Schwab Intelligent Portfolio Fundamental Index Funds

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Jobseeker2013
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Schwab Intelligent Portfolio Fundamental Index Funds

Post by Jobseeker2013 »

I have the robo advisor with Schwab. The SIP is heavy in fundamental index funds. I have been reading about them and they are smart beta funds. There are tweaked index funds. Sort off like active management. Schwab from my understanding views them as a diversifier. Jack Bogle was not a fan and he said in interviews in 2020 that they have not outperformed capital weight index funds the last 10 years. Morningstar says keep them a real long time as they eventually have their day. The expense ratios are .25 for domestic and .39 for international. I am bit annoyed as nothing seems to beat the simple index fund and I am taking on unnecessary management risk. I hope Schwab is right with this strategy but its a gamble. Should I stay with SIP or move to another Robo that also has tax loss harvest as I have a large taxable balance? Any recommendations or this not a big deal or even a plus? Most SIP reviews point out the cash allocation and verry little mention of the fundamental funds
BuonaDomenica
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Re: Schwab Intelligent Portfolio Fundamental Index Funds

Post by BuonaDomenica »

I had the Schwab Intelligent Portfolio in a taxable account since September of 2020 and I gave up on it in early April of 2022. Had $50k in it with an 80/20 asset allocation. That thing traded way to frequently to run up the tax bill and some funds had expense ratios of 0.50

By the time I gave up on it there were over 25 funds in the portfolio. Now I'm selling funds off that I don't want with high expense rations. I thought I REIT fund does not belong into a taxable account.

You are much better off creating simple portfolio yourself. There was also around $4k-5K in cash which is part of the SIP.

Lesson learned.
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grabiner
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Re: Schwab Intelligent Portfolio Fundamental Index Funds

Post by grabiner »

Welcome to the forum!

Fundamental indexing is one form of value investing. Instead of weighting stocks on market cap, they are weighted by some X, and thus stocks with a low price/X ratio will be overweighted.

I prefer investing more directly in the factors you want, so I use value factor funds (Vanguard's VFVA for US, iShares' IVLU and Avantis's AVDV and AVIV for international). But if you are using a robo-advisor, I don't know whether there are any that follow this strategy; you would have to do it on your own.

And in a taxable account, I wouldn't switch funds for a capital gain.
Wiki David Grabiner
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Jobseeker2013
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Re: Schwab Intelligent Portfolio Fundamental Index Funds

Post by Jobseeker2013 »

BuonaDomenica wrote: Wed May 11, 2022 6:58 pm I had the Schwab Intelligent Portfolio in a taxable account since September of 2020 and I gave up on it in early April of 2022. Had $50k in it with an 80/20 asset allocation. That thing traded way to frequently to run up the tax bill and some funds had expense ratios of 0.50

By the time I gave up on it there were over 25 funds in the portfolio. Now I'm selling funds off that I don't want with high expense rations. I thought I REIT fund does not belong into a taxable account.

You are much better off creating simple portfolio yourself. There was also around $4k-5K in cash which is part of the SIP.

Lesson learned.
SIP buys and sells alot due to balancing and a I do periodic sanity checks on the expense ratio of the funds. A few months ago the average was .17. Now its .27. I know this is a fluctuation and not the new norm because next time around the purchased funds can be cheaper. I believe they follow tax harvest rules.
sycamore
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Re: Schwab Intelligent Portfolio Fundamental Index Funds

Post by sycamore »

Welcome to the forum!

Maybe the Schwab SIP and/or its Fundamental Index Funds will end up being a good choice. We just don't know.

In fact, even though they've lagged overall since ~2017, the Schwab Fundamental funds recently have done better than market-cap weighted funds (Total Stock and S&P 500) due to the severe pullback in growth stocks.

Image

(from a backtest)

This is not a recommendation to use or not use them. Rather that sometimes a non-market-weight cap fund will trail the Total Stock Market. That's been the case with my small cap value fund. And my dividend growth fund. They have their days in the sun, and their days in the mud.

The main takeaway IMO is to come up with a basic portfolio plan that you can stick with it for the long run. If you're going to regret using SIP or non-market-cap weighted funds (like Fundamental) or lose sleep over your choices, I do believe it's best to stick with a basic index-only portfolio.

As noted in another reply, be aware of tax consequences of selling the SIP funds. If you do decide to switch out of them, you may need to sell in parcels over time to minimize any tax impact.
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JamesSFO
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Re: Schwab Intelligent Portfolio Fundamental Index Funds

Post by JamesSFO »

I'm using SIP and have the most aggressive option, I do NOT experience it buying/selling often. It DOES tax loss harvest (TLH) when possible, but not constantly. It's a small portion of my assets and I viewed it as a way to experience Schwab customer service (mediocre but available 24/7) and robs-advisors. It's fine... The expense ratio (ER) is higher than my other investments, but my overall weighted ER for my portfolio remains like 4 basis points so the Schwab fund costs don't bug me.
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Jobseeker2013
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Re: Schwab Intelligent Portfolio Fundamental Index Funds

Post by Jobseeker2013 »

sycamore wrote: Fri May 13, 2022 10:08 am Welcome to the forum!

