Wealthfront Review 2017

Last updated on July 21st, 2017

Wealthfront is one the largest independent robo-advisors with more than $7 billion in client assets under management. They have combined the best of modern technology with rigorous investment research to provide diversified, low-cost, tax-efficient portfolios comprised of index ETFs.

In plain English, Wealthfront makes it easy for anyone to get access to a diversified, long-term investment portfolio (and financial advice) without the high fees & account minimums of traditional wealth managers.

Wealthfront offers Cash Cow readers their first $15,000 managed free.  For balances larger than $15,000, the management fee is a flat 0.25% per year.

Wealthfront Background

Since launching in December of 2011, Wealthfront has grown into one of the most sophisticated robo-advisors in the world.

Much of this success can be attributed to Wealthfront’s team of experts. CEO Andy Rachleff is vice chairman of the endowment investment committee at the University of Pennsylvania and a faculty member at Stanford’s School of Business. He was previously the co-founder of Benchmark Capital.

The investment team is led by Burton Malkiel, Ph.D., who is the Professor Emeritus of Economics at Princeton University and author of the best-selling A Random Walk Down Wall Street. Other members of the investment committee hold a doctorate degree or the Chartered Financial Analyst (CFA) designation.

Here is an excellent introduction to the company and the service provided:

Wealthfront’s Investment Process

Getting started with Wealthfront takes less than ten minutes. The section below will describe the onboarding process for new Wealthfront clients.

1) Select your investment preferences

When you first create a Wealthfront account, you will be asked to select your investment goal. You can choose between retirement savings, general savings, college education, or something else entirely. Your answer will help Wealthfront suggest the correct type of investment account.

Wealthfront then asks you to complete eight multiple-choice questions about your investment preferences and risk tolerance. The questionnaire is designed to assess your willingness and ability to accept investment risk, and Wealthfront uses this information to recommend an appropriate asset allocation.

Traditionally, risk tolerant investors will own more stocks than bonds, because stocks have historically offered the greatest growth potential.

2) View recommendations

After you complete the questionnaire, Wealthfront will explain your assessed risk tolerance on a scale of 1-10, with 10 being the highest risk level.

When I went through the process, I scored a 10/10, which is not surprising. I have a long investment horizon, making stocks a great investment choice for me.

Using your risk tolerance, Wealthfront recommends a diversified investment portfolio. The recommendation varies by account type. If you are opening a taxable account, Wealthfront recommends select ETFs to increase the after-tax return. If you are opening a retirement account, Wealthfront recommends a slightly different set of ETFs to maximize potential growth.

For Taxable Accounts, Wealthfront recommends a combination of the following ETFs:

  • Vanguard U.S. Total Stock Market Index (VTI)
  • Vanguard Developed Foreign Stock Index (VEA)
  • Vanguard Emerging Markets Stock Index (VWO)
  • Vanguard Dividend Yield Stock Index (VIG)
  • State Street Energy Select Sector (XLE)
  • iShares Municipal Bond Index (MUB)

For Retirement Accounts, Wealthfront recommends a combination of the following ETFs:

  • Vanguard U.S. Total Stock Market Index (VTI)
  • Vanguard Developed Foreign Stock Index (VEA)
  • Vanguard Emerging Markets Stock Index (VWO)
  • Vanguard Dividend Yield Stock Index (VIG)
  • iShares Emerging Market Bond Index (EMB)
  • iShares Corporate Bond Index (LQD)
  • Vanguard Real Estate Index (VNQ)

By combining these various ETF asset classes, Wealthfront investors are able to own thousands of financial securities at a very low cost.

The percentage of each ETF in your portfolio depends on your risk questionnaire. In my example, here is the recommendation for my taxable account:


wealthfront investing review

As you can see, it’s an aggressive mix of 90% stocks, 5% natural resources, and 5% municipal bonds.

If I select a retirement account, Wealthfront recommends a different portfolio:


wealthfront investing

The recommendation is 74% stocks, 16% real estate, and 10% taxable bonds.

Wealthfront makes these recommendations to maximize your after-tax investment returns.

3) Open and fund your account.

If you don’t like the Wealthfront recommendations, you can change your asset allocation by adjusting your risk tolerance. Once you decide on your preferred portfolio, simply click “next” and fund your new account with a minimum of $500.

