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Schwab mutual funds offer a compelling value proposition of low expenses (including no redemption fee), low minimum investments (just $100), and in some cases, market-beating returns. My aim is to make your mutual fund comparison shopping easier with the table of funds, and a brief case for each fund below.
Source: Charles Schwab.
1. Schwab S&P 500 Index Fund
It's hard to go wrong with a low-cost fund that tracks the S&P 500 Index. The S&P 500 is the index when it comes to American stocks, as it consists of about 500 stocks that collectively make up about 80% of the American stock market's value.
Charles Schwab's S&P 500 index fund is downright cheap, carrying an annual expense ratio of just 0.09%. Though it's slightly more expensive than, say, Vanguard's S&P 500 ETF-- which carries an expense ratio of 0.05% -- the difference is negligible for the sums of money the average person has to invest.
Furthermore, given the fund has a minimum investment of only $100, as all Schwab funds do, it may be a better choice for investors who would prefer to buy fractional shares. ETFs usually require the purchase of whole shares.
2. Schwab International Core Equity Fund
Before discounting the fund for its higher-than-average annual expense ratio of 0.86% per year, consider that this fund is both actively managed and comprised of international holdings. Importantly, active management has served it well, as the fund has achieved its stated goal of outperforming the MSCI EAFE index over the most recent one-, three-, five-, and 10-year periods.
Currently holding 214 stocks, this fund is broadly diversified around the world, with Japanese, U.K, and German stocks collectively making up more than half the fund by assets. It's also biased toward large-cap stocks, with so-called "giant-cap" and "large-cap" stocks making up about 45% and 28% of assets, respectively, at the time of writing.
There's just one warning: This fund probably isn't the ideal fund to hold outside a retirement account. A turnover ratio of 87% of its holdings in the last year isn't exactly a good sign for tax efficiency. Hold it in a tax-deferred account to avoid tax costs, which ate up 0.65% of its annualized returns over the last five-year period.
3. Schwab Total Stock Market Index Fund
Own just about every stock on American exchanges, and pay just 0.09% each year to do it. That's the pitch for this index fund, which tracks the Total Stock Market Index.
Comprised of more than 2,400 stocks, this fund invests in every "investable" company on American markets -- read: companies that are at least large enough to maintain a small position. In reality, its performance won't differ all that much from an S&P 500 index fund, except for slight variation due to the fact it holds small and midcap stocks -- 9% of assets in total -- that you won't get from the predominate index.
4. Schwab Small-Cap Equity Fund
This fund is downright expensive at first glance, carrying an annual expense ratio of 1.09% -- a tough hill to climb to achieve market-beating returns. Alas, three- and five-year performance has beaten that of the Russell 2000, performance that can be attributed to the current management team, which took the helm in 2012.
It's also topped the performance of a less-expensive fundamental index fund, the Schwab Fundamental US Small Company Index Fund, which carries an annual expense ratio of 0.35%.
Holding more than 300 stocks, the fund is certainly diversified. Financials, informational technology, and healthcare lead its sector weights at 24%, 20%, and 16% of assets, respectively. Like Schwab's international fund, this fund will likely create higher tax burdens due to its portfolio turnover ratio of 95% over the last year, which suggests it should also find a spot in a tax-deferred retirement account.
5. Schwab Small Cap Index Fund
If you're not too keen on banking on Schwab's ability to pick small-cap stocks, consider taking the index. This fund simply tracks the Russell 2000 index of small-cap stocks, holding about 1,970 companies at the time of writing.
The advantage to this fund is lower costs -- expense ratio of 0.2% -- and lower turnover -- 17% in the past year -- compared to actively managed alternatives.It's as simple as it gets -- a diversified small-cap stock fund at a very low price.
The article The 5 Best Schwab Mutual 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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