Should I switch my Vanguard funds to lower cost Schwab funds?

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Mark2614
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Should I switch my Vanguard funds to lower cost Schwab funds?

Post by Mark2614 »

I have a pretty sizable portfolio (almost $1 million invested). Since the accounts are with Chase, I can invest in most no load index funds with no fees whatsoever. So I can buy Vanguard, Fidelity or Schwab funds without paying Chase any extra fees beyond the expense ratios.

Should I consider trading my vanguard admiral funds for lower cost Schwab funds?

Vanguard
VTSAX - Vanguard Total Stock Market Index Fund Admiral Shares - 0.04%
VTIAX - Vanguard Total International Stock Index Fund Admiral Shares - 0.11%
VBTLX - Vanguard Total Bond Market Index Fund Admiral Shares - 0.05%

Schwab
SWTSX - Schwab Total Stock Market Index Fund - 0.03%
SWISX - Schwab International Index Fund - 0.06%
SWAGX - Schwab U.S. Aggregate Bond Index Fund - 0.04%

I also have a Solo 401(K) with Fidelity -- but I should keep buying Fidelity funds in that one or else it will incur transaction fees.
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BL
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Re: Should I switch my Vanguard funds to lower cost Schwab funds?

Post by BL »

Have you calculated the dollar difference between the two? Is it smaller than your daily value swings? I can't imagine switching for such a small difference. Is it a taxable account? I am convinced that the V funds are pretty good. Don't know much about Schwab funds, but doubt they are better.

For example:
0.0003 X 500,000 = $150
0.0004 X 500,000 = $200
200 - 150 = $50

Sorry, I did some editing while you were responding.
Last edited by BL on Sat May 20, 2017 12:19 am, edited 2 times in total.
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Mark2614
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Re: Should I switch my Vanguard funds to lower cost Schwab funds?

Post by Mark2614 »

BL wrote:Have you calculated the dollar difference between the two? Is it smaller than your daily value swings? I can't imagine moving for such a small difference.
A difference of just 1 basis point could mean $25,000+ over 30 years if I continue to contribute $60,000+ per year. So while the difference is pretty minimal over a short period, it could be fairly significant in the long run. That beings said -- I don't plan to transfer brokerage accounts from Vanguard to Schwab. My brokerage accounts are with Chase, and staying there. I'm just considering to sell the Vanguard shares and buy Schwab shares instead -- so this change would take just a few minutes to complete.

Is it worth switching? Or do the Vanguard funds have some sort of advantage over the Schwab funds even with the slightly higher expense ratios? Does Vanguard tend to outperform? Or should I ditch the Vanguard funds and buy up the similar Schwab funds instead?
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Re: Should I switch my Vanguard funds to lower cost Schwab funds?

Post by mhalley »

Sometimes people get so excited about lows costs that they get carried away and try to eke out every last cent. The differences between schwab, fidelity and vanguard admiral should be fourth (or lower) behind customer service, website design, online tools, etc when deciding which company to do business with. Other factors come into play, such as simplicity (401k at the same firm), security of online accounts, etc, etc.
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Mark2614
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Re: Should I switch my Vanguard funds to lower cost Schwab funds?

Post by Mark2614 »

mhalley wrote:Sometimes people get so excited about lows costs that they get carried away and try to eke out every last cent. The differences between schwab, fidelity and vanguard admiral should be fourth (or lower) behind customer service, website design, online tools, etc when deciding which company to do business with. Other factors come into play, such as simplicity (401k at the same firm), security of online accounts, etc, etc.
I'm actually not using Vanguard or Schwab for the account. My account is with JP Morgan Chase. It's a "private client" account which has no transaction fees on these index funds -- so I can choose to buy any index fund I want (Schwab, Vanguard, Fidelity, etc.) I'm using the Chase account and Chase website to buy these funds.

I still think it's reasonable to compare one to the other, since my brokerage account lets me choose any of them -- and to consider the slight difference in the expense ratios. Also, note that the international fund's expense ratio difference is a little more significant than the other funds. (0.11% vs 0.06%). With the amount of money I have invested, and the 30 year time frame, it could make a difference of $25K-$50K.
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Re: Should I switch my Vanguard funds to lower cost Schwab funds?

