Schwab Intelligent Portfolios [now live]

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macav933
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Schwab Intelligent Portfolios [now live]

Post by macav933 »

[Merged older thread into here, see below (next page). --admin LadyGeek]

Looking into Schwab's upcoming launch of Intelligent Portfolios:

https://intelligent.schwab.com

At first glance this seems to be a possible game changer. I have moved on from my FA who charged 0.50 basis points to manage a 1 million dollar account. I felt I had too many funds and expensive ones at that. I plan to move into 3 or 4 "lazy portfolio " useing broad range index funds.
They don't charge advisory fees. Or commissions. Or account service fees period, as well as offering tax harvesting. It will be offered with ETF indexes only but that shouldn't be a problem given the direction I am heading. I recieved a call from my personnel advisor who is assigned my account last night and I have to say I am impressed. He is local, works in the Schwab office 2 miles from my home. He is a VP - Sr. Financial Consultant at the local office. He is a Certified Financial Planner with Series 7, 9 , 10 , 63, 66 Securities Licenses. One positive is that they will allow you to customize your asset allocation and won't require you to pick one the computer spits out. He also claims you will be able to dollar cost average as well as set up a income distribution stream without fees of any kind as long as it comes from your Intelligent ETF account. He also said he would be available to meet face to face in the office anytime I felt a need. I don't see many downsides. I am aware that Schwab's EFT Index funds may not be as complete as Vanguards but nothing is stopping one from adding some of the missing sectors as long as they are offered. The list of available EFT's are not available at this time and his best guess is launch should by as early as late Jan. What am I missing? This seems to be a winner. Your thoughts or concerns?
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Leeraar
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Re: Schwab Intelligent Portfolios

Post by Leeraar »

I'd ask:

1. How does Schwab make money off this?
2. How is your adviser compensated for his time?
3. Who is the custodian? Are your investments insulated from the financial fortunes of Schwab as a company?
4. What transaction types can they make on your behalf without your specific consent?
5. What transaction types can you make yourself?

L.
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livesoft
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Re: Schwab Intelligent Portfolios

Post by livesoft »

I say be the first on your block to go with this and report back to us. Thanks!

BTW, one of my neighbors could be your Schwab guy. It is fun to joke to him about all the titles these salesreps get to have. I think everyone is a VP which is pretty low on the corporate ladder, isn't it? He has two Maseratis in different colors, so he is either making money or leasing them.
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Dandy
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Re: Schwab Intelligent Portfolios

Post by Dandy »

It does seem to be a game changer. A brand name firm that has a good reputation an no costs? beyond low cost index ETFs? I'll be following this development with interest. Hopefully, VG's new product with 30bps will eventually be more competitive after it launches full bore.

I am looking for an account that I can choose the allocation and then have it maintained automatically and cheaply for me but most importantly for my spouse who is not investment savvy. The Target Date Funds and Life Strategy Funds come close but they always have some feature I don't want e.g. International bonds. I like the Balanced Index fund but the 60% equity allocation is too high for my purpose.

So the devil is always in the details but I have a good feeling that Schwab won't have too many if any gotchas.
livesoft
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Re: Schwab Intelligent Portfolios

Post by livesoft »

OK, I would have a concern: I wonder how much trading will go in these accounts. I can see that if they did not use a reasonable band for rebalancing that they could have more transactions in a year than were necessary. If the portfolio turned over 100% in a year, then Schwab could make out better than 0.3% on hidden transaction costs to the customer. What do I mean by hidden? Well, the bid/ask spreads of Schwab ETFs could get mysteriously higher for customers. Since Schwab would most likely working both sides and the middle of the trades, what would stop them from skimming a little bit to stay under the SEC radar?

Nevertheless, I see this as a good thing and want to see them do well. This option from Schwab should help drive costs lower for everyone.
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mhc
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Re: Schwab Intelligent Portfolios

Post by mhc »

I was wondering if Schwab was offering it at no cost to get more money into Schwab and get people use to the service; then, they would start charging.
yoasif
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Re: Schwab Intelligent Portfolios

Post by yoasif »

There's a concurrent discussion on the feasibility of these platforms on my conversation with Vanguard thread.

