Key Points

  • Schwab Intelligent Portfolios® is a technology-driven automated investment advisory service that uses sophisticated computer algorithms and the insights of Charles Schwab Investment Advisory, Inc. to build, monitor and rebalance diversified low-cost portfolios of exchange-traded funds (ETFs) based on an investor's stated goals, time horizon and risk tolerance – all without charging any advisory fees, commissions or account services fees.1
  • Investors with as little as $5,000 can open an account and get a globally diversified portfolio across up to 20 asset classes, with automatic monitoring and rebalancing to help give them the necessary discipline to stay on track with their plan.
  • Schwab Intelligent Portfolios provides investors with a "Personal Investing Algorithm" that combines the power of time-tested investment principles, the efficiency of technology and a broad range of portfolios to help investors achieve their financial goals.

Schwab Intelligent Portfolios: Your Personal Investing Algorithm

Individuals have a broad spectrum of backgrounds, interests and goals. This is as true in investing as in other areas of people's lives. Because of these different objectives and financial situations, the investment portfolio recommended to help one person achieve their financial goals might look very different from the portfolio of another person.

Choosing the right mix of asset classes requires insight into an individual's goals, time horizon, attitudes about risk, and ability to absorb risk. The appropriate portfolio will vary depending on whether an individual is saving for a long-term goal such as retirement, for a short-term need such as a rainy day fund, or for some other goal such as a college education. How a person feels about risk and how they've responded to financial losses in the past also play a role. And with thousands of investment products available, investors face yet another layer of complexity in selecting the best investment vehicles to fill each of those asset class allocations.

And the complexities don't end after the portfolio has been constructed. Investment portfolios need to be managed on an ongoing basis to help ensure that the intended asset allocation remains consistent as markets fluctuate over time and as people's financial situations change.

Furthermore, taxes need to be taken into account to help avoid having taxes erode the wealth that people have worked so hard to accumulate.

Time-tested investment principles can help guide the way

Although each investor has a variety of unique financial needs, time-tested investment principles make sense for many investors. Sophisticated asset allocation, broad diversification, disciplined rebalancing and efficient tax management can play an important role in helping investors reach their goals. However, most individuals don't have the time, expertise or inclination to be able to manage all of these complexities, especially with all of the other responsibilities in their busy lives.

This is where professional investment advice plays a critical role. All investors can benefit from professional advice that can give them the necessary sophistication to navigate this challenging landscape and help achieve their financial goals. Common practice for successful investing typically requires individuals to create a plan, put it into action and maintain the discipline to stay on track. However, some investors might not have had ready access to professional investment advice previously for a variety of reasons. They might not have had sufficient assets or perhaps were unwilling to pay the fees typical of professional advice. Or they might not have understood how to go about seeking this type of advice. In fact, fewer than 30% of Americans consulted a financial professional about investing between 2008 and 2012, according to the Financial Industry Regulatory Authority.2

Schwab Intelligent Portfolios brings professional financial advice to your fingertips

The introduction of Schwab Intelligent Portfolios makes professional investment advice more accessible to a broader group of investors. Schwab Intelligent Portfolios is a technology-driven automated investment advisory service that uses sophisticated computer algorithms and the insights of Charles Schwab Investment Advisory, Inc. to build, monitor and rebalance diversified low-cost portfolios of ETFs based on an investor's stated goals, time horizon and risk tolerance—all without charging any advisory fees, commissions or account service fees.

Schwab Intelligent Portfolios combines the power of time-tested investment principles, the efficiency of technology and a broad range of portfolios to help investors achieve their financial goals. Investors with as little as $5,000 can open an account and get a globally diversified portfolio across up to 20 asset classes, with daily monitoring and automatic rebalancing to give them the necessary discipline to stay on track with their plan.

How Schwab Intelligent Portfolios works

Schwab Intelligent Portfolios is a simple but sophisticated online advisory service that makes the entire process of investing more efficient for investors. From the user-friendly online interface to the sophisticated asset allocation and rebalancing algorithm, each element of Schwab Intelligent Portfolios is designed to work together to efficiently manage the many complexities of investing and give investors access to professional advice to help meet their financial goals.

