korea itself, the whole stock market is being led by only two companies. So the diversification benefit is is getting dissolved away because there are two companies in Korea dominating everything. ⁓ passive philosophy accepts that, yep. Those two companies should be dominating for good reasons. The market is rewarding them. However, in my portfolio, if I’m a following a Vanguard approach, what would happen is that those two stocks will also get concentrated in my own portfolio as well. Not only in the market, they’re getting concentrated, but in my portfolio. And once they crash, my portfolio crashes with them. On the other hand, a passive philosophy with an active implementation. Would mean that we accept that those two companies are dominating and they deserve to be dominating. They’re servicing the whole globe with memory chips, but they become a very high concentrated position of our portfolios. We’re going to put guardrails, rules, and regulation to make sure that diversification stays in place. That might mean that if they become too concentrated in a high percentage of our portfolio, we might sell out of them. That might mean that they have if they have become Very volatile and they’re very expensive to trade into and out of, maybe we would hold off trading from them, not to incur un unnecessary costs. That might mean that every quarter when the index is updating its own list, you know, the Vanguard approach, every quarter they update the list. Maybe on that day when the list is getting approached, the market is being squeezed because everyone’s trying to walk into the same door. Maybe we have a different, more strategic approach on when to buy and when to sell to stay in line with the passive philosophy, but not incur unnecessary costs, not not get hit by just the momentums and waves that that happen in the market. It’s more systematic, methodological. There are ⁓ I would say control knobs that could where you amplify or you decrease the volume or an impact a certain stock ⁓ can affect you. And this is this is the aspect where you actually have control over. You don’t have control over what the stock will do, but you have control over how your portfolio reacts to a certain stock. So you we believe that market pricing are the actual reflection of the company value. We don’t think we know better. But we have control over over our portfolio. And we wouldn’t want ⁓ st you know, stuff that might happen in the market that we might not favor, such as over concentration or a bloodbath in in a certain sector or I don’t know, panic selling to affect our portfolio itself.

Matt: Yeah, that’s a really good description, Rabih. And I like what you you came back to this idea of control. Like at the end of the day, our approach is what we’d call systematic. So it’s not passive, it’s not active, you know, in isolation. You blend those together with a passive philosophy but active implementation. The word we’d use is systematic in our approach. And what and what you just said is perfect, which is we’re focused on the things that we can control and we’re letting go of the rest. And we’ve already highlighted so many times, even in this show or in the past, we don’t we can’t control what’s gonna happen short term to interest rates or that CEO or this, you know, this region starting a having a c a conflict or whatever. We can’t control those things. We’re just gonna bank on the fact with a passive philosophy that things will continue to grow as a whole over time. But I can’t stress enough that that doesn’t mean we take on a passive Implementation of just like, whatever, there’s nothing we can do. We’re just gonna sit back and let it happen. And I because I think that gets confused a lot. The way I would phrase frame this is there’s kind of bad, there’s good, better, best in our approach. So when someone says, I’ve got the SP 500, I’m just gonna set it and forget it, we say, Great, that’s better than stock picking or active trading or crypto bro vibe trading, like way better than that.

Rabih: Mm-hmm.

Matt: But it doesn’t mean that’s the best approach. And I think that gets confused a lot.

Rabih: Yeah. So ⁓ it’s not like you’re just I’m working with this advisor that says we have an implementation strategy and what they did is just they put me in a bunch of ETFs. Right? This is what they’ll say. And the question would be, well, what type of ETFs are they? Because the job of k d ⁓ my playing around with these control knobs and playing around with these guardrails to make sure that you’re always on a good job. Can happen in both ways. Your financial advisor has a can do it on their layer, but then the person managing the ETF and mutual fund can also do it in that layer. And do they coordinate that with each other? Do they know? Or is just your financial advisor buying them and they have no idea who’s managing the ETF, right? There are ⁓ knobs to do over there. So you may be sitting in ETFs but or mutual funds, but on the background, a lot is going a lot is happening from the fund manager level or your advisor level. The I would say the stuff that you most see that happen on your advisor level that usually do not see a lot is probably rebalancing and tax loss harvesting strategies, as well as ⁓ cash flow management, right? how often do do you get ⁓ questions from clients like, Hey, what was this trade for in my account? ⁓ I thought we’re a passive investor, right? Like, why are we trading? So could you share a a story or two?

