I'm thinking about rolling my mutal funds from Schwab to Vanguard?

Question

I'm thinking about rolling my mutal funds from Schwab Target 2040 (SWERX) to Vanguard Target Retirement 2040 (VFORX).

My IRA is managed by Scwab currently so it's a no load / No Fee fund however the Net Expense Ratio is .84% where Vanguards is .19%

Schwab:
Gross Expense Ratio: .90%
Net Expense Ratio: .84%

Vanguard:
Gross Expense Ratio: 0.19%
Net Expense Ratio: 0.19%


I'm thinking since the expenses for Schwab being higher than Vanguard , after the intial hit of rolling over I am thinking that this will improve the performance of my IRA.

Can someone please tell me if I've got the right line of thinking and if there is anything else I should consider?

Thanks!

Answer 1

I have a problem with this statement: I'm thinking about rolling my mutal funds from Schwab Target 2040 (SWERX)...





You do not have mutual funds. You have a SINGLE fund. And that is no way to invest.



Yes, the expenses of that one Schwab fund are higher than that one Vanguard fund. But parking all of your money in that one fund is a bad idea, also. I'm going to assume that you either don't know a thing or don't care to LEARN a thing about asset allocation. You should.



But if you don't, and won't, and these two funds perform pretty much equally, then by all means, switch. Over time, you'll see a greater return with the lower expenses at Vanguard.



But let's say you do learn about asset allocation and diversifying your portfolio into different asset classes. In that case, you should keep Schwab as your custodian of the account. No one says you have to own any Schwab funds, and you do not have to. With Schwab, you can buy any no-load funds out there, including Vanguard funds. But if you switch to Vanguard and want to diversify, you can only buy funds within the Vanguard family. And, Vanguard does not have all of the best funds in every asset class, let alone in ANY asset class - they have some good funds and some bad ones and the rest are mediocre, like with most companies. NO fund company has good funds in every asset class. So, why limit your portfolio to Vanguard funds, or any one company's funds?



Stick with Schwab as the custodian but buy the Vanguard fund if you don't want to bother learning about mutual fund investing. You don't have to switch from Schwab just because you want to dump that fund.

Answer 2

The Schwab Fund is not bad because of the .84% expense ratio. It's simply poor. The Vanguard 2040 fund between the two would be a better choice (Morningstar Premium Service is not happy with the Schwab Target offerings).



I don't like the Vanguard Target Funds. The T Rowe Price Target Funds are much better (not cheaper... just better). No target fund is the best fund to be in. But if you want easy.... that's the way to go.



Vanguard is a great company but way to conservative. For someone under 50-55, Vanguard is not the best choice. I've been self managing my funds since the early 1980's. I just put 15% of my money into Vanguard.... these funds are the most conservative "bucket" I have in my portfolio.... I'm in my early 60's..... I've known about Vanguard since I started...... they are the cheapest Mutual Funds available...... but... my main goal is to make money..... so I went elsewhere.



If you must stay with Target Date Funds... do T Rowe Price..... otherwise, learn about Mutual Funds and Asset Allocation. If you can... subscribe to the Morningstar Premium Service. Pick some better, no load, low fee Mutual Funds.

Answer 3

It's true that Vanguard's expenses are very low. And they're a good company. So that is one factor to consider.



However, I would NOT switch just based on that. Look at the various funds that Vanguard and Schwab offer. (I have a 401k with Vanguard and and IRA with Fidelity.) I don't know what Schwab offers, but Vanguard's offerings are fairly limited.



Also, look at how comparable funds performed over the same time period. That's really the important thing: Performance. And while you say in your question that "I am thinking that this will improve the performance of my IRA," you're incorrect. A lower net expense ratio doesn't improve performance. It would improve return slightly, assuming equal performance.



However, I'm not sure what "the initial hit of rolling" it over means. Usually there's no charge to transfer accounts. Look into that, too.



But, really, the main thing is the choice of the funds you'd have at Schwab and Vanguard, and how their comparable funds have performed.



Hope that helps.

Answer 4

Vanguard is a reality honest company I have two accounts with them the target 2045 individual account and an Ira

Answer 5

Jerry has this maximum appropriate and the 1st poster is fabulously incorrect. in case you pass shares from Schwab brokerage to forefront brokerage (which I hate btw) there is not any taxable experience. in case you go out a Schwab fund and pass to a forefront fund, it relatively is surely a taxable experience (examine your foundation although - in specific situations you have paid ebough in capital effective properties taxes already that the tax isn't something).

Answer 6

Wow, tough choice. You are correct about the expenses,

but you also have to consider the performance of those

2 funds. SWERX has a slightly better return. Go to

http://www.morningstar.com and enter the 5 letter symbol

in the quote box. compare the 2 funds.

Answer 7

I agree with you, I have been with Vanguard for many years. In today's low-growth economy, you need to watch expenses because returns are so low.