Gyroscopic Investing

Schwab has a free robot advisory service. It asks you basic questions about your preferences, and hands you back a portfolio, and you can go back and change your responses to tweak it. Honestly, the portfolio comes out "hot", but that's typical Schwab. Balanced against my HBPP, our family total portfolio is not overly risky. The service also automatically rebalances (bands are 3% wide), and if you have more than $50,000 it will do automated tax loss harvesting, and it will coordinate sales with your spouse's account so you don't have accidental wash sales. And you can exclude up to three ETFs from the account, and I excluded my HBPP ETFs SGOL, TLO, and SCHB so I further lessen the chance of an accidental wash sale conflict with my HBPP.

There is no advisory fee. The ETFs trade commission free. They make money off of the ETF expense ratios, and those are low. Also, the cash sweep feature is through the Schwab Bank (FDIC insured), I'm sure they make some money off of that. They also won't mail you a paper statement, you have to agree to online delivery.

Anyway... the portfolio is 65% stocks, 21.5% fixed income, 5% commodities (including IAU), and 8.5% cash. I find it very interesting and encouraging that they have, at least some commodities and significant cash. My Schwab person says lots of people push back and want $0 cash, but the portfolio will not allow it. You cannot skip cash, you cannot skip commodities; "our way or the highway". Makes good sense. Someone is thinking over there.

I like that the Robot takes care of 20% of our portfolio, 25% is Schwab Advised (Windhaven), 50% is HBPP guided by "the invisible hand", and 5% is my "wild and crazy speculation money". So now I really only focus on that 5%, a handful of equities.

Yes, as outlined in the other thread, Schwab rips you off on the cash by not paying you good rates which is why they won't allow you to eliminate the cash option.  That plus the ETF fees will cost you an equivalent of .76% in total management feels which makes it a very poor value compared to two other roboadvisors charging .25% and which have now done away with any account minimums for continous tax loss harvesting.

But tax loss harvesting has very limited use once you're in a gain on ETFs which are already highly tax efficient.  You'll also have 20+ page long Schedule D's every year because they don't care about minimizing transaction frequency.  Someone is going to be making money on all these increased transactions and its not you.

I'll wait for roboadvisor v2.0.

MG, I am not sure how to respond. The Schwab ETFs are not overpriced... just to cite two, SCHB ~ VTI, and SCHO ~ SHY, the expense ratios are 0.04% and 0.08% respectively, those numbers are from Morningside's site, not Schwab's. The portfolio ETFs trade commission free. The accounts have no annual maintenance charge. There is no advisory fee. The bid/ask spreads are no different from anyone else's ETFs that I've ever seen. I'm really not sure where your 0.76% total hidden plan cost comes from. Certainly, the competitors have gone on attack in unison to try to sow fear and doubt. Did a competitor or someone writing for a competitor just throw 0.76% into a blog posting to see if it would stick to the wall?

I could keep running the portfolio by myself, as I have for 26 years, and it would not be any cheaper, and it would have to be quite a bit simpler or else I'd lose track of it. Same ETFs, same accounts at Schwab, and much more effort on my part. I'm not seeing how I am losing out here.

As for Schwab Bank as the cash sweep... I view it as acceptable, because the alternative is a typical (for most any brokerage) money market cash sweep that could very well "break the buck" under adverse market conditions like in 2008 after Lehman Brothers went under. Schwab Bank is FDIC insured up to $250,000, but I don't anticipate having that much cash in these portfolios. And please, I don't want this to get into a discussion about FDIC being underfunded. FDIC insured accounts are better than money markets that might "break the buck" at any time, especially in a near 0% real short-term interest rates where money markets are really at stall speed.

Most of the grousing about cash in these portfolios is that people don't want to have that much, but we here all know it's essential.

I'm happy, I don't have to move my retirement money anywhere to get cared for by a robot, it gets to be a pain to have your assets spread over too many places. Maybe Schwab gets me via incumbency, but I'm OK with that.


Disclosure - I do not work for Schwab, none of my family and friends do, I don't own their stock, I am not getting any consideration from Schwab for this post

A two-year Treasury pays about 0.50%, right?. If Schwab takes all that and gives me 0% for my cash, then for a $100,000 portfolio I've "paid" them $100,000 * 0.50% * 9% = $45, as the portfolio is 9% in cash.

Is $45 a year excessive? I am inclined to not worry about it. Now, if / when we return to 2%, 4% or higher short-term interest rate regime, and if Schwab Bank keeps an excessive amount at that point, then we'll have a conversation with them, yes.