Schwab Intelligent Portfolios

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alaskantraveler
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Joined: Wed May 11, 2016 12:26 pm

Schwab Intelligent Portfolios

Post by alaskantraveler » Thu May 12, 2016 6:04 pm

Two years ago my wife and I started maxing out Trad IRAs through Schwab. Initially I did the investing buy just buying a diverse selection of Schwab ETFs. The when Schwabs Intelligent Portfolios came along, we signed up for that as we needed more strategy/structure to the portfolio than it currently. We have about $25k between the two accounts. Intelligent Portfolios is a free, no fees, and will reallocate your portfolio as needed. The also advertise that the bot will take advantage of tax loss harvesting opportunities (not sure how that applies to tax differed accounts).

We are in the second most aggressive portfolio structure that the intelligent portfolios offer.
78% Stocks 50/50 US/Int
10% Bonds
7% Cash
5% Commodities

I wondered why there was such a high allocation to cash. When I asked I was told that it was part of the investment strategy and to enable reallocation when needed. I wont really need reallocation as I am consistently contributing $1k per month over both accounts so there is a consistent inflow of cash. I asked if the cash allocation could reduced and was told I only could if I moved into Schwab's intelligent portfolio's most aggressive portfolio 94% equities 6% cash. So if I stick with the schwab intelligent portfolios I'm stuck with 7% held in cash. I really like the user interface, I like the customer service, and I like that I don't have to spend anytime managing it, and its 100% invested in ETFs with low fees. So I don't want to move away from it lightly

My options:
1. Continue with same portfolio and deal with the 8% cash allocation. Possibly move out of intelligent portfolios in the future as the balance grows more substantial
2. Stop using the intelligent portfolios, and go back to managing through Schwab on my own following the same investment strategy just without 7% to cash. This means that every month I have to go in and set up the buy into the many etfs that Im currently invested in. Id have to do this in two different accounts.
3. Stop using the intelligent portfolios. Keep using Schwab. Build a simpler portfolio that's easier to manage.
4. Stop using schwab all together and open up vanguard accounts and start investing there (I've read reviews comparing schwab and vanguard etfs and there are both pretty competitive with eachother.
Last edited by alaskantraveler on Thu May 12, 2016 6:24 pm, edited 1 time in total.

jjface
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Re: Schwab Intelligent Portfolios

Post by jjface » Thu May 12, 2016 6:19 pm

It is not free. The cash allocation is where they make money out of you. Unless you want to be hands off you can do it all cheaper yourself.

The idea it is used to reallocate is misleading as they keep a fixed percentage as cash I believe. If that percentage varied at all then their explanation would make sense.

alaskantraveler
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Joined: Wed May 11, 2016 12:26 pm

Re: Schwab Intelligent Portfolios

Post by alaskantraveler » Thu May 12, 2016 6:26 pm

Researched the topic within Bogleheads and found a link to a good review. Seems like its still a good product, and it can be seen as the cost for the service.

http://thefinancebuff.com/schwab-intell ... r-you.html

delamer
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Re: Schwab Intelligent Portfolios

Post by delamer » Thu May 12, 2016 6:28 pm

Can't you set up automatic withdrawals from your bank to make automatic purchases, say monthly, at Schwab for the individual ETFs?

How many ETFs are you in? There really doesn't need to be more than a handful.

magneto
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Re: Schwab Intelligent Portfolios

Post by magneto » Fri May 13, 2016 6:04 am

"We are in the second most aggressive portfolio structure that the intelligent portfolios offer.
78% Stocks 50/50 US/Int
10% Bonds
7% Cash
5% Commodities

I wondered why there was such a high allocation to cash." AT

Seems at the limit of aggressive at almost 80/20.
If not cash then what?
Does shifting the cash into bonds appeal?
'There is a tide in the affairs of men ...', Brutus (Market Timer)

alaskantraveler
Posts: 203
Joined: Wed May 11, 2016 12:26 pm

Re: Schwab Intelligent Portfolios

Post by alaskantraveler » Fri May 13, 2016 3:54 pm

Good Point, magneto.

The investing idea seems a little contradictory. Schwab is saying having the large cash allocation adds stability to the portfolio, which is true. They can invest in higher risk funds with 78% of the portfolio. Usually we think of lower risk as bonds, which have a lower return, but also much lower risk of losing value. Having the cash it is unlikely to lose value (ignoring inflation), but in the is case there is no chance of it gaining much value either.