Post by in_reality »

Mark2614 wrote:
mhalley wrote:Sometimes people get so excited about lows costs that they get carried away and try to eke out every last cent. The differences between schwab, fidelity and vanguard admiral should be fourth (or lower) behind customer service, website design, online tools, etc when deciding which company to do business with. Other factors come into play, such as simplicity (401k at the same firm), security of online accounts, etc, etc.
I'm actually not using Vanguard or Schwab for the account. My account is with JP Morgan Chase. It's a "private client" account which has no transaction fees on these index funds -- so I can choose to buy any index fund I want (Schwab, Vanguard, Fidelity, etc.) I'm using the Chase account and Chase website to buy these funds.

I still think it's reasonable to compare one to the other, since my brokerage account lets me choose any of them -- and to consider the slight difference in the expense ratios. Also, note that the international fund's expense ratio difference is a little more significant than the other funds. (0.11% vs 0.06%). With the amount of money I have invested, and the 30 year time frame, it could make a difference of $25K-$35K.
Apples to bananas.

Small caps and emerging cost more. Vanguard's Total International has them. You need something like SCHC and SCHE too which run you more.

The small difference in ER is not the only difference. Bid-ask spreads, lending revenue etc... differ. The indexes are slightly different too. There is no guarantee that you'd do better with Schwab funds.
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Re: Should I switch my Vanguard funds to lower cost Schwab funds?

Post by onourway »

I would not switch.

One, over the very long term there is no guarantee that Schwab's cost advantage will persist.

Two, Schwab's Aggregate Bond Index is a brand new fund this year. Bond indexing is nowhere near as straight-forward as stock indexing, so there is no guarantee that this fund will perform as well as Vanguard's bond indexes which have a history of being well run.
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Re: Should I switch my Vanguard funds to lower cost Schwab funds?

Post by samsoes »

Mark2614 wrote:... My account is with JP Morgan Chase. It's a "private client" account...
What's the annual AUM fee% for being a "private client?" You're much more likely to increase your wealth over the long-term by eliminating this fee-drag.
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student
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Re: Should I switch my Vanguard funds to lower cost Schwab funds?

Post by student »

Vanguard maybe tracking the index better as they have been doing this for a long time. However, a dollar is a dollar. I would consider switching but only if there is no capital gain but it is hard for me to imagine that this will be the case for you. So the bottom line is I would not switch but will purchase the cheaper "equivalent" funds going forward. This excludes the international funds that you are suggesting since they are not the "same" as it was pointed out already by in_reality.
Last edited by student on Sat May 20, 2017 6:10 am, edited 2 times in total.
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Re: Should I switch my Vanguard funds to lower cost Schwab funds?

Post by student »

samsoes wrote:
Mark2614 wrote:... My account is with JP Morgan Chase. It's a "private client" account...
What's the annual AUM fee% for being a "private client?" You're much more likely to increase your wealth over the long-term by eliminating this fee-drag.
You have a choice of letting them manage it and pay a fee, or you manage it yourself and pay no fee. I believe from the OP that he/she is paying no fee.
Eric76
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Re: Should I switch my Vanguard funds to lower cost Schwab funds?

Post by Eric76 »

Even if your sole criteria for choosing an ETF is ER (and it shouldn't be your sole criteria), you shouldn't switch. Vanguard's corporate structure means they will likely win the ER war in the long term. Swapping ETFs to chase a small fraction of a point in ER will quickly cost you much more in taxes than what you'll save in ER. I'd stick with VG.

Edit: I wrote ETF instead of fund, but same points apply.
Last edited by Eric76 on Sat May 20, 2017 8:10 am, edited 1 time in total.
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Re: Should I switch my Vanguard funds to lower cost Schwab funds?

Post by nisiprius »

Do the math, make your decision, but verify that this is really an "other things being equal" situation.

Is it really true that your "Chase account" gives you access to a) Admiral shares, of b) mainstream Vanguard index funds for no transaction fee? That's amazing, especially access to Admiral shares of Vanguard index funds. Does it really have no fees of its own?

Is this really a tax-exempt account or does a decision to exchange create something you have to report on your taxes?

My personal answer is that given a perfectly free choice, and absolutely no differences in convenience or fees, and no important difference in the index tracked, and--this is a big assumption here--assuming that it is a tax-sheltered account and that I could exchange for the lower-cost funds and it would literally be invisible on my tax returns--well, sure, I'd go with the lower-cost funds. Shrug.

