The Schwab US Broad Market ETF (symbol: SCHB) is one of the largest exchange-traded funds (ETFs) in the market and widely used by both individual and institutional investors. SCHB is a low-cost index fund, which tracks the Dow Jones US Broad Stock Market Index. As its name implies, it seeks to provide exposure to the broad US stock market at a very low price. The fund is the core of many portfolios and the below review of SCHB will evaluate why that is.
A quick reminder that this site does NOT provide investment recommendations. Fund reviews (such as this one) are for educational purposes only and are not advice or recommendations.
The first thing most investors want to know about is performance, so we will start there. According to Bloomberg, since the fund’s inception 14 years ago, SCHB has returned over 12.5% per year. Of course, this figure can go up or down and the returns in any single year are unlikely to be 12.5%. From 2010 through 2022 (13 years), SCHB was up in 11 years and down in 2 years. The average return in the up years was 17.5%, while the average return in the down years was -12.4%.
SCHB owns stocks which are more volatile than cash or bonds. While the returns are higher than cash or bonds, investors need to be prepared to stomach volatility and be able to hold for the longer-term. SCHB was down over 35% during the covid pandemic and similar funds declined roughly 50% during the previous two recessions in 2001 and 2007. This is not necessarily worse than other similar funds, but it is a characteristic of stocks that investors need to be aware of.
Fund performance is ultimately driven by a fund’s holdings and exposures, so our SCHB review will examine these items.
SCHB (and its underlying index) is incredibly diversified, holding nearly 4,000 stocks. This represents the vast majority of the US stock market.
|SCHB||Dow Jones US Broad Stock Market Index|
|Number of Stocks||2,484||2,519|
SCHB Country Exposures
SCHB only owns US-based companies. Investors looking for international exposure may pair SCHB with international ETFs or simply hold a global ETF.
SCHB Market Cap Exposure
SCHB is a “total market” fund which seeks to represent the entire US stock market, which is predominantly composed of large-caps. Even though the fund holds mid-caps and small-caps, performance is primarily driven by the large-cap exposure. This dynamic can be found by comparing SCHB to SWPPX (a large-cap fund).
SCHB Sector Exposures
SCHB is extremely diversified across sectors and mirrors the approximate weights of the broad US stock market.
No review of SCHB would be complete without an in-depth look at the explicit and implicit costs of trading and holding SCHB.
SCHB Expense Ratio
SCHB’s expense ratio of .03% is among the lowest of any total market funds. Even if another fund is free, three basis points is not a material difference in my opinion.
SCHB Transaction Costs
ETFs are free to trade at many brokers and custodians, so SCHB should be free to trade in most cases. Additionally, it is among the largest ETFs and is very liquid. The bid-ask spread of SCHB is about .01%, so individual investor trades will not generally be large enough to impact or move the market.
SCHB Tax Efficiency
Like most index funds, SCHB is very tax-efficient. Unlike actively-managed funds, passively-managed index funds typically have less trading and lower turnover. This results in fewer taxable events and higher tax efficiency.
ETFs are typically more tax-efficient than mutual funds, due to their ability to avoid realizing capital gains through like-kind redemptions (a process that is beyond the scope of this post). SCHB has never made a capital gains distribution, so SCHB is about as tax-efficient as any fund can be.
Investors in a high tax bracket with at least $250,000 may consider direct indexing rather than SCHB, as direct indexing can potentially generate even more tax savings.
SCHB Review: A Recap
The above review of SCHB illustrates that SCHB is a well-constructed, low-cost and tax-efficient index fund that provides diversified exposure to the broad US stock market. SCHB is a great choice in many situations and a tool that I often use personally and professionally.