In this episode of Motley Fool Answers, Alison Southwick is joined by Motley Fool Senior Advisor and Certified Financial Planner Robert Brokamp and Motley Fool contributor Asit Sharma. They answer listeners' questions on the CARES Act, Dividend Aristocrats, backdoor Roth IRAs, retirement investing, and much more.

Finally, they look at some suggestions sent in by listeners and suggest a few ways to pass the time while physical distancing.

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 April 28, 2020.

Alison Southwick: This is Motley Fool Answers. I'm Alison Southwick, and I'm joined, as always, by Robert "you can call me Bro" Brokamp. Hey, Bro, how are you doing?

Robert Brokamp: Just fine, Alison, how are you?

Southwick: I'm good. It's the April mailbag, where you ask questions and hopefully, we have answers. This month, we're joined by Motley Fool contributor Asit Sharma. We're answering your questions about the CARES Act, Dividend Aristocrats, and the backdoor Roth. All that and more on this week's episode of Motley Fool Answers.

Yes, it's the April mailbag, and this month, we have Asit Sharma joining us. Now, he might be familiar to some of you because he has done some of the other podcasts, but this is his first time joining us on Motley Fool Answers. Asit, thank you so much.

Asit Sharma: Well, thanks so much for asking me, Alison. I'm so excited to be here with you guys today.

Southwick: And you are coming to us from a Carolina, I believe, but I don't remember which one.

Sharma: Absolutely. I'm coming from the northern-most of the two Carolinas. And we have some great contributors just South of the border, so I'm not going to say anything pejorative about South Carolina, but I will extol the virtues of North Carolina. I'm coming to you from Raleigh, which is the capital city.

Southwick: That's great. And, Asit, how did you come to be a writer for The Motley Fool?

Sharma: Interestingly enough, there was a short-lived blog network, I think is the name, The Motley Fool Blog Networks. So this was one of Motley Fool's many interesting projects. And I wrote an article.

Southwick: [laughs] That's putting it so nicely. We do have so many, we have a bit of ADD when it comes to projects, but yes.

Sharma: Yeah, I found that out in my many years of contributing, there's no lack for new projects. And that's a great thing, that is a strength of The Fool. I should say all-in-all, it's a really awesome strength of The Motley Fool, but that was my hook, and I wrote some articles for that, and eventually got asked to write some more, moved over to what we call So if you read articles on Motley Fool's home website, maybe you'll see some of my writing there, but that was my starting. This was 2011. So I'm going on many years now with The Motley Fool.

Southwick: Well, Bro, you're going to kick it off by taking the first question here, and it comes from Herb. "I am still working for my current employer and am under 59.5 years old. Through the CARES Act, am I able to make a withdrawal from my 403(b) and then repay the amount into a traditional IRA without having to pay income tax? Would the amount need to be under the max contribution level of $6,000?"

Brokamp: Well, let's start by reminding folks how the CARES Act affected retirement account distribution. So you can withdraw up to $100,000 combined from your employer-sponsored account or IRA's and avoid the 10% early-distribution penalty, but not taxes. But you're only able to do that if you suffered some kind of economic hardship related to the coronavirus. So technically, this option isn't available to everybody. Now, once you take the money out, you still owe the taxes. However, if you get it back in the account within three years, you don't have to pay the taxes. The problem is, if you don't get it back before Dec. 31 of this year, you will owe taxes, but then if you get the money in, just amend your tax return and you'll get the taxes back.

But based on my reading of the bill, money generally has to go into the same type of account that you took the money from. So I don't think what Herb is suggesting will work. I don't think you can take the money out of your employer account and put it into an IRA.

That said, there may be one other possibility, and that's if his plan permits an in-service distribution: It essentially lets you roll money out of your 401(k) or 403(b) while you are still working. It's perfectly legal to do that, but the plan has to allow it. So just talk to someone who's knowledgeable in your HR department or one of the customer service reps for the folks who administer the 403(b) to see if that's allowed. If it's allowed, it's generally not allowed until you reach 59.5, but you can lower the age if you want. In fact, we on the 401(k) committee here at The Fool just voted today on whether we want to lower the age on ours. Don't know what the result is yet, but so it's perfectly possible. If your plan doesn't allow it, ask the HR department if they'll allow it, and maybe they will.

Southwick: All right, let's move on to the next question, comes from Colin. "I did some number crunching and found that if I invested in only the top 10 holdings of the Fidelity 500 Index Fund over the past five years, I would have seen a return of around a 145%, while the fund as a whole saw a return of only 12.5% over the same five years. I realized these holdings likely change often during this lifetime, so it isn't a perfect measure. Why not make a basket of individual stocks from the top holdings of a desired index fund? You lose out in diversification, but a portfolio of 10 to 20 stocks spread across different industries is generally considered diversified anyways."

Sharma: So Colin, you are correct that holdings of an index fund change over time, and this is sort of the magic of hindsight. The formula you put out here looks awesome, that if you had grabbed these top holdings and held them for five years, you have this phenomenal return. But what's going on with these indexes is that most of them that follow the S&P 500 index are capitalization weighted indexes. So the strong get stronger and they replace the weak in these funds that follow indexes. But it's hard to predict what's going to happen in real time.

I went back and did some digging. I looked at year-end 2013, which will give you about five years of performance. And yes, in that year, end index of the S&P 500, Apple was present, Google [Alphabet] was present, and Microsoft was present in the top 10 holdings. But there was no Facebook, there was no Amazon. And in addition, I found clunkers like Wells Fargo, GE, and Chevron. [laughs] So in the ETFs or mutual funds that follow these indexes, they have to consistently rebalance.

