Schwab Target Index Funds Investor Shares drop (.08%)

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Durzo
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Schwab Target Index Funds Investor Shares drop (.08%)

Post by Durzo » Fri Apr 21, 2017 11:40 am

Schwab's ER for their target date funds just dropped from 0.13% to .08%. I have been with vanguard since I started investing, but Schwab is doing a great job with their expense ratios. Maybe they want to start taking some of the monster growth Vanguard is experiencing. Some of their index funds have expense ratios ranging from .03-.05.

This is good news for investors and firms competing with lower expense rations is great for people's future retirement.

TX_Man
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Re: Schwab Target Index Funds Investor Shares drop (.08%)

Post by TX_Man » Fri Apr 21, 2017 11:43 am

I use these funds in my IRA. 0.08% is amazingly low.

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whodidntante
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Re: Schwab Target Index Funds Investor Shares drop (.08%)

Post by whodidntante » Fri Apr 21, 2017 11:55 am

I don't see a reason to go to Vanguard for these funds. Schwab is cheaper, has better customer service, and they'll pay you a bonus if you have significant assets already. Buying from Vanguard is like buying a Ford because they were the first to bring the cost down on cars.

Outafter20
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Re: Schwab Target Index Funds Investor Shares drop (.08%)

Post by Outafter20 » Fri Apr 21, 2017 12:05 pm

It's too bad Vanguard doesn't have an Admiral version of their Target funds.

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jhfenton
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Re: Schwab Target Index Funds Investor Shares drop (.08%)

Post by jhfenton » Fri Apr 21, 2017 12:24 pm

Vanguard's Target Retirement funds are the one set of funds at Vanguard that appear over-priced. They really need to have an Admiral Shares version at $10,000 or even $50,000 that uses solely Admiral Shares for the underlying funds and an Institutional Shares class that uses all Institutional Shares. At the moment, the Investor Shares use Investor Shares and the Institutional Shares use a mix of Institutional, Admiral, and Investor Shares. It's odd. And the result is an Institutional Target Retirement Fund that is still 10 bp. That is just silly. My heavily tilted, 50% international portfolio averages just under that using Vanguard funds.

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Re: Schwab Target Index Funds Investor Shares drop (.08%)

Post by davidkw » Fri Apr 21, 2017 12:26 pm

I looked at the Schwab Target funds. Do not like the asset allocation of cash and higher than normal for the large caps. I like more small cap exposure.
David | | From Jack Brennan's "Straight Talk on Investing", page 23 "Living below your means is the ultimate financial strategy"

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triceratop
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Re: Schwab Target Index Funds Investor Shares drop (.08%)

Post by triceratop » Fri Apr 21, 2017 12:28 pm

whodidntante wrote:I don't see a reason to go to Vanguard for these funds. Schwab is cheaper, has better customer service, and they'll pay you a bonus if you have significant assets already. Buying from Vanguard is like buying a Ford because they were the first to bring the cost down on cars.
I prefer to have 100% of my investments in productive instruments. As an example, Schwab's Target 2030 fund has 4.15% more in cash than Vanguard (Morningstar). I could put that in Vanguard Ultra-short term bond and earn 1.35% with little interest rate risk (bonds are held to maturity). That is a cost to me of 5.6bp, making the true cost of Schwab Target 2030 closer to 0.14%...and vanguard's is 0.15%.

There's a reason I invest in Vanguard: their interests are aligned with mine. I wonder what the benefit to Schwab is of all that cash; actually I don't wonder, I can be reasonably sure.

I do agree that Vanguard could price these better if they used Admiral shares; I believe Jack Bogle was going to look into this after the last Bogleheads conference. Someone should ask him what he found out.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

Countermoon
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Re: Schwab Target Index Funds Investor Shares drop (.08%)

Post by Countermoon » Fri Apr 21, 2017 12:47 pm

Do you know when this goes into effect? The Schwab website still has the 0.13% ER.

Constant Chaos
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Re: Schwab Target Index Funds Investor Shares drop (.08%)

Post by Constant Chaos » Fri Apr 21, 2017 12:49 pm

Excellent news! My teenager has his Roth IRA in their 2060 fund, both because of Schwab's low $100 initial investment to open and because even before this latest drop, their ER was the lowest. Schwab is positioning themselves very attractively for young people IMO.

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triceratop
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Re: Schwab Target Index Funds Investor Shares drop (.08%)

Post by triceratop » Fri Apr 21, 2017 12:56 pm

Constant Chaos wrote:Excellent news! My teenager has his Roth IRA in their 2060 fund, both because of Schwab's low $100 initial investment to open and because even before this latest drop, their ER was the lowest. Schwab is positioning themselves very attractively for young people IMO.
I agree, and with banking too. Bank of America and Wells Fargo are happy to charge service fees for the silliest of things, and only when you have substantial balances are they waived (and even then, I've seen mistaken charges that I have needed to get reversed).

