online brokerage

E*Trade Review: If a Talking Baby Can Do It, So Can You

Miranda Marquit — Fri, 16 Aug 2013 10:36:30 +0000

Just about everyone recognizes E*Trade. The company is known as one of the earlier brokers in the online trading space, and the famous "E*Trade Baby" commercials have served to increase brand recognition.

E*Trade is more than just clever marketing, though. It is a solid discount brokerage that makes it easy for beginners to start trading. There are even advanced tools that seasoned veterans can enjoy (although the cost can start to add up for active traders).

Why Choose E*Trade

E*Trade is a solid all-around choice for a brokerage. It offers a wide variety of trading tools and solid research. Additionally, the transaction fees, though not the cheapest, are in line with other brokerages in the space. For beginning investors, the easy-to-use platform and exceptional research tools can partially offset the higher transaction fee.

Fees and Account Minimums

E*Trade features a flat-rate commission structure. For most investors, the cost per transaction is $9.99. If you are a little more active, and you make at least 150 trades per quarter (that's an average of 50 trades per month), your transaction fee is $7.99. These flat fees apply to options trading, where the transaction fee plus $0.75 per contract is applied.

One of the nice things about E*Trade is the fact that it has a wide selection of commission-free ETFs to choose from, nearly 100. If you don't want to invest in the ETFs on the commission-free list, you will pay the standard stock transaction fee (and the expense ratio, of course, which is the percentage the fund manager charges to cover its expenses).

E*Trade also offers a selection of no-load, no-transaction-fee mutual funds. Stick with these funds, and you can avoid the standard $19.99 fee for mutual funds. There is no fee for trading US Treasury bonds.

You will be required to make a minimum deposit for many of E*Trade's accounts. For a "regular" investment account, the minimum is $500. The E*Trade OneStop Rollover IRA requires a $25,000 minimum deposit. But this is a managed account, so this makes sense. If you open a Traditional or Roth IRA, or if you rollover your retirement account without the management option, there are no account minimums.

There are no account services fees with an E*Trade investment account.

Customer Service

You can access E*Trade's customer service 24/7, but it takes a little hoop-jumping to get there. Instead of having customer support numbers and access in easy to find places, E*Trade makes you go through the FAQs provided in the self-help section of the customer service. Getting to the service information is a little more complex than one click.

Once you do get through to someone, though, you usually speak with a helpful and knowledgeable representative. E*Trade is also known for its outstanding email customer support. Only the weekend customer support is a little weak. So, if you have a problem, it's usually best if you can wait until Monday to hash it out (or email about the issue).

There is a live chat option as well, and E*Trade also has retail locations, so there is the possibility of meeting someone face to face.

Research and Education Tools

This is an area where E*Trade really shines. Their research tools are easy to use and provide you with essential information quickly and easily. E*Trade uses third-party providers for research, and they are heavy-hitters. Morningstar provides the mutual fund research. You can also get research from Standard & Poors, MarketEdge, and Thomson Reuters.

It's possible for you to customize your research and education settings so that you can pull up studies to sit next to event data, giving you a complete picture of events and how they might have impacted performance. You can even display trading activity that takes place post-hours.

Set up alerts so that you can take advantage of changes in the situation quickly and easily. Beginners can benefit from this information, and the real-time news and charting capability can also help seasoned traders as they strategize.

Other Features and Services

E*Trade also receives high marks for its mobile trading platform. It's easy to use, and you can make trades on the go. The platform is available in a web-based version and a desktop version. The desktop version, though, is a bit expensive at $99 per month, unless you meet certain requirements. However, the Elite platform provides a number of tools that active traders can appreciate.

It's also worth noting that E*Trade offers banking services. You can use this account for bill pay and other transactions, and you don't have to worry about ATM fees. E*Trade banking also offers unlimited ATM fee refunds when you use other banks' ATMs. You can get checks and a debit card to aid in accessing the money in your E*Trade bank account. This account make it easy to transfer money to and from your investment account.

How Does E*Trade Compare to Other Brokerages?

E*Trade is a little more expensive than some of the other discount brokerages. However, it does offer commission-free ETFs in line with what other brokerages offer. Additionally, the research tools are fairly advanced. While they don't quite offer the depth that you might see with a TDAmeritrade or a Scottrade, they are nonetheless more than adequate for most investors.

