Charles schwab - why so much cheaper?

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Geologist
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Re: Charles schwab - why so much cheaper?

Post by Geologist » Sun Oct 29, 2017 2:51 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.

It is dubious to say that the profit motive is a “strong incentive to control costs” because if that were so, then the mutual fund industry would have had low costs before Vanguard came into being. There is also the question about who gets the benefits of the cost control, the customers or the company.

In any case, Schwab has decided to compete on expenses for index funds with Vanguard. That is to potential client’s benefit. Schwab, however, has not cut costs across its entire mutual fund lineup. Below are three examples from comparable funds from Vanguard and Schwab. I think it is likely that Schwab is subsidizing lower costs on index funds with higher expenses elsewhere in order to maintain their overall profit profile (and not necessarily just in mutual funds). I have no objection to that, but we shouldn’t pretend that they have cut costs overall (because of their profit motive or anything else) or that Vanguard didn’t have something to do with this. If people want to invest in index funds, then they can invest with Schwab, but for choices outside Schwab’s low-cost index lineup (e.g., municipal bonds), they should avoid Schwab’s clearly more expensive funds. I don't have a mythical devotion to Vanguard's business structure but I can observe their low costs across all their funds, not just some.


GNMA -- Vanguard: 0.21 Schwab: 0.56
Intermed Tax-Exempt-- Vanguard: 0.19 Schwab: 0.49
Health Care -- Vanguard: 0.37 Schwab: 0.80

The Vanguard expense ratios are for the Investor class.

pkcrafter
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Re: Charles schwab - why so much cheaper?

Post by pkcrafter » Sun Oct 29, 2017 3:57 pm

The price war

https://cnbc.com/2017/02/02/charles ... e-war.html

From the article:
Investors have been pouring money into passive strategies due to their low fees, tax benefits and, in the case of ETFs, ease of trading.
Wrong! Investors have been pouring money into passive strategies because of recent returns. This will be followed by big exit when the ride is over. Investors are already nervous. It won't take much to see a correction, but if there is any kind of catalyst that triggers a drop, the drop will be major event.

That's an opinion, not a prediction. This is a prediction: something will happen.



Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

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Earl Lemongrab
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Re: Charles schwab - why so much cheaper?

Post by Earl Lemongrab » Sun Oct 29, 2017 5:02 pm

triceratop wrote:
Sun Oct 29, 2017 2:38 pm
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.
It should be noted that I for one did state or mean to imply that the for-profit brokerages are great folks without a sneaky bone in their collective bodies. They are out to generate profits, and we are source of those profits. However, the idea that they're running a long con to suck in people to buy funds and ETFs, then cackle with glee as they jack up the ERs isn't credible.

Things change. Prices go up. Prices go down. For some of us, the competition leads to opportunities for using their loss leaders like transfer bonuses to our profit. Just like I buy the boneless, skinless chicken breasts at the supermarket for $1.99/lb.
This week's fortune cookie: "You will do well to expand your horizons." Ow. Passive-aggressive and vaguely ominous.

Naismith
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Re: Charles schwab - why so much cheaper?

Post by Naismith » Mon Oct 30, 2017 7:39 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.
Like many, we have used Vanguard for years, but opened a Schwab checking account for overseas travel--no international transaction fees and they reimburse any ATM fees, worldwide. Very reliable source of cash around the world.

It had to be linked to a brokerage account, which was not funded...until the ERs on index funds dropped. Now we have some taxable there.

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