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Your 401(k): Handling Interest Rate Ups and Downs

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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With any change in the economy or your life situation, it is a good idea to review your investment portfolio, particularly your 401(k) plan, to make sure your investments are structured to meet your needs at retirement. This is especially true when interest rates are rising so you can take maximum advantage of those high rates. There’s also benefit to checking on your investments when rates are down; certain investments will actually be worth more and you can make a profit by selling or simply enjoy your higher-earning investments.

Interest rates rise and fall based on changes in the economy. The Federal Reserve (the Fed) may lower rates to support the economy when it’s going through a weaker patch and may choose to raise interest rates as the economy begins to gain strength.

Either way, there’s no need to panic. We’ll help you understand what happens to your 401(k) investments in either situation.

What to ask yourself when reviewing your 401(k)

A 401(k) is a savings vehicle that many companies make available to help their employees save for retirement. For tax year 2019, you have until April 15 to contribute up to $19,000 of your earnings into your 401(k) on a pretax basis, meaning anything you contribute is not taxed until you withdraw it, usually at retirement. For 2020, you can contribute up to $19,500.

Some companies match employee contributions up to a certain limit that varies by employer. These contributions are not taxable to you until you withdraw them. Companies offer employees a variety of 401(k) investment options. Some larger companies allow employees to choose from a dozen or more mutual funds, including various stock, bond and real estate funds.

While any time is a good time to review your 401(k) investments, a rise (or fall) in interest rates is a particularly good time to make certain your 401(k) investments meet your needs based on your age, years until retirement and risk tolerance, among other factors.

Virtually all 401(k) plans offer one or more fixed-income investment options. These typically include both government and corporate bonds of varying maturities. For example, a fund might offer a mutual fund that invests in short-term Treasury bills, one that invests in long-term Treasury bonds and one that invests in corporate bonds. Some companies might even offer a fund that invests in so-called junk bonds that pay a higher rate of interest in return for the risk of investing in low-quality bonds.

What to expect when rates rise

An increase in interest rates will eventually have an impact on the types of fixed-income funds in a 401(k). A fund that invests in short-term Treasury bills will react quickest to this change. When the bonds that the funds hold mature over the subsequent year, the fund manager will reinvest the proceeds in bonds that pay a higher rate of interest.

A corporate bond fund, on the other hand, includes bonds with varying maturities. It may take time for the fund to invest its assets in bonds that pay higher interest, as most fund managers spread their investments over maturities between one and 30 years so that at least some bonds are always maturing to potentially be reinvested at a higher rate.

A rise in interest rates also will affect the price of existing bonds in a portfolio. Say the corporate bond fund you own has an XYZ Company corporate bond that pays 4% interest. As market interest rates rise, the value of that bond will decline to a point where the current yield on that bond is closer to the market rate. Since most fund managers anticipate that interest rates will rise, they have structured their portfolios to minimize the impact that an increase will have on the fund’s value.

Let’s return to reviewing your 401(k) investments. When you started your job, you probably picked a mix of investments and haven’t made any changes. That’s fine if you started your job two years ago. But if you have been working for the same company for 10 years, a review is a good idea.

Let’s say that when you started working for the company at age 30, you were single and invested 90% of your 401(k) in stocks and just 10% in bonds. Now, fast-forward 10 years. You got married. And while retirement is still at least 25 years away, it is something you can begin to see on the horizon. It might be a good time to increase your fixed-income allocation to add greater stability to your 401(k) returns — especially if interest rates are rising.

What to expect when rates fall

It’s important to keep in mind that interest rates also can fall. The bad news is this typically happens when the economy isn’t doing so well. The good news is your higher-rate fixed-income investments will be worth more. You can choose to sell them and take the profit or hold them and enjoy earning a rate that’s higher than the one currently available.

Investing when interest rates are falling requires a different strategy. Young investors with many years until retirement who have the bulk of their 401(k) investments in stock should be able to ride out a period of low interest rates without significant impact.

Older investors who see retirement on the horizon or are already retired will find falling interest rates more problematic. Their investments may be concentrated in fixed-income vehicles, or they may be seeking solid long-term fixed-income investments to pay them the retirement income they need. Since nobody can predict how long rates will continue to fall, buying fixed-income investments with staggered maturities, sometimes called a bond ladder, is the best way to make sure you always have money available to take advantage of rising interest rates when they happen.

