Help: Schwab MFs to Vanguard ETFs
Help: Schwab MFs to Vanguard ETFs
Hi,
I have about 350,000 in a tax advantaged account at Schwab. Currently, I use 3 fund with schwab mutual funds: SWTSX, SWISX and SWAGX.
I want to change my holdings to Vanguard ETFs VTI, VXUS, BND.
How can I do this without risking screwing up and losing money?
I have about 350,000 in a tax advantaged account at Schwab. Currently, I use 3 fund with schwab mutual funds: SWTSX, SWISX and SWAGX.
I want to change my holdings to Vanguard ETFs VTI, VXUS, BND.
How can I do this without risking screwing up and losing money?
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Re: Help: Schwab MFs to Vanguard ETFs
Is it a margin account? Assuming not, it can be hard to go FUND-TO-ETF without at least a day of market risk while the fund sale settles before you buy the ETF. The most seamless way would be to do market buys of the ETF at 3:59pm on the day the fund will sell, but that will require a day or two worth of margin, so you might need to do it in smaller chunks.
Otherwise, you just place the sell order on a non-Friday and buy the ETF as soon as possible.
Switching fund-to-fund or etf-to-etf is much easier.
Otherwise, you just place the sell order on a non-Friday and buy the ETF as soon as possible.
Switching fund-to-fund or etf-to-etf is much easier.
Re: Help: Schwab MFs to Vanguard ETFs
Thank you...forgive me for being slow. When you say margin, you mean I would have to borrow money to buy the ETFs before their is cash in my account from the sale of the mutual funds? Who would loan me the money? Shwab?dukeblue219 wrote: ↑Tue May 11, 2021 1:02 pm Is it a margin account? Assuming not, it can be hard to go FUND-TO-ETF without at least a day of market risk while the fund sale settles before you buy the ETF. The most seamless way would be to do market buys of the ETF at 3:59pm on the day the fund will sell, but that will require a day or two worth of margin, so you might need to do it in smaller chunks.
Otherwise, you just place the sell order on a non-Friday and buy the ETF as soon as possible.
Switching fund-to-fund or etf-to-etf is much easier.
Re: Help: Schwab MFs to Vanguard ETFs
You own mutual funds now. They generally have a "T+1" settlement date.
You want ETFs. They generally have a "T+2" settlement date.
If you first entered a sell request for a mutual fund Tuesday (prior to 4:00 Eastern closing), it would settle Wednesday.
If you then entered a buy request for an ETF today (also prior to closing), it would settle Thursday.
So you'd be okay in terms of settlement dates.
Would you need a margin account? Maybe but I'm not sure that's strictly necessary. It's possible the brokerage will "see" that you have a sell trade pending that will result in an estimated amount of money at settlement, and thus they may let you go ahead with the buy order. Not all brokerages will do this. I'd ask Schwab customer service what they allow.
In any case, the tricky part is that you don't know how much the sale proceeds will be exactly until after the market closes. This means when you place the order for the ETF, you might end up buying more than you'll have money to cover on settlement date. Given this is a retirement account and you can't just deposit more money by the deposit date (I mean, maybe you could if you're eligible and haven't done so already), you may have to play it safe and enter the sale requests on one day, and then enter the buy requests on the next day -- by then you'll know how much the sales proceeds are. And, yes, there's a risk you'll "lose" if the market goes up between the time you sell and the time you buy. But there's also a chance the market goes down, in which case you'll "win". That's just the way it goes.
Note that most brokerages only allow you to purchase whole shares, so you'll likely have a little bit of money left in your settlement account after the buy trades go through.
Reference: https://www.schwab.com/resource-center/ ... 2-timeline
You want ETFs. They generally have a "T+2" settlement date.
If you first entered a sell request for a mutual fund Tuesday (prior to 4:00 Eastern closing), it would settle Wednesday.
If you then entered a buy request for an ETF today (also prior to closing), it would settle Thursday.
So you'd be okay in terms of settlement dates.
Would you need a margin account? Maybe but I'm not sure that's strictly necessary. It's possible the brokerage will "see" that you have a sell trade pending that will result in an estimated amount of money at settlement, and thus they may let you go ahead with the buy order. Not all brokerages will do this. I'd ask Schwab customer service what they allow.
In any case, the tricky part is that you don't know how much the sale proceeds will be exactly until after the market closes. This means when you place the order for the ETF, you might end up buying more than you'll have money to cover on settlement date. Given this is a retirement account and you can't just deposit more money by the deposit date (I mean, maybe you could if you're eligible and haven't done so already), you may have to play it safe and enter the sale requests on one day, and then enter the buy requests on the next day -- by then you'll know how much the sales proceeds are. And, yes, there's a risk you'll "lose" if the market goes up between the time you sell and the time you buy. But there's also a chance the market goes down, in which case you'll "win". That's just the way it goes.
Note that most brokerages only allow you to purchase whole shares, so you'll likely have a little bit of money left in your settlement account after the buy trades go through.
Reference: https://www.schwab.com/resource-center/ ... 2-timeline
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Re: Help: Schwab MFs to Vanguard ETFs
Don't try this if you don't know how it works . You could inadvertently margin too much of your account trying to convert large positions, and end up with a margin call on the small chance a really bad day struck right then.bennettg wrote: ↑Tue May 11, 2021 1:05 pmThank you...forgive me for being slow. When you say margin, you mean I would have to borrow money to buy the ETFs before their is cash in my account from the sale of the mutual funds? Who would loan me the money? Shwab?dukeblue219 wrote: ↑Tue May 11, 2021 1:02 pm Is it a margin account? Assuming not, it can be hard to go FUND-TO-ETF without at least a day of market risk while the fund sale settles before you buy the ETF. The most seamless way would be to do market buys of the ETF at 3:59pm on the day the fund will sell, but that will require a day or two worth of margin, so you might need to do it in smaller chunks.
Otherwise, you just place the sell order on a non-Friday and buy the ETF as soon as possible.
Switching fund-to-fund or etf-to-etf is much easier.
But yes, Schwab would loan you the money. It happens automatically. This is one reason I like margin accounts - I dont actually leverage myself by investing borrowed money, but I don't need to concern myself with things like settlement times. If I'm technically buying on margin for two days the interest is negligible but the convenience factor is real.
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Re: Help: Schwab MFs to Vanguard ETFs
What folks are talking about above is basically how you can ensure that you remain in the market for the maximum time possible to avoid missing out on a day or two. Will this materially effect you? Probably not. There is some risk that there would be a big leg up while this transaction is settling so you will have missed out. However that risk cuts both ways (maybe you miss out on a big leg down). Though most days in the market are not that exciting and so maybe you miss out on a small gain or loss.