How E*Trade Could Be Better

It would be nice if the Elite platform were available to more traders. Additionally, the $500 minimum means that some investors need to save up — unless they are opening a "regular" IRA. E*Trade could also make its customer service more accessible, rather than forcing investors to deal with self-help before being able to gain access to a customer support specialist.

Who Is E*Trade Good For?

While E*Trade tries to lure super-active traders with promises of $6.99 trades when you make at least 150 trades in a quarter, the reality is that active traders might do better with brokerages that charge less. These active (and experienced) traders can usually get by without all the in-depth research.

Instead, E*Trade is good for beginning to intermediate investors looking for reasonably priced trades. This brokerage is especially friendly to the fund investor. If you plan to invest in mutual funds and ETFs, E*Trade is great because of its selection of funds that come without transaction fees. It's even better if you decide to open an IRA, because then you can avoid the need for a minimum. The long-term investor saving for retirement can really benefit from E*Trade.

Bottom Line

E*Trade is a solid choice for just about any investor. However, those looking to buy and hold mutual funds and/or ETFs in an IRA are going to see the most benefit.

Click here to open an account today!

Are you an E*Trade customer? What has your experience been?

This article is from Miranda Marquit of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

The Basics of Asset Allocation

Julie Rains — Tue, 13 Aug 2013 10:00:33 +0000

Whenever you talk to an investment professional, she invariably mentions the importance of asset allocation. Closely linked to the discussion of asset allocation is the concept of diversification. Both are considered useful in designing and managing an investment portfolio.

Think of asset allocation as placing your proverbial eggs in three main categories of baskets: equities, fixed income, and cash equivalents. Refinement of asset allocation and diversification involves figuring out what types of baskets (such as large-cap blend and small-cap growth equities, technology and manufacturing sectors, etc.), and then choosing specific investments within those types. (See also: A Guide to Online Brokers for Investing Newbies (and Beyond))

Rationale for Asset Allocation

Many professional advisers and websites will mention Modern Portfolio Theory (or MPT) as the foundation of asset allocation. An idea crystallized and explained by Harry Markowitz (who won the 1990 Nobel Prize in Economics for his efforts), portfolio theory suggests that proper asset allocation is instrumental in optimizing portfolio return, given a specific risk tolerance.

Others in the investment field simply promote the idea of allocating assets into various classes and diversifying within sub-classes or categories. This technique is useful for

Managing risk and volatility.
Capturing gains from the asset class along with the sub-class, sector, etc. that experiences growth during certain time periods.

From what I can discern, the main difference between the two schools of thought is a nuanced one. Portfolio theory claims that proper asset allocation can optimize investment returns by locating the efficient frontier or sweet spot in an investment portfolio. Others indicate that you may need to sacrifice returns somewhat in order to minimize risk. Either way, asset allocation and diversification are employed to help investors reach their goals.

The underlying assumption based on historical performance is that different asset classes along with sub-classes, categories, and sectors perform better than others at any given time. For example, the prices of large-cap value stocks may grow at a rapid pace and small-cap growth stocks may falter under certain market conditions; however, small-cap growth mutual funds may soar when large-cap value funds decline.

How different asset classes (and individual investments) move in relation to each other is known as correlation. If asset categories move in the same direction, they are positively correlated; in the opposite direction, negatively correlated. Asset allocation and diversification help manage this correlation so that fluctuations in investment returns stay within certain ranges based on risk tolerance. For an illustration of this concept, see the graph on Model Asset Allocation Plans from Charles Schwab.

Factors Affecting Asset Allocation Models

Most investment professionals and online investing tools create asset allocation models based on your risk tolerance and time horizon (or your current age). In general, stocks comprise a higher percentage of the overall recommended portfolio the higher your risk tolerance and the longer your time horizon. However, each model is designed slightly differently, so percentages assigned to asset classes vary. (See also: Using Time Horizons to Make Smarter Investments)

Your personal circumstances and economic conditions may lead you to alter a model asset allocation. For example, I feel comfortable investing more heavily in equities than generally recommended, so my ideal differs slightly from those proposed by asset allocation tools.

Whatever your model, define and stick with its breakdown into various classes unless you have a compelling reason to change.

Using Asset Classes and More for Asset Allocation and Diversification

There are many sources, such as online tools as well as certified financial planners, that can provide guidance regarding asset allocation and diversification methods.

