Charles Schwab’s robo-advisor offering Schwab Intelligent Portfolios builds investment portfolios from a range of low-cost ETFs, charges zero advisory fees and gives clients access to hundreds of local branches and excellent customer service.
Schwab Intelligent Portfolios is not a service for beginner investors. You’ll need a minimum investment of $5,000 to get started, and the platform doesn’t offer tax-loss harvesting until your portfolio tops $50,000. Schwab Intelligent Portfolios also requires you to keep a portion of your portfolio in cash, which could be a disadvantage for some investors.
Who should consider Schwab Intelligent Portfolios?
If you have at least $5,000 to invest, but you don’t have the time or inclination to build your own portfolio, Schwab Intelligent Portfolios could be a good option for you.
After answering 12 questions about your goals, risk tolerance, comfort with market fluctuations and time horizon, you’ll be presented with a suggested investment portfolio. If you wish to be more or less aggressive than the proposed mix, you can tweak your answers — but you can’t tweak the underlying investment choices.
That said, you probably wouldn’t want to: Schwab Intelligent Portfolios builds your portfolio from a mix of low-cost ETFs across up to 20 asset classes. That’s more diversification than you might see at other robos. The platform monitors your portfolio and automatically rebalances when your asset allocation drifts too far from your target percentages.
Schwab Intelligent Portfolios does not charge any advisory fees — the only expenses you’ll pay are from the underlying investments, which are low. Help is available 24/7 from a customer service line, or you can visit one of the more than 365 branches for face-to-face assistance. There’s also a full-featured online website and mobile apps for iOS and Android.
Schwab Intelligent Portfolios has a solid setup, but it may be a better fit for more conservative investors because it keeps a mandatory percentage in cash. Even for portfolios with a 40-year time horizon, the robo keeps a chunk of your investment in cash, which could lessen your earnings over time.
Schwab Intelligent Portfolios fees and features
|Amount minimum to open account|
|Account fees (annual, transfer, inactivity)|
|Tax loss harvesting|
|Offers fractional shares|
|Ease of use|
|Mobile app||iOS, Android|
|Customer support||Phone, 24/7 live support, Chat, 365 branch locations|
How does Schwab Intelligent Portfolios invest your money?
Based on your answers to Schwab’s questions, the robo creates a diversified portfolio for you by picking from 53 low-cost ETFs that have been “hand-picked” by the company’s professionals. The criteria used to select these ETFs includes their low expense ratios, trading characteristics, exposure to broad asset classes and close tracking to their targeted index. The average annual expense ratios range from 0.05% to 0.19%, and these are the only costs to consumers, since there are no advisory or trading fees.
Once your portfolio has been created and funded, the robo monitors your investment mix and automatically rebalances it when your assets shift away from your target range. The robo doesn’t offer tax-loss harvesting until you have invested assets of $50,000 or more in your account.
Each asset class in Schwab Intelligent Portfolios has both a primary and secondary ETF. For example, for U.S. Large Company stocks, Schwab Intelligent Portfolio lists a representative primary ETF of Schwab U.S. Large-Cap, and a secondary ETF of Vanguard S&P 500.
Although many of the ETFs in the representative list of funds are Schwab’s own, the list also includes investments from Vanguard, Invesco, iShares and Xtrackers, among others. The representative fund list pulls from 27 asset classes, including various stocks, bonds, REITS, preferred securities and gold and other precious metals.
What is Schwab Intelligent Portfolios Premium?
If you have at least $25,000 to invest, you qualify for Schwab Intelligent Portfolios Premium. This service includes all the benefits of the standard version, plus unlimited one-to-one help from a certified financial planner.
You’ll receive not only a personalized action plan and portfolio review with a professional but also a digital financial plan for reaching your goals. You’ll also have access to the site’s interactive planning tools, the ability to link and view your accounts at other institutions and tools you can use to stress-test your plan and see how likely you are to hit your targets.
