Why Not Buy Vanguard ETFs Through Schwab?

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Ganacel
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Why Not Buy Vanguard ETFs Through Schwab?

Post by Ganacel »

I'm a little confused about something that I hope someone can clarify for me. If you can buy EVERYTHING Vanguard offers, plus EVERYTHING Schwab offers, at Schwab, why wouldn't you open your account at Schwab and then you could pick and choose your Schwab and Vangard ETFs/index funds at will?

Let's say I wanted to buy ETFs for a $100,000 Roth IRA using some percentage of US/international/bonds/REIT. Say 40% bonds, 20% international, 35% US and 5% REIT. If you go to the Schwab site, you see their US Market ETF (SCHB) is a little cheaper than Vangard's (VTI), 0.04% versus 0.05% ER. Their Bond ETFs are also a little cheaper (BND at 0.08% vs. SCHZ at 0.06%). Same with their REITs (VNQ at 0.1% versus SCHH at 0.07%). And the International ETF is also cheaper at Schwab (0.14% for VXUS versus 0.08% for SCHF, although I understand the Vangard ETF has better diversification in this category at least and might be worth paying more for.)

Given that the Schwab ETFs are each a little cheaper, doesn't it make sense to open an account at Schwab to use their cheaper ETFs for US/Bonds/REITs and pay a little extra for the better diversified Vangard International ETF (also bought through Schwab)?

I hope this question makes sense.
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in_reality
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Re: Why Not Buy Vanguard ETFs Through Schwab?

Post by in_reality »

#1) To buy/sell Vanguard ETFs, you have to pay $8.95.

#2) Vanguard ETFs typically trade at a slightly lower bid/ask spread. The lower Schwab ER will make up for it over the long term though.

#3) Vanguard doesn't offer municipal bonds in ETFs. There are no-transaction fee ETFs available at Schwab, but they are neither Vanguard nor Schwab and have a slightly higher ER than Vanguard ones.

#4) we don't know if Schwab will increase pricing someday

#5) you can't get free turbo tax at Schwab

Disclaimer: I am mostly a Schwab customer and think it's more than peachy. The above is true to the best of my knowledge though.
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mhc
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Re: Why Not Buy Vanguard ETFs Through Schwab?

Post by mhc »

If you prefer Schwab, go for it. I like the philosophy of Vanguard and I prefer mutual funds over ETF's, so I go with Vanguard.
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livesoft
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Re: Why Not Buy Vanguard ETFs Through Schwab?

Post by livesoft »

Ganacel wrote:I'm a little confused about something that I hope someone can clarify for me. If you can buy EVERYTHING Vanguard offers, plus EVERYTHING Schwab offers, at Schwab, why wouldn't you open your account at Schwab and then you could pick and choose your Schwab and Vangard ETFs/index funds at will?
You might have it backwards.

1. You cannot buy all Vanguard funds at Schwab. For instance, some folks have had problem buying Wellesley Admiral share class and some other Admiral share class funds.

2. You can buy all Schwab funds and all Schwab ETFs at Vanguard, so why wouldn't you open your account at Vanguard?
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OpenRoad
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Re: Why Not Buy Vanguard ETFs Through Schwab?

Post by OpenRoad »

I just moved from Schwab to Vanguard. But, I kept my account open at Schwab.

Why Vanguard?
- Trades are slightly cheaper at VG, especially as your account grows
- Vanguard ETFs have a slightly lower bid/ask spread and more assets (which made me feel better about maintaining a low bid/ask spread- whether right or wrong)
- I wanted access to Vangaurd Funds which are not cheap through Schwab ($76 purchase/sell).
- Vanguard Admiral funds are not available at Schwab

In the end, I felt like I had more options at VG and better "stability". Its a personal opinion, but might help you in making yours. Keeping my account open at Schwab gives me a little more flexibility, if I don't use it, I'll close it soon.
jdb
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Re: Why Not Buy Vanguard ETFs Through Schwab?

