Wealthfront Review - Does Automated Investing Actually Work? (2024)

About Wealthfront

Wealthfront is an automated investment platform, also known as a robo-advisor. The platform enables investors to benefit from many of the services normally provided by expensive professional financial planners, including goals-based, risk-adjusted and tax-efficient portfolio management. A simplified interface streamlines the onboarding process. New customers can get started within minutes just by answering some financial questions.

Our Wealthfront review will help you determine whether this platform is right for you.

Wealthfront Company History

Wealthfront was launched in 2013 by Andy Rachleff and Dan Carroll, out of Redwood City, CA. Rachleff was co-founder of venture capital firm Benchmark Capital. Carroll was the original designer of the platform using his expertise as a trader. They built an algorithmic platform that automates the implementation of sophisticated financial advice and made it accessible to the masses regardless of account size or investment experience. Backed by investments from Benchmark Capital, DAG Ventures Ribbit Capital as well as renowned Silicon Valley icons like Marc Andreessen, Jeff Jordan and Ben Horowitz. Their Chief Investment Officer, Burton Malkiel, was the author to the classic “A Random Walk Down Wall Street” and former senior economist at Princeton University. Wealthfront surpassed over $25 billion in assets under management in 2021 and continues to flourish.

Let’s get to the Wealthfront review!

How Wealthfront Works

Wealthfront is similar to other robo-advisors like Wealthsimple, M1 Finance, and Betterment.

Wealthfront offers individual financial plans based on questions about users’ financial goals. The platform’s algorithm generates personalized financial profiles complete with risk tolerance and investment objectives. From there, the robo-advisor gets to work investing your money, constructing a portfolio, and managing it on your behalf.

The platform handles rebalancing, dividend reinvestment and tax-loss harvesting automatically. Users have complete access to their portfolios and the flexibility to make changes at any time.

A personalized advice engine nicknamed Path provides financial insights, projections and advice to meet financial goals. For example, it can help you determine how much you need to save to buy a house or to send your kids to college.

Overall, Wealthfront is designed as a financial planning service that can help you build a customized portfolio of investments. Opening an investment account is easy and choosing your portfolio allocation only takes a few minutes.

Wealthfront Account Types and Requirements

Wealthfront offers traditional brokerage accounts, joint accounts, trust accounts, traditional, Roth, and SEP IRAs, 401(k) rollovers, and 529 college savings plan accounts.

The platform has an account minimum of $500. Users must be 18-years or older. Stock-level tax-loss harvesting is available for investment accounts over $100,000. Smart-beta is available only for accounts over $500,000. Minimum withdrawals are $250.

Wealthfront is currently only available for United States residents. For Canadian investors, Wealthsimple offers a similar robo-advisor service.

Wealthfront also offers a cash management account through Green Dot Bank. The cash management account offers no account fees, no overdraft fees, and a Visa debit card. It comes with $1 million in FDIC insurance and enables you to easily transfer money to your investment account.

Wealthfront Fees and Pricing

Wealthfront has a simple 0.25% annual management fee. There are no other ‘plans’ or services, which is a relief compared to other robo-advisory services. There are no transfer fees, inactivity fees, or closure fees. This management fee is relatively low cost compared to other robo advisors, which typically range from from 0.25% to 0.50% per year. There is a $500 account minimum for all new accounts.

Indirect Fees

Wealthfront is conscious of expense ratios. It uses low-cost ETFs with expense ratios ranging from 0.05%to 0.29% per year.

Platform

The Wealthfront platform can be accessed on the web or through mobile apps for iOS and Android. The mobile app is as seamless and intuitive as the desktop but with more convenience and portability. You can open your investment account and analyze portfolio performance as well as individual holdings and allocations. Users can also adjust their Risk Score manually anytime.

