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Schwab 1000 Index ETF: Is It Worth to Buy In 2022?

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Most portfolios are developed either to seek growth or value in the investment world, with the same replicated by exchange-traded fund providers. However, the ETF world has evolved to provide an asset for all investor types, a feature that has made this investment asset the most exchanged asset globally. As a result, some funds offer both value and growth to investor portfolios.

As 2021 settles into the rear-view mirror, investors have investment options resulting in portfolio growth and increased value. It is, however, prudent to remember that the markets have proven to be very volatile post-pandemic increasing the already present inherent risk in stock picking. For this reason, ETFs have become a better option, as they reflect the overall economic performance depending on their exposure. ETFs also allow instant diversification via a single investment instrument for a fraction of the cost.

There are many exchange-traded funds to choose from if seeking broad economic exposure, as well as the favorite investor SPY, to attain diversification and profit from a resurging US economy. However, for a more diverse large blend fund, investors have the Schwab 1000 Index ETF, SCHK.

Why it pays to invest in the Schwab 1000 Index ETF?

If unfamiliar with the Schwab 1000 Index ETF, it is a fund launched on 11th October 2017, comprising a thousand of the best and most significant publicly traded equities in the United States and sponsored by Charles Schwab.

Therefore, this ETF tracks the performance of the Schwab 1000 Index ETF, investing at least 90% of its net assets in equities that are included in its benchmark index. The tracked index screens equities based on their liquidity and other trading requirements to develop the best 1000 stocks spanning both the large-cap and mid-cap categories.

In addition, this diversified fund is reconstituted annually, with quarterly rebalancing ensuring it stays true to its investment objective. The result is a fund that offers investors:

  • Diversification
  • Savings
  • Consistent Returns
  • Reduced Risks

Portfolio diversification

It would take a lot of financial muscle to buy 1000 equity stocks individually, and it would be next to impossible to know which would thrive. Through the Schwab 1000 index ETF, investors gain exposure to 1000 of the best mid-cap and large-cap equities are chosen for their liquidity and other desirable trading qualities.

In addition, its equities are primarily over the $10 billion market capitalization providing stability and financial muscle to weather market downturns. Having both mid-cap and large-cap equities also ensures value investing and growth elements.

Savings

Exchange-traded funds are among the cheapest investment instruments available to investors. Despite this, they attract some fees that need careful consideration since they have a bearing on the portfolio’s bottom line. The SCHK is one of the cheapest large-blend funds and the most affordable in the ETF universe. The more popular large blend SPY has investors parting with $9 annually for every $10000 investment. SCHK investors have to part with only $5 for the same investment.

Suppose an investor has $100000 to invest; going for the SCHK rather than the SPY saves an investor $40, which is the cost of an extra share in the former.

Consistent returns

Since its inception in 2017, investors in SCHK ETF have enjoyed average annual returns to the tune of 16.6%, which is slightly better than that of the SPY over the same period. An investor who believed in the Schwab 1000 index ETF at launch and invested $10000 would now have an investment worth $20101, not accounting for an annual dividend yield of 1.13%. Not bad for investing and then relaxing while returns rake-in.

Period SPY Category Average Segment Average
1 Month Return 4.40% 2.10% 2.81%
3 Month Return 10.48% 7.35% 6.45%
YTD Return 29.41% 21.68% 15.94%
1 Year Return 30.25% 22.13% 16.32%
3 Year Return 102.71% 68.32% 31.07%
5 Year Return 132.49 68.96% 27.28%

 

A look at the table above shows that not only has SCHK returned consistently for investors, but it has also outperformed both its category and segment averages since its launch.

Reduced risk

This large-blend ETF has a pretty even weight distribution except for the top three holdings that account for 15% of the total weight. The result is a fund comprising 1000 equities with no concentration risk, resulting in a beta of 1.02.

Is there a downside to buying an S&P 500 ETF?

The only downside to the SCHK is that it will not outperform the broader market. Investors should look into actively managed funds to beat the market, especially under ARK investment. This fund is also for long-term investing and not for taking care of short-term market volatilities.

Final thoughts

The Schwab 1000 Index ETF might be a total market fund, but it does not have any small-cap stocks under its belt. However, its combination of large-cap and mid-cap equities provides a twist to betting on the whole US economy not offered by the SPY. If looking for a way to bet on the resurgence of the US economy post-pandemic starting with 2022, the SCHK can be considered a core holding for providing both growth and value.

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