E*TRADE Core Portfolios

Description

E*TRADE Core Portfolios automatically invest in a variety of stock and bond index ETFs for taxable and retirement accounts. You can get exposure to most domestic and international sectors. All portfolios only maintain a 1% cash cushion allowing most of your cash to invest in the market.

Tax-loss harvesting isn’t available, although taxable portfolios may invest in tax-sensitive municipal ETFs instead. Investors may appreciate the ability to invest in socially responsible ETFs to avoid controversial companies that broad market index funds invest in.

Self-directed brokerage accounts with free trades are also available from E*TRADE. You may use these accounts to buy small positions of individual stocks and ETFs to diversify your portfolio.

How E*TRADE Core Portfolios Manages Your Money

E*TRADE Core Portfolios invests in stock and bond index ETFs using Modern Portfolio Theory (MPT) guidelines. Other robo-advisors pursue the same investment philosophy. Most portfolios hold five ETFs that invest in domestic and international stocks and bonds.

The index funds can give you exposure to these asset classes:

• Large-cap US stocks
• Small and mid-cap US stock
• Developed international markets
• Emerging markets
• Corporate bonds
• Municipal bonds

Socially responsible portfolios are available that only invest in assets that meet specific environmental, social, and governance standards. Smart beta ETFs also follow a low-cost passive investing strategy but seek to reduce market volatility. Either portfolio may outperform or underperform the broad market.

Asset Allocation

There are five different Core Portfolio allocation strategies. E*TRADE recommends a portfolio after asking you a handful of questions to determine your risk tolerance and investment goals.

Below are the target allocations for each Core Portfolio:

• Conservative: 20% stocks and 80% bonds
• Conservative Growth: 40% stocks and 60% bonds
• Moderate Growth: 60% stocks and 40% bonds
• Growth: 80% stocks and 20% bonds
• Aggressive Growth: 99% stocks and 1% bonds

Each portfolio allocates 1% of the bond mix into cash assets. Other robo-advisors maintain a 6% cash balance. This smaller cash position lets you invest more of your cash into assets with higher growth potential.

Semi-Annual Rebalancing

E*TRADE Core Portfolios schedule portfolio rebalancing twice a year. Further rebalancing may occur if some assets exceed a 5% drift from their target allocation. New funds you invest buy under-allocated assets to prevent unnecessary selling that creates a taxable event.

Advantages of E*TRADE Core Portfolios

Multiple portfolio options: The E*TRADE Core Portfolios can have a more conservative or aggressive asset allocation than other robo-advisors. For example, the aggressive growth portfolio lets young investors hold 99% stock when most brokers allocate up to 90%.

Socially responsible and smart beta ETFs: The socially responsible and smart beta ETFs let you diversify your portfolio. Additional risks and fees are minimal. These advanced investment strategies can potentially outperform the broad market during volatile times.

Custodial accounts: Most robo-advisors only offer investment accounts for adults. A custodial account helps parents start the investing journey for their children.

Knowledge library: E*TRADE has extensive educational resources for new and advanced investors that barebones robo-advisors don’t offer.

Local branch access: E*TRADE is a full-service online broker with local branches across the United States. Another reason to consider E*TRADE is the ability to trade individual stocks and ETFs for free with a self-directed brokerage account.

Disadvantages of E*TRADE Core Portfolios

No cash management account: E*TRADE doesn’t offer a high-yield cash management account, but you can open separate savings account from E*TRADE Bank. On a positive note, the 1% portfolio cash cushion can help aggressive investors capture more potential growth in stocks.

No tax-loss harvesting: No Core Portfolio has tax-loss harvesting. E*TRADE can invest in municipal bond ETFs that can have less tax exposure than other ETFs. Also, E*TRADE tries to sell assets as sparingly as possible to minimize your taxable income.

Relatively high annual account fee: The 0.30% annual account fee is higher than other advisors that charge 0.25% or less. This fee isn’t excessively high and will have minimal impact on long-term portfolio performance.

Is E*TRADE Core Portfolios Safe?

The ETFs that E*TRADE Core Portfolios are subject to normal market risk. Index funds are typically less volatile than individual stocks or illiquid assets. The automatic rebalancing also keeps your portfolio in line with your target allocation and investment goals.

E*TRADE is SIPC-insured up to $500,000 for securities and cash if the brokerage firm fails. Up to $250,000 of the insurance is for cash assets.

Is E*TRADE Core Portfolios Right For You?

E*TRADE Core Portfolios is a good option if you want a robo-advisor that has a small cash buffer. As a full-service broker, you can also open a self-directed portfolio and have local branch access. This may not be your best option if you can’t meet the $500 initial investment.