Have you ever vacillated about reading a book because you weren’t the author’s targeted audience? Dr. James Dahle’s fine book’s is aimed towards MDs and other ultra-high earning professionals (Attorneys, Dentists, CPAs, Engineers and some academics).
Still, I read this book for the following reasons, gave it five stars, and recommended it to all income earners:
1. Personal finance is an important 21st century skill and should be an interest of all Americans.
2. I love personal finance books written by nonprofessionals.
3. Dr. Dahle self-published his book, which is significant. His words and thoughts reflect the author’s voice (not the voice of some ghostwritten author or a traditional publisher and their team of editors).
4. Lastly, I am quite fond and proud of my young relatives (MD, dentist, and a pharmacist Phd) who fit the author’s primary audience of ultra-high income earners. I hope this book will prompt their interest as the holidays are approaching.
I am very excited to write this review. So, in my excitement my review may be a bit subjective (and long) as I briefly met Dr. Dahle at a Vanguard financial conference. I also met and talked with the authors he cited, Dr. Bill Bernstein, Taylor Larimore, Rick Ferri, Larry Swedroe, Allan Roth, and Mike Piper (and read their books). We are Bogleheads, investors who follow industry great, John Bogle, Vanguard founder and father of the indexing strategy. My bias leans towards authors and professionals who are genuine fiduciaries, who look out for us regular guys or gals, the average investor’s best interests. Dr. Dahle is spot on with the philosophy and strategies of all of these fine investment thinkers.
Many of us made investing mistakes before getting it right. Not this author. Dr. Dahle’s book is a refreshing read about a young professional who got investing correct, right out of the gate, and became a millionaire by age 38. He modestly credits his success by controlling spending and learning investing. The vast majority of young, highly successful elite earners must be tempted to spend. Dr. Dahle tactfully advises these fortunate professionals to watch and control the irresistible (and potentially devastating) temptation to spend (luckily, for us teachers and some engineers, we are naturally frugal). It never occurred to me that making about 35% of an average MD’s earnings was an advantage—in my opinion, frugal living is built in because we don’t have the opportunity to spend excessively.
Self-published personal finance authors are rare. They provide a point of view, which the thousands of finance books written by the professional cannot. The primary topics of spending less than you earn, controlling investment costs, etc. are discussed ad nausea in every personal finance book, but Dr. Dahle provides a unique approach to living on less--he lives it. What happens when nonprofessionals implement the strategies that the professionals so elegantly lay out in those hundreds of personal finance books at our bookstores and on Amazon? He provides an in-your-face model that all of us can aspire to be Do-it-Yourselfers (DIY). Dr. Dahle has been out of residency for just eight short years, paid his student loans, began a family, and bought a $300,000 home and has net assets worth $1 million. Even for a high earner, eight years is a short time!
Don’t get me wrong. Financial books written by the industry leaders are a great read. Nevertheless, they sometimes tend to be dry, academic, and impersonal. Dr. Dahle’s book is none of that as evidenced on what he did between ages 30-38. He skillfully blends his personal experiences while remaining objective so readers will not get distracted into his personal “stuff.” His tome is delightfully organic and a solid hybrid. His smooth, easy-to-read conversational-type book gives readers the impression and the encouragement that they can begin their financial plan. Remember all he accomplished in eight years.
Dr. Dahle covers a lot of ground and for good reason. Ultra high-income earners need to be extra careful in financial areas that us regular income earners can skip (except bad advice, inappropriate insurance products and investment costs!). While all of us need to watch spending, ultrahigh earners might marry into an unpredictable challenge with a hyperactive spending spouse (Who doesn’t want to be married to a high earner and live the “image?”). He also spends a good deal of time how to do your own physician’s income taxes, protecting yourself from lawsuits and pros and cons of starting your own practice.
