Charles Schwab started offering a new trading platform for ETFs, called “OneSource”. This platform allows free trading on a subset of all the ETFs available, meaning you save the buy and sell commissions.
If you’re a small investor, adding monthly small amounts to your savings, you probably know that the trade prices of $7-$15 can eat 1-2% of your yearly profits just like that, even more if you’re investing less than several hundreds of dollars at a time. This is a huge (relatively) price to pay, and if it is such for you – look at Schwab’s “OneSource”. It offers more than 100 different ETFs free of trading commissions, and you only pay the regular ETF expense ratio (which you pay anyways).
You can read more details here.
However, there’s a caveat. You will not find the more prominent ETFs in the list. Funds like SPY (SPDR S&P 500 Trust), QQQ (Pwershares QQQ Trust – Powershares NASDAQ Composite Index Tracking Fund), ONEQ (Fidelity Nasdaq Composite Index Tracking Fund), and many others.
You can find alternative ETFs for the same segments, but here’s the thing: they’re small. Small means less shares, less trades – less liquidity. While Mutual Funds will allow you redeeming your investment without a buying counter-party, for ETFs you need someone to buy the shares from you. If the ETF is small and there are not much trades on it, it may be hard to redeem your investment and get the best price.
You can read more of the criticism in this article.
So, as with any other thing, free comes at a cost. You need to compare the funds available and assess their suitability to your needs. The fact that you don’t pay trade fees may not save you much if you have to sell at a discount later. But then again, including these funds in this platform might help them grow significantly and in fact build them as a competition to the established large funds I mentioned before. That might even be the reason for this particular funds’ selection, if you ask me.
So invest wisely, but do consider every aspect. By the way, Schwab is not the only broker having no-fees ETFs list. You can look at Fidelity, TD Ameritrade, Vanguard, Scottrate, and others. The ETFs in their list may vary, and if you don’t find the ETF you want in one firm – check the others before compromising on an alternative.
Keep in mind that this article is not an investment advice and you should do your own research about your investment decisions. All the names mentioned were just the famous names that came to my mind, and I have no affiliation with any of them.
Your Little Advisor.