The Laws of Liquidity – Episode 280

On this episode of the Dentist Money™ Show, Ryan and Matt discuss how pivotal liquidity is to a good financial plan. Your practice needs liquidity, you have a need for personal emergency funds, plus you should also be planning ahead for big projects. For all three you need access to cash. Do you know how much? And where’s the best place to be tucking those funds?

 

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Podcast Transcript

Ryan Isaac:
Hello Dentist Money Show listeners. Welcome back to another episode. If you’re joining us for the first time, thank you very much and welcome to the Dentist Money Show. Today, Matt and I are going to talk about a question or a feeling that is very common. It’s a weekly question that we as advisors have the opportunity to help educate and answer, and it is independent of whatever’s happening in markets and economies. And that question is how much cash should I hold right now? Or how do I prepare for a tough economy or a market crash or an unforeseeable event in my practice?

Ryan Isaac:
So today, Matt and I talk about three main priorities to make sure you have enough cash on hand. And we talk about how a long-term financial plan works for a typical client and how that helps protect them against unforeseen problems and have enough liquidity to handle everything, the opportunities, the problems, everything along the way. We hope you enjoy the episode, hope it’s helpful. If you have any more questions specifically you want to talk to an advisor about which is our total recommendation, then you should go to dentist advisors.com and click on the book free consultation button, and schedule a chat with one of our dental specific friendly advisors today. And as always guys, thanks for joining us. Enjoy the show.

Announcer:
Consult an advisor or conduct your own due diligence when making financial decisions. General principles discussed during this program do not constitute personal advice. This program is furnished by Dentist Advisors, a registered investment advisor. This is Dentist Money. Now, here’s your host, Ryan Isaac.

Ryan Isaac:
Welcome to the Dentist Money Show where we help dentists make smart financial decisions and avoid the bad ones along the way. I’m your host, Ryan Isaac. And I’m here with the Hollywood mountain Matt Mulcock. The Hollywood mountain.

Matt Mulcock:
See, you can’t even get through it.

Ryan Isaac:
Say it how you will. I can’t even get through it anymore. The guy that you know, his real name’s Matt, but we call him lots of other things too. What’s up Matt? Thanks for joining.

Matt Mulcock:
Yo Ryan. How are ya?

Ryan Isaac:
Yes. Feeling good. I like what’s on the program today because it’s like a surprise party.

Matt Mulcock:
Yes, but it’s-

Ryan Isaac:
But it’s not your birthday.

Matt Mulcock:
This is a new trend we’ve started now.

Ryan Isaac:
It’s a surprise party without the birthday or the party. It’s just a surprise.

Matt Mulcock:
We get on to record and you’re like, I’m not telling you. And I’m like, okay, cool. I’m here for it either way.

Ryan Isaac:
Yeah. It’s the equivalent of hiding around the corner when your wife’s walking around the house with headphones on and you just jump out and scare her. You ever do that? I actually hate being scared. I hate it so bad.

Matt Mulcock:
Okay, here’s a question. Would you rather be scared or tickled? Because I hate both.

Ryan Isaac:
I’m so ticklish too. So, okay. A little fun fact. All right. I don’t know how to answer that question. I would say I’d probably rather be tickled.

Matt Mulcock:
Wow.

Ryan Isaac:
But I’m extremely ticklish. And my daughter, my little nine year old, she set a new year’s resolution to be funny, to tickle me for 60 seconds every day. And she’s been doing it. And when I miss, [crosstalk 00:02:50].

Matt Mulcock:
That is an incredible New year’s resolution.

Ryan Isaac:
Right now I’m at a deficit of 24 minutes straight though that she reminds me of every day. But in her brain she doesn’t do the math right. So a week will go by, which should be a handful of minutes. And she’ll be like, it’s four hours Dad.

Matt Mulcock:
So let me get this straight. Her resolution is to tickle you-

Ryan Isaac:
Yes.

Matt Mulcock:
For 60 seconds a day.

Ryan Isaac:
Every day. It’s actually 30 seconds.

Matt Mulcock:
Oh 30 seconds every day. [crosstalk 00:03:22]. And where did this come from?

Ryan Isaac:
She’s just hilarious. And she thought it would be funny. And I don’t like to be, to your question, I don’t like to be tickled. She knew it. And especially my feet.

Matt Mulcock:
Oh, mine on the sides.

Ryan Isaac:
My feet are so ticklish dude. Sides dude.

Matt Mulcock:
The ribcage. Oh yeah.

Ryan Isaac:
Anyway, so if you’re just new to the show and you’re wondering if this is where you tune in to learn where we’re ticklish, then you’ve came to the right place.

Matt Mulcock:
You’ve come to the right place. Here we are.

Ryan Isaac:
Oh my gosh. We have a real subject to discuss today. First though, if you are new to the show, welcome. Thanks for joining us. We do discuss actual financial topics specific to dentists.

Matt Mulcock:
We do feel like we add value sometimes, but we also like to have some fun.

