Schwab help - mutual fund vs ETF vs ThomasPartners Balanced Income - overwhelmed!

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Investor8771
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Schwab help - mutual fund vs ETF vs ThomasPartners Balanced Income - overwhelmed!

Post by Investor8771 » Fri Jan 12, 2018 4:33 pm

Hi. I'm new to the boards, a novice investor, and I'm looking for some help related to Schwab. I recently transferred my 401k balance from a previous employer to Schwab with the intent to set up a mutual fund portfolio, however the Schwab Financial Consultant I spoke with strongly recommended that I consider the ThomasPartners Balanced Income (60% Equities/40% Fixed Income) approach or the ETF approach instead of mutual funds. The balance is about $200k and I'm 42 years old. Any strong opinions on mutual funds vs ETF vs the ThomasPartners recommendation? I'm uncomfortable walking away from mutual funds but I'm an unskilled investor so I wanted to get some help. Thanks in advance for your perspective.

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in_reality
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Re: Schwab help - mutual fund vs ETF vs ThomasPartners Balanced Income - overwhelmed!

Post by in_reality » Fri Jan 12, 2018 5:05 pm

Hi and welcome,

I wouldn't go with ThomasPartners myself. It's dividend growth and over time net of fees has done about the same as the S&P 500 -- ok a little less recently but that's not surprising since it's been a large growth boom period.

In any case, I'd think they'd have trouble earning back their fees especially if the strategy gets popular and any premium there gets reduced.

As for mutual funds vs ETFs, it's not a huge difference actually. I think you can pick up best practices easily. Usually the biggest advantage of mutual funds is setting up automatic investment. With ETFs, you have to place an order while the market is open. ETFs often have a tax benefit (compared to mutual funds that don't have an ETF share class) but that's not a consideration in a 401k. ETFs are pretty easy to work with!!! You don't need any particular skill if you follow a few best practices (such as setting a limit) that can be explained if you wish.

Also, it's helpful to post in this format for best consideration. viewtopic.php?t=6212

lack_ey
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Re: Schwab help - mutual fund vs ETF vs ThomasPartners Balanced Income - overwhelmed!

Post by lack_ey » Fri Jan 12, 2018 5:15 pm

In an IRA, there's not much difference between mutual funds and ETFs (outside, there can be a little more of a difference based on capital gains distributions, owing to the fact that those are taxed, but that's irrelevant here). These are just containers, investment vehicles for accessing underlying investments. What matters is what's inside, and how much you're paying to access the contents. If you're familiar with and prefer mutual funds, there's no reason to use ETFs unless you can't access what you want via mutual funds (or let's say if the ETFs are cheaper).

Schwab provides access to a lot of mutual funds, but of course not all possible funds. This includes their own, as well as others'. They do run very cheap index-tracking mutual funds for some major categories (but not emerging markets stocks), in addition to target-date funds using their index ETFs. The list of their funds including ETFs is here:
https://www.schwabfunds.com/public/csim ... uct_finder

If you have no strong ideas about what you should do, the cheap target-date fund is probably appropriate. You can just use a single fund and be done. See Schwab Target 2040 Index Fund (SWYGX), or one with a different date.

The ThomasPartners Balanced Income I think is a type of managed account that invests assets for you, using a combination of dividend stocks and bonds, with around a 60/40 mix. They charge a fee of 0.80% annually for the service for accounts like yours under $500k. That sounds kind of shoddy considering there are plenty of mutual funds doing pretty much the same thing, for less, and out in the wider investment world, those are bigger names than whatever a ThomasPartners is (yes, with "over $10 billion" in AUM), so why would you care about them? This seems like the least desirable route unless you are a fan of this specific scheme.

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Re: Schwab help - mutual fund vs ETF vs ThomasPartners Balanced Income - overwhelmed!

Post by ColoRetiredGirl » Fri Jan 12, 2018 5:29 pm

I am with Schwab and definitely the one who should not be chiming in. BUT, here I go. The mantra here is pay the least amount of fees or better yet no fees at all. So just focusing on fees the ThomasPartners Balance Fund for your current portfolio balance is 0.80 and with a balance of $5 million at 0.40. Mutual funds have managed fees that are typically higher than ETFs. Fees are a drag to your overall return. The folks here will be pointing you to the 3 legged portfolio. You can managed your own portfolio once you dial in your Asset Allocation. The people here can help you on this as well. However, at 42 years of age you are looking at a very conservative AA at 60/40. This maybe in line with your risk tolerance for your time horizon to retire (I am guessing in your 60s) but you are leaving potential returns on the table. Whew! Okay where are the experts!

