Author Topic: Schwab Account Opened - 25,000 USD to invest  (Read 2205 times)

ExpatChina

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Schwab Account Opened - 25,000 USD to invest
« on: December 14, 2017, 11:30:25 PM »
Seven long months ago I started my journey of opening a Schwab International account from China. As a 32 year old American citizen living in China I felt that Schwab was the best fit for me. After many frustrating months with my local bank here in China I was finally able to send the 'right' documents to Schwab. To be fair, I had no issues with Schwab throughout this period. Their customer service was nothing but great, offering alternatives solutions to the required documents that I couldn't find in China. I feel that I made the right choice and that it was worth the tremendous hassle. Again, this hassle had much more to do with Chinese banks than Schwab's process. In my mind, Schwab was simply doing their due diligence.

When I began this quest I was given the following advice for my initial 25,000 USD investment.
   
60%     SCHB - US Total Market (S&P 500)
30%    SCHF - International Market   
10%     SCHZ - Bonds

Now, as a passive investor I can't imagine this original advice is no longer valid after only seven months. We're in for the long haul obviously, I would have kept up that portfolio balance for the next 40+ years. However, seeing as time has passed and I'm about to set the trend for the rest of my investment life,  I would love to hear a second opinion.

Working with the ETF wizard on Schwab's site, I was given the following recommendation for my risk assessment category.

45% - SCHX - US Large Cap
15% - SCHA - US Small Cap
20% - SCHF - International
15% - SCHZ - Bonds
5% - Cash

Specifically, what do you see as a better choice?  SCHB vs SCHX

I believe I will go with the original balance of 60% US Large Cap, 30% International and 10% Bonds. Unless someone has an argument against it. Since I am only 32, higher risk makes sense to me.

Thank you all for your input and guidance. I've scoured these forums and others like it over the last year and believed I had a solid plan. But when you're about to pull the trigger I suppose it's natural to have doubts.

aspiringnomad

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Re: Schwab Account Opened - 25,000 USD to invest
« Reply #1 on: December 15, 2017, 08:22:54 AM »
I keep my US allocation simple with SCHB. It's the largest 2,500 companies, which is fine for my needs, but I suppose if you want smaller cap companies included SCHA makes sense too (I do still have a small amount of SCHA from when I had a more complicated approach).

For my international allocation, however, I use SCHF for developed and SCHE for emerging. My international split is 66% SCHF and 33% SCHE. I want exposure to companies in emerging economies and SCHF doesn't provide that.

I should add that my overall allocation is pretty much the same as yours. I keep all bonds in my tax advantaged accounts.
« Last Edit: December 15, 2017, 08:24:52 AM by aspiringnomad »

Rockies

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Re: Schwab Account Opened - 25,000 USD to invest
« Reply #2 on: December 16, 2017, 09:14:26 PM »
I'd keep the more simple allocation that you listed first. In the long run what you are doing with these two is very simular and wont really matter, especially at 25K. You will regret over complicating things I think. Keep it as is and review in 2-5 years. When you do review just adjust your percentage in stocks or bonds to fit your comfort level.

Also not sure why you'd need 5% cash in that second portfolio. If you already have a cash emergency fund somewhere else that money is probably best invested. If you are hesitant to put too much money in stocks just go higher on your bond percentage.

ysette9

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Re: Schwab Account Opened - 25,000 USD to invest
« Reply #3 on: December 17, 2017, 10:51:49 AM »
I like the first three-find portfolio myself. KISS and all. Is this a taxable acccount? Do you have access to a tax-advantaged account? If yes to both I would skip the bonds in this account and stick them in a tax advantaged account instead. Or, since it is only 10% you are talking about, maybe skip the bonds all together for now.

TreeTired

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Re: Schwab Account Opened - 25,000 USD to invest
« Reply #4 on: December 17, 2017, 07:16:27 PM »
Quote
Also not sure why you'd need 5% cash

Agree.  To avoid having leftover cash I would use the mutual fund equivalent of the ETFs you have listed.  The caveat being if it is a taxable account I would not buy in right before an annual dividend is paid.

Car Jack

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Re: Schwab Account Opened - 25,000 USD to invest
« Reply #5 on: December 20, 2017, 08:12:35 AM »
Warning.....money where my mouth is......

When I started my Schwab account, I held both SCHB and SCHX.  I've since dumped SCHX and consider SCHB to be enough.  If you truly think that little, tiny companies need to be in your portfolio, then go ahead.  It's not a reason to slice and dice and make things complicated.  Just add SCHA, if you feel you must, and be done with it.

