December Mailbag: An End-of-Year Influx of Investing Inquiries

Whether you're a skittish newcomer to the stock market or an investing veteran, you're still eventually going to run into situations where you need advice from a more experienced expert. Fortunately for their many listeners, Robert Brokamp and Alison Southwick are happy to provide some of that expertise on the Motley Fool Answers podcast.

For this episode -- the final monthly mailbag show of 2019 -- the cohosts have invited a longtime Fool, but first-time Answer-er, to join them -- Motley Fool Chief Investment Officer Andy Cross. Together they'll tackle a raft of queries that -- for the most part -- focus on stock investing. Among them: which brokerages are best in this new era of commission-free trading; how to overcome your investing fears and get started with stocks; how much stock diversification is too much; how to gauge whether you'll get your money's worth from a financial advisor; what investors are sacrificing to get high dividends; and more.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

This video was recorded on Dec. 19, 2019.

Alison Southwick: This is Motley Fool Answers. I'm Alison Southwick and I'm joined, as always, by Robert Delano Brokamp, III, Esq., CFP. I don't know. We're just going big for the last episode.

Robert Brokamp: Uh, yeah. Vote for me? I don't know.

Southwick: What is your middle name?

Brokamp: Francis.

Southwick: Oh, that is almost presidential.

Brokamp: If any of you call me Francis...

Andy Cross: That's my daughter's middle name.

Brokamp: Oh, yeah?

Cross: Though it's spelled slightly different, I think.

Southwick: And my mother-in-law's name. Frances.

Brokamp: My dad's first name is Francis, although most people call him Frank or Butch.

Southwick: That's good. Good story. All right. It's the last episode of the year and that means it's the last mailbag of the year. The decade, even! So we're bringing the big guns, today, with Motley Fool through a ton of your investing questions. All that, and more, on this week's episode of Motley Fool Answers.

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Southwick: Andy, is it true we've never had you on the show before?

Cross: It is true, so I am a rookie Answers participant.

Brokamp: Save the best for the last of the year.

Cross: I'm super excited. This is the highlight of my year, guys, right here.

Southwick: Wow! You had to wait so long for it, too. Oh!

Cross: Yeah, exactly. Yeah, that's all right.

Southwick: Was it worth the wait?

Cross: It was, definitely. Well, it is to me. Hopefully it is to your listeners, as well.

Southwick: So a lot of our listeners are going to know you because you have been on Motley Fool Money or MarketFoolery and those other podcasts, but for those who aren't familiar, Andy, tell us a little bit about yourself. How did you come to find The Motley Fool? I know you're a newbie, here, so it's a short story.

Cross: I'm a newbie on the show. Thanks for that nice introduction. I've been around The Motley Fool. I was employee number 19 back in 1996 with Tom and David and actually not as an investor. I came as an investor. I worked in an investment firm beforehand. I came to The Motley Fool, but I joined our business team -- business analytics and our marketing and sales team.

Then I transitioned back to what I love, which is investing, and worked with Tom and Dave first on Stock Advisor. Then Rule Breakers. Hidden Gems. Tom asked me to lead up one of our dividend services. And then I just joined over with Tom. He asked me to step into the CIO role, which I did a few years ago. Now we have a team of 20 to 30 analysts working on dozens of our investing services, including Rule Your Retirement with Robert Brokamp.

It's been great. It's been a great investing decade after a really rough end to the 2008-2009 period. It's been an exciting 10 years, here.

Southwick: One of my favorite pictures of Andy Cross is from way back in the day. I don't even know what office it is because it looks like it's a house. It's in a small room and there are like four people crammed into this teeny-tiny room and Andy is back-to-back. His desk is against the wall and then against the other wall behind him is another desk. And it looks like you guys are so crammed into this room that two people could not push back their chairs to stand up at the same time. That's how cramped it is.

Cross: That's true. My boss actually faced the wall, and if he wanted to get out from us, [Steve Wilson] and then [Sheila McKeegan] and I had our backs to each other and we would have to both move in to let [Steve] get out from the cubby. He was facing this wall, the poor guy. This is back in voice mail. I don't even have a phone at the office, these days. Sheila and I shared a voice mail machine. It was kind of funny, because she was in sales and I used to get these sales calls and I would have no idea and pass them on to Sheila.

Brokamp: The early, scrappy days.

Southwick: Very scrappy days.

Cross: Exactly.

Southwick: Well, we're glad we finally got around to having you on, here.

Cross: Thanks for having me!

Southwick: The first question we're going to send to Bro, though, and it comes from Ronald. "I was wondering. With all these companies offering commission-free trades, would you be willing to talk to the different Fools in your company and see what they think are the pros and cons of the company they use to invest? I ask because my current brokerage company has recently made me mad by taking away features I used to have access to." All right, Bro. Did you do it? You just walked around the office and asked people?

Brokamp: Well, so that's what I have to start with, by disappointing Ronald and saying I didn't do that, but I know, anecdotally, that so many people use different brokerages, there's not one that is a particular favorite among those at The Motley Fool.

