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Now that we all have imbibed in the Thanksgiving turkey and gotten our thrills at Black Friday, it's time to get back to work at the business of FWF.

There has been a lot of disappointment at Schwab for abandoning their 2% CB Visa card and turning it over to FIA. People have been closing their Schwab brokerage accounts. I share their Visa pain.

But I think think that they're making a mistake in closing their Schwab brokerage accounts. They're ignoring Schwab's low expense ratios for their ETFs. Schwab ETF ER's are the lowest around.

For example:
Domestic:         Schwab SCHB 6bp.  Vanguard VTI 7bp.   Fidelity FSTMX 10bp.
International:    Schwab SCHF 13bp. Vanguard VEA 15bp.  Fidelity FSIIX 20bp.
Emerging markets: Schwb SCHE 25bp.  Vanguard VWO 27bp.  Ishares EEM 72bp.


Schwab ETF comparison.

The Fidelity options are mutual funds with a $10,000 minimum per fund.
Both Vanguard and Schwab ETF accounts have a $1,000 minimum.
Vanguard and Schwab are very close.

I'm thinking of switching my IRA from Fidelity to Schwab in order to gain lower minimums for diversification and lower ER's.

I would switch in 3 steps.
1.Sell my Fidelity IRA balance, probably into FDRXX.
2.Transfer my Fidelity IRA to a Schwab IRA.
3.Buy Schwab ETFs with my Schwab IRA balance.

Two questions.
1.is my IRA switch from Fidelity to Schwab a good idea? A lot of FWF members are closing their Schwab accounts. I'm talking about expanding mine.
2.Is my 3 step process the right way to make the switch? I want to avoid taxes, fees, and penalties. I would keep my taxable investments at Fidelity.

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Switching does not make sense if you have a sizeable balance, more than a few thousand, because of the costs/risks of selling then rebuying.

I think you'd be fine w/ either Fidelity, Vanguard, or Schwab; some years ago I picked Fidelity and I've been very happy with them. For a buy and hold investor like me, it makes no sense to switch every time one or the other company lowers an expense ratio by a bp or three.

I have the ex-Schwab VISA and decided to leave my Schwab brokerage and checking accounts open: there's no harm in having the brokerage open with a zero balance, and the checking is useful for travel (reimburse all ATM fees and no forex fees).

Thank you for your advice.
Where would you make new contributions? Schwab has ETFs like SCHC (sm/med int'l ER=35bps) and SCHF that Fidelity either doesn't offer or that have much higher ERs.

If you have $25K total (can also include checking or some other accounts), you could switch to Wells Fargo PMA and get 100 free trades per year on any ETFs or stocks. Or Zecco for a similar deal.
Or Ameritrade for free trades in a bunch of ETFs (not Schwab ETFs though; they do have Vanguard ETFs on the free list) (have to hold at least 30 days).

Minor detail, but there's no $1,000 minimum for Schwab ETFs. You can buy a single share if you want. There's a 1k minimum to open a Schwab One brokerage account, but that was waived if you linked the old Schwab CC to it. People can now get that minimum requirement waived by opening a linked Schwab checking account.

I kept my Schwab brokerage, too. Like you, I'm thinking of transferring my IRA there as well.

kmith said: Where would you make new contributions?

Since your after tax account is at Fidelity, I'd stay there, just to keep things simple. Once you build up your portfolio, Advantage class shares have even lower expense ratios. One big hole at Fidelity is emerging markets: since I refuse to buy actively managed funds, I bought VWO from within my Fidelity account.

Fidelity is my financial hub -- good ACH in/out, the brokerage core account is my primary checking account, and good customer service.

I am sure that Schwab would be fine, too, but their sudden change of direction on their credit card made me question their long term plan. What if they decide that low expense ratios was not bringing in enough business?

habibbijan said: Minor detail, but there's no $1,000 minimum for Schwab ETFs. You can buy a single share if you want.

That's a wise marketing move on their part, IMO, because of what I said earlier -- the larger the portfolio, the greater the costs of moving it somewhere else. If they can get you started with them, they know it will get harder and harder for you to move your investments somewhere else.

UncaMikey said: That's a wise marketing move on their part, IMO, because of what I said earlier -- the larger the portfolio, the greater the costs of moving it somewhere else. If they can get you started with them, they know it will get harder and harder for you to move your investments somewhere else.
Do you mean "move" in the sense of switching to a different broker, or in the sense of switching investments? Switching to a different broker remains the same process regardless of the account size (i.e. ACATS), and one of the advantages of ETFs is that you can move them to any broker. Although, the same is true with most traditional mutual funds as well - e.g., if you own FSTMX in a Fidelity account, you could move the FSTMX to a Schwab account via ACATS.

Switching to different investments is also very easy if you're using traditional funds rather than ETF - you sell one and buy the other. (It's a bigger deal in a non-retirement account because you may trigger capital gains, but this is a discussion of IRAs.) With ETFs, the bigger the position the more likely that selling it and buying a different ETF will incur slippage, although even the smallest account will still lose out to bid-ask spreads.

UncaMikey said: Advantage class shares have even lower expense ratios. One big hole at Fidelity is emerging markets: since I refuse to buy actively managed funds, I bought VWO from within my Fidelity account.

Fidelity is my financial hub -- good ACH in/out, the brokerage core account is my primary checking account, and good customer service.

I am sure that Schwab would be fine, too, but their sudden change of direction on their credit card made me question their long term plan. What if they decide that low expense ratios was not bringing in enough business?

Advantage class ER is substantial domestically. FSTMX = 10bps. FSTVX = 7bps.
But ER differences are minor internationally. FSIIX = 20bps. FSIVX = 17bps.
And non-existant for EM. VWO ER is 27bps + $8 per transaction always.

If Schwab increases ER can't I switch back to Fideliy or to Vanguard?

UncaMikey said: the larger the portfolio, the greater the costs of moving it somewhere else.
Please explain this further. TOday, my IRA has only FSTMX. Schwab adds the others I listed, SCH*, without the Fidelity $10,000 minimum or the $8 transaction cost.

kmith said: Please explain this further.
All I meant was that chasing EPs among very low cost index funds could incur costs if you close out one position and move to today's lowest. If the market goes down between selling one and buying the other, you come out ahead. If the market goes up, you lose.

If you maintain old positions at Fidelity/Schwab/Vanguard and put new money in the lowest fund at the moment, of course there are no costs, but you have to keep track of more accounts, and it may take you longer to reach higher levels required for even lower EPs. Whatever! I've been retired for 4+ years now and don't agonize over a few hundredths of a percent.

Pick one and stick with it, then use your time for more valuable activities, like taking naps.

Plus don't they charge fees to move the account to a new custodian?

Thanks for all the feedback. Based on what I've heard, I'll stick with Fidelity for my current investments and concentrate on domestic FSTMX ER=10bps.
New money will go internationally at Schwab SCHF=13ER SCHC=35ER and SCHE=25ER starting 2011 in accordance with FTSE all-world index. No minimums, no fees, no switch. I'll end up with 2 brokers and 4 funds.
Then I'll take a nap.



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