Here is some good news for investors. Schwab, competing for investment business with other low-cost mutual fund operations like Vanguard, Fidelity, and TIAA-Cref, has lowered the expenses on a number of their mutual funds.
The Schwab S&P 500 Index Fund (SWPIX), which competes directly with the Vanguard S&P 500 Index Funds (VFINX), now sports a net expense ratio of 0.09%, compared with Vanguard’s 0.16% (or 0.15% or 0.18%, depending on who you ask). Additionally, the minimum investment at Schwab is only $100. You will need $3,000 to open an account at Vanguard. Schwab’s Total Stock Market Index Fund (SWTSX) has also been reduced to 0.09%, which is lower than Vanguard’s expense ratio for the equivalent VTSMX of 0.16%.
Theoretically, 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, 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, and I will possibly consider moving some funds from Vanguard to Schwab.
I should point out that if you qualify for Vanguard’s Admiral Shares, your expense ratios will be lower than Schwab’s new rates. You need to have $100,000 in one mutual fund (or $50,000 in one fund and a ten-year history with that fund) to qualify.
Updated February 6, 2012 and originally published May 6, 2009. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @flexo on Twitter and visit our Facebook page for more updates.