Wealthfront’s primary product is automated portfolio management. It uses an investment philosophy called Modern Portfolio Investing to help clients invest their assets. Modern Portfolio investors believe that it’s really hard to beat the market. As a result, these investors try to manage portfolio volatility and keep costs low.is an investing platform for prudent investors who want to see their money grow, but don’t want to spend much time thinking about their investments. First, Wealthfront always starts with your goals and your risk tolerance. Wealthfront asks 4 objective questions, and six subjective questions. Then after assessing your risk, Wealthfront allocates your investments between stocks, bonds and other asset classes.If you have more than $100K at Wealthfront, they will allow you to use value add features that are part of their PassivePlus investment suite. PassivePlus is a first of its kind suite of tax efficient passive investment products that includes Smart Beta. Smart Beta investing tries to used decreased downward portfolio volatility (Beta) to increase portfolio returns (Alpha).It’s clear that Wealthfront’s captures systemic tax advantages. Wealthfront also makes the case that their five-factor investing model combined with indexing boosts returns. That’s a claim you would have to investigate on your own. I don’t buy into the factor investing model as a long term sustainable advantage (although I admit it worked in the past).These are the elements of Wealthfront’s PassivePlus program:
charges 0.25% per year for all of its portfolios. If you have a portfolio under $100,000 you’ll also pay 0.07-0.16% per year for fund fees. With direct investments, you won’t have to pay the fund fee.If you want to start an automated savings plan, you can link your Wealthfront account directly to a checking or savings account.Wealthfront supports the following types of investment accounts:
Wealthfront’s three newest features are free financial planning software, a high-yield cash account, and a portfolio line of credit.This is what you should know about these features.
Wealthfront offers free financial planning software to anyone who wants to use it. You don’t have to be a Wealthfront customer to use it.The software connects directly to user’s financial accounts, so users can easily track their goals. If you’ve never set financial goals before, Wealthfront has a Financial Health Guide which provides a framework for helping you think about your financial and life goals. Using the free software, you can make informed tradeoffs. The app helps you answer questions like: Should I take time off work now and work a few years longer before full retirement?The software still can’t tell you exactly which questions to ask, so it doesn’t have quite the same value as a CFP or financial coach, but it will help you move in the right direction. This is one of the better free planning tools that I’ve seen, but if you want to work with a human, not a bot you’ll need to find an alternative. Consider connecting with a financial coach at the Financial Gym or with a planner form the XY Planning Network.
Wealthfront launched Wealthfront Cash Account as the next important step towards automating all of its client’s finances. Cash Account is a secure place to stow away cash you may plan to invest, spend within a few years or use in an emergency. The account offers an interest rate of 0.26% and is FDIC insurance for up to $1 million. That’s above the national average interest rate and four times the insurance you’d receive at a traditional bank. Wealthfront clients can open a cash account with as little as $1.The account isn’t subject to any market risk and offers unlimited and free transfers all for no fees. This account is separate from a regular managed account, so there is no management fee.
If you’ve got at least $100,000 in a taxable brokerage account, you’re eligible for a portfolio line of credit worth 30% of your account value. The loan is secured by your account, so the rates on the loan are often below most home equity lines of credit. You can pay back the loan on your own schedule, but interest accrues until the loan is paid in full.This sounds like a great loan, but I’m skeptical about borrowing against assets in general. If you’ve got investments in a taxable brokerage account, and you need money to start a business or buy a car, you should probably liquidate the account to pay for your needs.If you’re considering this option, you should see how it compares to a similar service called M1 Borrow.
I’m quick to recommend Wealthfront to novice investors, and anyone who wants to outsource investing to an algorithm. The only automated investing platform that is less expensive is M1 Finance, and M1 Finance doesn’t have the robust investing theory that Wealthfront has.The clearest advantage of Wealthfront is its ability to do systemic tax loss harvesting. Of course, that only matters in unsheltered tax accounts.The biggest drawback to Wealthfront is an overemphasis on conservative asset classes. The asset allocation it suggested for me was very conservative despite my long time horizon to retirement.Overall, Wealthfront is an excellent option, and it’s still one of my top recommendations for automated investing platforms.