Matt: Yeah. Yeah. ⁓

Rabih: Yeah.

Matt: all the time. Yeah. I mean, I think you bring up tax house harvesting. It’s such a great example. ⁓ a default position for most is ⁓ yeah, we do tax house harvesting. We just kind of wait till the end of the year to see if we have losses and then we’ll take them if if if they’re there, versus a dynamic or proactive approach to tax house harvesting is what we do, which is the best example I can give to your question directly was ⁓ April of twenty twenty five.

Rabih: Mm-hmm.

Matt: April 8th, 2025 was the low. I know that again, because it was my mom’s birthday, so I’ll never forget that. And we activated a pretty sizable tax loss harvesting strategy there where we harvested multiple seven figures across the portfolios that we manage in losses. Yes, that got a lot of questions about like, what are you know, what what you know, what are we doing here? What’s the strategy? But So that’s that that’s the first example that came to mind of being active in implementation of these things rather than just sitting back and and letting it. So that led to after tax, ⁓ a a pretty massive after tax wealth opportunity taking advantage of what the market gave us.

Rabih: 100%. And this is what I we say. It’s like, how are you doing it? Whether it’s diversification or tax loss harvesting within diversification. You could do tax loss harvesting the way you mentioned, Matt. We wait until the end of the year. If we have losers, we’ll exchange them to some other funds. We’ll harvest the losses. End of story. You can put the plaster of, hey, this is tax loss harvesting. You could invest in funds that they themselves are tax efficient, and you would be doing tax loss harvesting. Not all ETFs and mutual funds trade within themselves. In a tax efficient manner. And you can put the plaster of this is tax efficient, which we do by the way in the fund selection. But then there’s a third way where your advisor is tracking every single day every individual position that you have, not just the individual position, but the lot within it. And what we mean by the lot, you could have bought Apple at five different times. Each time you bought, each time is a lot with a date on what it was purchased, and each lot will have a different gain or loss percentage on it. Your advisor is tracking every single lot. And whenever that lot pushes beyond a certain ⁓ threshold that it is now economically viable for you and actually better for you to do a high tax loss harvest, you’re going out there and you’re capturing that tax loss harvest. So all of these ways, the mini school daily one to the one where you offload it, you offload part of the job to a manager, or the one where you just look at it and check the box once a year. All of those could have the plaster of tax loss harvesting on the packaging. How is it done? Similarly with diversification, similarly with cash flow management. And I know probably dentists don’t want to go into those details every time they’re interviewing a dent financial advisor, but it’s really it really makes a difference, especially when your investment is there for 30 years, right?

Matt: Yeah. Yeah. Yeah, exactly. And I I yeah, it’s funny you you say like the the it says the same thing on the package. And I love that you’re using this analogy with with food. Gluten free or these like different like taglines or things that become popular, fat free or whatever that that captur that capture the imagination of the public and people start, you know, the food companies realize, we sell more and we do this. It’s the same thing in our industry. when you plastered ⁓ these catchphrases and you know, you know, on your strategy or whatever, just basically banking on the fact that the end consumer doesn’t really know the difference. And that’s so I’m glad you’re bringing this up because our goal is to hopefully break down that it doesn’t all mean the same thing. You gotta look under the hood. ⁓ you mentioned Rabih, so we we’ve talked a lot about diversification. We talked a lot about asset allocation in previous episodes, but just to kind of hit those really quick, asset allocation is something we hear a lot. That just means the mix of stocks and bonds. How much you have in stock versus how much you have in bond. You might have Apple stock and one grouping of treasury bonds and and have the proper quote unquote asset allocation for let’s say your timeline or risk, but that doesn’t mean you’re diversified. Diversification then means within those categories, how spread are you ⁓ across these different things we’ve been talking about? Region, size of company, growth versus value, all those kinds of things. And then the other aspect of this is rebalancing. You mentioned that as well. That’s an active implementation type process for sure. Do you want to speak to that as well as well?

