Schwab Sinks Fees

[Hermit]

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Originally Posted by GalaxyBoy The Schwab 1000 index is a proprietary index and isn't the same as the Russell 1000 which is what the Vanguard ETF referenced on the Schwab web page tracks. Schwab and VG both have total stock market funds. Schwab dropped the ER on theirs to 0.03%, below VG's nearest equivalent Admiral fund, some time ago.

I got sucked into one of the Schwab "1000" funds many years ago. It was a perenail under performer. That is when I left Schwab.

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Originally Posted by dixonge Just got an email - Schwab 1000 Index ETF now charging 0.05%! Less than half the Vanguard rate.

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Originally Posted by LOL! At these low expense ratios, tax-efficiency is more important to me. If the Schwab ETF causes me to pay 0.1% more of my investment in it every year over a Vanguard ETF, then why would I want to use it?

[OldShooter]

I'm not taking a position but have some thoughts:

First, for "small" indexes like the S&P 500 all the funds are basically making the same trades so in the end shouldn't their tax efficiency be about the same?

Second, for large indexes like the ACWI All Cap, all funds are sampling as they cannot possible hold every issue. So there maybe it is worth more concern?

Finally, these tax numbers will vary with what's going on in the market, so are today's numbers a reliable predictor of tomorrows?

[MRG]

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Originally Posted by OldShooter This, too, shall pass. These guys are slitting each other's throats in a race to the bottom, fees that ultimately will not be economically tenable. So, enjoy it while it lasts. I am.

Maybe.

On the other hand expenses have been dropping for years. ICI has some data that shows the drop in fund fees over time. There's a lot of information there.

https://www.ici.org/research/industry_research/fees

In the early 1980s funds were awash with paper in the back office. It was very expensive to handle it all. In the later 80s imaging technology started helping.

The percentage of paper interactions has been dropping steadily since the late 1980s. Internet access has further removed the number humans in the back office. Basically we do our own data entry today.

Other technology improvements have further reduced costs. Twenty years ago ICR/OCR was pretty iffy on accuracy, today it makes sense. Many of the remaining paper share owner interactions are done by robotic systems; humans only deal with exceptions. Whole complex customer interactions involving correspondence going back and forth, completed and never seen or touched by humans.

There's other technology improvements to further reduce the cost of the back office and improve security. I left the industry mid way through the product development.

[mathjak107]

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Originally Posted by OldShooter I'm not taking a position but have some thoughts: First, for "small" indexes like the S&P 500 all the funds are basically making the same trades so in the end shouldn't their tax efficiency be about the same?

tax efficiency is different . for one thing not all own all 500 stocks . some own less and mimic the index by trading in and out of the minor ones as needed .

they all tend to have different policy's about loaning securities , writing calls and puts , etc . some like spy as an example do not reinvest dividends as the fund gets them they hold it in cash until paid out .others reinvest and sell when dividends are paid quarterly. there are other difference's as well .

some have 12b-1 fees and higher expenses as well

[meierlde]

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Originally Posted by GalaxyBoy I’d like to dig deeper into this. Can you give the citation for this, please?

Here is a link to Morningsides tax cost ratio:Tax Cost Ratio

The ratio reflects "The Morningstar Tax Cost Ratio measures how much a fund's annualized return is reduced by the taxes investors pay on distributions. Mutual funds regularly distribute stock dividends, bond dividends and capital gains to their shareholders. Investors then must pay taxes on those distributions during the year they were received."

So it really only matters on taxable accounts not retirement accounts.

[OldShooter]

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Originally Posted by MRG Maybe. ...

True enough, technology is making all of this stuff cheaper. I am coming from the human nature side, though, having observed many times where competitive juices cause people to stay in the fight too long, eventually hurting themselves rather than or in addition to hurting their competitors. We'll see ...

[mathjak107]

Quote:

Originally Posted by OldShooter I'm not taking a position but have some thoughts: First, for "small" indexes like the S&P 500 all the funds are basically making the same trades so in the end shouldn't their tax efficiency be about the same? Second, for large indexes like the ACWI All Cap, all funds are sampling as they cannot possible hold every issue. So there maybe it is worth more concern? Finally, these tax numbers will vary with what's going on in the market, so are today's numbers a reliable predictor of tomorrows?

keep in mind one of the only true s&p index funds is spy . it is structured as a uit and basically sits as is unless the index changes stocks . in fact all dividends that come in daily are held as cash and not reinvested in the index.

on the other hand :

Vanguard’s VOO is similar to IVV and other s&p 500 funds , in that it’s not limited in how it invests or holds it shares.

As per the prospectus, VOO is allowed to invest in derivatives to stay fully invested or to deviate from normal investment strategies when needed such as for liquidity or valuation reasons. It also invests its daily cash in Vanguard money market funds.

ivv as an example invests the cash in to the index then sells when it pays out . it also can loan securities out . spy pays fund expenses from the cash held , other funds may not since dividends are put back in the index and fund expenses are paid through sales of holdings .

so not all index funds are equal

[ducky911]

SCHB Schwab U.S. Broad Market ETF is .03%

[OldShooter]

Quote:

Originally Posted by mathjak107 keep in mind one of the only true s&p index funds is spy . it is structured as a uit and basically sits as is unless the index changes stocks . in fact all dividends that come in daily are held as cash and not reinvested in the index. on the other hand : Vanguard’s VOO is similar to IVV and other s&p 500 funds , in that it’s not limited in how it invests or holds it shares. As per the prospectus, VOO is allowed to invest in derivatives to stay fully invested or to deviate from normal investment strategies when needed such as for liquidity or valuation reasons. It also invests its daily cash in Vanguard money market funds. ivv as an example invests the cash in to the index then sells when it pays out . it also can loan securities out . spy pays fund expenses from the cash held , other funds may not since dividends are put back in the index and fund expenses are paid through sales of holdings . so not all index funds are equal

Thanks much. I appreciate it. This is a good forum for getting educated. Next time I'm tempted to read a prospectus, I'll first contact you to get briefed on the important bits.