Wealthfront Review 2017: Updated Features List

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There are now several automated portfolio managers that will manage a diversified mix of low-cost index funds at portfolio sizes previously ignored by human advisors. As a result, these “robo-advisors” have been rolling out additional features to differentiate themselves from the competition.

Wealthfront is one of the largest independent robo-advisors (i.e. not tied to a specific brand of funds like Vanguard or Schwab). With a younger target audience (20s to 40s), their offering is for folks that are comfortable having nearly all interactions via smartphone or website. Here’s their updated feature list along with my commentary:

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Diversified portfolio of high-quality, low-cost ETFs. Their portfolios are a diversified mix of several asset classes including: US Total, US Dividend, International Developed, US Corporate Bonds, Muni Bonds, Emerging Market Bonds, REITs, and Natural Resources. Primarily low-cost Vanguard and iShares ETFs are used. You could argue the finer points of a specific portfolio, but overall it is backed by academic research (Chief Investment Officer is Burton Malkiel).

Financial planning software with outside account integration. Path is Wealthfront’s new financial planning software, launched in February 2017. This service links your external accounts from other banks, brokerages, and 401k plans (similar to Mint and Personal Capital) in order to see your entire picture without having to manually input your balances and transactions. How much do I have invested elsewhere? How much am I spending? How much am I saving? How much can I spend in retirement?

Path can forecast your saving rate using the last 12 months of transactions. Investment returns are estimated using Monte Carlo analysis. It also accounts for your household income, birthdate, and chosen retirement age to estimate how Social Security will affect your retirement income needs. You can change up the variables and see how it will affect your retirement outlook. See Path intro video here, screenshots above and below:

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Account types. Wealthfront now supports taxable joint accounts, trust accounts, 401k rollovers, Traditional IRAs, Roth IRAs, and SEP IRAs.

Tax-sensitive account transfers. This is good news if you already have an existing portfolio with unrealized capital gains. Other robo-advisors may have a “switch calculator” to help you decide whether to move over or not, but Wealthfront will actually accept your existing investments and manage it for you alongside your new investments.

If you want to switch advisors or move your brokerage holdings into a diversified portfolio, you typically have to sell all your holdings and move in cash. This means you will more than likely have a large tax bill. Instead of selling your holdings, Wealthfront will directly transfer them into a diversified portfolio tax efficiently, saving you that tax bill.

Tax-efficent asset location. They will place different asset classes in your taxable accounts vs. tax-deferred accounts (IRAs, 401ks) for a higher after-tax return. However, they do not treat them holistically (i.e. putting all one of one asset in IRA and none in taxable). Non-Wealthfront accounts are also not taken into consideration.

Use dividends and new contributions to rebalance. They will use your dividends and new contributions to rebalance your asset classes in order to minimize sells and thus minimize capital gains.

Concentrated holding of a single stock? Wealthfront caters to the tech start-up crowd with a unique Selling Plan service for people with much of their net worth tied up in a single stock. They’ll help you sell your positions gradually in a tax-efficent manner. Currently available to shareholders of: Alphabet, Amazon, Apple, Arista Networks, Box, Facebook, Pure Storage, Square, Twilio, Twitter, Yelp, Zillow.

All of the above are good things to do. If you are willing to read and learn, you can do many of the things listed above on your own. Build a portfolio of high-quality, low-cost ETFs. Track your income and expenses using aggregation software. Tax-efficient asset location. Rebalance regularly, using dividends where possible. Don’t sell your existing positions all at once if they have large capital gains. However, something that I wouldn’t want to do is monitor a hundred of little tax lots. Some things are just better left to software.

Daily tax-loss harvesting. Wealthfront software monitors your holdings daily and attempts to find opportunities to harvest tax losses by switching between “similar but not substantially identical” ETFs. If you can delay paying taxes and reinvest them, this can result in a greater after-tax return. The exact “tax alpha” of this practice depends on multiple factors like portfolio size and tax brackets. You can read the Wealthfront side of things in this whitepaper and Schwab comparison. Here is an outside viewpoint arguing for more conservative estimates.