Schwab sent me two boxes of checks on a new checking account with a $0.00 balance. I've never had a fee from them, and they reimburse all ATM fees worldwide. They also offer free equity/ETF trades (similar to the old Wells offer that is now gone forever) for large enough incoming balances.

I tell everyone I know about them. There also happens to be a branch office in my town.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

Constant Chaos
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Re: Schwab Target Index Funds Investor Shares drop (.08%)

Post by Constant Chaos » Fri Apr 21, 2017 1:13 pm

Countermoon wrote:Do you know when this goes into effect? The Schwab website still has the 0.13% ER.
It looks as though the minimum investment for the institutional shares, which has been .08 all along, dropped its minimum initial investment to $100. That is what I am seeing on schwab.com. There is a thread on reddit reporting an investor received a letter from Schwab that said their shares wold be converted to the institutional.

lostdog
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Re: Schwab Target Index Funds Investor Shares drop (.08%)

Post by lostdog » Fri Apr 21, 2017 1:21 pm

Is schwab owned by it's investors? How do they make up for these low costs?
Hear the clock ticking? That’s your life flying by while you listen to market pundits and watch stock prices fluctuate. -Humble Dollar

bondsr4me
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Re: Schwab Target Index Funds Investor Shares drop (.08%)

Post by bondsr4me » Fri Apr 21, 2017 1:38 pm

lostdog wrote:Is schwab owned by it's investors? How do they make up for these low costs?
yes,"investors" do own schwab if they own shares of the public traded company.
so not only do you get low fees, you also collect a dividend (.32/sh based on recent trade data).
can't say the same about Vanguard (which I like too).

low costs are the only thing to consider.

have a great weekend all you BH'ers!

Don

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flamesabers
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Re: Schwab Target Index Funds Investor Shares drop (.08%)

Post by flamesabers » Fri Apr 21, 2017 1:43 pm

Interesting news. I'll have to keep this in mind if I decide to open a target retirement fund.

TX_Man
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Re: Schwab Target Index Funds Investor Shares drop (.08%)

Post by TX_Man » Fri Apr 21, 2017 2:12 pm

lostdog wrote:Is schwab owned by it's investors? How do they make up for these low costs?
Although Schwab has some great low cost funds there are not nearly as many options as Vanguard. However all the basics are there (SP500 index, Russel 2000 index, International index, etc). My guess would be it is made up with their actively managed funds. They have a series of "fundamental index" funds which have higher than index costs (even though they are still priced lower than many active funds), roughly 0.25% to 0.40%.

Of course without knowing their numbers it is impossible to know. It looks like they are going after the same growing base Vanguard has been so successful in aquiring.
Last edited by TX_Man on Fri Apr 21, 2017 2:30 pm, edited 1 time in total.

vtBob
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Re: Schwab Target Index Funds Investor Shares drop (.08%)

Post by vtBob » Fri Apr 21, 2017 2:27 pm

triceratop wrote:
Constant Chaos wrote:Excellent news! My teenager has his Roth IRA in their 2060 fund, both because of Schwab's low $100 initial investment to open and because even before this latest drop, their ER was the lowest. Schwab is positioning themselves very attractively for young people IMO.
I agree, and with banking too. Bank of America and Wells Fargo are happy to charge service fees for the silliest of things, and only when you have substantial balances are they waived (and even then, I've seen mistaken charges that I have needed to get reversed).

Schwab sent me two boxes of checks on a new checking account with a $0.00 balance. I've never had a fee from them, and they reimburse all ATM fees worldwide. They also offer free equity/ETF trades (similar to the old Wells offer that is now gone forever) for large enough incoming balances.

I tell everyone I know about them. There also happens to be a branch office in my town.
Agreed. Schwab is one of the best customer services I've ever experienced... I recommend them to everyone. If they had a branch within a hundred miles that would be icing on the cake. I do all of my banking and investing (where I have a choice) with them.

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whodidntante
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Re: Schwab Target Index Funds Investor Shares drop (.08%)

Post by whodidntante » Fri Apr 21, 2017 3:18 pm

triceratop wrote:
whodidntante wrote:I don't see a reason to go to Vanguard for these funds. Schwab is cheaper, has better customer service, and they'll pay you a bonus if you have significant assets already. Buying from Vanguard is like buying a Ford because they were the first to bring the cost down on cars.
I prefer to have 100% of my investments in productive instruments. As an example, Schwab's Target 2030 fund has 4.15% more in cash than Vanguard (Morningstar). I could put that in Vanguard Ultra-short term bond and earn 1.35% with little interest rate risk (bonds are held to maturity). That is a cost to me of 5.6bp, making the true cost of Schwab Target 2030 closer to 0.14%...and vanguard's is 0.15%.