The author also knows his limitations regarding book length. Writing about the investment process for beginner investors is difficult and tedious. Based on his blog articles and his 10,000+ Boglehead blog posts, he is obviously qualified, but it would make his book longer and less focused. Thus, he wisely refers readers to the work of other Bogleheads who did an excellent job explaining the investing process (active vs. passive strategy, rebalancing, keeping investment costs low and diversification). Why reinvent the wheel? The authors he cites follow the works of Mr. Bogle--Rick Ferri, Taylor Larimore et. al. to set up your low-cost, diversified, indexed portfolio that can be adjusted and rebalanced reflecting each investor’s tolerance or need to take risks (refer to the links at the bottom).
With so many professionals and business owners getting hammered by annuity insurance agents sales pitches, his essay on keeping insurance needs and investments far apart are brilliant. This part alone is worth the price, in my opinion. This is a huge problem for all long-term investors. The facts are that industry-wide annuity sales in the first quarter of 2015 reached $52.7 billion! In my profession, for the last 55 years, PreK-12 teachers, the unions and the districts are in lock step with the insurance industry. I never realized the high income professionals were hit on too (I thought MDs had more of a problem with the pharmaceutical sales agents).
On a slightly different subject that was not covered. I would have wanted more information about how he and his wife handle their finances together. They are obviously on the same page, but I wonder how they addressed differences. On his blog, his wife interviews him, but it was only about him, not her or their relationship. Many married couples have serious financial problems and the author missed an opportunity to help other couples cope with natural financial philosophies and differences. Perhaps a sequel or a blog piece?
This book and the additional authors he cites will help you construct your long-term plan. If you don’t pay attention to your spending and investing, somebody will gleefully take over “managing” your ultra-high earner’s money. The community of DIY investors is huge. We are everywhere, and growing since the 2008 financial disaster. It’s for all professionals, no matter what your earning power. I recall hearing when I was young, “It’s not how much you make, it’s what you do with what you make.” You must control spending to build wealth.
To stress this point, the author smartly devotes an entire chapter of the great work of the Millionaire Next Door (MND) authors. Other financial books also refer to the MND and the wisdoms it contains. It doesn’t matter if you earn $30,000, $300,000 or $3,000,000 if you spend it on yachts, two or more vacation homes, private jets and things, it’s gone. The Millionaire Next Door authors go to great lengths for readers to avoid the “The Great Gatsby” image. The classy, superficial and expensive lifestyle bought on credit are not, and have never been, a long-term and accurate reflection of net worth--it’s your assets that counts.
Since the White Coat Investor was published, the author wrote a blog article about a wily and witty young 30-something retiree, Mr. Money Mustache. This guy is hilarious and another talented writer. MMM writes brilliantly about one of the most boring and unappealing topics few want to hear: frugal living. Check out his concise and insightful ramblings about how to live a stress free and financially independent life. Like Dr. Dahle, MMM has tens of thousands of blog followers.
I have a minor comment on the author’s views when he compares California and Utah's real estate. Of course, the values are starkly different and you will get more bang for the buck in Utah. It is just not as bad for MDs as the author writes. If MDs take one of the author’s primary points about continuing to live below their means after medical school and residency training, of course, many MDs practice in Los Angeles and purchase a nice home in a safe neighborhood. The author said it would take $3 million to live in a home he bought for $300,000 back in Utah. I agree, if you want the “terminator” or Mitt Romany as neighbors who live in exclusive Pacific Palisades or La Jolla, respectively. In La Jolla, for instance, $3 million might get you a one-bath casita. Some of our planet’s richest humans domicile in La Jolla (I agree with his assessment of San Francisco, one of the most beautiful cities in the world and expensive, even for doctors).
However, Los Angeles city and county are huge geographic areas with many safe, affordable, and beautiful neighborhoods, not to mention the cultural richness, career opportunities with higher incomes. For instance, as a couple of Los Angeles educators, my hubby and I started from nothing (like most Americans) in our late twenty’s and early 30s. We bought into one of Los Angeles many secluded and scenic hills. Our home was designed and built by a student of Frank Lloyd Wright and also owned a second home, Palm Springs vacation condo, which we rented out seasonally for 27 years. When we first bought our home in 1981, we rented out the bottom half for 13 years to help pay the mortgage. Along with the rental incomes, we did fine making combined salaries less than one MD’s and still invested enough to retire early (BTW, we do not have lucrative pensions. I have a modest teacher’s pension, and hubby has only Social Security).
