Simplify, Simplify, Simplify — Real-Life Dilemmas

Henry David Thoreau famously said, “Simplify, simplify, simplify.” He could easily have been talking about our financial lives. The late Jack Bogle said, “When there are multiple solutions to a problem, choose the simplest one.” Our financial lives become so complicated over the years that we waste a lot of our time (and possibly a lot of our money) dealing with them. Even if we enjoy playing with our money, are we sentencing our less-interested spouse and our heirs to years of hassle? I think it is pretty obvious that we should be continually looking for ways to simplify our financial lives.

The funny thing is that it's easy to look at someone else's financial life and prescribe a few ways to simplify it, but simplifying our own can feel much harder. In my experience, there are two big obstacles to making simplifying changes. The first is just inertia. We've been doing it this way for a while, and change takes energy, time, and sometimes money. However, the second is often much more complicated. The complexity usually carries some sort of benefit, and to simplify would result in losing that benefit. Now, a value judgment comes into play. How much are you willing to pay to have a simpler life?

Today, I'm going to lift the curtain on some of the ways Katie and I could simplify our financial life, tell you why we have not yet done that, and reflect a bit on whether or when we will. I hope it is instructive to you and that you will make your own list of possible simplifying changes.

#1 Simplify Our Asset Allocation

We simplified our asset allocation somewhat at the end of 2016.  However, we have maintained our 60/20/20 allocation faithfully ever since. It currently consists of:

Stocks 60%

25% Total US Stock Market 15% US Small Value Stocks 15% Total International Stock Market 5% International Small Value Stocks

Bonds 20%

10% Nominal Bonds 10% Inflation-Indexed Bonds

Real Estate 20%

5% Public Equity Real Estate 10% Private Equity Real Estate 5% Private Bond Real Estate

Even with simplification, it's still three asset classes and a total of nine sub-asset classes, and I'm still getting emails and forum messages every day encouraging me to add even more. Potentially, we could reduce this to six, five, four, or even three sub-asset classes. You don't have to invest in everything to be successful, and now that we've already reached all of our financial goals, there's even less need to add complexity in hopes of acquiring more money.

Why We Haven't Done It Yet

We invest in multiple sub-asset classes because we wish to boost returns and reduce risk. In the long run, I believe we'll end up with less money if we reduce asset classes in our portfolio. How much less? It's hard to know, and it's entirely possible that it could be so little (or even negative) that it would still be worth it to simplify. But we don't have any plans to change our asset allocation at this time. A similar issue exists in our children's 529s (three funds) and UTMAs (two funds) too, although making simplifying changes in the UTMAs would have tax consequences.

#2 Roll Over My TSP Account

When I was a military doc, I contributed to the Thrift Savings Plan (TSP), the military/government 401(k). Back then, the TSP had lower expense ratios than even Vanguard. This was years before Fidelity came out with their zero-expense ratio funds. Plus, the TSP offers the G Fund, a unique investment that offers Treasury yields with money market risk that I prefer as my nominal bond investment. Over the years, more and more of my TSP account became G Fund until it was eventually all in the G Fund. When I had a retirement account eligible for a rollover (like a closing cash balance plan), I would roll it into the TSP.

However, even with the rollovers and (admittedly low level of) growth in the account, the G Fund has become a smaller and smaller portion of our nominal bond asset allocation over the years. My entire TSP balance is now less than 1/4 of our nominal bond allocation, and it may no longer be worth the hassle of maintaining that additional account.

Why We Haven't Done It Yet

While we could probably get a similar return out of other bonds, it would involve taking on a little more risk. Inertia probably plays a bigger role here. This is a simplifying change that is likely to happen in the next couple of years.

#3 Get Rid of Our Trusts

Perhaps the biggest complexity in our financial life is the mainstay of our estate and asset protection plans, a Spousal Lifetime Access Trust (SLAT), a type of Intentionally Defective Grantor Trust (IDGT). To reduce our expected future estate tax bill, the majority of our assets and certainly most of what we expect to appreciate significantly is in that trust. But it's a lot to manage—even for me—and eventually Katie is likely to have to deal with it either by herself or with a professional. Utah also allows Domestic Asset Protection Trusts (DAPT), and given Utah's low homestead exemption and our expensive, paid-off house, the house is now in that trust. We also have a minimally funded revocable trust to use at some point.

