Schwab just sent me a press release announcing their new series of exchange-traded funds (ETFs) that have low operating expense ratios and passively track indexes.
The most commonly-noted drawback of ETFs is that you must buy them like a stock and thus pay trade commissions. However, if you buy these within a Schwab brokerage account, there are no commissions charged. Here is a chart comparing the new Schwab ETFs and their corresponding competitor from Vanguard. The ETFs don’t necessarily track the exact same index, but they are pretty similar.
This is definitely worth a second look. A possible criticism is that Schwab may increase expenses and reinstate trading fees in the future, which may lead to tax hits if you wish to switch back to other ETFs. Meanwhile, Vanguard has a long track record of rock-bottom expense ratios. However, it may also be that increased competition in this area by others like Fidelity and E-Trade will prevent this from happening.
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Main issue now is perhaps the trading spreads with new ETFs. Hopefully these will narrow if the volume and AUM pick up.
Good point. I wonder if Schwab gets a cut of their own action by playing market maker. Is that allowed?
Jonathan, did you notice the 0.25% 12-b-1 fees they reserve the right to impose in 2011?
KD – No, I didn’t read the full prospectus until now. I figured they’d be using some sort of fee waiver like Fidelity does, which basically lets them raise the expense ratio at some later time.
I most likely won’t invest in these ETFs, but for those that want to dollar-cost average very small amounts, the commission-free feature is quite nice. Otherwise, to get no commissions you’d usually need $3,000 minimum at Vanguard.
I have been advising my sister to invest in Schwab index funds for a simple way to invest without too much difficulty. The main problem I have with Schwab index funds (and now also their ETFs) is that they don’t have any low expense ratio bond offerings (either by ETFs or by mutual fund) In fact their bond mutual funds seem to really suck.
Does anyone have a reccomendation on a good way for her to invest in bonds (keeping in mind that she probably can’t invest enough to qualify for a $3,000 minimum)? I’ve told her to invest in Vanguard’s Bond ETF (BND), so that was my thought, but not sure if there was a better choice out there.
Alex – I have recently starting moving a lot of my accounts to folioinvesting.com. I have been researching them for about 6 months and just took the plunge. Just under $300 bucks a year covers unlimited trading of over 130 Folios (essentially ETFs that they made), and you can build you own ETFs. They have a bunch of different bond Folios that your sister might be interested in that allow you to purchase as you would an ETF.
Hi Alex,
You may try T. Rowe Price if there is difficulty scraping up the minimum investment. The minimum to open an account is usually $2500, but if you set up a automatic deposit each month (at least $50 / mo), the minimum initial deposit is waived. This is what I have done to establish my Roth 2045 IRA, a TIPS fund, and a short-term bond fund, all with $0 initial investment and at least $50 / month invested automatically. Best of luck!
Any ideas on how to hedge our yearly food expenses with an ETF, just like we did with fuel expenses as oil prices hit 30’ish many months ago?
Alex,
So this is what I’m reading from your situation:
You’re looking for a bond fund for your sister, probably to help her diversify her portfolio. Most likely she doesn’t have the $3,000 minimum to invest in Vanguard funds.
I think the first decision you have to make it whether you’re set on using Vanguard funds. If you are not, there are many other bond funds out there and myriad of ways to buy them. I would go with Vanguard just because of their costs. If you compare their bond funds with other bond funds, Vanguard is, most of the time, atleast 33% lower costs.
If you’re set on Vanguard funds and can’t meet the minimum requiremnt, you’ll have to go through a brokerage firm. If your sister is wanting to just make a 1-time investment, then look for the lowest comission firm. I recommend just2trade.com ($2.50). However, if youre sister is wanting to invest more money into the fund on a bi-weekly, monthly, or quarterly basis, then you’re want a brokerage that offers FREE periodic investment plan. Firstrade.com is a good brokrage firm that offers this. You sister can setup her funds and pay $10 commission per fund, and after that she can invest more money for free.