Disclosure: We scrutinize our research, ratings and reviews using strict editorial integrity. In full transparency, this site may receive compensation from partners listed through affiliate partnerships, though this does not affect our ratings. Learn more about how we make money by visiting our advertiser disclosure.

Over the past couple of decades, as investors have been given a choice between mutual funds and exchange-traded funds, they’ve increasingly opted for the latter. And who can blame them? Mutual funds aren’t exactly known for being cheap, and they often demand hefty investment minimums, often in the thousands of dollars.

But Schwab mutual funds don’t carry around any of that baggage.

You might know Charles Schwab for its account offerings—indeed, with some 35 million brokerage accounts, and another 5.2 million workplace plan participant accounts, you might already have your investment funds run through Schwab. But Schwab is also one of the largest mutual fund providers in the nation, offering dozens of products that not only charge light annual expenses, but also require next to nothing to get started.

Speaking of getting started, let’s … well, get started. Read on as I explore some of the best Schwab funds to buy for investors who want to build a portfolio with high quality and low costs.

 

Disclaimer: This article does not constitute individualized investment advice. These securities appear for your consideration and not as personalized investment recommendations. Act at your own discretion.

Why Schwab Mutual Funds?


charles schwab logo schw
DepositPhotos

Charles Schwab is a U.S.-based brokerage and banking company founded in 1971 as a traditional brokerage company and then as a discount brokerage service in 1974. It’s the largest publicly traded investment services firm with more than $6 trillion in assets under management (AUM). And it offers a wide range of financial services, such as investment advice and management, trading services, financial planning, banking services, workplace and individual retirement plans, annuities, and more.

But why would you invest in its mutual funds?

Schwab is a low-cost leader that does provide some actively managed products, but excels through its index mutual funds. And on the whole, Schwab funds offer well-below-industry-average annual expenses.

Where Schwab really stands out, though, is from a nominal-expense perspective. Many providers’ mutual funds set minimum initial investments in the thousands of dollars. But most Schwab mutual funds require a mere $1—an ideal situation for investors who don’t have much capital to put to work.

In short: Schwab offers a variety of mutual funds, some of which are among the best on the market, and they won’t leave your wallet in tatters.

How Were the Best Schwab Mutual Funds Selected?


methodology gears cogs mechanics
DepositPhotos

Schwab is a little different from other mega-sized fund providers in that it has a relatively constrained roster of just a few dozen mutual funds. So, investors sorting through Schwab’s selections won’t have nearly as bad a case of analysis paralysis.

Still, a little filtering is necessary to get us down to a more manageable list. So I’ve started with a quality screen, including only Schwab mutual funds that have earned a Morningstar Medalist rating.

Unlike Morningstar’s Star ratings, which are based upon past performance, Morningstar Medalist ratings are a forward-looking analytical view of a fund. Per Morningstar:

“For actively managed funds, the top three ratings of Gold, Silver, and Bronze all indicate that our analysts expect the rated investment vehicle to produce positive alpha relative to its Morningstar Category index over the long term, meaning a period of at least five years. For passive strategies, the same ratings indicate that we expect the fund to deliver alpha relative to its Morningstar Category index that is above the lesser of the category median or zero over the long term.”

As I’ve written in other WealthUp articles, a Medalist rating doesn’t mean Morningstar is necessarily bullish on the underlying asset class or categorization. It’s merely an expression of confidence in the fund compared to its peers.

From the remaining universe of funds, I selected a range of products that invest in various core assets—something to fill just about every basic portfolio need.

The Best Schwab Mutual Funds to Buy


Below are some great Schwab funds that are primarily meant to serve as core portfolio investments.

All of the best Schwab mutual funds on this list are index funds. While Schwab does have a few actively managed funds, its highest-rated products are all tethered to an index. So costs, as a general rule, are quite low.

And every Schwab fund on this list has a minimum initial investment of just $1. Typically, when I’m writing about mutual funds, I try to also list ETF share classes or equivalent ETFs for investors who might have less capital to put to work. But in this case, there’s no need—even if your liquidity is limited to a fistful of nickels, you’ve got enough to get started.

In no particular order …

1. Schwab S&P 500 Index Fund


Fidelity 500 Index FXAIX large companies wall street
DepositPhotos
  • Style: U.S. large-cap stock
  • Assets under management: $88.3 billion
  • Expense ratio: 0.02%, or 20¢ per year for every $1,000 invested
  • Dividend yield: 1.3%
  • Morningstar Medalist rating: Gold

The vast majority of fund managers who run large-cap funds (funds that invest in larger companies) struggle to consistently beat the S&P 500 Index, particularly after fees. According to S&P Dow Jones Indices, “60% of all active large-cap U.S. equity funds underperformed the S&P 500.” That’s no anomaly: Thanks to yet another 365 days of lagging in 2023, the majority of active managers have now failed to beat the S&P 500 in 21 of the past 24 years.

