Wealthfront Review 2020: Pros, Cons, and How It Compares

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If you’re a novice investor, you might find yourself confused or afraid of making big, costly mistakes.

These fears might even prevent you from taking the first step towards saving for retirement.

But you know you need to be investing and saving for retirement. So what do you do?

For some, the answer is simple: robo advisors. A robo advisor automates your investments and retirement accounts for you, so all you have to worry about is putting money in.

There are many robo advisors available, but one in particular sticks out from the rest: Wealthfront.

Users benefit from its low fees, money-saving investment strategies, ease of use, and free financial planning tools.

What is Wealthfront?

Wealthfront is a robo advisor service that helps you choose which funds to invest in and manages your accounts for you. It’s like hiring a gardener, but for your money. Wealthfront offers access to your account via a smartphone app or through a computer browser.

You can open individual investment accounts to grow your wealth and save for specific long-term goals, or use it to manage your retirement accounts for you. Wealthfront offers the following types of investment accounts:

  • Individual taxable
  • Joint taxable
  • Trust
  • Traditional IRA
  • Roth IRA
  • 401(k) Rollovers
  • 529 College Savings Plan

Wealthfront also offers a Cash account, which functions similarly to a savings account. You can even open a line of credit with Wealthfront using your investment accounts as collateral in order to get a lower rate.

Finally, another area where Wealthfront shines is in its free financial planning tools. Anyone can sign up for an account to get access to these tools, whether you choose to open an investment account with Wealthfront or not.

Although anyone can sign up for a Wealthfront account, its primary focus is on millennials and a younger audience. There aren’t any pesky sales calls or upsells, because the company itself doesn’t offer higher-end products such as assistance from a live financial planner.

See Also: Best Investing Apps for Beginner Investors

Wealthfront Pros

There’s a lot to like about Wealthfront, including low fees, portfolio rebalancing, and other financial planning tools.

Low fees

Wealthfront charges the following fees:

  • Advisory fee: 0.25% per year
  • College 529 fee: 0.42% – 0.46% per year

Wealthfront is much cheaper than some other robo advisors.

For example, Personal Capital charges 0.89% annually for your first million dollars, and lowers the price from there to 0.49% annually. Wealthsimple, another robo advisor, charges 0.50% annually for balances below $100,000 and 0.40% annually for balances above that level.

There are other robo advisors that charge the same low fees, including popular services Betterment and Ellevest. But even among these robo advisors, none of them offer the other powerful tools and features that Wealthfront offers.

Wealthfront has a couple of tricks to keep your fees low. Aside from using computers to manage everything according to winning strategies, it also invests in low-cost exchange-traded funds (ETFs).

ETFs are less expensive versions of mutual funds that provide a wide range of investment tools. Your ETFs may contain everything from stocks and bonds all the way to real estate and natural resources, which many other robo advisors don’t invest in.

Here’s a full list of the ETFs Wealthfront uses as its primary funds, along with their expense ratios:

TypeFund NameExpense Ratio
U.S. StocksVTI0.04%
Foreign StocksVEA0.07%
Emerging MarketsVWO0.14%
Real EstateVNQ0.12%
Natural ResourcesXLE0.14%
U.S. Government BondsBND0.05%
Municipal BondsVTEB0.09%
Dividend StocksVIG0.09%

While ETFs are cheap funds, that doesn’t mean they’re sub-par. These funds track the markets broadly, which is a more efficient way to grow your money rather than picking and choosing individual companies.

Tax-loss harvesting

Tax-loss harvesting is an advanced investing strategy that works well when you automate it with computers.

When a particular ETF drops in price, Wealthfront sells it and then immediately buys a similar ETF. By selling when the price is low, it creates a “loss” that you can use to lower your tax bill at the end of the year. Thus, you “harvest” the losses.

It’s an odd strategy. But when you scale it up to your entire portfolio, it can translate into significant savings.

Once you have over $100,000 in Wealthfront investment accounts, the company will take its tax-loss harvesting strategy one step further. Rather than selling and buying individual ETFs, it’ll buy and sell individual stocks in an attempt to replicate all of the individual moving pieces of the ETFs.

As you can imagine, this complicates things greatly. But again, that’s the type of job where computers really shine. And with all of these additional stock-level opportunities to buy and sell, you can save even more money on your taxes.

Portfolio rebalancing

This is another pesky task that individual investors must periodically do for themselves, much like clearing weeds out of a garden. But instead of you doing it, Wealthfront takes over and does it for you.

Wealthfront will set target percentages for each of the ETFs in your account. For example, maybe 10% of your account will be in bonds, 10% will be in foreign stocks, etc. Over time, each of those ETFs will grow or shrink away from those targets and need to be brought back in line.

That’s where Wealthfront’s portfolio rebalancing comes in. The company will continually monitor each of the ETFs in your account, and when they drift too far away from the target value, it’ll either buy or sell more of that ETF to bring it back to the target percentage.

This keeps your risk in line with the rewards to meet your goals. It also saves you time, since you now don’t have to worry about monitoring your account and buying and selling ETFs on your own.

Financial planning tools

One of Wealthfront’s most unique offerings is its free financial planning tools. You don’t even need to open an investment or retirement account with Wealthfront. The company offers these tools free to anyone who wants to use them.

You can link up each of your financial accounts, whether they’re with Wealthfront or not. As long as you can log into your accounts online, Wealthfront should be able to link up to it, even if it’s a tiny credit union with two-factor authentication. For the best predictions, link every account you have money in and all your debts.

