Schwab slashes ETF fees

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.

Schwab slashes ETF fees

Postby mackstann » Thu Sep 20, 2012 7:28 pm

Here’s a list of the ETFs, along with their old and new fees.

U.S. Broad Market 0.06%, 0.04%

U.S. Large-Cap 0.08%, 0.04%

U.S. Large-Cap Growth 0.13%, 0.07%

U.S. Large-Cap Value 0.13%, 0.07%

U.S. Dividend Equity 0.17%, 0.07%

U.S. Mid-Cap 0.13%, 0.07%

U.S. Small Cap 0.13%, 0.10%

U.S. REIT 0.13%, 0.07%

International Equity 0.13%, 0.09%

Emerging Markets Equity 0.25%, 0.15%

International Small-Cap Equity 0.35%, 0.20%

U.S. Aggregate Bond 0.10%, 0.05%

Short-Term U.S. Treasury 0.12%, 0.08%

Intermediate-Term U.S. Treasury 0.12%, 0.10%

U.S. TIPS 0.14%, 0.07%


http://blogs.wsj.com/totalreturn/2012/0 ... od=WSJBlog
It does not matter how slowly you go so long as you do not stop.
mackstann
 
Posts: 210
Joined: 17 May 2012

Re: Schwab slashes ETF fees

Postby indexfundfan » Thu Sep 20, 2012 7:32 pm

Schwab's ETFs are going more and more interesting. Most of them have decent trading volumes too. I use them in my 401(k) plan with no commissions.
My signature has been deleted.
User avatar
indexfundfan
 
Posts: 1385
Joined: 20 Feb 2007

Schwab's fees are now the lowest in most classes

Postby grabiner » Thu Sep 20, 2012 9:13 pm

Schwab's expenses are now a few basis points lower than Vanguard's for everything that both offer except small-cap (equal), intermediate-term Treasury (equal if you have $50K for Vanguard Admiral shares), and international small-cap (75% of Schwab's SCHC and 25% of EWX or EEMS to get the same allocation is 0.31% versus Vanguard's 0.28% for VSS). Schwab is still missing some classes, notably small-cap growth and value, and short-term and long-term bonds.

Here is a comparison between Schwab and Vanguard ETF expenses (or mutual fund expenses if Vanguard does not have an ETF).

U.S. Broad Market 0.04% vs. 0.06%

U.S. Large-Cap 0.04% vs 0.05% on 500 Index, 0.10% on Large-Cap Index

U.S. Large-Cap Growth 0.07% vs 0.10%

U.S. Large-Cap Value 0.07% vs 0.10%

U.S. Dividend Equity 0.07% vs 0.13% on both Dividend Appreciation and High Dividend Yield

U.S. Mid-Cap 0.07% vs. 0.10%

U.S. Small Cap 0.10% vs 0.10%

U.S. REIT 0.07% vs. 0.10%

International Equity 0.09% vs. 0.12% on MSCI EAFE (Tax-Managed International)

Emerging Markets Equity 0.15% vs. 0.20%

International Small-Cap Equity 0.20% vs. 0.28% on FTSE small-cap (also includes emerging)

U.S. Aggregate Bond 0.05% vs. 0.10%

Short-Term U.S. Treasury 0.08% vs. 0.20%, 0.10% on Admiral shares ($50K minimum)

Intermediate-Term U.S. Treasury 0.10% vs. 0.20%, 0.10% on Admiral shares ($50K minimum)

U.S. TIPS 0.07% vs. 0.21%, 0.11% on Admiral shares ($50K minimum)
David Grabiner
User avatar
grabiner
Advisory Board
 
Posts: 12729
Joined: 21 Feb 2007
Location: Columbia, MD

Re: Schwab slashes ETF fees

Postby poundwise » Thu Sep 20, 2012 9:50 pm

Great news for consumers! I wonder if Schwab is charging below cost, and how low fees from this battle will eventually go. Will we ever see a (loss-leader) ER of 0?

I usually think of Vanguard as having the edge in this battle, as they don't need to worry about a profit margin. But if Schwab cuts costs here to bring in customers, recouping dollars via their paid products (portfolio analysis, trading fees, etc.), then I can see a world where Schwab has a long run pricing advantage on ETFs.
poundwise
 
Posts: 101
Joined: 6 Apr 2011

Re: Schwab slashes ETF fees

Postby #Cruncher » Thu Sep 20, 2012 10:12 pm

Thanks for compiling the Schwab vs Vanguard comparison, grabiner. I've arranged it to be a little easier to read:
Code: Select all
U.S. Broad Market                0.04% vs 0.06%
U.S. Large-Cap                   0.04% vs 0.05% on 500 Index, 0.10% on Large-Cap Index
U.S. Large-Cap Growth            0.07% vs 0.10%
U.S. Large-Cap Value             0.07% vs 0.10%