But if it took even a featherweight of effort I wouldn't. 1.20% ER to 0.20% ER, i.e. a 1% difference, absolutely. 0.30% ER to 0.05% ER, an 0.25% difference, probably if it were easy and there were no tax consequences.

Now, there's one place which is emphatically not "other things being equal," VTIAX and SWISX, and it kind of bothers me that you didn't mention this yourself--it's a different index. It's not 0.11% to 0.04% and all other things being equal, it's 0.11% to 0.04% and an index that covers different things.

SWISX tracks the MSCI EAFE index, and you'll see this if you even glance at Schwab's summary web page:
The Fund seeks to track the total return of the MSCI EAFE Index which includes stocks from developed markets outside North America — Europe, Australasia, and the Far East.
Well, the MSCI EAFE index is sort of the counterpart to the S&P 500. It's the oldest and best known attempt at an international index, but it's imperfect. In particular, it covers developed markets only.

Vanguard takes one more click to find the information, go under "Portfolio and Management" tab and click the "Strategy and Policy" and you get to this page: Strategy and Policy
The fund employs an indexing investment approach designed to track the performance of the FTSE Global All Cap ex US Index, a free-float-adjusted market-capitalization-weighted index designed to measure equity market performance of companies located in developed and emerging markets, excluding the United States. The index includes more than 5,300 stocks of companies located in 46 countries.
So, this is different.

Is it better? Who knows, not I. The usual assumption here is that it is because it's more complete and more diversified. The big difference is that the EAFE index is developed markets only. Other differences are that it does not include Canada, and that it includes large-cap stocks only. The Vanguard fund is a more complete representation of "all international stocks." In the past, has that made any difference one way or the other? Well, yes, it has. (This is slightly tricky because Canada and small-caps weren't always in the Vanguard fund, but the big difference, emerging markets, has been true for a long time).

Don't focus on which is better--I'm not even going to call out which is which. Just notice that these two funds are definitely similar, but not identical. And if you do the math, you'll see that the differences are far larger than the differences in expense ratio.

So it's not a no-brainer. It's a brainer. Your decision to exchange VTIAX for SWISX should be based primarily on your opinion and convictions about the difference in composition of the funds. If you have absolutely no opinion on developed versus emerging markets, stick with VTIAX regardless of expenses. If you have an opinion that you prefer to limit yourself to developed markets, switch to SWISX regardless of expenses.

The difference in expense ratios would lead you to expect SWISX to make 0.07% more every year.
In 2016, SWISX 1.08% and VTIAX made 4.67%. VTIAX made 4.59% more that year.
In 2013, SWISX 21.64% and VTIAX made 15.14%. SWISX made 6.50% more that year.

Now, faced with that decision, personally... whichever one I had, and I mean it, I'd just throw up my hands and say "I don't know which is better and I can't be bothered to form an opinion, I'm going to stay with the one I've got on the principle of 'stay the course.'" I'm not saying that's right, or rational, but I'm saying in real life that's what I'd really do.

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Re: Should I switch my Vanguard funds to lower cost Schwab funds?

Post by aristotelian »

I don't see any downside. Up to you if it's worth it. I have accounts with both Schwab and Vanguard and like them both. If you are interested in buying Schwab funds, you might as well transfer all or some of your portfolio, as you will get transfer bonus(es) plus you can take advantage of their excellent 24 hour customer service.
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Re: Should I switch my Vanguard funds to lower cost Schwab funds?

Post by retiredjg »

At your present "near $1 million", I calculate you will save $100 a year if you switch to Schwab's Total Stock and their new Total Bond funds. I would not switch to the considerably less comprehensive international fund.

Even making a lot of contributions and throwing in 30 years, I'm not sure how 1 basis point could add up to $25k. But perhaps the power of compounding is greater than I imagine. Or maybe my math is wrong.

But mostly....what about taxes? Apparently none of this money is in your 401k. I suppose it might be in IRA and inherited IRA, but it seems that some or much of this money might be in a taxable account. I can't see any benefit in switching over to a new fund family in a taxable account since that would trigger taxes.
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Re: Should I switch my Vanguard funds to lower cost Schwab funds?

