Schwab Vs Vanguard ETF's

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Dear members, few questions

Which is better Schwab ETF's or Vanguard ETF's.

1.Schwab is relatively new compared to Vanguard
2.Schwab's expense ratio beats already low Vanguard!
3.Prices of schwab ETF's are lower compared to Vanguard-- --> Does this mean it has more room to grow as more people buy into it?
4.Schwab has no $20 yearly fee like Vanguard does (@ Vanguard-waived with e-service package)
5.I came to know that I can short/day trade Schwab ETF's- Though I might not do that, Vanguard - I do not know.
6.Schwab ETF's also offer Options that makes trading more interesting! Vanguard? not sure?
7.I did a quick comparison of the similar ETF's performance (Vanguard and Schwab) and they almost perform on the same lines.

Experience is valuable and I would greatly appreciate if you can share your experience with these ETF's and brokerages which should help me making a choice between them.
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What is the best investment for a ROTH IRA with its unique tax treatment?

ETF's are tax efficient, with a Roth IRA,I really do not care about taxes, does that mean that should I go with these efficient ETF's or trade stocks and options directly? (Off course I have to pick them and pay commissions!!) in a ROTH IRA?

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TD Ameritrade has Vanguard ETF's commission free (short holding period) --- you might like TD Ameritrade's platform and flexibility

Vanguard has larger selection.
Schwab at this point varies on assets under management, so for some ETFs the bid/ask spread can bite.
--> Does this mean it has more room to grow as more people buy into it?
No, I think Schwab explicitly claimed that they're willing to lose a little bit of money on ETFs in hopes of attracting you to their other products.

Vanguard is known for their low fees based on their history. Schwab's ETFs are a recently new low cost product. Since this is in a Roth, you could always sell and buy the cheapest ETF available if Schwab jacks up the price.

The ETF fees -- VTI is .06% vs Schwab's market index of SCHB of .04%. The difference is really minor unless you have a very large portfolio.

Do these ETFs track the same index?

Vanguard's VTI holds 3,306 stocks vs 1,934 for SCHB. So VTI might hold a large amount of smaller companies. I perfer Vanguard in this scenario.


if you believe in bogle's way of investing, I think schwab is a great choice.

it has the lowest ER. in addition, it offers other perks like no fee debit card and mobile deposit.

I am a Vanguard fan but Schwab has a slight edge on the ETF's and a sure winner as a brokerage when you have an account outside of a retirement plan that you don't have to pay to trade. So $100 here, $500 there no $7 commish will add up greatly over time.

DamnoIT set me straight so that I understand you.

Schwab and Vanguard both offer brokerage accounts.
Schwab and Vanguard both sponsor (and serve as investment manager) of exchange-traded funds.
Schwab, in general, charges $8.95 for transactions.
Vanguard, in general, charges $7.00 for transactions.
Schwab and Vanguard both waive transaction fees (with some limitations) when customers buy and sell their affiliated funds.
Schwab and Vanguard both offer both retirement and non-retirement accounts.

I am pretty particular about these things, so DamnoIT please help me understand your point. If I had both retirement and non-retirement accounts, I can drip in "$100 here $500 there" into affiliated funds, transaction-fee-free, with both Schwab and Vanguard.

I do see one major difference. There are more affiliated funds available with Vanguard than with Schwab. If I kept my money at Vanguard I would be less likely to pay transaction fees [purchasing non-affiliated funds] in order to plug holes/gaps in my asset allocation.

I do see some other smaller differences. Schwab funds have exposure to fewer capital market securities than comparable Vanguard funds. Schwab funds trade at lower volumes (and larger spreads) than comparable funds Vanguard. That entry/exit cost is material and must be taken into account.

sesat --- you are making things too complicated

open up a TD Ameritrade account and get these ETF's commission free tdetf--pdf

sesat said:   DamnoIT set me straight so that I understand you.
I am pretty particular about these things, so DamnoIT please help me understand your point. If I had both retirement and non-retirement accounts, I can drip in "$100 here $500 there" into affiliated funds, transaction-fee-free, with both Schwab and Vanguard.


It was related to EFT and not for mutual finds. Schwab's EFT does not have commission.

