A Guide to Risk Profiles
A Guide to Risk Profiles
At Schwab, we believe investing in a diversified portfolio in line with the risk and return suited to your needs, staying the course and ignoring short-term market noise will help you achieve long-term investment success.
When you opened your account, you answered a series of questions about your goals and risk tolerance to place you into a portfolio best suited to your needs. Schwab Intelligent Portfolios® then provided a tailored portfolio from more than 80 variations (Figure 1).
Figure 1: 81 Total portfolios with portfolio features
Within your portfolio, there are many potential combinations of stocks, fixed income, commodities and cash. Each combination entails different levels of risk. For example, an investor saving for retirement 30 years down the road might consider a portfolio that has higher volatility in the short-term in exchange for higher long-term returns. This type of portfolio would be more aggressive, meaning it has a greater allocation to stocks over fixed income and cash. By contrast, an investor nearing retirement or uncomfortable with volatility in returns would invest in a more conservative portfolio with a greater allocation to fixed income and cash instead of stocks.
Your recommended balance of risk and return, or "risk profile," informs which portfolio is recommended for you. Figure 2 provides a guide to the different risk profiles based on stock allocation, as well as descriptions of each risk profile.
Figure 2: Risk profiles across the spectrum for Schwab Intelligent Portfolios
| Risk profile | Stock allocation | Description |
|---|---|---|
| Conservative | 19% | These portfolios emphasize defensive asset classes such as Treasury Bonds and Cash while holding moderate amounts of volatile investments such as Stocks. |
| Moderately Conservative | 25 – 36% | These portfolios have slightly more Stocks than the most conservative portfolios but emphasize less volatile asset classes such as Bonds and Cash. |
| Moderate | 40 – 50% | These portfolios hold more Stocks than more conservative offerings but also include more stable Bonds and Cash to help moderate volatility. |
| Moderate Growth | 57 – 64% | These portfolios have a sizable Stock allocation, as they are designed for moderate growth. The Bond allocation includes more stable asset classes such as Treasuries but can also include High Yield Bonds and Emerging Markets Bonds, which can be more volatile but provide diversification and upside potential. |
| Growth | 70 – 79% | These portfolios have a large allocation to volatile asset classes such as Stocks, Real Estate Investment Trusts (REITs) and Emerging Markets Bonds. Cash and Precious Metals help provide some stability and diversification, respectively. |
| Aggressive Growth | 84 – 94% | These portfolios emphasize volatile assets such as Stocks and have minimal defensive asset classes such as Cash. |
Source: Charles Schwab Investment Advisory, Inc. as of 3/31/2023
To determine your risk profile, log in to your dashboard and check the Portfolio tab. Use your stock allocation percentage to identify your risk profile using the table in Figure 2.
Figure 3: Example of a client's portfolio page
This client has 27.39% of their portfolio in stock, which is considered a Moderately Conservative portfolio.
For illustrative purposes only. Individual situations will vary.
Understanding your risk profile is key to helping you stay focused on your longer-term goals
Schwab Intelligent Portfolios recommends a diversified portfolio based on your goals, time horizon, and risk profile and keeps your allocation consistent through automated rebalancing as markets fluctuate to help you stay focused on your longer-term financial goals. Understanding where your portfolio is positioned across the risk spectrum from Conservative to Aggressive Growth is key to understanding how it would be expected to perform over time and in different market environments.
David Koenig CFA®, FRM®, is Vice President and Chief Investment Strategist for Schwab Intelligent Portfolios