Tag Archives: asset allocation

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 […]

Smart Beta

Fads and fashions have always been part of the financial markets. Around the turn of the century Internet-related stocks were regarded as reliable instruments for growing and preserving wealth. During the early 2000s, real estate was the instrument of choice for savvy investors. Today “Smart Beta” is the mantra of legions of securities salesmen who claim that broad-based low-cost index funds are sub-optimal and that better results can be obtained by biasing portfolios toward a number of characteristics that promise higher returns. There is no universally accepted definition of “Smart Beta.” What most people using the term have in mind is that it may be possible to gain excess (greater than market) returns using a variety of relatively passive investment […]

Burt Malkiel On Wealthfront’s Promise

Today I am excited to announce the first significant improvements to Wealthfront’s investment service since I joined the company as chief investment officer. These improvements help minimize taxes and increase returns without exposing clients to more risk. I’ll detail the changes below, but I also wanted to tell you why I joined the company and what my first three months have been like. My mission, through my books, op-ed pieces and speeches, has been to help make it easier for average investors – the little guys — to win in the markets. I was a member of the board of directors of Vanguard, the leader in low-cost index investing, for 28 years. I still serve on Vanguard’s international board, where […]

Wealthfront’s New Investment Mix

At Wealthfront, we’re always looking for ways to increase our clients’ net-of-fees, after-tax returns without exposing them to more risk.  We’re excited to announce two major enhancements to our investment management service, driven by Chief Investment Officer Burt Malkiel: Differentiated Asset Location: We now offer different asset allocations for taxable and retirement accounts. Tax-efficient asset classes are weighted more in taxable accounts to minimize your taxes. Improved Bond Diversification: We’ve added five new income-producing asset classes to help increase returns (for the same level of risk). We estimate these changes will increase our clients’ annual net-of-fees, after-tax return by an average of 0.5% per year. Assuming you invest $100,000 over 20 years, the changes could add approximately $28,000 to your […]

Why Critics Of Modern Portfolio Theory Are Wrong

On Saturday, TechCrunch published Is Modern Portfolio Theory Dead? Come On. by Wealthfront advisor Paul Pfleiderer. Professor Pfleiderer, the C.O.G. Miller Distinguished Professor of Finance at the Stanford Graduate School of Business and co-founder of Quantal International, takes on critics of Modern Portfolio Theory in the article. Modern Portfolio Theory (MPT), which won a Nobel Prize in 1990, is the most accepted way to manage a diversified investment portfolio. A small but vocal minority has criticized it for not sufficiently protecting investors’ portfolios during the financial crash. “It’s particularly important that young people at the beginning of their investing careers understand why the sloppy arguments against MPT are so dangerous. With its insights about diversification and controlling risk, MPT provides […]

How To Build An Investment Portfolio With ETFs

Many investors are shifting their allegiance from mutual funds to ETFs. ETFs offer more transparency and, almost always, lower fees than mutual funds. The question for the thinking investor is how to combine ETFs to build a portfolio that makes sense – meaning, one that has the best chance of achieving the returns you want, with a level of risk you can stand. Wealthfront recently created a slide show presentation, which we show to various companies around Silicon Valley through our seminar program, offering a primer in how to use Modern Portfolio Theory to combine ETFs. We hope that watching it helps you put your own diversified portfolio together, or enables you to ask an investment advisor better questions. Engineer […]

Why Volatility Shouldn’t Keep You From Investing

To submit a question to Wealthfront, e-mail betsy@wealthfront.com. “I’m someone who has never invested in the market. This seems like a good time to invest, since the economy isn’t great, and I expect prices to be low. When I look at the stock market, though, it looks like it’s up and down almost every day. As a potential long-term investor, is this a good time to get in, or is the market too volatile right now?” – Thomas Fogarty, 30 You are not alone asking the question. In fact, very recently a friend of mine expressed exactly the same concern. Sitting in cash, he is concerned about a market that can easily swing by more than 3% in a single […]

Beyond BRIC: 3 Ways To Invest In Emerging Markets

Jeff Towson, author of What Would Ben Graham Do Now: A New Value Investing Playbook for a Global Age, recently said to me: “You can’t be a big investor in this world and just not be part of this.” He was referring to investing in emerging markets — Brazil, Russia, India, and China (BRIC), for sure — but also to Saudi Arabia, Macao and Qatar. When the guy who was heading direct investments in Asia Pacific and the Middle East for Prince Waleed, one of the world’s richest people and best investors, speaks, I listen. For Towson, much of the easy money has been made in BRIC. As a global investor, he’s on the prowl for the next growth story. […]