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Quarterly Client Newsletter

Effects of TDAmeritrade’s Merger With Charles Schwab

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Client Newsletter    Volume XXIX   Number 1   August 1, 2023

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Effects of TDAmeritrade’s Merger With Charles Schwab

When I began assisting clients with their investments, all of our investments were custodied directly by the Vanguard Group, but more than two decades ago, Vanguard got out of the custody business and 400 advisors were told to find a new custodian. I chose Waterhouse Securities and our investments were custodied there until Waterhouse merged with TDAmeritrade (“TDA”).  

Two years or so ago the parent of TDAmeritrade, Toronto Dominion Bank, sold TDA to Charles Schwab. Schwab is, by far the largest custodian on behalf of investment advisors like me. They also provide custody services for Patriot Investment Management (“Patriot”) (the firm under which I shelter for insurance, regulatory, and other matters).

Each of you has begun receiving emails and mailings from TDA and/or Schwab describing the process of the accounting merger of TDA with Schwab. The effective date of this merger is the weekend of Labor Day, later this summer.

As with other changes which have affected my clients, there is to be no change in anyone’s investments. You will begin to receive monthly statements (and notices of trades in your account(s)) from Schwab after Labor Day. If you have not gotten online with TDA so that you can see your accounts on the internet, then there will be no change at all in how you are served. If you have established an online account with TDA, then you will need to get online with Schwab so that Schwab can serve you online. Schwab email(s) to you should have explained the process.

I will be becoming familiar with Schwab’s website for serving investment advisors. In this, I will be aided significantly by experienced representatives of Patriot.

If you have questions, please do not hesitate to reach out to me. I’d be pleased to discuss this further. In summary, for my clients it is not a big deal; for me it will be a learning experience.

I have not received information from Schwab which contains their charges for various transactions. I understand that, like TDA, Schwab does not charge any brokerage commissions for transactions involving buys or sells of exchange traded funds (“ETFs”). ETFs are the format that most of us have most of our investments within. I have informally understood that Schwab may charge a bit higher brokerage commission for buys or sells of mutual funds. Note that since we are “buy and hold investors” there are very few changes in our investments. Like TDA, Schwab does not charge for the reinvestment of interest earned by bond funds or ETFs and dividend income earned by stock funds or ETFs.

What are YOUR and MY Asset Allocations?

Each of us has a different ability to live with uncertainty (risk) and so our investments will be different:

As of June 30, 2023 Clients John Smartt
Money Market Funds 1.2% 0.6%
Bond Funds 26.1 14.7
Stock Funds 72.7 84.7
Totals 100.0% 100.0%


Remember each of us has different goals and needs, and our asset allocation should fit us and our family.

If you have questions about your asset allocation, or your retirement plan investments, I’d be pleased to assist.

Vanguard Rates of Return (through Latest Quarter End)

Performance percentages are per Morningstar.  Amounts in parentheses are percentile rankings.

(1= best and 100= worst) within category.

Periods ended June 30, 2023 Yr.-to-date 5 Years 10 Years

Total Stock Market Index Admiral 16.2% (35) 11.3% (46) 12.3% (31)
Tax-Managed Capital Appreciation Admiral 16.8% (23) 12.0% (26) 12.8% (10)
Tax-Managed Small Capitalization 6.0% (75) 5.3% (52) 9.8% (8)
REIT Index Admiral 3.5% (67) 4.4% (49) 6.1% (49)
Total Int’l Stock Index Admiral 9.4% (76) 3.7% (56) 5.0% (56)
Balanced Index Admiral 10.5% (17) 7.3% (19) 8.1% (15)
Total Bond Market Index Admiral 2.2% (52) 0.8% (36) 1.5% (39)
Int.-Term Invstmt.-Grade Bond Admiral 3.2% (61) 1.8% (39) 2.4% (56)
High–Yield Corporate Bond 4.3% (76) 3.3% (27)


4.1% (21)


For comparison, here are several stock and bond benchmarks:
Periods ended June 30, 2023 Yr.-to-date 5 Years 10 Years

S & P 500 (large stocks)

16.9% 12.3% 12.9%

Russell 2000 (small stocks)

MSCI World Index







Bloomberg US Aggregate Bond Index 2.1% 0.8% 1.5%
ICE BofA US High Yield Master TR
(bond index)
5.4% 3.2% 4.3%

Vanguard mutual funds and ETFs (exchange-traded funds) continue to perform as expected.  I expect each Vanguard fund or ETF, for each ten-year period to be in the top 1/3 before taxes based on low cost, and they ought to be in the top 1/4 (stock funds) after income taxes.