Investor8771
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Re: Schwab help - mutual fund vs ETF vs ThomasPartners Balanced Income - overwhelmed!

Post by Investor8771 » Fri Jan 12, 2018 11:18 pm

Thank you all for the very helpful insight! I think I'll dig into the ETFs further. in_reality, if you have best practices I should be cognizant of, I'm all ears. Thanks again all!

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in_reality
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Re: Schwab help - mutual fund vs ETF vs ThomasPartners Balanced Income - overwhelmed!

Post by in_reality » Fri Jan 12, 2018 11:42 pm

Investor8771 wrote:
Fri Jan 12, 2018 11:18 pm
Thank you all for the very helpful insight! I think I'll dig into the ETFs further. in_reality, if you have best practices I should be cognizant of, I'm all ears. Thanks again all!
Generally, many here use a marketable limit order (i.e. a limit order which accepts the current bid [price a buyer is willing to pay] or ask [price a seller is willing to accept]). See this explanation from Schwab for an example.

https://workplace.schwab.com/public/fil ... g-ETFs.pdf

Some people prefer to set a limit halfway between the bid and ask especially if the spread is larger than normal at that time.

See grabiner's comments in this thread viewtopic.php?f=10&t=132854#p1959743

Also, if you trade less than 100 shares, and set the limit less that the ask (if you are buying) or higher than the bid (if you are selling), your order may not get filled as it may not be displayed to other traders. In that case, a marketable limit order
would be better.

Again see grabiner's comments viewtopic.php?t=97197#p1404077

Doing a small trade or two will quickly get your confidence up to where you are comfortable.

Finally, to see a market cap weighted portfolio using Schwab ETFs, I put a simple calculator here . https://docs.google.com/spreadsheets/d/ ... sp=sharing

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David Jay
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Re: Schwab help - mutual fund vs ETF vs ThomasPartners Balanced Income - overwhelmed!

Post by David Jay » Fri Jan 12, 2018 11:59 pm

A regular here ("Nisiprius") says of mutual funds versus ETFs: "It's the same beer. Mutual funds are beer in bottles, ETFs are beer in cans."
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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Re: Schwab help - mutual fund vs ETF vs ThomasPartners Balanced Income - overwhelmed!

Post by Tyler Aspect » Sat Jan 13, 2018 12:17 am

ETF Transactions

The “asking price” is the price a seller is willing to sell. The “bidding price” is the price a buyer is willing to buy. When a transaction occurs, the seller gets the lower bidding price, while the buyer gets the higher asking price. The market maker receives the difference for making the market available for trade.

A limit order allows you to specify the price that a transaction should take place. When buying ETF it is a good practice to buy using a limit order at the best asking price that you can see on the offering book.
Past result does not predict future performance. Mentioned investments may lose money. Contents are presented "AS IS" and any implied suitability for a particular purpose are disclaimed.

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F150HD
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Re: Schwab help - mutual fund vs ETF vs ThomasPartners Balanced Income - overwhelmed!

Post by F150HD » Sat Jan 13, 2018 12:32 am

David Jay wrote:
Fri Jan 12, 2018 11:59 pm
A regular here ("Nisiprius") says of mutual funds versus ETFs: "It's the same beer. Mutual funds are beer in bottles, ETFs are beer in cans."
....and if its Keystone Light?

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Investor8771
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Re: Schwab help - mutual fund vs ETF vs ThomasPartners Balanced Income - overwhelmed!

Post by Investor8771 » Sat Jan 13, 2018 7:33 am

Thanks again all, this has been very informative and helpful.

Now I'll go figure out if I want a bottle or can of beer...

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ruralavalon
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Re: Schwab help - mutual fund vs ETF vs ThomasPartners Balanced Income - overwhelmed!

