Charles Schwab Launches ETF OneSource, Offering 105 Commission Free ETFs

Brokerage:
Charles Schwab
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On February 11, 2013
Last modified:February 8, 2013

Summary:

Schwab Launches ETF OneSource offers more than 100 ETFs free of commission. Schwab ETF Portfolio Builder lets investors build all ETF portfolios using either pre-defined portfolio templates or commission-free ETFs from Schwab.

It looks like buying ETFs without commission is getting a lot easier these days. Late last week, Charles Schwab, the brokerage firm that introduced no-transaction fee mutual fund supermarket 20 years ago, announced the creation of the equivlant of ETF supermarket, called Schwab ETF OneSource. The online ETF trading platform allows Schwab customers to buy and sell 105 exchange-traded funds (ETFs) without the usual commission fees charged by stock brokers under normal circumstance (since ETFs are traded like stocks, trading commissions usually apply for each transaction).

So what’s the big deal about this? Well, one of the proven strategies of long-term investing is dollar cost averaging (DCA), which lets investors accumulate shares by investing a small amount each time (such as $100 per month), eliminating the burden of having to come up with a large lump sum of money and the concern of when to invest. DCA works very well for mutual fund investing because there’s no fee involved in subsequent investments with the fund firm. For ETFs, however, DCA doesn’t make too much sense if the investor has to pay a fee for each transaction (brokers charge the same amount of commission for ETF trading as for stocks). You don’t want to pay $5 (TradeKing) or $7 (Scottrade) commission when buying $100 worth of an ETF, do you? Now with commission-free ETFs, using dollar cost averaging to build an all ETF portfolio┬ábecomes possible.

Related: How to Buy and Sell ETFs for Free

In the past a couple of years, we have seen more and more firms start offering their clients zero-commission ETFs. There are firms like Vanguard which only have their own ETFs free of commission for their customers. We’ve also got companies like Fidelity and TD Ameritrade, which don’t have their own ETF offerings, but arrange to have third-party funds available for investors commission free (TD Ameritrade also has more than 100 commission-free ETFs). In the case of Charles Schwab, it’s a mix of both. As I have discussed before, Schwab has its own low-cost ETFs (some even beat Vanguard in terms of expenses) that are already commission-free for Schwab brokerage account customers. With the introduction of Schwab ETF OneSource, Schwab increased the number of commission-free ETF offerings to 105 by including funds from other ETF providers such as State Street (SPDR), PowerShares, Guggenheim, ETF Securities, and U.S. Commodity Funds. If you are an ETF investor, then you must have known, maybe even already owned, some of the biggest ETFs out there, like SPDR S&P 500 (SPY), PowerShares QQQ (QQQ) and SPDR Gold Shares (GLD). Now there are all available commission-free at Schwab ETF OneSource. If the ETF supermarket continues to grow, then we can expect that more funds will be available with zero trading commission in the future.

In addition to the ETF OneSource platform, Schwab also launched ETF Portfolio Builder for those who are interested in building a diversified portfolio using nothing but ETFs. With the Portfolio Builder, you can either select a pre-defined portfolio, such as Conservative, Moderately Conservative, Moderate,
Moderately Aggressive, or Aggressive, or, if you are a self-directed investor, build one of your own with the 105 available ETFs based on your asset allocation.

Related: What’s Asset Allocation and Why It Is Important

So, what do you think of this new Schwab ETF supermarket? Is it a real “game changer” in the ETF industry?

My first impression is that it’s pretty nice to be able to trade some very popular ETFs, like those mentioned above, free of commissions, but I won’t call it “game changer” just yet, because both Fidelity and TD Ameritrade already have more than 100 commission-free ETFs for their customers. In that sense, there’s no difference to me whether those ETFs are offered on a dedicated platform like Schwab ETF OneSource, or just like any other ETFs.

Schwab Launches ETF OneSource offers more than 100 ETFs free of commission. Schwab ETF Portfolio Builder lets investors build all ETF portfolios using either pre-defined portfolio templates or commission-free ETFs from Schwab.

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