Schwab Intelligent Portfolios [now live]

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Iorek
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Re: Schwab Intelligent Portfolios [now live]

Post by Iorek »

I wonder about the auto-TLH. In a world where Roth conversions already give taxpayers significant control over when to time their income I expect this is small potatoes, but I wonder how the auto-TLH works, and whether having auto-TLH as a feature offered on investment accounts will prompt the IRS to be more clear about the extent and application of the wash sale rule. Arguably it's one thing to have a million Bogleheads doing TLH according to their preference and judgment, but it might be another thing to have Schwab etc. doing TLH according to some set of rules for a million customers.
tj
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Re: Schwab Intelligent Portfolios [now live]

Post by tj »

Here's Betterment's take:

https://www.betterment.com/resources/in ... cash-drag/

It's less sour grapesy than Wealthfront's, but still how convenient that they mention the cost of cash drag, but not the cost of ongoing-fee drag. ;-)
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in_reality
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Re: Schwab Intelligent Portfolios [now live]

Post by in_reality »

tj wrote:Here's Betterment's take:

https://www.betterment.com/resources/in ... cash-drag/

It's less sour grapesy than Wealthfront's, but still how convenient that they mention the cost of cash drag, but not the cost of ongoing-fee drag. ;-)
Again, they seem to be lowering the equity allocation. I thought the cash holding was replacing bonds in your ballast allocation.
harikaried
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Re: Schwab Intelligent Portfolios [now live]

Post by harikaried »

Today (2015/03/12) volume spikes:

SCHX @11:08 $49.42
SCHE @11:12 $23.80
FNDC @10:43 $26.89

I'm posting the price if people want to confirm their purchase price matches up.

Also, given those data points, it looks like SIP is trading the ETFs at the same time each day (for the last 2 days). Should there be concerns of people/machines trading around that time to take advantage of this pattern and volume?
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Re: Schwab Intelligent Portfolios [now live]

Post by harikaried »

harikaried wrote:Should there be concerns of people/machines trading around that time to take advantage of this pattern and volume?
Here's a response from a chat:

"We use time weighted average price - to make sure there's no lop sided trades, and there's actual traders managing the trades, not just dumping a large trade in the marketplace via computer"

http://en.wikipedia.org/wiki/Time-weigh ... rage_price
livesoft
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Re: Schwab Intelligent Portfolios [now live]

Post by livesoft »

harikaried wrote:
harikaried wrote:Should there be concerns of people/machines trading around that time to take advantage of this pattern and volume?
Here's a response from a chat:

"We use time weighted average price - to make sure there's no lop sided trades, and there's actual traders managing the trades, not just dumping a large trade in the marketplace via computer"

http://en.wikipedia.org/wiki/Time-weigh ... rage_price
"actual traders" that would give me absolutely no confidence. I would want to use an algorithm that was better than any other algorithm doing the trades for me. :twisted:

Now if Schwab had said, "We submit the trades to IEXTrading", then I would have been even more comfortable.
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Gleevec
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Re: Schwab Intelligent Portfolios [now live]

Post by Gleevec »

So when you exclude a primary fund, it goes into its alt 1:1. I was trying to avoid the higher cost fundamental indices, but it put me into the even higher cost alt fundamental indices. Ive gone ahead and excluded the high cost alternative fundamentals now (and may have accidentally triggered some badness/account lock in process)

Ive actually cancelled further assets into SIP as I dont really know if I want to pay 0.32% ER for a portfolio more weighted in fundamental indices. I feel OK about the international and US small cap fundamentals cost, and as stated earlier, the 6% cash doesnt concern me (for auto-TLH, especially since I get a safer asset compared to just paying a company 0.25% and losing that money). But to pay that much (0.32) for a US large cap fundamental doesnt sit well with me, especially given the size of that asset class in my portfolio
mattatl
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Re: Schwab Intelligent Portfolios is live

Post by mattatl »

tfb wrote:
mattatl wrote:Can someone check my math on the above? Since wealthfront and betterment don't keep any deposits sequestered in cash, doesn't Schwab's scheme result in higher costs by comparison (when considering the opportunity cost by those who would have invested the cash)?
Your math is wrong. If Schwab puts the 7% in Vanguard's new ultra-short bond fund, would you feel better?

https://personal.vanguard.com/us/funds/ ... IntExt=INT

Using ultra-short bonds as part of a portfolio is a legit model. Otherwise Vanguard wouldn't offer the fund. Schwab Bank lending out the money is of little consequence to you, just like what the bond-issuers in the Vanguard bond fund do with the money. You get a ultra-short term, low risk investment to balance the risk in your portfolio.

Sure, using cash or ultra short bonds is a fine strategy for many people. If keeping 6% in whatever ultrasafe vehicle you choose is part of your investment strategy, it makes no difference whether it's cash, T-bills, etc.
The point I am making is that many investors would choose to keep the cash fully invested in higher-yielding ETFs. SIP doesn't allow it, making money off the cash position is its revenue model, and that's how it's "free."
If the more-aggressive investor's cash were fully invested, it would make another 30-210 basis points (@5-7% return on a Schwab-mandated 6-30% cash allocation).
This opportunity cost is effectively an expense.
So: SIP is more expensive than either Wealthfront or Betterment -- for anyone who doesn't want to keep cash idle.
(I didn't see the part where my math is wrong.)
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Re: Schwab Intelligent Portfolios is live

Post by LadyGeek »

tfb wrote:
mattatl wrote:Can someone check my math on the above? Since wealthfront and betterment don't keep any deposits sequestered in cash, doesn't Schwab's scheme result in higher costs by comparison (when considering the opportunity cost by those who would have invested the cash)?
Your math is wrong. If Schwab puts the 7% in Vanguard's new ultra-short bond fund, would you feel better?

https://personal.vanguard.com/us/funds/ ... IntExt=INT

Using ultra-short bonds as part of a portfolio is a legit model. Otherwise Vanguard wouldn't offer the fund. Schwab Bank lending out the money is of little consequence to you, just like what the bond-issuers in the Vanguard bond fund do with the money. You get a ultra-short term, low risk investment to balance the risk in your portfolio.
Caution, ultra-short does not mean ultra-safe. See this discussion: Vanguard Ultra-Short-Term Bond Fund now available

There's also an SEC alert: Ultra-Short Bond Funds: Know Where You’re Parking Your Money
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bowtie
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Re: Schwab Intelligent Portfolios [now live]

Post by bowtie »

Sorry for being slow on this but why is SIP more expensive??
Doesn't it use mostly ETF's?
I thought it was supposed to be very cost effective. ?????
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in_reality
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Re: Schwab Intelligent Portfolios is live

Post by in_reality »

mattatl wrote:
tfb wrote:
mattatl wrote:Can someone check my math on the above? Since wealthfront and betterment don't keep any deposits sequestered in cash
If the more-aggressive investor's cash were fully invested, it would make another 30-210 basis points (@5-7% return on a Schwab-mandated 6-30% cash allocation).

