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These 8 mental mix-ups could be costing you money. Do you know what they are?

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Compare Schwabs low-cost index mutual funds and ETFs

Access to thousands of funds from Schwab and other providers

Youve probably heard indexing referred to aspassive investing. In reality, index mutual funds and exchange-traded funds (ETFs) provide efficient access to a wide swath of our dynamic marketsoften at lower costs than actively managed funds.

Charles Schwab explains how index funds can help you build a diversified portfolio.

Not every investor has the time or expertise to research individual investments. Take individual stocks, for example. Investing in mutual funds and ETFs allows you to own multiple companies without regularly choosing which ones to buy or sell. And investing in index fundswhether mutual funds or ETFscan be an efficient strategy, offering the following benefits:

By definition, index funds aim simply to track their benchmark indexes before fees and expenses. Active funds, on the other hand, may well aim for outperformancebut research shows that remarkably few achieve it over time,making index funds the better performers on average.1

Most active managers fall short of market indexes over time.Over the 5- and 10-year periods ending December 31, 2017, the average active equity fund manager lagged the broader market, as represented by the Schwab 1000 Index®.

Schwab Center for Financial Research with data from Morningstar, Inc. Fund return is the weighted average time-weighted return of all active funds in the Morningstar US Fund Large Blend Morningstar category. Each fund is represented by its oldest share class. The active funds total return does account for management, admin, and 12b-1 fees. US market index returns are represented by the Schwab 1000 Index. Index returns do not account for fees and index returns assume reinvestment of dividends and interest. Indices are unmanaged, do not incur fees or expenses, and cannot be invested in directly.Past performance is no guarantee of future results.

The spreading out of risk is a key tenet of investing.Mutual funds and ETFs, including index funds, can provide portfolio diversification. Some index funds provide exposure to thousands of stocksor almost the entire investable equity universe.

Diversification spreads the risk of a portfolio.The more stocks in a portfolio, the lower the chance that one stock could cause a significant decline in portfolio value.

Source: Schwab Center for Financial Research. This examples shows the mathematical probability of losing money in a single year when the market return is 6% if the investor selects stocks at random (i.e., has no stock selection skill). Calculations include standard deviation assumptions of 23.8%, 9.1%, and 5.3% for the 5-, 20-, and 40-stock portfolios, respectively, and assume a normal distribution of returns.

You can lose money investing in mutual funds or ETFs.

Index mutual funds and ETFs tend to have lower turnover than actively managed fundsmeaning they buy and sell securities less frequentlypotentially generating fewer capital gains.

Over time, returns lost to taxes add up.In this hypothetical example, $100,000 invested in an active equity fund would have lost $3,600 more to taxes over 10 years compared to an index equity fund.

Charles Schwab Investment Advisory (CSIA) gathered data on all of the unique equity mutual funds in the Morningstar Direct database as of 9/30/2017 (3,904 funds). The average 10-year tax cost ratio was calculated for the index funds and the non-index funds in that group. Tax cost ratio is a Morningstar measure of how much an investor in the highest bracket would have lost each year to federal income taxes due to fund distributions. The tax cost ratio for each fund type (index and non-index) was subtracted from the S&P 500s average return over that time period (7.44% per year), and that net-of-tax-loss return was used to calculate how much $100,000 would have grown over the 10-year period.

With active management, youre paying for the possibility of outperformance.The average actively managed mutual fund charges 0.78% in annual fees, versus 0.18% for index funds.2

Expenses erode returns over time.There are fees associated with any investment. But over time, the fees you pay can really add up, which is why low-cost index investing can leave more of your money invested for growth. Use the sliders below to see the effect that fees can have on a portfolio over a 40-year time span.

Source: For illustrative purposes only. These projections assume a 5% rate of return, are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. Fees will impact your portfolio even during periods of negative market performance. The chart does not reflect all fees that may be charged and is not representative of any actual investment, product, or fee structure.

Expenses erode returns over time.There are fees associated with any investment. But over time, the fees you pay can really add up, which is why low-cost index investing can leave more of your money invested for growth. Use the sliders below to see the effect that fees can have on a portfolio over a 40-year time span.

