Schwab offering .03% ER

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TX_Man
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Re: Schwab reduces index mutual fund ER and trade commission

Post by TX_Man » Fri Mar 31, 2017 5:30 am

confusedinvestor wrote:As of tonight, Schwab is offering Institutional to Individual Investors...what a great news, just bought this in my taxable...cheaper the Vanguard Admiral shares with 10x better customer service with local presense...


SWYHX
Schwab Target 2045 Index Fund Institutional Shares 0.08
Whoa! It seems like they just released the target date index funds; I use the one with 0.13% ER, now I can get the 0.08% one?!

sweeden22
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Re: Schwab offering .03% ER

Post by sweeden22 » Fri Mar 31, 2017 6:21 am

There are advantages to Schwab if you are a knowledgeable investor.

-Really low expense ratio on those several index funds
-$0 Minimum to get that expense ratio (also easy for even the smallest investor to get started with small monthly contribution)
-Availability of a nice checking account


Disadvantages

If a taxable account, the Vanguard mutual funds will be slightly better especially if you are aiming towards high balances someday.

- Someone not knowledgeable might be tempted by much more expensive funds also available at Schwab

Conclusion, depends on the investor. Schwab can be a great deal, particularly to get that expense ratio without a minimum and particularly on a non-taxable account. I am keeping my Roth with Vanguard for now because I already had it and I just buy ETFs with it, which have perfectly fine expense ratios from day one. The only drawback is having to manage the buying of the ETFs around whatever contribution I make, compared to just dumping a set dollar amount into the selected Schwab fund. That does sometimes encourage you to make larger contributions though, which is not a bad thing.

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InvestorNewb
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Re: Schwab offering .03% ER

Post by InvestorNewb » Fri Mar 31, 2017 6:39 am

The page is misleading because it says the Vanguard Total Stock Market Index Fund charges 0.15% on a $3k investment. It is 0.05% if you buy the ETF regardless of the dollar amount.
My Portfolio: VTI [US], VXUS [Int'l], VNQ [REIT], VCN [Canada] (largest to smallest)

Rainmaker41
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Re: Schwab offering .03% ER

Post by Rainmaker41 » Fri Mar 31, 2017 7:03 am

InvestorNewb wrote:The page is misleading because it says the Vanguard Total Stock Market Index Fund charges 0.15% on a $3k investment. It is 0.05% if you buy the ETF regardless of the dollar amount.
Good point, although I'm sure Schwab would truthfully say they are comparing mutual funds, not ETFs...

Personally, I would feel ethically uneasy about gaining the benefit of slightly lower Expense Ratios on my index funds, because they would be, in effect, subsidized by the fees Schwab is charging non-index fund investors. Maybe I'm being silly, but I'd rather not be a collaborator in the skimming of fees by the financial industry. I can be reasonably certain that Vanguard is charging the true cost.

I apply the same logic to the various prepaid card 5% etc. gimmick savings accounts. I'd rather not gain profit from payday loan firms and so forth who charge questionable fees on their cards for every transaction, month, etc.

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in_reality
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Re: Schwab reduces index mutual fund ER and trade commission

Post by in_reality » Fri Mar 31, 2017 7:16 am

confusedinvestor wrote:As of tonight, Schwab is offering Institutional to Individual Investors...what a great news, just bought this in my taxable...cheaper the Vanguard Admiral shares with 10x better customer service with local presense...


SWYHX
Schwab Target 2045 Index Fund Institutional Shares 0.08
Where do you see that?

Geologist
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Re: Schwab offering .03% ER

Post by Geologist » Fri Mar 31, 2017 7:38 am

These differences in expense ratio on small account sizes (like $3000) are inconsequential in dollar terms. They only make a difference on large account sizes (in which case you should compare the Vanguard Admiral share class to the Schwab) and even then you need hundreds of thousands of dollars in the fund to see an important dollar size difference.

To sum up, the "cheaper" shares at Schwab are not really cheaper in dollar terms (do the calculation) and you should choose where to invest on other criteria. That might still be Schwab, but ER is not the reason.

GLState
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Re: Schwab offering .03% ER

Post by GLState » Fri Mar 31, 2017 7:57 am

I wouldn't select a broker on the basis of a difference in an expenses ratio of .02%. I was a Schwab customer in the 80's and I liked them, but they began to discourage investors with accounts less than 50K, so I transferred that account to Vanguard. Low costs seem to be part of Vanguard's "personality". To other brokerages, low costs seem to just be a marketing gimmick.

confusedinvestor
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Re: Schwab reduces index mutual fund ER and trade commission

Post by confusedinvestor » Fri Mar 31, 2017 10:26 am

They did it last night. A manager told me.