As I typically say when confronted with an S&P 500 fund: If you can’t beat it, join it.

The Schwab S&P 500 Index Fund (SWPPX) isn’t just a cheap way to get access to the S&P 500—it’s one of the cheapest ways across both mutual funds and ETFs alike, charging a razor-thin expense ratio of just 0.02%. That’s not free, but it’s mighty close.

The S&P 500 is a collection of some of the largest American companies, but to be clear, it’s not automatically the 500 largest American companies. Among criteria for this index: A company must have a market capitalization of at least $14.5 billion, its shares must be highly liquid (shares are frequently bought and sold), and at least 50% of its outstanding shares must be available for public trading. Where you start to weed out a few large companies is that, for inclusion, a company must also have positive earnings in the most recent quarter, and the sum of its previous four quarters must be positive.

And once a company becomes an S&P 500 component, it’s not automatically kicked out if it fails to meet all of the criteria. However, the selection committee would take this under consideration and possibly boot the company.

The S&P 500 is considered a reflection of the U.S. economy—but that doesn’t mean all industries are represented equally. For instance, the technology sector accounts for nearly 30% of SWPPX’s assets. Real estate, materials, and utilities merit less than 3% apiece. This is in no small part because, like many indexes, the S&P 500 is market capitalization-weighted, which means the greater the size of the company, the more “weight” it’s given in the index. Currently, trillion-dollar-plus companies Microsoft (MSFT), Apple (AAPL), and Nvidia (NVDA) rank among Schwab S&P 500 Index Fund’s top holdings.

Turnover (how much the fund tends to buy and sell holdings) tends to be low, as only a handful of stocks enter or leave the index in any given year. That greatly minimizes (and in some years, eliminates) capital-gains distributions, which receive unfavorable tax treatment. This makes SWPPX an extremely tax-efficient option for taxable brokerage accounts.

A combination of the S&P 500’s excellence as an index, as well as SWPPX’s bare-bones costs and tax-efficiency, merit a Gold Medalist rating from Morningstar. It’s just one of three Schwab products to earn that coveted ranking, making it easily one of the best Schwab funds you can buy.

Want to learn more about SWPPX? Check out the Schwab provider site.

Related: 9 Monthly Dividend Stocks for Frequent, Regular Income

2. Schwab Fundamental US Small Company Index Fund


small company index fund shadow flex
DepositPhotos
  • Style: U.S. small-cap stock
  • Assets under management: $1.8 billion
  • Expense ratio: 0.25%, or $2.50 per year for every $1,000 invested
  • Dividend yield: 1.3%
  • Morningstar Medalist rating: Silver

Investors who want more explosive returns (and who can deal with higher risk) can typically find that kind of action in small-cap stocks.

As a general rule, smaller companies (usually considered to be those with market capitalizations of $2 billion or less) have more growth potential than larger firms. For one, as they say, it’s much easier to double your revenues from $1 million than $1 billion. And as these stocks become noticed by institutional investors and fund managers, or begin qualifying for certain indexes, they can begin to enjoy large-scale investments that drive their prices even higher.

But smaller stocks are riskier. A smaller company’s revenues might be dependent on just one or two products or services—meaning a single disruption could have massive financial consequences. They also have less access to capital than their larger peers, so they’re less likely to get a lifeline should they suffer from broader economic headwinds.

It’s a high-risk, high-reward proposition—a small company could feasibly double in short order … or get cut in half overnight.

You can, however, harness some of these firms’ upside potential while tamping down on risk by investing in a small-stock fund like Schwab Fundamental US Small Company Index Fund (SFSNX). This Schwab product differs from your traditional small-cap index fund in that, rather than weighting its components by size, SFSNX effectively weights its roughly 1,000 holdings by quality. It tracks the Russell RAFI US Small Company Index, which both selects and weights stocks by fundamental metrics including adjusted sales, retained operating cash flow, and dividends plus buybacks. In short: The better the fundamental quality, the more assets a stock will command.

For what it’s worth, most broad small-cap funds have very little single-stock risk to begin with. Even SFSNX’s greatest holdings command weights of roughly half a percent or less, and that’s par for the course. But how the fund assigns those weights makes a huge difference—SFSNX has solidly outperformed its basic-index counterpart, the Schwab Small Cap Index Fund (SWSSX), over every meaningful trailing time period.