Some offer general direction, specifying percentages for large-cap stocks, small-cap stocks, foreign stocks, bonds, and cash equivalents (such as this tool from CNN Money); whereas others give more detailed guidance. Note that this breakdown goes beyond main asset classes central to asset allocation and includes sub-classes, categories, sectors, etc. important for diversification.

Portfolio analyzers often give comparisons of current holdings to target allocations based on risk tolerance. Also, there are diversification tools that help build and manage a portfolio alongside of asset-allocation illustrations. (See also: 5 Best Online Brokerages)

Here are a few ways holdings may be classified and evaluated using portfolio analysis capabilities provided by these popular online brokerage firms:

TD Ameritrade

Asset Allocation: Domestic Equity — Large Cap, Mid Cap, Small Cap, Other; International Equity — Developed, Emerging, Other; Specialty; Domestic Fixed Income; International Fixed Income

E*Trade

Asset Class: Stocks, Bonds, Cash
Valuation: Value, Core, Growth
Sector: Cyclical (Basic Materials, Consumer Cyclical, Financial Services, Real Estate); Defensive (Consumer Defensive, Healthcare, Utilities); Sensitive (Communication Services, Energy, Industrials, Technology)
World Regions: U.S. & Canada, Europe, Japan, Latin America, Asia & Australia
Stock Type: High Yield, Distressed, Hard Asset, Cyclical, Slow Growth, Classic Growth, Aggressive Growth, Speculative Growth

How to Use Portfolio Recommendations

Many portfolio management tools are comprised of three key components:

Recommended allocations
Current distribution among asset classes and categories
Changes recommended because of differences between the ideal and existing asset mix

High-level recommendations generated through online functionalities seem to be reasonable. For example, you may want to increase your holdings in international stocks and small-cap stocks if your portfolio is comprised mostly of large-cap stocks. Similarly, sector analyses may indicate ways you can diversify through greater concentration in utilities and healthcare and less in industrials, for example.

However, more pointed recommendations, such as sell ABC stock or XYZ mutual fund and buy this one, tend to be less helpful. Take the suggestions as a starting point for further research rather than the ultimate answer about what you should do next with your portfolio.

Rebalancing

If your portfolio grows in the way that asset-allocation proponents predict (that is, certain asset classes grow and become over weighted when others languish or decline and become underweighted), then you'll need to rebalance. Review your current portfolio and make adjustments yearly or perhaps quarterly or whenever huge growth occurs and prompts the need to rebalance.

To return your portfolio to its equilibrium, sell off the high-performing assets and increase your position in the other assets, or invest new money in the lower-performing assets. That is, buy more of what didn't perform well recently, so your portfolio will be positioned to capture gains in areas poised for growth. These rebalancing steps seem counterintuitive but are essential to maintaining your portfolio's asset allocation. (See also: Investment Allocation by Age: Birth to 10 Years Old)

Asset allocation, diversification, correlation, and portfolio theory can get complicated. Financial professionals may oversimplify concepts (and occasionally draw misleading conclusions) for the purpose of championing thoughtful portfolio design as well as promoting an investment product and selling a service. Knowing the basic lingo of asset allocation can help you understand and participate in these conversations and make informed decisions for building and managing your portfolio.

Have you employed asset allocation in managing your investments? Are you satisfied with the results?

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This article is from Julie Rains of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

TradeKing Review: The Best Brokerage for New and Intermediate Investors?

Miranda Marquit — Fri, 09 Aug 2013 10:36:32 +0000

One of the most well-known online discount brokerages in the space is TradeKing. TradeKing was launched at the end of 2005, and itwas one of the first online brokerage firms to add social networking tools for investors. The brokerage is also known for its Options Playbook (available free online), as well as its 2012 merger with another online brokerage, Zecco.

Why Choose TradeKing?

The biggest reason that many investors choose TradeKing is due to its relatively low pricing for stock trades. TradeKing also receives high marks for its easy to use platform and for its highly-rated customer service. Additionally, if community is important to you, TradeKing offers an active community that can provide you with answers to your questions and pass on interesting trading ideas.

TradeKing has won recognition as one of the best brokers from Barron's, SmartMoney, Wall Street Journal, Consumer Reports, and the StockBrokers.com Online Broker Review. With all of this recognition, investors can feel safe knowing that they aren't risking their money with a fly-by-night organization.