Ryan Isaac:
We try. We like to have a little bit of fun. The whole show, this entire shebang, as they say, which I would like to know where shebang comes from. There’s got to be a history of the word shebang.

Matt Mulcock:
That’s a whole nother show.

Ryan Isaac:
The whole shebang is brought to you as they say on TV in part by, in whole by actually, it’s not brought to you in part.

Matt Mulcock:
In whole by. In whole pieces.

Ryan Isaac:
It’s brought to you in whole by this company called Dentist Advisors, which is what we began and who we work for and who we are. And Dentist Advisors, we are a no commission, fiduciary, comprehensive, dental only financial planner, just for dentists, all over the country.

Matt Mulcock:
Wow. It’s a lot of things.

Ryan Isaac:
It’s a lot of things. We’ve been those things for about 15 years now. It’s all we’ve done. So Dentist Money Show, if you’re just joining us, it’s our way to teach and educate and try to help those who might not work with us and meet some new cool people who might want to work with us. Today’s surprise for Matt, and he doesn’t know about.

Matt Mulcock:
I have no idea.

Ryan Isaac:
But you’re going to dial right in because you’re going to be like, oh, I’ve had this conversation 50 times this year already. There’s a few ways to put it. You could say today’s episode is about liquidity. You could say today’s episode is in response to a question some people think is just a current question. But really this question gets asked literally like every month of our careers, regardless of where the economy’s at and that’s should I hold cash out of my investments and not invest for a while, should I hold more cash?

Matt Mulcock:
Yes.

Ryan Isaac:
You could say this episode is about market timing. You could say this episode is about how to be prepared for the unexpected, whatever you want to call it. That’s what we’re going to talk abut today.

Matt Mulcock:
And we’re leaving that up to our producer. So we just gave you four options there.

Ryan Isaac:
We’re just working out loud of titles. Those are working titles.

Matt Mulcock:
Yeah. This is our creative meeting. We’re just coming up with titles.

Ryan Isaac:
Thanks for joining us. So anyway, that’s what we’re talking about today. And this, again, this question or this idea is, it’s central to a good financial plan, liquidity, having enough cash for various things, various reasons. It’s a big deal. It’s important. It is not something to shrug off. It’s an important question. I think the question gets manipulated though, through someone selling something or just fear and trying to make someone scared about something. It gets manipulated in terms of market timing, right?

Matt Mulcock:
Yeah, the news every single day.

Ryan Isaac:
The news, I mean, there’s a lot of stuff. So this question comes to us frequently. It’s a totally good question. It’s very crucial and central to a good financial plan, a good investment plan. So today we’re going to talk about what are the things that you should have cash for? There are totally priorities in front of your investing strategy, whatever that might be. It might be stocks and bonds. It might be real estate. It might be private businesses, but there are priorities ahead of those things that you do need cash for. And there are ways to make sure that you are prepared for the unpredictable. Well, let’s jump into, I guess, well, I want to ask this question to you first Matt. How often do you, this is a two-parter. Two-parter coming at you.

Matt Mulcock:
Two-parter.

Ryan Isaac:
How often do you get the question about, is it a good time to invest right now? And the second part to that is, do you hear that question during only specific kind of market cycles or certain types of economies, the things that are happening, or do you hear that independent of what’s going on? How do you feel about that?

Matt Mulcock:
So part one of that question, my part one answer. How often do I hear some iteration of that question?

Ryan Isaac:
Yeah.

Matt Mulcock:
Weekly, I’d say.

Ryan Isaac:
Yeah.

Matt Mulcock:
If I’m giving-

Ryan Isaac:
Weekly. How long have you been in this industry? Let’s back up a little bit. Context. How long have you been talking to people about their money?

Matt Mulcock:
Eight years now.

Ryan Isaac:
Okay. From the beginning. And you said weekly, that holds true for eight years weekly.

Matt Mulcock:
Yep. Yeah. And this is either-

Ryan Isaac:
Hold on. Now I’m curious. So we got 52 weeks in a year.

Matt Mulcock:
Yep.

Ryan Isaac:
You’ve talked to someone… I’ll bet it’s more than this number. It would be 416 times in eight years.

Matt Mulcock:
Yeah, multiple times a week.

Ryan Isaac:
I’ll bet its more than that. Yeah I’ll bet it’s more than that number man.

Matt Mulcock:
Yeah. I mean, that’s just probably this year.

Ryan Isaac:
Yeah.

Matt Mulcock:
So weekly, but multiple times a week, I’d say with multiple different people and this isn’t just people find out what you do. Right? And this is a topic for another show, but the ambiguity of our profession is difficult for people to wrap their minds around.

Ryan Isaac:
What is that? What does it mean?

Matt Mulcock:
They hear that you’re a financial planner or you’re an investment advisor or whatever. And they all automatically think that that means you know what’s going to come next in the market.

Ryan Isaac:
What’s coming next?

Matt Mulcock:
What’s coming next.

Ryan Isaac:
All the time. It’s funny you say that. Friends, family, neighborhood friends, they’re just like, oh, should I buy this?

Matt Mulcock:
Yeah. Should I invest in this?