Post by *3!4!/5! »

Mark2614 wrote:
BL wrote:Have you calculated the dollar difference between the two? Is it smaller than your daily value swings? I can't imagine moving for such a small difference.
A difference of just 1 basis point could mean $25,000+ over 30 years if I continue to contribute $60,000+ per year.
Nonsense! I'm pretty sure you've made a factor of ten blunder somewhere in your calculations.
Mark2614 wrote:VTIAX - Vanguard Total International Stock Index Fund Admiral Shares - 0.11%
SWISX - Schwab International Index Fund - 0.06%
Mark2614 wrote:I still think it's reasonable to compare one to the other, since my brokerage account lets me choose any of them -- and to consider the slight difference in the expense ratios. Also, note that the international fund's expense ratio difference is a little more significant than the other funds. (0.11% vs 0.06%). With the amount of money I have invested, and the 30 year time frame, it could make a difference of $25K-$50K.
Ridiculous! They are quite different indexes.
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Re: Should I switch my Vanguard funds to lower cost Schwab funds?

Post by livesoft »

Isn't it fun to see that expense ratios differences can be much less than tax differences when these funds are held in a taxable account?

In old news, an actively-managed fund might cost a taxpayer more money in taxes over an index fund than their expense ratio difference.

But who here really worries about taxes?
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Re: Should I switch my Vanguard funds to lower cost Schwab funds?

Post by NiceUnparticularMan »

Apples to apples with no tax consequences, sure, why not?

But as people are pointing out, often even these simple conditions are not satisfied.
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Re: Should I switch my Vanguard funds to lower cost Schwab funds?

Post by F150HD »

have seen all the Schwab advertising on billboards etc....my guess is, it feels like a purposeful bait and switch specifically targeting indexers like at VG. One switches, then in X years the costs go back up.
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Re: Should I switch my Vanguard funds to lower cost Schwab funds?

Post by F150HD »

Is it really true that your "Chase account" gives you access to a) Admiral shares, of b) mainstream Vanguard index funds for no transaction fee? That's amazing, especially access to Admiral shares of Vanguard index funds. Does it really have no fees of its own?
I thought VG Admiral shares could only purchased and held in a VG account?
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Re: Should I switch my Vanguard funds to lower cost Schwab funds?

Post by livesoft »

F150HD wrote:I thought VG Admiral shares could only purchased and held in a VG account?
That is not strictly true. There are many exceptions. For instance, my spouse uses VFIAX in her 401(k) custodianed at TDAmeritrade.
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Re: Should I switch my Vanguard funds to lower cost Schwab funds?

Post by NancyABQ »

I like Schwab, and it has a reputation for better customer service, should you need it.

But I would not choose based on the ER's of their funds -- both are low, and which is less expensive can change.

Some people are willing to move their money around to different brokerages, chasing bonuses. I'm personally not interested in that.

If it was me, I would choose Schwab, not because the ER is lower, but because I value knowing that customer service is available if needed, and I have had good experiences over many years.

For you, either place should be fine.

Even at Schwab, there are a few funds I wanted that they don't really have a good equivalent of. VCSH (Vanguard Short Term Corporate Bond ETF) is one example. In that case, I just bought the Vanguard fund from Schwab. I happened to have some free trades, but if I didn't, the fee is like $5, which is way down in the noise for the kind of money you are talking about (and automatic dividend reinvestment once you have purchased, has no fee).

I don't think you can get the Vanguard Admiral funds at Schwab, but in that case I just would buy the equivalent Vanguard ETF if you want those funds.

If you do go with Schwab, make sure you get both a cash bonus and free trades. For your portfolio size, those should be available. I'd actually call the customer service and get a person who is more likely to swing you a special deal.
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Re: Should I switch my Vanguard funds to lower cost Schwab funds?

Post by ruralavalon »

On a portfolio of $1,000,000 an expense ratio difference of 0.01% = $100 per year.

I would not switch. Tiny differences in expense ratio give tiny differences in dollars per year. But that is probably outweighed by differences in tax-efficiency, and fund performance. The stock funds use different indexes, and the Vanguard international fund is much more diversified.
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Mark2614
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Re: Should I switch my Vanguard funds to lower cost Schwab funds?

Post by Mark2614 »

Hello all. I'm surprised to see that my thread blew up over night. To address some of the concerns in this thread:

- With Chase Private Client, I have a self-managed account with no annual fees. Yes, I can invest in Vanguard admiral funds through Chase -- as well as Fidelity or Schwab funds. As long as you have $250,000+ with Chase (including retirement/brokerage accounts) then you qualify for "Chase Private Client."

