Mailbag! Maximizing Dividends, Spending in Retirement, Managing a 529

**Robert Brokamp** (0:03)
Merry weekend, fools, and welcome to the first Mailbag episode of the personal finance edition of the Motley Fool Hidden Gems Investing podcast.
I'm Robert Brokamp, though my nickname around the fool is Bro, which you'll hear about today. And my colleagues who host the weekday shows have been soliciting questions from our audience for the past few months. And it turns out, y'all have plenty of financial planning questions. So I thought I'd devote an entire episode to answering some of them, and to help me as my longtime partner in crime, Dan Kaplinger. Dan is a former financial planner and trust attorney. And for more than six years, Dan and I have been answering questions for Motley Fool Premium members during two live shows each and every week. So I asked Dan to join me for this inaugural mailbag episode. Welcome to the show, Dan.

**Dan Caplinger** (0:51)
Glad to be here, bro. It's always fun to talk financial planning with you.

**Robert Brokamp** (0:56)
Outstanding. So this is how this is going to work. So we chose six questions from those that we received, which touch on personal finance as well as a little bit of investing. I will read each question and Dan and I will take turns taking a first crack at it and then the other will add his thoughts if he has any.
With all that said, here's the first question. It comes from Brother Zach who wrote in that the Fool recommends holding at least 25 individual stocks. How do ETFs play into that? Do they count as one stock, one and a half stocks, or do you count them as completely outside of the 25 individual holdings? Dan, what do you think?

**Dan Caplinger** (1:30)
So Zach, I need to update you quickly on the Fool philosophy because Fool CEO co-founder Tom Gardner recently updated that 25 individual stock number to 50
And that really reflects the importance of, you have so many individual stocks that kind of overlap in terms of industry, in terms of business model. You don't want to assume that just having 25 stocks is going to give you perfect diversification. That's part of the justification for Tom pushing that number up to 50 So I wanted to get that out of the way first. But to answer the question you ask, how do you deal with exchange traded funds?
For me, an ETF counts as however many stocks that fund has a significant position in. So let's take a couple of examples. A lot of people invest in ETFs that track the S&P 500 index. To me, if you have that one ETF as a position, then you have satisfied the 50 stock requirement. You have a diversified portfolio. I am comfortable with people. If you don't like investing in individual stocks, just picking a broad market ETF like that can get the job done. But not all ETFs are like that. Some ETFs are more concentrated. I know one popular ETF that concentrates on South Korean stocks. It really has two positions. Two positions make up half of the entire portfolio. So to me, that's not a diversified portfolio. That ETF counts really closer to just like two stocks for me.
And so you kind of have to look at the holdings and make a judgment call.

**Robert Brokamp** (3:13)
Yeah. And I think it's important to keep in mind the spirit of this rule, right? The guidance is so that you don't have too much riding on one stock or one type of stock, but also that you have enough exposure to other types of stocks, industries and sectors.
So when I look at my portfolio, which is a mix of a digital stocks and ETFs and mutual funds, I use Morningstar's x-ray tool to look at how my portfolio is actually allocated, because that tool can look into the mutual funds at ETFs and see which stocks or investments it holds. And so I know when you add my individual holding in Berkshire to my S&P 500 index fund to whatever actively managed funds I have that have Berkshire, this is the total amount I have in that stock. And you could have all kinds of ETFs, but you're not really diversified because there's so much overlap. So I think that's also important to keep in mind.

**Dan Caplinger** (4:00)
That's a really smart thing to do because these days, even big market ETFs are more concentrated than they were in the past. And so getting some kind of tool that gives you that x-ray, gives you that look through can be really valuable.

**Robert Brokamp** (4:14)
All right. Let's get to our second question from Matt. So I've been reading The Fool and investing full asleep for about 30 years. My wife and I have lived a good, though not extravagant life. While I have never made more than $50,000 per year, we have grown our portfolio to a few million dollars as well as owning a home that is worth more than a million dollars. Then we have gold and other assets all debt-free. Wow, that's outstanding, Matt. Now I am 70 and retired, our social security dividends and other income beat all of our expenses. I'm having a hard time switching mindsets from saving mode to spending mode. I can't seem to bring myself to sell shares and withdraw the funds from the portfolios. What advice do you have for new retirees who need to switch from saving mode to drawdown mode? Which accounts from among the IRA, Roth, SEP, joint and personal should we drawdown first? Thanks to the Fool for a lifetime of sound investment advice. Well, congratulations. You have done a fantastic job.