Wealthfront Review 2022
- Hands-off investors
- Tax strategies
- Financial planning tools
Wealthfront is a low-cost robo investment platform with features that appeal to new and experienced investors alike.
Launched in 2008, Wealthfront remains a leader in the industry. Like other robo advisors, the company builds diversified, automated portfolios based on a user’s risk tolerance and financial goals. You can also tweak individual investments inside your portfolio.
Wealthfront gives investors access to a package of attractive features, including automatic portfolio rebalancing, tax loss harvesting and a portfolio line of credit.
It also offers other financial services, including a cash management account, retirement accounts, 529 college savings plans and a comprehensive wealth-planning tool.
Considering an account? Our Wealthfront review breaks down everything you need to know.
What Is Wealthfront?
Wealthfront is an investment, banking and financial planning application best known for its automated investment options.
Wealthfront was founded in 2008 by Andy Rachleff and Dan Carroll as kaChing, a mutual fund analysis company.
The Palo Alto, Calif.-based firm is built on sophisticated software and algorithms that take the guesswork out of investing by automating nearly every aspect of your financial life — from selecting your investments and rebalancing them over time to reducing your taxes and budgeting your paycheck.
The company touts the PhDs behind its technology and investment strategies, including Burton Malkiel, the “original champion of passive investing” and Wealthfront’s chief investment officer.
It’s 0.25% annual management fee is standard for robo-advisors, but is still incredibly low compared to traditional investment brokers (which typically charge a 1% advisory fee).
Wealthfront says its goal is to bring transparency and accessibility to everyday investors. The company’s website sums it up nicely: “Our mission is to build a financial system that favors people, not institutions.”
Wealthfront had roughly 440,000 users and approximately $25 billion in assets under management in 2021.
How Does Wealthfront Work?
Wealthfront is an easy-to-use, hands-off investment app, so it’s great for beginners with at least $500 to invest.
4 Steps to Start Investing With Wealthfront
Choose an account type.
Answer a short questionnaire.
View your investment plan page.
Fund your account.
To get started, you’ll create a Wealthfront account and enter some basic information like your email address and pre-taxed income.
Next, you’ll tell Wealthfront about your financial goals.
The app uses this information to determine which accounts suits you best, including a:
- Cash management account.
- Long-term taxable brokerage account.
- Tax advantaged retirement account (traditional IRA, Roth IRA or SEP IRA)
- 529 college savings plan.
You’ll also fill out a brief questionnaire to gauge your risk tolerance and investing timeline. Wealthfront uses this information to create your personalized investment portfolio.
You can change your responses to these questions and receive a different portfolio if you disagree with the algorithm.
You can have multiple taxable investment accounts on Wealthfront. For example, you can have one account with a Wealthfront recommended portfolio and another that is customized by you.
To transfer money between Wealthfront and your bank, simply log in to your Wealthfront account, select Transfer funds and then select Put money in.
You can make a one-time deposit or set up recurring deposits from your bank. Recurring deposits can be scheduled weekly, twice a month or monthly.
While Wealthfront shares some similarities with micro investing apps — like Stash and Acorns — Wealthfront features better benefits for high-balance accounts. It’s well-known for its tax loss harvesting strategies that maximize gains for investors with six-figure accounts.
In contrast, micro-investing apps let you get into the stock market with around $5 but offer less robust features.
How Wealthfront Invests Your Money
Wealthfront provides access to automated portfolios with low fees and a focus on passive investing.
The app takes a buy-and-hold strategy meant to minimize trading and maximize long-term gains.
Wealthfront helps you create a diversified portfolio by investing in several types of stocks, bonds, exchange traded funds, real estate and Treasury inflation-protected securities. The typical portfolio includes six to eight asset classes.
An asset class is a group of things you can invest in, like stocks, bonds, real estate or cryptocurrencies.
Low-cost exchange traded funds, or ETFs, form the backbone of most Wealthfront portfolios. ETFs provide instant diversification by bundling numerous stocks or bonds into a single fund.
The robo-advisor will automatically rebalance your portfolio and keep it optimized over time, so you don’t need any previous investing experience to get started.
Daily automatic rebalancing makes sure your portfolio doesn’t drift toward a riskier or more conservative asset allocation. Wealthfront will rebalance your portfolio when the market fluctuates, dividends are reinvested, or you deposit or withdraw money.
Users can take a hands-on approach to investing, too. Wealthfront clients can customize their portfolio by adding or deleting certain ETFs. You can also tweak the allocation percentages within your investment mix.
This is a nice perk since not all robo-advisors offer this level of customization.
You can customize the following automated portfolios:
- Individual Investment Accounts
- Joint Investment Account
- Trust Investment Account
- Individual Retirement Accounts (Traditional, Roth, SEP)
529 college savings plans aren’t eligible for customization.
If you want to build your entire portfolio from scratch, you can do that too.
Or you can choose from a variety of portfolios focused on specific themes and strategies, known as “expert-built portfolios.”
