Wealthfront Review 2024: Benefits and Limitations

It’s obvious why people search for Wealthfront review covering Wealthfront offers of online financial services, and that is due to its benefits and limitations lying side by side. If that sounds like you, don’t skip a line.

Wealthfront Review

Wealthfront Review

Wealthfront is one of many Robo advisors on the market. These automated investing platforms have democratized investing by providing services that you once needed an expensive personal advisor to receive.

Furthermore, if you invest your money into a Wealthfront account (there’s a required minimum of $500). You can choose to use a tax-deferred individual retirement account if you wish.

Funds aren’t held by Wealthfront but by the Royal Bank of Canada (RBC). Wealthfront then allocates your investment into an assortment of exchange-traded funds (ETFs).

Like many Robo-investing services, Wealthfront uses Modern Portfolio Theory to create an automated asset allocation, taking into account your risk tolerance and financial needs.

The platform continually makes sure that the allocation is correct with automatic rebalancing.

Pros and Cons of Wealthfront Review

Pros

  • Terrific financial planning that helps you see the big picture
  • Goal-setting assistance goes in-depth for large goals, such as home purchases and college savings
  • Portfolio line of credit available
  • If you have multiple goals, Path shows you the trade-offs you’ll face
  • Tax-loss harvesting

Cons

  • No online chat for customers or prospective customers
  • Wealthfront carries no excess SIPC insurance
  • Portfolios under $100,000 are not customizable beyond risk settings
  • Larger accounts may contain more expensive mutual funds

How Wealthfront Works

Wealthfront promotes itself as a robo-advisor that helps you “use technology to make money on all your money.”

With our Wealthfront review, when you first sign up for the platform, you start by letting it know exactly how you’d like to make money:

1. Invest for the long term: This option offers you a taxable investment account.

2. Plan for retirement: For this alternative, you open an individual retirement account (IRA). You may choose a traditional IRA, a Roth IRA, or a SEP IRA.

3. Save for college: The platform provides its own 529 college savings plan.

4. Open a bank account: Wealthfront Cash is a cash management account that offers an APY of 5.00%.

If you pick the long-term investing option, you’re prompted to answer a series of questions to gauge your risk tolerance.

Besides your age, Wealthfront also assesses your general risk tolerance by asking about your priorities.

This insight is vital not only for Wealthfront’s robo-advisor algorithms but also so you can understand your state of mind as an investor.

Wealthfront utilizes your answers to these questions to recommend a portfolio of funds designed to match your risk tolerance.

Additionally, Wealthfront will suggest that you employ tax-loss harvesting strategies to lower your potential tax bill when your taxable account reaches between $100,000 and $500,000.

You gain entry to more advanced strategies on a stock-based level once your account is over $500,000.

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Wealthfront’s Features and Offers

Features and Offers

Wealthfront’s three newest offers are free financial planning software, a high-yield cash account, and a portfolio line of credit. See them in detail:

1. Wealthfront’s Free Financial Planning Software

Wealthfront offers free financial planning software to anyone who wants to use it. You don’t have to be a Wealthfront customer to use it.

The software connects directly to user’s financial accounts, so users can easily track their goals.

If you’ve never set financial goals before, Wealthfront has a Financial Aid guide that provides a framework for helping you think about your financial and life goals.

Using the free software, you can make informed tradeoffs. The app helps you answer questions like: Should I take time off work now and work a few years longer before full retirement?

The software still can’t tell you exactly which questions to ask, so it doesn’t have quite the same value as a CFP or financial coach, but it will help you move in the right direction.

2. Wealthfont Cash Account

Wealthfront launched the Wealthfront Cash Account as the next vital step towards automating all of its clients’ finances.

A cash account is a safe place to stow away cash you may plan to invest, spend within a few years, or use in an emergency.

The account offers an interest rate of 1.78% and is FDIC-insured for up to $1 million.

That’s nearly 20 times the national average interest rate and four times the insurance you’d receive at a traditional bank. Wealthfront clients can open a cash account with as little as $1.

The account isn’t subject to any market risk and offers unlimited and free transfers all for no fees. This account is separate from a regular managed account, so there is no management fee.

3. Portfolio Line Of Credit

If you’ve got at least $100,000 in a taxable brokerage account, you’re eligible for a portfolio line of credit worth 30% of your account value.

The loan is secured by your account, so the rates on the loan are often below most home equity lines of credit. You can pay back the loan on your own schedule, but interest accrues until the loan is paid in full.

This sounds like a great loan, but I’m skeptical about borrowing against assets in general.

If you’ve got investments in a taxable brokerage account, and you need money to start a business or buy a car, you should probably liquidate the account to pay for your needs.

Drawbacks of Wealthfront

Drawbacks of Wealthfront

If you require additional advice and interaction, Wealthfront might not be your first choice for investing.

Unlike some other robo-advisors, there’s no real “human” component to speak of should you require a bit of assistance understanding any aspect of your investments.

While Wealthfront’s copious features deliver a sophisticated view of your finances, they can also feel a bit overwhelming.

This isn’t necessarily a wrong thing: After all, gaining as much insight as possible into your finances for a relatively low cost can be highly profitable.

However, if you’re easily turned off by going through the motions of connecting accounts, or unsettled by giving entry to lots of personal information to one company, consider limiting your use of Wealthfront to only its investing features.

On a more technical note going by this Wealthfront review, Wealthfront demands you to hold a bit more cash than you otherwise would.

While we appreciate Wealthfront’s lack of fees on its banking product, you can discover higher yields with other savings accounts. Wealthfront Cash is best used, then, for convenience’s sake.

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How Much Does Wealthfront Cost?

How Much Does Wealthfront Cost?

You have to invest at least $500 to start an account with Wealthfront. Then there is a flat-rate management cost of 0.25%. This fee is an annual price and applies to the assets you have under management.

You have the potential to earn $5,000 of fee-free investment each time you refer someone. You and the person you refer will receive the fee-free benefit.

There are no other pricing plans with unique features but investors with at least $100,000 and $500,000 receive additional management services. There are also no trading commissions.

You’ll never pay fees to buy ETFs. The only other expense to keep in mind is the operational fees that individual ETFs charge. These charges are generally less than 0.15% but maybe over 0.40% in some cases.

Should You Invest with Wealthfront?

I’m fast to recommend Wealthfront to novice investors, and anyone who wants to outsource investing to an algorithm.

The only automated investing platform that is less costly is M1 Finance, and M1 Finance doesn’t have the robust investing theory that Wealthfront has.

The clearest advantage of Wealthfront is its ability to do systemic tax-loss harvesting. Of course, that only matters in unsheltered tax accounts.

The biggest drawback to Wealthfront is an overemphasis on conservative asset classes. The asset allocation it suggested for me was very conservative despite my long time horizon to retirement.

Overall, Wealthfront is an excellent option, and it’s still one of my top recommendations for automated investing platforms.

To conclude this Wealthfront review, Wealthfront appears to be an excellent investment service. We think it’s one of the best Robo advisors, actually. It shines with taxable accounts.

Now that Wealthfront offers tax-loss harvesting for all accounts, its service can minimize your annual tax expenses.

We’d like you to give us your take on this, and don’t hesitate to share this information on your Facebook, Twitter, and Instagram if you like it.

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