How to minimize trading fees on 4 index fund i401k portfolio?

[EMCCDOC]

I am about to open my first individual 401k and plan to use a 4 -5 index fund portfolio, ideally with vanguard ETFs.

Option 1: Open account with E trade, buy vanguard ETFs each month. That would mean paying $7 per fund each month, $28/month or $336/year. Then there would be additional trading fees to re-balance the asset allocation once a year. (Would use: VTI, VXUS, BND, VNQ)

Option 2: Open account with Schwab. Use Schwab's commission free index ETFs with no monthly trading fees, and no cost to rebalance at years end. The expense ratios are slightly less with Schwab as well. (Would use SCHB, SCHF, SCHE, SCHZ, SCHH)

My worry with option 2 is that Schwab ETFs may be somehow riskier than vanguard ETFs, is this the case?

One could just make trade's once a year but then there is a lot of money sitting not earning interest all year. Is there another way to minimize monthly trading fees?

 

[Lithium]

With option 1, no need to buy all 4 funds every month.  Just buy one, whichever is running the lowest beneath its target n your allocation.  Might be slightly out of balance from one month to the next, but not that big a deal.  Then your cost is $84 a year.

that said, I'd go with Option 2.  I own all five of the Schwab ETFs you referenced and think they're fine.

[Hugs QDAY]

Is there a particular reason that you aren't opening an account with Vanguard directly? Is there a reason that you're using ETFs as to opposed to index funds?

 

If you open an account with Vanguard you can purchase index funds (or the ETFs you listed that track the same indexes) with low expense ratios and no transaction fees.

Schwab option works, their ETFs are very similar to Vanguard. Schwab offers a much better online and resource experience but is for profit while Vanguard is interested in eliminating any costs for investors.

[EMCCDOC]

The reason Im not opening with vanguard is they wont let you use admiral shares or ETFs in their individual 401k. You have to use their investor shares which have higher expense ratios. Otherwise I would use vanguard.

[Zaphod]

You can probably open an account anywhere and find a multitude of free to trade etfs. I think all three of my brokerages have them (TDA, Merrill, and Fidelity). All the tracking ETFs are basically the same, dont be fooled by Vanguards brand awareness, there is no magic in an index fund.

All Merrill transactions are basically free (or up to 30/month which is like unlimited) if you have some amount across all accounts.

[WallStreetPhysician]

EM/CCDOC wrote:

I am about to open my first individual 401k and plan to use a 4 -5 index fund portfolio, ideally with vanguard ETFs.

Option 1: Open account with E trade, buy vanguard ETFs each month. That would mean paying $7 per fund each month, $28/month or $336/year. Then there would be additional trading fees to re-balance the asset allocation once a year. (Would use: VTI, VXUS, BND, VNQ)

Option 2: Open account with Schwab. Use Schwab’s commission free index ETFs with no monthly trading fees, and no cost to rebalance at years end. The expense ratios are slightly less with Schwab as well. (Would use SCHB, SCHF, SCHE, SCHZ, SCHH)

My worry with option 2 is that Schwab ETFs may be somehow riskier than vanguard ETFs, is this the case?

One could just make trade’s once a year but then there is a lot of money sitting not earning interest all year. Is there another way to minimize monthly trading fees?

 

Click to expand...

Of the two options you mentioned, I would prefer Option 2. One small difference is that Vanguard's ETFs will have a lower bid-ask spread because they are more popular than Schwab's ETFs.

Why not use a Fidelity account, which has numerous low-expense ratio, commission-free ETFs for the asset classes you are looking for (see this post for the ticker symbols for a Fidelity index portfolio)?

-WSP

[VagabondMD]

Second the motion for Fidelity.

You can trade extremely liquid, rock bottom ishares ETFs for free OR use their low cost index funds (or some combination, which is what I do).

[EMCCDOC]

Thanks for all of the replies,

Re: fidelity i401k, it seems like you need to send them a paper check every month. Is there a work around for this?

[VagabondMD]

EM/CCDOC wrote:

Thanks for all of the replies,

Re: fidelity i401k, it seems like you need to send them a paper check every month. Is there a work around for this?

Click to expand...

I expect so. I have not sent them a check for years, maybe ten years or more. ACH transfer? Online bank transfer?

[EMCCDOC]

When I wrote this post I did not realize that vanguard, fidelity and schwab let you buy their brand index mutual funds without a trade fee. Rookie mistake I guess. Vanguard was out because of the restrictions on their solo 401k. After reading all I could about schwab versus fidelity index mutual funds, I concluded that there is not enough of a difference between them to really matter. So I went with fidelity because my spouse already has their accounts there. Fidelity requires that you send them a paper check in the mail to fund it each month, but I will use my online banking to automatically send them a paper check every month. Fidelity  also allows automatic fund purchases each month, meaning its functionally automatic and I will only need to log in occasionally to rebalance.

 

I really appreciate all of the replies, and other posts on this site. I would not have been able to get started investing without them. Thanks

[ENT Doc]

EM/CCDOC wrote:

When I wrote this post I did not realize that vanguard, fidelity and schwab let you buy their brand index mutual funds without a trade fee. Rookie mistake I guess. Vanguard was out because of the restrictions on their solo 401k. After reading all I could about schwab versus fidelity index mutual funds, I concluded that there is not enough of a difference between them to really matter. So I went with fidelity because my spouse already has their accounts there. Fidelity requires that you send them a paper check in the mail to fund it each month, but I will use my online banking to automatically send them a paper check every month. Fidelity  also allows automatic fund purchases each month, meaning its functionally automatic and I will only need to log in occasionally to rebalance.

 

I really appreciate all of the replies, and other posts on this site. I would not have been able to get started investing without them. Thanks

Click to expand...

You can also accomplish this with a direct wire transfer, but my bank charges for this.  The employee payment might be best to lump sum it in at the beginning of the year (better returns, less transactions), but the employer portion will have to be more carefully assessed (unless your income is very high in which case you can likely contribute up to the max.  Fidelity allows roll overs which is nice.  I use Fidelity and invest in their low cost index funds.  They are a better brokerage than Vanguard as well.