There are plenty of things in life where the right choice isn't 100% clear, so you have to make an educated guess. For example, when it comes to providing helpful advice to the listeners of the Motley Fool Answers podcast, sometimes the hosts pick a topic and hope that it's what people need to hear about.

By contrast, when they open up the mailbag, they know for sure they'll be hitting a subject that someone really wants some help with. In this episode, host Alison Southwick is joined by senior analyst Jason Moser and Motley Fool Wealth Management's Ross Anderson to reply to as many questions as they can cover.

A full transcript follows the video.

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The author(s) may have a position in any stocks mentioned.


This video was recorded on Nov. 27, 2018.

Alison Southwick: This is Motley Fool Answers. I'm Alison Southwick and I'm joined by not Bro. In fact, it's Jason Moser and Ross Anderson. They're here to help us tackle the November Mailbag, including your questions about dividend yields, investing for the next generation, and paying off student loan debt. All that and more on this week's episode of Motley Fool Answers.


Southwick: Hi, guys! Thanks for joining us today!

Jason Moser: Howdy!

Ross Anderson: Thanks for having us!

Southwick: I'm so excited! It feels weird not having Bro in the studio, but...

Moser: I'm going to try to bring in some of my...

Southwick: Bring some Bro...

Moser: ... some of my "Broness." I mean, longtime listeners will know that Bro was my Fool buddy almost nine years ago when I actually started here... so this one's for you, Bro. I'm going to try to fill that void a little bit.

Southwick: And Ross, what are you bringing to the table?

Anderson: I mean, Bro hired me, so I feel like...

Moser: Whoa, then you see...!

Anderson: All of the mistakes that have followed are really his fault, so this is payback.

Moser: Bro is really here! He's just not.

Southwick: In our hearts. Well, let's get into it. The first question comes from Mike. "A few years ago I was promoted into a role that pays an annual bonus. Coincidentally it was around the same time I was reviewing life insurance plans with my agent. He sold us on a universal life plan. My bonus would cover the annual payment.

"As I have become more financially astute, partially thanks to all the Motley Fool podcasts and services, I am starting to second-guess my decision to buy into this plan. Let's get into the questions. Does your team have any balanced insight into why universal life plan policies are useful and where they are detrimental? Being in a middle-class income bracket, am I the right profile for a policy like this? What are the penalties of risk for opting out of the plan?"

Anderson: There's a lot to unpack, here.

Southwick: Let's do it!

Anderson: And on the universal life or all permanent life insurance -- and I'll break that down in just a second -- there are extreme fans and extreme haters, so we are going to try to take a balanced approach, here.

In the life insurance world you have two major categories. You've got term life, which is a short-term product. It is meant to cover you for a certain period of time. You're generally getting the lowest cost and the reason that you're getting the lowest cost is that it's likely that it never pays out. If you're a young person and you get a 20-year policy, we hope you don't need it. I hope you're flushing your money down the toilet. If you're using that policy, it means you're dead. Sorry! The purpose of that is really to protect for your loss of income or resources if something happens to you before you would expect it to.

Permanent life insurance is the second category. It is intended to last your whole life. There's three versions of it: whole life, universal life, and variable universal life. Let's put all of those in a category. Those plans are appropriate for somebody that needs life insurance to go on forever.

If it has to pay out and you need that life insurance, that's normally going to address something like an estate planning goal, or if you've got an estate tax issue, or if you just want to make sure that your family, for some giving purpose, has the resources and liquidity there. At the end of life, regardless of when that is, that's when a permanent life insurance product is appropriate.

The way they get sold a lot is on the benefit of tax-free withdrawals, because of the way they work. Let's say, Jason, your life insurance is going to cost you $50 a month for a term life policy. Instead of paying $50 a month, we're going to bill you $200 a month. We're going to take the extra $150, we're going to put it in an account, and it's going to grow. That's going to ultimately support that life insurance contract long term.

They sell it with these really bold claims like, "Well, you can borrow from that money and it's tax-free. You can take from that money and you're not going to have any other investments that can do that." What you're borrowing from is your own money. All loans are tax-free. If you borrow money for a house, as you make house payments going forward, you're not being taxed on that money. I always take a little bit of issue with that.

The real question, here, is do you need permanent life insurance, and if not, now that you have it, what do we do? Now, let's hope I didn't just lose everybody with that.

Here's the issues with it. If you surrender a policy early on, there's generally big penalties and fees. The reason is that they paid your insurance agent a commission when he sold it to you and those have to be repaid from somewhere. They're going to take that out of your money if you give up the policy early.

If you decide that you don't need the policy, here's what you can consider. No. 1, you can ask them for a policy modification. Let's say you took out a $250,000 policy. You might be able to lower it to $150,000 or $100,000 without penalty, make a lower premium payment, and start compressing that and maybe you get some term life to balance out how much total insurance you need.

