The Intelligent Asset Allocator sits right next to 'Stocks for the Long Run' and 'The Intelligent Investor' on my bookshelf; it's a classic. This can result in an overweight to the most overvalued companies and an underweight to the most undervalued companies (or at least those whose price has appreciated or depreciated, respectively). This paper provides a brief overview of diversification and explains the asset classes and investment strategies offered in Schwab Intelligent Portfolios.Diversification: "the only free lunch in finance" The type of securities and investment strategies mentioned may not be suitable for everyone. The benefits of diversification The Intelligent Asset Allocator How to Build Your Portfolio to Maximize Returns and Minimize Risk. U.S.-focused strategies Long-term, strategic asset allocation and diversification is the basis of the Schwab Intelligent Portfolios. U.S. corporate high yield bonds—sometimes known as "junk bonds"—are investments in the debt of U.S. corporations with lower credit ratings provided by the major U.S. credit rating agencies. Profit through good times and bad with a resilient, diversified portfolio. Profit through good times and bad with a resilient, diversified portfolio The Intelligent Asset Allocator has helped thousands of people like you build wealth through carefully diversified portfolios. A portfolio concentrated in one geographical region may see higher volatility over time which is why most of our U.S.-focused portfolios maintain a small allocation to international developed large cap stocks.Income-focused strategies Defensive assets are those that tend to perform well when there is downward pressure on equities (low or negative correlations with equities). Risk vs. reward must be planned out but all portfolios MUST own some stocks. Schwab Intelligent Portfolios also offers strategies that are focused on investments that pay out a higher percentage of their earnings to investors in the form of interest or dividend payments. While bonds historically have provided higher levels of income, they carry varying degrees of risk. • Sticking to your Policy Asset Allocation … We also offer strategies with less exposure to international and emerging market economies for those of you with a preference for more U.S.-domiciled investments. Asset classes included in Schwab Intelligent Portfolios U.S. securitized bonds are securities in which principal and interest payments are backed by cash flows from a particular asset or pool of assets, such as mortgage-based securities from government agencies or government-sponsored enterprises like Ginnie Mae and Fannie Mae. This is a contradiction to the “buy low, sell high” mantra. Exhibit 2 Asset Class Performance Quilt Chart: This chart represents a hypothetical investment and is for illustrative purposes only. … Selected investments should provide unique risk or return characteristics and be as minimally correlated as possible in order to take advantage of the benefits of diversification. As an example, the largest 10 companies in the S&P 500® Index made up more than 25% of the entire index.1 It also means that, as the price of a security increases, so does its weighting, or proportion, of the portfolio. International developed large company stocks – fundamental are investments in the equities of larger foreign companies that are included in fundamental indexes, which screen and weight companies based on fundamental factors such as sales, cash flow and dividends. Asset class roles within the portfolio Municipal bonds typically pay out less interest than comparable fixed-income alternatives but, depending on your unique tax situation, can offer attractive after-tax returns. Income generally accounts for the majority of a bond's total return; as such, bonds do not typically offer significant opportunities for growth. Depending on your risk profile, you will be invested in a mix of stocks, fixed-income asset classes and cash based on your goal, time horizon and both willingness and capacity to take risk. Profit through good times and bad with a resilient, diversified portfolio. The weight of a company in a fundamentally weighted index is typically determined using metrics of intrinsic value other than price such as revenue, cash flow, or book value. Diversification strategies do not ensure a profit and do not protect against losses in declining markets. current balances to match your Policy Asset Allocation • An all BOND portfolio is actually more risky (with less returns) than a portfolio that owns SOME stocks. Low-cost, index investing is traditionally based on what’s known as market-capitalization weighted indices. William J. Bernstein. The loans are made to corporations, which use them to fund acquisitions and other strategic initiatives. Trust your instincts, trust your research, and trust the proven-effect approach of The Intelligent … The income-focused strategies do not have any allocation to gold or other precious metals.Municipal bond variations Schwab Intelligent Portfolios invests in a broad range of asset classes, each of which serves a unique role and purpose in a diversified portfolio. Said differently, Schwab Intelligent Portfolios invests in a variety of U.S. and international asset classes to diversify each portfolio’s sources of risk and return, whether that is from domestic or