Performance September 16, 2019

    What's the best way to measure the performance of your portfolio?

    All too often people simply look at their portfolio's returns relative to the S&P 500® Index. But while that might be the most familiar index to many investors, it's important to understand that the S&P 500 isn't "the market," as it's often mistakenly described. The S&P 500 measures just one market segment: U.S. large-cap stocks. And it's only a subset of that segment at that.

    Don't simply look at the S&P 500 Index

    Seen in that light, it's pretty clear that comparing your portfolio's performance to a portion of a single market segment isn't particularly meaningful. And for a diversified portfolio that might include international investments and other asset classes such as bonds, commodities and cash, it provides little guidance. An appropriate benchmark should reflect your portfolio's risk level and allocation.

    A more meaningful analysis would look at several different indices to give you an idea of which asset classes have been helping or hurting. But keep in mind that asset classes come into and out of favor, and these shifts in leadership can occur rapidly. So don't think that you should hold more of an asset class simply because it's done well recently, or that you should avoid an asset class just because it hasn't kept up in the short term.

    A better approach than trying to time markets is to invest in a diversified portfolio. This strategy is designed to help smooth return patterns over time by investing in multiple asset classes. This helps ensure that you hold some of the better-performing asset classes at any given time while not being overly concentrated in the asset classes doing less well at that time.

    Schwab Intelligent Portfolios® offers a tool to track performance

    Schwab Intelligent Portfolios is designed to give you a range of tools for understanding performance. Portfolios are diversified across multiple asset classes based on your risk profile from conservative to aggressive, with each investment in your portfolio providing an individual source of risk and return.

    Keep in mind that all of the investments in your portfolio are working together to produce the portfolio's overall risk and return characteristics. So avoid the temptation of looking at any one asset class in isolation. In some periods, an asset class such as U.S. large cap stocks might be performing best while another asset class such as emerging markets might be at the bottom of the list. In other periods, the asset classes at the top and bottom of the performance rankings might be reversed.

    U.S. large-cap stocks, as represented by the S&P 500 Index, are just one potential risk/return driver. So we include a feature on the Performance section of the Intelligence Portfolios website that lets you compare your portfolio's performance with several different market indices. We recommend that you select multiple indices (up to five at a time) from the following list:

    Index Name Asset Class
    S&P 500 Index U.S. large-cap stocks
    Russell 2000® Index U.S. small-cap stocks
    MSCI EAFE Index International large-cap stocks
    MSCI EAFE Small Cap Index International small-cap stocks
    MSCI Emerging Markets Index Emerging market stocks
    Bloomberg Barclays US Corporate Credit Index U.S. investment-grade corporate bonds
    Index Name Asset Class
    Bloomberg Barclays Global Aggregate ex-US Index International bonds
    S&P GSCI Precious Metals Index Gold and other precious metals

    Example: Comparing a portfolio to multiple market indices

    As shown in the two charts below, comparing your portfolio's performance with several market indices and over different market environments can give you greater perspective. During the first quarter of 2019, the strongest single-quarter for the U.S. stock market in a decade, the diversified portfolio ('Your Investment Performance') didn't keep up with the S&P 500, as would be expected. However, the portfolio did better than some asset classes such as investment-grade corporate bonds and gold & other precious metals.

    Portfolio Performance Screenshot

    Source: Charles Schwab & Co. The diversified portfolio consists of 65% stocks, 25% fixed income, 2% commodities and 8.5% cash.

    By contrast, during the fourth quarter of 2018, when the U.S. stock market saw a significant pullback, the portfolio declined less than the S&P 500. That's because asset classes such as investment-grade corporate bonds and gold & other precious metals delivered positive gains during that turbulent period, helping to moderate the overall portfolio decline. By taking a disciplined, diversified approach and including a variety of asset classes that perform differently in different market environments, the portfolio is designed to help smooth the ups and downs of investing.

    Portfolio Performance Screenshot

    Source: Charles Schwab & Co. The diversified portfolio consists of 65% stocks, 25% fixed income, 2% commodities and 8.5% cash.

    Tracking progress toward your goal is more relevant

    Comparing your portfolio's performance with a variety of indices can help you understand which asset classes have been driving performance. But an even more meaningful measure is to track your progress toward a specific investment goal. Our Goal Tracker feature gives you another tool for tracking performance, allowing you to set a savings goal or an income goal and then monitor your progress over time to help you stay on track toward reaching your financial goals.

    And if you're looking for additional professional guidance to help you reach your goals, consider exploring Schwab Intelligent Portfolios Premium™. Our Premium Service offers all of the benefits of Schwab Intelligent Portfolios® along with unlimited guidance and personalized planning from a CERTIFIED FINANCIAL PLANNER™ Professional, for a one-time planning fee of $300, and a $30/month advisory fee after that.

    Just as if you'd invested on your own, you will pay the operating expenses on the ETFs in your portfolio—which includes 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 important information below.

    Past performance is no guarantee of future results.

    Indexes are unmanaged, do not incur management fees, costs and expenses, and cannot be invested in directly.

    There is no advisory fee or commissions charged for Schwab Intelligent Portfolios. For Schwab Intelligent Portfolios Premium, there is an initial planning fee of $300 upon enrollment and a $30 per month advisory fee 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.

    The cash allocation in Schwab Intelligent Portfolios Solutions™ will be accomplished through enrollment in the Schwab Intelligent Portfolios Sweep Program (Sweep Program), a program sponsored by Charles Schwab & Co., Inc. By enrolling in Schwab Intelligent Portfolios Solutions, clients consent to having the free credit balances in their Schwab Intelligent Portfolios Solutions brokerage accounts swept to deposit accounts at Charles Schwab Bank through the Sweep Program. Charles Schwab Bank is an FDIC‐insured depository institution affiliated with Charles Schwab & Co., Inc. and Charles Schwab Investment Advisory, Inc.


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