U.S. Dividend Equity             0.07% vs 0.13% on both Div Apprec & High Div Yield
U.S. Mid-Cap                     0.07% vs 0.10%
U.S. Small-Cap                   0.10% vs 0.10%
U.S. REIT                        0.07% vs 0.10%

Code: Select all
International Equity             0.09% vs 0.12% on MSCI EAFE (Tax-Managed International)
Emerging Markets Equity          0.15% vs 0.20%
International Small-Cap Equity   0.20% vs 0.28% on FTSE small-cap (also includes emerging)

U.S. Aggregate Bond              0.05% vs 0.10%
Short-Term U.S. Treasury         0.08% vs 0.20%  0.10% on Admiral shares ($50K minimum)
Intermediate-Term U.S. Treasury  0.10% vs 0.20%  0.10% on Admiral shares ($50K minimum)
U.S. TIPS                        0.07% vs 0.21%  0.11% on Admiral shares ($50K minimum)
Here's a link to Schwab's web page listing the new lower fees with a comparison to Vanguard and SPDR ETFs: Schwab ETFs.

Even before halving the ER from 0.14% to 0.07% the Schwab's TIPS ETF (SCHP) had the lowest ER of all the TIPS ETFs that cover the entire maturity spectrum. Schwab has even cleaned up the web pages that list its holdings so you can tell what they are!
User avatar
#Cruncher
 
Posts: 1387
Joined: 14 May 2010
Location: New York City

Re: Schwab slashes ETF fees

Postby Alskar » Thu Sep 20, 2012 10:16 pm

I just finished rolling over an old 401(k) into a new Vanguard account, so it's just my luck that Vanguard is now solidly in second place when it comes to low-cost funds. On the other hand, it is hard to see how Schwab is going to be able to maintain these low ER's indefinitely. Schwab has a bit of a history of offering perks and then withdrawing them; their reward credit cards for example.

This certainly makes Fidelity look backward: They have no ETF's of their own. My Fido Account Executive continues to insist that active management works and costs don't matter. I wonder how that party-line will change with the additional pressure from Schwab.

In any case, this is great news for us consumers. Let the ER's wars begin!
Lagom är bäst
User avatar
Alskar
 
Posts: 515
Joined: 6 Jan 2010
Location: Oregon

Re: Schwab slashes ETF fees

Postby grabiner » Thu Sep 20, 2012 10:48 pm

Alskar wrote:I just finished rolling over an old 401(k) into a new Vanguard account, so it's just my luck that Vanguard is now solidly in second place when it comes to low-cost funds. On the other hand, it is hard to see how Schwab is going to be able to maintain these low ER's indefinitely. Schwab has a bit of a history of offering perks and then withdrawing them; their reward credit cards for example.


Therefore, I wouldn't recommend the Schwab ETFs in a taxable account; if the fees go back up, you must either pay tax on the capital gain to switch to Vanguard, or stay with Schwab's higher fees. But in an IRA, you can switch back for no more than a few cents per share in trading costs. (The choice is still not clear; you might compare tracking error and see whether Vanguard can make up for three basis points.)
David Grabiner
User avatar
grabiner
Advisory Board
 
Posts: 12729
Joined: 21 Feb 2007
Location: Columbia, MD

Re: Schwab slashes ETF fees

Postby SteveB3005 » Thu Sep 20, 2012 10:54 pm

Crazy low prices, an ER of $40 per 100k on the Broad Mkt doesn't cover postage for those literature mailing fools. I've had a Simple IRA there for ages and have opted for paperless for everything I know of and they still find reasons to mail me piles of stuff.
User avatar
SteveB3005
 
Posts: 1409
Joined: 19 Feb 2007

Re: Schwab slashes ETF fees

Postby EmergDoc » Fri Sep 21, 2012 1:42 am

I'm using the Schwab TIPS ETF now in my 401K, but was paying a minor commission for Vanguard's TSM. At this point I think we're dancing on the head of a pin.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
User avatar
EmergDoc
 
Posts: 9908
Joined: 2 Mar 2007
Location: Greatest Snow On Earth

Re: Schwab slashes ETF fees

Postby Jerilynn » Fri Sep 21, 2012 3:31 am

Wow! I hope it spurs a price war. In any event, this makes DFA funds even MORE overpriced. ;)
Cordially, Jeri . . . 100% all natural asset allocation. (no supernatural methods used)
User avatar
Jerilynn
 
Posts: 1940
Joined: 6 Sep 2011
Location: USA, Earth

Re: Schwab slashes ETF fees

Postby letsgobobby » Fri Sep 21, 2012 3:51 am

EmergDoc wrote:I'm using the Schwab TIPS ETF now in my 401K, but was paying a minor commission for Vanguard's TSM. At this point I think we're dancing on the head of a pin.

Schb is down to 4 basis points, a decrease by one third of my costs is noteworthy!
letsgobobby
 
Posts: 6795
Joined: 18 Sep 2009

Re: Schwab slashes ETF fees

Postby bargainhuntingking » Fri Sep 21, 2012 5:40 am

This is going to get interesting...
bargainhuntingking
 
Posts: 113
Joined: 14 May 2008

Re: Schwab slashes ETF fees

Postby neurosphere » Fri Sep 21, 2012 7:21 am

My wife's 401k is with schwab, but doesn't allow for investments outside of the selected mutual funds...oh but WAIT!

