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Capitalism Works, Even When it Comes to…Capitalism
From a friend in Manhattan who works in finance:
John Bogel launched a revolution from a Princeton thesis with the vision for his Vanguard index funds, giving low cost access to the entire public equities market.
Further:
Charles Schwab has been dropping brokerage fees for decades. In the last decade they launched their own dirt cheap index ETFs [exchange-traded funds] to compete with Vanguard. Then a group of venture capital backed “robo advisors” started to make Vanguard and Schwab feel the heat, by giving away sophisticated investment services for pennies on the dollar through their trading algorithms and user friendly interfaces.
Now Schwab is answering their challenge by giving away a similar service FOR FREE. Repeat: Schwab is making it FREE for any American to put a few bucks in the stock market and invest with the intelligence of the best portfolio allocators known to financial history.
Capitalism for the masses. Brought to you by American entrepreneurs. Even in highly regulated markets like financial services, American ingenuity can still burst through. It’s a great thing.
No doubt opinions differ on whether the new Schwab offering will prove as useful as Betterment or Wealthfront–and if anyone here on Ricochet has compared the services, I’d be fascinated to hear what he has to say–but the innovation and competition that Schwab and the other services demonstrate?
It is indeed a great thing.
Published in General
My husband and I have dealt only with Schwab for two decades. We don’t depend upon them for investing advice but our cash and assets are automatically insured. It’s a very conservatively run corporation and I would never trust my donuts with a ‘regular’ bank.
And you are correct about the brokerage fees. I trade in and out all the time and my fees are negligible.
Hmm. “Ivy League” educated banking elitists, relying on economic theories developed by East Coast elitist Ivy Leaguer academics…
Think of all those poor hard working middle class workers in good-paying middle class jobs…analysts, brokers, telephone operators etc etc…all jobs destroyed by these low-cost innovations which can now be outsourced to India or China.
We should go back to the good old days when we had ticker tape machines, made in American ticker tape machine factories, where ticker tape machine assemblers could afford good middle class houses on good middle class salaries!
I see nothing good here. Bunch of Ivy League elitists ruining blue collar hard working Americans. Only a bunch of East Coast elitist academics in cahoots with elitist bankers could think this is a good idea.
Bah!!
While we’re at it let’s go back to dray wagons manned by the original Teamsters working 14-16 hour grueling days to deliver goods to those hard working middle class masses……on second thought, no thanks!
Free lunch! Come get your free lunch!
Many people have made a killing by selling a free lunch. I’d hold my breath until I see the fine print.
Let us agree on what “free” means in financial services. It is not always free. There are so many embedded fees in fund management that you won’t necessarily know if you are being charged because some fees are taken out of the fund directly and not visible to you as an investor.
The best way to invest in the stock market is still to buy the SPY ETF which tracks the S&P 500 market index. Very few funds or ETFs (fewer than 1%) outperform SPY on a multi-year basis and your odds of choosing the ones that do are essentially nil. You get an idea of the fees levied in SPY by comparing its performance to the S&P 500. In the past 5 years, SPY returned 92.70% and the S&P 500 returned 92.76%. So fees are really minute at 0.06% over a 5 year period.
Why anyone would pay any mutual fund loads or 1%+ annual management fees or the outlandish 2/20 hedge fund fees is one the great mysteries of modern life. I have my theories but that is for another time.
You’re welcome! :)
The competition and innovation is wonderful.
As for ” The best way to invest in the stock market is still to buy the SPY ETF which tracks the S&P 500 market index. ”
The advice to invest in index or low cost asset class funds is great. But investing 100% of your assets in SPY is not smart. Yes, you can do a lot worse, but a portfolio of 100% SPY is terribly un-diversified and completely inappropriate for all but the most aggressive investors.
It means all of your money is in one asset class – US large company stocks, which make up about 1/3 of the world market capitalization. This is a risk that can easily be avoided given the availability of index funds across asset classes.
From Jan 1-, 2000 – Dec 31, 2010:
Portfolio 1: 100% S&P 500: TOTAL RETURN: Negative 9.1% for the entire decade.
Portfolio 2: 30% S&P 500, 10% US Extended Market Index, 20% Total International market index, and 40% US investment grade bond index.
Assuming annual rebalancing – TOTAL RETURN: PLUS 44%.
If you retired in 2000 with 100% of your money in SPY, you are probably toast.
That’s the value in these new offerings. Broader diversification, systematic rebalancing., portfolios that match investor goals and objectives. Robo advisors may be inadequate in handling the more emotional side of investing and personal finance, but for now, the competition is a plus for everyone.
Can you point me to some resources?
I research this stuff once in a blue moon and am on the “value investing” bandwagon. My fallback sites are
Yes. And all of these are the result of decades of economic and finance research by those…much maligned…academics, who figured out how the stock market works, what people’s risk preferences were, and how to align the two.
The result? Cheap and easy and automatic ways to allow even the most uneducated investor to become…capitalists…themselves.
Is this part of another conversation? I didn’t see anyone maligning academics here.
Yes it is.