Charles Schwab has mounted a serious charge on Vanguard’s championship low-cost index fund title. The company offers a variety of investment and banking services and its recent ETFs have some of the lowest fees in the industry. If you’re looking to build a portfolio, Schwab has several funds across several different asset classes that can be used as core holdings.
- What is Charles Schwab?
- Pros & Cons of Charles Schwab Index Funds
- Qualities of the Best Charles Schwab Index Funds
- Some of the Best Charles Schwab Index Funds
- Best Overall: Schwab U.S. Broad Market Index Fund (SCHB)
- Best Fixed Income Fund: Schwab U.S. Aggregate Bond ETF (SCHZ)
- Best for Large Caps: Schwab U.S. Large Cap ETF (SCHX)
- Best for Small Caps: Schwab U.S. Small Cap ETF (SCHA)
- Best for Developed Markets: Schwab International Equity ETF (SCHF)
- Best for Emerging Markets: Schwab Emerging Markets Equity ETF (SCHE)
- Final Thoughts
What is Charles Schwab?
In the early 1970s, Charles R. Schwab and his business associates created an investing publication called Investment Indicator which customers could purchase for a low annual fee. In 1975, Schwab leveraged his popular newsletter with the Securities and Exchange Commission to open one of the first discount brokerages, where investors could buy securities without paying heavily in commissions.
Charles Schwab was one of the first discount brokerages to build an online footprint and its mobile app and trading software are currently big selling points. Additionally, Schwab has produced its own low-cost index funds to rival those of Vanguard.
Today, Vanguard, Fidelity and Charles Schwab form a “big three” of discount brokerages that offer ETFs with increasingly lower fees. Schwab also operates as a bank, giving it a unique distinction as one of the world’s largest banks and brokerage firms.
Whether you’re a sophisticated institutional investor or looking to open your first retirement account, Charles Schwab has services that can help (plus 24/7 customer support).
Pros & Cons of Charles Schwab Index Funds
Pros of Charles Schwab Index Funds
- Competitive costs: Schwab index funds have some of the lowest expense ratios in the industry. In fact, many of Schwab’s broad market ETFs are cheaper than funds offered by Vanguard or Fidelity.
- Highly tradable: What good are low costs without liquidity? Fortunately, Charles Schwab’s index funds don’t lack tradability: There’s 20 ETFs with over $1 billion in assets.
- Strong history: Charles Schwab has been in the industry for nearly 50 years and has a great reputation as a customer-centric business. Outside of the YieldPlus debacle, Schwab rarely makes headlines for the wrong reasons.
Cons of Charles Schwab Index Funds
- Fewer commission-free ETFs than competitors: Charles Schwab offers 200 commission-free ETFs, which is certainly enough to build lots of different portfolios but lags behind the number offered by TD Ameritrade.
- High fees on mutual funds: ETFs are preferred to mutual funds at most brokerages, but especially at Charles Schwab, where you’ll pay $50 per trade if you don’t choose a mutual fund on the Schwab Mutual Fund OneSource list.
Qualities of the Best Charles Schwab Index Funds
- Low cost
- Ample liquidity
- No commissions
Some of the Best Charles Schwab Index Funds
Using the criteria listed above, Benzinga has selected the best Charles Schwab index funds in six different investment categories.
If you’ve just opened a brokerage account with Charles Schwab and want to build a diverse portfolio, these six funds are a good place to start.
Best Overall: Schwab U.S. Broad Market Index Fund (SCHB)
Our top overall fund from Charles Schwab provides great exposure to U.S. equities at a very low price. The Schwab U.S. Broad Market Index Fund tracks the 2,500 largest American companies through its benchmark, the Dow Jones U.S. Broad Stock Market Index. Recently, it’s outperformed the S&P 500, too.
The 0.03% expense ratio is comparable to other low-cost index fund providers like Fidelity and Vanguard. There’s plenty of liquidity, too, as the fund has over $12 billion in assets and 1.6 million shares are traded daily on average.
Thanks to this, spreads are only 0.02% on average. Dividend yield is under 2%, but this fund is more concerned about capital appreciation than income.
SCHB has nearly 2,300 holdings with highest concentrations in the tech, healthcare, and financial sectors. Microsoft, Apple, and Amazon are the only companies in the fund with more than a 1.53% allocation. When factoring in expenses and liquidity, the Schwab U.S. Broad Market Index Fund is one of the best ETFs on the market today and would make a great core holding in any portfolio.
Best Fixed Income Fund: Schwab U.S. Aggregate Bond ETF (SCHZ)
Fixed income investors have plenty of options at Charles Schwab as well and the Schwab U.S. Aggregate Bond ETF is a staple for any bond portfolio. SCHZ tracks the Bloomberg Barclays U.S. Aggregate Bond index, the most heavily-followed index for U.S. fixed income securities.