I logged in and poked around, and saw this PCRA option, which seems like it's similar to an "add-on" brokerage account to the 401k. I had read their literature on it in the past, and ignored it, because I was confused, and thought it was merely an option to have an advisor help with the account. There are many threads on the subject, just search for "PCRA".

I'm not the brightest bulb in the pencil box*, but this isn't my first drive around the pool. So if *I* missed the significance of what a PCRA account is, perhaps others have as well, which is why I'm talking about it.

But be careful, because it seems the fees within a PCRA can vary from account to account, both within the PCRA and also some employer plans will charge a fee if you exercise the option to invest in a PCRA.

NS

* An example? I set up the PCRA account. But I cannot find information on how one actually FUNDS the PCRA acccount from the 401k, despite looking around for 20+ minutes. Eventually, I have to get my wife to call Schwab and get some information. But perhaps funding the account is done through mail or phone call, rather than online...
I am not an actor, even though I play one on television.
User avatar
neurosphere
 
Posts: 1332
Joined: 17 Jan 2010
Location: NYC

Re: Schwab slashes ETF fees

Postby AndroAsc » Fri Sep 21, 2012 8:09 am

I think we are at a point where tracking error > expense ratio.

I don't care if Schwab options are 0.02% cheaper than Vanguard, hell I don't even care if they have a zero bp fund. The more important question is: Can they track their index as well as Vanguard?
AndroAsc
 
Posts: 884
Joined: 21 Nov 2009

Re: Schwab slashes ETF fees

Postby JamesSFO » Fri Sep 21, 2012 8:37 am

AndroAsc wrote:I think we are at a point where tracking error > expense ratio.

I don't care if Schwab options are 0.02% cheaper than Vanguard, hell I don't even care if they have a zero bp fund. The more important question is: Can they track their index as well as Vanguard?


Good point, also I think it is worth providing 3-4 months to understand how VG, Fido, iShares and others will respond and also whether Schwab is really planning to keep fees this low or are these "teaser" fees to draw in funds that will go up over time.
User avatar
JamesSFO
 
Posts: 1940
Joined: 26 Apr 2012

Re: Schwab slashes ETF fees

Postby BetaTracker » Fri Sep 21, 2012 9:12 am

We just switched our accounts (everything) from Schwab to Vanguard. I can't say anything bad about Schwab, but even with the price cuts, we're disappointed at their lack of building out in ETFs. We keep things simple, but to me just to have the ease-of-use of ETFs like Total International and broader assortment of stock and bond index funds is just much more helpful. For example, we've decided to use two of the Vanguard tax-managed funds rather than ETFs in our taxable account. (Strangely, we found that the Schwab ETFs, even though they're not structured as a second share class, are less tax efficient in many cases than the Vanguard ETFs.) We've also found some nice differences in dealing with a fund company rather than a broker-dealer. (I still remember when Schwab's trading revenues were down several years ago and they hiked fees.)
BetaTracker
 
Posts: 18
Joined: 21 Sep 2012

Re: Schwab slashes ETF fees

Postby BigFoot48 » Fri Sep 21, 2012 9:21 am

neurosphere wrote:I logged in and poked around, and saw this PCRA option, which seems like it's similar to an "add-on" brokerage account to the 401k.

You made me look it up! "Schwab Personal Choice Retirement Account is a self-directed brokerage account (SDBA) that resides within your employer-sponsored retirement plan. In addition to the choices typically offered by retirement plans, PCRA lets you invest in a much wider range of investments."

I'm glad to see Schwab lowering fees and we can only hope it's not a temporary thing. They charge $8.95 to trade my Vanguard ETFs and $0 for the Schwab versions so, while I rarely need to trade, these lower fees may tempt me to move some of my Vanguard index ETFs to Schwab's in the future. All I need to do is finally get over the YieldPlus fiasco and trust their products again. (I have owned their S&P500 as my core stock fund forever as it's hard to screw that up.)
Retired | Two-time Top-10 Diehard S&P500 Picker; Nine-Time Loser
User avatar
BigFoot48
 
Posts: 2045
Joined: 20 Feb 2007
Location: Arizona

Re: Schwab slashes ETF fees

Postby mikep » Fri Sep 21, 2012 9:50 am

JamesSFO wrote:
AndroAsc wrote:I think we are at a point where tracking error > expense ratio.

I don't care if Schwab options are 0.02% cheaper than Vanguard, hell I don't even care if they have a zero bp fund. The more important question is: Can they track their index as well as Vanguard?


Good point, also I think it is worth providing 3-4 months to understand how VG, Fido, iShares and others will respond and also whether Schwab is really planning to keep fees this low or are these "teaser" fees to draw in funds that will go up over time.


