When it comes to gaining broad exposure to the U.S. stock market, investors are often presented with a plethora of choices. Among these, total stock market index funds stand out as a popular option, mirroring the performance of the entire market by tracking indexes encompassing thousands of stocks. Major fund managers like Charles Schwab, Vanguard, and Fidelity all offer compelling total stock market index funds. But as you delve into options from Charles Schwab, Vanguard, and Fidelity, are these funds truly interchangeable, or does a closer examination reveal distinct advantages and disadvantages?
This article provides a detailed Schwab Total Stock Market Index Fund Compare, pitting it against similar offerings from Vanguard and Fidelity. We will explore the nuances of each fund to help you determine which might be the best fit for your investment goals.
Understanding Total Stock Market Index Funds
Total stock market index funds are designed to replicate the returns of the entire U.S. stock market. These are passively managed investments, meaning their portfolios are constructed and maintained according to a predefined index, rather than through active stock picking by fund managers. This passive approach typically results in lower costs for investors.
Two common strategies are employed in passive index fund management:
- Full Replication: This method involves holding every stock within the tracked index, maintaining the same proportional weighting as the index itself.
- Sampling: For broader indexes with thousands of holdings, sampling is often utilized. This strategy involves holding a representative selection of stocks that collectively mimic the performance of the full index. Sampling can enhance cost-efficiency, especially for very large indexes.
Regardless of the method, the primary objective of a total stock market index fund is to deliver returns that closely align with its benchmark index, naturally before accounting for fund-related fees and expenses.
Investors choose total stock market index funds primarily for two key benefits: broad market exposure and diversification. By investing in a single fund, you gain access to companies across all sectors of the U.S. economy and spanning the spectrum of company sizes, from large-cap giants to small and mid-cap enterprises.
Charles Schwab Total Stock Market Index Fund (SWTSX) – A Deep Dive
Let’s begin our schwab total stock market index fund compare with an in-depth look at the Charles Schwab Total Stock Market Index Fund (SWTSX). We’ll explore its history, key features that define it, and its historical performance relative to its benchmark.
Overview of SWTSX
Launched in 1999, the Charles Schwab total stock market fund is designed to track the Dow Jones U.S. Total Stock Market Index. As of July 31, this index was composed of an impressive 4,038 individual stocks. To efficiently mirror this broad index, SWTSX employs a sampling strategy. The fund’s methodology aims to hold, at a minimum, the largest 2,000 to 2,800 U.S. stocks, ranked by their float-adjusted market capitalization. Float-adjusted market cap focuses on shares available for public trading, excluding those held by insiders.
The fund’s management is overseen by Ferian Juwono, who has been in his role since 2013, providing consistent leadership and expertise.
As of recent data, the Net Asset Value (NAV), or per-share price, of SWTSX stands at $95.45. Over the preceding 12-month period, the fund’s NAV has fluctuated between a low of $69.99 and a high of $95.94, reflecting market volatility.
Key Features of Schwab’s SWTSX
Here are the defining features of the Charles Schwab Total Stock Market Index Fund:
- Expense Ratio: A very competitive 0.03%. This low cost is a significant advantage for long-term investors.
- Number of Holdings: A highly diversified portfolio with 3,310 individual stock holdings.
- Total Assets: A substantial $25.1 billion in assets under management, indicating investor confidence and fund stability.
- Distribution Yield: A yield of 1.2%, representing the annual dividend payout as a percentage of the fund’s NAV.
SWTSX Performance and Returns
SWTSX has consistently demonstrated a strong ability to track its benchmark index. Over the past one-year and three-year periods, the fund’s returns have closely matched the index, both achieving approximately 21.1% and 7.9% respectively. Looking at longer timeframes, over five-year and ten-year periods, the fund has slightly underperformed its benchmark by a marginal 3 basis points. This minor tracking error is well within expectations, especially considering the fund’s low 0.03% expense ratio. The expense ratio inherently creates a slight drag on returns compared to the unmanaged index.
It’s worth noting that this fund distributes dividends annually, typically in December. This payout frequency might be a consideration for income-focused investors.
Vanguard Total Stock Market Index Fund (VTSAX) – An Alternative Perspective
Continuing our schwab total stock market index fund compare, we now turn our attention to the Vanguard Total Stock Market Index Fund (VTSAX). Vanguard is renowned for its low-cost investing philosophy, and VTSAX is a flagship offering in their index fund lineup. Let’s examine its history, key features, and performance track record.
