Charles schwab - why so much cheaper?

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Jacky817
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Charles schwab - why so much cheaper?

Post by Jacky817 » Thu Oct 19, 2017 11:18 pm

Hi everyone,

I took a quick look at schwab funds coz my fren is invested in it. It seems that they have zero commissions fee for etf trades, and their funds expense ratio is lower than vanguard. At least the ones that they showed on their website says it's lower.

What's the catch here? Or are they really the cheapest?

Cheers,
Jack

AlohaJoe
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Re: Charles schwab - why so much cheaper?

Post by AlohaJoe » Thu Oct 19, 2017 11:23 pm

Jacky817 wrote:
Thu Oct 19, 2017 11:18 pm
What's the catch here? Or are they really the cheapest?
There's no catch.

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topper1296
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Re: Charles schwab - why so much cheaper?

Post by topper1296 » Thu Oct 19, 2017 11:28 pm

No catch that I know of. I've been with them for years and they have some of the best customer service I've ever experienced.

lack_ey
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Re: Charles schwab - why so much cheaper?

Post by lack_ey » Thu Oct 19, 2017 11:43 pm

In a lot of core categories, iShares (Blackrock), Charles Schwab, SPDRs (State Street), and Vanguard have very low fund fees and are comparable. Vanguard is sucking up assets like crazy, so the other three are attempting to undercut them slightly, perhaps not profitably, even losing money to get people in the door and make money off them in other ways, or build a brand identity and so on.

Currently Schwab seems to be advertising what's a kind of disingenuous comparison between Russell 1000 funds. Schwab has SCHK with an ER of 0.05%. Vanguard's total market product is 0.04% and their large cap is 0.06%. But their much smaller Russell 1000 ETF that they don't really advertise and only really run because certain advisory/institutional clients demand that specific index, has an ER of 0.12%.

Unlike the others, Vanguard doesn't really play games with costs to draw people in—when more money goes into a fund, they can take a lower ER because costs do not scale exactly with assets.

For reference, ITOT, SPTM, and SCHB (iShares, SPDR, and Schwab) total market ETFs have ERs of 0.03%, 1 bp less than Vanguard. That's not as dramatic a difference to advertise, though.

And at these small levels, differences in how portfolios are run, including securities lending practices (and how much of that revenue goes into the fund) start mattering more than tiny differences in ER.

But sure, for now, Schwab has a number of funds slightly cheaper than Vanguard in categories that probably matter. Russell 1000 specifically isn't one of them, unless you really like that large/mid cap index. Some are skeptical that all of the players are for sure in this for the long run, keeping ERs low perpetually and keeping the funds open. In a taxable account, it might be worth thinking a couple or few decades down the line.

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Re: Charles schwab - why so much cheaper?

Post by Nate79 » Fri Oct 20, 2017 12:05 am

No catch. We are with Vanguard but I'm considering Schwab, maybe to start with a checking account and brokerage. Their free robo is enticing as well. The service is supposed to be excellent as well.

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Re: Charles schwab - why so much cheaper?

Post by Spirit Rider » Fri Oct 20, 2017 12:14 am

lack_ey wrote:
Thu Oct 19, 2017 11:43 pm
Some are skeptical that all of the players are for sure in this for the long run, keeping ERs low perpetually and keeping the funds open. In a taxable account, it might be worth thinking a couple or few decades down the line.
I was with you until this last statement.

People have been saying the same thing for the last twenty years about buying Fidelity, Blackrock, etc... in taxable accounts. If it hasn't been true over the last twenty years, I highly doubt it will be true in the next thirty years. Other Index fund and ETF companies will continue to to gain cost inefficiencies. Increased competition is good for everyone

People think that Vanguard must have the lowest costs, because it is a not for profit company. However, history has demonstrated just the opposite. The free market has the tendency to drive costs out of products.

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ofcmetz
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Re: Charles schwab - why so much cheaper?

Post by ofcmetz » Fri Oct 20, 2017 12:21 am

I use both. I think they are both decent choices to invest through. I don’t believe there is a catch. Costs are lower than in the past thanks to Vanguard. Everyone else is just staying competitive so as not to get left behind.
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Re: Charles schwab - why so much cheaper?

Post by lack_ey » Fri Oct 20, 2017 12:24 am

Spirit Rider wrote:
Fri Oct 20, 2017 12:14 am
lack_ey wrote:
Thu Oct 19, 2017 11:43 pm
Some are skeptical that all of the players are for sure in this for the long run, keeping ERs low perpetually and keeping the funds open. In a taxable account, it might be worth thinking a couple or few decades down the line.
I was with you until this last statement.

