You likely know Charles Schwab for its account offerings. That makes sense, given that tens of millions of people put their money to work using Schwab brokerage, retirement, and other investment accounts.
But today, I want to home in on another way Schwab can help people with their retirement savings: their mutual funds.
Schwab offers some of the largest and most cost-efficient retirement funds in the game—funds you can buy through most account providers.Â
Today, I'll introduce you to three of its best. These funds are appropriate for 401(k)s, individual retirement accounts (IRAs), health savings accounts (HSAs), and another tax-advantaged vehicls.
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.
The Best Schwab Retirement Funds for 2026
These retirement funds are best held in tax-advantaged retirement accounts, such as a 401(k) or IRA. That's because many of them feature at least one (if not more) of the following traits:
- High turnover: Turnover refers to how often investments are rotated in and out of a fund. If a mutual fund sells a stock for a profit, that generates a capital gain, which can be passed on to you in the form of a capital-gains distribution. You would then owe capital gains taxes on that distribution during that tax year. Funds with high turnover can be really tax-inefficient, as they can pass along a lot of short-term capital gains that are taxed as ordinary income, at rates up to 37%, not to mention an additional 3.8% for the net investment income tax.
- Dividends: When a company pays you a dividend, that dividend income is taxable. Most dividends from traditional stocks are considered "qualified," which means they're at least taxed at more favorable long-term capital gains tax rates. However, dividends from some entities, such as many real estate investment trusts (REITs), are nonqualified, meaning they're taxed at the less favorable ordinary income rates.
- Interest income: Interest income, which is paid out by bonds, preferred stocks, and other fixed-income assets, is also tax-inefficient, as it's taxed as ordinary income (again, up to 37%). And given that interest income is typically the bulk of your return from bonds, most of your returns are being taxed at those unfavorable rates.
While dividends, capital-gains distributions, interest income, and other fund payments have tax consequences inside of a taxable brokerage account, they don't when they occur within a tax-deferred account such as a 401(k) or IRA—you'll only ever be subject to taxes when you withdraw funds, likely at retirement. (That said, some of these Schwab retirement funds will still do perfectly fine even inside of a good, old-fashioned brokerage account.)
Now that we're through with introductions, let's explore some of the best Schwab funds you can use to assemble a long-term retirement portfolio.
Do you want to get serious about saving and planning for retirement? Sign up for Retire With Riley, Young and the Invested's free retirement planning newsletter.
Schwab Global Real Estate Fund
- Style: Global real estate
- Management: Active
- Assets under management: $289.3 million
- Dividend yield: 3.2%
- Expense ratio: 0.72%, or $7.20 per year for every $1,000 invested
Real estate is a preferred asset class, but buying physical properties is extremely inaccessible to people with modest funds. However, real estate investing was democratized in 1960 with the creation of real estate investment trusts (REITs), which are companies specifically designed to own (and sometimes operate) real estate.
The good news? Many REITs are publicly traded, just like plain ol' stocks, and they're prolific dividend payers to boot. You see, REITs enjoy a special tax status that allows them to avoid corporate taxation so long as they distribute at least 90% of their net profits as dividends. Because of this tax incentive, REITs tend to be one of the highest-yielding sectors and a perennial favorite among income investors.
The bad news? This also makes REITs very tax-inefficient, as a large percentage of the total return comes from taxable dividends. What's more, REIT dividends are generally classified as nonqualified dividends, which again, are taxed like ordinary income and can face rates as high as 37%, depending on your bracket. Thus, it makes more sense to hold REITs and REIT funds in a tax-advantaged fund like a 401(k) or IRA rather than a taxable brokerage account.
Related: 9 Best Vanguard Retirement Funds [Save More in 2026]
Schwab investors looking for real estate exposure could consider the Schwab Global Real Estate Fund (SWASX). The fund is a diversified REIT fund with a global presence, split roughly 60/40 between U.S. and international REITs. That means you get access to American REITs such as medical/senior housing property owner Welltower (WELL) and datacenter specialist Equinix (EQIX), as well as real estate companies from Europe, Asia, Australia, and Canada. All told, the portfolio's holdings represent about 20 different types of real estate, albeit unevenly; industrial, diversified, and retail real estate account for the largest shares of assets.
This is a growth-focused real estate fund that focuses on total return, including both capital gains and income. But the income portion is no slouch, either; the 3%-plus current yield is almost triple the S&P 500's modest payout.