You can make changes to your portfolio when you first create your account, or anytime after.
Wealthfront also gives users access to cryptocurrency with hundreds of digital coins as well as two trusts: Grayscale Bitcoin Trust (GBTC) and Grayscale Ethereum Trust (ETHE).
Risk Parity Fund
Clients with taxable accounts can choose to add Wealthfront’s Risk Parity Fund, a proprietary mutual fund that aims to equalize risk by investing in opposing assets to smooth out your returns.
Users who add risk parity to their portfolio will hold a mix of three ETFs until their account balance reaches $100,000. At that point, the Risk Parity Fund replaces these ETFs.
Experts are mixed about the effectiveness of this actively managed fund, which charges a 0.11% expense ratio. Morningstar data, for example, show that the fund has underperformed against both its competitors and its own benchmark index for the last three years.
No Fractional Shares or Human Financial Advisors
An increasing number of investing platforms offer fractional share investing, which lets you buy tiny portions of stocks and ETFs with just a few dollars.
However, Wealthfront isn’t one of them.
When you deposit money into your Wealthfront investment account, it won’t all necessarily be invested right away. After you purchase a security, a little money may be left over — sitting in your account not earning a return — until the next time you deposit enough to purchase a full share.
Wealthfront also makes you maintain a small cash balance in your investment account to cover annual management fees.
Wealthfront doesn’t offer access to human financial advisors either.
That means you can’t get one-on-one investment advice about your portfolio from a human investment advisor. The only assistance you can get is technical support (via phone or email) during traditional business hours.
Some robo-advisors do offer access to human advisors, like Charles Schwab Intelligent Portfolio, but you’ll pay a monthly subscription fee or need a high account balance (like $25,000 or more) to access a financial advisor.
How Much Does Wealthfront Cost?
Wealthfront is one of the lowest-cost online investment platforms. The robo-advisor charges a yearly account management fee of 0.25% on your balance — about a quarter of traditional financial advisors.
For context, that’s $2.50 a year for a $1,000 account balance.
Wealthfront doesn’t charge monthly account fees, unlike Stash and Acorns. You also won’t get charged any account opening fees, withdrawal or account-closing fees, trading/commission fees, or account transfer fees.
The only account fees you’ll have to watch out for are ETF expense ratios. You’ll pay those with any broker and the cost is very low. (ETF expense ratios range between 0.06% and 0.13%).
An expense ratio shows the portion of an ETF’s funds that go toward fund management. The lower an ETF’s expense ratio, the more of your money is invested and the more you stand to earn.
You can open a Wealthfront investment account with a minimum $500 deposit.
You can access a Wealthfront bank account with just $1 and the company’s financial planning tool, Path, gives anyone a holistic view of their current money situation for free. You don’t need to invest with Wealthfront to use the Path feature.
More Wealthfront Features
Wealthfront offers a wider range of investment accounts and benefits than many other robo-advisors. It also integrates banking, saving and financial planning in a single platform to help put your money on autopilot.
Wealthfront Review: Services and Features
|Account minimum||$500 to invest|
|Account management fees||0.25% per year|
|Portfolio mix||Automated or DIY|
|Socially responsible portfolio options||Yes|
|Retirement account options||Roth, trad., SEP IRAs|
|College savings account||529 plans|
|Tax strategy||Free tax loss harvesting|
|Automatic rebalancing||Free on all accounts|
|Human advisor option||No|
|Bank account/cash management account||Fee-free cash account|
|Banking features||Visa debit card, ATMs|
The Wealthfront cash account is a fee-free high-yield bank account. You need just $1 to get started and you don’t need to open a robo-advisor investment account to use Wealthfront Cash.
A Wealthfront cash account combines checking and savings features into a single account. You can deposit your paycheck, pay bills, use a debit card and even earn interest on your entire balance.
Your savings account balance will earn 0.35% APY and is FDIC-insured up to $1 million through Wealthfront’s partner banks.
This cash account lets you get paid up to two days early through direct deposit, and you can even link other accounts to pay bills automatically.
Wealthfront cash accounts include a Visa debit card issued by Green Dot Bank that you can use for everyday purchases. You can also use your debit card to withdraw cash from over 19,000 no-fee ATMs.
You can open a tax advantaged 529 college savings plan for yourself, your child, grandchild or anyone else. You even get the option to open accounts for multiple beneficiaries in multiple states.
It’s a unique option, since many other robo-advisors don’t offer 529 plans.
A 529 plan is a tax-advantaged way to save and invest for higher education expenses. Investments in a 529 account grow tax-deferred and money can be withdrawn without federal income taxes if the funds are used to pay for qualified higher education costs.
You won’t pay any annual fees on the first $5,000 invested in a Wealthfront 529 plan. After $5,000, fees range from 0.42% to 0.46%, plus expense ratios.
The Wealthfront 529 College Savings Plan is available to U.S. citizens and resident aliens with a valid Social Security number or taxpayer identification number.