This service requires a one-time planning fee of $300 and an ongoing $30/month advising fee. That’s a little steep for financial planning services if you have just $25,000 in your portfolio, but for larger balances, it’s a steal. (The average RIA fee now sits at about 1.17%.)
Schwab Intelligent Portfolios cash allocation
Schwab believes cash investments have an important role in a well-diversified portfolio. That belief is represented by a cash allocation of 6% to 30% in their accounts, depending on the client’s investment strategy. This is accomplished through Schwab’s Sweep Program, which sweeps free credit balances in your brokerage accounts to deposit accounts at Schwab Bank.
Although Schwab pays an interest rate on cash balances,currently 0.30% APY, the rate is lower than what you’d typically hope to earn in an investment account. And with up to 30% of your portfolio invested in cash, you stand to lose out on some significant earnings potential.
For example, say that 6% of your $100,000 portfolio is in cash and earning 0.30% APY. If a diversified stock portfolio goes up 10% in a year, you’re potentially leaving $582 in lost earnings on the table. If 15% of your portfolio is in cash, your lost potential earnings go up to $1,455 in a year. In other words, a mandated cash investment percentage could be a major drawback.
Strengths of Schwab Intelligent Portfolios
- Opening an account is easy: Answer a dozen questions about your goals, and Schwab Intelligent Portfolios recommends a portfolio that’s right for you. You can also choose from many types of accounts, including individual accounts, joint accounts, custodial accounts and trust accounts. You can also open a taxable account or a retirement account, including a traditional or Roth IRA, or a Simple or SEP IRA if you’re self-employed or a small business owner.
- Low cost: Schwab Intelligent Portfolios charges zero advisory fees for all accounts, no matter what the total balance. Many competitors, including Wealthfront and Betterment, charge 0.25% or more.
- Schwab rebalances automatically: Schwab Intelligent Portfolios will monitor your portfolio over time and rebalance automatically whenever your allocation wanders from your target percentages.
- Customer service is top-notch: There are more than 365 local branches and 24/7 phone support and online chats. You’ll quickly connect with a representative willing to answer questions.
- Retirement income planning: You’ll receive guidance on the best strategies for withdrawing your money in retirement, including suggestions on how much you can safely take out without adversely affecting your investment positions.
Drawbacks of Schwab Intelligent Portfolios
- You’ll need a minimum of $5,000 to open an account: This is higher than most competitors — E-Trade and Wealthfront require $500 to open an account, and Betterment has no minimum balance requirement.
- Tax loss harvesting is available only on accounts with $50,000 or more: While competitors such as Wealthfront offer tax-loss harvesting for all taxable accounts. Tax-loss harvesting involves selling some losing investments at strategic times to minimize taxes you might have to pay on investment gains made in taxable accounts.
- There are significant cash holdings: In all of the suggested portfolios, 6% to 30% of the balance will be held in cash. Although Schwab Intelligent Portfolios pays interest on the money, it’s a conservative investment stance, and investors who wish to be more aggressive may be better off at another robo-advisor.
Is Schwab Intelligent Portfolios Safe?
With investing, there’s always a chance your investments could decrease in value. However, Charles Schwab is a trusted, well-established brokerage firm that FINRA BrokerCheck confirms is in full compliance with all regulatory requirements. Plus, it’s a member of the FDIC and SIPC, which insure cash in your bank or brokerage accounts.
Charles Schwab also has strong data protection policies to keep customer information secure, although Charles Schwab does share your personal information with affiliates so they can market to you.
Is Schwab Intelligent Portfolios right for me?
Schwab Intelligent Portfolios is a key player in the robo-advisor industry. If you have enough money to open an account and you don’t mind not having access to tax-loss harvesting until your account balance reaches $50,000, this robo-advisor may be an ideal choice. That said, you should also be comfortable holding a portion of your portfolio in cash, so Schwab Intelligent Portfolios may be a better choice for more conservative investors.