Schwab has 9,098 mutual funds and 2,820 no-load no transaction fee including 120 Vanguard funds
Vanguard has 6,612 mutual funds and 2,599 no-load no transaction fee

But both have more than enough. Just look around and pick what you like.

Dude, you clearly haven't had as much to drink as I have. We're talking about ETF's, and all the discount brokerage houses now offer commission-free trading of their affiliated funds. (don't worry, the brokerage more than makes up for it by selling your order-flow to institutions trading against your market orders)

We are not talking about mutual funds, although perhaps we really should be. If equity slippage and trading spreads cost you 1% in entry and 1% in exit, you may not be as thrilled about saving 0.20%/yr in fund fees.

I find the schwab spread to be a problem as mentioned above.

Guys, "ETFs" is plural in almost all usage above, not possessive. You're killing me with the apostrophes!

One thing that Vanguard offers: You can convert many Vanguard-managed index funds into their corresponding ETF shares without incurring a transaction fee, and because of the way their funds are set up it is not taxable (assuming the shares are held in a Vanguard account and not another brokerage).

AFAIK, they are the only brokerage that allows this.

It's not attractive to everyone, but perhaps for those who want to dollar-cost average in the index fund to avoid bid/ask spreads, then convert one or more times a year to the corresponding ETF for the lower expense ratios Vanguard might have an edge to Schwab.

"Can I convert conventional Vanguard mutual fund shares to Vanguard ETFs?

Shareholders of Vanguard stock index funds that offer Vanguard ETFs may convert their conventional shares to Vanguard ETFs of the same fund. This conversion is generally tax-free, although some brokerage firms may be unable to convert fractional shares, which could result in a modest taxable gain. (Four of our bond ETFs—Total Bond Market, Short-Term Bond, Intermediate-Term Bond, and Long-Term Bond—do not allow the conversion of bond index fund shares to bond ETF shares of the same fund; the other eight Vanguard bond ETFs allow conversions.)

There is no fee for Vanguard Brokerage clients to convert conventional shares to Vanguard ETFs of the same fund. Other brokerage providers may charge a fee for this service. For more information, contact your brokerage firm, or call 866-499-8473.

Once you convert from conventional shares to Vanguard ETFs, you cannot convert back to conventional shares. Also, conventional shares held through a 401(k) account cannot be converted to Vanguard ETFs."

Link to Vanguard's FAQ

InTrouble said:   Guys, "ETFs" is plural in almost all usage above, not possessive. You're killing me with the apostrophes!

your right

DamnoIT said:   I am a Vanguard fan but Schwab has a slight edge on the ETF's and a sure winner as a brokerage when you have an account outside of a retirement plan that you don't have to pay to trade. So $100 here, $500 there no $7 commish will add up greatly over time.

Can you please explain what you said? I am not able to make much sense with that.

InTrouble said:   Guys, "ETFs" is plural in almost all usage above, not possessive. You're killing me with the apostrophes!
An apostrophe is acceptable usage to pluralize acronyms, to clarify the bounds of the acronym. Technically, formal writing guides say no, unless there is internal punctuation (E.T.F.'s) or lower case letters (EtF's). But many casual style guides still recommend it, so it's hard to claim a hard-and-fast rule.

InTrouble said:   Guys, "ETFs" is plural in almost all usage above, not possessive. You're killing me with the apostrophes!
InTrouble!

If you eventually have enough assets at Vanguard (over $500K I think) you qualify for $2 trades for *all* non-Vanguard equities. Does Schwab have a deal to match?

er3456 said:   One thing that Vanguard offers: You can convert many Vanguard-managed index funds into their corresponding ETF shares without incurring a transaction fee, and because of the way their funds are set up it is not taxable (assuming the shares are held in a Vanguard account and not another brokerage).

AFAIK, they are the only brokerage that allows this.

It's not attractive to everyone, but perhaps for those who want to dollar-cost average in the index fund to avoid bid/ask spreads, then convert one or more times a year to the corresponding ETF for the lower expense ratios Vanguard might have an edge to Schwab.

"Can I convert conventional Vanguard mutual fund shares to Vanguard ETFs?

Shareholders of Vanguard stock index funds that offer Vanguard ETFs may convert their conventional shares to Vanguard ETFs of the same fund. This conversion is generally tax-free, although some brokerage firms may be unable to convert fractional shares, which could result in a modest taxable gain. (Four of our bond ETFs—Total Bond Market, Short-Term Bond, Intermediate-Term Bond, and Long-Term Bond—do not allow the conversion of bond index fund shares to bond ETF shares of the same fund; the other eight Vanguard bond ETFs allow conversions.)