Wealthing Account Funding

Most account types are supported, including:

  • Traditional & Roth IRA accounts, including 401(k) and 403(b) rollovers
  • Personal and joint brokerage accounts
  • 529 college savings plan
  • Corporate accounts
  • SEP-IRA accounts
  • Trust accounts

Wealthfront Features

Differentiated Asset Location – Wealthfront uses a different mixture of asset classes for your taxable and retirement accounts. For example, because municipal bond interest is exempt from federal taxation, Wealthfront recommends they be held in a taxable account. On the other hand, corporate bond interest is taxed as ordinary income, which is why Wealthfront recommends they be placed in a tax-sheltered account.

Automated Rebalancing – Wealthfront maintains your desired asset allocation over time. Hypothetically, let’s assume that your portfolio begins with an asset allocation of 50% stocks, 50% bonds. Over time, stocks might outperform bonds resulting in a portfolio comprised of 60% stocks, 40% bonds. That’s not ideal because the portfolio now has more risk than you are comfortable accepting. Rebalancing is the act of returning your asset allocation to 50/50. Wealthfront rebalances the portfolio using efficient methods:

  • Intelligent Dividend Reinvestment – Wealthfront automatically reinvests all dividends into the asset class that is underperforming, reducing the need to sell investments.
  • Cash Flow Reinvestment – If you’re adding to your Wealthfront balance over time, they use those funds to automatically purchase the asset class which is underperforming. Again, this maintains your ideal asset allocation without requiring the sale of one asset class (which results in less taxation).

Tax-efficient Withdrawals – When you sell any financial asset in a taxable account, you will realize a gain or loss. The tax consequences of your sale depend on the holding period. If you sell an investment after holding it for 365 days or less, you have a short-term capital gain (or loss). If you sell the investment after holding it for 366 days or longer, that is considered a long-term gain (or loss). Short-term capital gains are treated as ordinary income, while long-term capital gains are taxed a preferential tax rate.

When you request a withdrawal from your taxable account, some of your investment must be liquidated (sold) so that you can receive cash. Wealthfront offers a withdrawal system that is designed to minimize taxation. First, they sell any positions that will result in no taxable gain. Second, they sell any positions that result in long-term capital gains. As a last resort, they sell the positions that result in short-term capital gains.

Wealthfront’s Selling Plan – Many professionals receive company stock as part of a compensation package, but it’s risky to have a sizable portion of your wealth tied to a single company’s stock. The Wealthfront selling plan allows you to sell your company shares gradually (and commission-free), minimizing taxation in the process. Doing this on your own is expensive and time-consuming, and Wealthfront is the only company to offer this service.

Passive Plus Investing and Tax-Loss Harvesting

Wealthfront now offers three unique investment features designed to increase your return and reduce your tax liability.

1) Daily Tax-Loss Harvesting – Free for all taxable Wealthfront accounts, tax-toss harvesting is the process of selling investments that have declined in value and replacing those investments with highly correlated alternatives.

By selling an investment at a loss, you earn the right to deduct that loss from your taxable income – thus lowering your annual tax burden. By replacing the original investment with a highly correlated alternative, the risk and return profile of your portfolio is unchanged, even as you gain tax savings. These tax savings can then be reinvested to further grow the value of your portfolio.

At Wealthfront, when one of your ETFs drops in value it is automatically sold and quickly replaced by a highly correlated alternative.

2) Tax-Optimized Direct Indexing – Available to clients with $100,000 or more invested in a taxable account, Wealthfront will create your own index portfolio, harvesting losses among the individual stocks in the S&P 500 or S&P 1500. This feature is unique to Wealthfront and cannot be found anywhere else.

Instead of using a single ETF investment to implement the U.S. stock allocation of a portfolio (typically Vanguard’s Total Stock Index (VTI)), Tax-Optimized Direct Indexing replaces VTI with individual securities.

Thus, if a single stock in the portfolio is down in value, it can be sold to harvest losses (even if the overall market is up). In Wealthfront’s standard index ETF portfolios, no tax-loss harvesting benefit would be available unless the U.S. stock market ETF (VTI) declined in value.

Wealthfront offers three levels of direct indexing to clients:

  • Wealthfront 100: Available now for taxable accounts of $100,000, the Wealthfront 100 will utilize up to 100 of the largest capitalization stocks from the S&P 500 combined with specific ETFs to provide US stock market coverage equivalent to Vanguard’s Total Stock Market ETF (VTI).
  • Wealthfront 500: Available now for taxable accounts of  $500,000, the Wealthfront 500 utilizes up to 500 stocks from the S&P 500 combined with the Vanguard Extended Market ETF (VXF) to provide US stock market coverage equivalent to Vanguard’s Total Stock Market ETF (VTI).
  • Wealthfront 1000: Available now for taxable accounts of $1,000,000, the Wealthfront 1000 utilizes up to 1000 stocks from the S&P 1500 combined with the Vanguard Small-Cap ETF (VB) to provide US stock market coverage equivalent to Vanguard’s Total Stock Market ETF (VTI).