People have been saying the same thing for the last twenty years about buying Fidelity, Blackrock, etc... in taxable accounts. If it hasn't been true over the last twenty years, I highly doubt it will be true in the next thirty years. Other Index fund and ETF companies will continue to to gain cost inefficiencies. Increased competition is good for everyone

People think that Vanguard must have the lowest costs, because it is a not for profit company. However, history has demonstrated just the opposite. The free market has the tendency to drive costs out of products.
I don't think the probability is high (and something that hasn't happened yet can readily happen, you know), just that it's a risk for the long term. You never know if a company is going to be bought out some time in the next thirty years, and maybe if they don't see asset growth they just raise fees a bit and milk everybody who's locked in with capital gains, or simply close/liquidate funds, or perhaps they have to raise fees at some point if the asset base shrinks for whatever reasons. It would be bad press to be sure, but seems at least a 1% chance to me. Probably considerably more.

I'm not a huge Vanguard fan either, in terms of particular special brand loyalty or envisioning great advantages from the structure. But there's something here. You may not get the lowest costs there in the long term. But I think with very high probability (higher than for the others) you're not going to have a bad surprise waiting for you.

For what it's worth, it's only been a couple years since iShares and Schwab really started pushing to set ERs lower than Vanguard's. State Street just did it with certain SPDRs this week. You mentioned twenty years but for most of that previous time, they were making more money on these products. It's a certain kind of special dedication, which may be less durable and hasn't lasted nearly as long as twenty years, to price products at a loss (or at basically no gain, which I think some of the multibillion funds undercutting Vanguard should be able to achieve).

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TD2626
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Re: Charles schwab - why so much cheaper?

Post by TD2626 » Fri Oct 20, 2017 1:38 am

Spirit Rider wrote:
Fri Oct 20, 2017 12:14 am
lack_ey wrote:
Thu Oct 19, 2017 11:43 pm
Some are skeptical that all of the players are for sure in this for the long run, keeping ERs low perpetually and keeping the funds open. In a taxable account, it might be worth thinking a couple or few decades down the line.
I was with you until this last statement.

People have been saying the same thing for the last twenty years about buying Fidelity, Blackrock, etc... in taxable accounts. If it hasn't been true over the last twenty years, I highly doubt it will be true in the next thirty years. Other Index fund and ETF companies will continue to to gain cost inefficiencies. Increased competition is good for everyone

People think that Vanguard must have the lowest costs, because it is a not for profit company. However, history has demonstrated just the opposite. The free market has the tendency to drive costs out of products.
By the way, Fidelity's index funds are among their largest funds by AUM and have been around for quite a while. Their S&P 500 fund has more in assets under management than Contrafund. Companies tend not to merge or liquidate their largest stock funds.

Also, a difference of 0.5 basis points is likely to not matter that much to an investor in most cases.

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Re: Charles schwab - why so much cheaper?

Post by lazyday » Fri Oct 20, 2017 3:25 am

Spirit Rider wrote:
Fri Oct 20, 2017 12:14 am
lack_ey wrote:
Thu Oct 19, 2017 11:43 pm
Some are skeptical that all of the players are for sure in this for the long run, keeping ERs low perpetually and keeping the funds open. In a taxable account, it might be worth thinking a couple or few decades down the line.
People have been saying the same thing for the last twenty years about buying Fidelity, Blackrock, etc... in taxable accounts. If it hasn't been true over the last twenty years, I highly doubt it will be true in the next thirty years.
I'm not aware of an ETF that suckered people in and then raised the ER. Some large iShares funds have failed to lower the ER, while a similar (or same?) new "Core" iShares fund has a much lower ER. So Blackrock can take in high fees on the old fund, but still compete for new assets with the new fund. Example: EFA vs IEFA

If the ER is already ~0 then this might not be a worry. Maybe some future financial innovation could be implemented in two different ways, and in the new fund the benefits go largely to shareholders so the fund is competitive, in the old fund benefits go largely to the manager? Yeah, maybe I'm reaching there.

I believe that several funds have disappeared over the years because they didn't draw enough assets. Including some liquidations I believe, which would be taxable events. Schwab may have an advantage over iShares and SSGA, since Schwab has few ETFs and less overlap. Hopefully if SCHX goes away someday, it will be merged with SCHK.

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Re: Charles schwab - why so much cheaper?

Post by lazyday » Fri Oct 20, 2017 3:35 am

lack_ey wrote:
Fri Oct 20, 2017 12:24 am
I'm not a huge Vanguard fan either, in terms of particular special brand loyalty or envisioning great advantages from the structure. But there's something here. You may not get the lowest costs there in the long term. But I think with very high probability (higher than for the others) you're not going to have a bad surprise waiting for you.
Vanguard has much less of a profit motive. As Swensen says, it better aligns their interests with mine. I trust them more; as you say, less likely to be surprised.

Vanguard was much earlier in drastically lowering costs. As I recall, others were slow to give most security lending revenue to the fund, while I imagine Vanguard gave all revenue to the fund from the start. Vanguard sure wouldn't do an EFA & IEFA game to maximize profits. They also seem more conservative than others, less likely to take a tiny risk of large losses to gain a couple basis points and make up for costs or for not sharing as much lending revenue. With genuinely low costs, they have less need for risk.

