Gavin’s Calling All Canadians: RSP Advice

Got this email from a fan. And since none of the current writers are Canadian, I thought I’d throw this out there.

BTW, RSP stands for “Registered Retirement Savings Plan” and seems to be a Canadian 401k. I’m sure a lot of the standard retirement plan advice would apply, but we’re looking for a Canadian perspective.

Hey InvestorGeeks

My name’s Gavin Adamson. I write occasionally for the Globe and Mail
and this time I’m writing a piece about what part online – DIY
investing plays in RSP building.
Not sure if any of you guys have an online RSP account, but if you do,
I’d be interested to speak with you. Here I’m looking for a chat about
what sorts of tools/data research you use to make RSP decisions. Do you
use your online brokerage site research and tools? Are they good?

If you don’t have an online, RSP account, or you’re not interested, I’d
appreciate an announcement on your site that I’m looking to speak to
someone. They can get in touch with me at my website

Thanks a lot

Gavin

Year-End Thoughts: Don’t Lose Out On Free Money Next Year!

Investors come in every shape and size, as well as risk tolerance. That last quality can really vary depending on whom you’re discussing the subject of investing. So let’s approach today’s rant in a way that should appeal to you whether you’re ultra-conservative or a daredevil risk taker.

One of the things to do during this holiday season after you’ve completed your shopping, should be to plan out your finances for next year. Most people I know put more thought and time into planning for their vacation than they do for their retirement. I’m guessing the majority of IG readers hold down a job somewhere so the first place to look at planning are your company’s offering of retirement plans. And I’m also guessing that most of us will not be able to say we spent a larger portion of our life taking vacations vs. being in retirement.

Retirement Plans Are Not Built Equally!
Complaints about one’s own retirement plan from disgruntled friends and family are common. My reaction is to ask them how much time they spent studying the features of their company’s offering? Too many people have the misconception that all plans are built equally. Throw that out right now! Ask for your company’s retirement plan prospectus and scrutinize it. Don’t say it’s boring, because you’re just giving yourself an excuse to fail. And if you can’t accomplish such a simple task, you really have no one but YOURSELF to blame for your future.


What are some differences? For starters, most retirement plans vary in their funds / investments offering. You need to familiarize yourself about any type of company match / profit-sharing matches that may come your way. Some companies may have weird limits on how much can be deducted per paycheck. If you’re the type that is looking for flexibility beyond the normal mutual funds offered, you might be lucky enough to have an employer that offers a self-directed brokerage option in your plans; giving you the reigns on your investment selections.

 
Where’s The Free Money?
Most employers offer some sort of a match based on your participating contributions. What are you doing to maximize that match? This is essentially free money for you and it’s not uncommon to see companies match 50% or even 100% of you contribution up to a certain limit. Let’s say you maximize a 50% match. Even if all you’re doing is nothing but putting into a money-market fund (for the ultra-conservative), you’re still getting a 50% return on your money. I say 50% because that’s money you would not have gotten had you not participated. If you are a risk-taker, you now have more money to play with, so I hope you do have a good investment selection in your plan. At the very least, you should be able to fall back on some index funds. Start making a budget now, to ensure you’re able to pick up those matches through payroll deductions next year.

I’m not gonna ask you to jump into the pool without knowing how deep it might be. A major concern for not maximizing your contributions to the company match have to do with any vesting restrictions. I hope that you have a generous employer who believes in 100% vesting right from the start, but more likely you’ll be put on a graded / cliff vesting schedule. This is a valid concern for young professionals entering the work force. You might be considering jumping ship a few years down the road. In fact, down the road you might decide whether to jump ship based on how well your current and your potential new employer’s retirement plans are. Ask questions about vesting restrictions and find out those answers!

