Wealthfront does not charge an advisory fee on the first $10,000 of assets under management. On amounts over $10,000, we charge a monthly advisory fee based on an annual fee rate of 0.25%.
The only other fee you incur is the very low fee embedded in the cost of the ETFs you will own that averages 0.15%.
Wealthfront’s 0.25% fee is already well below the 1.31% average fee charged by financial advisors (according to a survey published by Pricemetrix in 2011). Rather than lower our fee for larger accounts, we provide more value for the same fee. For example, accounts of at least $100,000 get access to our continuous tax-loss harvesting service. Our research shows the average account could add at least 1% after tax to their annual return with our tax-loss harvesting service. Over 20 years that could add more than 50% of the amount you invested (based on an initial investment of $100,000). See
You will pay no commissions on trades made on your behalf by Wealthfront.
You will pay no custodial fees on accounts held with Apex Clearing Corporation.
There are no exit fees associated with Wealthfront accounts.
Each month you are charged an advisory fee equal to 1/365 (1/366 on a leap year) of the annual rate multiplied by the net market value of your invested assets over $10,000 as of close of markets for each day in the month, multiplied by the number of days in a month your money was managed.
For example, Jane invests $35,000 in a
diversified portfolio on Wealthfront. Jane begins investing on April 5th. At the end of
April, she will have been invested for a total of 26 days. Wealthfront’s annual fee rate is
0.25 percent. To simplify this example, we will assume that the net market value of Jane’s
assets remains $35,000 while invested.
Therefore, Jane’s advisory fee for the month of April equals: (0.25% / 365) * (the net
market value of managed assets greater than $10,000) for
every day on which the assets were managed =
Advisory fees for a particular calendar month are charged on the first business day of the following month. For example, the advisory fee for investing during the month of May 2013 was charged on June 3, 2013 (the first business day of June). Advisory fees will be reported on your dashboard under the Transactions tab on the first business day of the month.
Nothing. But that kind of sounds like a pain in the neck when we only charge you an annual advisory fee of 0.25% (on assets over $10,000) to take care of all the trades in your account, as well as the periodic rebalancing. That being said, you are welcome to copy anything we do if you would rather do it yourself.
The Wealthfront Invite Program allows you to lower your annual advisory fee. Invite your friends and we’ll waive fees on an additional $5,000 for both you and your friend when they fund an account. Already a client? Send an invite.
We believe you should set aside a "rainy day fund" in cash to cover at least six months of expenses to handle any unforeseen emergencies that might arise in your life and if you are fortunate enough, a discretionary fund to invest in opportunities in which you have high conviction like a particular stock or angel investment. The rest of your money should be invested for the long term in a responsible, diversified strategy of the type offered by Wealthfront. However, we understand if you want to start with less.
An exchange-traded fund (ETF) is an investment fund that is traded on stock exchanges throughout the trading day, much like stocks and unlike mutual funds. An ETF holds assets such as stocks, commodities, or bonds, and trades close to its net asset value over the course of the trading day. Most ETFs track an index, such as the S&P 500® or MSCI EAFE. Wealthfront evaluates thousands of ETFs for attractive investments based on their low cost, tax efficiency, and stock-like features.
We believe the next best option to having your portfolio managed by Wealthfront is investing in Vanguard’s target date funds. We believe other target date funds aren’t nearly as good as Vanguard’s, primarily due to the other funds’ much higher costs. There are four ways to compare the Wealthfront service to the Vanguard target date funds: tax efficiency, expected return, risk and cost.
Vanguard’s target funds are inherently tax-efficient because Vanguard uses index funds with very low turnover as the building blocks for these funds. At Wealthfront, we take this one step further with our continuous tax-loss harvesting service, available to taxable accounts over $100,000.
Tax-loss harvesting is a technique used to lower your taxes while maintaining the expected risk and return profile of your portfolio. It harvests previously unrecognized investment losses to offset taxes due on your other gains and income. You can reinvest these tax savings to significantly grow the value of your portfolio.
Wealthfront developed software to make this service, traditionally only available to accounts in excess of $5 million, available to taxable accounts with at least $100,000. Between 2000 and 2011, our research shows continuous tax-loss harvesting could have increased your after-tax returns by more than 1% a year. Over the next 20 years that could add more than $54,000 to your $100,000 portfolio. See
Learn more about our tax-loss harvesting service here.
Please consult with your personal tax advisor regarding the tax consequences of investing with Wealthfront and engaging in this tax strategy, based on your particular circumstances.
Wealthfront employs eight asset classes in its retirement portfolio allocations, and seven tax-efficient asset classes in its taxable portfolio allocations. Wealthfront's retirement allocations consist of U.S. Stocks, International Stocks, Emerging Market Stocks, Dividend Growth Stocks, Corporate Bonds, Emerging Market Bonds, TIPS and Real Estate. Wealthfront's taxable allocations consist of U.S. Stocks, International Stocks, Emerging Market Stocks, Dividend Growth Stocks, Municipal Bonds, TIPS and Natural Resources. In contrast, Vanguard's target-date funds only consist of three asset classes, U.S. Stocks, U.S. Bonds and International Stocks (and a very minimal amount of TIPS and cash near retirement). According to our analysis, the addition of 4-5 relatively uncorrelated asset classes should cause our taxable and retirement portfolios to outperform Vanguard's target date funds by approximately 0.60% per year over the long term. We believe this extra performance should more than make up for the slightly higher fees incurred on Wealthfront. These comparisons represent Wealthfront's opinion only. These comparisons are hypothetical only and should not be relied upon for predicting future performance.
Target date funds do not take the buyer’s specific risk tolerance into consideration when choosing an asset mix other than giving you an estimated retirement year, which would be far into the future for younger investors. Therefore the return on the target date fund might be too high or too low for a particular buyer’s risk tolerance. Target date funds also reduce the portfolio risk on a specific timetable, which may not be appropriate for you when the time comes. Wealthfront’s approach is to customize portfolios for each client’s specific risk tolerance. Risk should be one of your most important considerations when investing your money because getting this right helps you stay invested during volatile markets. To learn more about the importance of properly identifying your risk tolerance, read "Why Your Risk Tolerance Matters" in our Knowledge Center.
Vanguard’s target date funds typically cost approximately 0.17%. Wealthfront’s recommended ETFs have an average cost of approximately 0.15%. Because Wealthfront doesn’t charge an advisory fee on your first $10,000 invested, and then only charges 0.25% on your assets that exceed $10,000, the total cost of:
The best way to see historical performance is to go to our investment plan page. First, go to our questionnaire and answer our anonymous financial profile questions. You will then be presented with an investment plan page. This page details exactly what we would buy for you, the proposed investment mix and an explanation of the logic behind our proposed investment mix.
Click on See More Details to view a more detailed plan page. On this page, click the historical performance tab to view historical performance and various indices for comparison. Please adjust the risk score up and down to see how the performance changes for each level of risk.
As an SEC-registered financial advisor, Wealthfront is prohibited from posting on its website marketing material that includes any statement by a former or present client that endorses Wealthfront’s advisory services or refers to the client’s favorable investment experience with Wealthfront. This also applies to linking to such a testimonial if one of our clients posts such an endorsement on another site. We’re careful to comply with the regulations regarding this restriction, which is why you won’t find a public section on our website asking for client feedback. You’re always free to email us privately at email@example.com or visit our press page to see our latest news.
Wealthfront maximizes the protection of your assets by doing the following:
Third party custodian
In accordance with SEC rules (particularly 15c3-3, the "Client Protection Rule"), our brokerage partner Apex Clearing protects client assets by segregating them and ensuring that they are not used for any other purpose, including loans to investors or institutions, corporate investment purposes, or corporate spending. Regulators and independent auditors periodically review Apex's financial records to ensure clients' assets are accurately tracked and held separately from the firm's own holdings. It could be a civil and/or criminal violation if an investor's assets were inappropriately commingled.
When a brokerage firm is closed due to bankruptcy or other financial difficulties and client assets are missing, the Securities Investor Protection Corporation ("SIPC") steps in as quickly as possible and works to return clients' cash, stock and other securities. SIPC provides up to $500,000 of protection on securities held per legal entity and up to $250,000 in cash in excess of what is not recovered per legal entity. The following would qualify as separate legal entities, each subject to the $500,000 limit: your individual account, your trust, your IRA, your spouse's individual account, trust and IRA, your joint account, as well as a custodial account for a child. Two IRA accounts held by the same client would be considered one legal entity and thus are combined for purposes of insurance coverage. The same combination occurs when a single client holds two individual taxable accounts.
Not all asset types are covered by SIPC. Among the assets typically not eligible for SIPC protection are commodity futures contracts, precious metals, as well as investment contracts (such as limited partnerships) and some fixed annuity contracts. However, Wealthfront does not purchase non eligible assets for its clients and thus all of your Wealthfront assets are protected. See http://wwww.sipc.org for more information about SIPC.
If a broker fails, most (if not all) of the securities (stocks, bonds, ETFs, etc.) will be returned to the clients. After the broker's client assets have been distributed, SIPC steps in to replace only eligible securities and cash that are missing. Wealthfront typically only keeps enough cash on hand in your account to pay your managements fees for one year (approximately 0.25%). Even on a $5 million account, that translates to only $12,500, which is well under the $250,000 cash protection provided by the SIPC.
To illustrate a typical SIPC liquidation on a $5 million dollar client account:
SIPC reports that 99.7 percent of eligible investors have been made whole in the 324 cases of failed brokerage firms that it has handled since its founding 42 years ago. Of the more than 625,200 individual entity claims completed or substantially completed cases as of December 31, 2011, 351 remained unsatisfied for claims of cash and securities whose value was greater than the limits of protection afforded by SIPC. These claims total $47.2 million and represent less than 0.06% of all claims made. The remaining claims in excess of SIPC limits are understood to be claims that were filed by clients of broker-dealers that did not carry excess coverage.