But, I can tell you what things to look for when you're choosing a brokerage. First of all, you do start with cost. These days most people are commission-free, but not all, and those free commissions are on stocks but not necessarily on all the other investments, so you want to see what else you're interested in buying. Are you going to pay commissions on options? Are you going to pay commissions on bonds? Are you going to pay commissions on the mutual funds that you like, because most brokerages offer thousands of funds, but some of them you have to pay -- they don't even call it a commission, but a transaction fee -- which can be as high as $75.

So you want to make sure you think about what you want to invest in and then find a brokerage where it has the lowest fees for those. Also, you want to avoid any sort of annual account fees or anything like that.

The other thing to look at is what else is being offered? Do they offer research? Do they offer particularly good tools? Do they offer access to a financial planner because many of them do. One you have a certain level of assets with the brokerage or mutual fund company, or whoever it is, you can call up a financial planner and either ask questions or get a full financial plan. You put all that together and then also look at, often they're running a special sign-up bonuses.

Now, every financial publication most websites do some sort of ranking -- every year the best brokerages -- so check out Kiplinger, Money, and those folks. Here, at The Motley Fool, we have The Ascent and we also rank the best brokers for 2020, so go there, too. It says Best Broker for Traders, Best Broker for an IRA and you'll get a good idea of what's out there and what sign-up bonuses are being offered.

Cross: I'll tell you one thing. What I am becoming more in tune with is the access to international shares. If there are listeners out there who are interested in buying international shares directly on the exchange, some brokers definitely offer that service better than others do. There's different cost structures on that, so when you do think about using a broker, if that's something that you are interested in doing, at least explore that option with each of the brokers to see if they offer trading exclusively on the international shares rather than just the domestic shares.

Southwick: The next question comes from Christian. "I have been a fan of The Motley Fool for years, but sadly I've never taken action on anything I have heard or learned. I think it's because I'm not confident enough to risk any of my honey's hard-earned dollars. Although he's very smart, he came from a very poor household with a very distressful relationship with money.

We were totally caught in the market crash in California. The banks got our hard-earned money and our home of a lifetime that we should have been able to sell and make a lot of money. If I could, I would put our cash in a mattress and hope it is enough; however, I know that is not true or right. How do I begin? Just what do I do to grow my money? I would love a step-by-step guide. I just don't have a clue and not a lot of cash flow."

Cross: Christian, it's a great question recognizing the fact that you want to start investing. Doing better than sticking your money in a mattress is a great start. And don't criticize yourself and don't beat yourself up. There are a lot of people who are recognizing that this is a different stage in their lifetime, especially those who may have lost during the Great Financial Crisis. Unfortunately, not enough investors came back into the markets during that time and like we said, we saw these great returns over the last 10 years.

But it's not too late, so it's great to get started. If you are thinking of investing over the next 10, 15, or 20 years of your lifetime, equities are the way to go, ultimately, because that's going to get you probably the highest returns. There will be volatility with that, but a great way to start, I think.

First of all, we talked about brokerage accounts, earlier. You have to have a brokerage account if you are investing. Once you have a brokerage account and you think about investing, I always think the best way to start is a very general index fund or an ETF. Those give you lots of diversification. It's a great way to start, so I would simply think about investing into a wide index fund like the S&P 500 through Vanguard -- the VOO, the VTI, or the services. Those are very widely owned ETFs offered by Vanguard for the S&P 500 and that's the best way to get started.

And then once you think about that and if you are ready to think about stock investing, if you go to Fool.com and you look at how to invest in stocks, there are a couple of different articles that really can help you get started thinking about equity investing, but I certainly would go with a very popular and widely owned index fund to get started.

Brokamp: And since you mentioned a step-by-step guide, we do have the "13 Steps to Investing Foolishly" on our website. I checked it out. Some of those articles haven't been updated for a few years, so if it mentions anything like the current 401(k) contribution limit, then just make sure you look for the recent one, but most of the advice, there, is still pretty solid and I like the idea of starting with an index fund if you're just starting out and just doing a little.

I totally appreciate the fact that there's obviously some issues. You and your husband have been burned in the past. It sounds like he doesn't want to take risk. You don't have to put all your money in the stock market. Just start small, but just do it over time and generally I think you'll be better off.

Cross: Bro, that's exactly what I was thinking. Have a plan. Think about how much you may want to invest, whether it's over a few months or 12 months or 36 months. We're long-term investors and I think saving and investing is definitely a strategy you want to think about. But when you actually come to investing, starting with the index fund I think is the best way to go.

Southwick: I remember the first time I bought my first stock and it was so nerve-racking and scary. You're putting your cursor over the button and you're thinking, "Oh, I just need to click it and I'll have bought this stock." But once you actually do it, you're like, "Oh, that wasn't so bad."

Brokamp: Do you remember what it was?

Southwick: Yes, I'm pretty sure the first stock I ever bought was Rackspace.

Brokamp: You see, there's a good lesson there.

Southwick: I learned a good lesson early on -- a good, cheap lesson. The lesson was that it was the cloud. I've told you this story before. But Dayana and I both were like, "Oh, we should invest in the cloud. Everyone's talking about the cloud. The cloud. Get in on the cloud." So we were like, "OK, Rackspace. We'll invest in Rackspace."

