What is the scarcest, yet most valuable commodity that each of us have access to? Hint: It’s not money. Time is the one thing that we all have a limited amount of in life. How can we maximize our time for the pursuit of hobbies, travel and freedom while also maximizing our personal finances? This question is why the thought of robo-investing appealed to me, once I figured out what it was and got past the Terminator-esque title. The less time that you can spend meeting with your stock broker, evaluating annual reports, finding the right mix of securities and worrying about your taxes, the more time you can spend earning money or enjoying the things that you truly love in life. Robo-investing takes the heavy lifting out of growing your money, while also providing the peace of mind that your financial future is in good hands. I started using Wealthfront as my first foray into automated investing after a lot of research about six months ago and decided it was time to provide a Wealthfront Review of my own.
What is Wealthfront?
Wealthfront is an online financial advisor that functions similar to a traditional brokerage with the notable exception that it is an automated service as opposed to an individual manager. Often referred to as a robo-advisor, Wealthfront will manage your investment or retirement portfolio by diversifying across a number of global ETFs with a personalized allocation for your account. In addition to Wealthfront’s automated technology, they employ finance experts like Burton Malkiel and Charles Ellis on their investment team. The promise of Wealthfront is to provide its users with a low-fee, constantly managed alternative to traditional brokerages that will work to lower your taxes and provide strong returns.
How does Wealthfront Work?
Once you fund your account, Wealthfront will use their software to create a globally diversified portfolio of exchange traded funds (ETFs) that is customized for you based on your own risk tolerance and financial situation. From there, they will manage your investments entirely without any work on your side.
Is there a minimum investment?
The minimum investment with Wealthfront used to be $5,000, but they have lowered it to $500.
What are Wealthfront’s fees?
One of the biggest selling points of Wealthfront is that they will manage your first $10,000 for free. That means no exit fees, transfer fees, commissions or management fees. If you sign up through a link in this post, you will get an additional $5,000 managed for free. Beyond this originally $15,000, Wealthfront will charge a 0.25% annual advisory fee on Assets Under Management (UAM). This only includes amounts over the original $10,000 or $15,000, so if you put $35,000 into the account and signed up through Stealthy and Wealthy, you would only be paying 0.25% on the $20,000 above the original $15,000.
Tax Loss Harvesting
Tax loss harvesting refers to the selling of securities when you have experienced a loss on them, then replacing the sold security with a similar one. This basically allows you to take the credit for the loss on your tax statements while remaining vested in the security at the lower price. This is done daily through Wealthfront in an automated fashion, so as the year goes by, you are collecting tax losses daily to offset gains in your account and ultimately, make you happier when the tax man comes calling in the spring. For accounts over $100,000, Wealthfront offers what they call tax optimized direct indexing, which is basically a more robust version of tax loss harvesting.
Automated Portfolio Rebalancing
Wealthfront sets up your portfolio to have the optimal balance of types of funds for you personally. When you add funds to your account, receive a dividend, or otherwise throw off their target balance, they will automatically rebalance your mix to make sure that you are diversified how their software intends. This is done on a much more frequent basis than you will see with a traditional financial advisor, who may do review and manually rebalance monthly or quarterly.
Low Expense Ratios
Wealthfront has an average ETF expense ratio of 0.12%, compared to an industry standard of 1.16%, so that means more of your money is actually working for you as opposed to being eaten up by expenses.
Reliable investing methodology
Based on modern portfolio theory and backed by a credible and seasoned team, Wealthfront’s investing methodology seems to me to be one that you can trust as much as any traditional broker.
Free portfolio review
If you would like to see how your current investing portfolio stacks up to a Wealthfront portfolio, you can use their Portfolio Review Tool to get an analysis. This does not require you to start investing with Wealthfront.
Types of Accounts
Another of the benefits of using Wealthfront that helps the robo-investing platform stack up to traditional brokerages is the variety of account types that they offer. These include:
- Individual Accounts
- Joint Accounts
- Trust Accounts
- 529 College Savings Plans
- Traditional IRAs
- 401k Rollovers
- Roth IRAs
- SEP IRAs
Where Wealthfront invests your Money
The ETFs that are selected for your portfolio by Wealthfront are chosen based on low annual expense ratios, minimal tracking error and sufficient liquidity. To learn more about how they select, you can check it out here.
The individual ETFs that they are currently investing in include:
- Schwab Barclay’s Capital US TIPS (SCHP)
- iShares Corporate Bond ETF (LQD)
- Vanguard ETF (ENQ)
- Vanguard US Total Stock Market (VTI)
- Vanguard FTSE Developed Markets (VEA)
- Vanguard FTSE Emerging Markets (VWO)
- Vanguard Dividend Appreciation (VIG)
- iShares JPMorgan Emerging Markets Bond (EMD)
- iShares National AMT-Free Muni Bond (MUB)
- State Street ETF (XLE)
My Wealthfront Review
I started my account by registering online and was very pleased that the entire process only took about ten minutes. I set my account up with the minimum investment of $500 and provided some information about my personal financial situation. They suggested an allocation for my portfolio that was appropriate to my financial situation, age and retirement goals. From there, I have logged in a few times to see my portfolio balance and where my money is invested. Beyond that, I have spent very little time thinking about the money that I have invested in Wealthfront.
Over the next few months, I plan on moving more of my funds into Wealthfront, including my current balance in Digit. For someone who is relatively unfamiliar with the exact tax implications of the tax loss harvesting that is going on in my account, it will be interesting to speak with my tax advisor at the end of this year to get a better understanding of the true benefit that I’m receiving. Overall, the jury is still out on if this is the best place to put more of my retirement funds, but I have been pleased with the experience thus far.
How to get started with Wealthfront
Getting started with Wealthfront is very easy. You simply go to their site, provide some personal information and tell them about your financial situation and you will have an account created in minutes. You can link your Wealthfront account directly to your checking account and make your first deposit ($500 minimum), which will be invested within hours.
By clicking the button below, you will get an additional $5,000 of your assets managed without fees.
Disclosure: This post contains affiliate links, which means that if you click on a link, Stealthy and Wealthy may receive some type of compensation. We will only recommend products that we believe in and have used for our own personal finances.