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How do I know my financial advisor is doing the right thing?

How do I know my financial advisor is doing the right thing? The recent significant drop in world financial markets has created a lot of anxiety – especially among people new to investing. In times like these, investors who outsource the management of their investments can’t help but wonder if they chose the right person or firm to manage their money. The challenge is it’s really hard to tell who is doing a good job when markets decline. The financial press is saturated with two false promises: the promise that there are people who can reliably beat the market, and the promise that there are people who can reliably protect you from a downturn. Despite overwhelming research to the contrary, […]

Important Lessons for New Investors

Wealthfront has grown rapidly by bringing the benefits of sophisticated investment management to a huge new generation of investors. For many of our clients, investing with Wealthfront is their first direct exposure to the stock and bond markets, and unlike savings accounts, stock and bond markets can rise and fall. For new investors, reviewing your account to find less money than you put in can be a rude shock. Where did the money go? Rationally, we all know that markets go up and down, but it feels different when you see the impact in your own account. It can even lead new investors to wonder why they made their investments in the first place – or whether services like Wealthfront […]

America’s $13.2 Trillion Problem

Every year, millions of investors open their brokerage statements and feel a wave of anxiety as they attempt to figure out how much they are really paying in fees. The challenge is it’s almost impossible to tell. One thing we can be sure of is investors are paying way too much in fees. State Street and Boston Consulting Group data estimates that US investors paid over $277 Billion in fees to manage their investments in 2014, and that doesn’t include advisory or maintenance fees. If this continues, investors could lose an estimated $13.2 trillion to fees alone over the next 30 years. That’s $13.2 trillion that could be used to buy new homes, pay for college educations or fund retirements. […]

The Biology of Good Investing

Investment pundits – ourselves included – write a lot about how checking your portfolio too frequently is hazardous to both your financial and mental health. The evidence is overwhelming that those who check their portfolios on a daily basis tend to underperform those who check their portfolios less frequently. The reason is simple: On any given day, there’s almost a 50-50 chance the market will be up or down. Because people dislike losses more than than they enjoy gains – a behavioral finding known as loss aversion – people who check their portfolios daily find the process painful. And just like your gut reaction to pain is to draw away from the source of that pain, your gut reaction to seeing […]

Your 401(k) May Not Be the Best Way to Save for Retirement

The Wealthfront blog has always made a commitment to focusing on data-driven, actionable advice. Sometimes the data challenges conventional financial advice. In this post, we look at the gospel that 401(k) accounts are the best way to save for retirement. As we will explain below, a significant number of investors could even be better off saving money in a taxable, automated investment account with direct indexing and tax-loss harvesting than they would in a 401(k). For many of you, particularly those who have long advocated for the benefits of 401(k) accounts, this might be hard to accept. However, the data clearly shows that the potential drag from high fees in 401(k) accounts and the powerful tax-deferral benefits of newly available […]

Are You Invested the Right Way for 2016?

As we draw to the close of another year, it’s common for investors to ask themselves, “am I invested the right way for the long term?” Unfortunately, too often we lack access to the data that could help answer that question. Fortunately, Wealthfront is in a unique position. We have seen what thousands of people’s portfolios looked like before they were transferred to us and reinvested in tax-efficient, low-cost, globally-diversified portfolios. Being a data-driven company, we’ve created metrics to analyze the fees, composition and diversification of the transferred portfolios. What we see is troubling. Fewer than one in ten of the transferred portfolios were properly built. 92% of the portfolios reviewed were challenged by some combination of high fees, cash drag […]

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 […]

Clawback Fees: How Brokers Pull Money From Your Wallet on the Way Out

At this point, it’s likely not a surprise to anyone that the brokerage industry keeps finding new ways to put its hands in your pocket. Charles Schwab, to take one example, publishes a 14-page document outlining all of its fees. And although they do make this document public, we are still surprised by some of their tricks when it comes to fees. But sometimes there is a practice that is so surprising, so despicable, it warrants a bit of attention. Today, we’re going to talk about clawback fees. Why It’s Called the Clawback Fee Wealthfront has the benefit of seeing clients transfer their accounts to us from a wide variety of brokerage firms. This gives us a front-row seat to […]

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 […]