With its own issued ETFs and the ETF OneSource commission-free ETFs, Schwab has everything to get started developing a simple ETF portfolio. Schwab’s brokerage costs are generally minimal, so paying for a few trades won’t break the bank if investors can’t locate a good commission-free option.
Purchasing ETF shares is similar to purchasing stock. You’re ready to buy stocks after you’ve funded your account.
Simply type in the ETF ticker and the quantity of shares you’d like to buy on Schwab’s website, or your preferred broker’s website. You’ll only have to pay for your shares if it’s a commission-free ETF. Otherwise, make sure you have enough money in your account to cover the share price as well as the additional commission fee.
Your order should go through instantly, and the shares of your ETF will be in your account after your broker fills it. That’s all there is to it.
Is Charles Schwab a reputable ETF provider?
- The broker offers great screeners for stocks, ETFs, and mutual funds, as well as strong trade execution.
- Schwab provides the kind of comprehensive news, research, calculators, and education that large, well-established online brokers are known for.
- Schwab has a wide range of products and tools, but only a few cryptocurrency options and no forex trading.
- With Schwab’s acquisition of TD Ameritrade’s online brokerage, traders will gain access to another robust tool set, as well as the trading engine thinkorswim.
Is Charles Schwab an ETF seller?
On purchase and sell transactions done online in a Schwab account, ETFs that are U.S. exchange-listed can be traded without a commission at Charles Schwab & Co., Inc. (“Schwab”). A commission is charged on unlisted ETFs. For further information, please visit the pricing guide.
Is it possible to purchase Vanguard ETFs through Schwab?
The company’s extensive fund selection is one of the reasons Charles Schwab & Co. has been a SMI recommended broker for many years. About 7,500 no-load mutual funds are available through Schwab.
Over 4,200 of them are “NTF” funds, which don’t charge a transaction fee. Any no-load fund that isn’t on Schwab’s NTF list costs $49.95 to purchase.
That was the case until today, at least. For most non-NTF funds, the $49.95 purchase-only transaction cost remains in effect. Retail investors who purchase Vanguard, Dodge & Cox, or investor-class Fidelity funds through Schwab, on the other hand, will pay a higher price: $74.95. This is 50% more than what Schwab charges for other transaction-fee funds traded online. (TD Ameritrade, which is owned by Schwab, has adopted the similar two-tier transaction fee structure.)
They won’t pay to play
The price rise, according to Schwab, is due to the refusal of those three fund families Vanguard, Dodge & Cox, and Fidelity to pay the premium that Schwab asks to be on its platform.
“The majority of mutual fund families pay Schwab…for required and vital shareholder servicing fees,” a Schwab spokeswoman told Barron’s. “However, some do not” (paywall). “On retail mutual fund purchases, we are using this alternative amount just for funds for which we do not receive shareholder servicing compensation.”
On this page, Schwab goes into great depth about its multiple compensation structures, but here’s all you need to know about today’s increase:
Most TFFunds pay Schwab an annual asset-based fee, which is normally 0.10 percent of the average fund assets housed at Schwab, but can be as high as 0.25 percent…. In lieu of the asset-based charge, certain TF Funds pay Schwab a specific monetary amount per customer account, often $20 per account yearly….
The transaction charge… helps compensate Schwab for the shareholder services it provides to customers who possess TF Fund shares, together with asset-based or per-position fees collected from the funds.
Despite the fact that more than 130 of Vanguard’s classic funds are available through Schwab, the company “has a long-standing policy of not paying distribution fees that incentivise sales of our funds on third-party platforms,” according to a Vanguard spokeswoman. To put it another way, if investors want to buy Vanguard’s classic funds without paying a fee, they should buy straight from Vanguard.
“Individual individuals can invest directly with us without paying a transaction charge,” a Dodge & Cox spokeswoman said. Barron’s request for comment was ignored by Fidelity.
More to come?
For the time being, Schwab’s transaction fee hike only applies to Vanguard, Dodge & Cox, and Fidelity funds. We’ll have to wait and see if this transaction-fee “surcharge” concept spreads to other Schwab funds, or if it’s just a one-time occurrence. (It’s worth noting that Fidelity has charged a higher cost for buying Vanguard and Schwab funds for numerous years than it has for other transaction-fee funds.)
For several years, retail investors have enjoyed a period of dropping fund fees (of various forms). Let’s hope Schwab’s latest action isn’t the beginning of a trend reversal.
Impact on SMI investors
The impact of this recent pricing change on SMI investors who invest through Schwab (or TDA) should be modest. One reason is that ETF trades are unaffected by Schwab’s new pricing policy. The Schwab/TDA platforms will continue to offer free trading of exchange-traded funds, such as Vanguard and Fidelity ETFs. As a result, you might be able to replace traditional mutual funds with comparable ETFs.
