Getting out of Schwab Intelligent Portfolio

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walkthetalk15
Posts: 7
Joined: Thu Apr 25, 2019 6:01 pm

Getting out of Schwab Intelligent Portfolio

Post by walkthetalk15 » Tue Apr 30, 2019 10:05 am

Hey everyone! Back when I was first starting off investing I decided to go with the Schwab Intelligent Portfolio to auto-invest for me. After converting to Bogleheadism, I realize that this account is eating at my possible returns due to it's higher expense rate ETFs and ridiculous asset allocation of requiring a certain percentage of the portfolio sitting in cash. I am wondering what the possible taxable implications are for cashing out the account so I can invest it personally through either a taxable account or my Roth IRA. I would just be responsible for paying capital gains on the total gain of everything in the portfolio, correct?

Based on paying capital gains tax, I would be able to easily pay that tax with the cash already sitting in the account with some left over. To me, this seems like a no brainer since the leftover cash and value of the portfolio would then be invested in lower cost mutual funds increasing my total amount invested and likely performance. Just looking for some feedback on what y'all think as I'm only a young BH and want to make sure I'm not missing anything in my analysis.

Thanks in advance!

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nedsaid
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Joined: Fri Nov 23, 2012 12:33 pm

Re: Getting out of Schwab Intelligent Portfolio

Post by nedsaid » Tue Apr 30, 2019 10:09 am

The Schwab Intelligent Portfolio does use a fairly complex portfolio. They are also supposed to tax manage the account and take advantage of tax loss harvesting. The expense ratios on the ETFs should be fairly low. The big disadvantage is that Schwab forces you to hold cash and this is where they make their money. My feeling is that there are simpler ways out there to invest.
A fool and his money are good for business.

typical.investor
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Joined: Mon Jun 11, 2018 3:17 am

Re: Getting out of Schwab Intelligent Portfolio

Post by typical.investor » Tue Apr 30, 2019 10:18 am

walkthetalk15 wrote:
Tue Apr 30, 2019 10:05 am
Hey everyone! Back when I was first starting off investing I decided to go with the Schwab Intelligent Portfolio to auto-invest for me. After converting to Bogleheadism, I realize that this account is eating at my possible returns due to it's higher expense rate ETFs and ridiculous asset allocation of requiring a certain percentage of the portfolio sitting in cash. I am wondering what the possible taxable implications are for cashing out the account so I can invest it personally through either a taxable account or my Roth IRA. I would just be responsible for paying capital gains on the total gain of everything in the portfolio, correct?

Based on paying capital gains tax, I would be able to easily pay that tax with the cash already sitting in the account with some left over. To me, this seems like a no brainer since the leftover cash and value of the portfolio would then be invested in lower cost mutual funds increasing my total amount invested and likely performance. Just looking for some feedback on what y'all think as I'm only a young BH and want to make sure I'm not missing anything in my analysis.

Thanks in advance!
What does your "unrealized capital gains" show?

It's a taxable account right? We aren't talking about your ROTH here which wouldn't have cap gains -- correct? Anyway, I believe that is the only fee, unless some of the ETFs have been tax loss harvested into ones that are not commission free.

Actually, the cash drag is probably a lot less than you expect. The fixed income segment ((including the cash) for Schwab's robo had the best three year returns for all robos.

You also have a modest small value tilt using the Schwab portfolio. My biggest complaint is that it doesn't hold enough FNDC. That's one of the higher cost ETFs at 0.39% for international developed value. I overweight it and it's done well enough.

dbr
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Re: Getting out of Schwab Intelligent Portfolio

Post by dbr » Tue Apr 30, 2019 10:37 am

You are correct that for young investors your choices for taxable investing are important because accumulating unrealized gains lock you in to whatever choices you make. Like others, I am not so sure your current portfolio has to be terrible, but on the whole it makes sense to me to get out sooner rather than later. Only you have the data on how much that is going to cost in capital gains tax. Not all the holdings are at a gain, of course, and it could be you even want to keep something you have.

mhalley
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Re: Getting out of Schwab Intelligent Portfolio

Post by mhalley » Tue Apr 30, 2019 10:41 am

The same thing applies to this as getting out of extremely expensive advisors like ej. If you have come up with a lowerc cost, highly diversified portfolio, and taxes are not going to be extreme, sell and move to the new portfolio ASAP.

NancyABQ
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Re: Getting out of Schwab Intelligent Portfolio

Post by NancyABQ » Tue Apr 30, 2019 10:51 am

I think you should be able to just turn off the Intelligent Portfolio and leave the holdings at Schwab (for now). That shouldn't have any tax consequences and would prevent the situation from "getting worse". Make sure no dividends are being reinvested.

Then go over what the portfolio looks like now, and what portfolio you would like to have, and adjust it as quickly or slowly as makes sense to you from a tax/gains perspective. Decide if you want to move to another broker, but you certainly don't need to (personally, I like Schwab but I don't use their IP).

The ETFs might not be the lowest cost ones, but they aren't the worst thing, and the AA is presumably close to what you wanted. You can take the cash they had been holding and invest it appropriately to move to your desired funds.