In the end, I do believe there is long-term value in tax-loss harvesting (and I do think daily monitoring can capture more losses) but it’s probably wise to use a conservative assumption as to the size of that value. (Now, you can perform your own tax-loss harvesting as well on a less-frequent basis. I do it myself as there is value, but it’s rather tedious and I’m definitely not doing it more often than once a year. I would gladly leave it to the bots if it were free.)

Direct indexing. If your account is over $100,000, Wealthfront will buy all the stocks in the S&P 500 individually and commission-free. ETF expense ratios are pretty low now, so this is mostly used as an opportunity for more tax-loss harvesting. I don’t believe any other robo-advisor offers this feature. I’m also not sure how much benefit there is to having it, as you’d have to compare potential index tracking error with the tax-loss benefits.

Fee schedule. The fee schedule for Wealthfront is pretty simple. The first $10,000 is managed for free. Assets above that are charged a flat 0.25% advisory fee annually. All of the features listed above are included.

If you sign up via a special invite link, you can get your first $15,000 managed for free, forever (an additional $5k). You can then invite your own friends for more savings (each also gets $15k managed for free, and you get another $5k managed for free for each referred friend.)

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Summary. As a DIY investor willing to do most things myself, my thoughts on robo-advisors have often focused on weighing their feature set vs. the additional advisory fee. I don’t like the idea of giving up control, but I find myself keeping track of each improvement in their software capabilities.

In terms of comparing with other robo-advisors, Wealthfront currently differentiates themselves in the following ways: Financial planning software that incorporates external accounts, account transfers that accepts your existing investments and then sells them tax-efficiently, direct S&P 500 indexing, and assistance with selling single company stock. You may or may not find any of these useful to your specific situation, but notice that many of these used to be reasons to pick a (usually more expensive) human advisor.

Money Diaries: Anthony Bourdain, Spike Lee, Kylie Jenner, and Other Interesting People

wsmoneydiaryIt’s been more than a decade since I started this site because I had no other outlet to talk about financial independence. Talking about your money in public remains a mostly taboo topic. The idea of financial freedom through an aggressive saving rate remains a niche interest. I suppose the anonymous nature of the internet makes it the ideal place for like-minded people to share information and experiences.

Robo-allocator WealthSimple runs a series called Money Diaries, in which “interesting people tell the unvarnished truth about their financial lives”. I don’t really know if I would call it completely unvarnished (can it be if you have a publicist?), but at least they’re sharing something personal about money! It can be reassuring to hear other people talk about how their childhood experiences or other struggles with money have shaped their lives.

I’ve been gradually working my way through them. Here’s a sampling:

  • Anthony Bourdain

    Before he was the guy from Parts Unknown, he was 44, never had a savings account, hadn’t filed taxes in 10 years, and was AWOL on his AmEx bill.

    […] Since that time, I am fanatical about not owing anybody any money. I hate it. I don’t want to carry a balance, ever. I have a mortgage, but I despise the idea. That was my biggest objection to buying property, though I wasn’t in the position to pay cash.

  • Spike Lee

    Here’s what I’ve learned, though: It only takes one yes. No matter how many people say no, you only need that one yes and you’re off and running. You can’t let the nos defeat you. Because that’s all it takes—just one yes.

  • Kylie Jenner

    That’s not to say I don’t splurge from time to time. The money I spend is mostly on cars. I have six of them right now. Six is probably too many, I know. But my number one jam this summer is this cherry red Rolls Royce Wraith that I’ve been driving all over the place. What can I say? I love it.

  • Jay Allison (NPR, All Things Considered)

    I went into college as an Engineering Major and came out with a Theater degree. This was 1973. My family didn’t love me any less, but they clearly thought I was making a foolish choice. But I’d bought into a sort of ‘60s Peace Corps-style idealism. I wondered, “What does wealth have to do with personal fulfillment, with happiness, with a well-chosen path through life?”

