Tag Archives: ETFs

Why Index ETFs Are The Automated Investment of Choice

Vanguard Group introduced the first passive investment product, the index fund, in 1975. We’re very proud that our Chief Investment Officer, Burt Malkiel, inspired Jack Bogle, the founder of Vanguard to create the index fund when he published his groundbreaking book, A Random Walk Down Wall Street, in 1973. Eighteen years after Vanguard launched the first index fund, State Street introduced the first exchange-traded fund. ETFs have grown to more than $2 trillion in assets, having recently surpassed index funds. Practically speaking, it wasn’t until the ETF became popular, around 10 years ago, that passive investing could broadly appeal to the masses. An ETF is a basket of investments, which, like an index fund, mirrors an underlying sector or index. […]

Introducing the Next Level of Direct Indexing: The Wealthfront 100

In December 2014, Wealthfront announced the next generation of index investing, our new Tax-Optimized Direct Indexing platform. A replacement for the US stock portion of a Wealthfront portfolio, Direct Indexing allows Wealthfront clients to participate in the US stock market not just by owning an ETF, but through direct ownership of many of the underlying US stocks. The result is a portfolio of individual US stocks and one or two complementary ETFs that’s optimized to track the overall performance of the broad US market but is also capable of harnessing the countless opportunities of tax-loss harvesting enabled by the movement of individual stocks. Many of our clients have already taken advantage of the power of Direct Indexing. In fact, since its launch in […]

Happy Birthday, Tax-Loss Harvesting

Back in October 2012, Wealthfront became the first automated investment service to introduce tax-loss harvesting. While tax-loss harvesting has been around for a long time, it traditionally has only been offered to the ultra-wealthy and it was almost always done just once a year by hand. Wealthfront, of course, offered something different — a service watching your account continuously, every day, looking for opportunities to recognize tax losses while still keeping your portfolio properly diversified. Now two years later, Wealthfront has over $900M in client assets invested in tax-loss harvesting accounts, and in that time we’ve performed over 750,000 free tax-loss harvesting trades for our clients. For no extra charge, Wealthfront provides two different levels of sophisticated tax-loss harvesting for […]

Wealthfront Named ETF Strategist of the Year

Today I am proud to announce that Wealthfront has been named the “ETF Strategist of the Year” by ETF.com (formerly IndexUniverse), the world’s leading authority on exchange-traded funds. We are especially gratified to be chosen for this award from among all investment management firms that use ETFs, not just new entrants. At Wealthfront, we strive to build a world-class investment service and we’re proud to have assembled an unparalleled investment team led by Burton Malkiel. Over the past year, we added asset classes, released an improved and more diversified investment mix, delivered different asset allocations for taxable vs. retirement accounts to improve after tax returns, and launched the Wealthfront 500. In short, we aim to relentlessly improve our service to […]

Missing the Obvious on Fees

I have a personal confession. For nearly 50 years, I’ve missed the “obvious” reality: Fees for investment management are not low. They are high; very high. When investors recognize this “new reality” — that fees are not trivial but are crucial — the beautiful “inside” world of fund management will experience a powerfully disruptive revolution. It may not be sudden, but it is inevitable. Investors are not captives of the conventional practices of “performance” investing. They have proven alternatives. The process of getting to the “Ah ha!” moment can come through a few examples of how easy it is to miss (or misinterpret) reality. Missing the obvious Sometimes it’s due to deliberate deception — as when a magician has you […]

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 Unexpected Impact of Commissions

The recent enhancement to our tax loss harvesting service prompted a few readers to privately ask if it’s possible for us to use Dimensional Fund Advisors’ (DFA) mutual funds rather than ETFs to implement our service. Prior to our launch in December 2011, we considered both Vanguard and DFA products as they offer what we believe are the best net of fee returns in the industry. Before we launched our service we met with DFA sales reps and learned that on average DFA funds generate the same return as Vanguard on a net of management fees basis. In other words DFA funds earn a higher gross return, but their much higher management fees end up negating that advantage. We went […]

Five Ways ETFs Surpass Index Funds

We often get the question from clients: What is the difference between an index fund and an ETF? Even people who understand ETFs don’t understand the difference between these two kinds of investment products. We believe ETFs are index funds, evolved. To understand why ETFs represent such an advance over index funds, you have to look a little deeper than the most basic explanation of the difference between them. Financial advisors will tell you that an ETF is different from an index fund because it trades like a stock, throughout the day. Index funds, which are a kind of mutual fund, can only be purchased or sold at the end of the day after market close. Most ETFs, like most […]

If ETF Fees Are Falling, Why Do Advisors Cost So Much?

In the last few weeks, there have been two new developments in the ETF price wars that are important to Wealthfront clients and investors in general – moves by Vanguard and BlackRock that will significantly lower ETF fees. At the same time, we’re starting to see the media raise the question that’s been on my mind lately: Why do traditional advisors charge so much when the underlying investment products (the ETFs) are getting cheaper and cheaper? Two weeks ago, Vanguard announced it will change the indexes it uses for 22 of its index funds and ETFs. For instance, it will now use FTSE for international indexes in place of its previous index provider, MSCI. Most people don’t realize the publishers […]

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 […]