Types of Investments
What is a mutual fund?
Mutual funds pool money from many investors to purchase a broad range of investments, such as stocks, bonds, cash, or other types of securities. They’re an efficient way to begin investing and building a portfolio.
How a mutual fund works
Mutual funds can be an efficient, cost-effective way to invest. When you make an investment in a fund, you purchase shares of the fund, which means you own a portion of all of the underlying investments. A mutual fund can help provide built-in diversification, professional management, and ongoing supervision of the fund’s holdings—all important elements of a well-rounded investment program.
|Type||How it works||May be a good option for|
|Mutual fund strategies|
|Index fund||Attempts to mimic the performance of a specific market index, such as the S&P 500® Index or the Wilshire 5000 Index.||First-time and seasoned investors who want broad market exposure and lower fees than those offered by actively managed funds.|
|Actively managed fund||Professional managers choose what they believe are the best investment opportunities, given a fund’s strategy, with the goal of outperforming a specific benchmark.||Those who want a professional manager’s investing experience and skills.|
|Mutual fund offerings|
|Stock (or equity) fund||Invests in U.S. and/or international stocks. These funds offer the potential for long-term growth and have varying risk levels.||First-time and seasoned investors who have a longer-term horizon.|
|Bond fund||Invests in either taxable or tax-free corporate, municipal, or government bonds.||Those looking for income or those who want a more conservative alternative to equity funds.|
|Blended or balanced fund||Invests in a mix of stocks and bonds with the goal of achieving both investment growth and income.||First-time and seasoned investors seeking a more diversified solution.|
|Target-date or life-cycle fund||May hold a mix of stocks and bonds, and automatically shifts its asset allocation as the date you need the money (when you retire, for example) draws near. The funds are built for investors who expect to start gradual withdrawals of fund assets on the target date, to begin covering expenses in retirement. The principal value of the funds is not guaranteed at any time.||Retirement investing and automatic rebalancing.|
There are three ways for you to make money in a fund. The fund may earn income from dividends on stocks and interest on bonds, which is passed along to shareholders. In addition, if a fund sells securities that have increased in price, it has a capital gain that’s paid out in the form of a distribution. Finally, if a fund’s share price, or net asset value (NAV), increases during the time you own it and you sell your shares, you earn a profit.
Schwab’s Mutual Fund OneSource® offers thousands of funds from hundreds of well-established fund families with no loads and no transaction fees.
Investors should carefully consider information contained in the prospectus, including investment objectives, risks, charges, and expenses. You can request a prospectus by calling Schwab at 800-435-4000. Please read the prospectus carefully before investing.
An investment in a money market fund is neither insured nor guaranteed by the FDIC or any other government agency. Yields will fluctuate and, although the fund seeks to preserve the value of your investment at $1 per share, it is possible to lose money by investing in the fund. Compared to the total return, the seven-day yield more closely reflects the current earnings of the fund.
For Target Date Funds Investors should carefully consider information contained in the prospectus, including investment objectives, risks, charges, and expenses. You can view, download, and print a prospectus by clicking Investor Information, or call 800-435-4000 to request a prospectus. Please read the prospectus carefully before investing. Investment value and return will fluctuate, such that shares, when redeemed, may be worth more or less than their original cost.
The funds are built for investors who expect to start gradual withdrawals of fund assets on the target date, to begin covering expenses in retirement.
The consultation is complimentary, although the implementation of any recommendations made during the consultation may result in trade commissions or other fees, charges, or expenses. During the consultation, specific advice and recommendations are limited to assets held at Schwab by clients with an existing Schwab retail brokerage account. Examples may be provided of the advice and recommendations that might be offered if outside assets were transferred to Schwab; however, such information is for educational purposes only.
Diversification strategies do not ensure a profit and do not protect against losses in declining markets.
The information here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The type of securities and investment strategies mentioned may not be suitable for everyone. Each investor needs to review a security transaction for his or her own particular situation.
The information on this website is for educational purposes only. It is not intended to be a substitute for specific individualized tax, legal, or investment planning advice. Where specific advice is necessary or appropriate, consult with a qualified tax advisor, CPA, financial planner, or investment manager.
Indexes are unmanaged; do not incur management fees, costs, and expenses and cannot be invested in directly.
Investment returns will fluctuate and are subject to market volatility, so an investor’s shares, when sold, may be worth more or less than their original cost. Unlike mutual funds, shares of ETFs are not individually redeemable directly with the ETF. Shares are bought and sold at market price, which may be higher or lower than the net asset value (NAV).
Third-party OneSource ETF shares purchased are not immediately marginable at Schwab.
