Our unique service is made possible by combining a team of world-class financial experts, led by Dr. Burton Malkiel, renowned economist and author of A Random Walk Down Wall Street, with some of Silicon Valley's best technology talents. Our investment research team is also supported by 7 PhD researchers from top institutions like Harvard, Princeton, and Yale.
The team collectively has authored more than 16 investment books, leading the current generation of passive investing.
Wealthfront’s portfolios, based on Modern Portfolio Theory, are designed to adjust according to your personal risk tolerance while staying diversified and tax-efficient.
The first step in our methodology is to identify a broad set of diversified asset classes to serve as the building blocks for our portfolios. We determine the optimal mix of our chosen asset classes by solving the "Efficient Frontier" using Mean-Variance Optimization (MVO), the foundation of Modern Portfolio Theory. The Efficient Frontier represents the portfolios that generate the maximum return for every level of risk.
Wealthfront then uses cost-effective, index-based Exchange Traded Funds (ETFs) to represent each asset class. We periodically review the entire population of ETFs to identify the most appropriate ones to represent each of the recommended asset classes. We look for ETFs that minimize cost and tracking error, offer ample market liquidity, and minimize the lending of their underlying securities.
Once the Efficient Frontier has been established, it is necessary to pinpoint an investor's risk tolerance in order to identify the ideal asset allocation for his or her needs. Rather than asking the typical 25 questions asked by financial advisors to identify an individual's risk tolerance, Wealthfront combed behavioral economics research to simplify our risk identification process to only a few questions.
Finally, we constantly monitor our clients' portfolios and periodically rebalance each back to its target mix in an effort to optimize returns for their intended level of risk. After taking tax implications and trading costs into consideration, we rebalance when dividends from ETFs accrue, a deposit or a withdrawal has been made, or if movements in the portfolio's allocations justify a change.