A New Ally – The Pension Protection Act of 2006 (PPA)
But a big reason why maximizing company match should be a major consideration for 2007 is because of a less publicized feature of the PPA. Under old rules, it did not make sense if your company matches were forced to be put into a investment such as company stock. The PPA has compelled retirement plans to quickly comply with changes, so that employees can immediately diversify their company matches out of employer stock. Regarding vesting, the PPA has also sped up the schedule as matches must now become vested 100% after three years of service or over a six-year vesting schedule at 20% each year, beginning in the second year. There is more consistency now that rules are put in place so that employers can no longer enjoy their own interpretation of those features.

To Roth Or Not To Roth?
Many retirement plans have started to allow Roth 401k contributions. Roth contributions are after-tax contributions that use up your contribution limits like normal pre-tax deferrals. The advantage is that qualified withdrawals are tax-free for both your invested principal and any investment gains. I have a rule of thumb when it comes to whether Roth contributions should be used. Over the long run, the taxation differences between Roth / Non-Roth contribution work out to be very minimal provided your tax-brackets remain stable. The advantages can be more significant if your tax brackets will be different from the time you’re contributing to the time you’re withdrawing the monies.

Generally, if you are going to potentially withdraw at a higher tax bracket than your contributions (such as a young professional withdrawing money for home purchase or kids’ college tution), you’re better off with Roth contributions. If you are in your mid-40s where arguably your tax brackets are near their peak, normal contributions make more sense because they help you current tax situation; provided that you are withdrawing the money for retirement purposes at a lower tax-bracket.

Saving For A Rainy Day
It’s never advisable to dip into your retirement cookie jar but the fact of the matter is sometimes you do need to invoke some usage of your retirement plan. BE VERY FAMILIAR with the rules and restrictions surrounding retirement plan loans or withdrawals. You might not need it but you should know it. For those reader who are interested in maximizing their retirement plan limits beyond just getting the company match. Do realize that contribution limits are increasing in 2007; though not by as much as the last 3 years.

2006 Normal deferral limit – $15,000
2006 Catch-up deferral limit – $5,000 (for participants over 50 years of age)

2007 Normal Deferral Limit – $15,500
2006 Catch-up deferral limit – $5,000 (unchanged)

For my fellow Canadians, some of the points covered here are still relevant. You can check out this page for Retirement Savings Plans (RSPs) contribution restrictions.

One Last Motivation
If you have not considered contributing or even maximizing your company match in the past, want know what will get those juices flowing? Calculate how much match you have missed out on from previous years, and calculate how much you will be missing out in the future. But don’t dwell too much on the past, action gets results, and it’s time to take action!

Twist on Orman’s Parent Trap

Crazy Parents. A Drain?Suze Orman’s latest Yahoo article titled The Parent Trap addresses the issues Boomers are facing with grown kids moving back in, as well as aging parents. I see another problem here, my own personal parent trap. Let me esplain…

My parents were crazy youngsters when hey had me, divorced when I was two, and then those crazy fools married again when I was in my late teens. Each had more children, and one parent even gained a whole other family. I have been on my own ever since.

My dilemma looks like this:
Aging parents, although they are in denial of that (my dad didn’t want to be called grandpa at first- probably had something to do with the fact he had a 3 and 8 year old himself!); they may not be quite ready for retirement themselves (dad much better than mom); they are still raising kids; if something happens to either of them, as their only child and the only one over 18, I will be the one to step in and care for them, make the tough decisions, and raise their kids (god forbid it come to that!). All this in addition to making my own way with two little guys.

I have my parents and siblings built into my long term plan, but for now, I have to focus on getting myself financially set. The proverbial oxygen mask has to go on me and my kids before I can attend to anyone else’s financial needs. (Ya heard?) Have you thought about how your family fits into your financial plan?

Where Are Vanguard Funds Going?

Note: This article was slightly modified from the original post, published at Investorial.com on 09/05/2006.

I know my writing often sounds like I’m preaching for everybody to be value investors. That’s simply not true! I only feel that some people can be value investors due to the temperament and the time needed to perform analysis. So what do I tell the general public who couldn’t care less about reading financial statements, or sitting in front of the computer day-trading?

