SWSSX - Schwab Small Cap Index

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Schwab Small Cap Index (SWSSX)
Expense Ratio: 0.17%
Expected Lifetime Fees: $5,521.27

The Schwab Small Cap Index fund (SWSSX) is a Small Blend fund started on 5/20/1997 and has $1.50 billion in assets under management. The current manager has been running Schwab Small Cap Index since 3/21/2005. The fund is rated by Morningstar. This fund does not charge 12b-1 fees.

MarketRiders Prefers The Following ETF

Vanguard Small Cap ETF (VB)
Expense Ratio: 0.10%
Expected Lifetime Fees: $3,271.86

The Vanguard Small Cap ETF (VB) is an Exchange Traded Fund. It is a "basket" of securities that index the Small Blend investment strategy and is an alternative to a Small Blend mutual fund. Fees are very low compared to a comparable mutual fund like Schwab Small Cap Index because computers automatically manage the stocks.

The Following Small Blend Funds Have Lower Fees Than Schwab Small Cap Index (SWSSX). Why are these metrics important?
Mutual Fund Name Ticker Symbol Turnover Assets (M) Annual Fees
Northern Small Cap Index NSIDX 16.5% 476 0.15%
TIAA-CREF Small-Cap Blend Idx Inst TISBX 25.0% 802 0.15%
Vanguard Small Cap Index Instl VSCIX 17.0% 24,400 0.14%
Vanguard Small Cap Index Signal VSISX 17.0% 24,400 0.16%
Vanguard Tax-Managed Small Cap Adm VTMSX 40.0% 2,100 0.13%
Vanguard Tax-Managed Small Cap Instl VTSIX 40.0% 2,100 0.09%
Oppenheimer Main Street Small Cap Fund Class A (OSCAX) OSCAX 52.0% 100,000,000 0.00%

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Why Are These Metrics Important?

Turnover represents how much of a mutual fund's holdings are changed over the course of a year through buying and selling. Active mutual funds have an average turnover rate of about 85%, meaning that funds are turning over nearly all of their holdings every year. A high turnover means you could make lower returns because: 1) buying and selling stocks costs money through commissions and spreads and 2) the fund will distribute yearly capital gains which increases your taxes. Look for funds with turnover rates below 50%. For comparison, ETF turnover rates average around 10% or lower.

Generally, smaller funds do better than larger ones. The more assets in a mutual fund, the lower the chance that it will beat its index. Managers outperform an index by choosing stocks that are undervalued. In order to find these undervalued stocks, the manager has to know more than his competitors to develop an "edge." There are only a finite number of stocks a mutual fund manager can reasonably analyze and actively track to gain such a competitive edge. When the fund has more assets, the manager must analyze large companies because he needs to take larger positions. Large companies are more efficiently priced in the market and it becomes increasingly difficult to get an edge.