So what I said at the outset that the strong get stronger. As a company gets popular in the market and its market capitalization rises, it moves into that top 10 of a fund's holdings. But that's ever changing, and it's really hard to predict today. If we simply bought those top 10 holdings today, they might look a lot different in five years. Now, the ETFs and mutual funds will account for that by their rebalancing, but you or I might see the performance of the Amazons and Microsofts and Facebooks whittled down by other companies that are in that top 10. And that's the effect of trying to replicate the performance. It's really hard to do and keep that moving.

But let's not throw this idea out with the bathwater, I actually like it very much, and I think you're onto something. And that is that the top 10 holdings of a broad index, or maybe even a specialized index that you like and are familiar with, that's a great place to look for investment ideas. And sure, can you create your own sort of ETFs now that we have commission-free trading and fractional trading? Maybe even look at several funds that you're interested in and pull a few ideas from each. I think it's a wonderful idea. So do that maybe instead of trying to just buy those 10 that look good today and hold those for five years.

You could just evaluate each one individually, and that will give you some kind of backstop [laughs] to just blindly using this formula. But the idea overall is a smart one in terms of identifying good stocks to build your own basket.

Brokamp: Yeah, and I wrote an article in January looking back to the top 10 holdings of the S&P 500 over the years. And just a couple of highlights, that when you look at 1980, 7 of the top 10 stocks were oil companies, which since then probably has not fared so well, certainly over the last several years. And then if you look at 1999, top three were Microsoft, GE and Cisco. Microsoft peaked in '99 and didn't exceed that peak again until 2016. GE, the peak at 2000 was worth $60 a share, now it's $6 a share. Cisco peaked in 2000 at $80, now at $43. And then, also among the top 10 were, like, Lucent and America Online. So I love Asit's description of basically, strong get stronger, but the weak get weaker. And by owning the index fund, you eventually own more and more of the stocks that are doing better and better.

Southwick: All right. Next question comes from Bill. "As I listen to the Rule Breaker Investing dividend episode, it occurred to me that this could offer a good strategy for getting started with stock investing. If someone had a chunk of money that they wanted to get started with but weren't sure how much ongoing month-to-month ability they would have to add to their investments, they might start with some strong dividend payers or funds to help with diversification. Then, they could use the stream of the dividends as the income stream to help them add to and broaden their investments."

Brokamp: So Bill is reacting to the fact that I, along with my colleague, Buck Hartzell, were on the Rule Breaker Investing podcast recently talking about dividends. And I certainly think that dividends are an underappreciated aspect of owning stocks. I like that people like the idea that they're getting some cash and not reliant on the prices. After all, prices go up and down, pretty unpredictable, whereas if you have a diversified portfolio of dividend payers, you can pretty much count on that income stream. About once a decade, there is a significant disruption, and that disruption is happening now for us, but it's been pretty consistent and growing actually pretty spectacularly since 2009.

And I think if you're trying to convince a newer investor to invest in stocks, I think it is pretty compelling to say, like, these days you can get a diversified portfolio that yields 2.5%, much more than you're getting some cash, more than you're getting some treasuries. So even if the prices go up and down, you're still going to, over the long term, hopefully earn more than you earn in cash.

By the way, one of only two times since the 50s when stocks yield more than bonds. Since the 50s, bonds have always yielded more. The last time that stocks yielded more was March of 2009, which was right at the beginning of the next great bull market. So it's pretty extraordinary.

The trade-off is that I do think it's important to realize that dividends are not a free lunch. When you have a company that has a certain value and then it pays out millions of dollars of its cash in a dividend, it's not worth as much, so the price does come down a bit. But that said, for people who like the idea of just buying a few stocks or dividend-focused ETFs, have more cash coming in to buy more stocks, I think it's a perfectly fine argument.

If you're interested in finding stocks that have a history of paying growing dividends, there's an index known as the S&P Dividend Aristocrats, which leads us to our very next question.

Southwick: All right, here we go, it comes from Christian. "It seems that being crowned "Dividend Aristocrat" gives stocks a significant boost due to the many funds ETFs that necessarily will buy into significant positions of those stocks. Do you like the idea of investing in a basket of those upcoming anticipated Dividend Aristocrats, anticipating the bump in share prices when the big funds jump in, if, when they're actually deemed official Dividend Aristocrats? If so, I'm wondering about the easiest way to invest in upcoming likely Dividend Aristocrats. A low-cost mutual fund or ETF would be great, but I'm not aware of one yet."

Sharma: So Christian, I'm not aware of one either. I looked around, poked around to see if there is indeed a fund that is anticipated Dividend Aristocrats ETF, but I didn't find it. The idea is interesting. I will say that the effects of being added to a Dividend Aristocrat fund isn't quite the same as the effect of being added to, say, the S&P 500 index. You do get a bump when you hit that 25th year, but it's just not as large. And one of the reasons is, most of these stocks -- and let's parse out that definition of Dividend Aristocrat. It really refers to companies that are already in the S&P 500 and have paid a dividend out for at least 25 years consecutively and have simultaneously increased that dividend for at least 25 years consecutively. So these are already companies with broad exposure, they're widely followed, they're in most of the indexes that try to cover the market and thereby they're in the ETF that you can buy.

So you do get a bump, but in terms of -- is this a strategy that might really gain you some more juice long term over simply identifying these companies? It's hard to say. As Robert mentioned, when a company issues its dividend, it has to have its share price readjusted over the next few trading days because it's distributing out some of that market capitalization to shareholders. And over time, maybe that effect just, sort of, converges with the normal effect the stock would have in the market from investors recognizing its earnings potential.