Seems there would be a need for more cash on hand if someone was not contributing regularly. Because the extra cash could be used to rebalance the funds by buying more rather than selling some funds to buy into others, but would they really just buy into other funds with the excess cash because that would throw off the allocation.

I just read a line in Schwabs "Lets get Started" Section of the intelligent portfolios. It reads, "Schwab Intelligent Portfolios charges no advisory fee. This revenue comes from managing Schwab ETFs and providing services relating to the certain third party ETFs that can be selected for the portfolio, and from the cash feature on the accounts.

lack_ey
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Re: Schwab Intelligent Portfolios

Post by lack_ey » Fri May 13, 2016 4:06 pm

In general, cash is a useful investment asset. A lot of the older asset allocation books used to include allocations to cash. These days it's less in vogue because people don't like seeing (near) zero returns on anything and feel like it does nothing, even though doing nothing is doing something in a real sense and has a purpose.

For these allocations it's not clear—in fact, evidence is to the contrary—that having cash over bonds makes sense when the cash rate is that low relative to the other stuff. In MPT if you take cash to be the risk-free rate, then a more optimal allocation than tilting a stock/bond split very heavily to bonds is to use the optimal stock/bond ratio and deleverage it by holding some cash to reduce the risk. But clearly with 80% stocks you're nowhere near that point.

They also may have a small point about a cash buffer facilitating some transactions. But let's face it: cash is really there so they get paid.

As others suggest, you can roughly treat the expected return differential between their cash allocation and bonds (which would move the overall risk of the portfolio by practically zero) as the expense. So something like 2% of 7%, or 0.14%.

A bigger deal to many is probably the allocation to commodities and the heavy usage of the fundamental index funds.

jjface
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Re: Schwab Intelligent Portfolios

Post by jjface » Fri May 13, 2016 4:13 pm

lack_ey wrote:A bigger deal to many is probably the allocation to commodities and the heavy usage of the fundamental index funds.
I think you can remove 3 ETFs from the portfolio so that will take care of at least the commodities and two of the four fundamental index funds.

bawr
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Re: Schwab Intelligent Portfolios

Post by bawr » Sat May 14, 2016 10:27 am

jjface wrote: I think you can remove 3 ETFs from the portfolio so that will take care of at least the commodities and two of the four fundamental index funds.
You can remove specific ETFs, but not asset classes, so what you are suggesting won't work. Schwab will simply replace the removed ETFs with other, similar ETFs.

jjface
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Re: Schwab Intelligent Portfolios

Post by jjface » Sat May 14, 2016 10:57 am

bawr wrote:
jjface wrote: I think you can remove 3 ETFs from the portfolio so that will take care of at least the commodities and two of the four fundamental index funds.
You can remove specific ETFs, but not asset classes, so what you are suggesting won't work. Schwab will simply replace the removed ETFs with other, similar ETFs.
What a joke. What is the point in that? That really is false advertising.
Thanks for letting me know.

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tc101
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Location: Atlanta - Retired in 2004 at age 54

Re: Schwab Intelligent Portfolios

Post by tc101 » Sat Aug 05, 2017 8:23 pm

Schwab has a history of bait and switch, misleading advertising, and so on. Maybe most financial institutions do. I am just aware of it with Schwab because I have had an account with them for a long time.

OTOH they do some things well, which is why I still have an account there.
. | The most important thing you should know about me is that I am not an expert.

livefreefam
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Re: Schwab Intelligent Portfolios

Post by livefreefam » Sat Aug 05, 2017 8:58 pm

The cash drag on the SIP is over the top.

I would swap out of the SIP and go with the SWTSX, SWISX, SWAGX mix.
You can set it up with an automated investment plan and just rebalance quarterly or annually.

jbolden1517
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Re: Schwab Intelligent Portfolios

Post by jbolden1517 » Sat Aug 05, 2017 9:34 pm

FWIW we just did a backtest of SIP: viewtopic.php?f=10&t=224764
The cash drag is annoying but the portfolio is really quite excellent for a robo advisor.