Over its history, SIPC has paid out a total $1.47 billon to settle client claims that exceeded assets recovered during a liquidation proceeding. This represents only 1.3% of all assets claimed during such liquidations. In other words, 98.7% of client assets have been recovered historically through the SIPC liquidation proceedings. (Source: 2011 SIPC Annual Report)
Because of the limits on SIPC, many large brokerage firms purchase so-called "excess of SIPC" insurance products, which insure their clients for any losses in client property above and beyond the distributions they would receive in a liquidation proceeding, including advances from SIPC. In other words, this insurance is only paid out when all distributions from the SIPC liquidation are insufficient to satisfy a client's claim in full. Claims for excess of SIPC insurance have been extremely rare. In fact, to our knowledge there are only 2 such known cases, put together both cases totaled less than $1 million in claimed assets.
Wealthfront provides its brokerage clients with additional "excess of SIPC" coverage from Lloyd's of London offered through Apex Clearing. The policy provides in aggregate up to $150 million in excess of SIPC coverage, subject to maximum limits of $37.5 million for any one customer's securities and $900,000 for any one customer's cash. This excess of SIPC coverage would only be used if SIPC coverage were exhausted.
To illustrate how excess of SIPC works on a $6 million client account:
Everything is held in 'Street Name'
Both SIPC and Excess of SIPC coverage are limited to securities held in street name in a brokerage account. Securities held by clients in "street name" are kept securely with the Depository Trust Company (DTC), separate and distinct from the assets of the securities firms. Regulated by the SEC and the Federal Reserve, the depository is a national clearinghouse for settling trades and a custodian of securities. All ETFs purchased by Wealthfront are held in street name at DTC. Neither SIPC nor the additional coverage protects against loss of market value of the securities.
No Proprietary Trading
Proprietary trading is the practice of a brokerage firm trading in the marketplace using its own capital. When a firm makes a bad bet in the market and doesn't have the capital to pay for the losses, the firm either must declare bankruptcy or commit fraud and use client assets that were supposed to be segregated. MF Global, the eighth largest bankruptcy in U.S. history, was such an example. Fortunately even the clients of MF Global did not lose any capital.
Our clearing partner, Apex Clearing, does not participate in proprietary trading for its own account, which we view as a significant risk mitigator.
When you invest with Wealthfront, your assets are held in a cash account. A cash account assures you that your assets are fully paid for and may not be rehypothecated (loaned out to other clients). This is in contrast to opening a margin account. In a margin account you agree to loan out the securities you hold in the account as collateral to other broker/dealers. The securities are usually loaned to other broker/dealers for delivery by their customer accounts to settle a short sale. A short sale is when you sell what you don't own at one price, with the hope of buying it back at a lower price and pocketing the difference. Your broker/dealer will borrow shares you've sold short from another broker/dealer's margin account and deliver those shares to the buyer. When you cover the short and buy the shares back, those shares are delivered to the original lending broker and placed back in the customer's margin account.
Problems can arise for margin account clients when their stock leaves the broker/dealers custody. That's because, if the lending broker/dealer fails, the borrowing broker/dealer may be unwilling to return the shares (even when the short is covered) until its own counter-claims against the failed broker/dealer are settled. Margin account customers whose shares have been lent out become unsecured creditors of the failed firm. If the margin account client must sell those shares to meet a margin call, it can't be done—the securities aren't in the account. The only way to avoid this scenario is to limit the number of securities in your margin account or to not have a margin account altogether. Doing so makes those securities unavailable to the broker/dealers stock loan department to loan out.
Your account(s) is insured by the Securities Investor Protection Corporation (SIPC) up to $500,000 in total value per entity, but limits insurance on cash to $250,000 per entity. As with all securities firms, this coverage provides protection against failure of a broker-dealer, not against loss of market value of securities. Money market funds are considered a security. Cash is defined as funds not invested in a money market fund. Please see below for two examples of how SIPC insurance works.
Please visit sipc.org for more information.
If Wealthfront is acquired or goes public, your brokerage account would remain in your own name and you would be free to add or withdraw money at any time.
In the unlikely event Wealthfront were to cease doing business, your account would be held by our brokerage partner until you transferred your account to a new broker or chose to liquidate your account to receive a check. During this period your account would not be managed by our brokerage partner.
Yes, you can export your Wealthfront account data to Quicken or Microsoft Money by logging into your account and going to the "Documents" tab. You can also import your data into Mint.com.
Unfortunately, many other services such as SigFig do not currently support imports of your Wealthfront information. We encourage you to contact such services directly to request support for Wealthfront.
There are four primary methods of calculating investment performance: Time-weighted return, Simple return, Internal rate of return and Money-weighted return.
We think it is most appropriate to evaluate Wealthfront like an index fund, therefore we display time-weighted returns on your account dashboard.
Time-Weighted Return (TWR)
TWR compounds the daily returns of your account from the time it was initially funded until present. It is the best way to evaluate the performance of an investment manager because it does not consider when a client deposits or withdraws cash from her account. TWR is also the method used by index funds to measure performance. For these reasons we have chosen to display Time-weighted returns on your dashboard. It is a true reflection of how we have managed your money, not a reflection of how your contributions and withdrawals affected your performance.
Below is a description of the other performance metrics and why we believe these other methods are inferior to Time-weighted performance:
The simple return is your portfolio's total net gain divided by net contributions. In effect, this weights all cash flows to the beginning of your account's life and therefore is not a very good way of evaluating an investment manager's performance.
Internal rate of return (IRR)
IRR is calculated by finding the annual rate of return that will cause the net present value of your portfolio's cash flows (deposits and withdrawals) and terminal value to equal the value of your initial investment. IRR is most often applied to private equity funds because they have many cash inflows and outflows and all cash flows are under the control of the fund manager. It is seldom used to calculate the performance of a publicly traded portfolio because a public equity portfolio's cash flows are controlled by the investor, not the manager and the timing of the cash flows can significantly impact the return.
Money-Weighted Return (MWR)
MWR is the IRR of your account applied to the period your portfolio has been managed. For example if your IRR is 8% and your account has only been managed for 6 months then the MWR would be 2.82%. Like IRR, it is a better measure of how you manage your money than how your investment manager performs because it is sensitive to when you deposit and withdraw cash. For example if you initially deposit $10,000 in your account and it doubles in one month and then you deposit $100,000 and the market drops 25% in the following month then your TWR will be positive 50% and your MWR will be negative 91% (and your IRR would be negative 17%). In this example your investment manager invested well, but you timed the market poorly. Employing the MWR would unfairly make the investment manager look as though she performed poorly when it was you who made a bad decision as to when to deposit your funds into the account.
The login history in your account identifies the source of your login according to the Internet Service Provider (ISP) you used to access your account. For example, if you access your Wealthfront account from home, your ISP will most likely list the state of your login correctly. However, there are three circumstances we know of that can cause an alternative state to show up in your login history:
If you have any concerns regarding the locations listed in your login history, please change the password on your Wealthfront account. We also recommend changing the password on the email address you use to login to your Wealthfront account as an added layer of security. It’s also a good idea to use different passwords for all of your confidential online accounts.
Wealthfront relies on the brokerage firm where our clients’ accounts are held, Apex Clearing, to execute all our trades. Unfortunately Apex does not currently offer an application programming interface (API) that would allow us to choose the market where our trades are executed, so there is a risk that a high frequency trading (HFT) firm could front run our trades. The impact of an HFT firm front running one of our trades is unlikely to exceed 1 cent per share, which over the long run should impact on our average account’s annual return by less than one basis point (<0.01%).
Wealthfront is not designed for market timing. If you try to time the markets by using existing Wealthfront features, you are likely going to be disappointed with the results. Wealthfront is designed to provide a long-term, low-cost diversified portfolio.
Wealthfront does not provide for market timing for good reason. Several empirical studies have tried to measure the cost of bad market timing decisions. They all agree that investors that try to time the market tend to do much worse than a buy-and-hold investor who avoided market timing altogether. A well-known study of the so-called "behavior gap" by Dalbar Associates estimates that it may be as large as 5 to 6 percentage points annually over the past 20 years. Other studies have estimated somewhat smaller gaps, but all of the studies agree that harmful investor behavior is extremely costly.
If you are interested in timing markets, Wealthfront is not the right service for you. A traditional brokerage firm that allows you to trade individual securities and guarantees self-directed trade execution is likely better suited to meet your expectations.
The difference between your deposit amount and investment amount is held in cash. You can verify this by scrolling down on your "summary" page and reviewing the cash line item.
We maintain a minimum cash balance equal to the fees you're likely to owe over the next year. In addition, ETFs trade in increments of approximately $30 to $100 and partial shares are not available, so we will never be able to invest exactly 100% of your investment. We will combine future dividends received and any additional deposits you may make with your cash balance to minimize your cash balance whenever possible.
If you have signed up for tax-loss harvesting (TLH), then there may be certain unusual scenarios when we cannot invest all of your cash due to the wash sale rule. When we sell your primary ETF at a loss, we replace it with a secondary ETF that's highly correlated to the ETF that was sold to maintain your optimal portfolio mix. We cannot swap back to the primary ETF for at least 30 days due to the wash sale rule. When you deposit additional cash into your account there may be a circumstance where we can’t buy either the primary or secondary ETF because the wash sale rule applies to both 30 days before and after an earlier trade. This may temporarily result in a higher cash balance than expected. If you click on your "plan" tab, you can see your target asset class percentages and your actual percentages to see how we'll invest your funds when the 30 day wash sale rule window expires.
Wealthfront designed its service to ask the minimum number of questions to accurately determine an individual’s risk tolerance. Our final list of questions was developed after a comprehensive survey of the academic research on the topic.
Some online free risk assessment questionnaires only look at subjective willingness to take risk. Wealthfront’s multi-tiered approach to assessing risk evaluates:
We ask six subjective risk questions to both determine the level of risk an individual is willing to take and the consistency among her answers. For example, if an individual is willing to take a lot of risk in one case and very little in another, then she is inconsistent and is therefore assigned a lower risk tolerance score than the simple weighted average of her answers. Among our subjective questions we ask two that are likely to be extremely relevant to our tech community audience: whether they own stock options or have made an angel investment. We believe the answers to these two questions are critical to an accurate assessment of an individual’s willingness to take risk.
We ask four objective questions in order to estimate with as few questions as possible whether the individual is likely to have enough money saved at retirement to afford her likely spending needs. The greater the excess income, the more risk the client is able to take.
We believe that our focused, short list of questions is far more effective in identifying an individual’s true risk tolerance than some longer lists of questions that we have seen other financial advisors use.
Learn more about why your risk tolerance matters.
