Our Wealthfront review delves into this automated investment service. Wealthfront is a robo-advisor that provides clients with diversified and personalized investment management and other financial services and tools such as cash accounts, bonds, and stocks.
The company is based in Palo Alto, California, and has over $60B in Assets Under Management (AUM) and over 800,000 accounts. This platform will offer interesting opportunities whether your risk tolerance level is low, moderate, or high. Here’s everything you need to know before trusting Wealthfront with your funds.
Table of Contents
Wealthfront Review of the Platform
We begin the Wealthfront review by looking at their platform. It is well-adapted for digitally savvy consumers looking to build portfolios and save on fees. Unlike other major platforms, Wealthfront doesn’t have a live chat or financial advisors, and connecting with a product specialist within a reasonable timeline can be difficult. There is a help center, an FAQ, and an online form you can fill out. Those who prefer a much more personal contact or have limited knowledge of investments might find it harder to navigate Wealthfront efficiently.
The majority of Wealthfront’s users are more than satisfied with its platform. One of its main distinctions is its robo-advisor customization possibilities. Knowledgeable investors can choose the best investments for their goals and risk tolerance from various funds and tools. It’s no wonder it is rated 4.8★ on the Apple App Store and 4.9★ on the Google Play Store.
Investment Opportunities
Alright, let’s dig deeper into this Weatlthfront review. Which investment opportunities are available on Wealthfront, what are their features, and how can you use them?
1. Interest on Cash
Why would you leave your money in a savings account that earns you peanuts when inflation is so high? With Wealthfront, you can earn 5% APY (Annual Percentage Yield) with its high-yield account.
This APY is over ten times higher than the national average savings account APY of 0.47% (March 2024). No transfer or withdrawal fees and minimum or maximum balance are required. Your money is FDIC-insured through Wealthfront’s partner banks for up to $8M.
That’s not all. Wealthfront’s high-yield account has checking features. You can use its debit card for free withdrawals thanks to a network of 19,000 ATMs. You can transfer funds to linked accounts, pay bills, use Venmo, Paypal, Apply Pay, Google Pay, or send wire transfers.
How many conventional banks offer the same flexibility as Wealthfront? Few. Hence, our Wealthfront review.
2. Automated Bond Portfolio
Bonds are ideal when you have a large expense in the next 1 to 3 years. You don’t want too much risk but are looking for decent returns. Wealthfront’s diversified bond portfolio is designed to provide stability and income to investors.
It comprises a mix of high-quality fixed-income securities, including U.S. Treasuries, investment-grade corporate bonds, and mortgage-backed securities (MBS).
Wealthfront can optimize your Bond Portfolio based on your unique personal details for a small management fee of 0.25%. They will handle all the trades, dividends reinvestments, and portfolio rebalancing. The Automated Bond Portfolio will be less volatile than index funds or individual stocks and should provide higher returns than the high-yield account.
A Wealthfront review of their automated and diversified bond portfolio has a blended 30-day SEC yield of 5.49% after all the fees as of April 2024.
3. Diversified Index Investing
A Wealthfront review of its main product is its Automated Investing Account. You can build your personalized and diversified account by choosing a risk score between 0.5 and 10. Let’s look at an example with a risk score of 8:
- 45% US stocks
- 15% foreign stocks (Europe, Australia, Japan)
- 15% emerging markets (Brazil, China, India, South Africa, Taiwan)
- 9% dividend stocks
- 16% municipal bonds
As the risk score increases, a higher emphasis is placed on US stocks, foreign stocks, emerging markets, and dividend stocks. Safer portfolios have a higher percentage of bonds (municipal, US, corporate, and Treasury Inflation-Protected Securities (TIPS)).
4. Wealthfront Review Personalization
With Wealthfront, you can let the platform’s robo-advisor create a portfolio or build your own. They have 239 investment categories and 17 asset classes (crypto, tech/innovation, exclusive offerings, socially responsible ETFs, US stocks, bonds, foreign/emerging markets, sector ETFs, commodities, and more).
All these great choices come with a small fee of 0.25% per year. For example, if you invest $10,000, the monthly fee is $2.12.
5. Discover and Buy Stocks
With Wealthfront, you can start investing in over 1,500 stocks with as little as \$1. Additionally, there aren’t any commissions when you buy or sell stocks. You can access various “playlists” of stocks (wide moats, semiconductors, tech, dividend blue chip, cloud computing, and more) and buy fractional shares. If there is cash left uninvested, it will automatically be placed in the high-yield account and earn 5.00% in the meantime.
The platform will perform a minimum of due diligence on your behalf. It will briefly analyze the pros and cons and tell you about each stock. If you want to buy the same stocks every week or month, you can automate your transfers and purchases to save time.
Let’s do a Wealthfront review of the fees for trading stocks. There aren’t any. Wealthfront will only make money on the net interest margin from your high-yield account.