Wealthfront has written a few research oriented white papers on the topic of tax-loss harvesting. They conclude that a portfolio including Wealthfront’s Daily Tax-Loss Harvesting service and Tax-Optimized Direct Indexing service could add up to 2.03% annually in additional investment returns (compared to VTI only)

3) Advanced Indexing – Halfway through 2017, the Wealthfront investment committee introduced Advanced Indexing, which replaces Direct Indexing in the Wealthfront 500 (requires $500,000) and Wealthfront 1,000 (requires $1,000,000).

Advanced Indexing blends five single-factor strategies (value, momentum, high dividend yield, low market beta, and low volatility) with the cap-weighted market index (VTI) to generate a new modified index. This new index then serves as the benchmark for the tax-loss harvesting algorithm in your portfolio.

Historically, this strategy has provided additional portfolio gains and more opportunities for tax-loss harvesting. When combined with the Daily Tax-Loss Harvesting and Direct Indexing features previously described, Wealthfront estimates the overall after-tax benefit to be as much as 3% each year, as discussed in their latest research.wealthfront smart-beta review

Portfolio Line of Credit

Wealthfront’s Portfolio Line of Credit offers you access to immediate cash without disrupting your investment strategy.

  • Availability: Wealthfront clients with an account valued at $100,000 or more have immediate access to the line of credit.
  • Interest Rate: Your line of credit is secured by your diversified investment portfolio, and current rates are between 3.5-4.5% depending on your account size.
  • Complete Flexibility: Borrow the amount you need, when you need, for any reason. Then repay on your own schedule.
  • No Application or Fees: If your account is eligible, you have a line of credit. Simple as that. No paperwork, credit checks, or application process. Just request the cash (up to 30% of the current value of your Wealthfront account) and Wealthfront sends you the money as quickly as one business day.

This line of credit is an excellent way to obtain cash, should you ever need immediate liquidity.

Path (+ Wealthfront Portfolio Review)

Path is Wealthfront’s financial planning experience – free for all customers.

Path allows you to link all of your external financial accounts through your Wealthfront Dashboard. The service can then evaluate your accounts to measure four important metrics:

  1. Fees
  2. Cash Drag
  3. Tax Efficiency
  4. Diversification

If your external accounts are flawed, Wealthfront offers a unique solution and an opportunity to easily transfer your funds into a new Wealthfront account. Instead of selling everything at once, Wealthfront uses their Tailored Transfer process to migrate your investments tax-efficiently over time.

Path also allows you track your financial progress in real time. Path uses your real transaction history to calculate a rolling 12-month average of how much you’ve been saving and spending, then provides advice on how to achieve your financial goals using this data.

If that’s something you’re interested in, take a look at this video:

College Planning with Path

Wealthfront recently updated Path to include customized college planning advice. With this addition, Path walks you through every important aspect of college planning and delivers a complete, personalized assessment in three steps:

  1. You Select A College – Wealthfront connects to every U.S. college to calculate the estimated cost of tuition, room and board, books, etc. You can change your desired school at any time and the data will update automatically.
  2. Path Calculates Financial Aid – Using outside data for each college and their specific approach to calculating financial aid, along with the personal details that you’ve shared through Path, Wealthfront provides a customized estimate of financial aid per school.
  3. You Choose How Much to Save – Path will show you how far your estimated savings will go towards covering college expenses. Just like with retirement, you can adjust the inputs to see the impact of increased savings. Want to make it personal? You can upload a custom image for each account on your dashboard.

Wealthfront is the only robo-advisor offering a cost-effective 529 plan and a personalized college planning service all in one.

Wealthfront Security and Protection

Wealthfront maximizes the protection of your assets by doing the following:

SIPC Insurance: Wealthfront is protected by SIPC insurance. This insurance covers up to $500,000 in securities for each type of account you hold with Wealthfront. An IRA is considered a different type of account than a taxable account for this purpose, but different types of IRA accounts are considered one account for this purpose. SIPC insurance also covers up to $250,000 in cash.

Third party custodian: Your assets are held in an account at a third-party custodian named Apex Clearing. Wealthfront only has the right to issue trading instructions against your account. The firm cannot access your money, other than to receive the agreed upon advisory fee. You are the only one who can deposit into, or withdraw from your account.

No rehypothecation: Wealthfront clients only have cash accounts (not margin accounts) at Apex Clearing. That means at no time can the cash or securities held in your account be loaned out or borrowed by Wealthfront or Apex.