Opening a Schwab Intelligent Portfolios account can be done in a few simple steps and takes just a matter of minutes. The online interface is straightforward and guides investors through the process of determining the appropriate asset allocation strategy based on their objectives, time horizon, preferences and risk tolerance. Once the appropriate asset allocation strategy is selected, opening and funding the account is a simple paperless process that takes just a few clicks and can be completed on any desktop or mobile device.

Investors can benefit from professional advisory services

While there are many elements of Schwab Intelligent Portfolios that all work hand in hand, it is useful to examine the process in three main steps , each of which has historically been a hurdle that investors have faced without the help of professional investment advice:


Asset allocation: It is a complex task to analyze individual asset classes, understand how they interact with other asset classes when combined in a portfolio, and then determine the appropriate mix of all of those asset classes to fit an investor's objectives, time horizon, preferences, and risk tolerance. And that's only the beginning.
Portfolio construction: Once an appropriate asset allocation is determined, selecting which investment vehicles to use in constructing the actual portfolio is another complex task. This could require analyzing thousands of mutual funds, ETFs and other potential securities to decide which to purchase for the portfolio. And then the process of actually buying the securities requires knowledge of how to trade efficiently within complex investment markets.
Portfolio management: And finally, the process of ongoing monitoring of the portfolio requires expertise to implement disciplined rebalancing and tax-efficient trading. This is the technology-powered engine of Schwab Intelligent Portfolios that helps make complex investment management effortless for investors.

Step 1: Determining your asset allocation strategy

It is no simple task to determine the right mix of assets to fit your specific risk profile. To do this with the sophistication to meet your financial objectives requires a combination of expertise, tools, and time that might be beyond the reach of many investors.

  • First, you need a way to quantify your risk tolerance.
  • Second, you have to understand the attributes and behavior of individual asset classes such as cash, stocks, fixed income and commodities.
  • Third, you need to analyze how various asset classes interact when combined in a portfolio.
  • Fourth, you need to determine the appropriate mix of all of those asset classes based on your unique objectives, time horizon, attitudes about risk, and ability to absorb risk. 

Schwab Intelligent Portfolios is designed to help investors overcome these hurdles through an online experience that is straightforward yet sophisticated in its capabilities. It efficiently guides an investor through a questionnaire that provides insight into an investor's risk profile. Investors provide personal information such as:

  • What they're investing for; their goal
  • How long they plan to invest
  • How they feel about risk
  • How they have responded or would respond to financial losses
  • When they need to begin withdrawing funds
  • How long they'll need the funds to last once they start withdrawals 

The online questionnaire is simple to complete but provides a great deal of information that is used to determine the appropriate asset allocation for an investor's personal portfolio based on their responses. A sophisticated algorithm analyzes this personal information question by question as an investor proceeds through the questionnaire, adjusting the recommended asset allocation with each response. As investors answer each question, a graphic on the screen shows how their recommended asset allocation and likelihood of reaching their stated goal adjusts in response to their answers.

Investor Profile Questionnaire: A simple survey that provides sophisticated insight

Before making any investing decisions on behalf of a client, it is important to understand an investor's profile, including willingness and tolerance for risk. However, traditional measures of an investor's risk profile have some limitations. To address those limitations, the team at the Schwab Center for Financial Research developed an Investor Profile Questionnaire (IPQ) to help ensure that an appropriate portfolio is recommended to investors based on their responses. The IPQ and related questions for the account opening process are based on rigorous research, considering both objective (factual) and subjective (behavioral) information that investors provide.

The goal of the IPQ is to understand an investor's comprehensive profile. Traditional questionnaires generally focus only on an investor's risk tolerance, a method that may yield limited benefits because it ignores behavioral issues, among other factors.3

The IPQ expands the scope of the traditional questionnaire by seeking insights into an investor's ability, or capacity, to take risk as well as their attitude toward risk and willingness to take it. The capacity to take risk is dependent on an investor's financial situation (income, wealth, etc.) while an investor's willingness to take risk is based on behavioral factors.3

The IPQ also includes questions, when applicable, that are designed to capture an investor's preference for income-oriented investments and the tax status of their account. If the account is taxable, the investor can indicate their preference of portfolios containing taxable bonds or municipal bonds.