- The $25,000+ difference I calculated was using this calculator -- http://www.begintoinvest.com/expense-ratio-calculator/
I entered $800,000 as the current balance, and the expense ratio of 0.03% vs 0.04%, $60,000 additional annual contributions, 7% return, and 30 years. The calculator shows a difference of $27,038.86 from 0.03% vs 0.04% -- is this calculator wrong? Some of you are saying it's only about $100 a year.

- Finally, at least $188,000 of my funds ARE in a taxable account -- so I overlooked that (my mistake). In that case, if I trade Vanguard for Schwab in that taxable account, I'm going to trigger a taxable event -- which won't make sense. That leads to another question -- I'm not creating taxes by re-balancing my portfolio am I? Every 3 months, I trade a little bit of one Vanguard fund and buy more of another in the taxable account as part of re-balancing. I hope that's not an issue? Is it true that selling the Vanguard fund to buy a Schwab fund would be taxable, while trading part of a Vanguard fund to buy more of another Vanguard fund (re-balancing) won't be taxed?
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Re: Should I switch my Vanguard funds to lower cost Schwab funds?

Post by *3!4!/5! »

Assuming (hypothetically) high returns over many years will inflate the numbers, but then the comparison should be made percentagewise.

In any case, a 1bp ER will be swamped by other differences that could be dozens of times larger.
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Re: Should I switch my Vanguard funds to lower cost Schwab funds?

Post by ruralavalon »

Mark2614 wrote:Hello all. I'm surprised to see that my thread blew up over night.
There has already been a lot of discussion in other threads about the tiny impact of tiny differences in expense ratios, and the fact that other factors will probably be more important than those tiny differences. So people have already developed their views on this issue.
Mark2615 wrote:- The $25,000+ difference I calculated was using this calculator -- http://www.begintoinvest.com/expense-ratio-calculator/
I entered $800,000 as the current balance, and the expense ratio of 0.03% vs 0.04%, $60,000 additional annual contributions, 7% return, and 30 years. The calculator shows a difference of $27,038.86 from 0.03% vs 0.04% -- is this calculator wrong? Some of you are saying it's only about $100 a year.
$1,000,000 divided by 100 = effect of a 1% difference in ER = $10,000 per year.

$10,000 divided by 100 = effect of an ER difference of one hundredth of a percent = $100 per year.

The calculator you used is looking ahead 30 years. The 7% rate of return you used is probably much too high.

I don't see where it states an inflation rate used by the calculator, or whether it gives outcome in terms of actual or nominal value, or whether it gives the result in terms of current value or future value. In other words 30 years a from now $25k will be worth a lot less than the same amount today.
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Re: Should I switch my Vanguard funds to lower cost Schwab funds?

Post by whodidntante »

Schwab's international fund is a great choice but it tracks MSCI EAFE, which excludes Canada and emerging markets. That's not an issue for me since I have a separate DFA EM Value fund. If you own Schwab's international fund you should add EM exposure back some other way. Losing Canada is no big loss. Brazil, India, and China all have larger economies than Canada even though they are emerging markets.

For taxable I would use an ETF instead like IXUS.
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Re: Should I switch my Vanguard funds to lower cost Schwab funds?

Post by Mark2614 »

whodidntante wrote:Schwab's international fund is a great choice but it tracks MSCI EAFE, which excludes Canada and emerging markets. That's not an issue for me since I have a separate DFA EM Value fund. If you own Schwab's international fund you should add EM exposure back some other way. Losing Canada is no big loss. Brazil, India, and China all have larger economies than Canada even though they are emerging markets.

For taxable I would use an ETF instead like IXUS.
For taxable I have Vanguard mutual funds, which are just as tax efficient as their ETFs, right?
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Re: Should I switch my Vanguard funds to lower cost Schwab funds?

Post by retiredjg »

Mark2614 wrote:- The $25,000+ difference I calculated was using this calculator -- http://www.begintoinvest.com/expense-ratio-calculator/
I entered $800,000 as the current balance, and the expense ratio of 0.03% vs 0.04%, $60,000 additional annual contributions, 7% return, and 30 years. The calculator shows a difference of $27,038.86 from 0.03% vs 0.04% -- is this calculator wrong? Some of you are saying it's only about $100 a year.
The calculator seems to be right. If you enter $800,000 and eliminate the years and the additions, it will tell you that 1bp for your $800k will save you $80. Since bp are per year, that 1bp gives you a savings of $80 a year if your money never grows.

