Since 2008, Wealthfront has lead the pack in innovation when it comes to automated investments, and their newest offering promises to up the ante for those who are serious about investing.
They now have over $13 billion in assets under management and rapidly growing thanks largely to word-of-mouth. They are the preferred digital wealth advisor for the 20 – 50 crowd.
Further, Wealthfront is so popular because the first $5,000 under management that you invest is free with my promotional link, and they only charge 0.25% of your assets under management each year compared to 2% – 3% for traditional wealth advisors like Merrill Lynch and JP Morgan.
After signing up, you get to see their model portfolios customized based on your questionnaire and risk tolerance completely free.
If you choose to have Wealthfront manage your money, you only need to start with $500. If you were to go elsewhere to get most of the services Wealthfront, such as tax-loss harvesting, Direct Indexing, Tailored Transfers
Wealthfront clients build a personalized financial plan, invest and use banking services all with a few taps on their phone (Wealthfront’s iOS app is the highest rated financial app in the app store) or on a desktop.
And, they’ve just released a collection of new features that make it easier to automate your investment picture.
What are Wealthfront’s most unique new features?
Wealthfront has always had a wealth of features for investors that make building wealth less of a mystery. Their newest offerings include:
- Free software based financial planning powered by its automated advice engine, Path, that instantly gives answers to over 10,00 financial questions
- PassivePlus® investment features that are not offered by other automated advisors including Stock-Level Tax-Loss Harvesting, Smart Beta and Risk Parity
- Portfolio Line of Credit that allows clients to borrow faster, easier and less expensively than from other providers
- Easy transfers that allow you to transfer cash or stock into and out of Wealthfront quickly and for free
One of my favorite features is PassivePlus®, which is the broadest suite among all
These investment strategies are grounded in academic research and made possible through 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.
- 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.
Other Great Wealthfront Features
Automated Portfolio Rebalancing
Portfolio rebalancing keeps your allocations amongst stocks, bonds, and different sectors in balance over time. This is key to ensuring diversification. This feature is done with software automatically on a daily basis to continually buy some assets when they are low and sell others when they are high. No longer do you have to worry about constantly ensuring you have a properly balanced portfolio.
Automated Tax-Loss Harvesting
Each year, you are allowed to take capital losses to reduce your taxable income in that year. The amount you can write off depends on your income level, but the number most often referred to is $3,000. Financial advisors usually review your portfolio near the end of the year and will sell some losers to help you meet this deduction. Wealthfront offers this feature to all clients at no added cost.
Tax-Level Tax-Loss Harvesting
When it comes to optimizing earnings in taxable accounts, Wealthfront focuses on Tax-Level Tax-Loss Harvesting as a way to improve the results of tax-loss harvesting while also keeping fees at a minimum. Here’s how it works: Instead of using ETFs or Index Funds to invest in U.S. stocks,Tax-Level Tax-Loss Harvesting directly purchases up to 1,001 individual securities on your behalf.
This strategy allows you to fully take advantage of the advanced tax-loss harvesting opportunities available through the movement of individual stocks – a move which will hopefully lead to greater gains overall. Combined with their Daily Tax-Loss Harvesting service, Wealthfront believes it could add up to 2.03% to your annual earnings.
Tailored Transfers are a key component of our Portfolio Review and a service that no other advisor — robo or human — offers. If you want to switch advisors or move your brokerage holdings into a diversified portfolio, you typically have to sell all your holdings and move in cash. This means you will more than likely have a large tax bill. Instead of selling your holdings, we will directly transfer them into a diversified portfolio tax efficiently, saving you that tax bill.
529 College Savings Plan
Their 529 College Savings Plan is another investment account unique to Wealthfront.
A 529 College Savings Plan allows investments to grow and compound tax free until the money is used for grade school tuition or university tuition.
Being able to pay for grade school tuition with a 529 plan is new from the 2018 Tax Reform Plan.
Why use Wealthfront?
If you want an easy way to build a financial plan, invest and borrow on your own time without having to dial into a CFP call center, then Wealthfront is a great solution for you. The company focuses on delivering its services solely through software so they’ll never call or bother you. Additionally, they add new features and capabilities at a rapid rate, which means the service constantly gets better over time.
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.
Although Wealthfront is good, I think Betterment is even better for the new decade. Give Betterment a go yourself.
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.