Schwab 3-fund vs Target Date vs Intelligent Portfolio

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cmoneymillz
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Schwab 3-fund vs Target Date vs Intelligent Portfolio

Postby cmoneymillz » Tue Mar 07, 2017 6:55 am

Plan to move roughly $80k from a FA managed account to my own through Schwab.
Also, moving my Chase checking ($30k) to Schwab checking ($10k) and the rest ($20k) in investments.
So, roughly $100k going to Schwab.

After a lot of reading and research, it seems like I have 3 options with them:
1) The Holy Grail - 3 fund portfolio
Initial plan - SWTSX (75%) and SWISX (25%)
No bonds here...will readjust my 401k through WalMart ML account ($110k) with 75% 2045 fund, 25% bond bc 28% tax bracket
& it seems having bonds in tax advantaged accounts like 401k is beneficial

2) Intelligent Portfolio
Robo advisor makes it seem simple - automatically rebalances portfolio, tax harvesting (still reading and learning about this) etc etc but it is so new and the funds here carry higher expenses that make me hesitant.

3) Target Fund Date
Set it and forget it...though I have this through maxed out ML 401k, probably very similar

Curious to see what you guys would do. I'm guessing option 1?
Leaning towards that, adding $1k/month for dollar cost averaging, and starting by putting in a good amount of $ in today - which reminds me, looked at buying SWTSX or SWPPX and the price shows as of 3/3 Friday. Wondering what I pay if I submit a transaction now? Do I pay the listed price of Friday, even though today is Tuesday? Or the price at close today? I could call Schwab on this but since I am posting... thanks!!! :sharebeer

drummerboy
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Re: Schwab 3-fund vs Target Date vs Intelligent Portfolio

Postby drummerboy » Tue Mar 07, 2017 7:50 am

All are potentially good choices.

My only question is Tax Efficiency. You may want to consider the Schwab Index ETFs instead of Mutual Funds for your taxable account.

SCHB (vs SWTSX) won't hit you with Short and Long Term Capital Gains. The International one (SWISX) looks OK.

cmoneymillz
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Re: Schwab 3-fund vs Target Date vs Intelligent Portfolio

Postby cmoneymillz » Tue Mar 07, 2017 10:27 am

drummerboy wrote:All are potentially good choices.

My only question is Tax Efficiency. You may want to consider the Schwab Index ETFs instead of Mutual Funds for your taxable account.

SCHB (vs SWTSX) won't hit you with Short and Long Term Capital Gains. The International one (SWISX) looks OK.


Tax efficiency is tough for me to grasp - been readin all AM to see what my best case scenario is.
Seems like ETF vs Mutual Funds debate evens out, or is close to it:
ETF- disadvantage is $4.95 per transaction (x12 months dollar-cast-averaging roughly $60/yr) where MF is free
MF- disadvantage is capital gains (but at what cost?)
ie SWTSX tax adjusted return over 5 years is 12.83%, pretax return 13.74% so 6-7% difference
compare to an ETF like SCHB tax adj. over 5 years is 12.97, pretax 13.79 so very very similar...

robertmcd
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Re: Schwab 3-fund vs Target Date vs Intelligent Portfolio

Postby robertmcd » Tue Mar 07, 2017 10:42 am

You won't have to pay for schwab ETF trades if you are using schwab. I would use the mutual funds in tax advantaged accounts so you can buy in exact dollar amounts and the ETFs for taxable accounts. It is probably already too late for this, but for those who want a three fund portfolio, I do not think Vanguard can be beaten. You get arguably the best total US stock market ETF (VTI), best total international ETF (VXUS), and one of the best total bond ETF (BND) in the form of admiral shares mutual funds that lets you buy fractional shares in exact dollar amounts with the tax advantages of ETFs.

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powermega
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Re: Schwab 3-fund vs Target Date vs Intelligent Portfolio

Postby powermega » Tue Mar 07, 2017 10:55 am

Schwab's new index-based target date funds are very nice, but my general opinion about target date funds is that they do not belong in a taxable investment account if you're in the 28% or higher tax bracket because of the bonds component that is not tax efficient. Also, you do not pay a trading commission if you buy One Source ETFs (Schwab ETFs are a subset of this list).