So I have a real preference for a Vanguard fund over another fund with similar investments. Though the difference is probably small enough that it could make sense for someone with a small account who wants better customer service to use Schwab or Fidelity brokerage, and use the NTF ETFs. With large transactions, I'd use the Vanguard fund and just pay the commission.

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Re: Charles schwab - why so much cheaper?

Post by oldcomputerguy » Fri Oct 20, 2017 5:51 am

lazyday wrote:
Fri Oct 20, 2017 3:25 am
I'm not aware of an ETF that suckered people in and then raised the ER. Some large iShares funds have failed to lower the ER, while a similar (or same?) new "Core" iShares fund has a much lower ER. So Blackrock can take in high fees on the old fund, but still compete for new assets with the new fund. Example: EFA vs IEFA
In that light, here is something interesting I just ran across.

https://mutualfundobserver.com/discuss/ ... on-40-etfs

Apparently it had been reported that Blackrock had raised ERs on about 40 ETFs. Their management team responded to one inquiry:
The key point is that iShares has not changed the management fee schedule for any of these funds. The referenced expense ratio changes are the result of management fee breakpoint schedules that have been in place for years. As I’m sure you know, breakpoints are designed to return economies of scale to investors that may result as asset levels rise, so that every dollar over the breakpoint threshold is charged at the new, lower rate. However, when assets decline, the expense ratios can go back up in accordance with the breakpoint schedule described in the fund’s prospectus. As soon as a breakpoint threshold is reached (or when assets decline below a breakpoint threshold), the fee is adjusted right away, so the actual management fee being applied for a fund may not match the fund’s web site or prospectus fee tables on a given day.
Interesting that their structure would return economies of scale to the investors but then back that out if the AUM dropped due to a market decline.
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Jacky817
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Re: Charles schwab - why so much cheaper?

Post by Jacky817 » Fri Oct 20, 2017 8:18 am

Thanks for all the insightful replies! My take away would be, if you wan free commission fee and wana win that 0.01% ER, then it's worth it. And the customer service.

Since I'm only buying ETF, I don't think there's such a thing as customer service. I'll stick to vanguard as they do seem more trustworthy. Its probably a 0% screwing you over vs 0.001% haha

Cheers,
Jack

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unclescrooge
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Re: Charles schwab - why so much cheaper?

Post by unclescrooge » Fri Oct 20, 2017 10:45 am

At what point will I get paid 1bp to invest in an ETF? Asking for a friend. :mrgreen:

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Re: Charles schwab - why so much cheaper?

Post by mervinj7 » Fri Oct 20, 2017 11:13 am

Jacky817 wrote:
Fri Oct 20, 2017 8:18 am
Thanks for all the insightful replies! My take away would be, if you wan free commission fee and wana win that 0.01% ER, then it's worth it. And the customer service.

Since I'm only buying ETF, I don't think there's such a thing as customer service. I'll stick to vanguard as they do seem more trustworthy. Its probably a 0% screwing you over vs 0.001% haha

Cheers,
Jack
If you are curious about customer service issues, just search the forum for Vanguard Customer Service. We have half our holdings in low cost Vanguard funds but hold them in our Fidelity accounts. Win-win. :)

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Re: Charles schwab - why so much cheaper?

Post by mhalley » Fri Oct 20, 2017 11:55 am

I think a more worrying prospect is that you go to schwab or fidelity due to their lower er fees, and eventually (mental decline, you die and spouse with less investing knowledge has to take over, etc) you get talked into moving from their low fee index funds into an aum or managed account with much higher fees. At least with vanguard you know the most you would pay is the additional .3 bp. Of course vanguard could always increase that figure, but they have less of a history of doing so.

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Re: Charles schwab - why so much cheaper?

Post by Earl Lemongrab » Fri Oct 20, 2017 12:02 pm

If non-profits always led to lower costs, then we'd see it more often in other areas. While such companies don't need to make a profit, they also don't have some of the motivations that profit-oriented operations brings, like efficiency.

What made Vanguard the success that they are is not the low costs but rather the innovation of the publicly-offered index funds. Due to their structure, they could have part of the company dedicated to a niche area for many years. They didn't need to answer to stockholders. When the customer base became very interested in index funds, they had a wide variety of low-cost funds going. The others are having to play catch-up. But they are catching up.
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Re: Charles schwab - why so much cheaper?

Post by Jack FFR1846 » Fri Oct 20, 2017 12:06 pm

Less likely at captive Schwab ETFs but TDAmeritrade is cutting Vanguard ETFs from their no transaction fee listing. I have a TDA account with only VTI in it and since it's in taxable, have decided that I'm going to just leave it there, withdraw all dividends and not add a dime. I'll divert taxable investing to my Schwab account, where I hold only SCHB. I like both platforms, probably TDA best. (I do also have Fidelity and Vanguard accounts for tax advantaged accounts).
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Re: Charles schwab - why so much cheaper?

