Roth IRA Fund Options from E-Trade

E-Trade offers online trading and discount brokerage services to retail investors. The company is owned by Morgan Stanley (MS), a financial services company. While E-Trade does not offer its own fund family, it does provide a variety of funds from other companies.

E-Trade was founded in the early 1980s and purchased by Morgan Stanley in an all-stock transaction in October 2020. As a discount broker, E-Trade offers free commissions for online U.S.-listed stocks and exchange-traded funds (ETFs).

Investors in the United States have access to several tax-advantaged saving plans, including 401(k)s, individual retirement accounts (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 But unlike a traditional IRA, where withdrawn funds are taxed, a Roth IRA allows investors to withdraw funds tax free.

Below, we take a closer look at a broad-based stock fund and a broad-based bond fund available to E-Trade investors. As mentioned, E-Trade is not a fund provider with its own fund family available. For that reason, we’ve selected the least expensive broad-based funds, as index funds provide largely similar products if they are functioning correctly and tracking the same or similar indexes. In these cases, cost is a major determining factor.

Figures below are as of Feb. 28, 2022, except where indicated.

The BNY Mellon U.S. Large-Cap Core Equity ETF (BKLC)

• Expense Ratio: 0.00%
• Assets Under Management: $468.3 million (as of August 16, 2022)
• One-Year Trailing Total Return: -4.61% (as of Aug. 15, 2022)
• 12-Month Yield: 1.41% (as of August 16, 2022)
• Inception Date: April 7, 2020

BKLC tracks the Morningstar U.S. Large Cap Index, an index composed of large-capitalization U.S.-listed stocks. The passive ETF’s primary portfolio managers are David France, Todd Frysinger, Vlasta Sheremeta, Michael Stoll, and Marlene Walker Smith, who have managed the fund since October 2020.

BKLC has approximately 214 holdings. Nearly 100% of them are mega-cap companies with market capitalizations of $25 billion or more, and all are U.S.-based. Information technology (IT) companies make up just under a third of the portfolio, followed by healthcare and consumer discretionary companies.

Broad-based equity funds carry risk but also fairly strong growth potential. A broad-based stock fund like BKLC usually can be used as the foundation of most investment portfolios. However, investors with very low risk tolerance or who are nearing retirement may seek a more income-oriented portfolio instead.

The BNY Mellon Core Bond ETF (BKAG)

• Expense Ratio: 0.00%
• Assets Under Management: $363 million (as of Aug. 16, 2022)
• One-Year Trailing Total Return: -9.27% (as of Aug. 16, 2022)
• 12-Month Yield: 1.84% (as of Aug. 16, 2022)
• Inception Date: April 22, 2020

BKAG seeks to track the performance of the Bloomberg Barclays US Aggregate Total Return Index, which offers broad exposure to the overall U.S. bond market. The passive ETF’s primary portfolio managers are Gregory Lee and Nancy Rogers, who have managed the fund since its founding.

The fund has approximately 2,302 holdings with a weighted average maturity of 8.6 years as of Jan. 31, 2022. Broken down by industry as defined by BNY Mellon, about 39.5% of the portfolio is Treasurys, followed by 27.6% agency fixed rate, with the remaining third in banking, consumer noncyclical, technology, communications, and other areas. All of the ETF’s bonds are investment grade, including 71.8% rated AAA, and the next biggest category, BBB, making up 15.2% of the portfolio.

A broad-based bond fund is typically a much safer, but lower-return, type of investment compared with a stock fund. These funds have a lower risk of losing money, although the risk is not zero. They tend to rise slower than other funds, but they have smaller swings. Bonds are useful both for more risk-averse investors and to diversify a portfolio to include asset classes that are uncorrelated. Investors with a higher risk tolerance or a longer time until retirement may wish to choose a smaller bond allocation.

Frequently Asked Questions

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 in that category, 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.