Schwab Intelligent Portfolio - Holding My Cash Hostage

[johkar]

We have most of our portfolio with Schwab and are happy with them for the most part. A few years ago, we put some $$ in their Intelligent Portfolio, with a fairly aggressive mix of ETFs, and it has done pretty well over the years.

What is becoming more painful as the account grows, is the amount of cash they force you to hold, about 10%. My Schwab rep is at least honest about it - that is the trade off for the low costs of the Intelligent Portfolio, Schwab gets to use your cash for their own purposes.

I'm thinking of bailing on the IP, as now that we are retired, we are moving more towards dividend paying investments. Just wondering if anyone else out there uses the IP, and what your thoughts are.

Thanks!

 

[T-Minus]

Is the cash held in a zero- or near zero-interest paying investment vehicle? Can you specify that they hold cash in a money market type vehicle (like their SWVXX)? As of today, SWVXX is paying 1.56%:

https://www.schwab.com/public/schwa...ent/money_markets_funds/purchased_money_funds

All of my cash-like funds at Schwab are held in SWVXX, so it pays slighter more than 0%.

 

[OldShooter]

... What is becoming more painful as the account grows, is the amount of cash they force you to hold, about 10%. My Schwab rep is at least honest about it - that is the trade off for the low costs of the Intelligent Portfolio, Schwab gets to use your cash for their own purposes.

I ran a $100K, 2 year, portfolio experiment with the original/free Schwab robot. I was able to get the cash holding down to about 5% by gaming their customer questionnaire -- doing it over and over, changing my answers until I got to the minimum. Truth be told, they do need to make money somewhere and getting the float on cash in robot accounts is just a sort of fee.

I ended the experiment mostly because that $100K junked up my overall portfolio with many tiny mutual fund positions/trivial dollars. Performance was about what you'd expect from a simple passive portfolio so there was no reason to continue.

(No surprise the robot gave me an unnecessarily complex portfolio. The same thing happens with meat-based FAs. If they make investing look as simple as it should, the customer begins to see that he/she can do it themselves.)

I'm thinking of bailing on the IP, as now that we are retired, we are moving more towards dividend paying investments. Just wondering if anyone else out there uses the IP, and what your thoughts are.

IMO (and I'll get criticized for this) chasing dividends is hazardous to your financial health. You end up ignoring a large part of the market and possibly even overpay for dividend stocks because of the number of people who chase the divs.

Here is one of the acknowledged investment gurus talking about the subject: https://famafrench.dimensional.com/videos/homemade-dividends.aspx

I don't hang out at bogleheads.com because the forums are a little too contentious for my taste, but I'm 99% certain that you can read extensively about the dividend issues over there.

 

[johkar]

T-Minus: I am just earning bank interest, about a half of a percent. Just sits in a cash account. All dividends from other investments in the account are also paid in cash, and when the cash account gets to a certain level, a purchase is made automatically. But cash does not dip below around 10%.

Old Shooter: Appreciate your perspective. I have also played around with their program; originally had it as extreme as it would go to get more international and emerging markets. We have made it a bit more conservative, and hence, an even bigger cash holding.

I get that they are not going to change this; true, they have to make money somewhere, especially since they no longer have fees for trades. It is just making me think I've had enough of the robo experience.

 

[mrfeh]

The IP can't do anything that you and a spread sheet couldn't do. Just use 3-4 index funds.

+1 for avoiding dividend stocks. Total return is all that matters.

 

[johkar]

Mrfey, I was thinking the same thing, I could replicate the IP myself, and invest the cash.