The post Wealthfront Review: Investment Strategies on Auto-Pilot appeared first on Club Thrifty.
Building the life you want takes careful planning. It also requires you to put your money to good use. To get the most out of your savings goals, you need a strategy. And that’s where Wealthfront comes in.
Wealthfront helps you turn your goals into reality. Based on your preferences, they’ll build a custom portfolio and automate your investing. And using their free financial planning tools, Wealthfront can help you create a plan to save for college, retire comfortably, take time off to travel, and so much more.
If you’re just getting started with investing or looking for a hands-off approach, Wealthfront might be the tool you’re looking for. Here’s the low-down on how it works, the fees and features, and account options to grow your savings.
How Does Wealthfront Work?
Every major milestone in life needs a plan. Wealthfront can give you a helping hand with designing that plan around your life. Using automated software, it helps you reach goals for home ownership, retirement, and college. Going a step beyond, Wealthfront can also help you achieve your dream of early retirement or taking extended time off for travel.
Setting up your account is straightforward. You fill out a questionnaire and add your goals and risk tolerance to create a personalized portfolio. Going back to change your responses later isn’t a problem, so don’t worry if you aren’t sure how to answer a question. Then, Wealthfront implements time-tested investment strategies to put your savings growth on auto-pilot.
- Free to open an investment account with low minimums required
- No fees for trading or withdrawals
- Automated investments
- Pick your tolerance for risk
- Tax-loss harvesting
- Low annual advisory fee for investing
- Free financial planning with goal trackers
- Fee-free cash management account
- Available portfolio line of credit
Types of Accounts Supported
- Individual and Joint
- Traditional, Roth, and SEP IRAs
- IRA transfers and 401(k) rollovers
- 529 college savings plans
Wealthfront has a lot of free features, along with a few paid ones. To manage your investment accounts, the costs break down into these two types:
- Annual advisory fee – Wealthfront charges an annual advisory fee of 0.25%. This fee is charged monthly and is based on your average monthly balance. For example, if your account averages $10,000 for a month, your cost is $2.08 per month – which breaks down to just $25 per year.
- Expense ratios – If you own ETFs or mutual funds as part of your portfolio, the fee from those funds passes to you through Wealthfront.
Opening an account is free, and you won’t pay to withdraw your cash. You also won’t pay for transfers, trading, or commission. Wealthfront also has free financial planning tools and a free high yield savings account to help you save, too.
Wealthfront is a registered investment advisor (RIA) with the U.S. Securities and Exchange Commission (SEC). They’re also a member of Financial Industry Regulation Authority (FINRA) and regulated as a broker-dealer through both FINRA and the SEC.
Multiple layers of protection guard the security of your assets and account information. For starters, enabling two-step authentication provides restricted access to your account. For added security, Wealthfront doesn’t store your password. Instead, they partner with third-party providers for secure connections.
According to their website, they use bank-grade security and strict data protection protocols. Plus, as a customer of Wealthfront, your holdings have coverage through the Securities Investor Protection Corporation (SIPC).
Why Should You Consider Wealthfront?
Too often, investors let their emotions lead their financial decisions. Following your heart might be great when it comes to love and relationships, but it can mean bad news for your money.
Working with someone to oversee your holdings can take your emotions out of the equation and may set you up for greater success. The downside is the high fees that often come with professional management. If you’re not careful, those fees add up and could cost you big money over time.
You could pay someone to set up your account with ETFs, mutual funds, or other securities. But doing it yourself is the best option to avoid paying high account management fees. To maximize your money and cash-in on compound interest, saving on fees is the way to go.
Don’t worry if that sounds overwhelming. Wealthfront makes it easy to start when you sign up for a free account.
Answering a few questions will focus your account preferences to set and reach your goals. Wealthfront considers your entire financial picture and acts as a navigator to help you achieve them. You’ll pay low fees and have access to their time-tested financial strategies.
What Does Wealthfront Do?
Wealthfront focuses on automating investments and providing free financial planning to help you achieve the life you want. For some, that means saving for a home, building for retirement, or planning for college. Others might want to retire early or take time off for travel.
As of March 2019, they had over $12 billion of regulatory assets under management. They use rules-based investing backed by real-world results. Using the level of risk you’re comfortable with, Wealthfront seeks out a mix of investments to get the highest expected return for your money.
Wealthfront’s Top Features
Personalized Portfolio to Optimize and Diversify your Investments
Of all the features to take advantage of with Wealthfront, the personalized portfolio and automatic diversification are some of the best. It makes investing a breeze even if you’ve never done it before.
