The Dark side of Syndication investing

[Mount Asclepius]

Life happens, kids happens, expenses goes up. Yes, its easy to say save 100K on a 400K salary but it really isn't. 400K is 300K take home. 100K retirement and you have 200K left.

Walk out of residency married at 30 yrs old with 300K debt. New Car, New house, etc. Finally pay off 300K debt after3 yrs.

Have 2-3 kids. Wife stays at home, single income. Unless your wife makes over 100K, working is just not worth it putting 2-3 kids in daycare.

Private school, club sports, nice vacations, clothes, bigger home, home repairs, new car, etc....

If your DINK or your wife makes 200K/yr, then yeah saving 100K/yr is a breeze.

Throw in kids and its just not as easy as it seems. 200K is alot and no one should complain but its not like your swimming in luxury.

Texas property tax on a 1M home is like 25K. Utilities/cell/basic living expenses is 15K. Private school for 3 kids another 45K minimum. Club sports 15K.

That leaves 100K for vacation, food, clothes, entertainment, and everything else.

I am not saying anyone needs a 1M home, private school, club sports, etc. But that is just the reality of being a high income doc where your kids/spouse's peers have similar activities. Lifestyle creep is real and inflation lately is ridiculous.

A lot of optional, personal choices that reflect heavy spending and decreased saving.

First though, $100K into retirement is saving $100K.

You shouldn’t buy a new car and new house immediately after residency. Work and live like a resident for at least a year. Half of EPs leave their first job out within a year.

My wife makes far less than $100K. It may not make sense financially with kids for the first 5 years prior to school with child care expenses, but makes a perfect sense for many other reasons.

Now the list. I’m a big proponent of public schools. Specifically chose to live somewhere with one of the best public schools in the state. No money going to private schooling. Don’t pay for club sports. There are much cheaper options that are perfectly fine. I do have nice vacations. They are probably a lot cheaper than yours. Many of them are practically free. Buy cheap clothes. Buy a smaller home. Can still be spacious and luxurious. Property taxes in my state are about $4-5K on a $1M home. The State gets their money in either income or property taxes. Apparently don’t retire in Texas.

Don’t keep up with the Joneses. It’s easy to spend money. People are more impressed with those that save instead.

I know you make substantially more than the average EP by getting in on the free-standing bonanza. I'm not telling you not to spend your money as you do given you have a lot more than most, but it's not realistic for the average EP even really those that make $500-600K/year let alone those in the $200-400K range. You can have anything you want, but not everything you want on an average EP salary. Unless of course what you want doesn't take a cent to buy.

"A man is rich in proportion to the number of things which he can afford to let alone." – Henry David Thoreau

“To live contently with small means; to seek elegance rather than luxury, and refinement rather than fashion, to be worthy, not respectable, and wealthy, not rich; to listen to stars and birds, babes and sages, with open heart; to study hard; to think quietly, act frankly, talk gently; in a word, to let the spiritual, unbidden and unconscious, grow up through the common -- this is my symphony.” – William Henry Channing

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[skougess]

This thread is turning into a giant eye roll. I am 100% on board with being paid what we are worth and never will agree with people that try to use our wealth to justify lower salaries/poor working conditions.

But get real on lifestyle. It’s borderline disgusting and embarrassing to imply that anyone in America is struggling on a physicians salary and cannot save a generous amount.

 

[sloh]

Interesting question to ask if you live in a neighborhood with good public schools what is the additional return on sending your kids to private schools?

 

[Splenda88]

Traditional recommendations are meant for the average joe i feel. It’s easy.

There are interesting new etfs now that i feel are superior to SPY in a retired person’s portfolio. A 70/30 portfolio just doesn’t replicate some low volatility income focused products like JEPI.

Jepi should get around 6-10 percent annualized cash on cash return. It’s a retirement person’s dream - consistent monthly cash flow. When stocks go down, premiums go up to maintain cash flow. When stocks go up, you still participate in a limited upside. I think products like this could literally redefine the 4 percent rule to maybe the 5 percent rule lol.

How 'old' are JEPI and JEPQ?

 

[bravotwozero]

I'm a product of public school and support the concept but I can understand why some parents would send their kids to a private school. My kids go to a public school.

