About six months ago, I posted my 5-year results using Schwab Intelligent Portfolio. The Schwab Intelligent Portfolio is their version of using a “RoboAdvisor” for investing a client’s money. After analyzing my results after five years, I found that the returns I was getting were falling short of my expectations. Both the S&P 500 and Russel 2000 index funds almost doubled my returns. However, this doesn’t mean the RoboAdvisor wasn’t working.
Before I invested using the Schwab Intelligent Portfolio, I had to put in my goals for the account and my risk tolerance. After seeing my results, I tweaked both to be more aggressive in keeping up with the market as a whole. It’s been about six months since updating those two key factors, here are my updated results.
What Exactly is a Robo Advisor?
Before diving into my updated results, let’s review what exactly a robo advisor is. Robo Advisors are basically algorithm-driven investing tools with the goal to have as little human supervision as possible. Essentially, it means there is a computer analyzing tons more information a person ever could and adjusting your portfolio accordingly.
With the Schwab Intelligent Portfolio, I don’t see trades rapidly being executed in real time or even on a daily basis. Typically, my account is rebalanced every few months to make sure that the investments in the portfolio are on track to meet the goals I’ve set. Since my update to my goals, my account has been rebalanced twice.
Schwab Intelligent Portfolios Costs and Fees
One of the perks of using the Schwab Intelligent Portfolio is that there are no additional fees you pay. Currently, the only fees I incur are the expense ratios of the specific mutual funds that my account is invested in.
I don’t have the premium account, and I believe there are extra fees associated with it, but you get more services that come along with it as well.
Schwab Intelligent Portfolio Performance
Let’s dive in once again to see how my investing has faired. Please note, that as of writing this on February 14th, the stock market has taken quite the nose dive, so the numbers didn’t look so bad until recently.
At the moment I’m essentially even over the past 6 months. Like I said though, the market has been rough recently, if I back this up a month, I see some improvement, but still not much in the way of any real gains.
As with my last update the real test is to compare my portfolio again the market as a whole, to date, the results are mixed. The S&P 500 (large cap index) and Russell 2000 (small cap index) sandwiched my results:
Yeah, the S&P 500 was at least positive returns, but barely. Let’s roll this back a month again before the market took a hit.
My results are again in the middle of the two indexes. You could look at this and say the S&P 500 basically tripled my returns this time, which although true, the actual amount of dollars difference this time is far less. The market basically hit its average 7% mark, while my investments and the Russell 2000 fell short.
Is There More to This?
Last time, I choked up the difference in returns to me setting modest goals and having a lower risk tolerance. I don’t think I have enough data at this point to make any change in my new settings, so I’ll let them ride for at least another six months. To give you an idea of my investment goals and risk tolerance, here is a shot from my account:
With my initial investment, target date, and amount, my Intelligent Portfolio was only set to about 62% stocks, then cash and bonds, so there was no way I’d see the same returns as simply investing in index funds. For my original goals, the Robo Advisor seemed to be working.
With my new goals and risk settings, the percentage of stocks was upped to 73%, so the fact that I’m still coming in under the S&P 500 shouldn’t; be all that surprising. However, in my mind, the point of the robo advisor is to beat the market. 8.2% in cash seems a bit high to me, but again, I’ll give these settings another six months before I do any more tinkering.
So Should I Use A Robo Advisor?
Considering, the Schwab Intelligent Portfolio is completely free, I’m not regretting using the account. It does, for the moment, seem that for long-term investing, simply investing in low-cost index funds would be a better choice. Maybe the Intelligent Portfolio’s aren’t the way to beat the market, maybe they are. I still do like the idea of automatic rebalancing, but up until this point, it doesn’t seem to be making much difference, at least for me.
Schwab Intelligent Portfolio – What’s Next For Me?
As I’ve said, I don’t have enough data with my updated goals to make any adjustments just yet. It’s looking more and more like I’ll have to up my goals to be loftier to simply keep up with the S&P 500. Remember that I did beat the Russell 2000, but seeing that those are small-cap stocks, they tend to be more volatile and it’s not surprising their losses outweigh mine. This is the upshot here, my gains are between to popular index funds, so it would matter which one you are invested in to say if you beat the market or not.
Jeff is a fan of all things finance. When he’s not out there changing the world with his blog, you can find him on a run, a Mets game, playing video games, or just playing around with his kids.