When you're ready to start saving for retirement, opening an IRA account with a brokerage would be a logical first step. Many brokerage IRAs offer a vast assortment of investment opportunities in stocks, bonds, options, mutual funds, and ETFs, and make it possible to trade from the comfort of your own home.
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Selecting the right brokerage for your IRA can be difficult, if only because there are so many brokers out there. Let's look at just two popular discount brokers, TD Ameritrade and Vanguard, to see what they have to offer the IRA investor.
Commission prices by investment
The price you pay to make a trade isn't everything, but cost likely plays at least some role in which brokerage is the best fit for your IRA. Here are the standard commission prices by type of investment:
Data source: company websites.
Before picking a winner solely based on their published prices, you should note that there is some nuance when it comes to trade prices. For example, Vanguard reduces commissions for customers who keep more of their assets in Vanguard products. Investors who keep $50,000 with Vanguard see their stock option commissions fall to $7 plus $1 per contract, and non-Vanguard mutual fund commissions drop to $20 per purchase.
Trading costs are further reduced by special offers (learn more about bonuses for opening an IRA), and commission-free investment options provided by each brokerage.
Mutual fund selection and commission-free choices
Vanguard and TD Ameritrade both offer thousands of funds from which to choose. Many are classified as no-load, no-transaction-fee mutual funds, which are completely free (no commissions, no loads, and no fees!) to buy or sell. In addition, they also offer commission-free ETFs, which you can trade without paying a commission.
Data source: the companies. *Vanguard figures do not count Vanguard's funds.
Both brokers offer Vanguard ETFs in their commission-free list, butonly Vanguard offers commission-free trades on all Vanguard ETFs. That said, TD Ameritrade does offer free trades on many of Vanguard's largest and most-popular ETFs, and it also offers ETFs from other sponsors that aren't available through Vanguard's brokerage service. Quality is more important than quantity -- a list of funds you'd never buy ultimately isn't of much value to investors.
Minimum deposit requirement for IRAs
You're in luck! Neither TD Ameritrade nor Vanguard requires minimum deposits to open an account and start up an IRA. That said, there are some practical limitations on no-minimum brokerage accounts.
Mutual funds frequently have their own minimums, which can range from $1,000 to $3,000. (Vanguard's target-date mutual funds have a $1,000 minimum, where most others carry a $3,000 minimum.) If you want to get started with less, individual stocks or ETFs may be a better choice, since you only need to afford one share to make an investment.
Get started toward a retirement of your dreams by opening an individual retirement account with a no-minimum brokerage. Image source: Getty Images.
International stocks and ADR investments
Most would agree that a truly diversified portfolio includes companies that operate all around the world. Both TD Ameritrade and Vanguard make it possible to invest in foreign companies, but Vanguard is the only one of the two that allows you to trade on international stock markets.
Data source: companies.
To put it simply, if a foreign company has a ticker symbol on a U.S. exchange or if it trades over-the-counter (OTC), then you'll be able to trade it with either brokerage. However, if you have to send your order to the London Stock Exchange to buy the company's stock, for example, Vanguard is just one of a few discount brokerages that can do that.
It's standard industry practice that trades on international markets come with higher commissions and/or fees. Vanguard charges a processing fee on top of the commission, which may make smaller trades cost prohibitive. In almost every case, it's advantageous to trade locally when possible via an ADR to save on commissions.
You can now trade from anywhere you want thanks to mobile trading applications. Here's how users recently rated TD Ameritrade's and Vanguard's apps, as of Jan. 18, 2017.
Data source: relevant app stores.
IRA fees: Maintenance and inactivity fees
Fees are generally on the decline, but some brokers continue to charge maintenance or inactivity fees to cover their costs of keeping your account open. TD Ameritrade offers fee-free IRAs and doesn't charge a fee for inactivity.
Vanguard charges an annual fee of $20 if you have less than $10,000 in Vanguard mutual funds or ETFs. However, you can avoid this fee completely by signing up for electronic document delivery of fun paperwork such as statements and prospectuses. You'll save trees and avoid fees -- a win-win.
These aren't your dad's discount brokers. While the industry earned the reputation for cutting corners to deliver rock-bottom commissions, discount brokers now offer all kinds of research, tools, and retirement planning calculators for free.
TD Ameritrade and Vanguard both offer research with data from S&P and FirstCall, in addition to a number of tools that are specific to the needs of retirement investors. TD Ameritrade's Portfolio Planner and Vanguard's Portfolio Analysis tools can help you evaluate your portfolio for historical performance, expenses, and taxes, and get estimates as to how these factors will affect your future retirement plans.
Best for IRAs: Vanguard or TD Ameritrade?
Both brokers have a lot to like, but there are some features that make them better for certain types of investors. Not surprisingly, Vanguard is a good choice for its own funds and ETFs, and it offers access to international markets, which many discount brokerages do not. That said, Vanguard's commission schedule favors investors who keep substantial sums invested in its own products. On the other hand, TD Ameritrade has more fee-free fund choices, but investments that do not qualify for free trades are generally charged higher prices than at Vanguard.
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 see how several leading brokerages compare on key features all on one page!
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