Investing is one of the best ways to build long-term wealth. Unfortunately, the process intimidates many consumers.
The good news is it doesn’t have to be complicated – and you don’t need a lot of money to get started. There are a number of robo-advisors that simplify the process and make it easy for you to start investing.
One of the biggest players in the robo-advisor space is Wealthfront and for good reason. This Wealthfront review will give you an idea of what to expect when you sign up.
How Wealthfront works
Wealthfront is a robo-advisor that uses Modern Portfolio Theory (MPT) to manage your portfolio.
For the most part, Wealthfront focuses on taxable investment accounts. But you can also open an IRA with Wealthfront. You can start investing with as little as $500.
No matter your portfolio goals, the idea is the same. Based on your goals, Wealthfront takes your risk profile and your timeframe and offers investment suggestions. An algorithm uses the principles of MPT to determine an asset allocation for your portfolio.
Low-cost ETFs maintain the asset allocation. Every so often, Wealthfront rebalances your portfolio to ensure that your allocation remains ideal.
Wealthfront features and products
When considering Wealthfront, it’s important to look at all of the features and products they offer. Here’s a look at a variety of products and services they provide for many different types of investors.
It’s possible to open most types of individual investment accounts with Wealthfront. You can open Traditional, Roth, rollover, and SEP IRAs, and enjoy tax-advantaged retirement savings.
Additionally, you can open taxable accounts, including individual and joint investing accounts. You can even open trust and non-profit accounts. And, Wealthfront recently added a 529 College Savings Plan option.
While you can’t always predict the markets, you can control how much you pay in fees, diversification, and taxes.
With Wealthfront, you can utilize daily tax-loss harvesting at no additional cost. It’s a technique used to lower your taxes while maintaining the expected risk and return profile of your portfolio.
Essentially, you can harvest previously unrecognized investment losses to offset taxes due on your other gains and income. You can even reinvest these tax savings to grow the value of your portfolio.
With Wealthfront, it’s possible to see greater tax efficiency and lower fees with the help of direct indexing.
Since you can’t trade within an index, Wealthfront will buy the individual securities on your behalf that make up the index. That way, you have more opportunities to harvest losses in your portfolio.
Here’s a breakdown of various accounts offered:
- Wealthfront 100: You need a minimum account value of $100,000 to participate at this level. You end up with individual stocks in up to 100 of the largest companies in the United States.
- Wealthfront 500: If you have $500,000 in your account, you can access up to 500 individual large caps.
- Wealthfront 1000: This direct indexing product is available to those with at least $1 million. Once again, large companies use individual stocks (up to 1,000).
The feature is offered to clients with $500,000 or more at no incremental cost above the 0.25% advisory fee.
Portfolio Line of Credit
Another product offered by Wealthfront is a Portfolio Line of Credit. If you have a Wealthfront account valued at $100,000, you can access a line of credit of up to 30 percent of the current value of your account.
There is no application process and there are no restrictions on how you use the money. You can even repay the loan on your own schedule. Interest rates on the amount you borrow range from 3.25% to 4.5%, depending on the size of your account.
No Wealthfront review is complete without mention of Path. Path not only links to your investment accounts, but it also looks at other accounts. The idea is to get a big-picture view of your finances and provide a financial planning experience for users.
Path is also completely software-based and provides answers to your questions in real-time — without having to call someone.
By analyzing your most recent spending data, Path shows you how much you’re spending, what you’re on track to have in retirement, and which accounts you should be saving more in. It updates as your situation changes.
What’s more, you can use the Path dashboard to try different hypotheticals. For instance, you can try out different scenarios and project possibilities for the future.
College planning with Path
With the addition of College Planning, Wealthfront is now the only advisor delivering the most cost-effective 529 and a personalized college planning solution all in one. Here’s how it works:
You select a college. It doesn’t matter if you’re deciding between state school or Ivy League, Path determines the total costs with a detailed breakdown of what you’ll be accountable for — tuition, room and board, and books. You can change the school you’re building towards at any time and the data will update automatically.
Calculate financial aid. Using outside data around the costs of a particular college and their specific approach to calculating financial aid, along with the personal details that you’ve shared through Path, WealthFront provides a customized estimate of financial aid per school.
Watch your savings grow. Choose how much you can save and Path will show you how far that will go towards covering college expenses. Just like with retirement, you can adjust the inputs to see the impact of increased savings. You can even add a picture of the account’s beneficiary to personalize the experience.
Whether you have a Wealthfront 529 or an external account, you can link it to Path and start planning for college.
Wealthfront fees are competitive and in line with other robo-advisors. Wealthfront manages your first $10,000 for free. After that, you pay 0.25% annually as a management fee.
On top of the management fee, you will also pay the expense ratios associated with the ETFs in your portfolio. However, Wealthfront works in low-cost ETFs so that expense ratios won’t be that high.
You can reduce Wealthfront fees by referring friends and family to the service. For every person you refer who opens an account, you get another $5,000 managed for free.
How to open an account with Wealthfront online
Opening an account with Wealthfront is fairly straightforward. You start by answering basic questions about your goals, your age, and your current asset balances.
Your risk tolerance is the basis for your asset allocation; the questions tend to lean toward figuring out your profile. This includes questions about what you would do in a down market and where you feel comfortable keeping your assets.
Once you finish answering the questions, Wealthfront offers you a look at what asset allocation might make sense for you.
The dashboard also offers a more detailed view that includes projections, fees, and other information. It’s even possible to get a specific list of the ETFs Wealthfront will use to build your portfolio.
You can view the possibilities based on whether you are opening a taxable investment account, or whether you plan to focus on retirement savings.
The biggest benefit to using Wealthfront is the fact that you can get started and make regular investments, taking advantage of dollar cost averaging, without having to actively manage your own plan.
Not only that, but Wealthfront offers tax-loss harvesting for previously unrecognized investment losses to offset taxes due on your other gains and income. It’s also a bonus that you can get a free portfolio review on accounts held outside Wealthfront.
When you use Wealthfront, you get instant diversification at a very low cost. It’s also a nice perk to see the 529 College Savings Plan offer, as well as the automatic dividend reinvestment.
Additionally, Wealthfront’s selling plan helps employees who hold public company stock sell their shares tax-efficiently and commission-free.
While Wealthfront is a decent service overall, there are some areas where it could improve.
One downside to Wealthfront is that you can’t get fractional shares. That adds more cash drag to your overall situation.
Secondly, even though the fees are quite reasonable, you can find other robo-advisors that charge less for large accounts. However, there are enough other tools that some investors find it worth it to stick with Wealthfront.
Who should use Wealthfront
Wealthfront is mainly for those who want to grow their wealth through investing, but aren’t interested in managing their own portfolios.
Wealthfront is ideal for beginning and intermediate investors interested in a way to invest using a relatively small amount of money and dollar cost averaging.
Wealthfront customer service
Wealthfront offers a help center that includes a learning section and FAQs, as well as video tutorials.
You also contact Wealthfront through their online form. There is also phone support: 605-249-4258, Monday through Friday, 10:00 a.m. to 8:00 p.m. EST.
More about Wealthfront
Wealthfront was launched in 2011 and currently manages $5.3 billion in assets.
The company specializes in making investing accessible to a wide variety of people, and their chief investment officer is respected economist Burton Malkiel.
The company’s headquarters are in Redwood City, California.
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