In this episode of Motley Fool Answers, Alison Southwick and Motley Fool personal finance expert Robert Brokamp are joined by Motley Fool analyst Jim Mueller to go through some listeners' financial and investing questions. Is money-weighted return an accurate way to calculate return? How should you factor dividends into the performance equation? You'll find answers to these and many other interesting listeners' questions in today's mailbag episode.

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This video was recorded on October 27, 2020.

Alison Southwick: This is Motley Fool Answers. I'm Alison Southwick and I'm joined, as always, by Robert, the Bro, Brokamp, Personal Finance Expert here at The Motley Fool. Hey, Bro, how are you doing?

Robert Brokamp: Just peachy, Alison, are you well?

Southwick: Yeah, I'm fine, so let's keep going. So, it's the mailbag episode. And in this week's episode, we're joined by Motley Fool analyst Jim Mueller, he's going to answer your questions about cash and bonds, are they just silly? And preparing for the election and the potential subsequent market volatility. All that and more on this week's episode of Motley Fool Answers.

[...]

Southwick: Well, before we get started, we kind of have a funny request, huh, Bro?

Brokamp: It is funny, but a good request.

Southwick: It's a good request. So, we actually had someone from Vox Media reach out, because they are producing a documentary for Netflix through the Explained series, if you've ever seen it, and they're doing a special on retirement. And they were hoping to talk to and interview a kid, so someone between the ages of 5 and 15, who is particularly concerned or obsessed about saving for retirement. And so, they came to us, and they said, hey, do you know any kids that fit the bill? And we said, no, but we have a pretty loud horn that we can put this on and send it out to you folks. So, if you have a kid at home that you think fits the bill, you can drop an email to Ora.DeKornfeld@VoxMedia.com, and just have a small blurb including the kid's age, where you live, a little bit about their relationship to retirement and maybe some examples of how they are, and if they're good on camera. So, yeah, I don't know, now apparently, I'm a talent scout for little kids. Pretty cool.

I guess, I think we got to get Matt Banner on the phone.

Brokamp: Yes, I think so, that's a great ...

Southwick: You all remember, Matt joined us on the show to talk about how he got his kids investing, his daughters are delightful little human beings. Not so little; every day they keep getting bigger on me, every time we see them, I'm always amazed, but all right, that's enough of that. Let's move on, because Jim Mueller is here. Jim, thank you so much for joining us.

Jim Mueller: Hey, Alison, it's my pleasure. Bro, how are you?

Brokamp: Just fine. Thank you.

Southwick: So, our listeners will be familiar with you, because you've been a part of The Fool for a long time, but this is actually your first time on the show, so do you mind telling us a little bit about yourself, how you became a Fool?

Mueller: So, I became a Fool when I actually had money to start investing years and years ago, and did some googling looking for online investment help, and The Motley Fool was, I think, the No. 3 hit at the time; hopefully we've moved up the [laughs] ranking on that. Started following on the discussion boards, paid for a couple of products and eventually joined the company as an investor; I'm loving it.

Southwick: Well, we're really excited to have you here. So, should we just get into it?

Brokamp: Let's do it.

Southwick: Let's do it. All right, our first question comes from Colin. "The brokerage that I use calculates my return using money-weighted returns. I'm struggling to understand the difference between money-weighted return and time-weighted return. How can I use money-weighted return to understand if I'm beating the S&P 500? Is money-weighted return an accurate way to calculate return?"

Mueller: So, the answer to the last question is, yes, if you're asking a specific question. It's not a way to compare yourself against the S&P 500, for that you're going to need to use time-weighted returns. So, money-weighted returns answer the question, assuming that I keep on doing what I'm doing and I'm adding money on a regular basis, will I reach my goals? So, if I need to have a goal of 15 years, I want to have $1 million in my retirement accounts and I'm adding $500 every month, will I reach my goals? And so, it's highly dependent on how much you're adding, when you're adding and so the timing of those cash flows in-and-out of the account really affect the money-weighted return.

And so, if you want to compare it to the S&P, you need to take those effects out of the situation, and for that you need something called the time-weighted return. And for that you need the value of the portfolio on the day that the money lands in your account and the amount of that deposit. And the date is OK, but it's not required, and from that you can calculate the time-weighted return. If you want to Google Fool.com, so just type in "Fool.com" and then the phrase "calculate investment returns." The first hit on that search will pull up an article I wrote several years ago, how do I calculate investment returns the right way, and that walks you through the time-weighted return calculation.

