Until quite recently, I managed all my investments myself. I had done so since high school, even committing years of my career to the field.
When it comes to investing, fees matter in a very significant way. If you know what you’re doing, the time it takes to manage your own portfolio can be worth the cost savings for doing so. But as the time commitment grows, you need to value that too.
So, as my investments increased, I turned some of my portfolio over to Wealthfront®.
Wealthfront is one of the lower-cost robo-advisors on the market, with a robust tax-optimization offering. As your taxable assets grow – those that don’t sit in a retirement account or other tax-advantaged vehicle – the importance of “tax drag” (the loss of potential income due to taxation) increases alongside it. Since tax optimization can be more time consuming than other aspects of portfolio management, I decided to have Wealthfront manage some of my portfolio with tax optimization in mind.
If you’re looking for a robo-advisor to manage your investments, save you time, and rebalance your portfolio as needed, you may want to consider Wealthfront. Here’s what I’ve found out from using their service.
What is Wealthfront?
Wealthfront is a robo-advisor. It uses technology, portfolio theory, and algorithms to match investment selections to an individual’s financial goals and risk tolerance. The company was founded in 2008 and is the second largest robo-advisor on the market. It currently manages $10 billion in assets (as of March 2018).
Wealthfront’s investment strategy is developed by industry-leading professionals. Their Chief Investment Advisor, Burton Malkiel, is the author of A Random Walk Down Wall Street and a senior economist at Princeton University.
When you sign up with Wealthfront, you answer a questionnaire that helps the company determine your personal goals and risk tolerance. They need to know a little bit about you to choose investments that are appropriate for you (or for your situation).
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How does Wealthfront make investing less hard?
Hands-off portfolio management, so you don’t have to think about your portfolio all the time. If you set up auto deposits from your checking account or direct deposit; Wealthfront will continue to invest your assets for you, in line with your goals. Wealthfront keeps your portfolio balanced, reinvests any dividends, and minimizes your tax burden. (Even with a robo advisor, you should always carefully monitor your investment portfolio.)
Wealthfront helps manage your financial goals. Every robo-advisor offers some interface to help you track your goals. But Wealthfront takes it to the next level. Saving for college? Choose a college you think your child may attend and your child’s age. It will estimate their cost of attendance, including how much you might expect in financial aid, and guides you on how much to save. They can offer similar customized guidance on your home buying and retirement goals as well.
Wealthfront offers a low minimum investment and an opportunity for no-fee management. The minimum investment at Wealthfront is $500 and it charges a flat annual advisory of 0.25% (of invested assets) (August 2018). They offer a referral program (see more on fees below).
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How Wealthfront works
Wealthfront only has one investment approach. You don’t have to opt-into a higher level as your assets grow, but they will add specific services for customers with more significant invested assets. They offer a variety of investment accounts, including individual and joint accounts; Roth, traditional, SEP and rollover IRAs; trusts; and college savings plans.
Based on your goals and risk tolerance, Wealthfront provides a personalized portfolio.
The strategy is based on passive investing, which is rules-based and designed to minimize risk using lower-cost funds over the long-term. Active investing – where advisors choose individual stocks and bonds – can cost more and have too much room for error. Even pros can make emotional decisions that hurt returns.
Wealthfront rebalances your portfolio to keep risk in line with your tolerance for risk when you add or withdraw money to your account or have dividends to reinvest. They also rebalance “when each asset class has drifted from its target allocation by a certain percentage.” Some robo-advisors only rebalance quarterly or monthly.
If you have taxable investments (that aren’t in a tax-deferred account), Wealthfront will do daily tax-loss harvesting. This means they take advantage of small losses by selling assets that have fallen below their purchase price, swapping them for an alternative option in the same asset class. This creates a recorded loss that can be used to offset any gains and potentially reduce your tax liability.
You can track your investments and progress towards goals in Wealthfront’s mobile app. One helpful feature is that you can connect all your other investment accounts and see progress across accounts and total net worth all in one place.
Additional strategies may be available for those with account balances of $100,000 or more.
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Wealthfront management fees
Wealthfront offers a simple fee structure. The company charges the same flat fee, regardless of investment size.
If you sign up for Wealthfront via someone’s referral link, you and the referrer will both receive $5,000 of assets managed for free, even if the initial balance is below $5,000.
Other robo-advisors include Wealthsimple®, Ellevest®, WiseBanyan®, Personal Capital®, and Stash®. Some traditional investment companies, like Vanguard® and Charles Schwab®, also offer robo-advisor services. And there are also micro-investment services like Acorns®.
Why to consider Wealthfront
Wealthfront’s tax-loss harvesting alone can make it an appealing choice for those who are interested in tax minimization strategies. For new and established investors alike, Wealthfront has a lot to offer. Here’s what you should consider:
- Low-cost management: With an affordable flat fee, Wealthfront offers professional investment management at a significantly lower cost than a traditional advisor. Wealthfront’s cost is on the low side compared to many of its robo-advisor competitors. This can be a big deal over the long-term.
- Hands-off portfolio management: Wealthfront, like other robo-advisors, allows you to automate your investments, so you’re less likely to make emotional decisions, although you should still monitor your investments.
- Potential to reduce tax bill: Many robo-advisors offer tax-loss harvesting, but Wealthfront strives to stand out with its daily tax-loss harvesting for all taxable accounts, regardless of size. Some others only undertake tax-loss harvesting quarterly or when you sell assets.
Who might benefit more from other options
Wealthfront might not be the most suitable choice for you if you want to be able to ask a professional about your investments or other financial decisions. They have stayed firmly rooted in the “robo” aspect of robo-advising and don’t offer a way to connect with flesh-and-blood advisors. If you’re looking for advice, you may wish to look for a local investment advisor, such as a CERTIFIED FINANCIAL PLANNER professional, who comes highly recommended by your friends or co-workers.
Wealthfront’s daily tax loss harvesting may be an advantage both to investors with taxable investments and those with tax-deferred investments, but Betterment may offer a bigger potential benefit to investors with more tax-deferred investments. Because Betterment offers the ability to buy fractional shares, Betterment might allow more of your money to stay invested in the market.
Key takeaways on Wealthfront
Wealthfront is one of the lower-cost robo-advisor offerings on the market. It can make investing hands-off and offers excellent tools to track your progress towards goals and understand your investments. If you’re a new investor looking to minimize cost or an established investor worried about taxes, Wealthfront can be an excellent choice.
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Chelsea Brennan is the founder of Smart Money Mamas, a personal finance blog that focuses on family finance, investing, and reducing money stress. Chelsea is an ex-hedge fund investor whose work has appeared in a wide array of publications, including Forbes, Business Insider, and more.
Haven Life Insurance Agency offers this as educational information. Haven Life Insurance Agency (Haven Life) does not provide tax, legal or investment advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or investment advice. You should consult your own tax, legal, and investment advisors before engaging in any transaction.
“Wealthfront” is a registered trademark of Wealthfront, Inc.
“Betterment” is a registered trademark of Betterment Holdings, Inc.
“Wealthsimple” is a registered trademark of Wealthsimple, Inc.
“Ellevest” is a registered trademark of Ellevate Financial, Inc.
“WiseBanyan” is a registered trademark of WiseBanyan, Inc.
“Personal Capital” is a registered trademark of Personal Capital Corporation
“Stash” is a registered trademark of Stash Financial, Inc.
“Vanguard” is a registered trademark of The Vanguard Group, Inc.
“Charles Schwab” is a registered trademark of Charles Schwab & Co., Inc.
“Acorns” is a registered trademark of Acorns Grow, Inc.