SCHB vs. SWTSX

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geospatial
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SCHB vs. SWTSX

Post by geospatial » Thu Feb 08, 2018 7:14 am

SCHB is the Schwab ETF for US Broad Market and SWTSX is the Schwab mutual fund for US Total Market, so I think the mutual fund has a little more exposure to small caps, but from a market cap perspective I think they're similar. Both have an ER of 0.03%. If held in a Roth, the tax implications of ETF vs. mutual fund aren't really in play. Is there any reason to pick one over the other beyond the ability to more quickly process ETF transactions if needed? This is my first time dabbling outside my employer-sponsored retirement account so I haven't had the chance to deal with ETFs until now.

tenkuky
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Re: SCHB vs. SWTSX

Post by tenkuky » Thu Feb 08, 2018 9:21 am

I went to ETFs several years ago with Schwab, initially hesitant because of the uncertainty. More comfortable now, but use both SWTSX and SCHB albeit in different accounts. Main things to be aware:
1. Yes, you can time the purchase of the ETF intra-day, vs. waiting till close NAV for the fund. A little market timing there :)
2. Purchasing ETFs is only in whole share amounts, so depending on price you will have lots of leftover in cash reserves. It has become annoying for me as I prefer to stay fully invested. With fund, you can invest down to a penny.
3. There will be a small "exchange trading fee" when you sell the ETF, to be aware of, nothing huge. Not seen that with the fund.
4. Be aware of the settlement times; ETF settlement 3 days after trade, fund settles next day.
5. The BIGGEST: is the ask-bid spread, especially a problem if you don't use limit orders. Learn about limit orders so as not to get hit with paying more than you bargained for in the price. There are good threads on this issue.

Final thought: they are similar enough that if you don't mind subtle issues, go with ETF. Or like me, mix and match :beer

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goingup
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Re: SCHB vs. SWTSX

Post by goingup » Thu Feb 08, 2018 9:29 am

Here's a Boglehead wiki article about the difference between ETFs and mutual funds. https://www.bogleheads.org/wiki/ETFs_vs_mutual_funds

I prefer funds, for simplicity. Lots of people love ETFs, for their nimbleness. It really is a matter of preference.

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ruralavalon
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Re: SCHB vs. SWTSX

Post by ruralavalon » Thu Feb 08, 2018 10:16 am

goingup wrote:
Thu Feb 08, 2018 9:29 am
Here's a Boglehead wiki article about the difference between ETFs and mutual funds. https://www.bogleheads.org/wiki/ETFs_vs_mutual_funds

I prefer funds, for simplicity. Lots of people love ETFs, for their nimbleness. It really is a matter of preference.
I also prefer regular mutual funds over ETFs, because mutual funds are easier to manage and have simpler trading mechanics. You can buy fractional shares of mutual funds, it's easy to set up automatic investment, and easy to do automatic reinvestment of dividends and gains. You don't have to bother with limit orders. You can place buy or orders anytime, not just when the markets are open. You can just exchange between funds in an account in a single transaction.

All of our investments are in Vanguard funds using Admiral Shares, so ETFs have no advantage in either tax-efficiency or expense ratio.

I don't trade intraday, or transfer investments around chasing bonuses or perks, so just don't care that ETFs are nimble.

This is largely a matter of personal preference.
Last edited by ruralavalon on Thu Feb 08, 2018 10:23 am, edited 2 times in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

ChinchillaWhiplash
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Re: SCHB vs. SWTSX

Post by ChinchillaWhiplash » Thu Feb 08, 2018 10:18 am

Looks like it comes down to preference. Both funds have about = holdings. Just a few hundredths of % difference between the 2 for most holdings. I do like the ability to do a limit order on ETFs though. You will know how much you are buying/selling for, unlike with MF.

geospatial
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Re: SCHB vs. SWTSX

Post by geospatial » Thu Feb 08, 2018 4:07 pm

Thanks for the feedback. I ended up doing a bit in both in the last half hour so I could get a feel for the process and see how the transactions are conducted. It will be a learning experience.

UpperNwGuy
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Re: SCHB vs. SWTSX

Post by UpperNwGuy » Fri Jun 08, 2018 5:51 am

geospatial wrote:
Thu Feb 08, 2018 4:07 pm
Thanks for the feedback. I ended up doing a bit in both in the last half hour so I could get a feel for the process and see how the transactions are conducted. It will be a learning experience.
And now that a few months have passed, what have you learned from your experience? If you could only have SCHB or SWTSX, which would you choose now that you have owned both?

geospatial
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Re: SCHB vs. SWTSX

Post by geospatial » Fri Jun 08, 2018 10:44 am

UpperNwGuy wrote:
Fri Jun 08, 2018 5:51 am
geospatial wrote:
Thu Feb 08, 2018 4:07 pm
Thanks for the feedback. I ended up doing a bit in both in the last half hour so I could get a feel for the process and see how the transactions are conducted. It will be a learning experience.
And now that a few months have passed, what have you learned from your experience? If you could only have SCHB or SWTSX, which would you choose now that you have owned both?
Good question. My biggest concern early on was if the temptation to trade a dynamically priced ETF would overcome the buy-and-hold self-discipline. I'm pleased to say it hasn't, and it makes me more confident that I can continue to uphold the boglehead principles. There are two caveats to this though. First, if you note the date of the post, I had the good luck to buy on the worst day of the year so far, so I've pretty much been up the whole time in both investments. I haven't had to deal with the challenge of a paper loss, so maybe not the best test in the world. Second, having an ETF has made me more prone to checking how things are going on a daily basis. Depending on perspective this could be good or bad. Staying engaged keeps me interested in investing, but there's something to be said for the "set it and forget it" approach too. Owning an ETF also made me research it better so I've gained knowledge of bid/ask spreads, limit orders, and how authorized participants work. Increased financial literacy can only be a benefit.