Why We Haven't Done It Yet

Trusts are a pain for sure, but ours exist for very good reasons. Not using them would likely eventually cost our estate millions of dollars. I'd love to have a simpler life, but as Einstein said, “Everything should be made as simple as possible, but no simpler.” Getting rid of these would be “simpler” in my life. Nevertheless, I've run into WCIers who have opted to pay an eight-figure amount in estate taxes just to avoid this sort of complexity.

More information here:

What You Need to Know About Estate Planning

We Redid All of Our Estate Planning: Here’s How We Made Sure to Find Emotional Peace

#4 Sell Legacy Investments in Taxable

A couple of years ago, we changed our chosen investment (and its tax-loss harvesting partner) in two asset classes in our portfolio, US Small Value Stocks and International Small Value Stocks. However, 1/3 of the first asset class and 80% of the second asset class are actually still invested in the old holdings! Despite thinking the new holdings are better, we still own a whole bunch of the old stuff.

Why We Haven't Done It Yet

The legacy holdings have significant gains, and they are still sitting in the portfolio because I try to avoid paying capital gains taxes. We probably even have enough carry-forward capital losses to cover those potential tax bills, but I would prefer to maintain those losses for possible future use. So, we're gradually using those old holdings for our annual charitable giving via our Donor Advised Fund. That's probably something like 3-4 years' worth of giving, though, so it's going to take a while.

#5 Stop Tax-Loss Harvesting

In addition to those legacy holdings, just about every mutual fund we own in taxable (almost all of them now) is really two mutual funds: the primary holding and the tax-loss harvesting partner. If we quit tax-loss harvesting, we could use only one fund for each sub-asset class, simplifying our holdings, tax preparation, and more.

Why We Haven't Done It Yet

The tax-loss harvesting allows us to use $3,000 a year against ordinary income and an unlimited amount against capital gains. Aggressively tax-loss harvesting for years has allowed us to avoid tax on any unavoidable sales, and we're still saving up more in case we ever end up selling our house or WCI in the future. We're probably not going to stop, so that means we'll have two funds for every asset class indefinitely. Besides, even if we quit, we'd have to deal with the legacy holdings issue discussed above for years.

#6 Sell a Holding in our HSA

Our Health Savings Account (HSA) has become surprisingly large over the years. Held at Fidelity, we've mostly just invested in the US Total Stock Market sub-asset class just to keep things simple. But to save some very minimal fees and avoid a little cash drag, we actually own both VTI and FZROX there.

Why We Haven't Done It Yet

This one is mostly inertia. There is a tiny amount of savings there, but it's completely insignificant in our financial lives. The problem is I slightly prefer VTI to FZROX, but if I only held VTI, I would have to have a few dollars in cash, which is two holdings either way. However, now that Fidelity permits partial shares, ETF dividend reinvestment, and commission-free Vanguard ETFs, I could probably get away with just VTI now. This change might be made even before you read this post.

#7 Close Our High-Yield Savings Account

Vanguard is one of the best places to hold cash, given its high yields on both taxable and municipal money market funds. However, there were a few years when high-yield savings accounts, like ours at Ally Bank, offered higher yields. We have used both, but we are currently sitting on a $5 balance at Ally. Maybe we ought to just close the account.

Why We Haven't Done It Yet

Mostly inertia, but in the back of my mind, I wonder about a possible future time when high-yield savings accounts again offer a higher yield than money market funds. It probably wouldn't be high enough to justify having one more account to keep track of, though. It's just so much easier to keep an account open (there isn't even a minimum balance) than to open a new one.

#8 Move the Kids' Bank Accounts

Years ago, I opened personal accounts, business accounts, and the kids' accounts at a local credit union. We had to move our business account to a bank during the pandemic in order to get the free pandemic money, and honestly, the growing business of WCI needed more features and better service than the credit union was offering. So, we moved the business accounts and opened a personal account there, but we left the kids' accounts (and a personal account) at the credit union. We could simplify our financial lives by eliminating an institution if we moved over the accounts.

