Wealthfront Review

Jun 30, 2020 02:42 AM ET
Wealthfront Review

Wealthfront: How Does It Work?

Thanks to the technological advancements, a new investment option has emerged called the robo-advisor. And one such quality robo-advisor is Wealthfront. This is one of the first companies that automated the investment process and still maintained the position of one of the largest robo-advisors in the industry today. Wealthfront came into existence in December 2011 and since then, it has built up its assets under management to $11.5 billion.

Like most robo-advisors, Wealthfront’s working also begins the investment process by asking its new clients a series of questions that help them to thoroughly analyze your risk tolerance. Later on, a recommended asset allocation is attained via exchange-traded funds or ETFs.

Main Features of Wealthfront

  • High-Interest Saving Options: Wealthfront offers the Wealthfront Cash Account which is a savings account that currently pays interest of 0.35% which is competitive with many online banks. In this account, through white-label agreements with numerous banks, Wealthfront is able to offer up to $1 million in FDIC coverage. This is 4 times more insurance as compared to an average bank account.

  • Low Management Fees: Wealthfront charges an annual fee of 0.25% for its robo-advisory services which comes in the lower category when you see the whole fees spectrum. They also have a referral program that you can use to invite friends. If the invited friend or person funds an account the company will waive charges on %5000 for each of you.

  • Lots of Account Types: Wealthfront provides standard brokerage accounts (both individual and joint), Roth IRAs, traditional, SEPIRAS, Rollover IRAs, and trust accounts.

  • Line of Credits: Wealthfront clients and customers with $25,000 in their accounts are allowed to borrow up to 30% of the value of their portfolio. This is carried out without any credit check or fee payment. Not even need to fill up an application.

  • Cheap Investment Expenses: Just like its competitors Wealthfront uses exchange-traded funds to create client portfolios. These portfolios have their own investment costs. These investment cost ratios average to 0.08% resulting in some of the cheapest funds in the industry.

  • Tax-Loss Harvesting: Wealthfront provides tax-loss harvesting to investors of all account sizes. The concept incorporated here is that when one of your portfolio’s investment funds deteriorate in value, Wealthfront may sell it at a loss, strategically, and reinvest in a similar fund. This lets you counterbalance any capital gains in your account, which can considerably lessen your tax bill. And for accounts with $100,000 or more, Wealthfront tenders stock-level tax-loss harvesting, which can take your tax efficiency to the next level.

  • Automatic Rebalancing: Wealthfront rebalances whenever a portfolio’s asset allocation gees out of balance instead of rebalancing at set times.

  • Financial Planning: Wealthfront’s free Path tool helps both mobile and desktop users plan for purchasing a home, college, retirement, and other general saving goals which a compulsory Wealthfront account. 

  • College Savings: Wealthfront’s Path tool allows parents to choose the college they want their kid to go to and then projects college expenses, develops a monthly savings plan, and estimates financial aid. Parents have the option of linking an outside 529 college savings account or open one through Wealthfront.

 

Wealthfront

How to Start Saving with Wealthfront?

In order to start saving with Wealthfront all you have to do is set up your account with them. The process won’t take long. The account will be different based on how many other financial institutions and assets you are willing to connect to your plan. If it’s just a checking account the process will go fairly quickly. With the information collected, Wealthfront paints a picture of your current situation. It also shows how it looks for your retirement. The entire setup process is smoothly done with no human advisor interference.

What Is Wealthfront Investment Strategy?

Wealthfront’s investment strategy is very much equity-oriented. Their objective is to seem and maximize long term returns. They also incorporate the Modern Portfolio Theory or MPT to classify the portfolio that has the maximum expected return for the chosen level of expected risk. To further add an edge to your investments, Wealthfront created PassivePlus®. It is their suite of rules-based investment strategies that are embedded in academic research while enduring the test of time.

What About the Fees And Commissions?

Wealthfront as a robo-advisor has a very simple and definitely competitive fee structure. 0.25% of your portfolio is assessed monthly but no fee is charged for cash balances. The annual management fee is 0.07%-0.016% for the ETPs that make up most of the portfolios. The larger portfolios register in the Smart Beta program may be invested in funds with considerably higher management fees.

Wealthfront Pros, Cons, and Who Is It For?

Pros:

  • Low EFT expense ratio

  • Free management of the first $5000

  • Daily tax-loss harvesting

  • Automatic rebalancing

  • Goal-setting assistance

  • If you have numerous goals, it shows you the trade-offs you will face

  • Portfolio line credit is obtainable

Cons:

  • No large account balance discounts

  • Lacks fractional shares

  • No customization beyond risk settings for portfolios under $100,000

  • No fractional shares

  • No online chat for clients and potential customers

  • It carries no excess SIPC insurance

  • Large accounts may consist of expensive mutual funds

After tallying the pros and cons one can see that Wealthfront is ideal for the following:

  • People looking for free financial tools, even though they don’t have an account with Wealthfront

  • People who wish to open a 529 college savings plan

  • People who want to be able to borrow money against their account’s value.

The Bottom Line

Wealthfront is one of the finest robo-advisors with excellent investment service especially when it comes to its taxable accounts. The services help investors minimize annual tax expenses. For newbie investors as well, Wealthfront will make a good choice. On the other hand, active investors can enjoy self-directed accounts. In other words, Wealthfront has something to offer to all levels of investors.

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