And then the CEO of Rackspace, I think, came to talk at The Fool. Someone was interviewing him in the Foolatorium, and I was like, "Oh, this is so cool. I own this stock. How amazing!" And you could see the lack of enthusiasm that the CEO had because, as he later said, it's very hard to be in a business where you charge people for something that Amazon is giving away for free. And Dayana and I were like, "Oh, maybe we should sell this." And then Dayana and I, both being procrastinators, didn't.

Brokamp: We're going to talk about that in an upcoming episode.

Southwick: Are we? I didn't know that.

Brokamp: Yes. The first episode of the year I'm going to touch a lot on procrastination.

Cross: I'll listen to that, probably, in three years, after I procrastinate.

Southwick: The point is that nobody's perfect at investing. Everyone has their losers. It's just what happens.

Cross: And that's the thing about equity investing. If you get six out of 10 right you're an all-star in that. That's the game you play and it's a lot different than putting your money in a mattress or in a bank account. You do open yourself up to a little bit more risk. However, the other side of that is you open yourself up to more gains over the long term if you can go through the volatility, and that's a big question if you're investing in equities. That's why I like starting with the index fund, because the volatility of those index funds and those ETFs, over time, tend to be much less than individual stocks.

Southwick: I actually just remembered the other stocks that I bought at the time were Corning, Lululemon and, I think, Amazon. So it worked out.

Cross: There you go. It worked out OK.

Southwick: It worked out OK. That was 10 years ago. The next question is from Bob. "When it comes to tax-loss harvesting, can the offsetting gains and losses be in separate accounts? For example, I sold a condo property I've held for 30 years. Can I use the loss in a mutual fund and my wife's Roth IRA to offset some of that gain?"

Brokamp: The answer is yes-ish and no-ish.

Southwick: Oh, this one sounds good.

Brokamp: It's fine that the investments are in separate accounts. It's fine if you own one of the investments and your spouse owns the other one as long as you file your taxes jointly. There are a couple of problems with this example. First of all, he's selling the loss in his wife's IRA. You can't use a loss in an IRA to offset gains. Anything that goes on within an IRA -- whether it's a Roth or traditional -- you do not report on your taxes from year to year. It's only when you take money out.

The other thing to point out is with real estate it's a little different. You mentioned a condo. If that is your residence you cannot take a loss on your own residence and you don't pay gains on your residence unless it exceeds the home sale exclusion of $250,000 if you're single and $500,000 if you're married.

That said, if you do have gain in some sort of property, you can use a stock that's down or a fund that's down in a taxable account to offset that. If it's a rental property you can use that loss to offset any of the depreciation recapture, which is a little complicated, but just something to keep in mind. So you're on the right track, but don't sell anything within an IRA or a 401(k) and think, "Well, I'll sell this at a loss because I can use that to offset gains." That won't work.

Southwick: Does this sound like a "talk to a tax expert" moment?

Brokamp: Yes.

Southwick: Other than you?

Brokamp: I would say at least a quarter of our tax questions I first check in with Megan Brinsfield, resident CPA, and I did on this one because I wasn't sure about the condo situation. But, yes, that always helps.

Southwick: The next question comes from Russell. "When does a portfolio of individual stocks become so large and overdiversified that it starts to mimic the market as a whole and lose its edge? Most of my portfolio is in domestic ETFs -- mostly the Vanguard Total Stock Market ETF." That kind of sounds like a good recommendation for the person at the top of the show.

"But I have a Buffettesque-focused portfolio of about 15 stocks that I'm investing in for fun. My concern is that as I keep adding new companies, I'm either now or soon will be too similar to the S&P 500 or VTI and that I'll just be mirroring the rest of my portfolio and potentially diluting returns. Please impart some of your vast wisdom with me."

Brokamp: I'll just quickly point out that VTI is the symbol for the Vanguard Total Stock Market ETF in case people care.

Cross: Russell, this is a great problem to have. First of all, you're investing in what we used to call "index and a few," where you buy a general index and you add some stocks.

Brokamp: Yes.

Cross: From the diversification perspective, there's lots of different opinions on diversification. I don't think he has to worry about trying to be diversified or have the risk of matching the market. If he gets to that point, I think that is a good problem to have for him because it depends, really, on the stocks he's going to own along with the index.

I think the bigger problem is most individual investors don't own enough stocks. We see that all the time with our membership. They buy maybe a couple of stocks and then they really run the risk of putting too many of their eggs in one basket. I don't think, Russell, you have to be worried about owning too many stocks that you're going to start to run into the diversification issue that matches the index.

I will say I own probably close to 50 stocks and so I don't worry about the diversification perspective. I think ultimately an individual investor can own as many as he or she wants to be able to follow, depending on how she or he wants to use those stocks. Is it for learning? Is it because you want to have exposure to a different part of the market like small-cap stocks or international stocks where maybe your index fund doesn't have that?

