Is investing with Wealthfront a smart move? Let’s find out.
What if there was a company out there that could streamline the way that you invest your money through online software tools that are accessible anywhere you happen to be? Now, imagine that same company has more than seven years of experience, over $11 billion in assets under management with fees at only 0.25% of your assets?
Wealthfront and Betterment are those two companies. Through innovation and straightforward tools, they have transformed the way that investors do business by offering a set of easy-to-use and colorful software that’s available from anywhere. Wealthfront is the pioneer of digital wealth investing.
Including right from your mobile phone.
Investing With Wealthfront
Wealthfront takes online investment management to a whole other level.
The wide majority of their clients are young people in their late 20s to early 40s who prefer to do everything online, including investments.
All clients receive a personalized, globally-diversified investment portfolio that is managed for them when they open an account and can be managed through a few taps on a phone.
Wealthfront provides actionable recommendations to improve net-of-fee, after-tax, risk-adjusted returns — all based on clean, simple data.
With an annual advisory fee of 0.25%, users can monitor their real-time investment performance, review recent transactions, receive financial advice, and manage their deposits.
And don’t worry, they won’t hound you over the phone to set up an appointment with a financial advisor. They assume you don’t like being sold.
And, they offer a wide variety of investment features accessible through a mobile application for quick and painless access to your investments.
Wealthfront Products and Services
Everybody needs to leverage free wealth management to improve their finances. Here are some of Wealthfront’s products and services.
Free Financial Planning
Wealthfront is the first
Wealthfront provides clients with a single view of their finances today, giving them an understanding of their entire financial picture so they can make decisions that are based in fact.
They let clients explore a variety of financial scenarios to illustrate the trade-offs among their financial goals.
Wealthfront clients love how their planning gives them a leg up compared to planning with their own spreadsheet or using an online calculator.
For those people who have never built a financial plan, Wealthfront created an interactive Financial Health Guide to help them get started and answer questions they might have.
Wealthfront’s free financial planning offers answers to over 10,000 financial questions personalized for each individual. This is possible without the use of CFPs thanks to their automated financial advice engine, Path, which was built by an in-house team of PhDs.
How their free financial planning works
In contrast to having to meet with a CFP who requires an interview to collect your financial information, Wealthfront’s financial planning is based on much more accurate and up to date information that is accessed with your permission from all your financial accounts. That includes data from your bank, brokerage, 401(K), credit cards, mortgages — even accounts like Coinbase. You name it they can connect to it.
Wealthfront then combines that information with data acquired from third-party sources like Redfin and Zillow for home pricing estimates and the Department of Education for college tuition costs to calculate foundational elements like:
- Income growth
- Investment returns by asset class
- Social Security
- Tax implications
- Life expectancy
- Home equity
This enables clients to instantly explore financial questions like:
- Social Security at retirement? Wealthfront can show you the impact of the full benefit, half-benefit and no benefit of Social Security on your future plan – and how much you should be saving right now.
- How much of a down payment should I make when buying a home? Wealthfront starts by telling you how
much homeyou can afford and even what you can buy in a particular neighborhood. Then you can explore the impact of different down payment amounts on your future monthly costs.
- Can I afford extended time off? Wealthfront shows you how much time you can afford to take off from work, what it might cost to travel, and the impact it would have on your other goals like retirement.
- How much do I need to save for my child’s education? Wealthfront shows you the financial aid you can expect from any College or University in the U.S. so that it can tell you exactly how much you need to save to send your kids to college.
And because Wealthfront links directly to its clients’ finances, they never have to manually update anything. If they start saving more or get a raise, their plan automatically updates.
Investment Management On The Web
In addition to managing a personalized, diversified and rebalanced portfolio of low-cost index funds, Wealthfront offers the broadest suite among all robo-advisors of tax efficient passive investment products.
Collectively, these strategies are known as PassivePlus®, which traditionally have only been available to the very wealthy, are grounded in academic research and made possible through implementation in software.
Wealthfront’s PassivePlus® investment features include:
- Tax-Loss Harvesting: Available for no extra cost to all taxable investment accounts, daily ETF level tax-loss harvesting takes advantage of movements in the markets to capture investment losses, which can reduce your tax bill. Wealthfront is the only service to publish actual performance data on its tax-loss harvesting service.
- Stock-level Tax-Loss Harvesting: Available for no extra cost to taxable accounts over $100,000, Stock-level Tax-Loss Harvesting is an enhanced form of Tax-Loss Harvesting that looks for movements in individual stocks within the US stock index to harvest more tax losses and lower your tax bill even more.
- Risk Parity: Available for an additional 0.03% to taxable accounts over $100,000, Risk Parity is an alternative methodology to allocate capital across multiple asset classes, much like Modern Portfolio Theory (MPT), also known as mean-variance optimization. Historically, Risk Parity has generated better returns for a given level of portfolio risk than the more common MPT.
- Smart Beta: Available for no extra cost to taxable accounts over $500,000, Smart Beta is an investment feature designed to increase your expected returns by weighting the securities in the US stock index of your portfolio more intelligently.
supports a range of account types including:
- Individual, and joint and Trust non-retirement accounts
- Roth, traditional, SEP and rollover IRAs
- 529 College Savings Plan accounts
Wealthfront clients with at least $100,000 invested in a taxable account are automatically enrolled in its Portfolio Line of Credit (PLOC), which establishes a line of credit that can be instantly accessed with no paperwork or credit check for an amount up to 30% of a client’s account value. In most cases, clients can get their money in less than 24 hours.
Wealthfront is able to keep its rates below most home equity lines of credit because the PLOC is secured by clients’ diversified investment portfolios. Interest is accrued until the loan is paid off and clients are able to pay back their PLOC on their own schedule. The company knows of no other consumer loan that is faster, easier or less expensive to access.
Investing With Wealthfront A Smart Move
Wealthfront is revolutionizing the way everyday people invest their money in 2008. Now many financial advisors have followed suite. But it’s always best to go with the original, who has technology as part of their DNA.
Too many people hold too much cash because they simply don’t know how to invest their money intelligently. Over time, this cash drag hurts returns and causes investors to miss out on positive compound gains over the years.
Wealthfront’s mission is to lower the bar enough to make investing accessible to everyone who wants to build wealth through a combination of patience and sound money habits.
In the past, you’d have to come up with at least $1 million to have the privilege of paying a 2% – 3% fee each year ($20,000 – $30,000!) to have someone manage your money. Now, you can pay just 0.25% and start with just $500 with Wealthfront.
Technology and the internet is a boon for consumers. I’ve researched and followed Wealthfront since the beginning and I highly recommend Wealthfront as a low-cost, after-tax retirement solution.
To use the best free financial tools on the web, sign up for Personal Capital. They are a hybrid digital wealth advisor if you want to move beyond the free tools in the future.
About the Author: Sam began investing his own money ever since he opened an online brokerage account in 1995. Sam loved investing so much that he decided to make a career out of investing by spending the next 13 years after college working at two of the leading financial service firms in the world. During this time, Sam received his MBA from UC Berkeley with a focus on finance and real estate.