At this time, the Wealthfront service is not optimized to take outside holdings into consideration.
We regularly survey the ETF landscape (of which there are over 1,400) and rank ETFs in each asset class using the objective criteria described in the FAQ below titled “How do you pick ETFs?” Vanguard ETFs often come out on top. We receive no compensation for recommending Vanguard products or any other ETFs.
Learn more about building an investment portfolio with ETFs.
We look for ETFs with the lowest annual expense ratios, minimal tracking error, and sufficient liquidity. Unfortunately, many investors only focus on cost and end up with an ETF that doesn’t track its benchmark well. This defeats the purpose of optimizing the mix of asset classes. Poor liquidity can create real problems when it comes time to buy a house or pay for your kids’ college.
We only employ index funds, so an investment with Wealthfront never specifically supports a particular company or industry. That being said we do not currently support the ability to eliminate a security from an index due to social concerns.
We’re sorry, but we don’t allow customization beyond risk tolerance at this time.
Wealthfront’s investment methodology is based on Modern Portfolio Theory. It states that returns are best maximized for any level of risk through the optimal mix of asset classes, not through security selection. Therefore the ETF that best represents an asset class is the best ETF for everyone.
Wealthfront’s investment methodology is based on Modern Portfolio Theory. It states that returns are best maximized for any level of risk through the optimal mix of asset classes. Your allocations are a function of your risk tolerance, not the amount you invest. One of the “objective” factors in your risk tolerance is your Liquid Net Worth. We use your Liquid Net Worth (along with your age and current income) to estimate if your income at retirement is likely to be greater than your retirement spending needs. The greater your retirement income relative to your retirement spending, the more risk you are able to take. Therefore your risk tolerance should increase as your Liquid Net Worth increases, which should increase your allocation of equity ETFs, but is independent of the amount invested.
We chose each of the ETFs because we believe they represent the best way to invest in each corresponding asset class. We offer a “managed service” that attempts to solve your long-term portfolio needs and are therefore not necessarily appropriate for “do-it-yourselfers.”
Wealthfront invests your money all at once. The benefit of investing in a portfolio of relatively uncorrelated asset classes is that when one asset class is up, it’s likely others are down. Therefore, the timing of when you invest is relatively unimportant.Vanguard published a white paper on dollar cost averaging for a diversified portfolio and came to the same conclusion.
If you prefer to dollar cost average, we’ve made it convenient for you to schedule deposits into your Wealthfront account via bank transfer (ACH). To set-up a scheduled deposit, log in and click the “Add Funds” button.
No. We offer a service to manage a client’s portfolio that assesses your true risk tolerance, recommends an optimized portfolio of carefully selected ETFs spanning more than ten asset classes, and monitors and periodically rebalances the investment mix to maintain a client’s desired risk tolerance. We do not allow our clients to use their Wealthfront-related brokerage account to hold securities other than the ones we choose and manage.
Research has shown that rebalancing a portfolio’s holdings makes more sense when each asset class has drifted from its target allocation by a certain percentage (i.e., threshold based) rather than on a set time basis (e.g., quarterly or semiannually). Therefore, we continuously monitor your portfolio and periodically rebalance it back to your target mix, carefully taking the volatility of each asset class and your tax situation into consideration. We are not able to predict when we are likely to rebalance because it depends on the performance of each of the asset classes. We also use deposits, withdrawals and reinvestment of dividends as opportunities for interim rebalancing to minimize the taxable gains that can arise from threshold-based rebalancing.
A study performed by David Swensen, Chief Investment Officer of Yale University, found that threshold-based rebalanced portfolios earned an average of 0.4% more per year over 10 years than portfolios that were not rebalanced.
Wealthfront currently supports taxable investment accounts including individual, joint and trust accounts. We also support Traditional IRAs, Roth IRAs and Simplified Employee Pension (SEP) IRAs, IRA transfers and 401(k) rollovers.
Any individual 18 or over, who is a legal U.S. resident or a U.S. citizen (with a permanent U.S. address) may open a Wealthfront account.
Our account minimum is $5,000, which allows us to provide you with an optimized allocation across seven asset classes for taxable accounts and eight asset classes for tax-deferred accounts.
To qualify for tax-loss harvesting, the account minimum is $100,000. Learn more about this service here.
We currently require all Wealthfront clients to have a U.S. social security number or tax ID number and a permanent U.S. mailing address due to financial regulations.
We do not currently support Custodian/UGMA accounts, but we plan to offer them in the foreseeable future.
You are welcome to open as many accounts as you would like as long as each has a minimum of $5,000. Many of our clients like to open dedicated accounts for each of their savings needs such as buying a house, financing their kids’ college, and saving for retirement.
529 plans are "state sponsored" plans so we cannot support them at this time. However, we recommend checking out our blog post 529 Plans and Saving for College
Your assets are held in a brokerage account in your name at Apex Clearing Corporation (Apex). Apex Clearing Corporation is an independent, correspondent clearing services firm with the proven leadership experience, capital position, and technology expertise necessary to serve our clients. Apex serves over a million customer accounts from 230 U.S. based securities correspondents, including over half of Barron’s top 25 online brokerages and such firms as TD Ameritrade, TradeMonster, Scottrade and OptionsHouse (as of 12/31/12).
Wealthfront chose Apex Clearing Corporation (Apex) as its brokerage partner because:
Wealthfront’s service is only available with accounts opened at our brokerage partner, Apex Clearing Corporation. In order to provide our service, Wealthfront must have the ability to electronically place trades for all of its accounts, which is not currently available at a reasonable price from any of the consumer-focused brokerage firms.
To access your brokerage account information, log in and click My Account at the top of the page. You’ll find the Brokerage Info under the View section.
We currently do not support changing individual accounts into joint or trust accounts and vice versa. Brokerage account regulations do not allow us to simply change the type or title on a brokerage account as you can with a standard bank account. We've also found that the often practiced method of opening a new account with the desired type/title and bringing over the contents and history of the original account can cause numerous issues for our clients, particularly those clients employing our Daily Tax-Loss Harvesting and Tax-Optimized Direct Indexing strategies.
Please contact us at firstname.lastname@example.org if you absolutely must make this change due to a legal requirement or other pressing need (typically because of a death or divorce).
We do not support conversions of traditional IRA assets to Roth IRA accounts at this time, nor do we support moving Roth IRA assets to a traditional IRA account. If you have an IRA that you are considering moving to Wealthfront and converting to a Roth, please complete the Roth conversion at your current institution before moving the account to Wealthfront.
Not only is this possible - we encourage it. Wealthfront is able to transfer an outside brokerage account in its entirety using the industry-standard Automated Customer Account Transfer Service (ACATS) . This will bring your assets over in their entirety and without selling any of them.
For retirement accounts, we are then able to sell your transferred assets and invest you in the appropriate Wealthfront portfolio.
For taxable accounts, we will do the same but in a tax-minimized way.
In particular, we will:
To ensure a smooth transfer, we encourage you to sell assets incompatible with Wealthfront such as bonds, stock options, penny stocks, and mutual funds before initiating the transfer. Transferring accounts with such assets may delay or impede your transfer process.
If you want to transfer securities into an existing Wealthfront account, just go to your dashboard, click 'More', and then click 'Transfer Account into Wealthfront'. If you’re not yet a client or need to create a new account for your transfer, you will have the option of transferring an account as part of signing up for Wealthfront.
Yes! Unlike a traditional financial advisor, Wealthfront applies an intelligent tax-minimization strategy when transferring your portfolio. In particular, we will act on your portfolio in the following order:
Collectively, we call this strategy "Tax-Minimized Brokerage Account Transfer."
As part of Direct Indexing, Wealthfront replicates the US stock market using individual stocks . If you tell us to turn on Direct Indexing, then we will incorporate as many of your US stocks into your portfolio as we can. You’ll have the option of turning on Direct Indexing as part of initiating your transfer.
When building your tax-minimized migration plan, you will be asked whether you want to set a limit on your realized capital gains per year. If you set a limit, Wealthfront will sell down your assets until the limit is reached and then stop until a new tax year arrives (at which point we will sell up to the limit again).
You can easily use this feature to achieve whatever time preference you have for liquidating your assets and generating taxable gains. This is most useful if taking your capital gains all at once will dramatically increase the tax rate applied to your income.
For example, a portfolio with $30,000 in net long-term capital gains could be liquidated over two years by setting a limit of $15,000. Wealthfront provides a calculator for helping set a limit that makes sense for your tax situation.
Your transfer and migration progress will be tracked on your dashboard. You’ll also have the option of changing your migration plan whenever you like.
As sales occur, they will appear on your dashboard under the Transactions tab. Your sales will also be recorded in the tax documents that get generated for you each tax year (such as a form 1099).
Unfortunately, yes. We recommend selling the following before they ever get to Wealthfront:
If we do receive these assets, they will be sold immediately, irrespective of any long- or short-term capital gains they may have.
Wealthfront has built what it believes to be the most tax efficient automated portfolio migration strategy to transition your transferred account in the most tax efficient manner. The potential capital gains saved using this strategy depend entirely on the assets you transfer to Wealthfront and the unrealized short-term/long-term gains they have.
Wealthfront backtested the selling strategy of actual accounts that transferred into Wealthfront and found that by using tax efficient migration the average $100,000 transferred portfolio would end up with an extra $2,000 at the end of one year versus the naive (and traditional) approach of selling all of your assets immediately.
Yes, we can complete a partial account transfer in one of two ways, however, each method requires some manual effort on your part:
We hope to offer a fully electronic process for partial account transfers in the foreseeable future.
Yes. To roll over a 401(k) into an IRA, open an IRA account on our website and select the “roll over a 401(k)” option during the application process. Once your IRA account is open, you should contact your 401(k) provider and instruct them to send a check for the entire value of your 401(k). The check should be made payable to Apex Clearing Corporation and should reference your account name and your IRA account number. The check should be sent to:
Apex Clearing Corporation
Treasury Dept. 3rd Fl.
2 Journal Square
Jersey City, NJ 07306
Although the rollover is not a taxable event, your 401(k) provider will issue you a 1099.
