Wealthfront Review: Comprehensive Guide
Wealthfront is a Robo-advisor that invests your money automatically. Robo-advisors are different from regular advisors because they charge less. Wealthfront is the best Robo-advisor because it offers many services for a low price. Using a regular advisor might lose some of your stock returns to fees, but Wealthfront doesn’t charge those fees.
Wealthfront makes it easy to invest. You can use a mobile app, financial planning tools, or low-cost investments to reach your goals. Wealthfront takes the complexity out of investing so you can focus on what’s important.
Wealthfront Pros & Cons
How Does Wealthfront Work?
Wealthfront is a service that helps you invest your money. It uses algorithms and Modern Portfolio Theory to determine the best way to invest your money so you don’t lose any and can make more money. Wealthfront also uses tax-loss harvesting and dynamic rebalancing to help you grow your money as tax-efficiently as possible.
Wealthfront offers free access to detailed financial planning software and many educational materials. To start investing, you must open an investment account and deposit at least $500. Wealthfront will help you create a portfolio that fits your goals and risk tolerance.
The money you deposit will be automatically invested according to a portfolio chosen by Wealthfront. It will be done with the help of a Robo-advisor, which is a computer that helps manage your money. Even if you’re new to investing, Wealthfront’s onboarding experience will make it easy for you to start immediately.
How Wealthfront Invests Your Money
Wealthfront will automatically invest your money into Exchange Traded Funds (ETF) portfolio. These low-cost, diversified funds include stocks and other assets from different market sectors. It reduces the risk of investing in individual stocks, spreading your risk across many companies and investments.
Wealthfront Investing Options (ETFs)
Wealthfront offers a lot of different ETFs that are spread across many different types of assets. It helps to create a low-cost, diversified portfolio based on how risky you want your investments to be. These investments are special because they offer access to real estate and commodity investments, which most other Robo-advisors don’t have.
Wealthfront’s algorithms invest funds automatically in a mix of 6 to 8 ETFs, making it simple for consumers to invest without having to design their portfolios.
ETFs are offered in the 11 asset classes listed below:
- U.S. stocks
- Foreign stocks
- Emerging market stocks
- Dividend stocks
- Real estate (R.E.I.T.s)
- Municipal bonds
- Corporate bonds
- U.S. government securities
- Bonds issued by emerging markets
- Resources from nature (Commodities)
Burton Malkiel, Wealthfront’s Chief Investment Officer, provides guidance. Malkiel is known for writing “A Random Walk Down Wall Street” and believes in Modern Portfolio Theory.
Wealthfront’s “Risk Parity Fund” (W.F.R.P.X.)
Wealthfront offers one mutual fund, which is its Risk Parity Fund. The fund is available to clients with a taxable account with $100,000 or more invested. The fund’s goal is to provide “risk-adjusted” returns over time. Still, it charges a higher 0.25% expense ratio than the standard management fee.
This fund is intended to reduce risk. However, it fell during the March 2020 crash. It shows that there are still a lot of risks involved in this investment. However, you must opt-out if you qualify for the Risk Parity Fund. Wealthfront will continue to offer this fund to qualified investors, but be aware of the risks involved.
Wealthfront’s Top Features
Wealthfront is a good robot advisor. They have helpful tools that can make a difference in how you choose an advisor. Wealthfront also has features that can help investors make better money decisions. Here are some of Wealthfront’s best features:
Free Financial Planning Tool (“Path”)
Wealthfront offers its users free access to the comprehensive financial planning tool “Path.” Path allows users to connect their financial accounts, including external bank and investment accounts. The path will then compile the data to assist in setting financial goals.
Path assists customers in setting precise financial goals, such as:
- College Savings
- Purchasing a Home
- Traveling while on leave
One way to see if you have enough money to take a break from work is to set a goal to travel for a certain amount of time. It will help you figure out how much money you need without affecting your retirement plans.
Self-Driving Money TM (Investing on Autopilot)
Wealthfront’s new “Self-Driving Money” feature allows you to automate your finances. You can set rules for transferring money to a savings account, investing money into your Wealthfront portfolio, and setting account limits. It will help you stay on top of your finances and ensure you save and invest as much as possible.
Self-Driving Money TM helps users set financial goals and manage all the details. To do this, you need a Wealthfront Cash account and an investment account.
- You can program a rule to keep at least $5,000 in your Wealthfront Cash account at all times. It will be used for day-to-day expenses and bills.
- When the account balance hits $5,000, money is stored for an emergency fund.
- When the emergency fund level (say, $20,000) is reached, all excess funds are placed in the Wealthfront Portfolio.
You can also use Wealthfront’s Self-Driving Money TM feature to transfer money to your investment account automatically, max out your Roth I.R.A., or grow another investing account. There are nearly unlimited possibilities for what you can do with this feature, which sets Wealthfront apart from every other robot advisor today.