A series of questions will ask about your money goals, risk level, and where you’re at in life. The platform will analyze your responses and create a plan that has complete customization built around the life you want to live. You don’t even have to pick up a phone – the entire process is automated from start to finish.
Your holdings become a diversified mix of stocks, bonds, real estate, and other securities. The idea behind it is, through diversifying your holdings, you lower your risk of losing money through any one investment (or type of investment).
Traditionally, you’d pay significant fees for this type of personalization, but Wealthfront is an advanced robo-advisor that uses software to implement proven strategies to invest your money. And that means more capital goes into your account to grow your savings.
Automated Portfolio Rebalancing
The market can swing high or low without warning. To hedge against a high risk of loss, your holdings with Wealthfront have custom diversification built in. As the market changes, automated portfolio rebalancing can help you earn the best returns.
Wealthfront’s software does this daily. This would cost hundreds of dollars to do with a traditional broker. But the benefit of rebalancing using proven investment rules to keep your portfolio on track comes at a low cost with Wealthfront.
Your dividends also play a part in getting your portfolio back into balance. Customarily, they’re either taken in cash or put back into the same mutual fund. Instead, Wealthfront uses software to calculate the best use of that money and can automatically reinvest your dividend where it makes the most sense.
Daily Tax-Loss Harvesting
Wealthfront uses tax-loss harvesting to work toward providing you with lower taxes and more money to invest. If you have an individual or joint taxable account, you usually earn capital gains on your holdings. Paying taxes on those gains is necessary, but capital losses can help offset the amount. And that can lead to a lower tax bill.
Wealthfront has daily tax-loss harvesting for all of their accounts. Looking for opportunities every day is a definite advantage over the once-a-year approach traditional financial advisors use.
Customized Tax-Efficient Transfers
If you want to move investments from an outside account, Wealthfront works to create a transfer plan to minimize the impact of taxes. Instead of selling your assets and transferring in cash, your holdings will come into your new account according to a custom plan. Taking advantage of this is free with Wealthfront, though some companies might charge a fee to withdraw money and close your account.
Whenever possible, your ETF or stock transfers go directly to your new account. That means if your existing account has a specific investment that Wealthfront would want to include, it becomes part of your new mix of securities.
After that, they’ll use a strategy that incorporates long-term vs. short-term capital gains and losses from tax-loss harvesting. Doing their best to lower your tax implications, Wealthfront puts you on a fast-track to grow your capital.
Free Financial Planning
Wealthfront’s financial planning app, which they call “Path,” is completely free. You don’t have to invest with them to use it.
Their free financial planning tool can help you reach your goals whether you’re aiming for retirement, home ownership, college savings, or travel. The tool brings your plans, investments, and personal banking together to give you a complete financial picture.
Using your information and adjusting for your risk tolerance, financial projections and insights can help you make better choices with your money. Though you won’t have access to a human financial advisor, the platform taps into tried-and-true strategies for your financial planning. You’ll quickly see how different scenarios could impact your cash.
529 college planning
Using Wealthfront’s financial planner can help you estimate and save for college costs. After you pick a school, the tool calculates how much tuition will cost when your child starts school. It includes how much financial aid your child might qualify to receive and takes inflation into account.
From there, you’ll get a plan showing how much you should save and what to invest in other accounts to maintain financial security. This will factor in your other goals to give you a realistic scenario. Linking an outside 529 plan, or opening one with Wealthfront, is useful for tracking your progress.
Each state has its own set of rules about 529 college savings accounts. Before opening one with Wealthfront, check with your state to see what they offer. The one we use, the Indiana CollegeChoice 529 plan, has some of the best tax advantages around.
Depending on what your state offers, Wealthfront could give you an edge. But even if opening a 529 college savings plan with Wealthfront isn’t right for you, linking your existing account with their financial planning tool can give you a better view of how your money is working for you.
Free Cash Account
The newest addition to Wealthfront’s suite of financial services is their cash account. While it doesn’t provide as great a rate as our favorite savings account, you do earn a very nice 2.24% APY interest. There are no advisory or management fees to pay and, just like the other Wealthfront accounts, opening a cash account is free.
The cash account is strictly a place to stash your savings. They won’t invest your funds, so you don’t have any risk of losing it. It takes just $1 to open, and you start earning the 2.24% rate right away. Any money you add is FDIC insured up to $1 million.
