Skip to headerSkip to main contentSkip to footer
Get our Free E-newslettersGet our Free E-newsletters
Kiplinger logoLink to homepage
Get our Free E-newslettersGet our Free E-newsletters
Subscribe to Kiplinger
Subscribe to Kiplinger
Save up to 76%
Subscribe
Subscribe to Kiplinger
  • Store
  • Home
  • Investing
  • Retirement
  • Taxes
  • Personal Finance
  • Your Business
  • Wealth Creation
    • Podcasts
    • Economic Outlooks
    • Tools
    • Kiplinger's Personal Finance Magazine
    • The Kiplinger Letter
    • The Kiplinger Tax Letter
    • Kiplinger's Investing for Income
    • Kiplinger's Retirement Report
    • Store
    • Manage My E-Newsletters
    • My Subscriptions
Skip advert
  • Home
  • Index Funds
Index Funds

6 Index Funds That Are Cheaper than Vanguard

Vanguard, long considered the king of low-cost indexing, has lost its throne—for the time being.

by: Nellie S. Huang
July 17, 2017

Getty Images

Skip advert

Vanguard, long considered the king of low-cost indexing, has lost its throne—for the time being. In what must be a vexing twist for the Malvern, Pa., fund firm, which has long trumpeted the importance of low fees, the crown for the lowest-cost index funds now belongs to Schwab.

But let’s keep things in perspective. In some cases, the Schwab index mutual funds and exchange-traded funds we’re talking about undercut their Vanguard counterparts by just 0.01 percentage point. In dollar terms, says John Woerth, a Vanguard spokesman, that amounts to $1 in savings on a $10,000 investment. In other words, not a whole lot. It boils down to “the diminishing value of de minimis differences in expense ratios,” he says. By assets, Vanguard, with $4 trillion under management, still rules. (Schwab has $2.5 trillion in assets under management.)

Schwab’s index mutual funds have another advantage: no investment minimum. The firm did away with the investment minimum requirement for many of its index mutual funds in March. The entry-level Investor share class of Vanguard funds, by contrast, requires an initial outlay of $3,000; the lower-cost Admiral share class at Vanguard calls for $10,000.

Here is a closer look at half a dozen Schwab funds and ETFs in five different categories. Each fund is less expensive than the comparable Vanguard offering, regardless of mutual fund share class.

Prices and data are through July 13. Click on ticker-symbol links in each slide for current prices and more.

All data for Vanguard funds refer to the Investor share class.

Skip advert
Skip advert
Skip advert

1 of 5

Schwab International Index Fund

Skip advert
  • Symbol: SWISX
  • Expense ratio: 0.06%
  • One-year return: 19.2%
  • Three-year return: 1.9%
  • Five-year return: 9.1%

Vanguard fund it beats on cost: Vanguard Developed Markets Index Fund (VDVIX, expense ratio 0.17%)

This fund tracks a classic benchmark, the MSCI EAFE index, composed of foreign stocks in developed countries. The Europe, Australasia, Far East bogey includes large- and midsize-company stocks in 21 established nations. Japan, the United Kingdom and France are its biggest countries.

Quibblers might say Schwab’s international index fund isn’t completely comparable to Vanguard Developed Markets Index Fund. The Vanguard fund includes stocks of all sizes, and it includes Canada and South Korea—two countries the Schwab fund excludes. But the funds have similar risk and return profiles.

 

  • 3 Actively Managed Funds That Beat the S&P 500
Skip advert
Skip advert
Skip advert

2 of 5

Schwab S&P 500 Index Fund

Skip advert
  • Symbol: SWPPX
  • Expense ratio: 0.03%
  • One-year return: 16.0%
  • Three-year return: 9.7%
  • Five-year return: 14.8%
  • Vanguard fund it beats on cost: Vanguard 500 Index Fund (VFINX, 0.14%)

The name says it all. This Schwab index fund tracks Standard & Poor’s 500-stock index by holding all of the securities in the benchmark. By assets, the Schwab fund is about one-fifth the size of its Vanguard counterpart, and it costs about one-fifth as much, too. The Schwab fund is cheaper, even, than the Vanguard ETF version of this fund (Vanguard S&P 500 ETF, symbol VOO), which costs 0.04% per year.

To give you an idea of how aggressively Schwab has been slashing its fees, consider that until a few months ago, Schwab’s S&P 500 fund charged 0.09% in annual expenses, and there was a 2% redemption fee for sales made within 30 days of purchase. Now, investors pay 0.03%, and there is no redemption charge.

 

Skip advert
Skip advert
Skip advert

3 of 5

Schwab Total Stock Market Index Fund

Skip advert
  • Symbol: SWTSX
  • Expense ratio: 0.03%
  • One-year return: 16.4%
  • Three-year return: 9.4%
  • Five-year return: 14.7%

Vanguard fund it beats on cost: Vanguard Total Stock Market Index Fund (VTSMX, 0.15%)

The U.S. stock market includes nearly 4,000 stocks of companies of all sizes. But Schwab Total Stock Market Index only holds about two-thirds of them. It employs a so-called sampling strategy to track its index, the Dow Jones U.S. Total Stock Market index. Sampling allows Schwab to steer clear of the smallest companies, which are less in demand and thus more costly to buy.

