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Market volatility FAQs for Schwab Intelligent Portfolios® clients

SIP FAQs intro copy

Market volatility can test the nerves of any investor. But that doesn't mean every investor is facing the same challenges. We know that your time horizon and your risk tolerance influence the questions and concerns you have right now. And we’re listening.

Long-Term Investor

I’m invested for the long term but feel like I should do something.

Diversification doesn’t completely protect you against losses during a downturn. But it is designed to help moderate the overall volatility in your portfolio—and can help speed the recovery.

That’s why—if your long-term goals and financial situation have not changed—it’s probably wise to stay the course with your diversified portfolio.

Yes, it’s difficult not to focus on the losses. But looking forward provides a different perspective: With the recent declines, market valuations are actually better for long-term potential returns than they were just a month ago. There will surely be continued ups and downs, but having a plan and sticking to it is typically key to investing success.

If you've stayed invested and have a long time horizon, sticking with your recommended allocation will help keep you positioned to benefit when markets recover. Because the truth is, no one knows when a downturn has hit bottom, nor when an upswing has peaked.

If you’re able to increase your savings rate, that's the one thing you can control that's most likely to impact whether or not you achieve your investing goals. And especially now, every dollar you save buys relatively more shares of the ETFs in your portfolio that have lost value.

But also remember that doing nothing may well be the right option for you. Broad diversification along with automatic rebalancing can help provide the discipline to weather downturns and stay focused on your long-term objectives.

Should I move my portfolio to cash, at least until the markets turn around? How do I do that?

Your portfolio is designed to stay diversified in a way that matches your goals and risk tolerance, so moving completely to cash would mean closing your account.

However, selling assets can turn paper losses into permanent ones, especially after a steep downturn. Timing the market is nearly impossible, and staying the course can be healthier for your portfolio over the long run than attempting to pick entry and exit points.   

You can always review and update your portfolio allocation by retaking the Investor Profile Questionnaire. But if your portfolio is truly aligned with your goals and risk tolerance, staying the course may give you a better chance to reach your long-term goals. Making temporary adjustments to your investment allocation is akin to trying to time the markets.

If you have already shifted your allocation to a more conservative profile, that's OK—and you might have avoided some of the declines. But again, you'll want to think about your investing goals and whether your current portfolio gives you the best chance of reaching them.

If you're making automatic contributions to a Schwab Intelligent Portfolios account, you control the amount and timing of them. However, decreasing your savings rate in reaction to market volatility is similar to trying to time the markets. When markets are down, every dollar you invest actually buys more shares of the ETFs in your portfolio. Dollar cost averaging—or investing a fixed amount on a regular basis—can help you invest efficiently, and not miss out on lower-cost buying opportunities.

Needs Money Now or Will Soon

I need the money now or will soon.

If you're nearing retirement or some other important savings goal with a short time horizon, you should generally be in a conservative portfolio, given the risk that you won't have time to recover losses.

That said, every investment comes with some risk. And while defensive assets often provide stability and ballast when equities tumble, the widespread market impact of the coronavirus crisis has been almost without precedent. In her article "Making Sense of Recent Bond Market Turmoil," Schwab's Chief Fixed Income Strategist Kathy Jones covers what’s been happening with bonds—and why your fixed income allocation may be down.

However, we continue to believe that a diversified portfolio aligned with your timing and goals is the best way to moderate declines and help shorten your recovery period.  

If you're currently taking withdrawals, reducing the amount you take, if you're able to, can help your savings last longer. It’s also worth noting that the stimulus package Congress recently passed waives required minimum distributions (RMDs) from tax-deferred accounts for 2020.

The other thing to know is that probability of success factors in potential swings in the market, up and down. But it doesn’t automatically assume recovery. Historically, however, markets have tended to rebound and continue to grow—with bear markets tending to be shorter than bull markets—and staying invested could increase the likelihood that you'll participate in a recovery, and thus your probability of success.

You should also take a look at your probability of success separately for your most important financial needs versus other discretionary spending. It might make sense to postpone some of those discretionary expenses to focus on the needs now. Doing so could potentially help your savings last longer to give markets a chance to recover—so that you can focus on your financial wants and wishes in the future.

If you're currently relying on your portfolio for income, it should be invested in one of the more conservative allocations. But it remains diversified, so moving completely to cash would mean closing your account.

But selling assets during a downturn can turn paper losses into permanent ones. Of course sometimes you have no choice, and you should think strategically about what you sell. If you’re not enrolled in Schwab Intelligent Income, it’s an optional feature that can automate your withdrawals and help you project and monitor their impact on your portfolio throughout retirement.

Transactions, including account closures, can take up to five business days to process. In that time, the value of your holdings may fluctuate, and the final cash value of your account may differ than when you initiated your request.

Risk Tolerance Has Changed

I’m finding it hard to stomach these big swings.

Of course past performance is no guarantee of future results, but historically, markets have recovered—and bear markets have tended to be shorter than bull markets.

Because diversification is designed to moderate declines, staying invested in a broadly diversified portfolio and maintaining your target asset allocation can help shorten your recovery period.

In the face of portfolio losses, some people find that their tolerance for risk—the willingness to endure swings to the downside, if they come with the potential for larger gains—is indeed lower than they thought. And you can always review and update your risk profile by retaking the Investor Profile Questionnaire.

But be aware that changing to a more conservative allocation after a decline also means that you may participate less in the early stages of a recovery.

Automatic rebalancing is a key feature of Schwab Intelligent Portfolios. It’s designed to keep your portfolio’s asset allocation consistent over time so that it stays aligned with your intended risk level. When markets are calm, your portfolio may trade infrequently. But when markets are volatile, a portfolio can see multiple rebalancing trades in a short timeframe.

Also, clients with taxable accounts of a certain balance can enroll in tax-loss harvesting to help offset capital gains—and up to $3,000 of regular income, if your losses exceed your gains for the year. During the recent turbulence, tax-loss harvesting trades also surged. Remember that these trades are a silver lining to your investment losses.