24 May 2014
Charles Schwab: For 98% of Americans, Stock Index ETF is the best way to invest
“Chuck” Schwab, founder and chairman of Charles Schwab Corp.
In case you were wondering, Charles Schwab really likes index funds.
The founder of Charles Schwab Corp. SCHW -0.14% talked with reporters about the “power of indexing” on Thursday, just after publishing a new note on the subject.
He didn’t throw actively managed funds and other stock pickers completely under the bus.
But Schwab did say low-cost, diversified funds that track indexes are the best approach for 95% to 98% of Americans.
Given that Vanguard launched the first index fund nearly 40 years ago and Schwab put out its own Schwab 1000 Index Fund SNXFX in 1991, you might wonder why Charles R. “Chuck” Schwab is talking about indexing now.
He said it’s important to point out indexing to investors who are just returning to stocks today after fleeing the market during the financial crisis – and desperately need to build up their nest eggs.
“We need to get the word out because people now coming back in the market here in 2014, some who got out in 2008, 2009 – what’s an easy way for them to get in? What’s a cheap way to get in?” he told reporters during a conference call.
Schwab emphasized research showing how active managers struggle to outperform their benchmark indexes, especially after fees. So MarketWatch asked if he felt bad about the Schwab platform enabling a lot of use of active funds and active trading — and therefore underperformance.
“Well, I don’t think that means that,” Schwab said. “You can pick individual stocks and do extremely well, having done so many times. We’re talking about someone like me who spends 99.9% of my time thinking about stocks, researching companies.”
He added: “We’re talking about for the 95% to 98% of the population of America, what is the best way for them to get started in investing and participate.”
Earlier in the conference call, Schwab handled the active-versus-indexing debate in a similar way.
“There are places in your portfolio for active funds. I don’t completely beat ‘em up,” he said.
“But that’s when you pick the best managers. Of course, there’s somebody out there I know who can pick the best managers. It may not be me,” Schwab said, laughing. “That’s why I stick to index funds.”
Schwab also said he’s speaking out about indexing now because people still don’t get it.
“There’s so many misunderstandings about indexing,” he said. For example, index funds aren’t as passive as you might think, because companies do enter and leave indexes like the S&P 500 SPX each year.
“There is a dynamic process going on,” he said.
BloombergWarren Buffett
Another investing luminary, Warren Buffett, just recently revealed that he’s recommending the Vanguard 500 Index Fund VFINX for his wife. Well, Schwab said Thursday that 21 years ago he helped get his wife into the Schwab 1000 Index Fund.
“That investment is up seven times in value,” he said. “It’s proven itself. All index funds, I think, have proven themselves as great vehicles for the individual.”
In case you were wondering, Charles Schwab really likes index funds.
The founder of Charles Schwab Corp. SCHW -0.14% talked with reporters about the “power of indexing” on Thursday, just after publishing a new note on the subject.
He didn’t throw actively managed funds and other stock pickers completely under the bus.
But Schwab did say low-cost, diversified funds that track indexes are the best approach for 95% to 98% of Americans.
Given that Vanguard launched the first index fund nearly 40 years ago and Schwab put out its own Schwab 1000 Index Fund SNXFX in 1991, you might wonder why Charles R. “Chuck” Schwab is talking about indexing now.
He said it’s important to point out indexing to investors who are just returning to stocks today after fleeing the market during the financial crisis – and desperately need to build up their nest eggs.
“We need to get the word out because people now coming back in the market here in 2014, some who got out in 2008, 2009 – what’s an easy way for them to get in? What’s a cheap way to get in?” he told reporters during a conference call.
Schwab emphasized research showing how active managers struggle to outperform their benchmark indexes, especially after fees. So MarketWatch asked if he felt bad about the Schwab platform enabling a lot of use of active funds and active trading — and therefore underperformance.
“Well, I don’t think that means that,” Schwab said. “You can pick individual stocks and do extremely well, having done so many times. We’re talking about someone like me who spends 99.9% of my time thinking about stocks, researching companies.”
He added: “We’re talking about for the 95% to 98% of the population of America, what is the best way for them to get started in investing and participate.”
Earlier in the conference call, Schwab handled the active-versus-indexing debate in a similar way.
“There are places in your portfolio for active funds. I don’t completely beat ‘em up,” he said.
“But that’s when you pick the best managers. Of course, there’s somebody out there I know who can pick the best managers. It may not be me,” Schwab said, laughing. “That’s why I stick to index funds.”
Schwab also said he’s speaking out about indexing now because people still don’t get it.
“There’s so many misunderstandings about indexing,” he said. For example, index funds aren’t as passive as you might think, because companies do enter and leave indexes like the S&P 500 SPX each year.
“There is a dynamic process going on,” he said.
BloombergWarren Buffett
Another investing luminary, Warren Buffett, just recently revealed that he’s recommending the Vanguard 500 Index Fund VFINX for his wife. Well, Schwab said Thursday that 21 years ago he helped get his wife into the Schwab 1000 Index Fund.
“That investment is up seven times in value,” he said. “It’s proven itself. All index funds, I think, have proven themselves as great vehicles for the individual.”
Labels: ETF
