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Published on Aug 25, 2016
Charles
Schwab has a new target in the battle for your retirement dollars.
Schwab is launching Schwab Target Index Funds, the lowest-cost target
date funds available to retirement plans, with an across-the-board
expense ratio of 8 basis points and no minimum investments, regardless
of plan size. Prior to the introduction of Schwab Target Index Funds,
the most competitive pricing for target date funds (TDFs) could require
minimums of $100 million or more. 'There is a laser focus on fees and
this levels the playing field for access to all investors,' said Jake
Gilliam, portfolio strategist at Charles Schwab Investment Management.
Under Schwab's new arrangement, every plan gets the same low price, and
participants no longer have to pay more just because they may work at a
smaller company. The new products are constructed with Schwab ETFs. The
new series includes funds with target retirement dates between 2010 and
2060 in five-year increments. Outside of retirement plans, the new funds
will be available to individual investors at 13 basis points with a
$100 minimum investment. The asset allocations in Schwab Target Index
Funds are adjusted annually and become more conservative over time
according to a predetermined 'glidepath'. This reflects both the need
for reduced investment risk as retirement approaches and the need for
income after retiring. At its starting point, the glidepath for the
longest-range fund (Schwab Target 2060 Index Fund), begins with an asset
mix of approximately 95% equity, 5% fixed income, cash and cash
equivalents. At their target retirement dates, each fund reaches
approximately 40% equity, 60% fixed income, cash and cash equivalents.
Each fund then continues reducing its equity allocation for an
additional twenty years to reach its most conservative and final
allocation of approximately 25% equity, 75% fixed income, cash and cash
equivalents.
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