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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.



Physician, Heal Thy Balance Sheet

So it turns out there’s a good reason your mother wanted you to be a doctor. As a group, no other profession generates higher average annual income than physicians. In fact, U.S. government data shows that various medical specialties account for the nine highest-paying occupations in the country – anesthesiologists and surgeon rank #1 and #2, respectively, with oral surgeons close behind. (CEOs, by the way, rank #10.) Just five job categories in the government survey sport annual salaries north of $200,000 a year – and all of them require medical degrees. See, mother knows best. The catch, of course, is that it takes a long time for doctors to reach six-figure annual earnings power. Four years of college, four […]

What You Should Do in Volatile and Uncertain Markets

World stock markets have been extremely volatile in 2015. Returns since the start of the year have been negative and the markets have recently experienced a major correction. Returns from fixed income investments have also been unusually low. The reaction of many investors to these market conditions has been to run to the sidelines and stop investing—or even worse to liquidate their investments. Indeed, many individual investors have panicked and liquidated their stock holdings. Years of investing experience suggests that such reactions are extremely harmful for anyone who desires to accumulate a nest egg for future expenditures such as buying a home or ultimately establishing a retirement portfolio. A policy of staying the course and steadily putting new savings into […]

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 […]

Not Everyone Wants to Manage Their Own Investments

One of the biggest lessons I teach my MBAs at Stanford Graduate School of Business is to not project their tastes onto others when evaluating a business idea. That’s very hard advice to take because human nature leads us to think others must share our views. A product or service’s success doesn’t depend on whether you like it. Rather it depends on whether the target audience – of which you may not be a part – likes it. This insight was critical to my and my Benchmark partners’ success as venture capitalists. And yet, I constantly see this mistake made when people talk about the investment industry. It might surprise you to learn that approximately 75% of US individuals prefer […]

What Greece and China Teach Us About Investing

It’s been a crazy couple of weeks for the investing world. China’s stock market – after one of the biggest run-ups of any market in history – has suffered a 40% collapse in just a few weeks. Greece has teetered on the brink of default, and still may or may not exit the Euro. The U.S. has drawn up a major new deal with Iran; oil is down sharply; and Indian stocks are rallying like mad. What should an investor do? In a word: Nothing. If there’s anything that the day-by-day machinations of the market teach us, it is that slow and steady wins the race. The Incredible Mean-Reverting Nature of Stock Returns Investors have long known that staying the […]

Why Do Vanguard ETFs Dominate Low-Cost Portfolios?

Vanguard

The rise of exchange-traded funds, or ETFs, has been a critical factor in the rise of automated investment services like Wealthfront. ETFs are on average cheaper, more tradable and more tax-efficient than traditional index funds (see Why Index ETFs Are The Automated Investment of Choice). They allow everyday investors to access the same high quality products at the same ultra-low prices as the largest institutional investors in the world. There are now more than 60 companies offering ETFs in the U.S. with a combined $2.1 trillion under management. If you look at the average Wealthfront portfolio, however, you’ll notice it’s dominated by ETFs from one firm: Vanguard. On average, upwards of 90% of our initial portfolio allocations go into Vanguard […]

Why The Best-Performing ETF Isn’t Always The Best Choice

We get a lot of questions about why we choose certain exchange-traded funds in our portfolios and not others. Often, readers of our blog will point out that this or that ETF has outperformed one of the ETFs we recommend for our portfolios. We love getting feedback, but in this case, our readers are failing to see the forest for the trees. Specifically, they’re evaluating things in isolation, when what matters is how a particular ETF works in a portfolio. Sports fans know this idea well. Teams will sign players with superstar statistics, only to see their overall team performance suffer, as the player doesn’t mesh well with others. Conversely, teams may add role players, only to see their team […]

Dollar Cost Averaging: A Behavioral View

This is a guest post by Meir Statman. Meir Statman, PhD, is the Glenn Klimek Professor of Finance at the Leavey School of Business, Santa Clara University. He is also an advisor to the Wealthfront Investment Team and the author of “What Investors Really Want: Know What Drives Investor Behavior and Make Smarter Financial Decisions”. Investors with cash destined for stocks sometimes employ dollar-cost-averaging by dividing their cash into segments and committing to convert each segment to stocks according to a predetermined schedule. Investors with $120,000 might employ dollar-cost-averaging by committing to invest $10,000 in stocks on the 10th of each of the coming 12 months. The alternative to dollar-cost averaging is lump-sum investing: investing the entire $120,000 in stocks today. The […]

Which Is More Important: Minimizing Taxes or Minimizing Fees?

Our goal at Wealthfront is to maximize your net-of-fees, after-tax returns. If you’re a regular reader of this blog, you’ll know that we say that phrase over and over again. Our chief investment officer, Burton Malkiel, is famous for pointing out that there are only three things you can control when investing – your costs, diversification and taxes – so we built our service around managing those things for our clients. The funny thing is, while we get a lot of credit for building strong portfolios and minimizing fees, the third thing – minimizing taxes – may actually be the most important of all. Our research shows that smart strategies to minimize taxes could enhance your net-of-fees, after-tax return by […]