Operating expense ratio (OER): The annual rate an ETF charges to pay for the funds management, administration and other costs.

Operating expense ratio (OER): The annual rate an ETF or mutual fund charges to pay for the funds management, administration and other costs.

Source: For illustrative purposes only. These projections assume a 5% rate of return, are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. Fees will impact your portfolio even during periods of negative market performance. The chart does not reflect all fees that may be charged and is not representative of any actual investment, product, or fee structure.

In 1991, Charles Schwab & Co. launched the Schwab 1000 Index®, which was designed to measureas accurately and consistently as possiblethe long-term performance of Americas largest companies. Shortly thereafter, Charles Schwab Investment Management launched the Schwab 1000 Index® Fund to help investors capture that growth potential. You can read about the index and its historical track record in the white paperThe Schwab 1000 Index®: 26 Years of Battle-Tested Results.

Of course investing has evolved since then. What hasnt changed is Schwabs ongoing commitment to indexing. Through years of innovation, Schwab has continued providing clients new ways to access efficient, cost-effective, index-based investments.

The Schwab 1000 Index® was built to track the largest 1000 stocks in the U.S. It provides 100% exposure to the entire U.S. large-cap universe, unlike other U.S. large-cap indexes like the S&P 500

Schwab Funds expands suite of market cap index funds, providing a low cost way to build a diversified portfolio.

Schwab Funds is a pioneer in offering investors access to innovative indexes that are weighted based on fundamental measures of company size, as a complement to traditional indexing.

Schwab ETFs offer choice and value in building a diversified portfolio.

Schwabs platform offering more thancommission-free ETFs.

A fully automated investing service that builds and rebalances diversified portfolios of ETFs.

Schwab Trget Index Funds offer an all-in-one mix of investments using low cost index-based ETFs, at no investment minimum.

Now renamed Schwab Intelligent Portfolios Premium, our approach combines our powerful online planning tool with unlimited 1:1 guidance from a CERTIFIED FINANCIAL PLANNER professional and a portfolio of exchange-traded funds.

Even lower pricing for index mutual funds and ETFs

Expenses were lowered and investment minimums were removed across many funds to make investing accessible for every investor.

Schwab is a registered trademark of Charles Schwab & Co., Inc. Fundamental Index is a registered trademark of Research Affiliates, LLC.

Charles Schwab Investment Management, Inc. (CSIM) is the investment advisor for Schwab Funds and Schwab ETFs. Schwab Funds are distributed by Charles Schwab & Co., Inc. (Schwab), Member SIPC. Schwab ETFs are distributed by SEI Investments Distribution Co. (SIDCO), One Freedom Valley Drive, Oaks, PA 19456. SIDCO is not affiliated with CSIM. CSIM and Schwab are separate but affiliated companies and subsidiaries of The Charles Schwab Corporation, and are not affiliated with SIDCO.

Charles Schwab Investment Management, Inc. is the investment advisor for Schwab ETFs and an affiliate of the Charles Schwab Corporation.

Charles Schwab & Co., Inc. receives remuneration from certain third-party ETF companies participating in Schwab ETF OneSource™ for record keeping, shareholder services and other administrative services, including program development and maintenance. Participating firms also may make additional payments for other ETF-related opportunities, such as education and events and reporting.

-Schwab Intelligent Portfolios and Schwab Intelligent Portfolios Premium

Please read the Schwab Intelligent Portfolios SolutionsDisclosure Brochuresfor important information, pricing, and disclosures related to the Schwab Intelligent Portfolios and Schwab Intelligent Portfolios Premium programs.

Charles Schwab Investment Management (CSIM) offers a comprehensive range of foundational investment solutions through Schwab Funds and Schwab ETFswhich have costs that are among the lowest in the industry.

With a long history and deep understanding of index investing that began in 1991, CSIM is one of the largest providers of index funds and ETFs today.

Schwab Index Mutual Funds and Schwab ETFs assets under management

Data source: Rankings based on assets under management from Strategic Insight as of 12/31/18. AUM and management year figures from Charles Schwab Investment Management, Inc. as of 12/31/2018.

