Wealthfront Review – Do Automated Investment Platforms Really Work?

Wealthfront Review
  • Fees
  • User Friendliness
  • Portfolio Diversity
  • Performance
4.1

Summary

Wealthfront is one of the largest investment platforms out there that is fully automated. Wealthfront wants to make investing less expensive and less confusing. So, can Wealthfront live up to the hype? Read our review to learn more.

About Wealthfront

Wealthfront was founded in 2008 by Andy Rachleff and Dan Carroll as a way to make investing less expensive and less confusing for the everyday person by using automatic investment solutions. Today, Wealthfront is one of the largest fully automated investment platforms currently available, with more than $11 billion in assets under management. Wealthfront offers competitive management fees and high-yield cash savings accounts, which is allowing the platform to quickly gain popularity among younger investors.

How Wealthfront Works

Wealthfront is highly similar to competing robo-advising platform Betterment and to many online brokerages. When you set up an investing account with Wealthfront, you’ll be asked questions about your investing style to gauge how aggressive your portfolio diversification should be. Helpfully, Wealthfront presents specific questions about how you would respond to specific scenarios, such as a market downturn, to understand your risk tolerance. Unfortunately, though, you can’t fully customize your portfolio balance between asset classes as you can in Betterment and with many traditional brokerages. 

Wealthfront Risk Analysis

Wealthfront offers 11 different asset classes, which offers slightly more diversification than competing robo-advising platforms. Added asset classes include municipal bonds, natural resources, real estate, and treasury inflation-protected securities. Once your portfolio is setup, Wealthfront will automatically take care of rebalancing it to keep your desired diversification. Note that each investment account can only have one portfolio, although you can open an unlimited number of investment accounts with Wealthfront.

Another major advantage to Wealthfront is that in addition to offering individual investment accounts and traditional, Roth, and SEP IRAs, Wealthfront allows users to open high-interest cash savings accounts. Wealthfront offers a 2.51% annual yield on these accounts, which is more than 10 times what most bank savings accounts offer. Just as important, Wealthfront offers up to $1 million in FDIC insurance on these savings accounts. Thanks to this high interest, cash becomes a highly feasible investment tool to be used in conjunction with Wealthfront portfolios.

Account Requirements

Wealthfront investment accounts require a $500 account minimum, although there is no minimum balance for high-yield cash savings accounts. Like most other US-based robo-advising services, Wealthfront is only open to US residents with a US-based bank account and a social security number.

Wealthfront Pricing and Fees

Wealthfront competes directly with robo-advising services like Betterment on pricing, offering the same 0.25% annual service fee as Betterment’s Digital account. While Wealthfront also levies exchange fees for the ETFs that the service invests your money in, these exchange fees top out at 0.16% – far lower than Betterment’s maximum of 0.40%. There are no fees for trading or transfers, but also no discounts for large account holders.

Wealthfront Fees

Wealthfront’s high-yield savings accounts do not charge any account fees – any balance in a Wealthfront cash account is not subject to the 0.25% management fee and there are no transfer costs.

Wealthfront Platform and Tools

Wealthfront offers both a browser-based desktop application and a mobile app. Both are extremely easy to navigate once you have an account set up, since most options walk you through a series of steps rather than present a large amount of information at once.

Wealthfront Mobile App

One of the helpful tools within Wealthfront is the ability to project your assets at retirement based on your current account returns and investing rate. You can see how much money you’ll have left after retirement based on different monthly savings rates, as well as input specific goals – like buying a home or saving for a child’s tuition – to see how they will impact your savings. 

Wealthfront Retirement Tool

Wealthfront Asset Projection

One issue with Wealthfront’s platform is that it somewhat difficult to understand how different asset classes in your portfolio are performing over time. Most of Wealthfront’s visualization tools are focused around projecting future wealth, rather than giving clear indications of short-term performance. This can be frustrating for hands-on investors, although anyone who wants to invest and walk away won’t mind the lack of performance metrics.

When it comes to transferring cash to your accounts, Wealthfront makes it easy. The interface for making one-time deposits is the same as that for setting recurring deposits, so you can quickly and easily get yourself onto a regular investing schedule. Before you do set recurring deposits, the asset projection tools can help you understand how that will affect your future account balance.