Their TIPS index ETF is trailing the TIPS index by 0.50% YTD...
mikep
 
Posts: 3072
Joined: 22 Apr 2009

Re: Schwab slashes ETF fees

Postby #Cruncher » Fri Sep 21, 2012 11:38 am

mikep wrote:Their TIPS index ETF is trailing the TIPS index by 0.50% YTD...
Yes, it looks that way on Schwab's web site. I see 1/3/2012 - 9/20/2012 returns of 5.82% for SCHP and 6.28% for the Barclays' index, a shortfall of 0.46% points. * But this is probably just be a data glitch. ** I say this because this Yahoo 1-year chart of SCHP, TIP, & IPE shows the three funds (which all track the same index) performing almost identically over the past year. (Actually SCHP is slightly higher.)

* On the SCHP Summary Tab, click "Tracking Error" on right side under Additional Information and then choose the Tracking Error and YTD tabs.
** On the 3-month Tracking Error tab, one can see that the divergence between the index and SCHP occurs all at once in early July.
User avatar
#Cruncher
 
Posts: 1387
Joined: 14 May 2010
Location: New York City

Re: Schwab slashes ETF fees

Postby natureexplorer » Fri Sep 21, 2012 11:55 am

This is a great trend - dropping ETF ERs.
natureexplorer
 
Posts: 4165
Joined: 3 Sep 2009

Re: Schwab slashes ETF fees

Postby indexfundfan » Fri Sep 21, 2012 12:02 pm

I use Schwab's PCRA. For my 401(k) plan, there is no fee to use the PCRA. I believe whether there is a fee or not depends on how your employer had negotiated with Schwab.

If you have the PCRA setup in your 401(k) plan, it will appear as an investment option in the Schwab 401(k) retirement website (just like any other investment option, for e.g. Pimco's Total Return Bond fund).

You need to 'exchange' your money into the PCRA option from the 401(k) website, and the money will appear in your Schwab brokerage account the next day. You perform your ETF trades in the Schwab brokerage account. This is separate from the 401(k) website.

I need to mention that you need to apply to get the PCRA option. It does not appear by default. My observation is that most of my coworkers do not apply for the PCRA option.
My signature has been deleted.
User avatar
indexfundfan
 
Posts: 1385
Joined: 20 Feb 2007

Re: Schwab slashes ETF fees

Postby KritonD » Fri Sep 21, 2012 12:31 pm

There is a diminishing marginal return on prices being cut, and I think we've pretty much reached it when we're discussing 0.04% vs 0.05% on US largecap stocks.

If you invested $10,000 in Schwab's ETF (0.04%) large cap ETF vs. Vanguard's (0.05%) large cap ETF, over 20 years and an expected return of 8% a year from the underlying index, you'd have a total of 85 dollars more in your Schwab investment.
Schwab - 10000 * 1.0796^20 = 46265.52
Vanguard - 10000 * 1.0795^20 = 46179.89
Difference - $85.63. That's $4.28 a year.

As consumers, on this front, we've won. Celebrate (and keep your guard up.) Let's focus on other items, like fees in 401k(s). As AndroAsc wrote, tracking error is more important now than fees if you're with a low fee company.
KritonD
 
Posts: 118
Joined: 4 Mar 2007
Location: NYC

Re: Schwab slashes ETF fees

Postby neurosphere » Fri Sep 21, 2012 1:15 pm

indexfundfan wrote:If you have the PCRA setup in your 401(k) plan, it will appear as an investment option in the Schwab 401(k) retirement website (just like any other investment option, for e.g. Pimco's Total Return Bond fund).


Found it!!! Thanks, that saved me a lot of time.

NS
I am not an actor, even though I play one on television.
User avatar
neurosphere
 
Posts: 1332
Joined: 17 Jan 2010
Location: NYC

Re: Schwab slashes ETF fees

Postby Rick Ferri » Fri Sep 21, 2012 1:42 pm

Investors should consider all factors before choosing an ETF. I wrote an article in May that compares Schwab's ETFs to Vanguard on several points including fees at the time. Here is the blog:

Schwab ETFs Struggle in the Shadow of Vanguard

Rick Ferri
Mutual fund investing is simple. There is risk, there is return, and there are costs. All else is marketing.
User avatar
Rick Ferri
 
Posts: 7749
Joined: 26 Feb 2007
Location: Home on the range in Medina, Texas

Re: Schwab slashes ETF fees

Postby natureexplorer » Fri Sep 21, 2012 2:16 pm

Rick Ferri wrote:Investors should consider all factors before choosing an ETF. I wrote an article in May that compares Schwab's ETFs to Vanguard on several points including fees at the time. Here is the blog:

Schwab ETFs Struggle in the Shadow of Vanguard
So, with the drop in ERs at Schwab, are the conclusions still in favor of Vanguard funds for every asset class?
natureexplorer
 
Posts: 4165
Joined: 3 Sep 2009

Re: Schwab slashes ETF fees

Postby Random Musings » Fri Sep 21, 2012 4:06 pm

From reading Rick's article (again), Vanguard funds tend to have more holdings, hence more diversified.

