Saving for retirement by opening an IRA should be easy. After you open an IRA, it can be.
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Getting there can be a challenge, though. With so many brokers and so many criteria on which to judge them, it's hard to really understand how your decision affects you. Let's compare two popular choices, Merrill Edge and Vanguard, and focus on the main issues that really matter to retirement investors.
It costs money to make money, but commission costs have generally dropped over time. Vanguard and Merrill Edge both make it inexpensive to make a trade, with commission prices that generally start at $7 or less.
Data sources: Company websites.
When comparing brokers on cost, it's important to take your specific scenario into consideration, as both brokers offer discounts from their standard trading commissions. For example, Merrill Edge customers who keep a certain balance in their accounts (including Bank of America accounts) can receive 30 commission-free trades every month. Investors who keep $50,000 or more in Vanguard accounts qualify for reduced commission prices.
It may be worth spending some time to see how special offers for IRAs can tip the balance, depending on your situation. Some brokerages will effectively pay you hundreds if not thousands of dollars just to open an account, depending on how much you deposit.
Mutual fund selection and commission-free choices
Merrill Edge and Vanguard are both big on funds, offering thousands of choices that you can invest in without paying a fee or commission to make a trade.
Data sources: Company websites and representatives.
Thanks to commission-free trades on thousands of mutual funds and ETFs, many investors may find they may never pay a fee to build a diverse retirement portfolio. Thus, transaction fees on mutual funds, which tend to be higher than stock and ETF commissions, are generally irrelevant if you can shop from the commission-free list.
Minimum deposit requirement for IRAs
We don't need to spend a lot of time on this one. Vanguard and Merrill Edge are both no-minimum IRA brokerages, which means you can open an IRA with an amount you deem ideal. Of course, some mutual funds have their own minimums, and stocks and ETFs trade in whole shares, so it'd be advantageous to start with more than a spare change. Some brokers require certain minimums to qualify for cash bonuses, free trades, or other special offers.
Image source: Getty Images.
International stocks and ADRs
It's easier than ever to invest in companies that operate all around the world. Depending on how you invest, either broker may suit your style. But note the differences between Merrill Edge and Vanguard, which are summarized in the table below.
Data sources: Company websites and representatives.
The key here is whether the brokerage will route trades to international exchanges, as Vanguard offers that service, but Merrill Edge does not. That said, if you stick to foreign companies with domestic tickers, or invest internationally by way of mutual fund or ETF, the differences are largely irrelevant.
The ability to trade from anywhere is basically required in the modern discount brokerage business, and it's a feature that virtually all brokers offer. Here's how each broker's users and customers rated its capabilities (as of Jan. 26, 2017).
Data sources: Relevant app stores
IRA fees: Maintenance and inactivity fees
Fees can be annoying, particularly if you're just starting out. In general, there are two types of fees you'd likely prefer avoid, when possible. The first is a maintenance fee, which is simply an annual fee just for having an IRA. The second kind of fee is an inactivity fee, which is charged to accounts that don't meet a minimum level of trading activity.
Merrill Edge doesn't charge either fee. Vanguard has an avoidable maintenance fee in the form of an "annual account service fee" of $20. You can avoid this charge by opting in to receive documents electronically (no more snail mail!), or by keeping more than $10,000 in Vanguard's mutual funds or ETFs.
Research and retirement planning tools
As a general rule, investors can benefit from having access to more information to make informed decisions about their investments.
Merrill Edge offers access to research from Bank of America Merrill Lynch analysts, Morningstar, and S&P Capital IQ, just to name a few providers. In addition, it has a number of online tools to give you a holistic view of your retirement accounts, including accounts with other brokers or custodians. The asset allocation tool will even show you how your portfolio compares to a target portfolio based on your personal situation.
Vanguard's research services include insights from S&P, Thomson Reuters, and FirstCall. It also has some tools for retirement investors like its Portfolio Analysis tool that analyzes the makeup of your portfolio against a target portfolio, and shows you how expenses and taxes may affect its performance, among other features.
Better pick for your IRA: Merrill Edge or Vanguard?
Depending on how you invest, you could make the case that either is the best choice for you. Vanguard offers its own ETFs in its commission-free line up, and boasts more international market access. Merrill Edge may win over some investors who prefer its integration with Bank of America accounts, or its longer list of free mutual funds. Ultimately, it's really all about how each broker fits your specific needs. To be clear: The Motley Fool does not endorse any particular brokerage, but we can help you find one that is a good fit for you. Visit Fool.com's IRA Center to compare several brokers all on one page and see if you qualify for any special offers for opening a new account.
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