The questions that you want to ask the agent if you're preparing for a review is first, what is my surrender fee and do I have one still? Second, what is the crediting rate? How fast is the cash accumulating in this policy? Third, could I reduce the payment if I lower how much insurance I need? And I think you really need to go back to the drawing board a little bit and decide, "Do I need life insurance that goes on forever or am I trying to protect my income for a short period of time?" That's the main thing that you're really trying to decide, here. And if you don't need permanent life insurance, there's a couple of ways that you could scale it back or ultimately get out of it over the next few years, hopefully without penalty.

Southwick: I didn't think that was boring at all!

Anderson: I have to be careful with the insurance answers, because I really geek out on how the policies are built and what they were supposed to do. It could be the perfect policy and the perfect tool for a situation. The problem is they get sold wrong a lot, and they get sold to people that don't necessarily need all of those features. Hopefully Mike isn't in that situation and he has a use for it, but if not, getting out of it needs to be strategic.

Southwick: The next question comes from Twitter and it comes from Joe. "Thanks for giving me a hot tip. I had cash in my Roth and bought 500 shares of Amazon at $185. Now, along with 3,000 of Microsoft at $30 should I diversify or hang tough? I have 13 years to retire. Aloha! Joe from Hawaii." Aloha, Joe!

Moser: Aloha, indeed, because at those prices, Joe, you're sitting on some very nice gains and I...

Southwick: I think we need to go see him in person to answer this question. To really give it the attention it needs.

Moser: And he'd probably fly us all out there.

Southwick: Thank you, Joe! We look forward to receiving our tickets in the mail.

Moser: This is a question that everyone has to answer [individually]. We often talk about buying and selling and when the best time to sell is. All sorts of reasons to sell. Either your thesis is busted, the company's not working out for you, or it's just been a bad investment. Or perhaps you need the money for something else. Perhaps you feel like the money is better allocated somewhere else.

Or perhaps, as it could be in Joe's case, given what we know based on the information he's given us, it's possible that he may be losing a little sleep at night thinking, "Wow! I've got a lot of money, now, allocated to these two individual companies."

Now, I can't tell from this email or from this tweet how much this makes up of his overall investment portfolio, but I'd venture that it's somewhat significant. In that case, I'd probably look at maybe spreading that money around a little bit. Usually when it comes to IRAs -- I realize everyone's tax situation is unique -- you can buy and sell and you're not going to have to worry about tax implications there.

I feel like with that type of gain, it probably is worth looking at spreading that money around a little bit, and the reason why I say that for Joe is because not only is he saying he has 13 years to retire, but he's actually saying retire. And I mean a lot of people out there are gunning for retirement. They have that in their minds. When I think about retirement it's a bit more abstract. I'm not necessarily wanting to quit my work anytime soon, so my investment decisions are a little bit different.

But when you're looking at that it might be time to start focusing a little bit more on protecting your wealth. Maybe take some money off the table there and put them into some lower-risk investments. Perhaps some dividend-style investments because Amazon is clearly a growth story. Microsoft a little bit less so, but it's a big tech company, nonetheless. I would definitely look at spreading that out.

Southwick: Ross, you probably get questions like this a lot.

Anderson: I do. I was actually going to ask Jason what his threshold is. When you see a single position in a portfolio, where do you start getting uncomfortable?

Moser: This is where I would say "do as I say and not as I do," because I think I have a much higher risk tolerance than most people out there, and a part of that is because of the nature of my job. I mean, I've had a position at 40% of my portfolio before, and it didn't really cause me any concern. Again, I knew what I was doing.

Anderson: And you don't feel like you're 13 years from retirement.

Moser: I am not 13 years from retirement. I told David Gardner personally that I will work here until he kicks me out of here. So hopefully that's never, and while knocking on 46, here, I think I still have a number of years left to contribute.

For a lot of people, I think 20% is that number. They think, "20% -- whoa! That's where I'm starting to lose sleep." I think that number is different for everyone and it depends on your age, too. If you're in that stage where you're growing your wealth at 20, 30, to 40 years old vs. 50 to 60, maybe you're focusing on protecting your wealth. That's where you have to make an assessment. Like I said, it's going to be different for everyone, but I think given what we know, here, based on the math, that's a pretty big position in both of those companies and it'd probably be worth looking at spreading that risk around a little bit.

Anderson: The final thing I'll say on it is I would do the math personally and say that if the company lost half its value -- if you chopped it in half -- would that change your plans? And if it would, it's probably too much risk for you.

