Wealthfront Review - Smarter Auto-Investing

Wealthfront is among the cream of the robo-advisor crop that we’ve seen emerge over the past several years. Founded in 2011, Wealthfront quickly established itself as an affordable way for new investors to start strong portfolios. They now manage more than $4 Billion for thousands of different customers. Their portfolios, built on Modern Portfolio Theory (MPT), show strong returns. By all accounts, Wealthfront’s model seems like the present and future of everyday investing.

Wealthfront’s philosophy is becoming increasingly familiar to anyone interested in steady investment growth over the long term. New users may derive additional confidence to know that  Wealthfront’s advisory board includes some heavy hitters in American investment. These include Burton Malkiel (author of “A Random Walk Down Wall Street”), Charles Ellis (founder of Greenwich Associates), and 7 PhDs.

Wealthfront Review – Wealthfront’s Model and Costs

Wealthfront is similar in many ways to Betterment. Both services let users deposit funds, which are automatically distributed into a small selection of ETFs and index funds. Because ETFs are composed of hundreds of individual stocks, this plan achieves immediate diversity. Rather than trying to cherry-pick a winning stock or two, this diversity-first model capitalizes on the steady growth of entire economies.

Wealthfront isn’t the best choice for investors who love to manage all the details of their portfolios. However, micromanagement isn’t really necessary to get great returns. Modern Portfolio Theory makes real money for passive investors. Wealthfront exists to make it easier for new investors to get started on this journey. They allow users to start accounts for normal brokerage, retirement, Trusts, and corporate entities.

Wealthfront’s costs are about as low as you’ll find, especially for beginners. If you are able to start an account at Wealthfront’s $500 minimum, the service is free until you have $15,000 in your portfolio. After that, Wealthfront charges you only 0.25% annually. This cost includes or replaces management fees, trading fees, commissions, and account maintenance, as well as a number of features and perks.

Wealthfront Fees

Wealthfront’s Features

Perhaps Wealthfront’s biggest value proposition is ease of use. You can start an account in minutes, and end up with a magnificently diversified portfolio. When you start your account, Wealthfront asks you ten easy questions, to gauge your investment goals and risk tolerance. The ETFs which go on to compose your portfolio are determined by how you answer these questions.

At this point, you never have to think about your Wealthfront account again, if you don’t want to. Wealthfront takes care of everything. It’s best to automate regular contributions to make the most of your portfolio’s growth potential. The service will further catalyze your portfolio’s growth with Tax-Loss Harvesting (TLH) and Asset Allocation Rebalancing. Both of these perks are included at no additional charge.

Tax-Loss Harvesting is a remarkable benefit to get at no extra cost. In this process, Wealthfront’s algorithms automatically sell losing options, automatically replacing them with winning options from the same asset class. This “locks in” losses and cuts down on an account’s tax burden at the end of the year/cycle. Wealthfront saves their taxable account clients 2% annually from this method.

Individuals could perform their own tax loss harvesting through some of Wealthfront’s competitors, but not without daily maintenance, a lot of headaches, and (probably) more than a few mistakes. I’m happy to let the computers handle TLH, and I think you probably will be, too.

What ETFs Does Wealthfront Include in Your Portfolio?

Wealthfront has a bare-bones collection of strong performance ETFs. The ones that go on to build your portfolio will be determined by how you answer questions when starting your account. Your portfolio will be composed of some combination of these ETFs:

  • VTI – Vanguard Total Stock Market ETF
  • VEA – Vanguard Developed Markets ETF
  • VWO – Vanguard Emerging Markets ETF
  • VIG – Vanguard Dividend Appreciation ETF
  • LQD – iShares Investment Grade Corporate Bond Fund ETF
  • EMB – iShares Emerging Market Bond Fund ETF
  • SCHP – Schwab Treasury Inflation Protected Securities ETF
  • VNQ – Vanguard REIT Index Fund ETF
  • XLE – Energy Select Sector SPDR
  • MUB – iShares Municipal Bond Fund ETF

You’ll notice that these selections are very similar to those that Betterment use to build their clients’ portfolios. It’s a winning strategy that users of both services find rewarding.

Wealthfront Security

Wealthfront is as secure as you’d hope. They don’t actually hold your portfolio, leaving that duty to Apex Clearing, a company whose sole business is financial security and integrity. Your brokerage account with Wealthfront is protected by SIPC insurance, for up to $500,000. Wealthfront also uses strong encryption standards.

Additional Perks for High Net Worth Users

For users with more than $100k invested in a Wealthfront portfolio, Tax-optimized US Index Portfolio is made available. Bundles of 500 or 1000 individual stocks can be bought directly from the S&P to further optimize TLH. Further economic advantages are unlocked for users with $500k and $1M in their portfolios. For more information about this, head on over to Wealthfront.

User Reviews

  • “EndtheCar” had this to say at TheSimpleDollar:

“I signed up for Wealthfront recently after doing my research on robo-investing companies

With 21K to invest, it was between WealthFront vs Betterment. Here is the reason I chose Wealthfront:

My investment amount is less than 100,000 (around $21k). 10k is managed for free and I used a referral from the comments to get another 5k managed for free. Rest is managed at .025 percent. In my case Betterment would have been as same percentage but without the referral perks.”

  • “Andrew” had this to say at at Investor Junkie:

“I recently moved half my portfolio to WealthFront… their service team was fantastic – answered several complex questions and helped us with the logistics of transferring accounts. I’ve used the other services mentioned on this page – WealthFront’s customer service is the best.”

Final Thoughts on Wealthfront

This Wealthfront review hasn’t been as long as some of our other robo-advisor reviews, but that’s largely because Wealthfront is just so simple to use and understand. We think it’s a very strong offering for new investors, investors without a lot of money to start a portfolio, or value-minded investors looking for simple long-term portfolio management. Wealthfront has already shown that it can last in an increasingly competitive robo-advisor landscape, and we have confidence that they’ll continue to show their merit over the years to come.

Rating: 4.7 / 5
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Read our Wealthfront Investing Review to learn more about smarter investments.
Wealthfront Review
Written by: Andrew Black
Date Published: 08/09/2016
4.7 / 5 stars