Wealthfront Deposit

Finally, Wealthfront makes it simple to link bank accounts and external investment accounts, as well as to list real estate holdings. This makes Wealthfront useful as an overarching asset management platform, since you can monitor your total worth rather than just your holdings within Wealthfront accounts.

Performance

The major downside to Wealthfront is weak historical performance. Wealthfront has averaged a 7.25% return on its higher-risk portfolios since inception, with a 4.66% return over the past five years. Over the same five-year period, the S&P 500 has averaged 8.1% returns. While Wealthfront claims that actual returns on an after-tax basis are likely to be higher thanks to the platform’s tax-loss harvesting practices, it is unlikely to compete with simply investing in an index fund.

Wealthfront Historical Returns

How Does Wealthfront Compare to Other Robo-Advisors?

Wealthfront’s main competitor is Betterment, which has slightly more assets under management but offers the same 0.25% management fee as Wealthfront. Compared to Betterment, Wealthfront’s ETFs have a lower maximum exchange fee (0.16% versus 0.40%) and Wealthfront offers a wider variety of asset classes for portfolio diversification. However, Wealthfront doesn’t allow fine-tuning of how your money is allocated into different asset classes within a portfolio, while Betterment does. Furthermore, Betterment’s historical performance for risk-heavy portfolios is significantly stronger than Wealthfront’s – although both platforms trail the S&P 500 over the past 10 years.

With all that in mind, the high-yield savings accounts that Wealthfront offers are noteworthy. These cash accounts are not available with most other robo-advisors and the annual return exceeds that of even bank-backed high-yield savings accounts. 

What We Like About Wealthfront

The main reason for investors to choose Wealthfront over another service is convenience. Wealthfront can’t compete with Betterment or even traditional index funds on performance, but it does offer simple pricing, automated portfolio balancing, and none of the confusion that comes with trying to track performance metrics in your own portfolio. Plus, Wealthfront’s retirement projection tool makes it easy to see how changing your recurring deposits and large purchases can affect the money you’ll have available in the future.

On top of that, Wealthfront’s high-yield savings accounts – which are opened separately from investment accounts and do not carry any fees – are highly attractive. The yield of these accounts makes them a highly attractive alternative to traditional savings accounts, and once your money is in a Wealthfront savings account it’s easy to move it around to investment accounts with Wealthfront as well.

Can You Trust Wealthfront?

Wealthfront has been around for over a decade and manages more than $11 billion in assets. The service connects easily to most financial institutions, so it’s easy to move money back and forth between linked accounts without fees. That said, investors should be clear-eyed about the relatively mediocre performance of Wealthfront compared to other investment platforms and options, since this is unsurprisingly downplayed by Wealthfront’s advertising.

Who is Wealthfront Best For?

Wealthfront is best for investors who want to combine a high-yield savings account, investing accounts, and a holistic financial overview all in one place. Wealthfront makes it simple to keep all of your money on the platform, and to monitor assets that are beyond the scope of Wealthfront’s management capabilities. The financial projection tools are helpful for anyone thinking about retirement and who is trying to plot a course to get there. However, investors who like to take a hands-on approach to investing will likely be disappointed by the lack of performance metrics and the inability to fine-tune portfolio balances.

One possible use of Wealthfront is to take advantage of the platform’s free high-yield savings accounts, while keeping investments at another robo-advisor or invested in one or more index funds.

Conclusion

Wealthfront is a capable robo-advisor that offers a wide range of asset classes and free high-yield savings accounts. While the platform offers excellent tools for retirement planning and wealth management, it falls short on investment performance and features for hands-on investors.

Pros

  • Low-cost ETFs top out at 0.16% exchange fees
  • More asset classes than most competing robo-advisors
  • Free high-yield 2.51% APY savings account with $1 million in FDIC insurance
  • Retirement tracking tool allows for saving for other goals along the way
  • Integrates easily with other financial accounts to serve as holistic wealth management tool

Cons

  • Historical returns are low compared to other robo-advisors and to the S&P 500
  • No way to fine-tune how money is allocated across asset classes

Add Comment