So: SIP is more expensive than either Wealthfront or Betterment -- for anyone who doesn't want to keep cash idle.
(I didn't see the part where my math is wrong.)
Your math is fine.

However, any bond fund returning 5-7% will either a) have extreme credit risk, b) have a really long duration or c) be leveraged to the max.

As such, you would need to include those risks in your analysis.

If you are replacing stocks with cash for the SIP portfolio and comparing it to a portfolio with a higher stock allocation, then you aren't really comparing comparable portfolios.

So basically your math is right but ... calculating how much apple pie you will get from two different recipes sort of should not substitute oranges in the ingerdiant list for one of them.
bowtie
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Re: Schwab Intelligent Portfolios [now live]

Post by bowtie »

I guess 'expensive' refers to consequences perceived from cash portion then?
Also, the poster above says 'I don't want to pay .32 er for a portfolio weighted with fundamental indices. ' or something similar. However, I still do not really understand why people are saying that SIP is 'more expensive' than a diy portfolio.
tj
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Re: Schwab Intelligent Portfolios [now live]

Post by tj »

So: SIP is more expensive than either Wealthfront or Betterment -- for anyone who doesn't want to keep cash idle.
I just don't understand the logic of this. Since Wealthfront doesn't use fractional shares, your forced to keep a small cash allocation AND pay a 25 bps fee.

If you are in the highest tier of Betterment and paying 15bps, then maybe its a bit closer but it's not drastically cheaper than Schwab. Sure, you have less invested in stocks, but you also have less return being lost to fees in the Schwab.
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in_reality
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Re: Schwab Intelligent Portfolios [now live]

Post by in_reality »

bowtie wrote:I guess 'expensive' refers to consequences perceived from cash portion then?
Also, the poster above says 'I don't want to pay .32 er for a portfolio weighted with fundamental indices. ' or something similar. However, I still do not really understand why people are saying that SIP is 'more expensive' than a diy portfolio.
Because as you say, that cash could be earning 1% in a savings account.
Then there are the ERs of the fundamental indexes. I personally use those same funds outside of SIP but in gereral, people shouldn't invest in things they don't understand because they will be more likely to bail out at the wrong time. Do you want a value tilt that adjusts it's value exposure according to how valuey the overall market is (you get less value exposure after value stocks have done well and are closer to growth stocks interms of valuation)? Do you want your value fund to have a whacky 9 box because it it also selecting relatively valuey companies in sectors that typically fit in the growth categories?

The only thing we know for sure about the fundamental indexes is that they have a higher ER, they have done well since their fund inception but going forward ... conservatively speaking only a total market fund guarantees market returns. So you are accepting the risk of a tilt which may cost in terms of underperformance.

Others, like livesoft, contend that you may pay a bit more per trade since Schwab gets some money from routing orders. The money Schwab recieves seems less than what Fidelity or TD Ameritrade gets, vanguard routes some of their orders through the same venue, and anyway the total amount Schwab can recieve is capped for ERs, routing, and 3rd party ETFs who pay for account maintenance. I don't see this as major but there could be some small difference here.

So mostly to me it comes down to how will the cash allocation work with rebalancing? How will the fundamental indexes perform? How much will the rebalancing be worth?

Given the allocation to the fundamental indexes, I don't think the question here is cost vs wealthfront or betterment or DIY. I think it's rather do you want that asset allocation. Without a doubt a standard three fund portfilio is cheaper and probably less risky.

Let's be honest, the fundamental indexes have people more in Exxon than Apple and how has that worked in the last year. That's the thing with a value tilt you know. I am ok with it because over my investment horizon, I think value will win and that the fundamental indexes are better than a traditional value fund that is available for a lower ER.
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Re: Schwab Intelligent Portfolios [now live]

Post by mattatl »

@tj:
You aren't paying more in fees.
You're "paying" (sacrificing) more (potentially much more) in opportunity cost - the returns you could have made from the cash position you are forced to take.
It makes no sense for investors who want to be in mostly stocks. For others it might be okay.
The wealthfront CEO critique is correct. Add up these hidden virtual-fees over years and it's tens/hundreds of thousands.
Calling it free is misleading if not outright deceptive and I'm surprised the Bheads are giving them such a pass.
The "apple vs orange pie" critique above again misses the point as I see it. Of course you can't make 5-7% in a bond fund long term.
The opportunity cost of the cash is not what you could make in a specific bond fund, or money market account.
It's the total internal rate of return of your portfolio at your desired allocation.
Agreed this only applies to those like me seeking close to 100% stocks.
But pretending the cash position (which is not liquid) is a surrogate for bonds, to me just means you're willing to buy into schwabs self serving convoluted logic and marketing, which I agree is tempting. I really wanted to be able to sign up.
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in_reality
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Re: Schwab Intelligent Portfolios [now live]

Post by in_reality »

mattatl wrote: Agreed this only applies to those like me seeking close to 100% stocks.
But pretending the cash position (which is not liquid) is a surrogate for bonds, to me just means you're willing to buy into schwabs self serving convoluted logic and marketing,
I think that calling the bond allocation a surrogate for bonds is appropriate according to your math.

If it is not, then your math is off.

Why do you suggest that Schwab is suggesting a 30% allocation to cash for somebody whose risk tolerance would put them close to 100% stocks? They aren't.

Your "analysis" [note the quotes] is taking the expected rate of return for someone who is all stocks, and misapplying it to someone who would be holding bonds instead of cash.

So if you want to compare Schwabs offering to 100% stocks, wouldn't you conclude that the cost of a 6% cash allocation at a 5-7% rate of return is 30-42 basis points?