Personally I think Schwab's ETFs are among the very best out there. In order to duplicate the total international allocation, you need to use three separate ETFs: SCHF, SCHE, SCHC. It's a little cumbersome, but it does present more opportunities for tax loss harvesting. The only allocation that is not really available for no trading cost is the international bond allocation, which you won't have with a 3-fund portfolio. But if you do, the $4.95/trade cost is trivial to get the corresponding Vanguard ETF.

We have had our checking, rIRAs, and savings accounts with Schwab for about 8 years now (I've had my rIRA there for 25 years). We are very happy customers. Schwab has world class customer service.
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cmoneymillz
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Re: Schwab 3-fund vs Target Date vs Intelligent Portfolio

Postby cmoneymillz » Tue Mar 07, 2017 11:10 am

powermega wrote:Schwab's new index-based target date funds are very nice, but my general opinion about target date funds is that they do not belong in a taxable investment account if you're in the 28% or higher tax bracket because of the bonds component that is not tax efficient. Also, you do not pay a trading commission if you buy One Source ETFs (Schwab ETFs are a subset of this list).

Personally I think Schwab's ETFs are among the very best out there. In order to duplicate the total international allocation, you need to use three separate ETFs: SCHF, SCHE, SCHC. It's a little cumbersome, but it does present more opportunities for tax loss harvesting. The only allocation that is not really available for no trading cost is the international bond allocation, which you won't have with a 3-fund portfolio. But if you do, the $4.95/trade cost is trivial to get the corresponding Vanguard ETF.

We have had our checking, rIRAs, and savings accounts with Schwab for about 8 years now (I've had my rIRA there for 25 years). We are very happy customers. Schwab has world class customer service.


Yes - 28% bracket is rough, trying to stay here and not 33% when married in a few months.
I do have a 401k w $110k and maxing it out each year. Bond component will be in there.

For my taxable account at Schwab, it does seem as if the general consensus is ETF > Mutual Funds (again, specifically for Schwab)
Bonds in 401k account, so Schwab taxable account strategy now leaning towards ETF:
80% SCHB
20% SCHF or SCHE or a 4:1 ratio of the 2

Will that give me enough diversity? Looking to keep it as simple as possible.

Also - my mistake - no $4.95 fee with one source, thanks!

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powermega
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Re: Schwab 3-fund vs Target Date vs Intelligent Portfolio

Postby powermega » Tue Mar 07, 2017 11:57 am

cmoneymillz wrote:For my taxable account at Schwab, it does seem as if the general consensus is ETF > Mutual Funds (again, specifically for Schwab)
Bonds in 401k account, so Schwab taxable account strategy now leaning towards ETF:
80% SCHB
20% SCHF or SCHE or a 4:1 ratio of the 2

Will that give me enough diversity? Looking to keep it as simple as possible.

This kind of depends on what you want for a domestic vs. international exposure. Here are some rough percentage ideas:

Global Market Cap: 55% US, 45% Intl
Vanguard Target Date Funds: 60% US, 40% Intl

There's also certainly nothing wrong with an 80/20 split if that's what you want.

Here is a spreadsheet that breaks down the Schwab ETF allocations, based on what you want. You can enter a Stock/Bond split (100/0) in this case, and a desired US/Intl split for the stock component. It breaks down the international component into the three ETFs. A two-ETF SCHF/SCHE split would be about 75/25.

Feel free to make a copy of this for your own needs if you want to. This awesome spreadsheet was created by fellow Boglehead in_reality.
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Re: Schwab 3-fund vs Target Date vs Intelligent Portfolio

Postby TomatoBoy » Wed Mar 08, 2017 8:05 am

powermega wrote:In order to duplicate the total international allocation, you need to use three separate ETFs: SCHF, SCHE, SCHC.


Sorry to bump yesterday's thread. My 457 will be set up next week and I will be investing through a Schwab PCRA and intend to put together a three fund portfolio. As noted here, total international can be duplicated with SCHF, SCHE, and SCHC. I could be wrong, but it seems like it would also be possible to duplicate total international with SCHF with Schwab and then VFSVX (Vanguard FTSE All-World ex-US Small-Cap Index Fund) in the Roth IRA. Perhaps an 80/20 split? This fund includes developed and emerging markets, which is why it seemed like a good fit for pairing with SCHF.

The simpler option (and avoiding the higher ERs associated with the small-cap fund) seems like it would be to stick with only US and bonds in the Schwab PCRA and keep international in my 403b.

