Your Guide to Getting Started With Robo-Investing

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We think Schwab’s portfolios hold too much cash, which holds back Schwab’s otherwise excellent robo-advisor service. 

The portfolio-construction process has several strengths. For one, it uses an extensive risk-tolerance questionnaire to match investors with portfolios from one of 12 different risk levels. Plus, the portfolios provide comprehensive asset-class exposure, including both U.S. and international large- and small-cap stocks, REITs, corporates, mortgages, high yield, muni bonds, world bonds, emerging-markets debt, Treasuries, Treasury Inflation-Protected Securities, and gold. And the underlying investments are solid, while Schwab’s approach to constructing portfolios, rebalancing to limit risk, and managing tax considerations is thoughtful. 

Despite the portfolios’ strengths, they all include above-average allocations to low-yielding cash accounts. Investment money held in cash can be put to better use elsewhere, especially given today’s inflation. Schwab is using the cash portion of their assets to generate revenue: The firm receives the difference between the revenue it earns on asset balances in Schwab Bank and the yield it pays investors.  

Schwab Intelligent Portfolios Premium suffers from the same cash issue but otherwise has considerable merit. Investors with at least $25,000 have unlimited access to a financial planner holding the CFP designation. The service offers a range of online tools for advice on income, expenses, investments, college savings, retirement planning, and other issues. It is also one of the only robo-advisors to provide comprehensive retirement income advice.