Post by lazyday » Fri Oct 20, 2017 12:13 pm

oldcomputerguy wrote:
Fri Oct 20, 2017 5:51 am
Interesting that their structure would return economies of scale to the investors but then back that out if the AUM dropped due to a market decline.
I guess when the market falls, fixed costs don't fall with it. Vanguard ER % also rose a little when the market fell.

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Re: Charles schwab - why so much cheaper?

Post by hushpuppy » Fri Oct 20, 2017 9:14 pm

delete
Last edited by hushpuppy on Fri Nov 17, 2017 9:59 am, edited 1 time in total.
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munemaker
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Re: Charles schwab - why so much cheaper?

Post by munemaker » Fri Oct 20, 2017 9:25 pm

They are not "so much cheaper." They are a tiny, tiny amount cheaper.

Why? Vanguard is sucking all the oxygen out of the room. They are trying to catch a breath.

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Re: Charles schwab - why so much cheaper?

Post by in_reality » Sat Oct 21, 2017 12:24 am

mhalley wrote:
Fri Oct 20, 2017 11:55 am
I think a more worrying prospect is that you go to schwab or fidelity due to their lower er fees, and eventually (mental decline, you die and spouse with less investing knowledge has to take over, etc) you get talked into moving from their low fee index funds into an aum or managed account with much higher fees. At least with vanguard you know the most you would pay is the additional .3 bp. Of course vanguard could always increase that figure, but they have less of a history of doing so.
Sure it’s a possibility but ...

I’ve had only one call telling me my rep. changed and asking how satisfied I was with the service. I was impressed with their politeness and concern knowing the call office for international accounts is in Florida. About half the staff were still without power including the contact person but I wouldnt have known unless I asked.

Anyway, the answer is education. If your spouse is safely at Vanguard and the market crashes 25-50% or rates jump and bonds drop or whatever, and your spouse gets approached by someone at church or bridge club or a friend's friends or whoever, they need to know what to do.

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Re: Charles schwab - why so much cheaper?

Post by whodidntante » Sat Oct 21, 2017 1:13 am

unclescrooge wrote:
Fri Oct 20, 2017 10:45 am
At what point will I get paid 1bp to invest in an ETF? Asking for a friend. :mrgreen:
With securities lending revenue returned to the fund, there might be a few examples of that already.

My 401k has a fund with a negative ER, kinda. The ER is 0.22% but I receive a 0.25% rebate. It's contractual and can "change without notice" so I don't count on it.

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Re: Charles schwab - why so much cheaper?

Post by Longtermgrowth » Sat Oct 21, 2017 4:27 am

whodidntante wrote:
Sat Oct 21, 2017 1:13 am
unclescrooge wrote:
Fri Oct 20, 2017 10:45 am
At what point will I get paid 1bp to invest in an ETF? Asking for a friend. :mrgreen:
With securities lending revenue returned to the fund, there might be a few examples of that already.

My 401k has a fund with a negative ER, kinda. The ER is 0.22% but I receive a 0.25% rebate. It's contractual and can "change without notice" so I don't count on it.
VSS (Vanguard FTSE All-World ex-US Small-Cap ETF) had a negative expense ratio in 2016 after securities lending revenue. Can't remember the exact number, but it was definitely over 1bp.

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unclescrooge
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Re: Charles schwab - why so much cheaper?

Post by unclescrooge » Sun Oct 22, 2017 2:54 am

Longtermgrowth wrote:
Sat Oct 21, 2017 4:27 am
whodidntante wrote:
Sat Oct 21, 2017 1:13 am
unclescrooge wrote:
Fri Oct 20, 2017 10:45 am
At what point will I get paid 1bp to invest in an ETF? Asking for a friend. :mrgreen:
With securities lending revenue returned to the fund, there might be a few examples of that already.

My 401k has a fund with a negative ER, kinda. The ER is 0.22% but I receive a 0.25% rebate. It's contractual and can "change without notice" so I don't count on it.
VSS (Vanguard FTSE All-World ex-US Small-Cap ETF) had a negative expense ratio in 2016 after securities lending revenue. Can't remember the exact number, but it was definitely over 1bp.
:beer

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Re: Charles schwab - why so much cheaper?

Post by selters » Sun Oct 22, 2017 3:37 am

oldcomputerguy wrote:
Fri Oct 20, 2017 5:51 am
Interesting that their structure would return economies of scale to the investors but then back that out if the AUM dropped due to a market decline.
Isn't that exactly what Vanguard does too? They run their funds at cost. AFAIK Vanguard ERs were higher in 2008 and 2009 than 2007, because of the market drop.

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Re: Charles schwab - why so much cheaper?

Post by WoodSpinner » Sun Oct 22, 2017 8:21 am

mervinj7 wrote:
Fri Oct 20, 2017 11:13 am
Jacky817 wrote:
Fri Oct 20, 2017 8:18 am
Thanks for all the insightful replies! My take away would be, if you wan free commission fee and wana win that 0.01% ER, then it's worth it. And the customer service.