What’s ahead for 2020

The general expectation for 2020 is that market interest rates will continue to decline. The Federal Reserve has put the federal funds rate on an indefinite pause since its series of three rate cuts in the second half of 2019. In response, banks lowered their own rates and continue to do so overall.

If the Fed does make a change, it is largely expected to be another rate cut rather than a rate hike. This is thanks to outside risks to the economic outlook, namely weaker global growth, trade negotiations and the recent coronavirus outbreak. The Fed’s three rate cuts in 2019 were designed to support the U.S. economy in the face of these threats. If they continue to weigh on the economy, which is performing pretty well on its own, the Fed will be more likely to cut rates to continue that support.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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Investing

E*Trade vs. TD Ameritrade

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone and is not intended to be a source of investment advice. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

E-Trade and TD Ameritrade are two of our picks for the best online brokers available in the market today. While these firms share broad similarities in the services they offer, there are some important differences that can hopefully help you make an informed choice between these two key industry players.

Based on our comparison, TD Ameritrade seems to offer a wider range of trading options, including foreign exchange and cryptocurrency, plus more portfolio management options for larger balance accounts.

E-Trade vs. TD Ameritrade: Feature comparison

E-Trade TD Ameritrade
Current promotions New accounts with a deposit of at least $5,000, may be eligible for a cash bonus, which can range from $100 to $2,500 depending on the amount deposited. Get up to $600 when you open and fund an account within 60 calendar days of account opening, depending on deposited amount.
Stock trading fees
    • $0.00 per trade
  • $0.00 per trade
Minimum deposit to open account
  • $500
  • $0
Tradable securities
  • Stocks
  • ETFs
  • Mutual funds
  • Bonds
  • Options
  • Futures/Commodities
  • Stocks
  • ETFs
  • Mutual funds
  • Bonds
  • Options
  • Futures/Commodities
  • Forex
Account fees (annual, transfer, inactivity)
  • $0 annual fee
  • $75 full account transfer fee
  • $25 partial account transfer fee
  • $0 yearly inactivity fee
  • $0 annual fee
  • $75 full account transfer fee
  • $0 partial account transfer fee
  • $0 inactivity fee
Commission-free ETFs offered
Mutual funds (no transaction fee) offered
Offers automated portfolio/robo-advisor
Account types
  • Individual taxable
  • Traditional IRA
  • Roth IRA
  • Joint taxable
  • Rollover IRA
  • Rollover Roth IRA
  • Coverdell Education Savings Account(ESA)
  • Custodial Uniform Gifts to Minors Act (UGMA)/Uniform Transfers to Minors Act (UTMA)
  • Custodial IRA
  • SEP IRA
  • Solo 401(k) (for small businesses)
  • SIMPLE IRA (Savings Incentive Match Plan for Employees)
  • Trust
  • Guardianship or Conservatorship
  • Individual taxable
  • Traditional IRA
  • Roth IRA
  • 529 Plan
  • Joint taxable
  • Rollover IRA
  • Rollover Roth IRA
  • Coverdell Education Savings Account(ESA)
  • Custodial Uniform Gifts to Minors Act (UGMA)/Uniform Transfers to Minors Act (UTMA)
  • Custodial IRA
  • SEP IRA
  • Solo 401(k) (for small businesses)
  • SIMPLE IRA (Savings Incentive Match Plan for Employees)
  • Trust
  • Guardianship or Conservatorship
Ease of use
 
 
Mobile app iOS, Android iOS, Android, Windows phone
Customer support Phone, 24/7 live support, Chat, Email, 30 branch locations Phone, 24/7 live support, Chat, Email, 364 branch locations
Research resources
  • SEC filings
  • Mutual fund reports
  • Earnings press releases
  • SEC filings
  • Mutual fund reports
  • Earnings press releases
  • Earnings call transcripts
  • Earnings call recordings
Trading Fees
Amount Minimum to Open Account
Annual Fee
$0.00 per trade
$500
$0 annual fee
Visit E-Trade Secured

on E-Trade’s secure site

$0.00 per trade
$0
$0 annual fee
Visit TD Secured

on TD Ameritrade’s secure site

E-Trade vs. TD Ameritrade: Fees & account minimums

Some brokers charge an annual or monthly fee to maintain your account. Neither E-Trade nor TD Ameritrade impose such a fee, nor do they charge a fee if your account is inactive during the year. However, E-Trade does impose a $500 minimum to open an account at the firm. TD Ameritrade requires no minimum account balance.

