Investing in the Best Charles Schwab Mutual Funds
A List and Model Portfolio Allocation of Schwab Funds
Schwab Funds may be the best one-stop shop for the best no-load mutual funds to buy for only $100.
Named after its founder, Charles Schwab Corporation is a discount brokerage firm offering mutual funds and financial services to individual investors. Founded in 1971 under the name First Commander Corporation, Schwab began offering brokerage services to individuals at a discount in 1975. Before that time, investing in the stock market was considered primarily as a wealthy person's privilege.
Not to be confused with Charles M. Schwab (steel magnate and frequent example of success used in Dale Carnegie's famous 1936 book, How to Win Friends and Influence People) Schwab founder Charles R. Schwab is among the pioneers of the do-it-yourself investment community with his brand of low-cost brokerage services and broad selection of no-load mutual funds.
But which are the best Charles Schwab funds and how can an investor build a portfolio with them? You came to the right place for the answer!
Start With the Best Portfolio Structure
Before we choose the best Schwab funds to use for our portfolio, we'll review a simple but effective portfolio structure, called core and satellite, which is just as it sounds: The portfolio is built around a "core holding," such as a large-cap stock index mutual fund, which represents the largest portion of the portfolio, and other types of funds—the "satellite holdings"—each consisting of smaller portions of the portfolio to finish the whole.
The satellites typically consist of funds from various categories, such as foreign stock, small-cap stock, bond funds, and sometimes sector funds.
The primary objective of this portfolio design is to reduce risk through diversification (putting your eggs in different baskets) while achieving reasonable returns to meet the investor's long-term goals.
Sample Portfolio of the Best Charles Schwab Funds
Now that we have a smart design for our portfolio of T. Rowe Price funds, we can look at an example that can serve as a model to build your own portfolio:
- 40% Schwab S&P 500 Index (SWPPX): Large-cap stock index
- 15% Schwab International Core Equity (SICNX): Foreign stock
- 10% Schwab Small-Cap Equity (SWSCX): Small-cap stocks
- 35% Schwab GNMA (SWGSX): Government Intermediate-Term Bonds
This particular blend of Schwab funds is an example of a moderate portfolio, which is appropriate for an investor with a moderate (medium) risk tolerance and a time horizon of at least 5 years. Moderate investors are willing to accept periods of moderate market volatility (ups and downs in account value) in exchange for the possibility of receiving returns that outpace inflation by a significant margin. The asset allocation breakdown is 65% stocks and 35% bonds.
The use of sector funds is optional. Schwab doesn't have a strong selection of sector funds, which is why they were not included in this sample portfolio. If an investor chooses to add sectors, they should be sure to keep the allocation around 5% for each sector and try not to exceed a total of 15% allocation to sectors (i.e. 5% allocated to 3 different sector funds).
You may also notice that this portfolio only has four funds in it. These four funds are so broadly diversified that there is no need for more funds in the portfolio. Generally it is a good idea to have at least three funds but no more than seven or eight in one portfolio.
Disclaimer: The information on this site is provided for discussion purposes only, and should not be misconstrued as investment advice. Under no circumstances does this information represent a recommendation to buy or sell securities.