But generally speaking, the idea is pretty sound to me because, look, in the process of doing this, you're identifying a company that may have increased its dividend, I don't know, 22, 23, 24 years running, and is a company that's an S&P component. You could do this with small caps too though; it doesn't have to necessarily be an S&P 500 company. So my take is to do the work of finding these types of companies that have consistently increased their dividends, they've shared their retained earnings with shareholders, they're obviously, probably growing their operating cash flows. That's a strong potential indicator of market share and market capitalization growth over the long term. You're typically looking at, sort of, mature, more stable companies, though. These aren't necessarily going to be the hottest growth stocks in the market, but I really like the idea in terms of helping you identify stocks that will serve a balanced portfolio over the long term.

Now, a caveat, a big caveat, a once-in-a-lifetime caveat. What about COVID-19? We're going to see this year some Dividend Aristocrats probably fall off the wagon. There's no way out of it. If you have to choose between keeping the lights on and keeping people on payroll and keeping your Dividend Aristocrat status, I think most companies are going to choose the really critical things they need to survive in advance today. So this is also going to happen to companies that are on their way to Dividend Aristocrat status.

My advice is, if you're seeing this happen, is just go to the company's financials, read conference call transcripts, try to get a handle on what the plan is. Many companies you'll find, especially the bigger ones, the ones who are more equipped to hit the capital markets for more debt, to issue shares, they will probably be OK, and it'll be a one-time blip. Unless we have another pandemic. I'm not ready for that.

Southwick: I'm not ready either.

Sharma: [laughs] So looking at these companies one-by-one on a case-by-case basis will help you, because some of them might actually get tripped up and they might not look so attractive even if they've increased dividends for 20, 22 years, etc. But I do like the principles here in this question, it can lead you to some nice finds for your portfolio.

Southwick: All right. Next question comes from Michael. "Is the length you will be in your home the only thing to consider when refinancing a mortgage? If I refinance a 30-year mortgage I've been paying for a number of years, doesn't the amortization curve for the new loan work against me? Let's suppose I refinance after paying a mortgage for seven years. I've not really started paying a significant amount of the loan's principal, so in effect, I'm paying rent."

Oh, everyone hates that paying rent, don't they, Bro?

Brokamp: [laughs] They do. So Michael is raising a pretty interesting point. So when you start out paying a mortgage, mostly payment does go to interest. It's not exactly like paying rent, because some does go to principle and you benefit if the price of the house goes up, but I see what he's saying.

So let's put some numbers on this. So according to the Mortgage Bankers Association, the size of a new mortgage these days is around $313,000. Assuming a 30-year mortgage at a rate of 3.4%, that monthly payment is going to be $1,388. With your first payment, only $500 is going to principal, so 36% is going to principal; the rest is just to interest. After seven years, that only moves up to 46%. So even after being in the house for seven years, most of it's still going to interest. You don't get to that point where the payment is half principal, half interest till almost 10 years. And that depends an awful lot on the interest rate. So if it were a 4% 30-year mortgage, the point at which you get half principal, half interest is almost 13 years. If it's a 5% mortgage, you don't reach that half principal, half interest till more than 16 years.

So Michael is making a good point. When you refinance, you reset that payment schedule going back to where a larger percentage of your payment is just going to interest. Considering all the numbers involved, including how much you have to pay to refinance, because there are up-front costs, the bottom line is, to determine whether you should refinance, you need a good calculator. There's one on, there's a good one on Bankrate. There're actually several good ones on a site run by the mortgage professor, a guy named Jack Guttentag, it's, which I think is a fascinating site, because it's been run by this guy forever. He's 96 years old and he's still actively blogging. He's a professor at Wharton.

So you're going to factor in all these things: up-front costs, whether you're going to make additional payments. And you figure out how -- you have to make some sort of an estimate how long you're going to be in the house and then figure out -- was it worth it? Not only in terms of the savings that you realize but how much of a loan you still have to pay-off at the end of it.

And many of the calculators used will default to showing you, like, how much you saved after 30 years, but nobody stays in the same house for 30 years. So you have to assume, like, what if I move in 7 years, what if I move in 10 years, what if I move in 5, and then make the decision whether refinancing makes sense.

Southwick: All right, next question comes from Sandy: "On a recent podcast, Bro mentioned that bond funds might not hold up as well as expected if they contain bonds that were just barely investment grade and are now no longer as high quality. Consequently, any money we want to keep absolutely safe in the next one to three years would be better off in cash. I'm wondering about the Rule Your Retirement model portfolios for those in retirement. Are you considering decreasing the recommended amount allotted to bond funds and recommending cash instead? Are you considering recommending different bond funds?"

Oh, Bro, on the spot! What are you going to do?

Brokamp: [laughs] Well, let's start with the bond funds. So bond funds change value every day, depending on movements in interest rates and the credit quality of the bonds in the fund. Over the past several years, one of the fastest-growing segments of the bond universe was corporate debt rated BBB. That's just a notch above junk territory. Now, some of those bonds are being downgraded to junk status, they're being called actually so-called fallen angels. And when that happens, they drop in value. And some recent examples is the debt from Ford, Macy's, the Gap, they've all been downgraded to junk.

So if you're investing in a bond fund for safety, it does make sense to take a look at what's in your bond fund to make sure that there's not too much of this debt that's either in junk territory or could be junk territory. You would do that by just entering the ticker [on], click on the portfolio tab, and you could see how the fund breaks up by different ratings.

As for RYR model portfolios, they're all index ETF, so the main bond holding is the Vanguard Total Bond Market ETF, but despite its name, it doesn't actually own the whole total bond market. There's no junk bonds, a very few municipals, no Treasury Inflation-Protected Securities, otherwise known as TIPS. If you look at the current holding, 18% of it is BBB rated, so that is a significant portion in that point right above junk, but because so much of the rest of the fund is in AAA rated, that means treasuries or other bonds backed by Uncle Sam, it's pretty safe. So I'm pretty comfortable having it in the RYR model portfolios, as in my own portfolio, because I follow the RYR model portfolios with some of my own money.

