I recently opened an IRA with Charles Schwab, even though I know that Vanguard is the usual community choice, because its ERs and fees are now comparable to Vanguard (and its minimum initial investment is lower), and, additionally, it is known for having very good customer service and has actual brick-and-mortar locations.
I am planning on investing in a TDF, but this review gave me pause and made me start questioning my decision to go with CS over Vanguard.
In particular (from the article),
In any case, even with the cap, the Investor Shares still cost more than the expenses from the underlying investments. You are basically paying 0.05% to 0.08% for some simple asset allocation. That means you could build your own portfolio using the same Schwab ETFs at a lower cost. You could also get rid of the (unnecessary in my opinion) cash component, which currently only yields 0.43% with another temporary fee waiver as of 8/26/2016. Personally, that’s what I would rather do, but I will admit that some folks will do better with an automated asset allocation.
and
This is a long-term play for Schwab, as they’ve all but admitted that the index ETFs themselves are currently losing money, while hoping to either make up the difference in other fees, services, or products somewhere down the line (like when interest rates rise again). Schwab will surely grab much more assets from employer retirement plans as a result of this move.
and
However, if given the choice, I’d recommend my family to buy Vanguard Target Retirement funds first because Vanguard is not a for-profit company and I trust Vanguard more to keep customer interests first over the long run. (I believe that Schwab includes cash where it isn’t necessary in order to increase their future fees from money market funds, which are an important contributor to profits. This isn’t as significant here as in their robo-advisor product, but it will matter more as interest rates rise. More importantly, Vanguard doesn’t play such games.) However, big-picture-wise they are very similar. I’d gladly recommend that they buy a Schwab Target Index fund in their 401(k) or 403(b) plan as they are likely the best options if available. This is a positive development overall for individual investors.
are concerning to me.
What is the community's thoughts on whether or not CS is "playing dirty" by having cash allocations to make profits off of (at the expense of better investment strategies for the investors)?
I'm mostly interested in general discussion on this topic, but I hope it's okay to slip in one personal question: would you recommend that I move my retirement accounts from CS to Vanguard?
Submitted April 09, 2017 at 05:29PM by finaid_madhat http://ift.tt/2og0xBd
