Last year was understandably a great year to own Schwab U.S. Broad Market ETF (SCHB 0.94%). The exchange-traded fund that tracks the total return of the Dow Jones U.S. Broad Stock Market Index owns nearly 2,500 of the largest publicly traded U.S. companies, so as the general stateside market rises so should Schwab U.S. Broad Market ETF. It accomplished its goal in 2019, soaring 30.94% to once again come within spitting distance of the index with its wealth-altering 30.96% return.
The Charles Schwab (SCHW 0.00%) fund is a great way to grab a huge basket of stocks in a single transaction, but as one of the ETFs that the discount brokerage uses to keep its customers close and its brand name relevant, it also packs one of the lowest cost profiles in the market. Schwab U.S. Broad Market ETF has an expense ratio that clocks in at a mere 0.03%, giving investors more bang for their immediately diversified buck.
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It's a big basket
You don't have to be a Charles Schwab customer to buy into Schwab U.S. Broad Market ETF. It trades freely on the open market like any other exchange-traded listing. Punch in the four-letter ticker symbol into your brokerage platform of choice, and it's yours. Charles Schwab offers its own customers access to the fund without having to shell out a commission, but now that so many brokers -- Charles Schwab included -- offer commission-free trading on all stock trading it's not as if buying through an active account at the namesake brokerage offers any material advantage.
When investors think of index funds they sometimes default to the various vehicles that mirror the iconic S&P 500. There's nothing inherently wrong with that approach to keeping pace with the market, but it's limited to 500 of the larger companies in the country. Schwab U.S. Broad Market ETF takes a deeper dive into the mid-cap and even small-cap market.
We're still talking about a weighted index fund, so its largest holdings happen to also be the country's most valuable publicly traded companies. In terms of sector representation, the giants of just three industries -- information technology, healthcare, and financial services -- account for a little more than half of the weighted portfolio. Investors aren't gaining a lot of exposure into some sectors including real estate and utilities, which account for less than 4% of the representation apiece. However, the point remains that Schwab U.S. Broad Market ETF does give investors access to more than just blue chips in a single purchase.
Investors naturally can't expect to score returns north of 30% every year. Schwab U.S. Broad Market ETF posted a 5% decline in 2018. Last year's burst was the fund's second largest annual gain over the past decade, and it has failed to post double-digit returns in four of the past 10 years. Even the ETF's 13.4% annualized return over the past 10 years may also be deceiving given the historically buoyant market that we've experienced over the past decade.
The fund also isn't a proxy for the planet. Many of the stocks in the ETF have strong global operations, but it's ultimately tethered to the health and fate of the domestic market. Schwab U.S. Broad Market ETF is still a buy. It's a low-cost way to own a big chunk of the U.S. market. Investors just need to buy in knowing that the past year -- and even the past 10 years -- are above the historical ranges of the market's returns. It's a smart way to own roughly 2,500 of the market's biggest names in a single transaction.