Why We Haven't Done It Yet

It's a hassle to open bank accounts, and the credit union accounts are working just fine.  I guess I have better things to do with my time than open more accounts just to have them all at the same bank. I don't know when I'll get around to this. Maybe when the kids all grow up and move away.

More information here:

My Children’s Inheritance

Teaching Your Kids About Investing with The Stock Game

#9 Quit Investing in Private Real Estate

One of the biggest hassles in our financial life involves just 15% of our portfolio. Eighty-five percent of our portfolio is invested in publicly traded index or passive mutual funds. The other 15% is invested in private real estate. While I believe there are advantages to these investments (primarily high returns and low correlation with stocks and bonds), there's no doubt that getting rid of them completely would simplify our financial lives. It would also dramatically reduce the time I spend gathering tax paperwork and the money we pay for tax preparation.

Why We Haven't Done It Yet

The main reason is that I think I'm coming out ahead financially by dealing with the hassle. But my investment spreadsheet is currently tracking 10 equity investments and three debt investments. That's a lot of K-1s and 1099s. Change isn't instantaneous either. Private investments tend to be illiquid, and getting out of them often requires years to do.

I am doing what I can to keep things as simple as possible. For example, I resigned as the syndication manager for my group's office building last year and left that partnership (the real estate partnership, not the practice partnership). Unfortunately, the succeeding management didn't buy me out immediately (the operating agreement allows for a five-year buyout), but hopefully it'll happen this year. It just didn't make sense for me to be personally managing what was literally my smallest investment. When we have to make additional investments, we preferentially do it into evergreen funds we already own, so we don't add a new K-1. All of our debt funds and two of our equity funds are evergreen currently. When we cannot do that, we are trying to invest with fund managers (no more individual syndications) whom we already know so that we are comfortable with larger investments. Thus, we're getting more bang for each additional K-1. My efforts are paying off somewhat, as we only had to file in nine states for 2023 instead of the 12 we filed in for 2022. As the smaller investments made years ago go full circle, we're hopefully reducing the number of total investments and K-1s.

A year or two ago, I asked Katie how many of these she wanted to own after I died. Her answer was zero, which was pretty enlightening (especially since I almost died in 2024). However, I really like the risk/return/correlation/liquidity profile of debt real estate funds. We may eventually move out of private equity real estate completely and just hold the debt funds. Maybe instead of a 5/10/5 allocation, we'll eventually go to a 10/0/10 allocation, splitting the money currently in private equity real estate between VNQ and the debt funds.

#10 Sign Over 529s

We opened a Utah 529 for each of our children AND each of our nieces and nephews (and offered a generous match to the nieces/nephews for their own earnings). Since we both come from sizable families, that's a total of 35 529s. They're not that much hassle to manage, but we don't want to own 35 529s forever. By the time my second kid moves on to college next summer, we'll have 11 college students or graduates among that crew. Some of them have dutifully spent their entire 529 as I instructed, but others seem to be finishing with a remaining balance. I figure it makes sense to just make them the owner of the account after graduation. That way, if they want to do a Roth IRA rollover, leave the money invested for their kids, use it for grad school, or withdraw it and pay any taxes and penalties due, they can just do that, and I no longer have to be involved.

Why We Haven't Done It Yet

We've only got one nephew mostly out of college as I write this, and even he is in an internship and still taking some online classes. This one is mostly yet to come, and it may be quite a few years yet since my youngest niece isn't even 3 years old. Hopefully, most of them will just spend the entire balance (spend my money first, please!) and then we can just close the accounts. But that's not going to work for all of them, and it's definitely not going to work for my kids, given their current educational plans and 529 balances.

#11 Sign Over UTMAs and Roth IRAs

My kids all have UTMAs and Roth IRAs in addition to their 529s. In Utah, the UTMA is technically theirs when they turn 21. That seems like a good age to just get the stupid thing out of my account/log-in, off my spreadsheet, and into their account/log-in.

Why We Haven't Done It Yet

By the time you read this, our oldest will probably be 21. But we've also got a 9-year-old at home so this one will take time.

#12 Reduce Minority Business Holdings

At one point, I owned a minority share in four other partnerships. So far, I'm out of three of the four and partially out of the fourth one. This reduces financial and especially tax preparation hassle.

