E*TRADE Socially Responsible Portfolio (Review)

E*TRADE is offering a socially responsible version of its robo-advisor, E*TRADE Core Portfolios. However, the socially responsible portfolio only offers two environmental, social, and governance (ESG) funds, and most of your assets will still be invested in conventional funds.

SustainFi July 14, 2021

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Rating: Good (3.8 / 5)

Pros

  • E*TRADE offers brokerage accounts in addition to the robo-advisor; the brokerage account comes with a lot of tools for active traders and commission-free trades
  • Easy to switch to Core Portfolios if you already have an E*TRADE account
  • Socially responsible investing option
  • Many types of accounts supported
  • 30 brick-and-mortar locations in 17 states

Cons

  • The socially responsible portfolio only invests in two ESG funds and, for most socially responsible portfolios, most of your assets will still be invested in conventional funds
  • No human advisor access
  • No tax-loss harvesting

Summary

SustainFi Rating:3.8 / 5
Account minimum$500
Management fee0.30%
ESG optionsSocially responsible portfolio
Investment expense ratio (ESG portfolio)0.16% (80% stock / 20% bond portfolio)
Accounts supported• Taxable investment accounts (individual, joint, custodial)
• Retirement accounts (traditional, Roth, and SEP IRAs)
• 401k rollovers
Human advisorsNone
Tax-loss harvestingNo
Automatic rebalancingYes
FeaturesBrokerage accounts
Best forExisting E*TRADE customers

What is E*TRADE Core Portfolios?

Core Portfolios is the robo-advisor service offered by the popular brokerage firm E*TRADE. E*TRADE was founded in 1982, becoming one of the first online brokerages in the U.S. The firm was acquired by investment bank Morgan Stanley in late 2020.

E*TRADE is best known for offering brokerage accounts to self-directed traders. In contrast, Core Portfolios lets you outsource managing your portfolio to E*TRADE, which will use computer algorithms to match investments with your risk and return goals.

Signup process. Signing up for Core Portfolios on the E*TRADE website is an easy process:

  • You fill out a questionnaire about your goals (“simply build wealth,” “save for retirement,” “target a specific goal”) and say how much you plan to invest. You will also need to specify when you might need the money and answer questions about your investing style and how much risk you want to take
  • After that, you have the option of choosing the socially responsible portfolio
  • The algorithm will recommend a stock vs. bond allocation based on your responses and risk tolerance. The options include 40% stocks / 60% bonds, 60% stocks / 40% bonds, and 80% stocks / 20% bonds
  • After that, you can pick the type of account you want (brokerage account or retirement account) and provide the legal information
  • E*TRADE will show you the proposed portfolio, and you can fund the account

Account minimum. The minimum balance for the Core Portfolios is $500, higher than $0 with Acorns.

Management fee. E*TRADE charges an annual management fee of 0.30% of your invested assets, which is in line with other robo-advisors. As an example, you will pay $30 annually on a $10,000 investment. The management fees are in addition to the expense ratios charged by the funds included in your portfolio.

Fund expense ratios. The funds in the socially responsible portfolio cost between 0.04% and 0.25%. The blended cost of the 80% stock / 20% bond portfolio is 0.16%, in line with most other robo-advisors that offer sustainable options.

Account types. E*TRADE supports multiple account types, including:

  • Taxable investment accounts (individual, joint, and custodial)
  • Retirement accounts (rollover IRA, traditional, Roth, and SEP IRA)

Human advisors. Core Portfolios do not include access to human advisors. E*TRADE offers access to financial consultants who can help design a portfolio for you, but this service starts with a $25,000 minimum investment. The firm also discloses that they may be paid a commission for recommending certain investments.

Automatic rebalancing. E*TRADE will automatically adjust your holdings if the portfolio strays from the allocation that best suits your goals. Nearly all robo-advisors offer this feature.

Tax-loss harvesting. Core Portfolios does not offer tax-loss harvesting, a popular strategy to save on taxes. If taxes are a concern and you have a lot to invest, Personal Capital may be a better option.

Compare robo-advisors with sustainable options

Acorns ESG (Sustainable) Portfolio

Socailly Responsible Investing Pies

Socially Responsible Personal Strategy

Fees

$3-$5/month

Fees

$0 ($125 for M1 Plus)

Fees

0.49%-0.89%

Minimum

$5

Minimum

$100

Minimum

$100,000

E*TRADE Socially Responsible Portfolios

E*TRADE offers three types of portfolios:

  • Core portfolios (the conventional, default option)
  • Socially responsible portfolios
  • Enhanced indexing strategy (Smart Beta), a strategy that combines passive and active elements and tries to outperform the market

This review will only focus on the socially responsible portfolio. For this strategy, E*TRADE is investing in the following seven exchange-traded funds (ETFs):

  • Large-cap U.S. stocks: iShares MSCI KLD 400 Social ETF (DSI) – ESG fund
  • Large-cap U.S. value stocks: Vanguard Value ETF (VTV)
  • Small and mid-cap U.S. stocks: iShares Core S&P Small-Cap ETF (IJR)
  • International stocks: iShares MSCI TR ESG EAFE ETF (ESGD) – ESG fund
  • Municipal bonds: Vanguard Tax-Exempt Bond ETF (VTEB)
  • Short-term municipal bonds: SPDR Nuveen Barclays Short Term Muni Bond ETF (SHM) – not included in the 80% stock / 20% bond portfolio

Only two of the funds, DSI and ESGD, are ESG funds. The rest are conventional funds. As a result, the percentage of assets invested in ESG funds is relatively low:

  • 56% of the 80% stock / 20% bond portfolio is in ESG funds
  • 42% of the 60% stock / 40% bond portfolio is in ESG funds
  • 27% of the 40% stock / 60% bond portfolio is in ESG funds