I guess you can accuse me of buying into convoluted logic and marketing but actually that makes more sense than your math did.
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Re: Schwab Intelligent Portfolios [now live]

Post by Pizzasteve510 »

Realize I repeated points made earlier...(removed)
Last edited by Pizzasteve510 on Sat Mar 14, 2015 12:45 pm, edited 6 times in total.
IPer
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Re: Schwab Intelligent Portfolios [now live]

Post by IPer »

mattatl wrote:@tj:
You aren't paying more in fees.
You're "paying" (sacrificing) more (potentially much more) in opportunity cost - the returns you could have made from the cash position you are forced to take.
It makes no sense for investors who want to be in mostly stocks. For others it might be okay.
The wealthfront CEO critique is correct. Add up these hidden virtual-fees over years and it's tens/hundreds of thousands.
Calling it free is misleading if not outright deceptive and I'm surprised the Bheads are giving them such a pass.
The "apple vs orange pie" critique above again misses the point as I see it. Of course you can't make 5-7% in a bond fund long term.
The opportunity cost of the cash is not what you could make in a specific bond fund, or money market account.
It's the total internal rate of return of your portfolio at your desired allocation.
Agreed this only applies to those like me seeking close to 100% stocks.
But pretending the cash position (which is not liquid) is a surrogate for bonds, to me just means you're willing to buy into schwabs self serving convoluted logic and marketing, which I agree is tempting. I really wanted to be able to sign up.
Disagree to agree: Call it what it is. You cannot use that cash, it is dead/double dead cash, killed to inflation. Killed to interest rates. I doubt it should even be called
cash, they are expecting dumb folk to overlook it like they can overlook a bit of dormant cash in the funds and ETFs (they all have a bit, NOT 6% or even 1%!!!). So
I disagree that we should look this over. I see no way this cash gets used, you wanna count it as your emergency fund, cash on hand, it is NOT! Also I disagree about
this applying to those close to 100% in stocks. Not. It applies to everyone that wants to stick to their Asset Allocation and use their Assets as such! It just
irks me to think Schwab thought they could pull a fast one like this! :oops: :oops: :oops: :annoyed
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Re: Schwab Intelligent Portfolios [now live]

Post by Gleevec »

IPer wrote:
mattatl wrote:@tj:
You aren't paying more in fees.
You're "paying" (sacrificing) more (potentially much more) in opportunity cost - the returns you could have made from the cash position you are forced to take.
It makes no sense for investors who want to be in mostly stocks. For others it might be okay.
The wealthfront CEO critique is correct. Add up these hidden virtual-fees over years and it's tens/hundreds of thousands.
Calling it free is misleading if not outright deceptive and I'm surprised the Bheads are giving them such a pass.
The "apple vs orange pie" critique above again misses the point as I see it. Of course you can't make 5-7% in a bond fund long term.
The opportunity cost of the cash is not what you could make in a specific bond fund, or money market account.
It's the total internal rate of return of your portfolio at your desired allocation.
Agreed this only applies to those like me seeking close to 100% stocks.
But pretending the cash position (which is not liquid) is a surrogate for bonds, to me just means you're willing to buy into schwabs self serving convoluted logic and marketing, which I agree is tempting. I really wanted to be able to sign up.
Disagree to agree: Call it what it is. You cannot use that cash, it is dead/double dead cash, killed to inflation. Killed to interest rates. I doubt it should even be called
cash, they are expecting dumb folk to overlook it like they can overlook a bit of dormant cash in the funds and ETFs (they all have a bit, NOT 6% or even 1%!!!). So
I disagree that we should look this over. I see no way this cash gets used, you wanna count it as your emergency fund, cash on hand, it is NOT! Also I disagree about
this applying to those close to 100% in stocks. Not. It applies to everyone that wants to stick to their Asset Allocation and use their Assets as such! It just
irks me to think Schwab thought they could pull a fast one like this! :oops: :oops: :oops: :annoyed
As opposed to charging a flat 0.25% on all assets managed, which is cash that are you handing over and will never see again? At least the 6% cash allocation here is still yours.
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in_reality
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Re: Schwab Intelligent Portfolios [now live]

Post by in_reality »

IPer wrote:Disagree to agree: Call it what it is. You cannot use that cash, it is dead/double dead cash, killed to inflation. Killed to interest rates. I doubt it should even be called
cash, they are expecting dumb folk to overlook it like they can overlook a bit of dormant cash in the funds and ETFs (they all have a bit, NOT 6% or even 1%!!!).
So your view is that the money will never be used for rebalancing. Hmmn, haven't thought about that and don't think I will since it makes no sense.
IPer wrote:So I disagree that we should look this over. I see no way this cash gets used, you wanna count it as your emergency fund, cash on hand, it is NOT! Also I disagree about this applying to those close to 100% in stocks. Not. It applies to everyone that wants to stick to their Asset Allocation and use their Assets as such!
The point you apparently missed is the math calculating the cash drag was applying the expected rate of return for stocks to the expected rate of returns for bonds. No, no one should overlook the cash allocation, but when they look at it, they should compare the expected rate of return for the cash allocation to the expected rate for return for the bond allocation.
IPer wrote: It just irks me to think Schwab thought they could pull a fast one like this! :oops: :oops: :oops: :annoyed
I'm truly sorry you are feeling irked but suggest that is due to your expectations for what the product to be as opposed to understanding what Schwab routinely does. The registered investment advisors who custody at Schwab have a similar cash allocation. Those advisors have a fiduciary duty to their clients too. So while I too question the cash allocation, there is a school in modern portfolio theory that suggests it is appropriate. Ok, you disagree and know better than Schwab and the RIAs. Fine. BlackRock Global Allocation Fund with $50 billion currently has a 15% cash allocation.

So ok, you think Schwab is trying to pull a fast one but well $620 million of assets by RIAs with a fiduciary duty do it a similar way. BlackRock Global is what chopped liver?

Granted, in those two cases you could access the cash without selling any other assets so there is a difference. But then again, you are getting a tax loss harvest and rebalancing service out of it.

In any case, for those who would hold bonds, they should compare the cash allocation returns to the likely bond returns and not to the stock returns as wealthfront and other analysis are incorrectly doing.
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Re: Schwab Intelligent Portfolios [now live]

Post by IPer »

You guys keep saying it is ok for Schwab to semi-conceal the cash issue because:

1. They are not charging a fee for this service
2. They might need it to rebalance
3. There is a precedent for having this cash somewhere in the industry though then you said they could access it so it is really not the same

I say you must be simply brainwashed into thinking that way and suggest you should leave Black Rock out of the discussion.

And yes, I would rather pay a set fee that I know up front or an Expense Ratio rather than having a percentage of my holdings basically in a
dead hole. And I am not assuming the value lost is the return on stocks, bonds or anything else you could do with cash but precisely that:
anything you could have done with the cash!