Since I'm only buying ETF, I don't think there's such a thing as customer service. I'll stick to vanguard as they do seem more trustworthy. Its probably a 0% screwing you over vs 0.001% haha

Cheers,
Jack
If you are curious about customer service issues, just search the forum for Vanguard Customer Service. We have half our holdings in low cost Vanguard funds but hold them in our Fidelity accounts. Win-win. :)
Jack,

What are your costs for trading and reinvesting dividends of Vanguard funds at Fidelity? I can’t seem to get a clear answer on their website.

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Re: Charles schwab - why so much cheaper?

Post by Doc » Sun Oct 22, 2017 9:03 am

WoodSpinner wrote:
Sun Oct 22, 2017 8:21 am
What are your costs for trading and reinvesting dividends of Vanguard funds at Fidelity? I can’t seem to get a clear answer on their website.
VGTSX $75
VGTSX $75

"Online Transaction Fees: $49.95 for most funds. Certain funds will have a transaction fee of $75. To identify any applicable transaction fees associated with the purchase of a given fund, please refer to the "Fees and Distributions" tab."

We don't own any Vg funds at Fido but there is no reinvestment of dividends for other non Fidelity funds that we do own there. That's the same as VG and Schwab. I think that's pretty much of an industry standard.
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Re: Charles schwab - why so much cheaper?

Post by Chip » Sun Oct 22, 2017 11:05 am

WoodSpinner wrote:
Sun Oct 22, 2017 8:21 am
What are your costs for trading and reinvesting dividends of Vanguard funds at Fidelity? I can’t seem to get a clear answer on their website.
Doc's answer is correct for buying open-ended Vanguard funds. I believe there is no fee to sell them. Dividend reinvestment is free.

Plus I think you can't buy Admiral shares outside of Vanguard (possibly with a few exceptions).

Those commissions are too high. So the answer is that if you want to be at Fidelity, buy Vanguard ETFs, which trade for $4.95 (both buy and sell). Plus ETF expense ratios are the same/similar to Admiral shares.

If the fund you want doesn't have an ETF share class, find a substitute or open a Vanguard account.

We have 40%+ of our Fidelity accounts in Vanguard ETFs.

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Re: Charles schwab - why so much cheaper?

Post by Spirit Rider » Sun Oct 22, 2017 11:33 am

Doc wrote:
Sun Oct 22, 2017 9:03 am
WoodSpinner wrote:
Sun Oct 22, 2017 8:21 am
What are your costs for trading and reinvesting dividends of Vanguard funds at Fidelity? I can’t seem to get a clear answer on their website.
VGTSX $75
VGTSX $75

"Online Transaction Fees: $49.95 for most funds. Certain funds will have a transaction fee of $75. To identify any applicable transaction fees associated with the purchase of a given fund, please refer to the "Fees and Distributions" tab."

We don't own any Vg funds at Fido but there is no reinvestment of dividends for other non Fidelity funds that we do own there. That's the same as VG and Schwab. I think that's pretty much of an industry standard.
You only have to pay $75 on the initial investment. You can adjust the automatic investment at will.

"Automatic Investment: $5 per transaction, after the initial investment."

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Re: Charles schwab - why so much cheaper?

Post by F150HD » Sun Oct 22, 2017 11:44 am

Nate79 wrote:
Fri Oct 20, 2017 12:05 am
No catch. We are with Vanguard but I'm considering Schwab, maybe to start with a checking account and brokerage. Their free robo is enticing as well. The service is supposed to be excellent as well.
not a fan of the Schwab site. Navigating it....takes 10 clicks to find what one wants, if not more. At that, detailed info I am looking for isn't present forcing me to research on a different site. Also, big pictures of people drinking coffee while logging in from home all happy with a puppy in the background....seriously why would I need to see that when researching a stock or fund on a financial site?
My take is, its designed for an investor who hires someone (FA) to do the work for them.

Also noticed trades are not $4.95 as is advertised all over TV. Any trade I've done there, there's a small fee/tax (?) on the trade. A little under $1 but its still there. Have not encountered that at any other brokerage.
Tried to screenshot it but would have to disable a firewall to do so, so, have not yet. (talking non-Schwab ETFs etc)

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Re: Charles schwab - why so much cheaper?

Post by Spirit Rider » Sun Oct 22, 2017 11:59 am

F150HD wrote:
Sun Oct 22, 2017 11:44 am
Also noticed trades are not $4.95 as is advertised all over TV. Any trade I've done there, there's a small fee/tax (?) on the trade. A little under $1 but its still there. Have not encountered that at any other brokerage.
Tried to screenshot it but would have to disable a firewall to do so, so, have not yet. (talking non-Schwab ETFs etc)
There are very small SEC mandated transaction fees on all security sales. Every brokerage must pay these. They pretty much all pass this fee on to customer.

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Re: Charles schwab - why so much cheaper?