From that perspective I think owning a greater number of stocks is always a better piece of advice in my mind, for individual investors, than too few; so, continue to add to those stocks. Beware, though. If you are buying all those stocks in one industry, like cloud computing or tech or financials, those do tend to trade in the same direction, so when one stock goes down, probably the other stocks will go down, as well. But overall, I think owning a greater number of stocks is a better piece of advice for individual investors.

Brokamp: I'll second what you said. The more you own stocks that are different than the total stock market index, the more you're likely to see different types of results. The Total Stock Market Index ETF has over 3,500 stocks, but because it's market-cap weighted, the vast majority of its assets are in the top 25 to 50 holdings, so you're really talking about U.S. large-caps, which have become progressively more tech and growth-oriented. So if you are concerned about your individual stocks behaving too much like that, the more you skew your individual stocks away from that, the more diversification you have -- international, small-cap, value, and stuff like that.

Cross: Real estate, for example.

Southwick: Our next question also comes from a Russ, but it's not the same person. "In an effort to maximize an old 401(k) account from a previous employer, I'm considering turning over my $55,000 to a local financial advisor. His fee is 1.5%, which I'm coming to terms with by rationalizing that my managed account should grow by considerably more than 1.5% while in his fiduciary care, so it's a no-brainer to give this a whirl, right?

"I'm 47, married with a one-year-old, and we're way behind on saving for retirement. I started a Robinhood account last year and have $3,500 invested in 50 stocks and plan to continue to contribute to that by adding to my winners."

Brokamp: Well, Russ, I'll point out that the average management fee across the industry is around 1%, so 1.5% is high. That might be because you have an account that's less than $100,000. Sometimes it's $200,000. People will often either say (a) sorry, I only handle accounts that are this big, or (b) I'll handle your smaller account but you're going to have to pay more. That might be the situation you're in.

It doesn't mean that's your only choice. There are many of the brokerages or mutual fund companies like Vanguard, Schwab, and Fidelity. They will manage your money for much less than 1.5%. There's all the robo advisors. They'll manage your money for less than 1.5%, so there are alternatives out there. The other thing is just to understand what this advisor is bringing to the table. What is he going to do to get you over that 1.5% hurdle?

It's difficult, because if this were a mutual fund you could look it up on Morningstar and see what the historical returns are. You can't look up the historical returns of an advisor. It's possible that this person is a referral from someone you know and they can attest to their extraordinary investment skills, but what is it that this person is bringing to the table that's going to earn that higher fee?

It doesn't mean you shouldn't do it, especially if they're going to provide other services. Retirement planning. College planning. Tax tips. Maybe some estate planning tips. You said you're behind in retirement. Maybe they will have some great solutions for you. Maybe they'll take a look at your 401(k) that you currently have and not give you advice on it, but give you some tips, and run your numbers.

If they're providing all these other services then maybe paying that extra 1.5% is worthwhile, but I do think it's worth having a discussion with him about what he's going to do and determine a fair benchmark. How do I know in three years that you're earning your keep? Are you going to outperform the S&P 500? Are you going to outperform a 60/40 balanced portfolio? Just so you both agree on that benchmark.

I would encourage you to visit some of these other people that I mentioned -- the robo advisors and the mutual fund companies -- just to see what they offer. You might be able to get the same thing for a lot less money.

Cross: Yes, I would certainly talk to him or her about that 1.5% fee. Like Bro said, that's fairly high. Now maybe it is because of the account balance, but generally this is a very competitive space, these days. Fees are only moving in one direction, and that's south -- unless you're a hedge fund charging like 3% and 30% or whatever it might be. Generally those fees are moving down.

That might be open for a little bit of negotiation. Also be careful. Make sure that that is the only fee you may be paying. Are there going to be trading fees in there or other wrap fees? Those add up and fees are at least one of the top three reasons why people underperform the markets over time, because they're paying too many fees. Too many trading costs. Of course, now we know trading costs have gone, essentially, to zero but too many trading and management fees tend to really eat into returns over time, so you want to make sure that does not get much higher than that.

Brokamp: I agree.

[...]

Southwick: Our next question, or set of questions, comes from Megan. "I have about 20 years until retirement and I'm new to understanding how dividend yields can be strategically used in a portfolio. I have a few questions. It seems to me that high-dividend securities are slow growers by nature. If you are focusing on getting dividends, do you have to give up strong price growth?"

Cross: Megan, great. I love dividend questions. I mentioned before I've been investing in dividends for many years. The answer to your question is most likely. Most dividend payers don't come with super-high growth that you might see from some tech companies like Facebook, Shopify, Twilio, or someone like that. That's because those tech companies tend to reinvest their dividends back in the business.

But it doesn't mean you have to give up growth completely. When you think about growing dividends, specifically there's a group of companies called the "Dividend Aristocrats." Maybe you've [heard us talk] about this before. These are companies that have all increased their dividends for 25 consecutive years. This is the cream of the crop when it comes to dividend payers.

So trying to find companies that have dividend growth, as well as a little bit of yield, is the way to go, but it doesn't mean you have to give up growth completely. There are a lot of great companies like Mastercard, Nike, Visa, Schwab, and a little company called Houlihan Lokey, which I like. It's a little financial company. Marriott International. These are companies that probably grow faster than the S&P 500, pay a little bit of dividend and they can increase that dividend over time. You don't have to give up growth completely.