Besides me thinks many if not all of you arguing on the other side would not touch this investment with a 10 foot pole, am I right?!
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Re: Schwab Intelligent Portfolios [now live]

Post by harikaried »

IPer wrote:And yes, I would rather pay a set fee that I know up front or an Expense Ratio rather than having a percentage of my holdings basically in a dead hole.
The cash portion in SIP earns us more interest than what the cash would have earned in our checking account, so not only is SIP no fee, we basically get guaranteed returns on the cash interest portion. We reduced the checking account by $3.6k, which would have earned 0.01% (3¢/mo), to offset the $3.6k now earning 0.1% (30¢/mo)! Not really a dead hole for us...

... but not really a fountain of gold either. ;) This amount of cash is not really that significant right now for us as most of our money is in tax advantaged accounts. The simplicity of fewer accounts is worth it to not manage a separate savings account (and avoiding issues of too many withdrawals in a month, etc.). Similarly, the SIP account could replace the Schwab brokerage account, so no net additional accounts for us. Again for simplicity, having Schwab automatically rebalance from stocks into cash when we withdraw cash is something we don't need to think about. If you want to point out that selling stocks for cash to restore the emergency fund takes you even more out of the market, this is some extra thousands of dollars that aren't invested for some months while you replenish cash from savings (that again, SIP automatically rebalances).

Sure, we could compare Schwab's cash rate to what we could have earned in a savings account, but we've already made a decision to not use a separate savings account. Just like someone deciding to go with a 60/40 asset allocation shouldn't set a benchmark against 100/0.
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Re: Schwab Intelligent Portfolios [now live]

Post by indexfundfan »

With the tilt to value and emerging markets equity and the inclusion of REITs, the portfolio does not appear to be very tax efficient, with higher overall dividend yield and lower qualified dividends (compared to the simple market-capped portfolios, e.g. VTI + VXUS). The benefit of tax loss harvesting could be outweighed by the poorer tax efficiency.
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Re: Schwab Intelligent Portfolios [now live]

Post by indexfundfan »

harikaried wrote:
IPer wrote:And yes, I would rather pay a set fee that I know up front or an Expense Ratio rather than having a percentage of my holdings basically in a dead hole.
The cash portion in SIP earns us more interest than what the cash would have earned in our checking account, so not only is SIP no fee, we basically get guaranteed returns on the cash interest portion. We reduced the checking account by $3.6k, which would have earned 0.01% (3¢/mo), to offset the $3.6k now earning 0.1% (30¢/mo)! Not really a dead hole for us...

... but not really a fountain of gold either. ;) This amount of cash is not really that significant right now for us as most of our money is in tax advantaged accounts. The simplicity of fewer accounts is worth it to not manage a separate savings account (and avoiding issues of too many withdrawals in a month, etc.). Similarly, the SIP account could replace the Schwab brokerage account, so no net additional accounts for us. Again for simplicity, having Schwab automatically rebalance from stocks into cash when we withdraw cash is something we don't need to think about. If you want to point out that selling stocks for cash to restore the emergency fund takes you even more out of the market, this is some extra thousands of dollars that aren't invested for some months while you replenish cash from savings (that again, SIP automatically rebalances).

Sure, we could compare Schwab's cash rate to what we could have earned in a savings account, but we've already made a decision to not use a separate savings account. Just like someone deciding to go with a 60/40 asset allocation shouldn't set a benchmark against 100/0.
It's OK for $3.6k to sit in cash. However, have you considered what will you do if as you invest more and the portfolio grows 10x? Would you still be happy to leave $36k in cash?
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in_reality
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Re: Schwab Intelligent Portfolios [now live]

Post by in_reality »

indexfundfan wrote: It's OK for $3.6k to sit in cash. However, have you considered what will you do if as you invest more and the portfolio grows 10x? Would you still be happy to leave $36k in cash?
Yikes! At Ultrashort bond rates that'll cost me $136.80 Assuming that's a 20% cash allocation and the portfolio is worth $180,000. Vanguard charges 0.30% to manage a portfolio that size which comes to $540.
Well, maybe you would have the $36,000 in bonds paying 2% and really it would cost you $720.

Ok, so why the moral outrage at Schwab? They are charging from $136.80 to $720 (depending on what fixed income you compare the cash too [don't forget your duration risk by going for that 2% though]) for what Vanguard charges $540.

Schwab is offering a service at what seems a reasonable cost. That is what most companies do. Try to offer a service at a price people will pay and make a profit from it.

I personally feel they are being extremely upfront about the whole cash thing.

Best idea. DIY (no Schwab, Wealthfront, Betterment, or Vanguard management). Other ideas - calculate the price you are willing to pay for the service rendered and if you really need that service. I, again, suggest the most salient criteria is not the cost of the Schwab cash holding but if you really want to be in fundamental indexes in the first place. That might influence your returns more than the cash.(1)

PS. Speaking of concealment -- which people accuse Schwab in this thread of doing, why does Vanguard have a billion dollar+ slush fund that they stopped disclosing and allegedly don't pay taxes on? Bogle didn't have a fund that anywhere near that size. It's 10,000 times the size of use for it's stated purpose for the last 15 years combined. Is the fund related somehow to Vanguard executive compensation which is not disclosed. I am not alleging any misconduct at Vanguard whatsoever, but rather illustrating what concealment looks like. Schwab has clearly disclosed how they are generating income. Why is it being called concealed when the state what they are doing everywhere?

(1) discloser: I do use the fundamental indexes outside of SIP extensively and probably can't get into SIP due to capital gains and wash sale issues if I just contributed new money.
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Re: Schwab Intelligent Portfolios [now live]

Post by Seattlenative »

Here's Advertising Week's take on the robotic pitchman commercials:
http://www.adweek.com/news/advertising- ... man-163418
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Re: Schwab Intelligent Portfolios [now live]

Post by Seattlenative »

Here's a particularly harsh critique of SIP, which reminds one that for many years, Schwab offered no advisory services, no bank, and avoided any and all conflicts of interest: https://medium.com/@adamnash/broken-val ... d550a27629
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Re: Schwab Intelligent Portfolios [now live]

Post by Billionaire »

SInce so many here are using the term, let's at least establish in financial lingo a definition of sheeple. Sheeple - Anybody who invests money in an ETF, Mutual Fund or flock to a three fund portfolio.
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Re: Schwab Intelligent Portfolios [now live]

Post by tj »

In any case, for those who would hold bonds, they should compare the cash allocation returns to the likely bond returns and not to the stock returns as wealthfront and other analysis are incorrectly doing.
For me, I specifically like the idea of robo-advising for stocks and would prefer do the bonds seperately. After doing the math, in my case, it seems like it may make sense to go the fee route with Betterment rather than the cash drag of Schwab, but when interest rates go up, that could certainly change. There's also the question of where Fundamental Indexes are desirable or not.
mattatl
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Re: Schwab Intelligent Portfolios [now live]

Post by mattatl »

in_reality wrote:
indexfundfan wrote: It's OK for $3.6k to sit in cash. However, have you considered what will you do if as you invest more and the portfolio grows 10x? Would you still be happy to leave $36k in cash?