Thanks for the thoughts.

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in_reality
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Postby in_reality » Wed Mar 08, 2017 9:08 am

TomatoBoy wrote:
powermega wrote:In order to duplicate the total international allocation, you need to use three separate ETFs: SCHF, SCHE, SCHC.


Sorry to bump yesterday's thread. My 457 will be set up next week and I will be investing through a Schwab PCRA and intend to put together a three fund portfolio. As noted here, total international can be duplicated with SCHF, SCHE, and SCHC. I could be wrong, but it seems like it would also be possible to duplicate total international with SCHF with Schwab and then VFSVX (Vanguard FTSE All-World ex-US Small-Cap Index Fund) in the Roth IRA. Perhaps an 80/20 split? This fund includes developed and emerging markets, which is why it seemed like a good fit for pairing with SCHF.


SCHF + VFSVX means you don't have any large cap emerging.

72% SCHF + 14% VFSVX + 14% SCHE would be better.

72% SCHF + 10% SCHC + 15% SCHE + 3% EWX (small emerging) would give you small cap emerging if you really needed it.
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billthecat
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Re: Schwab 3-fund vs Target Date vs Intelligent Portfolio

Postby billthecat » Fri Jun 16, 2017 4:23 pm

Bump. I'm facing a decision point - do I go forward with target date funds in both tax-deferred accounts and taxable accounts, or Schwab's intelligent portfolio, or target date in one and intelligent portfolio in the other.

I just spoke wtih Schwab. They are recommending the intelligent portfolio, which makes me leery automatically (I figure it must be better for them). Also, it seems I can't see what it would actually invest in until I turn the funds over to it. That's a little scary.

I need a set it and forget it solution, knowing myself. I intend to draw from my taxable account starting in a few years, and from my tax deferred account in 15 years.

Any additional thoughts on Schwab's intelligent portfolio vs. target date funds?

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in_reality
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Re: Schwab 3-fund vs Target Date vs Intelligent Portfolio

Postby in_reality » Fri Jun 16, 2017 9:38 pm

billthecat wrote:Bump. I'm facing a decision point - do I go forward with target date funds in both tax-deferred accounts and taxable accounts, or Schwab's intelligent portfolio, or target date in one and intelligent portfolio in the other.

I just spoke wtih Schwab. They are recommending the intelligent portfolio, which makes me leery automatically (I figure it must be better for them). Also, it seems I can't see what it would actually invest in until I turn the funds over to it. That's a little scary.

I need a set it and forget it solution, knowing myself. I intend to draw from my taxable account starting in a few years, and from my tax deferred account in 15 years.

Any additional thoughts on Schwab's intelligent portfolio vs. target date funds?


Can't you go through a risk questionnaire on Schwab's site and see what you portfolio would be?

In any case, we know the SIP has a value tilt (though the fundamental indexes) and holds some commodities (gold). There have been lots of write-ups about it.

But if you have doubts, why wouldn't you just simply choose the target date funds? SIP might do better in your investment horizon or it might do worse. If you find it scary, it's probably not for you.

Basically, if you agree with Bogle, you'd probably like Schwab's market cap weighted target index funds. They transition out of emerging markets which I think he isn't so fond of.

Either way is a perfectly fine decisions, as would be going DIY with bonds in tax sheltered and ETFs in taxable.
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Re: Schwab 3-fund vs Target Date vs Intelligent Portfolio

Postby raven15 » Sat Jun 17, 2017 9:56 am

In taxable accounts I'd definitely go with Schwab or other company ETFs with free trades. I signed up for a mutual fund about nine months ago and was not happy to receive a bill for short term and long term capital gains taxes shortly after, since I hadn't even sold anything. Now I am waiting for a year to pass so I can swap it to an ETF.

At that point you may as well manage your own funds in all accounts for consistency. I think there may be some advantage to Schwab's intelligent portfolios, and you and Schwab will split it. If you like some of what they do you can buy the funds yourself and avoid the cash drag.
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Re: Schwab 3-fund vs Target Date vs Intelligent Portfolio

Postby billthecat » Sun Jun 18, 2017 3:52 pm

in_reality wrote:
billthecat wrote:Bump. I'm facing a decision point - do I go forward with target date funds in both tax-deferred accounts and taxable accounts, or Schwab's intelligent portfolio, or target date in one and intelligent portfolio in the other.