You are welcome to consolidate multiple 401(k)s from previous employers into a single IRA account at Wealthfront. We wish we could handle the 401(k) rollover process just like we can a normal brokerage account transfer, but 401(k) rollovers are a bit different. Your former employer has an exclusive relationship with your 401(k) administrator so the administrator will need to hear from you directly. If you have an IRA account open and funded with us already, you can use the rollover steps below to consolidate your 401(k) into your existing IRA account. If you do not have an IRA account open with us yet, during the account opening signup flow you can select "rollover a 401(k)" and then "IRA" for the account type. For the rollover process itself, the vast majority of 401(k) providers will liquidate your account and send a check per your instructions.
Please note that some 401(k)s contain both a traditional (pre-tax) component and Roth (post-tax) portion. If this is the case, you will need to open both a traditional IRA and a Roth IRA using our website by clicking the "open a new account" link on your Wealthfront dashboard once you have one of the accounts open. The traditional component of your 401(k) should be rolled over to your traditional IRA account and the Roth component of your 401(k) should be rolled over to your Roth IRA account. In both cases your account must meet our $5,000 minimum.
When you call or email the 401(k) administrator to request a rollover, they will ask you how you want the rollover check made payable and where you want it sent. Please ask them to make the check payable to our brokerage partner "Apex Clearing Corp," and reference your name and brokerage account number on the check. You can find your brokerage account number by logging in to your Wealthfront account, clicking on “Account Settings” on the top of the page and then clicking on “Brokerage Info” under the “Views” column. Your brokerage account number should look something like “5PIxxxxx.” Please have them send the check to:
Apex Clearing Corporation
Treasury Dept. 3rd Fl.
2 Journal Square
Jersey City, NJ 07306
If you are opening a new IRA account with us for your 401K rollover, our website will provide the above rollover instructions as well.
If your 401(k) administrator does not allow you to include your Wealthfront account number on your rollover check, please instruct the administrator to send the check directly to you instead of sending the check directly to our brokerage partner Apex Clearing. The check should still be made payable to "Apex Clearing Corp." When you receive the check in the mail, confirm that it is made payable to "Apex Clearing Corp." and then handwrite your brokerage account number and your name in the memo field (or where it should be) on the check. You can find your brokerage account number by logging in to your Wealthfront account, clicking on “Account Settings” on the top of the page and then clicking on “Brokerage Info” under the “Views” column. Your brokerage account number should look something like “5PIxxxxx.” Once you have filled in the additional information, please forward the check to Apex Clearing by sending it to:
Apex Clearing Corporation
Treasury Dept. 3rd Fl.
2 Journal Square
Jersey City, NJ 07306
Our account minimum is $5,000 which allows us to provide an optimized allocation across seven or eight asset classes depending on whether it is a taxable or retirement account. The account minimum is $100,000 to take advantage of our tax-loss harvesting service.
You will be prompted to select a funding method whenever you open an account or deposit funds.
We currently offer three funding methods, which must originate from a U.S.-based financial institution.
Deposits originating from foreign banks or brokerages will be returned.
ACH Deposits are generally received within 2 business days, depending on the time of day when you submit/confirm your microdeposits and are invested the following day. If you submit your microdeposit information before 10 AM PST, the transfer should happen at midnight the same day, and your funds will be available for investment following a two business day hold to allows the funds to clear. If you submit/confirm your deposit request after 10 AM PST, your transfer will be delayed by one day.
Example: If you submit your microdeposit information before 10 AM PST on a Monday, your funds will be transferred from your bank at midnight on Tuesday morning, and invested on Thursday morning. If you submit your microdeposit information after 10 AM PST on Monday, the transfer will happen at midnight on Wednesday and your funds will be invested on Friday.
Wire Deposits are generally available for investment the day following receipt.
Example: If you were to wire funds to us on Monday, your funds will be available for investment on Tuesday.
Deposits by check (401(k) Rollovers and IRA rollovers) are held for 5 business days to allow funds to clear your bank before being released for investment the following day.
Example: If your check is deposited on a Monday, your funds would be available for investment the following Tuesday.
To deposit funds, log in and click the “Add Funds” button. You’ll have the option to make a one-time deposit or to schedule recurring deposits via bank transfer (ACH). Recurring deposits can be scheduled repeating weekly, biweekly (1st & 15th), monthly, or quarterly.
When the funds arrive, we will send you an email confirming receipt.
Yes. Wealthfront supports bank deposits of any amount above $250.
Most U.S. banks have a $250K daily limit for ACH transfers that are "pulled" into brokerage accounts. Due to this limit, we will schedule your deposit amount up to $250K per day until your full deposit request is completed. For example, if you schedule an ACH deposit for $600K, we will request a transfer of $250K from your bank on the first business day, an additional $250K on the next business day, and a final $100K deposit on the third business day.
The alternative to sending an ACH for an amount over $250K over multiple days is to send a same-day wire transfer, also called a "fed funds" wire transfer. You can see the instructions to send a same-day wire transfer by clicking on the "Add Funds" button on your Wealthfront dashboard and then the "Wire Transfer Instructions" link. Please be sure that your bank references your 5PIxxxxx account number when sending the funds per your wire instructions so our clearing firm Apex credits your Wealthfront account properly. Deposits will reflect on your Wealthfront dashboard the day following receipt.
Please note: a request to deposit funds is not a guarantee of trade execution.
You may only transfer funds from an account that bears your name exactly. Transferring funds from an account under a different name will cause the funds to be rejected.
Please contact us by email (email@example.com) or phone (650.249.4258) with any account-related question, problem or suggestion.
Usually, there will be a small amount of uninvested cash in your Wealthfront account for the following reasons:
Yes. If you would like to dollar cost average, we’ve made it convenient for you to schedule deposits into your Wealthfront account via bank transfer (ACH). To set-up a scheduled deposit, log in and click the “Add Funds” button.
To withdraw some of the funds in your account, log in and click the “Withdraw” button. The minimum withdrawal is $2,500, which we will send to you via bank transfer (ACH). We cannot honor partial withdrawal requests that would leave your account below the required $5,000 minimum balance.
To withdraw all the funds in your account, log in and click the “Withdraw” button. You will receive your funds via bank transfer (ACH). After the withdrawal is complete we will close your account as we do not maintain accounts with a zero balance.
The timing of a withdrawal depends on several factors including what time of day the withdrawal request is made and the institution receiving your funds, but most withdrawals take 4 or 5 business days before the requested funds are back in your bank account.
When you request a withdrawal from your taxable Wealthfront account, we will send you an email within one business day to verify that the request is valid. Once you verify your withdrawal request, we will place the trades to raise the required cash in your account. All trades then take 3 business days to settle (This applies to all brokerage firms, not just Wealthfront). Upon trade settlement, we will then return your funds via your electronic ACH link to your bank account, which usually takes another 1-2 business days, but can take a day or two longer depending on where the funds are being sent.
You can withdraw a minimum of $2,500 as often as you would like as long as you maintain a minimum balance of $5,000 in your account.
Wealthfront does not charge fees when you withdraw funds or close your account. Apex Clearing Corporation does not charge for bank transfers (ACH).
To satisfy your withdrawal request we will typically have to sell some of your Wealthfront investments. If those investments are sold at a gain then they will typically generate a tax liability.
However, when you withdraw money from an account at Wealthfront we work very hard to minimize the current tax liability on your gains. We do this by carefully choosing which lots among your Wealthfront investments we sell to satisfy your withdrawal. In particular, we'll try to sell lots with losses first (since they generate no tax liability) followed by lots with only a small tax liability (typically those taxed at the lower long-term capital gains rate) and only then followed by lots with significant tax liability.
As a result, you'll likely only generate an insignificant tax liability when withdrawing a small amount of money.
To satisfy a withdrawal request, Wealthfront will attempt to sell investment lots to both minimize your tax liability from the withdrawal and to also rebalance your portfolio toward your target allocation.
To minimize your tax liability, we'll try to sell lots with losses first (since they generate no tax liability) followed by lots with only a small tax liability (typically those taxed at the lower long-term capital gains rate). Only if the withdrawal can not be satisfied with such lots will we sell investments that generate significant taxable gains.
Subject to the tax-efficiency constraints above, we'll also use withdrawals to sell lots from asset classes that are overweighted relative to your investment plan, thus moving your portfolio closer to your target allocation.
Your tax documents (Form 1099) are provided by the brokerage firm Wealthfront partners with to custody your assets. These documents can be found under the Documents tab on your account dashboard page.
Wealthfront does not provide individual tax advice, and you should consult your tax advisor regarding any questions you may have specific to your personal taxes and financial situation. Wealthfront assumes no responsibility to any client for the tax consequences of any transaction.
You can download previous years’ tax documents from your Wealthfront account dashboard under the Documents tab.
The main difference between a Traditional and a Roth IRA is when you pay income taxes on the money you put in the plans. With a Traditional IRA, your contribution is tax deductible and you don’t pay taxes on the contribution amount until you later withdraw it (either upon retirement or early with a penalty). A contribution to a Roth IRA is not tax deductible; you pay taxes before the contribution, but you do not pay taxes later on the amount you withdraw. In addition, with a Roth IRA, you can leave the money in for as long as you want, letting it grow as you continue to age. With a Traditional IRA, by contrast, you must start withdrawing the money when you reach age 70½.
Roth IRA contributions are limited by income level. In general, you can contribute to a Roth IRA for 2014 if you have taxable income and your modified adjusted gross income is either:
For more information on contribution limits, please refer to the IRS website.
A Roth IRA is more appropriate when you are younger since you have a longer time for tax-free accumulation. Most studies suggest that the cutoff age is around 50. However, a Roth IRA is not appropriate for people who will be in a zero or very low tax bracket when they retire. If you do not foresee the need to draw on your IRA in retirement then you will want to fund a Roth IRA.
Of course, none of us have a crystal ball, so you may want to hedge by splitting your contributions across both a Roth and a Traditional IRA (say 50/50) if you don’t know what your income is likely to be upon retirement.
If you’re a young professional who has a high potential upside to your income, then you’re probably better off with a Roth. If you’re a young college graduate who’s making about $100,000 per year and you only expect your income to grow with inflation then you’re probably better off with a 50/50 split until the future starts to become clearer and then adjust accordingly.
Please consult your tax advisor to determine what is best for you.