From here, Wealthfront will display your financial overview, including:

  • Current net worth
  • Projected net worth at retirement
  • Savings rate
  • Financial goals and your likelihood of achieving them
  • Balance on each of your financial accounts

The real strength of these financial planning tools is that you can add in additional financial goals and see what effect they have on your retirement plans. You can choose from the following goals:

  • Buy a house
  • Save for college
  • Get a big windfall such as an inheritance or a bonus from work
  • Take time off to travel
  • Pay for a big expense, such as an RV, high medical bills, etc.

Once you add in these additional goals, you can see how your net worth will change over time and how each of your other goals are affected.

For example, you can see whether you’ll still have enough money to retire by age 55 if you buy a house or take a year off to travel. Or you can see what effect saving for your kids’ college will have on your retirement plans. It’s a very powerful tool.

Wealthfront Cons

While Wealthfront is a powerful investment platform, it’s not for everyone. A relatively high minimum investment requirement and lack of face-to-face options may turn some users away.

$500 account minimum

Many robo advisors let you get started with any amount of money. Wealthfront is not one of those advisors.

If you don’t yet have the $500 minimum required to start using Wealthfront, we recommend saving in a separate high-yield savings account first. Then, once you have enough, you can open an investment account.

Remember, you can access the free financial planning tools today.

No personal attention

Wealthfront’s financial planning tools are more comprehensive than we’ve seen with other companies. But even so, it doesn’t fully replace the advice you’ll get from a real live financial advisor.

Other robo advisors offer financial planning assistance from a live person if you pay an upgraded price. Unfortunately, that’s not the case with Wealthfront. It does not offer financial planning assistance from a live person. If you need assistance, we recommend getting advice from a fee-only financial advisor.

Related: Axos Invest: Is This Robo Advisory Service Right for You?

Other Wealthfront Benefits

Wealthfront is more than just a robo advisor. It’s currently expanding its line of products into other areas to help you reach your financial goals.

Cash account

Wealthfront isn’t a bank exactly, but that’s not stopping it from offering bank-like services. It recently launched a new Cash Account feature, which functions in the same way as a savings account.

It works like this: rather than holding your money for you in a savings account, Wealthfront sends it out to other banks. You still deposit and withdraw your money through Wealthfront, however. But by shifting your money to other banks, you get several advantages over saving at just one bank:

  • Higher interest rates
  • More FDIC insurance coverage
  • No six-withdrawal monthly limit

As of early July 2019, Wealthfront is offering a staggering 2.57% APY, which is more than most high-yield savings accounts at banks.

Your money is also protected for up to $1,000,000 versus $250,000 if you were to go to a bank. This might not be a big deal to you unless you’ve got a lot of money sitting in your savings account. Still, it’s a nice feature, especially if you’re saving for a big-ticket item like a house down payment in a high cost-of-living area.

Finally, with most banks you’re limited to making six monthly withdrawals from your savings account due to Regulation D banking restrictions. There’s none of that with the Wealthfront Cash Account. You can withdraw as much as you want whenever you want.

Advanced investment strategies

We’ve already discussed Wealthfront’s tax-loss harvesting strategies. That’s not all Wealthfront offers, though. It also offers Smart Beta and a Risk Parity fund which, together with its tax-loss harvesting strategies, make up what Wealthfront calls its “PassivePlus” suite of investment strategies.

Smart Beta

Wealthfront starts using this investment strategy with your account once you have at least $500,000 invested. This is simply a smarter, research-backed way of picking how much of which individual stocks to put in your portfolio versus just relying on old-school indexes such as the S&P 500.

Risk Parity Fund

Stocks aren’t the only thing you’ll be investing in. A good portfolio also includes other asset classes such as real estate and bonds.

There’s some serious science that goes into picking out which asset classes to invest in. Wealthfront’s Risk Parity mutual fund kicks it up a notch and calculates even smarter ways to pick your assets so that over time, you’ll hopefully grow your money even more.

This feature is available once you have at least $100,000 in your investment accounts. Currently, you can only invest 20% of your entire portfolio in this mutual fund.

Portfolio line of credit

Wealthfront also offers you the option of obtaining a line of credit if you need to borrow money. It uses your investments as collateral, so you may be able to get lower interest rates with this line of credit than with another loan or credit card.

You can borrow up to 30% of the value of your portfolio.

Wealthfront Review Summary

Wealthfront isn’t as common a household name as other robo advisors like Betterment. But the platform offers unique features you won’t find with other robo advisors, including:

  • Portfolio line of credit
  • Solid financial planning tools
  • High-yield Cash savings-type account
  • No annoying upsells on pricier products
  • More advanced investment strategies when you reach higher account levels

That’s in addition to everything else that goes into making a good robo advisor like having a smooth, simple interface and low fees. If you’re looking for a solid robo advisor to help you reach your financial and life goals, give Wealthfront a try.

Lindsay VanSomeren

Lindsay is a personal finance expert and writer based in Washington state. After graduating with two degrees in Wildlife Biology and Conservation, Lindsay found herself underemployed and $100,000 in debt. She has since learned how to manage money wisely and uses her experience to help others make smart financial decisions. Today, her work appears on sites like Credit Karma, Magnify Money, Wisebread, Centsai, Discover, and Chime Bank. In her spare time, Lindsay enjoys hiking, reading, homebrewing, travel hacking, and sharing her personal experience on her own blog, GoScienceFinance.com.

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