Is Wealthfront a Good Fit for You?

With Wealthfront, you get low-cost exposure to a vast investment lineup, wonderful planning tools and a range of tax-saving strategies. Wealthfront Robo-advisor is not resting; it is innovating to remain one of the most successful automated advisors in the world.

Is Wealthfront worth it? In this article, we evaluate Wealthfront. Read on to know if this low-cost Robo-advisor is suited for you.

What is Wealthfront?

Wealthfront is an automated investment company headquartered in Redwood City, California, which was founded in 2008 by Dan Carroll and Andy Rachleff. It is one of the biggest Robo-advisors with $20 billion assets under management. Wealthfront employs state-of-the-art research to build a secure, diversified investment portfolio with low investment management fees.

According to Waelthfront.com: Wealthfront is the only Robo-advisor to provide the combination of financial planning, investment management and banking-related services. Simply fill in a form specifying your goals and risk tolerance. Based on your responses, the algorithm invests.

Through Wealthfront, you can handle both retirement and non-retirement portfolios. There is no such thing as human interference. The costs are much smaller than if you were to hire a financial planner, as it’s automated.

Wealthfront provides three primary services:

• Financial planning: Wealthfront provides free software-based financial planning to assist you in planning for retirement and other life situations.
• Robo-advisor: Wealthfront platform is aimed at investing in Exchange Traded Funds. It automatically changes your portfolio to stay in line with your investment targets.
• Short-term money management: it offers a money account with high insurance up to one million.

Types of Accounts Supported

• A personal investment account that is regular taxable brokerage accounts
• Joint accounts
• Simplified Employee Pension IRAs
• Trusts
• Roth IRAs
• Traditional IRAs
• 529 College Savings Plans
• Rollover IRA
• Non-profit accounts
• Taxable which include individual and joint

Features

• Tax-loss harvesting
• Automated portfolio rebalancing
• Smart Beta
• Risk parity
• Customized portfolio
• Cash Account
• Socially responsible
• Portfolio credit line
• Free Financial planning

Who is Wealthfront Best for?

• Hands-off investors
• Beginners uncertain about investing
• Investors saving for retirement
• Free financial tools
• 529 college savings plan management
• Influencers who can recruit others to sign up for the service.

Wealthfront Other Features

Free Financial Planning

Wealthfront’s free Path tool assists you plan for purchasing a house, retirement, college and other savings goal. However, you do not have to open a Wealthfront account to use it. You can sync all your financial accounts to get a complete image of your current finances and goals. Path estimates how much you will require to save in the future. Also, with Path you can do:

• Estimate what would happen if you retire at different ages
• Calculate what happens if you make significant financial decisions, such as purchasing a house, would affect your retirement.
• See tax consequences of withdrawals for your various accounts

Wealthfront aids you plan for significant events:

• Homeownership: Path aids you estimate when you’re going to save enough for a down payment, the amount of mortgage you’re going to qualify for, and the locations in your price range.
• College: See the approximate cost and how much your child can anticipate financial help. The Path will help you set a reasonable monthly savings target for the cost of educating your child.
• Travel: Do you want to take some time off traveling? The Path can tell you how much time you should take off and maintain your financial goals going. See how much a trip will cost.

Cash Account

If you are searching for a safe environment to keep your money, Wealthfront got you covered. The new cash account pays you an interest of 1.82%. In addition, there is no market risk because it is not an investment account, and the money is not being invested anywhere. You can make as many transactions as you like in and out of your account. Luckily, it only takes $1 to open.

Portfolio Line of Credit

Portfolio line of credit is a feature only available if your Wealthfront account holds at least $25,000. This lets you borrow up to 30% of your account balance, and charges interest rates range from 4.75% to 6.00% APR. You will make repayments on your timeline because you are borrowing basically from yourself.

Wealthfront Invite Program

By inviting friends to sign up for the service and fund their account, you can receive “free” management. The program provides you with free management of an additional $5,000 in assets for any person you add to the service that funds their account. Over time, it has the power to add up.

Wealthfront PassivePlus Services

PassivePlus services primary purpose is to improve your investment returns. When you hit a certain amount on your portfolio, these services are automatically activated. They are:

• Wealthfront Tax-loss Harvesting

Wealthfront stands above other Robo-advisors in this investment category. They not only provide it on basic taxable accounts, but they also provide customized portfolios that carry it to a higher degree.

Wealthfront begins with a tax location strategy. That includes holding interest and dividend-earning asset classes in IRA accounts, where the stable returns are covered from income tax. Capital appreciation assets, such as stocks, are kept in taxable accounts, where they will benefit from lower tax rates on long-term capital gains.