Want to learn more about SFSNX? Check out the Schwab provider site.

Related: 15 Best Investing Research & Stock Analysis Websites

3. Schwab US Mid-Cap Index Fund


mid cap index fund apples
DepositPhotos
  • Style: U.S. mid-cap stock
  • Assets under management: $1.4 billion
  • Expense ratio: 0.04%, or 40 per year for every $1,000 invested
  • Dividend yield: 1.4%
  • Morningstar Medalist rating: Gold

Mid-cap stocks are typically considered to be companies worth $2 billion to $10 billion by market capitalization. And they’re often referred to as the “Goldilocks” of the stock world.

That’s because they often carry some appealing traits of both their larger brethren (scale, more diverse revenue streams, good access to capital) and smaller firms (they’re nimble, and they have substantial upside potential). Funnily, though, that often means they’re ignored by people who gravitate either toward big, “safe” blue chips or potent small-caps. That’s a big mistake.

Here’s what investment company Hennessy Funds found in a study of mid-caps: “In any given 1-year rolling period since 2003, small-, mid-, and large-cap stocks have outperformed 33%, 26%, and 41% of the time. However, the longer mid-cap stocks are held, the more often they outperformed. In fact, 60% of the time, mid-caps outperformed small- and large-cap stocks over any 10-year rolling period in the past 20 years.”

Better still? During the 20-year period (through 9/30/23) that Hennessey studied, they found that while mid-caps delivered higher risk than large-caps, they delivered better returns … and they generated both lower risk and higher returns than small caps.

So, if you like your stocks like Goldilocks likes her porridge—”just right”—you can access these companies through the Schwab US Mid-Cap Index Fund (SWMCX). This fund, which tracks the Russell Midcap Index, holds 800 stocks, about 75% of which are mid-cap stocks. It might sound odd, but it’s actually quite normal. “As the mid-cap space is less defined than its large- and small-cap counterparts, major index providers differ on where to draw the borders, affecting the indexes’ market cap orientations,” says Morningstar Associate Analyst Mo’ath Almahasneh. Currently, SWMCX’s non-mid-cap holdings are heavier in small companies than bigger firms.

Like with the Schwab small-cap mutual funds mentioned above, single-stock exposure is minimal—the two greatest holdings represent only 0.6% of assets each. Unlike those products, SWMCX earns Morningstar’s highest Medalist rating, putting it at the tippy top of the best Schwab mutual funds.

Want to learn more about SWMCX? Check out the Schwab provider site.

Related: How to Get Free Stocks for Signing Up: 10 Apps w/Free Shares

4. Schwab Total Stock Market Index Fund


stock market chart trading investing brokerage account
DepositPhotos
  • Style: U.S. all-cap stock
  • Assets under management: $22.3 billion
  • Expense ratio: 0.03%, or 30¢ per year for every $1,000 invested
  • Dividend yield: 1.3%
  • Morningstar Medalist rating: Gold

Who says you can’t have it all?

That’s the idea behind total-market funds like the Schwab Total Stock Market Index (SWTSX), which is designed to “track the total return of the entire U.S. stock market.” Now if we’re splitting hairs, even at 3,350 stocks, you’re not actually investing in the “entire U.S. stock market” … but it’s about as close as you’d ever reasonably need to get.

A total-market fund typically won’t give you equal exposure to all the different stock sizes—they’re typically market cap-weighted, which naturally means they’re heavily tilted toward large caps. And so it is with SWTSX, which currently has 72% of its assets wrapped up in large caps (like with the S&P 500 fund, Microsoft, Apple, and Nvidia are top weights here), 19% in mid-caps, and the remaining 9% in smalls.

The point of a total-market fund like SWTSX is simplicity. One fund gets you exposure to most of the U.S. stock market—and it overloads you in the largest, most stable firms while providing only modest exposure to smaller, more volatile firms. Better still? You can get all this for just 0.03% in annual expenses. It’s a one-two punch of coverage and price that has been recognized with a Morningstar Gold Medalist rating, and inclusion on my list of Schwab’s top mutual funds.

How (or whether) you use it is a matter of preference.

If you like the exact breakdown of SWTSX’s large-, mid-, and small-cap exposure, you could make it the core of your portfolio and not have to bother with any other broad U.S. stock funds.

If you like the idea of owning all these different-sized stocks, but would want to do so in different ratios, you could either hold SWTSX and augment with the funds above, or buy your ideal mixture of large-, mid-, and small-cap funds.

Want to learn more about SWTSX? Check out the Schwab provider site.