Mutual funds are still the no-brainer solution for the average joe. Much “marketing” debate has been made about management fees. They’re not wrong to be critical but everything is really dependent on the “net” returns you’re able to achieve. My only concern is that consumers do the minimum work of researching the track-record of the fund and the fund manager. A long, consistent and positive tracking record is a must for active-managed funds.

But when John Bogle, founder of Vanguard, decided to balk the norms of the financial industry and aggressively market passive index funds, it was a strong indictment on the vast majority of managers who fail to beat their corresponding benchmark indexes. Vanguard’s promotion of this strategy still trumpets strongly, but there are signs of shifting towards actively managing their index funds, even if it’s just a little bit!

The Winds Of Change
The U.S. Senate recently passed the Pension Protection Act of 2006. Fellow InvestorGeek Kevin Hamrick had previously posted on the event. The new legislation makes it easier for retirement plan sponsors to offer investment advice to plan participants. Employers can implement auto-enrollment, and automatic increases in contributions; making employees opt-out rather than opt-in. There were also the obligatory updates to contribution limits.

What do all these changes mean? For starters, plan sponsors now feel more pressure than ever to take an active role in managing retirement accounts. All this time, we thought that the shifting to defined contribution plans, away from traditional defined benefit pension plans was to shift the responsibility back to investors. The “handcuffs” companies gave as excuses have now been released. With everything coming full-circle again, employers feeling helpless are looking to fund companies like Vanguard, Fidelity and T. Rowe Price for assistance.

Vanguard’s Target Retirement Funds – Active Management?
Many plans are making their first implementation by updating their “default” fund selection. Gone are the Stable Value and Money Market funds. In their place are life-cycle funds adhering to asset-allocation principles while correlating them to age and retirement years. The Vanguard Target Retirement (TR) funds (most not even 3 years old!) have been a popular adoption into many retirement plans as of late.

Essentially the Vanguard TR funds are a fund-of-funds that leverage Vanguard’s existing offerings of index funds. My eternal gripe with fund-of-funds are that they often include “under-performing” funds from the company’s offerings. These inclusions are not necessary by merit, but more of a business decision to boost a new unproven fund inception, or boost an unpopular / declining fund’s asset. But I admit that this concern seems different when index funds are being used.

Observers may argue that Vanguard is deviating from their guiding principle, by offering “active” management of these funds. I tend to agree partially since asset re-allocations and yearly adjustments are not insignificant passive actions! Critics of life-cycle funds note that investors may have different risk tolerance, different portfolio needs; even if they’re of the same age.

However, from my vantage point, Vanguard seems to be continuing their strategy of delivering a “one-size-fits-all” approach to retirement investing. They’re also continuing their ideology that indexes are beating the majority of fund managers by not including non-index funds.

The Brave New World of Retirement Plans
Vanguard already has a stable of actively managed funds, but they have never seen the spotlight. The TR funds however will see a major push with retirement plan sponsors and may mark the first meaningful active Vanguard management in its interaction with investors. With the right marketing, these index-mirroring life-cycle funds will further boost Vanguard’s popularity with retirement plans.

If your plan hasn’t yet adopted similar changes, you should be seeing them within the next five years. Yes, indexes have proven worthy of beating the majority of fund managers. But if I’m a smart shopper, why wouldn’t I be looking for those minority managers that beat their benchmarks consistently? I’m still an advocate for plan sponsors to find and offer proven actively managed funds such as Bill Mason’s Legg Mason Value Trust or Joel Tillinghast’s Fidelity Low-Priced Stock. The shift to life-cycle funds as default funds seems to be a better alternative to the traditional conservative choices.

The problem with the mutual fund industry is that there are too many choices, whether they are actively or passively managed, and only a handful of good ones. You may have differing opinions on which actively managed funds are worthy and I hope you’ll share with us. But keep in mind that I am Canadian and don’t monitor the U.S. mutual fund scene often!