  • Brett Loudermilk (Professional Sword Swallower)

    Here’s the thing: I know nothing about money. I just know how to monetize this weird thing I do. I often joke that I want to be making a living while doing the least amount of work possible. But it’s not really a joke—it’s a real thing. There are tons of people in the world who do very little work and make more money than I can ever imagine, and I want a piece of that. And the reason is, with my free time I want to create art and performances that will make people happy. I love gigs where I can do 15 minutes of work and make a ridiculous sum of money that I can live off of for six months while I explore my own passion projects and weird fanciful ideas.

  • Maria Bamford (Comedian)

    There’s so much shame attached to discussing finances. I don’t totally understand it. Why can’t we all know what everybody’s earning? When I get booked to do a stand-up show, I can gross $20,000 or more in a night. That’s my current market rate.

    […] That’s when I found a 12-step group dealing with money. L.A. is the 12-step capital of the world, so it wasn’t hard. I love 12-step programs—any kind. I started going to them when I was younger and struggling with eating issues. I think that there’s huge power in a group of humans coming together, getting out of isolation, and helping one another think of new ideas. It’s a weirdly miraculous thing. And there’s always free coffee!

RealtyShares Review 2017: Wisconsin Apartment Loan One-Year Update

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Here's a one-year update on my $2,000 investment through RealtyShares, a partial interest in a loan backed by a 6-unit apartment complex in Milwaukee, Wisconsin. RealtyShares is restricted to accredited investors only. Here are the … [Read the rest]

Lemonade: Homeowners & Rental Insurance With No Incentive To Deny Your Claim?

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Right or wrong, many people view insurance companies with suspicion. Even though you pay them money every month for protection, you’re not really sure if they are truly on your side (despite what the commercial says). The problem is that with most … [Read the rest]

Fidelity Brokerage and IRA Bonuses for New Asset Transfers

Fidelity Investments has a few different bonuses if you transfer a certain levels of new assets over to them. These are handy if you want to move money out of an old 401(k) plan or are looking to try out a new broker. Besides a cash deposit, you … [Read the rest]

Dollar Shave Club vs. Dorco USA Razor Price Comparison

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Dollar Shave Club and Harry's are supposedly "disrupting" the shaving industry. Honestly, I don't get it. Buying a razor is like buying shampoo, soap, or toilet paper. In other words, I buy them in bulk when Costco has a coupon for it. ;) Last … [Read the rest]

Fundrise Income eREIT Review 2017: One Year Update

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Here's an update on my $2,000 investment into the Fundrise Income eREIT. Fundrise is taking advantage of recent legislation allowing certain crowdfunding investments to be offered to the general public (they were previously limited only to … [Read the rest]

High-Cost Index Funds and Low-Cost Actively Managed Funds

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Here's a Vanguard Blog post called Mind fund details, not labels by Frank Kinniry that includes some good reminders about the mutual fund and ETF industry: Low-cost vs. high-cost is more important than actively managed vs. passively managed. … [Read the rest]

More Experience = Less Complexity?

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When we had our first child, it seems like we were prepared for the apocalypse whenever we stepped out the door. Below is a visualization taken from Pinterest, while we actually had this $60 SkipHop diaper bag filled to the brim. Compare … [Read the rest]

Groupon Deal: Sam’s Club Membership + $10 Gift Card for $30

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Groupon has a Sam's Club Plus membership deal where for $30 you get the following: One-year Sam’s Club Savings membership ($45 value) Complimentary membership card for a spouse or other household member $10 e-gift card valid online or … [Read the rest]

USAA Limitless Cashback Rewards Visa Signature Card Review: 2.5% Cash Back

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USAA, which serves members of the U.S. military and their immediate families, has a new cash back rewards card called the USAA Limitless™ Cashback Rewards Visa Signature® Card. This card is currently in an online pilot program and is only … [Read the rest]

Barclaycard CashForward™ World MasterCard Review: 1.5% Cash Back + $100 Bonus

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Barclaycard has a new cash back rewards card called the Barclaycard CashForward™ World MasterCard® which earns a flat 1.5% cash back on all purchases with no earnings cap. There is also no annual fee and an upfront sign-up bonus. Here are the … [Read the rest]