Wealthfront is a Robo-advisor (automated investment) company headquartered in Palo Alto, California. The company was founded back in 2008 by Andy Rachleff and Dan Carroll.
Formerly known as kaChing, and primarily dealing with mutual fund analysis, the company will later transition to wealth management and change its name to Wealthfront.
With $24 billion in assets under management, Wealthfront is a very successful company.
In addition to their core business of managing wealth, Wealthfront also offers a diverse array of services that include, retirement planning accounts, 529 college planning accounts, a savings account, as well as loan servicing accounts.
In this Wealthfront review, we will analyze all the services they have on offer and assess how those services measure up.
Who Should Use Wealthfront?
Because Wealthfront is a Robo-advisor, it is more suitable for investors who prefer a hands-off approach to investing. Since Wealthfront invests globally, it might also be ideal for investors who aren’t opposed to including a mix of foreign assets in their portfolio.
Pros of Using Wealthfront
- Access to a globally diversified portfolio
- Tax-Loss Harvesting
- Ability to customize your investment portfolio
- Portfolio line of credit for customers with short-term cash needs
Con of Using Wealthfront
- Wealthfront charges an annual advisory fee of 0.25% on what you invest. If you are a big investor, this amount adds up as there’s no discount for big-dollar investors.
- Wealthfront does not allow the purchase of fractional shares.
- $500 minimum investment required to open an account.
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How Wealthfront Works
Wealthfront uses a sophisticated software system that enables passive investing in a globally diversified portfolio of low-cost index funds.
They have a view to minimize your taxes, manage your risk, and charge a competitive management fee.
Their system of investing is different than investing in the S&P 500. Investing in the S&P 500 means you’re only investing in U.S. equities. Investing with Wealthfront, however, allows you to diversify your investment by acquiring a stake in up to eleven different global asset classes.
Wealthfront argues that investing globally makes the investment process less risky and less uncertain. That’s because there’s uncertainty in the markets that could work for or against you. Spreading your risk over different markets helps mitigate the risk and uncertainty.
Though Wealthfront invests globally, US stocks form the core of their asset class. That’s because history demonstrates that US stocks offer significantly more returns over the long run.
If you are apprehensive about investing overseas, Wealthfront also provides an option to customize your portfolio in a way that reflects the risks you are willing to take.
Wealthfront Services
Wealthfront is a wealth management company that offers the following services:
- Investment Accounts (for global investing)
- Cash Accounts (for saving your money in a high-yield interest-bearing account)
- Retirement Accounts (for retirement planning)
- 529 College Plan Accounts (for planning your kid’s college career)
Investment Accounts – The Wealthfront Way
Wealthfront investment accounts are operated passively by innovative software technology. Wealthfront Investment Manager tries to customize your portfolio according to your investment goals and risk tolerance. The investment strategy at Wealthfront is rooted in rigorous academic research and artificial intelligence.
How To Open A Wealthfront Investment Account
To open a Wealthfront investment account, you first need to be a legal U.S resident and have $500 to invest. Wealthfront will then ask you a series of questions to help build a portfolio that best suits your needs. Once your account gets funded, Wealthfront will invest the funds in a diversified portfolio of low-cost index funds.
How To Invest With Wealthfront
To invest with Wealthfront, you first need to open an account and have at least $500 available to invest. Wealthfront will run you through a series of interviews to determine your investment goals and to tailor your portfolio according to those goals.
Unlike traditional stock investing, where investors are constantly chasing market trends, Wealthfront believes in long-term passive investing and using software to implement their proprietary investment strategy to maximize investors’ returns.
[READ: Best Investment Apps For The Novice Investor]Wealthfront PassivePlus
PassivePlus is a set of Wealthfront’s researched-backed investment strategies that consists of the following:
- Tax-Loss Harvesting is a strategy designed to reduce an investor tax bill by capturing investment losses due to movements in the market. This strategy leaves more money in the investor’s pocket.
- Stock-level Tax-Loss Harvesting is designed to further reduce an investor’s tax bill by capturing losses on individual stocks within an index, not just the index itself. It activates when the investor account reaches $100k.
- Risk Parity aims to increase an investor’s risk-adjusted returns in a wide range of market environments through an enhanced asset allocation strategy. It activates when the investor account reaches $100K.
- Smart Beta is designed to increase an investor’s expected return by weighting the stocks in their portfolio more intelligently. It activates when the investor account reaches $500k.