Southwick: Anything you want to add to that, Bro, you're good?

Brokamp: No, other than I was going to answer that last month, and then I just got into the weeds and I realized how complicated it was, and that's how Jim ended up on this show, because he's a PhD, he's a doctorate in something, what did you say you were, a doctor of molecular mass or something like that?

Mueller: [laughs] Given the current situation, I wish. I have a PhD in Biochemistry and Molecular Biology, but that's not relevant to this. More relevant is that I'm also a CFA charter holder.

Brokamp: You're just really smart; that's what's most relevant here.

Mueller: That's what I've heard mostly.

Southwick: All right. Our next question comes from Edgar. "Listening to your episode with Richard Johnson of the Urban Institute, he said that the social security system is scheduled to run out in about 15 years and will not be able to pay all the benefits that are scheduled. This got me thinking, if one expects a reduction in future benefits, would one be better off starting early, since the full benefit is likely to be cut anyway? I will be 70 in 14 years, if I wait till then and end up getting, say, only 75% of my age 70 amount, should I file a claim at 62 or 67?"

Brokamp: Well, the first thing to know, Edgar, is that social security is not going to run out of money, it will always have money since most of it is funded by the taxes paid by current workers. And as long as someone in this country is working, social security will have money, but it doesn't cover everything, so the rest is funded by the social security trust funds. And those will be depleted over the next 15, 14, 16 years or so, the projected date changes every year, but certainly within the next 20 years.

So, at that point there won't be enough money to pay projected benefits, only about 75% of projected benefits, so something has to change, either taxes have to go up, the country has to go into more debt or benefits will have to be cut. So, I expect that when they do the benefit cuts, they will apply mostly to younger people and probably not to people who are in their 60s, near retirement or in retirement. So, if you make it to your 60s and they haven't made any changes at that point, and then they make changes, I don't think it'll apply to you, because I don't think they're going to do anything that will force people to feel like they have to claim early or upend their retirement plans.

But I do think, since you're in your 50s, I would definitely factor in a reduced possible benefit into your current retirement planning. When I use a retirement calculator, I run various scenarios, including what would things look like if I don't get social security, although I don't think that will really happen, or how much if my projected benefit is only 50% to 75% of what is currently promised. And that I think is more realistic.

Southwick: Our next question comes from Andy. "My question is how to factor dividends into the performance equation? Should I simply add any dividends, i.e., realized gains of a holding to the market value to then determine the actual return? This seems to give a more accurate picture of a dividend stock performance; however, the bookkeeping is tedious to track all dividend payments over a portfolio with many holdings. Do you know of any web calculators or services that will do this calculation for us?"

Mueller: Andy, there are a couple of choices here. One is, if you're not reinvesting the dividend, i.e., you're just taking out as cash, and all you need to do is keep track of the cash and add that to the current market value of your holding to get the total value that you received from the holding and then divide by your basis to find out what the return is. It's a little more complicated if you are reinvesting the cash, you can use an adjusted share price for the current date, places like Yahoo! Finance show an adjusted share price for most companies. And that takes into account and assumed reinvestment of the dividend into the holding. But that assumes that the dividend is reinvested on the ex-div date, because different companies have different payouts after the ex-div date, and that's not set and it's much harder to track, so they just say ex-div date. So, that won't actually reflect when the cash actually lands into your account and then is reinvested into the company. So, if you don't mind that kind of slippage, then that's just fine, or you can track it yourself and just add up all the shares that you're buying from those reinvestments and keeping track of that total share count. SUMIF formula from Excel and the Spreadsheet can help loads with that. And then that's just the market price times your total shares, the original whatever ones you bought plus the number from the dividend reinvestment and versus your initial basis. So, there's a couple of ways to do it, one does require a little bit more work.

My wife has a portfolio with something, like, 40 or 50 holdings and there's all these tiny dividends. So, I just spend 10, 15 minutes every Saturday keeping track of that.