There is no fee for Vanguard Brokerage clients to convert conventional shares to Vanguard ETFs of the same fund. Other brokerage providers may charge a fee for this service. For more information, contact your brokerage firm, or call 866-499-8473.

Once you convert from conventional shares to Vanguard ETFs, you cannot convert back to conventional shares. Also, conventional shares held through a 401(k) account cannot be converted to Vanguard ETFs."

Link to Vanguard's FAQ


You can buy Vanguard ETFs through Vanguard commission free at any time. Why would you buy the mutual fund and convert a few times a year instead of buying the ETF directly?

You don't have to pay commission but you are still subject to buy/sell spread and short term market inefficiency. I can see value in converting instead of buying from open market.

cognoscube said:   
4.Schwab has no $20 yearly fee like Vanguard does (@ Vanguard-waived with e-service package)


I must admit. I have no ideas. What is the $20 yearly fee?


7.I did a quick comparison of the similar ETF's performance (Vanguard and Schwab) and they almost perform on the same lines.


Be careful when you compare performance with EFTs if you use charts like Yahoo. Make sure you include their dividend distributions.

kickerstarter said:   cognoscube said:   
4.Schwab has no $20 yearly fee like Vanguard does (@ Vanguard-waived with e-service package)


I must admit. I have no ideas. What is the $20 yearly fee?


7.I did a quick comparison of the similar ETF's performance (Vanguard and Schwab) and they almost perform on the same lines.


Be careful when you compare performance with EFTs if you use charts like Yahoo. Make sure you include their dividend distributions.


just guessing but i think this is what's being referred to https://personal.vanguard.com/us/content/Funds/FundsVanguardFund...

psychoslowmatic said: You can buy Vanguard ETFs through Vanguard commission free at any time. Why would you buy the mutual fund and convert a few times a year instead of buying the ETF directly?

The answer is in my original post, which you quoted:

"It's not attractive to everyone, but perhaps for those who want to dollar-cost average in the index fund to avoid bid/ask spreads, then convert one or more times a year to the corresponding ETF for the lower expense ratios Vanguard might have an edge to Schwab."

Schwab now says they have 'over' 100 commission free ETFs. My count of their ETFs is at 105. No Vanguard fund family though, they have SSGA, Powershares and Guggenheim.
The volume isn't like Vanguard's.

Another thing to consider in addition to lack of volume is that Schwab is artificially holding down their fees to attract business. They could raise them in the future or dump the product if it isn't working how they want. Vanguard's fees are that low all the time. It's what they do.

Nummerkins said:   Another thing to consider in addition to lack of volume is that Schwab is artificially holding down their fees to attract business. They could raise them in the future or dump the product if it isn't working how they want. Vanguard's fees are that low all the time. It's what they do.



Well, they haven't thus far. My experience dealing with Schwab has been very good. I have been a Vanguard customer as well. I like them both but Schwab has my business for now.

If you can meet the Admiral share class minimum with Vanguard (usu $10k per fund) I see no reason to use ETFs at all within an IRA. Admiral shares of Vanguard mutual funds avoid bid-ask spreads and have essentially the same expenses as the ETFs. I'm 100% ETFs but only because I have held them since before Vanguard dropped the Admiral shares minimum from $50k to $10k. If I could go back to mutual funds without capital gains taxes (in my taxable accounts) I would.

I also own a single ETF from Schwab, SCHB - it's cheap and it's been a good foil for tax loss harvesting from Vanguard. I think the SCHB bid-ask spread can be a little higher than VTI but I haven't checked in a while. It holds fewer stocks including fewer small stocks, IIRC - again, I haven't checked in a while. For all practical purposes, the performance is identical. However, the dividends from SCHB were 92% qualified in 2012, as compared to 80% qualified for VTI. In my mind that's a big difference and would be a reason to tilt toward SCHB in a taxable account. So on a $100,000 holding (for instance), assuming a 2% yield, VTI would distribute $1600 of qualified dividends and $400 of non-qualified dividends, for a total tax drag of $240+$100 = $340 or 0.34% in the 25% tax bracket; whereas SCHB would distrigute $1840 of qualified dividends and $160 of non-qualified dividends for a total tax drag of $276 + $40 = $316 or 0.316% tax drag. So 0.024% less - add that to the marginally lower expense ratio and SCHB is almost a third cheaper than VTI (in 2012). This ignores any transaction costs, and of course any hidden expenses (which should be very minimal as they are both low turnover total market index funds).

