Schwab Launches Commission-Free ETFs
The expense ratios on the new exchange-traded funds from the nation's largest discount broker also are super low.
Charles Schwab is the latest financial powerhouse to get in on the market for exchange-traded funds. By rolling out a series of commission-free ETFs, the nation’s largest discount broker is simultaneously taking on such big players as Vanguard Group and State Street Global Advisors and attacking one of the ETF concept’s drawbacks: the trading expenses that make them inefficient for dollar-cost averaging and other recurring-investment strategies.
It’s not hard to see why Schwab wants to get into ETFs. The number of such funds is soaring, quadrupling over the past three years to 841. ETFs now hold nearly $700 billion in assets. Investors like them because you can buy and sell them during the day like stocks, rather than wait for the price at the end of the trading day. And by offering commission-free ETFs to its brokerage clients, Schwab is eliminating an expense that can reduce their appeal.
Will the big rivals follow suit? The answer, for now, appears to be no. A Fidelity spokesman would say only that the firm is always looking to enhance its brokerage offerings and pricing. (Fidelity only has one ETF, which tracks the Nasdaq [symbol ONEQ].) Vanguard is expanding its family of 39 ETFs later this year with seven new bond offerings. Top Vanguard customers -- those with $1 million or more in assets -- already get 12 free trades a year on stocks and ETFs. But most customers pay $12 to $25 a trade. Vanguard has low expenses on its ETFs, but that could still leave you paying more than $200 a year in commissions if you were to invest monthly.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Demand is rising. The popularity of ETFs seems to be growing by the minute. Schwab surveyed independent investment advisers and learned that 39% of the respondents plan to invest more of their clients’ money in ETFs. And five out of six of the advisers already use ETFs.
Schwab’s task is to persuade its advisers and the owners of its nearly 8 million brokerage accounts to consider using its ETFs. Its slogan for its new line of products is memorable: “Everyone Trades Free.” Another draw of the new Schwab ETFs: minimal expense ratios.
The Schwab U.S. Broad Market ETF (SCHB) charges 0.08%, which compares favorably with the 0.09% for Vanguard’s similar Total Stock Market ETF (VTI) and is well below the 0.21% for iShares’ Russell 3000 Index ETF (IWV) and the 0.20% for SPDRs’ Dow Jones Total Market fund (TMW). Similarly, Schwab’s U.S. Large-Cap ETF (SCHX) carries an expense ratio of 0.08%, below the 0.13% for Vanguard’s Large Cap ETF fund (VV), the 0.09% for iShares’ S&P 500 Index (IVV) and the 0.09% for SPDRs’ (SPY). Schwab also matches or undercuts iShares, SPDRs and Vanguard with its small-cap and international stock ETFs. In all, Schwab launched four ETFs, and will add another four later this year.
If this seems like a costly strategy, Schwab has time and size on its side. It already clears roughly 20% of all ETF trades. Now is as good a time as any to offer investors a low-cost spot for their cash. Nearly $3.3 trillion is sitting in money market mutual funds, just waiting to be put to work.
Will Schwab succeed? Watch Pimco, another new ETF sponsor, for a clue. This summer and early fall, the bond behemoth launched five fixed-income ETFs with fees below those of the other big players. If it can extend its drawing powers from regular funds to the exchange-traded kind, you can figure Schwab will as well.
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
-
A Guide to Music Streaming Services
Deals Our guide to music streaming services from Spotify to Amazon Music, Tidal to Apple Music and how to find music streaming deals.
By Vaishali Varu Published
-
Stock Market Today: Markets Reflect Global Uncertainty
Exuberance fades as investors confront micro challenges and a murkier macro environment.
By David Dittman Published
-
The 5 Best Actively Managed Fidelity Funds to Buy Now
mutual funds In a stock picker's market, it's sometimes best to leave the driving to the pros. These Fidelity funds provide investors solid active management at low costs.
By Kent Thune Last updated
-
The 12 Best Bear Market ETFs to Buy Now
ETFs Investors who are fearful about the more uncertainty in the new year can find plenty of protection among these bear market ETFs.
By Kyle Woodley Published
-
Don't Give Up on the Eurozone
mutual funds As Europe’s economy (and stock markets) wobble, Janus Henderson European Focus Fund (HFETX) keeps its footing with a focus on large Europe-based multinationals.
By Rivan V. Stinson Published
-
Best Bond Funds to Buy
Investing for Income The best bond funds provide investors with income and stability – and are worthy additions to any well-balanced portfolio.
By Jeff Reeves Last updated
-
Vanguard Global ESG Select Stock Profits from ESG Leaders
mutual funds Vanguard Global ESG Select Stock (VEIGX) favors firms with high standards for their businesses.
By Rivan V. Stinson Published
-
Kip ETF 20: What's In, What's Out and Why
Kip ETF 20 The broad market has taken a major hit so far in 2022, sparking some tactical changes to Kiplinger's lineup of the best low-cost ETFs.
By Nellie S. Huang Published
-
ETFs Are Now Mainstream. Here's Why They're So Appealing.
Investing for Income ETFs offer investors broad diversification to their portfolios and at low costs to boot.
By Nellie S. Huang Published
-
Do You Have Gun Stocks in Your Funds?
ESG Investors looking to make changes amid gun violence can easily divest from gun stocks ... though it's trickier if they own them through funds.
By Ellen Kennedy Published