Southwick: The next question comes from Keith. "About six years I inherited my father's IRA. So far I've only taken the required minimum distributions each year. This year due to an extended job search, my wife and my income will be considerably less than it has been in the past year. Given that temporary drop in income and the fewer tax brackets, now, should I take a larger distribution this year in an attempt to take advantage of this low tax year of ours? I'd only take enough to keep it in the same tax bracket and would either move the investments into a post-tax brokerage account for our retirement, or alternatively cash the distribution out and pay down a variable interest HELOC whose rates have been climbing up. Thanks, Keith."

Anderson: I am sorry to hear that the job search is taking longer than anticipated, but I love the question. This is a perfect question, because you're doing some tax planning, right now, and that is perfect.

In low tax years -- and in the situation he outlined -- this is a perfect example of one. Another one would be somebody that retires, maybe, before they're ready to take Social Security and has a few years of low or no taxes. No income coming in. That is a perfect time to look at some tax planning. So yes, I would consider accelerating some distributions.

Now, if you're going to use the money to pay off some debt or some current cash needs, that's totally fine. If you're going to invest the dollars, I would encourage you to look at a Roth conversion, instead, because you're going to pay the exact same taxes except you can move that money into a Roth IRA where it's going to grow tax-free and come out tax-free later on and that would be even better to supercharge your low tax year.

Southwick: The next question comes from Josh. "I have a question about dividend yields. I often see them written out as a percentage; for instance, I see on that AT&T currently has a dividend yield of 6.2%. Is that equivalent to an interest rate? With banks still paying less than 2%, a 6% interest rate sounds great, but I'm not sure if a dividend yield is essentially the same thing?"

Moser: That's a good question and in short it is essentially the same thing in that you are either going to get paid for having your money in a savings account or with a CD, or you're going to get paid by a company who offers a dividend for hanging onto their stock.

Now typically a company is going to pay a dividend four times a year -- once every quarter -- and that rate or that percentage that you see [with] the yield is based on the amount that they pay out compared to the stock price. That can certainly fluctuate, but generally speaking, particularly in today's interest rate environment, dividends are a far more attractive option. I think they will be that way for some time to come because even though rates will continue to go up, they will go up fairly slowly and generally speaking, these companies that pay dividends are pretty reliable. Their business models produce some pretty reliable cash flows that allow them to keep paying those dividends and often times raising those dividends.

So if you really want to find the awesome dividend companies, you look for the Dividend Aristocrats, and those are the companies that have grown those dividends for long periods of time. I think the qualifier is at 25 years? Is it 30? I have to double-check that, but they have a very long-established track record of growing those dividends on an annual basis.

We'll probably hit a point in time where interest rates become a little bit more attractive and when that happens, you're very likely to see some of those dividend stock prices take a little bit of a hit as money starts to flow toward more risk-free assets. And I think as an investment strategy, on the whole, it's always a good idea to plan on owning some good, staid dividend payers for long periods of time.

Southwick: The next question comes from Bill. "I'm currently 55 years old and have a lingering pension from a job I left several years ago. I can retire now, according to Fidelity, and they offer a lump sum payout for the plan. I'm still working at the moment and contributing to a 401(k) with my current employer and not planning to retire for at least 10 more years.

"Should I take the roughly $42,000 lump sum and roll it into my IRA account or wait until 65 and take a roughly $63,000 lump sum? I could also do the annuity at $165,000 or $388,000 at the respective ages. Don't need any of this at the moment or even likely after I retire, so it can go to high-risk investments like stocks, or I could use it for my two boys' college education. They are 13 and 16 at the moment."

Anderson: There's a lot of math in there, but let's talk about the first thing. Let's compare the lump sum option. So if you're 55 now and the 65 payout would give you a bump from $42,000 to $63,000, the implied interest rate in that is about 4%. They're giving you 4% annually on that money compounded to leave that money with them at Fidelity.

Now the market is generally going to give you more than that if we stretch out to longer time periods -- historically 7-10% on US stocks. Over the short term that can be highly variable. So over a five or even a 10-year period, whether or not you beat 4% is going to be based on your investing track record and then what the market's giving you.

I would generally believe that if what you said is true, that if the money is not needed, I would probably invest it rather than take a 4% guaranteed gain. That's partially my own risk tolerance -- and how I view it -- but also how you explain the situation; that it's not necessarily there as a needed thing, where the pension or the annuity version of the pension payout is really going to be there if you wanted to offset some risk elsewhere in your portfolio. I would probably recommend that you take the lump sum.

The only thing that gave me a little bit of pause was your note at the end of you using it for your boys' education. With a 16-year-old if you're 55 and you move all this money into an IRA, you do not have penalty-free access to this money until 59 and a half, so you've got a little bit of a window there where you don't have overlap. For your 13-year-old you'll be well past that age. There are some tricky ways to get at IRA money early, but if you're going to take that lump sum I would be looking for other ways to fund the first couple of years of college for your 16-year-old.