I just spoke wtih Schwab. They are recommending the intelligent portfolio, which makes me leery automatically (I figure it must be better for them). Also, it seems I can't see what it would actually invest in until I turn the funds over to it. That's a little scary.

I need a set it and forget it solution, knowing myself. I intend to draw from my taxable account starting in a few years, and from my tax deferred account in 15 years.

Any additional thoughts on Schwab's intelligent portfolio vs. target date funds?


Can't you go through a risk questionnaire on Schwab's site and see what you portfolio would be?

In any case, we know the SIP has a value tilt (though the fundamental indexes) and holds some commodities (gold). There have been lots of write-ups about it.

But if you have doubts, why wouldn't you just simply choose the target date funds? SIP might do better in your investment horizon or it might do worse. If you find it scary, it's probably not for you.

Basically, if you agree with Bogle, you'd probably like Schwab's market cap weighted target index funds. They transition out of emerging markets which I think he isn't so fond of.

Either way is a perfectly fine decisions, as would be going DIY with bonds in tax sheltered and ETFs in taxable.


Well, Bernstein describes them as pirannha with no fiduciary duty that siphon off my hard earned wealth and transfer it to themselves (with few exceptions).

Anyway, here's my thinking:

Taxable account - this is the account I intend to draw from in a few years for early retirement
Schwab Intelligent Portfolio which, based on the questionnaire, will allocate me to 37% stock, 47% bonds (tax free in my case), 14% cash, 2% commodities (I can nudge it from there to more equity or less equity if I wanted more or less risk). I expect my contributions to be about $1.4M over the next 12 mos. Tax free bonds, tax loss harvesting, low risk, short time until I start withdrawing, minimal effort on my part.

Tax-deferred accounts (401K, Roth IRA) - these are the accounts I intend to draw from in about 15-20 years when I hit "normal" retirement age
2035 target date funds (different in IRA and 401K), which are roughly 75% stock, 19% bonds, 6% cash right now. Tax sheltered bonds, higher risk, long time horizon, minimal effort on my part.

Of course, I get that in aggregate the allocation is somewhere in between, but it seems to me that viewing them in aggregate makes the most sense when you're retirning after 59 1/2. Since I'm retiring earlier, it seems like less risk in my taxable account and more risk in my deferred accounts makes sense, since I'm going to draw from my taxable account in a few years and from my tax-deferred accounts in 15-20 years.

What do you think?
Last edited by billthecat on Sun Jun 18, 2017 11:13 pm, edited 1 time in total.

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Re: Schwab 3-fund vs Target Date vs Intelligent Portfolio

Postby pkcrafter » Sun Jun 18, 2017 4:54 pm

Schwab Intelligent Portfolio Review

https://www.nerdwallet.com/blog/investi ... os-review/

How Schwab makes money on Intelligent Portfolios
Schwab makes money off your cash. The money is held in an FDIC-insured Charles Schwab Bank account. Schwab uses it to generate revenue based on the spread — the difference between the interest you earn in the account and what Schwab can earn by lending it out or investing it elsewhere.


Paul
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Re: Schwab 3-fund vs Target Date vs Intelligent Portfolio

Postby billthecat » Sun Jun 18, 2017 9:12 pm

pkcrafter wrote:Schwab Intelligent Portfolio Review

https://www.nerdwallet.com/blog/investi ... os-review/

How Schwab makes money on Intelligent Portfolios
Schwab makes money off your cash. The money is held in an FDIC-insured Charles Schwab Bank account. Schwab uses it to generate revenue based on the spread — the difference between the interest you earn in the account and what Schwab can earn by lending it out or investing it elsewhere.


Paul


I had seen that, and Schwab's blog response too. What do you think about Schwab's explanation / justification?

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Re: Schwab 3-fund vs Target Date vs Intelligent Portfolio

Postby in_reality » Sun Jun 18, 2017 11:42 pm

billthecat wrote:
pkcrafter wrote:Schwab Intelligent Portfolio Review

https://www.nerdwallet.com/blog/investi ... os-review/

How Schwab makes money on Intelligent Portfolios
Schwab makes money off your cash. The money is held in an FDIC-insured Charles Schwab Bank account. Schwab uses it to generate revenue based on the spread — the difference between the interest you earn in the account and what Schwab can earn by lending it out or investing it elsewhere.


