Roth IRA Fund Options from TD Ameritrade

VTI and BKAG are a good place to start

TD Ameritrade, which was acquired by The Charles Schwab Corp. (SCHW) in 2020, provides a full suite of brokerage products and services. It offers an online trading platform with a variety of investment options and trading tools for both beginner investors and seasoned traders. The company also offers financial research and educational material to help investors build a portfolio suited to their risk tolerance and financial goals.

Investors can open a Roth individual retirement account (Roth IRA) with TD Ameritrade, which offers access to thousands of mutual funds and exchange-traded funds (ETFs) with which to build their portfolio. The company provides investing and trading services for millions of client accounts, which total more than $1 trillion in assets.

TD Ameritrade’s roots go back to 1975 following the abolition of fixed-rate brokerage commissions by the U.S. Securities and Exchange Commission (SEC). First Omaha Securities Inc., which later evolved into TD Ameritrade, became one of the first firms to start offering discounted commissions. TD Ameritrade’s offerings have expanded since then, and it now provides investors with all of the services of a full-service brokerage. That includes access to investment guidance from professional advisors through Schwab, the company’s affiliate. TD Ameritrade customers also have access to robo-advisory services and can trade stocks, ETFs, and options on TD Ameritrade’s online platform with zero commission fees, a key feature typical of discount brokers.

Investors in the United States have access to several tax-advantaged saving plans offered by a broad range of other financial services companies, including 401(k)s, 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, where 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 But unlike a traditional IRA, where withdrawn funds are taxed, a Roth IRA allows investors to withdraw funds tax free.

Key Takeaways

  • TD Ameritrade, established in 1975, offers thousands of exchange-traded funds (ETFs) and mutual funds issued by other companies and provides services for accounts totaling more than $1 trillion in assets.
  • When making a retirement account, a broad stock fund and a broad bond fund provide a good foundation, either as the entire basis for investing or to build upon with more complex investments.
  • Roth individual retirement accounts (Roth IRAs) allow you to avoid paying taxes on investment returns by investing after-tax income now.
  • VTI and BKAG can serve as good starting points when looking for Roth IRA investments from TD Ameritrade.

All data in the bullet point lists for each fund below are as of March 13, 2022, unless otherwise indicated.

Vanguard Total Stock Market ETF (VTI)

  • Expense Ratio: 0.03% (as of April 29, 2021)
  • Assets Under Management: $268.3 billion
  • One-Year Trailing Total Return: 11.99%
  • 12-Month Trailing (TTM) Yield: 1.33%
  • Inception Date: May 24, 2001

VTI is an ETF that aims to track the performance of the CRSP U.S. Total Market Index, an index composed of thousands of stocks across the market capitalization spectrum and which represents approximately 100% of the U.S. investable equity market. The fund provides broad, diversified exposure to the U.S. equity market.

VTI is managed by Gerard O’Reilly and Walter Nejman. O’Reilly has advised the fund since 2001 and Nejman since 2016.

Of the ETF’s 4,136 holdings, 66.9% are large cap stocks, 3.9% are somewhere between midcap and large cap, 14.9% are midcap, 6.1% are between small cap and midcap, and 8.2% are small cap. The average market cap within the fund is $537.0 billion. These portfolio characteristics are as of Jan. 31, 2022.

VTI was selected as the top broad-based stock fund for investors looking to build a Roth IRA portfolio because it is one of the cheapest broad stock funds on TD Ameritrade’s platform and has the most holdings. A single broad stock fund is normally sufficient for most investors looking to build a long-term retirement portfolio. A total stock market fund, like VTI, is preferable to an S&P 500 index fund because it offers greater diversification by providing exposure to small-cap and midcap stocks in addition to large caps.

TD Ameritrade does offer other broad-based stock funds at the same low cost as VTI. While these are also good options for a Roth IRA, VTI has the greatest number of holdings and thus provides the most diversified exposure to the U.S. equity market. But the difference in performance and risk may be minimal.

A broad-based equity fund like VTI carries a certain degree of risk, but it also provides investors with fairly strong growth opportunities. For many investors, this ETF may act as the foundation of a well-diversified investment portfolio. However, for those with a very low risk tolerance or who are approaching retirement, a more income-oriented portfolio may be a better option.

BNY Mellon Core Bond ETF (BKAG)

  • Expense Ratio: 0.00%
  • Assets Under Management: $256.5 million (as of March 11, 2022)
  • One-Year Trailing Total Return: -2.35%
  • 12-Month Trailing (TTM) Yield: 1.61%
  • Inception Date: April 22, 2020

BKAG is a passively managed ETF that aims to track the performance of the Bloomberg Barclays U.S. Aggregate Total Return Index, a broad-based benchmark that gauges the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market. The fund provides investors with broad exposure to the overall U.S. bond market.

