When going through the list of all of the investing options that you have, you will quickly come across “index funds”. Index funds are a friend to all who want to passively invest in the stock market without having much experience with buying and selling securities. It is a great tool to utilize, and there are many different types of index funds floating around out there.
There are a ton of options that are available for investors to look through until they are blue in the face, however, with all of the options are there, is there one that stands above them all? Is there a definitive “best” index fund to invest in, and if so, what is it?
First, let’s define what an index fund is:
An index fund is a fund that uses the pooling of assets by a management team to make investment decisions that track the components overall market indexes, such as the S&P 500.
Basically, an index fund is a specific person/company making a portfolio of stocks that track any given index, and then exchanges those shares to the public through a brokerage so that you can own your own personal “slice” of an economic sector.
Index funds allow everyday investors a way to invest in entire economies or sectors without having to shell out an enormous amount of money.
There are several types of index funds. Those that follow traditional indexes like the Dow Jones, S&P 500, and Nasdaq. However, there are also sub index funds that follow specific sectors in the market, such as the Vanguard Real Estate ETF (VNQ), which exposes an investor to multiple unique sectors of the economy.
While I am not here to answer to question of if there is a “best” index fund on the market, what I want to do is provide a little clarity of a smaller index fund that caught my attention. The fund that I am talking about is offered by Charles Schwab, has a very low management fee, and seems to be a great alternative to someone who wants to invest in the S&P 500 without giving out most of the profits back to the management system. This fund is:
SWPPX (Charles Schwab S&P 500 Index Fund)
Let’s go more in-depth on exactly how this fund is structured, what fees come with investing in this particular fund, some pros and cons, and what I would recommend personally.
What is SWPPX?
SWPPX is an index fund offered by Charles Schwab that seeks to track the total return of the S&P 500 index. The fund does this by investing 80% or more of its assets in weighted stocks of the S&P 500 in order to create an accurate representation as possible.
Here is a quick preview of the major holdings of SWPPX (as of March 2, 2020) and the weights that is associated with each holding.
SWPPX Top 10 Holdings (As of 1/31/2020)
|Symbol||Name||% of Assets||Market Value|
|FB||FACEBOOK INC CLASS A||1.81%||$790.3M|
|BRK.B||BERKSHIRE HATHAWAY INC CLASS B||1.63%||$714.1M|
|GOOGL||ALPHABET INC CLASS A||1.59%||$698.3M|
|GOOG||ALPHABET INC CLASS C||1.59%||$697.3M|
|JPM||JPMORGAN CHASE + CO||1.54%||$675.3M|
|JNJ||JOHNSON + JOHNSON||1.46%||$637.3M|
|V||VISA INC CLASS A||1.27%||$554.0M|
What fees are associated with SWPPX?
The most important fee, in my opinion, to look at when you are considering any index/mutual fund is the net expense ratio. This fee basically tells you how much money is being sliced away to give to the managers of the fund. The higher the net expense ratio, the less money that you have for growth and compounding.
Below I have created a table of all of the major fees (or lack thereof) that is associated with SWPPX.
|Schwab Transaction Fee||none|
|Max. Front Load||none|
|Max. Back Load||none|
|Short-term Redemption Fee||none|
|Gross Expense Ratio||0.02%|
|Net Expense Ratio||0.02%|
As you can see, SWPPX is an extremely low-fee, low-cost fund. It is one of the cheapest funds in terms of management fees that I have encountered in my tenure of investing.
Pros and Cons of SWPPX:
With anything there are some pros and some cons. I want to be as transparent as possible to provide you with some actionable information that you can use in your investing future. The pros and cons that I list below are based on my personal preferences, and before making any investing decision, you should do you own due diligence.
- Low expense ratios, allowing you to keep more of your money. Letting compounding and growth work more in your favor.
- Over $50 Billion in assets managed. This is small in comparison to some of the larger Vanguard Mutual Funds and ETFs, however, this is still large enough to show that they have a history of managing funds effectively.
- Tracks the S&P effectively, offering percentage returns almost exactly matching what the S&P offers.
- Ability to buy “factional shares”.
- No minimum investment requirement
- Not as liquid as an ETF, so you will have a harder time of getting your money out quickly. For this mutual fund, for every sell order that is place, it is fulfilled at the end of the trading day instead of immediately.
- Low volatility, this correlates directly with liquidity as well.
- Relatively small in comparison to larger mutual funds
For someone who is just getting started in the investing game and wants to invest in a low-cost mutual fund that tracks the S&P 500, I would definitely recommend considering SWPPX. The expense ratio is one of the lowest in the market, and it is extremely flexible in the amount that you can invest.
Personally, the majority of my Roth IRA will be invested in SWPPX as I believe that it is a stable way to grow as the United States economy grows.
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As I am not a Certified Financial Adviser, any information that you read here is purely for educational and entertainment uses only. For professional legal advice, contact a CFA.