I recently received a letter from the third-party company that manages one of our 403B Plans. It was the standard quarterly letter that provides updates on account performance, fees, and if there were any changes to the list of mutual funds available to select from. Since we generally invest in index funds, I normally just do a quick review of the updates and move on.
There was a change mentioned in this letter that grabbed my attention. A new mutual fund was added. The new fund is the Schwab 1000 (SNXFX). I have seen the Schwab 1000 (SNXFX) mentioned in various articles over the years, but have never really paid much attention to it.
Now that the Schwab 1000 (SNXFX) was presented to me as an option, I wanted to learn more about it.
History of the Schwab 1000 (SNXFX)
Charles Schwab created the Schwab 1000 (SNXFX) in 1991. The fund was created to capture the returns of the fastest growing large and medium sized publicly traded domestic stocks. The Schwab 1000 (SNXFX) was created to give investors a broader index than the S&P 500. While the S&P 500 is made up of 470 American companies, the Schwab 1000 (SNXFX) has more than twice as many companies as the S&P 500 index.
The Schwab 1000 (SNXFX) is an index fund. When a change is made to the fund’s holdings, it is based on changes to the S&P 500. The fund is weighted based on market capitalization. The fund’s holding are reviewed once per year.
Is 1000 greater than 500? Over the past 25 years, the Schwab 1000 (SNXFX) has slightly outperformed the Schwab 500 (SWPPX). I was not surprised by that based on the fund having an allocation of mid cap stocks.
Schwab 1000 Index (SNXFX)
- 5-year return = 14.55%
- 10-year return = 7.12%
- 15-year return = 7.06%
- 25-year return = 9.35%
Schwab 500 Index (SWPPX)
- 5-year return = 14.66%
- 10-year return = 6.95%
- 15-year return = 6.69%
- 25-year return = 9.15%
Since the Schwab 1000 (SNXFX) has slightly outperformed the S&P 500, why has this fund not received more attention by the financial media? In my opinion, the answer to that question was based on the fund’s expense ratio. The Schwab 1000 (SNXFX) had a higher expense ratio than other index funds.
To compete with Vanguard and Fidelity, Schwab lowered the expense ratios on many of their index funds. For most of Schwab’s index funds, the expense ratio was lowered to less than 0.10%. To win the war of who has the lowest expense ratios, Schwab lowered the expense ratio on the Schwab 500 Index Fund (SWPPX), the Schwab Total Stock Market Index Fund (SWTSX), and the Schwab Total International Index Fund (SWISX).
Schwab did not, however, reduce the expense ratio on the Schwab 1000 (SNXFX). That has recently changed. The expense ratio is now 0.05%. Prior to that decrease, the expense ratio was 0.29%. While 0.29% is not a high expense ratio, it was much higher than a similar fund the Vanguard Large Cap Index Fund (VLACX) that has an expense ratio of 0.18%.
How does the Schwab 1000 (SNXFX) fit into an Investment Portfolio
The Schwab 1000 (SNXFX) is designed as a core holding. It is a large cap blend fund. It can be used in a similar way as an S&P 500 index fund or large cap index fund.
What if an investor wants to try to approximate the total stock market? To approximate the total stock market, an investor can match the Schwab 1000 (SNXFX) up with the Schwab Small Cap Index Fund (SWSSX) or a similar small cap fund. To approximate the total stock market, an investor should allocate 87% to the Schwab 1000 (SNXFX) and 13% in the Schwab Small Cap Index Fund (SWSSX).
Where Should the Schwab 1000 (SNXFX) be used
In my situation, the Schwab 1000 (SNXFX) is offered as an investment option in a 403B plan. The Schwab (1000) can be used in many ways. It is a good option for people who have a limited amount of money and want to open an IRA because there is no initial minimum amount required. This fund is also a good option for a brokerage account because the turnover is only 3% and that makes it a good tax efficient option.
In the 403B account that I now have the Schwab 1000 (SNXFX) as an option, I currently use the Schwab 500 Index Fund (SWPPX) for my large cap allocation. While there is nothing wrong with the Schwab 1000 (SNXFX), I think that I am going to stick with the S&P 500 fund. If the company that manages the 403B decides to eliminate the S&P 500 fund, I would have no problem with investing in the Schwab 1000 (SNXFX) as my large cap option. In the meantime, I currently make up the slight difference in exposure to mid-cap stocks by approximating the total stock market with an extended market index fund and small cap index fund.
Do you own shares of the Schwab 1000 Index Fund (SNXFX)?
Please share your thoughts about this fund in the comments section.
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