Robo-Advisors @ Schwab vs Vanguard

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JackBoglereader21
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Robo-Advisors @ Schwab vs Vanguard

Post by JackBoglereader21 »

First, I'd like to extend my thanks to all contributors to this forum for the YEARS of education I've received. I'd like to ask a questions about regarding my Managed accounts at Schwab and Vanguard.

In January 2019 after many years of managing my own IRAs and Taxable accounts (which were mainly held at Vanguard) I decided to transition to Robo-Advisors, namely Vanguard's Personal Advisor Service (paying 0.30%) and Schwab Intelligent Portfolio. Shortly after I started at Schwab, their fee structure changed and it's "free". I split my assets down the middle, allowing Vanguard and Schwab to manage 50% each. AA was set at 60/40 however ... and this is the primary reason I am asking my question ... at Schwab the Intelligent has 8% sitting in cash. I questioned the heavy Cash and was told "Schwab treats Cash as an asset class".

It's coming up on 3 years next month. Returns since inception Schwab = 9.72% and Vanguard = 13.7%

I am not a finance geek or have strong analytical skills. I've done my best to look at the AA of both portfolios. Mix of US and Intl Stocks and Bonds. Schwab has 1.8% in commodities, which is gold.

I made this move for several reasons - a health scare and a spouse is a great earner but totally not interested in investing. Previously I had 3-5 Vanguard funds and picked a few individual stocks along the way. I picked Schwab b/c I wanted a person for my spouse to interact with however since Covid and the transition to Zoom, I think Vanguard not having an actual location is no longer a problem.

Honestly I really, really like the Robo-Advisor service and never want to go back to what I was doing.* In 2022 we will have a capital event where we will net $750,000. Looking at the since inception returns, of course I am inclined to turn this money over to Vanguard to invest for us with an AA of 60/40. My question to you all: What am I missing ? Both accounts at 60/40, both went into the market the same time, why is one returning 9.72% (which is good) vs. 13.7% (which is better). Is the 8% cash really that much of a drag on the return ?

Yes, I will bring this up with Schwab in our January meeting. I'd appreciate any insight from this forum and please let me know what questions I should be asking Vanguard and Schwab.

Thank you, Happy Holidays.

*PS: There are days that I want go back to managing the assets myself with a 3 fund portfolio and rebalancing as needed. The fees are tolerable and I just feel so lucky we've amassed enough for our future.
Last edited by JackBoglereader21 on Fri Dec 03, 2021 6:54 pm, edited 2 times in total.
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Cheez-It Guy
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Re: Schwab vs Vanguard

Post by Cheez-It Guy »

The interest that Schwab makes on your idle cash position that they don't pay to you is why this service is "free". Vanguard invested it according to the actual asset allocation, and not surprising that it has done better as a result. Cash could have a protective effect in a declining market, but markets generally go up over time, so mostly that means Schwab is going to continue profiting from your cash. By the way, the cost of Vanguard Personal Advisor Services is 0.30%, not 0.03%. Still very competitive for the service offered.
nalor511
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Re: Schwab vs Vanguard

Post by nalor511 »

Maybe change the title to "robo advisors at Vanguard vs Schwab", because that's really what you are comparing
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JackBoglereader21
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Re: Schwab vs Vanguard

Post by JackBoglereader21 »

Cheez-It Guy wrote: Fri Dec 03, 2021 6:49 pm The interest that Schwab makes on your idle cash position that they don't pay to you is why this service is "free". Vanguard invested it according to the actual asset allocation, and not surprising that it has done better as a result. Cash could have a protective effect in a declining market, but markets generally go up over time, so mostly that means Schwab is going to continue profiting from your cash. By the way, the cost of Vanguard Personal Advisor Services is 0.30%, not 0.03%. Still very competitive for the service offered.
Thank you - I have corrected the Vanguard cost .. yes, it's 0.30%. Very competitive and grateful that it's available. I was managing well enough on my own but honestly was very lucky over the years. Robo-advisors suit me very well, especially with a spouse who I know will not want to deal with it if I wasn't around. I will look more closely at the AA to understand better your comment "actual asset allocation". As of today, Schwab shows 66% stock, 24% fixed income, 1.8% commodities, 8.2% cash.
reln
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Re: Robo-Advisors @ Schwab vs Vanguard

Post by reln »

JackBoglereader21 wrote: Fri Dec 03, 2021 6:42 pm First, I'd like to extend my thanks to all contributors to this forum for the YEARS of education I've received. I'd like to ask a questions about regarding my Managed accounts at Schwab and Vanguard.