Post by jdb »

I don't have a dog in this hunt since have not had a Schwab account since discovered Vanguard years ago. But IMHO one of best features of Vanguard is the Admiral class of its mutual funds with significantly lower costs. That alone would convince me to stay with Vanguard.
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Re: Why Not Buy Vanguard ETFs Through Schwab?

Post by placeholder »

I like ETFs because you can get Admiral level ERs but have the freedom to hold them anywhere and use whichever brokerage makes the most sense for you (I like the bonuses).
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ogd
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Re: Why Not Buy Vanguard ETFs Through Schwab?

Post by ogd »

Ganacel wrote:I'm a little confused about something that I hope someone can clarify for me. If you can buy EVERYTHING Vanguard offers, plus EVERYTHING Schwab offers, at Schwab, why wouldn't you open your account at Schwab and then you could pick and choose your Schwab and Vangard ETFs/index funds at will?
...
Given that the Schwab ETFs are each a little cheaper, doesn't it make sense to open an account at Schwab to use their cheaper ETFs for US/Bonds/REITs and pay a little extra for the better diversified Vangard International ETF (also bought through Schwab)?
Vanguard ETFs are certainly not free to trade at Schwab.

As for Schwab ETFs, their quoted ERs are indeed cheaper, but you will notice a strange thing happening for the VG stock funds at least: they end up costing quite a bit less than the quoted expense ratio because of securities lending revenue (which Vanguard rolls back into the funds, unlike just about everyone else). The S&P 500 and Total Stock funds end up being almost free.

The real advantage of the VG funds in my mind is that they are literally 100x the size. This not only means liquidity, but also that low ERs are sustainable and may go down further. Whereas the Schwab funds might be loss leaders at their small size, i.e. there to attract assets.

The other thing about staying at Vanguard is you can use mutual funds instead of ETFs, which many of us prefer. See http://www.bogleheads.org/wiki/ETFs_vs_mutual_funds .
HurdyGurdy
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Re: Why Not Buy Vanguard ETFs Through Schwab?

Post by HurdyGurdy »

I'd think that the main incentive for firms like Schwab, TD Ameritrade, Etrade, etc, is to make money from trades. The more clients trade, the more they make. Flashy, friendly websites, they are designed to make you trade.

Not so with Vanguard. They don't want you to trade often, that is not their business, and it would not be good for your own business either.
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Re: Why Not Buy Vanguard ETFs Through Schwab?

Post by placeholder »

Who cares what the brokerage wants you to do?
German Expat
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Re: Why Not Buy Vanguard ETFs Through Schwab?

Post by German Expat »

Why not have both? I have a Schwab account (great for international travel with their ATM card, free checks etc, we use it also as our main checking account) and have a couple Schwab ETF's as well. But most of our assets are with Vanguard. I don't really see a particular reason for either / or, why don' t you just use both?
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Re: Why Not Buy Vanguard ETFs Through Schwab?

Post by john94549 »

I have quite a few Vanguard ETF's in my Schwab SEP-IRA account. Could not be happier.
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Re: Why Not Buy Vanguard ETFs Through Schwab?

Post by pradador »

Ganacel wrote:And the International ETF is also cheaper at Schwab (0.14% for VXUS versus 0.08% for SCHF, although I understand the Vangard ETF has better diversification in this category at least and might be worth paying more for.)
Take a look at their other international ETFs. SCHF covers just international large cap. Adding some SCHC (internation small cap) and SCHE (emerging markets) can get close to mirroring VXUS without transaction fees.
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Re: Why Not Buy Vanguard ETFs Through Schwab?

Post by john94549 »

I do have some minor issues with Schwab. For example, they sequester mutual fund dividends (look at SWPPX) while Vanguard pays out quarterly. Not sure if Schwab captures the sequester, but it would appear so*. While not a huge issue to the individual investor, sitting on quarterly dividends paid by components of the SWPPX, then paying out at the end of the year seems to be a classic "float".