If Schwab were to remove this product from the market after getting some inflows (pulling a bait and switch), what is to stop people from moving away again?
livesoft
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Re: Schwab Intelligent Portfolios

Post by livesoft »

People tend not to move around that often. Inertia and possible taxes stops them from moving. Otherwise people would be popping out of Ameriprise and EdwardJones so much that those companies would have to fold.

One thing about capturing assets is that the other guys don't get those assets. That's also a positive.

The link provided by the OP is a single advertising page of non-information. In some sense, I think it just freezes people into not moving elsewhere until Schwab gives out the details. It might be a way of Schwab trying to retain money from leaving Schwab and going to other robo-advisors.
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macav933
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Re: Schwab Intelligent Portfolios

Post by macav933 »

Livesoft

Good points. I too expect the devil will be in the details...if there is one.
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Re: Schwab Intelligent Portfolios

Post by powermega »

I have not been able to get the kind of information I'm looking for by calling the phone number listed on Schwab's page. I want to know if the allocation will span multiple accounts (taxable, Roth IRA, etc), if there will an ability to designate certain investments in certain accounts, etc. Will the system try to rebalance the multi-account portfolio using new positions in the taxable account and selling positions in an IRA?

I can do all of this on my own, but it sure would be nice to have one system be able to do all of this.
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macav933
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Re: Schwab Intelligent Portfolios

Post by macav933 »

Powermega

I recieved a call from Schwab after I indicated I was requesting information. I too asked about balancing among multiple accounts and he seemed to indacate it was covered. Lots of details needed but I for one are hopeful that I will land with Schwab.
yoasif
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Re: Schwab Intelligent Portfolios

Post by yoasif »

Received this email from Schwab:
Introducing the technology that can change the way you invest.

Schwab Intelligent Portfolios™ is a sophisticated and powerful investing service.

• It will analyze the goals and risk tolerance you specify to generate a diversified portfolio of ETFs.

• It will automatically rebalance your portfolio to help you stay on track.

• It can even work to reduce your tax bill through tax-loss harvesting.

• It is essentially your personal investing algorithm that works to manage your portfolio.

And it does it automatically without charging advisory fees, commissions, or account service fees. Period. Or rather, exclamation!

Get ready for a new way of investing from Charles Schwab, coming in Q1 2015.

PRIVACY Questions? 877-412-6117

Tax-loss harvesting is available for clients with invested assets of $50,000 or more in their Schwab Intelligent Portfolios (SIP) account. Clients must enroll to receive this service.

SIP charges no advisory fee. Schwab affiliates do earn revenue from the underlying assets in SIP accounts. This revenue comes from managing Schwab ETFs™ and providing services relating to certain third-party ETFs that can be selected for the portfolio, and from the cash feature on the accounts.

Please read the Schwab Wealth Investment Advisory, Inc. Disclosure Brochure for important information, pricing, and disclosures relating to Schwab Intelligent Portfolios.
john94549
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Re: Schwab Intelligent Portfolios

Post by john94549 »

My only gripe with Schwab is that they sequester dividends (at least they do in SWPPX). I understand the concept of "float", and that they have to pay their bills, but I would prefer quarterly dividends.
nm451
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Re: Schwab Intelligent Portfolios

Post by nm451 »

livesoft wrote:OK, I would have a concern: I wonder how much trading will go in these accounts. I can see that if they did not use a reasonable band for rebalancing that they could have more transactions in a year than were necessary. If the portfolio turned over 100% in a year, then Schwab could make out better than 0.3% on hidden transaction costs to the customer. What do I mean by hidden? Well, the bid/ask spreads of Schwab ETFs could get mysteriously higher for customers. Since Schwab would most likely working both sides and the middle of the trades, what would stop them from skimming a little bit to stay under the SEC radar?

Nevertheless, I see this as a good thing and want to see them do well. This option from Schwab should help drive costs lower for everyone.
As a Schwab customer I am also concerned about this and whether they will be preferentially biased towards their products. I am assuming that this will be the case because it will be how they can charge no fees. I am also interested in how they will handle partial share purchases and what will the cash positions be. Will they allow for partial shares like all the other robo-advisors and how much/how long will be held in the cash portion of the accounts?

