Robo advisors have revolutionized the way people can manage their money. It is a simple and cheap way to control your finances. Among the numerous robo-advisors available today, Wealthfront is especially noteworthy for its ease of use and sophisticated investment approaches. In this guide, we will explain what robo-advisors are and provide a simple overview of Wealthfront.
### What are Robo-Advisors?
Robo-advisors are digital advisors that provide investment advice and management services via the internet. It has become popular in the last few years due to the opportunities it presents for low-cost solutions and investment products that are tailored to the client’s needs.
Here’s the typical process they follow:
1. **Questionnaire:** To ensure that investors are well informed, they are asked a number of questions that help to determine their risk appetite, investment objectives, and time horizon.
2. **Portfolio Construction:** According to the client’s preferences the robo-advisor develops a strategy that includes buying a number of assets to mitigate risk.
3. **Portfolio Rebalancing:** The service actively monitors and makes changes to the portfolio to ensure that the asset mix is as desired.
### Wealthfront: An Overview
One of the largest robo-advisors, Wealthfront, controls more than $25 billion in assets. It was launched in 2011 and has since been known for its creative investment approaches and focus on low costs.
#### Key Features of Wealthfront:
– **Passive Investing:** Wealthfront employs a passive approach which mainly involves the use of low-cost index funds and ETFs to build the portfolios. This method seeks to emulate the market returns than to outperform them.
– **Tax-Loss Harvesting:** This feature is meant to minimize the taxes to be paid by the client through the process of selling loss making investments, which are then used to offset gains.
– **Direct Indexing:** This feature is only available for larger investors and allows them to actually own the individual stocks, which can lead to certain tax advantages and more flexibility.
– **Path Financial Planning:** This tool assists users in identifying and achieving their financial goals through the Path tool which provides guidance on how to achieve financial freedom.
### Benefits of Wealthfront
Wealthfront provides several features that are particularly interesting for beginners:
– **Low Fees:** It has an annual advisory fee of 0.25%, which is much lower than that of traditional advisors.
– **Automated Rebalancing:** This feature helps to ensure that your investments are always compatible with your goals, without the need to constantly monitor them.
– **Tax Efficient Investing:** Wealthfront’s strategies are designed to minimize tax consequences and therefore potentially improve your returns after tax.
– **Investing for specific goals:** Path enables you to define and pursue your financial goals more specifically.