The answer is the same for Traditional and Roth IRAs:
To minimize the taxes you incur on your investments we implemented a form of Asset Location known as differentiated asset location. By differentiated asset location we mean that we use different mixes of asset classes for your taxable and retirement accounts. Differentiated asset location should not be confused with segregated asset location, which segregates asset classes entirely into one type of account or another. We chose not to implement segregated asset location because it is only beneficial to people whose retirement accounts represent a large percentage of their net worth which is atypical for our clients.
For taxable portfolios, we still strive to minimize any tax consequences that arise from transitioning to a new investment mix.
For example, if we need to sell any of your existing investments in the transition process, we will first sell any share lots that generate losses followed by lots that only generate a tax-favorable long-term capital gain followed by lots where only a small (typically no greater than 5%) short-term capital gain is generated.
If we cannot find enough such lots to complete the transition, then we will wait until more short-term capital gain lots turn into long-term capital gain lots, thus allowing them to be sold in a tax-efficient manner. Meanwhile, we will use recent deposits or dividends to move your portfolio closer to the new investment mix. As a result, although we may transition the majority of taxable portfolios to the new investment mix immediately in a highly tax-efficient manner, some portfolios may take as much as a year to fully transition.
Tax-loss Harvesting is a way to make your investments work even harder on your behalf – not just by producing investment returns but by lowering your taxes too.
Tax-Loss Harvesting works by taking advantage of investments that have declined in value (a common occurrence in broadly diversified investment portfolios). By selling declined investments at a loss, you earn the right to write-off that loss from your taxable income – thus lowering your taxes.
What's more, you can replace any investment sold in this manner with a highly correlated alternative investment. The result is that the risk and return profile of your portfolio is unchanged, even as you gain tax savings. These tax savings can then be reinvested to further grow the value of your portfolio.
Wealthfront developed software to make this service, traditionally only available to accounts in excess of $5 million, available to taxable accounts with at least $100,000. Between 2000 and 2011, our research shows tax-loss harvesting would have increased your after-tax returns by more than 1.55% a year.
Yes. The IRS allows tax-loss harvesting, or “tax selling,” and financial advisors to the rich have done it manually for decades.
For more about IRS allowances for capital gains and capital losses, please review the IRS website or consult your personal tax advisor.
Potentially. If you plan to sell all of your investments in a few years, then indeed Tax-Loss Harvesting will only defer your tax liability.
However, you may still come out ahead by not paying these taxes today and only potentially having to pay them years from now.
For one thing, the tax savings from tax-loss harvesting can be reinvested and compounded over time. $10,000 in tax-savings today, for example, reinvested at a 5% annual return for 20 years comes out to more than $26,000. You're still left with $8,000 with gains due to tax-loss harvesting even if you pay a 50% tax on those reinvested gains and payback the original $10,000 tax liability [$26,000 - $10,000 – ($26,000-$10,000) x 50% = $8,000].
What's more, if you don't end up selling all of your investments and instead choose to pass them on to your heirs or donate them to a non-profit organization, then you actually never have to pay back the original tax liability. This is because your heirs will receive a step-up in basis for the assets that you pass down, eliminating any capital gain tax liability for those assets. Non-profit organizations will similarly not owe any taxes upon selling the assets you donate.
Tax-loss harvesting is only relevant to taxable accounts. It does not apply to retirement accounts such as IRAs or 401(k)s since gains and losses in those types of accounts are not taxable events. Tax-loss harvesting is also not typically suited for custodial accounts (such as UTMA or UGMA) unless the child has significant taxable gains or income from other sources.
Wealthfront periodically rebalances all client accounts to maintain their intended risk and return profiles. We rebalance in as tax efficient a way as possible by purchasing ETFs whenever deposits are made or dividends are earned to add to asset classes that are under-weighted relative to their goal. We sell ETFs upon withdrawals to reduce over-weighted asset classes. We also buy or sell ETFs that represent asset classes that have gone above or below a prescribed threshold for their asset allocation.
Tax-loss harvesting is a tax-optimization strategy for taxable accounts that adds value on top of rebalancing. Tax-loss harvesting transactions involve selling one ETF that represents an asset class that trades at a loss and replacing it with another similar but not identical ETF. Losses are recognized, but the overall asset class distribution of the account does not change.
What makes our service unique is its ability to periodically rebalance your portfolio and continuously look for tax-loss harvesting opportunities in the same account without triggering “wash sales.”
A wash sale results from the sale of an investment when a substantially identical investment was purchased within 30 days before or after the sale date. The IRS prohibits claiming losses on wash sales.
Wealthfront's tax-loss harvesting algorithms manage your accounts to avoid wash sale issues within your Wealthfront investment portfolio. This includes both sale and purchase timing, as well as choosing alternate ETFs that are not substantially identical to your primary (initial) ETFs.
For more on wash sales, please see the IRS website or consult your tax advisor.
The wash sale rule applies to all of your accounts, including your non-taxable retirement accounts, no matter where they are held. If you have multiple accounts with Wealthfront, we will monitor trades across your entire Wealthfront investment portfolio to avoid wash sale issues. If you also hold our selected ETFs in non-Wealthfront accounts, you should be mindful of the wash sale rule.
We keep our tax-loss harvesting clients up-to-date on the ETFs we may choose on their behalf. We may trade these same ETFs on a client's behalf throughout the year (depending on market conditions). Clients who trade these ETFs elsewhere (or their index fund share classes), will need to verify that the wash sale rule has not invalidated short-term losses that we harvest for them. Note that if you are married, your spouse buying or selling an investment has the same effect as you buying or selling that investment for purposes of the wash sale rule.
Please consult with your personal tax advisor to confirm whether your non-Wealthfront accounts, if any, may be subject to wash sale restrictions. Investors and their personal tax advisors are responsible for how the transactions in both Wealthfront and non-Wealthfront accounts are reported to the IRS or any other taxing authority.
If you have taxable capital gains from your Wealthfront accounts or elsewhere, you can use your harvested tax losses to offset these gains. You can apply your harvested short-term losses to offset short-term gains; reduce your taxable ordinary income by up to $3,000 per year; carry forward your tax loss to future tax years; or offset long-term gains.
For more on IRS allowances for capital gains and capital losses, please see the IRS website or consult your personal tax advisor. Investors and their personal tax advisors are responsible for how the transactions in both Wealthfront and non-Wealthfront accounts are reported to the IRS or any other taxing authority.
We regularly survey the landscape of over 1,400 ETFs and rank them for each asset class using the criteria of low expense ratios, minimal tracking error, ample liquidity, client-focused securities lending policies, and low correlation to the rest of the overall client investment portfolio. We receive no compensation for recommending any of the ETFs in our client portfolios and have no business relationship with any of the providers.
Our current recommended primary (initial) ETFs are:*
|Asset Class||Primary ETF||Vendor||Underlying Index||Expense Ratio|
|U.S. Stocks||VTI||Vanguard||CRSP US Total Market Index||0.05%|
|Foreign Stocks||VEA||Vanguard||MSCI EAFE||0.09%|
|Emerging Markets||VWO||Vanguard||FTSE EM||0.15%|
|Real Estate **||VNQ||Vanguard||MSCI US REIT||0.10%|
|Natural Resources||DJP||Barclays iPath||Dow Jones UBS||0.75%|
|U.S. Government Bonds **||BND||Vanguard||Barclays Aggregate Bond||0.08%|
|TIPS||SCHP||Schwab||Barclays Capital U.S. TIPS||0.07%|
|Municipal Bonds||MUB||iShares||S&P National Municipal||0.25%|
|Dividend Stocks||VIG||Vanguard||Dividend Achievers Select||0.10%|
Our current recommended secondary ETFs are:*
|Asset Class||Secondary ETF||Vendor||Underlying Index||Expense Ratio|
|U.S. Stocks||SCHB||Schwab||DJ Broad US Market||0.04%|
|Foreign Stocks||SCHF||Schwab||FTSE Dev xUS||0.08%|
|Emerging Markets||IEMG||iShares||MSCI EM||0.18%|
|Real Estate **||SCHH||Schwab||DJ REIT||0.07%|
|Natural Resources||VDE||Vanguard||MSCI Energy||0.12%|
|U.S. Government Bonds **||BIV||Vanguard||Barclays 5-10 Gov/Credit||0.10%|
|TIPS||VTIP||Vanguard||Barclays Capital U.S. TIPS 0-5 Years||0.10%|
|Municipal Bonds||TFI||State Street||Barclays Capital Municipal||0.23%|
|Dividend Stocks||SCHD||Schwab||Dow Jones U.S. Dividend 100||0.07%|
Note: For accounts with Tax-Optimized Direct Indexing the “U.S. Stocks” position is implemented by directly purchasing up to 1,001 securities – 1,000 stocks from the S&P 1500® Index and the Vanguard VXF or Vanguard VB ETFs to provide exposure to small and medium capitalization stocks.
* Subject to change without notice.
** Wealthfront's March 2013 asset allocation update no longer contains Real Estate and U.S. Government Bonds in taxable accounts, however, the may remain until client accounts are fully transitioned.
Past results are no indicator nor a guarantee of future returns, but here is one long-term example:
We assumed an investor initially deposits $100,000 at the beginning of 2000 and then deposits $10,000 each quarter thereafter through August 2014. This behavior models the behavior we observed from our existing clients. The portfolio was periodically rebalanced using Wealthfront's standard rebalancing algorithms (see our Investment Methodology white paper for more on our rebalancing approach). We sold the primary ETF and bought the alternate ETF, and then swapped back to the primary ETF after 30 days assuming it did not conflict with a rebalancing event when we detected tax-loss harvesting opportunities that did not trigger a wash sale. (See a full technical description of this example in our tax-loss harvesting white paper).
The graph below displays the resulting annual after-tax benefit (“tax alpha”) that would have been generated by Wealthfront's asset class level tax-loss harvesting strategy by year.
Since 2000, this TLH strategy produced an average annual tax alpha of 1.35%.
It's worth noting that tax-loss harvesting is not consistent from year to year: no harvesting took place in some years when the market was substantially up. This strategy provided the most value in down markets, effectively reducing after-tax losses.
We have run a range of historical scenarios, which have led us to conclude that:
Tax Alpha refers to the additional performance benefit gained from your investments through tax savings.
For example, let's say you had a $100,000 portfolio at the beginning of the year that produced a 10% return for the year and 1% in tax alpha.