From my conversation with them about what account types could this feature be added to the rep indicated that it would be possible chose this as an option on all your accounts or as an independent account but they were not 100% sure.
Each time I have talked to them I have strongly indicated that they should have a experimental/access page so that interested parties can look at the interface if it is different from their standard web portals. Also it would be really helpful if you could look at their performance over time so that you can see the transactions they make (frequency/cash holdings) and test different AA so see how their recommendations change. But this was probably not likely.
HIinvestor
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Re: Schwab Intelligent Portfolios

Post by HIinvestor »

I have an appointment to talk with a Schwab advisor about this toward the end of January. Will report back about what she says. I told her we're interested in indexes and ETFs only, Schwab, Fidelity and Vanguard, with low ERs. She said that isn't a problem and she will provide whatever details she has at the time we meet and more as she gets it in February.
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macav933
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Re: Schwab Intelligent Portfolios

Post by macav933 »

I just got an update today from my contact at Schwab who gave a date of mid Feb for the launch. Extensive training now taking place. One thing he did tell me that concerns me is that the portfolio will rebalance when it falls %2 out of your target automatically. I told him with the current wild swings in the market you could be rebalancing every week! They estimate and expect on average this to occur 9 times a year. Is anyone else (besides me) consider a 2% trigger to aggressive?
I asked if the trigger could be individually set and he said probably not. Your thoughts?
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Re: Schwab Intelligent Portfolios

Post by powermega »

I don't think there's anything wrong with the tight rebalancing bands as long as the trading costs are zero. I would love to hear more information about this system.
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Re: Schwab Intelligent Portfolios

Post by pburg »

[Post moved into here from Chat with Vanguard: robo-advisers and site enhancements --admin LadyGeek]

"My only gripe with Schwab is that they sequester dividends (at least they do in SWPPX). I understand the concept of "float", and that they have to pay their bills, but I would prefer quarterly dividends."


Did you notice that for 2014 the YTD return (with dividends reinvested) for SWPPX was 13.57% vs 11.39% for S&P 500 index?
Mixine
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Re: Schwab Intelligent Portfolios

Post by Mixine »

I'd be worried by the frequent capital gain if it was to rebalance so frequently
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Re: Schwab Intelligent Portfolios

Post by Manbaerpig »

Mixine wrote:I'd be worried by the frequent capital gain if it was to rebalance so frequently
I believe the whole 'point' of the robo-advisor [schwab] in this case is actually to go for a realized loss [or enough regular deposits/dividends] vs a cap gain. The main selling point [imho] is the daily tax loss harvesting feature.

betterment/wealthfront will show a 'drift' and $ required to maintain the various bands in terms of additional funds. Supposedly they are more careful than automatic where re-balancing would otherwise trigger a capital gain [there may be a setting or checkbox for this... we will have to wait and see. I want to say both betterment and wealthfront do...] eg:" permit re-balancing to trigger a capital gain" [y/n] :D
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Schwab Intelligent Portfolio Details

Post by Chris25 »

I just did some searching on google and found a link which looks like schwab has active, but is not yet posted on their site. The link below outlines some more details behind intelligent portfolios. I'm a bit disappointed that my profile (investor 1) would have about 7% allocated in cash. I understand this cash allocation is what is allowing schwab to effectively charge no fees, but I feel like my returns would be better with Wealthfront or Betterment who would invest most of that 7% in other ETFs.

https://intelligent.schwab.com/about-sip.html
Also including this link with more details on the "fees" on the intelligent portfolios - http://www.riabiz.com/a/503840623715942 ... chwab-bank

Anyone have thoughts on this? I'm new to investing, so I'm looking to choose the most cost effective Robo Advisor to start out. At this point, I'm still thinking Wealthfront and Betterment have the edge and will provide better returns. I'm currently with Wealthfront. The cash allocation is what is holding me back from switching to Schwab.