4nwestsaylng
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Re: Schwab Intelligent Portfolios

Post by 4nwestsaylng » Sat Aug 05, 2017 10:29 pm

The cash does earn the sweep money market rate, currently at about 0.66%,will rise as rates rise, but still a sweep rate is lower. Big deal I know, but the opportunity cost loss of higher yield in a better MMF or short term bond fund is the cost of doing business; nothing is free.

I am giving it a try with 50K to get the automatic tax loss harvesting. I will use other funds in a 3 fund approach and compare in a couple of years.My bond component is not TBM, but rather Vanguard intermediate corporate in the tax deferred and Vanguard intermediate tax exempt in the taxable account.

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in_reality
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Re: Schwab Intelligent Portfolios

Post by in_reality » Sat Aug 05, 2017 10:55 pm

4nwestsaylng wrote:The cash does earn the sweep money market rate, currently at about 0.66%,will rise as rates rise, but still a sweep rate is lower. Big deal I know, but the opportunity cost loss of higher yield in a better MMF or short term bond fund is the cost of doing business; nothing is free.

I am giving it a try with 50K to get the automatic tax loss harvesting. I will use other funds in a 3 fund approach and compare in a couple of years.My bond component is not TBM, but rather Vanguard intermediate corporate in the tax deferred and Vanguard intermediate tax exempt in the taxable account.
Is two years long enough? Value tilts can underperform for decade. SIP has inflation protection in metals. I'm not sure you'll see the difference in that time and I think it's ill advised to start a value tilt and abandon it for poor performance after a few years.

dn123
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Re: Schwab Intelligent Portfolios

Post by dn123 » Sat Aug 05, 2017 11:22 pm

One nice feature of their Intelligent Portfolios is that they absorb the ETF trading costs if there are such. If it was $5 per trade per ETF and you had 12 funds in the portfolio, thats $60 each time you buy in. At 12 times a year, thats $720 saved. If 24x per year (lets say every pay check) thats $1,440. To make you feel even a bit better, if this was in a post tax account, you would have been spending post tax $ on those trading commissions and so your pretax rate of spend is even higher, in case you think that way. That thinking might offset a bit of the opportunity cost of the cash position.

I too dislike the cash allocation. And proof that their reason for cash is just a rationalization around a way to use the cash position to make $ to offset the costs of the service - if you try to select the most risky portfolio because you want to maximize for returns over a long time period so you don't care about volatility or dampening of it, you are still saddled with a 6 to 8% cash position. Why? Ive already declared that I don't want/need/expect any stability.

But I'm also trying it out also out of curiosity.

BTW, you don't need the tax loss harvesting for a pretax account, so make sure you don't have that turned on.

4nwestsaylng
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Re: Schwab Intelligent Portfolios

Post by 4nwestsaylng » Sun Aug 06, 2017 1:33 am

It's in my taxable account so the tax loss harvesting should be helpful. I say I'll keep it for a couple of years, I agree value tilted portfolios can underperform for years, but I will look at the return at two years and if it is equal or reasonably close to my other 3 fund, I will just keep it. Who knows, this robo option is relatively new, so I am giving it a trial.

I don't think a bit of value/fundamental tilt is so bad in the current market, as my other funds are growth/market cap index oriented, plus a couple of single growth stocks .

We'll see what happens. Schwab sets up the SIP in a new separate account, so the ETFs are not all mixed in with my other portfolio. Maybe I could have avoided the cash drag with one of the other robo plans, but I want to keep everything in one place.

slinky$
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Re: Schwab Intelligent Portfolios

Post by slinky$ » Sun Aug 06, 2017 6:52 am

It is worth checking out this thread where user jbolden1517 is doing analysis on all the robos.

He came to the conclusion that 'At this point Schwab Intelligent Portfolios is my recommended robo-advisor, and recommended simple portfolio.'

viewtopic.php?f=10&t=223465#p3472306

Malinois000
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Re: Schwab Intelligent Portfolios

Post by Malinois000 » Sun Aug 06, 2017 8:22 am

I'm a Schwab Private Client and a couple of weeks ago our branch invited the head of Schwab Intelligent Portfolio's to discuss this product. He shared that the large cash allocation is to help with rebalance needs and one of the three ways they make money by loaning the cash balances as a bank. Overall, I was impressed with the thinking behind the product if one does not want to be directly involved in the investing of their savings.

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