Neither E-Trade nor TD Ameritrade charge commissions for U.S. stock trades. Both firms offer a range of commission-free exchange traded funds (ETFs) and the ability to purchase mutual funds without a transaction fee.

Both brokers charge fees for professional account management services. At E-Trade, fees range from 0.30% to 1.25% of assets under management, depending on the services chosen by the investor. At TD Ameritrade fees are similar, ranging from 0.30% to 0.90% of assets under management.

E-Trade charges a $75 fee for a full account transfer and a $25 fee for a partial transfer. TD Ameritrade charges the same $75 fee for a full account transfer. However, at TD Ameritrade, partial account transfers are free, offering investors additional flexibility.

Many online brokers offer special incentives to attract investors, and these offers can vary over time. E-Trade and TD Ameritrade currently offer $600 bonuses for deposits of $250,000 or more. E-Trade also offers a $2,500 bonus if you deposit $1,000,000 or more.

E-Trade vs. TD Ameritrade: Tradable securities

In addition to trading stocks and bonds, E-Trade and TD Ameritrade offer their customers a wide range of investable asset classes to choose from:

  • Mutual funds: For investors interested in the professional management that mutual funds offer, at E-Trade you can invest in more than 4,400 mutual funds with no transaction fee. Meanwhile, TD Ameritrade offers more than 13,000 mutual funds.
  • Options: An option allows an investor to sell a security at a predetermined price for a certain period of time. At E-Trade investors can trade options free of any commission, although there is an additional fee of $0.65 per contract. This fee drops to $0.50 with 30 or more trades per quarter. TD Ameritrade charges no commissions to trade options, but charges an additional fee of $0.65 per contract.
  • ETFs: Including ETFs in your portfolio is a great way to add an element of diversity. E-Trade gives investors access to more than 250 ETFs free of commission. At TD Ameritrade, investors have access to more than 550 ETFs that are commission-free.
  • Foreign exchange trading. At TD Ameritrade, investors can access the currencies of more than 20 countries. E-Trade does not offer foreign exchange trading.
  • Futures. If you decide to trade in futures you are essentially agreeing to sell a security or other asset at a set price at a predetermined time in the future. E-Trade offers futures trading for $1.50 per transaction. TD Ameritrade gives investors access to more than 70 futures products.
  • Cryptocurrency. TD Ameritrade recently began offering cryptocurrency investing through ErisX, a regulated exchange for cryptocurrency trades. E-Trade does not offer the ability to invest in cryptocurrency.

E-Trade vs. TD Ameritrade: Special features

E-Trade offers three levels of managed account services. Core Portfolios is the company’s robo-advisor product, which offers you an automated portfolio of ETFs customized to your investment goals. Just complete a five-minute online questionnaire to get started, which includes information about your goals, timelines and attitudes about risk. The minimum investment is just $500 and the annual fee is 0.30% with no commissions.

Blended Portfolios is E-Trade’s second level of managed accounts. Investors work with a financial consultant to tailor a portfolio that meets their needs, however you need a $25,000 minimum balance to gain access to Blended Portfolios. Annual management fees range between 0.65% and 0.90%, depending on the total amount of money invested under the service.

E-Trade’s third level of managed accounts, Dedicated Portfolios, includes an ongoing one-on-one relationship with a dedicated financial consultant, and it requires a $150,000 minimum investment. Annual management fees range between 0.95% and 1.25%.

TD Ameritrade also offers investors three levels of managed portfolios. Essential Portfolios is the firm’s robo-advisor option, offering five goal-oriented ETF portfolios. The minimum investment is $5,000 and the annual management fee is 0.30%.

Selective Portfolios offers more personalized service, and invests in both ETFs and mutual funds. A financial consultant helps you set investing goals, and a support team that regularly updates you on how the account is tracking towards those goals. The minimum investment is $25,000, while annual fees range from 0.55% to 0.90% depending on account balance.

Personalized Portfolios provides TD Ameritrade’s highest level of service, with tailored advice and portfolio construction. It gives you a one-on-one relationship with a financial consultant, plus extra guidance and support from a team of investment professionals. The minimum investment is $250,000, and annual fees range from 0.60% to 0.90%, depending on portfolio type and the total amount invested.