Ryan Isaac:
They’ll throw out some ticker. And I’m like, dude, I don’t memorize ticker symbols for a living.

Matt Mulcock:
I don’t know what that is, yeah.

Ryan Isaac:
I don’t know. I don’t know.

Matt Mulcock:
Exactly.

Ryan Isaac:
Explain it to me.

Matt Mulcock:
So if you’re talking about people on the street, friends, family, but to find out what I do plus clients, plus people, what we call prospects, they’re kind of checking us out and we’re on consultation calls.

Ryan Isaac:
Yeah, people calling in and talking to us.

Matt Mulcock:
It’s multiple times a week, every week for the last eight years.

Ryan Isaac:
No matter what is going on in the economy.

Matt Mulcock:
Yeah. So that’s the second part, no matter what’s happening, they’re constantly thinking about that.

Ryan Isaac:
And I think back over my career too, and I think man, people are worried when things are going well, people are worried when things are going bad. People are worried when there’s nothing going on because it feels stagnant and it feels like, well, it’s been long enough, now something bad’s got to happen.

Matt Mulcock:
Yeah.

Ryan Isaac:
It’s human nature to be… This is probably our survivalist brain from millions of years ago to always be wondering what’s bad about the happening. I can relate to this. I’m kind of a worrier by nature. That’s my personality in life.

Matt Mulcock:
Yeah.

Ryan Isaac:
I mean, I’m kind of worried on planes and I’ve thought a lot about natural disasters.

Matt Mulcock:
Yeah, terrified of sharks even though I’m surfing.

Ryan Isaac:
I hold strong cognitive dissonance on sharks. I just pretend that it doesn’t exist, but vulnerable here. I mean, I was a worrier about COVID and getting sick. I worry, but I think that’s how we’re wired is to constantly be a little pessimistic. And we kind of gravitate towards people who are pessimistic because it plays to our probably most natural base, I don’t know, feelings as humans. Just worries. So let’s talk about three things that should be priorities. So in response to I’m worried, or I think I need cash or someone said, I need to hold this percentage of cash. And then this person said, I need this percentage in cash because dot dot dot, fill in the blanks, whatever. You hear it all.

Matt Mulcock:
But that dot dot dot, I’m going to guess these people, whoever are saying these things, the dot dot dot is something outside of your control. Right? But they’re giving you the illusion that you know what’s going to happen, when it’s going to happen and that you can control it.

Ryan Isaac:
Somehow control it. We’re going to give you three things that are in your control that are predictable, knowable. And it’s not a word, but preparable.

Matt Mulcock:
Yeah, that’s a word. Preparable.

Ryan Isaac:
Sure.

Matt Mulcock:
Sure.

Ryan Isaac:
Here’s three things. Okay, three legitimate reasons that you do need cash for. And here’s what’s cool, when you add up these three things… so sometimes a little pet peeve of mine, a little bit, you’ll hear someone give general advice to a broad audience. Right? Which some subjects work for that and in dentistry, here’s what I wonder sometimes. I think in dentistry and maybe because I’m not a clinician, I’m not a dentist, obviously. Wish I was. [crosstalk 00:12:07]. Isaac ortho, two locations. My daughter is going to carry that on.

Matt Mulcock:
There you go.

Ryan Isaac:
But I wonder if dentists have been doing CE and class group style learning for so long with clinical skills. Right? For so long. And I wonder if there’s what happens is when you go to a clinical CE or class, I’m imagining of course there’s variability in the way someone can deliver a clinical procedure. Everyone’s got a different flavor, but also it’s pretty prescribed, right? This is how you drill a tooth or place an implant. I know there’s variability. So if you’re going to rebut this, I don’t even understand the rebuttal. I’m just saying, I know the variability but its-

Matt Mulcock:
We are [inaudible 00:12:52] into things that we have no idea.

Ryan Isaac:
Don’t know this. But I know it’s got to be pretty precise. So you can show up a hundred dentists and learn about implant placing and all those dentists can take very specific guidelines and then go home and do it. Right? I’m assuming that’s the case because there’s probably very specific ways to place an implant. Where this does not translate probably in a few subjects, but most definitely is personal financial decisions, investing.

Matt Mulcock:
Personal being the keyword.

Ryan Isaac:
Personal financial decisions. And we’re saying this, broadcasting to an audience where tens of thousands of people download these episodes and they go to our Facebook group and I’m still saying this, you can only take so much away from being in a broad audience, taking general financial advice and then go home and implement it because there’s too much nuance. And there’s too many details that the speaker, presenter, author, a coach, whatever does not know, teaching a hundred people in a group. Right? So you kind of have to just take that for what it’s worth.

Ryan Isaac:
And so here’s what I’m getting at is one person might say, you should hold a hundred percent in cash right now because of upcoming economic problems. Another person might say, you need to hold 40% in cash because of upcoming economic problems. Well, I’m going to tell you, it might be a hundred, it might be five, it might be 72.6. And here’s the formula for determining how much cash and then you can just divide it and get your percentage if you so choose. Okay? But that’s my point. But here’s the three things. Number one is your business as an owner. So if you’re not an owner, then you could probably skip this part. But if you’re an owner and you have a practice, your business is the number one priority to protect with cash on hand and liquidity. Historically, well, Matt, I’ll ask you. What would you historically tell people of how much cash to hold in their business and has that changed at all since COVID?

