Schwab Now Offers Commission-Free ETFs

I'm not sure how I missed this, but Schwab is now offering domestic and international ETFs with low expense ratios and they trade commission free for investors with Schwab accounts! This is a great and welcome move by Schwab to enter the ETF business. They are a couple years behind Barclays Global Investors (iShares), Vanguard, and State Street (SPDRs), so they certainly felt the pressure to add extra incentives (commission free and low costs).

You can see a comparison of the main four companies ETF offerings here. While Schwab certainly still doesn't have the breadth of offerings of the others, they do offer five domestic equity ETFs and three international equity ETFs that serve as a solid foundation for a portfolio. These are certainly nice choices for current Schwab customers who prefer the flexibility of ETFs as well as the increased ability to tax loss harvest. I wouldn't take the effort to move my accounts from Vanguard to Schwab, for example, quite yet. The differences are negligible, but increased competition is always a good thing and giving investors more low-cost indexed ETFs is definitely a positive. And the commission free aspect is icing on the cake!

I actually might use Schwab International Small-Cap Equity ETF (SCHC; available in January) with its 0.35% expense ratio as opposed to Vanguard FTSE All-World ex-US Sm Cp Index (VFSVX), which has a 0.75% purchase and redemption fee (on top of the 0.68% ER), or Vanguard's ETF version (VSS; 0.38% ER) since I got charged a commission every time I purchase that ETF. Many don't have International Small-Cap as part of their portfolio, so in that case, it would not be particularly important. Likewise, the Schwab Emerging Market ETF might be a viable alternative (for current Schwab customers) to Vanguard's fund, VEIEX, which charges a 0.25% purchase and redemption fee.

It's important to note that the Schwab domestic ETFs track slightly different indices than the Vanguard counterparts, so it's possible that these could be used for tax loss harvesting and wouldn't trigger a wash sale. Although please consult your financial professional to confirm this. It appears that the domestic ETFs track the Dow Jones indices, while the international ETFs track the FTSE indices.

You can read a discussion of these new offerings on a thread at the very pro-Vanguard site, Bogleheads. Some are resistant as they've thought for years that Vanguard is the best firm by far and nobody can challenge them, but, in the end, most welcome the increased offerings. I certainly do.

Update 1/7/10: Schwab has announced that they are reducing trade commissions to $8.95 to all clients regardless of portfolio size and activity starting 1/19/10. In the past, only those with greater than $1 million in household assets or those who traded at least 120 times per year got that rate - all others were $12.95. Schwab is really making a push to be a one-stop shop for all banking/investing needs. First, they created a high yield checking account and eventually a high yield savings. Then they reduced their expense ratios on their index funds to Vanguard-like levels that also only have a $100 minimum. They have a quality 2% cash back Visa. Then offering commission free ETFs and finally reducing commissions for trading stocks and ETFs! There are still a few places they are lacking, but they're certainly making a valiant effort to improve. They still don't have great bond fund choices as they're quite expensive (there are some on their OneSource list that are decent, however, such as those from Ridgeway), their fund offerings aren't nearly as extensive as Vanguard (e.g. no emerging markets), some of their funds seem to have higher tracking errors and tax cost ratios than their Vanguard counterparts, and they still charge a ridiculous $49.95 for every fund purchase not on the NTF list. However, Schwab is great for those with a small amount of assets and people who like to have all their money with one company as the multitude of positives outweigh those few negatives. I'm certainly a fan and welcome the changes; although they could be even better as could most firms.

1 comment:

  1. Dollar cost averaging is a great way to reduce your risk when entering the stock market.

    ReplyDelete

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