Launched in 2008, Wealthfront was one of the first companies on the market to offer automated investing. You might be wondering whether you should investment your money with Wealthfront for retirement. Let me share my thoughts as a personal finance expert since starting this site in 2009.
Wealthfront built the broadest suite of services among
- Free financial planning,
- Investment management
Why is Wealthfront so popular?
They charge only 0.25% of your assets under management each year. Compare that to 1% – 3% for traditional wealth advisors like Merrill Lynch and JP Morgan.
Why Should I Invest With Wealthfront For Retirement?
Wealthfront is just a different kind of company. They focus on forward-thinking young people in their late 20s to early 40s who prefer to do everything online. But now they are free for investors of all age groups who want to lower their investing costs and simply life.
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 data-driven, actionable recommendations to improve net-of-fee, after-tax, risk-adjusted returns. 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.
If you’re interested in automated investing and don’t want to be hounded to speak to a certified financial planner, Wealthfront is the opportunity that you are looking for.
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
Free Financial Planning
In December 2018, Wealthfront became the first robo-advisor to offer software-based financial planning for free to anyone through their app or online.
This is very different from other services that only offer planning to clients who open an investment account first, charge a premium for it and deliver it through a call with a CFP.
Wealthfront provides clients with a single view of their finances today, giving them an understanding of their entire financial picture so they can make informed decisions. 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 does Wealthfront’s free financial planning work?
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:
- How much Social Security should I plan to take 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 big of a down payment should I make when buying a home? Wealthfront starts by telling you how much home you 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 take extended time off from work to travel? 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 tuition should I plan to cover for my kids’ college? 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. Check out Wealthfront’s 529 college savings plan.
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.
In addition to managing a personalized, diversified and rebalanced portfolio of low-cost index funds, Wealthfront offers the broadest suite among all
These strategies 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 didn’t invent these strategies, but its team of PhDs led by renowned economist Burton Malkiel and technology has made them available to a newer generation of investors.
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.
Tax Loss Harvesting In More Detail
Tax loss harvesting is very important for return optimizaiton.
Wealthfront quantify the effectiveness of our ETF level daily tax-loss harvesting service by calculating its annual “harvesting yield.” Harvesting yield measures the quantity of harvested losses (short- or long-term) during a given period, divided by the value of the portfolio at the beginning of the period. The ultimate benefit each client will receive will depend on the riskiness of their portfolio and their particular tax rate.
The table below displays the actual average annual harvesting yield for the year in which clients first started using our tax-loss harvesting, known as the “client vintage,” and their portfolio risk score.
The vintage is a fixed client characteristic, but clients can actually move across risk score groupings based on their risk score on a given day in the sample. The data includes all tax losses harvested through December 31, 2018.
Wealthfront offers its investment services through 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.
Wealthfront Enables Online Wealth Management For Everyone
After 13 years working in the finance industry for large banks such as Goldman Sachs and Credit Suisse, it’s clear to me that Wealthfront is revolutionizing the way everyday people can get better wealth management services.
Too many people are cashed up because they don’t know how to invest or where to start. Wealthfront has lowered the bar so that anybody with 5 minutes of initiative can get started.
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.
Personal Capital has the best free financial tools to manage your net worth. Betterment is an even larger, more sophisticated version of Wealthfront.
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.