No proprietary trading: The brokerage partner, Apex Clearing, performs no proprietary trading.

Everything in street name: Wealthfront only invests in SIPC covered securities registered in street name at the Depository Trust Company (DTC). That means the securities purchased on your behalf by Wealthfront are held separately from other Wealthfront assets and remain fully insured.

Wealthfront Fees

For all of the services described in this review, Wealthfront charges an advisory fee of 0.25% per year. Your first $10,000 invested has zero management fees. However, they are currently offering readers of our blog an additional $5,000 managed free for a total of $15,000.

If you were to sign up here to receive $15,000 bonus, here is the total annual cost by account balance:

Total Account BalanceBalance Subject to 0.25% Annual FeeTotal Annual Fee
$10,000$0$0
$25,000$10,000$25
$50,000$35,000$87.50
$100,000$85,000$212.50
$150,000$135,000$337.50
$250,000$235,000$587.50

Wealthfront clients incur no other fees outside of the 0.25% advisory fee. There are no trading commissions, custodial fees, or exit fees if you close your account.

Keep in mind that although Wealthfront charges no additional fees, you will have to pay fees for the underlying ETFs that you own through Wealthfront. You would pay these even if you managed your own portfolio. These are typically around 0.12% annually on top of the 0.25% management fee.

Once you have an account opened and funded, you can get an additional $5,000 managed free for each friend that you invite who opens and funds their account. The person invited gets an additional $5,000 managed for free as well. That’s $5,000 for the both people involved. There’s no limit to the amount you can get managed for free and these funds are managed free for as long as the account remains open.

Possible Drawbacks

No fractional share investingBetterment, M1 Finance, and Motif Investing all allow investors to utilize fractional shares, but Wealthfront does not. For example, Vanguard Total Stock Market Index (VTI) costs a bit more than $125 per share today. If you only have $100 available in your investment account, these other firms will allow you to purchase a partial share. At Wealthfront, no investment would occur until your account balance exceeds $125.

No cash equivalent investments – At Wealthfront, your money is invested in a blend of stock and bond ETFs. Financial markets are risky, and you can lose your money even in their most conservative portfolio. If you are a very risk averse investor, or if you need immediate access to your funds, consider a savings account.

No customization – Wealthfront recommends a diversified set of ETFs to everyone, but no customization is allowed. For example, if you would rather choose a different type of real estate investment, that’s not allowed. The Wealthfront team makes very good, research-based recommendations, but you can’t replace or delete any of their chosen ETFs.

Wealthfront Review Summary

Wealthfront offers quality asset management and financial planning services at a very reasonable fee. But I think Wealthfront offers even more to a select group of people:

Individuals just getting started: Wealthfront recently lowered their minimum account balance to just $500. When combined with the $15,000 free management offer, Wealthfront is a great option for new investors or individuals wanting to test the service.

Young professionals and families: Wealthfront is focused on offering services and features that directly address the needs of young professionals. The Wealthfront 529 College Savings Plan, Stock Selling Plan, and Path (Financial Planning) are examples of unique services designed to help young families manage their finances.

Individuals who have an extensive network: All investors who sign up through our website begin with $15,000 managed free, but each additional referral results in an additional $5,000 managed free. Someone with an extensive network could have a sizable portfolio managed for free.

Individuals with $100,000 or more to invest in a taxable account: Retirement accounts don’t count because no tax-loss harvesting is available. Taxable account balances in excess of $100,000 receive Wealthfront’s Passive Plus suite of tools, which become increasingly valuable as your account balance grows.

The combination of features offered by Wealthfront is unmatched by other robo-advisors, as detailed in my Wealthfront vs M1 Finance vs Betterment comparison.

Wealthfront Review 2017
Summary
In my opinion, Wealthfront is the best robo-advisor in existence. In 2017 alone, Wealthfront has added several innovative features, including Path financial and college planning, a portfolio line of credit, and the Passive Plus suite of tax reduction tools.
Features9.8
Total Cost9.3
Ease of Use9.2
Customer Support8.4
Investment Options8.6
Strengths
Outstanding tax-loss harvesting
Quality investment recommendations
$15,000 managed free
Innovative features
Weaknesses
Limited customization
No fractional shares
9.1
Overall
Comments
    • Mark
    • July 26, 2017
    Reply

    I have been investing in Wealthfront for about 2 years. I moved an old IRA to Wealthfront, and I have been investing taxable funds as well. So far I am very happy with them. But the harvested losses are adding up and I can only deduct 3k per year on my taxes. What advantage does this have if I cannot take the deduction. Am I losing through increased trading of my account?

