For those new to investing, one of the first decisions you need to make is where to start your investing. This can be overwhelming to some since there are so many brokerage options available. Also, deciding on a brokerage could be a big commitment, as it could be a hassle to switch platforms once you select one. Thus, it is important that you know all the investment options available. In this article, I will go over the pros and cons of one of the most reputable brokerage firms around: Charles Schwab.
The History of Charles Schwab
Charles Schwab is not a young company by any means. The company has been providing investment services to customers for over forty years, cementing its reputation as one of the most trusted, client-friendly brokerage platforms available.
In 1963, Charles “Chuck” Schwab (the namesake of the company) launched a newsletter, Investment Indicator, with two partners. Eight years later, this company was incorporated under the name First Commander Corporation, owned wholly by Commander Industries Inc. This corporation would serve as a broker-dealer for securities and publishing the newsletter.
A year later, Schwab purchased all stock of the corporation and would go on to change its name to Charles Schwab & Co., Inc. in 1973.
In 1975, with the Securities and Exchange Commission mandating commission rates, many brokerages saw this as a chance to raise their rates. However, Schwab did not see it this way; instead, the company took on its reputation as a discount brokerage.
Over the course of the following decade, Charles Schwab would flourish. The company would open branches all along the west coast, be the first to offer pre-market services and quotes to clients, offer all-day quotation services, and invest in automated transaction/recordkeeping technology.
The actions taken by the company in its infancy cemented itself as a broker focused on both innovation and customer happiness.
Read more about Charles Schwab’s history here.
Why You Should Use Charles Schwab
The overview of the company’s history demonstrates its commitment to its clients, which is still true to this day. As seen through the positives that I list below, Charles Schwab provides an easy-to-use platform that is catered to investors of all income levels.
Charles Schwab is Very Affordable
Throughout its long history, Charles Schwab has been associated with affordability. That proves true to this day. The platform has a number of policies that ensures that users are able to maximize the use of limited funds. This ultimately enables individuals of all income levels to start investing whenever they can!
No Fees or Account Minimums
A few years ago, it was a rare sight to see a broker not charge commission fees to use its platform. Platforms would charge anywhere from $3 to $7 for every transaction that an investor would make. However, that all changed in November of 2019, when a number of brokers, including Charles Schwab, decided to eliminate all commission fees.
With this development, investing in Charles Schwab for most users is essentially free. There are no longer transaction fees for any stock trading, in addition to any transactions including preferred stocks, real estate investment trusts (REITs), Schwab mutual funds, and exchange-traded funds (ETFs). Further, the platform does not charge annual or inactivity fees to its users and does not require any account minimums.
One of the more notable, recent features of Schwab’s platform is its offering of fractional shares. Like with the elimination of fees, more brokerage platforms are offering fractional shares than ever before. This is to the benefit of investors, as fractional shares allow individuals to invest with even the smallest amounts of money.
In case you don’t know what they are, fractional shares allow you to invest in a portion of a company’s stock instead of an entire share. For example, if a company’s stock is trading at $100 per share, you could buy 1/100 of a share for $1 instead of buying a whole share.
Offers Retirement Plan Options
Unlike competitors like Robinhood, Charles Schwab does give you the option of opening an Individual Retirement Account (IRA). In other words, the platform gives you the option to plan for your retirement in a way that some other platforms do not. To learn more on how to plan for your retirement with IRAs, you can read our Beginner’s Guide to Retirement Planning.
Free Research Sources
One of the most important aspects of investing is research. To ensure a positive experience on the market, investors should do their own due diligence when deciding which stocks to invest in. Thankfully, Charles Schwab provides users with expert research for no additional cost. The research comes from fourteen different providers, such as Moody’s, Morningstar, Reuters, and Credit Suisse. These are fantastic sources of information for investors and would come at a price if not offered for free by Schwab’s platform. This allows investors with minimal funds to have all the tools available to more affluent investors.
Great Support Services
Additionally, Charles Schwab provides 24/7 support services to its customers via phone, email, and chat. A very unique characteristic of Charles Schwab is that it is not solely an online brokerage. The company does have several physical locations that provide in-person support. Their branches operate Monday through Friday from 8 am to 5 pm, with some operating on Saturdays.
Drawbacks of Schwab
Honestly, Charles Schwab has very few disadvantages as a brokerage platform. However, nothing is perfect, and this is true even with Schwab. The platform definitely has drawbacks that are worth noting, as they could factor into the final decision for an investor selecting their brokerage.
There Still are Fees
While the platform does not charge fees for most transactions, this does not mean that it does not charge fees for all of its transactions. In fact, the platform charges for essentially any transaction that is not a basic stock or ETF investment. For example, options trading does carry a contract fee of $0.65, unlike competitor Robinhood, which has no fees for options. Additionally, it charges fees for Futures contracts ($2.25), CDs, bonds, and other instruments as well. Further, while it charges no fees for Schwab mutual funds, the company does charge for some non-Schwab mutual funds (as much as $49.95). In regards to foreign bonds, asset-backed securities, mortgage-backed securities, commercial paper, and other uncommon securities, you would have to contact the company (800-626-4600). The company also has a high fee for wire withdrawals.
Interest Rates on Borrowed Cash
One notable drawback for the platform is that it does charge a high-interest rate on borrowed funds. Those looking to utilize margin trading, or utilize debt to enhance their returns, may be turned off by this.
Promotions Geared Towards High-End Clients
Another drawback is that the company’s promotions are typically geared towards those with higher account balances. These benefits are typically only available to those with deposits of $100,000 or more.
|1. No fees on trades for common securities||1. Still charges fees for certain transactions|
|2. Offers IRA options||2. Promotes own funds over competition’s|
|3. Offers fractional shares||3. High-interest rates for borrowed funds|
|4. Great customer support (including in-person)||4. More perks for higher net worth clients|
|5. Free research resources for investing||5. Physical locations might be far from clients|
We are in an age today where investing is the most affordable it has ever been, and Charles Schwab is the prime example of that. Overall, it is simple to use, affordable, and very user-friendly, making the barrier to entry very low. Plus, unlike mainstream affordable brokerage Robinhood, Schwab provides retirement plan options, which is fantastic for young investors to plan for their financial futures.
It is so important to select a good brokerage platform when you first start investing because it can be a pain to switch afterward. For that reason, I would recommend Charles Schwab to any new investors. Despite minor drawbacks, the platform is ideal for investors of any experience level and of any income bracket.