Schwab Is Bullish on 0% Commissions

Charles Schwab’s latest book, Invested, is part memoir and part ode to the brokerage firm he founded that in many ways changed how Americans invest. He chronicled the firm’s beginnings for Schwab employees, he says, so they would never “lose their compass” for the company’s mission: To come up with new ways to make investing easier and cheaper. We recently interviewed Schwab at the Kiplinger offices in Washington, D.C.

Most Americans don’t have a pension and must figure out how to pay themselves in retirement. What can firms like Schwab do to help? First, we need to get people to save. They need to know how to invest it, too. It can’t go into a sleepy savings account. The best place for growth is stocks, but you need to be diversified. We have an income management account coming this spring that will help people figure out how much to withdraw in retirement so that their money will last.

Does the firm have anything in the works for younger investors? Index funds are good investments, but they’re boring. We want to get kids into buying stocks. We’re launching fractional ownership, so customers can buy one-tenth of a share in a company. Ten shares of Amazon.com today would cost $17,000. Who has that kind of money? That’s coming in the spring, too.

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Schwab led the way with zero commissions. Will that encourage risky trading? If I could start Schwab over again, I’d have no commissions. I’ve always been down on commissions -- it’s the wrong way to deal with people in a fiduciary relationship. A $0 commission shouldn’t change how investors behave, but it will let us talk about other things and help people figure out simple, low-cost ways to invest and accumulate assets.

Given the long bull market, have investors forgotten what a downturn looks like? There will always be bear markets. A stock can lose half its value in those periods. It’s harsh at times. Recent bear markets have been marked by bubbles. It reminds me of an early lesson I learned in 1961. Back then, everybody was going to be a bowler. So all of the bowling stocks, bowling shoe and ball makers, they all had incredible valuations. Well, guess what? Not everybody was a bowler, and the stocks collapsed. Today, the concept around WeWork was completely a bubble. You want to make sure you are invested in solid companies that grow and innovate.

Do you still actively trade at Schwab? Yes. I invest in a variety of things, including biotech companies. One out of 10 might work out; others are 100% losses. I also have index funds, mutual funds and one large position in a single stock. I watch it very carefully.