SCHZ has outperformed Vanguard’s Total Bond Market index fund over the last few years with a lower expense ratio (0.04%).
The fund has $5 billion in assets and holds 4,100 issues, both smaller totals than Vanguard’s fund but by no means hindrances on trading.
SCHZ has over 600,000 shares traded daily on average. Over 38% of the issues are in U.S. government bonds with another 27% in mortgage bonds and 24% in corporate bonds. Over 90% of the issues held come from the United States and the remaining 10% is spread out mostly through Europe and Asia. The fund’s 30-day SEC yield currently sits at 3.3%. It’s not as liquid as Vanguard’s fund, but it’s cheaper and the dividend yield is nothing to sneeze at.
Best for Large Caps: Schwab U.S. Large Cap ETF (SCHX)
Large-cap U.S. stocks have been the hottest section of the global market in the last few years, so it makes sense to profile Schwab’s U.S. Large Cap ETF here. Like all Schwab index funds, it’s got a superior expense ratio and plenty of liquidity.
The Schwab Large Cap ETF has moved almost in complete lockstep with the S&P 500 lately, but you struggle to find any large cap ETF trading commission free while boasting an expense ratio like 0.03%.
Unlike the SPDRs, Schwab’s Large Cap ETF holds over 700 of the largest American company stocks. SCHX is the largest fund offering on our list with over $14 billion assets and it trades 1.8 million shares per day on average.
Many of the same stocks from SCHB like Microsoft, Amazon, and Apple make up the top ten holdings, but this fund is focused on the top third of American stocks by market cap. SCHX uses the Dow Jones U.S. Total Stock Market Large Cap index as its benchmark.
Best for Small Caps: Schwab U.S. Small Cap ETF (SCHA)
Small caps historically have better returns over time than larger stocks and the Schwab U.S. Small Cap ETF might be the best vehicle on the market for gaining exposure to smaller American companies. The funds tracks the Dow Jones U.S. Total Stock Market Small Cap index as its benchmark.
For small cap stocks, a 0.05% expense ratio is difficult to beat. The fund has over $7 billion in assets and trades over 600,000 shares daily, providing plenty of liquidity for traders.
The sector split is more equal here, as tech, healthcare, financials, consumer discretionary, and industrials all make up between 13% and 17% of the holdings. Over 1,700 stocks are held by the fund and no one stock makes up more than 0.34% of the holdings.
Companies like Exact Sciences, Twilio, Etsy, and Charles River fill out the top holdings. Investors looking for small-cap exposure will have a hard time finding a more enticing fund than this one.
Best for Developed Markets: Schwab International Equity ETF (SCHF)
American stocks might have better returns, but no diverse portfolio invests solely in United States companies. Luckily, Charles Schwab has plenty of international offerings and the Schwab International Equity ETF is perfect for investors looking for exposure to developed markets.
At 0.06%, the expense ratio is lower for developed market exposure than most competing funds on the market. Not only is it cheaper than Vanguard’s developed market ETF, but the above chart shows it’s actually outperformed VEA in recent years.
No Schwab fund has more assets under management than the $15 billion in SCHF either. The fund tracks the FTSE Developed ex-U.S. index and currently holds 1,488 stocks. Japan and the United Kingdom are the most represented countries in the portfolio, followed by France, Germany, and Canada.
Well-known companies like Nestle, Novartis, Roche, and Samsung make up the top holdings.
With over five million shares traded daily, SCHF is a cheap and efficient way to gain exposure to international large cap stocks.
Best for Emerging Markets: Schwab Emerging Markets Equity ETF (SCHE)
Emerging markets is a risky sector to dive into, but investors looking for exposure to these companies would do well to consider the Schwab Emerging Markets Equity ETF.
With a 0.13% expense ratio, it’s the highest costing fund on our list but that’s to be expected considering the components of the portfolio. The fund tracks the FTSE Emerging Index with a heavy focus on China and India. (South Korea is not considered an emerging market in this index.)
Liquidity is always a concern in emerging markets, but SCHE isn’t lacking with nearly $5 billion in assets over one million shares traded daily. Investing in emerging markets isn’t for everyone, but SCHE is one of the safest ways to get access to this space.
Charles Schwab has certainly turned up the heat on Vanguard by dropping fund expenses to the lowest in the industry. Schwab account holders can also trade these ETFs commission-free. If you’re looking for a new discount brokerage or bank with access to cheap index funds, Charles Schwab is one of the most appealing options.