Another risk with bond funds is, at some point, if and when rates do go up, the values of bond funds will go down. No one expects that to happen anytime soon, but it is a risk, which is why I say any money you need in the next few years should be invested in cash. And if you actually visit the RYR model portfolios page on the website, you would see a little asterisk there next to bonds saying that, depending on your situation, bonds may not be the best choice for your nonstock money.

Sharma: I just wanted to make one quick comment about that. I can't stress this enough what Bro is illustrating, the difference between investment grade, which is like a seal of approval in the credit markets, and junk status, as he points out. It's just one notch. [laughs] So it really helps to do just that to be familiar with the holdings in a fund, to look at those and understand how much is, sort of, higher investment grade and how much is borderline. Because, you know, it's always mystified me: One day you are investment grade, and there's no middle ground, you go from investment grade to junk by that one notch.

Southwick: Next question comes from Alex. "I am 29 and currently invest most of my retirement savings in a Vanguard Total Market ETF. Would you recommend beginning to invest a majority, 50% to 75%, of my savings in a tech sector ETF, such as Vanguard Information Technology ETF, VGT? The thought being, for someone in their 20s, who has an investing horizon of 30 to 40 years, that the technology sector, in particular, is likely to beat the market as a whole between now and, say, 2050. This seems like a good strategy given how critical technology appears to be for our future. But investing this heavily in a sector ETF cuts against conventional advice. So I wanted to get your thoughts."

Sharma: So Alex, my first thought is congratulations. You are a wise 29-year-old. I wish I had your brain when I was 29, because most of us at that age aren't really thinking in terms of 30 and 40 years ahead and how they're investing retirement savings. So bully for you!

Information technology is a very likely candidate to have a long run of success as a thematic investment. I want to return to something we were talking about earlier in the show and make it a little more specific. I believe that index funds are actually rigged, but in the investors' favor, in a legal way. And I believe that ETFs, which are indexed to a broad-based tech index, are rigged in the younger investors favor. And what I mean by that is, Bro was talking earlier about how indexes are representative of the economy. Certain sectors over time become more representative than others, that's why Eastman Kodak no longer represents the vanguard of our technology, it's why Whirlpool and Maytag may still be household names, but they're not leading the S&P 500.

And your idea is pretty correct, in that if you had to choose a sector -- maybe healthcare would compete with that -- that's going to have this 30- to 40-year time horizon, it's a good choice to choose information technology. As some companies that we're familiar with today lose their effect in the economy, indexes will simply remove them, and they will add new members which represent new wealth creation, new value creation in the markets.

I want to say something about your comment on conventional advice. Conventional advice says, "Hey, just follow the broader market in one fund. Why not just buy an index fund which tracks the ETF? Why not buy just one ETF that tracks, say, the S&P 500 index, the broader market?" Well, if you do that, you are actually exposed to something called market risk, which is what it sounds like. It's the risk that the whole market could go down. I don't know, maybe there's a geopolitical event or a pandemic something that [...] all stock.

Southwick: Nah! That will never happen.

Sharma: [laughs] When is that going to happen? Just put your funds in that one ETF and forget about it. We did not have mutual funds or ETFs in the 1960s. I think we may have had a few mutual funds in the late 60s. There was a bear market from 1968, I think, which lasted 14 years, if memory serves correctly. Not that I lived through all of that, but from studying the markets. On an inflation adjusted return, in those 14 years, if you had just invested in the market, if we had ETFs at that time, you would have lost about 50% of your money, and it took some 23 years for the market to come back to the level it hit in 1968.

So I'm not so sure that conventional advice is all that great. And you can prevent some of the hurt from market risk by doing just what you're suggesting. As for the percentages, that's up to you, but it doesn't hurt to go into a little bit of a sector-based investing theme. In my estimation, have both, have some in the total market and have some in a really good idea like this.

Brokamp: Do you think it's important that if you're going to go for a sector and choose an ETF, to look at what's into that ETF to make sure it represents what you're looking for? So Alex suggested the Vanguard Information Technology ETF, VGT. So I want you all to think about what would be among the top holdings for that ETF, think of which companies, ladadadada. Okay, here are the top 10: Microsoft, Apple, Visa, Intel, Mastercard, Cisco, Adobe, NVIDIA, Salesforce and Oracle. So my first guess is, you are probably surprised that Visa and Mastercard are there. And secondly, you're probably surprised that you don't see any Amazon, no Facebook, no Google, because they fall under other sectors. So when you look for doing this type of investing, make sure you're getting an ETF that really is investing in the type of companies you're interested in.

Southwick: All right. Next question comes from Blue Max. "I'm 55 years old and late to investing and saving for my retirement. I had around $70,000 in a taxable account down to $48,000. Thank you, corona. I never started a retirement account as I've been self-employed for the past 25 years. I know, Bro, big mistake, but what can I say? My question is, with only $6,000 a year allowed to be deposited into an IRA, what other options are there to save for retirement to maximize tax benefits? If I put the maximum in an IRA every year and I continue to work for another 20 years and I assume a very generous 10% annual return, that will be just under $500,000, probably not enough to retire on. So would someone in my position be forced to also put money away in a taxable account? Thank you in advance and keep making me smile every week. Get some." [laughs]

Brokamp: [laughs] Just so people know, whenever people send in their questions, they often say very nice things about us, and I usually take them out, because I feel like it's too self-promotional, but when he included "get some" I had to keep that in. [laughs]

Southwick: [laughs] And for those who don't know, that comes from when we learned from a listener that it's very funny to listen to the show at half speed, and then we listened to the show at half speed on the show. Now, it's like Inception right now, because we then listened to ourselves listening to the show listening at half speed. Anyway, and then at the end of it I punctuated by saying "get some," but at half speed, and so I sound very, very intoxicated, and it's hilarious. So thank you, Blue Max, for making me laugh.

