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E*TRADE is an established online discount brokerage that also has a brick-and-mortar presence. E*TRADE was acquired by Morgan Stanley in 2020 for $13 billion, bolting a strong offering for self-directed investors onto Morgan Stanley’s vast wealth management services. E*TRADE customers mostly trade in retail accounts, but the broker also offers investors robo-advisory services through its Core Portfolios. With more individual investors entering the markets throughout the COVID-19 pandemic, including many first-time brokerage customers, Core Portfolios offers a passive option. We’ll dig deeper into E*TRADE’s Core Portfolios platform to help you decide whether it is the right fit for your investment needs.
- Core Portfolios is better suited for newer investors than it is for sophisticated investors.
- No consolidation of external accounts when creating or managing the portfolio, which may lead to wash-sales rule violations.
- Socially responsible investing options are available.
Can open account with just $500 and access funds with low expense ratios
Very easy to enroll and get started, especially for existing E*TRADE customers
Online and mobile platforms are very easy to use
Incorporates socially responsible investing (SRI) as an option in Core Portfolios
Simpler risk tolerance and portfolio recommendation process limits the goal setting in the portfolio creation process
Does not offer tax-loss harvesting
Goal setting and financial planning tools available for regular E*TRADE brokerage accounts are not incorporated into Core Portfolios
|Fees||0.3% annually. In addition, ETF expenses (expense ratios) are also taken out of the account.|
|Interest Paid on Cash Balances||0.05% for excess cash, which is swept into a money market fund.|
|Customizable Portfolio||Yes, investors can incorporate SRI /ESG investing and Smart Beta ETFs into the portfolio, but otherwise, the platform is not very customizable.|
|View Portfolio before Funding||Yes|
|Customer Service||Can speak with a registered investment advisor for assistance 24/7, but it is not a dedicated advisor. Their service is more geared towards getting people up and running on their system.|
|Financial Advisor Available||Yes, but not a dedicated professional.|
|Cash Management||Portfolios hold 1% in cash. E*TRADE utilizes a cash sweep to a money market fund until cash balances are used as part of a rebalancing. Cash in the money market fund can also be used to fund a separate bill pay or checking account at E*TRADE. Transfers between accounts is straight-forward.|
|External Account Sync/Consolidation||No|
|Mobile App||Android, iOS|
Setting up a Core Portfolios account at E*TRADE is quick and easy. An E*TRADE Core Portfolios account requires a $500 initial investment, which is obviously higher than some robo-advisors with no account minimums. Anyone, whether or not they have an existing account at E*TRADE, can use the E*TRADE website to take the risk tolerance profile questionnaire, indicate initial and any recurring deposits, and see a recommended portfolio.
You can go through the process multiple times if you want to see changes in recommended portfolios based on different responses. Investment advisors are also available to assist investors and potential customers with establishing a Core Portfolios account and determining the best portfolio for their needs.
After going through the process of getting a recommended portfolio, E*TRADE asks if you are a new or returning customer. Existing customers go directly to the account opening process after logging in, and new customers will have to set up an E*TRADE account. The account opening process at E*TRADE is similarly straightforward and is completed quickly and easily.
Goal planning in E*TRADE’s Core Portfolio is limited. This contrasts with robo-advisories that have more detailed questionnaires regarding goals, needs for withdrawals, and time horizons. E*TRADE chose a less complicated approach for their managed account offering. E*TRADE only has a handful of drop-down questions, and there is no ability to customize for the individual investor. For example, you cannot enter two separate future goals, such as a car purchase and money for your children’s college fund.
Moreover, the E*TRADE questionnaire’s longest time horizon is just eleven years. While this may work well for many E*TRADE customers, other investors will prefer more robust goal planning tools. Two customers with the goal of saving for retirement with withdrawals in 11 or more years and similar risk tolerances would receive the same portfolio recommendation, even if one client is 55 years old and another 20 years old.