Another reason to consider SWASX for your retirement account? Turnover. There is no precise, universally accepted threshold for what constitutes "a lot" of active trading, but I would consider any fund with portfolio turnover over 30% or so to be fairly tax-inefficient. The higher that number goes, the more inefficient the fund. Schwab Global Real Estate has annual turnover of about 85%. All of that trading creates capital-gains distributions, but you can snuff out the IRS consequences in a tax-advantaged account.
Make Young and the Invested your preferred news source on Google
Simply go to your preferences page and select the ✓ box for Young and the Invested. Once you've made this update, you'll see Young and the Invested show up more often in Google's "Top Stories" feed, as well as in a dedicated "From Your Sources" section on Google's search results page.
Schwab Small-Cap Equity Fund
- Style: U.S. small-cap stock
- Management: Active
- Assets under management: $718.2 million
- Dividend yield: 0.1%
- Expense ratio: 1.09%, or $10.90 per year for every $1,000 invested
There's a lot of wisdom in the old Wall Street maxim, "you never go broke taking a profit." As a general rule, buying and holding good stocks or good funds and allowing them to compound over years or even decades is the way to go. But having at least part of your portfolio in actively traded strategies can also make sense, particularly in bear markets. Actively traded strategies have their stretches when they outperform passive index strategies, and they can potentially help you to avoid major declines.
Related: 14 Best Investing Research & Stock Analysis Websites
But as mentioned before, active trading strategies are tax-inefficient. And you see a lot more of that in the world of small-cap equities. Because smaller companies are often younger companies, the small-cap space tends to move quickly. Successful companies "graduate" to mid- or even large-cap status, and those that are unsuccessful often disappear altogether. So it's common to see a lot of turnover.
Case in point: Check out Schwab Small Cap Equity Fund (SWSCX), managed by Wei Li, Iain Clayton, and Holly Emerson. Their 340-stock portfolio's annual turnover sits at a whopping 108%, effectively meaning that each year, on average, the entire portfolio turns over (and then a little more on top). That has resulted in some significant capital gains returns over the years.
Like, the S&P 500, the sector breakdown can change significantly over time, too, and it often doesn't look quite like the large-cap index, either. For instance, healthcare is tops right now at 19% of assets; technology is significant, but at 18% of assets, that's roughly half the representation the sector gets in the S&P 500. Financials and industrials also enjoy double-digit weights.
Small-cap stocks have only recently started to get their groove back after years of lagging their large-cap peers. Regardless, SWSCX has managed to return an annualized 10.1% since inception, and that's not too shabby. Also, while the strategy itself is pretty aggressive compared to other strategies, among small-cap blend funds, it actually presents pretty average-level risk.
Related: 9 Best Schwab ETFs to Buy [Build Your Core for Cheap]
Schwab Balanced Fund
- Style: Moderate allocation
- Management: Active
- Assets under management: $761.1 million
- Dividend yield: 1.9%
- Expense ratio: 0.51%*, or $5.10 per year for every $1,000 invested
Schwab Balanced Fund (SWOBX) and other funds like it go by many names: "Balanced funds." "Allocation funds." "Portfolios-in-a-can." Regardless of the moniker, what they do is all the same—they hold both stocks and bonds, giving you access to a pair of core assets in a single investment.
SWOBX specifically is a moderate allocation fund—one that currently holds a roughly 60/40 split between stocks and bonds/cash.
Managers Zifan Tang and Patrick Kwok achieve their blends not with individual stocks and bonds, but with a small collection of Schwab funds. At the moment, roughly half of SWOBX's assets are invested in U.S. equities, while another 10% are in international equities, Meanwhile, virtually all of its bond holdings come from Schwab U.S. Aggregate Bond Index Fund, meaning you're getting exposure to U.S. government bonds, investment-grade corporate debt, MBSes, and SWAGX's other holdings.
Related: Best Schwab Retirement Funds for a 401(k)
Allocation funds like Schwab Balanced are an ultra-simple way to get stock and bond coverage in the click of a button. Indeed, if you wanted, this Schwab retirement fund could act as your entire portfolio—but only if its stock/bond allocations make sense for achieving your financial goals. SWOBX alone might be too conservative for most investors; if that's the case for you, it might make more sense as part of a more broadly diversified holdings set.
Schwab Balanced's turnover is low at a little more than 10%, and capital-gains distributions are usually in the low single digits. But the bond portfolio also generates a decent amount of interest income. Thus, tax-advantaged accounts like IRAs and HSAs are still the most fitting home for SWOBX.
* SWOBX has a temporary fee waiver to limit operating expenses. The result is a fee reduction from 0.53% to 0.51%. This waiver will remain as long as Schwab Asset Management serves as the adviser to the fund. The agreement can only be amended or terminated with the approval of the fund's Board of Trustees.
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.
