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Investors should carefully assess the risks associated with bond ETF investments. Bond ETF performance may not precisely mirror the underlying index due to tracking errors from factors like bond weighting differences, transaction costs, and timing. Management fees can affect overall returns. Bond ETFs expose investors to risks, including interest rate risk, potentially leading to capital losses as rising rates decrease underlying bond values. Most bond ETFs lack a fixed maturity date or guaranteed principal repayment at maturity. Bond ETFs may generate capital gains from portfolio rebalancing, potentially resulting in unexpected tax liabilities.
Credit risk is a concern, as bond issuers’ financial health can impact ETF value. Some bond ETFs may use derivatives, introducing counterparty risk where losses can occur if a counterparty fails to fulfill its contractual obligations. Call risk should also be considered, as falling interest rates might prompt callable bond issuers to repay securities before maturity, forcing reinvestment in lower-yield or riskier securities.
Savings accounts are typically FDIC-insured. The Automated Bond Portfolio is covered by SIPC, which protects securities customers of its members up to $500,000 (including $250,000 for claims for cash). Explanatory brochure available upon request or at www.sipc.org. It does not provide protection against losses resulting from market fluctuations.
Bond ETFs are less liquid than cash, potentially affecting buying and selling shares at desired prices. Some may prefer the stability and accessibility of savings or deposit accounts despite lower yields.
Equities may offer higher long-term gains than bonds or cash investments, providing capital appreciation and reinvestable dividend income. However, equities present increased risk due to market fluctuations and short-term price volatility. Investors with longer time horizons and higher risk tolerance may allocate a portion of their portfolios to equities, acknowledging the possibility of gains and losses. Investors should weigh these risks before investing. Past performance does not guarantee future results.
Tax loss harvesting may generate a higher number of trades due to attempts to capture losses. There is a chance that trading attributed to tax loss harvesting may create capital gains and wash sales and could be subject to higher transaction costs and market impacts. In addition, tax loss harvesting strategies may produce losses, which may not be offset by sufficient gains in the account and may be limited to a $3,000 deduction against income. The utilization of losses harvested through the strategy will depend upon the recognition of capital gains in the same or a future tax period, and in addition may be subject to limitations under applicable tax laws, e.g., if there are insufficient realized gains in the tax period, the use of harvested losses may be limited to a $3,000 deduction against income and distributions. Losses harvested through the strategy that are not utilized in the tax period when recognized (e.g., because of insufficient capital gains and/or significant capital loss carryforwards), generally may be carried forward to offset future capital gains, if any.
All investing involves risk, including the possible loss of money you invest, and past performance does not guarantee future performance. Historical returns, expected returns, and probability projections are provided for informational and illustrative purposes, and may not reflect actual future performance. Please see our Full Disclosure for important details.
Investment management and advisory services are provided by Wealthfront Advisers LLC (“Wealthfront Advisers”), an SEC-registered investment adviser, and brokerage related products, including the cash account, are provided by Wealthfront Brokerage LLC, a Member of FINRA/ SIPC.
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