Wealthfront Review 2020: Low Fees for Beginner InvestorsStocks
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Wealthfront is an investing platform popular with both beginner and intermediate investors. Its service can help you set and reach your investing goals with a holistic approach that looks at your entire financial life. So let’s check it out and see if it’s the best option for you in our Wealthfront review.
What Is Wealthfront?
Wealthfront is one of the biggest robo advisors in the industry. In fact, it currently manages over $20 billion in assets.
But let’s back up a second. What’s a robo advisor?
Robo advisors are digital platforms that use computer algorithms to provide financial advice. This means there’s little or no human involvement… the algorithms tailor your investment portfolio to your specific needs without the likelihood of human error.
What’s more, these robo advisors cost just a fraction of what you’d usually pay a traditional financial advisor. They’re truly set-it-and-forget-it investing. Just plug in the information and let the platform do the rest.
Like many robo advisors, Wealthfront uses something called Modern Portfolio Theory to manage your assets.
This theory maintains that it’s hard to beat the market. Instead, you should maximize your returns by diversifying and rebalancing your portfolio.
Wealthfront seeks to do just that.
How Does Wealthfront Work?
Using Wealthfront is straightforward. Once you sign up for an account, the platform will ask you a few questions about your risk tolerance and goals. Wealthfront will then start allocating your funds among a range of investments to fit your needs.
Note that you need to deposit a minimum of $500 to begin investing in a Wealthfront account.
The software algorithm Wealthfront uses is called Path. Developed by a team of Ph.D.s, Path takes all your financial accounts — credit cards, checking, savings, mortgages, and external brokerage accounts — into consideration to determine financial advice based on your preferences and habits.
Some of the features you’ll get include tools to help you understand when you’ll be able to retire, how much house you can afford, and if you’ll be able to meet your savings goals. Path will create different scenarios to see if you’re on track and make suggestions for what you should do if not.
Some of the questions Wealthfront and Path may help you figure out include:
- How soon can you retire?
- Can you live off your retirement savings on your projected retirement date?
- How much will your investments be worth in X years?
- How much home can you afford?
- Will you be able to meet your savings goals?
- Can you meet your goals to help your child(ren) pay for college?
You can use Path even if you’re not a paying Wealthfront customer. You can start using Path for free from the Wealthfront website.
What Does Wealthfront Cost?
Wealthfront charges a 0.25% annual advisory fee, which is deducted monthly from your investment account.
Wealthfront’s 529 plans cost anywhere from 0.42% to 0.46%, but Nevada residents won’t get charged until the account reaches $25,000.
What Products Does Wealthfront Offer?
Wealthfront offers a bunch of financial products.
Investment account options include:
- Roth IRAs
- Traditional IRAs
- SEP IRAs
- Rollover IRAs
- 529 plans
- IRA transfers
- Taxable brokerage accounts (individual and joint)
There’s also the Wealthfront Cash Account, which is a safe spot to park your money and earn interest. There are no fees to use this account. Because Wealthfront uses more than one bank to store your deposits, your cash is FDIC insured up to $1 million. That’s much more than the typical $250,000 offered at other banks.
Investors who have a minimum of $25,000 deposited into a taxable Wealthfront portfolio may be eligible for a Portfolio Line of Credit. This involves borrowing money to invest. Make sure you’re willing to take on the risk and understand what you’re getting into before taking advantage of this feature.
Through its PassivePlus feature, Wealthfront’s algorithms check for capital loss opportunities daily. By taking advantage of tax-loss harvesting with taxable investment accounts, Wealthfront can help you save thousands of dollars at tax time.
For accounts over $100,000, Wealthfront will activate stock-level tax-loss harvesting, a more sophisticated method that looks at individual stock price movements. Accounts $500,000 and up will get Smart Beta, which is even more sophisticated.
Wealthfront Review: Pros
Low management fees
Wealthfront charges a flat 0.25% for its investment accounts. It doesn’t charge users any trading, commission, account transfer, opening, or closing fees.
Path planning tool
Customers have access to Wealthfront’s Path planning tool, which can help you map out retirement, savings goals, and major purchases (such as a house). Just link your accounts to the tool and Path will do the rest.
When it comes to your retirement savings plan, Path will look at your current spending habits combined with average spending activities from government data. It will then spit out a few different scenarios while taking inflation and Social Security projections into account.
It’ll also help you assess your financial situation, current mortgage rates, and home prices in your area to see how much house you’d be able to afford.