Wouldn't overthink this. Basically when you sell out of the mutual funds, it may take a little time for the sale to settle and cash to be available. Depending on your broker they may let you use the cash from the sale before everything has fully settled. This has been my experience with Fidelity, but don't do that much trading at Schwab outside of ESPP & RSU shares so don't know how it will work there.
If you are particularly worried about the settlement time, it might be worth selling half and using that to buy ETFs. Once that is done do the other half. Or you could do smaller divisions if half still feels too big.
Wouldn't overthink this. Basically when you sell out of the mutual funds, it may take a little time for the sale to settle and cash to be available. Depending on your broker they may let you use the cash from the sale before everything has fully settled. This has been my experience with Fidelity, but don't do that much trading at Schwab outside of ESPP & RSU shares so don't know how it will work there.
If you are particularly worried about the settlement time, it might be worth selling half and using that to buy ETFs. Once that is done do the other half. Or you could do smaller divisions if half still feels too big.
"Anyone who claims to understand quantum theory is either lying or crazy" -- Richard Feynman
Re: Help: Schwab MFs to Vanguard ETFs
What are you hoping to gain by doing this?
- typical.investor
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Re: Help: Schwab MFs to Vanguard ETFs
bennettg wrote: ↑Tue May 11, 2021 1:05 pmThank you...forgive me for being slow. When you say margin, you mean I would have to borrow money to buy the ETFs before their is cash in my account from the sale of the mutual funds? Who would loan me the money? Shwab?dukeblue219 wrote: ↑Tue May 11, 2021 1:02 pm Is it a margin account? Assuming not, it can be hard to go FUND-TO-ETF without at least a day of market risk while the fund sale settles before you buy the ETF. The most seamless way would be to do market buys of the ETF at 3:59pm on the day the fund will sell, but that will require a day or two worth of margin, so you might need to do it in smaller chunks.
Otherwise, you just place the sell order on a non-Friday and buy the ETF as soon as possible.
Switching fund-to-fund or etf-to-etf is much easier.
If you don't want to go the margin route, simply minimize the time you are out of the market for stocks.
For example, sell SWAGX (bonds are less volatile and being out of the market for a short time will not be likely to hurt you).
Once it settles, you have cash.
Then, end of day sell SWISX and at the same time buy VXUS with the cash from SWAGX.
Once SWISX settles and you again have cash, sell SWTSX end of day and at the same time buy VTI.
Once SWISX settles, buy BND.
Of course, that only works perfectly if you are 33% in each but anyway it's a way to minimize time out of market for your most volatile assets.
Re: Help: Schwab MFs to Vanguard ETFs
Thank you. This is a retirement account, tax advantaged if that helps
I've read on this forum that there are differences in what benchmark is tracked by some of the Schwab Mutual funds versus the vanguard ETFs. The international Schwab index doesn't include some of the emerging markets as VXUS. I could buy different schwab products to account for those missing elements, but it seems simpler to just 3 fund using the ETFs. I think there are also differences between the bond schwab MF and BND ETF.
I am trying to move to an ideal 3 fund portfolio. I would have started with the VG ETFs when I started investing, but at the time they cost $4.95 per trade and i buy every 2 weeks when paid from work. now that the etf trades are free, the only remaining barrier was that schwab doesnt allow partial ETF share purchases.
Open to suggestions. thank you.
- typical.investor
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Re: Help: Schwab MFs to Vanguard ETFs
How about a Target Index fund? https://www.schwabassetmanagement.com/node/3946bennettg wrote: ↑Wed May 12, 2021 6:34 amThank you. This is a retirement account, tax advantaged if that helps
I've read on this forum that there are differences in what benchmark is tracked by some of the Schwab Mutual funds versus the vanguard ETFs. The international Schwab index doesn't include some of the emerging markets as VXUS. I could buy different schwab products to account for those missing elements, but it seems simpler to just 3 fund using the ETFs. I think there are also differences between the bond schwab MF and BND ETF.
I am trying to move to an ideal 3 fund portfolio. I would have started with the VG ETFs when I started investing, but at the time they cost $4.95 per trade and i buy every 2 weeks when paid from work. now that the etf trades are free, the only remaining barrier was that schwab doesnt allow partial ETF share purchases.
Open to suggestions. thank you.
Here is an calculator to see what market cap weighting for a portfolio would be in the Schwab ETFs. https://docs.google.com/spreadsheets/d/ ... sp=sharing
Re: Help: Schwab MFs to Vanguard ETFs
Thank you. Any reason you recommend starting with purchasing VXUS instead of VTI? Appreciative of any help.typical.investor wrote: ↑Tue May 11, 2021 8:27 pmbennettg wrote: ↑Tue May 11, 2021 1:05 pmThank you...forgive me for being slow. When you say margin, you mean I would have to borrow money to buy the ETFs before their is cash in my account from the sale of the mutual funds? Who would loan me the money? Shwab?dukeblue219 wrote: ↑Tue May 11, 2021 1:02 pm Is it a margin account? Assuming not, it can be hard to go FUND-TO-ETF without at least a day of market risk while the fund sale settles before you buy the ETF. The most seamless way would be to do market buys of the ETF at 3:59pm on the day the fund will sell, but that will require a day or two worth of margin, so you might need to do it in smaller chunks.
Otherwise, you just place the sell order on a non-Friday and buy the ETF as soon as possible.
Switching fund-to-fund or etf-to-etf is much easier.
If you don't want to go the margin route, simply minimize the time you are out of the market for stocks.
For example, sell SWAGX (bonds are less volatile and being out of the market for a short time will not be likely to hurt you).
Once it settles, you have cash.
Then, end of day sell SWISX and at the same time buy VXUS with the cash from SWAGX.
Once SWISX settles and you again have cash, sell SWTSX end of day and at the same time buy VTI.
Once SWISX settles, buy BND.
Of course, that only works perfectly if you are 33% in each but anyway it's a way to minimize time out of market for your most volatile assets.
Re: Help: Schwab MFs to Vanguard ETFs
While i do not have any cash in my account, schwab will allow me to sell one of the mutual funds and buy one of the ETFs at the same time, thereby minimizing any time out of the market.
I plan to sell Schwab index total bond market (SWAGX) and buy VG total bond market ETF (BND). Then, the next day:
Sell Schwab US Stock index total market (SWTSX) and buy VG index total US stock market (VTI). Then, the next day:
Sell Schwab international Stock index total market (SWISX) and buy VG index total international stock market (VXUS).