4. Competitor share class used for each investment amount scenario: $3,000Admiral; $5,000,000Institutional.

Certain Vanguard Institutional clients may meet the minimum investment for Vanguard Institutional share class by aggregating separate accounts within the same Fund; aggregation policy may not apply to financial intermediaries. Other exceptions may also apply for certain investors with respect to minimum investment requirements.

The table is based on net expense ratio data comparisons between Schwab market cap index mutual funds and Vanguard market cap index mutual funds. The Vanguard market cap index mutual funds shown represent the funds with the lowest expense ratio within the $3,000 minimum share class of their fund family in their respective Lipper category. Securities in market cap index mutual funds are selected and weighted based on the size of their market capitalization. Schwab operating expense ratios (OERs) and Vanguard net OERs represent the lowest OERs reported from prospectuses as reflected on 5/1/19. Funds in the same Lipper category may track different indexes, have differences in holdings, and show different performance. Vanguard may offer additional share classes not shown that offer lower expense ratios than the share classes shown, but typically with a higher investment minimum. Excludes competitor share classes with eligibility restrictions, specifically those that are generally not available to the general public. Expense ratios are subject to change.

5. The Vanguard Institutional Index Fund – Institutional class with an OER of 0.035% – is a separate fund from the Vanguard 500 Index Fund, but is designed to track the S&P 500 Index.

6. Restrictions apply: Online trades of Schwab ETFs™ are commission-free at Charles Schwab & Co., Inc., while trades of certain third-party ETFs are subject to commissions. Broker-assisted and automated phone trades are subject to service charges. Waivers may apply. See theCharles Schwab Pricing Guidefor more details. All ETFs are subject to management fees and expenses. An exchange processing fee applies to sell transactions.

7. The table is based on operating expense ratios (OER) data comparison between Schwab market cap index ETFs and non-Schwab market cap index ETFs. The non-Schwab market cap index ETFs shown represent Vanguard and iShares market cap ETFs with the lowest expenses ratio within their fund family in their the respective Lipper category listed. Schwab operating expense ratios (OERs) and competitor OERs represent the lowest OERs reported from prospectuses and Strategic Insight Simfund, reflected as of 5/1/2019. ETFs in the same Lipper category may track different indexes, have differences in holdings, and show different performance. Expense ratios are subject to change.

Enter any mutual fund or ETF to see for yourself.

Source: Information from the Morningstar tool is updated daily. Before trading, please check a real-time quote for current information.

A broker-dealer may set its own purchase minimums for mutual funds which may be higher or lower than the minimum a fund company sets for one or more of its share classes.

©2018 Morningstar. All Rights Reserved. The information, data, analyses and opinions contained herein (1) include the confidential and proprietary information of Morningstar, (2) may include, or be derived from, account information provided by your financial advisor which cannot be verified by Morningstar, (3) may not be copied or redistributed, (4) do not constitute investment advice offered by Morningstar, (5) are provided solely for information purposes and therefor are not an offer to buy or sell a security, and (6) are not warranted to be correct, complete or accurate. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, this information, data, analyses or opinions or their use.

Authorized use of the Morningstar tools is subject to additional terms and conditions.

Choose from over 2,000 index funds and ETFs from Charles Schwab Investment Management (CSIM) and other providers.

Choose from more than 200 index mutual funds with no transaction fees and $0 commission on all index ETFs from Charles Schwab Investment Management and third-party providers.6

Schwab ranked 1 in Low-Cost/Free ETF Trading in the 2019 Investors Business Daily Best of the Online Brokers Survey.8

Use our Fund Finder tool to screen and comparemutual fundsandETFs.

Use our Select List to choose from a list of Schwabs expert picks forETFsandmutual funds.

Personalized Portfolio BuilderThe Personalized Portfolio Builder tool simplifies the selection process to help you create a diversified portfolio of mutual funds or ETFs that meets your needs.

Schwab Intelligent Portfolios®Invest in a portfolio of exchange-traded funds. Our robo-advisor builds, monitors, and automatically rebalances a diversified portfolio based on your goals.