Private schools can waive the stick of expulsion since they are not beholden to any district rules. This can typically keep kids in line and specifically their parents as well. Even in good public school districts, you will have some @$$h0le kids that can cause trouble.

Yeah in houston one of the 15 year old public school kids beat the crap out of his teacher because he confiscated his cell phone in class.

I couldn’t imagine having such level of disrespect for my teachers, no matter how much I disliked them.

 

[Splenda88]

This thread is turning into a giant eye roll. I am 100% on board with being paid what we are worth and never will agree with people that try to use our wealth to justify lower salaries/poor working conditions.

But get real on lifestyle. It’s borderline disgusting and embarrassing to imply that anyone in America is struggling on a physicians salary and cannot save a generous amount.

From what I have noticed, many (or probably most) physicians are usually out of touch. You have seen many threads here of MD/DO and premeds who think it's easy to make 500k in other industries.

Here is a good article about our salary (or income)

https://www.washingtonpost.com/business/2023/08/04/doctor-pay-shortage/#

 

[emergentmd]

I have learned that everyone places a different value/priority and it is not for me to judge. There is no right or wrong way.

Putting your kids in private school eventhough they are zoned for a top school is not wrong.
Buying a 80K boat is not wrong.
Saving every penny, living like you are a college student until you die is not wrong.
Buying a new car every 3 years is not wrong.
It is a choice and they all have different consequences.

 

[GatorCHOMPions]

I didn't lose much in the divorce and don't have any child support or alimony.

The selection bias here is pretty nuts.

Some combo of lives in middle of nowhere, works 20 shifts a month, manages airbnbs (very active; btw hows that going lately), bought RE randomly at the best time in the history of RE, oh and my wife makes 500k lol.

I make and save way less than most on this thread, and yet am light years ahead of most of my cohort of colleagues. I feel very comfortable and secure working 13 days a month and spending my time on non money generating pursuits.

Exactly this, definitely feeling inferior as I read all these messages but I know there’s just a huge bias.

 

[BoardingDoc]

This thread is turning into a giant eye roll ...It’s borderline disgusting and embarrassing to imply that anyone in America is struggling on a physicians salary and cannot save a generous amount.

I apologize if I missed it above, but I don't know where you saw people implying what you wrote. The closest I can see is a one off post by emergent about not being able to save a ton if you have a ton of (entirely optional) expenditures.

 

[BoardingDoc]

Exactly this, definitely feeling inferior as I read all these messages but I know there’s just a huge bias.

There is definitely a huge bias in these threads. You should see the crap that gets posted in the pain forums sometimes and the numbers that get thrown around. I'm sure not all pain docs are hitting close to 7 figures/year, but there sure are a lot who claim to and who post often. The guy who chimes in about an offer for 280k/yr with no RVU bonus is much more of a rarity.

Most people posting here seem to be coming from a position of a floor of 400k+/yr (except for @cyanide12345678 who manages to spend like he still lives in Pakistan. Props.) At the same time, almost everyone in this forum would agree that over 36 hrs/wk in EM is not generally sustainable in the long term. That means that you need to be doing at least 36 hrs/wk (52 wks a year) and getting paid at least $214/hr to make that 400k. That sure as s*** isn't everyone here, either because you've sanely decided to work less or because your employment options are limited to CMG a**hats who steal a large chunk of your income or both.

Comparison is the thief of joy. Don't go comparing your everyday life to the highlight reel that someone else is showing you of their life online.

 

[Splenda88]

Most people posting here seem to be coming from a position of a floor of 400k+/yr (except for @cyanide12345678 who manages to spend like he still lives in Pakistan. Props.) At the same time, almost everyone in this forum would agree that over 36 hrs/wk in EM is not generally sustainable in the long term. That means that you need to be doing at least 36 hrs/wk (52 wks a year) and getting paid at least $214/hr to make that 400k. That sure as s*** isn't everyone here, either because you've sanely decided to work less or because your employment options are limited to CMG a**hats who steal a large chunk of your income or both.

Comparison is the thief of joy. Don't go comparing your everyday life to the highlight reel that someone else is showing you of their life online.

I remember the guy said he has a 4000+ sqft home somewhere in TX; that is nowhere near to living like he was in Pakistan.