*Not to put too fine a point on the pencil, the value of SWPPX is pretty-well tied to the S+P. I've never noticed SWPPX nudging its NAV up over the year as those component dividends get issued. Stated another way, I'd rather have quarterly dividends, re-invested. Schwab doesn't do that, but I suspect few notice.
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Re: Why Not Buy Vanguard ETFs Through Schwab?

Post by Karamatsu »

Given that the Schwab ETFs are each a little cheaper, doesn't it make sense to open an account at Schwab to use their cheaper ETFs for US/Bonds/REITs and pay a little extra for the better diversified Vangard International ETF (also bought through Schwab)?
Although the reasons for my choice of Schwab are different, that's is what I do. The only thing I want., but can't get, from Schwab Funds is small-cap value. For that I use Vanguard's VBR ETF. To my mind the main reason to use Vanguard (other than personal preferences, etc) is if I wanted mutual fund treatment of investments as opposed to ETF treatment.
Trader Joe
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Re: Why Not Buy Vanguard ETFs Through Schwab?

Post by Trader Joe »

Go with Schwab.
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Ganacel
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Re: Why Not Buy Vanguard ETFs Through Schwab?

Post by Ganacel »

German Expat wrote:Why not have both? I have a Schwab account (great for international travel with their ATM card, free checks etc, we use it also as our main checking account) and have a couple Schwab ETF's as well. But most of our assets are with Vanguard. I don't really see a particular reason for either / or, why don' t you just use both?
But you can't have a Roth IRA in two places, can you? Or are you suggesting opening two separate Roth accounts and splitting up the hypothetical $100,000 between them? That seems like a lot of trouble.

I get what people are saying about the mutual funds. It makes sense to me to use Vanguard for mutual funds if you can (say, for a taxable account if your 401k/403b is restricted to another brokerage), and it makes sense to use mutual funds for an account where you're doing DCA because you're contributing a relatively small amount every month or every two weeks and therefore making trades regularly. But in a Roth worth $100,000, you're basically buying everything once, and then you're adding in another $5500 once per year, so the cost of trades becomes much less of an issue while the ER becomes much more of an issue, right? Am I wrong in thinking it makes sense to use ETFs in a case like this? And if ETFs are best, wouldn't it make more sense to use the cheaper ETFs at Schwab as your basic building blocks?
Trader Joe wrote:Go with Schwab.
Any reason in particular?
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in_reality
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Re: Why Not Buy Vanguard ETFs Through Schwab?

Post by in_reality »

Ganacel wrote: Am I wrong in thinking it makes sense to use ETFs in a case like this? And if ETFs are best, wouldn't it make more sense to use the cheaper ETFs at Schwab as your basic building blocks?
Sure, it makes perfect sense to go with the lowest cost fund.

Also, in a ROTH, if Schwab does change it's pricing at some point (as Vanguard supporters claim it might), there is no tax consequence.

OK, so if the funds were identical, yes the lower ER wins for sure. You are right.

Are they identical though? No. Vanguard (CRSP) and Schwab (Dow) use different indexes. http://www.bogleheads.org/wiki/US_total ... ex_returns

Basically, the differences in indexes is greater than the difference in ER. There too may be small differences in how the funds operate due to size.

I don't think anything can be concluded other that Vanguard and Schwab ETFs are really quite similar. There's no real way to know going forward which will outperform.

I don't think anyone can really definitively say it is a mistake to use Schwab ETFs and I don't think anyone can definitively say they are better.
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Re: Why Not Buy Vanguard ETFs Through Schwab?

Post by placeholder »

Ganacel wrote:But you can't have a Roth IRA in two places, can you? Or are you suggesting opening two separate Roth accounts and splitting up the hypothetical $100,000 between them? That seems like a lot of trouble.
It's not that much trouble I at one point had three Roth IRAs at different custodians and a few taxable accounts but it's so easy to open accounts and move assets around these days it's not a big deal.
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