Charles Schwab vs. Vanguard

Ted

FYI: Vanguard Group and Charles Schwab opened their doors to the public at nearly the same time in the 1970s, but with different approaches to investing. Vanguard pioneered mutual fund ownership and is now the world’s leading provider of this financial segment while Schwab pioneered the concept of discount brokers, allowing Main Street investors to buy and sell securities at lower prices.
Regards,
Ted
https://www.investopedia.com/ipf/charles-schwab-vs-vanguard/?partner=YahooSA&yptr=yahoo

Charles

If you're only investing or trading within the Vanguard family of products, I'd go with Vanguard. But if your universe is broader, I go with Schwab.

catch22

@Charles ..............no Fidelity ???

Charles

Yep, I like Fidelity too and am currently with them because they won the benefits business for the company I retired from. But this article was between Schwab and Vanguard. After a couple years now, I think I found the Schwab platform easier to negotiate actually. My two cents. c

msf

I agree that Schwab offers a broader range of products, though a choice between the two when investing beyond Vanguard is not as clear cut as it might appear:

"Schwab offers a broader range of no fee mutual funds and ETFs through its OneSource program, with hundreds of candidates compared to Vanguard’s 129 mutual funds and 56 ETFs."

Only for another week. Then Vanguard pulls ahead with its 3419 NTF funds (from its search engine) and over 1800 ETFs. Schwab's fund screener shows Schwab has 4342 funds in its OneSource (NTF) program, and Schwab offers "more than 250" ETFs through OneSource. Not that I think number of NTF funds is a particularly good metric.

Investopedia is correct that Vanguard's banking services are close to nonexistent. While its 0.25% rate (the article is out of date) on checking is better than TBTF banks', it's well below what many banks pay. Schwab uses cash accounts as a significant source of revenue.

"Vanguard has no automatic sweep into money market funds so free cash in the brokerage account won’t earn interest unless the customer buys the funds manually."

Why would you need a sweep when the VBS settlement account is VMFXX, with a current SEC yield of 1.89%, over 9x what Schwab pays?

An important factor for me is reducing minimums to get into institutional funds. For example, you can get into PIMIX with $25K at Vanguard. At Schwab, you'll need $100K.

These days, I use Schwab primarily for its worldwide, foreign-transaction-fee free, fee-rebate ATM card. In addition, a very small number of financial institutions insist on ACH transfers only from a "real" bank and not a brokerage account. Schwab Bank is a real bank.

Finally, I think Schwab has significantly better service than Vanguard; fortunately that's something I haven't had much need for with either one of them.

Charles

"An important factor for me is reducing minimums to get into institutional funds. For example, you can get into PIMIX with $25K at Vanguard. At Schwab, you'll need $100K."

Thank you msf ... I did not realize that.

I suspect the trading fee remains about for $50 for non-NTF funds between all three houses.

c

msf

Dream on. If 'twere only so simple.

Vanguard's fees are tiered and on both buy and sell. Fidelity's and Schwab's are buy side only, with Schwab having a (sort of) set fee for all TF funds, Fidelity charging more for some funds (e.g. Vanguard's).

Fidelity has a back door for buying additional shares one time for $5/transaction. That's by using its automatic investment system and cancelling after one buy. Vanguard has an automatic investment system too, and it charges only $3/buy, but you have to let it do at least two buys before cancelling, so it's not an effective "on demand" tool. AFAIK, Schwab only allows automatic investments on OneSource (NTF) funds.

Here's the comparison:

Transaction    Schwab            Fidelity       Vanguard 
 Buy           $76 or            $49.95         $20 (online)
               8.5% if less    $75 some funds   $8 ($500K+ in VG funds)
          ($0 for < $100 buy)  (e.g. Vanguard)  $0 (first 25 w/$1M+ in VG funds)

 Sell          $0                   $0          same as buy

Automatic       -                   $5          $3 
Buy                             cancel after 1  cancel after 2

Charles

Thanks msf. Funny how, except for eliminating loads and ntf share classes, there is no "race to zero" for mf trading fees. c

johnN

Have all 3 vanguard schwab and Merrill edge. I use all three, schwab has better research, Merrill edge has lower fees, but Vanguard has so many stocks bonds etf

VintageFreak

Vanguard systems cannot do "math rounding" properly. Schwab is one of the best "rounders". This is the only consistent problem for me with Vanguard when tracking cost basis come tax time.

I come here for research. For me broker is just broker. I also have accounts at brokergages mentioned by johnN and also Fidelity. I am happy to report I've begun process of ridding myself of TDAmeritrade out of my life!

The only reason I have multiple brokerage accounts is because I've over the years become a COB, and worry about scandalous behavior from people at any brokerage sharing same genes as Bernie Madoff and want to protect myself. May seem irrational to some, but it helps me sleep a bit better.

Ted

@VintageFreak: You said, " The only reason I have multiple brokerage accounts is because I've over the years become a COB, and worry about scandalous behavior from people at any brokerage sharing same genes as Bernie Madoff and want to protect myself. May seem irrational to some, but it helps me sleep a bit better." Don't worry Freak, Black Sabbath has a song for that !
Regards,
Ted:)


P.S. What does COB mean ?