 

[cyanide12345678]

I remember the guy said he has a 4000+ sqft home somewhere in TX; that is nowhere near to living like he was in Pakistan.

Most people posting here seem to be coming from a position of a floor of 400k+/yr (except for @cyanide12345678 who manages to spend like he still lives in Pakistan. Props.) At the same time, almost everyone in this forum would agree that over 36 hrs/wk in EM is not generally sustainable in the long term. That means that you need to be doing at least 36 hrs/wk (52 wks a year) and getting paid at least $214/hr to make that 400k.

Yeah…. Definitely don’t spend like i live in pakistan. In pakistan our household expense was roughly $800-$1000/month and we had a cook, a gardener, a driver, a maid.

I wish i had that lifestyle here lol.

We spend ~100k a year maybe. To you guys it seems like little, but really…it’s a good chunk of change especially in the mid west.

~ 36k/yr mortgage, home taxes, and home insurance. 6 bedroom 5.5 bathroom brand new construction built by us in 2021. 6000 sqft.

~ 18k/yr on childcare

~ 20k/yr vacations (usually 4 a year) - but subsidized by 10k of cme money as well. So maybe 10k out of pocket.

~ 5k/yr internet, phones, electric, water, gas, subscriptions (Netflix, hulu, amazon prime, Disney plus, gym, peloton)

~ 5500/yr - car insurances, umbrella, disability and term life insurance

~ 10k/yr groceries

~ 2500/yr for maid

~ 5k gas

The above is ~90k ish . And the rest is discretionary spending - clothing, restaurants, amazon etc. maybe 20k a year? Who knows. I don’t measure it. We don’t go to ridiculously expensive restaurants usually, neither my wife or i shop much for clothing or shoes etc, just not into it. And when my wife does shop, she will spend 200-300 dollars at Burlington as her splurge and come home with a dozen dresses lol. Our child’s wardrobe is essentially all Walmart cheap stuff. Heck a lot of my t shirts are from that 5 dollar store place.

But this doesn’t mean i don’t spend money. When i want something, i just get it - which is why i have an awesome basement - home theater, laser projector, ALR screen, klipsch 7.1 surround sound, table tennis table, air hockey, indoor basketball, VR gaming set up, PlayStation.

I don’t think we’re missing out on anything. If there’s anything i want, i usually get it, but there’s very few material needs i have in life. Im not into watches, branded clothes, cars, expensive hobbies - my passions literally are finance. Things that make money. I literally read finance news for fun -_- yesterday when i was off and could have done anything i wanted, i literally ended up spending 2 hours on flippa looking at websites to buy as my form of entertainment- and yeah…When i want something i get it, my last website purchase was a decision within a few hours - dropped 10k on it. Seemed undervalued and a good buy. Told my wife the next day that i bought a dropship store lol. Sold for 16k 3 weeks later but that’s besides the point 😂😂

Edit: ~5k/yr divided between two relatives that need financial support in pakistan. So i guess we spend around 110-120k a year, i guess that was a little more than i thought but oh well…. We make enough.

 

[cyanide12345678]

How 'old' are JEPI and JEPQ?

Jepi isn’t an old fund. 3-4 years maybe?

But it’s a fairly predictable fund specifically designed for income focused investors who want low volatility and a monthly income.

What is it?

135 stocks out of the sp500. J.P. Morgan analysts picked out 135 companies in different sectors out of spy500 which they believe have better earnings, growth, dividends out of their peers.

The real world difference between a 500 individual stock portfolio and a diversified across multiple sectors 135 individual stock portfolio isn’t actually much. Literally i think there’s some data that shows that you can hold 30-40 stocks in different sectors and get close to market returns. I mean….dow jones is literally 30 companies and over the course of 40 years it has had a 2783% return vs sp500 that has had 2623% return. Pretty much similar returns and correlation.

So 135 individual stocks from sp500 is as good as holding 500. Which is also why sp500 has a 99 percent correlation with vti which is some 3700 stocks.

What’s the secret sauce? And why is it so predictable

Cash covered calls plus dividends yield which gives monthly income ~ 6-8 percent annualized. In fact, slightly out of the money cash covered calls so you participate in some upside of the markets as well. It’s not designed to outperform the sp500. It’s designed for low volatility and monthly cash flow, specifically for a person seeking monthly cash flow.