Investors get broad, global diversification matched to fit their individual risk profile

As investors answer the online questions, they're also able to see the recommended asset allocation as well as a hypothetical annualized growth chart that shows the dollar amount that the portfolio would grow to over their designated investment horizon based on annualized growth rates of both 0% and 6%. At the end of the questionnaire, an investor receives a recommended portfolio that is globally diversified across up to 20 asset classes based on their stated individual risk profile.

At that point, an investor can select the portfolio that the algorithm has recommended and open an account based on that asset allocation. Or, if the client believes that they have a bit more or less risk tolerance than the recommended portfolio reflects, they can adjust the recommendation by moving a slider up or down to select the portfolio that is one risk profile higher or lower.

Schwab Intelligent Portfolios includes a broad range of available portfolios with different asset allocations across the risk spectrum. A portfolio recommended to a conservative investor with a short time horizon will have a different asset allocation than a portfolio recommended to a more aggressive investor with a longer horizon. Some of the portfolios focus on a total return objective, which considers both growth and income, while others focus specifically on current income and include investments that have historically delivered higher levels of income. Depending on their objective and the tax-status of their account, investors are also able to choose whether or not they wish to include municipal bonds in their portfolio.

Step 2: Opening your account and constructing your portfolio

After an investor completes the investor profile questionnaire and selects their desired asset allocation strategy, they're able to open and fund their account with just a few more clicks. Once they click the "Sign Up" button, an investor is given an option of indicating whether they already have a Schwab Login ID and password. If so, the system pre-fills all of their personal information into the account application. Or if not, they'll be prompted to enter their name and email address.

The client is asked to verify their email address and then has the opportunity to select which type of account they'd like to open.

At this point an investor in a taxable account has the option on whether to include municipal bonds in their portfolio, and if so, whether California or national municipal bonds are preferred. If the investor chooses to include municipal bonds, they receive an adjusted asset allocation that shows the weighting of each asset class in the recommended portfolio with municipal bonds included.

From here, investors are prompted through a brief series of screens to enter information such as their address, citizenship, phone numbers, date of birth, social security number, employment status, annual income range, and liquid net worth. Next, a few questions confirm an investor's identity and whether they're affiliated with or employed by a stock exchange, member firm of an exchange or FINRA, or a municipal securities broker-dealer, or whether they are a director, 10% shareholder or policy-making officer of a publicly traded company.

Finally, the client is asked to check a series of boxes indicating that they have read the disclosure documents. Clicking "Submit" sends the application to have their account opened. From here, the investor selects a method for funding the account, whether from a retirement account, a transfer from an existing account, or through a link to an external account.

Once funded with a minimum of $5,000, a series of trades will take place that allocates the appropriate dollar amount to each asset class included in the investor's portfolio while also retaining a targeted cash allocation based on their risk profile within the bank deposit account.

Portfolios are constructed using low-cost exchange-traded funds

Exchange-traded funds (ETFs) are the basic building blocks of Schwab Intelligent Portfolios and are selected for their ability to provide exposure to broad asset classes while keeping overall portfolio costs low for investors. (For a full list of ETFs selected for Schwab Intelligent Portfolios, see Appendix A.)

An objective set of criteria is used to select ETFs with attributes such as low operating expense ratios, efficient trading characteristics and close tracking to our targeted indexes. This selection process narrows the universe of nearly 2,000 ETFs in the marketplace to the 53 that are included in Schwab Intelligent Portfolios. Two ETFs are included in each asset class, a primary ETF and a secondary ETF that is used primarily for tax-loss harvesting purposes.

