3 Top Charles Schwab Index Funds To Invest In

6 7 minutes read

Charles Schwab ranks among the top 10 in the largest fund families for total net assets. The financial services firm has more than 50 years of history and presents ample opportunity for all investors to gain exposure to the markets. Of the 22 years I spent in my former life as an investment advisor, nearly all of it was with Schwab as my firm’s custodian. And while that is a separate (institutional) division versus the one we are talking about in this article, I did get a good sense of how this major player across the wealth spectrum operates.

And, while the usual disclaimer applies, that “top” is a subjective term when investment products are the topic, I sorted through the range of index funds offered by Schwab and identified a few that I personally am most comfortable with. Each investor ultimately decides that for themselves, of course.

Through simple, and cost-effective index funds, investors have plenty of outlets and information to seek the right fit when allocating their capital. Let’s take a deeper dive deeper into a few of this firm’s index fund offerings, and explain my rationale for choosing them for this short list.

Why Choose Charles Schwab For Index Funds?

While I generally believe that the “cost” of investing is over-emphasized in a lot of ETF and mutual fund research, when it comes to funds that track a broad, liquid market index like the S&P 500, I get it. The main difference between otherwise identical funds is how much the fund company extracts for themselves.

My opinion is that once we get outside of that investment area to funds that have other purposes, such as hedging risk and diversification beyond traditional stock and investments, expense ratios are less of a concern than finding a fund that can get that job done. The biggest “cost” to investors over time, unless they live through a lifetime of bull markets, is suffering steep losses in bad markets that take years to recover from. But these are the former type of investment, so costs are key.

Schwab is known for its low fees and commissions. Many of its investment products, such as ETFs and mutual funds, have no transaction fees, and they were among the first large brokerages to eliminate standard commissions on stocks and ETFs. They also often offer lower expense ratios compared to other firms. But before anyone thinks that Schwab, Vanguard and their index peers are non-profit organizations, understand that there are other sources of revenue that allow them to offer some funds at zero or near zero expense ratio and “no commissions.”

Schwab is the fifth-largest ETF provider in the U.S., with more than $342 billion in assets under management (AUM). They offer a wide array of investment products. In the index fund realm, they can accommodate many levels of diversification, and access many corners of the globe. Charles Schwab is well regarded for its user friendly platforms and extensive educational and research tools to help investors make informed decisions.

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Criteria Used For Selecting The Best Index Funds

My objective here was to go beyond the usual with the Schwab universe. I stuck with ETFs, as I feel that for investors who are cost-sensitive, ETFs structurally are designed to keep taxes and other investment management inefficiencies to a minimum versus index mutual funds.

Here is a quick table showing a few key statistics on the three ETFs I am highlighting. Below I offer more detail on each of them.

Data source: YCharts

1. Schwab U.S. Dividend Equity ETF
Schwab US Dividend Equity ETF

SCHD Fund Overview

Recent Share Price: $84.15

Sector/Industry: Diversified across sectors, with high dividend emphasis

Weighted Average Market Cap: $130 billion

P/E Ratio: 17.1

Total Holdings: 103

I follow dividend ETFs quite closely in my research, and am a dividend investor at heart. So while SCHD is a solid peer among others in the dividend ETF space, I am quite surprised that it has blown through the $50 billion mark in assets. I see it as competitive within that peer group, but not the best. This is the power of a big firm like Schwab at work.

SCHD seeks to track the performance of the Dow Jones U.S. Dividend 100 Index, which includes 100 high dividend yielding U.S. stocks with a history of consistent dividend payments. The goal is to provide investors with exposure to dividend-paying equities while aiming for long-term capital appreciation.

Why SCHD Is A Top Choice

Uncertainty with interest rates, big company earnings, elections and geopolitical turmoil all contribute to the relative attractiveness of dividend stocks versus higher growth stocks. SCHD has had 12 consecutive years of dividend growth, which can act as a decent cushion in tough phases of the market cycle.

While involving nearly every sector, SCHD focuses on high quality U.S companies that are typically larger in size. The stocks in this fund have been selected for their fundamental strength on financial ratios compared to their peers. Its diversification is seen in the fact that six different sectors (out of 11 in the S&P 500) represent at least 10% of SCHD’s assets.

