Wealthfront Review 2021

Improving on Passive Investing

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WealthfrontIn a sea of robo advisors, a few “big fish” stand out. Wealthfront is one of them, offering a focus on setting and reaching your goals and considering your entire financial picture. In fact, in this Wealthfront review, we rate it as one of the best robo advisors on the market.

The service has a huge appeal for Millennials — after all, they have time on their side when it comes to saving for retirement. But there's enough here for anyone who's interested in growing their wealth through automated investing. Let's take a further look at this platform to find out why.

Commissions & Fees - 9
Customer Service - 9
Ease of Use - 8
Tools & Resources - 8.5
Investment Options - 8.5
Asset Allocation - 9

9

With low fees (free for accounts with less than $5,000) and a stellar selection of features, Wealthfront is one of the best players on the robo investing scene. However, some sophisticated investors might find its features lacking.

Get $5k Managed for Free

Pros

  • Free for Accounts Under $5,000
  • Tax-Loss Harvesting for All Accounts
  • Free Financial Planning
  • Cash Account
  • Can monitor and transfer excess cash to various investment and cash accounts.

Cons

  • No Fractional Shares

What Is Wealthfront?

Wealthfront is one of many robo advisors on the market. These automated investing platforms have democratized investing by providing services that you once needed an expensive personal advisor to receive. And they've proved enormously popular.

Here's how it works: You invest your money into a Wealthfront account (there's a required minimum deposit of $500). You can choose to use a tax-deferred individual retirement account (IRA) if you wish. Funds are held in a brokerage account by Wealthfront Brokerage LLC, a subsidiary of the company. It uses RBC Clearing & Custody (RBC CC) to clear trades.

Wealthfront then allocates your investment into an assortment of exchange-traded funds (ETFs). Like many robo investing services, Wealthfront uses Modern Portfolio Theory (MPT) to create an automated asset allocation, taking into account your risk tolerance and financial needs. The platform continually makes sure that the allocation is correct with automatic rebalancing.

If you want to make adjustments to your portfolio, you can add or delete ETFs and can even build a portfolio from scratch. As you’re making adjustments, Wealthfront will tell you if you’ve gone above or below your determined risk tolerance so you still have their guidance along the way.

How Does Wealthfront Work?

Wealthfront uses a team of “world-class financial experts” led by legendary economist Burton Malkiel. He's the author of the investment classic A Random Walk Down Wall Street, which I recommend reading. Malkiel is Wealthfront's, Chief Investment Officer.

Wealthfront has some similarities to Betterment and other robo advisors, in that you start by completing a questionnaire. Wealthfront’s questionnaire has four objective questions and six subjective ones. The purpose of the survey is to determine your risk tolerance and to set asset allocations.

Once established, the allocations will remain constant regardless of the amount of money you have invested. After specific thresholds are crossed within your account, the portfolio will automatically be adjusted to ensure it stays in line with the proposed asset mix.

Wealthfront Features

Minimum Investment$500
Fees0.25%/year
Accounts
  • Taxable
  • Joint
  • Traditional IRA
  • 529
  • Roth IRA
  • 529
  • Trusts
  • Non-Profit
  • Rollover IRA
  • SEP IRA
401(k) Assistance
Tax Loss Harvesting
Portfolio Rebalancing
Automatic Deposits
Weekly, Biweekly, Monthly and Quarterly
AdviceAutomated
Smart Beta
Socially Responsible
Fractional Shares
Customer ServicePhone: M-F 7A-5P PT; Email

Who is Wealthfront Best For?

As a robo advisor, Wealthfront is an excellent choice for anyone who wants their investments professionally managed but doesn’t want to pay the typical 1% -2% management fee charged by traditional, human-guided investment management funds. Wealthfront provides essentially the same service for a fraction of the fee.

Wealthfront may also be the top choice among robo advisors for investors with larger accounts who are looking for tax minimization. Wealthfront has multiple options to reduce taxes on investment income from taxable investment accounts. This ranges from basic tax-loss harvesting to more advanced strategies, like stock-level tax-loss harvesting and a risk parity option.

It’s also recommended for anyone who wants to combine their investing activities with banking services. Wealthfront’s Cash Account pays interest on balances up to $1 million at rates well above those offered by local banks and credit unions. They even provide a free checking account, complete with a Visa debit card.

How to Sign Up & Get Started with Wealthfront

To open an account with Wealthfront, you’ll need to be at least 18 years old, have a U.S. Social Security number, and a current U.S. address. You must also have a U.S. phone number that can accept text messages for security verification.

