TD Ameritrade’s Essential Portfolios Review

TD Ameritrade has rolled out its own “robo advisor” feature, called Essential Portfolios. If you already invest with TD Ameritrade, or have been considering doing so, you should take a close look at this investment management tool. It’s a way that you can move some, or even all, of your investments into a low-cost, fully managed portfolio. It’s also a way to free up your time and attention to concentrate on other areas of your life.

What Are TD Ameritrade’s Essential Portfolios?

The Essential Portfolios feature was first made available to TD Ameritrade investors at the tail end of 2016, so it’s a very new investment advisory tool. As a robo advisor, it starts with determining your investment temperament, and your future goals. A portfolio is then built around your temperament and goals, comprised of a set of low-cost exchange traded funds (ETFs).

Essential Portfolios is managed by Amerivest Investment Management, a.k.a., Amerivest, which is a registered investment advisor affiliate of TD Ameritrade. The investments used in the portfolio are ETFs recommended by Morningstar Investment Management. The ETFs are arranged in portfolios ranging from conservative to more aggressive, consistent with your own investment profile.

The Morningstar connection serves to minimize the impact of Essential Portfolios being brand new. It may also provide them with an advantage over other robo advisors, who are relying primarily on internal investment managers alone.

How TD Ameritrade’s Essential Portfolios Works

In order to open an account with TD Ameritrade’s Essential Portfolios, you start by completing a simple application. The application requests basic information, including identifying information, contact information, employment, and citizenship confirmation.

You can set up a wide variety of account types, including the following:

• Individual
• Joint Tenants WROS (With Rights of Survivorship)
• Traditional IRA
• Roth IRA
• Rollover IRA
• SEP IRA
• SIMPLE IRA
• Minor IRA (Roth or Traditional)
• Trust
• UTMA/UGMA
• 529 College Savings Plan
• Coverdell ESA

In order to determine the specific type of portfolio for your investments, you must complete a questionnaire. The questionnaire starts by asking questions regarding your investment goals, including specific targets and timelines. They will also ask questions that are designed to assess your risk tolerance, ranging somewhere between conservative and aggressive. They will give you a breakdown of the probability of reaching your goal, based on your chosen (and the recommended) risk tolerance. You can then reevaluate your monthly contribution or even change your aggressiveness, based on what you see.

Once your investment profile has been determined, a portfolio will be constructed that is consistent with that profile. There are five different portfolios, ranging from conservative to more aggressive. The portfolio will be built around ETF’s, which are designed to provide exposure to certain broad market sectors, that are necessary to build the appropriate investment portfolio for your investment profile.

Your portfolio will be constructed with nonproprietary ETFs, that way you will be provided with fully objective investment choices. The ETFs are selected from Vanguard or BlackRock’s iShares. Each Essentials portfolio will be comprised of five ETFs, plus cash. The ETFs have a weighted average expense ratio of between six and eight basis points (bps) in order to keep investment expenses to an absolute minimum.

Related: My Experience with Vanguard Advisory Services

But beyond the ETF’s, you can also trade stocks, bonds, mutual funds, certificates of deposit and unrelated ETF’s in your account. In addition, if your account is approved, you can also trade options.

TD Ameritrade’s Essential Portfolios Benefits and Features

TD Ameritrade’s Essential Portfolios comes with a number of benefits and features, including:

• Account protection – Your account with TD Ameritrade is covered by the Securities Investor Protection Corporation (“SIPC”), which provides protection of investor’s accounts for up to $500,000 in cash and securities (up to $250,000 in cash) in the event of broker default (but not losses due to market factors). TD Ameritrade also provides each investor with up to $149.5 million (including up to $2 million in cash) in additional coverage, provided by London insurers.
• Brick-and-mortar branches nationwide – TD Ameritrade has a network of more than 100 branches located in and around many of the nation’s major cities. This is an advantage that sets TD Ameritrade apart from many of the robo advisors, who operate strictly as online platforms. You can certainly handle your Essential Portfolio completely online, but if you have run into a problem, it’s good to know that there may be a physical branch location nearby where you can get hands-on assistance.
• Accessible from any digital device – You can stay connected to your Essential Portfolios account using your home computer, tablet or smartphone, providing you with unrestricted access to your account.
• Automatic rebalancing – Your portfolio will periodically and automatically be rebalanced, in order to keep it consistent with the set target allocation. This feature alone can save you considerable time and money when compared to manual investing.
• Customer service – In addition to having more than 100 local branches, TD Ameritrade also offer customer contact 24 hours a day, 7 days a week via toll-free phone, email or live chat.

Resource: Rebalancing Your Portfolio

TD Ameritrade’s Essential Portfolios Pricing

TD Ameritrade’s Essential Portfolios come with a single low 0.30% advisory fee. The fee is consistent with other low cost robo advisors available in the market. There are no other fees associated with the account, other than the ETF expense ratios of between six and eight basis points, as described earlier.

You can open your Essential Portfolio with a low minimum deposit amount of just $5,000. That opens Essential Portfolios to many new and small investors, who are generally the investors who are most interested in getting a professionally managed investment portfolio. The low minimum also works well in conjunction with the very low annual advisory fee of 0.30%.

Should You Use TD Ameritrade’s Essential Portfolios?

TD Ameritrade’s Essential Portfolios is a newcomer on the block. But given the strength and reputation of TD Ameritrade, as well as the portfolio management provided by Morningstar and the ETFs by Vanguard and iShares, the newness of the program should be an issue.

With the combination of a low minimum initial investment requirement, as well as very low fees, Essential Portfolios can be an excellent choice if you are a new or inexperienced investor, or if you don’t have the time or inclination to handle your own investments manually.

To sign up for TD Ameritrade’s Essential Portfolios, or just to get more information, head for the Essentials Portfolio page to start the process.

Topics: Investing • Make Money • Money Management • Personal Finance • Reviews

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