ExpatChina

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Re: Schwab Account Opened - 25,000 USD to invest
« Reply #6 on: December 28, 2017, 11:31:39 PM »
Thank you all for your advice.

I decided to go with the first allocation. Though I'm thinking I might just leave bonds at the initial 10% or $2,500 and instead beef up SCHB and SCHF for the next couple of years.

60%     SCHB - US Total Market (S&P 500)
30%    SCHF - International Market   
10%     SCHZ - Bonds

This is a taxable account by the way. I don't have a tax advantaged account of any kind. I'll be honest, I'm not really sure what to do from abroad. I find all the typical FI advice difficult to apply to my situation.

Has anyone else began and completed their FI journey from abroad?
« Last Edit: December 29, 2017, 12:15:27 AM by ExpatChina »

Radagast

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Re: Schwab Account Opened - 25,000 USD to invest
« Reply #7 on: December 29, 2017, 12:19:35 AM »
Thats fine. SCHF is large cap developed only, which excludes small and emerging market countries which have historically been less correlated to the US. You need SCHC and SCHE for those. More complicated up to you if more worth it.

Sorry I can't help with the expat situation, but I'll be joining you in China for 5 of the next 26 weeks. Can you not open an IRA if you are paid abroad?

Good choice avoiding cash. If you live in China only RMB are useful, cash is for short term needs only. Schwab recommends it so they can collect a higher fee.

lhamo

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Re: Schwab Account Opened - 25,000 USD to invest
« Reply #8 on: December 30, 2017, 08:34:19 PM »
You need to have US earned income in order to contribute to an IRA (Roth or Traditional).   If you have any business trips to the US, the income earned during your working days on those trips can be allocated to an IRA.  You have to exclude it from the Foreign Earned Income Exclusion, though, if you are claiming that.  As my DH and I both typically took 1-3 business trips to the US each year, that was how we managed to get some money into our Roths while living in China. 

If you are paying into the Chinese social security system note that it is technically possible to get YOUR contributions back if you exit the country -- you will never get your employer's contributions back, though.  It takes a pretty skilled/motivated HR person to navigate the process, though.  In my case, I paid into the system in Beijing for about 7 years and got about $7k back in the end.

MustacheAndaHalf

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Re: Schwab Account Opened - 25,000 USD to invest
« Reply #9 on: December 30, 2017, 11:47:52 PM »
Just wanted to emphasize something I think OP has missed a couple times: SCHB is not a large cap fund - it is not the S&P 500.  The fund's name is "Schwab U.S. Broad Market", and it includes 2046 stocks.

> SCHB - US Total Market (S&P 500) 

So with SCHB, you already have small cap in proportion to the market.  The bond portion is $2,500 and bond yields are about 2%, so about $50/year of bond income.  Might not be worth the trouble to find a tax-exempt bond ETF, but you could look into VTEB (Vanguard tax-exempt ETF) or SWNTX (Schwab tax-exempt ETF).

ExpatChina

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Re: Schwab Account Opened - 25,000 USD to invest
« Reply #10 on: January 05, 2018, 07:42:21 AM »
@lhamo - Thank you for your input. That was my understanding; it's good to have that confirmed. Basically my only option then is to invest in a taxable account. I won't be traveling to the US on business.

Since my taxes are going to be a bit more complicated this year, I'm entertaining the idea of an accountant. Would you have a recommendation for someone that has experience with expats?

@MustacheAndaHalf - You are correct. Thank you for pointing that out. I'll take a look at SWNTX.

One Final question for all. Would there be any benefit to investing in VTSAX from Schwab? Vanguard is always held as the ideal investing platform I feel almost sacrilegious going for Schwab ETFs instead. It is rare for anyone in the FIRE community to acknowledge Schwab as a legitimate option. I can't help but have doubts.

MustacheAndaHalf

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Re: Schwab Account Opened - 25,000 USD to invest
« Reply #11 on: January 09, 2018, 07:46:47 PM »
SCHB has a lower expense ratio (0.03%) than VTSAX (0.04%), but VTSAX contains more stocks (3624 vs 2046).  Typically a 0.01% difference won't matter, so take your pick.

Vanguard is owned by it's investors, which is not true of Schwab or Fidelity.  The only reason Schwab and Fidelity have low cost funds is to compete with Vanguard.  You can look at their full lineup to see high cost funds, and know that's where they make larger profits.  Their target retirement funds are much more expense than Vanguard's for example.