VTSAX Fund Overview
The Vanguard Total Stock Market Index Fund was launched in 2000 and has since become a cornerstone in many Vanguard retirement investing strategies. Since June 2013, VTSAX has tracked the CRSP US Total Market Index, a broad benchmark reflecting the performance of the entire investable U.S. equity market. Interestingly, while fund documents indicate a sampling strategy, VTSAX currently holds 3,673 stocks, slightly more than the 3,624 constituents in its benchmark index. This slight overweighting might be due to slight variances in index tracking methodology and rebalancing.
A notable aspect of VTSAX is the long-tenured leadership of Principal and Portfolio Manager Gerard C. O’Reilly, who has been advising this fund since its inception. This consistency in management can be reassuring for long-term investors.
The NAV of VTSAX is currently $135.16. Its 12-month NAV range has been between $98.85 and $135.84, mirroring the broader market’s fluctuations.
Key Features of Vanguard’s VTSAX
Here are the key characteristics of the Vanguard Total Stock Market Index Fund:
- Expense Ratio: Slightly higher than Schwab at 0.04%, but still remarkably low.
- Number of Holdings: Highly diversified with 3,673 individual stock holdings, slightly exceeding its benchmark index constituents.
- Total Assets: A massive $1.7 trillion in total assets, making it one of the largest mutual funds globally. This scale provides significant economies of scale and liquidity.
- Distribution Yield: A yield of 1.3%, marginally higher than Schwab’s SWTSX, indicating a slightly greater income component.
VTSAX Performance and Returns
VTSAX has exhibited a very tight tracking performance relative to its benchmark index, with a variance of only 1 to 2 basis points. Over the past decade, VTSAX has delivered an average annual return of 12.52%, compared to the benchmark’s 12.54%. Similarly, the five-year average annual return for VTSAX is 14.14%, just 1 basis point below the index’s 14.15%. This close tracking demonstrates Vanguard’s efficiency in managing this large fund.
Vanguard’s VTSAX distinguishes itself by paying dividends quarterly, offering a distribution yield of 1.3% based on the trailing 12 months. This quarterly payout schedule may appeal to investors seeking more regular income streams.
Fidelity Total Stock Market Index Fund (FSKAX) – The Low-Cost Leader
For the final part of our schwab total stock market index fund compare, we analyze the Fidelity Total Stock Market Index Fund (FSKAX), a prominent member of the Fidelity fund family. Fidelity is known for its competitive pricing and broad range of investment options.
FSKAX Fund Overview
FSKAX boasts the longest operating history among the three funds, having been in operation since 1997. Like Schwab’s SWTSX, the Fidelity Total Stock Market Index Fund tracks the Dow Jones U.S. Total Stock Market Index, employing a sampling methodology to achieve this. FSKAX currently holds a substantial 3,860 positions, indicating broad diversification.
Since 2003, the fund’s management has been outsourced to Geode Capital Management, a well-regarded firm specializing in index fund management and spun off from Fidelity itself.
The per-share price, or NAV, of Fidelity Total Stock Market Index Fund is $155.04. Its NAV has fluctuated between $113.64 and $155.84 over the past year.
Key Features of Fidelity’s FSKAX
Here’s a summary of the key metrics for the Fidelity total stock market index fund:
- Expense Ratio: The lowest among the three at an incredibly low 0.02%. This cost advantage can compound significantly over long investment horizons.
- Number of Holdings: The most diversified of the three with 3,860 individual stock holdings.
- Total Assets: A significant $96 billion in assets under management, demonstrating substantial investor adoption.
- Distribution Yield: A yield of 1.3%, aligning with Vanguard’s VTSAX and slightly higher than Schwab’s SWTSX.
FSKAX Performance and Returns
Interestingly, FSKAX has, in several periods, slightly outperformed its benchmark index, by a margin of 1 to 5 basis points. Over the past 10 years, the fund’s average annual return has been 12.52%, while the index returned 12.50%. Over the five-year period, the variance is even smaller, with FSKAX at 14.14% and the index at 14.13%. This slight outperformance, coupled with the lowest expense ratio, makes FSKAX a compelling option.
FSKAX distributes dividends semi-annually, in April and December. This payout frequency falls between Schwab’s annual and Vanguard’s quarterly distributions.
Side-by-Side Comparison: Schwab vs. Vanguard vs. Fidelity Total Stock Market Funds
To facilitate a direct schwab total stock market index fund compare, let’s consolidate the key features of these three funds into a comparative table. This snapshot highlights the essential metrics, including 10-year average returns, expense ratios, dividend yields, and minimum investment requirements.
