Schwab ETF

Discount broker Charles Schwab & Co. entered the ETF arena Monday by announcing the launch of four exchange-traded funds, with four more set for December.

To boost sales, Schwab is waiving its customary fee of $12.95 per trade if the ETFs change hands online for Schwab account holders. The commission-free feature will be permanent, said Peter Crawford, a Schwab senior vice president.

Source: Wall Street Journal

I almost never discuss fundamentals on this blog, but I think Schwab’s move to offer free movement into and out of its ETFs could be a big source of growth for the company. This is my personal anecdote on dealing with Schwab.

I assist my mother with investing her retirement account, and one thing that made Schwab attractive verses some other brokers is their access to CDs, bonds and mutual funds. Investing money for a retiree is very different than the way I trade my own account.

She is fortunate to have a decent size account, but even so, a $25 round trip can add up pretty quickly if you are trading in and out of ETFs. If you are trading a small position size of $5000-$10,000 and have a 3-4 losing trades in a  row, besides your losses, you are out $75-100 in commissions instead of $6-8 dollars with Interactive Brokers.

There have certainly been times this year where I have thought about putting some of her money in the market. However, the thought of buying a little SPY and the round trip costing me $25 verses $2 with Interactive Brokers has caused me not to make a trade when I might have if the commission was lower.

For younger workers, even if you have a large salary, you are capped at putting in approximately $15,000 into your 401k. Let’s say you have been fortunate enough to put the full amount in your 401k over a 5-year period. You would have about $75,000 in your account. For an account of this size, $25 per round trip is much different than $2 per round trip.

Keep in mind, Schwab is a very popular choice for employers that offer a self-directed account. So if your employer picks Schwab, you are stuck with them and their $12.95 commissions ($9.95 if you make a certain number of trades per month). I would think most individuals investing in basic ETFs such as SPY and QQQQ will shift over to the Schwab equivalent to save the commissions.

In my case, I was seriously thinking about moving my mother’s account to a cheaper broker. With the new funds coming online, assuming their is decent liquidity, I’m likely to keep her account at Schwab. It becomes a much better deal to use them now that they have an affordable ETF option combined with their other offerings.

With all of that said, I wouldn’t buy SCHW unless the technicals were good.

If SCHW can take out horizontal resistance at $18.50 and breakout over its 50-day SMA, I might be interested.