In January 2019 after many years of managing my own IRAs and Taxable accounts (which were mainly held at Vanguard) I decided to transition to Robo-Advisors, namely Vanguard's Personal Advisor Service (paying 0.30%) and Schwab Intelligent Portfolio. Shortly after I started at Schwab, their fee structure changed and it's "free". I split my assets down the middle, allowing Vanguard and Schwab to manage 50% each. AA was set at 60/40 however ... and this is the primary reason I am asking my question ... at Schwab the Intelligent has 8% sitting in cash. I questioned the heavy Cash and was told "Schwab treats Cash as an asset class".

It's coming up on 3 years next month. Returns since inception Schwab = 9.72% and Vanguard = 13.7%

I am not a finance geek or have strong analytical skills. I've done my best to look at the AA of both portfolios. Mix of US and Intl Stocks and Bonds. Schwab has 1.8% in commodities, which is gold.

I made this move for several reasons - a health scare and a spouse is a great earner but totally not interested in investing. Previously I had 3-5 Vanguard funds and picked a few individual stocks along the way. I picked Schwab b/c I wanted a person for my spouse to interact with however since Covid and the transition to Zoom, I think Vanguard not having an actual location is no longer a problem.

Honestly I really, really like the Robo-Advisor service and never want to go back to what I was doing.* In 2022 we will have a capital event where we will net $750,000. Looking at the since inception returns, of course I am inclined to turn this money over to Vanguard to invest for us with an AA of 60/40. My question to you all: What am I missing ? Both accounts at 60/40, both went into the market the same time, why is one returning 9.72% (which is good) vs. 13.7% (which is better). Is the 8% cash really that much of a drag on the return ?

Yes, I will bring this up with Schwab in our January meeting. I'd appreciate any insight from this forum and please let me know what questions I should be asking Vanguard and Schwab.

Thank you, Happy Holidays.

*PS: There are days that I want go back to managing the assets myself with a 3 fund portfolio and rebalancing as needed. The fees are tolerable and I just feel so lucky we've amassed enough for our future.
You would need to do an attribution analysis to exactly why there is an almost 400bp divergence.

My guess would be that one of the main drivers is the higher allocation to the FAANG and other large US growth stocks in the Vanguard market capitalization portfolio vs the Schwab RAFI tilted portfolio.
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JackBoglereader21
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Re: Schwab vs Vanguard

Post by JackBoglereader21 »

nalor511 wrote: Fri Dec 03, 2021 6:50 pm Maybe change the title to "robo advisors at Vanguard vs Schwab", because that's really what you are comparing
Thanks nalor511 for that suggestion. It would be good to hear from members who use Schwab Intelligent Portfolios Premium. Not having a finance background I am always cautious, always thinking I don't know what I don't know. Schwab's offering seems to be very popular but if there's that much of a difference in returns, in my case, almost 4%, why would people use Schwab's robo-advisor ? Again, not sure what I am missing.
nalor511
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Re: Schwab vs Vanguard

Post by nalor511 »

JackBoglereader21 wrote: Fri Dec 03, 2021 7:10 pm
nalor511 wrote: Fri Dec 03, 2021 6:50 pm Maybe change the title to "robo advisors at Vanguard vs Schwab", because that's really what you are comparing
Thanks nalor511 for that suggestion. It would be good to hear from members who use Schwab Intelligent Portfolios Premium. Not having a finance background I am always cautious, always thinking I don't know what I don't know. Schwab's offering seems to be very popular but if there's that much of a difference in returns, in my case, almost 4%, why would people use Schwab's robo-advisor ? Again, not sure what I am missing.
I do not think you are missing anything. I remember exactly what you are pointing out being discussed here when it launched. I think they just take advantage where they saw a soft spot.
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Re: Robo-Advisors @ Schwab vs Vanguard

Post by Cheez-It Guy »

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Re: Robo-Advisors @ Schwab vs Vanguard

Post by sleepysurf »

Just to clarify...

Vanguard's PAS (Personal Advisory Service, 0.3% AUM fee) is NOT a true Robo-Advisor, as it utilizes real CFP Advisors as intermediaries between the client and firm... https://investor.vanguard.com/advice/financial-advisor/

Vanguard also offers a true Robo-Advisor platform (Vanguard Digital Advisor, currently max 0.2% AUM fee), which does not use CFP intermediaries... https://investor.vanguard.com/advice/digital-advisor/

The latter would be the one to compare with Schwab's Robo option... https://www.schwab.com/automated-invest ... bo-advisor
Last edited by sleepysurf on Sat Dec 04, 2021 7:30 am, edited 1 time in total.
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GmanJeff
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Re: Robo-Advisors @ Schwab vs Vanguard

Post by GmanJeff »

The cash holding requirement at Schwab aside, robo advisors use proprietary forecasting models to construct and maintain portfolios for clients who have varying risk tolerances, timelines, and objectives. That, along with variances in fees, explains why returns vary between different services and from what is achieved by individual investors who do not use robo advisors to construct and maintain their portfolios over time. When you use a robo, part of the value proposition is access to its proprietary modeling and associated portfolio construction recommendations.

