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Evolving With the Times

Among investors, it’s no secret that diversification can help reduce risk and preserve growth potential. When one investment is falling, another may be rising, and having exposure to a variety of investments can help your portfolio weather an ever-changing market.

Diversification works best when the investments in a portfolio tend to move in opposite directions. Traditionally, a portfolio made up of 60% stocks and 40% bonds and cash fulfilled that requirement for most moderately conservative investors. This approach to diversification served as the cornerstone of financial planning for decades. But times change.

New market realities

Since the 2008 financial crisis, it’s become more difficult to diversify within asset classes. For example, the prices of most equity classes—which occupy a large portion of most long-term investors’ portfolios—have become increasingly correlated because of the growing interconnectedness of global financial markets.

At the same time, there are also more opportunities. “Investors have much greater access to a growing array of non-traditional asset classes, including global real estate and commodities, whose price movements aren’t so closely tied to stocks and other traditional assets,” says Tony Davidow, Vice President, Alternative Beta and Asset Allocation Strategist at the Schwab Center for Financial Research. Such assets represent new ways to diversify.

Schwab’s approach

In light of these new market realities, Schwab has developed a suite of asset allocation models aimed at providing broadly diversified portfolios that maximize returns for a given level of risk. These models incorporate an array of assets in several broad categories:

  • Core equity: U.S. large- and small-company stocks, international developed-country large-company stocks, and high-dividend U.S. and international large-company stocks
  • Non-traditional equity: International developed-country small-company stocks, international emerging market stocks, U.S. and international real estate investment trusts (REITs) and master limited partnerships (MLPs)
  • U.S. investment-grade bonds: Treasuries, corporates, agencies and securitized bonds
  • Non-traditional bonds: Treasury Inflation Protected Securities (TIPS), U.S. corporate high-yield bonds, international developed-country and emerging market bonds, preferred stocks, bank loans and other floating-rate notes
  • Commodities: Gold and other precious metals, energy, metals and agriculture
  • Cash and cash investments: Taxable and tax-free money funds, which generally offer stability and high liquidity

Each asset plays a particular role in a given portfolio, as shown in the table below.


Schwab has developed two models—total return and income—that incorporate a suite of allocations based on a variety of risk profiles. Let’s take a closer look at each type of model.

Total return models

Research has shown that investors tend to feel more strongly about suffering losses than they do about securing gains. “Schwab’s new total return portfolios acknowledge this tendency by seeking to deliver both growth and income, while spreading risk across a range of asset classes,” says Tony.

For example, our core equity allocation targets diverse sources of return by including stocks of international small companies from developed countries as well as emerging market stocks. We also introduce an inflation-hedging component by including U.S. and international REITs, commodities and TIPS.


Income models

We recognize that for many retired investors, a steady income is more important than growth. However, with interest rates hovering at historically low levels for so long, generating enough income from investment-grade bonds has proved challenging. In addition, increases in longevity are placing growing demands on people’s retirement savings.

That’s why we developed income-focused portfolios that incorporate both traditional investment-grade bonds, such as Treasuries and corporate bonds, and non-traditional securities, such as TIPS, U.S. corporate high-yield bonds and international bonds. We also include income-focused assets such as MLPs, preferred stocks and other floating-rate notes.

Using these model portfolios

Investors can gain exposure to asset classes through many different investments, including individual securities (stocks and bonds), separately managed accounts, mutual funds and exchange-traded funds (ETFs). Depending on the vehicle and investment option selected, investors can have dramatically different experiences, so it’s important to get the information and guidance you need to assemble your portfolio.

Schwab Private Client: Portfolio solutions with new models

If you’re looking for help selecting a portfolio appropriate for your needs, Schwab Private Client™ could be the answer.

With Schwab Private Client, you get access to a dedicated team of professionals that includes a Portfolio Consultant as well as specialists in areas like income, hedging strategies and estate planning. Together they’ll help create, monitor and adjust a sophisticated portfolio designed to help you reach your specific goals.

Your Portfolio Consultant will help you choose an asset allocation that can offer an optimal blend of growth and income across a variety of investments, depending on your risk tolerance, financial goals and circumstances. And they’ll work with you collaboratively to assess your allocation as market conditions or your needs change. You stay completely in control and you make all the final investing decisions.

Your team will check in with you periodically to make sure you’re progressing toward your goals, and you’ll receive quarterly reports so you can monitor your progress.

To open a Schwab Private Client account, you need to invest a minimum of $500,000. Annual fees start at 0.90% for equities and ETFs and 0.70% for fixed income.

Important Disclosures
The Portfolio Consultant, Associate Portfolio Consultant and other representatives making investment recommendations in your Schwab Private Client accounts are employees of Schwab Private Client Investment Advisory, Inc.

Please read the Schwab Private Client and the Schwab Private Client Investment Advisory, Inc. Disclosure Brochures for important information and disclosures about this service. Portfolio management is provided by Schwab Private Client Investment Advisory, Inc., a Registered Investment Advisor and an affiliate of Charles Schwab & Co., Inc.

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Important Disclosures

Diversification strategies do not ensure a profit and do not protect against losses in declining markets.

Performance may be affected by risks associated with non-diversification, including investments in specific countries or sectors. Additional risks may also include, but are not limited to, investments in foreign securities, especially emerging markets, real estate investment trusts (REITs), fixed income, small-capitalization securities and commodities. Each individual investor should consider these risks carefully before investing in a particular security or strategy.


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