Fees and Account Minimums

You will pay commissions no matter where you invest your money. TradeKing, though, offers one of the best deals on stock trades.

The stock and ETF fee is $4.95 per transaction. (As long as the price per share is above $1. For stocks priced at less than a dollar, you pay the $4.95 transaction fee, plus one cent per share.) This is among the lowest transaction fees available, especially for a brokerage with the wide range of research and investment tools.
Options cost $4.95, plus 65 cents per contract, up to eight. Once you move beyond eight contracts you pay $8.95 per transaction, but the per-contract fee drops to 15 cents.
Mutual funds cost $9.95 to trade, and corporate bonds can be traded for $4.95 ($14.95 minimum).
Treasury bonds cost $24.95 per transaction; you are probably better off opening a TreasuryDirect account and buying Treasury securities from the source. CD transactions cost $24.95 as well.

One of the disappointments with TradeKing is the fact that there are no commission-free ETF offerings as of this time. More brokerages are offering trades on select ETFs with no commissions, so there are hopes that TradeKing will join the trend.

Account Minimums

You don't need a minimum deposit to open a TradeKing account. You do need to provide a way to fund your account if you expect to trade, but you don't need any money to open your account.

Be aware that activity fees are a possibility, however. If you don't execute at least one commission-charge trade each 12 months, AND if you have less than $2,500 in combined account value, you will be charged an annual fee of $50. You can avoid this fee by simply making one trade a year until your account value reaches $2,500, and then making sure that your account value remains above that level, whether or not you make a trade.

Customer Service

TradeKing has long been cited for its great customer service. Representatives are generally knowledgeable, and if you pay for phone broker services, you normally speak with someone who can help you place a trade.

Customer service is available via Live Chat during the week, as well as through email, telephone, and mail. It's usually possible to get a hold of someone (chat or phone) Monday through Friday, from 8 a.m. to 6 p.m. Eastern. Otherwise, TradeKing is generally fast at answering emails, and you can get customer service help through social media channels like Twitter and Facebook as well.

Research and Education Tools

TradeKing offers a number of research and educational tools. Investors have access to a stock screener, real-time research, and a number of educational resources, including the Options Playbook. Not only that, but there is an extensive trader community that acts as a resource as well.

Investors with TradeKing have access to a variety of account choices, including corporate accounts, trust accounts, IRAs, and Coverdell accounts. However, you are mostly on your own when it comes to account management. The low prices and abundant research tools mean that you are expected to use what is offered, avail yourself of the community, and then make your own portfolio management decisions.

Other Features and Services

TradeKing has been recognized for its trading platform, which is intuitive and easy to use. Additionally, TradeKing offers a complement of mobile trading features that make it easy to execute trades from just about anywhere.

How Does TradeKing Compare?

TradeKing offers fairly low-cost trades and is competitive with most other brokerages. There are brokerages that offer lower transaction costs, but these brokerages generally offer less in terms of research tools. TradeKing does cost a little more when it comes to penny stocks and options trading, but many beginning investors aren't really interested in those items, anyway.

TradeKing is one of the more responsive brokerages, and the thriving community is bigger than many of the communities seen at other brokerage sites.

How TradeKing Could Be Better

The main complaints against TradeKing center around high penny stock commissions, and the lack of paper trading availability. It would also be nice if TradeKing offered commission-free ETFs. With ETFs increasing in popularity, it makes sense to provide a wider selection, and add in some without commissions (TradeKing could still make money on the expense ratios).

Who TradeKing Is Good For

For the most part, TradeKing is good for an investor at just about any proficiency level. TradeKing is especially helpful for beginning and intermediate traders, though. The educational and research tools available can help less experienced traders get a leg up.

TradeKing is great for long-term investors who are interested in building up a portfolio for retirement or for wealth down the road. This brokerage is ideal for those who utilize dollar-cost averaging.

The brokerage is less ideal for options traders and frequent traders. There are other brokerages with lower commissions (as low as $2.95) and better options' prices that more active traders should use.

Bottom Line

TradeKing is one of the best online discount brokerages out there. It offers relatively low commissions and makes it easy for beginning to intermediate investors to get started with low-cost investment choices. Most "regular" investors will find TradeKing more than adequate for their needs.

Click here to open an account now

Do you invest with TradeKing? Which online brokerage do you use?

This article is from Miranda Marquit of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: