Wealthfront is a robo-advisor that offers low-cost investing for those who want to invest in stocks and bonds. The company has an excellent track record, but it’s worth noting that not all of its offerings are available to everyone.
The wealthfront reviews is a robo-advisor that offers low-cost investment management for individuals and small businesses. It also provides financial planning, retirement, and education services.
With over $20 billion in assets under management (AUM) and a platform that serves over 400,000 clients, Wealthfront is one of the largest robo-advisors in the United States.
Many personal financial websites have ranked Wealthfront as a top robo-advisor. This rise in reputation has enabled it to substantially expand its customer base and establish itself as a major player in the investment management industry.
Wealthfront’s Self-Driving MoneyTM concept promises to maximize how individuals use and invest their money, and the company offers a variety of money management solutions, including cash accounts, investment accounts, and retirement accounts.
What is Wealthfront, exactly?
Wealthfront is a California-based financial management company that offers robo-advisory services. It was founded in 2008. These services (unlike conventional in-person investing advising) use algorithms and artificial intelligence to identify the best portfolio allocation for each client depending on their financial objectives.
Wealthfront had just $97 million in assets under management in 2013, indicating that in only seven years, the company has managed to attract more than $19 billion in money from clients, indicating that the passive, long-term investing sector is rapidly changing and increasing.
Wealthfront’s value proposition is to make managing their customers’ money easier by providing a suite of low-cost cash management and investing solutions that relieve the burden of managing the financial products they select while also lowering their tax bill.
What Is Wealthfront and How Does It Work?
Wealthfront’s goods and services may be broken down into four categories:
A cash account offered by Wealthfront provides an estimated 0.35 percent annual percentage yield (APY), which the company claims is at least five times greater than the national average as monitored by the Federal Deposit Insurance Corporation (FDIC).
This account requires a one-time $1 deposit to establish, but it does not levy a monthly service fee. Other essential costs are also eliminated, including withdrawal and debit overdraft fees, excess activity fees, and stop payment fees. Furthermore, ATM transactions are free at over 19,000 locations.
Green Dot Bank provides this account, which is insured by the FDIC up to $1 million (Wealthfront is not a bank itself).
Wealthfront’s robo-advisory investing service is based on the company’s PassivePlus® investment approach, which focuses on low-risk, long-term passive investments that, according to Wealthfront, may provide consistent returns over time.
Without Wealthfront’s help, duplicating this approach would take approximately 900 transactions per year, 150 hours of effort, and almost $6,000 in trading costs, according to Wealthfront.
Wealthfront’s low-cost strategy is one of its most attractive features. They offer yearly advising fees as low as 0.25 percent for portfolios maintained with the company, which they claim is less than a fourth of the industry average of 1%.
In addition, the investor must pay a fund fee, which is determined by the cost ratios of the financial instruments used to construct portfolios. This charge varies from 0.06 percent to 0.13 percent of a portfolio’s total value.
The minimum deposit needed to establish an investing account with Wealthfront is $500 at the time of writing.
As long as their account balance is more than $25,000, Wealthfront enables investors to get a credit line secured by their investment account.
The interest rate on this credit line ranges from 2.45 percent to 3.70 percent, depending on the size of the account, and the application procedure is quick and easy to complete using Wealthfront’s mobile app.
Clients may borrow up to 30% of their accounts while repaying the loan on their own timetables, and money are often deposited within one working day.
However, any substantial drop in the value of a client’s investment portfolio may result in the liquidation of part of their assets in order for Wealthfront to maintain a minimum cash equity as a protective precaution.
Wealthfront’s planning services are designed to assist customers accomplish one of four objectives:
- Purchasing a house
- Early retirement
- Going on a vacation
- Putting money aside for college
The firm’s algorithms are intended to predict the long-term effect of various financial choices on customers’ long-term objectives. Different goods collide and are altered as a result of these changes.
For example, if a client chooses to purchase a house but has previously established a retirement account with a certain objective, the progress toward that goal will be adjusted after accounting for the effect of taking out a mortgage or withdrawing a particular amount to fund the downpayment.
The homeownership planner determines the effect and feasibility of purchasing a house using a set of criteria that predicts the mortgage’s influence on the client’s budget and qualifies the purchase based on the outcome.
The early retirement planner calculates the amount of money that must be saved and the quantity of monthly contributions that must be made to reach a certain goal, taking into consideration that the funds will be invested over time and will produce a particular compounded return.
Finally, the vacation and college planning tools enable the user to establish specific objectives and estimate the monthly contribution required to achieve them based on the information supplied.
Types of Account
Wealthfront provides both individual and joint accounts for cash and investment accounts to clients who are 18 years old or older and have a valid Social Security Number (SSN). There are also trust accounts accessible.
Wealthfront offers Traditional IRAs, Roth IRAs, SEP IRAs, and rolled-over 401(k)s for retirement accounts.
Finally, Wealthfront offers a college savings account (known as a 529 College Savings Plan Account).
Creating a Bank Account
The whole process of opening an account with Wealthfront may be done online and should take no more than a few minutes.
The first step is to go to the website and select the “Get Started” button in the upper-right corner to create an account.
The user will then be led to a page that outlines the following actions they must do in order to create an account successfully.
Following that, the user must fill out some basic contact information as well as a questionnaire, which will be utilized by the robo-advisor algorithms to identify the best portfolio allocation based on the client’s financial objectives and current financial condition.
The next step is to review the robo-investment advisor’s strategy, which gives a comprehensive description of what the company will do with the money invested (such as which financial products will be bought and why along with the risks involved).
Finally, after the user has agreed to the investment strategy, the money must be sent to the account. At the time of writing, Wealthfront accepts ACH bank transfers.
At the time of writing, the minimum deposit for Wealthfront investment accounts was $100, while the minimum deposit for cash accounts was $1. Within one to three business days, these deposits are usually reimbursed.
In addition, 401(k) rollovers must be completed according to the website’s guidelines.
Advantages of Wealthfront
Wealthfront has a lot of cool features, including tax loss harvesting and portfolio rebalancing, which we’ll go over in detail below.
Wealthfront’s algorithm uses the PassivePlus® investing strategy to sell financial instruments that have generated a negative outcome in order to claim the capital loss tax credit.
This tax credit may be used to offset the capital gains tax produced by liquidating ETFs, and the tax credit can then be reinvested to create further profits by purchasing new ETFs.
Wealthfront says that by doing so, the portfolio’s total return would improve by 0.58 percent to 1.07 percent each year. Due to a number of technical taxes and investing issues, the difficulty of implementing this approach would be out of reach for novice investors.
Tax Loss Harvesting at the Stock Level
Wealthfront’s unique PassivePlus® investing approach, which aims to increase returns over time, includes a stock-level tax-loss harvesting scheme.
Rather of purchasing an ETF, this approach takes use of the numerous tax-loss harvesting opportunities provided by owning individual companies that make up a broad-market index (such as the S&P 500). (which is a basket of stocks that trades as a single instrument).
The stock-level tax-loss harvesting tool rapidly takes advantage of the losses incurred by specific particular equities to offset the tax bill for the current year by using sophisticated algorithms.
This function, on the other hand, is only accessible for taxable accounts with a balance of $100,000 to $500,000.
Parity of Risk
Risk parity is a characteristic that is related to Modern Portfolio Theory (MPT), which attempts to produce the greatest risk-adjusted return possible from a mix of various asset classes including bonds, equities, commodities, and others.
Risk parity, on the other hand, seeks to provide each asset class in the portfolio the same risk-adjusted weight. Studies indicate that by doing so, the portfolio may generate better returns than Modern Portfolio Theory (MPT).
However, according to Wealthfront, using this feature makes it more difficult to properly allocate tax credits received through the tax-loss harvesting feature, and it also limits the account holder’s borrowing capacity due to increased portfolio volatility beyond what Wealthfront considers acceptable.
This Risk Parity Fund may account for up to 20% of the total value of the client’s portfolio.
Smart Beta (smart beta) is a
Wealthfront’s Smart Beta function utilizes a collection of five distinct indicators to predict how money may be better distributed in the companies that make up the S&P 500.
Traditionally, the weight of each stock in this broad-market index is determined by its market capitalization, which implies that the larger the company, the greater its weight in the index.
Market capitalization is not the most effective criteria for determining the weight that each individual business should have on the index, according to research, which is one of the major reasons why consumers may benefit from utilizing the Smart Beta function.
Users who opt-in to utilize Smart Beta will not be charged an additional cost, and it may be used in conjunction with the stock-level tax-loss harvesting add-on to get even more advantages. It is, however, only accessible to customers with a portfolio balance of more than $500,000.
Wealthfront’s robo-advisory service often builds portfolios out of exchange-traded funds (ETFs) (with the exception of the Smart Beta portfolio). (ETFs are financial products that represent the value of a basket of equities, typically in order to replicate the returns of a benchmark index.)
Wealthfront analyzes the ETF market on a regular basis to find the best products based on their cost ratios, portfolio turnover rate, and ability to replicate the performance of the benchmark they follow.
The ETFs utilized by Wealthfront to expose its customers’ portfolios to various asset classes as of July 2020 are as follows:
- Stocks in the United States – Ticker: (VTI)
- Stocks from other countries – ticker: (VEA)
- Ticker: Emerging Markets (VWO)
- REITs (Real Estate Investment Trusts) – Ticker: (VNQ)
- Ticker: Natural Resources (XLE)
- Ticker: US Government Bonds (BND)
- TIPS – TIPS – TIPS – TIPS – TIPS – TIP (SCHP)
- Municipal Bonds (Municipal Bonds) – Ticker: (VTEB)
- Ticker: Dividend Stocks (VIG)
While Vanguard manages the majority of the ETFs utilized by Wealthfront, the firm expressly states that it does not get remuneration for using these ETFs in its portfolios.
Furthermore, although the above are Wealthfront’s main ETFs, they also have a list of secondary ETFs for their tax-harvesting schemes, since US tax law prohibits tax credits from being claimed if the same financial asset is sold at a loss and then repurchased at short notice.
The proportion invested in each of these ETFs changes depending on the findings of the robo-optimum advisory’s portfolio composition based on the user’s financial objectives.
Certain features, such as Smart Beta and stock-level tax-loss harvesting, however, do not utilize ETFs since the funds are invested in individual companies.
Rebalancing Your Portfolio
The value of some financial assets fluctuates with time, and the current proportion assigned to each asset class differs from the initial percentage established by the robo-advisor.
As a consequence, Wealthfront rebalances its customers’ portfolios on a regular basis to ensure that the original % allocation is maintained by purchasing and selling various assets within the portfolio.
Taxable securities will produce tax debits or credits depending on whether the investor made a capital gain or loss, and Wealthfront tries to mitigate the effect by employing sophisticated tax-harvesting algorithms, which implies that assets at a loss will likely be the first ones sold as part of the rebalancing.
There is no set timeframe for this rebalancing since Wealthfront uses a method that measures how far the percentages have strayed from their initial goal and only rebalances when the gap has reached a specific level.
There’s no way of knowing when it will happen, therefore there’s no way of knowing when the rebalancing will happen.
Wealthfront now provides four distinct financial planning services, all of which may be utilized for free as part of its robo-advising services, but the yearly 0.25 percent advisory charge will still apply.
These are the services:
- Early retirement planning: Wealthfront clients may either establish a retirement account or roll over their 401(k)s. Wealthfront calculates the amount that needs be put aside and the periodic contributions that must be made to the account to accomplish these objectives by investing the money using a customized portfolio allocation utilizing algorithms and based on the client’s retirement goals.
- Vacation planning: This service is intended to assist customers in preparing for their perfect vacation by asking them how long they want to be away, if they plan to work while on vacation, and how their current living costs will be impacted during the time off.
- Clients may utilize the college planning tool to set up a fund for their children’s future education expenses. The app will show you how to make the necessary contributions to reach any goal that the customer desires.
- Homeownership planning: Wealthfront may evaluate the specific home that a customer wants to buy by connecting with third-party services and evaluating different criteria such as the price, the minimum down payment needed, the number of mortgage installments, and other comparable factors. As a consequence, the robo-advisor will qualify the purchase based on the client’s ability to make the purchase and how well it fits his or her financial objectives.
Wealthfront Fees and Pricing
Wealthfront charges a fixed yearly advising fee of 0.25 percent of the account balance. This charge is determined by increasing the account’s daily value by 0.25 percent, then dividing by 1/365, the daily fee.
The monthly advising fee will be charged to the account at the end of each month, based on the total of the daily costs.
Clients must also pay for the cost ratios connected with the ETFs that make up their portfolios.
Wealthfront’s cash accounts have no costs, save for debit card fees, which include $2.50 out-of-network ATM fees plus an ATM owner fee, $2.50 bank teller fees plus a teller fee, a 2.75 percent foreign transaction fee, and up to $5.95 cash load fees at certain merchants.
There are no fees for depositing or withdrawing money from a Wealthfront account.
Pros of Wealthfront
- For investment accounts, the flat 0.25 percent advising is lower than the industry average of 1%.
- A little deposit is needed to establish an investing account.
- To establish a cash account, all you need is a $1 deposit.
- The cash deposit yearly percentage yield is five times greater than the national average.
- There are no fees for deposits or withdrawals.
- There are no maintenance or other costs associated with cash accounts.
- Wealthfront’s web platform makes it simple to create and manage investment accounts.
- Tax-loss harvesting schemes take use of tax benefits to boost long-term profits.
- For high-net-worth customers, the Smart Beta and Risk Parity features are particularly appealing.
- Clients may use Wealthfront’s credit line to finance any short-term expenditure at a reasonable interest rate.
- The planning functions are simple to use, straightforward, and automatic.
- There are no extra costs associated with utilizing Wealthfront’s financial planning tools.
- Rolling over 401(k) funds to Wealthfront is simple.
Cons of Wealthfront
- Clients are unable to trade specific securities other than those recommended by the robo-advisor.