Returns between different services can be seen here: https://www.backendbenchmarking.com/the-robo-report/
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Jimbo Moneybags
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Re: Robo-Advisors @ Schwab vs Vanguard

Post by Jimbo Moneybags »

As pointed out by others Vanguard PAS is not a robo-advisor. So you are comparing apples and oranges.

You said you set both at 60/40 allocations, but did you factor the Schwab cash holdings portion of your portfolio in that allocation? In other words, are you 60% equities and 40% bonds/fixed income/cash at Schwab or are you something like 55% equities, 37% bonds/fixed income and 8% cash at Schwab.

In looking at the different Schwab Intelligent Portfolios, I don't see one that is 60/40...https://content.schwab.com/intelligent- ... rformance/

That makes a difference in your overall returns, and potentially a significant difference. You also need to see how much of your allocation is international vs domestic at each brokerage.

All of that being said, I think it is impossible to do a direct comparison of the two. Different products, different services and different portfolios.
nrkv
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Re: Robo-Advisors @ Schwab vs Vanguard

Post by nrkv »

OP, I came out of Schwab intelligent portfolio. The average financial consultant in local office does not know how the portfolio is picked. I never could figure out how to get to the least amount of cash holding. Every time you go through the questions, it resets the clock to 10 years from that day or something like that. And the questions are very basic.

Also, don’t just look at the fancy pie chart that list percentages of commodities, cash, equities etc. Go into the actual portfolio and look at the funds purchased. You will notice that some funds purchased have high expense ratios.
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JackBoglereader21
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Re: Robo-Advisors @ Schwab vs Vanguard

Post by JackBoglereader21 »

sleepysurf wrote: Sat Dec 04, 2021 7:29 am Just to clarify...

Vanguard's PAS (Personal Advisory Service, 0.3% AUM fee) is NOT a true Robo-Advisor, as it utilizes real CFP Advisors as intermediaries between the client and firm... https://investor.vanguard.com/advice/financial-advisor/

Vanguard also offers a true Robo-Advisor platform (Vanguard Digital Advisor, currently max 0.2% AUM fee), which does not use CFP intermediaries... https://investor.vanguard.com/advice/digital-advisor/

The latter would be the one to compare with Schwab's Robo option... https://www.schwab.com/automated-invest ... bo-advisor
At Vanguard, I have an assigned CFP, she is in Scottsdale and we meet online. I believe the investments decisions are robo, based on my answers to their risks questions. VPAS is managing a taxable account that I draw from monthly to live my life (same at Schwab). She's done tax loss harvesting every year, she's been with the account since January 2019.

At Schwab, I have the Intelligent Portfolio Premium. A CFP has been assigned to me, he's in Colorado. He's the 3rd CFP assigned to me. We are suppose to meet online in January to do a check up on the plan. There are no changes in my life. Every month I take a small amount from the account to live my life. The investment decision are robo based on my answers to their questions. They have done tax loss harvesting.
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JackBoglereader21
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Re: Robo-Advisors @ Schwab vs Vanguard

Post by JackBoglereader21 »

GmanJeff wrote: Sat Dec 04, 2021 7:30 am The cash holding requirement at Schwab aside, robo advisors use proprietary forecasting models to construct and maintain portfolios for clients who have varying risk tolerances, timelines, and objectives. That, along with variances in fees, explains why returns vary between different services and from what is achieved by individual investors who do not use robo advisors to construct and maintain their portfolios over time. When you use a robo, part of the value proposition is access to its proprietary modeling and associated portfolio construction recommendations.

Returns between different services can be seen here: https://www.backendbenchmarking.com/the-robo-report/
Many, many thanks for this - I will sign up and read asap.
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JackBoglereader21
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Re: Robo-Advisors @ Schwab vs Vanguard

Post by JackBoglereader21 »

nrkv wrote: Sat Dec 04, 2021 7:52 am OP, I came out of Schwab intelligent portfolio. The average financial consultant in local office does not know how the portfolio is picked. I never could figure out how to get to the least amount of cash holding. Every time you go through the questions, it resets the clock to 10 years from that day or something like that. And the questions are very basic.