It’s also worth mentioning that, according to Schwab’s pricing guide, the $49.95/74.95 price isn’t imposed in all circumstances. For trades of less than $100, Schwab waives all transaction fees. So, if you put $75 into a transaction-fee fund at Schwab on a monthly basis, you wouldn’t have to pay a transaction fee.
Schwab’s transaction fees are also on a sliding basis. According to the company’s website, “ransaction fees do not exceed 8.5 percent of principal.” For example, a $500 transaction-fee fund purchase would cost $42.50, less than the full $49.95 price levied by most funds or the $74.95 fee charged by Vanguard/Fidelity/Dodge & Cox funds.
Also keep in mind that Schwab offers a variety of classic Schwab-brand funds that can be substituted for Vanguard and Fidelity funds. That implies you might be able to locate a comparable Schwab-managed traditional fund with no transaction fee if you’re considering a Vanguard or Fidelity fund with a transaction fee.
What are the risks associated with ETFs?
They are, without a doubt, less expensive than mutual funds. They are, without a doubt, more tax efficient than mutual funds. Sure, they’re transparent, well-structured, and well-designed in general.
But what about the dangers? There are dozens of them. But, for the sake of this post, let’s focus on the big ten.
1) The Risk of the Market
Market risk is the single most significant risk with ETFs. The stock market is rising (hurray!). They’re also on their way down (boo!). ETFs are nothing more than a wrapper for the investments they hold. So if you buy an S&P 500 ETF and the S&P 500 drops 50%, no amount of cheapness, tax efficiency, or transparency will help you.
The “judge a book by its cover” risk is the second most common danger we observe in ETFs. With over 1,800 ETFs on the market today, investors have a lot of options in whichever sector they want to invest in. For example, in previous years, the difference between the best-performing “biotech” ETF and the worst-performing “biotech” ETF was over 18%.
Why? One ETF invests in next-generation genomics businesses that aim to cure cancer, while the other invests in tool companies that support the life sciences industry. Are they both biotech? Yes. However, they have diverse meanings for different people.
3) The Risk of Exotic Exposure
ETFs have done an incredible job of opening up new markets, from traditional equities and bonds to commodities, currencies, options techniques, and more. Is it, however, a good idea to have ready access to these complex strategies? Not if you haven’t completed your assignment.
Do you want an example? Is the U.S. Oil ETF (USO | A-100) a crude oil price tracker? No, not quite. Over the course of a year, does the ProShares Ultra QQQ ETF (QLD), a 2X leveraged ETF, deliver 200 percent of the return of its benchmark index? No, it doesn’t work that way.
4) Tax Liability
On the tax front, the “exotic” risk is present. The SPDR Gold Trust (GLD | A-100) invests in gold bars and closely tracks the price of gold. Will you pay the long-term capital gains tax rate on GLD if you buy it and hold it for a year?
If it were a stock, you would. Even though you can buy and sell GLD like a stock, you’re taxed on the gold bars it holds. Gold bars are also considered a “collectible” by the Internal Revenue Service. That implies you’ll be taxed at a rate of 28% no matter how long you keep them.
5) The Risk of a Counterparty
For the most part, ETFs are free of counterparty risk. Although fearmongers like to instill worry of securities-lending activities within ETFs, this is mainly unfounded: securities-lending schemes are typically over-collateralized and exceedingly secure.
When it comes to ETNs, counterparty risk is extremely important. “What Is An ETN?” explains what an ETN is. ETNs are basically debt notes that are backed by a bank. You’re out of luck if the bank goes out of business.
6) The Threat of a Shutdown
There are a lot of popular ETFs out there, but there are also a lot of unloved ETFs. Approximately 100 of these unpopular ETFs are delisted each year.
The failure of an exchange-traded fund (ETF) is not the end of the world. The fund is liquidated, and stockholders receive cash payments. But it’s not enjoyable. During the liquidation process, the ETF will frequently realize capital gains, which it will distribute to the owners of record. There will also be transaction charges, inconsistencies in tracking, and a variety of other issues. One fund company even had the audacity to charge shareholders for the legal fees associated with the fund’s closure (this is rare, but it did happen).
7) The Risk of a Hot-New-Thing
What is the Schwab ETF Select List, and how does it work?
The ETF Select List is a tool created by the specialists at Charles Schwab Investment Advisory, Inc. (CSIA) to help you reduce your options and make confident investing decisions. For quarterly standardized returns and comprehensive fund expenditures, click on the fund symbol.