Southwick: Woof! But what if I don't want to do that? [laughs]

Mueller: Then you use an adjusted share price for -- if you're reinvesting, you use an adjusted share price, looked up from, say, Yahoo or Google Finance, and accept a little bit of slop that kicks into the performance. So, I guess it depends on how accurate you need to be. [laughs]

Southwick: It's not that accurate. [laughs]

Brokamp: Most financial websites will offer some sort of portfolio tracking software. And the one I've liked over the years is Morningstar's because it also has instant x-ray, which is a way, like, you enter all your individual stocks, but also enter your mutual funds and ETFs, and it gives you a whole analysis over what you have by looking into the funds, so you can see how much you actually own of Apple stock, for example, across all your mutual funds and your individual holdings. And if you dig into that tool, you can tell it what to do in terms of whether you're reinvesting your dividends or letting it accumulate in cash, but it'll never track exactly what's going on in your brokerage, so you just got to be happy with, again, that little slippage or a little slight discrepancy.

Southwick: Next question comes from Keith. "On your August mailbag episode, Robert mentioned ... " oh, Robert. So formal. " ... Robert mentioned that he doesn't emphasize rebalancing and prefers to let his winners run for a bit." Did you ever say that?

Brokamp: Well, I've emphasized that you should not over-rebalance. Rebalancing every once in a while; which I'll discuss here ...

Southwick: Okay, OK. I was going to say, I felt like someone else maybe said that they don't emphasize rebalancing and wanted to let their runners run. I feel like that was maybe someone else who said that and not you.

Brokamp: It's a common Fool theme.

Southwick: It is a common Fool theme, but I don't think of, like, Bro's top themes, that one doesn't come to mind. But that's fine, Keith, don't worry about it.

Mueller: Maybe we'll have a whole episode on Bro's top themes. Wouldn't that be exciting?

Southwick: Yeah, it would. All right. Getting back to Keith. "Unlike some many of your listeners, I have a very simplified portfolio of five ETFs representing the U.S. stock market, international stocks, small cap stocks, bonds broadly and muni-bonds. My wife and I generally have about $2,000 to invest every month, and I've been largely using the surplus cash to bring our portfolio back into balance. Since the stock market has gone nuts over the last few months, this means that I've generally been adding to our bond portfolio. I'm not selling stocks, but since they're already overweight, I've been using our cash to even things out a bit. Do you endorse this strategy or would it be preferable to divvy our surplus cash among our ETFs in accordance with our predefined allocations? 50% domestic, 20% international, 30% bonds, and then formally rebalance every year?"

Brokamp: Well, Keith, I would say, first of all, the main reason to rebalance is to control risk. So, if you don't rebalance a portfolio that is a mix of stocks and bonds, the portfolio will likely become increasingly more stock-heavy as you get older, and that may be the complete opposite of what you want to do, because most people want to be a little more conservative as they get older; at least as they approach retirement. So, rebalancing is mostly to control risk. If you look at, like, what target-date retirement funds, which we'll discuss a little later in the show, what they do, they actually typically rebalance quarterly, because they want to stick as closely as possible to that cash, bond, stock mix that they've determined is appropriate for some particular retirement date. However, I don't think the average person needs to rebalance that much. So, that's a rebalance between stocks and bonds. I think it is important to do it, but I only have to do it maybe once a year, maybe a little bit less.

If you're talking about between different types of stocks, like, international versus U. S., small cap versus large caps. I would say you even have to do that even less often, maybe every three years or so, because they kind of go on a streak. We talked about this in the last episode, how U.S. large caps have been outperforming small caps in value. And international, if you rebalance too often, you might be cutting off before a certain asset class has had its run. I do like your strategy, though, in terms of rebalancing with cash flows. If you have decided that you should have 30% in bonds and you don't have 30%, because stocks have done so well, it totally makes sense to contribute more money to the bonds, that way you're not selling stocks which could have tax consequences if it's in a taxable brokerage account.

But if adding money still has you more in stocks than you think is ideal for your situation, then you might want to sell a little bit. And I should also add that if you're retired, you can do this, but do it with withdrawal. So, if you are overweight in a certain asset class, that's where you take with your withdrawals. And I think Jim did that with one of The Motley Fool services that was managed like a retiree portfolio. Where they had, I think it was every quarter, you have to decide which stocks to sell, am I right on that?