Table data source: Schwab, Vanguard, and Fidelity websites.
| Feature | Charles Schwab (SWTSX) | Vanguard (VTSAX) | Fidelity (FSKAX) |
|---|---|---|---|
| Expense Ratio | 0.03% | 0.04% | 0.02% |
| 10-Year Avg. Return | 12.51% | 12.52% | 12.52% |
| Distribution Yield | 1.2% | 1.3% | 1.3% |
| Minimum Investment | $0 | $3,000 | $0 |
| Dividend Frequency | Annual | Quarterly | Semi-annual |
| Benchmark Index | Dow Jones U.S. Total Stock Market Index | CRSP US Total Market Index | Dow Jones U.S. Total Stock Market Index |
| Total Net Assets | $25.1 Billion | $1.7 Trillion | $96 Billion |
| Number of Holdings | 3,310 | 3,673 | 3,860 |
Expense Ratios: A Critical Factor
Morningstar research consistently demonstrates that a fund’s expense ratio is a strong predictor of future returns. Lower expense ratios are generally associated with better long-term performance, as less of your investment is eroded by fund operating costs.
Index funds, in general, are characterized by low expense ratios, especially those offered by Schwab, Vanguard, and Fidelity. All three total stock market funds under comparison boast expense ratios below 0.05%, which is exceptionally competitive. Fidelity’s FSKAX emerges as the most cost-effective with an expense ratio of just 0.02%. While the difference might seem small, these fractions of a percentage point can accumulate to substantial savings over decades of investing.
Fund Composition and Holdings: Largely Similar
Despite tracking slightly different benchmark indexes (Dow Jones U.S. Total Stock Market Index for Schwab and Fidelity, and CRSP US Total Market Index for Vanguard), the actual portfolios of these three funds exhibit remarkable similarity. All three aim to mirror the overall U.S. stock market, and because market-cap weighting is the dominant index construction methodology, they are all heavily influenced by the performance of the largest publicly traded companies in the U.S.
Consequently, the top holdings across SWTSX, VTSAX, and FSKAX are virtually identical, typically including mega-cap best stocks like Apple (AAPL), Microsoft (MSFT), and Nvidia (NVDA).
Similarly, sector exposure is also highly correlated across the three funds. Technology generally represents the largest sector allocation, typically around 30%, followed by financials (approximately 13%) and healthcare (around 12%). Vanguard’s VTSAX might exhibit slightly higher technology exposure and marginally lower financial sector weighting compared to SWTSX and FSKAX, but these are minor variations.
Management Style: Passive and Efficient
As previously mentioned, all three funds are passively managed index funds. This passive management approach is key to maintaining low expense ratios. Unlike actively managed funds that require teams of analysts and portfolio managers to research and select individual stocks, passive funds rely on automated processes to track their target indexes efficiently. This automation translates to lower operational costs, benefiting investors through lower expense ratios.
Risk and Volatility: Market Average
In terms of risk and volatility, these total stock market funds generally exhibit average levels of risk and volatility for equity investments. Their NAVs will fluctuate in response to broader economic news and market sentiment. Positive economic data typically pushes NAVs higher, while negative news, such as recessionary fears or geopolitical instability, can lead to NAV declines.
Total stock market funds are generally considered to be more volatile than investments in blue-chip stocks but less volatile than more specialized segments like small caps or international equities.
Investors can adjust their overall portfolio risk profile by combining a total stock market fund with a diversified bond fund allocation, creating a more balanced portfolio aligned with their risk tolerance.
Dividends and Income: Payout Frequency Varies
The dividend yields for the Schwab, Fidelity, and Vanguard funds are relatively close, ranging from 1.2% to 1.3%. This is in line with the average dividend yield of the broader U.S. stock market, which is expected for total market funds.
However, a key differentiator lies in the frequency of dividend payouts. Schwab’s SWTSX distributes dividends annually, Vanguard’s VTSAX pays quarterly, and Fidelity’s FSKAX distributes dividends semi-annually. Income-oriented investors often prefer more frequent dividend payments for regular income streams. However, for those reinvesting dividends, the payout timing may be less critical.
Minimum Investment Requirements: Accessibility
Schwab’s SWTSX and Fidelity’s FSKAX stand out with no minimum investment requirements, making them highly accessible to investors with any budget. Vanguard’s VTSAX, on the other hand, has a minimum initial investment of $3,000, which might be a barrier for some new or smaller investors.
For investors with smaller amounts to invest who prefer Vanguard funds, the Vanguard Total Stock Market ETF (VTI Vanguard Total Stock Market ETF ) offers a workaround. VTI is the ETF counterpart to VTSAX, holding the same underlying investments and requiring only the purchase of a single share, often less than $300. To learn more about ETFs and explore other options, see our guide to the best ETFs for 2024.
