You may have seen that Charles Schwab has reduced its commissions to $0.
But when you dig a little deeper you realize there’s a catch. As it turns out it’s free but Schwab gets to use your cash, lend it out, and pocket-the interest you could have made.
“Schwab doesn’t use money-market funds or short-term Treasury funds, which could earn nearly 2% at recent rates,” explains Jason Zweig at the WSJ. “Instead, it shunts the cash into Charles Schwab Bank, which currently pays 0.55% on the money—and then turns around and lends it out at roughly 2%.”
Clearly you can see Schwab isn’t working for free.
It’s also my belief that Schwab’s discounted brokerage/commissions have done more harm than good. The program entices investors to spin their money into oblivion following trading schemes rather than patience.
When I think of Charles Schwab, I don’t envision a family wealth management firm.
I don’t see a conservative, Prudent Man philosophy guiding the firm.
I see churning and burning.
Investing is not supposed to be exciting.
Investing is supposed to be boring (that is until you start seeing your account compound into some serious money).
Schwab has always seemed to me to be too slick for his own good and enjoying the golf course far too often for a money manager.
Take a trip down memory lane. Have you ever lost money in stocks?
If you traded commodities or penny stocks in the 70s and 80s, you know exactly what I’m talking about.
“Can’t lose” trading books gather dust on bookshelves, not interest on interest.
At the end of the day, Schwab is a salesman and a billionaire, not an investor.
Doesn’t have a good ring to it does it?
Today the bets are being laid by Schwab that robo, passive ETFs, and mutual funds are the future.
But these are models that are active management–someone decides how they work and what to put in them.
You know in your gut that someone is winning off your $0 trades.