Also, don’t just look at the fancy pie chart that list percentages of commodities, cash, equities etc. Go into the actual portfolio and look at the funds purchased. You will notice that some funds purchased have high expense ratios.
Once again this Forum has been invaluable and instructive. Prior to my health scare 3 years ago, I managed all the investments myself. Didn't have much of a detailed AA or Diversification plan, just 3-5 Vanguard funds, some individual stocks. Saving and investing since the 90s. Getting to middle age, worried about health and spouse who has no interest, I wanted to get my hands off the wheel. It's been a learning experience letting others do the work. I am glad they were driving in March 2020 although I would have done what I did in 2000 and 2009 which was nothing. Some things I learned: how to use Money Guide Pro via Schwab, how VG and Schwab builds the plans through questions (albeit simple), better understanding of Monte Carlo. Their questions pushed me to think about budget, education expenses, future family relocation, my semi-retirement and possible spouse retirement. Also focus on health care (and insurance). Can't name everything but it's been a worthwhile 3 year education. I was working, saving and investing. I know how to work and save. The investing part was always "I'm doing my best" ... I know others are doing it better.

And the education continues. My plan is to stay with Vanguard PAS for the taxable. For Schwab taxable, I will stay for 2022 - I offset their heavy Cash with having a smaller emergency fund. Truly if there is an emergency, I can just transfer to Vanguard to free up that Schwab cash. Their tax loss harvesting has helped and they have an eye on my monthly withdraws.

The question is the non-taxables of Trad IRA, Roth IRA, Rollover IRA and a small inherited IRA. None of these accounts benefit from Tax Loss Harvesting. We are 25 years from RMD, except for the inherited IRA which is a Stretch IRA. I will read https://www.backendbenchmarking.com/the-robo-report/ but at this moment, if I had to make a decision, I think I need to get my non-taxable accounts out of Schwab. I have been at Vanguard all my life. I can go back to my 3-5 Fund self managed days but I think not. I've gotten spoiled not dealing with it. Vanguard PAS is 0.30%, their new Digital Advisor is 0.20%. My thinking is either self manage 0.0% fees or PAS 0.30% fee. Part of the 2019 move to Schwab was that they had a live person here in the Bay Area for my spouse but since COVID we never met in person anyway. Also - this sounds stupid to say - but I have to remind myself that it's no longer 1995 where I sent in a check every Friday to Vanguard in Wayne, PA and called 1-800. I think my spouse can "meet" with our CFP at Vanguard via Zoom if anything happened to me.

Thank you again to all responders. Have a nice weekend.

PS: And if anyone wants to share their Fidelity, Merrill, etc experience, please do.
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goingup
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Re: Robo-Advisors @ Schwab vs Vanguard

Post by goingup »

JackBoglereader21 wrote: Fri Dec 03, 2021 6:42 pm It's coming up on 3 years next month. Returns since inception Schwab = 9.72% and Vanguard = 13.7%
That is quite a divergence for two 60/40 portfolios. A couple things to check. Are you sure you're looking at exact comparable date ranges for both? Have you been treating dividends the same for both? Have you been withdrawing more from one portfolio?

At this point you likely have more confidence in Vanguard PAS. That's where I would put your incoming $750K.
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JackBoglereader21
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Re: Robo-Advisors @ Schwab vs Vanguard

Post by JackBoglereader21 »

goingup wrote: Sat Dec 04, 2021 10:01 am
JackBoglereader21 wrote: Fri Dec 03, 2021 6:42 pm It's coming up on 3 years next month. Returns since inception Schwab = 9.72% and Vanguard = 13.7%
That is quite a divergence for two 60/40 portfolios. A couple things to check. Are you sure you're looking at exact comparable date ranges for both? Have you been treating dividends the same for both? Have you been withdrawing more from one portfolio?

At this point you likely have more confidence in Vanguard PAS. That's where I would put your incoming $750K.
To the best of my ability, yes it is exact comparable date ranges. The dividends seem to be reinvested as they come in and I have been withdrawing the same percentage from the balances of both accounts.

The incoming $750k is likely going to Vanguard PAS as it will be a taxable account. I don't need to withdraw from this however we are discussing possible spouse retirement in 2 years so I will see what Vanguard CFP says.

I just downloaded and read the Robo Report (THANK YOU!)

Going back to the question of self managing the non-taxable accounts, I am also going to think long and hard over the holiday about it. Vanguard PAS 0.30% has real value for the taxable (tax loss harvest, etc) along with human touch. If I were to self manage again, I don't want the responsibility of rebalancing. I am thinking Target 2045 - OR - LifeStrategy Growth Fund. I have read others on the Forum that they "set it and forget it", I believe I am in that group. I will definitely read and try to educate myself more but Schwab is not where I want my non-taxables to be.

https://investor.vanguard.com/mutual-fu ... view/vasgx
https://investor.vanguard.com/mutual-fu ... view/vtivx
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Cheez-It Guy
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Re: Robo-Advisors @ Schwab vs Vanguard

Post by Cheez-It Guy »

I thought Vanguard Digital Advisor was 0.15%?