Pros and Cons of Each Total Stock Market Fund
To summarize our schwab total stock market index fund compare, let’s outline the distinct advantages and disadvantages of each fund.
Charles Schwab Total Stock Market Index Fund (SWTSX)
Pros:
- Low Tracking Error: SWTSX exhibits a very low tracking error, often at or below its expense ratio, indicating efficient index replication.
- No Minimum Investment: Accessible to investors of all sizes with no minimum investment requirement.
Cons:
- Annual Dividends: Annual dividend payouts might be less desirable for investors seeking regular income.
Fidelity Total Stock Market Index Fund (FSKAX)
Pros:
- Lowest Expense Ratio: FSKAX boasts the lowest expense ratio of the three, maximizing cost efficiency.
- Slight Outperformance: FSKAX has demonstrated slight outperformance relative to its benchmark in some periods.
- No Tracking Error: Returns closely mirror or slightly exceed the benchmark index.
- Most Diversified: Holds the largest number of individual stock positions, offering the broadest diversification.
- No Minimum Investment: Accessible to all investors with no minimum investment threshold.
Cons:
- Semi-annual Dividends: Semi-annual dividend payouts may not be ideal for those seeking quarterly or monthly income.
Vanguard Total Stock Market Index Fund (VTSAX)
Pros:
- Low Tracking Error: VTSAX consistently tracks its benchmark index very closely.
- Quarterly Dividends: Quarterly dividend payouts provide more frequent income streams, which can be beneficial for income investors or those using dividends for regular expenses.
- Higher Dividend Yield: Offers a slightly higher dividend yield compared to SWTSX.
Cons:
- Higher Expense Ratio: Has a slightly higher expense ratio compared to SWTSX and FSKAX.
- Minimum Investment: The $3,000 minimum investment might be a barrier for some investors.
Bottom Line: Choosing the Right Fund for You
In conclusion, when conducting a schwab total stock market index fund compare, we find that all three total stock market funds from Charles Schwab, Vanguard, and Fidelity are excellent choices for broad U.S. stock market exposure. Given their similar investment objectives and passive management styles, their returns, sector exposures, and dividend yields are naturally very closely aligned.
Fidelity’s FSKAX holds a slight edge with the lowest expense ratio and a track record of slight outperformance. Vanguard’s VTSAX is compelling for its quarterly dividend payouts and massive scale. Schwab’s SWTSX is a solid all-around option with a very low expense ratio and no minimum investment.
Ultimately, the “best” fund depends on your individual preferences. If cost is your primary concern, Fidelity FSKAX is the leader. If you prioritize quarterly income, Vanguard VTSAX is appealing. And if you are already a Schwab customer or prefer annual dividends, SWTSX is a strong contender.
For investors focused on long-term wealth building through U.S. economic growth, any of these three total stock market index funds will serve as a highly effective core portfolio holding.
Frequently Asked Questions (FAQs)
What is the best total stock market index fund for long-term investing?
Fidelity Total Stock Market Index Fund (FSKAX) is often considered a top choice due to its ultra-low expense ratio and slight historical outperformance. However, all three funds (FSKAX, VTSAX, SWTSX) are excellent for long-term investing.
How do I decide between SWTSX, VTSAX, and FSKAX?
Consider these factors:
- Expense Ratio: FSKAX is the lowest, VTSAX is slightly higher, SWTSX is in between.
- Dividend Frequency: VTSAX (quarterly), FSKAX (semi-annually), SWTSX (annually). Choose based on your income needs.
- Minimum Investment: SWTSX and FSKAX have no minimums, VTSAX has a $3,000 minimum.
- Existing Brokerage Account: If you already have an account with Schwab, Vanguard, or Fidelity, choosing the corresponding fund can simplify account management.
Are there any hidden fees in total stock market funds?
Reputable total stock market index funds, like those from Schwab, Vanguard, and Fidelity, are generally transparent about fees. Always review the fund prospectus for a complete fee table, including expense ratios, and any potential shareholder fees (though these are rare for these types of funds). Be aware of potential brokerage transaction fees if investing through certain platforms, but these funds themselves do not typically have hidden fees.
Can I easily switch between these funds if my preferences change?
Yes, you can generally switch between these funds, especially within the same brokerage. However, be mindful of potential tax implications if switching in a taxable account. Within tax-advantaged accounts (like 401ks or IRAs), switching is usually tax-free. Keep in mind that not all brokerages offer every fund family, so fund availability might be a factor.