The recommended portfolio allocates 20% to fixed income, but a 20-year-old would often be advised to not have any fixed income. More fixed income may be appropriate for the older investor. So, while these two investors share some of the same goals, not obtaining more information such as investor age and other goals may not result in a portfolio best suited for all investors. Goal planning differentiates E*TRADE’s robo-advising platform, but not necessarily in a good way as not all investors are looking to trade simplicity for their specific investment needs.
Core Portfolios allow clients to set up automated recurring deposits, which are easy to increase, decrease, or otherwise manage. Margin is unavailable in Core Portfolios accounts, but investors can borrow against their accounts; E*TRADE’s interest rates for this, however, are on the high side at more than 7%. Investors are not able to include any of their individual holdings or purchase assets for inclusion in Core Portfolio accounts. Transfers into and out of accounts are simple. Cash can be withdrawn or transferred to other E*TRADE accounts with ease.
Core Portfolios hold 1% in cash, and these portfolios will be rebalanced whenever you investment mix drifts at least 10% or more of your target allocation. Cash is swept into a money market account until it is transferred out to another E*TRADE account, such as a checking or bill payment account.
Portfolio construction for E*TRADE Core Portfolios accounts is fairly straightforward. A very quick questionnaire about initial investment and recurring deposit amounts, time horizon, and risk tolerance leads to a suggested portfolio that best fits the investor’s questionnaire responses. You can also override the suggested portfolio and choose a different portfolio.
Portfolios are managed exclusively with ETFs chosen in conjunction with modern portfolio theory techniques to diversify the asset classes in the portfolio using individual ETFs in each asset class to maximize returns while lowering risk through a diversified portfolio. You can also choose whether you want part of the portfolio ETFs to consist of SRI/ESG stocks or smart beta ETFs that are more actively managed in an effort to increase portfolio gains relative to other ETFs.
- Core Portfolios are highly diversified across domestic and international equity and fixed income ETFs.
- Income portfolios offer higher dividend yields and a lower overall risk profile.
- Tax-optimized portfolios are designed for investors in higher tax brackets.
|Fixed Income||Yes, but limited to municipal bond ETFs for tax efficiency|
|Socially Responsible or ESG Options||Yes|
E*TRADE speaks of the ability to customize their Core Portfolios accounts, but this is limited to a choice of having part of their portfolio invested in socially responsible (SRI/ESG stocks) stocks or smart beta ETFs, which is where the ETF is more actively managed in an effort to increase portfolio gains relative to other ETFs.
While these are nice features available to Core Portfolio investors, it is a stretch to call it customization.
Core Portfolios are invested in ETFs according to allocation percentages guided by your questionnaire responses and modern portfolio theory. The accounts are rebalanced semi-annually, as well as when the account drifts out of line with the portfolio allocations by at least 10%. Accounts can be monitored online, and investors are kept informed about key market events and trends that might impact their portfolios. E*TRADE will also send a regular online statement with holdings information, trades made, and dividends received.
There is no tax-loss harvesting on E*TRADE Core Portfolio accounts, although fixed income ETFs in the portfolio are limited to municipal bonds to limit taxable interest. While investors can see the entirety of their various accounts when online, E*TRADE’s brokerage has tools to show overall asset allocations by asset class and at the individual portfolio level. This will allow an investor to make changes in their various accounts to ensure proper diversification across multiple accounts. However, the Core Portfolios does not do this analysis or choose securities based on the overall financial picture of the investor.
|Key Portfolio Management Features|
|Automatic Rebalancing||Semi-annually, or whenever the account drifts out of line with the portfolio allocations by at least 10%|
|Reporting Features||Online monitoring and statements|
|Tax-Loss Harvesting||No tax balancing, but fixed income is limited to municipal bond ETFs to help reduce taxable income|
|External Account Sinking/Consolidation||No – E*TRADE does have these capabilities for regular accounts. However, Core Portfolios do not do this analysis or choose securities based on the overall financial picture of the investor|
The desktop experience with Core Portfolios is intuitive. The page is not cluttered, the concepts are presented succinctly, and it is easy to navigate through the questionnaire process and open an account. The frequently asked questions area links on the primary menu for those new to investing are very helpful and provide access to useful education. That said, the basics of how these accounts work could have been better outlined on the primary Core Portfolio web page. The information is all there, however, and the desktop interface was easy to use.