Since the value of the mutual fund will not be known until after closing and assuming no wild swings or crashes during the day, Schwab told me that I should use an estimate (say 90-95%) of the previous days closing value when purchasing the ETF to make sure I am not overdrawn (no margin on the account). The bid-asks on the ETFs are usually within 1 cent, so I would place a limit order for the day, just above or just below the bid/ask.
Assume I am a second grader.....in my mind, I am trading apples to apples so that I am not at risk of losing too much (or gaining too much) in any pair of transactions. Is that assumption safe? What are the red flags I should be on the lookout for?
If my Mutual fund is worth $100, I'm okay with the result of the pair of transactions being between $97 and $103.....I just want to avoid it resulting in a final value of $50.
Please help me. Thank you
I plan to sell Schwab index total bond market (SWAGX) and buy VG total bond market ETF (BND). Then, the next day:
Sell Schwab US Stock index total market (SWTSX) and buy VG index total US stock market (VTI). Then, the next day:
Sell Schwab international Stock index total market (SWISX) and buy VG index total international stock market (VXUS).
Since the value of the mutual fund will not be known until after closing and assuming no wild swings or crashes during the day, Schwab told me that I should use an estimate (say 90-95%) of the previous days closing value when purchasing the ETF to make sure I am not overdrawn (no margin on the account). The bid-asks on the ETFs are usually within 1 cent, so I would place a limit order for the day, just above or just below the bid/ask.
Assume I am a second grader.....in my mind, I am trading apples to apples so that I am not at risk of losing too much (or gaining too much) in any pair of transactions. Is that assumption safe? What are the red flags I should be on the lookout for?
If my Mutual fund is worth $100, I'm okay with the result of the pair of transactions being between $97 and $103.....I just want to avoid it resulting in a final value of $50.
Please help me. Thank you
Re: Help: Schwab MFs to Vanguard ETFs
What you are doing is a waste of time. The 3 mutual funds you are using are just fine and as mutual funds are actually much easier to use in a tax advantage account than working with the ETFs. The total stock and bond funds are essentially identical. So you are doing this all for the international fund because of why?
Re: Help: Schwab MFs to Vanguard ETFs
Hi...thank you for responding. It will help me sleep better at night. My mind is set, so I am hoping to get feedback to help avoid doing something wrong operationally that will result in losing money. Do you or others have any suggestions?Nate79 wrote: ↑Tue May 25, 2021 1:53 pm What you are doing is a waste of time. The 3 mutual funds you are using are just fine and as mutual funds are actually much easier to use in a tax advantage account than working with the ETFs. The total stock and bond funds are essentially identical. So you are doing this all for the international fund because of why?
Re: Help: Schwab MFs to Vanguard ETFs
Yes, you're on the right track. I would use an estimate (90-95%) of the current ETF price rather than previous day's closing price. You could even wait until 3:50 or 3:55 PM Eastern near the end of the trading day. There is always a chance that prices could drop in the very last minute of trading. The chance may be very low, but there's no way around it - that just comes with a market being a market. There was the "flash crash" years ago. One would hope things like that could never happen again.bennettg wrote: ↑Tue May 25, 2021 1:42 pm While i do not have any cash in my account, schwab will allow me to sell one of the mutual funds and buy one of the ETFs at the same time, thereby minimizing any time out of the market.
I plan to sell Schwab index total bond market (SWAGX) and buy VG total bond market ETF (BND). Then, the next day:
Sell Schwab US Stock index total market (SWTSX) and buy VG index total US stock market (VTI). Then, the next day:
Sell Schwab international Stock index total market (SWISX) and buy VG index total international stock market (VXUS).
Since the value of the mutual fund will not be known until after closing and assuming no wild swings or crashes during the day, Schwab told me that I should use an estimate (say 90-95%) of the previous days closing value when purchasing the ETF to make sure I am not overdrawn (no margin on the account). The bid-asks on the ETFs are usually within 1 cent, so I would place a limit order for the day, just above or just below the bid/ask.
Assume I am a second grader.....in my mind, I am trading apples to apples so that I am not at risk of losing too much (or gaining too much) in any pair of transactions. Is that assumption safe? What are the red flags I should be on the lookout for?
If my Mutual fund is worth $100, I'm okay with the result of the pair of transactions being between $97 and $103.....I just want to avoid it resulting in a final value of $50.
Please help me. Thank you
Maybe that's not confidence inspiring, but I wouldn't and haven't let that stop me from doing what you're doing. I find it very unlikely that stocks would drop 50% in the last minute "out of the blue". If it drops at all, far more likely the drop would be within 1 or 2% assuming the day's trading had been generally steady.
If you're worried, find a real-time newsfeed to see if there's any sign of catastrophe (flood, earthquake, etc.) or something like that. Don't trade in the middle of a catastrophe.
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Re: Help: Schwab MFs to Vanguard ETFs
May I ask why you want to exchange the Schwab funds for the Vanguard funds to begin with? Are you expecting a meaningful difference in performance, or tax efficiency? You say the funds are in a tax-advantaged account, so the reason cannot be the latter…bennettg wrote: ↑Tue May 11, 2021 12:58 pm Hi,
I have about 350,000 in a tax advantaged account at Schwab. Currently, I use 3 fund with schwab mutual funds: SWTSX, SWISX and SWAGX.
I want to change my holdings to Vanguard ETFs VTI, VXUS, BND.
How can I do this without risking screwing up and losing money?
As Nate79 said, SWTSX and SWAGX are equivalent to VTI and BND. They will perform identically. SWISX is a large-cap blend of international stocks from developed markets. VXUS includes small-cap developed and emerging markets, but the allocation to those stocks is relatively small (in the ball park of 20% altogether), and they are not completely uncorrelated with developed markets, so they can and do move together over certain periods of time. At the end of the day, the difference between VXUS and SWISX is unlikely to amount to anything worth losing sleep over. PortfolioVisualizer https://www.portfoliovisualizer.com/fu ... sisResults shows an initial $10k investment over 10 years amounts to a negligible $543 difference between the two funds…in Schwab’s favor btw.
For what you are trying to achieve in this post, the ends do not justify the means. Seriously, the value of simplicity cannot be overstated. SWISX is good enough. Mutual funds are preferred in tax-advantaged accounts because they allow you to invest down to the penny and avoid precisely the hoops you’re trying to jump through. My advice would be to hold the Schwab funds you have, and feel confident about it!
Last edited by mrscatterbrain on Tue May 25, 2021 4:25 pm, edited 3 times in total.