Paul


I had seen that, and Schwab's blog response too. What do you think about Schwab's explanation / justification?


I think Schwab's explanation / justification makes sense. RIA's at Schwab often had a cash position to dampen volatility and the arrangement isn't more expensive than comparable robo-services.

That's not to say it's ideal though.

I like the fundamental indexes in SIP for their value tilt (and the spread between growth and value is high now which mean at some point we will likely see value start to outperform). Whether that is in your investment horizon and whether it will overcome their costs is anyone's guess, but I use them.

I wonder why Schwab didn't mention the Intelligent Advisory. It uses SIP technology and gives you a certified financial planner. Fees are 0.28% but capped so once you reach $1.4M won't pay more ($900 per quarter). Maybe it too has a cash component which effectively raises the price. You might be able to include all your accounts in that though. https://www.schwab.com/public/schwab/in ... t_advisory

So I guess the bottom line is will SIP's higher cost be covered by the TLHing and value premium. SLP also has a gold/commodities component (which I don't fully understand and don't have) to protect against inflation. You plan to sell out of the SLP account first, so I'm not so sure it's that helpful there.

Vanguard's PAS (0.30% AUM) uses longer duration hedged international bonds to damped inflation which are not without their own concerns. Sure rate hikes will probably on a different schedule than the US, but given much of the holding are at negative rates, you know that has to happen overseas. The hedge yield is said by Vanguard to make international returns equal to US ones, but I do suspect that doesn't ensure you'll earn a typical term premium because hedging is based on short term rates.

I'm thinking of using the Intelligent Advisory because fees are capped. I don't mind TLHing myself, so probably would only use it as the investment advisor in the trust I set up for after my demise. It would keep my financially educated but entirely overly-conservative wife from selling out stocks even though we are a whopping 50%-50%. I've a special needs child and want to leave money in the trust so Schwab's Intelligent Advisor would make more sense for me than a target date fund.

At 0.08%ER though, the target index funds are pretty attractive.
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Re: Schwab 3-fund vs Target Date vs Intelligent Portfolio

Postby pkcrafter » Mon Jun 19, 2017 12:42 pm

in_reality wrote:
I wonder why Schwab didn't mention the Intelligent Advisory. It uses SIP technology and gives you a certified financial planner. Fees are 0.28%


I thought there was no charge for Intelligent Portfolio other than the money they make off the cash. Do you have a link to the fees?

thanks,


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Re: Schwab 3-fund vs Target Date vs Intelligent Portfolio

Postby in_reality » Mon Jun 19, 2017 5:35 pm

pkcrafter wrote:
in_reality wrote:
I wonder why Schwab didn't mention the Intelligent Advisory. It uses SIP technology and gives you a certified financial planner. Fees are 0.28%


I thought there was no charge for Intelligent Portfolio other than the money they make off the cash. Do you have a link to the fees?

thanks,


Paul


The link is above. Schwab's Intelligent Portfolios and Intelligent Advisory aren't the same thing, though the advisory uses the portfolios (to what degree I'm not exactly sure)
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Re: Schwab 3-fund vs Target Date vs Intelligent Portfolio

Postby pkcrafter » Mon Jun 19, 2017 6:55 pm

Thanks in_reality, I didn't realize there were two options, portfolios and advisory. I guess the advisory option is for those who don't want the structured robo portfolio.

Paul
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Re: Schwab 3-fund vs Target Date vs Intelligent Portfolio

Postby in_reality » Mon Jun 19, 2017 9:16 pm

pkcrafter wrote:Thanks in_reality, I didn't realize there were two options, portfolios and advisory. I guess the advisory option is for those who don't want the structured robo portfolio.

Paul


Not 100% sure. I'd hope the advisory would be more
Flexible than the robo portfolio but I can't ask because I'm overseas and they can't offer it to me. I'd still like to know someday ...
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Re: Schwab 3-fund vs Target Date vs Intelligent Portfolio

Postby greybus » Mon Jun 19, 2017 10:39 pm

Schwab Intelligent Advisory looks like it's just the robo Schwab Intelligent Portfolios allocations doing the "driving", with an advisor available for financial planning and guidance and such. It doesn't specifically mention the allocations available, but further on down, it does mention that the Cash allocation varies between 6-30%, identical to SIP. The wording appears to suggest that you'll meet with an Advisor, craft a financial plan, then they'll put you into an appropriate SIP allocation.