Big picture, I bet it's a wash for two of the three in the article (probably still an advantage for REIT's).

I bet Vanguard will "tweak" by 0.01%, or whatever, to get to 0.09% (that old 9 pricing thing) on certain ETF's/funds. I still see most $ going to Vanguard. As mentioned above, they tend to pull the rug from under you less than Schwab. Plus, investor inertia at that level of cost structure probably is pretty high. I don't feel motivated to move.

RM
User avatar
Random Musings
 
Posts: 5035
Joined: 22 Feb 2007
Location: Pennsylvania

Re: Schwab slashes ETF fees

Postby sunspotzsz » Fri Sep 21, 2012 4:39 pm

These low fees are great, but is it sustainable?

I hope this is not "0% APR" kind of thing.
sunspotzsz
 
Posts: 167
Joined: 8 May 2009

Re: Schwab slashes ETF fees

Postby Hub » Fri Sep 21, 2012 5:15 pm

I recently set up the Schwab PCRA option within my 401k.

1. No fees from employer or Schwab.
2. 10% of my funds and ongoing contributions must remain in regular 401k.
3. Auto-reinvestment occurs by choosing PCRA as if it's a fund. That money then goes into your cash account where it can be placed in mutual funds on the 5th and 20th of each month. $100 minimum to set up an auto into a fund. Obviously no ETF options available in the auto investment side.
4. My combined 401k ER after setting up the PCRA and then getting these rather significant discounts has dropped from 0.65% to 0.145%. Plus my asset allocation is WAY more to my liking.
5. My co-workers seem to not realize this option exists or how glorious it is.

Thanks Schwab!
User avatar
Hub
 
Posts: 275
Joined: 13 Jul 2012

Re: Schwab slashes ETF fees

Postby Rick Ferri » Fri Sep 21, 2012 5:59 pm

natureexplorer wrote:Rick, with the drop in ERs at Schwab, are the conclusions still in favor of Vanguard funds for every asset class?


Yes, but I'm splitting hairs in most cases. You won't get any argument from me if you decide to hold your assets at Schwab and invest in only Schwab index funds and ETFs.

Rick Ferri
Mutual fund investing is simple. There is risk, there is return, and there are costs. All else is marketing.
User avatar
Rick Ferri
 
Posts: 7749
Joined: 26 Feb 2007
Location: Home on the range in Medina, Texas

Re: Schwab slashes ETF fees

Postby jasonv » Fri Sep 21, 2012 11:46 pm

Great, this is just in time for me to take advantage of the Self Directed option being added to my 401k.

For those of you who have used Schwab PCRA, am I correct in understanding that the minimum time "out of the market" is one day when transferrin from a plan selected Schwab fund to a Schwab ETF?
User avatar
jasonv
 
Posts: 225
Joined: 12 Sep 2010
Location: Austin, Texas

Re: Schwab slashes ETF fees

Postby indexfundfan » Sat Sep 22, 2012 12:58 am

jasonv wrote:Great, this is just in time for me to take advantage of the Self Directed option being added to my 401k.

For those of you who have used Schwab PCRA, am I correct in understanding that the minimum time "out of the market" is one day when transferrin from a plan selected Schwab fund to a Schwab ETF?

Yes, one day if you sell the mutual fund, move the funds to the brokerage to buy the ETF.

From brokerage back to mutual fund is longer because of the settlement period for stocks and ETFs.
My signature has been deleted.
User avatar
indexfundfan
 
Posts: 1385
Joined: 20 Feb 2007

Re: Schwab slashes ETF fees

Postby grabiner » Sat Sep 22, 2012 1:55 am

indexfundfan wrote:
jasonv wrote:Great, this is just in time for me to take advantage of the Self Directed option being added to my 401k.

For those of you who have used Schwab PCRA, am I correct in understanding that the minimum time "out of the market" is one day when transferrin from a plan selected Schwab fund to a Schwab ETF?

Yes, one day if you sell the mutual fund, move the funds to the brokerage to buy the ETF.

From brokerage back to mutual fund is longer because of the settlement period for stocks and ETFs.


Can you take advantage of the settlement of ETFs to eliminate the one-day delay with Schwab? You can do this with Vanguard; if you buy an ETF on Monday, you only need to have the cash in your money-market account by Thursday, so you can sell a mutual fund on Monday to pay for the ETF.
David Grabiner
User avatar
grabiner
Advisory Board
 
Posts: 12729
Joined: 21 Feb 2007
Location: Columbia, MD

Re: Schwab slashes ETF fees

Postby indexfundfan » Sat Sep 22, 2012 2:01 am

grabiner wrote:
indexfundfan wrote:
jasonv wrote:Great, this is just in time for me to take advantage of the Self Directed option being added to my 401k.