It works b/c i was able to place the trade SWYHX with Instituional class (SWYHX) and Investor class (SWXGX) is close now.
in_reality wrote:
confusedinvestor wrote:As of tonight, Schwab is offering Institutional to Individual Investors...what a great news, just bought this in my taxable...cheaper the Vanguard Admiral shares with 10x better customer service with local presense...


SWYHX
Schwab Target 2045 Index Fund Institutional Shares 0.08
Where do you see that?

confusedinvestor
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Re: Schwab reduces index mutual fund ER and trade commission

Post by confusedinvestor » Fri Mar 31, 2017 10:41 am

TX_Man wrote:
confusedinvestor wrote:As of tonight, Schwab is offering Institutional to Individual Investors...what a great news, just bought this in my taxable...cheaper the Vanguard Admiral shares with 10x better customer service with local presense...


SWYHX
Schwab Target 2045 Index Fund Institutional Shares 0.08
Whoa! It seems like they just released the target date index funds; I use the one with 0.13% ER, now I can get the 0.08% one?!
Yes ! You can call or chat to find that out, i know i was able to buy it last night in my roth IRA

lazydavid
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Re: Schwab offering .03% ER

Post by lazydavid » Fri Mar 31, 2017 1:21 pm

sweeden22 wrote:There are advantages to Schwab if you are a knowledgeable investor.

-Really low expense ratio on those several index funds
-$0 Minimum to get that expense ratio (also easy for even the smallest investor to get started with small monthly contribution)
Splitting hairs, I know, but the minimum is actually $1. :mrgreen: They won't let you buy anything with 37 cents until you find 63 more. But agreed this is a HUGE benefit for starting investors. A fellow BH helped me find Schwab as the home for my 9-year-old's first brokerage account. It will be years before he has the $3k minimum to index at Vanguard. Had no trouble putting his $209 in Schwab's S&P index fund, and the 0.03% ER is a nice bonus, even though I realize it doesn't mean much in dollar terms.

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JoMoney
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Re: Schwab offering .03% ER

Post by JoMoney » Fri Mar 31, 2017 4:30 pm

InvestorNewb wrote:The page is misleading because it says the Vanguard Total Stock Market Index Fund charges 0.15% on a $3k investment. It is 0.05% if you buy the ETF regardless of the dollar amount.
...and it may be even lower than that. If you read your latest Annual Report for the Vanguard 500 or Total Stock Market Index fund
Vanguard Annual Report wrote:... The fund expense ratios shown are from the prospectus dated April 27, 2016, and represent estimated costs for the current fiscal year. For the fiscal year ended December 31, 2016, the fund’s expense ratios were 0.14% for Investor Shares, 0.04% for ETF Shares, 0.04% for Admiral Shares, ...
Vanguard hasn't announced lowering it, and it would be another month or two before the prospectus would be updated, and the above statement does say "represent estimated costs for the current fiscal year" ... but I thought it worth mentioning that the Vanguard "at cost" ER may even be better than what you think.
Last edited by JoMoney on Fri Mar 31, 2017 4:34 pm, edited 2 times in total.
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bilmicee
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Re: Schwab offering .03% ER

Post by bilmicee » Fri Mar 31, 2017 4:52 pm

As others have pointed out, which is more convenient. Schwab is pretty darn easy to work with in my opinion. I agree with the other astute commentor, that for larger amounts in a taxable account, the special fund structure of the Vanguard ETF/MF will hypothetically provide for better after-tax performance. (you can always by the ETF at Schwab for $4.95 too).

To me, especially for a taxable account, Schwab is far superior. Their ATM card reimburses all ATM fees worldwide, and they give you the institutional exchange rate. Schwab makes their $$ on their sweep money market accounts

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G-Force
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Re: Schwab offering .03% ER

Post by G-Force » Fri Mar 31, 2017 7:56 pm

bilmicee wrote:As others have pointed out, which is more convenient. Schwab is pretty darn easy to work with in my opinion. I agree with the other astute commentor, that for larger amounts in a taxable account, the special fund structure of the Vanguard ETF/MF will hypothetically provide for better after-tax performance. (you can always by the ETF at Schwab for $4.95 too).

To me, especially for a taxable account, Schwab is far superior. Their ATM card reimburses all ATM fees worldwide, and they give you the institutional exchange rate. Schwab makes their $$ on their sweep money market accounts
I'm confused by your post. The first paragraph touts the after-tax advantages of Vanguard ETFs and Mutual funds in taxable accounts. The second paragraph says Schwab is far superior for a taxable account. :confused

Angst
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Re: Schwab offering .03% ER

Post by Angst » Fri Mar 31, 2017 8:14 pm

I haven't read the entire thread, but 2 basis points difference btw Schwab and Vanguard (ETF/Admiral) could easily be swamped within tracking error and/or income from securities lending. Probably not a big deal either way, but I haven't looked into it so I don't know. As such, I'd lean towards Vanguard, but I suspect there's not a lot of difference either way.