      • Jacob Lumby
      • July 27, 2017
      Reply

      Any harvested losses are carried forward and can be used in future tax years.

  1. Pingback: What is Investing and Why Should You Care? | Cash Cow Couple

  2. Pingback: Wealthfront vs Betterment vs M1 Finance: Which Robo-Advisor is Best?

  3. Pingback: Blooom Review 2017 | The Automated Investing Solution for 401(k) Plans

  4. Pingback: Personal Capital Review 2017 | The Good, The Bad, The Ugly

  5. Pingback: Betterment Review 2017 | An Honest, Comprehensive Overview

  6. Pingback: Motif Investing Review 2017 | Trades Stocks, ETFs, and IPOs

  7. Pingback: Discover Bank Online Savings Account Review • $100 Bonus

    • Don
    • June 21, 2017
    Reply

    I am considering opening a $2500 Roth IRA with Wealthfront. I would like to keep the money available in case I should need to use it. Is this a wise choice, or would it be better to not use an IRA for this purpose? Thanks.

      • Jacob
      • June 21, 2017
      Reply

      You can always withdraw your original contributions from a Roth IRA without penalty.

  8. Pingback: M1 Finance Review 2017 | Cash Cow Couple

    • Wilson
    • June 7, 2017
    Reply

    I’m 19 and I’ve done 2 summer internships and have a few thousand dollars that I would like to invest and I think Wealthfront would be great for opening up a Roth IRA. What my concern is that I don’t have any knowledge about investing in stocks and bonds. I know that Wealthfront makes you take a risk test which will determine how your assets would be allocated. For example let’s say Wealthfront puts 70% in stocks, 20% in bonds, and 10% in real estate. What does that really mean? How can I watch the stock market to determine how well my investments are doing? Does Wealthfront’s algorithms find and manage appropriate stocks for my case? Do I get to see what stocks that Wealthfront has chosen for me? If I create a Roth IRA with Wealthfront do I just put money in annually and watch it grow?

      • Jacob
      • June 7, 2017
      Reply

      Hi Wilson,
      Wealthfront does all of the portfolio management for you. You can log into your account and view all of your investments and the rate of return. It’s a great online interface.

    • natalie
    • June 6, 2017
    Reply

    Hi, have a personal investment account at wealthfront. So far I’m pleased with an overall 5% rate of return in 4 months. I have a 401k (non matching) and pension plan with work so this additional account is more of a long term savings (not roth eligible). My question is, given that it is liquid, is there any value is putting some money in there that I DO plan to use in the relatively near future? I have a vehicle I’m selling, but plan to use the money in about 6 months to purchase a new one. I’d like that money to earn something while it is in a holding pattern. Or am I better off just sticking it in my credit union?

      • Jacob
      • June 6, 2017
      Reply

      Natalie, you can go either way. The tradeoff is between risk and reward. The credit union is very low risk and reward. Wealthfront portfolios are invested in stocks/bonds, which means you could make money in 6 months or experience a loss. Future returns are uncertain (risky).

    • Elizabeth
    • May 28, 2017
    Reply

    I’m in my early 40s and starting a Roth IRA for the first time. Wealthfront seems like a great option; however, if I decide I don’t like it, are there penalties for moving my investment elsewhere? If I wanted to change companies how would I go about doing it?

    Also is the .025% fee considered low for the industry? With max contribution I will be >$10K in less than two years. Thanks!

      • Jacob
      • May 29, 2017
      Reply

      You can ACH your funds to another company at any time, without penalty.

    • Pree
    • March 28, 2017
    Reply

    I am 28 years old. I recently opened a Roth IRA account with Betterment (90% stock and 10% bonds). I contribute 12% to Roth 401K. My employer matches 33% of the first 6%. I am wondering if it is worth to start a general investing taxable account with Wealthfront considering the first $15K managed for free.

      • Jacob
      • March 28, 2017
      Reply

      If you are interested in the service, it’s hard to beat the $15,000 managed free.

        • Pree
        • March 29, 2017
        Reply

        Thanks!
        Currently, given my age, my portfolios (IRA, and 401K) is at high risk (>90% stocks). I was going to structure the wealthfront account as more moderate risk. What do you think is a good stock to bond ratio: 60/40, 70/30 etc.?

        Thanks again for your help. Really appreciate it!

          • Jacob
          • March 29, 2017
          Reply

          Hi Pree,
          Your optimal asset allocation depends on your risk tolerance and many other personal factors. I would recommend that you choose an allocation that makes you comfortable for the long haul. More stocks means the potential for higher returns, but also the potential for significant losses. Bonds are much more stable, with a lower average return.