Before signing up, compare Wealthfront’s 529 option with your state’s state-sponsored 529 to avoid missing out on any additional tax advantages.
You can open a traditional, Roth or SEP IRA with Wealthfront.
The platform also accepts IRA and 401(k) rollovers from existing retirement accounts.
Wealthfront’s free Path financial planning tool lets you create a retirement savings plan. This feature analyzes your current spending activity from your linked accounts, incorporates government data on spending habits for people as they age, and then estimates how much you’ll need in retirement.
The Path tool also incorporates long-term Social Security and inflation assumptions into its retirement calculations.
You can change the variables in your retirement plan — including your retirement age, planned savings, target retirement spending and life expectancy — to personalize your retirement outlook.
Path: A Free Financial Planning Tool
Wealthfront lets you link all your financial accounts to Path, the company’s planning tool. It’s free to use. You don’t need a Wealthfront investment or banking account to access Path.
The Path tool analyzes your financial data — including any connected external accounts — to determine whether you’re on track to meet your financial goals, such as retirement, paying for college or buying a home.
This incredibly useful service helps you project your net worth over time and see how certain decisions can impact your financial goals.
Path includes a home-planning feature to help you go virtual house hunting and compare prices around the country through Zillow and Redfin.
The Time Off for Travel feature helps you see how extended travel, parental leave or a sabbatical will affect your finances.
To use Path, you’ll need to connect third-party financial information to Wealthfront. TurboTax users can import financial data by connecting their account to Wealthfront (which helps make reporting easy when tax time rolls around).
Socially Responsible Investing
For environmentally-conscious investors, Wealthfront offers a socially responsible investing portfolio option which allows you to invest in businesses that prioritize sustainability.
You’ll get access to popular funds such as iShares ESG Aware MSCI (ESGU), which invests in large-to-mid size U.S. companies with high ESG (environmental social governance) ratings.
You can also customize any other Wealthfront account by adding individual socially responsible investments. The company currently offers 18 different environmentally-focused ETFs.
You can read Wealthfront’s socially responsible portfolio whitepaper to learn more about how it selects funds in this category.
In 2021, Wealthfront launched a new feature for its cash account users called Self-Driving Money. It’s a budgeting tool that aims to fully automate your savings plan according to your financial goals.
With Self-Driving Money, you set target balances and monthly budgets for each of your accounts. You choose how to divvy up your paycheck, select which Wealthfront account the money gets deposited into and where to allocate any excess cash.
Wealthfront will always keep a portion of your money in “everyday cash” and you can edit your Self-Driving Money preferences at any time.
Daily tax-loss harvesting on your taxable account automatically sells your stocks and other assets that drop in value to help lower your yearly tax bill.
Tax-loss harvesting aims to reduce how much you pay in capital gains tax by balancing your gains with some losses.
Wealthfront automatically chooses which ETFs to buy and sell to help you earn money while reducing your yearly tax burden.
Investors with $100,000 or more in their taxable investment account can also take advantage of stock level tax loss harvesting opportunities.
Stock level tax-loss harvesting takes advantage of a broader range of individual stocks, rather than ETFs, to find more beneficial tax-saving opportunities.
Portfolio Line of Credit
Investors with at least $25,000 in their accounts can borrow up to 30% of the value of their portfolio as a line of credit.
You don’t have to fill out an application or go through a credit check — so your credit score won’t be affected.
The line of credit also comes with no fees. Interest rates are between 2.40% and 3.65% — lower than typical rates for personal loans or credit cards.
Wealthfront allows you to have multiple lines of credit. You can have one portfolio line of credit for each eligible account type. If you have multiple accounts of the same type (two taxable accounts, for example), the larger of the two is eligible for a portfolio line of credit.
Pros and Cons
Every robo-advisor has its pros and cons. Here are some of the advantages and drawbacks of Wealthfront.
- Low-fee investing for beginners or seasoned investors.
- Tax efficiency.
- Diversified investment portfolios.
- Hands-off investment.
- All-in-one financial management.
- Fee-free banking.
- Free financial planning.
- No human advisors.
- No fractional shares.
- $500 account minimum.
Frequently Asked Questions
Investment returns are never guaranteed, but Wealthfront uses sophisticated technologies and tested investment strategies to optimize your gains.
Based on your investments and the performance of the market, Wealthfront will show you projected returns for your individual portfolio in the app.
Wealthfront follows bank-level security and data protection best practices, so you can rest assured your money and information are safe.
Your investment assets with Wealthfront are SIPC-insured up to $500,000. Wealthfront also offers $1 million FDIC insurance on your cash account, four times what most banks offer.
Wealthfront is a great robo-advisor for beginners. Its user-friendly interface makes it easy to set up your account, identify your goals and start investing. Its cash account and checking account features can help you consolidate your finances to a single app. You need at least $500 to start investing with Wealthfront but you can access their educational features and planning tools for free.
Rachel Christian is a Certified Educator in Personal Finance and a senior writer for The Penny Hoarder.