3 Gold-Rated Schwab Index Funds You Can Buy for a Buck

You can't invest for much cheaper than what Schwab allows. Its index mutual funds are wallet-friendly for two reasons:

1. Many of them boast fees that are in the bottom quintile of their category.
2. Most of them have a rock-bottom investment minimum of just $1.

That latter quality is a nice-to-have for most investors, but it's extremely helpful to those who are just getting the ball rolling. Even if a fund has an extremely low annual expense ratio, it might still require an initial investment in the thousands of dollars. That's a high barrier to entry for people with low liquid assets, or just low assets altogether. But $1? That's an entry level anyone can get in on.

Today, I want to look at three Schwab index funds that make the grade. Each of these funds boasts low fees and the top rating from independent fund analysis firm Morningstar.

Disclaimer: This article does not constitute individualized investment advice. Individual securities, funds, and/or other investments appear for your consideration and not as personalized investment recommendations. Act at your own discretion.

Why Schwab?

Charles Schwab is a U.S.-based brokerage and banking company founded in 1971 as a traditional brokerage company and then as a discount brokerage service in 1974. It's the largest publicly traded investment services firm, boasting more than $12 trillion in client assets as I write this. And it offers a wide range of financial services, such as investment advice and management, trading services, financial planning, banking services, workplace and individual retirement plans, annuities, and more.

It also offers very low-cost and extremely low-minimum mutual funds. Annual expenses on its mutual funds are well below the industry average. And Schwab really stands out from a nominal-expense perspective. Many providers' mutual funds require minimum initial investments in the thousands of dollars. But most Schwab mutual funds require a mere $1—an ideal situation for investors who don't have much capital to put to work.

In short: Schwab offers a nice variety of mutual funds, some of which are among the best on the market, and most of which won't leave your wallet in tatters.

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How Were the Best Schwab Index Funds Selected?

Unlike other mutual fund giants, Schwab's assets are concentrated in a tight roster of just a few dozen mutual funds. Thus, investors sorting through Schwab's index mutual funds shouldn't have nearly as bad a case of analysis paralysis.

Still, a little filtering is necessary to get us down to a more manageable list. So as I often do when reviewing funds, I've started by booting up Morningstar Investor and running a quality screen. Here, I began my search by seeking out only Schwab index funds that have earned a Morningstar Medalist rating. Unlike Morningstar's Star ratings, which are based upon past performance, Morningstar Medalist ratings are a forward-looking analytical view of a fund. Per Morningstar:

"For actively managed funds, the top three ratings of Gold, Silver, and Bronze all indicate that our analysts expect the rated investment vehicle to produce positive alpha relative to its Morningstar Category index over the long term, meaning a period of at least five years. For passive strategies, the same ratings indicate that we expect the fund to deliver alpha relative to its Morningstar Category index that is above the lesser of the category median or zero over the long term."

As I've written in other Young and the Invested articles, a Medalist rating doesn't mean Morningstar is necessarily bullish on the underlying asset class or categorization. It's merely an expression of confidence in the fund compared to its peers.

From the remaining universe of funds, I selected a range of products that invest in various core and satellite strategies, with a distinct focus on the absolute lowest annual expenses. To be fair, the overall best Schwab funds to buy are pretty cheap in their own right, and include a couple funds from this list. But here, the most expensive fund charges 0.25%, or $2.50 annually on a $1,000 investment—and all of the other index funds here charge far less than that.

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The Best Schwab Index Funds to Buy

You can check out our site to see all of our favorite Schwab index funds, but you can keep reading to see three top “core holding” picks.

And remember: Every Schwab fund on this list has a minimum initial investment of just $1.

1. Schwab S&P 500 Index Fund

• Style: U.S. large-cap stock
• Assets under management: $136.1 billion
• Dividend yield: 1.2%
• Expense ratio: 0.02%, or 20¢ per year for every $1,000 invested
• Morningstar Medalist rating: Gold

I will start virtually every applicable "best funds" list with an S&P 500 fund, and for yet another year, the numbers continue to justify the decision.

Managers who run large-cap funds* (funds that invest in larger companies) are typically tasked with beating the S&P 500 Index. Unfortunately, the majority of these stock pickers are unable to do so, particularly after accounting for fees.