What is surprising is the compounding - but I think what it most tells us that $27k is not going to be worth much in 30 years. But like others, I think using 7% a year may be overly hopeful. I doubt the difference will end up being that much, but even it is is, it will not be a significant number in the overall scheme of things.
- Finally, at least $188,000 of my funds ARE in a taxable account -- so I overlooked that (my mistake). In that case, if I trade Vanguard for Schwab in that taxable account, I'm going to trigger a taxable event -- which won't make sense. That leads to another question -- I'm not creating taxes by re-balancing my portfolio am I? Every 3 months, I trade a little bit of one Vanguard fund and buy more of another in the taxable account as part of re-balancing. I hope that's not an issue? Is it true that selling the Vanguard fund to buy a Schwab fund would be taxable, while trading part of a Vanguard fund to buy more of another Vanguard fund (re-balancing) won't be taxed?
No, that is not true. If you sell something and buy something in a taxable account - even the same exact thing you just sold - you will pay taxes on the gains if there are any gains. So if you are rebalancing in taxable, it is probably triggering taxes.

Best to rebalance in a tax-advantaged account. Another approach is to just add money to whatever you have too little of. And another version of this is to stop reinvesting all dividends - send them to a money market account. When it is time to rebalance, use that money market to buy what you have too little of.
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Re: Should I switch my Vanguard funds to lower cost Schwab funds?

Post by afan »

The problem is that, the name aside, the expense ratio does not really tell you the cost of investing in a fund. It tells you certain expenses, but ignores others. It also does not account for additional income.

Those expenses charged to the fund by management are included. Salaries for fund employees, for example.
Transaction costs that arise from buying and selling securities are not included. Among these transaction costs, in addition to commissions, are market impact. When a large fund buys stock the price goes up simply because they have done that. In the most liquid markets this effect is relatively small, but it varies by the specific security. It also varies, a lot, based on the skill of the trader. I have no data to indicate whether Schwab is as good as Vanguard at minimizing this effect, but Vanguard has been at this a long time and are probably about as good as it is possible to get.

The expense ratio also does not reflect the effect of securities lending. The funds lend those securities for which there is enough demand to investors who want to sell them short. The fund collects a fee for doing this. Vanguard returns the entire fee to the fund. I don't know what Schwab does. For some Vanguard funds this securities lending income can completely offset the (already low) expense ratio.

When the difference in expense ratios is large 0.3% vs 0.05%, you have a good indication of which is cheaper. When the difference is single digits of basis points, these other factors can swamp the ER difference. But explaining this to the public risks losing their attention. So it is easier to compete on the headline number of ER, even if you keep some of the security lending revenue for example.

This means that, even for funds that track the same index, the cheapest one is not necessarily the one with the lowest ER. When funds track different indexes you are not looking at the same underlying investment so you cannot assume that what you are getting is equivalent.

If you go with a developed markets only fund and then get an emerging market fund you probably will have sacrificed the ER savings that you got from picking a cheap developed market fund. If you decide you don't want emerging markets, then it makes sense to compare developed market funds to one another- keeping in mind that ER is not all their is to cost.

It takes more work, but you can find the securities lending revenue in the annual report. I don't know of anyway to get a handle on market impact and other issues of efficient portfolio management.
For funds that track the same index you can look at the realized long term return. That would summarize all of these effects including ER. But the ER's keep changing and some of the Schwab funds are new. So there are not the data to go on.

You can definitely do Chase Private Client without paying fees. It costs you nothing. I am not clear on what it gains, but the OP need not be paying Chase anything in order to have these choices.
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Re: Should I switch my Vanguard funds to lower cost Schwab funds?

Post by afan »

As others have noted, it would be crazy to swap taxable funds on which you have a gain to claim a small improvement in cost, even if you were sure the lower ER fund really was cheaper.

In a tax favored account with no transaction fees it would make sense to buy what ever S&P 500 fund was the cheapest, assuming the other factors were equal.

If the funds track different indexes then it is not clear that the lower ER fund would be desirable.

In general small stocks are more lucrative for lending. So a total stock market fund should do better than an S&P 500 fund. A small stock fund should do better than total stock market.

