Are Charles Schwab Index Funds the Cheapest?

Charles Schwab index funds fees are certainly among the lowest.

There is a fierce battle waging between the big firms for the lowest index fund management fees.

We can thank Vanguard for low fees overall.  I think they started kicking too much ass and taking too much market share, so Fidelity and Charles Schwab index funds took notice and started slashing their fees.

This has been nothing but good for investors.  I’ll have to keep this and other similar posts constantly updated, as prices are slashed among the big three often.  I’ll summarize the recent changes later.

INTRODUCTION OF INVESTING AT SCHWAB

charles schwab index funds

When you buy Charles Schwab index funds, here’s some of what you get:

  • Mutual Fund OneSource service funds and other No Transaction Fee funds are $0 for online trades
  • All other mutual funds cost up to $76 to buy and $0 to sell
  • Online stock trades are $4.95 per trade
  • Online Schwab ETF OneSource trade are free
  • Other ETFs can be purchased for $4.95 per trade

If you are going to buy Schwab index funds outside of the Schwab mutual fund family, definitely invest somewhere else.  Their fee for other mutual funds really makes it cost prohibitive (that means way too damn expensive!)

WHAT’S AWESOME ABOUT CHARLES SCHWAB INDEX FUNDS?

  • $167 billion under management in mutual funds and ETFs
  • 3rd largest provider of index funds (behind Vanguard and Fidelity)
  • No minimums to invest (This is an issue at Vanguard)

CHARLES SCHWAB INDEX FUNDS

I’m going to talk about the features and fees of the three most popular and competitive mutual fund categories.  Here we go!

S&P 500 INDEX FUND

Aaa yes, the benchmark of all index funds in my opinion.  It has a dear place in my heart as my main investment during most of my military career.

Just that.

Nothing else.

It is Warren Buffett index fund recommendation of choice.

EXPENSE FEE:                          .02%

MINIMUM INVESTMENT:      NONE

It’s a cheap expense fee, but…

It’s not the cheapest.

Vanguard is close with .04%

Fidelity S&P 500 index fund (FXAIX) is at .015%

It’s the winner.

But, there’s sort of one that’s kinda cheaper…

Fidelity launched their ZERO index funds recently, and there are currently four of them.  These funds have an expense fee of 0%.  Whoa!

They have a fund called the Fidelity ZERO Large Cap index fund (FNILX)

What some may not realize is this is meant to be a copycat to the S&P 500 Index.  It actually costs money to use the S&P 500 Index name, so they aren’t doing that.

What they are doing is investing in almost the exact same thing.  The returns would be almost indistinguishable.

This fund tracks large caps, which is what the S&P 500 is made up of!

So to summarize, even though Fidelity’s S&P 500 Index is cheaper than Schwab’s at .015%, Fidelity’s ZERO fund in this category is even cheaper at 0%!

As a military officer who banks at USAA, I want to add their expense ratio as well for comparison.  S&P 500 Index Fund Reward Shares (USPRX) is .25%.  Way too expensive.

USAA needs to get with the program!

TOTAL STOCK MARKET INDEX FUND

My second favorite index.

It’s one of the favorites of the Financial Independence (FI) movement.

It’s a favorite of JL Collins, author of The Simple Path to Wealth.  He recommends this as the primary investment.

I’d argue that you won’t see a huge difference between investing in either this or the S&P 500 index fund.  Which will outperform over the long term is anyone’s guess.  Total stock index is a little more diverse.

It buys almost the entire U.S. stock market of more than 2700 stocks comprised of large, medium, and small capitalization stocks with one investment. 

Here’s how Charles Schwab index funds measure up:

EXPENSE FEE:                         .03%

MINIMUM INVESTMENT:      NONE

It’s still very cheap, but as you are realizing, thing are very competitive with these popular indexes.

Vanguard is still at .04%.  Very competitive.

Fidelity actually offers the ZERO Total Market index fund (FZROX).  So they are the winners again!

USAA doesn’t offer this mutual fund.

INTERNATIONAL INDEX FUND

These are often a favorite for diversification.  A way to invest outside the U.S.

The Schwab International index fund (SWISX) is comprised of large cap stocks in developed markets.

This is important to note, as there are different flavors of international index funds.  Some will have developed markets as well as developing markets.  Some may also include mid and small cap stocks.