Moving funds into and out of your account doesn’t cost you anything. It does take one to three days for it to process, but that’s typical with a bank-to-bank transfer.
Portfolio Line of Credit
If you have at least $25,000 in a personal or joint taxable account, borrowing against it with a line of credit is an option. Borrowing cash through a portfolio line of credit won’t affect your credit score with Wealthfront. Because it uses your Wealthfront investment funds to secure the value, you don’t need a credit check.
You won’t be charged a fee for doing this, but you will have to pay interest. You can use the money however you want. Just remember when adding money back into your account that it will go toward paying back your line of credit first until it’s paid off.
Fees at Wealthfront
One of the great things about Wealthfront is the value it provides without paying more than you need to. The only costs are an annual advisory fee of 0.25% and expense ratio fees for ETFs or mutual funds.
Wealthfront doesn’t charge for:
- Opening an account
- Withdrawing money
- Closing your account
- Transfers in or out of your account
- Trading and commission
Advantages of Wealthfront
Low Fees – With some of the lowest fees around, Wealthfront only charges for expense ratio and annual advisory fees. The annual fee is only 0.25%, which isn’t much. Accounts, transfers, withdrawals, and financial planning tools are all free.
Multiple Investment Options – As one of the few platforms to offer automatic investing for 529 college savings plans, Wealthfront stands out. It’s an excellent addition, but you’ll want to check with your state to make sure you’re getting the best bang for your buck. You also have the option of taxable accounts, IRAs including Roth and SEP, and trusts. It’s a pretty diverse collection to pick from.
Tax-Loss Harvesting – Most online advisors have tax-loss harvesting on taxable accounts. But Wealthfront does this every single day as part of their PassivePlus suite of tools. That’s 365 opportunities to lower your tax bill. It’s automatic and lets you sit back and relax while they look for ways to make your money go further.
Cash Account – Opening a savings account with Wealthfront only takes $1. You earn a very nice 2.24% APY, and your capital has FDIC insurance for up to a million dollars. Your cash account is free – you won’t pay advisory costs. And taking money out any time is free, too.
Disadvantages of Wealthfront
No Human Advisors – Wealthfront uses software that relies on advanced strategic calculations to help you earn the best return. If you want human interaction, this isn’t the right option for you.
No Fractional Shares – Some platforms let you buy fractional shares. With Wealthfront, you can’t. That means it is possible to have cash sitting in your account that isn’t tied to an investment. Once you have enough built up to buy a full share, that’s when Wealthfront puts your money to work.
Who Should Use Wealthfront?
- Hands-off Investors – Whether you’re just beginning to get your feet wet or have some background and skill, Wealthfront is excellent. It uses software to create a custom portfolio to fit your lifestyle and goals. It is fully automated, rebalances investments, and does tax-loss harvesting without any effort on your part.
- Smartphone Users – Putting financial expertise at your fingertips, the app has financial planning and investment tracking capabilities. From your phone you can plan for college, retirement, a new home, or travel.
- Goal-Oriented People – The advanced financial planning tools Wealthfront has are perfect for goal-oriented people. Knowing how much you have available to save and how each goal will impact your other plans is easy.
Who Should Avoid Wealthfront?
- Those Wanting Human Interaction – Using an automated system like Wealthfront isn’t for everyone. If you prefer one-on-one attention or want to speak with someone about your investments, it might not be a good fit.
- Investors with Less than $500 – For people who have less than $500 to invest, you’ll want to look somewhere else. Opening an investment account with Wealthfront requires a $500 minimum initial deposit. It’s a pretty low hurdle, but not everyone has that ability.
- Those with Complex Investing Situations – Like other robo-advisors, Wealthfront works best for basic advice. If you need help with estate planning, have a special needs child, or have other unique situations to consider, going with a different option would likely be better.
Wealthfront Review: The Bottom Line
As far as robo-advisors go, Wealthfront is easily one of the best. The fees are low and Wealthfront’s daily rebalancing and tax-loss harvesting could offset the costs.
If your state doesn’t have the greatest 529 college savings plan, opening one with Wealthfront can have significant advantages. Using the college costs planner to project expenses and design a savings goal that fits your life makes sense for anyone who has kids.
I also like that Wealthfront considers personal risk tolerance when building a custom portfolio. And seeing how different financial scenarios could impact your goals can help to make better money decisions, which can help you reach your financial goals quicker.
I hope you found this Wealthfront review helpful! Thank you for reading and happy saving!
The post Wealthfront Review: Investment Strategies on Auto-Pilot appeared first on Club Thrifty.