Maybe the Schwab SIP and/or its Fundamental Index Funds will end up being a good choice. We just don't know.

In fact, even though they've lagged overall since ~2017, the Schwab Fundamental funds recently have done better than market-cap weighted funds (Total Stock and S&P 500) due to the severe pullback in growth stocks.

Image

(from a backtest)

This is not a recommendation to use or not use them. Rather that sometimes a non-market-weight cap fund will trail the Total Stock Market. That's been the case with my small cap value fund. And my dividend growth fund. They have their days in the sun, and their days in the mud.

The main takeaway IMO is to come up with a basic portfolio plan that you can stick with it for the long run. If you're going to regret using SIP or non-market-cap weighted funds (like Fundamental) or lose sleep over your choices, I do believe it's best to stick with a basic index-only portfolio.

As noted in another reply, be aware of tax consequences of selling the SIP funds. If you do decide to switch out of them, you may need to sell in parcels over time to minimize any tax impact.
Thanks!

In the last 2 weeks I changed my asset allocation with them to aggressive. I did this as I prefer bank CDs in my portfolio as opposed to bonds. So my overall portfolio allocation remained unchanged. Anyway, SIP went from 65/35 to 88/12. It is still in transition (stuck at 73%) due to tax implications according to customer service. I need to give it time for them to get me to my target allocation. They have placed the majority of the portfolio in fundamental funds now.
isira
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Re: Schwab Intelligent Portfolio Fundamental Index Funds

Post by isira »

JamesSFO wrote: Fri May 13, 2022 10:44 am I'm using SIP and have the most aggressive option, I do NOT experience it buying/selling often. It DOES tax loss harvest (TLH) when possible, but not constantly. It's a small portion of my assets and I viewed it as a way to experience Schwab customer service (mediocre but available 24/7) and robs-advisors. It's fine... The expense ratio (ER) is higher than my other investments, but my overall weighted ER for my portfolio remains like 4 basis points so the Schwab fund costs don't bug me.
This has been my experience as well (I've had SIP since 2018). I have portfolios at two relative extremes, ~80/20 and ~40/60. SIP hardly rebalances by selling/buying. The vast majority of the time, it just uses the cash position to purchase an underweight asset or performs tax loss harvesting.
typical.investor
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Re: Schwab Intelligent Portfolio Fundamental Index Funds

Post by typical.investor »

Jobseeker2013 wrote: Wed May 11, 2022 6:39 pm I have the robo advisor with Schwab. The SIP is heavy in fundamental index funds. I have been reading about them and they are smart beta funds. There are tweaked index funds. Sort off like active management. Schwab from my understanding views them as a diversifier. Jack Bogle was not a fan and he said in interviews in 2020 that they have not outperformed capital weight index funds the last 10 years. Morningstar says keep them a real long time as they eventually have their day. The expense ratios are .25 for domestic and .39 for international. I am bit annoyed as nothing seems to beat the simple index fund and I am taking on unnecessary management risk. I hope Schwab is right with this strategy but its a gamble. Should I stay with SIP or move to another Robo that also has tax loss harvest as I have a large taxable balance? Any recommendations or this not a big deal or even a plus? Most SIP reviews point out the cash allocation and verry little mention of the fundamental funds
You are astute I believe. Everyone focuses on the cash allocation. Actually, comparison of robo advisor returns shows that Schwab's fixed income (including cash) is tops (at least as of last quarter - haven't checked since then) since basically robos came out.

As for the fundamental indexes, they have lagged but all value strategies have lagged. I don't use SIP but do use the fundamental indexes extensively.

International has lagged in the period you cited too such the biggest gap in valuation is between US growth stocks and international value. This means you are paying much more for $1 in earnings on US growth stocks than international value. Of course, people do that in the expectation that US growth will continue to grow earnings. International value doesn't have to do well to outperform, it only has to do better relative to the high expectations and pricing of growth stocks which are priced now as if there is a long line of ducks perfectly in a row and things will go swimmingly. That may be. The market those has had a tendency to overestimate how long and well lined up that row is.

I would stick with whatever strategy you chose. If value investing isn't for you, get out early and not after a long period of underperformance.

