Schwab Introduces the Lowest Cost Stock Index Mutual Fund Ever...


You may have noticed that Charles Schwab is advertising on TV about their new S&P500 Index fund with an expense ratio of .03% - which is 3 basis points (3bps) – so that means that one could own that fund for $300 per year based on a $100,000 position. That’s incredible.

First a quick caveat – I am not licensed to sell or give advice about any type of securities – stocks, bonds, mutual funds, EFTs- etc. Of course - with nearly 30 years in the financial business I have picked up a thing or two about traditional investing. I had my securities license for about 20 years but gave that up to pursue an alternative investment practice. My practice focuses on alternative safe money products and strategies. The products that I place for my clients are good choices as compliments to traditional investing models – not replacements for those models.

Each month I have a few folks ask me if they should put all their funds into the various products that I offer. They have informed me that if they can make 6% - 8% on their funds through the utilization of my strategies – they are content with those returns and would rather not have exposure to Wall Street investment products. But my belief is that diversification is a solid strategy and that the stock market has always proven over long periods of time to offer the best returns.

I am a big fan of Vanguard – in fact I have several accounts with them for my family members. Normally the financial advertising rarely catches my eye. But this Schwab offer is quite enticing – I may end up opening an account there myself – there seems to be no additional fees or account minimums which is nice. I understand that Schwab is using a strategy in marketing called “loss leader” – this is an approach where a company offers “Product A” at break even or even a loss hoping that they can capture new clients and through marketing to them about their other products “Products B+” – they will be profitable. I will always remember a college professor explaining this strategy to our class like this – “discount the price of hot dogs to even a loss level – and jack up the cost of rolls and condiments” – in the end the company will most times come out ahead.

If you looking for a low-cost way to have market exposure – this (and other low cost funds) may be a good fit. These “index” funds are unmanaged - they simply own equal parts of the companies that make up the index – others include Dow Jones, Nasdaq, International Indexes, etc. They are inexpensive ways to keep exposure to various markets.

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