Core Portfolios information on E*TRADE’s mobile app works the same as the desktop. The mobile app offering was very easy to use, and accounts can be opened from the mobile app. Money transfers into or out of Core Portfolios accounts are easy to do on the mobile app, so transferring money to an E*TRADE account that supports checking or bill pay was very simple.
Phone support at E*TRADE is 24/7. Once the account is set up, support focuses more on technical support. The average hold time to reach an investment advisor is between one and three minutes. E*TRADE also makes investment advisors available to Core Portfolio customers and potential customers, and there is an E*TRADE Tax Center to help clients understand how their investments will be taxed.
There is also a good deal of information about Core Portfolio accounts on the E*TRADE website, and the frequently asked questions section answers the majority of questions people might have about robo-advisory accounts in an easy-to-read way where key topics are in bold with sections that can be expanded to see additional detail for the topic.
- 24/7 phone support
- Extensive FAQs available on the website
- Physical branch network for clients to visit
Two-factor authentication is available on E*TRADE’s platform, and biometric security is available for mobile phones with either facial recognition or fingerprints. E*TRADE also provides additional investor protection beyond coverage through SIPC through the Morgan Stanley excess of SIPC supplemental insurance policy. E*TRADE Core Portfolios’ security is up to industry standards:
- Two-factor authentication
- Biometric login on mobile by facial recognition or fingerprint
- Additional investor protection beyond coverage through Securities Investor Protection Corporation (SIPC) through the Morgan Stanley excess of SIPC supplemental insurance policy.
E*TRADE has a tremendous amount of educational information available, and it is available to anyone on their website rather than being limited to account holders. The Core Portfolios main page has an overview of the process and the Core Portfolios FAQ section is comprehensive and easy to navigate. The FAQ section provides overviews of what Core Portfolios are, why they use ETFs, what portfolio balancing is, and the costs. It also contains a section outlining the program’s investing approach and criteria for investments in the portfolio. Beyond the FAQ content, there is also a “Knowledge” top menu selection that provides overviews of diversification and risk tolerance. The initial “Knowledge” page also has a link to the E*TRADE educational library, which provides a tremendous amount of educational information on investing.
Commissions and Fees
E*TRADE’s Core Portfolios accounts require at least $500, and they have a flat fee structure of 0.3% (or 30 basis points), so a $10,000 account would have an annual fee of just $30. This annual fee is calculated monthly and is based on the account value at the beginning of each month. Core Portfolios customers will also have to pay ETF expense ratios typically ranging from 0.06 to 0.12%. The fees are very reasonable, although E*TRADE’s 0.3% annual fee is higher than some of its competitors in the robo-investing space—including some competitors which don’t charge advisory fees at all.
|Management fees for $5,000 account||0.30%; $15 per year or $1.25 per month|
|Management fees for $25,000 account||0.30%; $75 per year or $6.25 per month|
|Management fees for $100,000 account||0.30%; $300 per year or $25 per month|
|Termination fees||$75 for full transfer out and $25 for partial transfer out. The $25 feel is not charged on Core Portfolio accounts with at least $5,000, and they are also not charged if the transfers are to another E*TRADE account.|
|Expense ratios||The majority fall between 0.06% to 0.12%|
E*TRADE’s Core Portfolios features a simple account setup process and an intuitive desktop platform that is easy to navigate. It’s particularly good for younger investors who are always on the go and who want access to an industry-leading mobile platform. After all, E*TRADE is a pioneer in mobile investing.
The biggest downsides of E*TRADE’s Core Portfolios are its lack of tax-loss harvesting, weak goals and time horizons planning, and its inability to consolidate external accounts. These are key missing elements that make it far less suited for investors with complicated finances and tax situations.
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E*TRADE. “Customer Service Summary”.
E*TRADE. “Frequently Asked Questions”.