Why We Haven't Done It Yet

If you think real estate limited partnerships are illiquid, you've never been in business. This just takes time. But I don't think I'll sign on as a minority partner in any more businesses for the rest of my life.

#13 Quit Working

There is a lot of financial hassle associated with both being a physician in a physician partnership and with owning/running WCI. I could certainly simplify my entire life by getting rid of both. Even just quitting my practice would free up about 84 days a year and eliminate three retirement accounts. Quitting WCI would free up even more days than that and eliminate another six retirement accounts.

Why We Haven't Done It Yet

Aside from the obvious financial benefits, I still really enjoy both of my jobs, and if I got rid of them, I think my life would be significantly less pleasurable. I probably already putter around the house too much as it is. Plus, replacing me at WCI seems to be harder than it may first appear, and just shutting the thing down and walking away would likely be the worst financial mistake of my life—not including the impact it would have on hundreds of thousands of doctors and others over the next decade or two.

More information here:

A Candid Conversation with My Physician Spouse About Burnout, Guilt, and Resentment

Life After Financial Independence: Two Perspectives

#14 Drop I Bonds

We have a low six-figure amount invested in I Bonds. They're a pretty unique investment and fit well into our inflation-indexed bond allocation. But they're a tiny percentage of that allocation, dwarfed by the other holding, TIPS.

Why We Haven't Done It Yet

I like I Bonds, but I just can't buy enough of them each year to make a difference for us, and I should probably just get rid of them. A little inertia and a little “shiny object syndrome” are probably at play here.

#15 Figure Out What to Do with TIPS

Our TIPS allocation is even more schizophrenic. In the 401(k)s, we have a significant amount of our inflation-indexed bonds invested via the Schwab TIPS ETF (SCHP). However, my chosen investment in taxable is individual TIPS bought at the five- and 10-year auctions. Since we already had three TreasuryDirect accounts (hers, mine, and the trust), it was easy to just hold those individual TIPS there.

Why We Haven't Done It Yet

There are benefits to a TIPS fund/ETF (convenience, liquidity, etc.), and there are benefits to individual TIPS (certainty of value at maturity, no expenses). Certainly at a minimum, we could start buying those individual TIPS at Vanguard rather than TreasuryDirect, which would allow me to close those accounts (assuming we also got rid of the I Bonds). The TIPS ladder/Liability Matching Portfolio (LMP) proponents make good arguments, though, so maybe we'll end up using that 401(k) space for something else (like real estate debt funds) and just put our entire inflation-indexed bond allocation into a taxable TIPS ladder. Indecision is the major issue here.

#16 Quit Using the Cash Balance Plan

My physician partnership offers a defined benefit/cash balance plan, essentially another 401(k) masquerading as a pension. I was excited about the latest version which would allow me, at 49 years old, to contribute as much as $120,000 a year. Unfortunately, I don't want to work enough shifts that I would make enough money to actually make that contribution. I'm not even working enough to max out my 401(k)/profit-sharing plan right now. I originally set my contribution amount at $60,000 a year, but given that I was disabled for a couple of months in 2024, I'm not even sure I can contribute that much. I'll probably have to dial it back to the $40,000 amount. At a certain point, you have to wonder if it's worth dealing with the additional account rather than just investing that money in taxable.

Why We Haven't Done It Yet

There's an inertia aspect, but the additional tax and asset protection has real value. How much do I value simplicity in terms of dollar amounts is the real question. We'll see what happens here over the next few years.

An Outline for Our Next Meeting

I hope you enjoyed that personal look into some of my current financial dilemmas. I plan to use this outline for our next monthly finance discussion. I suggest you also make a list of the ways you could simplify your financial life, and implement the ones that make sense for you and yours.

[AUTHOR'S NOTE: Here's an update prior to publication: We discussed all this at our next meeting and decided to make the changes in #6, #14, and #15. We're also going to try to avoid picking up new real estate fund managers for #9. I think #2 is going to happen sooner rather than later, too.] 

What do you think? Why do we let our financial lives become so tough to manage over time? Why does our retirement/tax/financial system have to be so ridiculously complicated? 

The post Simplify, Simplify, Simplify — Real-Life Dilemmas appeared first on The White Coat Investor - Investing & Personal Finance for Doctors.