Here are the funds for the 80% stock / 20% bond portfolio option:

Asset ClassFundExpense RatioESG Fund?Allocation% of Portfolio in EnergyMSCI ESG ScoreSustainalytics Rating
U.S. Large-Cap StocksiShares MSCI KLD 400 Social ETF (DSI)0.25%
Yes35%
3.9%7.45 / 5
U.S. Value StocksVanguard Value ETF (VTV)
0.04%No5%14.1%6.2
2 / 5
U.S. Small and Mid-Cap StocksiShares Core S&P Small-Cap ETF (IJR)0.06%
No12%
4.5%
4.93 / 5
Developed Markets Stocks
iShares ESG Aware MSCI EAFE ETF (ESGD)0.20%Yes21%
7.9%8.7
3 / 5
Emerging Markets Stocks
Vanguard FTSE Emerging Markets ETF (VWO)0.10%No7%
9.1%4.72 / 5
Municipal BondsVanguard Tax Exempt Bond ETF (VTEB)0.06%No19%NANANA
Cash
No1%
Portfolio Total0.16%56% of portfolio100%6.1%7.03.7 / 5

Data as of 7/14/2021. Sources: E*TRADE, Fossil Free Funds, MSCI, Sustainalytics

And this is what the socially responsible portfolio looks like on the site:

Socially Responsible Portfolio

For portfolios with less than 80% of assets in stocks, E*TRADE adds another municipal bond fund, SHM.

Overall, the socially responsible portfolio doesn’t look very different from the conventional portfolio. For the socially responsible portfolio, E*TRADE replaces the large-cap U.S. stock and international stock funds with ESG funds, and everything else is the same.

Conventional Portfolio

The socially responsible portfolio invests in energy, including fossil fuel companies. However, it does invest less in energy than the conventional portfolio.

E*TRADE Core Portfolio and Socially Responsible Portfolio compared

We’ve compared the core and socially responsible portfolios assuming an 80% stock / 20% bond allocation. In spite of only investing in two ESG funds, the socially responsible option does have better sustainability ratings.

Portfolio
Expense Ratio% of Assets in ESG Funds
% of Assets in Energy
MSCI ESG Score
Sustainalytics ESG Rating
Socially Responsible0.16%
56%
6.1%
7.03.7 / 5
Core
0.05%
0%
7.4%
5.8
2.2 / 5

Data as of 7/14/2021

As you can see, the socially responsible portfolio has higher ESG ratings from MSCI and Sustainalytics and invests less in energy (which includes fossil fuels) than the core option.

The socially responsible option costs slightly more: 0.16% vs. 0.05%. In practice, it means the difference between $16/year and $5/year if you invest $10,000.

💰 Takeaway

  • E*TRADE is not the best socially responsible option among robo-advisors, but it may be a suitable option if you already have a brokerage account with E*TRADE
  • If you are looking for human advisors, consider Personal Capital
  • If you are looking for a robo-advisor that will invest most of your money in ESG funds, consider Acorns Invest

🔔 Read our guide to socially responsible robo-advisors.

E*TRADE Core Portfolios vs. M1 Finance Socially Responsible Investing “Pies”

Both M1 Finance and E*TRADE offer commission-free stock trading through online brokerage accounts and apps.

Unlike E*TRADE, M1 Finance doesn’t offer a robo-advisor managing all your assets. Instead, it lets you pick from a selection of pre-made “pies” or collections of stocks and bonds, including two socially responsible options.

Where M1 Finance wins:

  • No management fee (vs. 0.30% for E*TRADE)
  • Lower minimum investment ($100 vs. $500 for E*TRADE)
  • Better app and web interface (especially for beginner investors)
  • Two socially responsible pies invest 100% of assets in ESG funds

Where E*TRADE wins:

  • Full-service robo-advisor offering
  • More account types supported

Read our review of M1 Finance for socially responsible investing here.


E*TRADE Core Portfolios vs. Acorns Invest Sustainable Portfolio

Both E*TRADE and Acorns offer a robo-advisor with a sustainable option.

Where Acorns Invest wins:

  • Acorns makes saving and investing easy by investing your spare change
  • A better socially responsible option (Acorns invests 87% of the 80% stock / 20% bond portfolio in ESG funds vs. only 56% for the E*TRADE’s robo-advisor)
  • Lower minimum investment ($5 vs. $500 for E*TRADE)

Where E*TRADE wins:

  • E*TRADE also offers sophisticated brokerage accounts
  • E*TRADE has lower fees for small account balances

Read our review of Acorns Invest Sustainable Portfolio here.


E*TRADE Core Portfolios vs. Personal Capital Socially Responsible Strategy

E*TRADE and Personal Capital both offer a robo-advisor with a socially responsible option. Apart from that, the services are quite different. Personal Capital is the better option if you want continued access to financial advisors and have over $100,000 to invest.

Where Personal Capital wins:

  • Access to dedicated financial advisors
  • Tax-minimization strategies
  • Ability to customize your portfolio

Where E*TRADE wins:

  • Much lower minimum investment ($500 vs. $100,000 with Personal Capital)
  • Lower management fee (0.30% vs. 0.49%-0.89% for Personal Capital)

Read our review of the Personal Capital Socially Responsible Strategy here.


Methodology

We compared robo-advisors with an ESG offering based on management fees, ESG portfolio expense ratios, the percentage of the ESG portfolio invested in ESG funds vs. traditional funds, ESG portfolio ratings (from Sustainalytics and MSCI), portfolio exposure to energy, transparency, features like tax-loss harvesting and automatic rebalancing, and access to human advisors.