Objective criteria are used to select the 53 ETFs included in Schwab Intelligent Portfolios

  • Eschewing risk. First of all, any nonstandard ETFs are eliminated—that is, ETFs that are inverse or leveraged, actively managed, or that are structured as exchange-traded notes, among other factors. This helps avoid exposing the portfolios to some riskier ETFs that could compromise an investor's targeted profile.
  • Size matters. Next, all ETFs without sufficient assets under management are stripped out, because ETFs without sufficient assets are at greater risk of closing. And although an ETF that is liquidated ultimately distributes the proceeds to shareholders, it's preferable to avoid the potential tax complexities that could arise.
  • Looking for liquidity. Also screened out are ETFs with insufficient liquidity. One of the metrics that is used to evaluate liquidity is bid-ask spread—that is the difference between the highest price a buyer is willing to pay for shares (the bid), and the lowest price a seller is willing to take for them (the ask). When the spread between the bid and the ask is too wide, investors risk paying too much to buy, or receiving too little on a sale.
  • Monitoring asset class representation. Schwab Intelligent Portfolios ETFs must closely track our strategic benchmark indexes, because a significant difference can cause an ETF to drift from its intended role in your portfolio. So any funds that don't track our indexes particularly well are ruled out. We also perform additional qualitative analysis to make sure ETFs are representative of the asset class exposure we seek.
  • Low OERs are key. Finally, the selection process focuses on ETFs with operating expense ratios (OERs) which are among the lowest in that asset class. OERs are the percentage of fund assets that the ETF managers spend each year to keep the funds running.

Investors can restrict up to three specific ETFs

Schwab Intelligent Portfolios allows investors to designate up to three ETFs that they wish to restrict from inclusion. It is important to note, however, that these restrictions will prevent any potential tax-loss harvesting in the asset classes in which ETFs have been restricted, because both a primary and secondary ETF in a particular asset class are necessary to facilitate tax-loss harvesting. Additionally, if an investor restricts both the primary and secondary ETF in any single asset class, Schwab Intelligent Portfolios is unable to manage the account for the investor.

Step 3: Managing your account to stay on track with your objectives

Once a portfolio is constructed, a disciplined process for managing the portfolio is critical for long-term investment success. Schwab Intelligent Portfolios automates this portfolio management process, using the power of technology to make otherwise complicated tasks, such as goal tracking, rebalancing and tax-loss harvesting, simple and efficient. As part of a single unified process, portfolios are monitored daily for rebalancing and tax-loss harvesting opportunities.4

Track your progress toward your goal

It's one thing to invest. It's another thing to invest with a goal in mind. Schwab Intelligent Portfolios includes a Goal Tracker feature that allows you to set a savings or income goal and then monitor your progress toward your goal over time.

If you are saving for retirement or an upcoming expense, the Goal Tracker helps you monitor your investment goal, which is set up based on your risk profile, investment amount, and your planned monthly contributions.

If you are seeking to create distributions for an income need, the Goal Tracker also allows you to set up your target monthly withdrawal amount and will help monitor your income stream and project whether it will last as long as you need it to based on the information that you provide.

After you set up a goal, the Goal Tracker projects hypothetical portfolio performance using a sophisticated statistical simulation and will monitor whether your goal is "on target," "off target," or "at risk" so that you can track your progress over time and make any necessary adjustments. It is as simple as going to the Goal tab of your Schwab Intelligent Portfolios dashboard, where you can see suggested actions to help you get back on track.

Setting goals and tracking progress toward those goals is an important part of success in investing. If you set a goal, it increases the likelihood of success. Goal Tracker helps project possible hypothetical outcomes, stress test your plans, and keep you on track toward your financial objectives.

Schwab Intelligent Portfolios automatically rebalances your portfolio for you

A portfolio needs to be maintained to accommodate deposits and withdrawals and to keep the allocation on target as markets fluctuate over time. A process for disciplined rebalancing when portfolio allocations drift from their target due to market movement or deposits/withdrawals helps keep an investor on track with their objectives. This process imposes a "buy low-sell high" discipline that can help reduce portfolio volatility and potentially improve portfolio performance over time.

Rebalancing is the process of buying or selling securities within an asset class to bring the asset class as close as possible back to its target allocation. On a daily basis, the algorithm checks to determine if asset class weights remain within a drift tolerance.

