CHARLES SCHWAB Managing College Costs Hidden ETF Fees Maximizing Charitable Giving Page 7 Page 18 Page 34 ONWARD INSIGHTS FOR CLIENTS INVESTED IN THEIR FINANCIAL FUTURES | WINTER 2019 READY FOR ANYTHING FOR READY WINTER 2019 WINTER Ready for Anything How to keep your financial plan on track—wherever the road may take you. Page 30 Dear Client, Numerous studies have shown that those who create and stick to a financial plan achieve significantly more wealth than those without a plan. Of course, any plan is only as good as the assumptions that underpin it. If those assumptions are wrong, your goals could suffer. On page 30, we examine seven incorrect assumptions investors often make—and provide tips for addressing them. Onward aims to provide insights that help you create and sustain a healthy financial life, so elsewhere in this issue you’ll find stories on combating increasingly sophisticated phishing scams (page 6), the impact of the Tax Cuts and Jobs Act on charitable giving (page 34) and guidance for starting a business in retirement (page 38). If you need help creating or reevaluating your financial plan, I encourage you to reach out to us at 877-297-1126. We welcome every opportunity to help you achieve your goals. Sincerely, Jonathan Craig Senior Executive Vice President See page 46 for important information. (1119-9XJK) Winter 2019 CONTENTS 5 16 27 30 DEPARTMENTS FEATURES 2 SCHWAB ORIGINALS PERSPECTIVES 27 Living Your Best Financial Life Listen, watch and learn. 13 FAQs about employer stock Founder and Chairman options. Charles R. Schwab on creating a By Chris Kawashima sustainable financial future. 3 CEO’s NOTE Learning from the best. 16 The case for actively managed By Walt Bettinger bond funds. 30 Financial Fault Lines By Collin Martin Seven faulty assumptions that could derail your savings goals— THE BOTTOM LINE 18 Ferreting out hidden ETF fees. and how to avoid them. 5 The limits of auto-enrollment By Emily Doak workplace retirement plans. 34 Give and Ye Shall (Still) Receive 6 Outsmarting new phishing 20 THE BIG PICTURE Tax reform upended the incentives scams. Market downturns are for charitable giving. Here’s how to inevitable. Your response is not. keep making a difference. 7 A collaborative approach to college costs. 23 TRADING 38 Redefining Retirement 8 The rise of actively managed How Bollinger Bands® can help Leveraging a lifetime of experience exchange-traded funds. predict a stock’s next move. can spell success for older By Lee Bohl entrepreneurs. Here are five steps 9 Making the most of workplace to get you started. benefits. 42 SPOTLIGHT Schwab Bank’s Pledged Asset Onward (ISSN 2330-3514) is published quarterly. This 11 FAMILY MATTERS Line®; Schwab Intelligent publication is mailed at Standard A postal rates. ◆ If you Beware the generation-skipping Portfolios Premium™; Schwab prefer not to receive Onward, please call 877-908-0065. ◆ ® POSTMASTER: Send address changes to Onward, transfer tax. Advisor Network . Charles Schwab & Co., Inc., P.O. Box 982600, El Paso, TX 79998-2600. Onward does not assume any liability resulting from actions taken based on the information included 48 ON YOUR SIDE in this magazine. Mention of a company or security does not constitute endorsement. Some contributors to Giving made easy. Onward may have active positions in securities or companies By Charles R. Schwab discussed in this issue. MAG105674Q419-00 ON THE COVER: ILLUSTRATION BY MICHELE MARCONI WINTER 2019 | ONWARD | 1 SCHWAB ORIGINALS Listen Watch In Schwab’s new Chuck Schwab reflects WashingtonWise on Schwab Charitable’s Investor™ podcast, host 20th anniversary— Mike Townsend takes plus, several generous a nonpartisan look at donors explain how the policy and political they’re using their donor- news that matters most advised fund accounts to markets—and expert to make a bigger guests share actionable charitable impact at investment insights. schwabcharitable.org/ Listen and subscribe 20stories. at schwab.com/ washingtonwise. Learn Follow A flower shop and a Fixed income barbecue joint have more @kathyjones in common than you International might think. See how @jeffreykleintop Schwab Bank’s loan Markets and economy to small-business lender @lizannsonders Opportunity Fund Personal finance creates a tangible @carrieschwab impact for underserved communities at Research aboutschwab.com/ @schwabresearch our-communities. Trading @randyafrederick 1119-9GM1 Joe Carberry Mark W. Riepe, CFA® Sara Smith Senior Vice President, Senior Vice President, Editor in Chief Communications & Schwab Center for Owned-Channel Marketing Financial Research Jeremy Hartley and Community Managing Editor Tamar Dorsey Helen Loh Vice President, Stacia Miller Senior Vice President, Brand Journalism Associate Managing Retail Client & Editor Owned-Channel Marketing AMARGO PABLO BY ILLUSTRATIONS 2 | CHARLES SCHWAB | WINTER 2019 CEO’s NOTE W hen I assumed the responsi- Indeed, when I asked him what I Learning bilities of CEO of The Charles should focus on during my tenure as Schwab Corporation