Burton Malkiel Joins Wealthfront As CIO
We’re honored to announce that famed economist Burton Malkiel, who helped launch the low-cost investing revolution with A Random Walk Down Wall Street, has joined Wealthfront as our Chief Investment Officer.
Dr. Malkiel is one of the most important public voices in investment management and a leading light in the index investing movement. He’s an emeritus Princeton University economics professor, a former board member of Vanguard Group, and a former member of the President’s Council of Economic Advisors.
As Chief Investment Officer, Burt will help Wealthfront continue to improve our investment services, including the choice of asset classes, the way we allocate among different classes, the choice of securities and the methods by which we evaluate risk and apply those evaluations to client portfolios. He’ll also meet with select groups of Wealthfront clients and offer investing insights to clients and the public.
“A successful investor is generally a well-rounded individual who puts a natural curiosity and an intellectual interest to work to earn more money.” – Burton Malkiel
We were thrilled when, after advising us on a number of ways to improve our service, he agreed to join Wealthfront.
“I love Weathfront’s mission and vision,” Burt says. “Software-based advice is the only way in which the little guy can get professional financial advice without paying an arm and a leg for it.”
Value of professional financial advice
Burt has been a proponent of software that helps investors minimize their taxes through a strategy called tax-loss harvesting (TLH). “I do not mean to suggest that you attempt to cheat the government,” he wrote in A Random Walk Down Wall Street, first published in 1973. “But I do mean to suggest that you take advantage of every opportunity to make your savings tax-deductible and to let your savings and investments grow tax-free.”
In the book, Burt was referring to year-end tax-loss harvesting. One of the things that most excited him about working with Wealthfront was the opportunity through software to do continuous tax-loss harvesting, which can increase the tax savings available to clients each year.
Burt also is a long-standing critic of brokers who offer advice to clients while they accept commissions and kickbacks from mutual fund companies. Wealthfront has been dedicated since its founding to providing its clients with low cost, unbiased financial advice. We never accept payments from the providers of investment products.
“One thing you can be sure of in investing is that the lower the fee, the more stays with investors,” Burt says. “Wealthfront is providing this service not only at low cost, but for free to people with the smallest portfolios.”
As you can see in this video clip, Burt has been advocating for diversified and periodically rebalanced low-cost portfolios for years.
“I’ve been working in investor education all my life, delivering these messages,” he says. “In Wealthfront, I’ve found people who believe as I do, and can make a high-quality service possible for everyone.”
We can’t think of anyone better to help us deliver on our mission to democratize sophisticated financial advice.
To receive regular insights from Burt Malkiel and Wealthfront, please send an email to firstname.lastname@example.org.
Nothing in this blog should be construed as tax advice, a solicitation or offer, or recommendation, to buy or sell any security. Financial advisory services are only provided to investors who become Wealthfront Inc. clients pursuant to a written agreement, which investors are urged to read carefully, that is available at www.wealthfront.com. All securities involve risk and may result in some loss. For more information please visit www.wealthfront.com or see our Full Disclosure. While the data Wealthfront uses from third parties is believed to be reliable, Wealthfront does not guarantee the accuracy of the information.
This blog is not intended as tax advice, and Wealthfront does not represent in any manner that the outcomes described herein will result in any particular tax consequence. Prospective investors should confer with their personal tax advisors regarding the tax consequences based on their particular circumstances. Wealthfront assumes no responsibility for the tax consequences to any investor of any transaction. Investors and their personal tax advisors are responsible for how the transactions in an account are reported to the IRS or any other taxing authority.
When Wealthfront replaces investments with “similar” investments as part of the tax-loss harvesting strategy, it is a reference to investments that are expected, but are not guaranteed, to perform similarly and that might lower an investor’s tax bill while maintaining a similar expected risk and return on the investor’s portfolio. Wealthfront assumes no responsibility to any investor for the tax consequences of any transaction.
Tax loss harvesting may generate a higher number of trades due to attempts to capture losses. There is a chance that Wealthfront trading attributed to tax loss harvesting may create capital gains and wash sales and could be subject to higher transaction costs and market impacts. In addition, tax loss harvesting strategies may produce losses, which may not be offset by sufficient gains in the account and may be limited to a $3,000 deduction against income. The utilization of losses harvested through the strategy will depend upon the recognition of capital gains in the same or a future tax period, and in addition may be subject to limitations under applicable tax laws, e.g., if there are insufficient realized gains in the tax period, the use of harvested losses may be limited to a $3,000 deduction against income and distributions. Losses harvested through the strategy that are not utilized in the tax period when recognized (e.g., because of insufficient capital gains and/or significant capital loss carryforwards), generally may be carried forward to offset future capital gains, if any.
Wealthfront’s investment strategies, including portfolio rebalancing and tax loss harvesting, can lead to high levels of trading. High levels of trading could result in (a) bid-ask spread expense; (b) trade executions that may occur at prices beyond the bid ask spread (if quantity demanded exceeds quantity available at the bid or ask); (c) trading that may adversely move prices, such that subsequent transactions occur at worse prices; (d) trading that may disqualify some dividends from qualified dividend treatment; (e) unfulfilled orders or portfolio drift, in the event that markets are disorderly or trading halts altogether; and (f) unforeseen trading errors. The performance of the new securities purchased through the tax-loss harvesting service may be better or worse than the performance of the securities that are sold for tax-loss harvesting purposes.
Wealthfront only monitors for tax-loss harvesting for accounts within Wealthfront. The client is responsible for monitoring their and their spouse’s accounts outside of Wealthfront to ensure that transactions in the same security or a substantially similar security do not create a “wash sale.” A wash sale is the sale at a loss and purchase of the same security or substantially similar security within 30 days of each other. If a wash sale transaction occurs, the IRS may disallow or defer the loss for current tax reporting purposes. More specifically, the wash sale period for any sale at a loss consists of 61 calendar days: the day of the sale, the 30 days before the sale, and the 30 days after the sale. The wash sale rule postpones losses on a sale, if replacement shares are bought around the same time.
The effectiveness of the tax-loss harvesting strategy to reduce the tax liability of the client will depend on the client’s entire tax and investment profile, including purchases and dispositions in a client’s (or client’s spouse’s) accounts outside of Wealthfront and type of investments (e.g., taxable or nontaxable) or holding period (e.g., short- term or long-term). Except as set forth below, Wealthfront will monitor only a client’s (or client’s spouse’s) Wealthfront accounts to determine if there are unrealized losses for purposes of determining whether to harvest such losses. Transactions outside of Wealthfront accounts may affect whether a loss is successfully harvested and, if so, whether that loss is usable by the client in the most efficient manner.
A client may also request that Wealthfront monitor the client’s spouse’s accounts or their IRA accounts at Wealthfront to avoid the wash sale disallowance rule. A client may request spousal monitoring online or by calling Wealthfront at 844-995-8437. If Wealthfront is monitoring multiple accounts to avoid the wash sale disallowance rule, the first taxable account to trade a security will block the other account(s) from trading in that same security for 30 days
About the author(s)
Journalist Elizabeth MacBride is Wealthfront's editor. Her work has appeared in Crain's New York, Advertising Age, the Washington Post and the Christian Science Monitor, among other publications. View all posts by Elizabeth MacBride