Re: Help: Schwab MFs to Vanguard ETFs
Thank you.sycamore wrote: ↑Tue May 25, 2021 3:03 pmYes, you're on the right track. I would use an estimate (90-95%) of the current ETF price rather than previous day's closing price. You could even wait until 3:50 or 3:55 PM Eastern near the end of the trading day. There is always a chance that prices could drop in the very last minute of trading. The chance may be very low, but there's no way around it - that just comes with a market being a market. There was the "flash crash" years ago. One would hope things like that could never happen again.bennettg wrote: ↑Tue May 25, 2021 1:42 pm While i do not have any cash in my account, schwab will allow me to sell one of the mutual funds and buy one of the ETFs at the same time, thereby minimizing any time out of the market.
I plan to sell Schwab index total bond market (SWAGX) and buy VG total bond market ETF (BND). Then, the next day:
Sell Schwab US Stock index total market (SWTSX) and buy VG index total US stock market (VTI). Then, the next day:
Sell Schwab international Stock index total market (SWISX) and buy VG index total international stock market (VXUS).
Since the value of the mutual fund will not be known until after closing and assuming no wild swings or crashes during the day, Schwab told me that I should use an estimate (say 90-95%) of the previous days closing value when purchasing the ETF to make sure I am not overdrawn (no margin on the account). The bid-asks on the ETFs are usually within 1 cent, so I would place a limit order for the day, just above or just below the bid/ask.
Assume I am a second grader.....in my mind, I am trading apples to apples so that I am not at risk of losing too much (or gaining too much) in any pair of transactions. Is that assumption safe? What are the red flags I should be on the lookout for?
If my Mutual fund is worth $100, I'm okay with the result of the pair of transactions being between $97 and $103.....I just want to avoid it resulting in a final value of $50.
Please help me. Thank you
Maybe that's not confidence inspiring, but I wouldn't and haven't let that stop me from doing what you're doing. I find it very unlikely that stocks would drop 50% in the last minute "out of the blue". If it drops at all, far more likely the drop would be within 1 or 2% assuming the day's trading had been generally steady.
If you're worried, find a real-time newsfeed to see if there's any sign of catastrophe (flood, earthquake, etc.) or something like that. Don't trade in the middle of a catastrophe.
Re: Help: Schwab MFs to Vanguard ETFs
I just feel better with VG. If the mutual fund versions of the VG ETF were available at no cost at Schwab, I would certainly use them. ETF also portable if I ever want to leave Schwab (though that isn’t a major factor for me at this point.mrscatterbrain wrote: ↑Tue May 25, 2021 3:27 pmMay I ask why you want to exchange the Schwab funds for the Vanguard funds to begin with? Are you expecting a meaningful difference in performance, or tax efficiency? You say the funds are in a tax-advantaged account, so the reason cannot be the latter…bennettg wrote: ↑Tue May 11, 2021 12:58 pm Hi,
I have about 350,000 in a tax advantaged account at Schwab. Currently, I use 3 fund with schwab mutual funds: SWTSX, SWISX and SWAGX.
I want to change my holdings to Vanguard ETFs VTI, VXUS, BND.
How can I do this without risking screwing up and losing money?
As Nate79 said, SWTSX and SWAGX are equivalent to VTI and BND. They will perform identically. SWISX is a large-cap blend of international stocks from developed markets. VXUS includes small-cap developed and emerging markets, but the allocation to those stocks is relatively small (in the ball park of 20% altogether), and they are not completely uncorrelated with developed markets, so they can and do move together over certain periods of time. At the end of the day, the difference between VXUS and SWISX is unlikely to amount to anything worth losing sleep over. PortfolioVisualizer https://www.portfoliovisualizer.com/fu ... sisResults shows an initial $10k investment over 10 years amounts to a negligible $543 difference between the two funds…in Schwab’s favor btw.
For what you are trying to achieve in this post, the ends do not justify the means. Seriously, the value of simplicity cannot be overstated. SWISX is good enough. My advice would be to hold the Schwab funds you have, and feel confident about it!
Do you have any suggestions about the mechanics of the process? I would be appreciative of them.
Re: Help: Schwab MFs to Vanguard ETFs
"schwab will allow me to sell one of the mutual funds and buy one of the ETFs at the same time, thereby minimizing any time out of the market."
pretty much everyone will allow that. Mutual funds settle trades in one day. etfs and stocks settle in 2 days. you can sell a mf and buy a stock etf with the same money. You cannot do the reverse, sell etf and buy mutual fund with same money same day, without using other money or margin.
pretty much everyone will allow that. Mutual funds settle trades in one day. etfs and stocks settle in 2 days. you can sell a mf and buy a stock etf with the same money. You cannot do the reverse, sell etf and buy mutual fund with same money same day, without using other money or margin.
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Re: Help: Schwab MFs to Vanguard ETFs
As to help your process, I cannot add anything further that hasn’t already been said.bennettg wrote: ↑Tue May 25, 2021 4:25 pmI just feel better with VG. If the mutual fund versions of the VG ETF were available at no cost at Schwab, I would certainly use them. ETF also portable if I ever want to leave Schwab (though that isn’t a major factor for me at this point.mrscatterbrain wrote: ↑Tue May 25, 2021 3:27 pmMay I ask why you want to exchange the Schwab funds for the Vanguard funds to begin with? Are you expecting a meaningful difference in performance, or tax efficiency? You say the funds are in a tax-advantaged account, so the reason cannot be the latter…bennettg wrote: ↑Tue May 11, 2021 12:58 pm Hi,
I have about 350,000 in a tax advantaged account at Schwab. Currently, I use 3 fund with schwab mutual funds: SWTSX, SWISX and SWAGX.
I want to change my holdings to Vanguard ETFs VTI, VXUS, BND.
How can I do this without risking screwing up and losing money?
As Nate79 said, SWTSX and SWAGX are equivalent to VTI and BND. They will perform identically. SWISX is a large-cap blend of international stocks from developed markets. VXUS includes small-cap developed and emerging markets, but the allocation to those stocks is relatively small (in the ball park of 20% altogether), and they are not completely uncorrelated with developed markets, so they can and do move together over certain periods of time. At the end of the day, the difference between VXUS and SWISX is unlikely to amount to anything worth losing sleep over. PortfolioVisualizer https://www.portfoliovisualizer.com/fu ... sisResults shows an initial $10k investment over 10 years amounts to a negligible $543 difference between the two funds…in Schwab’s favor btw.
For what you are trying to achieve in this post, the ends do not justify the means. Seriously, the value of simplicity cannot be overstated. SWISX is good enough. My advice would be to hold the Schwab funds you have, and feel confident about it!
Do you have any suggestions about the mechanics of the process? I would be appreciative of them.
