Schwab: Introducing Wasmer Schroeder Strategies.

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Topic Author
TOM1964
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Location: New England, USA

Schwab: Introducing Wasmer Schroeder Strategies.

Post by TOM1964 »

Hello,

Schwab seems to be rolling out two new levels of fixed-income service. One involves a managed account, the other seems to be expert help in constructing a simple bond ladder.

I'm 35% Bonds and like everyone else I'm tired of 1% yields. Does anyone have any experience with these services? I read all the online marketing material, but never saw any mention of fees. I could call Schwab and ask, but I'm not eager to be identified as interested.

I'm not eager to ratchet up the risk level in my bond portfolio, nor am I looking to raise my yield to 1.3% and pay someone 1% of AUM. Just curious about what's out there.

Thanks, Tom
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David Jay
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Re: Schwab: Introducing Wasmer Schroeder Strategies.

Post by David Jay »

.55% ER to build and maintain a bond ladder is a lot of expense when bonds are paying so little.

https://www.schwab.com/wasmer-schroeder/bond-ladders (See the FAQ at the bottom of the page).
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
BigJohn
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Re: Schwab: Introducing Wasmer Schroeder Strategies.

Post by BigJohn »

I agree that overcoming that ER is a tall order. I suspect that they will invest in bonds with higher risk to make it appear that they are adding value. Two suggestions....

If you go this way, make sure you understand the risk profile increase they are recommending.

If you are comfortable with increased risk to get higher return, look at whether you could achieve the same risk/reward with low cost funds to get an incremental higher reward.
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asset_chaos
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Re: Schwab: Introducing Wasmer Schroeder Strategies.

Post by asset_chaos »

Bonds are relatively simple: more yield means more risk. You can go to Vanguard's fund asset class page and set the view to "bond attributes" and get an idea of what kind of maximum yield enhancement you can reasonably get at this time for extra risk.

total bond market, 6.7 years duration, 1.1% yield to maturity

extra term risk: long term bond index, 16.4 years duration, 2.3% yield to maturity

extra default risk: intermediate corporate, 6.4 years duration, 1.6% yield to maturity

extra term and extra default risks together: long term corporate, 15.1 years duration, 2.8% yield to maturity

much more default risk: high yield corporate (i.e. junk bonds), 3.4 years duration, 4.0% yield to maturity

You don't get much more yield for a lot more risk. I don't think default risk is sufficiently well compensated to bother with. And note that investment grade default risk would be entirely eaten up by the proposed management fees. Term risk may be worth it, but only as a hedge to continuing falls in interest rates; the yield enhancement by itself doesn't seem worth it.

Every basis point you pay for bond management is a basis point you give up in yield. But the extra risk, you get to keep all of that. I don't recommend taking extra risk on the bond side---if you want more return for extra risk, think of the total return of your portfolio and bump up the stock allocation a couple of points---but if you are determined to increase risk on the bond side, it seems all around better to pick which risk(s) (term or default) that you want to ramp up and get them with a low cost directly held fund.
Regards, | | Guy
typical.investor
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Re: Schwab: Introducing Wasmer Schroeder Strategies.

Post by typical.investor »

TOM1964 wrote: Wed Jan 13, 2021 5:19 pm Hello,

Schwab seems to be rolling out two new levels of fixed-income service. One involves a managed account, the other seems to be expert help in constructing a simple bond ladder.

I'm 35% Bonds and like everyone else I'm tired of 1% yields. Does anyone have any experience with these services? I read all the online marketing material, but never saw any mention of fees. I could call Schwab and ask, but I'm not eager to be identified as interested.

I'm not eager to ratchet up the risk level in my bond portfolio, nor am I looking to raise my yield to 1.3% and pay someone 1% of AUM. Just curious about what's out there.

Thanks, Tom
It seems like a potential candidate for those looking for state specific (muni) portfolios, but I have looked into it much.

https://www.schwab.com/wasmer-schroeder/bond-ladders

Fees for taxable bond ladder strategies start at 0.55%.
Fees for municipal bond ladder strategies start at 0.35%.

You may be able to take advantage of lower pricing if you have multiple accounts within your household enrolled in Wasmer Schroeder strategies, provided they are of the same asset class.*
Topic Author
TOM1964
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Re: Schwab: Introducing Wasmer Schroeder Strategies.

Post by TOM1964 »

Thanks for all the replies. I guess I missed the disclosure of fees in the FAQs, grateful for the posters who pointed those out. Thanks, asset.chaos, for a succinct summary of the disorganized thoughts I was having already. With the US Treasury 10-year yield hovering just above 1.1% this morning, there is clearly very little margin with which to pay for any sort of active management and come out ahead, without ratcheting risk up dramatically.

After the 2000-2002 crisis, I closed my wrap account at UBS Paine Webber and got serious about the Boglehead way. I've been 65/35 the entire time, and the vast majority of our assets are in Vanguard Index funds. Overall, the outcome has been excellent.

My recent retirement has provided one of those navel-gazing opportunities that often ends badly for small investors. My specific irritant is this: 18 years ago I decided that I would load our 401k's and Roth IRA's with bonds, and count on low-turnover stock index funds to provide tax efficiency in the taxable portion. As a result, today our tax-advantaged accounts represent just 20% or so of our portfolio, and they are entirely full of BND and VTIP. The rebalancing occurs in the taxable portion of our portfolio, where I generally take dividend distributions from Total Stock Market and plow them into Muni funds.