Mueller: Well, we had to generate cash in order to pay out, as if we were withdrawing cash for a retiree to live on. And we ended up having a particular company, Netflix, do really, really well for the portfolio. And so, we sold off pieces of that, just kind of milking it over time to generate the cash, while letting most of the other positions just go on their own. That's how that worked out.

Brokamp: So, Keith, I think you're on the right track.

Southwick: All right, next question. This looks like you combined Jeremy's question and an anonymous question, is that correct, Bro?

Brokamp: Jim did.

Southwick: Oh, Jim did, OK Jim. Here we go. From Jeremy and anonymous; a combined question. "Everyone recommends keeping a specific percentage of your portfolio in cash, 5% and 10% are common recommendations, isn't that kind of silly, why don't keep it in stocks, after all interest rates are basically 0%, so there's no return, and it's quick-and-easy to sell something to get cash. What is the purpose of the cash holding, is it to invest when the market falls or to make the investor less likely to panic-sell into the drop, or is it to allow for retirement during a market drop without requiring selling undervalued stock, or something else?

Mueller: Yes. Next question. [laughs] Okay. No. I'm only being slightly facetious there. The purpose of cash isn't necessarily to generate a return, OK, the purpose of cash is to have flexibility. And if you're keeping 5% or 10% that's not a large enough position out of the entire portfolio to create a real drag and pull down your returns, but it does give you a lot of flexibility. When the share prices drop of companies you'd like to add to or to start investing in, you'll have the cash available, you won't have to sell something that could also be dropping along at the same time, in order to generate the cash to buy the new holding. Or having the cash might provide some psychological balance and saying, hey, I have this if I need it, and so I don't need to sell just to raise cash for, say, living during retirement. And so, having a cash buffer to have that is, again, flexibility. So, the cash is flexibility, it's not necessarily there for a return. You get a return in other ways, not just monetary, not just interest.

Brokamp: I have thoughts, but I'll save them for my answer to the next question, which is sort of related.

Southwick: All right. Good foreshadowing there, Bro. Let's move on to the next question from Ryan. "My wife Alison," great name, "and I are both in our mid-30s and with different investment styles. She chose a target-date fund that is aggressive with a 10% allocation in bonds, while my portfolio is ultra-aggressive and includes a mix of individual stocks, a total U.S. stock market index fund, a total international stock index fund, and no bonds. She thinks I'm nuts. I know reduced volatility is usually cited as the reason for having bonds, but I just don't see a reason to care about volatility if I'm not going to need to sell the shares for decades. If the U.S. stock market drops 50% over a period of time then recovers a year or two later, would owning bonds during that time matter? Having a 10% allocation in bonds may have kept my portfolio to just a 45% loss, instead of 50%, but why does that matter if I'm not selling shares. I, in fact, would be purchasing like crazy. I have a very high risk tolerance, as you can probably tell, especially with a two- to three-decade time-horizon, so why should I have bonds with their lower returns historically, interest rates near 0%, and a personal history of not selling during downturns?" Why, Bro, why?!

Brokamp: Well, I'm going to first address why his wife, the well-named Alison, might be attracted to target-date funds. So, you know, a target-date fund is a great solution for the hands-off investor, and they're geared toward people with a moderate risk tolerance, who plan to retire in their mid-60s. So, since Ryan and his wife are in their mid-30s, they have three decades until retirement, so they're targeting the year 2050.

And the 2050 target-date funds generally would be predominantly in stocks, given that time horizon, but they'll gradually get more conservative as 2050 gets closer. So, the value of a target-date fund isn't just the current allocation, but it does all the rebalancing, all the asset allocation decisions, and all the de-risking for you, which is very valuable to many people, plus actually the evidence is pretty clear that investors in target-date funds are less likely to sell in a panic. So, for Alison, who is Ryan's wife, having some money out of stocks might increase the chances that she holds on during the next bear market, and that's similar to what Jim said to the previous question.

So, what Alison is doing might be completely appropriate for her, and it's not uncommon for spouses to have different risk tolerances and investing styles, and I think it makes sense for each spouse to have control over their own assets in these cases.

