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.
Pros & Cons
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 become 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.
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, Wealthfront automatically rebalances your portfolio so it stays in line with your target asset mix.
Wealthfront Portfolios – How It Invests Your Money
Depending on whether your account is taxable or tax-deferred (e.g., Wealthfront IRA), the asset allocation and fund selection may be slightly different.
The portfolio Wealthfront creates for you is 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 goals and risk tolerance.
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. In contrast, more conservative portfolios might have more bonds and dividend-stocks rather than growth stocks.
One exciting feature that Wealthfront offers 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 Wealthfront, you can also invest in cryptocurrency without actually buying coins. You can do this by adding either the Grayscale Bitcoin Trust (GBTC) or Grayscale Ethereum Trust (ETHE) to your portfolio.
However, it should be noted that Wealthfront is a bit unusual in the robo advisor space in that it doesn't buy fractional shares of ETFs. This means that you'll never be able to immediately invest 100% of the money that you move into your account. There will always be at least a small portion of your deposit left in cash. Some investors may consider that a significant downside, especially those who are ardent dollar-cost averaging fans.
Other Wealthfront Features
|Tax Loss Harvesting|
Weekly, Biweekly, Monthly and Quarterly
|Customer Service||Phone: M-F 7A-5P PT; Email|
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. All Wealthfront clients receive this feature at no additional cost.
Tax-loss harvesting is just the tip of the iceberg. In fact, Wealthfront excels when it comes to minimizing your taxes.
Wealthfront’s automated investment service offers five levels of tax minimization for all taxable accounts:
- Index Funds — Unlike actively managed mutual funds, index funds have very little turnover, which means you incur much lower capital gains taxes.
- Intelligent Dividend Reinvesting — Using dividends to rebalance your portfolio throughout the year minimizes sales, leading to lower realized capital gains.
- Tax Location — Clients receive different asset classes and asset allocations for taxable and retirement accounts to optimize their after-tax performance.
- Daily Tax-Loss Harvesting — Available in taxable accounts to cover the gains in ETFs with the losses of other ETFs owned with Wealthfront.
- 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.
And 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.
Wealthfront Cash Account
If you're looking for a safe place to park your cash, Wealthfront has you covered. Its cash management account pays you 3.30% 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 $2 million. That's four times the coverage you'll find with a regular bank.
You also get 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.
Additionally, customers can use the Cash Account to organize cash based on 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.
Plus, Wealthfront’s Cash Account lets you automate your savings strategy with the Self-Driving Money™ feature. This feature lets Wealthfront 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. 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.
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 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%.
The Risk Parity fund is available only for taxable accounts (no IRAs) at the moment.
|Structure||Investment Minimum||Expense Ratio|
Free Financial Planning With Path
Wealthfront uses an algorithm called Path to help you reach your financial 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?
Path also has several unique programs to help with goals like retirement planning, buying your first home, and even planning how much time you can take off for travel and vacation.
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 transfers 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.)
Portfolio Line of Credit
For accounts larger than $25,000, you can take out a line of credit against your investments. Loan rates are 3.15% -4.40% APR as of May 25, 2022 and you can borrow up to 30% of the current value of your portfolio.
Wealthfront Fees & Pricing
Wealthfront charges 0.25% in annual management fees. From our research, for accounts under $10,000, Wealthfront is one of the cheapest robo advisors, including ETF fees. And 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.
Other Wealthfront fees and minimums include:
- 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.
There's also 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.
Who Should Use Wealthfront?
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 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.
The sign-up process starts with a questionnaire. It asks you a series of brief questions to help Wealthfront determine your risk tolerance, investment goals, and time horizon. It then produces a risk score it uses to create your portfolio.
Next, you move to the investment plan page. This page provides details of how Wealthfront will invest your money. This includes 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. Afterwards, you have four options to fund your account:
- 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.
- Transfers and rollovers. This can include transfers from another investment account or rollovers from a retirement account into Wealthfront.
- Wire transfers. These must come from an account where you are listed as the owner.
- Checks. This is only available for 529 accounts.
Once your account has been opened and funded with the required $500 minimum, Wealthfront can start investing your money.
Wealthfront is currently offering two promotions:
- First, when you sign up for Wealthfront through Investor Junkie, the first $5,000 in your account is managed for free.
- Second is the referral program—Wealthfront Invite. For every new customer you refer to Wealthfront, you get an additional $5,000 managed for free.
Wealthfront is one of our favorite robo advisors because of its low management fees. The fact you can customize the ETFs you invest in to have more control over your portfolio is also a selling point. Plus, Wealthfront supports a range of account types, including 529 plans, which isn't a given for robo advisors.
That said, Wealthfront falls short for fractional shares and the fact that human advisors aren't available. A $500 investing minimum is also higher than some competing robo advisors.
Thankfully, there are numerous Wealthfront competitors you can turn to if you want fractional shares and human advice.
|Minimum to Open Account||$100,000||$10||$500|
|Advice Options||Automated, Human Assisted||Automated, Human Assisted||Automated|
|Socially Responsible Investing|
As for Personal Capital, it's an excellent Wealthfront alternative if you want to work with financial advisors. Clients who invest over $100,000 get access to Personal Capital's Wealth Management service which helps you create a custom portfolio to reach your goals. Plus, there's a variety of free tools, like a retirement planning tool and investment fee analyzer, you can use for free regardless of your account balance.
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. It provides 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.
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.
InvestorJunkie receives cash compensation from Wealthfront Advisers LLC (“Wealthfront Advisers”) for each new client that applies for a Wealthfront Automated Investing Account through our links. This creates an incentive that results in a material conflict of interest. InvestorJunkie is not a Wealthfront Advisers client, and this is a paid endorsement. More information is available via our links to Wealthfront Advisers.