Southwick: The next question. "I assume I'm supposed to look for high-dividend securities, in general. Is that assumption wrong? Are stocks with no dividend yield a Fool's or a fool's choice?"

Cross: I would say, Megan, don't let that be the exclusive piece of your research. Super high dividend yielding stocks -- again, just to be sure we all know what we're talking about -- that's the dividend the company pays, mostly on a quarterly or yearly basis, divided by the price of the stock. If the dividend yield is really high, that often can be a warning sign that investors are concerned about a dividend cut and you'll see that from time to time.

I was researching Pitney Bowes just the other day and with that stock the dividend yield got to be above 12%. Some investors might be, "Ooh, wow. That's great free money. The S&P 500 is yielding below 2%." Then they ended up cutting the dividend by 75% earlier this year.

Brokamp: Oof!

Cross: Yes, a big "oof." The dividend yield collapsed, then. So don't let dividend yield be the only piece of research. Other things you want to consider are the dividend growth we mentioned, the payout ratio, which is the percentage of earnings that a company tends to pay out. Anything north of 80% gets to be a little dangerous. Above 100% means they may have to borrow or they can't sustain that dividend. Really high-yielding stocks, like north of 5-10%, tend to be a little bit dangerous, so you don't want to just think about dividend yield exclusively. Consider other qualities of the business.

Southwick: "Is reinvesting the yield always the best choice, or should you take the cash and choose to invest it in high-growth stocks; thus, starting with a conservative investment and then betting on riskier stocks with house money?"

Cross: It really depends on what you're aiming to do. I do both. I take some of my dividends and I reinvest them in dividend-growing companies like Home Depot. Pepsi. I reinvest those dividends. Some other companies I may take the dividends and cash to have that cash so I can choose to reinvest it or maybe use it. Maybe I want to use that cash for certain reasons like personal expenses. It's really understanding what you want those dividends to do.

You're taxed on them either way. Dividends are taxed at the regular income level on a taxable account, so you're taxed whether you reinvest them or you take the capital. It really depends on what you want that cash to do and what you think you want to own going forward. Do you want to continue owning more, in my case, Home Depot and the answer is yes, which is why I reinvested the dividends.

Southwick: And the last one. "Why doesn't Berkshire Hathaway pay dividends when they are sitting on mountains of cash? What's up with that?"

Cross: Yes, mountains of cash. It's probably north of $100 billion now. It's a very large company, obviously. The founder of Berkshire Hathaway, Warren Buffett, has always said he prefers to have the cash that his businesses generate so he and his team can reinvest that because they feel they'll get a far better return on those investments they make than paying out the shareholders in a dividend that is then taxed. Dividends are taxed twice in the U.S. -- they're taxed at the corporate level and then they're taxed at the individual level -- so he prefers not to pay that dividend.

He buys back stock when he believes that Berkshire Hathaway is cheap enough, but primarily he just wants to use the capital and they generate so much cash they can reinvest back into the business rather than having to spit it out to shareholders to reinvest or to use as they want. He thinks the capital can be better used in his hands than in the shareholders' hands.

Southwick: Let's keep talking dividends with Chris' question. "My question relates to my year-end portfolio clean-up task. I usually try to sell a couple of my stocks that have capital losses and no longer seem to have great long-term prospects in order to harvest losses of up $2,000-3,000 for the annual tax write-off limit. If all other factors are equal, is it better to sell my stocks before their ex-dividend dates or should I wait and capture the dividend? It seems like the latter option would cause the dividend to be taxed at the ordinary income tax rate and the equal drop in stock price to be a loss at the lower capital gains rate. Are there other factors to take into consideration?"

Cross: Chris, you're right. If you hold the stock through the ex-dividend, you will get the dividend and you will be taxed on that at the ordinary dividend rate. In theory, the stock price, after it pays a dividend, after it goes ex-dividend, will drop because it's paid the dividend out and now its shareholders have it. It's supposed to be a net-net.

It really depends on whether you want the dividend and you want to be taxed on that or if you prefer to not have to pay the dividend from your ownership of that stock. In theory, it shouldn't really matter, it just depends on what you want to do with that dividend paying stock. So, if you do hold it before the ex-dividend date, you'll get the dividend and you will be taxed on that.

Southwick: The next question comes from Boone. "Before I get to my question, I got on Fool.com to find the Motley Fool Answers email address. It wasn't until I was on the website that I even realized you guys videotape the episodes, as well. After listening to hundreds of hours of your podcast, today was the first time I've seen what you look like. The mental image I had of both of you was pretty wrong. Don't know what you do with that but there you go."

Brokamp: I think we say, "No, we're even better looking than he thought we were."

Southwick: Thank you, Boone. We're flattered. On to his question. "I have five teenage daughters. My oldest will start college next fall and we've been saving for their college in 529s at two different brokerages. I was playing around with the website at brokerage one and tried a 'dry run' of withdrawing funds. I double-checked with brokerage two and saw the same thing. I found a couple of things that surprised me.

