Charles Schwab’s Roth IRA Fund Options
The Charles Schwab Corp. (SCHW) is a financial services provider which, through its subsidiaries, offers wealth and asset management, securities brokerage, banking, custodial and advisory services. The company, which was founded in 1971 by Charles R. Schwab, had approximately $7.8 trillion in assets under management (AUM), as of the end of January 2022. Its family of funds includes more than 50 mutual funds with no fees or transaction fees and more than 25 low-cost exchange-traded funds (ETFs).
Schwab is, among other things, a full-service brokerage firm that earns commissions for providing investment management, research and analysis services on behalf of its clients. However, the company also offers discount brokerage services, including commission-free trades.
Investors in the United States have access to several tax-efficient savings plans, including 401(k), Individual Retirement Accounts (IRAs), and Roth IRAs. The main difference between a Roth IRA and a traditional IRA is that the former is funded with after-tax dollars. This means that contributions to Roth IRAs are not tax deductible, where they are with traditional IRAs. But unlike a traditional IRA where funds withdrawn are taxed, a Roth IRA allows investors to withdraw funds tax-free.
Key points to remember
- Charles Schwab was founded in 1971 and currently has over 75 mutual funds and ETFs available and approximately $7.8 trillion in assets under management.
- When setting up a retirement account, putting money in both a broad equity fund and a broad bond fund can provide a solid foundation, either on its own or to build upon. more complex investments.
- Roth IRAs allow people to avoid paying taxes later on investment returns by investing the after-tax income now.
- The Schwab Total Stock Market Index Fund (SWTSX) and the Schwab US Aggregate Bond ETF (SCHZ) can serve as good starting points for investors looking to set up a Roth IRA through Charles Schwab.
Below, we take a closer look at one of Schwab’s broad-based equity funds and one of its broad-based bond funds. Most of the data in the bullet points below for each fund is from YCharts, as of February 18, 2022. However, the 1-year total return figure for SHCZ is from the ETF database, as of February 18, 2022, and the Distribution yield figure for SCHZ is from Charles Schwab, as of January 31, 2022.
- Expense ratio: 0.03%
- Assets under management: $17.5 billion
- Total return over 1 year: 8.1%
- Date of creation: June 1, 1999
SWTSX is a mutual fund that aims to track the performance of the US stock market as measured by the fund’s index, the Dow Jones US Total Stock Market Index. The fund is managed by Ferian Juwono, Sabya Sinha, Christopher Bliss and Jeremy Brown. Their tenures on the fund range from 2.9 to 8.9 years. Of the 3,472 holdings in the fund, 41.6% are mega-cap, 30.5% are large-cap, 19.1% are mid-cap, 6.4% are small-cap and 2.4% are micro capitalized. Approximately 99% of its holdings are domiciled in the United States, with the remaining 1% in various other developed and emerging market economies.
A broad-based equity fund like SWTSX carries a certain degree of risk, but it also offers investors some pretty strong growth opportunities. For many investors, this mutual fund can serve as the foundation for a well-diversified investment portfolio. However, for those with very low risk tolerance or nearing retirement, a more income-oriented portfolio may be a better option.
- Expense ratio: 0.04%
- Assets under management: $8.6 billion
- Total return over 1 year: -3.9%
- Distribution yield: 2.21%
- Creation date: July 14, 2011
SCHZ is an ETF that seeks to track the performance of the Bloomberg Barclays US Aggregate Bond Index, which is a broad benchmark used to gauge the performance of the US taxable investment grade bond market. The fund invests at least 90% of its net assets in securities included in the index. It is managed by Matthew Hastings, Steven Hung, Mark McKissick and Alfonso Portillo. Their tenure on the fund ranges from 4.8 to 10.6 years.
Of the ETF’s 3,739 holdings, 45.6% are US Treasuries, 21.7% are US corporate bonds and 16.7% are mortgage pass-through securities. The remaining 16% of securities include non-U.S. corporate bonds, secured mortgage bonds (CMOs), cash, non-U.S. government debt, municipal bonds, U.S. agency bonds, and asset-backed securities. assets (ABS). All of the fund’s holdings are considered investment grade with a rating of BB or better.
A broad-based bond or fixed-income fund like SCHZ is generally less risky than an equity fund. However, bond funds don’t offer the same growth potential, which usually means lower returns. They can be useful tools both for medium-risk investors and as part of a portfolio diversification strategy. In line with modern portfolio theory, risk-averse investors will find that investing in both a bond fund and a broad-based equity fund provides diversification. This approach tends to maximize returns while minimizing risk.
Is Charles Schwab good for a Roth IRA?
Charles Schwab offers a wide variety of mutual funds with no fees or transaction fees and low-cost ETFs that can serve as good starting points for a Roth IRA. Schwab also offers commission-free trading in publicly traded stocks, which may appeal to investors who want to make their own selection of individual stocks for their Roth IRA portfolio. With Schwab, investors can open a Roth IRA with a $0 minimum deposit and get retirement planning tools and resources as well as investment insights from the firm’s experts.
How do I put money in my Charles Schwab Roth IRA?
Charles Schwab offers investors a variety of ways to fund their Roth IRA: through electronic funds transfer with the company’s MoneyLink service; setting up autodeposit to transfer funds from a checking account; with a wire transfer from another financial institution; or by check deposit by mail or in person at a local Schwab branch.
What is the Roth IRA limit for 2022?
The total contribution limit for all your IRAs, including traditional IRAs and Roth IRAs, in 2022 and 2021 is $6,000, or $7,000 for people age 50 or older. Also, if your taxable earnings for the year were less than $6,000, your contribution limit is equal to your taxable earnings.
A Roth IRA offers investors certain tax benefits. Roth IRAs are unique in that they are funded with after-tax dollars and are not taxed when the funds are withdrawn at a later date. In short, funds invested in a Roth IRA can grow tax-free. After opening a Roth IRA, the types of investments chosen will depend on the individual investor’s risk tolerance and the amount of time and energy they have to research various investments.
For investors in this category, one option is to opt for a few large diversified funds, allocating part of their money to a broad-based equity fund and another part to a broad-based bond fund. These large diversified funds can also create a solid foundation for many investors who have the extra time and energy to evaluate other, sometimes riskier, investment options involving investments in individual companies or specific market niches.