What Is Schwab Intelligent Portfolios?
Known for its banking and investment services, Charles Schwab is also making a name for itself in the robo-advisor space with Schwab Intelligent Portfolios.
The company says it’s dedicated to making investing simpler by digitally creating and monitoring investment portfolios for clients while also allowing them to link a wide range of accounts to the service.
Like other robo-advisors, Schwab Intelligent Portfolios offers online financial services without the involvement of a traditional financial advisor. This provides a more affordable offering to investors given that there are no management fees. Just answer a short questionnaire, and the robo-advisor will create an investment plan tailored to your financial goals and risk tolerance. It even rebalances your portfolio automatically if your investments drift off course.
Robo-advisors came into the mainstream conciousness in a major way in 2021 when investors using them invested heavily in GameStock, costing hedge funds who had shorted the stock in a big way. While Schwab Intelligent Portfolios was not the most heavily covered of these, it is an option for anyone who wants the Schwab name brand but doesn't need the full Schwab experience (and price).
Despite their similar names, Schwab Intelligent Portfolios is not the same as Schwab Intelligent Advisory. Schwab Intelligent Advisory is a financial planning service. Customers are paired with a human financial advisor to get recommendations about planning for your financial future. Schwab Intelligent Portfolios is a digital investing service that helps manage your investment portfolio but does not give you access to a live advisor.
Investors who want low-fees; Users who value diversified investment portfolios; Customers who have a goal-based investment approach
Tax-loss harvesting, which minimizes taxes on returns, is only available for those with balances above $50,000.
Pricing: How Much Does Schwab Intelligent Portfolios Cost?
|Option Name||Management Fee||Minimum Balance||Features|
|Schwab Intelligent Portfolios||$0||$5,000||Comes with goal-based investing approach, has automatic portfolio rebalancing, compatible with a range of accounts|
Schwab Intelligent Portfolios
You will need at least $5,000 in your Schwab Intelligent Portfolios Account, but there is no management fee to begin investing. In fact, there are no account service, commission, transfer or closing fees either. Instead, the company earns money by managing exchange-traded funds (ETFs), which make up your investment portfolio and have their own operational fees you’ll need to pay. Depending on your portfolio makeup, the fee ranges from 0.03% to 0.65%. On average, a conservative portfolio has a fee of 0.07%, a moderate portfolio has a fee of 0.16% and an aggressive portfolio has a fee of 0.21%.
Schwab Intelligent Portfolios’ Investing Strategy
Schwab Intelligent Portfolios is compatible with a wide range of accounts. You can connect your individual and joint brokerage accounts to the service, as well as trusts and custodial accounts. There is also an option to connect Roth, traditional and rollover IRAs, trusts and custodian accounts. SEP and simple IRAs are also available. With Schwab valuing long-term investing and retirement planning, you can also add beneficiaries to your accounts.
The company primarily invests in exchange-traded funds (ETFs). Given low operating fees and a wide variety of options, these are an inexpensive and popular way to invest. Schwab chooses ETFs based on their risk level, performance history and operating fees.
Schwab makes portfolios from 51 different ETFs in more than 20 asset classes, a range that is larger than that of other robo-advisors. This makes it easier to diversify your investment portfolio. Diversification allows you to minimize losses and maximize returns.
Schwab offers three different investment mixes: conservative, moderate and aggressive. These portfolios are determined by your personal risk tolerance, goals and timeline. For a more conservative profile, stable and defensive ETFs are valued. For an aggressive one, there are more volatile investments. If your portfolio steers off track, it’s automatically rebalanced with funds bought or sold to keep you on course with your financial goals.
In addition to investing in ETFs, Schwab Intelligent Portfolios also has large cash holdings. Part of your investment is held in an FDIC-insured cash allocation account. This money doesn’t grow much, since it only earns interest at a rate determined by the national average rate of money market deposit accounts. Schwab uses these cash holdings to stabilize and diversify your portfolio. But because these interest rates aren’t high, these holdings with meager yields can be too conservative for some. If a large portion of your portfolio is held in cash holdings, it reduces your returns.
Though you can’t easily change your overall investment portfolio – you’ll have to retake the questionnaire to alter your profile – you’re able to switch out three ETFs from the portfolio custom-designed for you. This gives you some control over what you invest in.
In addition, Schwab does offer tax-loss harvesting but only for accounts over $50,000. Tax-loss harvesting minimizes the taxes on your investments. This happens when Investments are sold at a loss and the funds are used to lower the taxes levied on the gains for the year.
Who Schwab Intelligent Portfolios Is For
Schwab Intelligent Portfolios values long-term investing. If you’re making long-term goals, Schwab has useful tools and services to help you reach them. When you create an account, you’re able to share your goals and target timeline. As you continue to save and invest, the goal tracking tool tracks your progress towards the goal. It monitors your withdrawals and offers projections of your progress. It also alerts you if you’re off-track from the goal.