Yikes! At Ultrashort bond rates that'll cost me $136.80 Assuming that's a 20% cash allocation and the portfolio is worth $180,000. Vanguard charges 0.30% to manage a portfolio that size which comes to $540.
Well, maybe you would have the $36,000 in bonds paying 2% and really it would cost you $720.

Ok, so why the moral outrage at Schwab? They are charging from $136.80 to $720 (depending on what fixed income you compare the cash too [don't forget your duration risk by going for that 2% though]) for what Vanguard charges $540.

Schwab is offering a service at what seems a reasonable cost. That is what most companies do. Try to offer a service at a price people will pay and make a profit from it.

I personally feel they are being extremely upfront about the whole cash thing.

They're not being upfront at all about the cash strategy. One has to read it in all the financial news sites/blogs that explain it in plain English.
Sure Schwab makes mention of the cash strategy on their FAQs. But without acknowledging the opportunity cost to the investor.
That's fine for most people on this forum who can connect the dots.
But the main market for SIP is unsophisticated investors -- people who don't know what opportunity cost is, don't like to do math, don't want to think about their investments at all. They just want to trust someone to do it fairly.
For those people, it's outright deceptive to call SIP "free" without a linked tutorial on what opportunity cost of cash is, how that makes it "free", and what the risks are of the higher cash allocations.
Without that, people don't realize they are effectively paying expenses, and for many, these will be significantly more than through other companies.
No company is perfect, and all want to and deserve to make money.
But a company like Schwab -- with a brand built on putting the investor first -- deserves to be called out for using such a gimmick.
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Re: Schwab Intelligent Portfolios [now live]

Post by indexfundfan »

tj wrote:
In any case, for those who would hold bonds, they should compare the cash allocation returns to the likely bond returns and not to the stock returns as wealthfront and other analysis are incorrectly doing.
For me, I specifically like the idea of robo-advising for stocks and would prefer do the bonds seperately. After doing the math, in my case, it seems like it may make sense to go the fee route with Betterment rather than the cash drag of Schwab, but when interest rates go up, that could certainly change. There's also the question of where Fundamental Indexes are desirable or not.
I'm not sure the interest rate at Schwab will be very competitive with the online banks.

When Schwab first introduced the "high yield" investor checking, the rates were competitive with online banks but the rates become mediocre rather quickly. I think even when rates go up, we can count on the rates at Schwab to be maybe 1% below that we can get at online banks. E.g. we might see 4% at Ally but only 3% at Schwab. That will provide a similar margin of "profit" compared to now to help Schwab pay for the "free" robo-advisor.
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bowtie
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Re: Schwab Intelligent Portfolios [now live]

Post by bowtie »

So what you are saying is that a relatively 'small' investment portfolio of SIP is OK but if it is say 180K or more, then it's a very poor idea b/c so much of it is sitting in cash.
So it seems what is being said is that it's a good idea only for a certain amount of money you want to invest?
But when it grows or if you are investing more, then it makes more sense to do DIY ??
Gleevec
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Re: Schwab Intelligent Portfolios [now live]

Post by Gleevec »

IPer wrote:You guys keep saying it is ok for Schwab to semi-conceal the cash issue because:

1. They are not charging a fee for this service
2. They might need it to rebalance
3. There is a precedent for having this cash somewhere in the industry though then you said they could access it so it is really not the same

I say you must be simply brainwashed into thinking that way and suggest you should leave Black Rock out of the discussion.

And yes, I would rather pay a set fee that I know up front or an Expense Ratio rather than having a percentage of my holdings basically in a
dead hole. And I am not assuming the value lost is the return on stocks, bonds or anything else you could do with cash but precisely that:
anything you could have done with the cash!

Besides me thinks many if not all of you arguing on the other side would not touch this investment with a 10 foot pole, am I right?!
I'm fascinated by your indignant responses and the assumption that we are "brainwashed sheeple" for thinking that 6% cash that can be used later (and getting the benefit of auto-TLH) is somehow worse than paying 0.25% and never seeing it again. Everyone on this thread who has used SIP, including myself, has stated that we KNOW that Schwab is doing this. It is all over the news and this thread. I dont understand all the negative emotion being expressed, normally an expense ratio increase of 0.25% would be frowned upon by bogleheads, but here it is somehow celebrated?

You have decided that 0.25% of all your assets with them is reasonable for auto-TLH and other roboadvisory benefits. While I strongly disagree and would never in a million years hand someone that amount, I would not imply that you are brainwashed or blind to this. You have looked at the data and made a different opinion based on your experience-- that is fine.

Others, including myself, have decided that 6% cash (which is still ours) is not that bad to avoid the 0.25% (which is theirs and lost to us) expense ratio (and to get auto-TLH, other roboadvisory benefits). This is a calculus I and a some others have made (and am reconsidering based on some of the ERs on their funds, but not because of the 6% issue).

It would be nice if this thread could get back to the facts of the matter, and not (likely astroturfing from Wealthfront and Betterment employees or investors seeing their business model implode) emotional attacks on people trying to gather better data to make an informed decision related to a new product
Last edited by Gleevec on Sat Mar 14, 2015 12:46 pm, edited 1 time in total.
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Re: Schwab Intelligent Portfolios [now live]

Post by Gleevec »

Seattlenative wrote:Here's a particularly harsh critique of SIP, which reminds one that for many years, Schwab offered no advisory services, no bank, and avoided any and all conflicts of interest: https://medium.com/@adamnash/broken-val ... d550a27629
That is the CEO of Wealthfront. Wealthfront is the same company (KaChing) that charged 1.25% of your assets to have geniuses manage your portfolio. Their current business model is much better, but this is a classic pot-kettle situation.

