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Updated on Monday, January 27, 2020
Wealthfront is a robo-advisor for beginner investors who don’t have the time or money to devote to hands-on investing but who still want to save for the future. Wealthfront’s automated platform designs a portfolio of low-cost, exchange-traded funds (ETFs) that maximizes your returns while honoring your own level of risk tolerance. And with a minimum investment requirement of only $500, there’s a low threshold for entry.
Wealthfront also guides your financial planning. It examines where you are now, helps you set goals and ensures you stay on track to hit your investing objectives. Additional key features include automatic rebalancing and tax-loss harvesting, plus college savings plans.
Who should consider Wealthfront?
Wealthfront is a good option for beginners who know they should be investing for the long term but aren’t looking for in-depth portfolio customization. This robo-advisor doesn’t allow its clients to choose the assets that make up their portfolio until they reach an account balance of $100,000. It’s also a good choice for investors looking for a robust tax-loss harvesting strategy, and anyone looking to save for education expenses, since it offers a 529 plan.
The site is also a good checkpoint for anyone seeking basic financial planning, since Wealthfront offers free financial guidance on retirement, college savings, home purchases and the decision to take time off to travel. This is not, however, the robo-advisor for someone who wants access to a human advisor or anyone who’s interested in a socially responsible investing portfolio.
Wealthfront fees and features
|Amount minimum to open account|
|Account fees (annual, transfer, inactivity)|
|Mobile app||iOS, Android|
|Customer support||Phone , 24/7 live support, Email|
How does Wealthfront invest your money?
Wealthfront uses Modern Portfolio Theory (MPT) to choose a portfolio for you with the maximum expected return for your chosen level of risk. The site uses software to design a diversified mix of investments across “relatively uncorrelated asset classes,” based on your risk selection. The strategy seeks to maximize long-term returns. Each of Wealthfront’s asset classes is represented by a low-cost, passive ETF.
Wealthfront’s investment team currently utilizes the following asset classes:
- U.S. stocks
- Foreign developed market stocks
- Emerging market stocks
- Dividend growth stocks
- U.S. government bonds
- Corporate bonds
- Emerging market bonds
- Municipal bonds
- Treasury inflation-protected securities (TIPS)
- Real estate
- Natural resources
Wealthfront builds your portfolio from ETFs that minimize cost and tracking error, offer enough market liquidity and minimize the lending of their underlying securities. To ensure adequate diversification, no asset class can contain more than 35% of your total allocation. Based on your risk score, Wealthfront assigns portfolios with target annualized volatility ranging from 5.5% to 15.0%.
The platform uses software to monitor and periodically rebalance your investments, while also taking care to minimize any tax impact. Its rules-based strategies aim to deliver more value than buying and holding an index fund:
- Tax-loss harvesting: Designed to reduce your tax bill by capturing investment losses after market movements.
- Stock-level tax-loss harvesting: Once your account reaches $100,000, Wealthfront captures losses on individual stocks within an index.
- Risk parity: Aims to increase your risk-adjusted returns through an enhanced asset allocation strategy. Customers must have $100,000 to activate this strategy.
- Smart beta: designed to boost your expected return by weighting the stocks in your portfolio more intelligently. Available to clients with $500,000 or more in their account.
Note that Wealthfront’s risk parity strategy comprises a separate investing methodology than its standard model, and clients must opt in. It allocates capital across multiple asset classes, also known as mean-variance optimization. Applying the Risk Parity model complicates tax-loss harvesting and limits the ability to borrow against the portfolio value for other purposes, so Wealthfront limits participation to 20% of larger accounts.
Financial planning features
Wealthfront offers free, automated financial planning features. There’s no phone call — customers link their other financial accounts to Wealthfront, which then analyses them for you and offers advice. The more you link, the better view the automated platform has of your financial life, and the better the advice it can provide. You can explore various scenarios to see how they might affect your end goals, and update your plans accordingly. Bonus: You don’t have to have a Wealthfront account to use this feature.
This mobile and desktop tool — the Path — offers advice about retirement, buying a home, covering college costs and even the equation of whether you can take time off to travel:
- Retirement: Wealthfront will show you how your retirement picture changes depending on your savings level, choosing a different retirement age or adjusting other near-term goals.
- Buying a home: Wealthfront uses your location, net worth, credit score and debt-to-income ratio to estimate the mortgage you’d qualify for and suggest what you can afford to purchase. By changing variables like your timing, location and home size, you can see how the advice adjusts.
- Covering college costs: Once you choose a college for your child (Harvard aspirations?), Wealthfront uses Postsecondary Education Data System data to project the total cost you can expect to pay, even factoring in estimated financial aid. Then the system will suggest a realistic monthly savings goal.
