Wealthfront Review 2017
Wealthfront is a robo-advisor that I had been intending for months to take a look at. Once I finally got around to taking an in-depth dive into the details, I must say I have been impressed. Their approach is well thought, detailed, and based on sound research and strategy. Wealthfront's approach and philosophy are, perhaps, the most reliable investment robo-advisor system I've seen to date.
By using Modern Portfolio Theory combined with an analysis of each investor's individual risk profile, Wealthfront is able to create a remarkably tailored portfolio. We're going to talk more about how Wealthfront works, how they use complicated investment theory, and why that makes for a better experience for you!
This type of investing app is much different from a stock trading app like Robinhood. Instead, Wealthfront intuitively and scientifically manages your money for you.
Let's get into it!
Fees & Commissions
Even though Wealthfront uses complex investment portfolio management tools like efficient frontier calculations, their fees are low. How? Because they use a completely automated robo-advisor platform where the computer does all the work. This allows them to keep fees insanely low while still providing a great advisory product.
You'll pay just 0.25% annually which is basically the industry standard at the moment. Only M1 Finance has a lower fee of 0.15% on accounts over $100,000. Of course, there are several commission-free apps such as Robinhood, but they don't actually provide advice or money management of any kind.
Wealthfront is aiming to provide a more "advice" based model than most of the other apps we've reviewed. That's why in the fee comparison above they've compared themselves to an advisor. Their 3% AUM fee is actually pretty conservative based on my experience from inside the industry.
Fortunately for those looking to get started, they will waive the annual 0.25% fee on accounts under $10,000.
Available Promotions & Free Cash
I don't actually have a Wealthfront account at the moment. Their account minimums are more than I can justify for a "tester" account. Rest assured, I will set up an account as soon as possible and when I do, you'll all have access to my referral reward.
What is the referral reward? Wealthfront will waive their 0.25% fee on an additional $5,000. That means they'll manage up to $15,000 of your money totally free. Look for the link here once it's available.
Account Minimums & Maximums
Wealthfront allows for the following types of accounts:
- Traditional IRA
- Roth IRA
- 401(K) Rollover IRA
- SEP IRA
- 529 College Savings
If you want the details on these you can find more info on each account type at Wealthfront's hub.
You'll need a minimum of $500 to open any account. Remember that qualified accounts such as the Traditional IRA, Roth IRA, 401(K), SEP, and 529 are all subject to IRA yearly contribution limits. These can start to get complicated and confusing so be sure to thoroughly understand your contribution limits on qualified accounts or face a hefty IRS fine.
It's a little hard to say how fractional shares work with Wealthfront. Why? Because most of the money management happens behind the scenes. Once Wealthfront analyzes your needs it creates an ideal portfolio based on your goals and risk profile.
When you put money into Wealthfront it does the work for you. There's no trading of single stocks and the investment program only takes long positions. All that being said, there must be fractional shares involved.
Each account is usually split amongst ~8 asset allocations and with just $500 as the account minimum, it's more than likely that Wealthfront does take advantage of fractional shares to accurately curate your portfolio.
Modern Portfolio Theory Focus
Wealthfront stands above the crowd because of its extremely detail oriented focus on creating intelligent investment portfolios. This app is really oriented at investing and not trading. The entire concept here is to create a portfolio which maximizes return and minimizes volatility for any given set of risk profile inputs.
How does it achieve this?
Well, this is where we come to the crutch of Modern Portfolio Theory. We'll take a deep look at MPT in another article. For now, just remember that MPT uses a combination of statistical analysis with mathematical algorithms to create the most optimal asset allocation for your investments.
Intelligent Money Management
Of all the apps we've reviewed to this point Wealthfront is the only true robo-advisor. For that reason, it shouldn't be surprising that it totally blows the competition out of the water on risk management and tax efficiency. I took the time to read through all of their methodology explanations and I can say that I'm very pleased with the way Wealthfront manages your money.
I would personally trust Wealthfront with my money based on their smart asset allocation calculations. These take into account the correlation of each asset classes as well as the optimal tax efficient investment vehicles based on your risk profile, goals, and account type.
What I'm saying is that Wealthfront has the power to manage your money better than Robinhood, Stash, Acorns, or M1 Finance.
Because it's a truly intelligent robo-adviser which manages your money based on risk and taxes.
Wealthfront is best for any investor looking to take advantage of all the benefits of Modern Portfolio Theory investing while minimizing tax exposure. If you want to take the guess work out of investing with extremely low annual fees and intelligent investment management, this is your app!
For those looking to day trade or take positions based on short term goals, look elsewhere. You won't be able to take short positions or trade derivatives with Wealthfront.
Wealthfront is a hands-off investor's dream come true!
Pros & Cons
- Little control for hands-on investors
- Methodology may be hard to understand
- Intelligent portfolio management
- Invests like a well-trained adviser
- Very inexpensive
- Tons of account types
- Tax efficient
Unless you have a very specific reason to avoid Wealthfront, I would urge you to heavily consider it. The only real drawback of this robo-adviser may be a lack of control the more active investor. However, I'm certain that a majority of investors will find that Wealthfront is smart, powerful, and provides all the right tools for great portfolio management.
I love the way they've approached managing investments with this robo-adviser and I think it's a great fit for the overwhelming majority of investors today.