How Does Wealthfront Work?
Their software determines how to invest your money (they make suggestions on how to make your money grow) and to keep you from over-investing. Wealthfront has three models for these varying needs (mixed growth, benchmarks, and the risk-free strategy), you just have to choose which one works best for you.
Every month, Wealthfront evaluates your portfolio based on their model portfolio and ensures you’re on track to meet your goals. This isn’t to say they are hands-off – they do more than track your portfolio, they also help you focus on what works. And they help you avoid paying more fees than you have to. If something needs attention, they will let you know.
Wealthfront Features and Pricing
Wealthfront does not have a minimum balance to open one of their investment accounts. You can start with a few hundred dollars. Asset allocation is 100% your call, so my recommendation is to start at least with an equal split among growth stocks (large-cap domestic growth companies), high-yield dividend stocks, and collection savings.
Wealthfront charges a management fee of 0.25% per year (plus additional small fees for withdrawals) which is lower than most active mutual fund managers, brokers, and ETFs. Barring specific IRA accounts that waive fees, the typical fee for investments with mutual funds is about 0.5% per year.
Although the Wealthfront advisory fee is higher than the average investment account, the cost of managing an account that meets your needs and goals is worth the expense.
With an investment account with Wealthfront, you don’t have to deal with dealing with the hassle of a brokerage. You don’t have to continually monitor and rebalance your investments. The portfolio automatically rebalances on its own as you make contributions or withdraws.
Wealthfront Investment Portfolio
In Wealthfront, you select an asset allocation and risk level:
- _ 40/60 – Medium Risk (20% stocks / 80% bonds, suitable for financial advisors)
- _ 60/40 – Medium Risk (40% stocks / 60% bonds, suitable for most investors)
- _ 90/50 – Medium-low Risk (50% stocks / 50% bonds, suitable for investors who like to sleep well at night)
- _ 100/0 – Low Risk (80% stocks / 20% bonds, suitable for aggressive investors)
The design of these portfolios is very similar to the Vanguard LifeStrategy funds.
Wealthfront Tax-Loss Harvesting (TLH)
TLH is a fund that is built to produce a tax benefit. Unlike a mutual fund, it is managed to produce gains only to those tax lots that have large tax losses.
As losses accrue, the funds from the accruing groups are consolidated into the TLH funds, making it possible to have only one type of fund: a TLH fund.
Wealthfront Tax-Optimized Direct Indexing Portfolios
Wealthfront is a great wealth management option for anyone who doesn’t have a lot of money to invest and doesn’t want the headache of managing their own money. The robo-advisor service comes packed with a lot of resources to help you better understand how to manage your money. This includes articles to help you better understand the world of investing, guides on how to manage your student loans and advice to help you get started investing.
One of the best features of Wealthfront is that it allows you to choose your own investing strategy. Whether that means you want to outsource your investments to a robo-advisor service, or do it yourself, Wealthfront will give you all the information you need to get started on your investing journey. You can even access your dashboard from the Wealthfront website or mobile app to get updates on your portfolio with a glance.
If you’re looking for access to professional financial advice and you’d rather not manage your own money, then Wealthfront is a great option. If you’re looking for a hands-on approach to investing, then Wealthfront probably isn’t for you.
Wealthfront Path – Help Setting Your Investment Goals
If you are someone who is new to the world of investing and want a place where you can start putting away savings with minimal effort. This is definitely the place to check out. Wealthfront is an advanced digital wealth management firm that allows you to sign up and create a secure investment portfolio online. The automated technology makes it so easy to set up that if you can “create an account” on Amazon, you can create a portfolio on Wealthfront.
There’s a ton of information online about the impressive technology they use to hook you up with an “Uber-like” service for financial advisors. This really appeals to me since I would rather pay for an automated service and still have the option of getting to know my financial advisors, rather than looking for a financial advisor who can provide such a service.
When you do set up your account, be sure to check out their Path, so that Wealthfront can offer you a more customized experience. Furthermore, it’s a good way to meet your financial advisor and your account specialist.
Your account specialist will be the person you will consult with before making any changes to your portfolio. It helps to think of your account specialist as someone who will be working for you, and you should feel comfortable asking questions and getting advice from them.
Will Wealthfront Work for You?
Wealthfront is an investment management app that is designed to make investing easy for just about anyone. The company used to be called Risk Front, but the founders realized this wouldn’t be an effective brand given the general level of risk aversion that most individuals experience when it comes to investing.
That’s where the name Wealthfront came from.
You might be asking, “Is the Wealthfront name just a marketing ploy?” Given how the company has been successful since it launched, I don’t think so.
Investing on your own through a robo-advisor like Wealthfront might be the best solution for you, especially if you have a simple investing strategy, such as investing only in a well-diversified portfolio of stocks and ETFs.
A Wealthfront investment advisor offers several advantages, including discount trading commissions, asset allocation guidance, and tax-loss harvesting. It’s important to note that the wealth manager is not an advisor, as Wealthfront wouldn’t be able to invest your money in a Roth IRA (see this post).
Since Wealthfront has no minimum account values or finance charges, you could invest a relatively small amount at a time.