Now, will a 10% allocation to bonds make a big difference if the market tanks? Perhaps not, especially if the market eventually recovers. But Ryan says, if the market drops 50%, he'd be buying like crazy, but with what? If his portfolio is 100% invested in stocks, then where would that other money come from, so that's one reason to have some money out of stocks. And again, Jim suggested, it's just you have the option to do it. So, the bottom-line I think is, if the future looks like the past, then a portfolio that is 100% stocks will likely outperform a portfolio that is 90% stocks, 10% bonds, over the next couple of decades or so. But there are no guarantees, and in the end, people have to choose the asset allocation that they're going to stick with.

Southwick: All right, next question comes from Bill. "Should I consider a 20% trailing stop on my stocks for the coming election? No matter who wins, there is likely to be robust debates about the results by either losing party that could impact the market. I've heard other advisors on TV recommend a 20% trailing stop. What do you think?"

Embarrassingly, I don't even know what that means.

Mueller: So, let me define the term first, a trailing stop order is an order that you set that triggers a sale once the share price of some of your stock drops 20% or more, and there's a key point there, "or more," you're not going to get out at just 20%. If the stock drops 30% overnight, then that's what you're getting out at, assuming you can get out at that point, because if that happens, a lot of other people are also going to be rushing out, and you could end up getting out at 35% down or 40% down. So, don't think you're going to be getting out at a guaranteed 20%; that's not going to happen.

Second, the question assumes that there's going to be a drop in the market after the election that may or may not happen. Remember, four years ago when Trump won, everyone was thinking, oh, the market is going to tank, because everyone was expecting Hillary Clinton to win. That didn't happen, and so the overnight futures on the stock market were actually down quite a lot. But by the time the market opened, and even more, by the time the market closed the next day, the stock market was actually up. Expecting something to happen is not the way to invest in my opinion, at The Fool, we generally do not recommend using trailing stops, because stock prices, face it, are volatile and if you were invested in during March, you would have been stopped out, that's the phrase when the shares are sold from this kind of thing, you would have been stopped out on a lot of positions that you might not have wanted to be stopped out of.

And now you have all this cash, and even worse, when do you get back in? If the market is going to fall, how are your emotions going to be affected, are you going to be too fearful to buy back in at those low prices? A lot of people, it turns out that they are, and they tend to stay out. And when they do buy back in, they tend to buy back in at higher prices. And so, if you're a long-term investor, don't pay attention to the short-term things, like the election. The party in the White House doesn't have that much effect on the market, and the market does go up with either Democrats or Republicans; the market goes up most of the time no matter who's in the White House. So, I would avoid this kind of strategy myself.

Brokamp: I'll just double-down what Jim said. If you are a type of person who is worried about a 20% drop, and that you want to be in a position where your stocks would automatically go to cash, you're probably the type of person who is going to be very nervous about getting back in, and the market rebounds very quickly. Just look at what happened in the Spring, I'm sure there are many, many investors, saw the stock market go down in February and March, got out, saw the market start to rebound and thought, this cannot happen, this cannot stick, we're in the middle of a pandemic, we're in the middle of a recession, this is a dead cat bounce, I'm going to stay on the sidelines. And in the end, the market is now, believe it or not, in positive territory for the year. And in the meantime, if that sell happened in a taxable account, you did not benefit from the rebound, plus you might have some taxes to pay this year. So, generally speaking, just focus on the fact that anything you own, you plan to own for at least three years, ideally five years or longer, don't worry about what happens on Nov. 4, just hope and plan on your stocks in your portfolio being worth more five or more years from now.

Southwick: Our next question comes from Bear. I don't know who that is, but I want to hang out with someone named Bear, don't you? I love that. "I recently started a new job with a community college as a flight instructor." Oh, now I really want to hang out with Bear. "My employer participates in the Colorado Public Employees Retirement Association and automatically enrolls its employees in the defined benefit plan with a 10% match; that's right 10%! However, the caveat to the match is that the besting period is a whopping five years, and I don't anticipate working for the company for that long. I do have the ability to enroll in a Roth 401(k) with a lower employer match and I'll have full control over the asset allocation and can take it with me to my next job. I could potentially have greater gains with the Roth 401(k) than I can with the managed defined benefit plan. I understand that the plan gives me a monthly benefit payment, but that doesn't change from the day I start collecting it till the day I die, which is great security, but I know I won't be working for this company for a very long time. So, any monthly benefit payment might be low, so which would you recommend?"