Thanks,
Chris
Last edited by Chris25 on Sat Feb 21, 2015 3:24 pm, edited 1 time in total.
Manbaerpig
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Re: Schwab Intelligent Portfolio Details

Post by Manbaerpig »

Thanks for the link! Will read, first thoughts:7% dedicated to cash seems like a tiny price to pay and offers a nice side benefit as well (stability/reserve), I guess there's no free lunch

*reading

Edit: no mention of automatic/daily tax loss harvesting?

I think every robovisor has something everyone is going to disagree with, eg my #2 option is betterment, offering a 50k portfolio around a 27 basis point fee level, automated daily tax loss harvesting, and lessor emerging exposure than wealthfront (28% they suggested for VWO vs 10% at betterment)

Just an example
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Re: Schwab Intelligent Portfolio Details

Post by Logan T »

I'm not happy with their portfolio. I was hoping they would only use the low cost market-cap Schwab index ETFs. I would also prefer something like Betterment that allows me to be anywhere from 0 to 100% stock. I don't like having to choose a risk level and having them decide what percentage of stocks/bonds I should be...but that's mainly because I want to be 100% stocks and it looks like they won't allow that. I also wouldn't want my "aggressive" portfolio to be invested in cash.

They show the average ER of their Aggressive 11 portfolio being 0.26%. The average ER of a 100% stock portfolio at Betterment is 0.09%. So somebody with $100,000+ at Betterment would pay 0.15% in advisory fees and still come in cheaper at 0.24%. Plus, as long as you have a portfolio of 41% stock or more at Betterment, you are not invested in cash (Betterment uses SHV as a cash-equivalent ETF in their portfolios with 40% or less in stock).

After seeing this information, I'm no longer excited. I'll just stick with Betterment when I want a robo-advisor.
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Chris25
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Re: Schwab Intelligent Portfolio Details

Post by Chris25 »

Yeah I think the details have more or less made me decide to pass on Intelligent Portfolios as well. The larger cash reserve they are trying to implement just doesn't sit well with me. Since I'm only 28, I want as much of my money in stocks as possible and don't want to leave that much sitting around. Think I'm going to stick with Wealthfront for now.
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Re: Schwab Intelligent Portfolio Details

Post by in_reality »

Logan T wrote:I'm not happy with their portfolio. I was hoping they would only use the low cost market-cap Schwab index ETFs.
Personally, I like their selection. It definitely includes factor investing though, which may not be for everyone (1). It's what I have in my portfolio now though which actually means I can't effectively use the service since it'd be endless wash sales since I don't want to face capital gains taxes selling everything to go 100% in.

In any case, if you don't like the fundamental series they include and the higher ER that goes with it, Schwab mentions you can request to exclude particular ETFs. They reserve the right to say no if you request a portfolio which is unworkable for them to implement. So not sure if they would let you omit it, but ... one might ask. I'd be more likely to request no gold myself.

As for tax loss harvesting, they state they will monitor your and your spouse's Intelligent Portfolios to avoid wash sales (2), but beyond that it's up to you to watch any other holdings (too difficult for me).

(1) Depending on portfolio they include a slice in funds using the Russell Fundamental Indexes which is factor investing-- http://www.russell.com/documents/indexe ... esting.pdf
(2) https://www.schwab.com/public/file/SIP- ... E-BROCHURE
Maxman
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Re: Schwab Intelligent Portfolio Details

Post by Maxman »

At 60 years old I don't mind 15% in cash. What are your opinions on using Schwab Intelligent Portfolios for a retirement ira with about 1mm? We currently use a passive investment portfolio managed for .6% per year plus internal fees.
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in_reality
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Re: Schwab Intelligent Portfolio Details

Post by in_reality »

Maxman wrote:At 60 years old I don't mind 15% in cash. What are your opinions on using Schwab Intelligent Portfolios for a retirement ira with about 1mm? We currently use a passive investment portfolio managed for .6% per year plus internal fees.
1) .6% is too much to pay when quality alternatives are available
2) in an IRA, you couldn't take advantage of the tax loss harvesting which is a big feature
3) I don't know enough about all aspects of that allocation such as Master Limited Partnerships and preferred stocks, and would want to understand those before investing in them

Before doing anything, I would look at the allocation in Vanguard's balanced funds and retirement funds and compare them to what Schwab ends up suggesting based on your input. It seems like the Schwab example portfolio has less in equities than the Vanguard retirement fund at the same age, but that is likely due to the case of the investor specifically requesting lower volatility. It's be interesting to compare Schwab's suggestion, Vanguard's offering and what you have now.