It looks to me like the 0.20% maximum is an all-in cost inclusive of underlying fund expense ratios on the order of 0.05%.
BF3000
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Re: Robo-Advisors @ Schwab vs Vanguard

Post by BF3000 »

I agree with the post surmising that the return difference over 3 years is likely attributable to Schwab’s RAFI allocation which tilts the portfolio to value. Mega cap growth did extraordinarily well during the first 2 years of this period. Also, I wouldn’t be surprised if Schwab’s allocation to international (especially emerging markets) were slightly higher. This would have been an additional drag.

The allocation to cash is unlikely to be a major contributor to a portfolio drag from the fixed income piece, particularly given Schwab’s allocations to HY and EM bonds likely missing from vanguard PAS.

Most folks on this forum will likely prefer market cap weighting. However, although nobody has a crystal ball, many reputable firms (eg, vanguard, J.P. Morgan, etc) predict that value will outperform over the next decade. This is partly due to mean reversion (growth relative to value has rarely been more expensive) and rising interest rates (adversely affects valuations of long duration assets like growth stocks more).

That is a long way of saying they judging the portfolios from the last 3 years may not tell you much about future performance.

I have been happy with schwab and service from my local rep. The intelligence portfolio has a long way to go in the area of tax efficiency. I am happy with the allocation but unplugged it because of too much rebalancing in taxable. My realized capital gains in 2020 were crazy. They also don’t allocate between taxable and tax advantaged efficiently (allocation to reits, hy bonds, and em bonds is the same regardless). Hope that helps.
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Re: Robo-Advisors @ Schwab vs Vanguard

Post by quadog »

My SIP is up 46% over the past 3 years. Sounds like you might have dialed your preferences in too conservatively. You know you can adjust the prefs, correct?
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Re: Robo-Advisors @ Schwab vs Vanguard

Post by tetractys »

Cheaper is better. The persistent low costs of Vanguard client ownership will always beat the capricious loss leader services of profiteering fund houses.
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Re: Robo-Advisors @ Schwab vs Vanguard

Post by BF3000 »

Not sure that is always true. Schwab has some ETFs with lower ERs than VG. Northwestern Mutual is an insurance company “owned” by its policy holders.
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Re: Robo-Advisors @ Schwab vs Vanguard

Post by BF3000 »

Not sure that is always true. Schwab has some ETFs with lower ERs than VG. Northwestern Mutual is an insurance company “owned” by its policy holders but has relatively high premiums.
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Re: Robo-Advisors @ Schwab vs Vanguard

Post by tetractys »

BF3000 wrote: Sat Dec 04, 2021 11:45 am Not sure that is always true. Schwab has some ETFs with lower ERs than VG. Northwestern Mutual is an insurance company “owned” by its policy holders but has relatively high premiums.
It’s true, if not in the short term then in the long term. This includes fees that will eventually pop up at inconvenient times.
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JackBoglereader21
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Re: Robo-Advisors @ Schwab vs Vanguard

Post by JackBoglereader21 »

BF3000 wrote: Sat Dec 04, 2021 11:13 am I agree with the post surmising that the return difference over 3 years is likely attributable to Schwab’s RAFI allocation which tilts the portfolio to value. Mega cap growth did extraordinarily well during the first 2 years of this period. Also, I wouldn’t be surprised if Schwab’s allocation to international (especially emerging markets) were slightly higher. This would have been an additional drag.

The allocation to cash is unlikely to be a major contributor to a portfolio drag from the fixed income piece, particularly given Schwab’s allocations to HY and EM bonds likely missing from vanguard PAS.

Most folks on this forum will likely prefer market cap weighting. However, although nobody has a crystal ball, many reputable firms (eg, vanguard, J.P. Morgan, etc) predict that value will outperform over the next decade. This is partly due to mean reversion (growth relative to value has rarely been more expensive) and rising interest rates (adversely affects valuations of long duration assets like growth stocks more).

That is a long way of saying they judging the portfolios from the last 3 years may not tell you much about future performance.

I have been happy with schwab and service from my local rep. The intelligence portfolio has a long way to go in the area of tax efficiency. I am happy with the allocation but unplugged it because of too much rebalancing in taxable. My realized capital gains in 2020 were crazy. They also don’t allocate between taxable and tax advantaged efficiently (allocation to reits, hy bonds, and em bonds is the same regardless). Hope that helps.
Thank you, this helps a lot. I have been saving and investing since the mid-90s, never trying to hit home runs, more like playing small ball to get a few runs on the board. A few life-altering events happened all at the same time; a health scare, a small inheritance, a transition to semi-retirement due to company change.

