Schwab now offering Index funds at lower ER than Vanguard

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
trybogle
Posts: 14
Joined: Sat Feb 28, 2015 6:48 pm

Schwab now offering Index funds at lower ER than Vanguard

Post by trybogle » Thu Oct 12, 2017 10:43 am


mervinj7
Posts: 370
Joined: Thu Mar 27, 2014 3:10 pm

Re: Schwab now offering Index funds at lower ER than Vanguard

Post by mervinj7 » Thu Oct 12, 2017 10:53 am

Not sure what the "Schwab 1000" index is, but if you want to track a broader index than the S&P 500, the Vanguard Total Market ETF is only 0.04% ER.
https://personal.vanguard.com/us/funds/ ... undId=0970

An even cheaper option is the iShares Core S&P Total Market (ITOT) for 0.03% ER. Commission-free for those of us with Fidelity brokerage accounts.
https://www.ishares.com/us/products/239 ... market-etf

Competition in the index fund space has been heating up these few years and its been great for bogleheads.

bluerafters
Posts: 33
Joined: Mon Sep 18, 2017 7:14 pm

Re: Schwab now offering Index funds at lower ER than Vanguard

Post by bluerafters » Thu Oct 12, 2017 10:56 am

Schwab has had lower ER's for a good while now. I started my ROTH with Schwab and ultimately transferred to Vanguard. I "trust" Vanguard more than I did Schwab. IF the Schwab rates continue I would expect to see a competitive action from Vanguard.

EHEngineer
Posts: 636
Joined: Sat Feb 28, 2015 4:35 pm

Re: Schwab now offering Index funds at lower ER than Vanguard

Post by EHEngineer » Thu Oct 12, 2017 10:57 am

Differences of a couple basis points don't really matter. Assess the benchmark and fund tracking error to its benchmark.
Or, you can ... decline to let me, a stranger on the Internet, egg you on to an exercise in time-wasting, and you could say "I'm probably OK and I don't care about it that much." -Nisiprius

User avatar
Doc
Posts: 7685
Joined: Sat Feb 24, 2007 1:10 pm
Location: Two left turns from Larry

Re: Schwab now offering Index funds at lower ER than Vanguard

Post by Doc » Thu Oct 12, 2017 11:18 am

mervinj7 wrote:
Thu Oct 12, 2017 10:53 am
Not sure what the "Schwab 1000" index is, but if you want to track a broader index than the S&P 500, the Vanguard Total Market ETF is only 0.04% ER.
"The Schwab 1000 Index was built in 1991 to track the largest 1000 stocks in the U.S."

The 2017 Methodology document is here: http://www.schwab.com/public/file/P-10783260

I would consider the S&P 500, Russell 1000 and Schwab 1000 basically equivalent for a large cap blend position. The Schwab 1000 fund SNXFX is essentially identical to the the Russell 1000. (There may be a free float difference.) http://portfolios.morningstar.com/fund/ ... ture=en_US

I would not use a Total Market fund is an equivalent. I want to make it easy to keep my SC/LC ratio at target and not combined in a single fund.
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.

sport
Posts: 6123
Joined: Tue Feb 27, 2007 3:26 pm
Location: Cleveland, OH

Re: Schwab now offering Index funds at lower ER than Vanguard

Post by sport » Thu Oct 12, 2017 11:22 am

bluerafters wrote:
Thu Oct 12, 2017 10:56 am
IF the Schwab rates continue I would expect to see a competitive action from Vanguard.
As I understand it, Vanguard does not "set" its expense ratios. Those ratios just reflect Vanguard's actual costs. As the size of Vanguard index funds increase, the ER will drop because the fixed costs are spread out over a larger base.

User avatar
nisiprius
Advisory Board
Posts: 34323
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Schwab now offering Index funds at lower ER than Vanguard

Post by nisiprius » Thu Oct 12, 2017 11:26 am

Just speaking personally, provided the indexes they are tracking are either identical or close enough, I have always assumed that the index funds from well-known providers (Vanguard, Schwab, Fidelity... as well as the big ETF providers) can be regarded as interchangeable.

As to how much the cost matters, do the math. On $100,000, an expense ratio difference of 0.01% is $10/year. The stock market can easily fluctuate up and down 1% in a day. I find it pretty hard to get excited about a $10 difference in a holding that can fluctuate $1,000 in a single day.

The measure of importance in expense ratio differences is the absolute difference. Once you get down into 0.10% territory I personally, honestly, believe differences don't matter enough to fuss about. Schwab is undercutting Vanguard by one basis point for marketing reasons. Personally, as a matter of taste, I like Vanguard better than Schwab. "I like the cut of their jib" seems especially appropriate here. But if I had the slightest reason to have an account at Schwab, I wouldn't switch to Vanguard just out of brand preference; and I'm at Vanguard and I'm not going to switch to Schwab over an 0.01% difference in expense ratio.

Frankly, I think Schwab's minimum investment requirements (whoa... am I reading that right? ONE dollar?), and the availability of storefronts if you want them, are much more meaningful differences than expense ratios.

As to the "Schwab 1000 index," I doubt that it is meaningfully superior to OR inferior to the S&P 500, or the Russell 1000, or the CRSP Large-Cap Index. Let's chart funds tracking those four indexes. I have no doubt there will be differences, but my expectation is that they will be very small and no guarantees as to which is "best." Here is the total growth (including dividends) since inception of VLACX.

Blue, VFIAX (S&P 500)
Orange, SNXFX (Schwab 1000)
Green, IWB (Russell 1000)
Yellow, VLACX (CRSP Large-Cap Index)

Source
Image
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

lazydavid
Posts: 1202
Joined: Wed Apr 06, 2016 1:37 pm

Re: Schwab now offering Index funds at lower ER than Vanguard

Post by lazydavid » Thu Oct 12, 2017 12:32 pm

nisiprius wrote:
Thu Oct 12, 2017 11:26 am
Frankly, I think Schwab's minimum investment requirements (whoa... am I reading that right? ONE dollar?), and the availability of storefronts if you want them, are much more meaningful differences than expense ratios.
Yep, you are reading that right. That's why, based on advice I got on BH, I opened my son's custodial account at Schwab. He started with less than $100, which is a far cry from the $3k Vanguard wants for a minimum investment in most of their index funds. Each month, the portion of his allowance that he's allocated to investments gets deposited and invested, even if it's only $20-30. With effectively no minimum, his funds can always be fully invested.

bluerafters
Posts: 33
Joined: Mon Sep 18, 2017 7:14 pm

Re: Schwab now offering Index funds at lower ER than Vanguard

Post by bluerafters » Thu Oct 12, 2017 2:57 pm

sport wrote:
Thu Oct 12, 2017 11:22 am
bluerafters wrote:
Thu Oct 12, 2017 10:56 am
IF the Schwab rates continue I would expect to see a competitive action from Vanguard.
As I understand it, Vanguard does not "set" its expense ratios. Those ratios just reflect Vanguard's actual costs. As the size of Vanguard index funds increase, the ER will drop because the fixed costs are spread out over a larger base.
Gotcha. Many thanks.

pollifax
Posts: 13
Joined: Tue Sep 12, 2017 4:05 pm

Re: Schwab now offering Index funds at lower ER than Vanguard

Post by pollifax » Thu Oct 12, 2017 4:08 pm

Our kids' custodial accounts are at Schwab, and they are in Schwab index funds, except for the tiny portion they have in a bond fund. I didn't like the options schwab offered for bond index funds. SWAGX (formerly something like SWLBX?) crashed and burned in 2008. SWTSX seems like a solid total market choice, though.

Post Reply