Schwab Model Portfolio Series: Cheap, Simple, and Effective

The Schwab A Series model portfolios leverage the firm’s ultra-low cost ETFs to build broadly diversified portfolios that should serve investors well over the long-term. The model portfolios earn an inaugural Morningstar Analyst Rating of Bronze.

These model portfolios cover the full range of risk tolerances. The target equity allocations range from 8% for the most conservative option to 96% for the most aggressive. The team only uses Schwab ETFs to populate the portfolios, but those are among the cheapest available which leads to these portfolios being extremely inexpensive. The asset-weighted underlying fund fees for the portfolios range from 0.04% to 0.05%; that is a significant fee advantage versus other options.

Schwab’s multi-asset team, led by Omar Aguilar, uses a standard approach to asset allocation. In the more conservative portfolios, they rely primarily on U.S. large-cap stocks for equity exposure but in the more aggressive portfolios, they increase the weight to more volatile parts of the equity market like international stocks and small-caps. In the 24% equity model portfolio, for example, U.S. large-caps make up 75% of the equity portfolio, but in the 64% equity model portfolio they make up closer to 50%. It’s an effective way to alter each portfolio’s expected volatility without needing to change the overall equity allocation. It doesn’t necessarily imply better risk-adjusted returns, however.

The bond portfolios are made up exclusively of high-quality investment-grade fixed-income. Although the team doesn’t utilize the full suite of fixed-income ETFs Schwab offers, the Schwab U.S. Aggregate Bond ETF SWAGX that forms the bulk of each model’s fixed-income exposure should serve as reliable ballast during equity market downturns.

The team revisits its allocations at least annually when it updates its 10-year capital market assumptions. Since the assumptions are long-term focused, investors shouldn’t expect radical changes from year-to-year.

Model portfolios only provide guidance, users must implement their suggested trades and rebalance on their own. Investors’ results will vary depending on how closely they follow this profile’s recommendations.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.