So I don't think a Schwab Intelligent Portfolio is out of the question, but can't say it's appropriate because we don't really know exactly what we are looking at.
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Re: Schwab Intelligent Portfolio Details

Post by harikaried »

in_reality wrote:Schwab mentions you can request to exclude particular ETFs. They reserve the right to say no if you request a portfolio which is unworkable for them to implement.
I'll be interested to see to what extent this is allowed. We currently have a Schwab brokerage account that only has international stocks as we have US stocks and bonds in retirement accounts. Ideally we would be able to just set the Intelligent Portfolio to be just international stocks and have it automatically tax loss harvest.
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Re: Schwab Intelligent Portfolio Details

Post by indexfundfan »

Why would I want to hold cash that pays almost nothing with Schwab? If I want a cash allocation, I would rather hold it myself with one of the online banks that pays 0.8% ~ 1.0%.

If Schwab puts a quarter of your portfolio in cash, when you compare it to an online account that pays 1% in interest, the implicit fee "charged" by Schwab because of this is 0.25%.
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Re: Schwab Intelligent Portfolio Details

Post by harikaried »

indexfundfan wrote:Why would I want to hold cash that pays almost nothing with Schwab? If I want a cash allocation, I would rather hold it myself with one of the online banks that pays 0.8% ~ 1.0%.
Not everyone keeps their cash in accounts that earn significant interest. We keep our emergency fund / regular checking money in an account earning 0.01%. I suppose it wouldn't be surprising if Schwab is trying to get more people to just use their Intelligent Portfolio / Schwab Bank as their primary cash account with paychecks getting direct deposited. I could see them promoting it as "make your money work for you right away according to your asset allocation while having the flexibility to access cash whenever you want."

I'm not sure what havoc it would cause for buying/selling after you deposit or withdraw money (I would assume they could have it "rebalance" cash to target AA once a week instead of immediately), but I could see myself using this if I could set a desired dollar amount to always be available as cash. Any deposits get automatically invested and withdrawals get filled up by selling the positions by TLH or triggering LTCG or worst case short-term ordinary income gains.
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Re: Schwab Intelligent Portfolio Details

Post by in_reality »

harikaried wrote:
indexfundfan wrote:Why would I want to hold cash that pays almost nothing with Schwab? If I want a cash allocation, I would rather hold it myself with one of the online banks that pays 0.8% ~ 1.0%.
Not everyone keeps their cash in accounts that earn significant interest. We keep our emergency fund / regular checking money in an account earning 0.01%. I suppose it wouldn't be surprising if Schwab is trying to get more people to just use their Intelligent Portfolio as their primary cash account with paychecks getting direct deposited. I could see them promoting it as "make your money work for you right away according to your asset allocation while having the flexibility to access cash whenever you want."
The cash level is determined by your allocation choice.

25% seems extreme and I only see 6-15% in their examples.

If I were in the 15% range as per their example, I guess the value would depend on a) what it's worth to have everything balanced for me b) tax loss harvesting advantages and c) if there is any merit to the asset classes they might be adding that I would never know enough to get on my own like Master Limited Partnerships, Preferred Stocks, Bank Loan and other Floating Rate Notes.
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Re: Schwab Intelligent Portfolio Details

Post by harikaried »

in_reality wrote:If I were in the 15% range as per their example, I guess the value would depend on a) what it's worth to have everything balanced for me b) tax loss harvesting advantages and c) if there is any merit to the asset classes they might be adding that I would never know enough to get on my own like Master Limited Partnerships, Preferred Stocks, Bank Loan and other Floating Rate Notes.
I guess what I was getting at was that money is fungible, so if 15% of your Schwab account is in cash (say $15k of $100k), and you would have otherwise had $30k cash in your checking account. Instead of ending up with $45k in cash, you could transfer roughly $15k from checking to Schwab and end up with $30k total cash and more money invested.
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Re: Schwab Intelligent Portfolio Details

