Index funds have made it possible to gain the investment results of relevant indices at affordable management and expense fees. Investors prefer these funds as they are transparent with publicly available data. In addition, mutual funds being a pool of financial securities provide diversification and risk mitigation advantages.
According to historical data, most index funds have displayed a price uptrend in the long run. Moreover, experts and analysts express the promising growth potential of small-cap and large-cap index funds.
In this article, we have reviewed various aspects and performance of the Schwab S&P 500 Index fund, which tracks the performance of the S&P 500 Index.
Three things to know before starting:
- Schwab S&P 500 Index Fund delivers the performance results of the 500 large-cap companies of the US.
- Schwab S&P 500 Index fund provides diversification by investing in globally prominent corporations like Apple Inc., Tesla Inc., and Microsoft.
- SWPPX has a low expense ratio of 0.02%.
What is Schwab S&P 500 Index fund?
It seeks the investment results of the S&P 500 Index, which consists of the 500 largest US companies. As this index consists of the top 500 large-cap stock shares, it is the most appropriate standard to estimate the performance and trajectory of the US stock market.
In addition, the inclusion and arrangement of companies in the S&P 500 Index are according to their market capitalization. The number and value of their stock shares determine their domination in the index.
Moreover, the index enjoys immense economic importance as it consists of the most famous and large US corporations that account for more than 80% of the total US stock market value.
Schwab S&P 500 Index fund exactly mimics the S&P 500 Index and grants the same weightage to stocks as the index does. Furthermore, the top holdings of this fund are similar to the index listing. As of September 2021, the following are the top three holdings of Schwab S&P 500 Index fund with their respective percentages in the portfolio :
- Apple Inc.: 6.08%
- Microsoft Corporation: 5.80%
- Amazon.com, Inc.: 3.92%
History of the Schwab S&P 500 Index fund
Charles Schwab Corporation, a financial and investment services company, introduced the Schwab S&P 500 Index fund in May 1997. The parent company provides a full range of brokerage, banking, financial and wealth management services through its subsidiary companies.
Its investment branch offers the trade of various asset classes, including exchange-traded funds and mutual funds.
Pricing & performance
In January 2000, the price of the Schwab S&P 500 Index fund was around $22. The price remained below $30 till 2013 and also faced a significant dip below $12 in 2009.
However, the fund’s price grew extensively after 2014 and settled on an upward trend afterward. Currently, the fund is trading at $71.21.
As of September 2021, the weighted average market capitalization of SWPPX is $563,588, with total net assets of $62.7 billion. The price to earnings and price to book ratio of the fund stands at 24.34 and 4.30, respectively.
Moreover, Schwab S&P 500 showed a promising total annual return of 31.44% in 2019 and 18.39% in 2020. According to the SWPPX fact sheet, the fund delivered returns of 16.86% and 16.55% to long-term investments of five and ten years sequentially.
The cumulative year-to-date performance of this mutual fund stands at 15.90%, with a 23.33% return on equity. Following are the five highest weighted sectors of Schwab S&P 500 Index Fund:
- Information technology (27.6%)
- Healthcare (13.3%)
- Consumer discretionary (12.4%)
- Financials (11.4%)
- Communication services (11.3%)
Strategy & benefits
SWPPX is a simple, low-cost mutual fund that provides essential diversification to your portfolio. This fund invests at least 80% of its total assets in the S&P 500 Index stock shares to match its performance with the index. Moreover, Morningstar has listed Schwab S&P 500 in its large-blend category.
Being a large-cap fund, it delivers steady and stable returns with minimal risk. The companies in this fund have an exceptional worldwide reputation, a wide operating sphere, and a market cap ranging from $10 billion to trillions of dollars. As a result, they can stand against adverse business and economic conditions providing the needed stability to investors’ portfolios.
In addition, some of the large-cap companies of the Schwab S&P 500 Index pay out dividends that can enhance the total returns of investments. Dividend payments make a large portion of income for conservative investors who prefer near zero risk exposure.
Moreover, the business and profitability data of the Schwab S&P 500 Index fund companies are easily accessible. This transparency of financial records aids the investors in making their investment decisions.
There is no minimum investment amount and no transaction fees. The fund offers a low expense ratio of 0.02%, while the category average stands around 0.89%. For simplification, you would have to pay 0.2$ as an expense fee on an investment of $1000.
The management fee of SWPPX is also 0.02%, while the category average is around 0.52%.
Investment in any financial security, asset class, or mutual fund involves some level of the risk element. Schwab S&P 500 is totally dependent on the performance of the US stock market. As of September 2021, the following are some of the risk and volatility measures of this fund:
- Sharpe ratio (three years): 0.79
- Standard deviation (three years): 18.81%
- Mean: 1.53
Schwab S&P 500 Index fund 2021/2022 forecast
The fund has been on an upward trajectory since 2013, producing substantial yearly returns. According to technical indicators, the price can reach up to $74.04 by the end of 2021.
Moreover, there are high chances of a price uptrend in the upcoming years. According to Wallet Investor forecast, the price of SWPPX can move up to $90 by the end of 2022.
Pros & cons
Investment in profitable funds and stocks can lead to a financially secure future. However, financial markets are prone to fluctuations, and previous profits do not guarantee future results. Here are some of the pros and cons of the fund.
|Worth to invest||Worth to getaway|
|Relatively stable in volatile conditions|
Schwab S&P 500 Index fund contains well-established and stable companies that can withstand volatile market conditions and economic downturns.
|Less growth potential |
Large-cap companies have less capacity to grow. Hence, they provide lower returns.
|Low risk and steady income|
Large-cap companies of SWPPX have steady cash flows and face minimal risk.
|Less ownership control|
Due to a massive number of investors, investors would have negligible ownership influence on large-cap funds.
|Adequate liquidity |
The fund’s companies have billions of market capitalization. As a result, their stock shares see a large daily trading volume.
|Cannot solely compose an ideal portfolio|
100% portfolio allocation to Schwab S&P 500 Index fund is unsuitable as it cannot provide more enormous gains like small and mid-cap stocks.
Nowadays, shareholders realize the importance of diversification of their portfolios to minimize risks and achieve long-term gains. Schwab S&P 500 Index is one of the leading choices among investors as it delivers investment results of the established and large US enterprises with promising future outlooks.
This index fund is affordable, stable, and provides investment exposure to varied sectors and companies without overdependence on one company. Furthermore, experts predict this fund to perform outstandingly with positive dynamics in the future.