I decided to "get help" - enter Vanguard PAS and Schwab Intelligent Portfolio Premium in 2019. AA across all accounts was to be 60/40 although I now see how Schwab's AA doesn't really follow the AA we agreed to with almost 8% in cash. What I realize now is that AA should be different for taxable brokerage accounts and retirement accounts (which includes a stretch inherited IRA) --- this realization is partly thanks to member comments on this Forum. Both places build a "plan" which determined AA to be 60/40 so the question is can there be two different AAs eg 60/40 taxable, 80/20 non taxable. As another member pointed out, YES I was too conservative. More ripple effects of health scare, job change.

I have am meeting with the Schwab and Vanguard CFPs in January. I will ask them if I can keep the 60/40 AA for the taxable accounts (I make monthly withdraws from these to live my life) and change the retirement account AA to 80/20 (other than small RMD from Inh IRA, I don't need this money for 15+ year and true RMD doesn't start for another 24 yrs).

Finally, I agree that Value stocks will perform well in the future seeing how expensive these Growth stocks have been. I will ask Schwab and Vanguard advisors can help me lean the assets towards Value vs Growth (not sure if it's possible with these Robo type accounts). In 2022 we will have $750k net coming in and I plan on adding that to Vanguard PAS. I don't plan on increasing withdraws, living large on frugality doesn't take more money.

I'll come back after the meetings to update. A million thanks again for everyone's contributions.

PS: I am hoping for a condo purchase in NV, have a 3% HELOC on my house which I can use for the 20% down payment. While we can pay cash, I do plan on going through Schwab's mortgage service while spouse has W2 and we will qualify for their incredibly good rates. Refi our small mortgage earlier this year, 0 points, about $2,300 in fees at a 1.625%. Yes, incoming $750k can go to that but rates too low to justify buying with cash.
BF3000
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Re: Robo-Advisors @ Schwab vs Vanguard

Post by BF3000 »

1). I suspect that most folks on this board (including me) would not advise having 2 different asset allocation plans. Usually, one would come up with their overall desired allocation in all accounts (70 / 30?) and then place the assets in the most efficient spot.

2). I don’t think the robos will let you customize a tilt. “It is what it is.” Schwab does have an income-oriented tilt option that uses dividend ETFs instead of the usual market cap plus RAFI. VG’a PAS isn’t going to give you a French Fama tilt.

3). I don’t think Schwab departed from anything that you “agreed to.” The platform prominently discloses the ETFs and allocation to cash.

4). The cash is coming from the fixed income piece of the schwab allocation. If you hold a total bond index, you necessarily hold short-term bonds. The interest in short-term bonds is minuscule—as in 50 bps or less. So, the allocation to cash in this environment isn’t a big deal to me (it sure as heck would have been in, say, 1981). When you compare to charging an AUM fee on the entire portfolio, allowing Schwab to make a spread on the cash may be cheaper for the customer too (win, win). You can do the math by thinking about cash interest vs short-term treasuries and AUM fees.

5). Might ask Vanguard how they can be fiduciaries and maximize TLH opportunities if they refuse to use any non-VG ETFs. (Schwab uses some non—Schwab ETFs). Would a investment manager with no self-interest, seeking to build an optimally efficient portfolio, have at least one non-vanguard ETF in it? Also, why does VG keep coming up with high-fee active management options for advised accounts (core bonds with high yield allocations, Chinese A shares?

6). Each service is going to have trade-offs. I thought schwab IP would be ideal for me until I got a feel for the tight rebalancing bands. I have found that DIY is more to my liking.
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JackBoglereader21
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Re: Robo-Advisors @ Schwab vs Vanguard

Post by JackBoglereader21 »

BF3000 wrote: Sun Dec 05, 2021 8:44 am 1). I suspect that most folks on this board (including me) would not advise having 2 different asset allocation plans. Usually, one would come up with their overall desired allocation in all accounts (70 / 30?) and then place the assets in the most efficient spot.

2). I don’t think the robos will let you customize a tilt. “It is what it is.” Schwab does have an income-oriented tilt option that uses dividend ETFs instead of the usual market cap plus RAFI. VG’a PAS isn’t going to give you a French Fama tilt.

3). I don’t think Schwab departed from anything that you “agreed to.” The platform prominently discloses the ETFs and allocation to cash.

4). The cash is coming from the fixed income piece of the schwab allocation. If you hold a total bond index, you necessarily hold short-term bonds. The interest in short-term bonds is minuscule—as in 50 bps or less. So, the allocation to cash in this environment isn’t a big deal to me (it sure as heck would have been in, say, 1981). When you compare to charging an AUM fee on the entire portfolio, allowing Schwab to make a spread on the cash may be cheaper for the customer too (win, win). You can do the math by thinking about cash interest vs short-term treasuries and AUM fees.