That means, your portfolio is now worth $110,000 ($100,000 plus the 10% return). What's more, the portfolio has also generated $1,000 in tax savings – meaning that you'll pay $1,000 less in income taxes for this tax year than you would ordinarily and thus will have an additional $1,000 to invest for the future.
Note that Tax Alpha is dependent on your tax rate. For example, if your combined Federal and State income tax rate is 50%, the portfolio in the above example would have needed to tax-loss harvest $2,000 in stock losses to generate $1,000 in tax alpha ($2,000 times the 50% tax rate). Thus, it is easier to generate higher tax alpha in high tax states such as California, New York and Illinois.
What's more, portfolios that generate Tax Alpha are effectively able to achieve elevated levels of after-tax performance. For example, the portfolio in the above example has actually effectively returned 11% for the year (10% in investment return and 1% from tax savings).
This is the reason that the combination of Wealthfront’s Daily Tax-Loss Harvesting service and Wealthfront's Tax-Optimized Direct Indexing are able to add 2.03% in additional annual return to your Wealthfront investments.
Wealthfront implements Daily Tax-Loss Harvesting and literally checks your account for Tax-Loss Harvesting opportunities every single trading day.
This means that we may harvest losses from your account throughout the year, including the common late-December period. We believe this more extensive account monitoring – only possible with a software-based solution like Wealthfront – leads to greater benefits.
For example, the following graph reflects the Tax-Alpha benefit generated for Wealthfront clients in 2013 on a monthly basis.
You'll note that despite an overall increase in the stock market in 2013, Daily Tax-Loss Harvesting was able to generate additional performance through tax alpha for our clients during a market downturn during the summer.
The more common practice of waiting until the end of the year to Tax-Loss Harvest would have missed that opportunity and likely would have harvested no losses for 2013 given the strong performance of the market.
Your year-to-date losses can be found on your Wealthfront dashboard. We encourage you to share this information with your personal tax advisor if you file quarterly estimated taxes.
It shouldn't. Regardless of whether you have Tax-Loss Harvesting or not, Wealthfront will provide a Form 1099 to be filed with your tax return. This form will include all the relevant investment transactions in your Wealthfront accounts, including those generated by the Tax-Loss Harvesting service. Properly including the Form 1099 with you tax return is all that's required to claim the tax savings benefit of Tax-Loss Harvesting.
The only possible wrinkle is if you hold and trade the same ETFs found in your Wealthfront account in other brokerage accounts. If so, then transactions in your other accounts may generate so-called “wash sales” and thus reduce the tax benefit from Tax-Loss Harvesting.
If you file your taxes with the help of an accountant or tax expert, then the Form 1099s provided by Wealthfront and your other brokers should be sufficient to easily identify and properly report any “wash sales”. If you file your taxes on your own and are concerned about possible “wash sales”, you may wish to employ a “wash sale” detection tool such as Gainskeeper.
Furthermore, if you continue to be concerned about “wash sales” we recommend not holding the same ETFs used by Wealthfront in your other brokerage accounts or potentially merely moving those assets into your Wealthfront account where “wash sales” across all your investments are effectively managed.
For more on wash sales, please see the IRS website or consult your tax advisor.
Alternative Minimum Tax is just like ordinary income in that harvested losses can be applied up to the same $3,000 annual limit.
Yes, although there are some significant complexities. You will need to track lot-level cost basis, identify alternate securities that are not substantially identical, but that correspond with your investment goals, periodically review your investment portfolio, and carefully observe the wash sale rule (even as it relates to rebalancing). Many high-net-worth investors look to their brokers or investment advisors to harvest tax losses, but typically only at year-end.
Wealthfront has built a sophisticated, algorithmic tax-loss harvesting service that checks client investment portfolios continuously and unemotionally. As a Silicon Valley technology company, we apply computational models where traditional financial organizations apply people. Software leads to a more accurate and lower cost solution.
Tax-loss harvesting is available at no additional charge to clients with $100,000 or more invested in a taxable Wealthfront account.
Yes, if you participate in either our Daily Tax-Loss Harvesting service with a $100K initial minimum or our Tax-Optimized Direct Indexing with a $500K initial minimum, and your account balance falls below the respective minimum due to market movements, the respective service will remain on in your account.
Please note: if a withdrawal request causes your account balance to drop below our $100K minimum, tax-loss harvesting will be disabled on your account, and if a withdrawal causes your balance to drop below our $500K minimum we will sell the individual stocks used to implement Tax-Optimized Direct Indexing and purchase VTI to represent U.S. stocks.
When we harvest a loss, we purchase an ETF that tracks a different index, but is highly correlated with the ETF we sold in order to maintain the same risk and return characteristics of your portfolio. By purchasing an ETF that tracks a different index we do not violate the IRS rule that forbids the purchase of a substantially identical security. We swap back to your original ETF after we have held the new ETF for 31 days, the minimum amount of time required to avoid the wash sale rule. Wealthfront monitors disclosed related accounts (IRA, spousal accounts, joint accounts, etc.) that are held with Wealthfront to ensure wash sales rules are not violated in those accounts. Finally we will not allow you to use our tax-loss harvesting service if you or your spouse hold the same ETFs we employ at Wealthfront in another one of your accounts not managed by Wealthfront.
Wealthfront's Tax-Optimized Direct Indexing is an enhanced replacement for the U.S. stock investment piece of your Wealthfront diversified portfolio that permits for an enhanced form of Tax-Loss Harvesting.
Instead of using a single ETF investment to implement the U.S. stock allocation of your portfolio (typically VTI), Tax-Optimized Direct Indexing implements your U.S. allocation by directly buying up to 1001 individual securities – either 500 or 1,000 stocks from the S&P500® or S&P1500® Indices (referred to as the Wealthfront 500 or the Wealthfront 1000) and an ETF comprised of small and medium capitalization stocks. The rest of your Wealthfront portfolio continues to own the index ETFs recommended by Wealthfront.
That is, if a stock in the S&P 500® is down in any particular period, it becomes a candidate for being sold to harvest tax-losses even if the S&P 500® is up overall. In purely ETF/Index Fund portfolios, no tax-loss harvesting benefit would be available in this case unless the entire S&P 500® Index or the entire U.S. stock allocation is down.
A portfolio that includes both Wealthfront's Daily Tax-Loss Harvesting service and Tax-Optimized Direct Indexing could add up to 2.03% annually in additional investment returns.
The Wealthfront 500 or the WF500 are the short names given to the holding of up to 500 S&P 500® stocks that we purchase on your behalf as part of Wealthfront's Tax-Optimized Direct Indexing. For larger accounts, when we implement Tax-Optimized Direct Indexing using 1,000 individual stocks, that collection of stocks is termed the Wealthfront 1000 or the WF1000.
You'll see these terms used on your Wealthfront dashboard and throughout the product to refer to the collection of individual stocks in your Wealthfront account.
That's right. We're able to do it because we are the largest and fastest growing automated investment service. Our software algorithms are able to efficiently trade and tax-loss harvest the hundreds of stocks we buy on your behalf commission free – something that is incredibly challenging and expensive to do in any other way.
As a result, we're able to bring a service that has normally only been available to investors with $5M or more to investors like you.
Low-cost ETFs and Index Funds are very good investments and form the core of every Wealthfront portfolio.
However, ETF and Index Funds have one disadvantage – legally they are not able to pass on tax-losses to their investors.
So while an ETF such as SPY is able to use the movements of individual component stocks and its own cash in-flows and out-flows to minimize or eliminate any taxable gain passed on to you, it is never able to pass on any tax losses that you're able to write off against gains in other assets or your regular income.
Thus, an ETF or index fund investment is never able to generate a tax-loss harvesting benefit from the movement of its individual component stocks.
This it the reason why the back-tested performance of Tax-Optimized Direct Indexing consistently outperforms an broad U.S. market ETF such as VTI:
Indeed, Wealthfront believes that attempting to time the market or to pick individual stocks are some of the biggest mistakes that investors can make.
That’s why the Tax-Optimized Direct Indexing position in your Wealthfront portfolio is meant to be a passive investment -- with the goal of replicating and tracking the performance of the broad U.S. market.
For example, a Direct Indexing position normally owns most of the 500 stocks in the S&P 500® Index at the same weights as the index. For a larger account, that position also includes stocks from the broader S&P 1500® Index. Even when one or more stocks are sold for tax-loss harvesting reasons, they are immediately replaced with a collection of stocks meant to ensure that the performance of Direct Indexing is still consistent with the broad U.S. market. What's more, the rest of your Wealthfront portfolio continues to hold all the passive index ETFs we typically recommend, with only the U.S. allocation replaced partially with an individual stock position.
The following graph reflects the back-tested analysis of the ability of Direct Indexing to track the exact performance of a broad U.S. market ETF (Vanguard's VTI):
Of course, the above graph ignores the tax-loss harvesting benefits of Direct Indexing which allow it to outperform a VTI investment on a consistent basis:
What’s more, the rest of your Wealthfront portfolio continues to hold all the passive index ETFs we typically recommend, with only the U.S. allocation replaced partially with an individual stock position.
The following reflects the additional after-tax performance of a Wealthfront account with Tax-Optimized Direct Indexing and Wealthfront's Daily Tax-Loss Harvesting services compared to a basic Wealthfront account with neither service.
What you can see is that on average, a Wealthfront portfolio with a combination of Daily Tax-Loss Harvesting and Tax-Optimized Direct Indexing can add about 2.03% to your annual after-tax returns.
Absolutely. When you add Tax-Optimized Direct Indexing to your Wealthfront portfolio you'll be asked to set-up an Exclusion List of stocks that we should never trade on your behalf.
Please add the stock ticker for your employer and any other stocks you are restricted from owning/trading to list and we'll make sure to never buy or sell those stocks as part of Tax-Optimized Direct Indexing.
If you’re married, then please also add any stocks that your spouse is restricted from trading to the list.
If you actively trade U.S. stocks in another account, trades in the same stocks in Tax-Optimized Direct Indexing may result in wash sales as defined by the IRS.
Wash sales are not illegal and do not result in any additional tax liability, however they may reduce the tax-loss harvesting benefits of Tax-Optimized Direct Indexing.
