Vanguard vs. Schwab

As I said in my intro post, I have accounts at both Vanguard and Charles Schwab each has benefits and weaknesses here is my two cents.

Vanguard

Without question Vanguard is the leader in low cost mutual funds both index and actively managed. Vanguard also allows commission free trading of a wide range of ETFs both their own and also from many other firms (1,800 ETFs and counting).

Vanguard’s automatic investing settings are the best I’ve used. They allow for automatic deposits and investments any day of the week, whereas Schwab allows for automatic deposits any day of the week into your account, but only allows for automatic buys on the 5th or 20th of the month – a major limitation in my mind if your setting up automatic withdrawals that coincide with your pay check for instance.

Access to independent research is non existent at Vanguard which is a limitation for sure. Vanguard does not offer the option to have checks or a credit/debit card linked to your account. Customer service at Vanguard is also not their strength, unless you are a high dollar customer your pretty much on your own.

ESG Impact Investing Options

Vanguard currently has 2 ESG mutual funds and 2 ETFs in their own line up. I own one of them, VFTAX, their other mutual fund is a new ESG world fund, managed by Wellington. There is also access to a number of impact investing suitable ESG ETFs through their commission free list which currently has over 1,800 ETFs.

Charles Schwab

Endless options await you in your Schwab account, its a bit overwhelming actually. Customer Service at Schwab is amazing. I use their chat customer service all the time it is incredibly helpful. You have access to a wide portfolio of mutual funds and ETFs many of which trade for no commission if they are part of the Schwab One Source or other lists. If a fund you are interested in is not on the list, the trading commission is steep.

Schwab has an excellent Visa debit card you can link to your individual investor high yield checking account. The card is amazing it refunds ATM transaction charges anywhere in the world and also has no foreign transaction fee. The card is considered one of the best cards for travel, many open Schwab accounts just to get the card. I’ve recommended the card to numerous people.

Moving money around accounts is super easy. Schwab also has a relationship with American Express and offers two Schwab American Express cards that both have great benefits and signon bonuses that deposit into your account. I use the Schwab Investor Amex card which has a $200 signon bonus and 1.5X cash back into your Schwab account on all purchases.

ESG Impact Investing Options

Schwab produces a lengthy list quarterly of socially conscious ESG mutual funds and ETFs that trade with no commission.

If you find this information useful and signup for a Schwab account please consider using my referral link.

Mutual Funds vs ETFs

Understanding the differences between mutual funds and ETFs is important. Both can be quite useful but operate differently in terms of how they are traded. Mutual funds are what most of us have in our work retirement accounts. They are a collection of individual stocks organized into a mutual fund following two primary methods. Actively managed and passively managed. Actively managed funds are created and maintained by a team of investment professionals following the objective(s) of the mutual fund. Because these types of funds have people working on them the costs are higher.

Passively managed funds follow an index and their investments and % of allocations mirror whatever index they are following. Since there is less human interaction the expense ratios tend to be significantly lower.

Perpetual by Philippa Jones at the Confederation Centre of the Arts

Mutual funds settle daily, meaning at the end of each trading day all buy/sell orders are processed regardless of what time of day you placed the order. Another key feature of mutual funds is the ability to buy partial shares. This makes mutual funds the ideal choice for automatic investing, you determine the amount and then an order is made for that amount regardless of the price per share at the end of the day. Its an easy way to accumulate funds in a Roth IRA or work retirement account. On the whole there are fewer ESG type mutual funds that will appeal to impact investors.

Mutual Funds are great for:

  • Automatic investing – can buy partial shares
  • Simplification of portfolio and management
  • Not subject to intra-day volatility
  • Access to actively managed funds run by experienced professionals

Exchange traded funds (ETFs) are similar to mutual funds, except they trade like stocks and can be bought and sold throughout the day. Generally speaking ETFs have lower expense ratios than mutual funds. There is another sub group of funds that are relevant to our interests in impact investing. These funds mirror and index but then exclude certain companies that don’t fit a desired criteria. A good example is SPYX, SPDR’s S&P 500 fund that excludes holdings in fossil fuel reserves.

Exchange Traded Funds (ETFs) are great for:

  • Highly flexible, can trade throughout the day
  • Tremendous diversity and niche investing
  • Many socially conscious ESG ETFs to choose from
  • Low minimum investment amount, allows you to start investing quicker

Hopefully this post was useful in identifying some of the key benefits of each type of investment. In future posts I will look at specific options that appeal to me as an impact investor. I own both mutual funds and ETFs in my investments. Determining which is better for you is an individual choice based on the level of engagement you want to have with your investments.

Impact Investing, how did we end up here?

If you’re like me you found this site searching for information on how to make your investment dollars align with anything you actually care about. You discovered there isn’t much information out there on the whole topic of impact or Environmental, Social, Governance (ESG) investing. I will share my experiences at trying to have my investments reflect my personal values. I’m genuinely curious how successful I will be.

This isn’t my first rodeo in the blog world. For 10 years I ran the site Sustainable is Good where I covered developments and innovations in green product design and packaging. Fast forward a few years and I’m a government employee (no I don’t work for the “Stable Genius”) and I have a decent retirement plan.

I’m a fan of JL Collins NH and his whole investment philosophy and was following it. But I woke up one day and had a realization, “holy shit my investments are supporting corporations involved in making the climate worse, firearm manufacturers, military infrastructure, deforestation and more.” I felt like an idiot, I thought I was doing everything right, index investing with low fees at Vanguard, what could be wrong. Well plenty.

I embarked down the path to realign my investments to more closely match with my views. This site will explore this topic and related issues investing and personal finance.

I use two brokers to manage investments, Vanguard and Charles Schwab. Each has pros and cons which I’ll explore in a future post. I also have an account with TIAA CREF where I manage the my retirement account through work.

Until my recent epiphany, I had most of my money in my personal rollover IRA account in VTWAX, Vanguard’s low cost world index fund and one of Vanguard’s Target Retirement Funds through work. I thought it was ideal, wide diversified exposure to the US market but also investments in many countries. One day when I had nothing better to do, I ran the funds holdings through the Invest your Values tools on As you Sow and found the funds had holdings in more than 60 coal companies, over 300 oil/gas companies, multiple civilian firearm manufacturers etc. I was mortified.

Identify your investments and run through screening tool(s)

The first step in this journey is to identify the problem. Check your 401K, 403B, 457 or other plan(s) and see what holdings you have. Then run the ticker symbols through the screening tools based on the issue(s) you personally care about. Make a list of any funds you find objectionable. If you are dealing with a retirement plan through your employer, you likely have a limited set of options so the next step is to review the other offerings to see if there is something that better aligns with your values. The answer may be no.

Through my employer I was putting retirement savings in Vanguard’s 2045 Target date fund (VTIVX). An ideal investment I thought with a .07 expense ratio and a good balance of holdings that primarily holds the fund everyone in the FIRE community loves VTSAX. Fortunately my work also offers Vanguard’s FTSE Social Index fund, VTFAX which has a .14 expense ratio and much better alignment with my values.

I switched all of my holdings in my work account into this fund. I also set future investments to this fund. VFTAX mirrors the Russell 1000 but screens out companies that do not meet ESG criteria for the fund. Since I am in the “accumulate” stage of my retirement savings, I am personally okay with having 100% of my retirement funds in equities. As I get older I may tweak that balance.

I also have a rollover IRA from a previous job, which I have at Vanguard. The main difference between this account and my current retirement account through work is I have an endless array of investment options through my rollover account. In future posts I will look at the rollover account and where I’m envisioning going with it. For the time being I have a piece in VFTAX.