Swapping one fund for another in a tax favored account is easy. Figuring out which fund is really less expensive is not so simple.

These are likely to be minor effects.
Last edited by afan on Sat May 20, 2017 1:30 pm, edited 1 time in total.
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Re: Should I switch my Vanguard funds to lower cost Schwab funds?

Post by caliguy1 »

Does anyone know if Schwab has hiked ERs in the past after accumulating enough assets? My worry is that they might have a lower ER now, but then after they accumulate enough AUM, they raise the ERs.
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Mark2614
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Re: Should I switch my Vanguard funds to lower cost Schwab funds?

Post by Mark2614 »

Based on all the feedback in this thread, I'm going to stick with the Vanguard funds. Thanks for all the input guys. I'm also going to be careful to do my re-balancing in my tax-advantaged accounts to avoid causing unnecessary taxes in the taxable account.

Should I let the taxable account re-invest dividends? That's what I do -- because it's simple. But maybe I'm hurting myself by doing that. My taxable account is Vanguard index mutual funds (not ETFs).
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Re: Should I switch my Vanguard funds to lower cost Schwab funds?

Post by afan »

I don't know whether Schwab has done that. I doubt it, since they are in the midst of trying to compete on price. But other index fund companies have kept the price of funds high for existing shareholders while creating an identical fund with Vanguard-level prices. Thus competing for new money, but not benefiting existing shareholders as prices overall go down.

I should have been clear- one cares whether the fund company keeps the lending revenue or returns it to the fund. But what you really want to see is the actual dollars the fund got from lending vs the total fund expenses. For some Vanguard funds the lending revenue exceeds the total expenses. In other words, Vanguard is paying you to invest.

Or, less poetically, the lending revenue covers all the costs. Another fund company could also return all the revenue to the fund, but be less effective in generating this revenue in the first place, so the total costs offset might be lower.

Note that this is not a case where "higher is always better". There is some risk associated with securities lending. A fund that got too aggressive might suffer in the failure of a counterparty at the same time as a meltdown in the value of the collateral deposited to secure the loan.
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Re: Should I switch my Vanguard funds to lower cost Schwab funds?

Post by whodidntante »

Mark2614 wrote:
whodidntante wrote:Schwab's international fund is a great choice but it tracks MSCI EAFE, which excludes Canada and emerging markets. That's not an issue for me since I have a separate DFA EM Value fund. If you own Schwab's international fund you should add EM exposure back some other way. Losing Canada is no big loss. Brazil, India, and China all have larger economies than Canada even though they are emerging markets.

For taxable I would use an ETF instead like IXUS.
For taxable I have Vanguard mutual funds, which are just as tax efficient as their ETFs, right?
Some Vanguard funds are really good and are less to distribute cap gains than a typical mutual fund due to the hybrid ETF/mutual fund structure. However, it is the ETF portion that lends this advantage. A pure ETF with heavy volume is even less likely to distribute cap gains, at least owing to the structure.
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Re: Should I switch my Vanguard funds to lower cost Schwab funds?

Post by ruralavalon »

Mark2614 wrote:Based on all the feedback in this thread, I'm going to stick with the Vanguard funds. Thanks for all the input guys. I'm also going to be careful to do my re-balancing in my tax-advantaged accounts to avoid causing unnecessary taxes in the taxable account.
That's a good decision a good decision to stick with Vanguard.
Mark2614 wrote:Should I let the taxable account re-invest dividends? That's what I do -- because it's simple. But maybe I'm hurting myself by doing that. My taxable account is Vanguard index mutual funds (not ETFs).
That's what I did before retirement, so I think that's wise.
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Re: Should I switch my Vanguard funds to lower cost Schwab funds?

Post by nisiprius »

F150HD wrote:have seen all the Schwab advertising on billboards etc....my guess is, it feels like a purposeful bait and switch specifically targeting indexers like at VG. One switches, then in X years the costs go back up.
Some Vanguard fans like to suggest this. It was frequently suggested maybe ten years ago with Fidelity Spartan funds, which had higher gross expense ratios than Vanguard but lower net expense ratios because of a "contractual waiver of fund expenses." It never happened. Fidelity Spartan funds continued to have expense ratios competitive with Vanguard's, and over time their gross expenses declined to be the same as their net expenses and the "waiver of fund expenses" was no longer necessary.

