The battle of low-cost investing is on and Charles Schwab has fired a decisive shot against its competitors.
Read more: Clark’s investment guide
Lower fees mean you keep more of your money
Effective Feb. 3, the ‘Ask Chuck’ discount brokerage has announced it’s lowering trade commissions on stocks and ETFs (exchange-traded funds). But that’s not all; coming March 1, Schwab will also lower expenses on index mutual funds too.
It used be that a standard equity or ETF trade at Schwab cost $8.95. Now the firm is taking two whole dollars off that price so each trade will now cost only $6.95.
On the index fund side, Schwab is doing away with investment minimums and lowering expenses.
Here’s a look at three Schwab index funds of note:
|Name||Ticker symbol||Expense ratio|
|Schwab S&P 500 Index Fund||SWPPX||0.03%|
|Schwab Small-Cap Index Fund||SWSSX||0.06%|
|Schwab U.S. Aggregate Bond Index Fund||(Trading starts Feb. 23)||0.04%|
For the layman investor, what these numbers mean is that if you put $1 into an index fund at Schwab, you have almost 100% of that money staying and working for you. Only a tiny fraction of one penny out of every dollar invested goes to expenses.
By contrast, a typical mutual fund can have annual management fees of 1.5$, which means a penny and half of every dollar is gone. That may not sound like much, but over time it can actually reduce what you have in retirement by half.
The race to increasingly lower investment costs is one that’s been going on for many years; as early as 2011, Vanguard and Charles Schwab were duking it out by lowering minimums and fees in an attempt to poach customers from one another.