Be aware that Wealthfront can’t accommodate those living outside the U.S., including U.S. citizens living abroad. However, special accommodations are made for active-duty military or U.S. government employees living overseas.

The sign-up process will start with a questionnaire. You’ll be asked a series of brief questions to help Wealthfront determine your risk tolerance, investment goals, and time horizon. It will produce a risk score that will be used to create your portfolio.

Next, you’ll move to the investment plan page. It will provide details of how Wealthfront will invest your money. That will include the specific investments used, as well as the percentage allocations applied.

If you’re satisfied with your risk score and investment allocations, you can click on “open an account.” If you want to make adjustments, you can adjust the weights of asset classes and add or remove ETFs. You’ll then be presented with options for how to fund your account.

Four funding options are offered:

  1. ACH bank transfers from a linked checking or savings account. You can set this up directly through Wealthfront, which will verify the external account using two small deposits. If you use this method, you will be able to send recurring transfers from your bank account.
  2. Transfers and rollovers. This can include transfers from another investment account or rollovers from a retirement account into Wealthfront.
  3.  Wire transfers. These must come from an account where you are listed as the owner.
  4. Checks. This only available for 529 accounts.

Once your account has been opened and funded with the required $500 minimum, you can begin investing. 

Wealthfront Promotions

Wealthfront is currently offering two promotions:

  1. First, when you sign up for Wealthfront through Investor Junkie, the first $5,000 in your account is managed for free.
  2. Second is the referral programWealthfront Invite. For every new customer you refer to Wealthfront, you get an additional $5,000 managed for free.

Wealthfront Portfolio

Depending on whether your account is taxable or tax-deferred (e.g., an IRA), the asset allocation and fund selection may be slightly different.

The portfolio Wealthfront creates for you will be based on a selection of ETFs, from stocks to bonds and real estate. The selection is carefully balanced to give you exposure in areas that make sense for your situation. So if you're younger and have more time to invest, your portfolio might include mostly stock ETFs and emerging stocks, with a smaller percentage of bonds.

One exciting feature that they offer that other robo advisors don't is the ability to customize. In other words, you can add or delete an ETF in your portfolio. In addition, you can build your own portfolio based on the ETFs that have been vetted by their team of experts. For example, you can invest in specific categories like Socially Responsible Investing or Technology ETFs. This customized feature allows you to use automated investing while benefiting from Wealthfront's fiduciary advice and financial planning tools.

With Wealthfron you can also get cryptocurrency exposure without needing to buy cryptos. You can do this by adding either the Grayscale Bitcoin Trust (GBTC) or Grayscale Ethereum Trust (ETHE) to your portfolio. You can only add up to a combined 10% exposure.

Wealthfront Tax Loss Harvesting 

This service is available in taxable accounts. The purpose is to save on taxes, as well as the annual fees an ETF charges. In effect, Stock Level Tax-Loss Harvesting is something like an ETF but managed directly by Wealthfront.

Wealthfront clients with a taxable account of at least $100,000 can access Stock Level Tax-Loss Harvesting. Wealthfront uses individual stocks in up to 100 of the largest U.S. companies, and the Vanguard Extended Market ETF (VXF) and the Vanguard S&P 500® ETFs (VOO) to represent smaller companies.

Clients with a taxable account of $500,000 can use the Smart Beta program. It's similar to the Stock Level Tax-Loss Harvesting system, replacing the ETF normally used to represent U.S. stocks with a combination of large- and mid-cap stocks along with a few additional ETFs. But instead of holding the stocks in proportion to their market cap, they are shifted to increased the expected after-tax return of the portfolio.

Wealthfront Emphasizes Tax Efficiency

Tax-loss harvesting works by taking advantage of investments that have declined in value. A tax deduction is generated by selling investments at a loss, which lowers the investor’s taxes. Tax-loss harvesting could result in a larger benefit than what comes from the manual end-of-year approach taken by traditional financial advisors. All clients receive this feature at no additional cost.

Wealthfront’s automated investment service offers five levels of tax minimization:

  1. Index Funds — Unlike actively managed mutual funds, index funds have very little turnover, which means you incur much lower capital gains taxes.
  2. Intelligent Dividend Reinvesting — Using dividends to rebalance your portfolio throughout the year minimizes sales, leading to lower realized capital gains.
  3. Tax Location — Clients receive different asset classes and asset allocations for taxable and retirement accounts to optimize their after-tax performance.
  4. Daily Tax-Loss Harvesting — Available in taxable accounts to cover the gains in ETFs with the losses of other ETFs owned with Wealthfront.
  5. Risk Parity — Wealthfront's newest portfolio addition is a mutual fund that uses a risk parity-based strategy. This means a deviation from the standard 60/40 stocks/bonds breakdown in an effort gets higher risk-adjusted returns. You can elect to participate if you have a minimum of $100,000 in your account. See below and this article for more information.