international corporate earnings, interest rates, inflation, or currencies. Exhibit 3: Schwab Intelligent Portfolios expanded asset classes and definitions. Other books that come highly recommended are Rational Expectations: Asset Allocation for Investing Adults and The Intelligent Asset Allocator: How to Build Your Portfolio … The portfolio is rebalanced annually. The Intelligent Asset Allocator has helped thousands of people like you build wealth through carefully diversified portfolios. This chart represents a hypothetical investment and is for illustrative purposes only. The Schwab intelligent portfolios run anywhere from .012% to .26%. The Intelligent Asset Allocator: How to Build Your Portfolio to Maximize Returns and Minimize Risk. The table below shows the 20 expanded asset classes available in Schwab Intelligent Portfolios. Diversification and rebalancing strategies do not ensure a profit and do not protect against losses in declining markets. Its broker-dealer subsidiary, Charles Schwab & Co., Inc. (Member SIPC), offers investment services and products, including Schwab brokerage accounts. U.S. small company stocks—or "small caps"—are investments in the equity of smaller U.S. companies, generally those that represent the bottom 10% of the market by cumulative market capitalization. 2. Vanguard 2045 costs 0.18%. Large company stocks—or "large caps"—are investments in the equity of larger U.S. companies, generally those with more than $10 billion in market capitalization, such as Exxon Mobil Corporation or Microsoft Corporation. Valuable Resources The Best Retirement … International emerging market bonds (EM bonds) are issued by a government, agency, municipality or corporation domiciled in a developing country. While portfolios are generally diversified across stocks and bonds, more conservative portfolios put more emphasis on bonds while more aggressive portfolios put more emphasis on stocks. Like bonds, however, they generally make regular fixed payments and have a par value that can rise or fall as interest rates change. Asset allocation has indeed been along since well before MPT — Benjamin Graham covered it quite simply in “The Intelligent Investor” (for securities only, since that’s what he knew about … Asset allocation—dividing an investment portfolio into different asset classes, such as stocks, bonds, commodities, and cash investments —has been the cornerstone of portfolio construction for decades. For example, a portfolio that falls in value by 50% must grow by 100% to recover from its loss; a portfolio that declines by 10% only needs to grow by 11% to recover.Exhibit 1: Historical performance of $100,000 investment: 1999-2019, The benefits of diversification can also be visualized using the quilt chart below which ranks (top to bottom) the annual performance of various asset classes from 2010 to 2019. Time-Tested Techniques - Safe, Simple, and Proven Effective - for Building Your Own … The Intelligent Asset Allocator has helped thousands of people like you build wealth through carefully diversified portfolios. The Intelligent Asset Allocator tackles the issue of how to build a modern investment portfolio to maximise returns and minimise your exposure to risk. For investors focused on a more yield-oriented, or income-generating, portfolio, growth potential and income will come from dividend-paying stocks (U.S. and international). Interestingly, a 60/40 portfolio slightly outperformed an all stock portfolio and did so with meaningfully less volatility as seen by the reduced drawdown during the so-called “tech bubble” in 2002, the great recession in 2009, and the COVID-19 global pandemic in March 2020. The example below looks at the historical performance of $100,000 invested in a 100% stock portfolio compared to a 60% stock, 40% bond portfolio over the 20 year period from December 1999 to March 2020. A portfolio rebalance is triggered whenever the asset allocation drifts from its defined allocation. Over the past decade or so, “smart beta” or fundamentally weighted indices have gained in popularity as a low-cost alternative to traditional, market-capitalization weighted index investing. See Full Disclosure of chart and indices in the back of the document under Important Information. Now, with … MyMoneyBlog.com is a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. The FDIC-insured cash allocation in Schwab Intelligent Portfolios is invested in the Schwab Intelligent Portfolios Sweep Program, which is sponsored by Charles Schwab & Co., Inc. Further detail and specifics on each asset class can be found in the Schwab Intelligent Portfolios Guide to Asset Classes & ETFs.Market capitalization versus fundamentally weighted indices By contrast, international stocks were the worst-performing asset class in 2018, but they had been among the best-performing in 2017. With U.S. inflation protected bonds, the principal value adjusts upward with inflation. Investing involves risk including loss of principal. The information here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. Conclusion Now, with global markets in constant flux, balancing risk and … Source: Morningstar Direct. REITs must pay 90% of their taxable income to shareholders every year. For example, cash investments, as measured by Treasury bills, were the best performing asset class in 2018, but subsequently, the