The age of the fund doesnt matter. I can understand and conceptualize the future return based on the fund construction. The performance of the fund depends on what the market will do in the future: 3 outcomes only.

1) If spy goes on a massive bull run - the fund will underperform. It will spin off its usual 6-8 percent yield and stock value will go up, but not as much as SP500 which went on a massive run. Cash covered calls limit upside, while protecting downside. So your upside is limited to the amount of premium plus however much out of money the cash covered calls are. So a year where spy returns 30 percent, jepi will definitely not do that.

Regardless, stocks going up are not what retirees worry about. Whether they hold jepi or spy, the rising prices and the positive sequence of return will mean dying with significantly more than what you had at retirement.

2) second possible outcome. the next 30 years spy remains flat. Decades of no returns. Jepi will significantly outperform spy. Spy has had 2 historical decades with negative returns - 2000s and 1930s and 4 decades of mediocre 4-6 percent returns (1880s, 1890s, 1910s, 1970s). I don’t know what the future holds, but all i can say is that the current shiller inflation adjusted p/e ratio sits at 30 when the historical average is 17.

But if spy returns are stagnant over decades, jepi will outperform significantly because it will continue to spin off a 6-8 percent return from cash covered calls.

This is one of the scenarios where a retiree benefits, doesn’t have to sell their equity. They just keep using their dividend and premium cash flow to live.

3) the third option is a Japan like event, decades of negative return. This will actually result in huge volatility spikes. Jepi premiums will actually increase, you will again outperform spy500 as the cash covered calls will mitigate the losses, keep shooting out premiums, which you could continue living on, while not actually selling shares. Jepi will again outperform sp500 significantly in this situation.

Outcome 2 and 3 is the biggest risk to a retired person. Jepi mitigates that risk. Your risk with jepi is limited upside and underperformance when the market outperforms. That’s the definition of a cash covered call.

So….if i had 0 income and 4 million in assets and i didn’t have absolute comfort doing options myself, then i would put 4 million in jepi. If i did that today, id get about 280k a year just in dividends/premium income, which is actually going to be a fairly reliable income stream even if markets are dropping as that’s when premiums actually go up.

Volatility hit a 20 year low last week. Yet jepi 30 day sec yield is still 6.8 despite historically low volatility (so minimal premiums and not the best time to be selling puts or calls).

It’s a brilliant modern way to maximize income for the retired investor and minimize volatility. Which is why it’s grown to 28 billion of assets under management in 3 ish years.

 

[Splenda88]

Jepi isn’t an old fund. 3-4 years maybe?

But it’s a fairly predictable fund specifically designed for income focused investors who want low volatility and a monthly income.

What is it?

135 stocks out of the sp500. J.P. Morgan analysts picked out 135 companies in different sectors out of spy500 which they believe have better earnings, growth, dividends out of their peers.

The real world difference between a 500 individual stock portfolio and a diversified across multiple sectors 135 individual stock portfolio isn’t actually much. Literally i think there’s some data that shows that you can hold 30-40 stocks in different sectors and get close to market returns. I mean….dow jones is literally 30 companies and over the course of 40 years it has had a 2783% return vs sp500 that has had 2623% return. Pretty much similar returns and correlation.

So 135 individual stocks from sp500 is as good as holding 500. Which is also why sp500 has a 99 percent correlation with vti which is some 3700 stocks.

What’s the secret sauce? And why is it so predictable

Cash covered calls plus dividends yield which gives monthly income ~ 6-8 percent annualized. In fact, slightly out of the money cash covered calls so you participate in some upside of the markets as well. It’s not designed to outperform the sp500. It’s designed for low volatility and monthly cash flow, specifically for a person seeking monthly cash flow.

The age of the fund doesnt matter. I can understand and conceptualize the future return based on the fund construction. The performance of the fund depends on what the market will do in the future: 3 outcomes only.

1) If spy goes on a massive bull run - the fund will underperform. It will spin off its usual 6-8 percent yield and stock value will go up, but not as much as SP500 which went on a massive run. Cash covered calls limit upside, while protecting downside. So your upside is limited to the amount of premium plus however much out of money the cash covered calls are. So a year where spy returns 30 percent, jepi will definitely not do that.