Therefore, we recommend that you add any U.S. stocks you hold/trade in other accounts to the Exclusion List you’re able to set-up when adding Tax-Optimized Direct Indexing to your account.
If you’re married, you should also add any stocks that your spouse may trade in other accounts.
Tax-Optimized Direct Indexing is available for any Taxable Wealthfront account with more than $500,000 in assets at no additional charge.
You'll also pay no commissions on any trades generated by Tax-Optimized Direct Indexing.
Any Wealthfront Taxable account with over $500,000 to invest is eligible for Tax-Optimized Direct Indexing.
Daily Tax-Loss Harvesting is a service offered by Wealthfront that allows us to check your account for Tax-Loss Harvesting opportunities on a daily basis.
Tax-Loss Harvesting as traditionally practiced and as offered by non-software-based financial advisors typically only checks your account for Tax-Loss Harvesting opportunities once a year.
That means traditional Tax-Loss Harvesting misses many opportunities to harvest tax-losses and generate additional performance through Tax Alpha relative to Daily Tax-Loss Harvesting.
For example, the following graph reflects the Tax-Alpha benefit generated for Wealthfront clients in 2013 on a monthly basis.
You'll note that despite an overall increase in the stock market in 2013, Daily Tax-Loss Harvesting was able to generate additional performance through tax alpha for our clients during a market downturn during the summer.
Waiting until the end of the year to Tax-Loss Harvest would have missed that opportunity and likely would have harvested no losses for 2013 given the strong performance of the market.
If you deposit $500K or $1 million via ACH to participate in our Tax-Optimized Direct Indexing, we are required to split your initial deposit amount into two to four $250K transfers on consecutive business days due to daily limits imposed by banks. (See: "Can I deposit an amount over $250K into Wealthfront?") When we receive your first $250K deposit, we invest you per your plan, except we purchase VTI to represent U.S. stocks instead of the individual stocks normally purchased per Tax-Optimized Direct Indexing. The goal is to get your account invested, even if it isn't yet invested in the appropriate individual stock position.
When we receive your second $250K deposit, we then sell the VTI we purchased with your initial deposit, combine the sale proceeds with your second $250K deposit and invest it per your plan including the apropriate individual stocks. If your VTI had a loss when you sell it, you've realized it to count towards your net tax-loss harvesting (TLH) number. If it has a gain, you've bought something low and sold it high, and we expect to be able to offset those gains with losses from our TLH service. Please note that we do not guarantee investment timing because we do not believe in timing markets.
If you participate in our Tax-Optimized Direct Indexing and elect to send a same-day wire transfer to meet our $500K minimum, we will invest your funds per your plan including the individual stocks necessary to replicate the appropriate index the day following receipt of your deposit.
The primary benefit of Direct Indexing is the ability to harvest losses on individual stocks that can be used to reduce your tax liability. Since IRAs are tax-deferred accounts, you don't owe taxes on gains and are not allowed to apply realized losses to reduce your taxes. As a result, tax-loss harvesting and Direct Indexing are of no value to IRA accounts.
The Wealthfront Single-Stock Diversification Service addresses a common problem for employees, ex-employees, and investors in public companies — that of having a significant percentage of their net worth tied up in a single stock.
Having a significant portion of net worth in a single stock means that you can experience extreme fluctuations in your net worth on a daily basis. It also exposes you to significant risk based on the activities and unforeseen events that occur at your company, rather than spreading that risk across a broad set of companies and markets through the time-honored investing process of diversification.
The Single-Stock Diversification Service helps with this issue by allowing you to transfer your stock holdings to Wealthfront, where they can be sold in an easy, commission-free, and tax-aware manner.
Once taxes and short-term needs are set aside, the remaining proceeds from these sales can be reinvested in a Wealthfront diversified portfolio, thus leaving you with a less volatile investment portfolio suitable for your long-term needs.
The Wealthfront Single-Stock Diversification Service is currently available exclusively to employees, ex-employees, and investors in Twitter and Facebook.
If you're interested in the Wealthfront Single-Stock Diversification Service for a different company, please go here and click 'Tell Us.'
The Wealthfront Single-Stock Diversification Service works by building a personalized selling plan based on your stock holdings, short-term financial needs and longer term outlook. Stock that's transferred to Wealthfront is then sold according to this plan.
Money needed to pay taxes on the proceeds or other short-term requirements is then held as cash or distributed to you. The rest of the proceeds are reinvested in a diversified portfolio managed by Wealthfront.
The Wealthfront Single-Stock Diversification Service is open exclusively to Twitter and Facebook shareholders employees, ex-employees, and investors who hold Twitter or Facebook stock.
If you're interested in the Wealthfront Single-Stock Diversification Service for a different company, please go here and click 'Tell Us.'
The Wealthfront Single-Stock Diversification Service provides several capabilities that are not easy to replicate on your own:
The Single-Stock Diversification Service is free and provides an unparalleled level of automation and convenience. Just set-up your plan, transfer your stock and you'll rarely need to think about it again.
Financial advisors have helped many clients over the years diversify from single-stock positions into a diversified portfolio. However, such financial advisor services typically require large account minimums (very often $1 million or more) and charge commissions on every single stock sale.
The Wealthfront Single-Stock Diversification Service does not charge any commissions on stock sales and is available to anyone with as little as $5,000 to invest.
The service is also entirely software-based. This means the entire scheduling, selling, and re-investing process is automated, so it can trade every day on your behalf without in-person coordination or the possibility of human error.
Selling your single-stock position is completely free. We charge no commissions or other fees on the single-stock being diversified through the service.
We also charge no fees on any cash set aside to cover your tax bills or your short-term financial needs.
After-tax proceeds that are reinvested in a Wealthfront diversified portfolio will be charged our usual advisory fee of 0.25% of managed assets annually on amounts over $10,000. The only other fee you incur is the very low fee embedded in the cost of the ETFs you will own as part of your diversified portfolio (that averages 0.15%). Wealthfront charges no trading commissions or other account fees to manage your portfolio.
Your Wealthfront Single-Stock Diversification Plan is flexible. You can pause, update, and restart your selling schedule as needed. The cash generated for taxes or short-term needs can be withdrawn at any time. Even the diversified portfolio that your proceeds are reinvested in can be liquidated or moved to another brokerage account, as you desire.
Depending on the type of shares you’re selling, and the time horizon of your sales, you could be looking at a significant tax bill. The Wealthfront Single-Stock Diversification Service will try to help.
Within the context of your selling plan, Wealthfront will attempt to minimize your tax bill by prioritizing sales of shares that trigger the lowest taxable gain or are taxed at favorable rates (e.g. the long-term capital gains rate).
Furthermore, Wealthfront will set aside enough cash proceeds from each stock sale to cover the expected taxes owed. The amounts set aside for taxes will be based on the state you are taxed in, and the type and amount of shares being sold. This way, you will never be caught with an unexpected tax bill.
What's more, the diversified portfolio in which your proceeds are invested will also use Wealthfront's Daily Tax-Loss Harvesting service and our Tax-Optimized Direct Indexing to attempt to generate harvested tax-losses that could further reduce your tax bill.
However, those approaches are only a subset of the things you can do to minimize your tax bill. As a result, we strongly recommend that you work with a tax accountant to determine additional steps that you should take to minimize your taxes.
The easiest way to see the selling plans that are available with the service is to begin the Single-Stock Diversification Service enrollment process. You can review all the plans available without any commitment to transfer your stock.
In general, the available selling plans allow you to pick between two elements:
We believe that such plans — an initial sale of some stock followed by a gradual sale of the rest over months and years — provide the best approach when dealing with a large single-stock position. These approaches have been used for decades by venture capital investors and are the traditional approaches used by public company executives to sell their company stock.
Note that if you require finer controls over the selling process (such as, picking the exact date and time for each sale), the Single-Stock Diversification Service will likely not meet your needs. We specifically built the service to offer the type of plans we believe best deal with a large single-stock position, rather than enabling to ability to place arbitrary stock selling orders.
Additional details on the plans we offer and tools to compare them can be found in the following posts on our blog:
There are cases where you should consider selling your company stock as soon as you're able — such as in the case of recently vested RSUs in companies significantly removed from their post-IPO lock-up period.
The situation is different, however, when you're exiting a post-IPO lock-up period with a significant amount of stock that has been vesting (and increasing in value) for several years.
In this case, selling your single-stock position as soon you can exposes you to form of risk known as “execution risk.” Execution risk is the risk that you’ve picked the wrong day or time to sell your stock, like when its price is low. When you spread your sales over a longer period of time by practicing gradual and consistent selling as enabled by the Single-Stock Diversification Service, you lower your execution risk. The result is that its unlikely that you'll sell at exactly the wrong time.
What's more, the post-IPO lock-up period presents an extreme case of such “execution risk” as it expires. Wealthfront's research on over 250 recent post-IPO stocks demonstrated that selling on the day after the expiration of the IPO lock-up may actually be the worst day to sell your company stock. You can read more about that in this blog article.
As a result, the Wealthfront Single-Stock Diversification Service implements our recommendation of selling your post-IPO stock consistently and gradually. For more details on such gradual selling strategies — as used traditionally by venture capitalists and public company executives, please take a look at the following blog posts:
The Wealthfront Single-Stock Diversification Service is not a 10(b)5-1 plan. However, if you are required to use a 10(b)5-1 for the sale of your stock, you can still create a selling plan using Wealthfront’s Single-Stock Diversification Service and give it to your 10(b)5-1 administrator to implement on your behalf.
Unfortunately, the Wealthfront Single-Stock Diversification Service can not support employees that are required to get pre-clearance to trade their stock or can only trade via a 10(b)5-1 plan.
If you are not required to file a 10(b)5-1 plan but are considering it as a way to sell your stock more easily, note that the Single-Stock Diversification Plan comes with many advantages relative to a 10(b)5-1:
The Wealthfront Single-Stock Diversification Service can automatically sell:
We unfortunately are unable to exercise stock options on your behalf, but will nonetheless provide recommendations on the right time to exercise your options and are happy to incorporate options into your plan once they have been exercised.
The Single-Stock Diversification Service is designed to manage the entirety of your single-stock position. This allows us to holistically address your diversification and risk management needs. It also allows us to do the best job in managing your tax obligations, by both selling in a manner that generates the lowest taxable gains and ensuring that we set aside enough cash for your future tax bill.
