E*TRADE Core Portfolio is one of a growing number of automated online investment platforms, commonly referred to as robo-advisors.
Your investment preferences are determined in advance, you invest your money, then your portfolio is fully managed for a very low annual fee.
There are many robo-advisors available today, with more coming online all the time.
But E*TRADE Core Portfolios has advantages over much of the competition.
As part of the E*TRADE family, E*TRADE Core Portfolios provides an opportunity for you to engage in both self-directed investing, as well as professionally managed investing.
E*TRADE also offers banking functions, including E*TRADE Bank, and the E*TRADE Line of Credit, which allows you to obtain low-cost financing by using your portfolio as collateral.
E*TRADE Core Portfolio Overview
E*TRADE has developed into one of the most popular investment brokerage firms in the industry. And as is increasingly the case in the industry, E*TRADE offers its own professionally managed investment option, E*TRADE Core Portfolios.
E*TRADE Core Portfolios is a robo-advisor offering a fully managed portfolio of some of the most popular exchange traded funds in the industry. Like other robo-advisors, E*TRADE Core Portfolios first determines your investment goals, time horizon, and risk tolerance, then creates a portfolio based on that investment profile.
Once you invest your money with E*TRADE Core Portfolios, the portfolio is fully managed for you, including periodic rebalancing and reinvestment of dividends.
It’s all done for a very low annual management fee that’s well below what’s charged by traditional human guided investment advisories. Your only responsibility will be to fund your account – E*TRADE Core Portfolios does all the rest.
The E*TRADE Advantage
One of the major advantages of investing through a robo-advisor provided by an investment broker like E*TRADE is that you can combine a managed investment option with self-directed investing.
A portion of your portfolio can be managed by the robo-advisor, while you continue to try your hand at investing in individual securities, like stocks, options, mutual funds, and exchange traded funds (ETFs).
As far as trading fees with individual investments, E*TRADE is at about the middle of the pack, at $6.95 per trade for stocks in ETFs. However, if you’re a frequent trader – making at least 30 trades per quarter – the trading fees drop to $4.95 per trade.
What’s more, E*TRADE is currently offering up to $600, plus 60 days of commission-free stock and options trades when you transfer $10,000 or more into a brokerage account.
It’s one of the top platforms for self-directed investing, offering industry-leading trading tools, as well as providing as much – or as little – customer support as you need. E*TRADE even has more than 30 brick-and-mortar branches around the country, just in case you like some face-to-face contact with your investment activities.
Headquartered in New York City, E*TRADE was founded in 1982, and employs more than 4,000 people across the country. The company has approximately 4.9 million brokerage accounts, including more than $400 billion in assets under management.
E*TRADE also offers E*TRADE Bank, providing full banking services.
This includes a low-fee checking account that’s fully integrated with your E*TRADE account. The account comes with unlimited ATM fee refunds for service charges from any ATM nationwide.
The bank also offers high interest savings account options, as well as mortgage financing. E*TRADE Bank gives investors the option the bank where they invest.
E*TRADE Features and Benefits
Minimum initial investment. $5,000.
Annual Advisory Fee. The fee is 0.30% of your account value, putting E*TRADE Core Portfolios on the lower end of the robo-advisor industry fee range (0.25% to 0.50%). There are no commissions or transaction fees. The advisory fee is charged on a quarterly basis and is based on the average daily market value of the account for the quarter.
Available accounts. Individual and joint taxable accounts, custodial accounts, and traditional, Roth, rollover and SEP IRAs.
Portfolio rebalancing. Performed semi-annually to maintain target portfolio allocations. Also performed when material deposits or withdrawals are made to and from your account.
Recurring deposits. Available by taking advantage of the online Transfer Money service. You can set up deposits in any amount, based on your own schedule. Funds will automatically be invested into the Core Portfolios based on the desired asset allocation in your plan.
Tax-loss harvesting. Not offered. However, Core Portfolios does offer a tax-sensitive investment strategy for all taxable accounts. The strategy uses municipal bond ETFs that may help reduce taxes on interest and dividends associated with your portfolio.
E*TRADE Line of Credit. The Line is available on all E*TRADE accounts, including Core Portfolios. It’s a revolving, non-purpose line of credit offered by E*TRADE Savings Bank that you can apply for on the E*TRADE platform. The Line can be used for any lawful purpose, other than purchasing securities on margin.
Customer support. Available 24 hours a day, seven days per week, by live chat. Toll-free telephone support is available from Monday through Friday, from 8:30 AM to 8:30 PM, Eastern time. E*TRADE also has more than 30 local branches around the country.
Account protection. E*TRADE Securities is a member of both FINRA and SIPC, with SIPC providing protection against broker failure for up to $500,000 in both cash and securities per investor, including up to $250,000 in cash.
Account security. E*TRADE offers account security through its E*TRADE Complete Protection Guarantee. This includes $0 liability for unauthorized use of your account, complete payment protection, complete information privacy, optional digital security ID, electronic documents, and smart alerts, by either email or text.
Investing with E*TRADE Core Portfolios
When you open an E*TRADE Core Portfolios account, you begin by completing a seven-part questionnaire which assesses your risk and investing goals.