E-Trade advantages

  • If you are a high-volume options trader, after you do 30 trades in a quarter, the fee per contract drops to $0.50 from $0.65. TD Ameritrade offers only a flat fee of $0.65 per contract.
  • E-Trade offers its clients access to solid research tools including market news, recordings and transcripts of earnings calls as well as the ability to analyze companies with fundamental stock research, technical research and bond, mutual fund and ETF research tools.
  • E-Trade has a “better” bonus for new clients. For a deposit of only $10,000 you get $600 and up to 500 free trades. While TD Ameritrade offers 60 days of free trades for only a $3,000 deposit, you need to deposit $250,000 to get a $600 cash bonus.

TD Ameritrade advantages

  • TD Ameritrade does not impose a minimum balance to open an account. At E-Trade, the minimum initial investment to open an account is $500.
  • Some transfer fees at TD Ameritrade are lower. For example, there is no charge for a partial account transfer while E-Trade imposes a $25 fee.
  • TD Ameritrade has 364 branches located around the country to provide customer support. E-Trade has only 30 branches.
  • TD Ameritrade offers investors access to more mutual funds and ETFs that are free of transaction fees. For example, TD Ameritrade offers more than 13,000 mutual funds, nearly three times the number of mutual funds at E-Trade(4,400).

E-Trade vs. TD Ameritrade: Which is best for you?

With both companies offering $0 stock trading, E-Trade is likely to appeal to heavy options traders, since the cost per trade drops after 30 trades in a quarter. TD Ameritrade will appeal to investors who are looking to trade foreign exchange and cryptocurrency. And for investors who are looking for stronger portfolio consulting options, TD Ameritrade offers a wider choice of customized investing advice for larger account balances.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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Investing

Robinhood vs. E*TRADE: Which Should You Choose?

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone and is not intended to be a source of investment advice. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

With free trades for virtually all asset classes but minimal extra trading resources or managed account services, Robinhood is for investors who do their own research and are simply looking for a place to trade. E-Trade is for investors who want the full investment experience, including access to research and other plenty of account services. Read on to discover more about these leading investing platforms.

Robinhood vs. E-Trade: Feature comparison

Robinhood E-Trade
Current promotions Share of stock for new customers who are referred by an existing Robinhood account holder New accounts with a deposit of at least $5,000, may be eligible for a cash bonus, which can range from $100 to $2,500 depending on the amount deposited.
Stock trading fees
  • $0 per trade
  • $0.00 per trade
Minimum deposit to open account
  • $0 per trade
  • $500
Tradable securities
  • Stocks
  • ETFs
  • Options
  • Crypto-currency
  • Stocks
  • ETFs
  • Mutual funds
  • Bonds
  • Options
  • Futures/Commodities
Account fees (annual, transfer, inactivity)
  • $0 annual fee
  • $75 full account transfer fee
  • $0 inactivity fee
  • $0 annual fee
  • $75 full account transfer fee
  • $25 partial account transfer fee
  • $0 yearly inactivity fee
Commission-free ETFs offered
Mutual funds (no transaction fee) offered
Offers automated portfolio/robo-advisor
Account types
  • Individual taxable
  • Individual taxable
  • Traditional IRA
  • Roth IRA
  • Joint taxable
  • Rollover IRA
  • Rollover Roth IRA
  • Coverdell Education Savings Account(ESA)
  • Custodial Uniform Gifts to Minors Act (UGMA)/Uniform Transfers to Minors Act (UTMA)
  • Custodial IRA
  • SEP IRA
  • Solo 401(k) (for small businesses)
  • SIMPLE IRA (Savings Incentive Match Plan for Employees)
  • Trust
  • Guardianship or Conservatorship
Ease of use
 
 
Mobile app iOS, Android iOS, Android
Customer support Email Phone, 24/7 live support, Chat, Email, 30 branch locations
Trading Fees
Amount Minimum to Open Account
Annual Fee
$0 per trade
$0 per trade
$0 annual fee
Get Started Secured

on Robinhood’s secure site

$0.00 per trade
$500
$0 annual fee
Visit E-Trade Secured

on E-Trade’s secure site

Robinhood vs. E-Trade: Fees & account minimums

Some brokers charge an annual or monthly fee to maintain your account. Neither Robinhood nor E-Trade impose such a fee. And neither charges a fee if your account is inactive during the year. However, while Robinhood requires no minimum balance to open an account, E-Trade imposes a $500 minimum.

