April 30, 2018

Wealthfront Review: Is It Good?

Read more about Wealthfront
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Wealthfront makes long-term investing with a diversified portfolio at low cost seem simple. With no human interaction and automated investing, passive investing may even look attractive.

Wealthfront is a robo-advisor that creates your investments based on an algorithm after you complete a questionnaire that tallies up your risk. The robo-advisor, which invests primarily in ETFs, automatically adjusts your portfolio as needed in order to stay in line with your investment goals.

Wealthfront takes the emotional aspect out of investing by making your asset allocation automatic. As your risk profile changes, Wealthfront automatically reassesses your asset allocation to account for the changes.

Wealthfront doesn't require payment upfront. In fact, you can create a profile and get your suggested investment profile before funding your account. This way you can see if Wealthfront's methodology is right for you.

Keep reading to learn more about Wealthfront to help you make your decision.

Who Wealthfront Is Best For

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  • Investors transferring from another broker: Rather than selling your old portfolio and transferring the investments into cash, Wealthfront, offers a "Tax-Minimized Brokerage Account Transfer." Certain assets can be electronically transferred and directly incorporated into your portfolio, such as stocks and ETFs that Wealthfront offers as well. Other investments that have not yet become "long-term" because they are less than one year old are left to sit until they hit that milestone. The software then automatically sells the securities, helping you realize tax savings as a result. Certain investments, such as penny stocks, mutual funds, annuities, and individual bonds, will not qualify, though.

  • Investors saving for college: If you are saving for your child's college, you can easily set up a 529 college savings plan through Wealthfront at any time. As your child gets older and chooses a college, you can use the Path tool to help get a better view of how much you need to save. The tool takes into account the school's costs and estimated financial aid you may receive, and then automatically determines your monthly saving requirements.

    Check out your state's 529 plan: It's always recommended to check out your state's 529 plan first. Many state-sponsored plans offer tax benefits (deductions or credits) to residents. If you've exhausted this benefit or your state doesn't offer one, then Wealthfront offers a great alternative.

  • Investors saving for retirement: Wealthfront offers realistic numbers to help you plan for retirement based on your current spending and projected spending during your retirement age. Wealthfront uses government data to determine the spending habits of people as they hit retirement age and compares it to your current spending habits to determine how much you'll need. The retirement calculations take into consideration Social Security income and the risk of inflation as well.

Fees

Currently, Wealthfront charges an annual fee of 0.25% of your assets under management. Wealthfront does not charge:

  • Account opening fees
  • Account closing fees
  • Trading fees
  • Commission fees
  • Account transfer fees
  • Withdrawal fees

Wealthfront deducts the annual fee monthly, basing it on your average monthly balance. For example, if you had an average monthly balance of $150,000, you would pay $30.82 per month. Wealthfront automatically deducts the fee from your account.

You will also incur one other fee: the ETF expense ratio. The ETF expense ratios cost an average of 0.8% - 0.12%.

Minimum Investment Required? Wealthfront requires a $500 minimum to open an account with them. This enables Wealthfront to allocate your funds over the eight asset classes, providing you with the greatest return on your investment.

If you want to take advantage of the Stock-level Tax Loss Harvesting, though, you will need an account minimum of $100,000.

Returns

As is the case with any broker you choose, there's no guarantee of your returns. You run the risk of losing your investment at any point. A benefit of Wealthfront's strategy, however, is their focus on creating and rebalancing a balanced portfolio over time. This portfolio consists of indexed ETFs that are supposed to help minimize risk.

Does this mean you won't see a loss with Wealthfront? Nope. You can see a loss with any broker you choose. The difference with Wealthfront is you have a better chance of coming out ahead if you sit and be patient. The goal of the ETFs is to match market performance at the very least, with the ultimate goal to come out ahead.

Is Wealthfront Safe? As is the case with any broker, your money is at risk based on the market's performance. Wealthfront holds your money in a brokerage account at Wealthfront Brokerage Corporation. They also use RBC Correspondent Services for clearing trades and IRA Services Trust Company for IRA accounts.

As far as keeping your information safe, Wealthfront uses military-grade encryption. It's how you manage your safety on your end that matters. Keeping up-to-date with updates and using two-factor authentication can help prevent your information from being stolen.

Wealthfront vs Betterment

Wealthfront and Betterment tie when looking for the best robo-advisor. They charge similar fees and offer similar services, including portfolio rebalancing and tax loss harvesting. They both also offer similar account types, including IRAs and taxable accounts.

 

Wealthfront

Betterment

 

Benefits and Features

Annual Fee
0.25%
$3/month for accounts under $10,000 with no auto-debit, 0.35% for $10,000 and under with auto-debit, 0.25% for accounts between $10,000 and $100,000, and 0.15% for accounts above $100,000
Minimum Deposit
$500
$0
Phone Support
Yes
Yes
Live Chat Support
No
No
Email Support
Yes
Yes
Human Advisors
No
Yes
Assets Under Management
$8.2 Billion
$10 Billion
Tax Loss Harvesting
Yes
Yes
Goal Tracker
No
Yes
Automatic Deposits
Yes
Yes
Online Platform
Yes
Yes
iPhone App
Yes
Yes
Android App
Yes
Yes
Single Stock Diversification
Yes
No
Fractional Shares
No
Yes
Taxable Accounts
Yes
Yes
401k Plans
No
Yes
IRA Accounts
Yes
Yes
Roth IRA Accounts
Yes
Yes
SEP IRA Accounts
Yes
Yes
Trust Accounts
Yes
Yes
529 Plans
Yes
No

Wealthfront: Pricing information from published website as of 04/04/2018

Betterment: Pricing information from published website as of 04/04/2018

Why You Might Like Betterment More
An area where Betterment really shines, though, is with its premium account. You will need a minimum of $100,000 invested. If you do, you'll have access to their Certified Financial Planners. In other words, you get human advice. The personal advisor could help you further customize your investment strategy based on your goals.