Consider this from S&P Dow Jones Indices' recently released year-end 2025 S&P Indices Versus Active (SPIVA) report: "In our largest and most closely watched comparison, 79% of all active large-cap U.S. equity funds underperformed the S&P 500, worse than the 65% rate observed in 2024 and the fourth-worst year for active large-cap managers over the 25-year history of our SPIVA Scorecards." That merely helped continue a long history of underperformance by the human manager set. Over the trailing 10-year period, nearly 86% of large-cap funds underperformed the S&P 500, and that number was almost 90% over the trailing 15-year period.

So if you can't beat it, and even professional fund managers can't beat it ... I say join it.

The Schwab S&P 500 Index Fund (SWPPX) is about as cheap a way to access the S&P 500 as you'll find. Only one investor-class mutual fund (Fidelity's FXAIX) is less expensive—otherwise, you have to pony up institutional-class money to get in for so little, or invest with an advisor who has access to something cheaper. On top of that, SWPPX's fee is equal to or below all S&P 500 ETFs.

A reminder: The S&P 500 is a collection of 500 large American businesses. To join the index, a company must have a market capitalization of at least $22.7 billion, its shares must be highly liquid (shares are frequently bought and sold), and at least 50% of its outstanding shares must be available for public trading. It also must have positive earnings in the most recent quarter, and the sum of its previous four quarters must be positive: two criteria that weed out a few of even Wall Street's biggest firms. (By the way: If a company that's already in the S&P 500 suddenly fails to meet a criterion, it's not automatically kicked out, but a selection committee might consider replacing that company with a different one.)

The S&P 500 may reflect the U.S. economy, but the U.S. economy isn't balanced, so not all industries are represented equally. The technology sector accounts for more than a third of SWPPX's assets, but energy, utilities, real estate, and materials merit less than 3% apiece. This is also because the S&P 500 is market capitalization-weighted, which means the greater the size of the company, the more "weight" it's given in the index. For instance: Trillion-dollar-plus companies Nvidia (NVDA), Apple (AAPL), and Alphabet (GOOG, GOOGL) are Schwab S&P 500 Index Fund's top three holdings, collectively representing almost 20% of assets by themselves. Thus, they have an outsized impact on SWPPX's performance.

Turnover (how much the fund tends to buy and sell holdings) tends to be low, as only a handful of stocks enter or leave the index in any given year. That's good for you and me because it minimizes (and in some years, eliminates) capital gains generated by trading throughout the year, which in turn reduces or eliminates the unfavorably taxed capital-gains distributions SWPPX must make to us at the end of each year. This makes Schwab S&P 500 Index Fund an extremely tax-efficient option for taxable brokerage accounts.

A combination of the S&P 500's excellence as an index, as well as SWPPX's bare-bones costs and tax-efficiency, merit a Gold Medalist rating from Morningstar. It's just one of four Schwab products to earn that coveted ranking, making it easily one of the best Schwab index funds you can buy.

* There are different ways to define "cap" levels. We're adhering to Morningstar's definition, which says the largest 70% of companies by market capitalization within a fund's "style" are large caps, the next 20% by market cap are mid-caps, and the smallest 10% by market cap are small caps.

Related: 10 Monthly Dividend Stocks for Frequent, Regular Income

2. Schwab Fundamental U.S. Small Company Index Fund

• Style: U.S. small-cap stock
• Assets under management: $2.2 billion
• Dividend yield: 1.3%
• Expense ratio: 0.25%, or $2.50 per year for every $1,000 invested
• Morningstar Medalist rating: Gold

Investors who are willing to accept more risk for the potential of more explosive returns can find that kind of action in small-cap stocks. Smaller companies are generally thought to have higher upside than larger firms. For one, as they say, it's much easier to double your revenues from $1 million than $1 billion. And as these stocks become noticed by institutional investors and fund managers, or begin qualifying for certain indexes, they can begin to enjoy large-scale investments that drive their prices even higher.

Just be careful. A smaller company's revenues might be dependent on just one or two products or services—meaning a single disruption could have massive financial consequences. They also have less access to capital than their larger peers, so they're less likely to get a lifeline should they suffer from broader economic headwinds.

It's the definition of "high risk, high reward." A small company could feasibly double in short order, or it could get cut in half overnight.