Here is the disclosure for SIA: https://www.schwab.com/secure/file/SIA-SCHWAB-DISCLOSURE-BROCHURE

Taken from Page 1: "Schwab sponsors Schwab Intelligent Advisory™ (“SIA” or the “SIA Program”), a hybrid advisory service that combines financial planning and periodic guidance from Schwab planning consultants (“Planning Consultants”) with discretionary portfolio management through Schwab Intelligent Portfolios (“SIP” or the “SIP Program”), a discretionary investment advisory program sponsored by Schwab’s affiliate, Schwab Wealth Investment Advisory, Inc. (“SWIA”), and provided as a component of SIA pursuant to a license agreement between Schwab and SWIA."

Schwab Intelligent Advisory - Clients of the SIA Program (“Clients” or “you”) receive a tailored financial plan by first accessing the Schwab Intelligent Advisory website and engaging with the SIA Program’s self-guided digital planning tool (“Planning Tool”). Clients answer a series of questions in the Planning Tool and enter detailed information about their current financial situation, including assets and liabilities, overall goals and risk tolerance. The output of the Planning Tool will serve as the basis for an initial scheduled discussion between the client and Planning Consultants. The initial planning conversation may include core wealth management topics like retirement planning, savings, and budget management and culminates in a recommendation about the appropriate SIP strategy or strategies for accounts that the Client wishes to enroll in the SIA Program.

Taken from Page 2: "Schwab Intelligent Portfolios® Sweep Program - Each SIP investment strategy includes a Cash Allocation to the Sweep Program for asset allocation purposes. The Cash Allocation will generally range from 6% to 30% of an account’s value to be held in cash, depending on the investment strategy the client selects based on the client’s risk tolerance and time horizon. Higher cash allocations are for the conservative end of the risk spectrum.

Here's the regular Schwab Intelligent Portfolio disclosure: https://www.schwab.com/public/file/SIP-SCHWAB-WEALTH-ADVISORY-DISCLOSURE-BROCHURE

Taken from Page 2: "Schwab Intelligent Portfolios® Sweep Program - Each investment strategy involves the Cash Allocation to the Sweep Program. The Cash Allocation will generally range from 6% to 30% of an account’s value to be held in cash, depending on the investment strategy the client selects based on the client’s risk tolerance and time horizon."

And here is the Institutional Intelligent Portfolios disclosure: https://client.schwab.com/secure/file/P-7707039/REG85589-03_SWIA_IIP_ADV_Final.pdf

This is the one where independent advisors "white-label" the Schwab platform as their own, and use Schwab on the backend to manage the bookkeeping, trades, rebalancing, online interface, etc. The independent advisor gets to decide the asset allocations and the ETFs being used. In return, Schwab charges 0.1% AUM if the Advisor custodies less than $100 mil at Schwab. Interestingly, they say the lowest cash allocation here is 4%. Seems like you can't get away from that cash allocation!

From page 3: "Sweep Program - Each investment strategy involves the Cash Allocation to the Sweep Program. The Cash Allocation will be a minimum of 4% of an account’s value to be held in cash, and may be higher, depending on which investment strategy an Advisor chooses for their clients and the amount of the Cash Allocation the Advisor has set for that investment strategy."

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Re: Schwab 3-fund vs Target Date vs Intelligent Portfolio

Postby indexonlyplease » Tue Jun 20, 2017 6:47 am

I have the 3 fund portfolio. The main reason was I have never owned bonds and did not want to purchase bonds. So, I set up the 3 fund in my tax deferred account using both Schwab total funds. I then have a good Fixed plan paying 3.5% in my taxed deferred plan.

But after even setting up this 3 fund I can see going even more simple. I would just go with the Target Date Fund. How can you really beat the Pros at Vanguard or Schwab. The Total funds tell you at your age how much international, how much bonds, rebalancing, then reduces the risk as you get older.

Then you can just fund it monthly and go on with your life. I believe in the years ahead I will move my money to the Target Date Fund or the Lifestyle Fund.

Check this site on all in one funds.http://www.obliviousinvestor.com/where- ... investing/


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