Matt Mulcock:
Yeah, so I think pre COVID, yeah, I think it has changed. I’ve always given people a range. So saying that pre COVID, it was always one on the low, low end. One month, I’d probably be more like 1.25 months of breakeven or overhead on the low end of that scale up to two, right? That’s kind of where I would be. And then I’d say anything over two, if those dollars don’t have a job, you got to be doing something with that, paying off debt, investing, doing something. Now I’ve kind of slid that scale up since COVID. Now we can talk about this, it could be a whole other show, whether that’s actually makes sense with all the government intervention, right? Maybe it doesn’t make sense, but I’d probably slip that scale up now to saying one and a half is probably the low, low end up to like two and a half, maybe three tops.

Ryan Isaac:
Three, yeah. Yeah. I think that’s rational. And even if it’s not totally rational, the outcome from COVID was we now learned that there’s stuff we can’t see coming that can affect us. Exactly. And we can only do so much to prepare for it. So I don’t think that’s terribly irrational. So to repeat-

Matt Mulcock:
And one thing I’d say, sorry, real quick Ryan. This happened at the global scale, obviously. And that almost worked in people’s advantage, especially we’re talking about dentists here and the owners of these practices, it almost worked. It did. It worked in your advantage that it happened on such a large scale because you had the government step in. What’s more likely and what this brought to the forefront of our mind is like you said, things that could happen without us being prepared for it, the unpreparable and not being ready for that. So that’s why it’s kind of just reminded us like, hey, something could happen to you individually as a practice owner that the government’s not stepping in.

Ryan Isaac:
Small scale. No one’s going to fix, give you money for it.

Matt Mulcock:
Didn’t impact anyone else but you.

Ryan Isaac:
Yeah. Maybe no insurance will cover it. No government’s going to cover it. Yeah.

Matt Mulcock:
So I’d probably move that out again. That’s why I moved the scale up.

Ryan Isaac:
I think it’s fair. I mean, if someone tells me I’m holding three months of cash, I’m like, you know what? We saw some pretty crazy stuff and I think that’s fine.

Matt Mulcock:
Totally fine.

Ryan Isaac:
I think that’s fine. So to recap your business, there’s one of our three top priorities that come before investing and that is taking care of your business and making sure you have enough cash. Okay? Now, have you met people that need to keep 150 and they’ve got a million? Yes.

Matt Mulcock:
Yes.

Ryan Isaac:
Yeah. That’s excessive. That’s the problem.

Matt Mulcock:
Just a bit excessive, yeah.

Ryan Isaac:
That’s a problem. Number two on the list. If you don’t own a practice, you’ll skip to this one. And if you don’t, this is number two on your list, but very, very, very important. It’s your personal emergency fund plan. This is a little nuanced because it can range, right? It depends how young you are. Depends how many people in your household earn an income, what that income is, how stable or unstable that income can be. But I would say everyone needs three months of their personal spending, sitting around in cash. Just don’t leave it in your checking account because you’ll spend it at Disney World.

Matt Mulcock:
Yes, move it somewhere. Yeah, you will. You’ll go to Disney World like Ryan. You’ll meet up with Ryan and want to go ride all the rides.

Ryan Isaac:
I feel like, look cool that Star Wars light saber thing is, or like have a whole thing where it’s like a Build-A-Bear workshop, but it’s a build a droid and you sit there and you like make your own droid and you can program it. You need that.

Matt Mulcock:
And you’re like, yes, this churo is $14. Yes, I get it. But it’s a Disney World churo. I have to have it.

Ryan Isaac:
We can talk Disney food for long time but so don’t keep your emergency fund in your checking account, keep it in a place it’s kind of a pain to get to, a savings account. You got to make a transfer, you got to call someone, go somewhere.

Matt Mulcock:
At least psychologically just moves it out of the account you check daily.

Ryan Isaac:
Yes. It’s not you’re spending money. So minimum’s going to be three months. It could be six months. If you’re the only income earner in the house and maybe keep six months. If you are close to retirement, this is a whole other issue. If you’re close to being done working and close to needing the money you’ve saved along the way, that hopefully you’ve saved along the way, that might need to be even bigger. You might need… And you probably will. If you have a good executed plan you’ve been working on for years, you’ll likely have years worth of accessible liquidity, but we’ll kind of get to that a little bit later. But anyway, so number two is your personal emergency fund. So look, if you’re hearing these stories and like, oh, this person said to this group we got to hold cash. Well maybe you do. Maybe that’s true. Check number one and two. Number three on the list, unless you have anything to say about that, Matt. Personal funds, personal emergency funds?