Southwick: The next question comes from Vince. "Can anyone at TMF explain what happens when a company you own sells to another company, as in what happens to the stock? I own Mazor Robotics, which recently sold to Medtronic. Do my Mazor shares automatically convert to Medtronic or automatically cash out once the sale is complete? Do I have to do anything like sign an agreement for my shares or sell the shares to Medtronic? Or do nothing and it magically takes care of itself in the mysterious trading world?"

Moser: The short answer is yes.

Southwick: Oh, great!

Moser: Yes. It's an interesting situation because there are a lot of different ways this can be resolved for you. We'll use Mazor Robotics as the example because that was the example that was given, but there was a recent deal where Medtronic has agreed to acquire Mazor Robotics and this is an all-cash deal. So Medtronic is going to pay all cash for this. The deal has already been approved and it is expected to close during Medtronic's third quarter ending January 25th, 2019. They're sort of tying a bow on everything and making sure the regulatory environment will allow for this acquisition to happen and it all looks like it will.

When we look at that all together, the deal is Medtronic is going to pay $58.50 per share in cash for Mazor Robotics. This means if you own shares of Mazor Robotics, Medtronic is going to give you $58.50 per share in cash. And you can see that Mazor Robotics today is trading pretty close to that price. That indicates that the market thinks this deal is likely to go through.

Now, you can sit there and wait to see if maybe there's a better offer. Perhaps another company might come in and say, "You know what? We like Medtronic's offer, but we're going to raise it. We're going to pay $65 a share for Mazor Robotics." That's always a possibility.

Now, the market is telling us probably not going to happen, and I think in Mazor's case, they'd like to be a part of the Medtronic family, anyway; so, it is a little bit of a gamble, there, if you decide to go ahead and sell your shares and move on. Oftentimes when you see the market giving us signs the way it's giving us signs today, that they feel like this deal is going to go through, and that means you can sell your shares of Mazor and go ahead and be done with it. You can move on and reinvest that money somewhere else. Otherwise, if you decide to just wait it out, then you will have to wait for the deal to close, which it sounds like it will be by the end of January 2019.

I will say one caveat you need to be careful of is some brokerages will sneak this by you and you won't even see it. If you let this go through, and you just let them do all the work for you...

Southwick: Some mysterious magic...

Moser: ... there will sometimes be this ghost fee that comes into play, here. As opposed to just selling and taking that $7.00 or $5.95 commission that your brokerage will normally charge you, sometimes they'll tack on like a $25 closing fee, or whatever it may be. While it's not debilitating, it's kind of insulting and a little bit frustrating, and I'd like to avoid it at all costs.

You can sit there and do the math and try to figure out which way works better for you. Typically my train of thought is that when I see a deal like this and it looks like it's getting ready to go through, I just end the relationships, sell the shares, and move on. Of course, everybody has their own choice, but hopefully I've given you some information there to make the decision that's best for you.

Southwick: We're going to talk more about this with a couple of more questions. We're going to talk more about when companies take over other companies. The next question comes from Nicki. "My husband and I have always invested almost exclusively in our IRA accounts, maxing them out each year, and have been focused on solid dividend-paying stocks so that they can compound over time and we can use them to supplement our income in retirement.

"However, due to a promotion for me and a new job for him, it's likely we will be right at, if not over, the income limit for 2019 to be able to contribute to an IRA. We're hesitant to invest in those same stocks in a regular brokerage as it's not as tax-efficient. I've never done any real research on any non-dividend paying stocks since that was never really our strategy. Can you point us in the right direction when it comes to investing in non-dividend paying stocks, or at least how to invest in a regular brokerage in a tax-efficient way?"

More tax talk.

Anderson: All right!

Southwick: Ross loves it.

Anderson: I do! The first thing I'll tell you is that no matter what you're making, you can generally make an IRA contribution, and it may be non-deductible so you may be earning out of that deductible IRA range, but you should be able to still make a non-deductible IRA contribution if you choose to.

But let's talk about investing in a taxable brokerage account, because I think this is something that people miss a lot. I see a lot of investors that come to us. They're getting ready to retire and it's all IRA money, or it's all 401(k) money, because that's been the easiest place to do their recurring savings.

A taxable brokerage account is actually a pretty tax-efficient place to invest. You get a couple of things that work for you. No. 1 is if you buy a stock and it goes up, and you've held it for more than a year, you're going to be paying capital gains rates on the gains [not your income tax rate]. So even as your stocks go up in an IRA, ultimately someday you're going to need to take money out of that and you're going to pay ordinary income taxes on all of that money coming out of a pre-tax IRA where I think you actually get a really nice benefit that is an attractive tax rate when you sell a stock for a gain in a taxable brokerage account.

No. 2 is there's two different types of dividends that can be paid. One is a qualified dividend and the other is an ordinary dividend, and the ordinary dividend is going to be taxable at your income rate, right now; but a qualified dividend is giving you the same tax preference that a long-term capital gain would.