TX_Man
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Re: Schwab offering .03% ER

Post by TX_Man » Fri Mar 31, 2017 8:44 pm

Person A: 0.03% SP500 index fund with a $10,000 investment
Person B: 0.04% SP500 index fund with a $10,000 investment

Person A saves $1.

Person B skips a single latte in April and deposits the $4 in his fund and is now ahead of Person A.

TX_Man
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Re: Schwab reduces index mutual fund ER and trade commission

Post by TX_Man » Fri Mar 31, 2017 9:00 pm

confusedinvestor wrote:
TX_Man wrote:
confusedinvestor wrote:As of tonight, Schwab is offering Institutional to Individual Investors...what a great news, just bought this in my taxable...cheaper the Vanguard Admiral shares with 10x better customer service with local presense...


SWYHX
Schwab Target 2045 Index Fund Institutional Shares 0.08
Whoa! It seems like they just released the target date index funds; I use the one with 0.13% ER, now I can get the 0.08% one?!
Yes ! You can call or chat to find that out, i know i was able to buy it last night in my roth IRA

If you check out the website the availability of the investor shares (0.13% ER) is "Available to Existing Shareholders". But the institutional share equivalents are simply stated as "Open" instead of "Open to Institutional Investors". I wonder why this move was so quiet compared to how much advertising they put into their low fees on their standard index funds. 0.08% on a target date fund is really amazing.

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triceratop
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Re: Schwab offering .03% ER

Post by triceratop » Fri Mar 31, 2017 11:55 pm

I wish my FB feed had people discussing index fund prices. :P

I merged mikefixac's thread into this one.
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aristotelian
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Re: Schwab offering .03% ER

Post by aristotelian » Sat Apr 01, 2017 7:56 am

TX_Man wrote:Person A: 0.03% SP500 index fund with a $10,000 investment
Person B: 0.04% SP500 index fund with a $10,000 investment

Person A saves $1.

Person B skips a single latte in April and deposits the $4 in his fund and is now ahead of Person A.
I agree it is not itself a compelling reason to switch. However, it negates the big advantage of Vanguard, and shifts the decision to other factors.

confusedinvestor
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Re: Schwab offering .03% ER

Post by confusedinvestor » Sat Apr 01, 2017 9:38 am

Hum,
what if Person A has $1,000,000 over 30 year timeline ?

Person A will either skip Latte or Buy Mac Coffee vs StarBucks vs Person B b/c Person A simply has that behavior of choosing .03 vs .04...
TX_Man wrote:Person A: 0.03% SP500 index fund with a $10,000 investment
Person B: 0.04% SP500 index fund with a $10,000 investment

Person A saves $1.

Person B skips a single latte in April and deposits the $4 in his fund and is now ahead of Person A.

confusedinvestor
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Re: Schwab reduces index mutual fund ER and trade commission

Post by confusedinvestor » Sat Apr 01, 2017 9:42 am

Yes, I moved $$$ from Vanguard to Schwab and then I found out I cant buy Target Date Funds at Schwab for ER 0.13 and got upset and called Schwab and spoke with a manager and he simply said this -

Why would you want to pay us .13 when we are offering you .08 for the same product ?

Reason: Manger said Schwab will merge investor share class with Institutional class.

Schwab will become next gen Vanguard by 2020 but not AUM but by business-model of lowering fees and superior customer service with local presnece!

Schwab waived all my current transaction and future transaction fees on any Vanguard MF at Schwab - you just have to ask your local rep.

TX_Man wrote:
confusedinvestor wrote:
TX_Man wrote:
confusedinvestor wrote:As of tonight, Schwab is offering Institutional to Individual Investors...what a great news, just bought this in my taxable...cheaper the Vanguard Admiral shares with 10x better customer service with local presense...


SWYHX
Schwab Target 2045 Index Fund Institutional Shares 0.08
Whoa! It seems like they just released the target date index funds; I use the one with 0.13% ER, now I can get the 0.08% one?!
Yes ! You can call or chat to find that out, i know i was able to buy it last night in my roth IRA

If you check out the website the availability of the investor shares (0.13% ER) is "Available to Existing Shareholders". But the institutional share equivalents are simply stated as "Open" instead of "Open to Institutional Investors". I wonder why this move was so quiet compared to how much advertising they put into their low fees on their standard index funds. 0.08% on a target date fund is really amazing.

harvestbook
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Re: Schwab offering .03% ER

Post by harvestbook » Sat Apr 01, 2017 10:04 am

I see it as Schwab using loss leaders to get people in who then start trading (not all people, but enough) or use their other services. Pretty clever marketing move. I wouldn't switch to save a few dollars. If someone had a buy-and-hold index temperament, I have no qualms recommending Fidelity or Schwab but I am happy with Vanguard. Lower costs are here to stay and I don't see the genie going back in the bottle. It only took 40 years and a generational crash to get here.
I'm not smart enough to know, and I can't afford to guess.