Wealthfront offers a service that can help you lower your tax bill. This service is called “tax-loss harvesting.” It means that Wealthfront will sell any underperforming ETFs in your taxable account and then repurchase comparable ETFs to maintain your asset allocation. This way, you can lock in any losses so they can offset any taxable gains.
Wealthfront can help you save on your taxes if you have a taxable account with a balance of $100,000-$500,000. We call this service “direct indexing” because it involves buying stocks directly instead of through mutual funds. This approach can save you even more money if you have a lot of stocks in your account!
Wealthfront buys many stocks instead of just one. It let them do a better job with tax loss harvesting. People can also choose not to sell certain stocks for tax reasons. Some people might do this to invest in socially responsible companies.
Wealthfront keeps track of your account and will rebalance it if you deviate by a certain percentage from your planned asset allocation. Rebalancing could result from withdrawals from your account, deposits into the account, dividend reinvestment, or market activity.
Wealthfront Cash Account
Wealthfront provides banking services through its cash account. This account is a no-fee checking account with F.D.I.C. insurance for up to $1 million. The account is also linked to your investment accounts, which lets you quickly move money into your portfolio. You can even automate this process with Wealthfront’s Self-Driving MoneyTM feature.
The cash account offers banking services, such as paying bills, depositing money, and accessing A.T.M.s. You can also earn interest on your deposited money with the cash account. However, the interest rate is not as high as what you would find with a high-yield savings account.
The cash account’s main benefit is that you can utilize it to invest and save money automatically. You can track your progress through the Wealthfront app.
Portfolio Line of Credit
Wealthfront allows users to borrow money against their taxable investment account. The interest rates are usually below 4%, much lower than a credit card or a personal loan.
With this tool’s help, users can obtain cash by borrowing against their investment portfolio.
The portfolio line of credit requires you to have a taxable account with at least $25,000. You can borrow up to 30% of your total taxable account.
Wealthfront Smart Beta
Wealthfront clients with large taxable investment portfolios ($500,000 or more) can use a “Smart Beta.” It is an advanced investment strategy considering more than just market capitalization when creating an asset allocation.
Smart Beta weights stocks using five different factors: value, momentum, dividend yield, market beta, and volatility. This technique creates a more balanced portfolio instead of picking just a few ETFs.
529 College Savings Plan
Wealthfront is one of the few robot advisors that offers a 529 college savings plan.
Pricing for Wealthfront
Wealthfront charges a fee for its management services. This fee is 0.25% per year, based on the total amount of money you have in your account with Wealthfront. This fee is in line with (or lower than) the fees charged by other significant Robo-advisors. However, Wealthfront does not offer discounts for more significant account balances, unlike other services.
Commissions and Fees
When you invest with Wealthfront, you’ll need to pay a management fee and fees for the investments themselves. Wealthfront uses ETFs, which means the cost is typically meager, with expense ratios ranging from 0.06% to 0.13%.
Investors who choose to invest in the Risk Parity Fund will pay a higher 0.25% expense ratio. Additionally, those who open a 529 college savings account will have to pay an additional 0.07% annual fee. No other account fees are assessed, including withdrawals, transfers, or account closure fees.
Wealthfront has a lot of material to help users learn about their service. It has an active blog, articles, white papers, videos, and a help center. Retirement planning, taxes, investment, college, relationships, and career planning are covered. Wealthfront’s investing methodology is also explained in detail.
The path lets users define objectives, save and invest to achieve them.
Wealthfront offers weekly customer service from 7 am to 5 pm Pacific Standard Time. You can reach customer service by email or phone. Wealthfront does not have human advisors to give you financial advice. Still, there are people available to help you with the platform. Every customer support agent is a certified financial expert.
You will encounter some of the same difficulties regardless of how much or how little experience you have in investing. One common question is, where should I invest my money? You can invest in individual stocks, but knowing a lot about the company is essential. Another option is to stick with an index fund, but you must ensure it will provide the most value. A third option is to choose Wealthfront.
Wealthfront allows you to invest in many different funds, each chosen to help you reach your specific goals. With very low fees and no guesswork needed about which investments are best for you, Wealthfront is a great choice.
In this Wealthfront review, we’ll go over all the details so you can see if this investment platform is the right fit for you.
What is Wealthfront?
Wealthfront is a company that helps people save for the future. Even if they don’t have a lot of time or money, Wealthfront can help. Wealthfront uses low-cost exchange-traded funds to create a custom investment portfolio designed to make the most money while still being safe. You can also choose to customize your portfolio further or create one from scratch.