Here's the bottom line for me. We've got a saying, "Don't let the tax tail wag the investment dog." If you have a company that you think is an attractive, overall, total return strategy, that's a great company to own whether it's going to be in an IRA or not. From a tax location perspective, you could say that a non-dividend paying stock may be a little bit more efficient in a taxable brokerage account; but ultimately if those are the companies you believe in, I'm not going to tell you to change your strategy.

But my personal favorite companies [things like Amazon, and like Alphabet and Google]; those are not dividend-paying companies. They are growth stocks. I think there's a lot of research that you can get to in terms of what growth stocks may be appropriate for you and that's something that I think you should at least explore; but don't necessarily feel like you have to change your strategy just to invest in a new account.


Southwick: The next question comes from Hugh. "Recently I have been faced three times with one company buying up shares, or buying outright, or merging with another company. The choices are clear -- sell or hold on and see what happens. My question is how should one think about the choices? What is a rational approach to evaluating the companies? What information should I collect about each company, or at least a takeover company to be able to kill the alternative choice and decide what action/ inaction would be best for me? Are there any investing rules of thumb?" [Ha ha, that must be a longtime listener of the show. We haven't talked about that in a long time]. "Can that guide decisions such as get out and sell as early as possible?"

Moser: We see this on occasion. It's not always, but sometimes the company may offer to buy up another company by issuing stock in the acquiring company vs. the acquired. Or you may see a situation where the company being bought is just going to be cash outright and then you don't really have to worry about that. You look at something like the example we talked about before with Medtronic and Mazor Robotics. There's not really a choice, there, at the end of the day. You're just going to get that cash and move on. You don't have to worry about continuing a relationship with Medtronic because they're not forcing you to.

But sometimes a company will make an acquisition by issuing more stock and then you may very well be stuck by owning that company. And in that case you do have to make a decision. Now, you may not have a choice in the near term in that you will be given those shares of that company based on the closing of the transaction; but, then yeah, you have to look at that acquiring company and decide if it's one that you want to be an owner of.

Now, is there a rule of thumb? Is there a rational approach to it? I mean, that's what I do for a living, every day, is analyzing these businesses to try to determine whether they're worth owning or not. I imagine we could go on for an hour just talking about fundamental analysis of companies, but I think generally speaking [this is] what I like to see in businesses that I own.

I like to see that there's an attractive, growing market opportunity out there. I like to know that there is a smart leadership team. A leadership team that I believe in and that I trust. And I like to know that the company that's making the acquisition has a good balance sheet in place so that I'm not going to be worried about their financial position going forward.

If those three things exist, and I feel like maybe there's more research to be done there and it's worth considering, [then] there may be a situation where you feel like the company that's making that big acquisition is just beyond the line. You don't want to own it. There are people who don't want to own tobacco companies. I get it and that's a pretty easy decision to make. Everybody's line is a little bit different. You have to be able to determine your own. But those are some of the things to think about if you get put in this situation.

Southwick: And you probably don't need to make a decision immediately. You can take your time and do your research.

Moser: I think as with most things in life, it always does better to just sleep on it. You don't need to make a hasty decision. Take a moment to think about it. Reach out. If you have particular companies that you want to discuss, we are here and we can discuss those companies. We can't give you advice, necessarily, but we can tell you about those companies and about how we feel. We can tell you whether we like them or don't like them, and that's going to give you a better idea as to whether we feel like those are businesses worth owning. Again, everybody's investing strategy is a little bit different. Their timeline is a little bit different. We obviously espouse owning good businesses for the long haul. That's our North Star. That's what guides how we look at investments.

Southwick: The next question comes from Ricky. "I graduated college almost four years ago and still have about $25,000 in student loan debt. Knowing it would not be wise to touch my home equity or 401(k) account yet [I just turned 26], I finally reached the point where I could empty my brokerage account and emergency savings and completely pay off my student loans.

"I just feel like emotionally it would feel defeating, as those would basically be empty after working hard to build those over the last three years. Would it be wise to pay off the student loans now or would it be better to make aggressive payments for the next several years? Also a side note. About a year ago I moved to Nampa, Idaho and heard Alison mention on the show that she grew up in Caldwell. Small world." Yes. It's a small Idaho, that's for sure. Enjoy Nampa!

Anderson: Ricky, first of all I love that you're a listener. I love that you're thinking about this stuff. At 26 you are well ahead of the game...

Southwick: Right! Way ahead of my game!

Anderson: ... of many of your peers. Congratulations! The one detail that I don't have here that I would like to have to answer your question is what you are paying in interest on the student loan debt. I know what you have resource-wise that's available. The first thing that I would say is don't drain your emergency fund. That emergency fund is just that. This is not an emergency. This is a strategic decision, but not an emergency and the reason that that's there is if you have a loss of income. If you have a big, unexpected bill you still want to have that liquidity.