Matt Mulcock:
No, again, I think what you’re highlighting here is it’s again, you might need to hold cash, but for no other reason other than to just bolster your margin of safety for your personal life being either whether that be in the business or personally it’s for no other reason outside of that, again, for something outside of your control.

Ryan Isaac:
I have a question, I get a lot, you probably get this too. How would you respond? Someone says like three months in my business or six months in my personal cash, it feels like a lot of cash and kind of is, should I invest this? Can I invest it? Can I get a return that’s better than sitting in checking and savings? How do you answer your clients on that?

Matt Mulcock:
Yeah. So the way I respond to that is there’s a minimum I feel comfortable with and we just highlighted there. I wouldn’t go below a certain threshold in either personal or business. And I wouldn’t invest that money. And the reason I would say that is every dollar needs a job. You need to be assigning that dollar a job, or those dollars a job. And those dollars are built around priorities. And the importance of that or the job of that money. Right? So for example, we were talking about emergency funds. The jobs of those dollars, number one priority is protecting you against something that you’re not expecting. Right? That’s true risk in your life is COVID coming up. Right? I did not expect this. It’s the risks you don’t see. Right?

Matt Mulcock:
So it’s priority is not to grow for you. It’s to protect you, it’s to give you this margin of safety. And the chances of you going and investing that with the idea that you’re going to get some higher return could just as easily flip on you. Because again, because you’re unprepared for this event that could happen in the future, that will happen in the future. You don’t know the timeframe. So how do you invest without a timeframe? You don’t. So you’ve got to protect that. You’ve got to keep that money focused on that job of building you that margin of safety and keeping you protected from these unknowable events.

Ryan Isaac:
Yeah. I like that. And this question comes, I think it’s a totally fair question, but I see people feel a little more relaxed around that when they’ve given it more time and they start to see that their investment buckets, they get bigger than the cash buckets. And then they’re like, cool, we’re fine. It’s usually when you got like your personal and business liquidity is like 300 grand and it’s all you got. And you’re like, should I invest this? Well give it some time.

Matt Mulcock:
Well, now there’s some nuance to this, right? Because exactly what you just said, Ryan, this is personal to everyone. This is why you can’t give specific advice in these types of platforms.

Ryan Isaac:
Yes.

Matt Mulcock:
But we’re going to be general while trying to get somewhat specific in a scenario, hypothetical. So to your point, if you’ve, over several years, built up let’s say a million dollars in after-tax brokerage accounts. We see it all the time. It takes time, but you build that up, but in the personal emergency fund, you’ve always had six months emergency in your personal cash. Well, you might be like, okay, I’m the only income producer in the house, but I’ve got a million dollars sitting in a brokerage account that I technically could access.

Ryan Isaac:
You got to skip ahead on us now basically. You just skipped ahead on the podcast, you’re fast forwarding.

Matt Mulcock:
Oh gosh. This is the problem when you don’t tell me.

Ryan Isaac:
No, but keep going. See, this is how we’re on the same page, man. That’s literally where we’re going next. Finish the thought, we’ll hit it.

Matt Mulcock:
Okay. I’m just segueing here. So yeah, in that situation, if you’ve got liquidity, you’ve built up that liquidity. You could argue at that point and I probably would make the argument that you don’t need six months in cash anymore. You can invest part of that money.

Ryan Isaac:
Dude, you’re so smart.

Matt Mulcock:
Oh, you’re too nice.

Ryan Isaac:
I love the way your brain works. It’s exactly where we’re headed. Matt, it’s time.

Matt Mulcock:
Time for what Ryan?

Ryan Isaac:
It’s time to book a free consultation at dentistadvisors.com. Just click on the big book free consultation button on the homepage and talk to one of our friendly advisers today.

Ryan Isaac:
Number three, so we’ve got business liquidity, personal emergency fund liquidity, and then we’ve got projects. Okay. Here’s a knowable predictable thing that you need cash for in your life. Are you building the dream home? Are you moving to a new building? Are you putting in a pool?

Matt Mulcock:
Doing a landscaping project?

Ryan Isaac:
You can hear the theme here. The crazy thing about being a dentist is that you can get financing for literally anything. Usually no money down financing. Incredible terms. I mean, such a perk of running a dental business. And usually the only things that require cash out of pocket or that’s hard, or you can’t get lending for, have to do with real estate down payments or real estate projects, usually on the personal side. All right, there’s your list guys. So right away, if you’re wondering if you should hold cash right now, well go through that list.

Ryan Isaac:
And so here’s what happens when you get to the end of that list, you might hear advice that’s like hold 40% cash right now because the economy is going to do this or hold a hundred percent, whatever. You might get through that list and that might be 100% of your cash right now, your business liquidity, your personal emergency fund and an upcoming project is a hundred percent of your cash. Therefore, you are holding a hundred percent cash right now, but it has nothing to do with trying to predict stock markets and economies.

Ryan Isaac:
You might go through that list and find that out of all your liquidity, that whole list is about two and a half percent of all your liquidity. There you go.

Matt Mulcock:
That’s it.

Ryan Isaac:
You’re holding two and a half percent cash.

Matt Mulcock:
There’s no feed for more.

