USAA

As much as I’d like to think of myself as in the know, I didn’t know USAA sold part of their business to Charles Schwab until I got an email welcoming to Charles Schwab. According to CNBC, USAA sold its Investment Management Company to Charles Schwab for $1.8 Billion. If you’re a USAA member with an investment account and haven’t seen this email, look for the subject “We’re pleased to have you as a Schwab client”. This blog is going to focus on the assets that USAA sold to Charles Schwab and how this transaction will impact us as members and investors.

Why Did USAA Sell their Investment Assets to Charles Schwab?

Although USAA has released a statement on how favorably they view Charles Schwab as a company, there’s no way that $1.8 Billion didn’t have an impact on whether to sell or not. USAA’s official statement is, “We selected Schwab because they put customers at the heart of everything they do”. As USAA prides itself on being a customer-first institution (they’re not very good vs when they first started), the partnership makes sense because Schwab has more investment resources than USAA with decades more investment experience.

What Are the Services of Schwab?

USAA started out as an insurance and banking institution for the military and veteran community and expanded into investments. Charles Schwab’s original mission was money and they have decades more experience and knowledge than USAA. Schwab offers more ways to invest your money than USAA, such as automated investing, personal portfolio management, and $0 commission on online stock, ETF, and options trades. Another benefit is Schwab’s ability to offer 24/7 Service and Support versus USAA’s strict hours of operations. When your money is at stake, having the ability to get support at any time of the day or night is important to maintaining the confidence in managing your portfolio.

Charles Schwab Mobile App

The Mobile app can be accessed 24/7 with the ability to monitor your portfolio in real-time from your phone. One reason Schwab’s mobile app is so great because of the connection to more than 300 national branches with professional guidance to ensure you’re comfortable with the management of your portfolio. Charles Schwab was ranked the number 1 mobile app for wealth management by J.D. Power. Watch the video tutorial below to see how easy it is to use and how it will benefit you in managing your money in the technology age.

Brokerage and Trading with Charles Schwab

A brokerage account is simply a way for investors to invest in the stock market. With dozens of companies and brokerage firms to choose from, Charles Schwab adds the capability for USAA members to get into the market safely. Charles Schwab offers USAA members the 3 main account types (stocks, mutual funds, and bonds) and offers accounts with no minimum balance. The best part about using Charles Schwab is you will pay $0 for an online equity trade, instead of paying the standard $6-10 per trade for every other company.

Mutual Funds

Mutual Funds are another great way for investors to invest in the stock market without worrying about doing all the research and analysis on a stock. Mutual Funds are a collection of investors who pool their money together and invest in a stock, bond, or money market. One of the great things with a mutual fund is it’s run by a professional investor instead of a single individual. With Charles Schwab, the investor will allocate the assets as a whole to produce capital gains or income for each investor. Mutual Funds are a great way to diversify your portfolio and create long term investments.

Exchange-Traded Funds (ETFs)

An ETF is a collection of securities that are traded on the exchange, like the New York Stock Exchange (NYSE). ETFs are very similar to Mutual Funds because they’re traded like stocks or bonds and can be bought and sold nationally or internationally. The biggest difference between an ETF and Mutual Fund is an ETF fluctuates all day, along with the market as investors buy and sell a stock. Mutual Funds trade once a day after the market closes and they report their gains and losses either quarterly or monthly. ETFs report every day and they’re bought from the exchange. Mutual Funds are bought directly from a fund company and are based around the pool of money placed by multiple investors. One big reason I like ETFs more than Mutual Funds is they offer much lower expense ratios and broker commissions than Mutual Funds.

*If you are interested in investing with other companies outside of USAA, these 3 companies are a good place to start your research; BBVA Compass CDs, Discover Bank CDs, and CIT Bank CDs.

IRAs

An Individual Retirement Account (IRA) is designed to help you plan for retirement with special tax advantages and incentives. There are 2 types of IRAs offered by Charles Schwab, a Traditional IRA and Roth IRA. When deciding which IRA to go with, consider your employment status and security in that job first. There are different tax liabilities for each type of IRA that can be used to your advantage if you choose correctly. For example, all IRAs with have some sort of penalty if you withdraw your money before 60 years old (usually 10%). To avoid that 10% early withdrawal penalty, you will need to wait for your 60th Birthday, so it’s important to plan your retirement around your investments. You can easily do this by calling Charles Schwab or USAA and they’ll connect you with someone who can help.

Why Should I Choose a Traditional IRA?

For starters, if you think you’ll be in a lower tax bracket when you retire versus when you worked full-time, then a Traditional IRA will be better, tax-wise. If you don’t need to pull your money out until you’re 72, you’ll be eligible for extra tax incentives and be able to recoup more of your money. One of the biggest reasons people choose Traditional IRA’s is because they’re tax-deductible. For example, if you max out your contribution every year at $6,000, you don’t pay any taxes on that contribution until you retire and pull the money out. This is kind of a gamble because taxes could be much higher in 20-30 years, which will cost you more money.

Why Should I Choose a Roth IRA?

Personally, I have 2 separate Roth IRAs that I max out every year because I do not plan to touch any of it until I’m 62 years old. Roth IRAs are not tax-deductible but come with tax-free distributions of funds. I plan to be in a higher tax bracket when I retire (just like everyone else) so I will be able to recoup more money by paying taxes on the IRA up-front instead of on the back end. However, I’m not a tax expert and what works for my financial situation may not be best for anyone else. For this reason, I highly encourage you to speak with the experts at Charles Schwab. Overall, a Roth is a better choice if you feel you can wait longer to take the money out because everything you take out is 100% tax-free, regardless of the financial situation we’re in 20-30 years from now.

What is a Rollover IRA?

With as much economic uncertainty as there is in the world today, it’s important to be able to be flexible with your finances. A Rollover IRA allows you to transfer retirement plans, such as a 401(k) or a company-specific retirement plan to another company’s retirement plan. This is great because if you get let go from one company due to an unforeseen circumstance, like the Coronavirus, you don’t have to worry about wasting the years spent at that company. I recommend a Rollover IRA for those of us with jobs that you don’t feel as secure as others.

What is an Education 529 Plan?

An Education 529 Plan is an education savings plan designed to help you save for your children’s college or K-12 Private schooling. There are 2 types of 529 plans, called the savings plan and prepaid tuition plan. The 529 plan is designed to be a tax-savings plan to help reduce the out-of-pocket cost of college by making all withdrawals tax-free as long as they’re used for education purposes. The prepaid tuition plans are the best because you can pay an initial $250 investment and have no automatic required investments. Check with Charles Schwab because some states offer a locked-in tuition rate from the time the plan is started. For example, if tuition goes up to $10,000 in the next 18 years, you’ll be locked in at the rate of tuition today.

Automated Investing

Charles Schwab has an awesome feature that allows the investment professionals to control your investments with the Robo-advisor. They’ll diversify your portfolio of ETFs across 20 asset classes and invest for long-term investments, college savings plans, or retirement. They even help off-set the losses from taxes on gains with their manipulation of the accounts, in accordance with the IRS for your comfort. I highly recommend using the automated investing feature because Schwab does all the work and research and gives you access to your account 24 hours a day.

Plan With an Investor

With Charles Schwab, you can call 800-435-4000 to speak with a representative to get started on planning how to manage your portfolio. They will give free consultations in person at one of their branches, over the phone, or by video chat. If you’re new to investing, they will teach you how to invest and work with you on the best ways to diversify your portfolio and prepare for retirement. Even if you want to do everything yourself, I recommend calling them and getting guidance on your plan and the best ways to reach your financial goals.