Schwab Index Funds vs Vanguard Mutual Funds / ETFs

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Schwab Index Funds vs Vanguard Mutual Funds / ETFs

Postby LFKB » Sun Dec 30, 2012 1:04 pm

I'm going ready to invest a substantial amount of my money in to the market in a modified version of three fund approach, I will likely add a index REIT and index emerging markets to the mix for a total of 5 funds (I'll start a new thread and solicit feedback on my asset allocation when I have it more finalized). I currently have a Schwab account and not a Vanguard account, for ease of use, I would prefer to not have a new account but I have some questions below before making a decision.

For background info, I will be investing enough that I can afford the admiral shares. I will likely lump sum about half the total amount I want to invest and then dollar cost average the rest over a period of 12-24 months (I believe this is not recommended by Bogleheads but I'll feel better not throwing everything in at once).

1. I can buy all the Vanguard Mutual Funds through my Schwab account. Is there any benefit to buying through Vanguard rather than Schwab? It looks like I may have to pay a fee if buying the Vanguard mutual funds through Schwab.

2. I could also buy the Schwab funds (i.e. SWTSX and SWLBX) which look very similar in terms of portfolio and expense ratios. Any reason not to do that?

3. How do Bogleheads thinks of buying the Vanguard ETFs vs Vanguard Mutual Funds? Is there any case when buying the ETFs is preferable? I saw the article from the outgoing Vanguard CIO Gus Sauter which said the majority of his investments were in the ETFs but I wasn't sure why this would be.

4. Any other thoughts/reasons as to which strategy I should use?


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Re: Schwab Index Funds vs Vanguard Mutual Funds / ETFs

Postby Default User BR » Sun Dec 30, 2012 1:33 pm

LFKB wrote:3. How do Bogleheads thinks of buying the Vanguard ETFs vs Vanguard Mutual Funds? Is there any case when buying the ETFs is preferable?

I don't use Vanguard as a custodian. Virtually all my holdings outside of the 401(k) are ETFs of one sort or another, predominantly Vanguard. Mutual fund transaction fees tend to be much higher than ETFs at other brokerages. Also, Admiral shares are generally not available for index funds, so the lower ER is nice too.


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Re: Schwab Index Funds vs Vanguard Mutual Funds / ETFs

Postby livesoft » Sun Dec 30, 2012 1:42 pm

I have used a Schwab index fund, many Vanguard funds, and lots of Vanguard ETFs. They all have benefits in one way or another. See this Wiki article link: ETFs vs Mutual Funds

While it is such a personal choice, sometimes which one is used is dictated by the vendor you have your account at. I will just say that nowadays one should not have to pay a commission for any fund nor ETF. If you do, then move your account.

Personally, I prefer mutual funds for bond funds and ETFs for equity funds although I do have equity mutual funds and bond fund ETFs. For me the biggest difference is how distributions and dividends are automatically re-invested.

I just cannot get used to the way dividends from ETFs are automatically re-invested. Unlike mutual funds were there is no friction and the drop in NAV gives one a corresponding increase in shares with no loss of value, for ETFs the re-investing process is more complicated. The distribution appears a few days after the share price has dropped (on the ex-dividend date) and the broker has their own mysterious method of buying new shares for you with your dividend. Sometimes you pay a higher price than the mutual fund investor would pay and sometimes you pay a lower price.

So while I have 4 different brokers, if I had a Schwab account, the first thing I would do is move my money from them. Sorry Chuck!
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Re: Schwab Index Funds vs Vanguard Mutual Funds / ETFs

Postby JamesSFO » Sun Dec 30, 2012 1:45 pm

I think when you get down sub-20 basis points (0.20%) for expense ratios if you don't have trading fees (or aren't trading frequently), the next investing thing to think about is tracking errors. Some of the Schwab funds have had bad tracking errors in the past... Past performance/behavior is not necessarily indicative of future performance/behavior.

I also think you need to look at things like: personal preferences (general availability, web site usability), secondary services offered (e.g. in person offices if needed, banking, etc.) and what not when you get down to the margin.

Overall, I think that long term Vanguard is more likely to have my interests at heart and track more closely, but it is also legitimate to hold the VG funds either as funds or as ETFs with other custodians.

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Re: Schwab Index Funds vs Vanguard Mutual Funds / ETFs

Postby patrick » Sun Dec 30, 2012 1:48 pm

If you were buying Vanguard funds at Vanguard, there would be no advantage to using ETFs over Admiral shares mutual funds.

If you are buying with another broker, Vanguard ETFs would probably be better than Vanguard mutual funds because the commission is usually lower (though I haven't checked Schwab's mutual fund trading fees to be sure).

However, if you are using Schwab as your broker, then buying Schwab's own ETFs might be the best choice. Schwab charges no commission to trade their own ETF, and Schwab's ETFs tend to have lower expense ratios than Schwab's mutual funds.

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