Wealthfront Investing Tools

Path is an AI-engine financial planning tool that offers insights and advice. Whether saving for college, buying a house or planning a vacation, Path maps out how much you will need in various areas to meet your goals along with a timeline. It also factors in tax implications to the projections. It’s intuitively designed to answer over 10,000 questions pertaining to your financial situation and scenarios. Path is embedded into the investment algorithms but also serves as a tool as mentioned. Notably, Path can be used to answer questions for free even if you don’t have a Wealthfront account.

Wealthfront Portfolios

Wealthfront invests in exchange-traded funds (ETFs) in 11 global asset classes to construct portfolios. These asset classes range from S&P 500 benchmark indices to real estate, commodities, foreign and emerging markets to corporate and municipal bonds. Wealthfront also has a socially responsible portfolio and offers access to several exciting funds like the Grayscale Bitcoin Trust GBTC ETF, the Grayscale Ethereum Trust ETHE ETF, and the ARK Innovation ARKK ETF. Unlike other robo-advisors, Wealthfront can also invest in individual stocks for purposes of efficient tax-loss harvesting.

Investors with more than $100,000 can also invest in Wealthfront’s Risk Parity Fund, a proprietary mutual fund that aims for higher returns in exchange for increased risk.

Your asset allocation is determined by your risk threshold. For example, an investor with a lower risk threshold may have an asset allocation of 60% bonds and 40% stocks. An investor with a higher risk threshold may have upwards of 80% stocks.

Stock-Level Tax Harvesting

Wealthfront is focused on tax efficiency. Robo-advisors (and ETFs in general) will often swap out assets to help investors save on taxes. Complicated investment strategies aside, the end result is a tax-efficient investment strategy.

Wealthfront doesn’t just phone it in with their tax-loss harvesting. They utilize a much more sophisticated and efficient method of tax-loss harvesting than their competitors. This service is available free of charge if your account has over $100,000 in funds.

Smart Beta for High Net Worth Accounts

Wealthfront offers a special Smart Beta strategy for stock-level tax-loss harvesting for accounts over $500,000. The Smart Beta algorithm shifts the market capitalization-based weighting to increase the after-tax expected return of the portfolio.

Wealthfront Cash Accounts

Wealthfront seems to be positioning itself as a leader in the premium savings account industry. Premium savings accounts are similar to regular savings accounts but they offer much higher interest rates. These rates can fluctuate with time, but currently Wealthfront is offering 0.35%, which is higher than some of the competitors we’ve reviewed. While these returns may not be as exciting as those of stock/bond portfolios, they carry close to zero risk. Whereas you can lose money in your portfolio, you cannot lose money in your savings account.

On top of these interest rates, Wealthfront also offers a few other features that make them stand out from competitors. Savings accounts are FDIC insured up to $1 million (vs. the standard $250,000). These accounts have no fees, a $1 minimum account balance, and unlimited, free transfers.

It’s important to note that the interest rates on cash accounts are subject to change. They often fluctuate relative to the Federal funds rate (i.e. the Fed’s interest rate). During our initial review, Wealthfront had an impressive interest rate of 2.51% (as shown below). It has since dropped considerably as the Fed recently dropped rates to 0%.

That said, the cash account interest rate is still way higher than the average interest rate you will get with a savings account at big banks like Chase and Wells Fargo.

Wealthfront Historical Performance

Individual portfolio performance depends on when you started investing as well as having access to the more sophisticated Stock-Level and Smart Beta tax-loss harvesting strategies. More so than any other robo-advisor, Wealthfront is very tax conscious with its portfolio management, which can improve performance by several hundred basis points. Personally, that’s where a lot of investors give up potential found money due to the labor-intensive efforts needed to monitor and track portfolio fluctuations.

Automatic Rebalancing

Wealthfront automatically rebalances portfolios when they break a threshold allocation range per asset class or sector. This can happen when markets get excessively volatile or certain sectors and asset classes underperform or outperform. The algorithms handle all the monitoring and leg work so users can remain passive and watch from the sidelines.