There's a reason I invest in Vanguard: their interests are aligned with mine. I wonder what the benefit to Schwab is of all that cash; actually I don't wonder, I can be reasonably sure.

I do agree that Vanguard could price these better if they used Admiral shares; I believe Jack Bogle was going to look into this after the last Bogleheads conference. Someone should ask him what he found out.
:sharebeer

Outafter20
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Re: Schwab Target Index Funds Investor Shares drop (.08%)

Post by Outafter20 » Fri Apr 21, 2017 4:51 pm

jhfenton wrote:Vanguard's Target Retirement funds are the one set of funds at Vanguard that appear over-priced. They really need to have an Admiral Shares version at $10,000 or even $50,000 that uses solely Admiral Shares for the underlying funds and an Institutional Shares class that uses all Institutional Shares. At the moment, the Investor Shares use Investor Shares and the Institutional Shares use a mix of Institutional, Admiral, and Investor Shares. It's odd. And the result is an Institutional Target Retirement Fund that is still 10 bp. That is just silly. My heavily tilted, 50% international portfolio averages just under that using Vanguard funds.
I used the TD Ameritrade Morningstar Instant X-Ray Tool https://www.tdameritrade.com/education/ ... -xray.page
and utilized Admiral Shares instead of the Investor Shares.

Inputting the underlying funds (using the Admiral Shares) from the Vanguard Target Retirement 2035 Fund with their respective allocations, the X-Ray Tool shows a total ER of .07%, less than half of the current .15% ER.

wassabi
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Re: Schwab Target Index Funds Investor Shares drop (.08%)

Post by wassabi » Fri Apr 21, 2017 5:59 pm

Schwab's new Total Bond Fund (SWAGX) and all the recent ER drops together with the excellent Investor Checking service make them extremely competitive with Vanguard. I have accounts at both but the majority of my assets with Vanguard. I'm not going to switch everything over the Schwab yet, but it's getting more tempting every day!

stlutz
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Re: Schwab Target Index Funds Investor Shares drop (.08%)

Post by stlutz » Fri Apr 21, 2017 6:58 pm

I prefer to have 100% of my investments in productive instruments. As an example, Schwab's Target 2030 fund has 4.15% more in cash than Vanguard (Morningstar). I could put that in Vanguard Ultra-short term bond and earn 1.35% with little interest rate risk (bonds are held to maturity). That is a cost to me of 5.6bp, making the true cost of Schwab Target 2030 closer to 0.14%...and vanguard's is 0.15%.
In the spirit of looking at the fixed income portfolio as a whole, the cash position simply reduces the overall duration of the bond portfolio. Taking the weighting of total bond, short term treasury, and cash, I get a duration of 4.84 and a yield of 1.99% (I assumed the cash yielded .25%).

If they instead used only total bond and short-term treasury and targeted the same duration, I'd get a yield of 2.05%. So, one is losing about .06% of return on the fixed income portion, which is 30% of the portfolio, so it comes out to a loss of about 2 bps.

The cash isn't my preference either, but the actual return impact is small. The question is whether you'd rather have a bond duration more like total bond or a shorter average duration. If you prefer the former, VG is a better option; if you prefer the later Schwab is. But if you've thought about it enough to care, then you probably aren't using a TR fund in any case. :happy

TX_Man
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Re: Schwab Target Index Funds Investor Shares drop (.08%)

Post by TX_Man » Fri Apr 21, 2017 7:09 pm

Constant Chaos wrote:
Countermoon wrote:Do you know when this goes into effect? The Schwab website still has the 0.13% ER.
It looks as though the minimum investment for the institutional shares, which has been .08 all along, dropped its minimum initial investment to $100. That is what I am seeing on schwab.com. There is a thread on reddit reporting an investor received a letter from Schwab that said their shares wold be converted to the institutional.
I got the same letter today today. Investor shares (0.13%) will be converted to the institutional shares (0.08%) and minimum initial investments will be $100 for the institutional shares.

Countermoon
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Re: Schwab Target Index Funds Investor Shares drop (.08%)

Post by Countermoon » Mon Apr 24, 2017 3:19 pm

I tried to move some money into the Target Date Index Funds and was told by Schwab that they are closed to new investors as of 3/31/17.

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