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Updated on Tuesday, April 19, 2016
The best investors get a few key things right. They:
- Save enough money
- Contribute to the right accounts
- Choose solid investments
- Minimize costs
That last point may seem counterintuitive – after all, we’re used to paying more for quality – but it’s one of the most important parts of your plan. The less you pay for your investments, the more likely you are to get positive returns. That’s just the way it is.
So when you’re making a decision like where to open your IRA, cost is one of the first things you should consider.
Here are a number of low-fee IRA providers that will maximize your odds of success.
Many of the companies that create the mutual funds and ETFs you might select on other platforms also allow you to open IRAs and other investment accounts with them directly. This is a great way to minimize your costs, especially if you’re willing to invest primarily or exclusively in that company’s funds.
For example, your 401(k) through work may offer Vanguard funds. But you don’t need to be working through a third-party provider to get access to Vanguard funds. You can invest directly with Vanguard and cut out the fees of the middleman. That isn’t to say we discourage you from investing in your company’s 401(k), especially if there is an employer match.
These companies also typically have platforms that allow you to invest in other funds as well, and in many cases the fees to do so are highly competitive.
Here are some of your best options.
Vanguard is the industry’s leading provider of mutual funds and ETFs, primarily because its products are both high-quality and low-cost.
And if you open an IRA directly with Vanguard you get access to their world-class funds without any trading fees. There is a $20 annual account maintenance fee, but that’s waived if you agree to electronic delivery of account statements.
Vanguard also have a robust platform for trading other mutual funds and ETFs, with the cost per trade typically ranging from $0 for certain mutual funds to $35 at the high end. You can see a full list of fees here.
Similar to Vanguard, Schwab is free if you stick to their funds. There is a $1,000 account minimum, but that’s waived if you set up a monthly automatic investment of at least $100.
It also has a large selection of non-Schwab ETFs that you can trade commission-free as well.
The cost to trade other ETFs ranges from $8.95-$33.95, and for mutual funds ranges from $0-$76. You can see a full outline of the fees here.
Fidelity is another good option here. Like the others there is no cost to trade its own funds and no account maintenance fee. There is a $50 fee if you choose to close your IRA though.
One downside is that many of Fidelity’s mutual funds have a $2,500 minimum initial investment, and in many cases the funds themselves are more expensive than Vanguard’s and Schwab’s.
It does, however, have an ETF platform that allows you to trade iShares ETFs at no cost. Other non-Fidelity ETF trades are $7.95 and mutual funds range from $0-$49.95 per trade.
A full outline of fees can be found here.
Automated Investing Platforms
Automated investing platforms, or “robo-advisors”, have made it even easier to quickly get up and running with a solid investment portfolio at a low cost.
We recently did a thorough review of these platforms, which you can find here: Which Robo-Advisor Has the Lowest Fees?
But here’s a quick summary of your options:
- Betterment – Portfolio fees of about 0.10% and management fees of 0.15%-0.35%. There is a minimum $3 per month fee if your account balance is less than $10,000 and you do not set up automatic contributions of at least $100 per month.
- WiseBanyan – Portfolio fees of about 0.09% with no management fees. There is an extra cost for features like tax loss harvesting.
- WealthFront – Portfolio fees of about 0.16% and management fees of 0.25%. The management fee is waived for balances under $10,000, but there is a $500 minimum investment.
- Schwab – Portfolios fees of 0.18%-0.26% with no management fee. Schwab is able to do this because they are primarily recommending its proprietary funds, from which it already receives a management fee.
The options above are likely the easiest way to get started quickly at a low cost. But if you’re looking for something else, there are a number of discount brokerages to choose from. The downside of these brokerages is that there are fewer free investment options and it’s a little more complicated to get up and running. But they may offer specific features that appeal to your needs.
- TD Ameritrade – No account maintenance fee, though it costs $75 to close your account. It offers many commission-free ETFs and mutual funds. Otherwise ETFs are $9.99 per trade and mutual funds are $49 per trade. Full fees detailed here.
- E-Trade – No account maintenance fee. A number of commission-free ETFs and mutual funds. Other options are $9.99 per trade for ETFs and $19.99 for mutual funds. Full fees detailed here.
- TradeKing – No account maintenance fee, though there is a $50 fee to close your account. ETF trades starting at $4.95 and mutual fund trades at $9.95. Full fees detailed here.
- Interactive Brokers – Requires a $5,000 minimum deposit, but its unique fee structure can save you significant money. Full fees detailed here.
How to Choose
Remember, the most important part of your investment plan is the amount you save. All of the options above are relatively low cost, so there isn’t a bad option. Choose the one that makes it easiest to get started and diligently continue saving.