One, my only option to withdraw funds was all or nothing. Is that right? There's way more than one year's worth of college funds in the account. Am I supposed to take all the money at once?

And two, before they would send me a check, I had to answer a question along the lines of, 'Do you promise this is for qualified expenses for school?' After I checked the box, I guess they would mail me the check? Is that all there is to verify I'm not going to blow her college fund on a time-share in Aruba? I know the threat of an audit is there, but..."

Southwick: We're going to Aruba. Here we go.

Brokamp: So No. 1, I'm surprised at that. It shouldn't be a situation where you have to take all the money at once. If that's really the way it looks, I would call the company and clarify that because I'm in a situation, now, where I am dispersing money from our 529, the Virginia plan. I can arrange to have the check sent directly to Virginia Tech, so I don't even have to get the check. The money will go straight to the college and most of them, I think, offer that possibility and you don't have to do it all at once.

No. 2, the money in a 529 is tax-free as long as it's used for qualified higher education expenses and yes, the only thing that you have to worry about is the threat of an audit, so I do have some of that money going straight to Virginia Tech, but my son bought textbooks with his own account, and I'm just going to have a check sent to me for that and just make sure I have the receipts in case anyone asks. But that's about the only hurdle there is. Just make sure that you keep the paperwork and enjoy that trip to Aruba. Just kidding.

Southwick: Kind of. Not really. Maybe. I don't know. The next question comes from Charles. "What has caused Shopify to tank?" It's short and sweet.

Cross: It's very relative for Shopify to tank. Yes, the stock hit $400 in late August and it fell back down to $285, but now it's back to $400 again and all in a relatively short period. I mean, this is what stocks do, especially stocks that have high growth and performance. Shopify started the year at near $100 -- less than $130 -- so it's having a great run.

Ultimately, as an equity owner, especially of a business like Shopify, you really want to make sure you're owning this business and committing to holding for at least three, if not five, years. That's the approach you have to take because if 20-30% stock drops are going to scare you out of a stock, then you're just not going to get the returns of some of these great businesses that we love to own and follow, here, at The Motley Fool.

If you go over history -- you look at stock performance over many years -- there's not a great stock performer that does not drop 20-40% over a given period.

Brokamp: Or even much more.

Cross: Even more, depending on the market conditions. We weren't in a 30% drop market condition earlier this year, but we were a year ago. A year ago this December stocks fell almost 20%, and a lot of our high-growth stocks got hit even worse than that. You really have to make sure your temperament can handle that if you're going to own a business like Shopify.

Southwick: The next question comes from Theon. "I'm new to The Fool and have a question about Starbucks, which is recommended in Stock Advisor. The recent news lowered earnings guidance but also announced an accelerated repurchase plan. I saw that as good news, then bad, but the market seems to disagree. Can you help make sense of the situation?"

Cross: In any given year -- in any day, really -- it's a fifty-fifty bet on whether the stock goes up or down and I think some of Starbucks' conversations at conference calls and maybe with their earnings performance maybe spooked some short-term investors. Again, most trading today in the stock over a short period of time is done by algorithms.

Long term, though, we still like Starbucks very much. They are buying back a lot of stock. They increased the dividend 14%. Continuing to grow their comparable-store sales by 5%. That might slow down a little bit or maybe globally be a little bit slower, but overall it continues to be one of the leading brands out there and one of our high-conviction companies.

Southwick: The next question comes from Tim. "I maxed out my Vanguard Roth IRA early January 2018 and then in the middle of the year I sold my Amazon position in my normal brokerage account, which increased my gross income to more than $135,000. I need some clarification on the Roth IRA rules.

"Specifically, one option was to pay the 6% penalty on the excess contribution for 2018 and roll it over to 2019. Does the 6% apply only to the $5,500 that was initially contributed or does it also need to include the capital gains made from the excess contribution?"

Brokamp: Tim has encountered something that actually happens rather frequently. For the Roth IRA there are income limitations and once you earn too much, you can no longer contribute to the Roth. Not so for the Roth 401(k). There are no income limitations and I am saying this because I just talked to some Fools, today, who thought there were income limitations on the Roth 401(k). None. It's with the IRA.

So Tim, a lot of people put the money in thinking, "I'm going to be under that limit." Then something happened. He sold his stocks. Some people might get a raise. He might get married. Might get a bonus. Something else happens that drives up their income and they're like, "Oh no, I contributed to a Roth and I wasn't allowed to."

If you fix that before you file your taxes the following year, including extensions, you'll be OK, and fixing that means either (a) taking the money out or (b) just recharacterizing it as a traditional and you'll be fine. Now he's in a different situation because he's beyond that deadline. You pay an excise tax of 6% on money you put in an IRA that you weren't supposed to be able to do and you pay it every year, so it's something you want to fix as soon as possible.

What he is doing is saying, "I wasn't allowed to do it in 2018. I'm going to say, instead, I did it in 2019." He's going to have to pay that 6% tax on the contribution and on any earnings, but then he's good to go as long as in 2019 he really is allowed to contribute to the Roth.