Brokamp: Well, Bear's question brings up some important points about pensions. I mean, many people, they bemoan the demise of the traditional defined benefit pension, but they actually had plenty of drawbacks. First of all, they're not free. The employer is either taking money that goes into the plan directly out of your paycheck or it might not be so explicit, but the employer is making a contribution on your behalf, that's money that could have theoretically gone to you. When I was a teacher, for example, every paycheck that I earned, my employer would then put 6% of that into the school district's pension plan. So, it's not free. And you have to stick with an employer for many years for a pension benefit to make a meaningful contribution to your retirement income. And even then, you have to count on your pension being adequately funded, and many are not.

So, to get to Bear's question, I would check to make sure whether he even has the option to not participate in the defined benefit plan, because for many employers it's actually not a choice. That said, if it is a choice and he really doesn't expect to be working at the school for five years then I would consider not participating. I mean, even if he is there for maybe seven years, the way pensions work, the formulas work, basically the number of years you are with an employer plays a big role, so if you're with a company for seven or eight years, your benefit [laughs] won't be that much. So, if he doesn't plan on being there that long, I wouldn't participate if he has the choice. And the 401(k) is probably the better bet, as he points out, he'll have more options, and when he leaves the school, he can take that money with him.

Southwick: The next question comes from Elaine. "I am 26 years old and I recently started investing with Rule Breakers and Stock Advisor ... " Yay! " ... the returns have been amazing! I am in for the long haul with at least 30 years ahead of me. I have about $30,000 in the market with 25 companies and growing. Borrowing to invest is a don't for Fools, but something is telling me to do it. My house is already paid for and worth about $100,000 and I was considering refinancing my mortgage at a 2% interest rate and putting the money in stocks. The power of compounding $100,000 at 10% to 25% for 30 years would generate incredible returns. I have a long time horizon and market swings don't bother me too much, I would like to know your thoughts."

Mueller: Well first, Elaine, thank you for being a member of Rule Breakers and Stock Advisor. I hope you stick around for a long time and learn and earn a lot during that period. Second, don't do it, please. I mean, be a member, don't borrow to invest, is what I meant, because you're taking on a lot of risk. The market you've experienced since you started is so far out of the normal that we can't even see normal from here. Most of the time, the long-term return from the S&P 500 is right around 10% to 12%. We've been getting 30%, 40%, 50% or more on many of the picks in Rule Breakers and Stock Advisor, that is not normal, so don't expect it to continue going forward.

Second, if you borrow against your house, you are taking out a loan against your house as the security, and what if you lose your job, what if you cannot make a mortgage payment, what if you have to move and sell the house and return that money, there's all kinds of "what ifs" that you might be blinded to because of the good returns you've been having so far, and thinking that those are going to extend into the future. I certainly agree, compounding $100,000 at 25% a year, that would be fantastic, but it's not going to happen. 10%, 15%, much more doable, and it's better to start out slow and build it up with money you can set aside rather than taking on debt to do so.

Southwick: Next question comes from Joe. "Bro recently talked about advantages to retirement account withdrawals under the CARES Act. He mentioned that those withdrawals don't necessarily have to be repaid to the same account. So, assuming I meet the hardship criteria that the Act outlines, can I withdraw 401(k) funds and repay them into my Roth IRA? If, yes, that's a crazy good deal. If, no, which accounts can I repay those funds into? Are any of them particularly advantageous from a tax perspective?"

Brokamp: So, Joe, yes, we've talked about this before on the show a few times, the CARES Act allows just this year only for people who suffer some sort of IRS-approved hardship related to the coronavirus, to take up to $100,000 total from all your retirement accounts, use that money, you would normally pay taxes, unless you put it back into an account within three years and it does not have to go back into the account from which it came. However, if you are taking that money out of a traditional account and you try to put it back into a Roth, that will be considered a Roth conversion, so that amount will be added to your taxable income for this year and you'll owe taxes on it.

Now, you still might want to do that, many people are doing Roth conversions this year for a couple of reasons, they might be in a low tax rate this year because maybe they've lost their job and they're not going to be paying so much in taxes, but also tax rates are at historical low levels and they expect them to go up in the future; I would put myself in that category. So, you may feel like a Roth conversion is right for you to do, and it could be, but just know that you can't take it from a traditional and put it in a Roth without some sort of tax consequences. And I'll just point out that again, that CARES Act allows this to happen in 2020, and believe it or not, we only have two months left in it. So, if you're thinking of doing it, you have to act pretty soon.

