The company Charles Schwab (SCHW -0.62%) has become a household name in the wealth and asset management space and is one of the largest securities brokerages in the world, catering to a wide range of investors, particularly on the retail side.
While the company has been around for decades, it's actually been able to grow at an incredibly fast rate and turned into a tremendous stock for shareholders who invested when the company went public in 1987. If you had invested $1,500 back then, here's how much you would have today.
From modest beginnings
Charles Schwab was originally founded from nothing more than an investment advisory newsletter created by Charles or "Chuck" Schwab and two of his business partners. The newsletter launched in 1963 and charged $84 per year, at one point reaching 3,000 subscribers.
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It wasn't until 1971 that Schwab and his partners launched a traditional broker-dealer securities business that it paired with the newsletter. After they built the business up over the next 12 years, Bank of America acquired the company for $55 million. Four years later in 1987, Schwab decided to buy the company back from Bank of America for $280 million. A few months later, he took the company public at roughly a $429 million market cap.
In 1988, the company's financial advisors business hit $1 billion in client assets, and the company began ramping up its product offerings with money market funds, an equity index fund, and individual retirement accounts with no fees. With the advent of the internet, Schwab introduced online investing capabilities in the mid-1990s, and by 1997 the company was added to the S&P 500 index. Between 1991 and 2000, the company did eight different stock splits.
Making big moves
Schwab continued to add new investment products and capabilities, such as mutual funds, independent investment advisors, and exchange-traded funds (ETFs), while also focusing on reducing fees and cutting commissions to open up access for retail investors and more affluent high net-worth individuals. Schwab also continued to meaningfully grow the company by launching Charles Schwab Bank and acquiring The 401(K) Company. By 2012, Schwab hit $2 trillion in client assets.
In the middle of 2019, Schwab made the first of two big acquisitions. It announced that it would acquire USAA's investment management business, which came with 1 million accounts and $67 billion of client assets.
Schwab's blockbuster acquisition came later that year when it announced it would acquire TD Ameritrade in an all-stock deal valued at $26 billion. The deal closed in 2020 and gave Schwab huge scale, adding Ameritrade's 12 million client accounts collectively valued at $1.3 trillion in assets. It's also a business that generates $5 billion in annual revenue. Schwab is actually gearing up to begin the systems integration of Ameritrade this year.
At the end of 2022, Schwab had about $7 trillion of client assets, making it one of the world's largest companies serving individual investors and the largest among its peer group in terms of client assets. As a result, the market has awarded Schwab with a premium valuation at more than 18 times forward earnings. Investors tend to like the stock because of the limited credit exposure on its balance sheet and its ability to benefit from higher interest rates.
If you had invested $1,500 in 1987...
People who first invested in Charles Schwab when the company went public have done very well. Forbes reports that Charles Schwab himself, who still serves as co-chairman of the company's board of directors today, has amassed a fortune of $11.5 billion.
The company went public with a roughly $429 million market cap. Today, Schwab's market cap is valued at slightly more than $149 billion, which represents a return of 34,631%. That means $1,500 invested in Schwab stock in 1987 is worth more than $519,000 today.
If you had put that $1,500 into the S&P 500 at the beginning of 1987 and reinvested all of your dividends, that money would be worth about $45,600 today, so Schwab stock has widely outperformed.