Comparisons

Compared to other robo-advisories, Wealthfront maintains some of the lowest management fees at 0.25%. However, they don’t provide some of the perks like free VIP Priority Pass access to airport lounges like Wealthsimple or have a spare change round-up function like Acorns. While many of the large robo-advisors combine human and algorithmic advice, Wealthfront stays true to form as pure robo-advisory service providing purely computerized wealth management and advice. There are no human financial planners that users can access. For this reason, the customers should be tech-savvy and experienced enough to let the algorithms manage performance.

Wealthfront Key Differentiators

Wealthfront offers Portfolio Line of Credit for accounts over $100,000. Users can borrow up to 30% of their account value at rates ranging from 4.75% to 6.00% instantly. The stock-level tax harvesting and smart-beta management functions are unique but require larger balances to operate. Wealthfront is a big believer in investing in foreign and emerging markets and allocates between “3% to 30%” of the portfolios in those asset classes for risk-tolerant investors.

I was also a big fan of the cash account which offers a great solution for clients to park their cash. You can get better returns than a savings account without exposing your capital to the risk of the markets.

Tax-Efficient Transfers

Instead of closing out all your positions if transferring over from a financial advisor or brokerage firm, Wealthfront will initiate transfers in a tax-efficient manner meaning they will transfer assets into a diversified portfolio incrementally to minimize tax obligations. However, mutual funds and stocks should be cashed out manually.

Can You Trusth Wealthfront?

Wealthfront is registered with FINRA and provides FDIC and SIPC insurance coverage to accounts. The highly regarded management and heavy-duty VC firms bring much credibility to the brand. Wealthfront currently has over $20 billion in assets under management, meaning they are not a small firm.

As one of the top four robo-advisory firms, Wealthfront is a highly trusted brand.

Who is Wealthfront Best Suited For?

Wealthfront is best suited for long-term investors looking for professionally managed portfolios at a minimal cost. The automated approach to investment portfolios can serve as a great alternative to financial advice from an advisor or supplementary financial service.

Higher balance accounts over $100,000 and $500,000 get access to more sophisticated strategies, thus tech-savvy mature investors with large savings benefit the most. Small investors just starting off can still benefit long-term from the low management fees.

How Good is Wealthfront?

We have reviewed all of the top robo-advisors. We recently ran a case study with real money to see which company generated the best returns. Wealthfront outperformed competitors like Betterment and achieved similar returns to other competing advisors. You can see how Wealthfront compares to Betterment here and how Wealthfront compares to Acorns here.

Can Wealthfront Make You Money?

Wealthfront is designed to help investors make more money. The performance of the investment portfolio is dependent on the overall performance of the stock market, bond market, and economy as a whole. When the stock market is strong, Wealthfront will perform well. Historically, the stock market has performed well over any long-term timeframe, so Wealthfront is likely to perform well for investors with a long-term investment horizon.

Is Wealthfront Good for Beginners?

Wealthfront is an excellent option for beginners. It is very easy to set up an account and build an investment portfolio that suits your needs. All of the portfolios are customized to the individual investors who create them. You can create a risk-balanced portfolio without having much knowledge of investing. Wealthfront is a great option for beginner investors looking to start investing without much experience. Of course, you still need to keep an eye on your account to make sure your investments are performing how you want them to, but Wealthfront makes the process super easy.

Pros

• Low account management fee of 0.25%
• Path AI-powered personal financial advisor is free to use
• Sophisticated Stock-Level and Smart Beta tax-loss harvesting strategy for higher balances
• Easy-to-use straightforward interface for both desktop and mobile app
• Fully automated platform especially favorable to high net worth passive investors
• Offers Portfolio Lines of Credit up to 30% of the account value on accounts over $100,000
• Tax-efficient transfers from an existing financial advisor or brokerage account
• Free financial education in the form of blog posts and guides

Cons

• No access to human Certified Financial Planners
• No tail hedge products to profit in bear markets
• Customer service by email only