Post by ruralavalon » Sat Jan 13, 2018 8:22 am

Investor8771 wrote:
Fri Jan 12, 2018 4:33 pm
Hi. I'm new to the boards, a novice investor, and I'm looking for some help related to Schwab. I recently transferred my 401k balance from a previous employer to Schwab with the intent to set up a mutual fund portfolio, however the Schwab Financial Consultant I spoke with strongly recommended that I consider the ThomasPartners Balanced Income (60% Equities/40% Fixed Income) approach or the ETF approach instead of mutual funds. The balance is about $200k and I'm 42 years old. Any strong opinions on mutual funds vs ETF vs the ThomasPartners recommendation? I'm uncomfortable walking away from mutual funds but I'm an unskilled investor so I wanted to get some help. Thanks in advance for your perspective.
The 0.80% fee of ThomasPartners would completely rule them out in my opinion.

I suggest using mutual funds. At Schwab that would be:
1) Schwab Total Market Index Fund (SWTSX) ER 0.03%
2) Schwab International Index Fund (SWISX) ER 0.06%
3) Schwab U.S. Aggregate Bond Index Fund (SWAGX) ER 0.04%

In my opinion mutual funds are easier to use than ETFs and have simpler trading mechanics. Please see the wiki article "mutual funds vs ETFs". With mutual funds you can buy or sell fractional shares, it's easy to set up automatic investment, it's easy to set up automatic reinvestment of dividends and gains, you don't need to use limit orders, you can place orders anytime not just when the markets are open. The decision between mutual funds and ETFs is, largely one of personal preference.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

epictetus
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Re: Schwab help - mutual fund vs ETF vs ThomasPartners Balanced Income - overwhelmed!

Post by epictetus » Sat Jan 13, 2018 9:01 am

i totally agree with what ruralavalon said.

just use those mutual funds in your IRA and you are all set

it doesn't have to be complicated
Focus on what you can control

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Re: Schwab help - mutual fund vs ETF vs ThomasPartners Balanced Income - overwhelmed!

Post by Jack FFR1846 » Sat Jan 13, 2018 9:16 am

ColoRetiredGirl is right on the money.

I also have a Schwab account for taxable. I hold only SCHB there (US Broad Market at 0.03% ER) which is an ETF. I bought in before they drastically reduced their parallel mutual fund expenses to match their ETFs. ETFs are not harder to work with and are a solid "don't care" to me. Unless you have a specific question or task for Schwab, don't even talk with them. Their advisers are the same as Fidelity are the same as TDAmeritrade (I have accounts with them too). They all want you to go into higher cost managed schemes where the funds or ETFs used are higher cost and then a management charge is added on top. All of these are useless charges to you with the goal to meet the market after fees (they tell you other fairy tales which are all completely and totally made up). Don't fall for them. Use the lowest cost ETFs and/or mutual funds.....period. Buy everything online. I find Schwab's platform to be the easiest out of all of them. So much so that I'll look and see that I have $50 in my cash account and ACH over $20 to buy 1 share of SCHB. I actually just did that yesterday.

Fidelity, Schwab, Vanguard, TDAmeritrade and Merrill Edge all have great platforms IF (that's a big if) you stick with low cost index instruments and do your own choosing. Although I've been a Fidelity private client for 10 years, my manager doesn't even call me anymore because he knows he won't make any money from managed products or insurance crap from me.
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Re: Schwab help - mutual fund vs ETF vs ThomasPartners Balanced Income - overwhelmed!

Post by aristotelian » Sat Jan 13, 2018 9:29 am

Schwab definitely has better selection in the ETF space. The big funds such as SCHB have enough action that you can place market orders with little risk of getting caught by a big bid/ask spread. The price you see at any point in time is what you will get within a cent or two. If it makes you nervous, you might do a few small transactions first until you get the hang of it. Schwab also has reps that can walk you through any issue, 24/7.

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Re: Schwab help - mutual fund vs ETF vs ThomasPartners Balanced Income - overwhelmed!

Post by retiredjg » Sat Jan 13, 2018 10:29 am

Lots of good information here.

Schwab has more and varied choices in their ETF space, but that is only valuable if it offers something you want that you can't get in a mutual fund. The list of mutual funds suggested by ruralavalon above is all you really need and it is very low cost. If you like mutual funds, there is no reason not to use those.

1) Schwab Total Market Index Fund (SWTSX) ER 0.03%
2) Schwab International Index Fund (SWISX) ER 0.06%
3) Schwab U.S. Aggregate Bond Index Fund (SWAGX) ER 0.04%


I've got nothing against ETFs other than they don't satisfy a need I have...so why would I bother with the more complicated buying and selling procedure?