However, you can harness some of the energy from these firms while tamping down risk by investing in a small-stock fund like Schwab Fundamental U.S. Small Company Index Fund (SFSNX).

This Schwab product differs from your traditional small-cap index fund in that, rather than weighting its components by size, SFSNX effectively weights its roughly 900 holdings by quality. It tracks the RAFI Fundamental High Liquidity US Small Index, which both selects and weights stocks by fundamental metrics including adjusted sales, retained operating cash flow, and dividends plus buybacks. In short: The better the fundamental quality, the more assets a stock will command.

"The fund has a modest value orientation," Morningstar Analyst Zachary Evens adds. "Adding to stocks that have become cheap relative to their fundamentals tends to push the portfolio toward the value end of the Morningstar Style Box. It also means the portfolio generally leans away from larger small-cap stocks, conferring a modest small-size tilt."

For what it's worth, most broad small-cap funds have very little single-stock risk to begin with. Even SFSNX's greatest holdings command weights of less than 1%, and that's par for the course.

But how the fund assigns those weights makes a huge difference—SFSNX has solidly outperformed its basic-index counterpart, the Schwab Small Cap Index Fund (SWSSX), over every meaningful medium- and long-term trailing time period. That and a freshly minted Gold rating justify SFSNX's 0.25% expense ratio, which is the most expensive annual fee on this list, but still within the cheapest quintile in its Morningstar category.

Related: 14 Best Investing Research & Stock Analysis Websites

3. Schwab U.S. Aggregate Bond Index

• Style: U.S. intermediate-term bond
• Assets under management: $8.0 billion
• SEC yield: 4.3%*
• Expense ratio: 0.04%, or 40¢ per year for every $1,000 invested
• Morningstar Medalist rating: Gold

Most investors need some exposure to bonds, which is debt that's issued by governments, companies, and other entities. Their interest payments and relative lack of volatility make them an excellent tool for providing a portfolio with stability and income.

But how much bond exposure you need will vary by age. They're not great for generating wealth, which is your prime concern when you're younger, but they're outstanding for protecting wealth, which becomes increasingly pivotal as you age. So generally speaking, when you're younger, you'll want to be primarily invested in stocks … and as you get older, you'll want to go lighter on stocks and start buying more bonds.

You might not want to buy individual bonds, however. Data and research on individual issues is much thinner than it is for publicly traded stocks. And some bonds have minimum investments in the tens of thousands of dollars. So, your best (and most economical) bet is to buy a bond fund, which allows you to invest in hundreds or even thousands of bonds with a single click.

One of the best Schwab mutual funds you can buy for this access is the Schwab U.S. Aggregate Bond Index Fund (SWAGX), which holds a whopping 11,450 debt issues. At the moment, 45% of assets are invested in U.S. government and agency bonds, while mortgage-backed securities (MBSes) and corporate bonds each account for another 25% or so. The slim remainder is peppered around foreign government-related bonds, municipal bonds, and other debt.

SWAGX's maturities range from less than a year to more than 20 years. Meanwhile, duration—a measure of interest-rate sensitivity—is 5.8 years, implying that a 1-percentage-point hike in interest rates would result in a short-term decline of 5.8% in the fund, and vice versa. Put differently: This is moderate interest-rate risk, which is perfectly acceptable for a basic core bond holding like this.

* SEC yield reflects the interest earned across the most recent 30-day period. This is a standard measure for funds holding bonds and preferred stocks.

Related: What Is a Roth Conversion? [A Tax-Smart Retirement Strategy]

Learn More About These and Other Funds With Morningstar Investor

If you're buying a fund you plan on holding for years (if not forever), you want to know you're making the right selection. And Morningstar Investor can help you do that.

Morningstar Investor provides a wealth of information and comparable data points about mutual funds and ETFs—fees, risk, portfolio composition, performance, distributions, and more. Morningstar experts also provide detailed explanations and analysis of many of the funds the site covers.

With Morningstar Investor, you'll enjoy a wealth of features, including Morningstar Portfolio X-Ray®, stock and fund watchlists, news and commentary, screeners, and more. And you can try it before you buy it. Right now, Morningstar Investor is offering a free seven-day trial and a discount on your first year's subscription when you use our exclusive link.