Brokers for IRAs: E*Trade vs. Vanguard
One is known as one of the first online broker s, and the other is famous for pioneering index funds, but they both help millions of people save for retirement with IRAs. In this article, we'll compare E*Trade's and Vanguard's IRA accounts , based on factors like commissions, account fees, and investment selection.
Though cost plays an important role in investing, it isn't everything. Vanguard and E*Trade both make trading inexpensive, pricing most trades at less than $10 each.
Stocks and ETFs
$9.99 per trade
$9.99 + $0.75 per contract
$19.99 per purchase
$7.00 per trade
$20.00 + $1.00 per contract
$35.00 per purchase
Data sources: Company websites.
You'll be pleased to learn that both brokers have ways to shave even more from commission costs. E*Trade slashes commissions for active traders (150 trades per quarter), while Vanguard cuts prices for higher balances (discounts start at $50,000 in assets). In addition, both companies offer fee-free fund choices, as well as special offers for IRA accounts that can add up to thousands of dollars in benefits. In other words, many investors pay less than the stated commission price.
Mutual fund selection and commission-free choices
If you'd prefer to invest in funds rather than individual stocks, E*Trade and Vanguard have something for you. Both brokers allow their clients to invest in thousands of mutual funds, many of which are free of any and all commissions, loads, or transaction fees.
Total Mutual Funds
No-Load, No-Transaction-Fee (NTF) Funds
More than 8,000
More than 2,600
More than 100 (WisdomTree, Global X, Deutsche Bank, and more)
More than 7,500
More than 1,300
70 (Vanguard ETFs)
Data sources: Company websites and representatives.
Depending on how you invest, fee-free mutual funds could be a big win for your portfolio. Both brokers have a compelling line-up of commission-free ETFs, too. Vanguard customers can trade its branded ETFs for free, a list that primarily includes traditional index tracking funds. E*Trade's list includes niche ETFs that generally focus on individual sectors, strategies (hedged and dividend-focused funds), and geographies.
Minimum deposit requirement for IRAs
You won't have to break into your piggy bank; neither E*Trade nor Vanguard requires a certain minimum deposit to open an IRA . Of course, some mutual funds have their own investment requirements, and stocks and ETFs are traded in whole shares. But you won't find any financial barriers standing in the way of opening an account.
You can start a Roth or Traditional IRA (or both) with no minimum initial deposit. Image source: Getty Images.
International stocks and ADR investments
Most tend to agree that a diversified portfolio includes international investments, but not all brokers offer the same access to global investments. Some brokers, like E*Trade, allow you to invest in foreign companies so long as they have a ticker on a domestic exchange. Others, like Vanguard, enable you to send trades to exchanges all around the world.
Type of Investment
American depositary receipts (ADRs)
Stocks traded on international stock markets
Yes (Vanguard Brokerage Block Desk)
Mutual funds and ETFs of foreign stocks
Data sources: Company websites.
Ultimately, the ability to trade on international exchanges may not be all that important to you if you prefer to invest overseas by way of ADRs, mutual funds, or ETFs. As a general rule, investors pay higher commissions (Vanguard tacks on a $50 processing fee) to send trades to international stock exchanges.
Mobile apps for phones and tablets enable you to trade from anywhere you have an internet connection. Here's how each broker's users and customers rated their capabilities (as of Jan. 24, 2017).
Apple App Store
Data sources: Relevant app stores.
IRA fees: maintenance and inactivity fees
Some brokers charge you fees just for having an account, a charge you'd likely prefer to avoid if possible. E*Trade clients need not worry, as it doesn't charge maintenance fees just to keep an account open, or inactivity fees for making too few trades.
Some Vanguard accounts are charged a $20 annual account service fee, but it is 100% avoidable. Vanguard waives the fee if you opt-in for electronic document delivery (no more snail mail), or if you keep at least $10,000 invested in Vanguard's ETFs or mutual funds.
Research and retirement planning tools
We tend to think that research and retirement planning tools can be an excellent perk of having a brokerage account. E*Trade has a long list of third-party research providers that includes S&P, Moody's, Morningstar, and Thomson Reuters, just to name a few well-known names. Vanguard offers up S&P, First Call, and Thomson Reuters reports on its back-end, too.
When it comes to portfolio-level analysis, both brokers have their own proprietary tools. E*Trade's My Virtual Advisor provides advice on how to allocate your portfolio based on your age, retirement date, risk tolerance, income, and other factors.
Vanguard's Portfolio Analysis tool offers something different, giving investors a look into their portfolio from the top down to understand how they are allocated by sector, geography, and company size. It can also evaluate certain investments for expense and tax efficiency, which can be beneficial for determining which investments are best placed in an IRA or left in a taxable account.
Best pick for IRAs: E*Trade vs. Vanguard
Truthfully, the best broker for an IRA depends on your personal investment strategy. E*Trade offers more choices in mutual funds, but it doesn't offer the same level of international investment access as Vanguard. On the other hand, Vanguard offers access to its popular line of mutual funds and ETFs, but its commission and fee schedule caters most to those with large account balances, as you'll need more than $50,000 to qualify for the first break in commission prices.
To be clear: The Motley Fool does not endorse any particular brokerage, but we can help you find one that is a good fit for you. Visit Fool.com's IRA Center to see how several leading brokerages compare on key features all on one page!
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