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 […]

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 […]

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 […]

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?


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 […]

Bringing Sophisticated Financial Advice to More Investors

Today, I’m proud to announce that we’re opening Wealthfront to even more investors by lowering the minimum amount required to open a Wealthfront account to just $500. Our simple and transparent pricing structure continues unchanged: We do not charge fees on the first $10,000 we manage on your behalf and then only charge 0.25% annually on your assets in excess of $10,000. As always, Wealthfront has no trading commissions, no account maintenance fees and no additional monthly fees. In other words, none of the fee gimmicks or gotchas that give banks and brokerages such a bad name. Helping the Young Investor We lowered our minimum in response to numerous requests from young investors. A year ago, 60% of our clients were […]