Vanguard is an excellent fund manager. So is Schwab. I invest my money in both, btw. I hold the Schwab MFs in my IRA and VTI/VXUS in my taxable brokerage account (both at Schwab).
Re: Help: Schwab MFs to Vanguard ETFs
you can sell a mf and buy another mf or stock/etf seconds later. You do not have to wait for a fund to settle to spend it. You just cannot have the buy order settlement come due the day before the sell does. Since MF settle in one day, stocks and etfs settle in 2 days, it is not an issue. So, you can sell a mf and buy an mf or etf/stock with the money the same day.dukeblue219 wrote: ↑Tue May 11, 2021 1:02 pm Is it a margin account? Assuming not, it can be hard to go FUND-TO-ETF without at least a day of market risk while the fund sale settles before you buy the ETF. The most seamless way would be to do market buys of the ETF at 3:59pm on the day the fund will sell, but that will require a day or two worth of margin, so you might need to do it in smaller chunks.
Otherwise, you just place the sell order on a non-Friday and buy the ETF as soon as possible.
Switching fund-to-fund or etf-to-etf is much easier.
You cannot sell an etf/stock and buy a MF with the same money the same day because the MF buy settles the next day looking for money, and you don''t get the etf sell money settled for 2 days.
Last edited by NMBob on Tue May 25, 2021 4:50 pm, edited 1 time in total.
Re: Help: Schwab MFs to Vanguard ETFs
Question: if swtsx is equivalent to VTI…..while the number of shares $10,000 can buy is different, the value of the purchase (or sale) should roughly be the same, correct? Assume sell mutual fund at 358pm and buy ETF at 359pm.mrscatterbrain wrote: ↑Tue May 25, 2021 3:27 pmMay I ask why you want to exchange the Schwab funds for the Vanguard funds to begin with? Are you expecting a meaningful difference in performance, or tax efficiency? You say the funds are in a tax-advantaged account, so the reason cannot be the latter…bennettg wrote: ↑Tue May 11, 2021 12:58 pm Hi,
I have about 350,000 in a tax advantaged account at Schwab. Currently, I use 3 fund with schwab mutual funds: SWTSX, SWISX and SWAGX.
I want to change my holdings to Vanguard ETFs VTI, VXUS, BND.
How can I do this without risking screwing up and losing money?
As Nate79 said, SWTSX and SWAGX are equivalent to VTI and BND. They will perform identically. SWISX is a large-cap blend of international stocks from developed markets. VXUS includes small-cap developed and emerging markets, but the allocation to those stocks is relatively small (in the ball park of 20% altogether), and they are not completely uncorrelated with developed markets, so they can and do move together over certain periods of time. At the end of the day, the difference between VXUS and SWISX is unlikely to amount to anything worth losing sleep over. PortfolioVisualizer https://www.portfoliovisualizer.com/fu ... sisResults shows an initial $10k investment over 10 years amounts to a negligible $543 difference between the two funds…in Schwab’s favor btw.
For what you are trying to achieve in this post, the ends do not justify the means. Seriously, the value of simplicity cannot be overstated. SWISX is good enough. Mutual funds are preferred in tax-advantaged accounts because they allow you to invest down to the penny and avoid precisely the hoops you’re trying to jump through. My advice would be to hold the Schwab funds you have, and feel confident about it!
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Re: Help: Schwab MFs to Vanguard ETFs
Yes, the total value of all the VTI shares you buy will be approximately, but not exactly, equal to the total dollar amount you receive from selling SWTSX. As others have said, mutual funds allow the purchase and sale of fractional shares, while ETFs do not. This means you will have some uninvested lose change sitting in your account after you buy VTI. Also, you must place either a “market” or “limit” order to buy ETFs during open market hours. There is no guarantee your ETF order will execute and close the moment you submit it. Mutual fund orders always close at the end of the trading day, regardless of the number of shares bought/sold.bennettg wrote: ↑Tue May 25, 2021 4:45 pmQuestion: if swtsx is equivalent to VTI…..while the number of shares $10,000 can buy is different, the value of the purchase (or sale) should roughly be the same, correct? Assume sell mutual fund at 358pm and buy ETF at 359pm.mrscatterbrain wrote: ↑Tue May 25, 2021 3:27 pmMay I ask why you want to exchange the Schwab funds for the Vanguard funds to begin with? Are you expecting a meaningful difference in performance, or tax efficiency? You say the funds are in a tax-advantaged account, so the reason cannot be the latter…bennettg wrote: ↑Tue May 11, 2021 12:58 pm Hi,
I have about 350,000 in a tax advantaged account at Schwab. Currently, I use 3 fund with schwab mutual funds: SWTSX, SWISX and SWAGX.
I want to change my holdings to Vanguard ETFs VTI, VXUS, BND.
How can I do this without risking screwing up and losing money?
As Nate79 said, SWTSX and SWAGX are equivalent to VTI and BND. They will perform identically. SWISX is a large-cap blend of international stocks from developed markets. VXUS includes small-cap developed and emerging markets, but the allocation to those stocks is relatively small (in the ball park of 20% altogether), and they are not completely uncorrelated with developed markets, so they can and do move together over certain periods of time. At the end of the day, the difference between VXUS and SWISX is unlikely to amount to anything worth losing sleep over. PortfolioVisualizer https://www.portfoliovisualizer.com/fu ... sisResults shows an initial $10k investment over 10 years amounts to a negligible $543 difference between the two funds…in Schwab’s favor btw.
For what you are trying to achieve in this post, the ends do not justify the means. Seriously, the value of simplicity cannot be overstated. SWISX is good enough. Mutual funds are preferred in tax-advantaged accounts because they allow you to invest down to the penny and avoid precisely the hoops you’re trying to jump through. My advice would be to hold the Schwab funds you have, and feel confident about it!
Let’s do a concrete example. At market close today, VTI was valued at $216.54/share. Let’s say for simplicity you have $10,000 to invest from selling SWTSX. Because you must buy whole number shares of VTI, you could place a limit order for $10,000/$216.54/share = 46.1808…shares, ie, 46 shares. The dollar amount you would invest in the buy order would then be $216.54/share x 46 shares = $9,960.84, so you will have $10,000 — $9,960.84 = $39.16 left uninvested—if the trade executes and closes at exactly that price/share.
Bear in mind, every trade placed must match buyers with sellers. When you trade shares of a stock or ETF, it often occurs that your order will be split up into multiple buy/sell orders depending on the number of shares you’re trading, the dollar amount your asking for per share, and the number and price per share that other traders on the market are willing to accept. Ie, stock and ETF trades are really negotiations.
