Reallocating Your Investment Funds: A Schwab How-To Guide

If you're looking to reallocate funds in your Schwab investments, there are a few different ways to go about it. One option is to use the Swap Funds feature, which allows you to exchange one fund for another within your portfolio. This can be done by logging into your Schwab account, hovering over Trade, selecting Mutual Funds, and then choosing the appropriate account and funds from the dropdown menus. Another method is to sell a portion of one fund and use the proceeds to buy into another fund. This can be done through a Sell and Buy Another transaction on the trade screen. It's important to consider the tax implications of any transactions and whether they align with your financial goals and risk tolerance. Additionally, you may want to consult a financial professional for advice tailored to your specific situation.

Using the Schwab Personalized Portfolio Builder tool

• Log in and choose the specific Schwab account you want to build your portfolio in.
• Select the type of investment you're looking for. You can choose to build an all-mutual fund portfolio (taxable-bond funds or municipal-bond funds) or an all-ETF portfolio.
• Choose your risk profile, ranging from conservative to aggressive. This will help determine the recommended asset allocation for your portfolio.
• Specify your initial investment. There is no minimum investment requirement, but it is suggested to invest at least $5,000 to ensure proper diversification.
• Compare and select from the shortlist of funds chosen by Schwab experts. You can review recent performance history and make a thorough comparison to make informed investment decisions.
• Once you select a fund, the Personalized Portfolio Builder will automatically calculate the number of shares you need to purchase to match your target asset allocation.
• Choose across multiple asset classes to build your new diversified portfolio. You can customize your allocation percentages to fit your preferences or opt out of an asset class if you prefer.
• After making your selections, click the "Trade" button to purchase the funds. You can then track and monitor your positions from your account.

The Schwab Personalized Portfolio Builder tool offers a robust and straightforward solution for investors seeking to build a diversified portfolio. By following these steps, you can take advantage of the tool's features and make more confident investment decisions.

Comparing investment allocation to benchmarks

Comparing your investment allocation to benchmarks is a crucial step in assessing the performance of your portfolio. Here are some key considerations when making this comparison:

• Diversification: A diversified portfolio is crucial to smooth out return patterns over time. By investing in multiple asset classes, you reduce the risk of being overly exposed to any one particular asset class. Schwab Intelligent Portfolios® offers a tool to help you diversify your portfolio based on your risk profile, ranging from conservative to aggressive.
• Appropriate Benchmarks: When comparing your portfolio's performance, choose benchmarks that reflect your portfolio's risk level and allocation. The S&P 500® Index, for example, measures U.S. large-cap stocks, so it may not be an appropriate benchmark for a diversified portfolio that includes international investments and other asset classes. Consider using multiple indices to get a clearer picture.
• Performance Analysis: Compare your portfolio's performance with several market indices and over different market environments. This will help you understand which asset classes are driving performance. For example, during a market pullback, asset classes like investment-grade corporate bonds or gold can help moderate the overall portfolio decline.
• Tracking Progress: While comparing to benchmarks is important, tracking your progress toward specific investment goals is even more meaningful. Schwab's Goal Tracker feature allows you to set savings or income goals and monitor your progress over time, ensuring you stay on track to reach your financial objectives.
• Risk and Return: Keep in mind that each investment in your portfolio contributes to its overall risk and return characteristics. Avoid focusing on any one asset class in isolation, as their performance can vary over time. For example, U.S. large-cap stocks may outperform emerging markets in one period, but this can reverse in another.
• Customization: Schwab offers tools to help you customize your portfolio based on your preferences. You can choose from ETFs or mutual funds, determine your fund preference, risk profile, and initial investment, and use the Schwab Personalized Portfolio Builder tool to build a portfolio aligned with your goals.

Reinvesting dividends

Here's how you can set up a DRIP with Charles Schwab:

• Log in to your account at schwab.com.
• Go to the "Trade" tab at the top of the page.
• Select "Stocks & ETFs".
• Place an order by typing the company's name or ticker symbol in the "Symbol" box and selecting "Buy" from the "Action" menu.
• Check the "Reinvest Dividends" box to enrol in the DRIP.

