Wealthfront Review: Is Wealthfront Safe and What Do We Think Of It
Investing doesn’t have to be intimidating with the help of Robo advisors — Wealthfront is one of the best ones out there. You don’t need a lot of money to start and you’re able to focus on your bigger picture financial goals and work towards reaching them.
If you’re interested in using automated investing tools, dive into our Wealthfront review to learn more about the platform, its features, and who it’s best suited for.
What is Wealthfront?
Wealthfront is a Robo advisor launched in 2011 to help investors without a lot of money to invest access services that traditionally required working with expensive financial advisors. The popular platform now has at least $11.5 billion assets under management.
Once you invest a minimum of $500, you can choose from different types of investment accounts. Wealthfront will allocate your money in different types of exchange-traded funds. It uses Modern Portfolio Theory much like other Robo investing services to form an asset allocation automatically based on the information provided, such as your financial goals, age, and risk tolerance. The platform will ensure your allocation is intact using automatic rebalancing.
Wealthfront Investment Accounts
Wealthfront offers a taxable account which you can own individually or jointly with someone else. Aside from some of the features mentioned above — automatic asset allocation and rebalancing based on your individual needs — there are a few more features you can expect if you have an account with this platform.
- Support on external accounts: You can look at all your financial accounts and receive advice on taxes, fees and what to do with excess cash.
- Tax-loss harvesting: Only for taxable accounts, Wealthfront will help you make your investments more tax-efficient by offsetting gains.
- Smart beta: Account holders can use this feature to help increase their returns compared to market indexes. You’ll need a minimum of $500,000 to enable this feature.
- Portfolio line of credit: If your account has more than $25,000 invested, you can borrow against it. You can borrow up to 30% of your account’s current value.
- Customized transfer plan: If you’re transferring your assets from another brokerage or financial advisor, Wealthfront won’t sell all your holdings which can result in a high tax bill. Instead, it’ll transfer assets over time into a diversified portfolio, helping you save on taxes.
Wealthfront Roth IRA
Wealthfront’s IRA accounts offer the same automated portfolio allocation and rebalancing it offers for taxable accounts. However, you’re limited in how much you can contribute each year. As of 2020, individuals contribute up to $6,000 or $7,000 if you’re at least 50 years old as a catch-up contribution. There are also income limits — check with the IRS for the latest rules.
Unlike a Traditional IRA where your contributions are tax-free (until you take a distribution), Roth IRA contributions are taxed up front. You can withdraw contributions at any time without incurring penalties or taxes and earnings can also be withdrawn tax-free if you meet the requirements.
Wealthfront Savings Account
Created in partnership with Green Dot Bank, the Wealthfront Cash Account is a high-yield savings account offering 2.00% APY, higher compared to traditional banks. There are no account minimums, monthly fees or any overdraft fees. You can open an account with as little as $1.
Account holders get a free debit card and there are no surcharges at over 19,000 ATMs. You also get unlimited transfers between your Wealthfront investment or external accounts, rare for a savings account.
Most FDIC-insured accounts offer up to $250,000 in insurance against your deposit with a bank. Wealthfront offers up to $1 million in coverage from the FDIC because of its agreement with a few banks. That’s four times more than the average amount.
If you sign up for direct deposit, you may be able to get your payments up to two days earlier. Right now, you can’t send payments via check, but you can deposit checks people send to you via their app.
Wealthfront Free Financial Planning
Developed by a team of PHDs, Path is an algorithm from Wealthfromt that helps you reach your financial goals, much like what a financial advisor would help you with. You can walk through several major life goals such as college savings, a home purchase and of course, retirement.
Path will look at all of your accounts like your banking, mortgage and external investment accounts to offer you tailored advice. It’ll come up with different scenarios to see if you’re on the right track. If so, great! Otherwise, Path will offer you advice on how you can change course.
Once you have the Wealthfront app and link your financial accounts, you can access Path right away. The good news is that Path is free — you don’t need to have any investments with Wealthfront to use it.
Wealthfront’s savings account doesn’t charge any fees. For their investment accounts, you’ll be charged a 0.25% management fee. There are also expense ratios which average 0.08% for exchange traded funds and an average of 0.11% for the Wealthfront Risk Parity Fund.
Is Wealthfront Safe?
The short answer is, yes, Wealthfront is safe to use. It’s a Securities Investor Protection Corporation (SIPC) member and your account is protected up to $500,000. Savings accounts are FDIC-insured up to $1 million.
Wealthfront’s app uses third-party providers that have bank-grade robust technology, so you rest assured your data is protected.
Who is Wealthfront Best For?
Wealthfront is great for investors who are starting out on their investing journey and want a more hands-off experience. There’s no need to worry about asset allocation — Wealthfront takes care of that for you and much more. Although the 0.25% management seems a bit daunting, it’s much less than what you’d pay for a human financial advisor.
With its Path feature, it’s also a great way for those who want more tailored advice for their major financial goals. You can look to Wealthfront to help you see whether you’re on track with your financial goals.