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ETrade IRA Review

With their large advertising budget and amusing commercials featuring money-savvy babies, E*Trade has bought their way into the minds of investors. But are they actually a good place to invest? I recently opened an ETrade IRA to find out.

E*Trade Costs and Fees

E*Trade charges no annual fee for an IRA. They have a graduated cost structure for stock/ETF trades:

  • A flat $9.99 commission per stock or ETF trade, or
  • $7.99 per trade if you place 150 or more trades per quarter.

That’s a bit more expensive than some other discount brokerage firms, but it’s not entirely unreasonable.

E*Trade does not charge any commission on purchases of U.S. Treasury Bonds (including TIPS) when you buy them at auction. As far as I know, the only other brokerage firms that allow for commission-free Treasury purchases are Schwab and Fidelity. For investors with a sizable fixed-income portfolio, this can be a big money saver.

E*Trade Mutual Fund Marketplace

At E*Trade, you’ll also have access to a “no transaction fee” marketplace with over 1,000 no-load mutual funds. That said, many of the high profile fund families (Vanguard or Fidelity for instance) aren’t available without a transaction fee.

Free Trades for the First Month

If you open an IRA prior to 12/31/2010, E*Trade will give you free trades for the first 30 days (up to 100 trades). If you’re a buy & hold investor like myself (I place approximately 2 buy orders each month), this obviously isn’t that big of a deal. That said, free money is free money. No complaints here.

E*Trade Customer Service and Website

E*Trade’s email customer service isn’t the speediest. (You might not even get an answer back on the same day.) On the other hand, in my experience calling and asking the automated system for a customer service rep, I’m immediately connected to somebody who can answer my questions.

Perhaps my favorite thing about E*Trade is how fast and easy it is to fund my account. At Vanguard or Schwab, it takes a couple days for an online money transfer. At TradeKing, you have to write a paper check and mail it to them. At E*Trade, I can do an online transfer and have the cash available to invest on the same day.

Summary

Pros:

  • Reasonably cheap trades,
  • Easy-to-use website with same-day money transfers,
  • Commission-free purchases of U.S. Treasury bonds,
  • Free stock/ETF trades for first month,
  • Quick response to customer service phone calls.

Cons:

  • (Slightly) less expensive stock/ETF trades are available elsewhere,
  • Slow response to customer service emails.

Open an E*Trade Account

If you think that E*Trade sounds like a good fit for you, here’s the page where you would open an account.


Know anybody 50 or older?

For as long as I can remember, my mom has been saying that she wants to live to be 100.

And she’s not kidding around. She might have the healthiest diet of anyone I know (not surprising–she’s a dietitian), and she’s passionate about fitness–swimming, running, yoga, you name it.

But she made one mistake: She waited until age 53 to get a colonoscopy. She didn’t wait until 60. She didn’t wait until 55. She waited to 53.

…and it almost killed her.

The colonoscopy and ensuing tests showed that Mom had Stage IV colon cancer. (Stage IV is the most advanced stage of cancer–it means that the cancer has spread to other organs. Statistical survival rates for stage IV colon cancer aren’t exactly promising: 8-15% chance of surviving 5 years beyond diagnosis.)

That was in August. Since then, she’s had 10 inches of her large intestine removed, 5 months of chemotherapy with a whole list of terrible side effects, and–just this last week–20% of her liver removed.

Based on the information we have at the moment, she’s now cancer-free. (Woohoo! 😀)

It’s worth noting, however, that:

  1. If Mom had waited until 54 instead of 53…Well, according to her doctors, she wouldn’t have made it to 54.
  2. If Mom hadn’t been in super shape (cancer notwithstanding), this would have gone far worse than it has.

What does this have to do with personal finance?

A few things, I guess:

  • Cancer treatment is expensive,
  • Health insurance is essential, and
  • Missing 5 months of work isn’t great for one’s finances.

But that’s not really why I’m bringing this up. I’m bringing this up because my Mom almost died–completely unnecessarily. This whole thing was entirely avoidable. From the Center for Disease Control and Prevention:

“Colorectal cancer almost always develops from precancerous polyps (abnormal growths) in the colon or rectum. Screening tests can find precancerous polyps, so that they can be removed before they turn into cancer.”

Please don’t wait until you’re 53 to get a colonoscopy.

And tell your loved ones, too.

I know it’s not an easy thing to slip into a conversation. Conveniently, March happens to be Colon Cancer Awareness Month, so perhaps you could use that as an opener. 🙂

A Note on Risk Factors

Aside from her age, my mom had precisely none of the risk factors involved with colon cancer. But she got it anyway. Please don’t put off getting tested just because you don’t fit the mold of somebody at high risk for colon cancer.


Charles Schwab IRA Review

I recently opened a Roth IRA with Charles Schwab.

It’s not my primary IRA–that’s with Vanguard. In fact, the only reason I initially opened the account was to take advantage of Schwab’s 2% cash back credit card. (With the card, the cashback bonuses are deposited into a Schwab brokerage account. From there, you can have the money swept into a Schwab IRA.)

That said, I’ve been quite pleased with Schwab so far. Over the last year, they’ve become significantly more appealing to buy & hold investors like myself due to their reduction in trade commissions (to $8.95/trade) and release of commission-free ETFs.

