Tag Archives: diversified portfolio


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 […]

What Role Should Bonds Play in Your Investment Portfolio?

According to a recent report by the Bank of International Settlements the amount of global debt passed an ignominious milestone last year, rising from $70 trillion in mid-2007 to over $100 trillion by the middle of 2013. Global borrowing has soared since the financial crisis as central banks suppress interest rates to spur growth and corporations take advantage by raising capital at low cost. This matters because yields on investment grade bonds are near all time lows. The investment returns for those bonds over the next 10 years will almost certainly be lower than over the last 10-30 years. Putting today’s bond market into context “Don’t fight the Fed!” is surely sensible advice as the Federal Reserve has skillfully, tenaciously […]

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 […]

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 […]

Why You Should Exclude REITs From Taxable Accounts

A few weeks ago, we introduced a new investment mix that excluded real estate from taxable accounts. Some readers asked why I recommended excluding real estate, when in A Random Walk Down Wall Street, I supported the inclusion of REITs in investment portfolios.[1] I encourage people to follow four basic rules of investing: diversify your portfolio, limit fees, rebalance periodically and minimize taxes. When I tell investors to “diversify your portfolio” in my book I mean: Use many asset classes, preferably those that are relatively uncorrelated with each other. When I tell investors to “minimize taxes” in my book I mean: Use index funds to represent asset classes (index funds have very little turnover, which means they have low short-term capital […]

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 […]

Are Rental Properties Good Investments?

Over the past six months, Wealthfront has given a seminar on how to invest well to more than 50 Bay Area-based companies, including Facebook (FB), LinkedIn (LNKD) and Yelp (YELP). The seminar helps the audience learn how to use Modern Portfolio Theory[1] to better manage investment portfolios. (Here’s a link to our slideshare presentation covering some of the same ground and to our seminar page) As you might expect, we talk about the idea that investing in individual stocks actually hurts portfolio returns over time. At almost every seminar, we get a question from the audience related to how someone should think about investing in real estate – not the home in which a person lives, but real estate rental properties. The […]

People in Their 20s & 30s: Become a Savvy Investor

People in their 20s or 30s, you face some of the biggest challenges and the biggest opportunities of any investor. (See Preventive Medicine for One Young Doctor’s Growing Portfolio). If you have a solid income stream, you face a bewildering array of demands on your money. You may want to save to buy a house; you probably have college loans to pay off; and you’re already thinking about socking money away for “big ticket” items in your future like cars, vacations and kids’ college! One crucial realization you’ll have as a young investor is that different goals will require different investment vehicles. Key Investment Vehicles The Rainy Day Fund There’s no clear consensus among experts as to exactly how much […]