Portfolio Management March 31, 2016

    Investing with Schwab Intelligent Portfolios® is a little like using the cruise control in your car: Schwab’s automated investment advisory service can help keep you moving, but it’s up to you to tap the brakes when you’re near your destination.

    The technology powering Schwab Intelligent Portfolios can do some pretty amazing things. Give it a bit of information about your goals, timeframe and risk tolerance, and it will recommend a portfolio of exchange-traded funds (ETFs) geared to match your preferences. Then it monitors that portfolio and can rebalance it as different investments rise or fall. It can even look for ways to lower your tax bill through tax-loss harvesting.1

    Sophisticated as it is, though, Schwab Intelligent Portfolios doesn't work without your input. This starts when you fill in your Investor Profile Questionnaire to open an account, but that shouldn't be the end of it. If your situation changes or you grow more concerned about risk as you get closer to achieving your goals, you need to adjust your settings so Schwab Intelligent Portfolios can change with you.

    Consider the case of a hypothetical 20-year-old who opens a Schwab Intelligent Portfolios account to save for a house. If everything goes as planned, he'd like to have enough to make a down payment by the time he's 35.

    Starting out, he might not have a lot of money, but he has 15 years to work with. That means he may be able to afford to invest in riskier, more aggressive assets in the hope of scoring higher returns.

    He enters his preferences in the Investor Profile Questionnaire and comes away with a stock-heavy portfolio of exchange-traded funds (ETFs). Historically, stocks have been one of the best sources of growth and returns, but they tend to be riskier than bonds or cash investments.

    By the time he turns 30, our investor may have built up some savings—but with only five years left in his investment plan, he has less time to recover from a dip in the market. And now that he's closer to his goal, he might be more interested in preserving what he has than accumulating more. In other words, the aggressive portfolio he started with might not make sense anymore.

    This would be a good time for him to revisit the Investor Profile Questionnaire.

    So what are some best practices for checking the settings on your Schwab Intelligent Portfolios account? Again, that depends on your goal, risk tolerance and time horizon.

    If you're saving for a retirement that is still several decades away, you probably don't need to adjust your settings that often. But you also wouldn't want to wait until the day before you retire.

    So, you can start with an annual check-in. Treat it as an opportunity to think about where you are and where you want to go. How much progress have you made? Are you more concerned about a temporary setback than you were when you started?

    It's also worth checking in if you've had a major change in your life. Marriages, births or changes to your retirement plans could affect your investment preferences. So could an unexpected change in your wealth due to an inheritance or bonus.

    Finally, you should think about how your Schwab Intelligent Portfolios account fits with your overall financial situation (your debts, bank savings and assets like real estate). Does the risk profile of your Schwab Intelligent Portfolios account push your overall risk level into uncomfortable territory? Could you afford to be more aggressive?

    If you're not sure, you can always call 855-694-5208 to speak with a Schwab investment professional who can help you think holistically about your financial situation.

    Need to review your risk profile?

    It's easy with Schwab Intelligent Portfolios. Simply log into your account and click "update profile" to re-launch the questionnaire and update your answers and risk profile.2

    1. Tax-loss harvesting is available for Schwab Intelligent Portfolios accounts with a balance of $50,000 or more.

    2. Changing your answers may result in a new investment portfolio, which could incur capital gains or losses. In addition, changing your risk profile two or more times (including changing your original risk profile) within a period of three trading days may create settlement violations and cause your account to become restricted. This means that your account may not be included in trading due to changes in your investment strategy, rebalancing or tax loss harvesting for a period of 90 days.

    Investing involves risk including possible loss of principal.

    The information here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The type of investment strategies mentioned may not be suitable for everyone.

    Tax-loss harvesting is available for clients with invested assets of $50,000 or more in their account. Clients must choose to activate this feature.


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