Vanguard vs. E*Trade: Comparing Two Online Brokers

By Jordan Wathen Markets Fool.com

When you're ready to make your first investment, your first step is to open a brokerage account. Don't worry -- there are many different brokers who would love to have you as a customer. In particular, two well-known brokers, Vanguard and E*Trade, have some compelling features for do-it-yourself investors. Here's how they compare to one another.

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Trading costs and commissions

You don't have to give up your first-born child to make a trade. Online discount brokers make buying your first stock, ETF, or mutual fund less expensive than a combo meal at a fast food joint. Here's how Vanguard and E*Trade compare on commissions.

Broker

Stocks/Options

ETFs

Mutual funds

Vanguard

Stocks: $7 per trade

Options: $20 + $1 per contract

$7 per trade

$35.00 per purchase

E*Trade

$9.99 per trade + $0.75 per options contract

$9.99 per trade

$19.99 per purchase

Data source: company websites.

Be advised that standard rates are necessarily reflective of the rate you will pay on every trade. You'll find that many havespecial offers for IRA accountsthat can reduce the cost of trading. Similarly, brokers frequently discount their standard prices. If you keep more than $50,000 in Vanguard's funds, for example, it deeply discounts its trading commissions.

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Commission-free ETFs and NTF Funds

Remember what I was saying about how you can save on commissions? Vanguard and E*Trade both offer long lists of commission-free ETFs and no-transaction-fee (NTF) mutual funds that are fee-free.

Broker

Commission-Free ETFs

NTF Mutual Funds

Vanguard

55 ETFs (All Vanguard ETFs)

Thousands (including Vanguard mutual funds)

E*Trade

105 (WisdomTree, Deutsche Bank, and Global X)

2,500+

Data source: company websites.

Either broker can win you over here, depending on your favorite funds. Vanguard allows you to make trades in its ETFs commission-free, while offering a long list of NTF mutual funds that includes its own mutual funds. E*Trade offers commission-free ETFs from three different sponsors, as well as NTF trades on more than 2,500 mutual funds.

Account minimums

You don't need to rob a bank to get started with Vanguard or E*Trade. Vanguard has a no minimum account policy, and E*Trade will open an account for you as long as you can come up with a $500 initial deposit.

Realistically, you might want to start out with at least $500 at either brokerage, anyway, so that you can afford to buy shares of a stock, ETF, or mutual fund, and pay the resulting commission on the trade.

Trading platform

We like to invest in stocks to hold them for a long time, and we don't really care if we look cool doing it. The Motley Fool's focus on the long haul means that we don't trade all that much, so we really don't use many of the features of trading platforms, which tend to cater to more-active traders.

Truthfully, for us, a "good" platform is one will process our infrequent trades, and a "bad" platform is one that doesn't. Vanguard and E*Trade both fulfill this simple criteria and thus meet the most basic needs of long-term investors.

International stocks and ADRs

If you slept through too many French classes in college, take comfort in knowing that investing in foreign companies doesn't require you know a second language. Vanguard and E*Trade clients can trade American depositary receipts (ADRs) listed on American markets. Vanguard offers the ability to trade on international stock markets, but access comes at a price. Trades on international exchanges incur a $50 fee on top of a commission.

It's easier than ever before to invest in foreign stocks with ADRs and direct access to international exchanges. Image source: Getty Images.

Research quality and tools

Generally speaking, we tend to think that investors are best served when they have access to research reports and tools to help them make informed investment decisions. Vanguard and E*Trade don't leave their clients in the dark, as both offer a number of screening tools to find potential investments.

In addition, Vanguard offers research and news from First Call, Thomson Reuters, and Standard & Poor's. E*Trade provides research from S&P Capital IQ, Thomson Reuters, Morningstar, and other third-party providers. Either brokerage could be a good fit on the basis of research capabilities.

Mobile trading apps

Here's how each brokers' users and clients rated their mobile capabilities on iOS and Android as of Dec. 6, 2016.

Broker

Apple App Store

Google Play

Vanguard

2.0 stars

4.0 stars

E*Trade

1.5 stars

4.0 stars

Data source: relevant app stores.

Vanguard vs. E*Trade: Who wins?

Is it cheating if we call it a tie? Look, if you really want to trade on international markets, or prefer dipping your toes in the water with a no-minimum account, you'd naturally steer toward Vanguard. But if you like E*Trade's wider selection of commission-free ETFs, and think you might trade more options, you'd have every reason to think E*Trade is the better choice. The best broker is highly dependent on your needs.

To be clear, The Motley Fool doesn't endorse any particular broker. We can help you make an informed choice, however. Fool.com's Broker Center might help by comparing the key features of top brokers all on one page. Oh, and if you want to open an account for an IRA, see this special offers page to make sure you're getting all the perks you deserve when you open or transfer an account.

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Jordan Wathen has no position in any stocks mentioned. The Motley Fool recommends WisdomTree Investments. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.