Post by TIAX » Sun Oct 22, 2017 12:08 pm

Jack FFR1846 wrote:
Fri Oct 20, 2017 12:06 pm
Less likely at captive Schwab ETFs but TDAmeritrade is cutting Vanguard ETFs from their no transaction fee listing. I have a TDA account with only VTI in it and since it's in taxable, have decided that I'm going to just leave it there, withdraw all dividends and not add a dime. I'll divert taxable investing to my Schwab account, where I hold only SCHB. I like both platforms, probably TDA best. (I do also have Fidelity and Vanguard accounts for tax advantaged accounts).
Why not just use DRIP for free?

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Re: Charles schwab - why so much cheaper?

Post by Ricola » Sun Oct 22, 2017 12:48 pm

I left Schwab many years ago when they, at that point in time, their new VP decided to change from low-cost do-it-yourself to more of a higher price full service. When I tried to sell some mutual funds positions at less than 180 day in, they charged me a very large sell fee. I left and never went back. Service was always very good, extensive, and convenient. They seem to be going back to low cost, which is good, but for how long, who knows. Vanguard philosophy seems to be more consistent, which to me adds to their value.

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Re: Charles schwab - why so much cheaper?

Post by bondsr4me » Sun Oct 22, 2017 1:00 pm

F150HD wrote:
Sun Oct 22, 2017 11:44 am
Nate79 wrote:
Fri Oct 20, 2017 12:05 am
No catch. We are with Vanguard but I'm considering Schwab, maybe to start with a checking account and brokerage. Their free robo is enticing as well. The service is supposed to be excellent as well.
not a fan of the Schwab site. Navigating it....takes 10 clicks to find what one wants, if not more. At that, detailed info I am looking for isn't present forcing me to research on a different site. Also, big pictures of people drinking coffee while logging in from home all happy with a puppy in the background....seriously why would I need to see that when researching a stock or fund on a financial site?
My take is, its designed for an investor who hires someone (FA) to do the work for them.

Also noticed trades are not $4.95 as is advertised all over TV. Any trade I've done there, there's a small fee/tax (?) on the trade. A little under $1 but its still there. Have not encountered that at any other brokerage.
Tried to screenshot it but would have to disable a firewall to do so, so, have not yet. (talking non-Schwab ETFs etc)
you pay this sale fee at all firms including VG.

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Re: Charles schwab - why so much cheaper?

Post by WoodSpinner » Mon Oct 23, 2017 1:27 pm

Chip wrote:
Sun Oct 22, 2017 11:05 am

Doc's answer is correct for buying open-ended Vanguard funds. I believe there is no fee to sell them. Dividend reinvestment is free.

Plus I think you can't buy Admiral shares outside of Vanguard (possibly with a few exceptions).

Those commissions are too high. So the answer is that if you want to be at Fidelity, buy Vanguard ETFs, which trade for $4.95 (both buy and sell). Plus ETF expense ratios are the same/similar to Admiral shares.

If the fund you want doesn't have an ETF share class, find a substitute or open a Vanguard account.

We have 40%+ of our Fidelity accounts in Vanguard ETFs.
Chip,

Thanks for the insight.

Joel

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Re: Charles schwab - why so much cheaper?

Post by mervinj7 » Tue Oct 24, 2017 4:10 pm

WoodSpinner wrote:
Sun Oct 22, 2017 8:21 am
Jack,

What are your costs for trading and reinvesting dividends of Vanguard funds at Fidelity? I can’t seem to get a clear answer on their website.
The Vanguard funds are in our 401ks held at Fidelity. They are no additional fees for trading or reinvesting dividends.

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Re: Charles schwab - why so much cheaper?

Post by A440 » Fri Oct 27, 2017 5:25 pm

I just opened a custodial account for my teen. He wanted a total stock market fund (because he wanted to own 3,000 stocks :happy ). He purchased SWTSX (it has a $1 minimum, $1 subsequent and ER of .03%) He previously owned 2 shares of AAPL and wanted to take the profit and put it into a Total Stock Market Fund. I would have liked Vanguard, but the $3,000 initial investment is way out of his ability.

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Re: Charles schwab - why so much cheaper?

Post by TimeRunner » Fri Oct 27, 2017 8:43 pm

I manage my Mom's money at Schwab. I have my own RIRA and TIRA at Fido and investment account at Vanguard. I like Schwab's website best, followed by Fido, and then VG. Both Schwab and Fido have offices local to me, with Schwab a few minutes closer. Chat and phone support seem equivalent, and far above Vanguard. After my Fido timer is up on my bonus, I will move those accounts to Vanguard since they just mostly hold VT (Vanguard Total World ETF), and move the VG investment account to Schwab to take advantage of the superior trading platform. No rush in deciding.
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Re: Charles schwab - why so much cheaper?

Post by pkcrafter » Sat Oct 28, 2017 6:40 pm

I guessing that Fidelity and Schwab are currently operating index funds at a loss, but they wanted to stop the outflow of customers headed to Vanguard as well as gain new customers that previously had only one low cost choice.