Now whether or not you pay off some of that student loan debt using the brokerage account I think depends on what you're paying in interest. I'll try and give you at least a guideline. If you were paying sub 5% -- if your student loan debt is under 5% -- I'd probably keep it. I think you're ultimately going to do better in a long-term investing strategy than 5%. If you were somewhere between let's call it 5-7%, you're kind of on the bubble. If you're paying north of 7% interest on that student loan debt, I probably would take the money out of the brokerage account and pay it off.

Again, you may have a different tolerance for risk than I do, but for me I wouldn't bet hard that I'm going to earn way more than 7%, even though I hope that I would on long-term investments. That, for me, would be my threshold where I would pay off the debt. At least get rid of half of it and then make as aggressive payments as you can over the next few years to get it totally out and off your mind so that you're not worried about it anymore. But how much that debt is costing you is the big variable there.

Moser: And that's why we say that not all debt is bad debt. It drives me nuts when people say that because there is good debt out there. If you have a mortgage that's good debt. It enables you to live in a house and you're probably paying less on that mortgage than you would earn over a long-term investment strategy...

Anderson: Totally.

Moser: The blanket statement that all debt is bad -- I hear that often and I don't like it. You've got to be careful with that.

Anderson: I like to spar with Bro on this. Sadly, Jason, you're not Bro...

Moser: Pretend I am!

Anderson: ... but Bro is always talking about paying off your mortgage going into retirement. For a lot of reasons it is a satisfying thing to do. To me, at the interest rates we've been at, I can't make the math work for that case. I just can't. If I've got sub 4% debt I'm going to keep it as long as I can. That's cheap money, but I'd rather have the money elsewhere.

Moser: I'll give you a real-life example. I have a car loan. I got a new car in 2015 and Ford gave me a 0% interest loan to pay off over five years. So I'm sitting here for five years with a 0% loan. Now, I could pay that off tomorrow, and it would be very satisfying to know that obligation is fulfilled. However, month by month I'm finding, and I've seen this over the course of the last three years, that money to be better served over all different types of investment opportunities that come up. So yes, while it could be satisfying to pay that off, it doesn't really cost me anything. If I eliminate it I get the satisfaction and I don't have to worry about that in the future. It's another uncertainty that's erased, but I like my chances over the next couple of years to be able to satisfy that debt regardless, so string it out as long as you can.

Southwick: And then once the five years are over, are you going to pay it off in full?

Moser: Well, it will all be done. The whole thing will be done. It's just that every month I have to make a payment toward the car, but the auto company is not charging me at all for the loan.

Anderson: If I can use somebody else's money for free, I'll always do it.

Moser: That's the definition of free money. You might as well string it out for as long as you can.

Southwick: The next question comes from Nate. "Two stocks in my portfolio have experienced major losses to their share price: Square and Tesla. Both have had an announcement regarding their CFO leaving and the stocks had 10-15% losses the next day, which may translate into the departure of a single employee who was able to contribute 1,700 to 2,400 hours per year to their jobs makes the company's market value decrease by approximately $3.4 billion or more." Those are valuable employees.

"How much should a reasonably Foolish investor value a specific executive on a board of a publicly traded company? How should a company's compensation plan for a specific executive change in order to ensure they compensate for the value they apparently deliver to the company." Emphasis mine.

Moser: Very good question because it compares two very different companies and I own shares in one and I don't own shares in the other.

Southwick: Yes, I have Square.

Moser: I own shares in Square. I do not own shares in Tesla. Now I like that Nate went through and did the math, here, and I appreciate it. Now let's also remember that this all doesn't just fall back to the departure of a CFO. At the end of the day you've still got two companies, here, neither of which is profitable, so Wall Street is going to be a little bit more nitpicky with these types of companies in the short run until they build demonstrable, sustainable, profitable business models.

So with all that said, Nate, if a 10-15% loss is major in your book, then you may need to diversify because really, in all honesty, that isn't major. That's pretty much part and parcel with investing in stocks. Twenty to 30% is not major. Major is probably a haircut at 50% or more and, as Ross mentioned earlier [as to whether] 50% alters your timeline or strategy; that, I think, is where major starts coming to play here.

Now if we look to how valuable one person is to any given business, it is definitely going to vary from business to business. I would argue, in Tesla's case, that the CFO for Tesla is not as valuable as you probably would think. I think the key to Tesla is Elon Musk. If Elon Musk disappears from the picture, they're in big trouble, and I think one of the big reasons is because he's the one who's grown this business from where it was to where it is today and if you see, he's out there day in and day out either on Twitter or in the press really pushing that message. He needs to keep that stock price in a certain range. He knows it because this is a company that relies a lot on debt to be able to fund the business and keep growing, because they're not profitable, like we said. So for me, the CFO loss with Tesla not nearly as big of an issue.