The author writes another important chapter “Paying for Help,” might be the most important chapter--many Americans want unbiased financial advice. It takes effort and knowledge of the basics to locate and receive non-conflicted financial help from the financial industry with all of their economic and political power to resist giving it. Honestly, an easier path to take is to become a DIYer, and avoid the conflicted advice. If you can learn the basics enough to recognize a genuine financial adviser, you might as well “graduate” to a DIY status. Let’s just say, in all of my years of investing and negative experiences with self-conflicting “financial advisers,” it’s damn tricky and nearly impossible to find an adviser who truly has your best interests.
The 100% sure way of getting excellent advice is to become a do-it-yourselfer. Here’s why. The investment system returns about 9.5% average over time. 9.5% is an excellent return. However, the ultimate problem you face if you turn your entire financial future to the high priests of finance, you must subtract the following costs. In parentheses, I note which costs can be avoided by DIYers:
1. Inflation rate alone is 2-3% (a problem for everybody)
2. Investment costs (a problem you control with low-cost index funds)
3. (12b(1) (avoided)
4. AUM (avoided)
5. Fee-only hourly rate (avoided)
6. Front and backend commissions (aka “loads”) (avoided)
7. Revenue sharing (avoided)
8. Third-party administrator fees (avoided only upon work termination or retirement by rolling over your employer sponsored retirement plan into a rollover account with Vanguard)
9. Record keeping costs (avoided only upon termination or retirement by rolling over your employer sponsored retirement plan into a rollover account with Vanguard)
10. Advisory fees (avoided)
11. Turnover or trading costs (you control with occasional rebalancing)
12. Capital gains taxes on inefficient mutual funds (much of the taxes can be avoided by using tax-efficient index funds).
13. Taxes on distribution (a problem under your control with a distribution plan and using the Roth IRA). I agree with the author’s suggestion to do your own taxes.
The stock market doesn’t return enough to pay you a decent return and the investment costs, and the costs of an adviser. You can get more of the 9.5% return without the adviser and by keeping your investment costs below 25 basis points.
This book will help you become a DIY because the author is self-published and he models how he manages his money without an adviser. It’s the major implication of the entire book. He wisely quoted, Dr. Bill Bernstein, mentioned above, about the difficulty of recognizing that the financial industry work ethic are as different to us in the “helping professions,” as the Attila the Hun and the Pope respectively. Thus, Dr. Bernstein said, “If you assume that every financial professional you interact with is a hardened criminal, you’ll do okay.”
If your doctor’s nurse informs you at your annual physical you have a temperature of 98.6, do yourself a huge favor and read this book! No other physical or mental qualifications exist. You too can become a do-it-yourselfer. Trust me, and all of the other hundreds of positive reviewers. What more evidence do you need? I am not an ultra-wealthy investor and never been an ultra-high income earner, and I loved this book. Twenty years from now, you will thank yourself over and over. Older people, who discovered the investing process at a young age (and us older folks too), never regretted that they read up on investing.
Dr. Dahle gives the reader plenty of positive and encouraging wisdoms from our point of view, which is a “consumer’s.” Thank goodness, we now have one more nonprofessional who knows more about personal finance than the vast majority of professional financial advisers, the brilliant quants and stockbrokers who sell expensive products for their avaricious and unethical big banks and brokerage houses.
Additional Readings of most of the authors that Dr. Dahle cited:
The Bogleheads' Guide to Investing
Richard A. Ferri
How a Second Grader Beats Wall Street: Golden Rules Any Investor Can Learn
The Only Guide You'll Ever Need for the Right Financial Plan: Managing Your Wealth, Risk, and InvestmentsInvesting Made Simple: Index Fund Investing and ETF Investing Explained in 100 Pages or Less
The Coffeehouse Investor: How to Build Wealth, Ignore Wall Street, and Get On with Your Life
Your Money and Your Brain: How the New Science of Neuroeconomics Can Help Make You Rich
The Four Pillars of Investing: Lessons for Building a Winning Portfolio
Common Sense on Mutual Funds: Fully Updated 10th Anniversary Edition
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