It's just my guess, but I don't get the impression that bait-and-switch is the business model of firms that lower their net expense ratios to being just a hair lower than Vanguard's. First of all, I don't know whether they are really losing any money, or whether the fund's advisors are just grudgingly accepting a lower fee for a while. Second, even if they are losing money, I think it's possible that it's just like loss leaders in a supermarket or anywhere else. They reluctantly concede that Vanguard is pushing down profits, but would rather have you with Schwab in hopes that they can sell you other stuff. In a sense it's not too different from brokerage signing bonuses.

If I were going to attack Schwab it would be on the basis of the history of the Schwab Total Bond Market Fund, SWLBX--that's not the Schwab U.S. Aggregate Bond Index fund, SWAGX--and the Schwab YieldPlus fund, SWYSX, which has been liquidated, no longer exists, and has had the lawsuits against it settled.
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Re: Should I switch my Vanguard funds to lower cost Schwab funds?

Post by livesoft »

Mark2614 wrote:Should I let the taxable account re-invest dividends? That's what I do -- because it's simple. But maybe I'm hurting myself by doing that. My taxable account is Vanguard index mutual funds (not ETFs).
You would only be hurting yourself if you spent the dividends on frivolous stuff that you don't need, so only you can decide that.

You can re-invest the dividends manually. I might get dividends from the Total International Stock Market Index fund, but use them to buy more shares of the Total US Stock Market Index fund or vice-versa.

You can get the dividends and add even more money to them and use the higher amount to buy more shares.

There are so many things that you can do that are simple including automatically re-investing the distributions.

Some people do not like to automatically re-invest the distributions if they are contemplating tax-loss harvesting.

See also: https://www.bogleheads.org/wiki/Reinves ... le_account
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Re: Should I switch my Vanguard funds to lower cost Schwab funds?

Post by Frugalnotbroke »

Mark2614 wrote:I have a pretty sizable portfolio (almost $1 million invested). Since the accounts are with Chase, I can invest in most no load index funds with no fees whatsoever. So I can buy Vanguard, Fidelity or Schwab funds without paying Chase any extra fees beyond the expense ratios.

Should I consider trading my vanguard admiral funds for lower cost Schwab funds?

Vanguard
VTSAX - Vanguard Total Stock Market Index Fund Admiral Shares - 0.04%
VTIAX - Vanguard Total International Stock Index Fund Admiral Shares - 0.11%
VBTLX - Vanguard Total Bond Market Index Fund Admiral Shares - 0.05%

Schwab
SWTSX - Schwab Total Stock Market Index Fund - 0.03%
SWISX - Schwab International Index Fund - 0.06%
SWAGX - Schwab U.S. Aggregate Bond Index Fund - 0.04%

I also have a Solo 401(K) with Fidelity -- but I should keep buying Fidelity funds in that one or else it will incur transaction fees.

I was actually reading about this exact switch, There is a great article @ marketwatch.com that was published on March 17th that breaks down the numbers and explains in detail why this would be a bad idea. Give it a read.
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Re: Should I switch my Vanguard funds to lower cost Schwab funds?

Post by *3!4!/5! »

Frugalnotbroke wrote:
Mark2614 wrote:I have a pretty sizable portfolio (almost $1 million invested). Since the accounts are with Chase, I can invest in most no load index funds with no fees whatsoever. So I can buy Vanguard, Fidelity or Schwab funds without paying Chase any extra fees beyond the expense ratios.

Should I consider trading my vanguard admiral funds for lower cost Schwab funds?

Vanguard
VTSAX - Vanguard Total Stock Market Index Fund Admiral Shares - 0.04%
VTIAX - Vanguard Total International Stock Index Fund Admiral Shares - 0.11%
VBTLX - Vanguard Total Bond Market Index Fund Admiral Shares - 0.05%

Schwab
SWTSX - Schwab Total Stock Market Index Fund - 0.03%
SWISX - Schwab International Index Fund - 0.06%
SWAGX - Schwab U.S. Aggregate Bond Index Fund - 0.04%

I also have a Solo 401(K) with Fidelity -- but I should keep buying Fidelity funds in that one or else it will incur transaction fees.

I was actually reading about this exact switch, There is a great article @ marketwatch.com that was published on March 17th that breaks down the numbers and explains in detail why this would be a bad idea. Give it a read.
Here is (one of) the thread(s) that discussed that
viewtopic.php?f=10&t=213703
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