Now with Square, I found the departure of Sarah Friar to be disappointing and not terribly surprising, because she's extremely talented. In Square's case, this is a company that's sharing a CEO. Jack Dorsey is the CEO of Square and he's also the CEO of Twitter. He's been criticized for that, but the fact of the matter is both businesses are performing rather well. But my point is that Sarah Friar really was more than a CFO. She was the most public-facing executive for this company. I would venture to guess she probably knows more about the business than Jack Dorsey does to be honest with you. And that's not an insult to Jack. I think it's a testament to how strong of an executive Sarah Friar is. So for me, to see Sarah Friar leave -- I really do hope that Jack is able to bring someone in who's as aware of the business and the market opportunity that exists.

Now, when it comes to compensation, it's another subject we could probably drone on for about an hour and most people don't want to hear it, but it is something where it's going to boil down to opinion. I would say one of the things we tend to do is look at a company's filings to get a better idea of exactly what a company's compensation strategy is. There's a form called the DEF 14A that gives you all of the elements of executive compensation. And if you look at Square, for example, it's very interesting [to see] Jack Dorsey's compensation in regard to Square as CEO. His base salary. I'm going to give you a guess, here. How much do you think Jack Dorsey's base salary in fiscal year 2017 was at Square?

Anderson: Did he go Buffett it? Like a dollar?

Southwick: He either went a dollar or...

Anderson: I'm assuming it's a low number.

Moser: It's $2.75. And he's basically saying, "Listen..."

Anderson: I didn't mean to ruin the punchline.

Moser: "I've bought into this business. I own a substantial amount of the stock in this company. I'm not worried about the salary. I'm more worried about the long-term success."

Southwick: He's not in it for the paycheck.

Moser: And Elon Musk owns a big slug of Tesla, too. So I like to see executives bought in like that. Sarah Friar -- her salary was structured a little bit differently because she didn't have the same skin in the game as Dorsey, but it's all to say that when it comes to executive compensation, we like to see a healthy mix of salary. Of ownership. Reasonable bonuses based on achievable benchmarks that matter more to shareholders. Things like operating income over net income. Go for those metrics that can obscure the financials less and not more. Those are the kinds of things we look for when it comes to compensation.

Anderson: But when you look at a high-level executive leaving like that, is the reason the market's reacting to it more because it's a symptom? I mean, there's a lot of reasons a person may be leaving a job, [including] if the company is suffering and maybe it's not as publicly known. I'm not saying anything about either of those companies, but is that why the market is going to have a stronger reaction when it's a C-level person?

Moser: I think that's a fair assumption. I think with Sara Friar it's less a symptom because we know that her ultimate goal is to become a CEO and she, indeed, is leaving this job to take a CEO role. Tesla's CFO departing -- a little bit more nebulous. Not terribly transparent as to what exactly is going on there.

Southwick: I think we can guess that Tesla's not an easy place to work.

Moser: And look at another company like Snap, for example, or even Twitter in its early days. When the business was just in shambles, no one really knew what was going on. It was like a revolving door. People didn't want to stick around because they didn't really know what the vision was. So I think it's really all back to making sure you have a leader, there, a CEO, who's able to give people that confidence; that feeling that there is some sort of a long-term vision and understanding how they're going to get there. Every company is a little bit different, but you definitely have to suss that out to get a better idea as to whether it's a company you want to be owning or not.

Anderson: The beatings will continue until morale improves.

Southwick: There you go.

Moser: That's right.

Southwick: The last question comes from Kevin. "I have a three-month-old and opened her an UGMA account -- American Funds through my FA the day we got her Social Security number." Oh, that's nice. "I have a biweekly draw going into the account and I thought this was a smart idea until about two months ago in, I'm realizing the fund we're in charges 5% of any amount added to the account.

"Example -- when my $100 goes in, $5 is automatically taken out and this is in addition to the fee of 1.14%. I've also learned that there aren't really any tax advantages and it could even hurt her financial aid status when applying for college. I know about 529 plans, but I don't want these funds restricted to only education. My question: Is the fee structure typical of an UTMA? Why shouldn't I just open a separate investment account in my name, with much lower fees, and give it to her or use for her when she's old enough?"

Anderson: The acronym we're talking about, here, is the Uniform Gifts to Minors account or a Uniform Transfers to Minors Account. UGMA and UTMA. People use those pretty interchangeably a lot, so I actually like that he asked the question that way. They are technically different with what you open but they're largely going to have the same structure. Is this fee structure typical? No! This is not based on the type of account you've heard of.