  9. Reply

    Great and thorough write-up on Wealthfront!

    One thing with Wealthfront is that, as you point out, you can’t explicitly modify their allocations for you. But the questions you answer in the risk assessment determine your risk tolerance which they encapsulate as a numeric “Risk Score”. While you’re able to influence your asset allocations directly, you are able to change your Risk Score once every thirty days. This gives you the ability to tweak their asset allocation strategy for your account to be more conservative or more aggressive within their strategy and allocation templates.

    I point this out because I’ve created a site where I’m logging my Wealthfront investment performance results monthly to help visitors gauge how it’s performing for me. But the important things is that I am not using Wealthfront for my complete investment plan. Instead, I invested $10,000 that I had sitting in a meager 0.95% interest rate savings account with Wealthfront and dialed my Risk Score down to their lowest value of 0.5. This is their most conservative investment profile and I’m running this test to see how it performs compared to a traditional savings account.

    • Bill G
    • October 3, 2016
    Reply

    Thank you for the thorough explanations! Would you recommend investing ALL funds – taxable, IRAs and 401k, into either Wealthfront? Putting all of my taxable account funds into Wealthfront would exceed the $100,000 limit to take advantage of direct indexing. To simplify things, I’d just as soon have all of my investments in one place, then, so I’d move over my IRAs and 401k. Kind of all my eggs in one basket. Is that too risky? Should I have everything in Wealthfront?

      • Jacob
      • October 4, 2016
      Reply

      Hi Bill, I can’t give you specific advice, but I also prefer simplifying my life and having accounts in the same location. Wealthfront uses diversified ETFs, and therefore offers a good solution for any type of account.

  10. Pingback: New Money Rule #5: You Need an IRA – New Money Rules

    • Debra
    • September 5, 2016
    Reply

    Thank you for the great information. You really provide a great resource! My husband and I are considering moving our retirement (SEP-IRA), currently valued at about $225,000 to Wealthfront or Betterment. (I’m 49, my husband is 45). We are currently using a traditional advisor, and I simply can’t stomach the fees any longer. However, in addition to these two robo-advisors, we are also considering Vangard’s Personal Advisor Services in the mix. Any thoughts on how this might compare?

      • Jacob
      • September 5, 2016
      Reply

      Betterment and Wealthfront are better at asset management IMO. They include more features, but cost less than VPAS.
      The only advantage to VPAS is access to an advisor, but I have no personal experience with that. I have heard that the employed advisors service too many clients, making it difficult to get real advice when needed. As such, I haven’t considered VPAS, and would rather save the difference in annual fees by going with Betterment or Wealthfront.

    • Garret
    • August 11, 2016
    Reply

    I just inherited some money $100K, I have no cc debt, I have an emergency fund. I’ve been sitting on this money for about a year collecting .10% in a saving account at a credit union. I know I need to start making my money work for me. I love the interface and the ETF options with Betterment. They both have Tax-Loss Harvesting. Do you feel that the Tax-Optimized Direct indexing with Wealthfront is enough to tip the scales in their favor (obviously I know its just your opinon.) Awesome blog. Thanks

      • Jacob
      • August 11, 2016
      Reply

      Hi Garret,
      I am a fan of the additional tax loss harvesting features provided by Wealthfront. Wealthfront’s direct indexing becomes more valuable as your taxable portfolio increases, because any losses harvested can offset unlimited gains in the same year (but only $3k of ordinary income each year). Losses that aren’t utilized in the current year can be carried forward.

  11. Pingback: Investment Returns for Millennials

  12. Pingback: Book Review: The Simple Path to Wealth | Cash Cow Couple

  13. Pingback: Wall Street Doesn't Want You To Know About Investing Fees - Sure Dividend Sure Dividend

    • Steve
    • January 9, 2016
    Reply

    After starting account with $500 minimum is there a feature that allows additional automatic monthly investments? If so, what is the minimum additional monthly investment amount? $100? $500?

      • Stephen
      • February 26, 2017
      Reply

      The min amount you can invest at a time with Wealthfront is $100. You may only invest whole dollar amounts.

    • Carol
    • November 21, 2015
    Reply

    Two questions:
    1. Can I ask my money be moved to cash if I anticipate a long term draw down in the market and/or can I invest in reverse ETFs with Wealthfront?
    2. I heard of one site that will manage your funds in your existing accounts but I can’t seem to remember the name. Are you familiar with that?

