What long-term returns should I expect from US stocks?

It is virtually impossible to predict short-term movements in the stock market. Prices change from day to day in a more or less random fashion. But there are several methods by which reasonable estimates of future long-run (such as 10-year) equity returns may be forecasted. Three principal forecasting methods are widely used. While none should be considered even close to precise, all of them suggest similar outlooks at the present time. Future equity returns are very likely to be modest and well below the returns that have been achieved over the past century. Risk and Return Both market practitioners and academic economists have long believed that risk and return are related. On average, investors should receive a higher rate of […]

Categories: Planning & Taxes

The Personal Economics That Drive Services Like eBay & Airbnb

As a Product Manager at eBay in 2004, I had the opportunity to fly to New Orleans for my first eBay Live in June of that year. Over 10,000 eBay fans, mostly part-time sellers, gathered together to discuss, debate and learn about new features that the eBay platform offered them. I’ll never forget that experience, for while my official role was to teach eBay sellers about new features available on the platform, the truth is I learned more from them about their lives and reasons for selling on eBay. The biggest lesson I learned from speaking to hundreds of people who sold either part-time or full-time on eBay was a simple one. The relatively small amounts of additional income and […]

Categories: Income Tax, Investing Insights, Planning & Taxes

Which Is More Important: Minimizing Taxes or Minimizing Fees?

Our goal at Wealthfront is to maximize your net-of-fees, after-tax returns. If you’re a regular reader of this blog, you’ll know that we say that phrase over and over again. Our chief investment officer, Burton Malkiel, is famous for pointing out that there are only three things you can control when investing – your costs, diversification and taxes – so we built our service around managing those things for our clients. The funny thing is, while we get a lot of credit for building strong portfolios and minimizing fees, the third thing – minimizing taxes – may actually be the most important of all. Our research shows that smart strategies to minimize taxes could enhance your net-of-fees, after-tax return by […]

Categories: Investing Insights

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 […]

Categories: Investing Insights, Retirement

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 […]

Categories: Stock Options & RSUs

IPO 101: The Inside Scoop on IPOs

Twitter’s recent IPO filing is the talk of the town. Unfortunately many of the articles and blog posts about the offering are from authors who lack direct experience with the IPO process. Our frequent readers know this is exactly the kind of topic we love to explain. What follows is a short series of posts that attempt to pull back the covers on a process that few truly understand. In this series, we will cover: IPOs: Why do companies go public? IPOs: How do companies go public? IPOs: What happens to employees after the big day? Whether you’re fortunate enough to work at a company that will go public one day, or are just curious about the IPO process from […]

Categories: Investing Insights

Angel investing? Rental property? What to do with your play money

An oft-heard request here at Wealthfront, at least among a significant portion of our client-base, has been a desire to set aside some play money. Just to be clear, we are referring to the Silicon Valley iteration of this concept whereby clients would like to invest some of their money outside of the rebalanced diversified portfolio of low-cost index funds we have created for them. Perhaps they have heard from friends or received suggestions or pitches to invest in rental property or become an angel investor. Such ideas are driven by a desire, innate in some of us (especially so among many bright young Valley professionals) to be active investors. Sure, our clients are more aware than most of the […]

Categories: Investing Insights

After The Year Of The Yo-Yo

James Surowiecki wrote this week about the effect of the volatile market on investors. In a New Yorker article titled Year of the Yo-Yo, he said investors are abandoning the stock market after a year in which they were whipsawed by the volatility. This flight from stocks is probably not a good thing for people’s retirement accounts—after all, in a capitalist country owning some capital is usually a smart way to make money. But it may well be a good thing for investors’ psychological well-being. In effect, they’ve decided that, in a market as volatile as this one, the only way to win the game is simply not to play. But the research shows that the bowing out of the […]

Categories: Investing Insights, Planning & Taxes

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 […]

Categories: Investing Insights, Planning & Taxes

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 […]