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Your financial plan is solid, you’ve even set aside a rainy day fund. Now what? How do you invest well? Get a better understanding of investing with ETFs, asset allocation, rebalancing, and tax-optimization strategies.



When to Sell Your Employee Stock?

If you work for a public company then you probably struggle with deciding when you should sell your stock options or RSUs. The data, which we’ll share in this post, clearly says you should sell immediately, but if you’re like most people, that just doesn’t feel right. Perhaps it’s because you feel like you’re being disloyal to your employer (you’re not), you would be embarrassed facing your CEO if you did (she will never know), or you fear the regret you would feel if your company’s stock continues to appreciate. In this post, we use historical data to examine the liquidation decision from the behavioral perspective of regret minimization. Strikingly, we find that the longer you wait to liquidate, the […]

Why Diversify a Concentrated Portfolio?

If you work for a successful company, chances are a significant share of your wealth is tied up in your employer’s equity. This likely makes you wonder if you are better served diversifying out of your concentrated position. In this post, we use Modern Portfolio Theory to show why your employer’s stock has to have amazing prospects to justify maintaining a large position in it. Modern Portfolio Theory in Reverse In their Nobel Prize winning work on Modern Portfolio Theory (MPT), Harry Markowitz and Bill Sharpe provided a recipe for the construction of the ideal portfolio given an investor’s beliefs about asset returns and attitudes towards bearing risk. MPT states that one can construct an “efficient frontier” of optimal portfolios […]

Active Investing: Rest in Peace or Resurgent Force?

Editor’s note: Today’s guest post is republished from Professor Aswath Damodaran’s blog, Musings on the Market. I was a doctoral student at UCLA, in 1983 and 1984, when I was assigned to be research assistant to  Professor Eugene Fama, who wisely abandoned the University of Chicago during the cold winters for the beaches and tennis courts of Southern California. Professor Fama won the Nobel Prize for Economics in 2013, primarily for laying the foundations for efficient markets in this paper and refining them in his work in the decades after. The debate between passive and active investing that he and others at the University of Chicago initiated has been part of the landscape for more than four decades, with passionate […]

Your 2016 Year-End Personal Finance Checklist

Unfortunately, it’s human nature to push off thinking about personal finances until the end of the year, if at all. If this describes you, don’t despair! There’s still time left before 2016 draws to a close to make some meaningful decisions, which is why we put together a checklist of important tasks you should consider before the New Year. Top off your emergency fund Give yourself and your family the gift of an emergency fund. We typically suggest you set aside three to six months of your monthly spending, but everyone’s situation is different. To help determine what’s right for you, we suggest you read Build the Emergency Fund That’s Right for You. Our recommendation is to keep your emergency […]

If You Like Vanguard, You’ll Love Wealthfront

I am often asked by people unfamiliar with our service, “Why should I use Wealthfront to buy a portfolio of Vanguard index funds, when I could buy the same funds directly from Vanguard without paying any advisory fee?” It’s a perfectly reasonable question, but it has a very simple answer.  Wealthfront can save you significantly more money in taxes than the 0.25% a year you’ll pay us in advisory fees — up to eight times as much, in fact. There’s also the comfort of knowing that you can take a “set it and forget it” attitude towards your investment, confident that professionals will be looking after the routine housekeeping tasks that are crucial for any investing strategy. Even Vanguard’s management […]

What Client Data Teaches Us About Chasing the Market

When it comes to investing for the long term, Wealthfront is an advocate of staying the course and making regular deposits, even when your account is down. In a previous post, we compared the returns of two hypothetical investors, one who invested consistently and one who only invested when her total investment returns since inception were positive. Using simulated returns for Wealthfront portfolios, we found that the investor who disregarded market performance and consistently invested outperformed in the long run. What Does Actual Client Behavior Show? Wealthfront has the advantage of having access to actual client behavior and subsequent account performance. In the below analysis, we group clients based on their deposit-timing behavior and compare investment performance of each group. […]

Is Indexing Worse Than Marxism?

Index funds have always been ridiculed by active mutual-fund managers.  Two recent events have fueled a new set of criticisms.  The mid-year 2016 Standard and Poor’s report on index fund performance showed that the superiority of low-cost indexing, whether in the form of mutual funds or exchange-traded funds (ETFs), has increased over time.  Over the preceding five and ten-year periods, index funds outperformed over 80 percent of their active peers.  It has become increasingly untenable to claim that passive index investing produces mediocre results.  The second related event is that investors have increasingly taken note.  Money has been pouring out of active mutual funds and into passively-managed index funds.   Last year investors pulled over $200 billion out of actively-managed […]

Our Advice After Election Night

Last night’s election results came a shock to many people. If the past is any predictor of the future, I would expect a lot of our clients to feel incredibly unsettled as a result. The situation reminds me a lot of what happened immediately after the Brexit vote. Most people have forgotten that the FTSE 100 (an index of the 100 largest market cap stocks on the London Stock Exchange) declined 3.15% the first day after the vote, but finished the week up 1.99%.  Markets around the world dropped, recovered, dropped again and then rose to a level well in excess of where they were before the election. So what’s our advice for worried investors? Same as always: Do nothing. […]

Let Wealthfront Help You Save for College

We are pleased to announce that after weeks of internal testing we are ready to make the Wealthfront 529 College Savings Plan available to everyone. We are so excited about this new plan because we think 529s are the best type of account Congress has provided to parents who are saving to help pay for the college expenses of their loved ones. Why? Because they allow your investments to grow tax-free, so long as they are used for qualified higher education expenses, which include tuition, fees, books, computers and a variety of other expenses. Unfortunately, three out of every four Americans have never heard of a 529 and the plans are therefore being underutilized. A recent Sallie Mae study shows […]

Not all software is created equal

I am constantly amazed at how often people ask me, “Why can’t any bank or broker with a large budget hire a bunch of engineers and easily replicate Wealthfront?” The answer is simple: not all software is created equal. If it were, you probably wouldn’t be doing all your searches on Google and buying most things from Amazon. We believe our software is simply better than our competitors’. Real World Example: Tax-Loss Harvesting A great example of our superior software is tax-loss harvesting, an important feature Wealthfront pioneered in October 2012. The goal of our daily tax-loss harvesting service is to minimize investment taxes for our clients. The service does this by selling securities that are trading at a loss […]