Rabih: Yes, rebalancing. So that asset allocation you talked about, Matt’s like how much in stocks, how much in bonds. By the way, the answer to that is not investment. The answer of that is financial planning. You meet with the advisor, we know what your goals are. Every dollar has a as a role to play. And based on the needs of the needs you require from your portfolio to finance your life, that will determine the asset allocation. So once the financial planning gives us the

Matt: Yes. Yeah.

Rabih: Green light on how to proceed and determines an asset allocation to us. We buy according to certain percentages in stocks and bonds. Well, life isn’t static. Stocks go up and down, bonds go up and down. And with time, that initial allocation of, for example, 60% stocks, 40% bonds starts to deviate over time. As it deviates, you’re now getting re-exposed to risks that you did not want. So, what you do, you have control over your portfolio, you bring it back to the ⁓ proper allocation of 6040. Well, again, rebalancing just like taxos forvesting, just like diversification, just like chocolate. It’s a plaster that you put out there, and it really differs on how you’re going to be doing it day to day or once. There are probably a couple ways people do their balancing. Some of them just wait until the end of the year and then do a hard reset on the portfolio. They sell the one that went up, buy the one that went down, readjust it. Regardless of what the market’s doing or what the market might be doing, regardless of whether you or what changed you in your life, you’re just doing that. There are other and this we call time-based rebalancing. Like every year or every six months or every quarter. If you go lower, it doesn’t make sense to rebalance, right? Every certain

Matt: Or what changed in your life?

Rabih: Period of time, we’re just going to rebalance regardless of the market, which is, you know, a very courageous way to live life. But there is another way to, yes, another way ⁓ to do so is ⁓ to do something called relative rebalancing. So we look at the portfolio, and only once the 60-40 has probably jumped to become a 70-30 or dropped to become a 50-50 and it triggers a certain threshold, we would rebalance it within this.

Matt: Probably not tax efficient.

Rabih: Relative rebalancing approach, are you how do you determine that threshold? Are you determining that threshold as a certain percentage point? As in like, let’s give it 10%. So if it goes from 60 to 70 now or it drops from 60 to 50, that is your threshold. That is an absolute thr ⁓ threshold of 10%, or is it a relative threshold of 10%? I’m going through the technicals here, but just like to show you how the the devil lives in the details. A relative threshold might be, I want 10% of the actual asset allocation. So for stocks, 10% for a 60% allocation of stocks means that I can go up 10% of the 60. So up to 66, down to 54%. Whereas if I have 10% of my portfolio in gold, for example, and I have a 10% allocation, it means that I’m only allowing gold to go up between 10 from 10% to 11% or down to 9%. Like the band of ⁓ until which that

Matt: Yeah. Titans.

Rabih: The threshold gets triggered, gets much tighter. So there are these stuff, but then there’s more a holistic approach, for example, where the portfolio just does not live in its own world. The portfolio is kind of this living organism that gets feeded money and poops out money. So the whole idea would I did not know the right word. So we’re just gonna go with that. Poving out money. So the idea would be is like, okay, as a dentist who’s saving every single

Matt: I love it. It’s pooping out money.

Rabih: month or ⁓ every certain cadence deposits more money into that portfolio. How are we going to use that cash flow ⁓ activity in inflow and outflow to help make rebalancing, whether we’re choosing a absolute, relative, or a time-based rebalancing, more tax efficient, right? In a in a way where we’re not having to ⁓ sell winning stocks and incur taxes, but also not only tax efficient, but also cost efficient because every time you buy and sell, you are paying the broker the difference between the bid and ask price that they buy from you at a certain price, they sell you at a different price. So with all this activity that’s happening trying to rebalance your portfolio, how are you being like very intentional about the best way to move every single dollar? Whether and that dollar could have come from a very long journey. That dollar, you know, Was your hard work sitting ⁓ having your hands in someone’s mouth who’s in pain until you know it hits your bank account, till it gets transferred in your investment portfolio. And then, you know, on its last journey, it has to be allocated appropriately to make sure the portfolio is gaining from it rather than it, you know, going in the different direction and making it harder for your portfolio to stay in balance. So there’s a lot that goes in there and you have to have patience and track it to make sure that the machine is ⁓ being run correctly.