Schwab Commission-Free ETFs

Schwab’s selection of in-house ETFs (on which they don’t charge trade commissions) seems to grow by the month. Currently the selection includes:

Domestic Stock ETFs

  • SCHB: A domestic, broad-market ETF, with an expense ratio of 0.06%.
  • SCHA: A domestic small-cap ETF with an expense ratio of 0.13%
  • SCHV: A domestic large-cap value ETF with an expense ratio of 0.13%

International Stock ETFs

  • SCHF: An international equity ETF with an expense ratio of 0.13%
  • SCHE: An emerging markets ETF with an expense ratio of 0.25%.

Bond ETFs

  • SCHP: A TIPS ETF with an expense ratio of 0.14%.
  • SCHO: A short-term US Treasuries ETF with an expense ratio of 0.12%.
  • SCHR: An intermediate-term US Treasuries ETF with an expense ratio of 0.12%.

Between those 8 ETFs, you can easily put together a diversified portfolio with super low costs.

No-Commission Treasury Bond and CD Purchases.

Also, at Schwab you can purchase Treasuries (both TIPS and nominal) at auction without paying any commission. Purchases of new-issue CDs are commission-free as well. So if you would prefer not to use a bond ETF, you can just put together a CD or bond ladder for the fixed-income portion of your portfolio.

Schwab Customer Service

To date, I’ve only contacted Schwab’s customer service once. At the time I called (a weekday afternoon), there was literally no hold time. Of course, I can’t say that would necessarily be the case at other times of day or on weekends. And I have yet to contact their customer service via email, so I can’t say anything about that one way or the other.

Where to Open an Account

If you think Schwab might be a good fit for you, here’s the page to open an account.


Edward Jones IRA Review

Let’s start with the obvious: If you don’t feel that you need a financial advisor, there is absolutely no reason to have an account at Edward Jones. You can go elsewhere and find less expensive funds, less expensive stock trades, and lower account fees.

If, however, you do need a financial advisor, should Ed Jones be one of the places to consider?

Let’s take a look.

Advantages of Edward Jones

The primary selling point of Edward Jones is their broad network of local offices. In most parts of the U.S., there will be a Jones office not too far from where you live. If face-to-face interaction with your brokerage firm is important to you, Jones is hard to beat in terms of convenience.

The second primary advantage of Edward Jones is that you’ll have no difficulty understanding your advisor’s recommendations. Jones’ investment philosophy is straightforward. They suggest that you buy and hold a portfolio of comprised of:

  1. blue chip stocks,
  2. bonds, and
  3. actively managed mutual funds (i.e., funds that seek to earn above-market returns).

Edward Jones Commissions and Costs

Per a phone call to Edward Jones’ customer service line, their commissions per stock trade are based on the size of the trade and break down as follows:

  • 2.5% for trades less than $6,000
  • 2% + $30 for trades between $6,000 and $10,000
  • 1.5% + $80 for trades between $10,000 and $25,000
  • 1% + $205 for trades between $25,000 and $100,000

That’s likely hundreds of dollars more per trade than you’d pay with a typical discount brokerage firm. Between that and their $40 annual IRA fee, Edward Jones isn’t exactly on the list of cost-effective places to invest.

Edward Jones Conflicts of Interest

The biggest drawback to having an account at Edward Jones (and the other “full-service” brokerage firms like Merrill Lynch and Wachovia) is that your financial advisor is paid on commission. Specifically, Edward Jones financial advisors earn money when you:

  • Buy or sell a stock,
  • Buy a bond, or
  • Buy a mutual fund that charges a sales load.

This payment system leads to Edward Jones clients receiving advice that’s biased in a few ways. For example, an Edward Jones financial advisor will never recommend a no-load mutual fund (even when that’s the best option for the client) because he/she won’t receive a commission if you purchase such a fund.

An additional conflict of interest is created by the fact that Edward Jones receives “revenue sharing” payments from a handful of fund companies.

In other words, certain fund companies pay Edward Jones in order to receive preferential treatment. So if you’re a Jones client, you can expect your advisor’s recommendations to consist almost exclusively of the following fund families:

  • American Funds
  • Franklin Templeton
  • Hartford Investments
  • Invesco
  • Lord Abbett
  • MFS Investment Management
  • Oppenheimer Funds

No Online Trading

While it’s easy to check your holdings and account balances on Edward Jones’ website, they don’t actually provide any online trading capability whatsoever. If you want to execute any transactions, you’ll have to call your broker.

The official Jones position is that the lack of online trading is intended to prevent rash investment decisions. To some extent, that makes sense. Personally, however, I find it frustrating. I want to be able to do what I please with my money without having to talk it over with somebody.

Summary

Pros:

  • Local offices,
  • Personal customer service,
  • Easy-to-understand investment philosophy.

Cons:

  • Significant conflicts of interest between you and your advisor,
  • High costs.

In most cases, if you feel that you need a financial advisor, I’d suggest going with one who charges a simple hourly or annual fee rather than one who is paid via commission. By using a fee-only advisor, you’ll get unbiased advice, and you’ll likely reduce the overall costs on your investment portfolio.

If you’d like to compare Edward Jones to other brokerage firms, here’s a comparison of IRAs at various discount brokerage firms.


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