This means your limit order to buy 46 shares of VTI at $216.54/share may not be the deal that sellers of VTI are willing to accept. One seller may be willing to sell you 16 shares of VTI at $216.54/share, while another seller may agree to 30 shares at $216.53/share. Your brokerage’s trading platform will split up your buy limit order as it sees fit to execute your order as quickly as possible. But note this may not happen instantly—it could be minutes, hours, or days before your order completes, depending on how the market moves and what you’re asking for in the buy limit order. “Market” orders, on the other hand, are almost certain to complete instantaneously, but it will be at whatever the average price/share happens to be over a brief time interval following the placement of your order. Traders don’t worry about any of these issues with mutual funds, another reason they are favored in tax-advantaged accounts—simplicity!
TL;DR: I would not wait until 3:59pm eastern time to place your ETF trades. Give yourself time for your order to complete, unless you don’t mind it rolling over to the next trading day. Statistically, the most stable (least volatile) time during market hours to place trades seems to be between 11am-3pm eastern time.
Good luck!
Re: Help: Schwab MFs to Vanguard ETFs
Thanks....appreciate the detail and the concrete example. I think i could mitigate risk by placing a market limit order for the day at 358pm? If it doesnt execute, i can try the next day. If it does, any increase or decrease that occurs between execution and close should be mirrored by the mutual fund equivalent, i would think?mrscatterbrain wrote: ↑Tue May 25, 2021 6:15 pmYes, the total value of all the VTI shares you buy will be approximately, but not exactly, equal to the total dollar amount you receive from selling SWTSX. As others have said, mutual funds allow the purchase and sale of fractional shares, while ETFs do not. This means you will have some uninvested lose change sitting in your account after you buy VTI. Also, you must place either a “market” or “limit” order to buy ETFs during open market hours. There is no guarantee your ETF order will execute and close the moment you submit it. Mutual fund orders always close at the end of the trading day, regardless of the number of shares bought/sold.bennettg wrote: ↑Tue May 25, 2021 4:45 pmQuestion: if swtsx is equivalent to VTI…..while the number of shares $10,000 can buy is different, the value of the purchase (or sale) should roughly be the same, correct? Assume sell mutual fund at 358pm and buy ETF at 359pm.mrscatterbrain wrote: ↑Tue May 25, 2021 3:27 pmMay I ask why you want to exchange the Schwab funds for the Vanguard funds to begin with? Are you expecting a meaningful difference in performance, or tax efficiency? You say the funds are in a tax-advantaged account, so the reason cannot be the latter…bennettg wrote: ↑Tue May 11, 2021 12:58 pm Hi,
I have about 350,000 in a tax advantaged account at Schwab. Currently, I use 3 fund with schwab mutual funds: SWTSX, SWISX and SWAGX.
I want to change my holdings to Vanguard ETFs VTI, VXUS, BND.
How can I do this without risking screwing up and losing money?
As Nate79 said, SWTSX and SWAGX are equivalent to VTI and BND. They will perform identically. SWISX is a large-cap blend of international stocks from developed markets. VXUS includes small-cap developed and emerging markets, but the allocation to those stocks is relatively small (in the ball park of 20% altogether), and they are not completely uncorrelated with developed markets, so they can and do move together over certain periods of time. At the end of the day, the difference between VXUS and SWISX is unlikely to amount to anything worth losing sleep over. PortfolioVisualizer https://www.portfoliovisualizer.com/fu ... sisResults shows an initial $10k investment over 10 years amounts to a negligible $543 difference between the two funds…in Schwab’s favor btw.
For what you are trying to achieve in this post, the ends do not justify the means. Seriously, the value of simplicity cannot be overstated. SWISX is good enough. Mutual funds are preferred in tax-advantaged accounts because they allow you to invest down to the penny and avoid precisely the hoops you’re trying to jump through. My advice would be to hold the Schwab funds you have, and feel confident about it!
Let’s do a concrete example. At market close today, VTI was valued at $216.54/share. Let’s say for simplicity you have $10,000 to invest from selling SWTSX. Because you must buy whole number shares of VTI, you could place a limit order for $10,000/$216.54/share = 46.1808…shares, ie, 46 shares. The dollar amount you would invest in the buy order would then be $216.54/share x 46 shares = $9,960.84, so you will have $10,000 — $9,960.84 = $39.16 left uninvested—if the trade executes and closes at exactly that price/share.
Bear in mind, every trade placed must match buyers with sellers. When you trade shares of a stock or ETF, it often occurs that your order will be split up into multiple buy/sell orders depending on the number of shares you’re trading, the dollar amount your asking for per share, and the number and price per share that other traders on the market are willing to accept. Ie, stock and ETF trades are really negotiations.
This means your limit order to buy 46 shares of VTI at $216.54/share may not be the deal that sellers of VTI are willing to accept. One seller may be willing to sell you 16 shares of VTI at $216.54/share, while another seller may agree to 30 shares at $216.53/share. Your brokerage’s trading platform will split up your buy limit order as it sees fit to execute your order as quickly as possible. But note this may not happen instantly—it could be minutes, hours, or days before your order completes, depending on how the market moves and what you’re asking for in the buy limit order. “Market” orders, on the other hand, are almost certain to complete instantaneously, but it will be at whatever the average price/share happens to be over a brief time interval following the placement of your order. Traders don’t worry about any of these issues with mutual funds, another reason they are favored in tax-advantaged accounts—simplicity!
TL;DR: I would not wait until 3:59pm eastern time to place your ETF trades. Give yourself time for your order to complete, unless you don’t mind it rolling over to the next trading day. Statistically, the most stable (least volatile) time during market hours to place trades seems to be between 11am-3pm eastern time.
Good luck!
Re: Help: Schwab MFs to Vanguard ETFs
I think you should practice. More to the point, split up your purchases into separate lots.
Given that your MFs are in an IRA you don't have to worry about incurring a taxable event.
VTI is trading at $217.35 (3:30 Eastern).
Say you want to buy 10 shares of VTI, that's $2173.50. Fill in the order page but don't submit it just yet.
On another page, enter an order to SELL SWTSX for 5% more than that: $2282.18.
Now you can enter the BUY order. If for some reason VTI jumped more than 5% in the time it took you to enter the orders, either decrease the number of shares to 9, or submit another SELL order for SWTSX to make up the difference.
At the end of this day, you'll have entered a SELL transaction for SWTSX. It will settle on Wednesday (T+1).
And you'll have entered a BUY transaction for VTI. It will settle on Thursday (T+2).
Likely you'll have some cash left over because the 5% difference. The exact amount will be in your settlement fund on Thursday after the VTI trade settles.