There are zero commission fees for trading U.S. stocks or exchange traded funds (ETFs) at both Robinhood and E-Trade. Note that E-Trade offers users the ability to purchase mutual funds without a transaction fee, while Robinhood does not offer access to any mutual funds.

Robinhood does not currently offer professional account management services. At E-Trade, annual fees for account management range from 0.30% to 1.25% of assets under management, depending on what services the investor chooses.

Both Robinhood and E-Trade charges a $75 fee for a full account transfer. While Robinhood does not list a separate fee for partial account transfers, E-Trade imposes a $25 fee for a partial transfer.

Many online brokers offer special incentives to attract investors, and these offers may vary over time. E-Trade gives new customers $100 for a $5,000 deposit, and up to $2,500 for a deposit of $1,000,000 or more. Robinhood does not offer any special incentives currently.

Robinhood vs. E-Trade: Tradable securities

In addition to trading stocks and bonds, both Robinhood and E-Trade offer their customers a range of investable asset classes to choose from. At E-Trade, the range of securities offered is wider and more diverse.

  • Mutual funds: For investors interested in the professional management that mutual funds offer, at E-Trade you can invest in more than 4,400 mutual funds with no transaction fee. Robinhood does not offer investors access to any mutual fund products. This makes E-Trade the clear choice for investors who want to buy mutual funds.
  • Options: An option allows an investor to sell a security at a predetermined price for a certain period of time. At Robinhood, listed option trades are free. At E-Trade, investors can trade options at regular commission rates plus an additional fee of $0.65, which drops to $0.50 with 30 or more trades per quarter.
  • ETFs: Including ETFs in your portfolio is a great way to add an element of diversity. Robinhood offers ETF trading free of commissions. E-Trade gives investors access to more than 250 ETFs free of commission. This makes Robinhood significantly less expensive for ETF traders.
  • Foreign exchange trading. Neither Robinhood nor E-Trade offer access to foreign exchange trading.
  • Futures. If you decide to trade in futures you are essentially agreeing to sell a security or other asset at a set price at a predetermined time in the future. Robinhood does not make futures trading available to its investors. E-Trade offers futures trading for $1.50 per transaction.
  • Cryptocurrency. This is another of the products that Robinhood offers free of commission. The firm offers cryptocurrency in 38 states and Washington, D.C.
    E-Trade does not offer the ability to invest in cryptocurrency.

Robinhood vs. E-Trade: Special features

E-Trade offers three levels of managed account services. Core Portfolios is the company’s robo-advisor product, which offers you an automated portfolio of ETFs that are customized to your investment goals. To get started, just complete a five-minute online questionnaire, which includes information about your goals, timelines and attitudes about risk. The minimum investment is just $500 and the annual fee is 0.30% with no commissions.

Blended Portfolios is E-Trade’s second level of managed accounts. Investors work with a financial consultant to tailor a portfolio that meets their needs, however you need a $25,000 minimum balance to gain access to Blended Portfolios. As of the date of publishing, annual management fees range between 0.65% and 0.90%, depending on the total amount of money you invest in the program.

E-Trade’s third level of managed accounts, Dedicated Portfolios, includes an ongoing one-on-one relationship with a dedicated financial consultant, and it requires a $150,000 minimum investment. Annual management fees range between 0.95% and 1.25%.

Robinhood advantages

  • At Robinhood, investors can invest in cryptocurrency. This is not the case at many online brokers, including E-Trade. An added advantage is that Robinhood does not charge a commission for cryptocurrency trades.
  • Robinhood has an easy-to-use website that makes trading with the firm quick and easy. You can literally be trading within minutes.

E-Trade advantages

  • E-Trade offers access to mutual funds, which are not available through Robinhood.
  • E-Trade offers its clients access to solid research tools including market news, recordings and transcripts of earnings calls as well as the ability to analyze companies with fundamental stock research, technical research and bond, mutual fund and ETF research tools.
  • E-Trade offers bonuses for new customers, while Robinhood doesn’t offer any bonuses.

Robinhood vs. E-Trade: Which is best for you?

In the final analysis, the differences between Robinhood and E-Trade are significant. If you are simply looking for a platform to trade stocks and other securities that you research on you own, then Robinhood is the choice for you. But if you want your brokerage firm to support your investment efforts with research, a fuller range of products, including mutual funds, and the option of access to professional management, then E-Trade is likely to be a better option.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.