I think going forward I'm comfortable with both ETFs and mutual funds. If their expense ratios stayed identical, I don't have a strong preference either way at the moment. If I ever feel more of an urge to reconsider my positions due to a significant downturn, I'd lean slightly towards SWTSX so the intra-daily fluctuations wouldn't feel as though they affect me directly as much. Purely a behavioral safety net.

Edit: Almost forgot. I received dividends that were reinvested in the ETF in a fractional amount. That was a little annoying actually. So I changed my dividends to go to my sweep account instead where I can purchase a mutual fund with them instead. That is one drawback of the ETF.
Last edited by geospatial on Fri Jun 08, 2018 11:34 am, edited 1 time in total.

billthecat
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Re: SCHB vs. SWTSX

Post by billthecat » Fri Jun 08, 2018 11:10 am

geospatial wrote:
Thu Feb 08, 2018 7:14 am
SCHB is the Schwab ETF for US Broad Market and SWTSX is the Schwab mutual fund for US Total Market, so I think the mutual fund has a little more exposure to small caps, but from a market cap perspective I think they're similar. Both have an ER of 0.03%. If held in a Roth, the tax implications of ETF vs. mutual fund aren't really in play. Is there any reason to pick one over the other beyond the ability to more quickly process ETF transactions if needed? This is my first time dabbling outside my employer-sponsored retirement account so I haven't had the chance to deal with ETFs until now.
I just recently reshuffled everything. I went with ETFs (SCHB and SCHF) in my taxable account, and funds (SWAGX) in my Roth IRA. The ETFs are more tax efficient, and the funds let me invest down to the penny.
tenkuky wrote:
Thu Feb 08, 2018 9:21 am
I went to ETFs several years ago with Schwab, initially hesitant because of the uncertainty. More comfortable now, but use both SWTSX and SCHB albeit in different accounts. Main things to be aware:
1. Yes, you can time the purchase of the ETF intra-day, vs. waiting till close NAV for the fund. A little market timing there :)
2. Purchasing ETFs is only in whole share amounts, so depending on price you will have lots of leftover in cash reserves. It has become annoying for me as I prefer to stay fully invested. With fund, you can invest down to a penny.
3. There will be a small "exchange trading fee" when you sell the ETF, to be aware of, nothing huge. Not seen that with the fund.
4. Be aware of the settlement times; ETF settlement 3 days after trade, fund settles next day.
5. The BIGGEST: is the ask-bid spread, especially a problem if you don't use limit orders. Learn about limit orders so as not to get hit with paying more than you bargained for in the price. There are good threads on this issue.

Final thought: they are similar enough that if you don't mind subtle issues, go with ETF. Or like me, mix and match :beer

What's the big deal about using limit orders? During the day, the spread is tiny.

merdahl
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Re: SCHB vs. SWTSX

Post by merdahl » Wed Nov 07, 2018 8:39 am

billthecat wrote:
Fri Jun 08, 2018 11:10 am

I just recently reshuffled everything. I went with ETFs (SCHB and SCHF) in my taxable account, and funds (SWAGX) in my Roth IRA. The ETFs are more tax efficient, and the funds let me invest down to the penny.
Why do you say SCHB is more tax efficient than SWTSX?

typical.investor
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Re: SCHB vs. SWTSX

Post by typical.investor » Wed Nov 07, 2018 8:49 am

merdahl wrote:
Wed Nov 07, 2018 8:39 am
billthecat wrote:
Fri Jun 08, 2018 11:10 am

I just recently reshuffled everything. I went with ETFs (SCHB and SCHF) in my taxable account, and funds (SWAGX) in my Roth IRA. The ETFs are more tax efficient, and the funds let me invest down to the penny.
Why do you say SCHB is more tax efficient than SWTSX?
Because SCHB is an ETF and won't issue yearly capital gains distributions. (You will still pay capital gains tax when you sell of course though).

SWTSX Most Recent Distribution (12/18/2017)
Distribution NAV $47.50
Long-Term Capital Gain $0.0741. <--- You will get taxed on this in the Mutual Fund but not the ETF (which won’t issue it)
Short-Term Capital Gain $0.0319 <--- You will get taxed on this in the Mutual Fund but not the ETF
Dividend Income $0.7586
Distribution Total $0.8646

Some years will be more and some less.
Last edited by typical.investor on Thu Nov 08, 2018 3:27 am, edited 1 time in total.

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Nestegg_User
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Re: SCHB vs. SWTSX

Post by Nestegg_User » Wed Nov 07, 2018 3:57 pm

it might also be slightly more advantageous to do TLH with ETF, after you’ve turned dividends to go to your sweep account, but you have to set your account to individual basis not average basis. Then when you look at tax harvesting, you can determine exactly the amount as you update info as opposed to not knowing end of day values. (does assume that you have larger values in portfolio such that sale costs are negligible)

merdahl
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Re: SCHB vs. SWTSX

Post by merdahl » Wed Nov 07, 2018 9:33 pm

Thank you, appreciate the explanations. Schwab doesn't charge a commission for either one of those :D

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