One other area where Betterment tends to shine is its ability to purchase fractional shares. This is something Wealthfront does not do. That means you have cash lying around rather than making money in an investment, as Wealthfront rounds down to the nearest whole share. Betterment invests every penny you have available.

Why You Might Still Prefer Wealthfront
If your main goal, or even one of your goals, is to save for college, Wealthfront is the better robo-advisor, as they offer 529 savings plans. With a tailored program based on when your child will enter college and even being able to name a specific college at any point, you can maximize your tax savings while saving for your child's education.

Wealthfront vs Vanguard

Vanguard Personal Services is yet another robo-advisor on the market today. It's geared towards the investor with a higher net worth, though, as they require a $50,000 minimum deposit. Vanguard Personal Advisor Services offers IRAs, taxable and joint accounts, just like Wealthfront.

 

Wealthfront

Vanguard Personal Advisor

 

Benefits and Features

Annual Fee
0.25%
0.3% and $20/ year
Minimum Deposit
$500
$50,000
Phone Support
Yes
Yes
Live Chat Support
No
No
Email Support
Yes
Yes
Human Advisors
No
Yes
Assets Under Management
$8.2 Billion
$4.5 Trillion
Tax Loss Harvesting
Yes
client-by-client basis
Goal Tracker
No
Yes
Automatic Deposits
Yes
Yes
Online Platform
Yes
Yes
iPhone App
Yes
Yes
Android App
Yes
Yes
Single Stock Diversification
Yes
No
Fractional Shares
No
No
Taxable Accounts
Yes
Yes
401k Plans
No
No
IRA Accounts
Yes
Yes
Roth IRA Accounts
Yes
Yes
SEP IRA Accounts
Yes
Yes
Trust Accounts
Yes
Yes
529 Plans
Yes
Yes

Wealthfront: Pricing information from published website as of 04/04/2018

Vanguard Personal Advisor: Pricing information from published website as of 04/04/2018

Why You Might Like Vanguard More
If you have more than $50,000 to invest, chances are you might want "some" human interaction when dealing with your investments. Vanguard offers this service Monday - Friday, giving you that extra bit of advice or help you might need. Wealthfront requires you to rely on digital information to get answers to your questions.

Because you'll have access to a human advisor, you have a say in some of the account selections made for you. If you have specific investments you want to make or want advice on those selections, it's made available to you with Vanguard.

Why You Might Still Prefer Wealthfront
Obviously, if you have less than $50,000 to invest, Wealthfront is the better choice. Even if you have more than $50,000, Wealthfront's annual fee is lower, at 0.25% versus 0.30%. In addition, if you trade anything other than Vanguard securities, you'll pay commission fees with Vanguard.

App

Wealthfront is one of the few robo-advisors to provide the same desktop experience on an app. The app is available on both iOS systems and Android. You can create your custom financial plan, go through the "what if" questionnaires to see how your future financial life may pan out, and get financial advice, all on your smartphone.

Tax Loss Harvesting

If you open a taxable account with Wealthfront, you'll benefit from their tax loss harvesting program. They offer daily tax loss harvesting, unlike many brokers' annual tax loss harvesting. With this practice, Wealthfront takes advantage of securities that have lost their value below your investment value by selling them at a loss. The loss is then used to offset any gains you make on other assets, which is why a diversified portfolio is so important. This service is available to all investors with taxable accounts.

If you have more than $100,000 invested with Wealthfront, you can also take advantage of Stock-level Tax Loss Harvesting. This program purchases individual stocks from the S&P 500, rather than ETFs. The daily tax loss harvesting then watches for movement in the stocks, taking advantage of any tax loss that occurs. The tax savings are then reinvested to help increase the value of your investments.

Pros

  • Minimal opening balance: As a beginning investor, it can be hard to get started without a large amount of cash. Wealthfront allows you to get started with just $500 and has no fees for going below that amount.

  • Tax loss harvesting: The ability to maximize your tax savings can save you thousands of dollars come tax time, and it's automated so you don't have to give it a second thought.

  • The ability to plan: The Path Financial tool helps you determine if you are on track for your investment goals, whether for retirement, college, or something else.

Cons

  • No access to an advisor: As a beginning investor, it could be difficult not having a human to talk to regarding your investments.

  • No fractional shares: You could end up with a cash balance that just sits if you don't have enough to purchase a full share of an ETF.

Bottom Line

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Wealthfront is a good option for the beginning investor with little experience or the advanced investor looking for passive income. If you are looking for personal investment advice, though, you may want to look elsewhere. Wealthfront is best suited for the investor who can manage their account digitally.

If you have little money to invest, but want to get started on your goals, Wealthfront provides you with the opportunity with their minimal investment requirement and low fees.

Disclaimer: Opinions expressed here are those of the author's alone. Please support CreditDonkey on our mission to help you make savvy financial decisions. Our free online service is made possible through financial relationships with some of the products and services mentioned on this site. We may receive compensation if you shop through links in our content.

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