Wealthfront Review

2018-08-22T17:00:33+00:00
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In a crowded field of robo-advisors, Wealthfront has quickly emerged as one of the most trusted and sophisticated investing platforms on the market. Wealthfront began in 2011 as a San Francisco startup and now has over $9.5 billion in assets under management. (That’s far more than most other robo-advisors aside from Betterment, which has more than $10 billion AUM!)

What makes Wealthfront so popular? Much of Wealthfront’s success can be attributed to their ability to attract new clients with all types of investing backgrounds. Are you a millennial or new to investing? Wealthfront makes it easy to get started by offering a 0% management fee for customers with account balances of less than $5,000. Are you a more experienced investor with a larger portfolio? They’ve got you covered too! Wealthfront offers advanced features such as daily-tax loss harvesting and direct indexing that can boost annual investment returns at a very affordable price.

All in all, Wealthfront has positioned itself as the go-to robo-advisor for any investor by taking complex investing strategies and making them effortless and extremely affordable.

Of course, Wealthfront isn’t the only robo-advisor that has streamlined the investing process while reducing costs. There are many to choose from! So, let’s try to narrow down the choices by taking a look at what Wealthfront has to offer.

How Much Does Wealthfront Cost?

Let’s start with the first question on everyone’s mind – what’s it gonna to cost me?

Wealthfront offers a flat 0.25% annual advisory fee that is sure to entice new investors. Their annual fee is extremely favorable compared to fees charged by traditional financial advisors who demand up to 1.12% for to manage portfolios of $100,000. And for the sake of comparison, Wealthfront’s primary competitor, Betterment, also charges 0.25% for its baseline service.

Right now, Wealthfront will manage your first $5,000 for free! To qualify, you must deposit at least $500 into a new Wealthfront account. Plus, if you invite friends and they fund their account, you’ll both receive an extra $5,000 managed for free!

Investment Account Types

Depending on your personal and financial situation, you might benefit from opening one or more account types. Wealthfront will provide a recommendation for the account that’s right for you. Currently, Wealthfront supports the following types of accounts:

  • Traditional IRA
  • Roth IRA
  • SEP IRA (single participant only)
  • Individual taxable accounts
  • Joint taxable accounts with rights of survivorship
  • Trust accounts
  • 529 College Savings

Wealthfront also makes it easy to transfer an outside account into Wealthfront. For starters, Wealthfront doesn’t charge any fees to transfer investments from another firm to your Wealthfront account. (But keep in mind, your other firm may charge an account-closing and/or transfer fee.)

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If you’re transferring a taxable account, you may also benefit from Wealthfront’s Tax-Minimized Brokerage Account Transfer service. This service minimizes taxes by strategically incorporating your assets into your Wealthfront portfolio in stages based on several factors. For example, Wealthfront will defer the sale of any assets with short-term capital gains until they become long-term in order to avoid paying more tax than necessary on the sale. 

Wealthfront’s Investing Philosophy

Wealthfront promo

Wealthfront has assembled a team of world-class financial experts who are on a mission to continually improve Wealthfront’s investment strategies. In fact, legendary economist – and author of A Random Walk Down Wall Street – Burt Malkiel, serves as Wealthfront’s Chief Investment Officer.

Wealthfront’s experts believe that picking stocks and chasing market fluctuations is a fool’s errand. Instead, they contend that the best results come from taking a passive approach to investing by parking your money in a diversified portfolio of low-cost index funds.

And the research backs it up.

Rather than trying to predict the unpredictable, Wealthfront focuses on optimizing things that investors can control. Namely, choosing low-cost investments to minimize fees, strategically lowering tax obligations, and creating a diversified portfolio to manage risk.

Wealthfront’s PassivePlus® Investment Features

Wealthfront has developed a suite of investment features designed to deliver increased returns for all investors. Best of all, these tools are hands-off and are included at no extra charge. Here are the details:

Daily Tax-Loss Harvesting

Wealthfront’s automated Daily Tax-Loss Harvesting feature seeks out opportunities to take advantage of shifts in the market to generate tax savings. When an EFT in your portfolio drops in value, Wealthfront will sell that ETF at a loss and replace it with another highly correlated ETF. The result is that you can use the capital losses to offset ordinary income and investment gains without changing your portfolio’s risk profile. This feature is available to all customers with taxable investment accounts at no additional cost. 

Stock-Level Tax-Loss Harvesting

Wealthfront’s Stock-Level Tax Loss Harvesting feature (formerly known as Direct Indexing) is a more granular version of Tax-Loss Harvesting. While Tax-Loss Harvesting looks for movements in a single ETF or Index Fund, Stock-Level Tax-Loss Harvesting purchases the individual stock that comprise an ETF and looks for tax-loss harvesting opportunities presented by the movement of those individual stocks. This feature is available to customers with taxable accounts between $100K and $500K.

Smart Beta

Smart Beta is a multi-factor model that is designed to increase your returns by taking a more strategic approach to weighting the securities in your portfolio. Unlike traditional approaches that simply track the index, Smart Beta analyzes six factors to determine the weighting of stocks in your portfolio. Those factors are – market capitalization, value, momentum, dividend yield, market beta and volatility. Smart Beta is available for no extra charge to customers with taxable account balances of more than $500K.