You can also set up a DRIP for your current holdings. Go to the "Accounts" tab, select "Positions", find the "Reinvest?" column, and select the link to enrol in the DRIP for that security.

It's important to note that while DRIPs can save you time and help with compounding returns, there are tax implications to consider. If you enrol in a DRIP for a non-retirement account, the dividend income is taxable and will be reported on your 1099-DIV form. Additionally, companies may reduce or stop paying dividends, so it's important to monitor your investments and be aware of the risks.

Using the Mutual Fund OneSource Select List

The Mutual Fund OneSource Select List® is a pre-screened list of no-load, no-transaction-fee mutual funds that are available through the Schwab Mutual Fund OneSource® service. This list is a cost-effective and convenient way to invest in mutual funds, with a focus on performance, risk, income, and expense.

The funds on the Select List are chosen through a disciplined evaluation process that incorporates both quantitative and qualitative criteria, including historical performance, risk, and expenses. The list is built by identifying funds that offer a strong combination of factors such as performance, risk, and expense.

The Select List includes funds across various categories, such as Large-Cap U.S. Stock, Small- and Mid-Cap U.S. Stock, and Taxable Bond Funds. These funds generally invest in debt obligations issued by the U.S. Treasury, other U.S. government agencies, and U.S. corporations. They may also invest in high-yield and foreign (non-U.S.) bonds.

The Mutual Fund OneSource Select List® can be a great starting point for investors looking to diversify their portfolios and work towards their financial goals. By choosing funds from this list, investors can be confident that they are selecting from a group of carefully evaluated and high-quality investment options.

To get started with the Mutual Fund OneSource Select List®, investors can log in to their Schwab account and access the list. From there, they can review the funds, compare investment options, and make informed decisions based on their specific needs and goals.

Understanding risk tolerance

Understanding your risk tolerance is a crucial aspect of investing and reallocating funds. Risk tolerance refers to the level of risk an investor is willing to take, and it's essential to shape your investment strategy accordingly. Here are some key considerations to help you understand your risk tolerance:

Emotional Capacity for Risk

Ask yourself how you feel about risk in relation to your finances. Do you see it as an opportunity for significant returns, or does it worry you? It's important to be honest with yourself about your emotional response to risk. Consider how you would react to a significant investment loss or market downturns. Your emotional tolerance for risk plays a crucial role in determining your overall risk tolerance.

Financial Capacity for Risk

While emotions are important, it's also essential to assess your financial capacity for risk. This involves evaluating your financial situation, goals, and timeline. If you have financial dependents, a mortgage, or other significant financial obligations, you may have a lower financial risk capacity. On the other hand, if you are single with fewer financial commitments, you may be more comfortable taking on higher levels of risk.

Time Horizon

Your time horizon is a critical factor in determining your risk tolerance. This refers to when you plan to withdraw your investments. Generally, a longer time horizon allows for a higher risk appetite since there is more time to recover from potential losses. As you approach your goal, you may want to reduce risk exposure to preserve your gains.

Risk Tolerance vs. Risk Capacity

It's important to distinguish between risk tolerance and risk capacity. While risk tolerance refers to your emotional and psychological comfort with risk, risk capacity is about your financial ability to take on risk. Your risk capacity can change over time as your financial situation, goals, and timeline evolve.

Understanding Different Investment Options

To make informed decisions about risk, it's crucial to understand the different investment options available. Typically, investments range from aggressive to conservative. Aggressive investments, such as stocks, carry a higher risk of loss but also offer the potential for higher returns. Conservative investments, such as bonds and cash, have a lower risk of losing money but also lower growth potential.

Diversification

Diversification is a strategy to spread your risk across different investments and sectors. While it doesn't guarantee profit or eliminate the risk of loss, it helps to mitigate potential downsides. Diversification ensures that you're not overly exposed to a single investment, reducing the impact of any individual investment's performance.

By considering these factors and asking yourself thoughtful questions, you can gain a clearer understanding of your risk tolerance. This self-awareness will help you make more informed decisions about reallocating funds and ensure that your investment strategy aligns with your comfort level and financial goals.

Frequently asked questions