There should be a word for the phenomenon where, for 50 readers out of 100,000, an otherwise unremarkable sentence gets the reaction "Wowza, shots fired."pic.twitter.com/gRGlFoWVSw
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There should be a word for the phenomenon where, for 50 readers out of 100,000, an otherwise unremarkable sentence gets the reaction "Wowza, shots fired."pic.twitter.com/gRGlFoWVSw
Discount brokerages make most of the money on net interest revenue. (c.f. https://www.kalzumeus.com/2019/6/26/how-brokerages-make-money/ … ) If you were designing for the customer, you'd do exactly what Vanguard did here. If you're designing for the brokerage, you do what Schwab does (a bank sweep, offering 30 bps).
I feel a bit for Schwab... you have to charge for *something*. (Vanguard charges for asset management, and uses its truly galactic levels of scale to cram down the prices on that.)
Interestingly, from an allocative perspective, to the extent you make money from net interest revenue you're largely making it from your wealthiest customers, and to the extent you make it from commissions the burden (as percentage of account value) will mostly be on the young.
Like, the first time you invest $500 and pay a $4 commission, you've given 75 bps of your assets. But if you keep saving and buy-and-holding, in year 15 your commissions are probably larger as absolute dollar amount but round to zero in terms of your portfolio.
Net interest revenue, on the other hand, works almost the opposite way: when you deposit $500 and buy a few shares a few days later, you've generated effectively nothing in net interest. But when you're a retiree with 20% cash allocation, it's costing you quite a bit.
Vanguard passes essentially all securities lending revenue back to their customers, many of their funds effectively have a negative expense ratio. This doesn’t show up in the posted ER, though, which makes it hard to compare total costs.
Financial services are so damn efficient, and then there is Bitcoin.
Vanguard is great! I have most of my money in the settlement account instead of my bank besides what I need. And use that to make monthly stock purchases. And the stocks only have 0.04% expense ratio!
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