These tools are helpful for those long-term goals that can be hard to track because of the long timeline. And with the range of account compatibility, all your account information is kept in one place. You’re able to get a complete overview of your finances toward these goals.
Schwab is also an attractive option if you prefer a diverse investment portfolio. The wide range of ETFs makes it easier to diversify. Though Schwab constructs most of the portfolio for you, you’re able to change up three investments. It’s a hands-off process, while still giving you some control.
How Schwab Intelligent Portfolios Works
You can access Schwab Intelligent Portfolio online or on the iPhone or Android mobile app. You start by answering a 12-question survey about your goals, timeline and risk tolerance. This helps determine whether your investment portfolio will be conservative, moderate or aggressive.
Inputting your goals also allows Schwab to track your progress, whether it’s saving for retirement or creating long-term wealth growth. You’re also able to change your goals if something unexpected happens. If you have a financial emergency or miss a monthly savings goal, the service alerts you that you’re not on track. It also makes suggestions to help you rectify snags in your financial plan. This can mean advocating for a higher savings minimum or adjusting your timeline.
Along with a goal tracker, there is also a spending tracker. If you want to begin withdrawing from your retirement fund, it lets you know how much you can confidently withdraw each month. It tracks how much money you’ll need for retirement overall and how much you can spend to get the most out of the fund. It also alerts you if you’re off-track and shows how to get back on track as well.
Once your investment portfolio is created, you can fund the account. If you’re not completely satisfied with your portfolio, you’re able to choose three ETFs to switch out. This gives you some control over what you’re investing in. Schwab also automatically rebalances your investment portfolio. This means that if there are any big shifts in your investments, your portfolio is recalibrated to stay diverse. This rebalancing ensures that projections are accurate and you stay on track with your investment goals.
Investing is just one part of the Schwab Intelligent Portfolio service. Along with hands-off investing, it offers different tools that help you track your finances altogether. Whether you’re saving for or are in retirement, you’re able to monitor your saving and spending progress. The service works for people in all stages of financial life. And if you have any questions, Schwab has 24/7 customer service over the phone and online chat.
What's the Catch?
Though Schwab uses many different ETFs, there is also a large percentage of cash holdings in its portfolios. Every portfolio has some allocation toward cash holdings, ranging from 6% to 29.4%. Though Schwab says that these investments keep a portfolio stable, these holdings can be too conservative. The cash reserves are low-risk but also offer little growth. In the long-term, your returns can be minimized significantly if a large amount of money is in cash holdings.
In addition, tax-loss harvesting is only available for select accounts – for those with balances above $50,000. This minimum is too high for some investors, which causes them to miss out on a useful feature. In addition, some competitors offer tax-loss harvesting to all users regardless of their account balance.
Competition: How Schwab Intelligent Portfolios Stacks Up
With no management, transfer or closing fees, Schwab Intelligent Portfolios offers great services at no extra cost. But its account minimum of $5,000 is higher than others, making it less accessible for some potential investors than competitors like Wealthfront and Betterment.
Wealthfront charges a flat 0.25% fee across all accounts. In addition, Wealthfront’s account minimum is only $500, making it an option for those who don’t want to dive headfirst into investing with a large amount of money. Though Wealthfront’s portfolios don’t use as many ETFs, they do offer a wide range of account compatibility, such as IRAs, trusts, individual and joint brokerage accounts and 529 college savings plans. Wealthfront also offers tax-loss harvesting to all users with taxable accounts.
Betterment, like Wealthfront, also has fees – 0.25% to 0.50% depending on the account type – but unlike Schwab Intelligent Portfolios, there is no account minimum. The Betterment fees also give users access to a certified live advisor for further help, which rivals Schwab Intelligent Portfolios’ 24/7 customer service. Betterment’s ETF rates run lower at 0.09% to 0.17%, and there is tax-loss harvesting on all taxable accounts.
|Microsavings Comparison||Fees||Min. Balance||Human Advisor|
|0.25% - 0.50%||$0||Yes|
Overall, Schwab Intelligent Portfolios does have lower fees than its competitors, but with a higher minimum balance requirement. This limits those who can start using the service. You also only get the tax-loss harvesting benefit if you invest $50,000. Meanwhile, tax-loss harvesting is offered on all taxable accounts for Wealthfront and Betterment, regardless of balance. But Schwab Intelligent Portfolios does edge out the other two in portfolio diversity, with no other service using 53 different ETFs.
Bottom Line: Should You Use Schwab Intelligent Portfolios?
With diverse portfolios and progress tracking tools, Schwab Intelligent Portfolios offers many services at low fees. You’re able to have some control over your investment portfolio as well as track your long-term goals. But Schwab Intelligent Portfolios does limit tax-loss harvesting to those with large balances and delegates significant portions of investment portfolios to cash holdings. It’s helpful to figure out whether your financial background and approach align with Schwab Intelligent Portfolio’s long-term, hands-off strategy.