The three-fund portfolio is one of the simplest ways to get a low-cost and diversified portfolio.

I’ve previously described how to build a Vanguard three-fund portfolio or a Fidelity three-fund portfolio. But some investors use Schwab as their online broker instead of Vanguard and Fidelity. When I worked on Wall Street, they required us to have either a Charles Schwab or E-Trade account. Fidelity and Vanguard accounts were not allowed, because they weren’t able to track our investment accounts with those brokers.

So how do you build your index fund portfolio if you have your investments with Schwab?

In this article, I’ll describe how to build a low-cost index fund portfolio using Schwab index funds or ETFs, starting with a simple one-fund portfolio and adding complexity for three-fund portfolios and more.

One-Fund Portfolio: Start with the S&P 500 or Total Stock Market

The first building block of your index fund portfolio is a U.S. stock index fund. The best two broad-based U.S. stock indices are the S&P 500 and the Total Stock Market index. Both are excellent options. For the S&P 500, you can use the Schwab S&P 500 Index Fund (SWPPX, ER = 0.03%). If you are an ETF investor, there is no ETF that invests in the S&P 500, but the Schwab US Large-Cap ETF (SCHX, ER = 0.03%) will get you exposure to the Dow Jones U.S. Large-Cap Total Stock Market Index.

For the Total Stock Market index, you can use the Schwab Total Stock Market Index Fund (SWTSX, ER = 0.03%). ETF investors can use the Schwab US Broad Market ETF (SCHB, ER = 0.03%).

Two-Fund Portfolio: Add U.S. Bonds

You should usually include some bonds to your portfolio. At Schwab, this can be done with the Schwab U.S. Aggregate Bond Index Fund (SWAGX, ER = 0.04%) or the Schwab U.S. Aggregate Bond ETF (SCHZ, ER = 0.04%).

Three-Fund Portfolio: Add International Stocks

The third piece of the three-fund portfolio is international stocks. At Schwab, you can get exposure to international stocks using the Schwab International Index Fund (SWISX, ER = 0.06%) or the Schwab International Equity ETF (SCHF, ER = 0.06%).

Four-Fund Portfolio: Add International Bonds

The three-fund portfolio is all you need for a diversified index fund portfolio. Since you already hold U.S. bonds and international stocks, the next (optional) layer of complexity would be an international bond fund. Unfortunately, Schwab does not offer either an index mutual fund or ETF version of an international bond fund. Therefore, to get exposure to international bonds, you can buy the iShares Core International Aggregate Bond ETF (IAGG, ER = 0.09%). ETF trades are free for Schwab and Schwab OneSource ETFs, but cost just $4.95 for other ETFs, including IAGG.

Five-Fund Portfolio: Add Real-Estate

After U.S. stocks, U.S. bonds, international stocks, and international bonds, the next (optional) layer of complexity would be a real-estate fund. Schwab does not have a low-cost real-estate index fund, but they do have a low-cost real-estate ETF, the Schwab U.S. REIT ETF (SCHH, ER = 0.07%).


Here’s a summary table of how to build your index-fund portfolio using Schwab mutual funds.

Portfolio Mutual Fund ETF
One-Fund: S&P 500 SWPPX SCHX*
One-Fund: Total Stock Market SWTSX SCHB
Two-Fund: Add U.S. Bonds SWAGX SCHZ
Three-Fund: Add International Stocks SWISX SCHF
Four-Fund: Add International Bonds N/A IAGG**
Five-Fund: Add Real Estate N/A SCHH

*Tracks the Dow Jones U.S. Large-Cap Total Stock Market Index

**Offered by iShares, trades would cost $4.95 with Schwab

In general, I prefer the use of index ETFs over index mutual funds in taxable accounts because they have better tax treatment. In tax-advantaged accounts, I prefer the index mutual funds, because they do not have any commissions and you don’t have to pay the bid-ask spread associated with ETFs.

What do you think? Do you use Schwab for your index fund investing?


  1. Was this after or pre-tax accounts when on WS – “Fidelity and Vanguard accounts were not allowed, because they weren’t able to track our investment accounts with those brokers.”?

  2. My wife and I have a mix of Fidelity, Schwab, and Vanguard among our work sponsored plans and our IRA accounts. The 403B that offers Schwab funds added a new option. We now have access to the Schwab 1000 (SNXFX). It looks like it would work well if it was matched up with a small cap or extended mkt index fund. What is your opinion on this index fund?

  3. My 401k is through the Schwab PCRA. I have added the Emerging markets ETF(SCHE) to get total international exposure in a 4:1 ratio(SWISX:SCHE) and do a 4 fund portfolio with SWAGX and SWTSX.


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