For Canadians, I sincerely hope that governments take more interest than they have, into the employer retirement plans north of the border. However, if we can’t get any help to reform brokerage fees, unreasonably high mutual fund MERs compared to the true cost of operating a mutual fund (especially with the currency exchange where it is right now), there is little hope of any assistance from lazy bureaucrats.

Protection of Assets and Long-Term Care Insurance

You might be wondering why an investing website like Investor Geeks is discussing a topic like long-term care insurance. Well, it would be a shame to learn all sorts of great investing strategies on this website, grow your portfolio, and then watch it quickly disappear if you get sick or injured and require long-term medical assistance. Protection of assets should be a concern of all investors.

Do I Need It?
Currently, about 1 and 5 Americans over age 65 are utilizing some form of nursing home care, assisted living, or in home assistance. The average cost of nursing home care is $150 dollars per day in the United States. Let’s assume that a husband and wife enter a nursing home at age 70. If they both live until age 75, they would have exhausted a non-inflation adjusted $547,500 of a retirement nest egg. If you have a nest egg over $2 million, you could be fairly comfortable self-insuring yourself and a long-term care policy would not be as attractive.

What about Medicaid?
In most states, to be eligible for Medicaid assistance, you must have less than $2000 in assets. Your home, one car, and $30 in monthly income are excluded from this provision. Every other asset or income stream (including pensions and social security) goes to the state. Medicaid also is much more restrictive than long-term care insurance. In many states, Medicaid will only pay for assistance in nursing homes that accept Medicaid patients. You would not have the comfort of receiving assistance in your own home like long-term care insurance could offer you.

Going on Claim

To be able to start receiving your long-term care benefits, most policies require you to have the inability to perform at least two activities of daily living (ADLs). These activities include being able to bathe yourself, use toilet facilities, eat unassisted, and get out of a bed or chair without help. I know, terrible things to think about, but realities for many of us as we age. Many policies also allow you to go on claim if you fail specific mental acuity exams.

Policy Options and Opinions
Policies can be structured for certain periods of coverage. If policy pricing is not an issue, opt for the lifetime coverage. People are living longer and longer even if their faculties continue to diminish. Elimination periods are another consideration. Usually, going for the 90 day elimination period (similar to a car insurance deductible) can substantially reduce policy rates. Choosing the 5% compounded inflation adjustment also provides excellent safety as health care costs continue to rise. The biggest piece of advice I can give is to shop around. Compare apples to apples with the big providers like John Hancock, Genworth, and Met Life.

When Should I Buy?
Based upon some non-scientific research I conducted by calling agents at John Hancock and Genworth, I discovered that the ideal age to purchase long-term care insurance is your late thirties. The underwriters will see you as healthy, and settled down raising a family. You can take advantage of acting fast and buying a ten-pay lifetime benefit plan. You pay level premiums for ten years after which the policy is good for the rest of your life. In a few years, this will be what I purchase for my wife and I. Waiting until your early fifties, the policies would still be affordable for a healthy individual. Expect to pay about $2,000 per year for a lifetime coverage plan with $200 in daily benefit. If you wait until your early sixties, that same plan could cost you over $4,000 per year.

Broker-Dealer’s Friend
As a potential long-term care insurance purchaser, you should be aware that long-term care insurance is very lucrative business for broker-dealers. The broker-dealer you are working with will scoop up about 50-60% of your first year premium payments. In years 2-10, the broker-dealer will receive 10% of your ongoing premium payments. Just some information to be aware of. Analyze your own situation. Determine if your investment plan will allow you to self-insure or if you need the protection that long-term care insurance could provide you.

Further Reading
http://www.longtermcarelink.net/
http://www.aarp.org/bulletin/longterm/
http://personalinsure.about.com/od/longtermcare/

Pension Reform Bill Saves the Stock Market

Today President Bush signed into law a bill that is designed to encourage 401K participation. There are many good points to this bill and estimates are that it will increase the number of people participating in retirement plans. The numbers are still foggy but you are looking at anywhere from 30% to more then double the current number of 401K investors.