Post by randomguy »

harikaried wrote:
in_reality wrote:If I were in the 15% range as per their example, I guess the value would depend on a) what it's worth to have everything balanced for me b) tax loss harvesting advantages and c) if there is any merit to the asset classes they might be adding that I would never know enough to get on my own like Master Limited Partnerships, Preferred Stocks, Bank Loan and other Floating Rate Notes.
I guess what I was getting at was that money is fungible, so if 15% of your Schwab account is in cash (say $15k of $100k), and you would have otherwise had $30k cash in your checking account. Instead of ending up with $45k in cash, you could transfer roughly $15k from checking to Schwab and end up with $30k total cash and more money invested.
Problem is when you have real money in the account and they start having 100k+ in cash (min looks to be about 7%). You can' just keep your ER or checking account money(that has issues with cash flow management) in there. Maybe cash is a good investment but I have heard very few recommendations for that type of strategy. I sort of agree with the competitor that calls it a hidden fee.

Personally I was more alarmed by the retired persons portfolio though. 1% in reits (or anything) are not going to provide inflation protection and I am not sure if high yield corporates, emerging market, and preferred stocks really is a low volatility choice either. It looks to me like a classic reaching for yield portfolio (but that doesn't explain the munis).
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Re: Schwab Intelligent Portfolio Details

Post by anil686 »

I guess disappointed was my take on it too...

There does not seem to be much customization allowed at this time outside of excluding some ETF's but you have to go with their allocations. I was hoping they were going to have more customized stock/bond splits and the use of munis for younger investors in a taxable account. I do not want 7% of my portfolio in cash - that is not invested in the market. i would rather have it invested in int term tax exempt bond funds than cash. I also would have preferred something different than a global market cap weighted portfolio as a US investor due to currency risk (JMO though with this last statement as I can see others wanting a global market cap weighted portfolio). my point is that it should be more customizable...

I agree wrt retiree portfolio looking a little weird - but maybe some retirees on the board can chime in on what they think of that AA...
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Re: Schwab Intelligent Portfolio Details

Post by indexfundfan »

randomguy wrote:Problem is when you have real money in the account and they start having 100k+ in cash (min looks to be about 7%). You can' just keep your ER or checking account money(that has issues with cash flow management) in there. Maybe cash is a good investment but I have heard very few recommendations for that type of strategy. I sort of agree with the competitor that calls it a hidden fee.
That's exactly the point. If I have only $10k in the account, sure, go ahead and keep $2000 in cash, I can always adjust my cash balance elsewhere.

But if this is a non-trivial amount of money, keeping a huge position in cash is a drag on portfolio performance. Isn't one of the criticism of active funds that the fund manager could opt to have a significant cash balance? This results in a performance drag. With (good) index funds, the money is fully invested.
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Re: Schwab Intelligent Portfolio Details

Post by indexfundfan »

By the way, one of the links above states that Schwab will put 7% to 30% of the portfolio in cash. So 7% in cash is about the lowest you can go. I am guessing for a 50/50 type of portfolio, you will get 15% to 20% allocation in cash.
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Re: Schwab Intelligent Portfolio Details

Post by anil686 »

indexfundfan wrote:By the way, one of the links above states that Schwab will put 7% to 30% of the portfolio in cash. So 7% in cash is about the lowest you can go. I am guessing for a 50/50 type of portfolio, you will get 15% to 20% allocation in cash.
There was an article I read over the weekend where Schwab talks about the cash being not invested so people can invest more and understand some of their money is "safe" - i.e. not invested like a savings account. I found this opinion to be rather distasteful - using the example of $100,000 portfolio - you cannot just remove $7K in cash and keep the other 93K invested - it is proportional. to get $7K out - i would imagine that $6500 will come out of your investments and $500 will come from cash incurring long term and possibly short term cap gains...

http://www.riabiz.com/a/503840623715942 ... chwab-bank
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Re: Schwab Intelligent Portfolio Details