Ryan Isaac:
And because the things that you have actual control over, if we’re just being real here as friends in this warm little circle.

Matt Mulcock:
Gather around friends. Gather around.

Ryan Isaac:
Gather around the fire. Those are the things that you can actually predict and control. Everything else is a guessing game. And you’re probably going to get more hurt than doing good trying to predict it. That’s my opinion. We don’t have to think the same though. You can think different and try different. I don’t care.

Matt Mulcock:
It’s okay.

Ryan Isaac:
It’s okay. I’m not mad. I just want people to be okay. So anyway, all right, let’s go to the thing you were saying, which is the second part of this. And I called it the laws of liquidity.

Matt Mulcock:
I like that.

Ryan Isaac:
So that might be the title. That might be the title for this.

Matt Mulcock:
Title. This has basically then part podcast, part talking tickle spots, and part creative meeting that we have thinking of titles.

Ryan Isaac:
I’m telling you the tickle spots, something big is going to happen with that. The laws of liquidity. Well, we just ran through the three high priorities. Okay. But Matt was saying something that is the inevitable outcome of a well executed financial plan that is that you stick to you, you adhere to, that’s sustainable after you’ve given it time. And Matt, why don’t you just paint that picture again? Paint the picture of someone who got through these steps and has been sticking to a plan for five, 10, seven, three, whatever years. And they get to this point where outside of those three steps, there is liquidity in other places. You said it once, but we’ll say it again now with the context.

Matt Mulcock:
And you gave great context before too in saying, let’s say you’re at that level where the three buckets we’re talking about of cash are a hundred percent of your liquidity. That is most likely the case when you’re early on in your career. Totally normal.

Ryan Isaac:
And congratulations for doing the three.

Matt Mulcock:
Exactly. And congrats you’re-

Ryan Isaac:
There’s a lot of people who try to move through without even taking care of these three and it trips them up.

Matt Mulcock:
Exactly. Yep. And they’re paying punitive damages right now. So let’s fast forward now and say 10, 15 years down the road, you continued on this path, you’ve done a great job sticking to your plan. You’ve been investing regularly. Well, now you’ve got, let’s say multiple six figures or maybe seven figures in a brokerage account, which is a reasonable timeframe to say you could-

Ryan Isaac:
What’s a brokerage account?

Matt Mulcock:
After tax brokerage account, think of it like a savings account that you can invest in.

Ryan Isaac:
It’s not a 401K.

Matt Mulcock:
It’s not a 401K.

Ryan Isaac:
It’s not an IRA.

Matt Mulcock:
Yep.

Ryan Isaac:
No tax advantages.

Matt Mulcock:
Yeah. Yeah. The biggest tax advantages that it’s-

Ryan Isaac:
You put money in, pull it out whenever you want.

Matt Mulcock:
Yep.

Ryan Isaac:
No penalties.

Matt Mulcock:
Yep. Yep. Taxed at capital gains rates, as long as you’re holding the assets longer than a year. So it is favorable in that sense, but let’s say you’ve piled up seven figures, which 10, 15 year timeframe, more than reasonable for a dentist to pile away that kind of money in a brokerage account. Well, now, if you look at your total situation, you’re saying the cash you’re sitting in your personal emergency fund went from a hundred percent of your cash to a fraction.

Ryan Isaac:
Fraction. Few percent. Could be single digits.

Matt Mulcock:
Let’s say it’s 5% of your total… Yeah, single digits. Well, now, before we were saying, you have to bolster that margin of safety because you don’t have anything outside of this cash, it’s a hundred percent of your assets. Well, now it’s not. And so as opposed to being on that six month scale of the emergency fund, I’d feel totally comfortable if that client came to me or I would go to them and say, hey, you’ve got a million dollars sitting in a brokerage account that you can get at any point, you probably no longer need six months worth of cash. Let’s cut it down to three and invest the rest because you can still get it.

Ryan Isaac:
Yeah, be more efficient with your investing.

Matt Mulcock:
But I mean, I wouldn’t drop below three ever. You still need that three, but then invest the rest.

Ryan Isaac:
Yeah, for sure, man. And I love this illustration and this is a conversation I have all the time, especially when there’s maybe a little bit more concern or hype around expensive markets and crashes and all that kind of stuff, which is again, it’s all the time.

Matt Mulcock:
Yeah, it’s been going on since I’ve been in the business.

Ryan Isaac:
Yeah, it’s very week.

Matt Mulcock:
Yep.

Ryan Isaac:
For no particular reason and every reason at the same time. But here’s the thing I think people don’t realize about that is what you’re saying, that’s part of a pretty typical financial plan we help our clients build. They have different kinds of accounts. Most of our clients have IRAs and they have Roths and they have 401Ks and simple IRAs and profit sharing and then they have these brokerage accounts because most dentists, especially the ones we work with, I think our average dentist savings rate last time we measured was like 23 or 24% is the average.

Matt Mulcock:
Something like that, yeah. Yep.

Ryan Isaac:
Which is crazy. That’s such a good savings rate, man.

