Charles Schwab Intelligent Portfolios Review

by Luke Orlando on April 28, 2017

Charles Schwab Intelligent Portfolios Review

Schwab Intelligent Portfolios Review


Over the past decade, robo-advisors have become the latest and hottest investment trend. Some might wonder how a robot could provide such value to a portfolio. But when you take a deep look inside and see that they offer an automated, low-cost option to investing, it becomes a little clearer. In fact, it’s estimated that by 2020, robo-advisors could run $2 trillion. A very strong player in this space – Schwab Intelligent Portfolios – has succeeded by promising fee-free investing and providing major institutional support.

Zero Fees as a Differentiator

Robo-advisors have been increasing in popularity in recent years because of their ability to perform many of the same responsibilities as a human advisor at a substantially lower cost. In fact, Schwab Intelligent Portfolios is unique among its competition in that it charges no management fees or commissions to these automated accounts. This compares to 0.25% at Wealthfront and 0.25 – 0.50% at Betterment, the two most popular robo-advisor firms. While individual funds will always have management fees, selecting low-cost funds in addition to zero management fees is a great strategy for minimizing investment cost.

Getting Started

Schwab Intelligent Portfolios support Traditional and Roth IRAs, custodial accounts and trusts, and non-retirement accounts. Plus, the process for getting started is pretty straightforward. You are asked a series of questions to gauge your goals and risk tolerance. From there Schwab suggests a customized allocation mix that you are free to manually adjust at any time.

Schwab stands out with its more diverse selection of asset classes compared to its competition. It offers stocks, bonds, real estate investment trusts (REITs), and securities in emerging markets, among others for a total of 20 asset classes. Wealthfront only offers 11 classes while Betterment has 12. Like other services, Schwab checks for rebalancing opportunities daily, re-optimizing your allocation if any asset class significantly varies from its target proportion.


As mentioned, Schwab Intelligent Portfolios gives investors the choice to customize their portfolios based on risk tolerance and personal goals. However, instead of simply accepting the default portfolio based on these parameters, Schwab allows you to remove up to three funds. It will then replace those with different investments. This adds a degree of flexibility unavailable with most other robo-advisors.

Goal Monitoring

Schwab also offers a helpful goal monitoring feature that makes it easy to determine whether an investor is on target to reach a goal that may be decades away. Using robust Monte Carlo analysis, which calculates a large number of possible outcomes with varying rates of return, Schwab determines your likelihood of reaching your goal given your present account balance and rate of savings. After evaluating whether you are on target, at risk, or off target, Schwab Intelligent Portfolios recommends changes to increase your likelihood of success. This includes updating your risk profile or making a one-time contribution. This helpful visualization makes understanding your long-term financial picture a lot simpler.

Institutional Support

Schwab also differentiates itself by being an established player in the investing world and having the amenities of a larger institution that its startup rivals lack. Investors may visit any of the 300 locations nationwide, call a 24-hour hotline, or chat online with a service representative – directly from their investment dashboard – about any assistance they require. All Schwab Intelligent Portfolio holders are also provided with a complimentary investor checking account, which allows unlimited, free withdrawals at any ATM worldwide and 100% reimbursement for any ATM fees incurred.

Mandatory Cash Drag

Easily the biggest downside of Schwab Intelligent Portfolios is its significant, mandatory cash allocation. Depending on an investor’s risk profile, Schwab holds from 6% to a whopping 29.4% of your portfolio in a bank account, creating a “cash drag” as money that could be invested sits idle. Schwab argues that cash is a healthy part of a portfolio, as it explains in this blog post, but many critics point out a more obvious reason – that Schwab is able to earn revenue by lending out these reserves elsewhere. This mandatory cash allocation does fund the program and allow it to avoid charging other fees, but challenges the notion that Schwab Intelligent Portfolios is truly without cost.

Uncompetitive Minimums

Schwab Intelligent Portfolios also requires higher minimums than other services – both for overall minimum balance and its tax-loss harvesting feature. Its $5,000 minimum to open an account is much higher than Wealthfront’s $500 or Betterment’s impressive $0 minimum. Schwab offers similarly limited availability of tax-loss harvesting, a tool that allows tax savings by swapping out investments that have incurred losses with similar funds, offering it only to investors with over $50,000 in assets. Both Wealthfront and Betterment offer this service for all taxable accounts.

The Takeaway

Schwab Intelligent Portfolios is a compelling option for many investors seeking lower fees, greater convenience, and the experience offered by an established institution. Its impressive 24/7 access to customer support, high level of customization, and user friendly interface and goal monitoring make it an attractive choice. Still, Schwab Intelligent Portfolios has significant limitations including high required cash allocation and higher minimums for opening an account or taking advantage of tax-loss harvesting. In fact, the cash drag may be significant enough to avoid the account all together. A 0.25% fee is only $25 on $10,000 invested, which seems reasonable when compared against the prospect of leaving up to 30% of your account uninvested. Still, for the investor who appreciates the support of an established institution and quality customer service on a user-friendly robo-advising platform, Schwab Intelligent Portfolios is not a bad choice.

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Luke Orlando

Luke Orlando is a management consultant from Houston who writes about personal finance, international business, and U.S. politics. He is a graduate of the University of Texas, a mentor with Big Brothers, Big Sisters, and a travel fanatic who has visited 25 countries in the last few years. Luke is passionate about the decline of objective and data-driven political argument, enhancing economic mobility in the United States, and all-you-can-eat Brazilian steakhouses. He can be reached at lukecorlando (at) Disclosure: All opinions expressed here are my own and do not represent those of my company or clients in any way.

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