6. Tax-Loss Harvesting
One of the most interesting features of thisWealthfront review is its tax-harvesting tool, which features a high-yield cash account, automated bond portfolio, and automated investing account. It is not available with individual stocks. Investors will be responsible for their finances. Here is how tax-harvesting works.
Tax-loss harvesting helps clients reduce their tax liability and boost their after-tax returns. When an investment in a client’s taxable account declines in value, Wealthfront sells that investment to realize a loss. This loss can then offset capital gains realized elsewhere in the portfolio.
If there are excess losses after offsetting capital gains, up to $3,000 can be used to offset ordinary income, further reducing the client’s tax bill. Wealthfront’s software monitors client portfolios and automatically harvests losses when they occur. The sold investment is replaced with a similar, but not identical, investment to maintain the portfolio’s overall risk and return characteristics.
Ensuring the client’s asset allocation remains unchanged. According to Wealthfront, most clients benefit from the tax-loss harvesting tool. Its benefits outweigh the advisory fees.
Wealthfront Review Recap
We’ve written a lot of information, so here is a Weathfront review.
- High-yield cash account: 5.00% APY (10x national average), no fees, and access to a checking account debit card.
- Automated Bond Portfolio: Mix of diversified bond portfolios with a 0.25% fee. Safer and less volatile than stocks and earns a blended 30-day SEC yield of 5.49% after all the fees (as of April 2024).
- Automated Investing Account: Wealthfront’s feature account with a 0.25% annual fee. Build a personalized investment portfolio with over 200 investments across 17 asset classes.
- Buy your stocks: With over 1,500 stocks to choose from and no commission fees, it’s easy to build your portfolio. If there is cash left, it will automatically be placed in the high-yield cash account, which earns 5.00% APY.
- Tax-loss harvesting: Wealthfront automatically sells investments at a loss to offset capital gains or income, lowering current taxes
IRA Accounts
What about retirement accounts? Wealthfront offers a traditional IRA, a Roth IRA, a SEP IRA, and a rollover IRA with a 0.25% annual advisory fee. What are the differences between both types of IRAs?
- Traditional IRAs may provide tax deductions on contributions, withdrawals are taxed as ordinary income, and there is no income eligibility. Withdrawals before age 59 1/2 are subject to a 10% penalty (with some exceptions).
- Roth IRAs are funded with after-tax dollars; withdrawals are tax-free in retirement, but income eligibilities exist.
- SEP IRAs are a type of traditional IRA that allows employers, including self-employed individuals, to make tax-deductible contributions on behalf of their employees.
- Rollover IRAs are used to move funds from one type of retirement account to another, such as rolling over a 401(k) from a former employer into a traditional IRA.
Here’s everything you need to know about retirement accounts.
529 College Savings Plan
That’s not all in this Weathfront review. Wealthfront offers a 529 College Savings Plan for a 0.25% advisory fee. It is a tax-advantaged investment account that allows you to save for your child’s future college expenses.
Contributions are made with after-tax dollars, but earnings grow tax-deferred, and withdrawals for qualified education expenses are tax-free. Wealthfront constructs an investment portfolio for your 529 account based on your risk tolerance and the beneficiary’s expected college enrollment date. The portfolios use low-cost ETFs.
Wealthfront Review of Borrowing
You could argue they’re a bank at this point in our Wealthfront review. You can invest, pay bills, transfer funds, and borrow money. With Wealthfront’s Portfolio Line of Credit, you can borrow up to 30% of your portfolio with an APR between 7.65% – 8.90%. Generally, it is cheaper than a credit card or a personal loan at the bank. Here are a few features:
- Approved within 30 seconds
- No credit check or application fee
- There is no repayment schedule. Wait what? Yes. Pay now or in one year with any sum you want. It’s all up to you as long as you pay eventually. Wealthfront adds the interest owed monthly to your balance.
However, don’t forget this is a margin loan, also called a securities-backed line of credit. You are using your securities as collateral. If the value of your investments falls significantly, you might be forced to pay a percentage of your loan back early. If you don’t have the necessary funds, the loan must be covered with your investments.
Minimum balance in an Automated Investing Account: $25,000 (excludes Cash, Retirement or 529 accounts).
Final Thoughts: Wealthfront Review
To conclude our Wealthfront review, they offer a complete platform where you can conduct day-to-day banking operations, invest for now, the future, and your kids, and borrow money.
The platform has some of the industry’s lowest fees and best reviews, with over 800,000 accounts and $60B in AUM. It is quickly growing and can become a serious threat to traditional banking institutions. The only issue with Wealthfront is its lack of product specialists to help you with any issues.
Frequently Asked Questions
Wealthfront is safe and offers the same safety protocols as most financial institutions. Your money is FDIC-insured, and the SIPC insures investments.
Wealthfront is only available for US residents.
Your money and investments are insured, but your capital isn’t. Stocks and Index ETFs are subject to market fluctuations.
You can access your money the same day without a fee, thanks to over 19,000 ATMs in the country.
There are no hidden fees, commissions, or charges.