Somehow I doubt that if the CEO of Merrill Lynch (Wealthfront) was criticizing Vanguard's (Schwabs) new advisory model, that there would be this much bogleheads support for the Merrill Lynch (Wealthfront) CEO
harikaried
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Re: Schwab Intelligent Portfolios [now live]

Post by harikaried »

mattatl wrote:But the main market for SIP is unsophisticated investors -- people who don't know what opportunity cost is, don't like to do math, don't want to think about their investments at all. They just want to trust someone to do it fairly.
I would think there's quite a few people who just hold cash in their checking account earning 0.01% because they 1) don't know where to start for investing or 2) are scared from recent crashes and pulled out to cash after prices fell or 3) are concerned markets will fall after investing. Moving these people to 10% cash in a SIP account is less cash than they would have otherwise, but the cash portion can provide comfort needed to be invested. Something like SIP would be better for potential growth for these "investors" than all cash.

As I've mentioned in other posts, there may be people like us who value simplicity and would have money in a checking account earning 0.01%. Moving to a SIP account earning average interest rates of 0.12% is a minor positive and not a hidden fee through cash drag.

For those who would have optimized their cash to earn 1% in a savings account, the cost of SIP is 6% (the most aggressive portfolio) of 0.88% (1% savings interest - 0.12% SIP cash interest), so multiplying the two gives an effective cost of 0.05%.

If one would say the 6% cash should have been in riskier bonds that would have earned 4%, the effective cost is 0.24%.

And similarly, if the 6% cash could have earned 6% as stocks, the effective cost is 0.36%.


Putting those cash drag rates as dollars amounts a SIP account having $10k total with 6% as cash ($600):
  • Sitting on cash: $0.72 (0.12% * $600) earned in SIP vs $1 (0.01% * $10k) in checking (but way more potential for growth/loss)
  • Simplicity: $0.72 earned in SIP vs $0.06 (0.01% * $600) in checking = net $0.66 earned
  • Savings: $0.72 earned in SIP vs $6 (1% * $600) in savings = $5.28 lost savings opportunity
  • Bond-ish: $24 (4% * $600) lost bond opportunity
  • Stock-ish: $36 (6% * $600) lost stock opportunity
tj
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Re: Schwab Intelligent Portfolios [now live]

Post by tj »

For me, the math was simple, if I'm using SIP with the assumption that this is for stocks only and the cash is considered my "fee",If I assume both strategies of funds will achieve the same results ( they won't), say 5%

with Betterment:

I have 100,000 * 1.05 = $105,000 less $157.50 (15 bps) fee = 104,842.50

With Schwab:
94,000 invested * 1.05 = $98,700 + $6000 cash x 1.001 = 6,006 = $104,706.00

With Wealthfront:

105,000 less $262.50 (25 bps fee) = $104,737.60

it's by no means a huge difference.
harikaried
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Re: Schwab Intelligent Portfolios [now live]

Post by harikaried »

tj wrote:With Betterment: I have 100,000 * 1.05 = $105,000 less $157.50 (15 bps) fee = 104,842.50
With Schwab: 94,000 invested * 1.05 = $98,700 + $6000 cash x 1.001 = 6,006 = $104,706.00
With Wealthfront: 105,000 less $262.50 (25 bps fee) = $104,737.60
How much cash do you have outside in your checking or savings accounts? Let's say you have $16,383 in cash and $100k to invest:

Betterment:
$100,000 in Betterment and $16,383 savings earning 1%
$104,842.50 after fees + $16,546.83 savings = $121,389.33

Schwab:
$106,383 in Schwab and $10,000 savings earning 1%
Schwab 94% invested $100,000 * 1.05 = $105,000
Schwab 6% cash $6383 * 1.001 = $6389.38
$105,000 + $6389.38 + $10,100 savings = $121,489.38

Wealthfront:
$100,000 in Wealthfront and $16,383 savings earning 1%
$104,737.60 after fees + $16,546.83 savings = $121,284.43

Shifting $6,383 from 1% savings account to Schwab then makes it have total returns $100.05 higher than Betterment and $204.95 higher than Wealthfront. As you said, not a huge difference.
anil686
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Re: Schwab Intelligent Portfolios [now live]

Post by anil686 »

harikaried wrote:
mattatl wrote:But the main market for SIP is unsophisticated investors -- people who don't know what opportunity cost is, don't like to do math, don't want to think about their investments at all. They just want to trust someone to do it fairly.
I would think there's quite a few people who just hold cash in their checking account earning 0.01% because they 1) don't know where to start for investing or 2) are scared from recent crashes and pulled out to cash after prices fell or 3) are concerned markets will fall after investing. Moving these people to 10% cash in a SIP account is less cash than they would have otherwise, but the cash portion can provide comfort needed to be invested. Something like SIP would be better for potential growth for these "investors" than all cash.

As I've mentioned in other posts, there may be people like us who value simplicity and would have money in a checking account earning 0.01%. Moving to a SIP account earning average interest rates of 0.12% is a minor positive and not a hidden fee through cash drag.

For those who would have optimized their cash to earn 1% in a savings account, the cost of SIP is 6% (the most aggressive portfolio) of 0.88% (1% savings interest - 0.12% SIP cash interest), so multiplying the two gives an effective cost of 0.05%.

If one would say the 6% cash should have been in riskier bonds that would have earned 4%, the effective cost is 0.24%.

And similarly, if the 6% cash could have earned 6% as stocks, the effective cost is 0.36%.


Putting those cash drag rates as dollars amounts a SIP account having $10k total with 6% as cash ($600):
  • Sitting on cash: $0.72 (0.12% * $600) earned in SIP vs $1 (0.01% * $10k) in checking (but way more potential for growth/loss)
  • Simplicity: $0.72 earned in SIP vs $0.06 (0.01% * $600) in checking = net $0.66 earned
  • Savings: $0.72 earned in SIP vs $6 (1% * $600) in savings = $5.28 lost savings opportunity
  • Bond-ish: $24 (4% * $600) lost bond opportunity
  • Stock-ish: $36 (6% * $600) lost stock opportunity
I don't have a problem with the cash allocation - I think that is fine. My issue with the SIP promo period was when the details were revealed that there would be a cash allocation, Schwab made it sound like you could hold your cash in there for safe keeping. That made it sound (to me at least) that you could withdraw it without affecting the rest of the portfolio if you needed it (link below - I think there is a reference to how many Americans do not have enough of an emergency fund - making it sound like SIP could double as an investment vehicle and an emergency fund). Is that how it works? If so - I do not think it is a bad idea...

http://www.riabiz.com/a/503840623715942 ... chwab-bank - full disclosure - they indicate people may choose to use this as a stand alone savings program...