Then repeat this exercise until you've sold all shares of SWTSX.
Given that your MFs are in an IRA you don't have to worry about incurring a taxable event.
VTI is trading at $217.35 (3:30 Eastern).
Say you want to buy 10 shares of VTI, that's $2173.50. Fill in the order page but don't submit it just yet.
On another page, enter an order to SELL SWTSX for 5% more than that: $2282.18.
Now you can enter the BUY order. If for some reason VTI jumped more than 5% in the time it took you to enter the orders, either decrease the number of shares to 9, or submit another SELL order for SWTSX to make up the difference.
At the end of this day, you'll have entered a SELL transaction for SWTSX. It will settle on Wednesday (T+1).
And you'll have entered a BUY transaction for VTI. It will settle on Thursday (T+2).
Likely you'll have some cash left over because the 5% difference. The exact amount will be in your settlement fund on Thursday after the VTI trade settles.
Then repeat this exercise until you've sold all shares of SWTSX.
Re: Help: Schwab MFs to Vanguard ETFs
This is a lot of angst and work for no visible gain. I'm the happy owner of SWTSX, SWISX, and SWAGX in my 401k. And I own VTI in my taxable. I'm still unclear what you're trying to accomplish with this move. It's like turning down a peanut butter-and-jelly sandwich because you want a jelly-and-peanut butter sandwich...why?
Advice = noun |
Advise = verb |
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Roth, not ROTH |
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"Remember, there's always money in the banana stand." - George Bluth, Sr.
Re: Help: Schwab MFs to Vanguard ETFs
Maybe an ETF is like the PB&J with PB on both slices to keep the jelly from making the bread soggy?KingRiggs wrote: ↑Wed May 26, 2021 3:01 pm This is a lot of angst and work for no visible gain. I'm the happy owner of SWTSX, SWISX, and SWAGX in my 401k. And I own VTI in my taxable. I'm still unclear what you're trying to accomplish with this move. It's like turning down a peanut butter-and-jelly sandwich because you want a jelly-and-peanut butter sandwich...why?
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Re: Help: Schwab MFs to Vanguard ETFs
There's no way to do this without incurring capital gains. Unless you are in the 0% capital gains tax bracket, you would arguably be screwing up and losing money no matter what.
Re: Help: Schwab MFs to Vanguard ETFs
Capital gains? I thought that didn’t happen in a tax advantaged account?aristotelian wrote: ↑Wed May 26, 2021 3:46 pm There's no way to do this without incurring capital gains. Unless you are in the 0% capital gains tax bracket, you would arguably be screwing up and losing money no matter what.
Re: Help: Schwab MFs to Vanguard ETFs
There won't be any cap gains because OP says:aristotelian wrote: ↑Wed May 26, 2021 3:46 pm There's no way to do this without incurring capital gains. Unless you are in the 0% capital gains tax bracket, you would arguably be screwing up and losing money no matter what.
Re: Help: Schwab MFs to Vanguard ETFs
You're correct. I think aristotelian didn't notice this was for a tax advantaged account.bennettg wrote: ↑Wed May 26, 2021 3:57 pmCapital gains? I thought that didn’t happen in a tax advantaged account?aristotelian wrote: ↑Wed May 26, 2021 3:46 pm There's no way to do this without incurring capital gains. Unless you are in the 0% capital gains tax bracket, you would arguably be screwing up and losing money no matter what.
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Re: Help: Schwab MFs to Vanguard ETFs
Completely missed that! In that case this would be very difficult to mess up. If you were worried you could always sell and rebuy in small batches.sycamore wrote: ↑Wed May 26, 2021 3:57 pmThere won't be any cap gains because OP says:aristotelian wrote: ↑Wed May 26, 2021 3:46 pm There's no way to do this without incurring capital gains. Unless you are in the 0% capital gains tax bracket, you would arguably be screwing up and losing money no matter what.
Re: Help: Schwab MFs to Vanguard ETFs
Just for the record, I do this all the time (at Schwab). I do not have a margin account. Meaning, I buy things with unsettled funds that won't settle in time.NMBob wrote: ↑Tue May 25, 2021 4:37 pmyou can sell a mf and buy another mf or stock/etf seconds later. You do not have to wait for a fund to settle to spend it. You just cannot have the buy order settlement come due the day before the sell does. Since MF settle in one day, stocks and etfs settle in 2 days, it is not an issue. So, you can sell a mf and buy an mf or etf/stock with the money the same day.dukeblue219 wrote: ↑Tue May 11, 2021 1:02 pm Is it a margin account? Assuming not, it can be hard to go FUND-TO-ETF without at least a day of market risk while the fund sale settles before you buy the ETF. The most seamless way would be to do market buys of the ETF at 3:59pm on the day the fund will sell, but that will require a day or two worth of margin, so you might need to do it in smaller chunks.
Otherwise, you just place the sell order on a non-Friday and buy the ETF as soon as possible.
Switching fund-to-fund or etf-to-etf is much easier.
You cannot sell an etf/stock and buy a MF with the same money the same day because the MF buy settles the next day looking for money, and you don''t get the etf sell money settled for 2 days.
Specifically, here is a typical 3-step rebalancing transaction in my IRA:
1) Sell ~$10K of ETF #1 (it won't be exactly $10K) at market price (happens basically instantly). Let's say this is ~$9950.
2) Buy <$9950 of ETF #2 (whole shares, so it won't be exactly $9950. Let's say it's ~$9925. Market price, happens ~instantly.
3) Now I have $25.36 or some oddball amount leftover. This is in unsettled funds from transaction #1. Put in an order to buy exactly $25.36 of Mutual Fund #3. This order happens at the end of the business day. It uses unsettled funds.
All transactions on the same day. #1 and #2 will settle on D+2, #3 will settle on D+1. Schwab has no problem with this.
What Schwab (and all brokers, not just Schwab) would have a problem with is if I sold ETF #2 before it settled. This is called free-riding or a liquidity violation and will result in at minimum a warning, plus possible other sanctions against my account. Don't do this.
In response to OP, if you want to switch over from Mutual Funds to ETFs, I would do it in stages on multiple days, not all at once. And not on a volatile stock market day. I would be conservative about how much you put the buy order in for. If I was selling $10K or mutual funds, I would only buy $9K of ETFs. Leave some cash in the account until you have finished all the transactions. And if you are like me and don't want to have any cash in your IRA, then after it's all done, buy some Schwab Mutual Fund (I use SWTSX) with the small amount (<$100) cash at the end.
edit: typo
Last edited by NancyABQ on Wed May 26, 2021 6:45 pm, edited 1 time in total.