Post by indexfundfan »

anil686 wrote:
indexfundfan wrote:By the way, one of the links above states that Schwab will put 7% to 30% of the portfolio in cash. So 7% in cash is about the lowest you can go. I am guessing for a 50/50 type of portfolio, you will get 15% to 20% allocation in cash.
There was an article I read over the weekend where Schwab talks about the cash being not invested so people can invest more and understand some of their money is "safe" - i.e. not invested like a savings account. I found this opinion to be rather distasteful - using the example of $100,000 portfolio - you cannot just remove $7K in cash and keep the other 93K invested - it is proportional. to get $7K out - i would imagine that $6500 will come out of your investments and $500 will come from cash incurring long term and possibly short term cap gains...

http://www.riabiz.com/a/503840623715942 ... chwab-bank
You are probably right. If you keep (part of) your emergency fund in this Schwab account, and you have an emergency that requires you to withdraw some cash, Schwab will probably also sell your assets to bring the cash balance up.

Part of the reason of having an emergency fund is so that if you have an emergency, you have the cash without resorting to selling your investment assets at a bad time. In this sense, you cannot consider the cash balance with Schwab as part of your emergency fund anymore.
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EvelynTroy
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Re: Schwab Intelligent Portfolio Details

Post by EvelynTroy »

Perhaps of interest - The Finance Buff (Harry Sit) has written on Schwab Intelligent Portfolios this a.m.

http://thefinancebuff.com/schwab-intell ... r-you.html
harikaried
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Re: Schwab Intelligent Portfolio Details

Post by harikaried »

indexfundfan wrote:But if this is a non-trivial amount of money, keeping a huge position in cash is a drag on portfolio performance.
If the percentage in cash results in something more than what you would normally keep as cash, couldn't you just have the Intelligent Portfolio to be more aggressive and end up with say 7% cash instead of 15% cash?

It seems that part of the concern comes from how here we traditionally think of asset allocation as stocks/bonds and keep cash set aside somewhere outside of that ratio.
randomguy
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Re: Schwab Intelligent Portfolio Details

Post by randomguy »

harikaried wrote:
indexfundfan wrote:But if this is a non-trivial amount of money, keeping a huge position in cash is a drag on portfolio performance.
If the percentage in cash results in something more than what you would normally keep as cash, couldn't you just have the Intelligent Portfolio to be more aggressive and end up with say 7% cash instead of 15% cash?

It seems that part of the concern comes from how here we traditionally think of asset allocation as stocks/bonds and keep cash set aside somewhere outside of that ratio.
Let say you want 60/40 and Shwab defaults you to 60/25/15. Reducing the cash by going to 70/20/10 isn't exactly what you want. I don't have a problem with cash. But the cash I have in my checking account is more than enough for my needs. I am paying schwab to invest my money not to hold on to it.

I also don't love the tax inefficiancy (high yield bonds, reits, EM bonds) but I will wait and see if their are flags to customize. It is interesting that all the Roboadvisors are going ~50/50 us/international (and wealthfront goes very EM heavy). It will be interesting to see how that plays out if the US bull continues.
chessmannextmove
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Re: Schwab Intelligent Portfolio Details

Post by chessmannextmove »

I called Charles Schwab for more information.

Q: Are the portfolios fixed?
A: Yes
Q: Is there any way to drill down and change the portfolios?
A: There is some flexibility once it goes live in a few weeks
The customer service rep was a bit short with me so I didn't feel welcome to ask more questions.

I second the worries about the high cash positions. But, I am more concerned with the large amount allocated to "fundamental" etfs. I'm not sold on these guys (http://corporate.morningstar.com/us/doc ... dexers.pdf) and would prefer to avoid them and stick to an all cap-wtd and rock-bottom ER approach. The ER for cap wtd efts in their list are around 10bp but the ER for the fundamental etfs are around 40bp. If I cannot avoid these guys, I will not use SIP. Like someone else already mentioned, better off with Betterment if over 100k if you want auto rebalance and TLH. But an issue with TLH is that it is only marginally better than selling only if you avoid short term cap gains taxes (http://www.vanguard.com/pdf/s802.pdf) so it may or may not even be worth the extra 15bp charge with Betterment. Since the tax savings from TLH are capped at a dollar amount but 15bp grows as fund value grows, it is unlikely to be worth it for everyone.

