Personal Finance April 14, 2016

    You're young and don't have much money. Better to postpone investing until you can put more into the market, right?

    Wrong. Many young investors overlook the major advantage they hold over older, wealthier investors: time. It's difficult to overstate the power of time in compounding investment returns. Consider this: During a 30-year time span, an investment that earns 6% per year, on average, will return a total of 474%. That's because the interest or return earned each year is added to the principal amount—known as compounding—and future return is earned on the larger principal. You can think of it as something like a snowball, which grows as it rolls downhill—the longer it rolls, in general, the bigger it gets.

    Time can have a terrific impact on the value of money, and even fairly small annual returns can turn into a significant total return over a long enough timespan. Here's an example:

    Annual return Total return after 30 years
    4% 224%
    6% 474%
    8% 906%
    10% 1,645%

    Source: Compound Interest Calculator. The returns shown above are for illustrative use only and not indicative of any investment available. Investing involves risk and is shown as an average although returns will vary from year to year including years where returns will be negative.

    The important thing to remember is: You don't have to knock the ball out of the park to benefit from investing. If you can just get started and give your money the chance to earn market returns over a long period, the potential benefits are large. Time in the market is more important than timing the market.

    How Schwab Intelligent Portfolios™ Can Help

    Your portfolio may benefit from the power of compounding without the potential drag from advisory fees, since Schwab Intelligent Portfolios does not charge advisory fees or commissions. Invest in a portfolio of low-cost exchange traded funds (ETFs). Just as if you’d invested on your own, you will pay the operating expenses on the ETFs in your portfolio, which include Schwab ETFs™. We believe cash is a key component of an investment portfolio. Based on your risk profile, a portion of your portfolio is placed in an FDIC-insured deposit at Schwab Bank. Some cash alternatives outside of the program pay a higher yield. See more information.

    There is no advisory fee or commissions charged for Schwab Intelligent Portfolios. For Schwab Intelligent Portfolios Premium, the advisory fees consist of $300 upon enrollment and an additional $30 per month charged on a quarterly basis as detailed in the Schwab Intelligent Portfolios Solutions™ disclosure brochures.  Investors in Schwab Intelligent Portfolios and Schwab Intelligent Portfolios Premium (collectively, "Schwab Intelligent Portfolios Solutions") do pay direct and indirect costs. These include ETF operating expenses which are the management and other fees the underlying ETFs charge all shareholders. The portfolios include a cash allocation to a deposit account at Schwab Bank. Our affiliated bank earns income on the deposits, and earns more the larger the cash allocation is. The lower the interest rate Schwab Bank pays on the cash, the lower the yield. Some cash alternatives outside of Schwab Intelligent Portfolios Solutions pay a higher yield. Deposits held at Schwab Bank are protected by FDIC insurance up to allowable limits per depositor, per account ownership category. Schwab Intelligent Portfolios Solutions invests in Schwab ETFs. A Schwab affiliate, Charles Schwab Investment Management, receives management fees on those ETFs. Schwab Intelligent Portfolios Solutions also invests in third party ETFs. Schwab receives compensation from some of those ETFs for providing shareholder services, and also from market centers where ETF trade orders are routed for execution. Fees and expenses will lower performance, and investors should consider all program requirements and costs before investing. Expenses and their impact on performance, conflicts of interest, and compensation that Schwab and its affiliates receive are detailed in the Schwab Intelligent Portfolios Solutions disclosure brochures.


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