Charles Schwab & Co., Inc. receives remuneration from third-party ETF companies participating in Schwab ETF OneSource™ for record keeping, shareholder services and other administrative services, including program development and maintenance.
Schwab ETFs are distributed by SEI Investments Distribution Co. (SIDCO). SIDCO is not affiliated with The Charles Schwab Corporation or any of its affiliates.
MUTUAL FUNDS/TARGET DATE FUNDS
Investment returns will fluctuate and are subject to market volatility, so an investor’s shares, when sold, may be worth more or less than their original cost.
Trades in no-load mutual funds available through the Mutual Fund OneSource service (including Schwab Funds®), as well as certain other funds, are available without transaction fees when placed through Schwab.com or our automated phone channels. For each of these trade orders placed through a broker, a $25 service charge applies. Schwab reserves the right to change the funds we make available without transaction fees and to reinstate fees on any funds.
Charles Schwab & Co., Inc., member SIPC, receives remuneration from fund companies participating in the Mutual Fund OneSource service for recordkeeping and shareholder services and other administrative services. Schwab also may receive remuneration from transaction fee fund companies for certain administrative services.
The values of the funds will fluctuate up to and after the target dates. There is no guarantee the funds will provide adequate income at or through retirement.
The funds are subject to market volatility and risks associated with the underlying investments. Risks include exposure to international and emerging markets, small company and sector equity securities, and fixed income securities subject to changes in inflation, interest rates, market valuations, liquidity, prepayments and extensions, and early redemption.
Target date fund asset allocations are subject to change over time in accordance with each fund's prospectus. The principal value of the funds is not guaranteed at any time, and will continue to fluctuate up to and after the target date.
Schwab Equity Ratings® and the general buy/hold/sell guidance are not personal recommendations for any particular investor or client and do not take into account the financial, investment, or other objectives or needs of, and may not be suitable for, any particular investor or client. Investors and clients should consider Schwab Equity Ratings as only a single factor in making their investment decision while taking into account the current market environment.
Investing involves risk including loss of principal.
FIXED INCOME/ BONDS/ BOND FUNDS
Fixed income securities are subject to increased loss of principal during periods of rising interest rates. Fixed income investments are subject to various other risks, including changes in credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications, and other factors. For further details, please feel free to contact a Schwab Fixed Income Specialist at 800-626-4600.
Tax-exempt bonds are not necessarily a suitable investment for all persons. Tax-exempt income may be subject to the Alternative Minimum Tax (AMT). Capital appreciation from bond funds and discounted bonds may be subject to state or local taxes. Capital gains are not exempt from federal income tax.
Treasury Inflation-Protected Securities (TIPS) are inflation-linked securities issued by the U.S. government whose principal value is adjusted periodically in accordance with the rise and fall in the inflation rate. Thus, the dividend amount payable is also impacted by variations in the inflation rate, as it is based upon the principal value of the bond. It may fluctuate up or down. Repayment at maturity is guaranteed by the U.S. government and may be adjusted for inflation to become the greater of the original face amount at issuance or that face amount plus an adjustment for inflation.
High-yield (sub–investment grade or “junk”) bonds are lower-rated securities and are subject to greater credit risk, default risk, and liquidity risk than investment-grade bonds.
Schwab sweep money market funds are designed for use in conjunction with certain Schwab accounts. Clients who qualify can designate a sweep money market fund as their account’s primary fund. Uninvested cash balances will be invested automatically in that primary fund, according to the terms and conditions of the client’s account agreement. Similarly, when the account is used to purchase other investments or make payments, shares of the primary fund will be sold automatically to cover those transactions.
Clients with total household assets of $500,000 or more are eligible for a sweep money market fund.
The investment advisor and its affiliates have agreed to limit the net operating expenses, as stated in the prospectus for each fund, for as long as the investment advisor serves as the advisor to the fund. This agreement may only be amended or terminated with the approval of the fund's board of trustees. The limitation excludes any non-routine expenses, such as taxes, expenses for dividends, and interest paid on securities sold short, which may result in a fund incurring net operating expenses above the limitation. Please see the prospectus for more details.
Certificates of deposit are offered through Charles Schwab & Co., Inc. Unlike mutual funds, certificates of deposit offer a fixed rate of return and are FDIC-insured.
CDs from Schwab CD OneSource are issued by FDIC-insured institutions, and are subject to change and system access. Unlike mutual funds, certificates of deposit offer a fixed rate of return and are FDIC-insured up to $250,000, per depositor per institution, based on account ownership type. Visit www.fdic.gov for details. There may be costs associated with early redemption and possible market value adjustment.