My bottom-line piece of advice when anyone is in this situation is call the IRA provider, because they handle this all the time, they know exactly how to fix it, and they're generally very good at laying out your options and telling you what to do to get it worked out.

Southwick: The next question comes from Greg. "I own shares of Pepsi and Guardant Health. Pepsi has paid better dividends and has seen capital appreciation while Guardant Health is only yielding capital gains. Assuming that I'm not reinvesting dividends in Pepsi but taking the cash, how can I determine the total gains in Pepsi in order to perform an apples-to-apples comparison with a stock like Guardant Health? And further, is there a way to see this in a typical online brokerage report?"

Cross: Greg, I own Pepsi, myself, and I do reinvest the dividends. The way I compare those performances apples-to-apples for dividends that are reinvested is I use Yahoo! Finance to look at the cost-adjusted price. That assumes that you're going to reinvest the dividends and then you compare the two over a certain time period.

But if he's not investing the dividends -- he's taking that in cash -- I guess the best way to think about that is the amount you have invested and the gains that you've seen with Pepsi over the time period and for Guardant Health, as well, and then adding back the dividends you've actually received on those shares that you have. If you add those two up, you should see the gains over time.

If you do it over a three-year period, you add it in with the dividends you got back onto your Pepsi shares as if you just kept them as a return of capital and not necessarily just reinvested. The beauty of reinvesting in dividends is the returns compound and you wouldn't see that if you just take the dividends in cash.

Southwick: How do you track your portfolio? What do you use to track your performance?

Cross: We were talking about brokerages...

Southwick: A very complex Excel spreadsheet?

Cross: No, not really. I kind of do, but mostly I use my brokerage account to track the returns of the overall portfolio as much as I do across the three different brokerages that I have investment accounts into. What I don't do is necessarily tie them all together into one sophisticated Excel spreadsheet. I know our friend Ron Gross does that and I need to do that better, but I like to look at the accounts on an individual basis: my daughter's account, my 401(k) or my IRAs, and then my individual taxed accounts.

Southwick: The next question comes from David. "Hello, I was looking at Match Group," which is the company that gives you Match.com for all our single people out there, I hope. "I noticed their short interest is at 55%. Is that to be considered bullish or bearish, or should I not even worry about it since I am, by definition an investor, not a trader, and in it for three to five years?" Just like your marriage. Just kidding. Sorry. I couldn't help it.

Brokamp: Oh, buy to hold, maybe.

Southwick: Maybe. Sorry. So bad. "Let's say I was a trader. Would a 55% float be good or bad depending on whether I was going to short it myself or buy long now?" Apologies to David's partner that I added that.

Cross: An interesting question to think about looking at the short ratio. Just from a definition perspective, this is comparing the number of shares that are sold short of a stock, which is betting that the stock will go down and comparing against either the number of shares outstanding or the float, which is the shares that are really available for trading in any given period. That's a baseline to try to determine how active the short activity is against any given stock.

Something like Match.com at 55% or Match Group at 55% is exceptionally high. Typically if anything from me gets above 5-10% then I start saying, "Oh, there's a lot of activity that is short against this." And it also depends on how much the float is because some companies' shares are controlled by insiders and they don't trade very much. Since there's not a whole lot of trading activity if the shares are sold short, you might see this very high short ratio.

Why this is interesting is for what they call short squeezes. This is when a stock does well in a given time period. Say the stock goes up in a short amount [of time]. They have earnings. Their earnings are really good and there's a lot of buying activity. If people are short that stock and they have to return the shares that they've borrowed, and now there's a scramble of trying to get those she they borrowed them [from], they have to buy those shares back. More and more buying activity starts to run the price up.

So you'll see stocks that have very high short ratios. If the stock gets a lot of momentum against them in one day, the stock really starts to drive higher. We saw this a lot in Restoration Hardware that has a lot of high short ratios, but because they buy back a lot of stock and the stock performs well, you see these stocks' prices really jump up. It does add a little bit more to the volatility of the stock, but it also gives me a sense of how much activity out there from people who are bearish on the company that I might have to be fighting against if I was buying the stock. So it's something I pay attention to, but not necessarily to drive the decision of whether I'm going to buy or sell the stock.

And our last question comes from Matt. "I've been working at the same private company for about seven years and I'm getting the feeling that they are considering selling the company or going public. If they do go public, I worry how that will affect myself and the rest of the employees? Is this something I should worry about? What kinds of things should I be on the lookout for or come to expect?"

Cross: Well, Matt, that's an interesting question. The first thing is I would ask if you own shares or if you own stock of the company? That's very interesting if you do and from a liquidity event that personally involves you. Certainly going public is very different than getting acquired by another company if you're private, or if you're a public company going private.

If it is going public and doing an IPO or a direct listing, that does really add these different layers of complexity to the way that companies operate. We see this all the time. Companies go from private to public and they have a lot of scrutiny now on them. It does change the way that people behave inside the company. I've never worked at a publicly traded company. I've been working at The Motley Fool so long and in a private firm before that, so I don't have personal experience from that.

