Tag Archives: Andy Rachleff


What Long-Term Return Should I Expect?

One of the most common questions posed to our client services team is “What is the expected long-term rate of return I can assume if I invest in a diversified portfolio?” Based on return estimates derived from the market (not Wealthfront’s opinion), an optimally diversified portfolio of low-cost index funds is expected to generate an annual long-term pre-tax  return of 4% – 6%, depending on how much risk you are willing to tolerate. It should be noted that the returns achieved over the past two years were much higher, but as you know past returns are not indicative of future returns. Returns Are Almost Impossible to Predict Some of you might be disappointed with this expected long-term return. I wish it […]

Minimize Your Investment Taxes

Our Chief Investment Officer, Burt Malkiel, famed author of “A Random Walk Down Wall Street,” has spent the past 40 years explaining that investors can’t control the market, so they should focus their efforts on the three investment tactics within their control: Diversify and rebalance your portfolio Minimize fees Minimize taxes Previously, we published posts on the value of diversification and minimizing fees. However, too often the industry avoids talking about one of the most important aspects of maximizing your long-term investment results: minimizing taxes. The Seven Ways to Minimize Taxes There are seven ways Wealthfront can significantly reduce your investment taxes: Using Index Funds Rebalancing your portfolio with dividends Applying different asset allocations for taxable & retirement accounts Tax–loss […]

There’s No Need to Fear Stock Market Corrections

Individual investors react very poorly to stock market corrections. Many individual investors sell when the market declines out of fear it will never come back. The data, which we will present in this post, actually says the opposite. Not only will the market come back, but it will do so a lot sooner than you might think. As you can see from the chart below, over the past 50 years there have been 14 market corrections and 11 bear markets. The industry standard definition of a market correction is a peak-to-trough decline of at least 10% and the definition of a bear market is a peak-to-trough decline of at least 20%. For the purpose of this analysis we rounded up […]

Fees Can Destroy Your Return

In an environment where a diversified portfolio is only expected to return on the order of 6% annually, any fees will have a significant impact on your outcome. In the same way that investing for the long-term takes advantage of the power of compounding, the regular or recurring fees you pay reduces the overall potential of your portfolio. To illustrate the point, here’s an example from the SEC on its own fee fact sheet: If you invested $10,000 in a fund that produced a 10% annual return before expenses and had annual operating expenses of 1.5%, then after 20 years you would have roughly $49,725. But if the fund had expenses of only 0.5%, then you would end up with […]

You Can’t Get Access to the Best Alternative Assets

One of the services most frequently touted by private wealth managers is their ability to provide access to outstanding alternative assets like hedge funds. Unfortunately very few private wealth managers have access to the hedge funds that are worth the fees. Of course, that won’t stop them from promising you the best and delivering poor alternatives. That’s why David Swensen, Yale’s Chief Investment Officer and the man most identified with employing alternative assets, essentially says in the introduction to his groundbreaking book Pioneering Portfolio Management, that if you can access premier alternative assets like hedge funds, you should, but it’s highly unlikely that you can, so you shouldn’t. Understanding Risk and Reward As we have explained many times in this blog, […]

When Should You Exercise Your Stock Options?

Stock options have value precisely because they are an option. The fact that you have an extended amount of time to decide whether and when to buy your employer’s stock at a fixed price should have tremendous value. That’s why publicly-traded stock options are valued higher than the amount by which the price of the underlying stock exceeds the exercise price (please see Why Employee Stock Options are More Valuable than Exchange-Traded Stock Options for a more detailed explanation). Your stock option loses its option value the moment you exercise because you no longer have flexibility around when and if you should exercise. As a result many people wonder when does it make sense to exercise an option. Tax Rates […]

How New College Grads Should Approach Stock Compensation

Over the past two years we have written numerous posts to help you evaluate job offers that include stock options or Restricted Stock Units (RSUs). We assumed in all our posts that job seekers were evaluating offers from companies at a similar level of maturity. For many new graduates, however, the comparison gets more complex if you aren’t sure whether you want to join a very mature company like Google or an earlier stage company like one of our recommended mid-sized companies with momentum. The purpose of this post is to help make that task much simpler. The Mechanics of Stock Options Let’s start with the basics of stock compensation. A stock option gives you the right to buy common […]

The Right and Wrong Reasons to Change Your Risk Tolerance

Our clients sometimes ask us how often they should change their risk tolerance score. The answer is: Not often. You won’t be surprised to find that the question comes up most frequently when the markets are either up big or down big. Human nature leads us to want to increase our risk tolerance when we experience an up market and decrease our risk tolerance in down markets. Like most everything in investing, what feels right seldom is. There are a few good reasons to change your risk tolerance but there are also bad reasons that you should learn to recognize and avoid. Good Reasons: Significant Financial Changes There are several significant events that can change your risk tolerance: A major […]

Demystifying Venture Capital Economics, Part 3

The funding of almost every new and successful technology market can, to the uninitiated, have the appearance of a financial bubble. A tsunami of venture capital flows into hot new markets at what appear to be ridiculous prices. Amazingly, the capital invested in the market winners is almost always justified. A few other companies will drive small returns while the vast majority of new entrants will lose money. This dynamic benefits the premier venture capital firms and consistently hurts second-tier firms. Most successful new markets begin the same way. A market-sensitive technologist recognizes an inflection point in technology that enables a new kind of product. It’s not uncommon for more than one individual to recognize the potential of the new […]

Invest Despite Volatility

Many facets of investing are counterintuitive. Investment strategies that feel right seldom are. A classic example of this is how to deal with market volatility. During a recent investment seminar I gave to Dropbox employees, I asked the audience which type of market they would prefer to invest in periodically each year if they didn’t intend to withdraw their money until 10 years from now. I showed them the three charts below and asked them to vote.           You probably won’t be surprised to learn that Behavior Chart A  was the vote’s biggest winner while Behavior Chart C  garnered the fewest votes. However, you may be surprised to discover that Behavior Chart C  actually displays the best […]