      • mike
      • December 14, 2015
      Reply

      Carol,
      Thats what money managing firms do, keep you from getting emotional and taking money out in a bad market. For instance if you doubled down in 2009 instead of selling you make a killing.
      How could you as in individual anticipate a long term draw down of the market? If you could do that you wouldn’t need an advisor.
      Mike

    • Brian Atwell
    • September 19, 2015
    Reply

    Excellent blog with solid feedback. Thank you for all of the advice you have provided. Good to see more people are looking to invest and save as opposed to spend & live paycheck to…

    Nicely done!

    • ed b
    • September 15, 2015
    Reply

    Would wealthfront or betterment be appropriate for a non-profit, say a Rotary Club?

      • Doofus
      • March 11, 2017
      Reply

      Yes!

    • Mike
    • August 21, 2015
    Reply

    Hi,
    I am 15 years old and have made $1200 working my summer job and am nervous to put this money in a traditional bank due to all the fees. I would like to invest half of it and feel I can contribute $500-$700 per year while in high school. Would this be a good option for me within account this small?

      • bryan
      • May 13, 2017
      Reply

      random internet browser here checking into to say WAY TO GO MIKE for thinking about your future at such a young age. you probably represent .001% of people your age who even consider such things, much less take the initiative to actually invest. use this for motivation to keep it up: if the last 70 years of market history speaks for the future, you’ll have 7-figure investments by age 45 if you maintain your current mindset. obviously there’s a lot that could happen between now and then, however! 🙂

      keep up the good work my man!!

      • Jacob
      • August 22, 2015
      Reply

      Mike, so impressed that you are reading and already saving at age 15. You are way ahead of where I was at that age!
      With regards to Wealthfront, it would be a great option. Signing up through our blog means your first $15k is managed completely free of charge.

    • Christine
    • August 21, 2015
    Reply

    Hi Jacob! Thanks for the great info. I have 200K from a divorce settlement. I turned the money over to a Raymond James advisor. The fees seem to be high and I rarely hear from my advisor. I don’t want to touch the money until retirement–I’m 46 now. Is Wealthfront account a better choice for this money?

      • Jacob
      • August 21, 2015
      Reply

      I would certainly think so. Fees are a primary predictor of investment performance over time, and you are likely paying way more than 0.25% annually right now.

    • Rachel
    • July 20, 2015
    Reply

    I have a question that reiterates one earlier about liquidity – you mentioned wealthfront and betterment are the same regarding “getting out”, but could you provide more details about the costs and tax implications of getting your money back out? I have two envisioned scenarios – one, I simply decide I’d like to use the money (say, purchase a car, etc), and two – it’s retirement time and I’d like to start drawing from those funds to cover my living expenses. My primary aim is to learn how easy/difficult it will be to get my money when I wish to use it. Thank you!

      • Jacob
      • July 21, 2015
      Reply

      If you have tax sheltered accounts (401k, IRA, etc.) in any investment firm, you can’t withdraw the money until retirement age without paying penalties and taxes. Those are the rules outlined by the IRS. So your only other remaining option is to rollover the money into another firm and invest there. That’s all done by ACH or wire transfer, for free.
      If you have a taxable account, you can withdraw the money straight to your bank account any time. That means you would be selling your investments and liquidating to cash. Any investment gains would be realized at the time of liquidation and you would pay taxes according to holding period. Long term, or short term, depending on how long you had investing the money.
      There is nothing unique about the way this is all handled. Money is transferred in from a bank or another financial account, and transferred out the same way. Your timing and withdrawal decisions determine tax consequences.

    • Jason
    • July 16, 2015
    Reply

    Thanks for this review, Jacob. Direct Investing is an interesting concept, but looking at the data Wealthfront presents, I’m noticed a few things and wonder what you think about them:
    -If they’re using individual stocks and not the VTI ETF, then presumably that means you’re also saving the 0.05% Expense Ratio that VTI charges. If this is true, I’m kind of surprised that Wealthfront doesn’t advertise this benefit, given their emphasis on low fees. Also, does the chart where they list the mean performance account for this reduced fee? (Presumably it does, if they’re displaying VTI’s returns net of expenses).
    -It’s interesting that while WF500 and WF1000 beat the VTI on with their mean returns, it’s not consistently beating it every year. In fact, 4 out of 15 years, the VTI beat the direct investing. It looks as if direct investing not only gives you better mean returns, but also less volatility.
    -Not surprisingly, WF1000 beats on WF500. This makes it curious that they didn’t include WF100 in the chart. I’d be interested to see how WF100 compares to the VTI.

