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Five irrational fears that keep people from firing their advisor

Everything about investing is irrational. As we have often written on this blog, what feels like the right thing to do usually isn’t. The most classic example is a falling market. We all know we should invest when markets decline and sell when they rise, but that’s counter to what our emotions tell us. Lots of investors have an emotional connection with their advisor as well, and one of the most harmful irrational behaviors we see is an unwillingness to change advisor relationships. As best as I can tell, there are five common irrational reasons why clients are reluctant to leave their current advisor: They fear they will lose the opportunity to borrow at a preferred mortgage rate They fear […]

A Deep Dive into Direct Indexing

The most unique aspect of Wealthfront’s automated investment service is our Direct Indexing service. Direct Indexing is a classic example of Wealthfront’s strategy of using software to make investment services broadly available that were previously only available to the ultra wealthy. Depending on account size, Direct Indexing can add 0.20% – 0.50% to your annual after tax return above and beyond what’s achievable with our core service, which includes daily ETF-level tax-loss harvesting. With this post we hope to explain why Direct Indexing is so unique and how it’s possible to offer such compelling value. What is Direct Indexing? Direct Indexing is, in our opinion, the next-generation of investing. Direct Indexing allows Wealthfront investors to hold the individual securities that […]

Tax-loss harvesting as a behavioral tool

It’s extremely hard to invest when markets are down. We all know it’s the “right” thing to do, but it’s hard to act in the face of fear. Unfortunately, the popular media doesn’t help. As an investing culture, we have a gaggle of catchphrases that warn you away from buying when things get tough. Aphorisms like “don’t catch a falling knife,” “the trend is your friend,” “avoid value traps” litter the investing landscape. Each time the market gets topsy-turvy, CNBC posts images of a ravaging bear, claws and fangs ready to ravage your investment portfolio. As we wrote in How To Invest In A Falling Market, it’s no surprise that study after study finds investors tend to buy high and […]

The 2016 Wealthfront Career-Launching Companies List

Today we are pleased to present our fourth annual list of US mid-sized technology companies with momentum. We publish this list because we believe these companies are the ideal places for young people to start their careers. Most Wealthfront clients are in their 20s and 30s, and their financial success will primarily come from success in their professional careers. Nothing early in your career is more important than achieving success — and nothing signals success more than working for a successful company (for a complete explanation of this logic please see the post that accompanied our original list: 48 Hot Tech Companies To Build A Career). To qualify for our list a company must currently have revenues between $20 million and […]

Bigger Accounts Mean Bigger Tax Savings

In investing, bigger is often better. Larger investors typically get lower fees, better service and access to better investing talent. One of the things I’m most proud of about Wealthfront is the fact that we’ve been able to level the playing field for smaller investors. By automating our backend and investing in efficiency, we’re able to offer institutional-quality investment management to accounts of all sizes at a fraction of the cost of traditional wealth management firms. But even at Wealthfront, bigger is better in one sense: larger accounts give us the flexibility to offer ever-more-effective tax management strategies. Our ground breaking tax-loss harvesting service works great for small accounts, but thanks to direct indexing, it works better for accounts with […]

It’s Not Easy

Editor’s Note: This week we are publishing a letter Howard Marks, co-chairman of Oaktree Capital, recently sent to his investors. Howard is an amazing investor, but is as well known for his fantastic quarterly letters as he is his outstanding investment returns. Over the years I have been greatly influenced by Howard’s letters. This one truly captures why very few people are able to consistently outperform the market. It’s a lot longer than what you might be used to on our blog, but I promise it’s well worth reading to the end. It’s Not Easy In 2011, as I was putting the finishing touches on my book The Most Important Thing, I was fortunate to have one of my occasional […]

Beware Snake Oil Salesmen During Market Downturns

With U.S. equity markets trading down and emerging markets in a full-on correction, it’s natural to feel nervous about the future. As we’ve written in the past, the best thing you can do in situations like this is stay the course and let diversification and tax-loss harvesting protect your downside. But if history is any guide, you’re about to get inundated with people telling you exactly the opposite. Over the next few months, market strategists, mutual fund salespeople, hedge funds and financial advisors will pop up to talk about how they sidestepped the August pullback and protected clients from pain. They’ll couch their performance in catchy terminology talking about moving averages, momentum strategies, volatility monitoring and other hoo-haw. The underlying […]

How To Protect Your Portfolio: Tax-Loss Harvesting

Prior to the recent market pullback, the investment trade media questioned how Automated Investment Services (AISs) like Wealthfront would perform when markets became volatile. Would individuals run to the comfort of human advisors, or could AISs calm their fears in the face of market uncertainty? We were not worried about how our clients would act during a pullback, as our clients generally understand the value of long-term investing. In fact, we had record sign-ups in August, as new customers flocked to the certainty of data-driven portfolios. But what we were most pleased with in August was the performance of our tax-loss harvesting algorithm. By its nature, tax-loss harvesting (TLH) should shine when markets are volatile: After all, a TLH algorithm […]

Commission-Free ETFs Aren’t What They Seem

Much has been made of the launch of commission-free ETF trading programs at places like Charles Schwab, Fidelity, TD Ameritrade and others. But are these a good deal? Let’s start with the positives. If you are a retail investor regularly socking away $100 or $500 or $1,000 (or even $10,000) a month, and you’re buying ETFs and paying a commission on those trades, you’re doing yourself a disservice. If the average portfolio holds seven ETFs (like most Wealthfront portfolios), and you’re paying a $8.95 commission each time you invest, you’re paying $63.65 to make these trades (7 * $8.95 = $63.65). That’s 60% of your investment if you’re putting $100 to work each month, which is obviously absurd. But it’s […]

Real World Data: Wealthfront Tax-Loss Harvesting

Nothing we write about at Wealthfront raises people’s interest like tax-loss harvesting. The spectrum of opinion is extreme; with some believing it’s a brilliant advantage for investors and others convinced it’s chicanery. We launched our automated daily tax-loss harvesting service almost three years ago and have been running the service ever since. As a result, we have more empirical evidence on the actual performance of an automated strategy than anyone. We recently analyzed our empirical results over that time period and thought we would share that data to further understanding of this innovative and beneficial investment strategy. A History of Tax-Loss Harvesting The concept of tax-loss harvesting has been around for more than a century. For that entire time it […]