- This business does not provide human consulting services, despite the fact that most of its competitors do.
Alternatives to Wealthfront
For new investors, Wealthfront is an excellent robo-advisor. However, it isn’t the only choice.
Wealthsimple is another robo-advisor located in the United States that provides similar services to Wealthfront.
It does, however, offer access to a competent financial adviser if necessary. Wealthsimple requires just a $1 deposit to establish an investing account, while Wealthfront requires a $500 commitment.
Wealthsimple, on the other hand, charges a 0.5 percent advisory fee, which is 0.25 percent more than Wealthfront’s.
Betterment and Wealthfront are extremely comparable in terms of services. They both charge a 0.25 percent advisory fee and manage over $10 billion in assets for their customers.
Betterment does, however, provide access to Certified Financial Planners (CFPs) for customers who want a more personal touch. They also don’t have a minimum deposit requirement for opening an investing account.
Wealthfront, on the other hand, seems to have an advantage in terms of financial planning, since Betterment’s financial planning packages cost $200 or more. Wealthfront utilizes automated tools to assist its customers depending on their financial goals, and they include a 30-minute consultation with a CFP.
Wealthfront’s stock-level TLH should improve the long-term returns of investors who engage in this program, despite the fact that their tax-loss harvesting characteristics are comparable. With Betterment, this function is not accessible.
Who Should Get Wealthfront and Who Should Avoid It
Wealthfront is a low-cost, user-friendly, and well-designed robo-advisor supported by a highly-trained leadership team led by Burton Malkiel, a financial expert with many years of expertise in the area of investing and author of A Random Walk Down Wall Street, one of Wall Street’s favorite books.
Investors who want to put their investments on autopilot may take advantage of Wealthfront’s laid-back approach to money management, as well as the firm’s unique features, such as Smart Beta and Tax-Loss Harvesting, which would be difficult for a novice retail investor to execute.
The company’s cheap advisory costs may be the most appealing aspect of their value offer, and their time-tested methods should provide investors ample confidence that their money is being well-managed.
Wealthfront services, on the other hand, are not suitable for day traders or other types of active traders since they do not allow investors to construct their own portfolios.
Wealthfront Frequently Asked Questions
The following are the most commonly asked questions regarding Wealthfront.
What Does Investing with Wealthfront Cost?
A monthly advising fee of 0.25 percent is levied on investment accounts. The customer is also responsible for any fees levied by the exchange-traded funds (ETFs) that make up the investing portfolio.
Except for debit card fees, there are no costs for cash accounts.
Wealthfront’s Portfolio Credit Line has an annual interest rate ranging from 2.45 percent to 3.7 percent.
How Simple Is It to Withdraw Money?
Withdrawals may be made quickly and simply via Wealthfront’s user-friendly interface, with a $250 minimum withdrawal limit.
At any moment, as long as the account balance is more than $500, you may make as many withdrawals as you like.
Withdrawals from Wealthfront usually take 3 to 4 business days to appear once the request is submitted.
Any money that was recently placed in the account must likewise be held for five days before it may be removed.
What Does Wealthfront Mean When It Says “Long-Term Investing”?
Long-term investments presume that each individual security in the portfolio will be held for at least five years.
What is Wealthfront’s Minimum Investment?
To establish an investing account with Wealthfront, you must make a $500 deposit.
What Funding Options Do I Have for My Wealthfront Account?
ACH wire transfers may be used to finance Wealthfront accounts.
With Wealthfront, how are my investments safeguarded?
The Securities Investor Protection Corporation (SIPC) of the United States insures all Wealthfront assets up to $500,000 in value. A maximum of $250,000 in cash may be collected out of them.
This insurance kicks in if the broker-dealer company is unable to return money to customers at some time, but it doesn’t cover any losses incurred as a consequence of market downturns.
Wealthfront is a smart, low-cost robo-advisor accessible to US citizens with a number of appealing features for individuals looking to delegate management of their assets to seasoned financial experts while pursuing a long-term passive investing plan.
Wealthfront’s investing approach and additional features are solid, and the leadership team’s track record makes them one of the most trustworthy participants in the worldwide robo-advisory industry.
Wealthfront is a robo-advisor that offers a low-cost, well-rounded service. It has been around for over 10 years and has been reviewed by many publications. Reference: wealthfront vs betterment.
Frequently Asked Questions
Is Wealthfront the best Robo-advisor?
Wealthfront is a robo-advisor that provides financial planning and investment management services. It is the best Robo-advisor in terms of customer satisfaction, according to a study by J.D. Power and Associates.
Are Wealthfront fees worth it?
Wealthfront fees are worth it to the extent that they provide a good return on your investment.
Which Robo investor has best returns?
The best returns are with the Robo-investor that has a high ROI.
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