Investing Insights RSS feed for this section

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.



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 […]

Financial Advice for Young Lawyers in Debt

What to Do First? Invest or Pay off Debt? Among the many decisions facing young professionals as they embark on their careers is how to begin a lifetime of financial planning. And young attorneys have an especially tough call. Most of them leave law school with significant student debt, but without the sort of starting salary necessary to quickly pay off their loans. At the same time, they are usually smart enough to appreciate that they need to start saving for major life events, including a home, college for their children, and their own retirement. So what to do? Pay off their loans, or start in on a nest egg? The answer for young lawyers, just like it is for […]

How to Forecast Future Inflation Rates

Estimating inflation accurately is enormously important to the development of a viable financial plan.  Misforecast inflation by 1% and the plan might not be able to cover living expenses upon retirement.  The challenge is finding a credible way to forecast inflation. As is the case with most financial statistics, the best estimate is usually found in the public markets. Those who put their money where their mouth is tend to be right more  often than pundit prognosticators (Brexit not withstanding, where those betting in the UK got it wrong). Bond Market Provides Clues on Inflation Bond market participants routinely price bond securities based upon their inflation projections.  The difference between the nominal 10 year Treasury rate and the inflation adjusted Treasury […]

The Miracle of Compound Interest

Your Most Powerful Investment Ally is Time If you’ve ever heard compound interest described as “the most powerful force in the universe,” it’s probably on account of a quote to that effect attributed to Albert Einstein. As it happens, the quote itself is probably an urban legend. But if Einstein didn’t make such a reference, (or, as an alternative version has it, call compound interest “the most important invention of all time,”) it was probably because he was too busy with E=MC2 to give the matter much thought. E=MC2 is the formula that describes converting mass into energy. Compound interest, by contrast, is the formula that describes converting time into money. Lots and lots of money. Compounding Turns Time Into […]

The Right Way and the Wrong Way to Benchmark a Diversified Portfolio

One of the biggest challenges for an investor is to determine how well her diversified portfolio is performing. The two most common benchmarks featured in published advice are: S&P 500 A 60/40 Stock/Bond portfolio Unfortunately, most published advice is incorrect. That’s because it usually encourages comparison to an irrelevant index or too generic of a model portfolio. In our opinion, the right way to benchmark a diversified portfolio is to take into account risk and taxes. Let’s Start with Indexes Most individual investors think they should benchmark their diversified portfolios against a stock index like the S&P 500®. That’s probably because such indexes are the only indexes with which they are familiar or the only indexes their financial advisors used in […]