And truth be told, whatever strategy you pick, the biggest determinant of your success will be how much you are able to invest. So keep at it.
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Jobseeker2013
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Re: Schwab Intelligent Portfolio Fundamental Index Funds

Post by Jobseeker2013 »

I am going to keep SIP. After research, I am comfortable with value especially in this environment.
secondopinion
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Re: Schwab Intelligent Portfolio Fundamental Index Funds

Post by secondopinion »

Jobseeker2013 wrote: Wed May 11, 2022 6:39 pm I have the robo advisor with Schwab. The SIP is heavy in fundamental index funds. I have been reading about them and they are smart beta funds. There are tweaked index funds. Sort off like active management. Schwab from my understanding views them as a diversifier. Jack Bogle was not a fan and he said in interviews in 2020 that they have not outperformed capital weight index funds the last 10 years. Morningstar says keep them a real long time as they eventually have their day. The expense ratios are .25 for domestic and .39 for international. I am bit annoyed as nothing seems to beat the simple index fund and I am taking on unnecessary management risk. I hope Schwab is right with this strategy but its a gamble. Should I stay with SIP or move to another Robo that also has tax loss harvest as I have a large taxable balance? Any recommendations or this not a big deal or even a plus? Most SIP reviews point out the cash allocation and verry little mention of the fundamental funds
The lack of outperformance is not exactly what I would focus on:
  • Every point of trading is a point of risk and a source of some fees.
  • Every decision changed is a point of risk.
  • Every fee is lost money.
I will never use Robo investing; it is yet another risk. Working in software, I know that this could be asking for trouble.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
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Jobseeker2013
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Re: Schwab Intelligent Portfolio Fundamental Index Funds

Post by Jobseeker2013 »

Looking at my overall stock portfolio, the SIP is my only value tilt. The value is 60% of SIP. Its about 30% of total portfolio.

The 70% are basically total us and international stock market low cost index funds, Blend funds. So my overall value tilt 15%
Last edited by Jobseeker2013 on Fri May 13, 2022 7:37 pm, edited 1 time in total.
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yatesd
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Re: Schwab Intelligent Portfolio Fundamental Index Funds

Post by yatesd »

I switched over from Vanguard to Schwab Premium Intelligent Portfolio back in January. I am on an aggressive allocation with everything in IRA’s.

My initial main concern was the cash allocation, but that proved to be good timing for me and at my age/risk I am OK with some cash. I also was initially a little surprised/frustrated by the increased management fees, but at least realize this is due to the different type of fund. Still relatively low, so the jury is still out. I’ve decided to leave things alone and watch how the continue to manage things and will check on it annually.

Overall, I’ve been happy with my transition to Schwab. I moved everything over, including checking, etc.
scamper
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Re: Schwab Intelligent Portfolio Fundamental Index Funds

Post by scamper »

Should I stay with SIP or move to another Robo that also has tax loss harvest as I have a large taxable balance? Any recommendations or this not a big deal or even a plus? Most SIP reviews point out the cash allocation and verry little mention of the fundamental funds
Been using SIP since 2018 for a taxable account - it does a good job with TLH - keeps me from watching my portfolio too close which leads to "fiddling with it". The download for Turbotax worked well even though it generated a long Schedule D (but I don't print it so oh well). It was also convenient to transfer appreciated positions lot by lot to Schwab Charitable. I have it set to most aggressive as bond allocation is in I-bonds and CD's and recently switched it to the US focus. Like the diversity of the fundamental funds, ER's are OK I guess though not crazy about it.

Looked at other robos, but after a few trials with other brokers, I'm sticking to Fidelity and Schwab. Like the option of rolling SIP positions into a regular Schwab taxable account in the future if desired - most likely just donate appreciated lots to the Schwab DAF. Just started a Fidelity Fidfolio with an international focus - it uses direct indexing and does not use any funds that could overlap with SIP. I also keep tabs on the SIP ETF primary and secondary list to make sure I don't use any of those in other accounts. Jury is out on Fidelity Fidfolio - has a mgt fee and it has only performed TLH once on one stock.
BF3000
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Re: Schwab Intelligent Portfolio Fundamental Index Funds

Post by BF3000 »

I like Schwab’s approach to splitting market cap weighting with fundamental indexing. It is not a quintessential boglehead approach. For a recent update on RAFI with rob arnott’s spin, see the research affiliates website

https://event.on24.com/wcc/r/3742200/A8 ... DCDE605795

I think concern over SIP’s allocation to cash is a bit overblown. Although, the problem becomes more acute with rising interest rates (Schwab’s paltry internet on cash, increasing attractiveness is short term treasuries, considered alongside no management fee).

Schwab’s placement of tax inefficient holdings into taxable accounts is troubling. But reits and high Yield bonds aren’t a significant chunk of the portfolio.

Excessive rebalancing, with capital gains, caused me to bail out. But I have kept an account for my aging mother.
muffins14
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Re: Schwab Intelligent Portfolio Fundamental Index Funds

Post by muffins14 »

I personally like the ETFs FNDA, FNDC, FNDF. I’ve used them in taxable accounts while having AVUV, AVDV in tax-advantaged. I consider them as small-cap value funds mostly
35% VTI, 25% AVUV, 15% IXUS, 15% AVDV, 10% VWO, 40% treasury futures
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