      • Jacob
      • July 16, 2015
      Reply

      Hey Jason, thanks for stopping by.
      1) Great point, and I don’t know how an investment would be divided among individual securities and the remaining ETFs.
      2) I agree. I would like to see results charted. But WF100 will track VTI and the other direct indexing options very closely for the reasons stated above. The WF100 directly purchases the 100 largest companies in the SS&P500, and fills in the remaining holes with ETFs to achieve an overall balance equivalent to VTI. WF500 does the same thing, except basically buys the whole S&P 500, and adds small/mid cap ETFs to mimic VTI.

    • Ken
    • July 11, 2015
    Reply

    I’m 70, retired, and have about $250K in a managed account with a major bank costing maybe 1.5% a year in fees. However I seldom hear from my account manager and am pretty much a passive investor. Trying to figure out if a service like Wealthfront or Betterment might be just as good a bet for me, since I’m not convinced that my account is being actively managed anyway. Any ideas? Thanks!

      • Jacob
      • July 11, 2015
      Reply

      Hi Ken,
      If you understand the importance of passive investing and low fees, it would be a great move for you. The difference in account value from paying 0.15% instead of 1.5% is enormous over a lifetime. And according to academic research and empirical data, the guy at the bank likely isn’t adding any value to your portfolio, just siphoning off profits that should be yours.

        • Ken
        • July 12, 2015
        Reply

        Thanks Jacob, sounds good. Follow-up question: Are Tax-Loss Harvesting and Tax-Optimized Direct Indexing applicable to rolled-over IRAs? Or are those not relevant to me?

          • Jacob
          • July 12, 2015
          Reply

          No problem Ken. Only applicable to taxable accounts.

  14. Pingback: Understanding How the Stock Market Works | Cash Cow Couple

  15. Pingback: Why Do People Invest in Stocks or Anything Else? | Cash Cow Couple

  16. Pingback: Personal Capital Review - The Good, The Bad, The Ugly

  17. Pingback: Expert Interview with Jacob Starting Young With Your Retirement Planning | NewRetirement Blog

  18. Pingback: The Robo-Advisor Rumble - Money Cash Prose

  19. Pingback: Discover Bank Online Savings Account Review • High Yield

    • Jack
    • March 1, 2015
    Reply

    Hi Jacob,

    If I qualify for the wealth 100 is all 100K invested in 100 stocks in the S&P 500 or only the portion of the 100K that was allocated to VTI?

    Thanks,
    Jack

      • Jacob
      • March 1, 2015
      Reply

      Hey Jack,
      It’s just the portion allocated from VTI. They continue using the other ETFs as well to maintain a diversified portfolio.

  20. Pingback: American Express High Yield Savings Account Review (AmEx)

    • Jacob W
    • January 24, 2015
    Reply

    Thanks for the thorough post. Definitely a lot of great information that helps me decide if I really want to go with Wealthfront. Can you help me with some questions though?

    1. Does my portfolio allocation automatically get rebalanced as I get older (similar to a target date fund)?
    2. How often can someone change their risk tolerance and thus change their asset allocation?

    Thanks again for the informative post!

      • Jacob
      • January 26, 2015
      Reply

      Jacob, great questions. I actually wanted clarification and asked a Wealthfront executive your questions. I received the following answers:
      1) Your allocation won’t automatically change as you get closer to retirement. Reason is that a target date fund implicitly assumes that other pieces of your financial profile haven’t changed over that time. Instead, we prompt our clients to re-take our risk assessment once a year, so we can incorporate all available information. As the client ages, their risk score will naturally fall (all else being equal), but if their income changes or they answer other questions differently, that will also affect how their allocation changes.
      2) We allow to clients to change their risk scores a maximum of once every 30 days. However, we discourage clients from doing this too often because it’s often used as a way to time the market, which we do not recommend.

    • Thomas
    • January 22, 2015
    Reply

    I’ve been considering Wealthfront for my Roth IRA this year, and I really like their investment philosophy. Thanks for the thorough review and the additional $5,000 offer. I think you’re review has made this decision easy. 🙂
    -Thomas

      • Jacob
      • January 22, 2015
      Reply

      You are welcome Thomas. Let us know your experience after you’ve opened the account!

    • Jacob
    • January 3, 2016
    Reply

    Fidelity has the same offering with ATM fee reimbursement worldwide, but does not do a hard credit pull when opening the account. For that reason, Fidelity is better if you just want the free ATM feature.

    • Frank
    • February 17, 2015
    Reply

    well i thank you very much for the imput! great as always :). I think ill shoot for wealthfront now, just as the budget option. for the free 15K managment. and see where to take it from there. but glad to see there both equal competitors. and I wont loose anything by going with one over the other.

 

Leave a Comment