Finding the Best Charles Schwab Mutual Funds
The Best Schwab Funds and How to Invest in Them
Charles Schwab's mutual funds can be used to build a low-cost, high-quality portfolio for almost any investor. Although Schwab is best known as a reputable online discount brokerage firm, they also have a good selection of mutual funds ideal for the long-term investor.
Successful investors have strategies and carefully build portfolios based on those strategies. You should have an investing strategy, goals, and know your tolerance for risk. Once you decide upon these elements, you are able to begin searching for and choosing the best Schwab mutual funds to include in your portfolio.
The Best Schwab Mutual Funds
To rate any funds as best, it's important to understand what would make them qualify as the top-performing funds. A fund has to meet an investor's strategic criteria, acceptable risk, and rate of return—past performance, fees, and overall costs are also important.
Past performance alone is not an indicator of future performance; market, economy, and issuer performance should be analyzed and monitored to make sure a fund meets all of the investor's goals.
Considerations for the top performers are longevity, diversity, fees, return on equity, price to earnings, and the fund's beta. A fund's beta is a comparative volatility index, specifically the fund's volatility compared to the index's volatility. A beta of 1.0 demonstrates average volatility, while a beta less than 1.0 is less volatile than the index and more than 1.0 is more volatile. All of these funds have a beta of 1.0, which indicates an average amount of risk compared to the index they are designed to track.
The design of this rating is to find long-term returns, rather than short-term gains—these work well for a retirement portfolio or other long-term financial goals. These funds were all picked for their span of multiple industries and sectors, rounded strategies, and low fees, along with their 10-year and lifetime performances.
Schwab S&P 500 Index Fund (SWPPX)
The S&P 500 Index fund from Schwab was first offered in 1997. Currently, it consists of stocks from information technology, finance, and health care companies such as Microsoft, Amazon, Apple, Facebook, Google, Johnson & Johnson, and JP Morgan. Risk is mitigated (but not eliminated) by investing across multiple sectors through multiple companies.
There are other minor holdings from communication, industrial, energy, utilities, and other companies. This is a very diversified fund—the holdings make up no more than 5.03% of the fund in any one company (Microsoft).
Its 10-year return is 10.44%, just below the S&P 500 Index itself—this follows along with the fund's goal of tracking the S&P 500 total returns. The five-year return is 6.67%, the price to earnings ratio is 22.96, and the return on equity is 24.54%. The expense ratio for the fund is 0.02% (per $10,000 investment), and its beta rests at 1.0. Over the fund's lifetime, it has returned 6.98%.
This fund has the lowest expenses of the Schwab offerings (.02%) while offering average risk and one of the higher returns.
Schwab Total Stock Market Index Fund (SWTSX)
The Total Stock Market Index Fund is designed to track the performance of the entire U.S. stock market. Created in 1999, the fund has seen its share of market ups and downs, a testament to its resilience.
SWTSX concentrates almost one-quarter of its holdings in information technology—14% in health care, 13% in financial companies, and 10% in discretionary holdings and industrials. Microsoft, Apple, Amazon, Facebook, Berkshire Hathaway, and Google are among the holdings that make up the highest number of assets in the fund.
The diversity of this fund again mitigates (but does not eliminate) the risk by investing across multiple sectors and industries. The majority of the holdings are invested in Microsoft, Apple, and Amazon (10.5% between the three).
This fund's 10-year return is 10.10%, just below the Dow Jones U.S. Total Stock Market Index. The rate of return for a five-year period is 5.67%, and the fund's lifetime rate of return is 5.68%. Its price to earnings ratio is 22.64, and return on equity is 21.83%.
The expense ratio for the fund is .03% (per $10,000 investment), and offers an investor average risk and a competitive rate of return.
Schwab U.S. Broad Market ETF (SCHB)
One of the younger funds in this list, but still a performer, SCHB had its beginnings at the end of the Great Recession in 2009. It's designed to track the performance of the total return of the Dow Jones U.S. Broad Stock Market Index. Similar to the other funds listed, this fund is heavily invested in information technology, health care, and financial companies. Information technology makes up 22.37% of the holdings, and health care makes up 14.04 % of the fund.
This is also another fund that is made up of the giants of the industries—Microsoft, Apple, Amazon, Facebook, Google, Berkshire Hathaway, JP Morgan, and Johnson & Johnson.
The Schwab U.S. Broad Market ETF has an expense ratio of .03%, with a price to earnings ratio of 22.66 and return of equity of 21.94%. The 10-year return for SCHB is 10.13%, the five-year return is 5.59%, and it has returned 11.16% over its lifetime.
Schwab Health Care Fund (SWHFX)
Slightly older than the rest of these funds, SWHFX demonstrates the strength of some of its siblings. This fund is designed to search for long-term growth and is designed differently than other funds listed—health care and pharmaceutical companies are the entire focus of this fund.
Health care and pharmaceuticals make up 100% of the holdings—the largest proportion of holdings are in Johnson & Johnson, Merck & Company, Pfizer, Amgen, and United Health.
Over a 10-year period, SWHFX returned 12.35%. The five-year return is 4.11%, while it has generated 8.65% over its lifetime. It has a price to earnings ratio of 18.66 and a return on equity ratio of 20.54%.
This fund is slightly more expensive to administer than other funds in this list, because it is not tracking an index. This requires it to be actively managed, giving it an expense ratio of 0.8%.
Charles Schwab provides many services in their quest to be the lowest cost investment service around.
Schwab U.S. Large-Cap Growth ETF (SCHG)
The Schwab U.S. Large-Cap Growth ETF is designed to track the Dow Jones U.S. Large-Capacity Total Stock Market Index. The holdings include stocks from Microsoft, Apple, Amazon, Facebook, Google, Berkshire Hathaway, Visa, United Health, and Mastercard.
This fund follows along the design of the other funds in that has a majority of its holdings in information technology; however, in this fund, information technology holdings are much larger than others—35% belong to Microsoft, Apple, Amazon, Facebook, and Google. Communication services, consumer discretionary, and health care holdings make up a total of 41% of the fund.
SCHG has a notable lifetime performance of15.07% and a 10-year return of 14.85%. It has a price to earnings ratio of 29.92 and a return on equity of 26.12%. Its expense ratio is 0.04%.
Investing With Schwab
If you'd like to look over the funds offered by Charles Schwab, they provide detailed information on their product finder page. You can click on the symbols provided and view fund summaries, charts, distributions, fund performance, and the fund portfolio. All the information provided in this article is viewable so that you can find funds that work for your needs and tolerances.
Schwab's do-it-yourself (DIY) investment page gives you the means to build portfolios, calculate saving for retirement or college, conduct research, or do much more. If DIY is not for you, they provide a robo-advisor to help you create a portfolio and get your investments up and running. If you are not comfortable with either of these options, you can still contact Charles Schwab and talk to a financial advisor.