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E*Trade offers online trading and discount brokerage services to retail investors. The company is owned by Morgan Stanley, a financial services company. While E*Trade does not offer its own fund family, it does provide a variety of funds from other companies.
E*Trade was founded in 1982 and purchased by Morgan Stanley in an all-stock transaction in Oct. 2020. As a discount broker, E*Trade offers free commissions for online U.S.-listed stocks and exchange-traded funds (ETFs).
Investors in the United States have access to several tax-advantaged saving plans, including 401(k)s, individual retirement accounts (IRAs), and Roth IRAs.
The main difference between a Roth IRA and a traditional IRA is that the former is funded with after-tax dollars. This means that contributions to Roth IRAs are not tax deductible, as they are with traditional IRAs. But unlike a traditional IRA, where withdrawn funds are taxed, a Roth IRA allows investors to withdraw funds tax-free.
Below, we take a closer look at a broad-based stock fund and a broad-based bond fund available to E*Trade investors. As mentioned, E*Trade is not a fund provider with its own fund family available. For that reason, we’ve selected the least expensive broad-based funds, as index funds provide largely similar products if they are functioning correctly and tracking the same or similar indexes. In these cases, cost is a major determining factor.
Key Takeaways
- E*Trade was founded in the early 1980s and offers thousands of mutual funds and exchange-traded funds (ETFs) from parent Morgan Stanley and other companies’ fund families.
- When making a retirement account, a broad stock fund and a broad bond fund provide a good foundation.
- Roth individual retirement accounts (Roth IRAs) allow you to avoid paying taxes on investment returns by investing after-tax income now.
- BKLC and BKAG can serve as good starting points when looking for Roth IRA investments from E*Trade.
BKLC tracks the Morningstar U.S. Large Cap Index, an index composed of large-capitalization U.S.-listed stocks.
BKLC has 502 holdings. as of Dec. 31, 2023, with a weighted average market cap of $689 billion. The sector breakdown of the portfolio as of Dec. 31, 2023, is 29.32% information technology, 12.85% financials, 12.57% healthcare, and 10.78% consumer discretionary. The rest of the portfolio consists of communication services, industrials, consumer staples, energy, real estate, materials, and utilities.
Broad-based equity funds carry risk but also fairly strong growth potential. A broad-based stock fund like BKLC usually can be used as the foundation of most investment portfolios. If you have a low risk tolerance or are nearing retirement, an income-based fund may be more suitable for your investment profile.
Expense ratios are the fees that you pay for investing in a fund. The lower the fees, the more of your returns you will be able to hold on to.
- Expense Ratio: 0.00%
- Assets Under Management: $1.65 billion (as of Jan. 18, 2024)
- One-Year Trailing Total Return: 5.50% (as of Dec. 31, 2023)
- 12-Month Yield: 3.33% (as of Jan. 18, 2024)
- Inception Date: April 22, 2020
BKAG seeks to track the performance of the Bloomberg Barclays US Aggregate Total Return Index, which offers broad exposure to the overall U.S. bond market.
The fund has 5,150 holdings as of Dec. 31, 2023, with a weighted average maturity of 8.52 years. Broken down by sector as of Dec. 31, 2023, 41.31% of the portfolio is Treasuries and 26.03% is agency fixed rate, with the remaining in banking, consumer noncyclical, technology, communications, electric, consumer cyclical, energy, and supranational.
As of Sept. 30, 2023, all of the ETF’s bonds are investment grade, with 62.5% rated AA, 16.63% rated BBB, 15.84% rated A, and 4.85% rated AAA.
A broad-based bond fund is typically a much safer, but lower-return, type of investment compared with a stock fund. These funds have a lower risk of losing money, although the risk is not zero. They tend to rise slower than other funds, but they have smaller swings.
Bonds are useful both for more risk-averse investors and to diversify a portfolio to include uncorrelated asset classes. Investors with a higher risk tolerance or a longer time until retirement may wish to choose a smaller bond allocation.
Does E*Trade Have Fees for Individual Retirement Accounts (IRAs)?
Does E*Trade Offer Both Roth IRAs and Traditional IRAs?
E*Trade offers a variety of IRA options. Besides Roth and traditional IRAs, the company offers rollover IRAs, IRAs for minors, beneficiary IRAs, and other options.
Can You Withdraw Money From an E*Trade Roth IRA?
Yes, you can withdraw money from an E*Trade Roth IRA at any time. However, withdrawals typically have a three- to five-day processing time and may be subject to early withdrawal fees.
The Bottom Line
Roth IRAs are good tax-advantaged accounts for retirement. While investors pay taxes upfront, at the time of qualified withdrawal, there are no taxes on the funds withdrawn, including any earnings. Investing in broad-based equity funds and bond funds can be a good strategy for your Roth portfolio, whether you also choose individual investments or not.