Cash Account – Wealthfront Cash Account
Wealthfront offers an FDIC insured (up to $1 million) high-yield cash account. The cash account is neither a saving account nor a checking account. It is just a high-interest cash account that offers many of the same features you typically associate with high-yield savings accounts, but with fewer restrictions since Wealthfront is not a bank.
Here are some of the mean features of the account:
- $1 to open an account
- No monthly service fee
- FDIC insurance for up to $1 million ( four times the typical coverage)
- 0.26% APY
- Unlimited money transfer between your cash account and your external account, as well as transfer to your Wealthfront Taxable Investment account.
- No debit card
- No minimum balance requirement
Though the Wealthfront Cash Account offers a 0.26% APY, which is three times the national average, it is nowhere near the 1.7% APY offered by Goldman Sachs’ Marcus, or the 1.8% APY offered by CIT bank. If you are looking for a high-yield savings account, the competition offers better interest rates and terms than Wealthfront does.
Also, though Wealthfront’s Cash Account is not a savings account, it is not a checking account either, which means the account does not come with the convenience of a debit card.
The utility of having a Wealthfront Cash Account perhaps is that it makes it easy and convenient to transfer money from your cash account to your Wealthfront Investment account.
Retirement Account – Planning With Wealthfront
Wealthfront offers a comprehensive retirement planning service. From Traditional IRA to Roth IRA, SEP IRA, to 401(K) rollover, Wealthfront does it all.
Wealthfront Traditional IRA And Roth IRA
Traditional IRA and Roth IRA are both individual retirement accounts (IRA) but are differentiated by the timing of their tax advantages. For example, the Traditional IRA allows contributors to make pre-tax contributions and is advantageous to someone who expects to be in a lower tax bracket by the time they start making withdrawals from the account. The advantage is that they will avoid paying a higher tax rate now and then benefit from paying a lower tax rate in the future.
The Roth IRA, on the other hand, allows after-tax contributions and is advantageous to someone who expects to be in a high tax bracket when they start making withdrawals. The advantage is that they pay a lower tax rate now and spare themselves higher taxes in the future.
Wealthfront SEP IRA
SEP IRA (Simplified Employee Pension IRA) is similar to the Traditional IRA except that it provides self-employed individuals and small business owners with a simplified method to contribute toward their employees’ retirement as well as their own.
Wealthfront 401(k) Rollover
401(k) Rollover is one of the services Wealthfront provides. Rather than having several 401(k) accounts with several previous employers scattered all over the place, you can consolidate all your 401(k)s accounts by rolling them over into an IRA. Wealthfront can help you achieve that.
As with all IRAs and 401(k), that matters is how secure your money is, and how much you pay in the monthly service charge, and that’s where Wealthfront shines
Here’s where Wealthfront Retirement accounts shine: Low fees.
- Wealthfront charges a non-negotiable annualized fee of 0.25% on a Client’s assets under management. Those fees are low when compared to Fidelity or Vanguard. Because retirement accounts last for many years, a minuscule percentage differential in management fees adds up over the years.
529 College Planning With Wealthfront
Another account that Wealthfront offer is a 529 college planning account.
With so many people mired in student loan debt and finding it hard to succeed financially, Wealthfront 529 college plan account is an excellent way to give your child a leg up.
529 accounts are specifically designed for parents to put money aside for their children’s educational expenses.
A 529 college plan account, just like a retirement account, has tax advantages that lets you keep more of your money.
However, not all wealth managers can get the most tax benefits from your 529 college plan. Therefore, selecting Wealthfront with its team of highly trained wealth managers to manage your portfolio will ensure you get the most out of your 529 plan.
Note that for the 529 College Plan, Wealthfront charges a management fee of between 0.42% to 0.46% per year on account balances of $25,000 and more.
Wealthfront Fees
Wealthfront charges 0.25% in management fees for investment assets under management and retirement account. They also charge 0.42% – 0.46% on 529 College Plan balances of $25,000 and more. There are no fees associated with the Wealthfront Cash Account.
Final Thoughts
Wealthfront is a Robo-advisor and it is suitable for anyone who prefers a passive approach to investing. They charge a 0.25% management fee for asset under management. This fee might seem reasonable if you don’t have a substantial investment account. However, if you have a large investment account balance with them, the fees can become prohibitive over the long run.
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