Brokamp: Yes. So to get back to Blue Max's question. So it's never too late to start. I know people say that, but I really do believe it, certainly in your mid-50s. So good for you for getting on top of this. Let's start with that $6,000, which is the annual contribution limit for IRAs. The good news is that for workers 50 and older, you can contribute another $1,000 on top of that. But I have even more good news for you. As a self-employed person, you can open up your own 401(k) called a "solo 401(k)" or a "one-participant 401(k)." And the contribution limits are much higher than an IRA: $19,500 for the younger folks, $26,000 for 50 and older. But because you are also the employer, you could put more money on top of that. It's sort of, like, you're in charge of the match. So you could put in a profit-sharing contribution on top of that. So if you have a relationship with an accountant or a financial services firm, ask them about that, and they'll provide all the details.

The other good thing that you're doing is that you're planning to work for another 20 years to age 75. The longer you work, the less you need to have saved for retirement, because No. 1, you'll receive a bigger Social Security, because you're delaying taking that benefit. But also, frankly, you're retiring later in life, so your retirement is going to be short. So you don't have to fund as many years.

Presently, there's no benefit to delaying beyond 70. So you could start taking it at 70, if you're going to keep working, but then, rather than spending that money, just keep investing it. So you can actually use Social Security to boost your retirement savings for that last five years. One caveat to this is that something like a quarter of people retire sooner than they expect due to health reasons. So don't count on being able to work to 75, but hopefully you'll be able to do that.

But I think, assuming that you start maxing out a solo 401(k) now and you really are able to work for another 20 years, I think you're going to be in decent shape. But to find out for sure, you might want to hire a fee-only financial planner to do a retirement analysis for you, which I think just about everyone in their 50s should do and certainly everyone should do right before they retire.

Southwick: Next question comes from David. "I'm a Stock Advisor member, and I started buying stocks when the market started to fall at the beginning of the COVID-19 pandemic. I've been buying shares of stock at least once a week when I get paid, but I'm a little frightened off from buying stocks like Amazon or Alphabet, because the share price is so enormous, at least to me. I'm a small investor, and the price of one share of Amazon is more money than I have in the six stocks I own. Is it OK to buy into a company that trades for around $2,200, if I can only afford a few hundred dollars' worth of the stock, or should I stay with the cheaper-priced stocks?"

Sharma: Well, thankfully, David, now you don't have to choose. And I like this question. There's another project that I work on in The Fool where we take questions, and I'm seeing so many questions about this topic. And I think some of the confusion stems from what happened last year. So let's just rewind to fall of last year, when one of the largest brokerages in the United States, Charles Schwab, announced that it was doing away with commissions. And that produced, sort of, a tidal wave through the industry. Suddenly, everybody and his brother who ran a brokerage house had to also drop commissions. And there was no distinction between discount brokerages and traditional brokerages. I mean, those differences have been narrowing anyway over the years. So this was a really great thing for investors. It means that we will get more yield out of our investments, because they will not be so trimmed down by commissions, but it also precipitated some of this race to offer fractional shares.

Schwab announced shortly, after it was dropping its commissions, that it would begin to provide investors with fractional trading. Meaning thereby, you could invest by dollar amount. So let's say you only had $100, but you wanted to buy Amazon, symbol AMZN. Schwab was promising to its customers that you'll be able to do just that.

Now, another big brokerage TD Ameritrade, which is widely, sort of, ubiquitous brokerage as well, they are also going to offer the same. But there's a hitch, in that these two companies are right now under a merger agreement. So they're going to merge at some point this year. And I don't think either one of them -- I checked a couple of weeks ago -- I don't think either one of them has yet offered fractional share trading. I think it's now going to happen after their mergers, my best guess.

However, there are a number of places you can go to invest fractionally. Just to mention a few, does offer the service. The only hitch there is that once you open an account with Fidelity, if you're trying to trade through their web interface, you can't buy fractional shares. You have to download the app on your phone and select dollars and plug in the amount for the symbol you want, but it will let you buy those shares of Amazon even if you got $1 that you want to put into or Netflix or Booking Holdings, which is another ticker with a big price, even Berkshire Hathaway. You can buy those now with just a few bucks.

Just to mention a couple of others, which aren't traditional brokerage houses. Many listeners will be familiar with Robinhood, the app that is very popular with millennial and younger investors. It's well known for already offering fractional trading. A company called M1 Finance does the same. And something that I really love is called Stockpile, and that's an investment app that's geared toward younger investors. Actually, it's geared toward the kids in all of us. It's got a really nice interface, it's very spiffy, makes it fun to invest. And you can have your kids involved in fractional trading by using this service. You'll have to open a custodial account for them in order for them to do this, but I like that very much.

So to sum, I think fractional share trading with this whole movement to do away with commissions is such a powerful tool for the retail investor. And it allows you to equal weight your ideas and you're not held prisoner by share price any longer.

Southwick: Our next question comes from Aaron. "I'm 30 years old, my wife is 29. We make $223,000 a year combined and max out both our Roth 401(k)s and my Roth IRA. After marrying my beautiful wife, I found out our income was above the threshold allowing us to make direct Roth IRA contributions. I then learned about the backdoor Roth conversion. My understanding of the backdoor Roth is that if I put $6,000 in a traditional IRA, which has already been taxed by my employer via payroll and income taxes, I then convert that money into a Roth about a week after it has been deposited into my traditional IRA."