Stocks rarely trade at what the company is worth. They generally trade at what people think they are worth – to a point. If you recall your basic Econ 101 classes, then you’ll realize that soon demand for stocks should start to rise as more new investors will be forced into the market. Mutual fund managers will have a wonderful problem of excess capital flowing in.

For those of us already in the market, and I hope that is everyone reading this site, it should be a good ride ahead. I am hopeful anyway.

Further Reading: Pension reform – Boon for 401(k)s by Jeanne Sahadi

Retirement Planning: Do you still rely on your Pension plan?

Pension plans have long been offered as part of employee benefit packages. Long thought to be an integral part of any retirement plan. But in todays environment, with large corporate bankruptcies and massively underfunded pension programs, do you still rely on your Pension plan?

For years individuals have relied of defined benefit pension plans offered by their companies. Years ago it was sometimes seen as all the retirement planning that most individuals would ever need. Between you company’s pension, after working there for decades, and social security what else would you need?

As we all know this is no longer the case. While I’m lucky enough to work for a company that still offers a pension as part of it’s benefits packages, many individuals are not. Even those who have long since retired face the prospect of having their benefits cut. Either by the company as it struggles with it’s underfunded plan, or by the government when the company goes bankrupt and sheds their pension obligations.(Even those benefits are in jeopardy, as the entity that takes over the pension obligations is it self suffering from a funding gap.)

Even the companies that still offer pensions plans are not garaunteed to continue offering those benefits. Even then there are employees, and managers who would prefer some form of “supercharged” 401(k). Myself among them. So I ask, what role does your pension plan play in retirement planning? Is it an integral piece of the puzzle, something that you rely on you supplement your retirement income? Or just a nice to have with anything that comes out of it being just a bonus? Please come join me in our forums for a discussion about this.

Resources
Deal is Near on Pension Proposal (Washington Post)

Stepping it up with CDs

Certificates of Deposit are not for everyone but if you live long enough you will probably be considering them at some point. If you are going to invest with what banks currently call CDs then you should be smart about it. Using a technique called "laddering" or "stepping" you can improve your liquidity and maximize your returns over the long run by protecting yourself from downturns in market interest rates.

A quick scan of any banks listings of CD rates (see chart below) reveals nothing spectacular in their scheme unless you look at the details of the differences between time periods. Historically banks have tried to give you a little bump at the 6 month mark and there are good reasons for this. Banks are fairly certain of what the economy is going to do over the next 6 months but, obviously, risk changes in relation to time. The problem for us is that we want the higher returns of the longer investments, we like the safety of CDs and we don’t want to be tied down to a low interest rate if things start going up. We also would like to be tied to a high interest rate if things go down. Liquidity would also be a plus.

Time Rate Diff
3 Month 4.00%
6 Month 4.60% +.6%
9 Month 4.76% +.16%
1 Year 5.20% +.44%
15 Month 5.23% +.03%
18 Month 5.29% +.06%
2 Year 5.30% +.01%
3 Year 5.35% +.05%
4 Year 5.40% +.05%
5 year 5.60% +.20%
Source: Online. Week of 7/3/2006

Can we get all this? Sure, but like most things in life it involves compromise but compromise is not all that bad. What you need to do is use the “Ladder” or “Step” approach when buying CDs. I’ll explain in an example.

Let’s say you have $12,000 and you want to put it up in a CD because you like the safety. You don’t like the lack of liquidity but you are willing to compromise. So do you put it into a 1 year CD and roll it forever or a 5 year and not worry about it? 5 year CDs will pay more but what if the interest goes up by ¼% to ½% every year for the next several years? You really missed the boat on that one if you went 5 years. Maybe you’ll elect to put your money in 1 year CDs for the next 5 years-great, what if the points drop by the same rate instead of rising? You will be really hurting.