(Or, if the gains are low, just sell the whole thing and change it immediately)

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PalmQueen
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Re: Getting out of Schwab Intelligent Portfolio

Post by PalmQueen » Tue Apr 30, 2019 10:54 am

I don't think you need to sell everything.
My understanding is that you just ask Schwab to convert the holdings to a regular account.
That way you can unwind strategically.

For the record, I did a bit of research on SIPs and found the ETFs they use all have low ERs for their category.
Also I've heard from friends they deliver on the tax efficiency promised.
They're upfront that they make their money on the cash position.

You may still want to change for other reasons, but the idea that the account has high ERs eating away at your profits is unfounded.
Last edited by PalmQueen on Tue Apr 30, 2019 11:21 am, edited 1 time in total.

isira
Posts: 41
Joined: Fri Nov 16, 2018 10:15 pm

Re: Getting out of Schwab Intelligent Portfolio

Post by isira » Tue Apr 30, 2019 10:59 am

typical.investor wrote:
Tue Apr 30, 2019 10:18 am
walkthetalk15 wrote:
Tue Apr 30, 2019 10:05 am
Hey everyone! Back when I was first starting off investing I decided to go with the Schwab Intelligent Portfolio to auto-invest for me. After converting to Bogleheadism, I realize that this account is eating at my possible returns due to it's higher expense rate ETFs and ridiculous asset allocation of requiring a certain percentage of the portfolio sitting in cash.
Anyway, I believe that is the only fee, unless some of the ETFs have been tax loss harvested into ones that are not commission free.

Actually, the cash drag is probably a lot less than you expect. The fixed income segment ((including the cash) for Schwab's robo had the best three year returns for all robos.
Here's Nate79's "cash drag" analysis.
viewtopic.php?f=10&t=243667&p=3963474&h ... g#p3961387
viewtopic.php?f=10&t=243667&p=3963474&h ... g#p3963474

Yes, you could do slightly better by replicating SIP yourself (or with M1 Finance) and replacing the cash component with a US Treasury ETF, but there's always a cost (e.g. M1 Finance has no tax loss harvesting, DIY has the cost of time).

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Nate79
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Location: Delaware

Re: Getting out of Schwab Intelligent Portfolio

Post by Nate79 » Tue Apr 30, 2019 11:28 am

walkthetalk15 wrote:
Tue Apr 30, 2019 10:05 am
Hey everyone! Back when I was first starting off investing I decided to go with the Schwab Intelligent Portfolio to auto-invest for me. After converting to Bogleheadism, I realize that this account is eating at my possible returns due to it's higher expense rate ETFs and ridiculous asset allocation of requiring a certain percentage of the portfolio sitting in cash. I am wondering what the possible taxable implications are for cashing out the account so I can invest it personally through either a taxable account or my Roth IRA. I would just be responsible for paying capital gains on the total gain of everything in the portfolio, correct?

Based on paying capital gains tax, I would be able to easily pay that tax with the cash already sitting in the account with some left over. To me, this seems like a no brainer since the leftover cash and value of the portfolio would then be invested in lower cost mutual funds increasing my total amount invested and likely performance. Just looking for some feedback on what y'all think as I'm only a young BH and want to make sure I'm not missing anything in my analysis.

Thanks in advance!
If you want to get out it's very easy. Schwab will help transfer your funds to a Schwab brokerage account. But your entire premise for wanting out is mostly incorrect - your returns have likely been higher than using other services, the fund fees are very cheap, and the so called cash drag is one of the ignorant statements thrown around on here with no basis in actual analysis.

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PalmQueen
Posts: 145
Joined: Sun Jul 08, 2018 6:09 pm

Re: Getting out of Schwab Intelligent Portfolio

Post by PalmQueen » Tue Apr 30, 2019 4:56 pm

It doesn't need to be all or nothing.
You could do an experiment:
Transfer out 50% of the SIP into a self-managed brokerage account.
Leave 50% in the SIP.

Then compare performance at 6 months and 12 months.

confusedinvestor
Posts: 655
Joined: Thu Mar 15, 2012 11:04 am

Re: Getting out of Schwab Intelligent Portfolio

Post by confusedinvestor » Wed May 01, 2019 9:41 am

+1

I got out of SIP and converted to a brokerage account with just a quick phone call. for my case, I don't see any value of any Robo

My SIP 80:20 had an ER of .13 - not bad but my reason to get out is:

- Asset location issues
- 13 ETFs, issues with Rebalance of my entire portfolio
- I don't like SIP value tilts
- Cash drag is overblown here

Let me know if you have any questions

Nate79 wrote:
Tue Apr 30, 2019 11:28 am
If you want to get out it's very easy. Schwab will help transfer your funds to a Schwab brokerage account. But your entire premise for wanting out is mostly incorrect - your returns have likely been higher than using other services, the fund fees are very cheap, and the so called cash drag is one of the ignorant statements thrown around on here with no basis in actual analysis.

indygreg
Posts: 11
Joined: Sat May 04, 2019 7:49 pm

Re: Getting out of Schwab Intelligent Portfolio

Post by indygreg » Sun May 05, 2019 8:40 pm

what i don't understand about these robos is what they do for a fi portfolio in a downturn. they have all that cash sitting there so if there is a significant downturn do they bias fixed income disbursements to use cash rather than selling in a down market? or do they just pull the disbursement and rebalance.

greg

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