Mueller: Is 2020 really over that soon? Boy! I can hardly wait.

Brokamp: [laughs] I know.

Southwick: Our next question comes from Robbie. "I'm an investor in Scotland ... " Well, OK, " ... and have been a listener to The Fool for a number of years, but only recently, June 2020, became invested in the picks. Since taking the leap, I'm delighted that my portfolio is up in the short three months. Nvidia, in the three months I've held it, has risen over 55%. But due to the weakness of the pound, my stock holding has risen under 50%. Do not get me wrong, I am not at all disappointed at the rise in my holding, but is currency something that I should consider in my investing? Missing out on a 5% gain seems to me to be significant, especially when compounding gets its hands on it. I read that currency is something that should only be hedged when investing short-term, considering that I'm 24 years old and that I plan to hold for +20 years minimum, that doesn't seem to apply to me. I don't have a great amount of faith in the near-term performance of the U.K. economy and the pound following Brexit, and only see the pound growing weaker. I'd love to hear any advice you could offer and whether in the long run currency isn't something that I should lose sleep over."

Mueller: Robbie, that's an interesting question. I'm a little confused on whether you plan to hold your holdings, in general, for +20 years or hold Nvidia and others in the foreign currencies for +20 years? If it's the latter then I wouldn't worry about it at all. Currency fluctuations, they happen all the time. Currencies go up-and-down relative to each other. Yeah, you have short-term things about Brexit and you have any effects of that to the economy which has effects on the currency and the exchange rate the currency has against others. But you're invested in Nvidia, I presume by U.S. dollars and those will grow in U.S. dollars until you feel it's time to sell the holding and convert those dollars back into pound sterling. So, that's about the only time you should really worry about the currency. In between, the currency fluctuations are going to move up-and-down, it's going to affect the value of the holding, if viewed in pounds, but it's not going to affect the value of the holding if viewed in dollars. So, compared to the growth, as you pointed out, the few percentage points of the currency is not going to have that big an effect on your holdings.

Southwick: Next question comes from S.W. "Hey, guys, what's up?" [laughs] Did they really put the rolling on the floor laughing emoji? Great, love it. Oh, I get it, because what's up, Bro? Right.

Brokamp: What's up?

Southwick: Oh! Okay, little slow today. "I just finished listening to an episode of Motley Fool Money, and Ron Gross mentioned he just opened Roth IRAs for his kids. How did he do this? Do they have "income," are there ways around this requirement? I would love to do the same for my kids, but they're deadbeat five-year olds with no jobs." I hear you, man. "Thanks for all you do. Stocks!"

Brokamp: Well, S.W., I reached out to Ron, and his kids did indeed have work-related income. His kids are college age, so they probably had jobs. And that is indeed what is required to contribute to an IRA, so you could only fund an IRA if your kid has work-related income. If they have portfolios and they're getting capital gains or interest or dividends, that does not count, it has to be work-related income. So, unfortunately, there are not a lot of options for five-year olds.

I did a little bit of research on whether chores can count. And very mixed opinions on this. So, if you have an accountant you work with, I would talk to the accountant. But some people say, no way, that could not work; others say, yes, but [laughs] then you have to decide whether your child is a self-employed independent contractor or a household employee. And then one article I read actually pointed me to YouthRules.gov, which lists the potential occupations that anyone under 14 could have, and here there are, according to the government, because this is, of course, due to child labor laws. Deliver newspapers to customers, babysit on a casual basis, work as an actor or performer in movies, TV, radio or theater. My favorite, work as a homeworker gathering evergreens and making evergreen wreaths, and ...

Southwick: What?

Brokamp: Yup. That is literally... I read that straight from a government website. And the final one, work for a business owned entirely by your parents as long as you're not employed in mining, manufacturing or any of the other 17 hazardous occupations. So, those are the options for your five-year-old. If you do have a family business, I do know it's very common for people with family just to employ their kids doing basic things, stuffing envelopes, cleaning the office, basic things. But they do get paid, and then they contribute to an IRA.