  1. If an asset class has drifted above its target allocation by a sufficient amount, the asset class is sold to bring it back to its target allocation. The cash received from the sale is allocated to the asset classes that are underweight.
  2. If an asset class has drifted below its target allocation by a sufficient amount, additional shares of the asset class are bought to bring it up to its target allocation. To make this purchase, overweight asset classes are sold down until there is enough cash to make the purchase.

Automatic tax-loss harvesting can help prevent taxes from eroding wealth

Schwab Intelligent Portfolios also incorporates automatic tax-loss harvesting for investors whose taxable accounts have a balance of at least $50,000. If an investor enrolls in tax-loss harvesting, the algorithm automatically monitors the investor's account on a daily basis for both tax-loss harvesting and rebalancing opportunities.

Tax-loss harvesting is the process of selling a security at a loss, and using the proceeds to purchase a similar but not substantially identical security. The tax-loss harvesting process allows investors to retain a similar market exposure while generating tax deductions for federal income tax purposes.

Tax-loss harvesting is designed to reduce an investor's net federal income tax burden by capturing tax-deductible capital losses, while monitoring linked Schwab Intelligent Portfolios accounts (but not other Schwab accounts or accounts held outside Schwab) in order to avoid triggering a wash sale.

Capital losses may be used to offset capital gains from any source. To the extent capital losses exceed capital gains in any tax year, they generally may be used to offset up to $3,000 of ordinary income. If such losses are not fully utilized in the year they occur, the excess may be carried forward without expiration during the investor's lifetime for use in future tax years.5

Schwab Intelligent Portfolios helps avoid potential "wash sales"

The utilization of realized losses may be limited by a number of special rules in the IRS' Internal Revenue Code (IRC), in particular by the "wash sale" rules. Wash sales occur when you sell a security at a loss and when you, your spouse, or one of your IRAs buys the same or a "substantially identical" security within 30 calendar days before or after the sale.

When a wash sale occurs, the loss is typically disallowed or deferred for federal income tax purposes.6 The wash sale rule is designed to prevent taxpayers from claiming deductible losses on securities if they acquire a "substantially identical"" position in that security within 30 days before or after the sale.7

A wash sale will trigger several consequences. First, if a taxpayer violates the wash sale rule, the loss resulting from the initial sale cannot be deducted currently (the wash sale rule only applies to losses). Instead, that loss is added to the cost basis of the replacement security purchased. The holding period for the replacement security includes the holding period of the original security previously sold.

To prevent wash sales, Schwab Intelligent Portfolios utilizes two similar ETFs for each asset class (a "Primary ETF" and an "Alternate ETF").8 When the price movement of one ETF is large enough to warrant a sale to capture a loss9, the other ETF in the asset class is purchased to maintain the asset class exposure. The two ETFs in each asset class track different indexes to satisfy the requirement of not being "substantially identical" in the eyes of the IRS in order to avoid potential "wash sales" for tax purposes.

Since tax-loss harvesting and rebalancing conditions are checked on a daily basis, the algorithm follows a set of rules to net out both trade types. When evaluating each situation, the algorithm looks at the shares held in both the Primary ETF and Alternate ETF.

Individual portfolios evolve over time depending on each investor's unique actions

While rebalancing and tax-loss harvesting follow consistent rules for all investors, the timing of rebalancing and resulting return patterns for each portfolio are also influenced by variables that are unique to each individual. The specific characteristics of each investor's portfolio are influenced by variables such as:

  • When an investor opens the account
  • Frequency of deposits/withdrawals
  • Whether the investor enrolls in automatic tax-loss harvesting
  • Whether an individual makes changes to their risk profile

Over time, each of these individual actions would be expected to result in unique portfolios for each investor, even for those who began with a similar risk profile. For investors who enroll in tax-loss harvesting, the number of ETFs in their portfolios will likely grow over time as the portfolio will hold a mix of primary and secondary ETFs in various asset classes.

Conclusion

The introduction of Schwab Intelligent Portfolios makes professional investment advice readily accessible to all investors with at least $5,000 to invest. Schwab Intelligent Portfolios is a fully automated investment advisory service that uses sophisticated computer algorithms and the insights of Charles Schwab Investment Advisory, Inc. to build, monitor and rebalance diversified low-cost portfolios based on an investor's stated goals, time horizon and risk tolerance – all without charging any advisory fees, commissions or account services fees.

