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Charles Schwab has quickly become a competitor in the world of index funds, creating low-fee funds that are priced to steal assets from the competition. Here are 5 of Schwab's best index funds, complete with expense ratios. Below, I'll lay out the case for making each index fund a part of your portfolio.
Data source: Charles Schwab. Note that all of its funds require a minimum investment of just $100 to get started.
1. Schwab S&P 500 Index Fund
This fund is as simple as it gets. When you buy the Schwab 500 Index Fund you're basically buying part of the 500 largest stocks listed on American exchanges. This fund is designed to produce returns that mirror that of the S&P 500 Index, minus a tiny annual fee.
The allure of S&P 500 index funds is that they are downright cheap, and cover a majority of the stock market by market value. S&P 500 constitutents make up about 80% of the value of all American-listed companies. Owning this group at a price of just $9 per year for every $10,000 invested is an incredible deal.
2. Schwab Total Stock Market Index
Not happy with owning a majority of the stock market by investing in an S&P 500 fund? This fund is for you. The Total Stock Market Index fund has a stake in nearly 2,500 stocks at the time of writing, encompassing virtually every stock listed on American exchanges.
The advantage to a Total Stock Market Index is that you get access to small-cap stocks that you don't get from an S&P 500 index fund. Thus, its performance will beat the S&P 500 when small company stocks outperform large companies, and vice versa. Small and microcap stocks make up 6.7% and 2.3% of the fund's assets, respectively, giving you exposure to smaller companies you won't get in its S&P 500 index fund.
3. Schwab 1000 Index Fund
This fund technically tracks the Schwab 1000 index, which is basically a copycat of the Russell 1,000 index. The process is relatively simple: It invests in the 1,000 largest stocks on American markets, weighting them by market cap.
As a result of its portfolio construction, this fund is more heavily weighted toward midcap stocks, which made up about 21% of the fund's assets at the time of writing, compared to about 13% for its S&P 500 fund, and 20% for the Total Stock Market Index fund.
Given its higher expense ratio, though, you'd likely be better suited with the Total Stock Market Index, which comes at a fraction of the cost of the Schwab 1000 index fund. Where this fund has lagged the S&P 500 over the last 10 years, Schwab's Total Stock Market Index fund has outperformed the S&P 500. The difference in performance is due in no small part to the fee differential between these two funds.
4. Schwab Small Cap Index Fund
This fund generally tracks the performance of the Russell 2000 Index, which includes the 2,000 smallest stocks in the Russell 3000 index. Due to subtle differences in how it allocates its portfolio, this Schwab index fund actually beat the Russell 2000 index over the 10-year period starting in 2006.
There isn't much more to say about this fund other than that it is an excellent way to inexpensively buy and hold small-cap stocks listed in the United States. The fund carries an annual expense ratio of 0.17%, and was broadly diversified across 1,969 stocks at the time of writing.
5. Schwab International Index Fund
Following the theme of inexpensive funds with low turnover and broad diversification, Schwab's international index fund ticks the boxes perfectly. The fund seeks to track the MSCI EAFE index, and has done it exceptionally well.
The fund generally invests in large companies that trade on markets outside the United States. It primarily invests in developed markets, having more than 99% of its assets in stocks listed in developed markets, according to Morningstar. Stocks listed in Japan, the United Kingdom, and France made up about 23%, 20%, and 10% of the fund's assets at the end of March 2016, respectively.
With an annual expense ratio of just 0.19% of assets annually, this Schwab fund is a great way to conveniently own more than 900 stocks that you won't find in American-centric index funds.
The article The 5 Best Schwab Index Funds originally appeared on Fool.com.
Jordan Wathen has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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