International index funds will have expense fees higher than typical because of the costs of buying international stocks. The more diverse the stocks owned, the higher the fee.

Let’s see how Charles Schwab index funds measure up in this category:

EXPENSE FEE:                          .06%

MINIMUM INVESMENT:        NONE

A fairly cheap expense fee for sure, but Fidelity keeps rubbing Schwab’s face in it with these darn ZERO funds.

Fidelity has a ZERO International index fund (FZILX) with a zero expense fee.

Vanguard’s Total International Stock index fund (VGTSX) is at .19%, quite a bit higher.

My military bank, USAA, with their USAA International fund (USIFX) is sitting at 1.08%.  Nowhere near competitive. 

C’mon USAA!

FUND CUTS

On December 20, 2018, Charles Schwab index funds had fees reduced on 5 of their most popular offerings.

  • The S&P 500 index fund went from .03% down to .02%
  • The Small-Cap index fund from .05% to .04%
  • Schwab US Large-Cap Growth index fund from .04% to .035%
  • US Large-Cap Value index fund from .04% to .035%
  • US Mid-Cap index fund from .05% to .04%

They are doing this likely to inch closer to Fidelity’s zero funds, of which now 4 exist.  These are:

  • Fidelity ZERO International index fund (FZILX)
  • Fidelity ZERO Large Cap index fund (FNILX)
  • ZERO Total Market index fund (FZROX)
  • Fidelity ZERO Extended Market index fund (FZIPX)

Vanguard had its own answer to Fidelity launching the ZERO funds.  It decided to lower the investment minimums on 38 Admiral Shares index funds from $10,000 to $3,000. 

It used to be you had to invest $10,000 to get their low rates, but now that can be done with $3,000.

Keep in mind, however, Fidelity and Schwab are currently beating their rates by a little, and don’t have an investment minimum.

CONCLUSION

Sure, I could sit here and list five or ten more mutual funds, but the differences in prices stay pretty consistent.

Fidelity is often the cheapest.  If not, they are damn close.  They have four index funds with zero fees.

Schwab comes in a close second.

Both companies pretty much don’t have investment minimums.

Vanguard has minimums of $3,000 for many of their most popular index funds, including the infamous VTSAX Total Stock Market index fund.

Vanguard has more of a tradition of not trying to upsell you on expensive extras.  They are more about keeping low fees for the investors benefit.

I don’t think that’s necessarily the main focus of Fidelity and Schwab.  At the end of the day, I’m pretty sure they hope you spend more money on upsells (products with commissions for them).

Do you think my analysis is fair?

Give yours!

Comments…

Read the popular post:

The 10 Cheapest Index Funds to Supercharge Your Portfolio

Rich on Money

I have 20 paid-off single family homes. I did that on a military salary, while living overseas. Want to read about it?

The Complete Guide to Real Estate Investing

Previous

5 Worst Financial Mistakes to Avoid for Military Members

Next

How Military Can Avoid Paying Capital Gains on Real Estate

4 Comments

  1. Avatar

    Luis

    Rich,

    Good comparison and thanks for putting this together for us readers. I’m “hoping” that Vanguard answers Fidelity’s challenge. If not, I’ll be opening a Fidelity Zero account in the near future. What also makes possible breaking away from Vanguard and purchasing a no cost fund from Fidelity is Personal Capital. PC enables you to keep track of your portfolios under one umbrella. If PC did not exist, I probably would not buy Fidelity’s Zero funds.

    I look forward to your next post.

    Semper FI,
    Luis

    • Avatar

      Personally, i don’t know that the difference between Vanguard’s fees and 0 are enough to make me choose one company over the other. Vanguard is a great company, and .04% is really low! It’s just salesmanship!

      I’ve never used personal capital.

  2. Avatar

    Matt

    Nice write up. With fees and investment performance being almost identical I made my choice based on different reasons. I am a schwab guy because of its customer service. I think its the best for any large company. Not sure about fidelity but I know its not something Vanguard necessarily prioritizes. The other reason is that all three corporations I have worked for use schwab as the 401k provider. Having all accounts in one place is pleasant.

    • Avatar

      You are right about things being almost identical. Some people care about the small differences, but I really don’t. It’s a question of customer service, what the company stands for, and web interface for me.

Leave a Reply

Your email address will not be published. Required fields are marked *

Powered by WordPress & Theme by Anders Norén