Tag Archives: diversification


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 […]

Introducing the Wealthfront Single-Stock Diversification Service

When LinkedIn went public in 2011, the company had about 1,500 employees. Traditional private wealth managers were ubiquitous on campus in their efforts to sign-up the 50 to 100 early employees and executives who met their firms’ multi-million dollar minimums. Unfortunately, that was of little help to the 1,400 other employees at the company looking for support. At Wealthfront, we believe everyone deserves sophisticated financial advice. Today, we’re launching the service I wish the entire LinkedIn team could have had access to back in 2011. Introducing the Wealthfront Single-Stock Diversification Service. This service will help solve a critical problem for many that work at public technology companies: How to best diversify concentrated holdings in your company’s stock. Such holdings are […]

When to Diversify Across Financial Advisors

Last month Wealthfront hosted an event that featured our chief investment officer, Burt Malkiel.  It’s wonderful to listen to Burt, because he discusses the markets with such clarity. Markets go up, and markets go down.  You can’t control them. As an investor, you should instead focus your efforts on the three things you can control that will make a difference:  Diversify your portfolio, minimize fees and minimize taxes. During our Q&A session, one of our clients asked Burt, “Does it make sense to diversify across financial advisors?” Burt’s answer was simple: “There is no real benefit to diversifying advisors if your advisor follows my advice of diversifying your portfolio across index funds that represent a variety of asset classes. Hiring […]

The Benefits of Diversification

We’ve been gratified by the feedback we’ve received on our recent post Why You Shouldn’t Just Invest In The S&P 500. However some of our readers are still grappling with the question of why a broadly diversified portfolio is better than a portfolio that includes only one asset class. To make the point clearer, we decided to do a follow-up post with more data and ways to visualize the value of diversification.  We have also updated our previous post to include the graphics introduced in this post. [...]

Why You Shouldn’t Just Invest in the S&P 500

Investors often think they have a diversified portfolio when, actually, they don’t. We know this because our clients sometimes ask us things like, “Why don’t I just invest in the S&P 500?” They seem to believe investing in an index that gives them exposure to a broad selection of assets means they have a diversified portfolio. But that’s only one of the dimensions of diversification. A good portfolio is actually diversified across three different dimensions: assets, markets and time. [...]

Sacrifice of the Bondholders

Investors throughout the world have been flocking to so-called “safe havens.“ The 10-year U.S. Treasury Bond has recently been trading at a yield between 1.5% and 2%. Short-term U.S. Treasury interest rates are near zero. Even if inflation stays at a 2% rate over the next decade[1], U.S. bonds will be a sure loser, providing negative real (after inflation) rates of return. If interest rates rise to more normal levels, investors will suffer substantial capital losses. Interest rates are also low in the center of Europe as well as in Japan. There are no “safe” economies where savers are able to earn positive real returns on government bonds. Most of the developed countries of the world are burdened with excessive […]

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 […]

Managing A Silicon Valley Windfall

Sudden money – such as comes with an IPO or an acquisition – is a good thing, right? Yes, but it’s often accompanied by stress. People who have been working within a constrained budget, steadily paying off college loans and sizable Silicon Valley mortgages, suddenly find themselves with a seemingly limitless number of options for spending their money. In this recent Quora post, Wealthfront Director of Research Jeff Rosenberger answered the question: “What advice would you give to someone who has the opportunity to cash in some of his private company stock in the low seven digits?” Jeff offered a three-step plan. Divest your stock “Unless you have an informational advantage that tells you your company stock is meaningfully under-valued […]

Sizing Up Your Home As An Investment

When I was shopping for my first house, my real estate agent told me that I’d be able to feel it when the house was right: Something about the place would embrace me when I walked in the door. She was right – I fell in love with a spacious though impractical Victorian, where my husband and I lived for a half-dozen years. We took into account the price and the location, and eventually sold it for a small profit, but that was never the point. The most important benefit the house brought us was psychological. In Wealthfront’s investment seminars, we often get asked the question: Should I count my primary residence as part of my real estate asset allocation? […]

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 […]