• Stock-level Tax-Loss Harvesting (for accounts over $100,000)

For more significant portfolios, Wealthfront provides Stock-level Tax-Loss Harvesting. There are 3 specialized portfolios, using a combination of both Exchange Traded Funds and individual stocks. The aim of the stocks is to offer more specific tax-loss harvesting chances. However, it would be more beneficial to sell stocks to generate tax losses than closing a complete ETF.

• Risk Parity (for accounts over $100,000)

Risk parity is an innovative technique aimed at balancing out risk across the different asset classes. This measures the risk between asset classes and generates an optimum allocation according to the optimal level of the target risk.

This gives you better a return for a portfolio that has the same degree of risk.

• Smart Beta (for $500,000+ accounts)

Smart Beta was formerly known as Advanced Indexing. It measures the stocks in your portfolio smarter to maximize returns. To decide how much to invest, Smart Beta uses variables such as momentum, dividend yield, value, market beta, and volatility.

Getting Started With Wealthfront

Here is Wealthfront’s landing page. Click “Get Started” to start your questionnaire. Just like most Robo-advisors, you begin by filling a questionnaire. The questionnaire has 4 objective questions and six subjective ones. The survey aims to determine your risk tolerance and set asset allocations.

After you finish answering these questions, Wealthfront shows you your portfolio. Therefore, establishing trust. Wealthfront is confident in the quality they offer, and they do not hide behind sign up forms or encourage people to invest before seeing what they offer.

Wealthfront Charges Breakdown

You invest your cash (there is a minimum of $500) into a Wealthfront account. The management charges are 0.25% of AUM (assets under management) each year. One-twelfth of this Advisory fee is deducted each month.

Wealthfront does not charge an account activation, withdrawal, account termination, commission or account transfer charges. There are no charges levied upon the cash account. For all ETFs, there are management fees that go directly to the fund manager. It ranges from 0.06% to 0.13%.

Returns

As with any broker, Wealthfront does not assure returns. At any point, you can lose your investment. Below is the historical performance for an average risk score of 5.0 (after charges, pre-tax).

The importance of the Wealthfront tactic is its focus on stabling and rebalancing a balanced portfolio over time. Such a portfolio has indexed EFTs that assist in reducing individual investment risk. Therefore, you should invest in the overall market instead of individual stocks to protect yourself if some companies go bust. Unfortunately, if there is a market correction and the overall market loses value, then your portfolio will also take a hit.

Pros and Cons

Pros

1. Free for accounts under $5000 – you can refer a friend.
2. Tax-loss harvesting for all accounts
3. Stock level tax-level harvesting – for accounts over $100,000.
4. 529 plan option –this feature makes Wealthfront unique from other Robo-advisors.
5. Two-Factor Authentication – it is considered to be “strong security” because it uses 2 authentication factors (i.e. something you have like a smartphone and something you know like a password)
6. Free financial planning
7. Goal setting assistance for big goals like buying a house.
8. Portfolio line of credit available
9. The Path will show you the trade-offs you will encounter if you have various targets.

Cons

1. Wealthfront does not buy fractional shares of Exchange Traded Funds, which prevents the firm from investing all of your deposit.
2. It maintains a money balance equivalent to the payments you are projected to owe over the next year. Accounts may undergo a small level of money drag.
3. No access to an advisor – though it has a blog that answers many questions.

Wealthfront Mobile App

Wealthfront provides the same desktop experience on a mobile application. The application is available on Android and iOS systems. With the app, you can:

• View your account balance
• Sync all external accounts
• See your performance chart
• Withdraw money
• Make deposits
• Estimate the costs of your goals
• Get suggestions on how to achieve your targets
• Look at houses you can afford
• Borrow money with Portfolio Line of Credit (for accounts above $100,000)

Wealthfront Investment Methodology

For basic investment accounts, Wealthfront creates portfolios from a mix of ten different asset classes. This comprises 4 stock funds, a real estate fund, 4 bond funds, and a natural resources fund. Every portfolio should contain several allocations of each asset class, based on your investor profile as calculated by your questionnaire answers. The only exception would be municipal bonds. This allocation would only appear in taxable accounts. IRAs do not cover them because the accounts are already tax-sheltered.

Summary

Wealthfront is an excellent choice for both beginning and experienced investors looking to expand their portfolios. Wealthfront is ideally suited for those investors who can digitally manage their portfolio.