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What financial planning basics should you consider to maintain a healthy financial life? Join the conversation on common financial planning strategies on education, retirement, taxes and estate planning.

A Deep Dive into Direct Indexing

The most unique aspect of Wealthfront’s automated investment service is our Direct Indexing service. Direct Indexing is a classic example of Wealthfront’s strategy of using software to make investment services broadly available that were previously only available to the ultra wealthy. Depending on account size, Direct Indexing can add 0.20% – 0.50% to your annual after tax return above and beyond what’s achievable with our core service, which includes daily ETF-level tax-loss harvesting. With this post we hope to explain why Direct Indexing is so unique and how it’s possible to offer such compelling value. What is Direct Indexing? Direct Indexing is, in our opinion, the next-generation of investing. Direct Indexing allows Wealthfront investors to hold the individual securities that […]

Tax-loss harvesting as a behavioral tool

It’s extremely hard to invest when markets are down. We all know it’s the “right” thing to do, but it’s hard to act in the face of fear. Unfortunately, the popular media doesn’t help. As an investing culture, we have a gaggle of catchphrases that warn you away from buying when things get tough. Aphorisms like “don’t catch a falling knife,” “the trend is your friend,” “avoid value traps” litter the investing landscape. Each time the market gets topsy-turvy, CNBC posts images of a ravaging bear, claws and fangs ready to ravage your investment portfolio. As we wrote in How To Invest In A Falling Market, it’s no surprise that study after study finds investors tend to buy high and […]

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 […]

How To Protect Your Portfolio: Tax-Loss Harvesting

Prior to the recent market pullback, the investment trade media questioned how Automated Investment Services (AISs) like Wealthfront would perform when markets became volatile. Would individuals run to the comfort of human advisors, or could AISs calm their fears in the face of market uncertainty? We were not worried about how our clients would act during a pullback, as our clients generally understand the value of long-term investing. In fact, we had record sign-ups in August, as new customers flocked to the certainty of data-driven portfolios. But what we were most pleased with in August was the performance of our tax-loss harvesting algorithm. By its nature, tax-loss harvesting (TLH) should shine when markets are volatile: After all, a TLH algorithm […]

Be Smart About Your 529 Plan Beneficiary and Save More for College

For many people who are considering having children or already have started a family, the prospect of saving for college can be daunting. Rapidly rising tuition and related costs create the impression of a seemingly insurmountable savings goal. In the past, Wealthfront has written posts to help its clients navigate some of the difficult choices surrounding saving for college, including how much to save and which 529 plan to choose. With estimates of the cost of a college education for a child born in 2015 running as high as $95,000 for in-state public college, and $323,000 for private college, this can be one of the most daunting financial goals young parents face. There are a couple options for really maximizing […]

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 […]

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 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 […]

Three Financial Issues to Consider When Getting Married

While it is often said that no two things are more certain than death and taxes, marriage can bring a measure of uncertainty to your taxes as well as your finances. Questions have arisen among Wealthfront’s clients about how tying the knot — a milestone in many people’s lives — can impact your financial obligations to the government, and potentially affect how you structure your finances. With this post, we share a few points on this topic. Keep in mind, however, that finances and taxes can vary greatly depending on an individual’s or a couple’s specific situation, and what state they live in. We recommend consulting a qualified accountant or tax attorney. In fact, we have written a couple of […]

10 Things You Probably Didn’t Know About Tax-Loss Harvesting (and should)

For decades tax-loss harvesting was an obscure tool to minimize taxes that was only available to the ultra wealthy. That all changed when Wealthfront launched its tax-loss harvesting service in October 2012.  Many pundits and industry professionals who were unfamiliar with its benefits thought it couldn’t add much value. One of our competitors even referred to the concept as a “joke.”  Well times have changed and now every  automated investment service offers a version of tax-loss harvesting. However, there are still many misperceptions of how and when tax-loss harvesting creates value, even among very intelligent investors. Here’s our Top 10 list of things you probably didn’t know about tax-loss harvesting: Tax-loss harvesting derives its benefit from the combination of tax-rate arbitrage […]