Now consider this; you put $2000 in a 1 year, 2 year, 3 year and 4 year CD and the remaining $4000 in a 5 years certificate. On maturity you would roll each CD into another 5 year CD. Your current rate of return would be about 5.41%, slightly better then if you had placed it all in a 4 year CD.

The benefit now is that you are also protected regardless of how the market reacts. If in the first year the market goes up across the board by ¼% your rate of return would now be almost 5.52% and if this trend continues then your return will move positively with the market.

In a down trend, if we drop by the same rate, you are still getting a 5.43% return so your money actually moved up in this case. Remember, every time a CD matures you are rolling into the longest time period, in this case 5 years.

Eventually, you will have $12,000 invested into five, 5 year CDs, each with a maturity date one year apart. You are getting the highest return possible and are still somewhat liquid.

The step program is a good compromise. It can be used over just about any length of time and is something I always do unless I know for certain that I’m only keeping the money for a fixed period and then moving it out.

One of the best places to use this is with our “3 to 6 months of salary for emergency fund”. Consider this; even if you lost your job you are only going to need 1 month worth of money at a time. I moved out of a money market into six, 6 month CDs each equaling about a months salary and ended up with a better return. Obviously I had to do some work to space them out correctly but I am very happy with the system.

Resources
The Money Market and you. Frank Sanders. InvestorGeeks.
Current CD Rates. BankRate.
Money Market: Certificate of Deposit (CD). Investopedia.

The End of Retirement

The best way to learn is to teach – or so they say. I believe it, which is why I’m delighted to join InvesterGeeks as a contributer. While it could hardly make me geekier (as a long time software developer, my geek credentials are as solid as they come), I do hope to become a better investor as I share what I’ve learned (and am learning) here as well as my home site www.ThinkingAboutMoney.com.

And now, for my first tale….

Once upon a time, people would work for 40 years or so then retire. But nowadays for many there will be no happily ever afters. For those of you who have not or are not saving enough, there are other options which I’ll get to later.

Once upon a time, large companies had “defined benefit plans” – plans that guaranteed a set income and benefits for life after retirement. In the 1980’s companies largely switched to defined contribution plans (typically 401K) where retirement income depends entirely on the contributions and earnings on the account. Back to that in a moment.

What about those defined benefit plans that already exist? For those few companies that have fully funded their plans (contributed enough to cover expected costs), there are no problems. However, many companies have underfunded pension plans. Companies on the S&P alone are underfunded to the tune of $321 billion. For these companies it’s possible to declare bankruptcy and throw the pension plan into the hands of the Pension Benefit Guarantee Corporation (PBGC). Unfortunately, the PBGC does not guarantee health and disability benefits, nor does it necessarily match the pension numbers of the original plan. So corporate bankruptcies are great for management, lawyers and bankers, but not so good for the employees.

So how much does it cost to retire? It’s pretty easy to calculate. Figure out what income you need to live on comfortably (be sure to include health insurance premiums!). Figure out how many years you expect to live in retirement. Then use a present value function with an interest rate of one or two percent (the amount your savings are likely to earn after inflation).

For example: If you want 60,000/year for 20 years, you’ll need a bit over a million dollars. I’m not including Social Security in the calculations, because knowing the financial status of that fund we cannot assume that it will be able to maintain the level of benefits it provides today.

Saving that much isn’t hard over a 40 year career. Based on this very rough scenario (60K average annual income), All you need to do is save about 15% of your income each year. This is a gross oversimplification of course, but it’s enough for illustrative purposes. Given our national savings rate of 7% of the past 30 years (down to about 1% over the past few years), there’s obviously a real problem.

Frontline recently did an excellent show on this topic that should be required viewing.
You can see it at http://www.pbs.org/wgbh/pages/frontline/retirement/view/

I’d like to elaborate on one of the closing points from the show: “The answer is there is no meaning to retirement anymore. We are now shifting from lifetime pensions to lifetime work. It’s the end of retirement.”