"However, I am receiving conflicting guidance from my tax professional versus the financial planner. My tax professional told me, since the money was already taxed by my employer, when I make the conversion, I only have to report the gains on the conversions as taxable, not the base $6,000 conversion. However, a financial planner told me this was incorrect. He explained that I needed to report the $6,000 conversion as income. Basically, he was telling me I should be getting double-taxed on this money and that I needed to stop these conversions now and submit amendments to my taxes. Can you clarify?"

Bro, whose side are you going to come down on here? Judge Bro, now presiding.

Brokamp: [laughs] I'll start with a general rule of thumb. If there's a debate about taxes between an accountant and a financial planner, go with the accountant. So I'm a Certified Financial Planner. I took a class in taxes. I had to pass the test, but I know nothing compared to the average accountant. Plus, on a practical level, accountants who've been in the business for a while have filed literally hundreds of tax returns, whereas most financial planners don't do their clients' tax returns, and many don't even do their own returns. So when it comes to taxes, go with the accountant.

That said, not every accountant is perfect, and I see that you're getting conflicting advice from professionals. So I understand why you'd want to know what the answer is.

So when you make a backdoor Roth, you first make a contribution to a nondeductible traditional IRA, and you report it on your taxes using Form 8606, which is specifically for nondeductible IRAs. So as Aaron points out, it's made with after-tax money. And when you take out the nondeductible IRA contributions, whether it's through a conversion or just making a regular withdrawal, you don't pay taxes on that. You only owe taxes on the gains earned by those contributions. Now, after you do the conversion, you will get a tax document, it's called a 1099-R, from your broker at the end of the year, which you use to report the conversion of your tax return. So the financial planner is right that you have to report it, but you'll only owe taxes to the extent that the amount listed on the 1099-R exceeds the amount on the Form 8606.

If you don't have any other traditional IRAs, a backdoor Roth is really easy. Just talk to your accountant or even call your broker, because they've been doing this a lot. They'll walk you through it. But as long as you don't have any other traditional IRAs, you shouldn't owe much of any taxes.

Southwick: Once he's brought up a second form, I think I just, kind of, fell asleep for a little bit, just, not fell asleep, but it's just once you start talking about the number of forms conflicting with each other, then I'm just like, shut down. I just don't even, no, done.

Okay. Well, someone will hold my hand, is basically what you're saying, if I want to do it.

Brokamp: Yes.

Southwick: Great. All right. Next question comes from George. "Can you talk about preferred stocks and your opinion on them with regards to adding them to a purely income portfolio?"

Sharma: Sure. I'm an opinionated guy, [laughs] so I have an opinion on this question. But I'm not going to get into a deeper view of preferred stocks, or we'd be here for another hour. But I will just say just a couple of features about preferred stocks versus common. They tend to have higher dividend yields, they don't typically have voting rights, but they do have preferences in dividends. So a company, if it's got preferred stock out there, it's got to make sure it can pay that first.

They tend to have preference in liquidation. If a company goes bankrupt, the claims of the preferred stockholders are higher up in the food chain versus the claims of common stockholders. They can often be convertible to common stock. And they can be callable, company can call them back and more or less retire those. So it's just a general refresher on what a preferred stock is.

Now, as for this idea, I'm assuming that we were looking at a mix of dividend stocks, maybe some dividend ETFs, maybe some bonds or bonds ETFs when George refers to an income portfolio. So what preferred stocks can do in many cases, it's one of the few ways where you can increase the yield on a portfolio without really messing with the beta of your portfolio. And by beta, I simply mean the volatility of your portfolio compared to that big, broad measure of the S&P 500 index, which is said to have a beta of 1.0. So if the stocks you own are more volatile as a group than the S&P 500, your beta coefficient is over 1.0. If it's below 1.0, then your basket of stocks is less volatile.

For the income investor, it's sort of important, because you're not really as concerned with growth as much as having a stable basket doesn't change a lot and keeps returning those cash flows to you. Preferred stocks, in general, tend to be less volatile than common stocks for some of the reasons I listed at the beginning of this answer. They're a different animal. But we should put out the caveat that, with the COVID-19 pandemic, we saw a lot of preferred stocks acting almost as volatile [laughs] as common stocks. And the reason simply is that preferred stock shareholders got a little worried about companies' ability to pay their coupons. And actually, the dividend of a preferred stock is often referred to, like, a bond as a coupon. But that's simply all it is, it's just the dividend payment.

People got worried that maybe the companies won't be able to honor their obligations, so we saw a lot of volatility. That should be a rare event. I don't know how often we'll see that. I read somewhere that stocks hadn't been this volatile since maybe 2008, preferred stocks.

So it's a good idea to add some in, I believe. In general, you won't be immune from volatility. It seems like we have these once-in-a lifetime events more and more, as we're only 12 years removed from the Great Recession. But on the whole, it's a pretty solid idea, because as I said, you can lower the volatility of your overall portfolio, you can collect a slightly higher dividend yield than you might otherwise. So I say go for it. Just like everything else, be balanced in your approach.

Brokamp: Yeah, when I hear people ask about preferred stocks, they're often asking as a replacement for bonds, because preferred stocks do yield much more than bonds. And I would just emphasize what Asit just said and it is that, with preferred, you do get some volatility. So one of the largest preferred ETFs is the iShares Preferred and Income ETF, the ticker is PFF. At one point this year, it was down 33%. Since then, it has rebounded, being down just 9%, but in 2008, it was down more than 20%.

So I think having some preferreds in your portfolio is fine, but just know that they can be just as volatile as stocks, so they're not really necessarily an apples-to-apples replacement for bonds.

