Despite the popularity of exchange-traded funds, or ETFs, investors can still find value in an old-fashioned mutual fund. These long-standing investment vehicles allow investors to access a diversified portfolio of assets managed on their behalf by professional fund managers.
In accounts like 401(k) or health savings account, or HSA, a lineup of various mutual funds may often be the only type of investment available. By mixing and matching different options according to their risk tolerance and time horizon, investors can create the optimal self-directed portfolio.
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A popular choice for mutual funds is the Charles Schwab Corp. (ticker: SCHW), which also provides retail investors with additional services and products like ETFs, financial planners, robo-advisors and brokerage platforms.
Currently, the company sports a lineup of over 50 mutual funds, most of which boast no loads, no transaction fees and a minimum required investment of just $100. All in all, these features make Charles Schwab funds highly accessible and affordable.
“What makes Charles Schwab stand out is their commitment to providing a diverse range of investment options to suit the needs of all types of investors,” says Andrew Latham, director of content at SuperMoney.com. “Additionally, their mutual funds have relatively low expense ratios compared to many other investment firms.”
Indeed, Schwab’s fund lineup is highly diverse, spanning both actively managed and passive index funds, equity and bond funds, and even all-in-one target date funds for investors looking to stay completely hands-off. As a result, investors of all dispositions and objectives can find a fund suitable for them.
Here’s a look at seven of the best Charles Schwab mutual funds to buy in 2023.
| Mutual fund | Expense ratio |
| Schwab S&P 500 Index Fund (SWPPX) | 0.02% |
| Schwab Total Stock Market Index Fund (SWTSX) | 0.03% |
| Schwab Dividend Equity Fund (SWDSX) | 0.89% |
| Schwab U.S. Large-Cap Growth Index Fund (SWLGX) | 0.035% |
| Schwab U.S. Large-Cap Value Index Fund (SWLVX) | 0.03% |
| Schwab Small Cap Index Fund (SWSSX) | 0.04% |
| Schwab International Index Fund (SWISX) | 0.06% |
Schwab S&P 500 Index Fund (SWPPX)
A perennial favorite among U.S. investors with a long time horizon and a high risk tolerance is the S&P 500 index, which tracks a market-cap weighted basket of 500 large-cap U.S. stocks selected by a committee. This index is designed to be representative of the overall U.S. market and has historically proven to be difficult to beat consistently over the long term.
To track the S&P 500 index, a straightforward and highly low-cost Schwab mutual fund that offers exposure is SWPPX, which charges an expense ratio of just 0.02%. “The expense ratio is an important factor, as it represents the cost of owning the fund,” Latham says. Over time, an excessively high expense ratio can compound and result in lower overall fund returns.
Schwab Total Stock Market Index Fund (SWTSX)
“One Schwab fund that is worth considering is SWTSX, which offers broad exposure to the entire U.S. equity market and has a low expense ratio of 0.03%,” Latham says. This fund expands the 500 large-cap stocks in the S&P 500 to also include another 3,000 or so small and mid-cap stocks by tracking the broader Dow Jones U.S. Total Stock Market Index.
However, its important to note that SWTSX is still market-cap weighted. That is, the large cap stocks in its portfolio still occupy a proportionately greater weighting than small and mid-cap stocks. Historically, this has caused SWTSX to perform similar to SWPPX, despite their different indexes and underlying holdings. Thus, investors can potentially use SWTSX as a tax-loss harvesting partner for SWPPX and vice-versa.
[READ: 7 of the Best Long-Term Stocks to Buy.]
Schwab Dividend Equity Fund (SWDSX)
Not all investors may be content to track an index. Some investors may have other goals in mind, such as higher income, risk reduction or outperforming a benchmark. For those investors, the solution is an actively managed fund. A potential pick for investors favoring a dividend-oriented, blue-chip style fund with a value stock tilt is SWDSX, which charges 0.89% and has a 30-day SEC yield of 2.2%.
“Some investors just want to track an index and be very passive in the market, such as those with a really long investment horizon,” says Anessa Custovic, chief investment officer at Cardinal Retirement Planning Inc. “But if you have a much shorter time horizon for your investment goals, you might want to think about an actively managed fund to manage risk or increase returns.”
Schwab U.S. Large-Cap Growth Index Fund (SWLGX)
Investors wanting to focus on the growth segment of the U.S. stock market can opt for affordable exposure by buying SWLGX. This fund tracks the Russell 1000 Growth Index, which has a large-cap growth focus. Essentially, this fund isolates and holds the 512 stocks in the broader Russell 1000 Growth Index, which are projected to grow faster than their peers.
As with many growth stock funds, SWLGX is heavily tilted toward the technology sector, with a 42% weighting. Its top holdings include many mega-cap tech stocks such as Apple Inc. (AAPL), Microsoft Corp. (MSFT), Nvidia Corp. (NVDA) and Alphabet Inc. (GOOGL, GOOG). Thanks to its low yield, SWLGX also makes for a highly tax-efficient holding. The fund charges a 0.035% expense ratio.
Schwab U.S. Large-Cap Value Index Fund (SWLVX)
On the other hand, value investors can opt for the SWLGX’s counterpart, which would be SWLVX. This mutual fund tracks the Russell 1000 Value Index, which currently selects 854 stocks in the broader Russell 1000 Index with more favorable valuations compared to their peers. Compared to SWLGX, SWLVX pays a higher dividend and has different sector weightings but charges the same 0.03% expense ratio.
Currently, SWLVX has tilts to the financial, health care and industrials sectors at 20%, 16% and 11%, respectively. Top holdings in this fund include names like Berkshire Hathaway Inc. (BRK.A, BRK.B), Exxon Mobil Corp. (XOM), Johnson & Johnson (JNJ), and JPMorgan Chase & Co. (JPM). By combining SWLVX and SWLGX in various proportions, investors can adjust the ratio of value to growth stocks in a portfolio to their liking.
Schwab Small Cap Index Fund (SWSSX)
A popular high-risk, high-reward investment strategy is overweighting small-cap stocks, which are companies that trade with a market cap of $2 billion or less. The theory is that small-cap stocks pay a “size” risk premium, which has been identified as an equity factor that has historically compensated investors with higher returns in exchange for taking on higher risk and volatility.
To index small-cap stocks without the need for detailed research and individual securities selection, investors can buy SWSSX. This fund tracks the Russell 2000 Index, which holds a portfolio of just over 1,900 U.S. small-cap stocks across all 11 stock market sectors. Like many Schwab mutual funds, SWSSX charges a low expense ratio of just 0.04%.
Schwab International Index Fund (SWISX)
The U.S. market might have outperformed over the last decade, but that wasn’t always the case. Older investors may remember the “lost decade” of 2000 to 2009. During this time, U.S. stocks returned an annualized -0.9% as measured by the S&P 500, thanks to three consecutive years of negative returns following the dot-com bubble and a large market crash during the 2008 Great Recession.
To hedge against the risk of U.S. market stagnation, long-term investors can consider diversifying their holdings globally. This can be done with SWISX, which holds international stocks from developed equity markets. This includes countries like Japan, the U.K., France, Switzerland, Germany, Australia, the Netherlands, Denmark, Sweden and Canada. SWISX charges a 0.06% expense ratio.
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7 of the Best Charles Schwab Mutual Funds originally appeared on usnews.com
Update 04/25/23: This story was previously published at an earlier date and has been updated with new information.