Regardless, stocks going up are not what retirees worry about. Whether they hold jepi or spy, the rising prices and the positive sequence of return will mean dying with significantly more than what you had at retirement.

2) second possible outcome. the next 30 years spy remains flat. Decades of no returns. Jepi will significantly outperform spy. Spy has had 2 historical decades with negative returns - 2000s and 1930s and 4 decades of mediocre 4-6 percent returns (1880s, 1890s, 1910s, 1970s). I don’t know what the future holds, but all i can say is that the current shiller inflation adjusted p/e ratio sits at 30 when the historical average is 17.

But if spy returns are stagnant over decades, jepi will outperform significantly because it will continue to spin off a 6-8 percent return from cash covered calls.

This is one of the scenarios where a retiree benefits, doesn’t have to sell their equity. They just keep using their dividend and premium cash flow to live.

3) the third option is a Japan like event, decades of negative return. This will actually result in huge volatility spikes. Jepi premiums will actually increase, you will again outperform spy500 as the cash covered calls will mitigate the losses, keep shooting out premiums, which you could continue living on, while not actually selling shares. Jepi will again outperform sp500 significantly in this situation.

Outcome 2 and 3 is the biggest risk to a retired person. Jepi mitigates that risk. Your risk with jepi is limited upside and underperformance when the market outperforms. That’s the definition of a cash covered call.

So….if i had 0 income and 4 million in assets and i didn’t have absolute comfort doing options myself, then i would put 4 million in jepi. If i did that today, id get about 280k a year just in dividends/premium income, which is actually going to be a fairly reliable income stream even if markets are dropping as that’s when premiums actually go up.

Volatility hit a 20 year low last week. Yet jepi 30 day sec yield is still 6.8 despite historically low volatility (so minimal premiums and not the best time to be selling puts or calls).

It’s a brilliant modern way to maximize income for the retired investor and minimize volatility. Which is why it’s grown to 28 billion of assets under management in 3 ish years.

A colleague of mine suggested JEPI to me and told me he has been getting 8-10% dividend for the past few months. I thought that was too good to be true.

I am not sure if I should dump 100k 'emergency' fund in to JEPI instead of keeping it in a saving account with ~2% yield. I see there are 4% out there but I dont like to shuffle money back and forth.

I really don't know how I feel about emergency fund. I sometimes do think high income earners with a net worth of > 500k should not need an emergency fund.

 

[cyanide12345678]

How 'old' are JEPI and JEPQ?

I just looked at jepq. Didn’t even know it existed. Very interesting. Higher monthly dividend since underlying stocks are more volatile. More volatility = more premium. 10 percent 30 day sec yield, not bad considering we’re at a historic 20 year low volatility. 12 month yield of 12.5 percent gives a better idea of when volatility is higher.

Interesting option. But when qqq rips higher, your gains will be capped and your underperformance might psychologically hurt more even though you’re squeezing out a wonderful monthly income.

 

[cyanide12345678]

A colleague of mine suggested JEPI to me and told me he has been getting 8-10% dividend for the past few months. I thought that was too good to be true.

I am not sure if I should dump 100k 'emergency' fund in to JEPI instead of keeping it in a saving account with ~2% yield. I see there are 4% out there but I dont like to shuffle money back and forth.

I really don't know how I feel about emergency fund. I sometimes do think high income earners with a net worth of > 500k should not need an emergency fund.

It’s too good to be true only if you don’t understand what they are doing. It is truly lower volatility (smaller highs, smaller lows, stable returns). I understand options very well. They are doing the definition of a strategy that lowers your risk but limits your upside as well.

We’re literally at the lowest point of volatility in 20 years and you still have a 6.7 percent yield. So this is probably the lowest yield in 20 years right now theoretically.

Put your emergency fund in vusxx. 5 ish percent treasury return. 100 percent liquid. Will always be better than most savings accounts and yield will go up fairly quickly after any fed rate increase. Plus some tax benefits over savings account as well. Technically no fdic insurance but fdic insurance means nothing if the US government fails to pay their obligations on t bills.

I personally at any one time have never kept more than 30-40k in cash. My entire taxable account is one big emergency fund that is fully liquid and gets money moved in and out of it fairly frequently as needed.

Edit: vusxx is state tax free. So if you’re in California or New York. That should definitely be your emergency fund.