See allinvestment advice optionsoffered through Schwab.

Index investing is the practice of investing in a fundwhether a mutual fund or an ETFwith a portfolio of securities that track a particular index. It is a straightforward way to participate in the potential growth of the economy over time. Read more about index investing inThe Elegance of Indexing.

Methods of index construction vary widely. The securities may be chosen by a committee based on pre-defined criteria, or the criteria may completely prescribe the securities to be included (for example, the1000 largest companies). Then, the components of the index are weighted to determine their representation. Most of the broadly used stock indexes are capitalization-weighted, meaning that a companys size (in terms of its market capitalization, or the total value of its outstanding shares) determines its weight in the index.

However, there are other ways to weight the components of an index, including varioussmart beta strategies.

The methodologies describing how index portfolios are selected and weighted are available to the public. This differs from actively managed funds, where the weighting and selection of securities is usually a proprietary process. (Because the success of an active strategy depends on the fund managers expertise, the specific methodology is unlikely to be advertised.)

Although both aim to track indexes, index mutual funds and ETFs differ in how they are structured, bought and sold.

ETFs, which can only be purchased through a brokerage account, trade like stocks continuously throughout the day. When you buy or sell an ETF, you do so from another market participant, not the fund company. The other buyer or seller may be an individual investor like youbut is more often a firm that specializes in buying and selling ETFs (known as a market maker).

Since ETFs are not purchased directly from the fund company, the price at which they trade may differ from their net asset value (NAV). Most large and well-known ETFs trade at prices very close to NAV, but smaller and less-liquid ETFs may have market prices that temporarily deviate from their NAV.

Mutual funds, on the other hand, are purchased directly from fund companies and are priced just once dailywhen their net asset value is determined after markets close.

Due to their different structure, there aredifferent costsassociated with trading ETFs versus mutual funds, including, potentially, trading commissions and bid-ask spreads.

Which is right for you depends largely on yourinvestment schedule and strategy.

Indexes are not investment products, but rather intellectual property (similar to the difference between a house and the blueprints necessary to build a house). While indexes describe how to construct a portfolio, its the job of the fund manager to actually build and manage the portfolio.

Tracking difference and tracking error are used to measure how well an index product is replicating its index. Most index-tracking ETFs and mutual funds do a fine job of matching their indexes; however, there are always exceptions to any rule.

Investors in an index mutual fund or ETF participate in the growth of the market segment represented by the index, but markets dont always rise. And when the market is in decline, owning the market means participating in the full decline. Market outperformancewhich index investments cannot and do not aim forisnt just about maximizing gains; its also about minimizing losses during a downturn.

Its also possible that owning an index investment could give an investor a false sense of diversification based on the sheer number of securities included in a particular index. Investing in just one index fund, even if it is based on an index with hundreds of securities, doesnt mean a portfolio is completely diversified. Portfolio diversification ideally involvesmultiple asset classes and geographical markets, minimizing the correlations between holdings. This can be achieved with index funds, actively managed funds or a combination of both.

Actively managed funds offer the potential to beat the marketand may help reduce downside risk and volatility. So they can indeedplay a valuable rolein your diversified portfolio. When youre paying for active management, however, you may want to consider the active managers tenure, the fund objective, and that the fund isnt acloset indexer.

Charles Schwab Investment Management is able to offer these products at competitive costs because we are committed to operating our business through clients eyes and sharing the benefits of our scale and efficiency with investors.

Have more questions?Call us at, orvisit a branch near you.

Investors should consider carefully information contained in theprospectus or, if available, the summary prospectus, including investment objectives, risks, charges, and expenses. You can request a prospectus by calling Schwab at18004354000. Please read it carefully before investing.

Past performance does not guarantee future performance.

Indexes are unmanaged and you cannot invest in them directly.

Investment returns will fluctuate and are subject to market volatility, so that an investors shares, when redeemed or 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).

Diversification does not eliminate the risk of investment losses.