Matt: Yeah, it’s great example or or great analysis there, Rabih. And to put this in real terms, we see this all the time. And and you said earlier the link between your investment portfolio and your financial plan are you know should very much be in lockstep. And in reality, if we really take a step back or, you know, look at this as a 10,000 foot view, it should be what’s the life we’re trying to live, and and and all that comes from that when it comes to your values, your goals, your concerns, your financial plan should support that. And the investment strategy should support that. So the investment strategy kind of lives within the bigger picture. But to give a real example of what you’re describing, I just had this conversation with a client like literally last week. They’re like seven-ish years away from selling their practice. Very much on track, doing great. But the question came up of investment portfolio and kind of what we they’re they’re saving still quite a bit of money in their investment accounts, in particular their brokerage account, and they’ve been really growth focused because of the stage of life and career they’re in. But now we’re having this conversation, which by the way, it always starts sooner than you think. This exiting conversation, seven to ten years out, should be extensive conversations because of something like this. So ⁓ they brought up to me, lit, you know, we wanted to talk about the allocation of the portfolio. And the question was, well, we don’t want to be as aggressive as we are now when we go to retire. And I said, absolutely not, depending on, you know, a lot of components. But most likely we’re gonna want to start decreasing your focus on equities, but we don’t have to be selling anything to do that. They’re putting again something to the tune of about $15,000, $20,000 a month into the brokerage account. So we’ve mapped out for them, sit showed them. We’re just gonna start, as opposed to selling anything in your portfolio, we’re gonna leave that, let it continue to go. We’re just gonna start putting the what is the the the food that’s going into the portfolio’s map. It’s just gonna start moving more towards fixed income. And over time, over the next six to seven years.

Rabih: Yep.

Matt: We’re gonna be buying more bonds than we were stocks before. And then we mapped it out to the point of seven years. All of a sudden the allocation went from a hundred percent equity and no bonds to now something like 70% equity and 30% bonds or something in that, in that range. So it’s you can do this dynamically if you’re planning far enough ahead to where you’re never in the situation that we’ve heard before. Well, my parents lost everything in 08, 09. They They literally like had to delay their retirement. Something like that happening means there wasn’t enough planning ahead to align the allocation with the timeline and the and the goals that you have for the portfolio or the the portfolio supporting the life and the stage of life that you’re in.

Rabih: Time is your friend, right? Just like a long time horizon allows you to handle drops in the portfolio as wealth, you do not lose anything by starting to plan for stuff very early. Because that gives you a lot of flexibility and tools at your disposal to kind of perfect the game plan.

Matt: Yeah, exactly. And again, we’ve talked about this before, but we talk about risk and a risk profile. These clients in particular, and we see it all the time. Cause you might be out there listening thinking, well, if they’re buying less stock over the next seven years, well, yes, they’re so that means that their their growth potential of their returns are going to be lower. Yes, that is true. But we’ve done we we’ve done the work to understand their need for risk and their need for returns. And that lining up with their overall goals and you know their overall financial picture. So it’s really critical to again zoom out and understand what are you solving for? How much risk do you actually need to take to take to reach your goals? And again, shift this mindset a little bit of the investing is really around protecting your wealth at the end of the day and protecting your future. ⁓ anything else you want to add, Rabih, on anything we’ve hit up to this point so far?

