Friday, September 5, 2014 Review

Through my daily reading at various financial news outlets online I came across an interesting blurb about an investing platform whose aim is to provide an alternative to active portfolio management: Wealthfront's Site.

I did my due diligence (as always) for my readers and found two opposing views worthy of sharing about this investment firm.  At you can read how Wealthfront helped Eric Eldon make money in 2013.  Everyone made money in equities last year, and I wasn't one bit impressed with the returns he got from his automated portfolio.  Eric did, however, do an excellent job of profiling Wealthfront for his readers.  I do not like to reinvent the wheel so I won't do the same.  I'll instead give you my advice and let you determine if Wealthfront, Inc. is for you.  In defense of the active portfolio advisor is Mike Alfred.  In Why-betterment-wealthfront-and-other-online-investment-firms-are-wrong-about-financial-advisors/, Mr. Alfred makes a compelling case for utilizing a live human to manage your money, even if the costs are slightly higher.

Is Wealthfront for You?

When you go get a hair cut, do you care which barber (or hair stylist) you get?  Do you think that the supreme pizza, with its perfect balance of delicious toppings, is the best flatbread invention of all time?  Do you prefer shopping for clothes at the Men's Warehouse or Amazon?  If you answered: No, Yes, and Amazon, then Wealthfront is for you!

You don't have to know diddly squat about investing, and you don't have to pay a single cent for the service if you invest less than $10K.  If you invest more than $10K the charge is a monthly rate on 0.25% annually.  The benefit: you get a portfolio of all asset classes perfectly mixed for your risk tolerance, and the best part is that it is on auto-pilot (no work for you whatsoever), completely automated, that is.  What's not to like if you're a newbie at investing?  Nothing really, they have it all.  You are truly getting professional service at a steep discount.  They even strive to minimize your capital gains taxes!

I will warn you that although the service is top of the line, the diversification is entirely securitized.  Huh?  This means that everything their technology buys, and sets your portfolio up with, is an Exchange Traded Fund (ETF), a paper asset, of a given asset class: e.g. stocks, bonds, natural resources, and real estate.  I've addressed this concept before on other posts, see: Future Looks Bright for CR.
       Wealthfront does not hide the fact that what they do, relying on Modern Portfolio Theory (MPT), will fail when all asset classes behave the same, like they did during the crash that spawned our Great Recession.  "Today, MPT is the most widely accepted framework for managing diversified investment portfolios. MPT has its limitations, especially in the area of very low probability significant downside scenarios..."

Be assured though that if all hell breaks loose again, it won't matter what you own as almost every asset type will fall in value.  Death spiral!

Final Thoughts

I like  I think it's great for beginners or even experienced investors who have grown tired of managing their own portfolio.  Even experienced investors do a poor job of indexing, see: Switched to an Index Fund.  Not to mention, how savvy are you at minimizing taxes with your indexing?  If I had less than $100K to invest and wanted it done right, I'd go with Wealthfront, keeping in mind that an investment comes with risks no matter what.  If I had more than $100K, I would seek professional help, an advisor that would be worth trusting with my money.  The premium in associated fees (with an advisor) would be well-worth it, having someone I could speak with regularly, someone whose expertise I respected, someone who would be responsive to my needs.  AS THEY SAY: YOU GET WHAT YOU PAY FOR!

Until Next Time!  Any Questions or Comments?

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