For those of you who have used Schwab PCRA, am I correct in understanding that the minimum time "out of the market" is one day when transferrin from a plan selected Schwab fund to a Schwab ETF?

Yes, one day if you sell the mutual fund, move the funds to the brokerage to buy the ETF.

From brokerage back to mutual fund is longer because of the settlement period for stocks and ETFs.


Can you take advantage of the settlement of ETFs to eliminate the one-day delay with Schwab? You can do this with Vanguard; if you buy an ETF on Monday, you only need to have the cash in your money-market account by Thursday, so you can sell a mutual fund on Monday to pay for the ETF.

No. You would not be able to make the ETF purchase without the funds in the brokerage account.
My signature has been deleted.
User avatar
indexfundfan
 
Posts: 1385
Joined: 20 Feb 2007

Re: Schwab slashes ETF fees

Postby Doc » Sat Sep 22, 2012 9:30 am

indexfundfan wrote:
grabiner wrote:
indexfundfan wrote:
jasonv wrote:Great, this is just in time for me to take advantage of the Self Directed option being added to my 401k.

For those of you who have used Schwab PCRA, am I correct in understanding that the minimum time "out of the market" is one day when transferrin from a plan selected Schwab fund to a Schwab ETF?

Yes, one day if you sell the mutual fund, move the funds to the brokerage to buy the ETF.

From brokerage back to mutual fund is longer because of the settlement period for stocks and ETFs.


Can you take advantage of the settlement of ETFs to eliminate the one-day delay with Schwab? You can do this with Vanguard; if you buy an ETF on Monday, you only need to have the cash in your money-market account by Thursday, so you can sell a mutual fund on Monday to pay for the ETF.

No. You would not be able to make the ETF purchase without the funds in the brokerage account.


This has nothing to do with Schwab or Vanguard in a general case. Stocks and ETFs have a T+3 settlement date. That means the money to pay for the purchase has to be in the account on the third business day after to purchase. Bonds and most mutual funds have a T+1 settlement. Which means the money from a sale can be taken out one business day after a sale. So you can avoid the extra day problem. Note however that you can buy and sell in the same account on the same day without regard to settlement date. So you have no problem with Schwab in general. Vg is a different storey because Vg Mutual find and VG brokerage are different entities and you have extra time involved when you are using funds from sales on one side to pay for purchases on the other side. I am unfamiliar with the Schwab PCRA and you may have the same two account problem that you have with Vg and VBS.
A scientist looks for THE answer to a problem, an engineer looks for AN answer. Investing is not a science.
User avatar
Doc
 
Posts: 4742
Joined: 24 Feb 2007

Re: Schwab slashes ETF fees

Postby William4u » Sat Sep 22, 2012 9:34 am

AndroAsc wrote:I think we are at a point where tracking error > expense ratio.

I don't care if Schwab options are 0.02% cheaper than Vanguard, hell I don't even care if they have a zero bp fund. The more important question is: Can they track their index as well as Vanguard?


I would bet that the bid/ask spread is higher for Schwab. So not only is tracking error potentially more than the ER, but also the bid/ask spread as well. Does anyone know what the bid ask spreads are on those Schwab ETFs?
User avatar
William4u
 
Posts: 396
Joined: 1 Jun 2012

Re: Schwab slashes ETF fees

Postby indexfundfan » Sat Sep 22, 2012 10:40 am

Doc wrote:I am unfamiliar with the Schwab PCRA and you may have the same two account problem that you have with Vg and VBS.

I was sharing my experience with the PCRA account. My reply was specific to the Schwab PCRA case.
My signature has been deleted.
User avatar
indexfundfan
 
Posts: 1385
Joined: 20 Feb 2007

Re: Schwab slashes ETF fees

Postby letsgobobby » Sat Sep 22, 2012 11:02 am

William4u wrote:
AndroAsc wrote:I think we are at a point where tracking error > expense ratio.

I don't care if Schwab options are 0.02% cheaper than Vanguard, hell I don't even care if they have a zero bp fund. The more important question is: Can they track their index as well as Vanguard?


I would bet that the bid/ask spread is higher for Schwab. So not only is tracking error potentially more than the ER, but also the bid/ask spread as well. Does anyone know what the bid ask spreads are on those Schwab ETFs?


I bought and sold SCHB earlier this week and bid-ask was about $0.01, at the most.
letsgobobby
 
Posts: 6795
Joined: 18 Sep 2009

Re: Schwab slashes ETF fees

Postby neurosphere » Sat Sep 22, 2012 12:05 pm

letsgobobby wrote:I bought and sold SCHB earlier this week and bid-ask was about $0.01, at the most.


In my case, the choice is between:

1) high ER mutual funds for the asset classes I desire (in the range of 0.7 - 1.3% expense ratios)
2) Vanguard ETFs with a $9 fee
3) Schwab ETFs with no fee.

#1 is not a good option compared to the others. Assuming that the expense ratios for #2 and #3 are similar, then the question becomes, is a potentially higher bid/ask of the more thinly traded Schwab ETFs going to be more or less expensive than the Vanguard ETFs with the fee, but potentially lower bid/asks?

