Let's face it -- investing in individual stocks isn't for everyone. If you have the time, knowledge, and desire to research and select your own stocks, we certainly encourage you to do it. In not, there's absolutely nothing wrong with investing through low-cost index funds.
One of the lowest-cost index funds that can give you broad exposure to the U.S. stock market is the Schwab U.S. Broad market ETF (NYSEMKT: SCHB). Here's a rundown of what this fund is, how much it costs, and why you might want to consider it for your portfolio.
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What is the Schwab U.S. Broad Market ETF?
The Schwab U.S. Broad Market ETF is an exchange-traded fund designed to give investors broad exposure to the United States stock market in a single investment. It tracks an index known as the Dow Jones U.S. Broad Stock Market Index.
This index includes a wide variety of stocks of varying sizes, including companies that are classified as small-, mid-, and large-cap. As of Aug. 1, 2019, the fund owns 2,441 different stocks.
One important thing for investors to know is that the fund is market-cap weighted. That means a company with a $200 billion market cap will make up roughly double the fund's holdings as a percentage of its assets as one with a $100 billion market cap. In other words, although the Schwab U.S. Broad Market ETF invests in companies of all sizes, large-cap companies still make up the bulk of the fund's holdings. With that in mind, here's a breakdown of the fund's top holdings as of this writing.
% of Fund Assets as of 8/1/2019
Microsoft (NASDAQ: MSFT)
Apple (NASDAQ: AAPL)
Amazon.com (NASDAQ: AMZN)
Facebook (NASDAQ: FB)
Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B)
Data source: Schwab.
Meanwhile, smaller stocks make up a far lower proportion of the fund's holdings. Just to name one popular example of a smaller company, GrubHub (NYSE: GRUB) makes up just 0.02% of the fund's assets, and with a $6.3 billion market cap, it isn't even that small of a company. The point is that your investment will be far more reliant on the performance of the largest U.S. companies.
How much does it cost?
Here's the main draw of investing in the Schwab U.S. Broad Market ETF as opposed to some of the other broad stock market funds: It's cheap. The fund has a 0.03% expense ratio, which means that for every $10,000 you have invested in the fund, only $3 goes toward all of the management and administrative fees.
In other words, this fund costs virtually nothing to invest in, aside from whatever trading commissions your broker charges. In contrast, many other broad-market ETFs and mutual funds charge expense ratios that are 10 times as high -- 0.30% or more. Over long periods of time, this can make a big difference. With the Schwab U.S. Broad Market ETF, you get to keep almost all of your gains.
The bottom line on the Schwab U.S. Broad Market ETF
In a nutshell, the Schwab U.S. Broad Market ETF is a great choice for investors who want to invest in stocks but have no desire to research individual companies. The U.S. stock market as a whole has historically delivered annualized returns of 9%-10% over long time periods, so a broad stock market fund that costs next to nothing like this one can certainly produce excellent returns over the years.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Matthew Frankel, CFP owns shares of Apple and Berkshire Hathaway (B shares). The Motley Fool owns shares of and recommends Amazon, Apple, Berkshire Hathaway (B shares), Facebook, and Microsoft. The Motley Fool has the following options: short January 2021 $200 puts on Berkshire Hathaway (B shares), long January 2021 $200 calls on Berkshire Hathaway (B shares), long January 2021 $85 calls on Microsoft, short January 2020 $155 calls on Apple, long January 2020 $150 calls on Apple, short January 2020 $155 calls on Apple, and long January 2020 $150 calls on Apple. The Motley Fool recommends Grubhub. The Motley Fool has a disclosure policy.
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