Southwick: Next question comes from John. "I know the gist of the wash-sale rule, that you can't sell a stock within 30 days before or after you buy stock and harvest the loss for tax purposes. However, is that based on the quantity of stocks bought? For example, if I sold 10 stocks and 20 days later my dividend reinvestment bought 0.5 stocks, are all of my 10 stocks washed, or just 0.5? And can I take a loss on the other 9.5?"

Brokamp: I like how John points out the before-and-after aspect, because most of the time when the wash-sale rule is discussed, it goes something like this, someone will say, like, "If I sell a stock for a loss, I can't buy it back for 30 days if I want to use the loss on my tax return." But you also can't buy it 30 days before the sale, so that is important to know.

In John's case, it sounds like he sold just some of the shares of a stock he owns and then he received dividends from the shares he still owned. And since he had signed up for dividend reinvestment, he automatically bought another half a share. So he unintentionally bought within 30 days. To answer his question, he can still use the loss on the 9.5 shares on his tax return, but not for that half a share that he bought within those 30 days. But he's not completely out of luck. The disallowed loss will be added to the cost basis of that half a share, which means he'll have a lower capital gain when he eventually does sell, assuming of course, he makes a profit.

Southwick: All right. And our last question comes from Dan. "Does any of the recent legislation extend the deadline for contributing to an IRA or 401(k) to the new filing deadline, or did money still have to be deposited by April 15?"

Brokamp: So here are all the new retirement and tax-related deadlines in light of all the ways the government is trying to help Americans cope with the corona crisis. So let's start with 401(k)s and most other employer-sponsored plans. For most people, no changes. You have to make contributions in the same calendar year. So the deadline was and is Dec. 31. However, if you check out the FAQ on the IRS website about this point, they will highlight that there are some exceptions depending on when a company files its taxes. So check with your plan provider.

As far as IRAs, the deadline to file and pay federal taxes has been moved to July 15, and that is also now the deadline to contribute to an IRA for 2019. That same applies for health savings accounts.

The deadline for paying estimated federal taxes for the first and second quarters of 2020 has also been moved to July 15. Finally, most states have also moved their deadlines to July 15, but not all, including our home state of Virginia. So make sure to check your state's deadlines for filing returns, paying the actual money, and paying quarterly estimates.

Southwick: All right. That's it, you guys. Wow! 13 questions. It's time then to head to the other mailbag, where we share the things that you shared with us. So I want to say thank you to Randy, who sent in some virtual postcards. He also suggested a way for me to introduce Robert Brokamp. So I'll do his suggestion at the next show. Ooh! What's it going to be?

Randy also offered his advice, including budgeting and talking to his spouse for any item purchase of over $100, and also suggested going to your state's unclaimed property site to see if you have any money left outstanding for you. So I did a search in Virginia, and apparently Dominion Power and Motorola owe me some money. So it's like online couch cushions.

Brokamp: Motorola, wow!

Southwick: Yeah, I know. I wonder what that's about. Anyway.

Sharma: Hope you're getting interest on that money. [laughs] Motorola.

Southwick: [laughs] Yeah, right. I also want to say thanks to Rich, who sent a lovely virtual postcard from Paris and also suggested a holiday tradition. Instead of an elf on the shelf, why not have a jester-the-investor, who visits families during the month of April to help with financial investing fitness? Bro, you have to love that idea.

Brokamp: I do.

Southwick: Peter. I want to thank Peter, who took Rick Engdahl's advice and sent some lovely virtual postcards of photos he took in Edmund Babler State Park in St. Louis, practicing some social distancing. Brent also took Rick's advice. I think maybe we thanked Brent already, but we'll do it again. He took some very artsy photos of his cat looking thoughtful out of a rainy window, titled "Quarantine blues."

Vicki sent in her submission of her husband cutting firewood in Wisconsin. Rick, so many people took your advice about taking pictures.

Rick Engdahl: Amazing what boredom will do. [laughs]

Southwick: Isn't it? And Dale wrote in to let us know that Andy Cross looks a lot like Tony Stark, and it's funny that you never see the two in the same place at the same time. Hmm...?

Bro, did you have a letter you wanted to share?

Brokamp: Well, I'd like to thank Bill for sending in his family holiday tradition. They all get together to watch Emmet Otter's Jugband Christmas, a very underappreciated special, a Muppets special, features some kazoo music. Thank you, Bill.

Southwick: Is this one that you knew about, Bro?

Brokamp: Oh, I did know about it, but it's not very well known. I don't even know if they make it on the -- you know, a lot of those specials will come through every year, but I haven't seen it on TV, but I might have the DVD.

Southwick: [laughs] Now, if you can just find a DVD player to play it. All right. Well, let's head to our closing parting advice of something that will hopefully give joy to our listeners during this time of pandemic-ness. Asit, do you want to go first?

Sharma: Yes. So I have three suggestions of things to do in the pandemic. The first is teabag ball. This is a game I invented when I was really bored. Take a tea bag, clip off the string, and take the cup you'd normally drink the tea out of, put it on a wooden table about five or six feet from you, and pretend you're making the game-winning free throw. It'll keep you occupied for hours.

Second. I am really getting into watching foreign comedies, but focus on one particular country. I drag my family to see, in the house, [laughs] so I drag them from the four corners of the house to see a Turkish film called Eyyvah Eyvah, which is, sort of, not a literal translation, but it means "my goodness," and I'm focusing on Turkey. Turkish comedies are really wonderful. This is spelt E-Y-Y-V-A-H, and then, E-Y-V-A-H. I don't know why the second Eyvah is spelled differently. But focus on one country, you'll take yourself to another environment, and watch comedies just from that country.

And last one, I know so many people are doing Zooming with friends and family. So some friends of ours, we're going to put on a, sort of, weekly call with our family and theirs. And I'm asking everyone to do a one-liner at the beginning of the call. I lifted this one from my Twitter feed. I think this was actually from Selena. If you follow Selena Maranjian on Twitter, longtime Fool, she has a lot of hilarious stuff. I don't know where she finds the time, but it's an endless stream of witticisms and jokes. So here's my one-liner from our first call. "You mean, a shrimp fried this rice?"