TX_Man
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Re: Schwab offering .03% ER

Post by TX_Man » Sat Apr 01, 2017 10:23 am

confusedinvestor wrote:Hum,
what if Person A has $1,000,000 over 30 year timeline ?

Person A will either skip Latte or Buy Mac Coffee vs StarBucks vs Person B b/c Person A simply has that behavior of choosing .03 vs .04...
I agree completely, maxing out both cost-effectiveness and savings rate provides the best results. The point that I poorly was trying to make was that at these low fee levels savings rate matters more than going down another fraction of a basis point.

Generator515
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Re: Schwab offering .03% ER

Post by Generator515 » Sat Apr 01, 2017 11:01 am

harvestbook wrote:I see it as Schwab using loss leaders to get people in who then start trading (not all people, but enough) or use their other services. Pretty clever marketing move.
This could very well be but I don't think so. First Vanguard has seen more growth than any other firm. Sure firms want to sell their services (even vanguard with their advisory service) but I'd much rather earn the small profit on cheap index funds than my competitor. Some profit is better than none.

Secondly, Schwab for the last five years has seen their revenue decline due to fees. It isn't how they make their money. They make money from interest and in a rising rate environment they (and any firm) will make more as customers leave funds in their accounts.

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Re: Schwab offering .03% ER

Post by Sandtrap » Sat Apr 01, 2017 10:50 pm

duplicate
Last edited by Sandtrap on Mon Apr 03, 2017 12:24 pm, edited 1 time in total.

bilmicee
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Re: Schwab offering .03% ER

Post by bilmicee » Mon Apr 03, 2017 11:26 am

G-Force wrote:
bilmicee wrote:As others have pointed out, which is more convenient. Schwab is pretty darn easy to work with in my opinion. I agree with the other astute commentor, that for larger amounts in a taxable account, the special fund structure of the Vanguard ETF/MF will hypothetically provide for better after-tax performance. (you can always by the ETF at Schwab for $4.95 too).

To me, especially for a taxable account, Schwab is far superior. Their ATM card reimburses all ATM fees worldwide, and they give you the institutional exchange rate. Schwab makes their $$ on their sweep money market accounts
I'm confused by your post. The first paragraph touts the after-tax advantages of Vanguard ETFs and Mutual funds in taxable accounts. The second paragraph says Schwab is far superior for a taxable account. :confused

Schwab (the custodian) is probably better for taxable accounts because of the checking and debit card benefits. Once at Schwab, you can purchase either the Schwab index fund or the Vanguard index fund. With the Vanguard index fund having a theoretically better after-tax performance.

Also - for the tracking error question someone brought up - both of these fund companies would have essentially zero tracking error for the SP500 and EAFE. Vanguard does not do securities lending, while Schwab does. Schwab's security lending is fully collateralized, so only in a truly apocalyptic situation would this be an issue. Even then, they only do a little bit of securities lending, and diversify their counter party risk.

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Re: Schwab offering .03% ER

Post by ruralavalon » Mon Apr 03, 2017 11:33 am

bilmicee wrote:
G-Force wrote:
bilmicee wrote:As others have pointed out, which is more convenient. Schwab is pretty darn easy to work with in my opinion. I agree with the other astute commentor, that for larger amounts in a taxable account, the special fund structure of the Vanguard ETF/MF will hypothetically provide for better after-tax performance. (you can always by the ETF at Schwab for $4.95 too).

To me, especially for a taxable account, Schwab is far superior. Their ATM card reimburses all ATM fees worldwide, and they give you the institutional exchange rate. Schwab makes their $$ on their sweep money market accounts
I'm confused by your post. The first paragraph touts the after-tax advantages of Vanguard ETFs and Mutual funds in taxable accounts. The second paragraph says Schwab is far superior for a taxable account. :confused

Schwab (the custodian) is probably better for taxable accounts because of the checking and debit card benefits. Once at Schwab, you can purchase either the Schwab index fund or the Vanguard index fund. With the Vanguard index fund having a theoretically better after-tax performance.

Also - for the tracking error question someone brought up - both of these fund companies would have essentially zero tracking error for the SP500 and EAFE. Vanguard does not do securities lending, while Schwab does. Schwab's security lending is fully collateralized, so only in a truly apocalyptic situation would this be an issue. Even then, they only do a little bit of securities lending, and diversify their counter party risk.
Vanguard is better for a taxable account. Vanguard stock index funds are more tax-efficient. Vanguard's better after tax performance is not merely "hypothetical". Vanguard does do securities lending, passes the benefit on to the customer, so the returns to the customer are higher. The Vanguard Total International Stock Index Fund is more diversified.

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