SCHB vs VTI

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kjm
Posts: 54
Joined: Wed Aug 26, 2009 1:05 pm

SCHB vs VTI

Post by kjm »

Hi All,

I'm sure that those of you who trade with Schwab noticed that they just released a whole slew of new ETFs. The real kicker is that they're waiving commission fees on all of their ETFs. Here's my question. Is the Schwab broad market ETF (SCHB) a viable substitute for VTI? SCHB has a slightly lower expense ratio, but it tracks a different index. SCHB tracks the 'Dow Jones Total Stock Market Index' which consists of the largest 2500 publicly trade US stocks. As I'm sure you all know, the VTI tracks a broader index.
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tarnation
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Post by tarnation »

Your OP was about indexes, but I think the bait and switch expenses is a bigger issue.
from Prospectus.
http://prospectus-express.newriver.com/ ... 02&level=3
The fund has adopted a Distribution and Shareholder Services (12b-1) Plan pursuant to which the fund is subject to an annual 12b-1 fee
of up to 0.25% of its average daily net assets. However, the Board has determined that no such fees will be charged prior to
November 14, 2011 (more than 12 months from the commencement of the fund’s operations).
So it seems in about 12 months, the Expense Ratio could be about 4 times higher than Vanguard's. Doesn't seem too enticing to me unless, like you, are trading at Schwab and get the $0 commissions. You can bail when fees go up, of course that requires keeping an eye on when commission expire and when fees go up. If you are in taxable, you will have to pay tax man to switch. So bottom line for me is, better to use VTI or even better TSM admiral shares.
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landon
Posts: 25
Joined: Fri Apr 17, 2015 5:17 pm

Re:

Post by landon »

tarnation wrote:
The fund has adopted a Distribution and Shareholder Services (12b-1) Plan pursuant to which the fund is subject to an annual 12b-1 fee
of up to 0.25% of its average daily net assets. However, the Board has determined that no such fees will be charged prior to
November 14, 2011 (more than 12 months from the commencement of the fund’s operations).
It seems that the 12b-1 provision was removed. Also, the 2014 prospectus does not mention anything about the possibility of bringing that back. Still, Vanguard may make future decisions more in the interest of the fund holders. But now with SCHB's ER at %0.04 and VTI at %0.05, it does seem quite compelling.

More considerations are on this other forum topic, but I just wanted to give an update in case anyone else finds this page.
preciseman
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Joined: Sat Feb 21, 2015 10:04 am

Re: SCHB vs VTI

Post by preciseman »

kjm wrote:Hi All,

I'm sure that those of you who trade with Schwab noticed that they just released a whole slew of new ETFs. The real kicker is that they're waiving commission fees on all of their ETFs. Here's my question. Is the Schwab broad market ETF (SCHB) a viable substitute for VTI? SCHB has a slightly lower expense ratio, but it tracks a different index. SCHB tracks the 'Dow Jones Total Stock Market Index' which consists of the largest 2500 publicly trade US stocks. As I'm sure you all know, the VTI tracks a broader index.
I use SCHB primarily because its cheaper and because Schwab's customer service is incredible. I've been in a situation where I started asking a question in their 24/7 livechat (Come on Vanguard, get livechat at least? Its 2015 for gods sake!), had to step away from the computer, and requested for the livechat rep to call me on my cell phone. The SAME person from Schwab then calls me immediately and I get my question answered while getting to where I need to be.

I don't think you can go wrong with either. Really depends where you hold the majority of your assets. I still can't open up an account with Vanguard (they want me to snail mail some stuff in, which I can't be bothered to do) so SCHB it is for me!
Seattlenative
Posts: 426
Joined: Fri Sep 12, 2014 11:23 pm

Re: SCHB vs VTI

Post by Seattlenative »

preciseman wrote:
kjm wrote:Hi All, I'm sure that those of you who trade with Schwab noticed that they just released a whole slew of new ETFs. The real kicker is that they're waiving commission fees on all of their ETFs. Here's my question. Is the Schwab broad market ETF (SCHB) a viable substitute for VTI? SCHB has a slightly lower expense ratio, but it tracks a different index. SCHB tracks the 'Dow Jones Total Stock Market Index' which consists of the largest 2500 publicly trade US stocks. As I'm sure you all know, the VTI tracks a broader index.
I use SCHB primarily because its cheaper and because Schwab's customer service is incredible. I've been in a situation where I started asking a question in their 24/7 livechat (Come on Vanguard, get livechat at least? Its 2015 for gods sake!), had to step away from the computer, and requested for the livechat rep to call me on my cell phone. The SAME person from Schwab then calls me immediately and I get my question answered while getting to where I need to be.