What would be the best for us is let us choose from the etfs. If you want to bet on fundies, go ahead, if not, you don't have too. Likewise with the cash position. I think the largish allocation to fundamental etfs is where they make their bacon.

I'm surprisingly ok with the gold and other metals portion since it is tiny and serves the purpose of rebalancing to/from low correlated stuff. At least these portfolios will be "text-book efficient."
tj
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Re: Schwab Intelligent Portfolio Details

Post by tj »

Consider me underwhelmed. I don't like the forced cash and bonds holdings. I'd rather use a couple Vanguard funds for bonds with a robo-advisor for stocks. Right now, the only way to do that seems to be with Betterment and they charge a fee. Wealthfront does not invest all your cash which I learned from opening a small account for a brief period.
curlyfries
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Re: Schwab Intelligent Portfolio Details

Post by curlyfries »

harikaried wrote:Not everyone keeps their cash in accounts that earn significant interest. We keep our emergency fund / regular checking money in an account earning 0.01%. I suppose it wouldn't be surprising if Schwab is trying to get more people to just use their Intelligent Portfolio / Schwab Bank as their primary cash account with paychecks getting direct deposited. I could see them promoting it as "make your money work for you right away according to your asset allocation while having the flexibility to access cash whenever you want."
Is this what they mean by cash allocation, that you can use this cash like a bank account, complete with cards and checks? There could be a rule saying you need the minimum deposit before non-cash investments are allowed, and that after some period of not having the minimum they rebalance to top up the cash. That wouldn't be a bad deal, at least up to the level of cash one puts in banks, since effectively they'd be saying "we'll give you robo advice if you retail bank with us."

But my sense was they simply cordon 7-30% percent off before investing and say it's "invested" as cash, so getting access to that sum wouldn't be instantaneous or possible via debit card/check.
Seattlenative
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Re: Schwab Intelligent Portfolio Details

Post by Seattlenative »

indexfundfan wrote: You are probably right. If you keep (part of) your emergency fund in this Schwab account, and you have an emergency that requires you to withdraw some cash, Schwab will probably also sell your assets to bring the cash balance up.

Part of the reason of having an emergency fund is so that if you have an emergency, you have the cash without resorting to selling your investment assets at a bad time. In this sense, you cannot consider the cash balance with Schwab as part of your emergency fund anymore.
True, it's like the "rising water in a toilet bowl" theory: if you place a large rock into a toilet, the water level will rise but the actual quantity of water in the toilet bowl will be unchanged. If an SIP client withdraws cash from their account, and it's not 100% clear how easy Schwab will make it to withdraw cash, they will sell of a pro-rata portion of your positions to maintain the allocated cash asset allocation.
Topic Author
macav933
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Re: Schwab Intelligent Portfolio Details

Post by macav933 »

Launch date for Schwab Intelligent Portfolios set for March 10 according to a conversation I had with Schwab this AM. I will be making an appointment and will share any further details. I haven't been able to find any additional AA examples other than the 3 listed in their FAQ link. Interested what the 70/30 AA would look like.
kannankeril
Posts: 18
Joined: Tue Nov 10, 2009 11:51 pm

Re: Schwab Intelligent Portfolios (SIP)

Post by kannankeril »

Some concerns I have about SIP:

1) They are vaporware at present with no launch date scheduled.

2) If this blog post (http://thefinancebuff.com/schwab-intell ... r-you.html) is right, they will insist on a cash allocation to be held at Schwab Bank which can then lend it out.

3) The recommended investments may not necessarily be restricted to their low-cost index offerings but include ETFs with higher expense rations.
Topic Author
macav933
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Re: Schwab Intelligent Portfolios

Post by macav933 »

Launch Date March 10th
kannankeril
Posts: 18
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Re: Schwab Intelligent Portfolios

Post by kannankeril »

@macav933,
Launch Date March 10th
Can you share your source? I see nothing on the Schwab website.
Topic Author
macav933
Posts: 27
Joined: Sun Jun 22, 2014 7:02 am

Re: Schwab Intelligent Portfolios

Post by macav933 »

I recieved a call from Schwab updating me on start date and asking if I wanted to make an appointment. I did and will take a further look at the offering on March 10th.
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