in 2008, I knew CEO, I expected a typical response: F rom the Best I had some big shoes to fill. Chuck grow client assets, or reduce operating Schwab, as both a person and a leader, expenses, or get the stock price up. But What Chuck Schwab has is a force to be reckoned with. He Chuck isn’t your typical businessman. taught me about business— cares deeply about our clients, and “Do your part to make sure Schwab is a and people. when faced with competing business strong, independent company 50 years decisions, he will always choose the from now,” he said, “because investors one that benefits investors—even if deserve a firm that’s on their side.” that means turning our business model Our team recently sat down with on its head. Chuck to talk about what it took to build and grow the company that bears his name, as well as what he When faced thinks are the keys to becoming a with competing successful investor. Read the interview business on page 27. If I had to distill all I’ve learned decisions, Chuck from Chuck into a single sentence, it will always would be this: Doing what’s best for choose the one the client is always the right business that benefits decision. It’s such a simple idea, and yet investors. it’s ultimately what sets Chuck—and Schwab—apart. Sincerely, Walt Bettinger President & CEO See page 46 for important information. (1119-9UHT) WINTER 2019 | ONWARD | 3 Schwab Intelligent Portfolios® Automated investing with human help when you need it. Our robo-advisor builds, monitors, and automatically rebalances a diversified portfolio based on your goals. Access live support from U.S.-based service professionals 24/7. Start with as little as $5,000. Get your portfolio recommendation in minutes. Learn more at schwab.com/automatedinvesting. Brokerage Products: Not FDIC-Insured • No Bank Guarantee • May Lose Value Please read the Schwab Intelligent Portfolios Solutions™ disclosure brochures at schwab.com/intelligentdisclosurebrochure for important information, pricing, and disclosures related to the Schwab Intelligent Portfolios® and Schwab Intelligent Portfolios Premium™ programs. Schwab Intelligent Portfolios® and Schwab Intelligent Portfolios Premium™ are made available through Charles Schwab & Co., Inc. (“Schwab”), a dually registered investment advisor and broker-dealer. ©2019 Charles Schwab & Co., Inc. All rights reserved. Member SIPC. CC3261950 (0419-9APC) ADP108010OW-00 (08/19) 00234397 160157_2019_Q3_OW_ADP108010OW-00_DPCM-IP_SIP.indd 1 8/21/19 5:01 PM CONTENTS RETIREMENT PLANS | PHISHING SCAMS | COLLEGE COSTS | ACTIVELY MANAGED ETF s | AND MORE Sure-Fire Savings Auto-enrollment in workplace retirement plans couldn’t be easier—but is it enough? A ccording to research from the Pew Charitable Trusts, companies that auto-enroll employees in workplace retirement plans such as 401(k)s have participation rates that exceed 90%—well above the 50% for opt-in plans. Unfortunately, many savers leave their contributions set at the default rate, ILLUSTRATION BY MAXIME MOUYSSET MAXIME BY ILLUSTRATION which averages just 3.4% nationwide. That’s substantially lower than the WINTER 2019 | ONWARD | 5 THE BOTTOM LINE amount workers need to contribute to receive the maximum company match, which averages 5.1% nationwide.1 “And even that is about half what workers should be socking away each year to adequately fund their retirement,” says Mark Riepe, senior vice president at the Schwab Center for Financial Research. For example, imagine someone who makes $80,000 per year, contributes 3.4% to her 401(k) and receives an equal amount from the employer’s match, and earns 6% annual returns. After 30 years, she would have saved $457,657 for retirement. Increasing her contribution rate—and therefore Next-Level Phishing the employer’s match—to 5.1% would boost the total portfolio value by 50%, How to protect against increasingly to $686,486.2 sophisticated scams. However, even saving enough to get the full company match might not be raudsters are increasingly using phone calls and text adequate, Mark cautions. For example, F messages to steal logins, passwords and other personal someone who expects to withdraw information, putting people’s financial accounts at risk. $40,000 in the first year of a 30-year “The criminals are doing their homework,” says Kara Suro, retirement—and then increase their vice president of fraud surveillance and investigations at Charles withdrawals annually to account for Schwab. “They continue to find ways to trick people into providing inflation—should aim to amass a port- information via phone or text.” folio of about $1 million if they want Such schemes follow a typical pattern: The scammer sends a text to be highly confident their money message to the potential victim asking if he or she made a specific will last. “That’s why we advise saving purchase. If the victim responds “no,” the fraudster follows up with at least 10% of your annual pay, to give a phone call claiming to be from the victim’s financial institution you more cushion,” he says.