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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.



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 […]

How Often Should You Check Your Portfolio?

At Wealthfront, we’ve put an incredible amount of time and effort into making our web site and mobile applications informative and easy-to-use. Login to your Wealthfront account and you have a world of information at your fingertips. You can see your overall account value over time. You can view your overall portfolio returns and the returns of the individual ETFs that comprise your portfolios. You can see even where we harvested losses, and chart your projected returns over time. Our teams of designers, engineers and content creators have examined every detail to make the experience as seamless as possible. It is simple, beautiful, and information rich. Which is why it pains me to say this: You shouldn’t look. Despite all […]

How Does Direct Indexing Work?

At Wealthfront, we’re proud of our record of innovation. From tax-loss harvesting to dividend-based rebalancing, we believe our innovations have increased returns for thousands of Wealthfront investors by driving down costs, increasing diversification and reducing taxes. Of all our innovations, however, we’re especially proud of our Direct Indexing service. Introduced in 2013 for accounts over $500,000, and expanded to accounts with $100,000 in assets last year, we call it The Next Generation of Indexing. No other automated investment service offers anything like it. Our Direct Indexing program allows clients to track the returns of the U.S. equity market by directly owning individual securities instead of by buying an exchange-traded fund. Specifically, instead of buying the Vanguard Total Stock Market ETF […]

Why Do Automated Investment Service Portfolios Differ?

The rise of automated investment services like Wealthfront is redefining how people invest their money. The combination of strong academic financial research, software, and exchange-traded funds has allowed firms to offer optimally designed portfolios at extraordinarily low costs. But while most of the major automated investment services, including Wealthfront, base their portfolios on Modern Portfolio Theory (MPT), the portfolios that they create for people are very different. How could this be? As I explained in What Long-Term Return Should I Expect? (and in-depth in our investment methodology white paper), MPT is very sensitive to the inputs that go into it. Different estimates around the volatility, correlation and expected return of each asset class – the key inputs into an MPT […]

How To Beat The Market

There are a million web sites, books and pundits who will tell you that you can’t beat the market. They’re all wrong. Or, at least, they’re not framing things correctly. And I think that’s a major problem. My Wife’s Disappointment This thought occurred to me the other day when I was hiking with my wife in the redwoods of Muir Woods National Monument, outside of San Francisco. We were hiking and talking and, as sometimes happens, we started talking about investing. I was telling her about automated investment services like Wealthfront and what they were doing for the world. I explained how they built broadly diversified, optimized portfolios that are managed at extraordinarily low costs. I talked about how they […]

Debunking The Myth of Magical Options Strategies

Earlier this month, Duncan Gilchrist and I wrote a blog debunking the idea that you can achieve high returns with limited downside using hedge funds. Our research compared the risk adjusted returns of a standard, broadly diversified Wealthfront portfolio with the average returns of hedge funds over the past ten years. The data showed that, despite all the hype, money and excitement hedge funds elicit, you would have achieved a far better risk-adjusted return with a Wealthfront portfolio. Specifically, the Wealthfront portfolio posted a Sortino ratio of 0.62 vs. 0.43 for the HFRI hedge fund index during the time period studied. Importantly, we also showed how much quicker the Wealthfront portfolio bounced back from the financial crisis of 2008, with […]

Smart Beta and Factor Timing

A new research paper from Denys Glushkov, Research Director at Wharton Research Data Services of the University of Pennsylvania is raising some eyebrows in the smart beta world. The paper is one of the most comprehensive independent looks at the performance of smart-beta ETFs, and the results are not pretty. Despite looking at 11 years of real data, the paper finds no evidence that smart beta ETFs have outperformed the market on a risk-adjusted basis. To be specific, the study looks at the performance of 164 domestic equity smart beta ETFs and comes up snake eyes. The result must come as a shock to the smart beta industry. To date, most of the “studies” on smart beta have been from […]

Don’t Believe the Hype: The Myth of High Returns and Low Downside

Common sense tells you that it’s not possible to earn a high return without taking on significant risks. And yet, the dream of a “free lunch” in investing persists. Google the phrase “high returns with low risks” and you get over 1 billion results, including articles from esteemed outlets like Forbes, TheStreet.com and MarketWatch. We hear similar promises about newfound smart-beta ETFs and other forms of financial engineering. Here’s some advice: The next time someone makes this kind of promise to you, look the other way. Because the data on how many of these promises come true is brutal. Data Don’t Lie Burt Malkiel, our chief investment officer, has pointed out for more than four decades that it is almost […]