Matt Mulcock:
It’s incredible.

Ryan Isaac:
Everyone’s going to end up great. But when you have that much savings as a dentist, 23, 24% of a good dentist income represents a lot of dollars and it’s more dollars than can fit in a 401K or an IRA or a Roth or even profit sharing and pension plans in some cases.

Ryan Isaac:
So inevitably just out of default, most of our clients, all of them really end up building liquidity in their long-term savings in these brokerage accounts. And we also do it strategically because we want people to have a balance between accessible money that we’re hoping not to touch, but we can if we need to and inaccessible money in 401Ks [crosstalk 00:30:10].

Matt Mulcock:
Tax advantage money. Yeah.

Ryan Isaac:
Yeah. So it’s strategic and it’s kind of default because there’s so much money left over from a good saver that it’s got to go somewhere. But the thing people don’t realize, let’s just say this brokerage account that you have is it starts growing. It’s six figures, it’s multiple six figures. Then it’s seven figures, which by the way, if that seems crazy, it is the average person can build up that kind of cash sooner than you think.

Matt Mulcock:
Pretty quick.

Ryan Isaac:
It’s surprised me and it surprised clients and it’s cool to see. But what people don’t realize, let’s say that brokerage account, a few six figures, three, 400 grand, and it’s invested 80% stock, 20% bonds and how it’s invested is a conversation for another time that’s risk allocation, that kind of stuff. I think we actually just did a podcast on this. Didn’t we? On risk and allocation and how to build a portfolio? Recent.

Matt Mulcock:
Yeah.

Ryan Isaac:
It’s in there somewhere.

Matt Mulcock:
We did a Facebook live on this.

Ryan Isaac:
Yeah. Go to dentistadvisors.com or go to the Dentist Advisors discussion group on Facebook. We talk about this all the time. We just did the investment, how to build a portfolio discussion. Yeah. Facebook Live is where it was living. Anyway, or the Dentist Advisors just main Facebook page, it’s on there. But if you think about this, let’s say there’s half a million bucks in this brokerage account. And 20% of your account is in bonds, which means it’s conservative. It doesn’t fluctuate like stocks, it doesn’t get the return like stocks, but it also doesn’t go up and down and have the volatility like stocks. As that thing grows, you’re talking about now you’ve got a six figure position in conservatively invested, accessible money that can be wired to you in two days. We can wire our clients money from their investment accounts, sometimes we get even faster, but it’s a couple of days.

Ryan Isaac:
So to Matt’s point, and this is the last thing I wanted to make sure we talk about is people are like, oh, I got to hold cash, got to make sure I have enough. Well, make sure you go through the list. And in that list, that bullet pointed list, you have to keep cycling through it and making sure you have it, because you might deplete it. There might come a time when there’s an emergency, you deplete it or that project happens and there’s a new one.

Matt Mulcock:
Always a new project.

Ryan Isaac:
Always a new project. Every year, this is why financial planning with high amounts of communication with a comprehensive planner helps because you’re constantly cycling through these subjects and asking questions about it and making sure you’re okay. But as people progress and they maintain a savings rate for years and years, they build up huge amounts of liquidity in these brokerage accounts.

Ryan Isaac:
And one of the things I want to point out that is, I think people just don’t know this. Even people who have a lot of money in their accounts is when you build up these big account balances and people will say something like, well, what happens if I need the money and the markets crash, right? Or right when I need it? Which could happen. That’s totally possible.

Matt Mulcock:
Sure.

Ryan Isaac:
We can’t predict it at all. But what people don’t realize is when you’re a saver for years in an investment account, okay? Let’s say you buy a mutual fund today and you just keep buying mutual funds as you save money every single month. And you do this for decades. Well, 10 years from now, let’s say you’re like, hey Ryan, I need some money out of my account. I’m going to do a big project I didn’t see coming actually. A building down the street that I’ve always had my eye on just totally went available. It’s good price. And this happens.

Ryan Isaac:
I need a hundred grand out of my account. I need 250 out of my account. Could we do that? Sure. But what if that happens at a time when the market’s suddenly crash? And that’s what people worry about? What if I need the money when the markets go down? What if it’s during one of those times? What you don’t realize though, is if you’re a consistent saver for long periods of time, the funds you buy today, like 10 years from now, when you need the money and maybe it’s crashing 10 years from now, the funds you bought today, they’re not crashing.

Ryan Isaac:
They grew for 10 years. So even if there’s a 40% crash at year 10 when you’re trying to get the money, the funds you started buying and the money you saved early on, they don’t have negative returns. So you have choices. And this is where it gets kind of cool. So at the 10 year mark, when you come to me and you say, I need some money for this building I didn’t see coming. And we can go, oh man, well, you’ve built up a lot of liquidity. We have a good chunk of it sitting in bonds that didn’t really move up and down too much. So we can do that. We have a whole big group of shares in these mutual funds you’ve been buying for a decade. So we can either sell the most recent ones that have a loss because of this crash that just happened when you need the money and you can take a tax hit, on purpose for tax purposes if you want.

