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Index funds are a popular investment vehicle because they allow investors to make passive investments using mutual funds and ETFs. What exactly is an index fund? They are managed funds representing a basket of companies mirroring specific indices within the broader economy.
Some index funds track companies with a high market capitalization, while others track every publicly traded company in the United States. Each index fund has a different level of risk and reward. This allows investors to benefit from growth in various sectors of the economy without putting all their eggs in one basket.
Founded in 1971, Charles Schwab is a financial services company that offers investors a wide array of index funds. Many of their funds track alongside the different indices compiled by Dow Jones (^DJI) and the Financial Times Stock Exchange 100 Index (^FTSE).
Schwab is a reputable company with various products suited for any investor. In 2020 Schwab acquired the popular brokerage firm TD Ameritrade. With an extensive library of educational materials, Schwab can be an excellent resource for new investors who want to use index funds to start investing.
These are some of Schwab’s best index funds for investors looking to capitalize on economic growth, generate passive income from dividends, and mitigate inflation. (Performance data as of October 2022.)
|Index Fund||Ticker||TLDR (Too Long; Didn’t Read)|
|Schwab US Broad Market ETF||SCHB||Reflects entire economy, tracking 2,5000 U.S.-based company|
|Schwab U.S. Large-Cap ETF||SCHX||Includes 750 largest companies by market capitalization|
|Schwab 1000 Index ETF||SCHK||Tracks top 1,000 U.S.-based companies by market capitalization|
|Schwab US Dividend Equity ETF||SCHD||Tracks high-yield dividend stocks in Dow Jones|
|Schwab US TIPS ETF||SCHP||U.S. Treasury bond index|
|Schwab Balanced Fund||SWOBX||Includes both bonds and stocks giving investors appreciation and income generation|
|Schwab U.S. REIT ETF||SCHH||Index tracking real estate investments|
|Schwab International Equity ETF||SCHF||Includes 1,500 multinational companies in emerging markets outside the United States|
🏆 US Broad Market ETF (SCHB)
- Expense ratio: 0.03%
- 1-year performance: -17.93%
- Performance since inception: 12.05%
- Dividend yield: 1.67%
The Schwab U.S. Broad Market ETF (SCHB) tracks alongside the Dow Jones U.S. Broad Stock Market Index. The fund aims to reflect the stock market as broadly as possible. It includes more than 2,500 U.S.-based companies, giving investors exposure to various sectors in the stock market.
Because SCHB tracks the entire economy, it is a good baseline index fund for investors. The fund also issues quarterly dividends, providing investors with the opportunity to also generate passive income.
Read more >>> Best Ways to Make Passive Income
🏆 Schwab U.S. Large-Cap ETF (SCHX)
- Expense ratio: 0.03%
- 1-year performance: -17.34%
- Performance since inception: 12.15%
- Dividend yield: 1.69%
The Schwab U.S. Large-Cap ETF (SCHX) tracks alongside the Dow Jones U.S. Large-Cap Total Stock Market Index. Created in 2009, the fund includes 750 of the biggest U.S.-based companies by market capitalization. Around 27 percent of the fund is allocated to information technology, followed by health care and financials. Its top holdings are Apple, Microsoft, Amazon, and Google’s parent company, Alphabet.
Large-cap index funds tend to carry more risk than index funds tracking a wider array of companies. Companies with high market capitalization tend to concentrate on a few economic sectors, like tech. Despite that, these companies also tend to be high performers offering a reward potential that could counterbalance the risk.
🏆 Schwab 1000 Index ETF (SCHK)
- Expense ratio: 0.05%
- 1-year performance: -17.58%
- Performance since inception: 8.54%
- Dividend yield: 1.66%
The Schwab 1000 Index ETF (SCHK) tracks the Schwab 1000 Index. This includes the 1,000 largest companies in the United States by market capitalization. Its top holdings include Apple, Microsoft, Amazon, Tesla, and Alphabet, with a quarter of the fund’s total holdings in information technology.
This fund is also highly concentrated in tech. That concentration creates some risk which can be offset by the growth of companies included in the fund.