Derf

Just a guess, collect of brokerages ?
Derf

msf

Over the past couple of decades, there have been a few $0 TF services. Not surprisingly virtually all have fallen by the wayside. Mutual funds are generally not sold short, so there's no money to be made in lending the shares. Unlike Fidelity offering up a couple of loss leaders (losing but a few basis points) to draw profitable business traffic, providing a full menu of competing products below cost won't drive customers to proprietary products and services.

A good reference for 2001 brokerages and rates (I take 0 TF funds offered to mean all are NTF):
https://www.aaii.com/journal/article/discount-broker-shopping-guide-mutual-fund-supermarkets

At the time, Baker & Co, NetVest, Scottrade, and York Securities sold all the funds they offered without a transaction fee. I've never heard of the first two. Scottrade offered all funds NTF from roughly 2001 (based on skimming Wayback Machine pages) to the end of 2004.

I do recognize the name York Securities, but never tracked it. It's still around, though no longer selling all its fund offerings without commissions.

FWIW, here's Baker & Co's site (I think). Finding NetVest is trickier. The website listed with NetVest in 2001 takes you to an investing app startup. Possibly NetVest became NetVest Financial. In any case, Baker and NetVest Financial are now focused on financial services, not low cost brokerage services.

Apparently, Firstrade also offered all the funds it sold without commissions in the early 2000's (though not in 2001). That rings a faint bell with me.

Other financial institutions have tried to offer all funds without transaction but only to investors keeping significant assets with them:

WellsTrade required you to keep a PMA account ($25K+) with Wells Fargo to get 100 trades/year. Grandfathered accounts, no new ones for the past several years.

Scudder Preferred Investment Plus ($100K+ in assets) - 1998-1999 unlimited trades

Vanguard: 25 free trades/year for Flagship customers ($1M+ in Vanguard funds), 100 trades/year for Flagship Select customers ($5M+ in Vanguard funds).

Vanguard looks to be in it for the long term, but think about how they're doing it. You must funnel seven figures to their money managers, not just into their brokerage account. Fidelity may offer some good funds, but I don't see their customers having the same loyalty to their proprietary funds. Their customers are not likely to commit $1M to Fidelity funds just to be able to trade non-Fidelity funds without a fee.

Who else could make a go of this business model? T. Rowe Price? It recently upped its min in proprietary funds from $100K to $250 for a free M* membership. Would its customers spring for $1M to invest in outside funds w/o a fee? Or could they make a go of it with a min below $1M?

Old_Joe

COB: Crusty Old B-----d.

Note @Ted: You and I also qualify.

BenWP

I'm very happy with Chuck and he's better looking than Boggle. The banking, debit card, and ACH transfers to external accounts for free are big assets for me. I don't like the work involved, but I am considering transferring our smaller accounts that have been held in what was then TDWaterhouse. I know others have had problems with TDA; I have not.

msf

Perhaps I should be a little clearer about the ACH issue. Have you ever tried to link an outside account to a brokerage account and gotten a message along the lines of: "can only link to a bank account"? I have, but it's very rare.

One wouldn't be able to link such an outside account to, say, Fidelity. Generally, though, there's no problem linking banks to Vanguard, or to Fidelity. I've even linked a Fidelity account to Vanguard.
https://personal.vanguard.com/us/whatweoffer/accountservices/banking?lang=en

When using Schwab bank as a transfer point to external accounts, you'll have to transfer brokerage money to the bank. It's just that since it's all internal at Schwab, that transfer is very easy and fast.

The only thing special about Schwab's debit/ATM card vs. that at many brokerages (including TD Ameritrade) is that you get ATM rebates worldwide, not just in the US, and 0% foreign transaction fees. Most other cards (aside from Capital One) pass this charge through to you; Schwab absorbs it.

Sven

Who else could make a go of this business model? T. Rowe Price? It recently upped its min in proprietary funds from $100K to $250 for a free M* membership. Would its customers spring for $1M to invest in outside funds w/o a fee? Or could they make a go of it with a min below $1M?

Agree that TRP is moving in the direction not so friendly for small investors with less than $250K in asset. M* X-ray is a useful tool in analyzing one's portfolio when it was available for TRP investors.

VintageFreak

COB = Cynical Old B......

billr

My investments are split about 50-50 between Schwab and Vanguard. Sort of accidental, related to retirement accounts at the two main places where I worked. Both are fine, but if I ever consolidate I'll go with Schwab. I like their web site better overall.

MourningStars

Mostly lurking for the past few years. Thanks for all the fund discussions. The rest not so much.

In addition to using Vanguard ( for the lower Pimco Institutional hurdle), one could check Fidelity institutional minimums if you have a retirement account with Fidelity.

There are lower institutional minimums for/from some fund families.(EVBIX,
DGMIX, RAIIX, QUSIX,etc.) I suspect there are other funds/families.

msf

Fidelity even offers some of these funds with lower mins in taxable accounts, like EVBIX. Though in general, as you wrote, Fidelity offers the lower minimums only in retirement accounts.

Fidelity EVBIX page:
https://fundresearch.fidelity.com/mutual-funds/fees-and-prices/277905220?type=o-NavBar