What you're buying right now, and the reason that you're paying 5% is what you said up at the top, which is American Funds through your financial advisor. You are buying what's called an A Share mutual fund. That is building a sales charge. That is how your financial advisor is getting paid on selling you those funds. That has nothing to do with the structure of the account or the fact it is a transfer into her name.

If you opened that account with any low-cost broker [a Schwab, a Fidelity, an Ameritrade, an E*Trade], you're not going to have that same thing, but you're also going to be on your own for making those investment choices. If you wanted to buy individual stocks or low-cost index funds, ETFs, you can absolutely do that in those accounts, but you're going to be taking more and more of that responsibility for managing the funds vs. having the financial advisor provide that to you.

Southwick: Is that 5% called a load? Is this different than a load or is this a load?

Anderson: Yes, this is a sales charge. There's a couple of different versions of it. Like a "C-share" fund doesn't have the big upfront charge, but has a much higher ongoing operating expense, because they're going to pay that advisor 1% a year instead of the 5% upfront. So most of the time on an A-Share fund, he's getting 5% upfront and then a trail of 25 basis points, which is in there as a 12b-1 fee.

Southwick: Oh, we love 12b-1 fees. Those are marketing fees which is bananas to me. I'm literally spitting. It's so bananas to me that someone at a mutual fund company was like, "You know what? We're going to call it a 12b-1 fee and we're going to make our investors pay for us to market the fund."

Anderson: But it's really not a marketing fee. It's going to the advisor. The marketing is the advisor that sold it.

Southwick: Well, it's still stupid.

Moser: If I can chime in here for just one additional thought. I'm fully onboard that these fees are absurd, but I've had some experience in this realm [I have two younger daughters who are 12 and 13 now]. We opened up 529s for them when they were born and at around six or seven years old, we opened up individual brokerage accounts for them. They were with Scottrade. Scottrade was recently acquired by TD Ameritrade, so now we're all with TD Ameritrade.

The fact is they have UTMA accounts with TD Ameritrade [each individually] that function just like savings accounts. I guess they technically have savings accounts somewhere but we don't really use them. Instead we put all of this money into their brokerage accounts, and a couple of times a year we'll buy a new stock for their portfolios.

Now, these brokerage accounts are not 529s. They're not tied to anything other than just like an UTMA savings, which does mean, as the listener mentioned, that could [not necessarily will] but could affect their qualifications for student loans down the road. Now, my perspective on that is that we have a system in place that has a million different ways students can get financing for school. That is plainly obviously based on the $1.5 trillion of debt that is outstanding today.

I'm not going to worry about $5,000 to $7,000 that they've accumulated in savings via investing. I'm not worried about that potentially offsetting any financial aid questions. I would rather they have the lifelong lesson of how powerful investing is. Let's cross that student loan bridge when we come to it. I'm certain we can cross it. I never even considered that as a factor in making the decision to open those accounts for those girls.

Southwick: What does Kevin do? Go back to his financial advisor and say, "What the heck, buddy? Get me out of that!"

Anderson: Honestly, I would take this as an opportunity to review what you are paying and for what across the board with your financial advisor relationship. Not to say that paying fees or paying an advisor for advice is bad, but you should understand what you're paying and why. This is clearly an example of maybe you didn't understand how you were paying for that advisor's services.

The other thing I'll go back to just a little bit is that he mentioned just open an investment account in my name and give it to her later. That's totally fine. It remains on your books. It remains your asset. I think if you're going to keep it in a separate bucket, that's fine, but with these UTMA accounts, you are transferring legal ownership at the age of majority, which is either going to be 18 or 21 in most states. That is unrestricted access to that money. On that birthday, if the kid says, "Give me all that money, Mr. Advisor or Mr. Brokerage House," they have to.

Southwick: Kevin, raise your kids right!

Anderson: You're talking about a three-month-old and you have no understanding at this point of whether or not that is a financially astute three-month-old and I don't think there is a way to make that judgment.

Moser: You keep them listening to Motley Fool Answers.

Southwick: There you go!

Moser: They can be pretty funny, too, Ross. I think that's safe to assume.

Anderson: My baseline is as an optimist. I hope that they are a very financially responsible student, but I know plenty of folks [probably myself included at 18] that shouldn't have been handed a big pot of money. So be careful with the UTMA because it's going to grow, hopefully, and it could be significant.

Southwick: All right, guys, well thank you for coming on the show! Let's have a disclaimer. As always, The Motley Fool may have formal recommendations for the stocks we talked about on the show. Don't buy and sell stocks based solely on what you heard here. Also, Ross, I didn't introduce you as a financial planner with Motley Fool Wealth Management...

Anderson: A sister company to The Motley Fool.

Southwick: There you go! All right, guys. That's the show! It's edited responsibly by Rick Engdahl. For Jason Moser and Ross Anderson, I'm Alison Southwick. Stay Foolish, everybody!