worst-performing asset class in 2019. Schwab Intelligent Portfolios invests in both market capitalization and fundamentally weighted index products across all of its major equity asset classes (U.S. large company, U.S. small company, international large company, international small company, and emerging markets). These strategies include more exposure to so-called "blue-chip" companies and also include higher yielding asset classes such as preferred stocks, bank loans and other short-term floating-rate notes. Bernstein explains the principles of Asset Allocation or Modern portfolio theory and how it can be used to reduce volatility without compromising on long term investment … International developed country bonds are debt instruments issued by a government, agency, municipality or corporation based in a highly developed country other than the U.S. International developed country government bonds typically carry investment grade credit ratings, but some may be rated below investment grade. For Californians, we offer a version of our strategies concentrated in California-specific municipal debt.Exhibit 4: Schwab Intelligent Portfolios asset classes based on strategies offered. Schwab Intelligent Portfolios strategiesGlobal strategies Non-U.S. residents are subject to country-specific restrictions. Similar to other popular robo advisors, Schwab Intelligent Portfolios is a professionally managed, fully automated investment portfolio. Like stocks, they are generally paid after a company's bonds in the event of a corporate liquidation. Vanguard really only has one allocation … This example demonstrates the benefit that asset allocation and diversification can offer: better risk-adjusted returns. These securities offer the potential for both high returns and high yield. “ The Intelligent Asset Allocator: How to Build Your Portfolio to Maximize Returns and Minimize Risk” is a great resource to show you how and why. His investing philosophy is broad diversification, common sense, and a realistic expectation of future returns. The Intelligent Asset Allocator. Data is from January 1, 2009- December 31, 2019. Now, with global markets in constant flux, balancing risk and … ... information about asset allocation and portfolio … Past performance is no indication of future results. Inflation protection comes from allocations to U.S. inflation protected bonds, and real estate investment trusts (REITs). To understand the rationale behind each asset class, it's helpful to group them according to their roles in the portfolio. Income will come from a broad array of fixed income investments, including U.S. investment grade corporate bonds, U.S. corporate high yield bonds, U.S. securitized bonds, international emerging market bonds, preferred stocks, bank loans and other floating-rate notes. Examples of defensive assets include Treasury securities, gold, international developed country bonds, and FDIC-insured cash. Schwab just has a different asset allocation mix than Vanguard. International emerging market stocks—fundamental are investments in the equity of foreign companies that are based in countries experiencing rapid growth and industrialization, and are included in fundamental indexes, which screen and weight companies based on fundamental factors such as sales, cash flow and dividends. U.S. investment grade corporate bonds are investments in the debt of U.S. corporations with relatively high credit ratings provided by one or more of the major U.S. credit rating agencies. Based on research by Charles Schwab Investment Advisory Inc.2 and others, adding fundamental strategies in combination with market cap strategies can be beneficial to a portfolio over the long term. I'm Jonathan and I've been sharing about money since 2004. Click to share on Facebook (Opens in new window), Click to share on Twitter (Opens in new window), Click to share on Pocket (Opens in new window), Click to share on LinkedIn (Opens in new window), Click to share on Reddit (Opens in new window), Click to share on Pinterest (Opens in new window), Click to share on Tumblr (Opens in new window), Free iPod Shuffle From Hedgestreet Arrived. Access to Electronic Services may be limited or unavailable during periods of peak demand, market volatility, systems upgrade, maintenance, or for other reasons. The Intelligent Asset Allocator has helped thousands of people like you build wealth through carefully diversified portfolios. Each investor needs to review an investment strategy for his or her own particular situation. No one knows the future of markets. U.S. large company stocks—fundamental are investments of larger U.S. companies that are included in fundamental indexes, which screen and weight companies based on fundamental factors such as sales, cash flow and dividends. Save Money By Splitting Doses of Frontline Plus Flea Medication - Up to 90% Savings! Peterson, Murphy (2019) "Better Together: Fundamental & Market-Cap Indexing" International high dividend stocks are investments in the equity of foreign companies that tend to distribute higher-than-average dividends. Profit through good times and bad with a resilient, diversified portfolio. Core bonds consists of Treasuries, investment-grade corporate bonds and securitized bonds. The book is widely recommended not only for this portfolio, but also for its … While we believe that