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Re: Help: Schwab MFs to Vanguard ETFs
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Last edited by Lookingforanswers on Fri Jun 17, 2022 11:17 pm, edited 1 time in total.
Re: Help: Schwab MFs to Vanguard ETFs
I would keep my Schwab funds and just start buying the Vanguard ETFs you want with new money.
Re: Help: Schwab MFs to Vanguard ETFs
I would keep my Schwab funds and just start buying the Vanguard ETFs you want with new money.
Re: Help: Schwab MFs to Vanguard ETFs
You can do this at Fidelity; no margin required. Per NancyABQ's comment, Schwab allows this too, and I remember some old threads here saying the same for Vanguard as well. Is there a brokerage that doesn't allow it?
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Re: Help: Schwab MFs to Vanguard ETFs
If you don't like the Schwab funds, stop adding new money to them, but don't sell them. Just hold them forever. Put all your new money, and the dividends from the Schwab funds, into the Vanguard ETFs.
I don't understand why you don't like the Schwab funds — other than the limitations of the international fund. I own both Schwab and Vanguard funds, and am happy with how both fund families have performed.
I don't understand why you don't like the Schwab funds — other than the limitations of the international fund. I own both Schwab and Vanguard funds, and am happy with how both fund families have performed.
Re: Help: Schwab MFs to Vanguard ETFs
I like VG's ownership structure and that with an ETF, I am not locked into a broker. I don't think these are particularly compelling reasons to move from mutual funds to ETFs, but I am have also been unable to come up with compelling reasons not to do so.UpperNwGuy wrote: ↑Wed May 26, 2021 5:59 pm If you don't like the Schwab funds, stop adding new money to them, but don't sell them. Just hold them forever. Put all your new money, and the dividends from the Schwab funds, into the Vanguard ETFs.
I don't understand why you don't like the Schwab funds — other than the limitations of the international fund. I own both Schwab and Vanguard funds, and am happy with how both fund families have performed.
For now, I am locked into schwab as my broker, because of the type of tax advantaged plan i am in. I have been very pleased with customer service, but things changed over time. Had ETFs been free when I started investing, I never would have chosen anything other than VG at schwab. If the VG mutual funds were free at schwab, I would choose them.
Re: Help: Schwab MFs to Vanguard ETFs
see fidelty's "cash liquidation violation"
https://www.fidelity.com/learning-cente ... violations
Re: Help: Schwab MFs to Vanguard ETFs
Fidelity does not seem to apply this rule to same-day ETF-to-MF trades. I have done this in the past and did not receive any violations. People have had the same experience with Vanguard; here's a poster who actually called them to check: viewtopic.php?p=5320368#p5320368NMBob wrote: ↑Thu May 27, 2021 10:58 amsee fidelty's "cash liquidation violation"
https://www.fidelity.com/learning-cente ... violations
But to be sure, it's probably safest to call your brokerage and check with them before doing this.
Re: Help: Schwab MFs to Vanguard ETFs
okwriter, Thank u for taking the time to find and post that link. Does seem to be pointing out what seems unusual. Margin accounts will go on margin
Because mine has at schwab... and yet cash account seems to get a free one day loan.
Just to muddy the waters ..lol....Perhaps tied to this in some schwab trading instructions says something like that the buy and sell need to be the same day. It particularly says that buy an etf monday and sell a different etf both settle wed...ok. but not ok is to buy etf monday and sell mf on tuesday . Both settle wednesday but it says that is not ok. The mf needed to be sold monday....humm
https://help.streetsmart.schwab.com/edg ... 0Funds.htm
Because mine has at schwab... and yet cash account seems to get a free one day loan.
Just to muddy the waters ..lol....Perhaps tied to this in some schwab trading instructions says something like that the buy and sell need to be the same day. It particularly says that buy an etf monday and sell a different etf both settle wed...ok. but not ok is to buy etf monday and sell mf on tuesday . Both settle wednesday but it says that is not ok. The mf needed to be sold monday....humm
https://help.streetsmart.schwab.com/edg ... 0Funds.htm
Re: Help: Schwab MFs to Vanguard ETFs
We are getting kind of off-topic for the OP, but the way I think of it is you are not allowed to "gamble" with the house's money. If you buy something with unsettled funds, that is fine, but if you turn around and sell it while the funds are still not settled, then you have gained or lost money that never belonged to you. You can't do that unless you have a margin account (in which case you are temporarily borrowing the money, so it's fine). These are FTC rules, not specific to Schwab or Fidelity.NMBob wrote: ↑Thu May 27, 2021 12:49 pm okwriter, Thank u for taking the time to find and post that link. Does seem to be pointing out what seems unusual. Margin accounts will go on margin
Because mine has at schwab... and yet cash account seems to get a free one day loan.
Just to muddy the waters ..lol....Perhaps tied to this in some schwab trading instructions says something like that the buy and sell need to be the same day. It particularly says that buy an etf monday and sell a different etf both settle wed...ok. but not ok is to buy etf monday and sell mf on tuesday . Both settle wednesday but it says that is not ok. The mf needed to be sold monday....humm
https://help.streetsmart.schwab.com/edg ... 0Funds.htm
Something you can't do:
1) sell A for $100K (OK)
2) immediately buy B for $100K (OK)
3) B goes up 25% that same day. immediately sell all of B. Now you have $125K. (NO!)
You made that extra $25K using unsettled funds that did not "belong" to you. This is a violation for a cash account.
Something you CAN do:
1) Have $100K in settled funds in your account (OK)
2) Buy B for $100K (OK)
3) B goes up 25% that same day. immediately sell all of B. Now you have $125K. (OK!)
It isn't about when you BUY the security, it's about when you SELL it. And it's about whether the funds you used were settled funds. If they are not settled funds then they don't technically belong to you yet.
The Schwab and Fidelity descriptions of this (links recently posted) are describing the same rules as far as I could tell, though I didn't read them super closely so I could be wrong.
A place where your average investor who is not trying to do day-trading might go astray would be if they make a mistake (suppose I meant to buy C and I accidentally bought B, in step #2). If you turn around and sell B right away, you could trigger this rule if you used unsettled funds to buy B, even though you were just trying to correct a mistake, not to make money on a market bounce. In this case, wait until the transaction settles before selling B.
On Schwab it will flag a warning if you do things with unsettled funds. The first time I saw that warning I panicked and talked to an advisor who explained this to me. Since I was only trying to buy something with unsettled funds, it was fine. But he also explained to me when I would run into trouble. Which again, is when you SELL things you bought with unsettled funds, before the transactions settle.