Schwab Intelligent Portfolios August 10, 2017

    Planning and goal setting play a critical role in helping people achieve financial success. For Schwab Intelligent Portfolios clients, Goal Tracker is a tool that allows them to quickly and easily set and monitor how they're progressing towards a savings or income goal. 

    We're not alone in embracing the importance of planning—there's plenty of research out there that tells us the same thing. The facts are pretty stark: Americans with a plan are three times more likely to reach their financial goals compared to those who do not have a plan.1 Whether or not you work with a professional to establish and monitor your goals, you should know whether you are on pace as you work towards your goal. Sometimes a small increase in your savings rate might be all that's needed to put you on track toward achieving your goal. That's because your savings compound over time, and for a long time horizon those small increases in savings can have a big effect on your projected ending balance.

    What is Goal Tracker?

    Goal Tracker is a tab in the Schwab Intelligent Portfolios dashboard that helps you set up and track an investment goal for an account. For example, let's say you're saving for retirement or college, or maybe you're focused on a shorter-term goal. Goal Tracker projects how a portfolio might perform using a range of possible outcomes, and will show you how close you are to reaching your goal. If your goal is to generate retirement income, you can use Goal Tracker to set up a monthly withdrawal target and project how long your income stream will last.

    Schwab Intelligent Portfolios® Goal Tracker

    Schwab Intelligent Portfolios™ Goal Tracker

    Goal Tracker provides daily monitoring of whether your goal is "on target," "off target," or "at risk" by projecting hypothetical portfolio performance so that you can track your progress over time and make any necessary adjustments. The tool uses dynamic graphics to show progress against a goal and enables you to make adjustments to variables, such as your contributions, so you can see the impact of those changes on your goal.

    For more information about our Goal Tracker tool, check out this short video.

    Goal Tracker Methodology

    If you're interested in getting more technical, you can find details on our Goal Tracker's methodology in this whitepaper, but here's a summary of how the projections work.

    Goal Tracker uses long-term expected return estimates and simulations to show a better, average, or worse outcome to help monitor progress toward a goal. To do this, it uses Monte Carlo simulation to provide probability analysis on the likelihood that an investor's assets will reach his or her savings goal or that portfolio income will last until a selected end date. A Monte Carlo simulation is a statistical simulation technique, used widely in finance, engineering and other fields, to simulate a range of paths for portfolio performance, based on long-term return estimates and annual volatility around those estimates.

    As part of estimating potential returns and monitoring progress toward your goal, the long-term return estimates of each asset class included in the portfolio need to be updated periodically based on inflation, interest rates, earnings projections, and other factors. These capital markets estimates (CMEs) are not short-term tactical market calls, but rather long-term estimates over a 10-year horizon that are necessary inputs into the Monte Carlo analysis in order to simulate potential portfolio returns over time.

    When CMEs are updated each year in the Goal Tracker, your portfolio's projected performance and how you're tracking toward your goal will likely change as well. For shorter-term goals, you might see little difference in the projected ending value for your portfolio. For longer-term goals, the projected ending value might move meaningfully higher or lower in any given year. This is because small changes in CMEs can result in substantial changes in simulated returns that extend over long time horizons of several decades.

    For 2017, the CMEs in the Goal Tracker were updated on August 10. If you find that your portfolio has become "off target" or "at risk" as a result of the recent CME updates, a change in your savings rate might be needed to get you back "on track." The good news is that just like small changes in CMEs can result in meaningful differences in projected returns over long horizons, a small increase in your savings rate when compounded over many years might be all that's needed to get you back "on track."

    Invest with a goal in mind…and track progress along the way!

    To effectively reach any goal you need clear, concrete and trackable steps—and the ability to make adjustments along the way as things change. We built Goal Tracker to help make that process easier. This way you'll know where your investing goals stand, and you can focus on all the other important goals in your life.

    Tobin McDaniel is Senior Vice President of Digital Advice and Innovation, Charles Schwab & Co., Inc.

    1. The 2004 University of Michigan Health and Retirement Study of Americans over 50 showed that those who created financial plans and stuck with them achieved an average total net worth three times higher than those who didn't.

    There is no guarantee that the intended goal will be reached and changes to inputs and other assumptions may affect your potential to reach the intended goal. In addition, the projections and other information you will see here about the likelihood of various outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. The projections are based on estimates intended to be representative of the selected portfolio. The output of this tool may vary with each use and over time. The tool does not consider the specific securities or other assets held by you. This tool provides analysis based upon your inputs but makes additional assumptions detailed in the Goal Tracker whitepaper.

    (0318-8J2V)


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