These are important things every passive long-term investor should be considering, but, in most cases, don't. That's because either there's no easy way to deal with these, or it takes too much time to research this information. Wealthfront makes the process trivial.

Wealthfront states that tax-loss harvesting and the use of its Stock Level Tax-Loss Harvesting could add more than 2.03% to your portfolio's annual after-tax investment return, though, of course, this return is not guaranteed and is partially dependent upon market performance.

Wealthfront Products

Wealthfront Cash and Checking Account

If you're looking for a safe place to park your cash, Wealthfront has you covered. The service's new cash account will pay you 0.10% in interest and requires a minimum of only $1 to open. If you're concerned about safety, don't be — the FDIC insures Wealthfront's cash account for up to $1 million. That's four times the coverage you'll find with a regular bank.

Wealthfront Checking comes with a Visa debit card that allows you to get cash from 19,000 free ATMs. You can use the account to pay regular bills, sending one-time or recurring checks from your mobile app. You can also deposit checks through your mobile app and make purchases with Apple Pay or Google Pay. And if you want to pay friends and family, you can take advantage of Cash App, Venmo, and PayPal.

You can also use the Cash Account to organize your cash based on your goals. You can create categories to save for things like an emergency fund, wedding fund, down payment fund, or any other goal you’re working toward.

For more information, check out our Wealthfront Cash Account review.

Wealthfront's Smart Beta

This is Wealthfront's entry into “Smart Beta” to enhance returns over the core market indexes. The option is available to customers who have at least $500,000 with Wealthfront. Best of all, unlike Charles Schwab's robo advisor service and the ETFs it uses, Wealthfront's service is available at no additional charge. Smart Beta is paired with Stock Level Tax-Loss Harvesting to reduce the impact of taxes on your returns. According to Wealthfront, no other Smart Beta service or fund offers this option.

Wealthfront also announced that its tax-loss harvesting, Stock Level Tax-Loss Harvesting, and Smart Beta options are all merged into one combined service called PassivePlus.

Risk Parity Fund

The PassivePlus Risk Parity fund aims to deliver higher risk-adjusted returns in different market conditions. It does this by giving your portfolio more exposure to asset classes with higher risk-adjusted returns.

The fund is based in part on a similar offering from Ray Dalio's hedge fund, Bridgewater, which requires a $100 million account minimum. It will take up 20% of your portfolio or less, depending on you your personal settings. Wealthfront aims to democratize this strategy with a requirement of only $100,000.

To participate in this fund, you must have a minimum of $100,000 deposited. The fund has an annual fee of 0.25%, which will translate to only a 0.05% hike to your regular fee.

The Risk Parity fund is available only for taxable accounts (no IRAs) at the moment.

Structure Investment Minimum Expense Ratio
Mutual Fund $100K 0.50%

Free Financial Planning With Path

Wealthfront uses an algorithm called Path that a team of PhDs developed to help you reach your goals. Using Path, you can set savings goals for the big stuff: retirement, college, and/or a home purchase. This service takes all of your accounts — including external savings, banking, and even mortgage accounts — and creates personal financial advice. Path generates scenarios to help you determine if you're on the right… well… a path to meet your savings goals. And if not, it will suggest the best ways to go about doing so. Path is not a separate app; it's built into everything Wealthfront does.

It's like having a personal financial advisor that's software-based.

Not only that, but you can use Path for free with no investment required. In fact, Wealthfront is now the only robo advisor to offer free financial planning. All you have to do is download the Wealthfront app, and Path will get to work for you, with the ability to answer more than 10,000 questions tailored to your personal financial situation.

Wealthfront can help you answer these questions:

  • How much should you save today?
  • How much will you be worth then?
  • Could you live your current lifestyle at retirement?
  • Are you on track for your child's college education?
  • Are you saving enough to purchase a home?

Specific Path programs include:

529 College Savings Plan & College Planning

Plan for your child's college education via the Wealthfront app. Pick the college, and the app will calculate exactly how much financial aid you're eligible for and tell you if you're on track.