If you wish to prevent some of your stock from being sold via the Single-Stock Diversification Service (perhaps because you want to hold to it for an extended period), then you can simply choose to pause your plan at the appropriate time.
The Single-Stock Diversification Service is currently offered by Wealthfront exclusively to Twitter and Facebook employees, ex-employees, and investors. However, this service is not formally endorsed by either company.
Yes. Wealthfront’s Single-Stock Diversification Service helps with both your short and long-term needs. You can execute an upfront sale to generate enough cash for a large purchase or other short-term financial needs. Any such cash will be held in your account for free and available for withdrawal at any time. We'll then help you determine the right schedule to sell your remaining and future stock based on your desired level of risk.
It usually takes a minimum of 4-5 business days to transfer your stock to Wealthfront. Once we receive your stock, we can usually begin selling the next business day.
It usually takes a minimum of 4-5 business days to transfer your stock to Wealthfront, and the transfers can't be initiated until lockup expires. As a result, your first trade will not be placed on the first few days after lock-up expiration.
However, selling on that day is likely not a good idea. Wealthfront's research on over 250 recent post-IPO stocks demonstrated that selling on the day after the expiration of the IPO lock-up is typically the worst day to sell your company stock. You can read more about that in this blog article.
Wealthfront will trade your stock as often as every day throughout the trading window, pausing only for blackout periods. This way, you’ll maximize the benefits of dollar-cost averaging and minimize the need to worry about choosing the right day to sell.
You can easily pause, update, and re-start your selling plan at anytime via your Wealthfront dashboard. This allows you to update or change the schedule or pace of sales performed by your plan.
Yes, you can change your plan at anytime — choosing to sell your stock faster or slower depending on your current situation or overall needs.
We believe that it is nearly impossible to time the market and even more difficult to time the movements of a highly volatile recently public individual stock. As a result, we built the Single-Stock Diversification Service to sell your stock gradually and consistently, lowering the chances of selling a significant portion of your stock on the wrong day.
Thus, although our plans are very flexible and can be paused or adjusted at anytime, we specifically do not allow arbitrary sell orders for your single-stock position to be placed via the Single-Stock Diversification Service. If you require such fine controls over the selling process (such as, picking the exact date and time for each sale), then the Single-Stock Diversification Service will likely not meet your needs.
The Wealthfront Single-Stock Diversification Service will handle your unvested shares in addition to already vested shares. When creating your selling plan, Wealthfront incorporates your entire grant structure. Then, as your shares vest, you will transfer them to us to sell in accordance with your plan.
For regulatory purposes, Wealthfront cannot exercise a stock option on your behalf. Instead, we will send you email reminders to exercise and sell these options in accordance with your selling plan.
The Wealthfront Single-Stock Diversification Service is fault tolerant. If it runs out of shares to sell, even though you accounted for those shares in your plan, we'll pause the service until you have a chance to transfer them in.
The Wealthfront Single-Stock Diversification Service won't trade your stock during an employee blackout window if you're still an employee of the relevant firm.
Instead, the service will pause your selling plan during this time and restart selling once the blackout window reopens.
The Single-Stock Diversification Plan, however, only supports blackout windows that are applicable to all company employees. If you are subject to a special blackout window or other trading restriction, it is your responsibility to pause and re-start your Single-Stock Diversification Plan appropriately.
Proceeds from the scheduled sale of your stock are invested into a diversified Wealthfront portfolio that is optimally balanced across 11 asset classes according to your risk profile. If you do not already have a Wealthfront account or risk score, there is no fee to create one that will be used for your Single-Stock Diversification Service.
If you have an existing taxable account with Wealthfront, there's no need to create a new one for the Single-Stock Diversification Service. We can simply transfer your single-stock position into your existing account and invest any after-tax proceeds of selling your single-stock via that account's investment plan.
If you don't currently have a Wealthfront taxable account, we'll help you open one during your enrollment into the Single-Stock Diversification Service.
You'll need a minimum of 500 shares of stock (whether currently vested or unvested) to use the Single-Stock Diversification Service. In addition, you'll need at least $5,000 in after-tax sale proceeds (or an existing Wealthfront taxable account) to invest in a Wealthfront diversified portfolio.
The Single-Stock Diversification Service will not hedge your single-stock position but will instead use a process of gradual and consistent selling to manage your risk.
We believe this is a superior approach given the cost and complexity of the hedging strategies available to most investors.
You can see a detailed analysis of common hedging strategies in this blog post:
At this time, the Wealthfront Single-Stock Diversification Service is available exclusively for individual Twitter and Facebook shareholders.
If you're interested in the Wealthfront Single-Stock Diversification Service for a different company, please go here and click 'Tell Us.'
Just do the following:
You should then see a screen listing the date, quantity, and cost basis for your shares. The callout boxes in this screenshot point to the information Wealthfront needs for your SSDS plan.
These FAQs were prepared to support the marketing of Wealthfront's investment products, as well as to explain its tax-loss harvesting strategies. This content is not intended as tax advice, and Wealthfront does not represent in any manner that the tax consequences described herein will be obtained or that Wealthfront's tax-loss harvesting strategies, or any of its products and/or services, will result in any particular tax consequence. The tax consequences of the tax-loss harvesting strategy and other strategies that Wealthfront may pursue are complex and uncertain and may be challenged by the IRS. This white paper was not prepared to be used, and it cannot be used, by any investor to avoid penalties or interest.
Prospective investors should confer with their personal tax advisors regarding the tax consequences of investing with Wealthfront and engaging in these tax strategies, based on their particular circumstances. Investors and their personal tax advisors are responsible for how the transactions conducted in an account are reported to the IRS or any other taxing authority on the investor's personal tax returns. Wealthfront assumes no responsibility for the tax consequences to any investor of any transaction. When Wealthfront says it replaces investments with “similar” investments as part of the tax-loss harvesting strategy, it is a reference to investments that are expected, but are not guaranteed, to perform similarly and that might lower an investor's tax bill while maintaining a similar expected risk and return on the investor's portfolio. Expected returns and risk characteristics are no guarantee of actual performance.
The charts showing potential tax savings (“Annual Tax Alpha”) from the tax-loss harvesting strategies are historical simulated returns based on backtesting and do not rely on actual trading using client assets. The results are hypothetical only. Several processes, assumptions and data sources were used to create one possible approximations of how Wealthfront's tax-loss harvesting strategy might have benefited investors in the past, and a different methodology may have resulted in different outcomes. These results were achieved by means of the retroactive application of a model designed with the benefit of hindsight. The results of the historical simulations are intended to be used to help explain possible benefits of the tax-loss harvesting strategy and should not be relied upon for predicting future performance.
We simulated the potential after-tax benefits of our tax-loss harvesting services and found that asset-class tax-loss harvesting it added an average of at least 1.55% annually and stock-level tax-loss harvesting combined with asset-class tax-loss harvesting added an average of at least 2.03%. We used several assumptions to create these possible approximations, but did not rely on actual client trading history. These results are based on a study Wealthfront conducted for the years between January 2000 and August 2014, assuming a Wealthfront account with a risk score of 7 an initial deposit of $100,000, additional quarterly deposits of $10,000, and periodic rebalancing for asset-class tax-loss harvesting and an initial deposit of $500,000, additional quarterly deposits of $50,000, and periodic rebalancing for stock-level tax-loss harvesting combined with asset-class tax-loss harvesting. Dividends and interest were not considered.
To compare the possible benefit of continuous vs. annual year-end tax-loss harvesting, we use the same assumptions for the historical simulation for the years between January 2000 and December 2012 but with tax-loss harvesting opportunities examined daily vs. annually at year-end.
Different methodologies may have resulted in different outcomes. For example, we assume that an investor's risk profile and target allocation would not have changed during the time period shown; however, actual investors may have experienced changes to their allocation plan in response to changing suitability profiles and investment objectives. Furthermore, material economic and market factors that might have occurred during the time period could have had an impact on decision-making. Actual investors on Wealthfront may experience different results from the results shown. There is a potential for loss as well as gain that is not reflected in the hypothetical information portrayed. Investors evaluating this information should carefully consider the processes, data, and assumptions used by Wealthfront in creating its historical simulations.
While the data used for its simulations are from sources that Wealthfront believes are reliable, the results represent Wealthfront's opinion only. The return information uses or includes information compiled from third-party sources, including independent market quotations and index information. Wealthfront believes the third-party information comes from reliable sources, but Wealthfront does not guarantee the accuracy of the information and may receive incorrect information from third-party providers. Unless otherwise indicated, the information has been prepared by Wealthfront and has not been reviewed, compiled or audited by any independent third-party or public accountant. Wealthfront does not control the composition of the market indices or fund information used for its calculations, and a change in this information could affect the results shown.
The chart showing the tax alpha and cumulative return for daily tax-loss harvesting clients is based on Wealthfront's estimates from existing client data since we launched our asset-class tax-loss harvesting in October 2012 through October 2013. The chart was based on the subset of our clients with tax-loss harvesting enabled in their accounts and the returns and tax alpha were estimated for their accounts only. The return estimates were based on time-weighted returns. The cumulative returns were calculated by taking the composite's daily return based on its daily balance series, where the composite's balance is the aggregated value of all the accounts under our TLH strategy. We then compound the daily return series to get the compounded return over the period. The monthly tax alpha was calculated using the net tax benefit/liability and dividing by the aggregate balance. The net tax benefit over the period includes the liquidation of positions transferred in and sold to invest the client account in the Wealthfront portfolio.
The S&P 500® ("Index") is a product of S&P Dow Jones Indices LLC and/or its affiliates and has been licensed for use by Wealthfront. Copyright © 2015 by S&P Dow Jones Indices LLC, a subsidiary of the McGraw-Hill Companies, Inc., and/or its affiliates. All rights reserved. Redistribution, reproduction and/or photocopying in whole or in part are prohibited Index Data Services Attachment without written permission of S&P Dow Jones Indices LLC. For more information on any of S&P Dow Jones Indices LLC's indices please visit www.spdji.com. S&P® is a registered trademark of Standard & Poor's Financial Services LLC and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC. Neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors make any representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors shall have any liability for any errors, omissions, or interruptions of any index or the data included therein.