Related: 17 Best Investment Apps and Platforms [Free + Paid]

5. Schwab Fundamental International Large Company Index Fund


international stocks global money
DepositPhotos
  • Style: International large-cap stock
  • Assets under management: $2.5 billion
  • Expense ratio: 0.25%, or $2.50 per year for every $1,000 invested
  • Dividend yield: 3.1%
  • Morningstar Medalist rating: Silver

You’ve probably noticed by now that this list of funds, like many, is loaded with U.S.-centric options. That’s for good reason. U.S. markets have long been among the most productive in the world, and if you believe in the American economy’s ability to keep growing, that should remain the case. Thus, most financial experts here will direct you to gobble up U.S. stock funds.

But those same experts would tell you that it’s worth having at least some international exposure. And you can do that smartly and efficiently through the Schwab Fundamental International Large Company Index Fund (SFNNX).

This Schwab international fund is similar to Fundamental US Small Company in that it tracks a Russell “RAFI” index that prioritizes fundamental metrics—adjusted sales, retained operating cash flow, and dividends plus buybacks—when both selecting and weighting its components.

Again, from 10,000 feet, this doesn’t really make a huge difference. Top country allocations are pretty similar to what you’d get in other large-cap international funds—a heavy dose of Japan (27% of assets), and strong exposure to other European developed markets such as the U.K. (14%), France (8%), and Germany (8%). Top holdings? Similar again! Big, blue-chip firms like British energy giant Shell (SHEL) and South Korea’s Samsung. And while the dividend is indeed juicy compared to U.S. blue-chip funds, that’s also typical of most international large-cap offerings.

But SFNNX’s fundamental focus has made itself heard where it counts: performance. While the difference in returns isn’t as drastic as it was between the aforementioned Schwab small-cap funds, Schwab Fundamental International Large Company still soundly tops its basic-index counterpart, Schwab International Index Fund (SWISX), over all meaningful time frames … even with its pricier (but still cheap) expense ratio.

Want to learn more about SFNNX? Check out the Schwab provider site.

Related: 7 Best Value Stocks for 2024 [Smart Picks to Buy]

6. Schwab US Aggregate Bond Index


US aggregate bond fund
DepositPhotos
  • Style: U.S. intermediate-term bond
  • Assets under management: $4.5 billion
  • Expense ratio: 0.04%, or 40¢ per year for every $1,000 invested
  • SEC yield: 4.4%*
  • Morningstar Medalist rating: Bronze

Most investors need some exposure to bonds, which is debt that’s issued by governments, companies, and other entities. Their interest payments and relative lack of volatility make them an excellent tool for providing a portfolio with stability and income.

But how much bond exposure you need will vary by age. They’re not great for generating wealth, which is your prime concern when you’re younger, but they’re outstanding for protecting wealth, which becomes increasingly pivotal as you age. So generally speaking, when you’re younger, you’ll want to be primarily invested in stocks … and as you get older, you’ll want to go lighter on stocks and start buying more bonds.

You might not want to buy individual bonds, however. Data and research on individual issues is much thinner than it is for publicly traded stocks. And some bonds have minimum investments in the tens of thousands of dollars. So, your best (and most economical) bet is to buy a bond fund, which allows you to invest in hundreds or even thousands of bonds with a single click.

One of the best Schwab mutual funds you can buy for this access is the Schwab US Aggregate Bond Index Fund (SWAGX), which holds a whopping 9,400 debt issues. At the moment, 42% of the portfolio is in U.S. government bonds, another 27% is in mortgage-backed securities (MBSes), and 25% is in corporate bonds. The rest is peppered around other government-related bonds, municipal bonds, and other debt.

SWAGX’s maturities range from less than a year to more than 20 years. Meanwhile duration—a measure of interest-rate sensitivity—is 6.2 years, implying that a 1-percentage-point hike in interest rates would result in a 6.2% decline in the fund, and vice versa. In short, this is moderate interest-rate risk, which is perfectly acceptable for a basic core bond holding like this.

* SEC yield reflects the interest earned across the most recent 30-day period. This is a standard measure for funds holding bonds and preferred stocks.

Want to learn more about SWAGX? Check out the Schwab provider site.

Related: 8 Best Stock Portfolio Tracking Apps [Stock Portfolio Trackers]

7. Schwab Target Index Funds


retirement target date fund
DepositPhotos
  • Style: Target-date
  • Assets under management (collectively): $6.3 billion
  • Expense ratios: 0.08%, or 80¢ per year for every $1,000 invested
  • Morningstar Medalist rating: Bronze

Target-date funds are the ultimate buy-and-hold instrument, meant to stay in your portfolio for literally decades.

