Monday, May 11, 2009

Schwab Lowers Expense Ratios, Beats Vanguard

Charles Schwab recently announced that they are cutting their expense ratios on select index funds. This was done to compete for market share with Vanguard, TIAA-Cref, and Fidelity who recently cut many of the expense ratios on many of their funds.

The Schwab S&P 500 Index Fund (SWPIX), the competes with the Vanguard S&P 500 Index Fund (VFINX) has reduced it expense ratio to 0.09% verses 0.18% offered by the Vanguard Fund. Also, the minimum investment at Schwab is only $100. To open an account at Vanguard, the minimum is $3,000 on almost all of their funds. Schwab’s Total Stock Market Index Fund (SWTSX) also has an expense ratio of 0.09% verses 0.16% offered on The Vanguard Total Stock Market Fund (VTSMX).

In theory, the performance of an index fund “managed” by one company before fees should be identical to the returns provided by an equivalent fund “managed” elsewhere. With index funds, however, the fees matter because everything else is theoretically equal. Lower expenses could save you many thousands of dollars over long stretches of time. With this news, I may consider at least investing new money with Schwab.

The Charles Schwab company truly deserves being appalueded for this investor friendly reduction in expenses. I also have to give credit to Jack Bogle, the founder of Vanguard. He has been campaigning for many years that other mutual fund companies reduce their overly inflated expense ratios to be more in line with what Vanguard offers.