Going Robo: What’s Schwab’s Move Means for You
With giant discount brokerage Charles Schwab launching its Intelligent Portfolios service this past week, the fledgling industry of automated investment advice is going mainstream.
Like the startup “robo-advisers” that preceded it, including Betterment of New York and Wealthfront of Palo Alto, Calif., Schwab can provide its service at low cost because the money isn’t touched by human hands.
A traditional broker or investment adviser would meet with you face-to-face and put your money in individual stocks, bonds, mutual funds or other securities. Robo-advisers, on the other hand, prompt you to fill out an online questionnaire. They then use software to generate and monitor a portfolio of exchange-traded funds, those low-cost investment bundles that are built to mimic the return of a market index rather than to try beating it.
Robo-advisers will automatically rebalance your portfolio if a rise or fall in the market skews how much money you have in any of the funds relative to the targets originally set for you.
They will also fine-tune the tax efficiency of the portfolio by selling some shares that have gone down during the tax year to offset gains elsewhere, for example.