The Vanguard High Yield Corporate Bond fund takes significantly less risk that the average “high yield” (also known as “junk bond”) fund.  The Vanguard fund, which takes less risk, continues to rank highly in the rankings over the last ten-year period. Over the last ten years, the Vanguard fund has captured most of the excess of junk bond returns over good quality bond returns—meeting my expectation.  I continue to believe that, for tax-deferred accounts, this fund is a reasonable, additional diversification and comprises some of my personal bond holdings.

If you have questions about your investment asset allocation, please contact me.

What You Should Know About Target-Date Funds:

From a May 19, 2023 article (“Putting Your Retirement On Autopilot May Cost You. Here’s What You Should Know About Target-Date Funds”) which appears in Investor’s Business Daily:

“Target-date funds [“TDFs”], were created in the mid-1990s. By 2006 many defined benefit plans like pensions used them to provide an automated solution to prepare for retirement. Since then, their use has expanded to other retirement accounts such as IRAs and 401(k)s, as well as taxable individual accounts.

Investors love the simplicity target-date funds. They poured more than $462 billion into the funds in the past 10 years. Net assets of TDFs hit $1.8 trillion at the end of 2021 says the Investment Company Institute.

Most target-date funds are a fund of funds. As such, an investor will likely pay not only the disclosed annual fee on a TDF, but also the annual fees on the underlying funds…

That said, some of the big fund firms, such as Vanguard, wave the fees of any underlying funds. So investors pay only one very low fee of 0.08% for a TDF.

‘We’re very much an advocate for low-cost investing, always have been,’ says Brian Miller, a senior investment specialist with Vanguard.

Ted Benna, consultant, … and commonly referred to as the ‘father of the 401(k)’ because he created the first 401(k) savings plan, says Vanguard and a couple of other firms have very low fees: ‘0;08% or 8 basis points—you’re not going to invest any cheaper than that.’”

Smartt comment: Yes, costs are important, but I believe there is an even more important issue with the use of TDFs. At the target (and presumed retirement) date, most all TDFs are most all invested in bonds, very little stock is contained in their portfolios. But most of us need a significant percentage of our retirement portfolio invested in stock. Thus for the final decade or longer the TDF in use may have generated lower returns because it was more highly invested in bonds than in stock.

Yes, they are easy, appear to be “set it and forget it,” but continuing asset allocation, especially as the retirement date approaches, is generally a problem.

If you use a TDF in your 401(k) and wonder about the advisability of its use, give me a call.

The Economist Magazine: The Trouble with Sticky Inflation:

From June 24, 2023 issue of the magazine:

“At first glance the world economy appears to have escaped from a tight spot. In the United States annual inflation has fallen to 4%, having approached double digits last year. A recession is nowhere in sight and the Federal Reserve has felt able to take a break from raising interest rates. After a gruesome 2022, stockmarkets have been celebrating: the S&P 500 index of American firms has risen by 14% so far this year, propelled by a resurgence in tech stocks.

Core prices, which exclude energy and food, in both America and the Euro area are rising at around 7%, year on year.

As a result, central banks face agonizing choices. What they do next will reverberate across financial markets, threatening uncertainty and upheaval for workers, bosses, and pensioners.

Equity [e.g. stock] investors are hoping that central bank can return inflation to their 2% targets without inducing a recession. But history suggests that bringing inflation down will be painful.

The secular forces pushing up inflation are likely to gather strength. Sabre-rattling between America and China is leading companies to replace efficient multinational supply chains with costlier local ones. The demands on the public purse to spend on everything from decarbonisation to defense wil only intensify.

Central bankers vow that they are determined to meet their targets. They could, by raising rates, destroy enough demand to bring inflation down. Were they to keep their word, a recession would seem likelier than a painless disinflation. But the costs of inducing a recession, together with the longer term pressures on inflation, suggest another scenario: that central banks seek to evade their nightmarish trade-off, by raising rates less than is needed to hit their targets and instead living with higher inflation of, say 3% or 4%.

Volatile inflation would hurt companies and their shares, by making it harder for them to manage their costs and set prices. It would hurt virtually every asset class by raising he likelihood that central banks would have to rush to adjust rates after an unexpected flare-up. That bring large swings in real [interest income] yields, prompting investors to demand a discount in compensation for the uncertainty, forcing asset prices down.

Higher inflation would also create new winners and losers. Most obviously, inflation involves an arbitrary transfer of wealth from lenders to borrowers, as the real [after inflation] value of debt falls. Heavily indebted borrowers, including governments around the world, may feel like rejoicing. But bond investors realized they were being stiffed, they could punish recklessness with higher borrowing costs, including in rich countries.

Such is the excruciating situation that central banks now find themselves in. They are likely to steer a course between high inflation and recession. Investors seem to believe that this can still end well, but the hances are that it won’t.”