The 3 Best Charles Schwab Index Funds You Can Invest In Now

Charles Schwab is one of the top 10 largest fund families by total net assets. The financial services company has a history spanning over 50 years and offers all investors ample opportunity to get involved in the markets. I spent almost all of my 22 years as an investment advisor at Schwab as my firm's custodian. And while this is a separate (institutional) division compared to the one we're talking about in this article, I still got a good sense of how this major player operates across the asset spectrum.

And while the usual disclaimer applies that “top” is a subjective term when it comes to investment products, I've looked through Schwab's range of index funds and identified a few that I personally get along best with. Of course, that's ultimately up to each investor to decide for themselves.

Simple and inexpensive index funds give investors plenty of options and information to help them make the right choice when allocating capital. Let's take a closer look at some of this company's index fund offerings and explain my reasons for selecting these funds for this short list.

Why choose Charles Schwab for index funds?

While I generally think that the “cost” of investing is overstated 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 takes out for itself.

In my opinion, if we focus outside of this investment space on funds that have other purposes, such as risk hedging and diversification beyond traditional stocks and investments, expense ratios are less important than finding a fund that can do that job. The biggest “cost” to investors over time is big losses in bad markets that take years to recover from. But these are the former types of investments, 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 the company was among the first major brokerages to eliminate standard commissions on stocks and ETFs. They also often offer lower expense ratios compared to other firms. But before anyone thinks Schwab, Vanguard, and their index competitors are nonprofits, it's important to understand that there are other revenue streams that allow them to offer some funds with zero or near-zero expense ratios and “no commissions.”

Schwab is the fifth largest ETF provider in the US with over $342 billion in assets under management. The company offers a wide range of investment products. In the area of ​​index funds, the company can cover many levels of diversification and has access to many parts of the world. Charles Schwab is known for its user-friendly platforms and extensive education and research tools that help investors make informed decisions.

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Criteria for selecting the best index funds

My goal was to go beyond the usual in the Schwab universe. I stuck with ETFs because I believe ETFs are structurally designed for cost-conscious investors to minimize taxes and other investment management inefficiencies compared to index funds.

Here's a quick table with some key statistics on the three ETFs I'm highlighting. I'll go into more detail about each one below.

Data source: YCharts

1. Schwab US Dividend Equity ETF

SCHD

SCHD Fund Overview

Current share price: 84.15 USD

Sector/Industry: Diversified across different sectors, with a high dividend focus

Weighted average market capitalization: $130 billion

P/E ratio: 17.1

Total investments: 103

I follow dividend ETFs fairly closely in my research and am a dividend investor at heart, so while SCHD is a solid contender among others in the dividend ETF space, I'm pretty surprised it cracked the $50 billion mark in assets. I consider it competitive within that peer group, but not the best. That's the power of a large company like Schwab at work.

SCHD seeks to replicate the performance of the Dow Jones US Dividend 100 Index, which includes 100 US stocks with high dividend yields and a history of consistent dividend payments. The goal is to provide investors with access to dividend-paying stocks while seeking long-term capital appreciation.

Why SCHD is a top choice

Uncertainties surrounding interest rates, large company earnings, elections and geopolitical turmoil all contribute to the relative attractiveness of dividend stocks compared to higher growth stocks. SCHD has posted 12 consecutive years of dividend growth, which can serve as a decent buffer during difficult periods of the market cycle.

Although SCHD includes nearly every sector, it focuses on high-quality U.S. companies, which are typically larger. The stocks in this fund were selected for their fundamental strength in financial metrics relative to their peers. Its diversification is evident in the fact that six different sectors (out of 11 in the S&P 500) make up at least 10% of SCHD's assets.

2. Schwab International Dividend Equity ETF (SCHY)

SCHY Fund Overview

Current share price: 26.32 USD

Sector/Industry: Non-US Dividend Stocks

Weighted average market capitalization: $71 billion

P/E ratio: 13.6

Total stock: 135

Hopefully you're sensing a mini-trend here. The second of three ETFs I've chosen for this article is also a dividend ETF. SCHY is essentially the non-US equity version of SCHD.

SCHY aims to replicate the performance of the Dow Jones International Dividend 100 Index. This ETF focuses on high-dividend, high-quality stocks from developed markets outside the U.S. Similar to SCHD, the goal is to provide investors with income through dividends as well as potential capital appreciation. Europe, Asia and Australia lead the way, and the fund also covers almost every sector. Defensive consumer stocks, as well as financials, communications and healthcare stocks together make up about 57% of assets.

Why SCHY is a top choice

Schwab first listed SCHY in 2021, so it's a relatively new fund. That makes me think it might still be somewhat undiscovered. It seems odd to say that about an ETF with more than $700 million in assets, but given the size and marketing reach of a company like Schwab, it's not a gigantic fund.

This may reflect the muted enthusiasm for non-US equities that has persisted for about a decade. But looking ahead, this geographic presence is a huge advantage in today's investment landscape. From political unrest to debt and deficits, US equities are in a potentially vulnerable position. For this reason, SCHY is worth a look.

The solid yield of 5.8% is another advantage of SCHY. Although dividends are not guaranteed, they are paid out regularly, providing the stock's profit potential as well as one of the higher dividend yields in the peer group.

3. Schwab Crypto Thematic ETF (STCE)

STCE Fund Overview

Current share price: 32.54 USD

Sector/Industry: Cryptocurrency

Weighted average market capitalization: $58 billion

P/E ratio: 18.8

Total investments: 42

Maybe you didn't expect this! After a pair of relatively benign dividend ETFs, the third Schwab fund I'm highlighting is one that invests in a basket of stocks related to cryptocurrencies and blockchain infrastructure. This isn't a direct investment in Bitcoin, Ether, or other currencies. It's the companies that I believe have at least a chance of capitalizing on the long-term potential of blockchain across many industries. However, this will be as volatile as any part of the stock market can be.

Why STCE is a top choice

STCE is a world away from SCHD and SCHY and pays a tiny dividend. But as I said at the beginning of this article, I would focus on going beyond the “usual suspects” in the index ETF world at Schwab. S&P 500 index funds are frankly a dime a dozen, and I'm somewhere between intrigued and impressed that Schwab has ventured into this space, something some other firms have done before it.

There is undoubtedly more risk here, but the ability to profit from the increasing acceptance of cryptocurrencies as a medium of exchange without owning them outright presents an opportunity, albeit a speculative one. And while I'm skeptical about the actual “store of value” aspect of cryptocurrencies compared to fiat currencies, the bottom line for me is that blockchain stocks have long-term upside potential, and STCE is Schwab's access point for that.

Conclusion

Schwab is a household name today, but I remember it being the proverbial dog that nipped at the heels of the then-larger Wall Street firms. Yet decades later, the company has positioned itself as an industry leader and has generally gotten out of trouble compared to its traditional brokerage competitors. Index funds offer advantages that make them attractive to many investors, especially those new to the market with lower account values ​​but high standards and a willingness to accept stock market volatility.

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