You can read more about this type of product in our primer on target-date funds, but in short, they’re funds that shift their asset allocation over time to meet investors’ changing needs as they age. A person who’s, say, 25 in 2025 would expect to retire in 2065, so they’d buy a fund with a target retirement date of 2065. That fund would probably start out with a very heavy allocation to stocks (to grow the investors’ wealth), but as the years rolled on and the fund approached its target retirement date, it would start putting more of its assets into bonds (to protect the investors’ wealth).

Schwab offers two target-date fund series, both of which hold various funds to provide exposure to U.S. and international stocks and bonds:

  • Schwab Target Funds: These hold a collection of actively managed and index funds. While most of Schwab Target Funds’ holdings are other Schwab mutual funds, they will also hold funds from outside providers, including Dodge & Cox and Baird.
  • Schwab Target Index Funds: These hold Schwab ETFs exclusively.

In general, both of Schwab’s target-date fund series are economical, but the Schwab Target Index Funds are flat-out cheap, at just 0.08% in annual expenses. And at least as far as Morningstar Medalist ratings go, the Target Index Series is considered the better of the two, earning a Bronze rating.

A quick look at the full lineup:

  • Schwab Target 2010 Index Fund (SWYAX)
  • Schwab Target 2015 Index Fund (SWYBX)
  • Schwab Target 2020 Index Fund (SWYLX)
  • Schwab Target 2025 Index Fund (SWYDX)
  • Schwab Target 2030 Index Fund (SWYEX)
  • Schwab Target 2035 Index Fund (SWYFX)
  • Schwab Target 2040 Index Fund (SWYGX)
  • Schwab Target 2045 Index Fund (SWYHX)
  • Schwab Target 2050 Index Fund (SWYMX)
  • Schwab Target 2055 Index Fund (SWYJX)
  • Schwab Target 2060 Index Fund (SWYNX)
  • Schwab Target 2065 Index Fund (SWYOX)

For a longer explanation of Schwab’s target-date lineups, read our Beginner’s Guide to Schwab Target-Date Funds.

Want to learn more about Schwab’s Target Index Fund series? Check out the Schwab provider site.

Related: 7 Best Stock Portfolio Management Software Tools + Apps

 

Learn + Invest With Schwab


Schwab signup
Schwab

Investors looking for maximum flexibility and low (or no) trading costs should explore a brokerage or retirement account with Schwab.

Schwab offers commission-free stocks, ETFs, thousands of mutual funds (from Schwab Mutual Fund OneSource), and even Treasury trades. Additional investment selections include corporate bonds, options, money market funds, futures, E-mini futures, and foreign exchange (forex), and you can even participate in some initial public offerings (IPOs) through the Schwab platform.

Want to learn more? Check out the review here, and from there, click the “Visit Site” button to visit Schwab and sign up.

Schwab Funds for Retirement: Frequently Asked Questions (FAQs)


question and answer faq
DepositPhotos

What is the minimum investment amount on Schwab mutual funds?

Schwab is one of the most friendly fund companies for beginners. That’s not just because both its mutual funds and ETFs sport below-industry-average expense ratios, but because you don’t need much money to invest in them in the first place. Most Schwab mutual funds have a negligible investment minimum—you can literally start with as little as $1.

That’s extremely beneficial in self-directed accounts like an IRA. Many mutual funds from other providers require high minimums in the thousands of dollars, hamstringing investors with little capital to work with.

Kyle Woodley is the Editor-in-Chief of WealthUp. His 20-year journalistic career has included more than a decade in financial media, where he previously has served as the Senior Investing Editor of Kiplinger.com and the Managing Editor of InvestorPlace.com.

Kyle Woodley oversees WealthUp’s investing coverage, including stocks, bonds, exchange-traded funds (ETFs), mutual funds, real estate, alternatives, and other investments. He also writes the weekly Weekend Tea newsletter.

Kyle spent five years as the Senior Investing Editor at Kiplinger, and six years at InvestorPlace.com, including two as Managing Editor. His work has appeared in several outlets, including Yahoo! Finance, MSN Money, the Nasdaq, Barchart, The Globe and Mail, and U.S. News & World Report. He also has made guest appearances on Fox Business and Money Radio, among other shows and podcasts, and he has been quoted in several outlets, including MarketWatch, Vice, and Univision.

He is a proud graduate of The Ohio State University, where he earned a BA in journalism … but he doesn’t necessarily care whether you use the “The.”

Check out what he thinks about the stock market, sports, and everything else at @KyleWoodley.