Risk Parity

The Wealthfront Risk Parity Mutual Fund is a proprietary mutual fund that is designed to increase your risk-adjusted returns. In short, the strategy addresses risk concentration by equalizing the risk contributions of each asset class. To learn more about this strategy, check out Wealthfront’s White Paper. The bottom line, according to Wealthfront, is that portfolios constructed according to this approach have historically outperformed portfolios created using more traditional methods.

Here’s what you really need to know about Risk Parity. As soon as your taxable investment account balance reaches $100,000, you’re automatically enrolled in this strategy. If you don’t want exposure to the Risk Parity Mutual Fund or its higher expense ratio of 0.25%, you must affirmatively opt-out.

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Wealthfront’s Other Noteworthy Features

Path

One of Wealthfront’s more sophisticated and addictive features is called “Path.” Path is an intuitive planning tool designed to help users understand how life changes will impact their financial needs and goals. Path is offered at no extra cost and can help users plan for major life events such as retirement, homeownership, or sending children to college.

Once you’ve linked your outside bank and investment accounts to Wealthfront, Path will analyze your financial habits to develop a personalized plan to help you achieve your financial goals. What’s great about Path is that its recommendations are based on a real-time view of your finances. That means Path can automatically adjust its recommendations whenever your financial situation or goals change.

Am I saving enough money right now? How much sooner can you retire if you increase your monthly savings by $50? What will it take to buy the house you want in three years? You don’t have to wonder about life’s “what ifs” – those goals and dreams that seem so far away, Path makes them tangible and less intimidating.

529 College Savings Plan

In 2016, Wealthfront became the first robo-advisor to launch its own 529 plan. For the most part, the Wealthfront 529 College Savings Plan operates just like any other 529 plan. It offers federal tax-free earnings growth, flexibility of ownership and favorable financial aid treatment. There are, however, a few twists that users should be aware of. The most notable is Wealthfront’s initial contribution requirement of $500. That’s more than the required minimum deposit for almost all direct-sold plans and many advisor-sold plans. And since the plan is sponsored by the State of Nevada, users should also do their homework and make sure they don’t miss out on tax savings if they happen to live in one of the 28 states that incentivizes residents to contribute to their home state’s 529 plan.

Portfolio Line of Credit

Users with at least $100,000 in their account can take out a line of credit against their investments and borrow up to 25% of their portfolio’s current value. Unlike applying for a Home Equity Line of Credit (HELOC), users don’t need to complete an application, undergo a credit check, or pay any special fees. Currently, Wealthfront charges interest between 4.05% and 5.30% APR.

Automatic Portfolio Rebalancing

Wealthfront continuously monitors your portfolio and will rebalance your portfolio’s holdings when each asset class has drifted from its target allocation by a specified percentage. Rather than relying on a set schedule, this approach depends on the performance of each of your asset classes. Wealthfront also uses deposits, withdrawals, and dividend reinvestment as interim opportunities to rebalance and minimize taxable gains that can arise from threshold-based rebalancing.

Screenshots

Wealthfront’s streamlined interface (which can be accessed via smartphone, desktop or tablet) is so easy-to-use that users may forget how sophisticated the platform truly is. Wealthfront’s simple tools make it easy for users to manage their investment accounts from any device.

Pros

  • Low Management Fees. Wealthfront’s flat annual fee of 0.25% is very competitive, especially when you factor in the premium features Wealthfront offers at no extra charge.

  • Wealthfront Promo. Get your first $5k managed for free when you sign up and fund your account. Plus, Wealthfront will waive fees on an additional $5k every time you refer a friend who signs up!

  • Financial Planning Tools. Wealthfront’s sophisticated financial planning tools analyze your linked accounts and spending patterns to help users plan for buying a house, retirement, college and general savings goals.

  • Tax-Loss Harvesting. Ideal for investors with large taxable account balances who can benefit from Wealthfront’s daily tax-loss harvesting feature.

  • 529 College Savings Plan. Wealthfront stands alone in the robo-advisor space in offering a 529 savings plan, which is a parent’s number one way to save for college.

Cons

  • No Fractional Shares. Wealthfront doesn’t buy fractional shares of ETFs, which means Wealthfront isn’t always able to invest your entire deposit.

  • Cash Balance. Wealthfront sets aside a cash balance to cover the fees you’re projected to owe over the next year. While this practice isn’t uncommon with brokerage accounts, unfortunately it can result in a small level of cash drag.

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Is Wealthfront Right for You?

No two people have the same financial background or goals. So, I can’t promise you that Wealthfront is the right robo-advisor for you. But I can tell you that Wealthfront is the right robo-advisor for me! Here’s why.

When I started looking for a robo-advisor, I wanted a platform that shared my slow and steady wins the race approach to investing. I’m a passive investor who believes in buy-and-hold for the long-term and hates investing fees. I wanted a truly automated investing experience that offered EFT selection for diversification, automatic portfolio rebalancing, and automated tax-loss harvesting.

Wealthfront checks each of those boxes.

It isn’t hard to see why Wealthfront is clearly at the top of the robo-advisor pack. Wealthfront’s impressive investing tools along with their low fees, retirement and goal-based planning tools, user-friendly design were exactly what I was looking for in a robo-advisor. If you’re like me and want to I want to know you’re your investments will be working in the most efficient manner, Wealthfront might be your best bet!

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About the Author:

Cato
Hi, I'm Cato! I'm an attorney with a passion for fantasy baseball, burritos, and investing! I also paid off over $86k in student loan debt in under four years while aggressively investing for my future. Subscribe if you want to learn more about mastering your finances so you can live the life you want!