Free for the first $5,000 unless you're a Nevada resident. Nevada residents get $25,000 managed for free (plus all-in fees of 0.43-0.46% per year after that amount deposited). (The reason for this is because Wealthfront's 529 plan is domiciled in the state of Nevada.) Wealthfront shows you how much you can afford to cover while considering your other goals, such as buying a home or retirement.

Retirement Savings

Plan for your retirement using Wealthfront's Path algorithms. Wealthfront will look at all of your accounts — including external accounts — and help you find the best way to reach your retirement goals. Read more about Wealthfront IRA here

Home Planning

Plan and save for your next home purchase, along with receiving custom help and recommendations from professionals. Get mortgage estimates, do some “virtual house hunting,” and learn the best way to save for your personal situation.

Time Off for Travel

This planning service allows users to explore the possibility of taking an extended period of time off work. The calculator examines your financial data to answer questions such as “How much time can I afford to take off?” and “Will taking an extended leave impact my other financial goals?

Wealthfront Screenshots

    Other Wealthfront Features

    Self-Driving Money™

    You can use Wealthfront’s Cash Account to completely automate your savings strategy. Once you have a direct deposit into a Wealthfront Cash Account, you will immediately enjoy the benefits of Self-Driving Money™. Wealthfront can continuously monitor your cash flows to ensure that bills are paid and savings are instantly routed into the right investment accounts based on pre-set savings goals.

    Wealthfront will monitor your account for excess cash and will automatically transfer the balance into an account of your choice. You can choose to have the money deposited into your Wealthfrontcash account, taxable investment account, Roth IRA, Traditional IRA or 529 College Savings Account, and any combination of the accounts based on your goals.

    The service works by using Wealthfront to monitor either an outside checking account or a Wealthfront Cash Account and setting a specific balance. Once Wealthfront detects that there is more money in the account than prescribed, it will automatically transfer the money into one of the accounts of your choice based on your preferences. It's a great way to invest your money without even realizing the money is gone.

    Tailored Transfers

    Exclusive to Wealthfront. Typically, if you are moving from an advisor or existing brokerage account to a robo advisor, you have to sell all of your holdings and move-in cash. Instead of this, Wealthfront will transfer your assets into a diversified portfolio over time. This will reduce your tax bill. (However, Wealthfront still recommends that you sell incompatible assets such as stock options or mutual funds.)

    External Account Support

    Organize all of your accounts in one place with advice on fees, taxes, and excess cash.

    Portfolio Line of Credit

    For accounts larger than $25,000, you can take out a line of credit against your investments. Loan rates are  2.40% -3.65% APR as of May 13, 2021 and you can borrow up to 30% of the current value of your account.

    Wealthfront Fees Breakdown

    Wealthfront Minimum Deposit: The minimum account size that Wealthfront allows is $500

    Minimum Withdrawal Amount: $250. You cannot draw your account below the $500 minimum.

    From our research, for accounts under $10,000, Wealthfront is one of the cheapest robo advisors, including ETF fees. Annually, expect to shell out 0.25%. However, with our promo link, the first $5,000 in your account is managed free, and amounts above $5,000 have an annual 0.25% fee.

    Let's break it down. On a $100,000 account, the fee would be $237.50 for a full year — and with our exclusive promotional link, the first $5,000 would be excluded from annual fees. The amount of the annual fee will be prorated and withdrawn every month. Wealthfront is cheap when compared to the thousands of dollars in fees typically charged by financial advisors.

    As mentioned above, there's another way to have more than $5,000 managed free under Wealthfront. After becoming a Wealthfront customer, refer friends to the service. Each new signup grants you an additional $5,000 of free management.

    The only other fee you incur is the very low fee embedded in the cost of the ETFs. From our 60% stocks, 40% bonds portfolio test, we found the ETF fees averaged 0.18%. That gives Wealthfront an advantage over even the deepest discount brokers.

    Wealthfront Competitors

    HighlightsPersonal CapitalBettermentM1 Finance
    Rating9.5/109/108.5/10
    Minimum to Open Account$100,000$0$0
    401(k) Assistance
    Two-Factor Auth.
    AdviceAutomatedHuman AssistedAutomated
    Socially Responsible Investing
    Read our full Wealthfront vs Betterment and Wealthfront vs Personal Capital comparison.

    Wealthfront Pros & Cons

    Pros



    Free for Accounts Under $5,000
    —With our special promotion link. Even more is possible with the refer-a-friend offer.