Rabih: No, I I like it because now I feel like you can see all the different levels between okay, so I have a certain goal in mind and that requires for me to be properly invested in the right strategy that fits my profession, right? The right investment philosophy that fits my profession. And I have to do it checking a couple of boxes, including diversifications, making sure that I’m doing taxos harvesting, I’m rebalancing my portfolio. That will require me to make a decision on which accounts I’m using and which investments I’m you know putting my money into and learn how I’m going to be managing it ⁓ day to day or not managing it day to day. So at least now you have all the different layers for you how to you should make a decision. Just like when you get up in the morning, you have a decision on like shower, clean my face, brush my teeth, probably have something to eat, get dressed make sure I don’t forget my keys and wallets at home and then you can leave the house. This is the same kind of process that has to go in mind, just so you lay the proper investment foundation for a financially successful life.

Matt: Yeah, great summary. I mean, on it I love that. There’s those layers we’ve highlighted throughout these three episodes, the decisions that need to be made and continually refined and and adjusted along the way, like you said, between account types, investment types, where to hold your money, how to implement your strategy, all built around that goal. I think that’s a a great summary. ⁓ and then the last piece we’ll just highlight and and worth repeating, which we you’ve heard many, many times on this show, which is, and you just said it, letting time do its work. So not in the sense, again, that you just sit back and don’t do anything. We’ve I think hopefully we’ve kind of ⁓ refined that idea that it’s not just sit it and for set it and forget it, but it is still this idea of the power of time and as much as you possibly can, removing your ego from the equation. Whether that ego is manifested via greed or via fear, either way, depending on your personality, the idea is to remove your ego as much as you possibly can and approach this not from a level of excitement or joy. That’s not what investing should be, to be honest. It should be systematic, it should be rational, it should be emotionless. And that’s the focus, is just letting time do its work. Anything you want to comment on this, Rabih, is like just the power of of time.

Rabih: No, the power of time, like we experience it every single day. Like, I don’t know, looking at you. I have a bold head, but we both kind of have a beard. I can’t get my beard to grow to the same size as yours overnight, right? I have to give it a couple of weeks for it to grow. Everything the same in life. When you’re a teenager, like I used to play basketball when I was younger. Like I can’t wait until I’m over six feet. But that took a couple of years for it to happen, right? So It’s not like waiting for a plant to grow or waiting for compounding to take effect is something foreign to us. We know it in our day-to-day life. And I think the only reason, and you highlighted it, that it is harder in investing to stick to the plan is because there is emotions involved. I don’t have a fear or greed reaction on whether my beard is gonna grow, right? Or whether I my plant is gonna grow, right? But we do with investing. So trying to put investing in its right corridor where it is like growing plants and growing your hair rather than it being like the buzzer beater at the end of a game you’re watching. If you try to if you put investing in where it belongs in the right category, it makes it much easier to go through.

Matt: Yeah, it’s a great point. And to put it another way, we’ve said this many times, but it’s it’s critical to understand the game you’re playing. What game are you playing? Are you playing are you playing this game of investing to or are you playing the game of of status, right? Meaning you want a fun story to tell your your buddies at a barbecue of like what you’re investing in. That’s in the category of, you know, ego based, an ego based game. It’s it’s trying to show off. It’s feeding something different than the game of truly trying to build and protect your wealth and what that wealth represents. I don’t know if that’s maybe stressed enough for people. It’s like, what does this wealth actually represent to you? Meaning the experiences with your family or the the the sense of freedom or ⁓ peace of mind it gives you at night, or you know, whatever it may be, it represents something to you. And I think we maybe lose sight of that representation and and get lost in the numbers on the screen and ha again, kind of get lost in that that ego part of it. So we’re acknowledging it’s very difficult. We’re all human. We all get caught up in our emotions in some form or fashion in our life. And we all have an ego. All of us do. Anyone who doesn’t think they have an ego, they’re lying to themselves. So we all have it. We all have these emotions. The idea is to do your best to continually just master the craft of a systematic approach. Hopefully everything we’ve talked about in these episodes has helped on the information piece, on the knowledge piece. The emotion piece, Rabih. I don’t know. What what do you say about that? How do you how do you actually help with that piece of it? Yeah. Yeah.