🏆 Schwab US Dividend Equity ETF (SCHD)
- Expense ratio: 0.06%
- 1-year performance: -7.46%
- Performance since inception: 12.73%
- Dividend yield: 3.74%
The Schwab U.S. Dividend Equity ETF (SCHD) tracks the Dow Jones U.S. Dividend 100 Index. This index includes high dividend-yielding stocks from companies with solid fundamentals and consistent dividend payouts. This ETF can be useful to incorporate into a portfolio for investors looking to generate cash flow from their investments.
Investors should note that this index fund has a higher expense ratio than other funds. The extra cost, however, is offset by a high dividend yield. Dividends are paid out every quarter.
🏆 Schwab US TIPS ETF (SCHP)
- Expense ratio: 0.04%
- 1-year performance: -11.76%
- Performance since inception: 2.41%
- Dividend yield: 7.09%
The Schwab U.S. TIPS ETF (SCHP) tracks alongside the Bloomberg U.S. Treasury Inflation-Linked Bond Index. This index includes publicly-issued U.S. Treasury bonds with less than one year remaining to mature and $500 million or more of outstanding face value.
SCHP has a high dividend payout which can help investors looking to generate cash flow from their investments. U.S.-backed government Treasury bonds can also be useful for investors to hedge against inflation as they are backed by full faith in the U.S. Government.
More on treasury bonds >>> Why I’m Investing in Treasury Bonds Instead of the Stock Market
🏆 Schwab Balanced Fund (SWOBX)
- Expense ratio: 0.50%
- 1-year performance: -18.44%
- Performance since inception: 6.15%
- Dividend yield: 5.40%
The Schwab Balanced Fund (SWBOX) holds both stocks and bonds giving investors the best of both worlds. This fund is designed to provide investors with capital growth and income generation. The expense ratio of SWBOX is higher than other funds. However, that is made up by a high dividend yield paid out annually.
🏆 Schwab U.S. REIT ETF (SCHH)
- Expense ratio: 0.07%
- 1-year performance: -16.33%
- Performance since inception: 6.12%
- Dividend Yield: 3.38%
The Schwab U.S. REIT ETF (SCHH) tracks alongside the Dow Jones Equity All REIT Capped Index. This index is composed of Real Estate Investment Trusts – or REITs. REITs are a great way for investors to benefit from real estate appreciation without investing in physical property.
One benefit of investing in a fund that tracks alongside a REIT index is that REITs must pay a portion of their profits out as dividends. This provides investors with a consistent and reliable stream of income. SCHH is a good way for investors to diversify risk away from stocks and bonds while generating passive income.
🏆 Schwab International Equity ETF (SCHF)
- Expense ratio: 0.06%
- 1-year performance: -24.97%
- Performance since inception: 3.57%
- Dividend yield: 2.96%
The Schwab International Equity EFT (SCHF) tracks alongside the FTSE Developed ex U.S. Index. The fund includes 1,538 multinational companies from outside the United States. Some of its top holdings include Nestle, Roche, Shell, and Samsung.
While international companies might not typically offer the best return on investment, they allow investors to capture growth in emerging markets. This type of fund also allows investors to mitigate risk by avoiding too much concentration on investments made in U.S.-based companies.
Bottom Line: Should You Add Schwab Index Funds to Your Portfolio?
Index funds are an excellent way for investors to invest in a broad basket of companies that track specific economic indicators. Many of Schwab’s index funds include holdings in top-performing companies like Apple, Amazon, Microsoft, and Tesla. These index funds help investors capture growth opportunities without holding individual stocks in any particular company.
Schwab’s index funds have low expense ratios with regular dividend yields. They are good passive investing options for investors looking to capture growth without expending a ton of capital on active management fees.
Funds like the Schwab 1000 Index ETF enable investors to capture growth in tech stocks, while the Schwab U.S. TIPS ETF gives more cautious investors a chance to hedge their assets against inflation.
Schwab and the recently acquired TD Ameritrade have extensive resources to help new investors learn about different investing strategies. Index funds are an easy way for new investors to learn as they grow their investment portfolios.
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