I guess I have to wait until it's time to place an order, and calculate the bid/ask vs. fee question for an individual Vanguard/Schwab ETF pair.

NS
Last edited by neurosphere on Sat Sep 22, 2012 2:24 pm, edited 1 time in total.
I am not an actor, even though I play one on television.
User avatar
neurosphere
 
Posts: 1332
Joined: 17 Jan 2010
Location: NYC

Re: Schwab slashes ETF fees

Postby dhodson » Sat Sep 22, 2012 12:20 pm

That's the issue.

I mistakenly purchased some at market price only to find that a good bit more expensive.
dhodson
 
Posts: 3132
Joined: 24 May 2010

Re: Schwab's fees are now the lowest in most classes

Postby chipmonk » Sat Sep 22, 2012 3:58 pm

grabiner wrote:U.S. TIPS 0.07% vs. 0.21%, 0.11% on Admiral shares ($50K minimum)

The very low-priced TIPS ETF is the most intriguing to me. Currently I am putting my new TIPS investments into Fidelity's Spartan TIPS mutual fund (FSIQX) with an 0.20% ER, because I get it with no commissions in my 401k.

Perhaps I should move my holdings to SCHP instead. This is one of the very few places where my portfolio is not already as optimal as possible for expense ratios (including using Admiral funds for everything possible and Institutional funds in my 401k).

The thing is that I find ETFs to be quite a pain to deal with compared to plain ol' mutual funds. I'm wondering what the odds are that Vanguard introduces a similarly low-cost true index fund for TIPS, or simply cuts the ERs on its existing offering (VIPSX/VAIPX/VIPIX), or lowers the Admiral minimum to $10k rather than $50k. Any speculation? :-D
chipmonk
 
Posts: 600
Joined: 9 Mar 2011
Location: PDX

Re: Schwab's fees are now the lowest in most classes

Postby grabiner » Sat Sep 22, 2012 5:00 pm

chipmonk wrote:The thing is that I find ETFs to be quite a pain to deal with compared to plain ol' mutual funds. I'm wondering what the odds are that Vanguard introduces a similarly low-cost true index fund for TIPS, or simply cuts the ERs on its existing offering (VIPSX/VAIPX/VIPIX), or lowers the Admiral minimum to $10k rather than $50k. Any speculation? :-D


Vanguard operates everything at cost; it doesn't raise or lower expenses because of competition. Because of economies of scale, Vanguard's expenses tend to decrease as funds get larger; this is why 500 Index and Total Stock Market Index have lower expenses than the other index funds, and why the S&P and Russell ETFs (except 500 Index) cost more than the larger MSCI ETFs in the same asset classes. I would expect Vanguard expense ratios on the TIPS fund to decline very slightly as TIPS become more popular.

What I would like to see is a Vanguard alternative to PIMCO's LTPZ which indexes long-term TIPS. Long-term TIPS have higher yields than short-term TIPS, and are the ideal low-risk investment for long-term investors, such as an IRA for someone more than ten years from retirement.
David Grabiner
User avatar
grabiner
Advisory Board
 
Posts: 12729
Joined: 21 Feb 2007
Location: Columbia, MD

Re: Schwab slashes ETF fees

Postby Karamatsu » Mon Sep 24, 2012 12:55 am

Hmmmm... looks like I spoke too soon about the fee wars being over. I guess we go another round. In addition to tracking and spreads it's also important to look at dividends. When they track different indexes you can get differences in yields that, depending on the size of the investment, can easily swamp ER differences even after tax. It's not all one-way. Sometimes VG has higher yield, sometimes Schwab.

Clearly the cost of running a fund is less than Vanguard and all the other companies (including Schwab) were telling us, or they would have had these low fees all along. Interesting times...
Karamatsu
 
Posts: 1049
Joined: 27 Oct 2008

Re: Schwab slashes ETF fees

Postby nisiprius » Mon Sep 24, 2012 9:32 am

Amusingly, the change is so new that this page says the ER for SCHB is 0.04%, but if you click on the SCHB link, it takes you to another page that says it's 0.06%! I guess someone didn't get the memo.
Image
Image

A few years ago, before Vanguard cut the Admiral shares minimum to $100,000, everyone was agonizing over Vanguard Total Stock Market Index having an 0.20% ER, but Fidelity Spartan Total Market Index having an operating ER of 0.20% but an effective ER of 0.10% due to concession.

If you're a purist, you can't get around it--lower is lower. However, if you're a satisficer who does math, well, what matters is the absolute difference between the numbers, not the ratio. The difference between a 1.2% ER and an 0.20% ER is 1%. The difference between an 0.20% ER and an 0.10% ER is 0.1%. The difference between an 0.06% ER and an 0.04% ER is 0.02%.