Rabih: It takes two to tango, is what I would say it’s it’s the emotional we never learned how to manage our emotions like kind of myself. It’s usually a family unit or in a classroom setting or at the society level. ⁓ and I think this is why the financial advice industry exists and why a company like ours exists, because it’s very hard to train those very instinctive emotions. when, you know, stuff is happening, when the market is crashing and every single newspaper is saying that the world is ending in the next 10 hours, right? It’s very hard to do it on your own. And for that reason, a viable industry and business like ours exists. So if you feel like what we’re saying resonates and how we approach it, the kind of the the perspective that we bring to the table and the

Matt: Yeah.

Rabih: kinda emotional groundedness to how we approach ⁓ markets resonates with you. ⁓ we’re we’re here to help.

Matt: Yeah, I love that, Rabih. I mean, it’s so true that it’s why we’ve been in business for almost 20 years. It’s a huge foundational belief that we have that having somebody in your corner is gonna help. But if if you don’t, I think a really good indicator indication of how you will behave when things get rocky is how did you behave in the past when things got rocky? And being honest with yourself of how you behave. Because I I really do believe, Rabih, that there are people out there that are able to handle it. That are emotionless, that are like, yep, I’ve I’ve separated this from my regular life. This is just serving a purpose. It’s kind of the people in the health industry that are like, food is fuel type of guy, right? It’s like we all know that person. And I’ve been that what? Yeah, I I mean not you, but I mean, I’ve been that person in the in in other parts of my life. So where we can like remove the emotion from whatever we’re focused on in our life. So I do believe it depends on your personality. But it’s I think you said it perfectly.

Rabih: Mm-hmm. Not me. Not me.

Matt: This is one of the main values have of having an objective third party in your corner. It like ⁓ removing that emotion, being kind of your insurance between or your big mistake insurance, we’ll call it. ⁓ and again, that just takes being honest with yourself. And if you’re what’s crazy about this, Rabih, is a lot of our listeners are on the younger side. ⁓ we have a good cohort of younger people who listen. If you really think about it, a whole generation who haven’t really seen A true market downturn. I mean, we’ve seen they’ve seen some craziness. COVID for sure was crazy, but not with the market. It was almost it was like about a 30-day blip. We had 2022, which for whatever reason wasn’t attached to panic, even we had a 20% drawdown. We have a generation of investors who just haven’t seen or felt what it really feels like to see a prolonged drawdown. So it’s gonna

Rabih: No.

Matt: Maybe you don’t actually know. Maybe there’s a lot of people out there that like, I don’t know, I’m gonna guess. I’m gonna pret I’m gonna think I I think I know how I’ll handle it, but you oftentimes don’t know until you face it.

Rabih: Yeah. Unfortunately, that’s a fact of life, right? Yeah.

Matt: Yeah. That is. I mean, a lot of things you just have to experience. So okay. Rabih, anything else you’d add to ⁓ part three of our investment manifesto?

Rabih: No, but I’m hoping a bunch of clients and listeners would send you emails to make parts four and five where I still bring in those academic papers and read the footprints, so we’ll see about that.

Matt: If you want us to go if you want if we did not cover something in this three part series and you want us to go deeper, and when I say we, I mean Rabih and I’ll be there, you can email podcast@dentistadvisors.com or if there are specific questions you want us to hit, or again, something with investing that that you want to go deeper on, let us know. We’d be happy to go deeper on parts four, five up to part sixteen. I think Rabih would go. We could talk about this all day. So ⁓ we hope this is helpful. We really do. That’s that’s our main focus with all this stuff is hop is adding value and and hopefully giving you one one or two or three things each episode that you can take, implement in your life, shift your mindset around, make you better in some way ⁓ when it comes to your money, ⁓ financial planning, investing. That’s our hope. So we hope we accomplish that. We hope it was also fun to listen to. That’s always our goal as well again, if you’re out there listening and you need help, we are here to help Dentist Advisors.com. Book ⁓ click on the book free consultation button and we’d love to talk to you today. ⁓ for now, Rabih, thanks for being here as always and sharing your words of wisdom. Everyone, thank you for listening. Until next time, take care. Bye bye.

Keywords: investing, diversification, asset allocation, passive vs active, portfolio management, financial planning, dentists, wealth building, tax strategies

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