Southwick: And Bro loves a good wreath, so if you want to get them doing that, send them to Bro, he loves Christmas so much.

Rick Engdahl: I've just decided, you're going to have a very well decorated house this year.

Mueller: Mowing lawn is not on the list?

Brokamp: You know what, it didn't say that, although, I did that as a kid, so, I don't know. But I bet, if they're under 14, they can't, because a lot of the hazardous jobs rules are dealing with certain types of machinery. So, I bet it would be illegal, but I don't know ...

Southwick: A machine that has a fast whirring blade that can chop off some fingers.

Brokamp: Yes, get those five years old out there cutting the lawn. [laughs]

Southwick: Nine years, whatever. All right. Our last question comes from Jason. "My employer recently became public via a trendy reverse merger via a SPAC, Special Purpose Acquisition Company. The benefits people announced that starting ... " [laughs] I love that, the benefits people, that's what I used to call them too, the benefits people, " ... announced that starting on January 1st, the employer match to employees' 401(k) accounts will be in the form of company stock. Are there any concerns to be aware of when one owns employer stock in their retirement accounts?"

Mueller: Jason, first off, congrats on now working for a public company, and hopefully having some shares. I would be a little bit concerned, or at least aware of issues. One, this might get you too concentrated into your employer. You are, obviously, employed by this company, your health insurance comes through them, and now your retirement account is going to be holding more and more of their shares. And so, you want to be careful about that being over-leveraged to a single source, like having too large a position in your portfolio of a single stock. So, see if there's a holding period limit or if you're not even allowed to sell. That would raise a yellow flag, if you are not allowed to sell. Because companies such as Enron, and I hate to bring that one up, because I hope your company doesn't go this route, but Enron forced their employees to have Enron shares in the accounts, in their 401(k)s back in the day, partly as part of their PR campaign to try to prop the shares up.

Second, I mentioned it briefly, I'd look to see if you could sell the shares and invest that money in another way. Those are the basic concerns, I think. Bro, do you have any more you might think of?'

Brokamp: No, I think it's important, it's very tough to follow the rule we often talk about and financial planners often recommend that you don't have more than 5% to 10% of your net worth in one company. But if you work for a company, it's very difficult to keep it that low. But obviously, you have the investment risk, plus the human capital risk. So, it is important to keep a lid on it. That said, if people like Jeff Bezos followed that rule, he wouldn't be the wealthiest man in the world, so what do we know?

Southwick: [laughs] I don't know. What do we know, Bro?

Brokamp: [laughs] What do we know? Here's the thing about financial planners like me, we're all about managing risk, not maximizing returns, so that's pretty much always the viewpoint that we come from.

Southwick: Well, Jim, that's it for our questions this month. Thank you so much for joining us.

Mueller: It was a pleasure, happy to do it again too.

Southwick: Oh, that would be fantastic.

Brokamp: Fun fact, Jim and I sit next to each other at The Fool. Of course, we haven't sat next to each other now since February, but ...

Mueller: Yeah, I do miss your air drumming. [laughs]

Brokamp: Jim and I are both very active air drummers and dancers. Jim is a little bit more ...

Mueller: I direct. [laughs]

Brokamp: Jim listens to his classical music and pretends he's the, who's the guy in front ...

Southwick: Conductor. Our brains are so broken, we should not be taping after 5:00 PM ever again, because our brains are broken.

Brokamp: [laughs] The magic wand person ...

Southwick: You know, benefits people. I don't know what I'm talking about.

[...]

Southwick: Before we go, I just want to -- I think I already said "Hi!" to Julia and Desmond for helping me out with the project at The Fool, but if I didn't, thank you, Julia and Desmond. And I also want to give out a shout to Aaron and Vic who also sat and chatted with me for a bit over a Zoom call for a little project for Foolapalooza. So, I just wanted to give you all a shout-out and say thank you again, and I will be in touch, I have some follow-up to do. I'll get around to it, whatever.

Jim, thank you again. That's the show. It's edited, oh, somehow lately ...

Brokamp: ... afterhours-ly.

Southwick: [laughs] Afterhours-ly by Rick Engdahl. Our email is Answers@Fool.com. For Robert Brokamp, I'm Alison Southwick, stay Foolish everybody.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.