Frankly, I am not keen on any of the robo advisors because I am not a fan of the following:

Betterment's use of taxable bonds in a taxable account and global market cap weighting without much tilt (why would not just use Total World Stock ETF and Int Med Term tax exempt?)

Wealthfront's higher cost and allocation to commodities - I believe Ferri wrote about the issues of understanding the difference between a commodity ETF and actually investing in commodities for diversification as well as global market cap weighting

SIP - same as above for commodities/gold and issues with global market cap weighting. Although, I see more of a tilt with the fundamental indexing (of course at a higher ER).

As far as I understand (And please correct me if I am wrong) - these all rebalance with new money - as long as it is not too frequent - like once or twice a month - I do not see how it is that much easier or simple than a 2-3 fund solution with VG mutual funds. In addition, the auto TLH (per another poster in another thread) resulted in a 1099 from Betterment of 22 pages. I would think after a while, it would be complicated to follow the basis for some of these investments and very complex - not simple - JMO though...
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Re: Schwab Intelligent Portfolios [now live]

Post by Seattlenative »

Gleevec wrote:
Seattlenative wrote:Here's a particularly harsh critique of SIP, which reminds one that for many years, Schwab offered no advisory services, no bank, and avoided any and all conflicts of interest: https://medium.com/@adamnash/broken-val ... d550a27629
That is the CEO of Wealthfront. Wealthfront is the same company (KaChing) that charged 1.25% of your assets to have geniuses manage your portfolio. Their current business model is much better, but this is a classic pot-kettle situation. ....... Somehow I doubt that if the CEO of Merrill Lynch (Wealthfront) was criticizing Vanguard's (Schwabs) new advisory model, that there would be this much bogleheads support for the Merrill Lynch (Wealthfront) CEO
I concede that I was duped. It was only after I had posted the link and re-read the article that I noticed the actual authorship. The article had the appearance of independent journalistic critique. This is another age-old reminder: Don't trust what you may read on the Internet.

By the way, given that I'm a somewhat cautious and risk-averse investor, I am not particularly surprised or incensed that Schwab is allocating a percentage of the managed accounts to cash. When I inputted my responses to their survey, they indicated a 8.51% cash allocation. A year ago, when I pulled out of the Schwab Managed Portfolios program for one of my IRAs (the others remaining self-managed), Schwab set aside a 5.00% cash allocation. The 0.9% annual SMP fee was not charged on the cash portion.

If I could give Schwab advice on this, it would be to reduce the recommended cash allocations by about one-third to one-half. Demanding that the cash allocation be cut to zero is unrealistic given that this program is targeted to neophyte investors, who get very riled about typical market volatility. Alternatively, Schwab should substantially increase the interest rate paid on the cash portion. While the 0.10% APY they are offering on cash is much higher than the typical bank checking or savings account (0.01%), it is drastically lower than what online banks like Ally are offering at close to 1%.

P.S. I am not planning to actually sign up for SIP. The makeup of the recommended investments is similar to those used in SMP except there were no Schwab-branded ETFs used, and no "fundamental index" or RAFI-type ETFs. At this point, I am fairly comfortable managing my own IRAs.
Last edited by Seattlenative on Sat Mar 14, 2015 7:22 pm, edited 1 time in total.
Seattlenative
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Re: Schwab Intelligent Portfolios [now live]

Post by Seattlenative »

Billionaire wrote:SInce so many here are using the term, let's at least establish in financial lingo a definition of sheeple. Sheeple - Anybody who invests money in an ETF, Mutual Fund or flock to a three fund portfolio.
Could you explain?
Gleevec
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Re: Schwab Intelligent Portfolios [now live]

Post by Gleevec »

Seattlenative wrote:
Billionaire wrote:SInce so many here are using the term, let's at least establish in financial lingo a definition of sheeple. Sheeple - Anybody who invests money in an ETF, Mutual Fund or flock to a three fund portfolio.
Could you explain?
Billionaire can correct me if I am interpreting his statement incorrectly for you, but he's joking that apparently anyone who disagrees from the mentality of 100% VFIAX is an unsophisticated investor/sheeple.

Some of us think SIP offers value despite the cash holdings, but are being called sheeple/ignorant/brainwashed for looking at all the info and making the calculation that 6% holdings as cash (which we get to keep) is worth auto-TLH. Somehow, paradoxically, paying 0.25% extra (never to be seen again in your account) to Wealthfront and Betterment for the same service is considered the savvy move.

So the extreme is 100% VFIAX, or youre a sheeple. The irony of all this is that my personal hesitation with SIP has nothing to do with the cash issue which is being debated ad nauseam-- some of the fund ERs are higher (0.32%) and I am not sure what kind of value I am getting from these fundamental indices, especially for their US Large Cap Fundamental Fund
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Re: Schwab Intelligent Portfolios [now live]

Post by livesoft »

In a few years, a book will come out about Robo-advisor Wars.
Wiki This signature message sponsored by sscritic: Learn to fish.
Seattlenative
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Re: Schwab Intelligent Portfolios [now live]

Post by Seattlenative »

After completing the SIP Behavioral Questionnaire, I have some questions about their recommended asset types, as distinct from their AAs. SIP recommends 21.49% AA into fixed income, with specific assets being:

8.00% - U.S. Corporate High Yield (junk) Bonds
7.00% - International Emerging Market Bonds
2.50% - International Developed Country Bonds
3.00% - U.S. Securitized Bonds
1.00% - U.S. Investment Grade Bonds

This relies heavily on U.S. junk-grade credit as well as overseas debt. It's different than simply investing in BND or SCHZ. Schwab's whitepaper explanations for these categories are interesting reading, but what do the rest of you think? Per my Behavioral Questionnaire responses, SIP's other recommendations are for 8.51% in cash, 5.00% in commodities (gold & precious metals), and 65.00% in stocks split among the following asset types:

8.00% - U.S. Large Company stocks
11.00% - U.S. Large Company fundamental
4.00% - U.S. Small Company
7.00% - U.S. Small Company fundamental
5.00% - International Developed large company
8.00% - Intl Dev large company fundamental
3.00% - Intl Dev small company
5.00% - Intl Dev small company fundamental
4.00% - Intl Emerging Market
5.00% - Intl Emerging Market fundamental
3.00% - U.S. REIT
2.00% - International REIT
randomguy
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Re: Schwab Intelligent Portfolios [now live]

Post by randomguy »

harikaried wrote:
Shifting $6,383 from 1% savings account to Schwab then makes it have total returns $100.05 higher than Betterment and $204.95 higher than Wealthfront. As you said, not a huge difference.
Wha if I don't have a savings account? :) I think the general point that their in an opportunity cost from holding cash that costs you the about the same as the fees of the other roboadvisors.