It's probably six of one, half dozen of the other.

My take is that there are a lot of unknowns such as buy-sell spread, qualified vs. non-qualified dividends, and even distributions that can come anytime. My thinking is that the bigger volume ETF will have the smaller spread.The more day-traded or short term traded an ETF is the lower the qualified dividends and the greater chance for a distribution. My plan is to stick with the big volume ETFs like SPY,DIA,ETF,QQQQ, etc. Free commission encourages trading. I would rather buy in big volume and pay a small commission than get hit by one of these nasty surprises like a distribution.

Fidelity now has 65 commission fee ETFs in the form of IShares (just recently added). They could be attractive if you have an account, or open one for a bonus ($2500 for a million for instance). Many are widely traded which should imply low spreads.

I noted they included bond and high dividend ETF's which might fit nicely within an IRA (which is how much funds with the are).

Others are international.

Notice, with commission free trades you may be able to moderate the effect of spreads by using limit orders and getting into positions over time, or out of them over time.

However, for traders, a problem could be that "Note: A short-term trading fee of $7.95 will be charged for any sales that occur within 30 days of the original purchase of the ETF. This fee is being waived for all customers through July 31, 2013."

If you are attracted by the Schwab funds, Schwab is offering bonuses for new funds also.

I notice Ameritrade has a list of over 100 commission free ETF's, although with a provision for a short term trading fee if you hold for less than 30 days, a rather common provision.

I presume the commission free offers are financed by a subsidy from the ETF firm (which is probably built into the expense structure), so it is not always clear these will be the best deal.


If anyone knows of some careful calculations (tabulations)of when, and which ones,are a good deal, it would be nice to see them.

Does Schwab do the thing like Vanguard where you have to put the money first into a money market account and it must stay there for 7 days before you can use it to buy ETFs. I use Vanguard for ETFs but I do not like that, I wish the waiting period was much less.

DaveTheStud said:   Does Schwab do the thing like Vanguard where you have to put the money first into a money market account and it must stay there for 7 days before you can use it to buy ETFs. I use Vanguard for ETFs but I do not like that, I wish the waiting period was much less.
I believe Schwab brokerage has a three day hold on new funds before you can remove them.In most cases they will let you trade earlier (non-penny stocks). If you bring the money over from Schwab Bank, there is no hold. I have fund Schwab to be a good bank (higher interest than the big firms, and very convenient integration with my Schwab account). This could be one reason for using them, since you could earn as much as .25% (still little) from holding idle funds with them.

An interesting question is how to use free trades. They are frequently in promotions, and to illustrate I have I believe 400 with Ameritrade and 500 with E-Trade (all good only for a short period after bringing money over), and 30 per month with Merrill.

As noted there are sometimes free ETF trades available with certain brokerages, but these often have minimum holding periods needed to avoid a short term trading fee.

I normally don't suggest frequent trading, since there is evidence most who do this actually do worse than those who trade less. Brokerage firms makes these offers to attract the frequent traders who will generate commissions once the free period is over.

However, one possible strategy would be dividend capture. Here you buy a stock just before it goes ex-dividend, and sell it afterwards. In theory, a stock drops in price by the amount of the dividend, but older studies showed the actual drop was a little less. Those were from a time when the tax disadvantages to dividends were greater, and many taxable investors would try to avoid getting income as dividends.

If done at all, such a dividend capture strategy would only make sense in a tax-privilege account, such as an IRA, avoiding both the taxes on the dividends and the added work of filling in tax forms. If there were no commissions, there might be small excess returns possible. Does anyone know of any good recent studies of ex-dividend price behavior? or have an good experience with such a strategy. It would obviously be labor intensive, and expose you to risk of being less diversified, since you might take larger positions in fewer companies. High dividend payers are concentrated in certain industries, and high percentage payouts are often a sign that the company has problems that has led to the low price.



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