I don't think you can go wrong with either. Really depends where you hold the majority of your assets. I still can't open up an account with Vanguard (they want me to snail mail some stuff in, which I can't be bothered to do) so SCHB it is for me!
I have positions in both VTI (at Wellstrade) and SCHB (at Schwab) and like both of these funds. The objectives of VTI and SCHB are very similar. These ETFs track different indices. VTI holds positions in 3,801 companies, SCHB holds positions in 1,996 companies. Portfolio turnover is 3% with VTI, 4% with SCHB. Due to VTI holding 90% more equity positions, primarily enhancing its coverage of small-cap and micro-cap companies, median market cap per position is a bit lower with VTI. Dividend distribution yields are very close, but VTI's indicated distribution yield currently is shown as 1.82%, SCHB at 1.72%. Over the 5 year period ending 03/31/2015, monthly market returns on an annualized basis are:
VTI: 14.71%
SCHB: 14.75%.

Compare the top 10 holdings for VTI (13.58% of the fund's AUM) with the top 10 holdings for SCHB (13.85% of AUM):

VTI
Apple Inc 3.16%
Exxon Mobil Corporation 1.56%
Microsoft Corp 1.31%
Wells Fargo & Co 1.22%
Johnson & Johnson 1.22%
Berkshire Hathaway Inc Class B 1.11%
General Electric Co 1.09%
JPMorgan Chase & Co 0.99%
Procter & Gamble Co 0.97%
Pfizer Inc 0.96%

SCHB
APPLE INC 3.18%
EXXON MOBIL CORP 1.60%
MICROSOFT CORP 1.49%
JOHNSON & JOHNSON 1.21%
GENERAL ELECTRIC CO 1.20%
BERKSHIRE HATHAWAY INC CL B 1.12%
WELLS FARGO & CO 1.11%
JPMORGAN CHASE & CO 1.03%
PROCTER & GAMBLE CO/THE 0.97%
PFIZER INC 0.94%
Coles
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Joined: Sat Sep 20, 2014 9:11 pm

Re: SCHB vs VTI

Post by Coles »

SCHB's QDI of 94.50% for 2014 really bothers me.
Seattlenative
Posts: 426
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Re: SCHB vs VTI

Post by Seattlenative »

Coles wrote:SCHB's QDI of 94.50% for 2014 really bothers me.
Good point. I hold only VTI and SCHB in tax-advantaged IRAs so I've not paid enough attention to this particular issue.
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powermega
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Re: SCHB vs VTI

Post by powermega »

Coles wrote:SCHB's QDI of 94.50% for 2014 really bothers me.
Can you please elaborate on this?
Even a stopped clock is right twice a day.
Coles
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Re: SCHB vs VTI

Post by Coles »

powermega wrote:
Coles wrote:SCHB's QDI of 94.50% for 2014 really bothers me.
Can you please elaborate on this?
VTI (and VOO for that matter) are typically 100% QDI, so the extra tax cost from SCHB bothers me.
As Seattlenative indicated, this is only a problem in taxable accounts.
stlutz
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Re: SCHB vs VTI

Post by stlutz »

SCHB's QDI of 94.50% for 2014 really bothers me.
Let's run the numbers:

Yield: 1.8%
Non-QDI portion: 5.5%
Additional tax on the non-QDI portion: 13% --assuming a 28% tax bracket.

Total extra cost: .013% per year.
Seattlenative
Posts: 426
Joined: Fri Sep 12, 2014 11:23 pm

Re: SCHB vs VTI

Post by Seattlenative »

A writer at Seeking Alpha wrote an interesting article on this topic:
http://seekingalpha.com/article/2548165 ... -portfolio

For me personally, I genuinely regard these as equivalent, but I suppose that if the trading commission (or lack thereof) were identical, many investors would go for VTI.

VTI constitutes 5.76% of my total retirement AA. All of my VTI shares are held in Wellstrade IRAs.
SCHB constitutes 4.30% of my total retirement AA. All of my SCHB shares are held in Schwab IRAs.

My total Domestic Equity AA is 34.80%. VTI and SCHB constitute 10.06% of my total retirement assets.
landon
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Joined: Fri Apr 17, 2015 5:17 pm

Re: SCHB vs VTI

Post by landon »

stlutz wrote:
SCHB's QDI of 94.50% for 2014 really bothers me.
Let's run the numbers:

Yield: 1.8%
Non-QDI portion: 5.5%
Additional tax on the non-QDI portion: 13% --assuming a 28% tax bracket.

Total extra cost: .013% per year.
Thanks, that's a really good point that I hadn't considered.

What is the calculation that you're performing here exactly? I can't figure out how you calculated the additional tax or how you went from additional tax to extra cost.
stlutz
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Joined: Fri Jan 02, 2009 1:08 am

Re: SCHB vs VTI

Post by stlutz »

What is the calculation that you're performing here exactly? I can't figure out how you calculated the additional tax or how you went from additional tax to extra cost.
The funds have a dividend yield of ~1.8%. One fund has a QDI of 100% while the other has one of 94.5%. So, in making our comparison the difference arises from the 5.5% of dividends that weren't qualified in the second fund. For those dividends, if you assume you are in the 28% bracket, your tax rate will be 13% higher than they would be if they were qualified (i.e. taxed at 15%).

So, 1.8% * .055 * .13 = .013% of your investment is lost by using the second fund.
landon
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Re: SCHB vs VTI

Post by landon »

stlutz wrote:i.e. taxed at 15%
Ha. 28 - 15. That's what I was missing. My brain must not have been working.
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