Wealthfront is the first service to offer you a way to invest in cryptocurrency and get other benefits, like dividend reinvestment and tax-loss harvesting. You can now add Grayscale Bitcoin Trust (GBTC) and Grayscale Ethereum Trust (ETHE) to your Wealthfront portfolio. Wealthfront offers access to innovative opportunities such as ARK ETFs, socially responsible investments, and cannabis ETFs.
Wealthfront charges a fraction of the industry average for an advisory fee and has a minimum investment requirement of $500. It makes Wealthfront an affordable way to start investing.
Wealthfront provides free financial planning tools, a mobile app, and a savings account. The cash account has a 2.55% APY (as of Oct. 24, 2022). The account has no fees and includes ATM access and a debit card.
Wealthfront’s cash account differs from traditional savings accounts because it offers more insurance. The account is insured for up to $1 million by the FDIC. Suppose you have a taxable Wealthfront account with at least $25,000. In that case, you can borrow against your portfolio using a line of credit. Between 2.40 and 3.65 percent is the interest rate range that applies to the line of credit (Jul. 29, 2022).
Attracting Digital Natives
There is a lot of competition between Robo-advisors for young investors aged the late 20s to early 40s. People in this age range have a few things in common. They are roughly the same age as Millenials. They save more of their income than people in the same period a generation ago.
They hate talking on the phone. They never really learned how to talk on the phone. They were born into a time when people used technology to speak to each other.
Robo-advisors want to work with young investors who prefer to do everything, including getting financial advice, on their phones. Wealthfront uses technology to make it easy for these investors to build a financial plan, invest, and access banking services. The company’s iOS App has the highest rating of any financial App store.
How Do I Open An Account?
You can visit the Wealthfront website to open an investment account. You will have to fill out a short questionnaire so that Wealthfront can decide which type of portfolio is best for your financial goals and risk tolerance.
Once Wealthfront has created your portfolios, you will have the option to change some of the asset weightings if you want. You can proceed to the next step: link your bank account and make a money transfer into your Wealthfront account if you do not wish to make any adjustments.
ACH deposits usually take 1-2 business days to be invested. However, suppose you fund your investment account with a transfer from a Wealthfront Cash Account. In that case, the money could be invested within minutes.
Wealthfront is Best for:
- For investors who want more guidance than a DIY approach but don’t want or need a full-fledged financial advisor.
- For investors who want to create and manage their portfolios with low fees.
- Wealthy users who can afford to pay for professional help with their estate, tax, and specialty financial planning questions.
- Investors are seeking a digital investment manager with low fees and the ability to tailor their investments.
- Those are seeking a Robo-advisor with access to cryptocurrency investments.
Why Consider Wealthfront
Wealthfront offers tax-loss harvesting, which can appeal to people who want to minimize their taxes. Wealthfront is suitable for both new and experienced investors. Here are some things you should consider:
- Low-cost management: Wealthfront offers professional investment management for a lower price than most other advisors. Wealthfront’s price is lower than many of its competitors. It can be a big deal over the long term.
- Hands-off portfolio management: Wealthfront, like other Robo-advisors, allows you to automate your investments. You are less likely to make emotional decisions about your money. However, it is still essential to keep an eye on your investments so you can make changes if needed.
- Potential to reduce tax bill: Wealthfront offers tax-loss harvesting every day for all taxable accounts, no matter how small. Other Robo-advisors only offer it quarterly or when you sell assets. Wealthfront also offers stock-level tax-loss harvesting for accounts over $100,000.
Who can use Wealthfront?
Wealthfront is a robot that helps people invest money. It is good for people who want to leave their investment alone and not worry about it. But experienced investors can also use Wealthfront’s help to manage their investments.
Wealthfront is an excellent choice for people who are looking for a financial advisor. The company offers a cash account, 529 college savings plans, retirement accounts, helpful planning tools, and advanced tax optimization strategies.
However, due to financial regulations, some people may not be able to open an account with Wealthfront. To open an account with Wealthfront, you must meet the following requirements:
- Be at least 18 years old
- Have a U.S. Social Security number
- Have a permanent U.S. residential address
- Currently reside in the U.S.
Who Might Benefit More From Other Options
Wealthfront might not be the best choice if you want to talk to a professional about your investments or other financial decisions. They don’t have a way for you to talk to live advisors. If you’re looking for advice, you might want to look for a local investment advisor, like a CERTIFIED FINANCIAL PLANNER professional, who your friends or co-workers recommend.
Wealthfront’s daily tax-loss harvesting may be advantageous to investors with taxable investments and those with tax-deferred investments. However, Betterment may offer a bigger potential benefit to investors with more tax-deferred investments. Because Betterment provides the ability to buy fractional shares, it might allow more of your money to stay invested in the market.
Wealthfront Safety and Security
- FDIC insurance
- SIPC insurance
- Two-factor authentication
Wealthfront’s cash management account protects your money by insuring it up to $250,000 per bank. If Wealthfront uses multiple banks for your account, your cash is protected up to $1 million.