Schwab Intelligent Portfolios combines the power of time-tested investment principles, the efficiency of technology and consideration of each investor's objective and financial situation needed to help them work toward their financial goals. Investors with as little as $5,000 can open an account and get a globally diversified portfolio across up to 20 asset classes, with automatic monitoring and rebalancing to help give them the necessary discipline to stay on track with their plan.

1. Schwab Intelligent Portfolios charges no advisory fees. Schwab affiliates do earn revenue from the underlying assets in Schwab Intelligent Portfolios accounts. This revenue comes from managing Schwab ETFs™ and providing services related to certain third-party ETFs that can be selected for the portfolios, and from the cash feature on the accounts. Revenue may also be received from the market centers where ETF trade orders are routed for execution.

2. "Financial Capability in the United States – Report of Findings from the 2012 National Financial Capability Study," Financial Industry Regulatory Authority, May 2013.

3. Michael Pompian, Behavioral Finance and Investor Types (CFA Institute, Private Wealth management, 2012).

4. Tax-loss harvesting is available for taxable accounts with a balance of at least $50,000.

5. State income tax laws do not always conform to federal law and differences may be material. Consult your tax professional regarding your particular state's rules.

6. IRC §1091 and Treasury Regulation 1.1091-1. See also, IRS Publication 550 pp. 58-59

7. Note that even though brokerage firms can only report on an account level, the wash sale rule applies at the taxpayer level. Therefore, individual taxpayers must coordinate sales and purchases among their various accounts. Married taxpayers are generally considered one economic unit for purposes of the wash sale rule. Furthermore, tax-deferred retirement accounts are included for purposes of determining whether a substantially identical security has been purchased within 30 days. See IRS Rev. Rul. 2008-5, 2008-1 C.B. 271. For purpose of the tax loss harvesting and rebalancing process, unless Schwab Intelligent Portfolio accounts are linked together, the process will be undertaken on an account by account basis and no single account election is assumed to be made under the cost basis rules or otherwise with respect to multiple accounts.

8. There is very little authority governing whether an ETF is "substantially identical" to another ETF for purposes of the wash sale rules. As a result, no assurances can be provided that an ETF chosen to be similar but not substantially identical to a disposed of ETF will be treated as such by the IRS or a court. Each investor is strongly encouraged to consult their own tax advisor in preparing their own tax returns light of their particular circumstances.

9. This assumes the client will be able to utilize such a loss against his or her capital gains after the annual $3,000 ordinary income allowance is used.

Appendix A: ETF List (As of 6/6/2018)

Stocks
Category Primary ETF Secondary ETF
US Large Company SCHX–Schwab U.S. Large-Cap VOO–Vanguard S&P 500
US Large Company–Fundamental FNDX–Schwab Fundamental U.S. Large Company PRF–Invesco FTSE RAFI US 1000
US Small Company SCHA–Schwab U.S. Small-Cap VB–Vanguard Small-Cap
US Small Company–Fundamental FNDA–Schwab Fundamental U.S. Small Company PRFZ–Invesco FTSE RAFI US 1500 Small-Mid
International Developed Large Company SCHF–Schwab International Equity VEA–Vanguard FTSE Developed Markets
International Developed Large Company–Fundamental FNDF–Schwab Fundamental International Large Company PXF–Invesco FTSE RAFI Developed Markets ex-U.S
International Developed–Small Company SCHC–Schwab International Small-Cap Equity VSS–Vanguard FTSE All-World ex-US Small Cap
International Developed Small Company–Fundamental FNDC–Schwab Fundamental International Small Company PDN–Invesco FTSE RAFI Developed Markets ex-U.S. Small-Mid
International Emerging Markets SCHE–Schwab Emerging Markets Equity IEMG–iShares Core MSCI Emerging Markets
International Emerging Markets–Fundamental FNDE–Schwab Fundamental Emerging Markets Large Company PXH–Invesco FTSE RAFI Emerging Markets
US Exchange-Traded REITS SCHH–Schwab U. S. REIT USRT–iShares Core U.S. REIT
International Exchange-Traded REITS VNQI–Vanguard Global ex-U.S. Real Estate IFGL–iShares International Developed Real Estate
US High Dividend SCHD–Schwab US Dividend Equity VYM–Vanguard High Dividend Yield
International High Dividend HDEF–xTrackers MSCI EAFE High Dividend Yield Equity ETF VYMI–Vanguard International High Dividend Yield
Master Limited Partnerships MLPA–Global X MLP ZMLP–Direxion Zacks MLP High Income
 
