Many friends of mine are opening up Roth IRAs for the first time and have asked where the best place to put that account. My first thought was to go with a brokerage firm that has favorable fee schedules for the investments they’re looking to use. A firm that has higher stock transaction fees but lower mutual fund fees works for someone who only wants to leverage the benefits of “automatic” diversification and will never buy a single share of Microsoft. Conversely, if you’re looking to bank on the sustained growth of a handful of companies or want to jump onto ETFs , a firm with low stock transaction fees is where you’d like to go.
Mutual Fund-centric Investors:
Vanguard – Vanguard has historically and consistently ranked incredibly high amongst mutual funds in terms of performance because of they are no-load (no sales commission!) and don’t charge 12b-1 (marketing) fees. The downside of a Vanguard account is that you pay $25 per online stock trade and $30 + $1.50 per contract for options. I used to have my Roth held at Vanguard and my current account holds a position in their Vanguard Target Retirement Funds .
Fidelity – Fidelity has also made a name for itself in the mutual fund world and also has many high-performing no-load funds. Brokerage activity is cheaper at Fidelity with $19.95 stock trades and $25+$2.25 per contract for options; but Fidelity is better known for it’s mutual fund performance.
Stock trade-centric Investors:
TD Waterhouse – This is the firm that currently holds my Roth IRA because of it’s low fees and research (and the free trades I got). Investing in a mutual fund costs $30, a stock transaction costs $17.95, but the research is far superior to Vanguard with regard to stocks.
I hope this has been helpful in pointing out how you should pick a firm based on where you think you’ll be going with the Roth IRA account. Many times you’ll be able to switch firms without a problem (maybe a small transaction fee) as many times as you’d like. If you’ve had experiences with any of these firms or what to bring up one I missed (there are many many other firms), please do!