Most of us were raised on the idea of working hard and then enjoying our retirement years. But is it really that awful to keep working? Certainly it’s reasonable to not want to work as hard as when younger, but there are numerous advantages to working (aside from the income, it provides a sense of purpose and accomplishment). Though nowhere near retirement, I prefer not to put in the kind of hours I used to, but I cannot imagine not working at all.

The question is – what kind of work are we talking about? Health permitting, and being self-employed, I’ll be able to keep writing and developing software until I choose to stop. But many organizations continue to have set retirement ages, forcing individuals to leave their careers even though they are able, willing, and desperately need to keep working. As a result, many seniors end up with lower earning jobs (flipping burgers, for example).

Don’t expect this to change though – older workers cost much more than younger workers in terms of both salaries and benefits, so there is little interest in corporate America to extend the retirement age.

What does this mean for you?

If you are lucky enough to be saving enough or investing enough for retirement – that’s great. But if not, there’s a good chance you won’t be able to save as much as you want.

If you are in that situation, you will either have to cut your standard of living or you will be working after retirment. The good news is that even if you are only a few years away from retirement, you still have time to control the type of work you’ll be doing after retirement.

If you can’t save enough to retire, perhaps you can educate yourself enough to retire with the kind of work you’d enjoy doing. Now is the time to see if you have an interest or hobby that could turn into a small business. Now is the time to explore online options such as Ebay that are used by many to supplement their income (if not serve as a full time job). If you have to work after retirement, at least you can improve the chances you’ll be doing something other than flipping burgers.

TD Ameritrade Has Most Mutual Funds Available

I was recently disappointed because I couldn’t purchase the Mairs & Power Growth Fund (MPGFX) or Artisan International Fund (ARTIX) through my T. Rowe Price Roth IRA. After doing some sleuthing on Morningstar I discovered I could purchase both of these funds through TD Ameritrade, from whom I have a standard brokerage account.

I was ready to transfer all my assets over from TRP to TD Ameritrade and it turned out that transferring a Roth IRA was extremely bothersome. So instead of jumping into anything I thought I had better check to see if there was another discount broker that offered more funds, because I didn’t want to have to do this again. I spent some time at it, and put together a screen using the Morningstar Premium Fund Screener (more info) that would show the number of funds each major discount broker had available, and which funds were covered by all of them. The results were fascinating.

As it turns out, my beloved T. Rowe Price, with its excellent service and $35 commissions offered the least funds to be purchased, and TD Ameritrade, my favorite discount broker offered the most with roughly 10 times the number T. Rowe Price offered. Here are the results of my screen:

Broker # of Funds
TD Ameritrade 14610
Fidelity 11341
Scottrade 10582
E*Trade 8738
Schwab 2828
Vanguard 1760
T. Rowe Price 1491
Available from all 227

*NOTE: Unfortunately, I wasn’t able to find Sharebuilder in the list of brokers on Morningstar.

I was surprised to see that so few funds were offered by all the big companies, suggesting that maybe it’s not a terrible idea to have funds from the top 3. In fact, if you had accounts from TD Ameritrade, Fidelity and Scottrade you’d have access to 15,700 funds. Now I’m not suggesting that you go ahead and open these accounts immediately. More accounts mean more hassles, and I would wait until there was a fund I couldn’t purchase before opening another account.

There doesn’t appear to be any adverse affects to owning multiple Roth IRA accounts, other than additional administration time on your part. The IRS treats all your Roth IRA accounts as one large account, and opening an additional account shouldn’t reset your 5-year holding clock. Motley Fool has an interesting article about multiple Roth accounts, which you should read if you’re thinking about opening another account. As always speak to a qualified professional (i.e. not me) before making any changes to your account, and I’ll keep you posted if anything happens with my move over to TD Ameritrade.