Fixed Income
Category Primary ETF Secondary ETF
US Treasuries SCHR–Schwab Intermediate-Term U.S. Treasury IEI–iShares 3-7 Year Treasury Bond
US Investment Grade Corporate Bonds SPIB–SPDR® Portfolio Intermediate Term Corporate Bond VCIT–Vanguard Intermediate-Term Corporate Bond
US Securitized Bonds VMBS–Vanguard Mortgage-Backed Securities MBB–iShares MBS
US Inflation Protected Bonds SCHP–Schwab U.S. TIPS IPE–SPDR Bloomberg Barclays TIPS
US Corporate High Yield Bonds HYLB–X-trackers USD High Yield Corporate Bond USHY–iShares Broad USD High Yield Corp Bond
International Developed Country Bonds IAGG–iShares Core International Aggregate Bond BNDX–Vanguard Total International Bond
International Emerging Markets Bonds EBND–SPDR® Bloomberg Barclays Emerging Markets Local Bond EMLC–VanEck Vectors JP Morgan EM Local Currency Bond
Preferred Securities PFFD–Global X US Preferred PSK–SPDR Wells Fargo Preferred Stock
Bank Loans BKLN–Invesco Senior Loan N/A
Investment Grade Municipal Bonds VTEB–Vanguard Tax-Exempt Bond TFI–SPDR® Nuveen Bloomberg Barclays Muni Bond
Investment Grade California Municipal Bonds CMF–iShares California Muni Bond PWZ–Invesco California AMT-free Muni Bond
Commodities
Category Primary ETF Secondary ETF
Gold and Other Precious Metals IAU–iShares Gold Trust GLTR–ETFS Physical Precious Metals Basket

Diversification, automatic investing and rebalancing strategies do not ensure a profit and do not protect against losses in declining markets.

Schwab Intelligent Portfolios is designed to monitor a client's portfolio on a daily basis and will also automatically rebalance as needed to keep the portfolio consistent with the client's selected risk profile unless such rebalancing may not be in the best interest of the client. Trading may not take place daily.

Schwab Intelligent Portfolios charges no advisory fees. Schwab affiliates do earn revenue from the underlying assets in Schwab Intelligent Portfolios accounts. This revenue comes from managing Schwab ETFs™ and providing services related to certain third-party ETFs that can be selected for the portfolios, and from the cash feature on the accounts. Revenue may also be received from the market centers where ETF trade orders are routed for execution.

There is no guarantee that the intended goal will be reached and changes to inputs and other assumptions may affect your potential to reach the intended goal. In addition, the projections and other information you will see here about the likelihood of various outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. The projections are based on estimates intended to be representative of the selected portfolio. The output of this tool may vary with each use and over time. The tool does not consider the specific securities or other assets held by you. This tool provides analysis based upon your inputs but makes additional assumptions detailed in this paper.

You should read the tax-loss harvesting disclosures on the Website and in the Brochure before choosing the tax-loss harvesting feature if you decide to enroll in Schwab Intelligent Portfolios. Neither the tax-loss harvesting strategy for the Schwab Intelligent Portfolios program nor any discussion herein is intended as tax advice. Neither Charles Schwab & Co., Inc. (“Schwab”) nor its affiliates, including but not limited to Charles Schwab Investment Advisory, Inc. represent that any particular tax consequences, benefits, or outcomes will be obtained.

Cash balances held in the Sweep Program at Schwab Bank are eligible for FDIC insurance up to allowable limits.

(0618-853M)


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