But I know talking to other investors and to other executives at companies that it does change the behavior. That is something for you to consider -- whether you want to work at a public company or whether you really want to work at a private company. Personally, if you do own stock of the company, there are a lot of consequences as to what shares will be available for you and for your personal financial situation. That's something for you to consider, as well.

Brokamp: Just to be clear on that, it is possible to own shares in a company that's not public. We, here, at The Motley Fool do that. It could be good for you, financially. If it's acquired or if it goes public [it] may not, but there's certainly the increased scrutiny. I would be nervous about any sort of change in the culture, especially if you're acquired. It could be good. It could be acquired by a company that provides even better benefits and better healthcare, or something like that.

Cross: And if you're acquired by a public company or by a private company, all those kinds of situations matter, so I think it is important for you to consider the kind of company you want to work at. I personally like working at a private company right now -- at The Motley Fool.

Southwick: Right now. We're not going public anytime soon. It is interesting how lately private companies are going public in different ways, like direct listings. There are a number of different variables, these days, when your company does go public.

Cross: And a lot of these companies are becoming public or seeking an option for liquidity for their shareholders and their employees because they have employees who have been there for a lot of years and those employees may need liquidity. For the companies and those employees, the only way to do that is by either going public or maybe selling to another company where that company pays the money directly from the shares.

Brokamp: And when you go public and you're basically selling your shares and the company gets an influx of cash, that would be one of my big questions for the management. If we're going public, what are we going to do with all this excess cash?

Cross: And that's always a great question that we ask Bro when we try to determine what a company goes through [with] a public filing versus a direct listing. [That's] a little different, because with a direct listing there's no money that comes into the company. The IPO is when you actually go out and issue shares and other outside investors pay you money for the stock as well as add some liquidity into the market. So definitely understanding what this does for both the culture, but also for the operations of the business and the purpose of taking that capital.

Southwick: Andy, thank you so much for joining us!

Cross: It was great fun. Thank you for having me!

Southwick: Will you come back again?

Cross: Of course I will if you'll have me again. If this becomes the least listened-to Motley Fool podcast of all time, I'll be sad. And if you don't want me back, I won't be offended.

Brokamp: That will not be the case.

Southwick: Well, I mean it is airing between Christmas and New Year's.

Cross: It's all really relative. We can adjust. If the world can adjust, we can adjust.

Brokamp: Seasonally adjust it.

Southwick: As always, The Motley Fool may have formal recommendations for or against the stocks we talked about. Don't buy and sell stocks based solely on what you heard here.

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Southwick: Let's head to the literal mailbag.

Brokamp: The post mailbag.

Southwick: The post mailbag. We got another holiday card from the Smith family. Look at them. Aren't they beautiful?

Brokamp: Oh my gosh. Those kids are adorable.

Southwick: That makes our day. Also we have Bruce who sent a card from Cannon Beach. I love Cannon Beach on the Oregon coast.

Brokamp: By the way, the Smiths put at the end of their postcard, "Bonds!"

Southwick: Bonds!

Brokamp: Rebels! Ooh, Oregon's pretty. Look at that.

Southwick: Have you ever been to Cannon Beach?

Brokamp: Never. Oregon is one of the seven states I've never been to.

Southwick: Oh, you should go. It's great! We also got our first card in chocolate from São Tomé and Príncipe. This is a short, funny aside. I wanted to check how you pronounce São Tomé and Príncipe. It's a little island off the Horn of Africa. I Googled how you pronounce São Tomé and Principe and this video came up and it was like a robot voice and the robot said something like S-O-W T-O-M-E and P-R-I-C-H-I-P-E-E. I was like, "That can't be right." So I've decided we're going to do a series of videos where we just mispronounce things. It will be like how to pronounce...

Brokamp: That would be F-U-N-T-O-O-S-T-I-C.

Southwick: And then you just mispronounce. How fun would that be?

Brokamp: So much fun.

Southwick: So much fun.

Brokamp: Rick's shaking his head.

Southwick: S-O-W T-O-M-E and P-R-I-C-H-I-P-E-E. I was like there's no way that's right.

Brokamp: M-O-O-T-L-E-Y F-O-O-L U-N-S-E-R-S.

Southwick: M-O-O-T-L-E-Y F-O-O-L U-N-S-E-R-S incorrectly. And we also got a card from PT, who is at a singer-songwriter competition in Ashville.

Brokamp: Ooh! I love Asheville.

Southwick: Apparently he thought that...

Brokamp: Someone cheated.

Southwick: Yeah! Then of course I went down this little bit of a rabbit hole to see who was in the singer-songwriter competition, and who was winning, and anyway. I also want to say a really big thanks to those of you who left reviews for us on iTunes. Thank you! That includes [My Name Was Already Used, Big Stu's Music Review, R Josh, and Party Often]. Thank you to all of you for leaving us reviews, and good reviews, for that matter. It warms our hearts. Even better. Even better that they're kind words. That's the show. That's our last show of the year. Our last show of the decade. Bro, Rick, let's do it all over again in 2020. Sound good?

Brokamp: Sounds great!

Southwick: The show is edited annually by Rick Engdahl. Our email is [email protected]. For Robert Brokamp I'm Alison Southwick. Stay Foolish, everybody!