    Tax-Loss Harvesting for All Accounts
    —This is Wealthfront's specialty. It helps with taxable accounts and according to Wealthfront helps increase returns.

    Stock Level Tax-Loss Harvesting
    —When investing over $100,000, it's a further way to decrease taxes and fund expenses by avoiding ETF fees.

    Risk Parity
    —The recently added risk parity option may smooth out returns compared to the traditional 60% stock/40% bond portfolio. However, we question at what cost, and Wealthfront's performance remains untested.

    529 Plan Option
    —This option makes Wealthfront somewhat unique in that most robo advisors focus only on retirement planning.

    Two-Factor Authentication
    —Either via a SMS text message or an app installed on your phone, you can be assured that your account is protected from hackers gaining entry.

    Free Financial Planning
    —You can use Wealthfront's financial planning service, Path, with no obligation or required investment.

    Path Considers External Accounts
    —The Path algorithm consider all of your accounts, even those held outside Wealthfront, to give you a complete picture of your goals.

    Cash Account
    —With as little as $1 you can open a cash account with Wealthfront, earn interest and get FDIC insurance for up to $1 million.



    Cons



    No Fractional Shares
    —It's possible to have cash sitting in your account, not invested.











    Is Wealthfront Right For You?

    Wealthfront is the perfect investment service for anyone who is looking for professional investment management at a low annual fee. They provide a level of service comparable to traditional investment advisories, but at a small fraction of the fee.

    You should also consider Wealthfront if you have a large taxable investment account and are concerned about the tax liability generated by investment gains. Wealthfront is at the forefront of tax minimization strategies, and second to none when it comes to tax-loss harvesting.

    It is also the perfect choice if you want to have your investments and banking on the same platform. Right next to your taxable investment account and retirement account, you can take advantage of the Wealthfront Cash Account to earn high interest on your uninvested cash. You’ll also have access to a free checking account, complete with a Visa debit card that can be used in 19,000 free ATMs.

    And don’t forget the Wealthfront portfolio line of credit. It gives you access to 30% of your taxable account value, anytime you need it, and at incredibly low-interest rates.

    In short, Wealthfront is an outstanding investment platform for just about everyone.

    Final Thoughts on Wealthfront 

    Overall, Wealthfront appears to be an excellent investment service. We think it's one of the best robo advisors, actually. It shines with taxable accounts. Now that Wealthfront offers tax-loss harvesting for all accounts, its service can minimize your annual tax expenses.

    If you're a beginning investor who's leery of jumping into individual security selection and management, Wealthfront would be an excellent choice. And it's a superior vehicle for any passive investor since the selection and maintenance of individual securities is completely unnecessary. Such an investor should supplement their Wealthfront position with substantial cash-type holdings outside.

    But more active investors can find use here if they supplement with a self-directed account.

    But it's the everyday savers whom Wealthfront is particularly looking to reach. With its Path planning model, you can “set it and forget it” and let Wealthfront do all of the heavy lifting.

    For individuals who are looking for a more comprehensive online financial planning app with optional financial advisor advice, Personal Capital is a good option as well.

    Wealthfront Disclaimer:
    You are being referred to Wealthfront Advisers LLC (“Wealthfront Advisers”) by Investor Junkie. Wealthfront Advisers has engaged Investor Junkie to act as a solicitor and refer potential clients to Wealthfront Advisers via advertisements placed on Investor Junkie’s website. Investor Junkie and Wealthfront Advisers are not affiliated with one another and have no formal relationship outside this arrangement. Wealthfront Advisers has agreed to compensate Investor Junkie for its referral services, and under this agreement will pay Investor Junkie a cash fee when you open an account with Wealthfront Advisers after clicking through this page. You will not be charged anything in connection with this referral, and this arrangement will not affect the advisory fees you will pay to Wealthfront Advisers compared to other advisory clients of Wealthfront Advisers. Additional information about Wealthfront Advisers may be found in its firm brochure located here. By clicking on the button on this page, you acknowledge receipt of the foregoing disclosure and the firm brochure accessible via the link in the preceding sentence.

    Larry Ludwig

    Larry Ludwig was the founder and editor in chief of Investor Junkie. He graduated from Clemson University with a bachelor of science in computers and a minor in business. Back in the ’90s, I helped create some of the first financial websites for firms like Chase, T. Rowe Price, and ING Bank, and later went on to work for Nomura Securities. He’s had a passion for investing since he was 20 years old and has owned multiple businesses for over 20 years. He currently resides in Long Island, New York, with his wife and three children.

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