Please ensure Javascript is enabled for purposes of website accessibility

Is the Schwab U.S. Broad Market ETF a Buy?

By Matthew Frankel, CFP® - Updated Apr 19, 2019 at 7:32PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This fund can be an excellent way to passively benefit from the stock market's long-term performance.

The Schwab Broad Market ETF (SCHB) is a low-cost exchange-traded fund that is designed to allow investors to passively invest in the entire stock market through a single investment vehicle. The fund can be a smart choice for investors who want to benefit from the long-term compounding power of stocks, or investors who want to form a "base" to their portfolio before branching out to individual stocks. 

With that in mind, here's an overview of the ETF's investment strategy, the costs associated with it, and whether it could be a smart investment for your portfolio. 

Stock quote page in a newspaper.

Want exposure to most of the stocks you see in the business-section quote page? This ETF can help you get it. Image source: Getty Images.

What is the Schwab Broad Market ETF? 

As the name implies, the Schwab Broad Market ETF is an exchange-traded fund that is designed to give investors exposure to the U.S. stock market. 

Specifically, the fund tracks the Dow Jones U.S. Broad Stock Market Index, which includes a variety of both small- and large-cap stocks. At the end of the third quarter of 2018, the fund owned 2,429 different stocks.  

The index is market-cap weighted, just like the S&P 500 and most other market-tracking indexes. This means that larger companies make up a larger proportion of the portfolio. So it shouldn't be much of a surprise that top holdings of the fund include Apple, Microsoft, Amazon, and other large U.S. companies. 

Why should an investor consider the Schwab Broad Market ETF? 

The stock market as a whole has generated annualized total returns of about 10% over long periods of time. Investors who simply want to sit back and let the long-term compounding power of the market do all of the heavy lifting can do just that by investing in index funds, especially those that track the performance of broader-market indexes. 

And the Schwab Broad Market ETF tracks the stock market's performance at a bare minimum of expense to investors. Mutual fund and ETF ongoing fees are known as the expense ratio, which is the fund's management and administrative fees expressed as a percentage of the fund's overall assets. For example, a 1% expense ratio is about the average for an actively managed mutual fund, and means that you'll pay $100 in fees for every $10,000 invested, each year. 

The Schwab Broad Market ETF has a minuscule 0.03% expense ratio, meaning that for every $10,000 you have invested in the fund, your annual expenses are a mere $3. When you consider that these types of market-tracking funds have historically produced annualized returns in the 10% ballpark, this is virtually nothing.  

In other words, the Schwab Broad Market ETF can help you track the stock market's performance without giving up much of your returns in the form of fees. In other words, if the Dow Jones U.S. Broad Stock Market Index's total return is say, 8% this year, you can expect that your investment's total return will be 8% as well. 

Is the Schwab Broad Market ETF a good choice for you? 

As far as passive index funds go, the Schwab Broad Market ETF is one of the best products on the market. It should do an excellent job of tracking the overall performance of the stock market over time, and will do so at a bare minimum of expense, so investors will get to keep most of the gains.  

As Warren Buffett has said many times, the best way for the majority of people to invest is through low-cost index funds. Don't misunderstand this -- if you have the time, knowledge, and desire to research and invest through individual stocks, it's entirely possible to generate excellent returns over time. However, if you don't have all of those characteristics, index fund investing is probably the way to go. And if you do choose to invest through index funds, the Schwab Broad Market ETF is an excellent index fund to consider.

Check out all our earnings call transcripts. 

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Schwab Strategic Trust - Schwab U.S. Broad Market ETF Stock Quote
Schwab Strategic Trust - Schwab U.S. Broad Market ETF

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/29/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.