- Time off to travel: Wealthfront’s engine will help you determine how you can comfortably take time off to travel while staying on track for financial goals by doing things like working remotely, subletting your home or varying the details of your trip to affect the cost.
Wealthfront Cash Account
The Wealthfront Cash Account is a high-yield savings account that earns 0.35% APY. It’s a competitive interest rate in the field of online savings accounts, but it’s not as accessible as many competing cash management accounts. There is no option to withdraw funds or make payments from the account via check or ATM card (although the site states that debit cards are coming soon) — you can only get money into and out of the account via ACH transfer to and from a separate checking account. Transfers take one to three business days.
Funds saved in the Wealthfront Cash Account are swept into multiple accounts at partner banks. The partner banks provide FDIC insurance coverage up to $1 million on the funds (or $2 million if you have a joint account).
Despite the strong interest rate, other robo-advisor cash management accounts offer more perks. The Betterment Everyday Cash Reserve account offers a two-way sweep feature that automatically optimizes your account balance based on your spending patterns. SoFi Money pays slightly less interest, but the account comes with debit card access so you can use it to make purchases and withdraw money from ATMs.
Strengths of Wealthfront
- Low fees: Wealthfront charges just 0.25% for digital portfolio management, which is competitive. That means if you have $10,000 invested, you’ll pay about $25 per year in fees. Wealthfront’s underlying investments are also low-cost ETFs with expense ratios ranging from 0.03% to 0.13%. That said, Betterment also charges 0.25% for portfolio management, and SoFi offers the service for free.
- Low-cost 529 plan: Wealthfront offers a 529 college savings account with fees ranging from 0.42% to 0.46% per year, making it one of the lowest cost advisor-sold 529 plans.
- Continuous rebalancing. Wealthfront has no schedule for rebalancing, it monitors your portfolio and rebalances as your allocations drift from their original target mix.
- Free financial planning help. You can link your other financial accounts to Wealthfront, giving you an overall picture of your finances in one spot. The platform offers targeted automated advice on retirement, college savings, buying a home or taking time off to travel, based on your financial info, which may be just enough help for the novice saver.
- Robust tax-loss harvesting: Wealthfront offers tax-loss harvesting for all clients — and stock-level tax-loss harvesting for larger accounts — using losses to offset ordinary income or investment gains to minimize your overall tax bill. In a taxable account, this can make a big difference. Not all competing robo-advisors offer this service for no additional charge.
Drawbacks of Wealthfront
- No human advisors: While you can talk to a professional about your investment account, and Wealthfront offers only automated advice on life goals like retirement and college savings. If you would prefer a human to talk you through your options, Wealthfront may not be your first choice. For slightly higher fees, you can get access to digital portfolio management and human advisors, such as with Vanguard Personal Advisor Services (charging 0.30%) or Betterment’s Premium plan ( 0.40%).
- No fractional shares. The ability to purchase fractional shares minimizes the amount of uninvested cash is sitting in your account, optimizing your long-term returns. Wealthfront doesn’t offer fractional shares, while Betterment and SoFi both do.
- Minimum investment: Wealthfront’s minimum of $500 isn’t steep, but it’s not $0, which is the minimum investment for Betterment , SoFi and Ellevest. If you don’t yet have $500 to throw at your investing future, you may want to start with another platform.
- No socially responsible investing portfolio. Many robo-advisors offer the option to invest in a socially conscious portfolio. Wealthfront only offers the ability to exclude companies you don’t wish to invest in once your account is large enough for Stock-Level Tax-Loss Harvesting ($100,000) or Smart Beta ($500,000). Investors interested in SRI should look toward Betterment or Wealthsimple, which offer SRI portfolio options.
Is Wealthfront safe?
Though no investment is guaranteed as “safe,” Wealthfront focuses on investing in ETFs, index funds that are widely considered to be low risk, even for the most conservative investors.
Wealthfront is also a member of SIPC, insuring your securities up to $500,000 for each account, and Wealthfront’s cash account is protected with FDIC insurance. They don’t have any complaints under the Consumer Financial Protection Bureau and have $20 billion in assets under management. View Wealthfront on FINRA BrokerCheck.
Wealthfront review: Final thoughts
Starting out in investing can be overwhelming, and it can be hard to know where to begin. If you have $500 to invest, Wealthfront will jump-start the process for you, diversifying your portfolio and minimizing expenses and taxes. The robo offers robust tax-loss harvesting and rebalancing features. There is no SRI portfolio for socially-conscious investors, but there are college savings options, so you’ll have to decide what’s important to you.
The lack of a human advisor isn’t for everyone, but you still get easy-to-manage tools, including financial planning advice on big life goals. You can trust that your money will be secure, and this robo-advisor will do all the work for you.