Schwab also has a nice list of low cost index target funds if you want to set it and forget it. Some people are not happy with their relatively high allocation to cash, but if you want to invest at Schwab, they are still a decent choice.

I would not use the Thomas Partner's fund simply because the ER is high.

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Re: Schwab help - mutual fund vs ETF vs ThomasPartners Balanced Income - overwhelmed!

Post by lack_ey » Sat Jan 13, 2018 12:26 pm

retiredjg wrote:
Sat Jan 13, 2018 10:29 am
Lots of good information here.

Schwab has more and varied choices in their ETF space, but that is only valuable if it offers something you want that you can't get in a mutual fund. The list of mutual funds suggested by ruralavalon above is all you really need and it is very low cost. If you like mutual funds, there is no reason not to use those.

1) Schwab Total Market Index Fund (SWTSX) ER 0.03%
2) Schwab International Index Fund (SWISX) ER 0.06%
3) Schwab U.S. Aggregate Bond Index Fund (SWAGX) ER 0.04%


I've got nothing against ETFs other than they don't satisfy a need I have...so why would I bother with the more complicated buying and selling procedure?

Schwab also has a nice list of low cost index target funds if you want to set it and forget it. Some people are not happy with their relatively high allocation to cash, but if you want to invest at Schwab, they are still a decent choice.

I would not use the Thomas Partner's fund simply because the ER is high.
The "need" would be emerging markets stocks (including South Korea, and then also the developed market of Canada) as mentioned before. That international index fund covers EAFE. Now if you don't want EM that's fine.

retiredjg
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Re: Schwab help - mutual fund vs ETF vs ThomasPartners Balanced Income - overwhelmed!

Post by retiredjg » Sat Jan 13, 2018 3:58 pm

lack_ey wrote:
Sat Jan 13, 2018 12:26 pm
The "need" would be emerging markets stocks (including South Korea, and then also the developed market of Canada) as mentioned before. That international index fund covers EAFE. Now if you don't want EM that's fine.
I don't disagree. However, I consider Schwab's lineup adequate for people who want to have an office to go to and people to talk to. I see the absence of the more complete international funds something they have to give up to get something else they want.

I prefer having Canada and the emerging markets, but the times I've checked it seemed the EAFE funds perform pretty similarly.

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in_reality
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Re: Schwab help - mutual fund vs ETF vs ThomasPartners Balanced Income - overwhelmed!

Post by in_reality » Sat Jan 13, 2018 8:34 pm

retiredjg wrote:
Sat Jan 13, 2018 3:58 pm
lack_ey wrote:
Sat Jan 13, 2018 12:26 pm
The "need" would be emerging markets stocks (including South Korea, and then also the developed market of Canada) as mentioned before. That international index fund covers EAFE. Now if you don't want EM that's fine.
I don't disagree. However, I consider Schwab's lineup adequate for people who want to have an office to go to and people to talk to. I see the absence of the more complete international funds something they have to give up to get something else they want.

I prefer having Canada and the emerging markets, but the times I've checked it seemed the EAFE funds perform pretty similarly.
South Korea and emerging markets are available via their fundamental (value) fund SFENX. Of course, you could use the ETF SCHE 0.13% ER (which doesn't have South Korea per index) for emerging. SFENX 0.39% ER behaves like a value fund (periods of underperformance and periods of better performance) and overall has performed pretty comparable to Vanguard's Emerging markets fund (which recently added small caps).

+ 0.39% ER is fundamental small (again it behaves as a value fund though is a little more blend as it includes cheaper growth stocks) and includes Canada (now 8%).

So SWISX (large developed) + SFENX (emerging value) + SFENX (small value developed) would give you better coverage.

And the target index funds look good to me too.

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Re: Schwab help - mutual fund vs ETF vs ThomasPartners Balanced Income - overwhelmed!

Post by samsoes » Sat Jan 13, 2018 8:47 pm

lack_ey wrote:
Sat Jan 13, 2018 12:26 pm
The "need" would be emerging markets stocks (including South Korea, and then also the developed market of Canada) as mentioned before. That international index fund covers EAFE. Now if you don't want EM that's fine.
I solve this issue by having my international holdings at Schwab in VXUS. Trading in this ETF costs $4.95 per trade since it's a Vanguard ETF, not Schwab native ETF. One would need multiple Schwab native offerings to accomplish the same broad international diversification available in VXUS. I'll pay the $4.95 occasional trading fee to keep it simple. :beer
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