I feel, in retrospect, that I've squandered my tax-exempt space on these low-yielding bonds. It's also hard to look back on all those years of booming equity growth (even though I participated in it with 65% of our portfolio) and see the relatively modest gains in our tax-advantaged accounts.

When I look for guidance I often use the Portfolio Watch tool on the Vanguard site, and it always suggests that I would benefit from international fixed-income exposure. I understand that would help protect me from a drop in the exchange value of the US Dollar, but jeez, Italy's 10-year rate is under 0.7%, the UK with all its problems right now pays 0.3%, Spain and Japan are near zero, and Germany's rates are negative! Yeah, sign me up.

So, I've been hanging out in bad neighborhoods, listening to seductive talk about managed FI portfolios. Thanks to the Bogleheads for a dose of sanity.

Cheers, Tom
typical.investor
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Re: Schwab: Introducing Wasmer Schroeder Strategies.

Post by typical.investor »

TOM1964 wrote: Thu Jan 14, 2021 8:38 am When I look for guidance I often use the Portfolio Watch tool on the Vanguard site, and it always suggests that I would benefit from international fixed-income exposure. I understand that would help protect me from a drop in the exchange value of the US Dollar, but jeez, Italy's 10-year rate is under 0.7%, the UK with all its problems right now pays 0.3%, Spain and Japan are near zero, and Germany's rates are negative! Yeah, sign me up.
Well, no they don't protect against a drop in the USD because they are hedged.

Anyway, understand that foreign hedged bonds have the same expected return and USD ones -- even if Germany is negative and Spain and Japan are zero.

The main benefit (beyond diversification of credit risk which really is deworsification by adding Italy etc) is that if rates rise in the US, your foreign bonds might be ok because they won't have suffered NAV loss. Of course, if rates rise globally then they aren't really going to help. Or if rates rise overseas but not in the US, then you will suffer NAV loss (at least until the recover in their duration).
Alan S.
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Re: Schwab: Introducing Wasmer Schroeder Strategies.

Post by Alan S. »

Schwab has been offering several versions of these managed accounts for many years. Usually, they are offered at a competitive fee schedule, nowhere near 1%. It has also been easy to terminate the managed account for any reason, and they don't punish you if you do. That said, whether these accounts benefit you much or not probably depends on what you would have done with your investments if you still managed them.

Typically, whether in taxable or an IRA, Schwab would create a new account to separate the managed investments from your other investments. The management firm would effectively have control of that dedicated account. There is usually a minimum (eg 50k) allocation required.
Topic Author
TOM1964
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Re: Schwab: Introducing Wasmer Schroeder Strategies.

Post by TOM1964 »

typical.investor wrote: Thu Jan 14, 2021 9:05 am

Well, no they don't protect against a drop in the USD because they are hedged.

Anyway, understand that foreign hedged bonds have the same expected return and USD ones -- even if Germany is negative and Spain and Japan are zero.

Thanks for highlighting the first point, I was unaware that VTABX hedged the currency risk, which I now see that they certainly do.

Can you give some more information about the second point? VTABX has an SEC yield of 0.19% compared to VBTLX at 1.08%. Over time, you say they will give the same expected return because of the hedging mechanism? I'm not doubting you, just trying to understand why that is.

Thanks, Tom
typical.investor
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Re: Schwab: Introducing Wasmer Schroeder Strategies.

Post by typical.investor »

TOM1964 wrote: Thu Jan 14, 2021 10:03 am
typical.investor wrote: Thu Jan 14, 2021 9:05 am

Well, no they don't protect against a drop in the USD because they are hedged.

Anyway, understand that foreign hedged bonds have the same expected return and USD ones -- even if Germany is negative and Spain and Japan are zero.

Thanks for highlighting the first point, I was unaware that VTABX hedged the currency risk, which I now see that they certainly do.

Can you give some more information about the second point? VTABX has an SEC yield of 0.19% compared to VBTLX at 1.08%. Over time, you say they will give the same expected return because of the hedging mechanism? I'm not doubting you, just trying to understand why that is.

Thanks, Tom
Too tired to try to explain it now but here is what I read to understand:
This is because an investment in an international bond by a U.S.-based investor consists of three return components: The price return, the income return, and the currency return. By hedging, you replace the volatile currency return component with a return component approximately equal to the short-term interest rate differential between the USD and the currency of the bond.

For example, when short-term U.S. interest rates are higher than the short-term interest rates of the country from which you are purchasing the bond, hedging the currency exposure can be additive to the overall total return. While the return from hedging the currency exposure can be either positive or negative, it will almost always create a total return on the bond that is different than the one implied by its yield to maturity.
https://www.vanguardcanada.ca/individua ... tivity.htm

https://institutional.vanguard.com/VGAp ... IntlYields

So yeah SEC yield isn't useful for hedged bonds. And look carefully and the comparison between German Bonds and US ones in the first link. They are so close in expected yield that it's difficult to see in the chart (which is the point of the chart).
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