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Re: Charles schwab - why so much cheaper?

Post by Doc » Sun Oct 29, 2017 8:40 am

pkcrafter wrote:
Sat Oct 28, 2017 6:40 pm
I guessing that Fidelity and Schwab are currently operating index funds at a loss, but they wanted to stop the outflow of customers headed to Vanguard as well as gain new customers that previously had only one low cost choice.
Schwab S&P 500 Index fund

Gross expense ratio: 0.03%
Net e/r (after waviers/deductions) 0.03%

Fido also both the same for investor class.

:shock:

Efficiency of a not for profit corporation?
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Re: Charles schwab - why so much cheaper?

Post by frankmorris » Sun Oct 29, 2017 9:06 am

I've joined in the Schwab party, but continue to have a few concerns about all of my eggs in one basket - not because of Schwab, just because any basket may potentially have some liabilities. For example, what happens to all of the various ETFs in a market crash that lose 30% of their funds overnight and have to sell like crazy to make investors selling whole? What happens if the fund is bought by another company and I'm forced to sell in my taxable account in 20 years? What happens if an Equifax situation happens and my account is drained one day by hackers?

I would imagine the chances for any systemic risk to my fund is low, of course, and for that risk to be heightened with smaller companies or smaller funds at larger companies. Still, as my investments grow I do plan on diversifying funds - for example, owning 2-3 different TSM funds. Most likely I'll just do this within a Schwab account, but I've thought about having 2-3 different investment accounts just to diversify that risk across platforms. I realize this adds complexity, but also some safety, or at least some piece of mind. Most will argue that this is overkill, and they're probably right, but then again "probably" isn't "certainly."

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Re: Charles schwab - why so much cheaper?

Post by in_reality » Sun Oct 29, 2017 9:08 am

pkcrafter wrote:
Sat Oct 28, 2017 6:40 pm
I guessing that Fidelity and Schwab are currently operating index funds at a loss, but they wanted to stop the outflow of customers headed to Vanguard as well as gain new customers that previously had only one low cost choice.

Paul
Just curious, how does Vanguard's "at-cost" work? The funds have their own expenses but they also have to cover Vanguard's costs right?

So do the big funds pay to cover Vanguard's expenses based on their size? How does it work?

It's known US Vanguard investors subsidize European Vanguard (because of law's related to research costs and Vanguard being unable to pass them to investors due to some regulatory requirements). Are the big Vanguard funds similarly paying a big share of Vanguard expenses and in effect subsidizing smaller Vanguard funds or the actively managed ones?

Schwab has a limited range of funds - adequate for most needs but definitely more limited. Schwab's non-indexed funds have a higher cost and are probably paying for themselves.

Not saying this is the case - just asking. I recall there being some wording in Vanguard's initial approval from the SEC related to how costs would be shared but can't recall or find it now.

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Re: Charles schwab - why so much cheaper?

Post by Helo80 » Sun Oct 29, 2017 9:10 am

I always find people's views on ERs to be interesting....

With Schwab at 3 bps and Vanguard at 4 bps.... on a $1,000,000 dollar investment in an S&P500 index, at Schwab you pay $300 per year and at Vanguard, $400 per year. Now, I am not saying $100 is an insignificant amount of money.... rather, if you honestly to goodnessly have $1million in an S&P500 index fund, you are doing enough things "right" that $100 is minuscule... at best.

I'd be fine with paying 10 basis points on an S&P500 index fund if I woke up with $10 million dollars in my IRA tomorrow. :D

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Re: Charles schwab - why so much cheaper?

Post by pkcrafter » Sun Oct 29, 2017 10:03 am

doc and in_reality, I'm simply saying Fidelity and Schwab are for-profit companies and I believe they are cutting back on profit and possibly cost as well to match or undercut Vanguard. I think they wanted to do something to stop losing customers and attract some of the potential new investors shopping for low cost index funds.

Fidelity is taking a direct shot at Vanguard at whatever cost it takes to do it.

https://fidelity.com/mutual-funds/i ... ndex-funds


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Re: Charles schwab - why so much cheaper?

Post by Doc » Sun Oct 29, 2017 10:47 am

pkcrafter wrote:
Sun Oct 29, 2017 10:03 am
doc and in_reality, I'm simply saying Fidelity and Schwab are for-profit companies and I believe they are cutting back on profit and possibly cost as well to match or undercut Vanguard. I think they wanted to do something to stop losing customers and attract some of the potential new investors shopping for low cost index funds.
In the past when a fund's "company" wanted to subsidize one of their funds e/r there would be a notification in the fund's documentation such as "SchwabyFid has agreed to subsidized their XYZ fund so that the e/r is less than x% until 2022". It is my understanding that a mutual fund is in a legal sense a separate entity and cannot legally use some some of their income to subsidize another mutual fund. A Schwab or a Fidelity can use some of their parent profit and do whatever they want with it as long as their the shareholders of the parent don't disagree. On the other hand the B of D of a mutual fund cannot take part of the e/r income from the fund's shareholders and divert it to another fund just because it has the same first name. As a "not for profit" Vanguard Marketing has no profit that they can use to subsidize one of the funds they manage. The fact that their is no notification of any subsidy at Schwab or Fidelity indicates to me that they are not using their S&P 500 funds as loss leaders.