If I was going to pick one, I would do it based on portfolios versus fees (for these 3. I am sure there is some 1% roboadvisor out there). Personally I am avoiding Schwab since I don't want REITs, gold, high yield bonds, or emerging market bonds in a taxable account. The fundamental indexes also tend to be a bit pricy compared to value funds. I would have to think a lot about if they thought they were worth it. I have different criticisms of the other RIA(too much emerging markets, not small international, don't like some fixed choices).
Seattlenative
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Re: Schwab Intelligent Portfolios [now live]

Post by Seattlenative »

randomguy wrote: If I was going to pick one, I would do it based on portfolios versus fees (for these 3. I am sure there is some 1% roboadvisor out there). Personally I am avoiding Schwab since I don't want REITs, gold, high yield bonds, or emerging market bonds in a taxable account. The fundamental indexes also tend to be a bit pricy compared to value funds. I would have to think a lot about if they thought they were worth it. I have different criticisms of the other RIA (too much emerging markets, not small international, don't like some fixed choices).
I share many of those concerns. Some of the asset types are inherently riskier than others, and to be honest the SIP asset type recommendations are fairly similar to what they use in Schwab Managed Portfolios (SMP), a wrap-fee product which may fade away now that SIP essentially accomplishes the same thing. I was quite underwhelmed with my SMP IRA's performance relative to the benchmarks during at time, which is why I finally pulled the plug. Fortunately, Schwab did honor its "Accountability Guarantee" and fully refunded one quarter of the SMP fees. (For most investors, the SMP ETF program fee would be 0.90% annually on all assets excluding the 5% cash component).
mhalley
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Re: Schwab Intelligent Portfolios [now live]

Post by mhalley »

Slate has a podcast where they discuss the Schwab product.
http://www.slate.com/articles/podcasts/ ... d_the.html
Mike
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Re: Schwab Intelligent Portfolios [now live]

Post by pburg »

Good posts so far. I may have missed it, but has anyone taken an Intelligent Portfolio and back tested it. I think it would be interesting to see how a suggested portfolio would have actually performed historically.
I guess, if anyone has done this work, it would be helpful to know what percentages were used in the test portfolio.
Maybe this is a stupid question. If there is a website that does this, please supply a link.
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in_reality
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Re: Schwab Intelligent Portfolios [now live]

Post by in_reality »

pburg wrote:Good posts so far. I may have missed it, but has anyone taken an Intelligent Portfolio and back tested it. I think it would be interesting to see how a suggested portfolio would have actually performed historically.
I guess, if anyone has done this work, it would be helpful to know what percentages were used in the test portfolio.
Maybe this is a stupid question. If there is a website that does this, please supply a link.
I think you'll have to use actual funds since the category entry way doesn't have emerging market bonds or fundamental indexes
https://www.portfoliovisualizer.com/backtest-portfolio

Also, the Schwab ETFs are quite new. The mutual funds version goes back to around 2007 so you'd have to use those.
tickers are here under the mutual fund tab: http://content.schwab.com/fundamentalindex/invest.html
harikaried
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Re: Schwab Intelligent Portfolios [now live]

Post by harikaried »

pburg wrote:Good posts so far. I may have missed it, but has anyone taken an Intelligent Portfolio and back tested it. I think it would be interesting to see how a suggested portfolio would have actually performed historically.
Meb Faber recently wrote about the introduction of Schwab Intelligent Portfolio in a blog: "What a Great Time To Be An Investor!" http://mebfaber.com/2015/03/10/what-a-g ... -investor/

There he mentions backtesting Wealthfront/Betterment and not finding much difference, so investors should appreciate the push for lower and lower roboadvising fees (emphasis his and mine):
The irony is that the roboadvisors can debate endlessly about their allocations and which is superior, but in reality their asset allocations will likely be very similar and perform similarly as well. Our new book demonstrates that almost all allocations cluster quite closely, and the backtested returns of Wealthfront and Betterment are likewise pretty darn close.

So if the asset allocation is a commodity, then you should pay as little as possible for that. Lost in the debate is that there has never been a better time to be in control of your own investments and both offerings are killer. The competition between roboadvisors will create downward pressure on fees that will massively benefit the end investor.

I still think any of these automated options (asset allocation ETFs or robos) are great choices for the buy and hold crowd. Frankly the fees will be rounding errors compared to any of the behavioral mistakes people make.
On that last note (underlined), perhaps more for average investors than bogleheads regulars, which roboadvisor makes it more difficult for someone to mess things up? I believe one has a slider that you can just set a new risk level. For Schwab, you have to go through the whole questionnaire.

Related, which roboadvisor can build trust with investors so that the investor doesn't second guess the roboadvisor in the first place to want to change things around because of all the noise ("market highs," "interest rates," "crashing/falling/going south"). I guess that's part of the reason why Schwab is providing SIP platform for human advisors, who might be better suited to building some level of trust and reassurance.
harikaried
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Re: Schwab Intelligent Portfolios [now live]

Post by harikaried »

anil686 wrote:As far as I understand (And please correct me if I am wrong) - these all rebalance with new money - as long as it is not too frequent - like once or twice a month - I do not see how it is that much easier or simple than a 2-3 fund solution with VG mutual funds. In addition, the auto TLH (per another poster in another thread) resulted in a 1099 from Betterment of 22 pages. I would think after a while, it would be complicated to follow the basis for some of these investments and very complex - not simple - JMO though...
Schwab's whitepaper on TLH and rebalancing says it'll control tracking errors to 1%:
https://intelligent.schwab.com/public/i ... ncing.html

I chatted online with Schwab and told that the portfolio will rebalance if an asset class allocation is off by 2%. So if the target for US small is 7%, it can swing between 5% and 9% before rebalancing. I would assume this applies to cash as well, so a target cash of 6% would require you to withdraw down to below 4% cash or add enough cash to be over 8%. But adding/removing money could change the % allocation of other assets to trigger a rebalancing.

In the context of TLH/rebalancing, I believe one plus of having more asset classes is that theoretically they're moving differently and could provide more opportunities to TLH, as there's more than 3 asset classes to check for ±2%. If equities were combined into a single total world fund, US growth could offset Intl losses, so one wouldn't be able to TLH the individual pieces. And the nice aspect of automation is that one doesn't need to manually check each of these 10+ asset classes every day.
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