Still, wouldn't you like to have been a fly on the wall of the Vanguard gunroom the day the Schwab announcement came out?
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
User avatar
nisiprius
Advisory Board
 
Posts: 24775
Joined: 26 Jul 2007
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Schwab slashes ETF fees

Postby JamesSFO » Mon Sep 24, 2012 9:42 am

Karamatsu wrote:Clearly the cost of running a fund is less than Vanguard and all the other companies (including Schwab) were telling us, or they would have had these low fees all along. Interesting times...


Not sure you can make that conclusion. Schwab may be lowering the ERs on these funds below their actual costs for marketing/PR/fund attraction purposes. The likely true lower bound on fees is probably right around where the VG institutional fund ERs are at. There is a gap between admiral shares and those share classes so perhaps we will see some reductions in time.
User avatar
JamesSFO
 
Posts: 1940
Joined: 26 Apr 2012

Re: Schwab slashes ETF fees

Postby mikem » Mon Sep 24, 2012 10:14 am

I believe "new money" into the funds has incrementally reduced the funds administrative costs resulting in the ability to lower fees. I would bet that VG has the ability to match (or beat) Schwab if they consider it a worthwhile business advantage.
mikem
 
Posts: 175
Joined: 1 Jun 2012

Re: Schwab slashes ETF fees

Postby Rick Ferri » Mon Sep 24, 2012 10:41 am

mikem wrote:I believe "new money" into the funds has incrementally reduced the funds administrative costs resulting in the ability to lower fees. I would bet that VG has the ability to match (or beat) Schwab if they consider it a worthwhile business advantage.


Vanguard is a mutual benefit company. The mutual funds and ETFs are run at cost to the shareholders. As such, fees are set based on the economics of each fund. There's no consideration of a "worthwhile business advantage."

Rick Ferri
Mutual fund investing is simple. There is risk, there is return, and there are costs. All else is marketing.
User avatar
Rick Ferri
 
Posts: 7749
Joined: 26 Feb 2007
Location: Home on the range in Medina, Texas

Re: Schwab slashes ETF fees

Postby mikem » Mon Sep 24, 2012 10:49 am

Rick Ferri wrote:
mikem wrote:I believe "new money" into the funds has incrementally reduced the funds administrative costs resulting in the ability to lower fees. I would bet that VG has the ability to match (or beat) Schwab if they consider it a worthwhile business advantage.


Vanguard is a mutual benefit company. The mutual funds and ETFs are run at cost to the shareholders. As such, fees are set based on the economics of each fund. There's no consideration of a "worthwhile business advantage."

Rick Ferri


Wellington and Wellesley Funds (albeit managed by outside advisor) fees are negotiated between VG and advisory company. I see your point about the VG funds though.
mikem
 
Posts: 175
Joined: 1 Jun 2012

Re: Schwab slashes ETF fees

Postby Rick Ferri » Mon Sep 24, 2012 11:05 am

Yes, this is true. And Wellington recently got a big increase in fee payments according to John Bogle's latest book, The Clash of the Cultures. The jump was large enough for Jack to make a point of it. :wink:

Rick Ferri
Mutual fund investing is simple. There is risk, there is return, and there are costs. All else is marketing.
User avatar
Rick Ferri
 
Posts: 7749
Joined: 26 Feb 2007
Location: Home on the range in Medina, Texas

Re: Schwab slashes ETF fees

Postby tc101 » Mon Sep 24, 2012 11:30 am

Schwab has a history of bait and switch. I don't see how they can maintain expenses lower than Vanguard, because they are smaller.
In the past they have raised expenses on low expense funds after people have large investments in taxable accounts. People stay in the funds to avoid paying the taxes even though the fees are high. The Schwab 1000 index is an example of this.
. | The most important thing you should know about me is that I am not an expert.
User avatar
tc101
 
Posts: 2419
Joined: 20 Feb 2007
Location: Atlanta - Retired in 2004 at age 54

Re: Schwab slashes ETF fees

Postby dhodson » Mon Sep 24, 2012 11:42 am

Rick Ferri wrote:
mikem wrote:I believe "new money" into the funds has incrementally reduced the funds administrative costs resulting in the ability to lower fees. I would bet that VG has the ability to match (or beat) Schwab if they consider it a worthwhile business advantage.


Vanguard is a mutual benefit company. The mutual funds and ETFs are run at cost to the shareholders. As such, fees are set based on the economics of each fund. There's no consideration of a "worthwhile business advantage."

Rick Ferri


While in theory that sounds great, multiple insurance companies are mutual and that doesnt seem to confer any real benefit.

Im not saying anything negative about vanguard, just that a company being mutual isnt something id rest my hat on. Even if it were, companies dont always remain mutual.
dhodson
 
Posts: 3132
Joined: 24 May 2010

Next

Return to Investing - Theory, News & General

Who is online

Users browsing this forum: AND_YOU_ARE, Bing [Bot], bodominiums, Boglegrappler, DaufuskieNate, jjcarpenter, juanito55, shorvath, tecmage, Yahoo [Bot] and 79 guests