Furthermore there are certain fixed costs that a fund sponsor has that are not directly attributed to a particular fund. Assuming that Schwab, Fidelity and Vanguard all have the same fixed costs as a percentage of AUM it's reasonable to assume that the share of these assets vary in the three firms simply because their businesses differ. Vanguard probably has a larger proportion of mutual funds than Schwab or Fidelity. It's also possible that being in the brokerage business for a long time means that Schwab and Fidelity are more efficient than Vanguard and have less fixed cost to allocate on a dollar of AUM basis.

How much of this is correct or just my speculation I'm not in a position to argue. But there are many reason other than a "loss leader" for firms to have lower e/r's than Vanguard.
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Re: Charles schwab - why so much cheaper?

Post by Nthomas » Sun Oct 29, 2017 12:18 pm

pkcrafter wrote:
Sun Oct 29, 2017 10:03 am
doc and in_reality, I'm simply saying Fidelity and Schwab are for-profit companies and I believe they are cutting back on profit and possibly cost as well to match or undercut Vanguard. I think they wanted to do something to stop losing customers and attract some of the potential new investors shopping for low cost index funds.

Fidelity is taking a direct shot at Vanguard at whatever cost it takes to do it.

https://fidelity.com/mutual-funds/i ... ndex-funds


Paul
Can't say for sure but I remember reading articles this year about record profits and new accounts being opened at Schwab. I think they are doing ok for themselves.

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Re: Charles schwab - why so much cheaper?

Post by Earl Lemongrab » Sun Oct 29, 2017 1:10 pm

Once again we have the notion that a not-for-profit must have the best price. Well, if that were the case, then they would dominate all industries. Yet, we don't see that. Profit-oriented companies have competitive pressure to find ways to reduce costs and do other things that attract customers. Vanguard's main advantage and what fueled its growth was really innovation. That innovation grew the business when the public's interest turned that direction. So now the others are looking at what it takes to compete on price and selection.
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Re: Charles schwab - why so much cheaper?

Post by Spirit Rider » Sun Oct 29, 2017 1:48 pm

Doc wrote:
Sun Oct 29, 2017 10:47 am
How much of this is correct or just my speculation I'm not in a position to argue. But there are many reason other than a "loss leader" for firms to have lower e/r's than Vanguard.
As pointed out by Earl, Vanguard is a mutual organization. There is ample evidence that mutual organizations are not necessarily the most cost effective manner in which to deliver financial services.

At one time mutual insurance companies dominated the insurance marketplace. Today the inverse is true. Mutual Insurance companies may or may not be the less expensive option, but the mutual nature does not determine that. The premiums do.

The profit motive is a strong incentive to control costs. This breeds innovation. There is not the same degree of urgency in mutual organizations.

I'm not saying that for profit companies will always be able to have lower expense ratios. What I am saying is that it has long since been past that Vanguard had significantly lower expense ratios.

Some SatuMedia have an almost mythical devotion to the business entity structure of Vanguard. Not that there shouldn't be legitimate gratitude to the "house that jack built" (not the nursery rhyme or serial killer movie).

Investing should not be emotional. It should be based on the facts and circumstances in evidence today, not the past.

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Re: Charles schwab - why so much cheaper?

Post by triceratop » Sun Oct 29, 2017 2:38 pm

Spirit Rider wrote:
Sun Oct 29, 2017 1:48 pm
Doc wrote:
Sun Oct 29, 2017 10:47 am
How much of this is correct or just my speculation I'm not in a position to argue. But there are many reason other than a "loss leader" for firms to have lower e/r's than Vanguard.
As pointed out by Earl, Vanguard is a mutual organization. There is ample evidence that mutual organizations are not necessarily the most cost effective manner in which to deliver financial services.

At one time mutual insurance companies dominated the insurance marketplace. Today the inverse is true. Mutual Insurance companies may or may not be the less expensive option, but the mutual nature does not determine that. The premiums do.

The profit motive is a strong incentive to control costs. This breeds innovation. There is not the same degree of urgency in mutual organizations.

I'm not saying that for profit companies will always be able to have lower expense ratios. What I am saying is that it has long since been past that Vanguard had significantly lower expense ratios.

Some SatuMedia have an almost mythical devotion to the business entity structure of Vanguard. Not that there shouldn't be legitimate gratitude to the "house that jack built" (not the nursery rhyme or serial killer movie).

Investing should not be emotional. It should be based on the facts and circumstances in evidence today, not the past.
This can all be true, and yet skepticism of non-Vanguard funds for taxable portfolios which must be held for 50-60+ years seems very reasonable.
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