5). Might ask Vanguard how they can be fiduciaries and maximize TLH opportunities if they refuse to use any non-VG ETFs. (Schwab uses some non—Schwab ETFs). Would a investment manager with no self-interest, seeking to build an optimally efficient portfolio, have at least one non-vanguard ETF in it? Also, why does VG keep coming up with high-fee active management options for advised accounts (core bonds with high yield allocations, Chinese A shares?

6). Each service is going to have trade-offs. I thought schwab IP would be ideal for me until I got a feel for the tight rebalancing bands. I have found that DIY is more to my liking.
Thank you so much for this ! I just copied and printed your comments to add to my scrapbook for when I talk to Schwab / Vanguard in January. I'll post an update after those meetings.
JDSwim3
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Re: Robo-Advisors @ Schwab vs Vanguard

Post by JDSwim3 »

I also got out of Schwab's service, mostly to go with the 3 fund portfolio, but also because of the large cash hold-back.

For what it's worth, my wife also has zero interest in investing. Even though the 3 fund is pretty simple, she won't want to deal with rebalancing, so I have advised her in case I kick to move all assets to Vanguard's LifeStrategy Moderate Growth Fund (VSMGX). It's a 60/40 AA that will effectively auto rebalance.
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JackBoglereader21
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Re: Robo-Advisors @ Schwab vs Vanguard

Post by JackBoglereader21 »

JDSwim3 wrote: Tue Dec 07, 2021 6:28 am I also got out of Schwab's service, mostly to go with the 3 fund portfolio, but also because of the large cash hold-back.

For what it's worth, my wife also has zero interest in investing. Even though the 3 fund is pretty simple, she won't want to deal with rebalancing, so I have advised her in case I kick to move all assets to Vanguard's LifeStrategy Moderate Growth Fund (VSMGX). It's a 60/40 AA that will effectively auto rebalance.
Thank you for sharing your plan so concisely. This is probably what I should have done in 2019 but the education since been invaluable albeit a bit expensive. Oh well, end of the day, it's money we didn't need that we never had. What I have learned from the replies to my posting is that there are decisions I need to make in 2022. Getting retirement account out of Schwab robo advisor is one. Using Vanguard PAS ? Going back to managing but with LifeStrategy Funds ? All decisions to be made and feel more assured knowing I have a resource here to ask my questions. Thanks again.
pedalman701
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Re: Schwab vs Vanguard

Post by pedalman701 »

Cheez-It Guy wrote: Fri Dec 03, 2021 6:49 pm The interest that Schwab makes on your idle cash position that they don't pay to you is why this service is "free". Vanguard invested it according to the actual asset allocation, and not surprising that it has done better as a result. Cash could have a protective effect in a declining market, but markets generally go up over time, so mostly that means Schwab is going to continue profiting from your cash. By the way, the cost of Vanguard Personal Advisor Services is 0.30%, not 0.03%. Still very competitive for the service offered.
Ally Invest is similar, except that they hold 30% in cash for their robo-managed portfolios. Money out of the market is money not working for you.
A Recovering Jonesoholic | 55% US/10% Intl/35% Bonds
tj
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Re: Schwab vs Vanguard

Post by tj »

Cheez-It Guy wrote: Fri Dec 03, 2021 6:49 pm The interest that Schwab makes on your idle cash position that they don't pay to you is why this service is "free". Vanguard invested it according to the actual asset allocation, and not surprising that it has done better as a result. Cash could have a protective effect in a declining market, but markets generally go up over time, so mostly that means Schwab is going to continue profiting from your cash. By the way, the cost of Vanguard Personal Advisor Services is 0.30%, not 0.03%. Still very competitive for the service offered.
The lowest cash allocation you can get at Schwab is either 6% or 8%. Since cash is currently paying virtually nothing, the opportunity cost is rather low.


The wildly different asset allocation within Schwab's equities and bonds is going to have a bigger impact in teh return, i'd imagine.
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Nate79
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Re: Robo-Advisors @ Schwab vs Vanguard

Post by Nate79 »

Based on my previous analysis and I've posted this countless times there is no real cash drag at Schwab. The cash is offsetting the higher yielding higher risk bonds that Schwab has in their portfolio. On a comparable basis I found that the total fixed income yield (bonds/cash) for Schwab was comparable to Vanguards total bond index. But you can calculate it yourself, its been a few years since I did it for some of Schwab's model portfolios. So this is a red herring. But fees are real. 0.3% every year, year over year is a real cost. If you don't need Vanguards hand holding then DIY and save the 0.3%. (even do a target date fund, it would be even cheaper) But this has nothing to do with the difference in performance.

In all likelihood the difference is that Schwab is a value tilt. You are seeing value underperformance - value is a long play. I bet if you looked at the different funds and you can see where is the underperformance over this short period of time. For example since 2019 FNDX (Schwab Fundamental US Large Company ETF) vs VTI is 21% vs 25% CAGR according to portfolio visualizer.

