How Much Should We Invest in Emerging Markets?

One of the most enduring and best-documented behavioral biases in investing is called “The Home Country Bias.” Despite the availability of well-regarded and highly profitable corporations located throughout the world, investors tend to limit their investments to those companies domiciled in their own country. At one time, a survey of institutional investors in France found that 97% of their equity investments consisted of French companies despite the fact that France represented only 3% of the world’s total equity capitalization. Such a bias is found all over the world. British investors prefer British companies, Japanese investors prefer Japanese companies, and U.S. investors prefer companies domiciled in the United States. Despite the substantial risk-reducing benefits of international diversification, investors all over the […]

How Do You Recognize a Sinking Ship?

Kenny Rogers probably didn’t realize his now famous lyrics “You’ve got to know when to hold ‘em. Know when to fold ‘em.” was also outstanding career advice. All too often people stay too long on a sinking ship, a company headed toward failure, which can have a huge opportunity cost. Few hiring managers you subsequently encounter will give you credit for staying until the end; rather you’ll likely be viewed as having bad judgment for having done so. You need to understand the early warning signs of failure so you can move on to a new company before it is too late. By the way, the high failure rate of startups is one of the reasons I recommend that people […]

Stay the Course, Even While You’re Down

When it comes to investing, doing the right thing is usually counter-intuitive. A prime example we’ve written about before is how investing in down-markets can actually prove advantageous. This is because down markets give investors an opportunity to purchase more than they would be able to afford in an up market (See Invest Despite Volatility). We’ve also written about how individual investors find it difficult to invest rationally and tend to make mistakes by following their intuition, piling in while the market goes up and liquidating as the market goes down. This is otherwise known as timing the market. Burton Malkiel, our Chief Investment Officer views this as often being an investor’s Most Serious Mistake. But something we haven’t quantified […]

Why Index ETFs Are The Automated Investment of Choice

Vanguard Group introduced the first passive investment product, the index fund, in 1975. We’re very proud that our Chief Investment Officer, Burt Malkiel, inspired Jack Bogle, the founder of Vanguard to create the index fund when he published his groundbreaking book, A Random Walk Down Wall Street, in 1973. Eighteen years after Vanguard launched the first index fund, State Street introduced the first exchange-traded fund. ETFs have grown to more than $2 trillion in assets, having recently surpassed index funds. Practically speaking, it wasn’t until the ETF became popular, around 10 years ago, that passive investing could broadly appeal to the masses. An ETF is a basket of investments, which, like an index fund, mirrors an underlying sector or index. […]

10 Things You Probably Didn’t Know About Tax-Loss Harvesting (and should)

For decades tax-loss harvesting was an obscure tool to minimize taxes that was only available to the ultra wealthy. That all changed when Wealthfront launched its tax-loss harvesting service in October 2012.  Many pundits and industry professionals who were unfamiliar with its benefits thought it couldn’t add much value. One of our competitors even referred to the concept as a “joke.”  Well times have changed and now every  automated investment service offers a version of tax-loss harvesting. However, there are still many misperceptions of how and when tax-loss harvesting creates value, even among very intelligent investors. Here’s our Top 10 list of things you probably didn’t know about tax-loss harvesting: Tax-loss harvesting derives its benefit from the combination of tax-rate arbitrage […]

Tax-Loss Harvesting for Everyone

In October 2012, Wealthfront became the first automated investment service to offer daily tax-loss harvesting to its clients. Tax-loss harvesting is one of the most important ways to both lower the taxes you’re likely to incur from your investments and also dampen the effect of a down market. Like most of our innovations, tax-loss harvesting was previously only available to the ultra-wealthy. Wealthfront automated the strategy through advanced software, improved it, and brought it directly to the individual investor. Since that launch, we’ve worked tirelessly to make our tax-loss harvesting even better. Wealthfront daily tax-loss harvesting now features enhancements like intelligent recovery, optimized harvesting triggers, predictive deposits and tax-sensitive withdrawals. In fact, our research shows that our third generation daily […]

Introducing the Next Level of Direct Indexing: The Wealthfront 100

In December 2014, Wealthfront announced the next generation of index investing, our new Tax-Optimized Direct Indexing platform. A replacement for the US stock portion of a Wealthfront portfolio, Direct Indexing allows Wealthfront clients to participate in the US stock market not just by owning an ETF, but through direct ownership of many of the underlying US stocks. The result is a portfolio of individual US stocks and one or two complementary ETFs that’s optimized to track the overall performance of the broad US market but is also capable of harnessing the countless opportunities of tax-loss harvesting enabled by the movement of individual stocks. Many of our clients have already taken advantage of the power of Direct Indexing. In fact, since its launch in […]

The Illusion of Stock-Picking Skill

I first visited a Wall Street firm in 1984. I was there with my longtime collaborator Amos Tversky, who died in 1996, and our friend Richard Thaler, now a guru of behavioral economics. Our host, a senior investment manager, had invited us to discuss the role of judgment biases in investing. I knew so little about finance at the time that I had no idea what to ask him, but I remember one exchange. “When you sell a stock,” I asked him, “who buys it?” He answered with a wave in the vague direction of the window, indicating that he expected the buyer to be someone else very much like him. That was odd: because most buyers and sellers know […]

Even Warren Buffett Prefers Index Funds

In last year’s Berkshire Hathaway annual report and shareholder letter Warren Buffett caused quite a stir by suggesting that upon his demise the assets he was leaving his wife, in trust, should be invested in index funds (see “Warren Buffett: ‘Investing Advice For You–And My Wife,’” “Will Warren Buffett’s investment advice work for you?,” “Warren Buffett’s 90-10 Rule of Thumb for Retirement Investing,” or “The Warren Buffett Guide to Retirement Investing“). The primary reason for the hubbub was probably the contradiction it represented in coming from Mr. Buffett. An endorsement of index investing from the man who is thought of as one of the greatest stock pickers of all time seemed to fly in the face of all that Buffett […]