Southwick: [laughs] Zing. Those are the jokes.

Sharma: Those are my three things.

Southwick: That's great. Who wants to go next?

Brokamp: So this probably won't bring you joy, but if you, like me, choose to mentally escape the difficulties of these troubled times by learning about things that are even worse, then I recommend a newish podcast series called Monster: DC Sniper. This is a very detailed, 15-episode series, about that crazy time when we, here in the DC area, feared gas stations and white vans, even though it turned out that they didn't drive a white van. The series features all kinds of interviews with many of the original investigators and journalists and witnesses involved with the case. If you have just a moderate interest in the case, the series might run a bit too long, but I find it rather interesting and, to be honest, chilling having lived through that.

I don't know, Alison, were you living in the DC area during that time?

Southwick: I was, yeah, I had lived here before 9/11, the day before 9/11. And then, yeah, so then I was here for the DC sniper, which was crazy. It was a crazy time to be living in DC. They were telling you to always walk in a serpent -- never walk in a straight line down the sidewalk, always walk serpentine. So we were doing that and --

Brokamp: ... gas stations were hanging up tarps to prevent people from being seen while they're putting in their gas. Everyone who owned a white van was stopped at least three times by cops at some point in that five- to six-week period. It was insane.

Engdahl: So my suggestion is a follow-up on a previous. So I assume that our listeners are going to be doing all of these things that we suggest, right? So at this point they're out taking pictures, they have a new puppy and, obviously, from the very first time we did this, they're playing the ukulele and they've been playing it for several weeks now, right? And they probably have a handful of songs down.

So I'm going to suggest you take your ukulele to the next level and you write a song. If you're not a songwriter, become a songwriter. And here's the tip, here's how you do it. First, you take a song that you know and like, but a simple song, you know, something, I don't know, Jimmy Buffett or something like that, something that has a nice simple verse-chorus pattern, something that's familiar. You take the words and you throw them away and you write new words to the same tune, right?

You have the rhythm down, you have the tune down, you already know how to play it on the ukulele. Write new words of the same tune about whatever it is you want to say. And when you're done, then you take those words and you put a whole new tune to it that you make up. See, because you already have the words at that point, you know how it goes. That's how you get into the art of songwriting.

Brokamp: It's like reverse Weird Al.

Engdahl: It is kind of like doing a parody. The first time, it feels like you're doing this parody, and maybe you do a parody. That's cool too. But if you take it to the next step and you just, OK, now I got the words and they fit this pattern, it's familiar. Now, I can write a new tune to that song. And you know, you can even use the same chords on your ukulele. So my suggestion is a creativity tip.

Brokamp: Hey, Rick, if anyone wanted to hear your songs that you have written, are you on some, sort of, public, sort of, thing?

Southwick: Like a Spotify or something like that?

Engdahl: Oh, yeah. Why, yes, Bro, I do in fact have songs on Spotify. You just go to Spotify, I assume, and search for my band name, which is Sense of Wonder, and it's my wife and I as a duo, and it's a brand new album, it came out just in 2007.

Brokamp: [laughs] But it's still good. It's still good. I have the actual CD.

Engdahl: Oh, yes, I'm so proud of it. I'll tell you what, I did my own solo CD prior to that in 1997. So every 10 years or so.

Sharma: [...] with great album.

Engdahl: Yeah. My solo album is not on Spotify, and never will be anywhere in public if I can avoid getting it there. So I'm not proud of that one, but the one I did with my wife ...

Southwick: ... wow! So go write a song, says Rick Engdahl. You'll be so happy you did. I'm super proud.

Engdahl: Write a song, but write more songs before you record them. [laughs] And marry somebody more talented than yourself [...].

Southwick: Yeah, I love her voice. All right. Okay. So to me, this is not a great -- I don't know, it's fine, it's fine. All right, so do you happen to be one of the lucky few who has some money burning a hole in your pocket and maybe there's someone in your life who is having a bad day and you want to make them feel better? Well, head to Cameo, where you can find 5 major celebrities and 5,000 minor celebrities who are all willing to record a personal message in video form and send it to someone you love.

So Cameo is crazy. Basically for, like, $40, I found Kevin McDonald from Kids in the Hall and he recorded a, I don't know, it felt like, two, three minutes, but it was probably like a one- or two-minute message to my best friends from high school who are big fans of Kids in the Hall. And then, the text response I got from my best friend was just a lot of the letters "O" and then some swear words, but like, happy swear words. So anyway.

Again, for $40, it was a price I was willing to pay to bring some joy to a couple of my high school friends' lives. And you can find other celebrities on there, especially if they've been on a reality show in the last 10 years or sports ball players, and I don't know, Cameo, it's funny, it's weird, you can get Steve Guttenberg, I don't know. Don't send me Cameos. [laughs]

Brokamp: Or someone from Cheer, right?

Southwick: Yeah. No, our boss of the communications department, she sent us a message from Jerry from Cheer, saying, "congratulations on completing your project." And so that was really -- it was actually really amazing to see Jerry from Cheer giving us some mad talk, it was fantastic, so.

Brokamp: Jerry is quite awesome.

Southwick: He is quite awesome. So anyway, Cameo. Check it out or don't, whatever, I don't care. We're all just trying to survive. Anyway.

All right. Well, that's the show. Also, I want to thank you so much for joining us from the Northerner Carolina. This show is edited singer songwriter-ly by Rick Engdahl. For Robert Brokamp, I'm Alison Southwick. Stay Foolish, everybody.