This fund’s Vanguard doppelganger tracks a different index, the CRSP US Total Market, and holds all of the nearly 4,000 stocks.

 

  • 3 Vanguard Funds to Avoid for Your Retirement Savings
Skip advert
Skip advert
Skip advert

4 of 5

Schwab U.S. Dividend Equity ETF

Skip advert
  • Symbol: SCHD
  • Expense ratio: 0.07%
  • One-year return: 9.8%
  • Three-year return: 8.6%
  • Five-year return: 13.4%

Vanguard fund it beats on cost: Vanguard Dividend Appreciation ETF (VIG, 0.08%)

Schwab U.S. Dividend Equity tracks an index focused on U.S. companies that have paid dividends for at least 10 years in a row. But only the top 100 stocks that score well on factors such as cash flow in relation to debt or return on equity (a measure of profitability) make the cut. Pfizer (PFE), Johnson & Johnson (JNJ) and ExxonMobil (XOM) are among its biggest holdings. The fund yields 2.9%.

The expense ratio of this Schwab ETF bests its Vanguard ETF counterpart by just 0.01 percentage point. But it’s worth noting that the Schwab offering has a slightly better five-year annualized record, ahead by an average of 0.7 percentage point per year.

 

  • 7 Best Online Brokers for Investors
Skip advert
Skip advert
Skip advert

5 of 5

Schwab U.S. Small-Cap ETF

Skip advert

Symbol: SCHA

  • Expense ratio: 0.05%
  • One-year return: 16.8%
  • Three-year return: 7.8%
  • Five-year return: 14.3%
  • Vanguard fund it beats on cost: Vanguard Small-Cap ETF (VB, 0.06%)

    The definition of small can vary in the investing world. With regard to Schwab U.S. Small-Cap ETF, the term refers to the bottom 15% by market value (share price times shares outstanding) of all U.S. stocks. That includes 1,750 companies, with market values that range from $25 million to $14 billion. Cosmetics company Coty (COTY) and WellCare Health Plans (WCG) are among its top holdings.

Investors who favor mutual funds over ETFs should consider Schwab Small-Cap Index Fund (SWSSX, 0.05%). Just be aware that it’s not a clone of the Schwab ETF. In fact, the mutual fund tracks a different small-company index, the Russell 2000. Among the fund’s top holdings is Advanced Micro Devices (AMD).

 

Skip advert
Skip advert
Skip advert
  • ETFs
  • mutual funds
  • investing
  • Becoming an Investor
  • Index Funds
Share via EmailShare on FacebookShare on TwitterShare on LinkedIn
Skip advert
Skip advert
Skip advert
Skip advert

Recommended

Move Over ETFs: Direct Indexing Is an Investment Strategy Worth Paying Attention to
investing

Move Over ETFs: Direct Indexing Is an Investment Strategy Worth Paying Attention to

More flexibility, more control, the potential for higher returns and tax-reducing strategies: With pros like that, could direct indexing be right for …
June 25, 2022
Janus Henderson Global Equity Income Fund Hangs Tough
Kip 25

Janus Henderson Global Equity Income Fund Hangs Tough

A focus on dividend payers and defensive stocks has kept the Janus Henderson Global Equity Income Fund afloat in a rough market.
June 23, 2022
Should You Prefer Preferred Stocks?
ETFs

Should You Prefer Preferred Stocks?

Preferred stocks and preferred stock ETFs may serve as a steady hand for income investors in an uncertain market.
June 23, 2022
Ron Baron: A Fund Legend Shares Stock-Picking Secrets
mutual funds

Ron Baron: A Fund Legend Shares Stock-Picking Secrets

The ability to buy and hold great growth companies for the long term is important to becoming a successful investor.
June 22, 2022

Most Popular

The 15 Best Stocks for the Rest of 2022
stocks to buy

The 15 Best Stocks for the Rest of 2022

The lesson of the past two years: Be ready for anything. Our 15 best stocks to buy for the rest of 2022 reflect several possible outcomes for the seco…
June 21, 2022
Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
Retirement Comfort: How to Avoid Running Out of Money
retirement planning

Retirement Comfort: How to Avoid Running Out of Money

When it comes to retirement planning, one thing all of us worry about is whether we will have enough money to last. Financial professionals can help y…
June 25, 2022
  • Customer Service
  • About Us
  • Advertise With Us (PDF)
  • Privacy Policy
  • Cookie Policy
  • Kiplinger Careers
  • Accessibility
  • Privacy Preferences

Subscribe to Kiplinger's Personal Finance

Be a smarter, better informed investor.
Save up to 76%Subscribe to Kiplinger's Personal Finance
Do Not Sell My Information

Kiplinger is part of Future plc, an international media group and leading digital publisher. Visit our corporate site www.futureplc.com
© Future US LLC, 10th floor, 1100 13th Street NW, Washington, DC 20005. All rights reserved.

Follow us on InstagramFollow us on FacebookFollow us on TwitterConnect on LinkedInConnect on YouTube