Wealthfront offers daily tax-loss investing for its taxable accounts. This can help you offset any losses in your portfolio.
Investors who have more than $100,000 with Wealthfront will get stock-level tax-loss harvesting. This looks for movements in individual stocks to harvest more losses and save you more money at tax time.
For accounts over $500,000, Wealthfront offers Smart Beta. This service weighs the stocks in your portfolio and measures them against things like dividend yields and volatility to increase your expected returns.
Wealthfront Cash Account
Earlier in 2019, Wealthfront launched an interest-paying savings account called the Wealthfront Cash Account. Its rate is competitive to other online banks. But what stands out about this account is that Wealthfront offers up to $1 million in FDIC coverage, compared to $250,000 at other banks. There are no fees with this savings accounts.
College saving plans
Using Wealthfront’s Path tool, you can open a 529 college plan or link an outside plan for Wealthfront to help manage. Parents simply pick the college of choice and the Path tool will estimate potential financial aid and college costs. It will then create a monthly savings plan.
Wealthfront is the only robo advisor that offers this service.
Wealthfront Review: Cons
Wealthfront doesn’t offer fractional shares, meaning if you don’t have enough money to buy an entire share of an ETF, your money just sits there. It may not be a big deal if you don’t have a lot of cash sitting around, but it’s cash you could have had invested.
No human advisors
A robo advisor is meant to help you maximize your investments using automated software. If you’re the type who wants to speak to someone about your investment strategy and advice about accounts outside of Wealthfront, you’re out of luck.
What Makes Wealthfront Unique?
What makes Wealthfront unique is the way it approaches investing and its range of products. It’s one of the largest robo advisors that don’t require humans to manage funds.
You also get access to Path, a financial planning tool that looks at your overall financial picture. It’s not about just your retirement numbers, but rather, other milestones such as purchasing a house or your kids going off to college.
Investors also have access to more advanced investing tools once their net worth grows. Unlike other automated investing apps like Acorns and Stash, Wealthfront offers a few sophisticated investing strategies such as tax-loss harvesting.
How Wealthfront Compares to Its Competitors
Wealthfront offers competitive fees, a wealth of tools, and a strong tax optimization strategy. It’s also strictly a robo advisor — there’s no option to speak to a human financial advisor.
Other competitors such as Betterment offer many of the same services with minor differences.
Betterment’s fees are also low, it has no minimum balance, and it offers other robust financial planning tools. Betterment also has tax-loss harvesting and an investing app.
But Betterment also has the human touch. You can get phone support from a financial advisor for an extra fee. These advisors can also help you with accounts outside of Betterment (such as your 4019(k) account).
Even with this in mind, Wealthfront still stands out as being one of the best hands-off investing apps out there. If you’re not interested in speaking to a human, then there really isn’t much of a difference between competitors.
On the flip side, if you’re the type who enjoys learning about investing and wants to do more active trading, there are better brokerages out there.
How to Open a Wealthfront Account
To open an account, head over to Wealthfront’s website.
The site will first ask you to provide some basic information about who you are and your finances. To speed up the process, you can import your data using an Intuit TurboTax account.
The application process will lead you to a questionnaire asking you for your financial snapshot. This includes things such as your investment goals and risk tolerance. Once complete, Wealthfront will present you with a list of portfolio options and a score containing your risk profile.
You can then move onto the investment page, where Wealthfront will show you what it plans to do with your money — aka your portfolio. It’ll go over why it made these recommendations. You’ll have a chance to make any changes if you want.
Once you’re happy with your profile, you’ll be asked to fund your account (a $500 minimum). If you have other investments and want to transfer them over, Wealthfront can handle it for you while minimizing the impact it’ll have on your taxes.
Who Is Wealthfront Best For?
As one of the lower-priced online investing and advice options, Wealthfront is best for those starting to dip their toes into investing.
Its automated platform is great for those who want their investing to be more hands-off. It’s also great for those who want to save money in their taxable accounts since Wealthfront’s tax-loss harvesting can help you do so.
Between Wealthfront’s digital financial planning tools and Path, this platform truly feels like you can “set it and forget it.” You can log in at any time to see if you’re reaching your goals and update your accounts and financial situation if need be. But that’s pretty much it.
Logan is a CPA, Certified Student Loan Professional, and founder of Money Done Right, which he launched in July 2017. After spending nearly a decade in the corporate world helping big businesses save money, he launched his blog with the goal of helping everyday Americans earn, save, and invest more money. Learn more about Logan.