The FDIC insurance protects cash in a bank account if something happens to the bank. The Securities Investor Protection Corporation (SIPC) protects investments up to $500,000 if something happens to the company that holds your assets. Keep in mind that SIPC insurance does not protect you from investment losses but only from the company going bankrupt.
Wealthfront protects customer accounts by requiring two-factor authentication. It means you have to enter your Email, password, and a security code that you’ll receive on your Mobile phone when you log in to your account. However, you must opt-in to this protection; it isn’t enabled automatically.
Alternatives to Wealthfront
Wealthfront is one of the first robot advisors and remains one of the top choices in the industry. Fees and minimums are relatively low. In addition to a standard robot-advisor asset allocation template, Wealthfront provides advanced tax loss harvesting, socially responsible investing, and Smart Beta strategies for larger accounts. However, Wealthfront doesn’t give access to financial professionals.
If you’re unsure if Wealthfront is suitable for you or want to explore your other options, below are two of its top competitors with their pros and cons.
Wealthfront vs. Ally Invest Managed Portfolios
Ally Invest Managed Portfolios charges 0.30% for their standard investment advisory service. It is more than Wealthfront’s 0.25%. However, suppose you don’t want to pay anything. In that case, Ally has a free option if you keep 30% of your portfolio in cash and deposit it in Ally’s high-yield savings account. You only need to invest $100, much less than Wealthfront’s $500 investment minimum requirement.
Wealthfront vs. Fidelity Go
Fidelity Go has higher fees than Wealthfront on most accounts, 0% compared with 0.25%, but the funds in Fidelity’s Robo-advisor lineup have no management fees. The Fidelity Flex funds in the Fidelity Go platform combine active and passive management styles. You do not need much money to open an account with Fidelity Go. But you will need at least $10 to invest.
What Accounts Does Wealthfront Support?
Wealthfront offers more types of accounts than most other Robo-advisors, including a Wealthfront 529 account to save for college. You can set up retirement accounts directly with Wealthfront or rollover an IRA from another provider. Here’s a list of all the Wealthfront accounts:
- Individual and joint investment accounts
- Retirement accounts – Traditional, Roth, and Rollover IRA and 401(k)
- Simplified Employee Pension (SEP) IRAs
- 529 college savings plan accounts
- Trust accounts
- High-interest cash accounts – Individual, joint, and trust
Wealthfront is the best Robo-advisor for people who want more features. Wealthfront has a 0.25% management fee, which is cheaper than most other Robo-advisors. The Self-Driving MoneyTM feature of Wealthfront’s mobile app helps customers automate their financial and investing goals while providing a comprehensive financial picture to users. Wealthfront is a beautiful place to start if you are new to investing and want to ensure you are headed in the right direction for retirement.
As you save more money, you will unlock more features on Wealthfront. These features include more tax-efficient investing, an affordable line of credit, and the ability to automate your finances. If you have $500 or more to start investing today, Wealthfront is our top choice for Robo-advisors.
Frequently Asked Questions About Wealthfront Review
Vanguard is a good choice for most investors because it offers a range of investment options, such as stocks, ETFs, options, mutual funds, and more. If you are looking for Robo-advice and don’t want to be involved in the day-to-day management of your investments, Wealthfront is a better choice.
Wealthfront is a platform that helps you make money. You can choose to invest for the long term. When you do this, you get a taxable investment account.
Wealthfront charges 0.25% to manage your money, but the first $5,000 is collected for free if you sign up through NerdWallet. The company’s most significant independent competitor, Betterment, also charges 0.25% for its digital service.
If the value of the securities you bought with money from your margin account falls, you might have to add more money to your account to avoid having them sold.
Wealthfront is our top choice for Robo-advisors. They have a sophisticated digital financial planning tool that can answer many questions. Your cash account with them is insured for up to $1 million.
Wealthfront offers low advisory fees, free planning tools, and an automated investment strategy. It makes it a good choice for beginner and experienced investors who want to invest without much work.
Wealthfront is a good investment option for people who want to invest without much effort. Wealthfront uses software to create a portfolio that fits your risk tolerance and automatically rebalances your investments so you can make the most money.
For investors with a lot of money, Wealthfront is a good option. If you have more than $500,000 in your account, you can use Wealthfront’s Smart Beta feature. It will help you make more money. Wealthfront also has features like stock-level tax-loss harvesting and risk parity that can increase your income and allow you to pay less tax.
Wealthfront offers ETFs that pay dividends.
It depends on what you want in an investment service and which platform is better for you. Both services have similar fees and invest in low-cost ETFs. Wealthfront requires a $500 minimum deposit to open an account. Still, there is no minimum balance needed for a Betterment Digital account. You can compare Wealthfront vs. Betterment to see which would be better for you.