1. According to Morningstars Mid-Year 2017 Active/Passive Barometer, over the 10-year period ending in June 2017, the average dollar invested in active funds underperformed the average dollar invested in similar index funds in all 12 of the following Morningstar Categories: U.S. Large Blend, U.S. Large Value, U.S. Large Growth, U.S. Mid Blend, U.S. Mid Value, U.S. Mid Growth, U.S. Small Blend, U.S. Small Value, U.S. Small Growth, Foreign Large Blend, Diversified Emerging Markets, Intermediate Term-Bond.

2. Asset-weighted average expense ratio as of 6/30/2017 according to Morningstar data.

6. The standard online $0 commission does not apply to large block transactions requiring special handling, restricted stock transactions, trades placed directly on a foreign exchange, transaction-fee mutual funds, futures, or fixed income investments. Options trades will be subject to the standard $.65 per-contract fee. Service charges apply for trades placed through a broker ($25) or by automated phone ($5). Exchange process, ADR, foreign transaction fees for trades placed on the US OTC market, and Stock Borrow fees still apply. See theCharles Schwab Pricing Guidefor Individual Investors for full fee and commission schedules.

ETFs at Charles Schwab & Co., Inc. (Schwab) can be traded without a commission on buy and sell transactions made online in a Schwab account. Schwab does not receive payment to promote any particular ETF to its customers. Schwabs affiliate Charles Schwab Investment Management, Inc. (CSIM) serves as investment advisor to the Schwab ETFs™, which compensate CSIM out of the applicable operating expense ratios. The amount of the fees is disclosed in the prospectus of each ETF.

8. Credit Notice: From Investors Business Daily, January 28, 2019, ©2019 Investors Business Daily, Inc. All rights reserved. Used by permission and protected by the Copyright Laws of the United States. The printing, copying, redistribution or retransmission of this Content without express written permission is prohibited. Results based on an Investors Business Daily (IBD) and Technometrica survey of 2,762 visitors to the IBD website between November and December 2018. Those individuals were asked to name and rate their primary online broker. Limiting data analysis to only those firms that were cited by 200 or more participants, six online brokers were ranked based on Customer Experience Index scores for fourteen separate attributes. For further information on how the ratings were calculated, seeIBDs Criteria and Methodology.

Charles Schwab Investment Management, Inc. (CSIM) is the investment advisor for Schwab Funds and Schwab ETFs. Schwab Funds are distributed by Charles Schwab & Co., Inc. (Schwab), Member SIPC. Schwab ETFs are distributed by SEI Investments Distribution Co. (SIDCO), One Freedom Valley Drive, Oaks, PA 19456. SIDCO is not affiliated with CSIM. CSIM and Schwab are separate but affiliated companies and subsidiaries of The Charles Schwab Corporation, and are not affiliated with SIDCO.

Charles Schwab & Co., Inc. (the distributor of Schwab Funds) and Charles Schwab Investment Management, Inc. (the investment advisor) are separate but affiliated companies and subsidiaries of The Charles Schwab Corporation.

Charles Schwab Investment Management, Inc. and Charles Schwab & Co., Inc. are separate but affiliated companies and subsidiaries of The Charles Schwab Corporation.

Please read the Schwab Intelligent Portfolios Solutionsdisclosure brochuresfor important information, pricing, and disclosures related to the Schwab Intelligent Portfolios and Schwab Intelligent Portfolios Premium programs.

Schwab Intelligent Portfolios® and Schwab Intelligent Portfolios Premium are made available through Charles Schwab & Co., Inc. (Schwab), a dually registered investment adviser and broker-dealer. Portfolio management services are provided by Charles Schwab Investment Advisory, Inc. (CSIA). Schwab and CSIA are subsidiaries of The Charles Schwab Corporation.

The Charles Schwab Corporation provides a full range of brokerage, banking and financial advisory services through its operating subsidiaries. Its broker-dealer subsidiary, Charles Schwab & Co., Inc. (member SIPC), offers investment services and products, including Schwab brokerage accounts. Its banking subsidiary, Charles Schwab Bank (member FDIC and an Equal Housing Lender), provides deposit and lending services and products. Access to Electronic Services may be limited or unavailable during periods of peak demand, market volatility, systems upgrade, maintenance, or for other reasons.

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