The Schwab web site had lots of information about their new
offering, Schwab Intelligent Portfolio (SIP). Like the other two robo advisors,
the process starts with some questions. The answers that you provide results in
the suggested allocations. I answered the questions just as I had answered them
for Betterment and Wealthfront. I found
that my tinkering with the answers some of the allocations changed. When I was
comfortable with the results I signed up for an account.
The sign up process was pretty straight forward. I elected
to transfer funds from an existing Schwab account. The money is from a trade
that won’t settle for a few days, so there is a delay in funding the account. I
won’t be able to see the ETFs in the portfolio until after the funds are
actually transferred and are invested. For the moment we are left to look at
the generic allocations.
The proposed allocations were very similar to the
allocations I developed a few months ago. I developed mine by looking at
multiple sources of allocation recommendations. I ended up with the following
broad allocations, 65% stocks, 21% bonds, and 14% alternatives. Taking out the
cash component, the SIP portfolio consists of 66% stocks, 23% bonds, and 11%
alternatives. The Betterment test account allocates as follows, 55% stocks and
45% bonds (no alternatives). Wealthfront has it 50% stocks, 44% bonds, and 6%
alternatives. If one consider the cash component of SIP as an alternative then
the allocations become 60% stocks, 21% bonds, and 19% alternatives.
The cash component in the SIP causes some concern. Lots of
people feel that you should be fully invested at all times and having cash is a
drag on returns. That certainly is true in periods of rising markets like the
last few years. But having cash would have been great in 2008-2009. Schwab does
have an interesting white paper about this on the SIP web site. I’m inclined to
accept their arguments and will withhold judgment for a while.
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