2. Schwab International Dividend Equity ETF (SCHY)

SCHY Fund Overview

Recent Share Price: $26.32

Sector/Industry: Non-US dividend stocks

Weighted Average Market Cap: $71 billion

P/E Ratio: 13.6

Total Holdings: 135

Hopefully you are sensing a mini-trend here. The second of three ETFs I chose for this article is also a dividend ETF. SCHY is essentially the non-U.S. stock version of SCHD.

SCHY aims to track the performance of the Dow Jones International Dividend 100 Index. This ETF focuses on high dividend yielding, high-quality stocks from developed markets outside the United States. Similar to SCHD, the goal is to provide investors with income through dividends along with potential capital appreciation. Europe, Asia and Australia lead the way, and the fund also touches on nearly every sector. Consumer defensive stocks, along with financials, communication and healthcare together comprise about 57% of assets.

Why SCHY Is A Top Choice

Schwab first listed SCHY in 2021, so it is relatively newcomer. That leads me to believe it may still be slightly undiscovered. It seems strange to say that about an ETF with more than $700 million in assets, but given the size and marketing reach of a firm like Schwab, it is not a gigantic fund.

This may reflect the dampened enthusiasm for non-U.S. stocks, which has continued for about a decade. But looking forward, that geographical exposure is a massive advantage in today’s investing landscape. From political strife to debt and deficits, U.S. equities are in a potentially vulnerable position. So SCHY is worth a look on those grounds.

Its healthy 5.8% yield is another benefit to SCHY. Although dividends are not guaranteed, they are paid regularly, providing potential for profits from the stocks, plus one of the higher dividend yields in its peer group.

3. Schwab Crypto Thematic ETF (STCE)

STCE Fund Overview

Recent Share Price: $32.54

Sector/Industry: Crypto Currency

Weighted Average Market Cap: $58 billion

P/E Ratio: 18.8

Total Holdings: 42

Perhaps you didn’t see that coming! Following a pair of relatively tame dividend ETFs, the third Schwab fund I am highlighting is one that invests in a basket of stocks related to cryptocurrency and the blockchain infrastructure. This is not an investment in bitcoin or ether or other currencies directly. It is the companies that, as I see it, stand at least a chance of delivering on the long-term potential of the blockchain across many industries. That said, this will be as volatile as any part of the stock market can be.

Why STCE Is A Top Choice

STCE is worlds apart from SCHD and SCHY, and pays a tiny dividend. But as I said at the start of this article, my focus would be to go beyond the “usual suspects” in the index ETF world at Schwab. S&P 500 index funds are frankly a dime a dozen, and I am somewhere between intrigued and impressed that Schwab ventured into this area, which a few other firms did before it.

No question there is greater risk here, but the possibility to benefit from the increased adoption of cryptocurrencies as a medium of exchange, while not owning them directly provides an opportunity, albeit a speculative one. And while I am a skeptic when it comes to the actual “store of value” aspect of crypto versus fiat currencies, the bottom line for me is that the blockchain stocks have long-term potential upside, and STCE is Schwab’s access point for that.

Bottom Line

Schwab is a household name now, but I remember when it was the proverbial dog nipping at the heels of then-bigger Wall Street firms. But decades later, the company has positioned itself as an industry leader and generally stayed out of trouble versus its traditional brokerage peers. Index funds offer advantages that make them a consideration for many investors, especially those just starting out with lower account values but high aspirations and the willingness to accept stock market volatility.

Frequently Asked Questions (FAQs)

What is the minimum investment for Schwab index funds?

Different funds have different minimums. Best to check with Schwab.com, depending on which fund is being considered.

Are Schwab index funds good for beginners?

Schwab does more than its fair share of investor education, making it a consideration for those seeking to learn the basics about investing.

How often do Schwab index funds pay dividends?

That is specific to each fund, for those which do pay dividends. Not all do. Best to go to the Schwab website and drill down to particular funds being considered.

Can I invest in Schwab index funds if I have an account with another brokerage?

The retail investing industry, which Schwab is a leader in, is as democratic a field as one would expect to find. These firms compete against each other for customer assets every day. So Schwab account holders are not limited to working solely with that firm.