Once you complete the questionnaire, your answers are analyzed, and a portfolio recommendation is provided, as depicted in the screenshot below:
You’ll then be given an option to invest in one of three portfolios:
- Core Portfolios
- Core Portfolios: Socially Responsible
- Core Portfolios: Smart Beta
Based on the portfolio recommended for me, the platform provided the following historical index returns:
- Average Case: +6.25%
- Best Case: +36.36%
- Worst Case: -28.40%
The actual portfolio allocation looks like this:
Notice there are actually three portfolio allocations. The allocation in the center is the recommended portfolio – which is 60% stocks, 40% bonds.
But E*TRADE Core Portfolios provides the option to either increase the risk in your portfolio, by raising your stock allocation to 80% (allocation in the right column), or to lower the risk, by lowering your stock allocation to 40% (allocation in the left column).
This is one of the features that makes E*TRADE Core Portfolios unique. Rather than giving you a single portfolio option, you have the ability to tweak the allocation to make it either more aggressive or less so.
E*TRADE Core Portfolios Investment Methodology
E*TRADE Core Portfolios are managed by E*TRADE Capital Management, using Modern Portfolio Theory (MPT), which is a common investment strategy employed by robo-advisors.
It emphasizes a combination of asset classes, including US and international equities, as well as fixed income assets. This serves to increase returns and limit risks to your portfolio over the long-term.
Each asset class in your portfolio is comprised of an exchange traded fund, representing a broad index tied to that class. As is typical of robo-advisors, the use of index-based ETFs means your portfolio will match the performance of the market, but will neither underperform nor outperform it.
Each portfolio has a targeted cash allocation of 4%. The money is invested in an interest-bearing money market fund or cash alternative.
As mentioned earlier, E*TRADE Core Portfolios offers three different portfolios:
This is the basic portfolio offered, which provides diversified investments in both foreign and domestic equities and fixed income securities.
Core Portfolios: Socially Responsible
This portfolio enables you to align your investing activities with your personal values.
Your portfolio will be adjusted to include ETFs that focus on companies known for favorable environmental, social, and governance practices.
Core Portfolios: Smart Beta
This investment option provides a more actively managed portfolio strategy.
Your portfolio will include an allocation of part of your account to a Smart Beta ETF, which is one that favors equities with certain characteristics that may improve your overall returns. In this way, Smart Beta offers an opportunity to outperform the underlying market.
E*TRADE Core Portfolios Advantages
- Flexibility: E*TRADE Core Portfolios gives you the ability to modify your portfolio recommendation, or even choose a different portfolio.
- Options: You have the option to choose either socially responsible investing or smart beta.
- Lending: The E*TRADE Line of Credit enables you to borrow up to 50% of the value of your account at rates lower than margin interest.
- Free management: E*TRADE Core Portfolios are managed free for the first 12 months after you open your account.
- Versatility: With E*TRADE Core Portfolios you can have a portion of your portfolio professionally managed while engaging in self-directed investing through a regular E*TRADE account.
- Banking: E*TRADE Bank gives you the ability to take advantage of full-service banking while investing through E*TRADE.
E*TRADE Core Portfolios Disadvantages
- No tax loss harvesting: This has become a common feature with many robo-advisors, but it is not yet a part of E*TRADE Core Portfolios. They do offer tax sensitive investing, which is limited to municipal bond interest on fixed income assets only.
- Fees: The annual advisory fee of 0.30% is slightly higher than the more typical 0.25% charged by competing robo-advisors, like Betterment and Wealthfront, though neither gives you the option to engage in self-directed trading, the way E*TRADE does.
- Minimum investment: The minimum initial investment of $5,000 may be a bit of an obstacle for new and small investors, considering there are other robo-advisors with much lower initial investments, or none at all.
- Limited options: E*TRADE Core Portfolios are limited to stocks and bonds. They don’t offer alternative investments, such as real estate or natural resources, the way some robo-advisors do.
Who Should Use E*TRADE Core Portfolios?
E*TRADE Core Portfolios should be considered by anyone who wants to invest but lacks either the time, experience, or knowledge to do so. Core Portfolios enables you to invest your money, then have it professionally managed at a very low annual fee.
E*TRADE Core Portfolios is a natural choice for anyone who already has an E*TRADE brokerage account and is looking to move at least some of their portfolio into a managed investment option.
And since E*TRADE is also a full-service brokerage, E*TRADE Core Portfolios is perfect for anyone who wants to maintain a hybrid arrangement of both self-directed and manage portfolios.
It’s also an excellent choice for anyone who wants a managed portfolio but prefers to retain the ability to either modify or completely change the portfolio. That’s a rare benefit among robo-advisors and one that needs to be carefully considered in your selection process.
E*TRADE’s banking services are another plus. They give you the advantage of being able to bank where you invest. But you also have access to the E*TRADE Line of Credit that will enable you to borrow up to 50% of the value of your account.
E*TRADE Core Portfolios isn’t the lowest cost robo-advisor program, but it comes with enough additional features that more than offset the slightly higher annual advisory fee.