BKAG is managed by Nancy G. Rogers and Gregory A. Lee, both of whom have advised the fund for two years.

Of the fund’s 2,112 holdings, 40.31% are Treasurys, 27.79% are agency fixed-rate bonds, and the remaining 31.9% are bonds or other debt securities issued by entities operating in the following market sectors: banking, consumer noncyclical, communications, technology, energy, electric, consumer cyclical, and capital goods. These portfolio characteristics are as of Feb. 28, 2022.

BKAG, with an expense ratio of 0%, is among the cheapest broad-based bond funds offered by TD Ameritrade. It tracks a broad bond index, similar to other funds on TD Ameritrade’s platform, and has more than enough liquidity for any retail investor.

Broad-based bond or fixed-income funds are generally less risky than equity funds. However, bond funds don’t provide the same growth potential, which means generally lower returns. They can be useful tools both for risk-averse investors and as part of a portfolio diversification strategy. Consistent with modern portfolio theory, risk-averse investors will find that investing in both a broad-based bond fund and a broad-based equity fund provides diversification. It is an approach that tends to maximize returns while minimizing risks.

Traditional wisdom suggests that that the precise mix of stocks and bonds in a long-term portfolio should follow the 60/40 rule—60% stocks and 40% bonds—and that the proportion of stocks to bonds should shrink as the investor ages. But conventional wisdom has changed, and many financial advisors and prominent investors, including Warren Buffett, now recommend that holding a higher percentage of stocks throughout an investor’s career can greatly enhance potential returns while only marginally increasing risk. But investors should always consider their own financial needs and appetite for risk before making any investment decision.

Is TD Ameritrade good for a Roth individual retirement account (Roth IRA)?

TD Ameritrade may be an attractive option for investors looking for a low-cost brokerage to open a Roth individual retirement account (Roth IRA). The company’s platform offers commission-free exchange-traded funds (ETFs), no-transaction-fee mutual funds, and more for investors looking to build a retirement portfolio. TD Ameritrade also may be attractive to investors who want the more sophisticated offerings of a full-service brokerage. That includes access to investment guidance from professional advisors through Schwab.

Can I trade stocks in my TD Ameritrade Roth IRA?

Yes. TD Ameritrade offers the ability for investors to trade stocks within their IRAs, including Roth IRAs. Also, there is no commission fee when investors trade U.S. exchange-listed stocks on the company’s platform.

Can I have two Roth IRAs?

Yes. Two, three—there is no limit to the number of IRAs that an individual investor can have. However, increasing the number of IRAs does not increase the total amount that can be contributed each year.

The Bottom Line

A Roth IRA offers investors certain tax advantages. Roth IRAs are unique in that they are funded with after-tax dollars and are not taxed when the funds are withdrawn at a later date. In short, funds invested in a Roth IRA can grow tax free. After opening a Roth IRA, the types of investments chosen will depend on the individual investor’s risk tolerance and how much time and energy they have to research various investments.

For investors with little time and energy, one option is to go with a few large and diversified funds, allocating part of their money to a broad-based stock fund and another part to a broad-based bond fund. These large, diversified funds also may create a solid foundation for many investors who do have the extra time and energy to evaluate other, sometimes riskier, investment options involving investments in individual companies or specific niches of the market, such as small cap stocks.

Article Sources

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  1. The Charles Schwab Corp., via U.S. Securities and Exchange Commission. “Form 10-K for the Fiscal Year Ended December 31, 2021,” Page 2 (Page 4 of PDF).

  2. TD Ameritrade. “Investment Products.”

  3. TD Ameritrade. “Roth IRA.”

  4. TD Ameritrade. “Mutual Funds.”

  5. TD Ameritrade. “Mutual Funds: Overview.”

  6. TD Ameritrade. “ETFs: Market Center.”

  7. TD Ameritrade. “About Us.”

  8. TD Ameritrade. “Guidance.”

  9. TD Ameritrade. “Investment Management Services.”

  10. TD Ameritrade. “Pricing.”

  11. Internal Revenue Service. “Traditional and Roth IRAs.”

  12. Morningstar. “Vanguard Total Stock Market ETF: VTI: Performance.”

  13. Vanguard. “VTI: Total Stock Market ETF.”

  14. Morningstar. “Vanguard Total Stock Market ETF: VTI: Quote.”

  15. TD Ameritrade. “ETFs: Compare Funds.”

  16. Morningstar. “BNY Mellon Core Bond ETF: BKAG: Performance.”

  17. Morningstar. “BNY Mellon Core Bond ETF: BKAG: Quote.”

  18. BNY Mellon Investment Management. “BNY Mellon Core Bond ETF (BKAG).”

  19. Bloomberg Barclays Indices. “US Aggregate Index,” Page 1.

  20. TD Ameritrade. “Retirement Offering.”

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