Matt Mulcock:
Very strategic. Yeah.

Ryan Isaac:
Or you can say, I don’t like the idea of that. I don’t want to sell the stuff that’s down. I want to give it a chance to grow. So we’ll sell the old stuff that isn’t even down because it’s been growing for so long and then you can take a capital gains hit and you can pay capital gains taxes if you so choose so that you don’t have to sell something that’s down. The point of all this, if this sounds really tough and confusing, the point that I’m trying to make is that when you stick to a plan for a long period of time and you follow these rules, you will have enough cash. You will have enough liquidity. You will be prepared for any type of situation that we have control over and you have options.

Ryan Isaac:
And I think that’s the biggest thing. The bigger your net worth gets, the more liquidity you have and the more you stick to a good savings plan, you will have options. And your options include having conservative funds that don’t really go up and down much. Your options include selling stuff at a loss. Your options include selling stuff for a gain. You have options as that happens. And so that’s kind of the point of today. We just want to make that point that some of the worry and the fear is normal, but the panic isn’t necessary.

Ryan Isaac:
And I guess after I was saying all this to you, this is how we think. And we think these are things that are in your control. These are things that are sustainable for decades. Anyone can do them.

Matt Mulcock:
Repeatable.

Ryan Isaac:
They’re repeatable, they’re accessible to everyone. But if you hear these and you’re like, nah, man, I still think I’m going to hold all my money and wait for markets to drop and then I’ll get in, you know what? I hope it works out for you. I really do. I mean, geez, I want the industry of dentistry to be wealthy and financially secure.

Matt Mulcock:
Sure.

Ryan Isaac:
So more power to you. My personal experience is that it’s going to be a tough game to play and it’s not going to be repeatable and-

Matt Mulcock:
A tough game to win on a regular basis.

Ryan Isaac:
It is and you might end up harming yourself more than you’re doing any good, even if it feels good to try.

Matt Mulcock:
The last thing I’ll say on this, Ryan, just to your last point, which is so perfect if you’re a net saver and you’re sticking to this. The other side of this as well is, if you’re a net saver and you’re doing a good job with your business and you’re generating enough cash flow outside of your normal living expenses, again, which make you a net saver, the beauty of this is you don’t have to time anything. You’ve got new cash every month.

Ryan Isaac:
Every month.

Matt Mulcock:
From your business to quote unquote time the market. It just goes in every month. You don’t even need to think about it.

Ryan Isaac:
That’s what rebalancing is, right?

Matt Mulcock:
And if you’re young or maybe even not young, if you’ve got enough runway in front of you, let’s say another 10 years plus, then your net cashflow… Basically think of yourself and your business as a dividend paying stock. And every single month, it’s paying you a dividend that you then reinvest into other investments in the financial markets.

Ryan Isaac:
So true.

Matt Mulcock:
Again, we spend so much time wanting to time these things when it’s so much easier and just relieve that burden off of your plate and just say every single month I’m putting this new cashflow, this new dividend, I’m reinvesting it. I don’t have to think about it. And then if it does drop, because it will at some point, it actually benefits you as a net saver. It’s a good thing.

Ryan Isaac:
That’s how you get good returns.

Matt Mulcock:
That’s how you get good returns.

Ryan Isaac:
You buy the cheap stuff, man.

Matt Mulcock:
Yes. You want it to drop. You’re never going to be able to time it consistently or with any level of precision.

Ryan Isaac:
Yeah. Awesome man. And so like if you’re out there holding some stress and some anxiety and some worry over market declines and how that might affect your liquidity, well follow these steps. And again, these are general guidelines. Okay? What you should do specifically, that’s why advisors exist and you should get specific financial advice for your exact situation.

Matt Mulcock:
Call us up.

Ryan Isaac:
Call us. Go to dentistadvisors.com, click on the book free consultation button. It’s green. It’s big. It’s right in the middle of the website.

Matt Mulcock:
It’s big and green.

Ryan Isaac:
Big and green guys. It tickles a little bit when you push on it.

Matt Mulcock:
That tickles.

Ryan Isaac:
But you can schedule a call with one of our very friendly dental specific advisors when you do that. If you have a question that you’d like to generally ask in the group and we’ll generally answer you.

Matt Mulcock:
We will.

Ryan Isaac:
You go to the dentist advisors discussion group on Facebook, post a question, we’ll post an answer. Matt, it’s been great to-

Matt Mulcock:
It’s been fun as always.

Ryan Isaac:
I’m glad the surprise turned out well. You always know what I’m thinking anyway. It’s really cool.

Matt Mulcock:
Yeah. We’re basically the same person.

Ryan Isaac:
Basically the same person.

Matt Mulcock:
And I mean that as a self compliment to me because I want to be just like you.

Ryan Isaac:
You’re the one with the hair and the 600 pound squat.

Matt Mulcock:
No way.

Ryan Isaac:
So I’m feeling good about that. Thanks everyone for joining us. We hope you enjoyed the episode. We’ll catch you next time. Take care.

 

 

Liquidity