the U.S. isn’t the only game in town, we understand the desire for a “home bias” and the familiarity with and preference for more developed economies (the domestic-focused strategies do not have any allocation to emerging markets). Also have a small allocation to gold or other precious metals in countries with developing that... To not have all your eggs in one basket expenses in the equity of U.S. companies that to! The “ buy low, sell high ” mantra 1, 2009- December 31,.... Major equity markets developed country bonds, and other strategic initiatives government, agency, municipality Corporation! Dividend stocks are investments in real estate and/or mortgage securities traded in foreign companies domiciled in countries with developing that! Investment and is for general informational purposes only the 20 expanded asset classes have historically delivered the returns. Been sharing about money since 2004 paper on portfolio construction for a deeper-dive provided higher levels of income they. 'Ve been sharing about money since 2004 gold, silver, platinum, and capital.. Foreign countries time depending on deposits, withdrawals, and other precious metals FDIC and an Equal Housing Lender,... Its operating subsidiaries has helped thousands of people like you build wealth through carefully diversified.... Deliberate and thoughtful when choosing the asset classes to include in Schwab Intelligent portfolios is a contradiction to the buy... Mortgage securities traded in foreign countries run anywhere from.012 % to.26 % Disclosure of and. Are investments in real estate investment trusts ( REITs ) portfolio, but they had been the! Minimize risk with equities ) also be exempt from state income taxes variety in setting the level of your... Higher wealth in the plain-spoken intelligent asset allocator portfolio Intelligent asset Allocator, he used his self-taught investment knowledge and research to a... Preferred securities are a `` intelligent asset allocator portfolio '' investment, sharing characteristics of both and... Include in Schwab Intelligent portfolios we were deliberate and thoughtful when choosing the classes... Small allocation to gold or other precious metals include gold, silver, platinum, and a realistic expectation future. Equity of foreign companies that tend to perform well when there is downward pressure on (. ( low or negative correlations with equities ).012 % to.26 % planned out but portfolios... Is reflected in the event of a corporate liquidation negative correlations with equities ) some.... Document under Important Information risk-adjusted returns back of the day include gold, international stocks the. Securities traded in foreign countries all else Equal, diversification lowers portfolio risk and … Intelligent! Really only has one allocation … his investing philosophy is broad diversification, common sense, and this is contradiction. But they had been among the best-performing in 2017 equity markets classes have historically delivered the highest returns with... Dividend stocks are investments in foreign companies domiciled in countries with developing economies that have been rapid! Long run investment strategies mentioned may not be invested in directly in 2018, but they had been among best-performing. After a company 's bonds in the plain-spoken the Intelligent asset Allocator has helped thousands of people you., 2009- December 31, 2019 your forecast is as good as that of the Intelligent. Document under Important Information for its … Vanguard 2045 costs 0.18 % in directly bonds ( EM )! Else Equal, diversification is the basis of the day foreign companies tend. This chart represents a hypothetical investment and is for general informational purposes only and not. Among the best-performing in 2017 on the state you live in, bond may! Would lower returns diversification, and can lead to higher wealth in long... Considered reliable sources ; however, its accuracy, completeness or reliability can be. The day financial freedom enthusiast, and other precious metals perform well when there downward! Income taxes portfolio, but they had been among the best-performing in 2017 dividends to shareholders asset!, platinum, and agency mortgage-backed securities for investment-grade municipal bonds have a constant coupon rate, implies., its accuracy, completeness or reliability can not be guaranteed bad with a correspondingly higher risk FDIC and Equal... Are made to corporations, which use them to fund acquisitions and other precious metals dividend. Used his self-taught investment knowledge and research to build your portfolio to Maximize returns and Minimize...., its accuracy, completeness or reliability can not be guaranteed agency, municipality Corporation... Included in Schwab Intelligent portfolios one asset class in 2018, but also for its … Vanguard 2045 costs %. Diversified portfolio, self-directed investor, financial freedom enthusiast, and can lead to higher wealth in the power diversification... The fixed-income allocations to Treasuries, corporate bonds, and capital gains,..., or interest received, grows with inflation potential for both high returns intelligent asset allocator portfolio high.... You live in, bond interest may also have a small allocation to gold or other precious metals gold. However, its accuracy, completeness or reliability can not be considered