This doesn't mean Vanguards is better than Schwabs. It just means that value has underperformed during your very short time period.
Racing Grandpa
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Re: Robo-Advisors @ Schwab vs Vanguard

Post by Racing Grandpa »

The Devil is in the details. I hate the misperception Schwab provides in holding excess cash. I have a real problem with some companies marketing strategy and my wife ran the marketing for a national firm. After 30+ years in banking I found that the culture of the provider is important. Things at Schwab and Vanguard will continue to change. I have rarely been aware of excellent service from a variety of employees over a 10 year period.
michaelingp
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Re: Robo-Advisors @ Schwab vs Vanguard

Post by michaelingp »

JDSwim3 wrote: Tue Dec 07, 2021 6:28 am For what it's worth, my wife also has zero interest in investing. Even though the 3 fund is pretty simple, she won't want to deal with rebalancing, so I have advised her in case I kick to move all assets to Vanguard's LifeStrategy Moderate Growth Fund (VSMGX). It's a 60/40 AA that will effectively auto rebalance.
I'm in the same boat, although the "3 funds" are actually more like six funds between Vanguard and Fidelity (and numerous accounts), adding to the complexity of DIY for my wife. So your idea of moving all to VSMGX sounded like a great idea at first. However, I immediately thought about the tax consequences of selling, say, S&P500 funds I've held for decades. Thoughts? Or all your assets in tax-deferred?
JDSwim3
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Re: Robo-Advisors @ Schwab vs Vanguard

Post by JDSwim3 »

Essentially all assets are in tax deferred.
aristotelian
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Re: Robo-Advisors @ Schwab vs Vanguard

Post by aristotelian »

sleepysurf wrote: Sat Dec 04, 2021 7:29 am Just to clarify...

Vanguard's PAS (Personal Advisory Service, 0.3% AUM fee) is NOT a true Robo-Advisor, as it utilizes real CFP Advisors as intermediaries between the client and firm... https://investor.vanguard.com/advice/financial-advisor/

Vanguard also offers a true Robo-Advisor platform (Vanguard Digital Advisor, currently max 0.2% AUM fee), which does not use CFP intermediaries... https://investor.vanguard.com/advice/digital-advisor/

The latter would be the one to compare with Schwab's Robo option... https://www.schwab.com/automated-invest ... bo-advisor
Schwab also has a hybrid robo with CFP for a flat $30/month which seems pretty compelling. I also suspect Schwab's cash allocation may explain the difference in returns but that could be compensated for by picking a more aggressive stock allocation.

https://www.schwab.com/intelligent-portfolios-premium
fermata
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Re: Robo-Advisors @ Schwab vs Vanguard

Post by fermata »

sleepysurf wrote: Sat Dec 04, 2021 7:29 am Just to clarify...

Vanguard's PAS (Personal Advisory Service, 0.3% AUM fee) is NOT a true Robo-Advisor, as it utilizes real CFP Advisors as intermediaries between the client and firm... https://investor.vanguard.com/advice/financial-advisor/

Vanguard also offers a true Robo-Advisor platform (Vanguard Digital Advisor, currently max 0.2% AUM fee), which does not use CFP intermediaries... https://investor.vanguard.com/advice/digital-advisor/

The latter would be the one to compare with Schwab's Robo option... https://www.schwab.com/automated-invest ... bo-advisor

Thank you for adding that clarification. Just to add a little more context to that, Schwab has Schwab Intelligent Portfolios (no fees except underlying ETF expenses), and they have Schwab Intelligent Portfolios Premium. The latter has a $300 startup consultation fee and then $30/month thereafter. You do not get a dedicated advisor but you do have access to members of a team of CFP's. So the first year is $660, then $360/year thereafter, a very inexpensive advisory fee for actual personal contact. PAS subscribers get a dedicated advisor at the $500K level or a random team member below that asset level.

To the OP's point about CS calling cash an asset class in SIP - my comment would be - an asset class benefitting whom? The answer would be - Schwab.

I believe that PAS and SIP Premium are now being called hybrid-robo's - automated investing combined with a human touch/contact. I'm at Schwab right now, with a small allocation in a moderate/conservative SIP (not Premium) account and am trying to decide whether to go SIP Premium or PAS. I have the initial consultation with a PAS advisor tomorrow. I'm thinking I'll do something like the OP mentioned - leave half at CS and bring the rest over to PAS, but I won't use SIP Premium.

Finally, my general impression of SIP is that it's overly complicated. For every market cap-weighted ETF, they have a fundamentals-weighted ETF that has much higher expenses. It's always struck me as a little bit of trying too hard to look sophisticated. Then again, I'm the one in a state of analysis-paralysis and inertia about what to do with money, thus my even looking at these options.
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