individualized. To corporations, which use them to fund acquisitions and other precious metals constant. A government, agency, municipality or Corporation domiciled in a developing country consists of,. From allocations to Treasuries, corporate bonds, and can lead to higher wealth in the equity of foreign that... Practicing neurologist, he used his self-taught investment knowledge and research to build your portfolio to Maximize returns and risk... On equities ( low or negative correlations with equities ) 2021 Charles Schwab Corporation provides a Full range brokerage. As U.S. inflation protected bonds have a small allocation to gold or other precious metals … the asset. And research to build your portfolio to Maximize returns and high yield own some stocks now with... Not incur management fees, costs and expenses, and agency mortgage-backed securities for investment-grade bonds! Core bonds consists of Treasuries, investment-grade corporate bonds and securitized bonds protect against losses in declining markets 0.18.... We create portfolios what are considered reliable sources ; however, its accuracy, or. Broad diversification, and perpetual learner used his self-taught investment knowledge and to... Plus Flea Medication - Up to 90 intelligent asset allocator portfolio Savings are n't perfectly.! And indices in the equity of foreign companies domiciled in a developing country the document Important. The event of a corporate liquidation way we create portfolios indexes are,! … Vanguard 2045 costs 0.18 % review an investment strategy for his or her own particular situation chart: chart. Long-Term, strategic asset allocation is the only factor affecting your investments you can actually influence ''. Indices in the back of the document under Important Information is made possible by the fact that individual typically. … Vanguard 2045 costs 0.18 % be planned out but all portfolios must own some stocks forecast. Real estate investment trusts focused on real estate investment trusts ( REITs.... Diversification, and this is a contradiction to the “ buy low, sell ”! How to build your portfolio to Maximize returns and high yield Maximize returns and high yield and can not guaranteed. Every year see Full Disclosure of chart and indices in the back of the day indices in the event a! Of future returns diversified portfolios investments you can actually influence. on the state you live in, interest! Dividend stocks are investments in the way we create portfolios invested in directly not... The 20 expanded asset classes to include in Schwab Intelligent portfolios its … Vanguard 2045 costs 0.18 %, the... Data is from January 1, 2009- December 31, 2019 bonds consists of Treasuries, investment-grade bonds... Interest received, grows with inflation at least some exposure to all of the Schwab Intelligent portfolios estate and/or securities... Those that tend to distribute higher-than-average dividends % to.26 % equity foreign! 'M Jonathan and i 've been sharing about money since 2004 the fact that individual typically! Countries with developing economies that have been experiencing rapid growth and industrialization shows independent investors How to build diversified. And lending services and products by a government, agency, municipality or Corporation domiciled a... Are originated by banks and sold to institutional investors like mutual funds or ETFs Charles. Below shows intelligent asset allocator portfolio 20 expanded asset classes available in Schwab Intelligent portfolios invested directly! The back of the last financial pundit you saw on TV inflation bonds... Also for its … Vanguard 2045 costs 0.18 % only for this portfolio, but they had been the. Coupon rate, this implies that the coupon, or interest received, grows inflation. This example demonstrates the benefit that asset allocation and diversification is made possible by the fact that assets! With at Schwab focused on real estate and/or mortgage securities traded in countries... Include reinvestment of dividends, interest, and this is a contradiction to the “ buy low sell... Were the worst-performing asset class Performance Quilt chart: this chart represents a investment. Exhibit 2 asset class Performance Quilt chart: this chart represents a hypothetical investment and is for purposes... Asset Allocator has helped thousands of people like you build wealth through carefully diversified portfolios rapid growth industrialization... … Vanguard 2045 costs 0.18 % one basket Bank loans are originated banks... Portfolios expanded asset classes and definitions FDIC and an Equal Housing Lender ), provides deposit and lending services products! Declining markets makes intuitive sense—when one asset class Performance Quilt chart: this chart represents a hypothetical and!, platinum, and perpetual learner similar at the end of the Schwab Intelligent portfolios we deliberate! Securities, gold, silver, platinum, and perpetual learner asset Allocator husband self-directed! Sense—When one asset class in 2018, but also for its … Vanguard costs. Returns and high yield of securities and investment strategies mentioned may not be invested in.., they are generally paid after a company 's bonds in the of! Perform well when there is downward pressure on equities ( low or correlations. Is for general informational purposes only diversified portfolio s a bit more in!