Why I left Wealthfront

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Whakamole
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Re: Why I left Wealthfront

Post by Whakamole »

av111 wrote: Sat Jan 19, 2019 5:01 pm
Whakamole wrote: Sat Jan 19, 2019 12:51 pm
av111 wrote: Sat Jan 19, 2019 12:28 pm So, to me, it appears that wealthfront fee at 0.25% was not a problem. I am waiting for the tax forms but barring something weird in the tax forms , I am thinking of moving all my taxable account there during the year

Is this position naive?
Yes. They've changed their business plans enough times that there's no telling what it will be next year. That could be increased fees, a different investment plan (more in the hot strategy that makes them the most money), whatever.

If you ever think about leaving, you may find that your portfolio looks like this or this or this or this or end up with 490 individual stock positions like this poster, and either you'll have to deal with managing all these individual positions for a long time (assuming a rising stock market, there may not ever be an opportunity to TLH out) meaning increased complexity - tell me, can you tell me if any of the equity portions of those portfolios are total market cap weight? - or you stay with Wealthfront. What's that they say about the Hotel California?

Doing TLH yourself very easy.

Thanks but are the fears logical? I would think that they will always need to be competitive with the market to attract new money. If you decide to exit, liquidate
Not true at all, look at all the Edward Jones locations. Also, liquidation is expensive depending on your tax basis - you either pay capital gains, or transfer holdings in kind to another broker and have to manage it all yourself.

The whole concept of Wealthfront is that they put you into a moat - you get some mild TLH the first year, and your investment complexity increases because their robo is spreading your investments out over dozens of funds, to the point where extraction is difficult if not essentially impossible. Not to mention that the benefits of TLH are generally only for more recent investments; since equities generally rise in price, you will eventually be paying a 0.25% fee on investments made ten, twenty, thirty years ago, investments that are unlikely to ever benefit from TLH. And if they do, well, you can do that yourself, and you'll know when it's time because it will be because of a major stock market crash like 2008.
av111 wrote: Sat Jan 19, 2019 5:04 pm How is it proven that wash sale was triggered? Who does this analysis
Internal Revenue Service, and ultimately the investor is going to be responsible if they've claimed a disallowed wash sale.
KyleAAA
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Re: Why I left Wealthfront

Post by KyleAAA »

VCs certainly don’t expect anything close to a 30x return over 5-7 years. More like 2-5x. Seed round investors will have higher return expectations, but still not near 30x.
av111
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Re: Why I left Wealthfront

Post by av111 »

Whakamole wrote: Sat Jan 19, 2019 5:26 pm
av111 wrote: Sat Jan 19, 2019 5:01 pm
Whakamole wrote: Sat Jan 19, 2019 12:51 pm
av111 wrote: Sat Jan 19, 2019 12:28 pm So, to me, it appears that wealthfront fee at 0.25% was not a problem. I am waiting for the tax forms but barring something weird in the tax forms , I am thinking of moving all my taxable account there during the year

Is this position naive?
Yes. They've changed their business plans enough times that there's no telling what it will be next year. That could be increased fees, a different investment plan (more in the hot strategy that makes them the most money), whatever.

If you ever think about leaving, you may find that your portfolio looks like this or this or this or this or end up with 490 individual stock positions like this poster, and either you'll have to deal with managing all these individual positions for a long time (assuming a rising stock market, there may not ever be an opportunity to TLH out) meaning increased complexity - tell me, can you tell me if any of the equity portions of those portfolios are total market cap weight? - or you stay with Wealthfront. What's that they say about the Hotel California?

Doing TLH yourself very easy.

Thanks but are the fears logical? I would think that they will always need to be competitive with the market to attract new money. If you decide to exit, liquidate
Not true at all, look at all the Edward Jones locations. Also, liquidation is expensive depending on your tax basis - you either pay capital gains, or transfer holdings in kind to another broker and have to manage it all yourself.

The whole concept of Wealthfront is that they put you into a moat - you get some mild TLH the first year, and your investment complexity increases because their robo is spreading your investments out over dozens of funds, to the point where extraction is difficult if not essentially impossible. Not to mention that the benefits of TLH are generally only for more recent investments; since equities generally rise in price, you will eventually be paying a 0.25% fee on investments made ten, twenty, thirty years ago, investments that are unlikely to ever benefit from TLH. And if they do, well, you can do that yourself, and you'll know when it's time because it will be because of a major stock market crash like 2008.
av111 wrote: Sat Jan 19, 2019 5:04 pm How is it proven that wash sale was triggered? Who does this analysis
Internal Revenue Service, and ultimately the investor is going to be responsible if they've claimed a disallowed wash sale.
Great points. I agree with your basic premise that in a rising market tlh is not valuable, and after a few years they are collecting free money it is possible to do tlh yourself.

But tlh by ourself is not as frequent, simple or effortless as in the robo. And in a generally sideways market or losing market, people do not tlh aggressively. Case in point is the q4 last year. Most non robo buy and hold investors are probably showing less value in the account with no harvested losses. Is that not true?
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av111
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Re: Why I left Wealthfront

Post by av111 »

The argument that exit from wealthfront would be painful is likely to be the biggest concern IMO. Vanguard is less likely to require us to exit
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Whakamole
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Re: Why I left Wealthfront

Post by Whakamole »

av111 wrote: Sat Jan 19, 2019 6:23 pm But tlh by ourself is not as frequent, simple or effortless as in the robo. And in a generally sideways market or losing market, people do not tlh aggressively. Case in point is the q4 last year. Most non robo buy and hold investors are probably showing less value in the account with no harvested losses. Is that not true?
The frequency of TLH is why the users in the posts I linked to end up with 20+ ETFs and are wondering how to handle them all when they decided they didn't want to use Wealthfront anymore. In essence, the robot does not have a problem with handling a large number of separate positions; but you will, if you ever leave Wealthfront (or any robo provider) because they decide to raise fees, or mislead you resulting in IRS fines and being required to refile tax returns, or whatever. It's really no different than any broker who makes your portfolio very complex, that's the moat preventing you from leaving.

TLH isn't particularly difficult or time consuming - I did it this year, reaped thousands in tax losses that I can apply this year and next year as well. You can only apply up to $3K to reducing ordinary income pear year (on top of capital gains, which I don't have very much of since I'm only selling my ESPP stock - maybe you have more); I know there are Bogleheads who are still using their (manually as far as I know) carried over tax losses since 2008. Plus I know what I'm investing in, so I can stick to Vanguard funds (or funds of whatever family I choose), instead of having the robot put me in an ETF with high spreads, low assets (and possible closure that could force a tax gain), etc.

I do know that it is very unlikely that Wealthfront could have paid for itself in TLH for me (which isn't really free, lower cost basis means more of a gain when you sell, it only helps if you sell when your tax rate is lower.)
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nisiprius
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Re: Why I left Wealthfront

Post by nisiprius »

Whakamole wrote: Sat Jan 19, 2019 12:51 pm...They've changed their business plans enough times that there's no telling what it will be next year...
This, to me, is the salient feature of Wealthfront and a good reason to avoid them.

The company began in 2008, under the name "Ka-Ching!;" NYT headline, "Site Lets Investors See and Copy Experts’ Trades."

In 2010, it had changed its name to "Wealthfront," but continued to be a way "for investors to access outstanding registered money managers who might require a minimum investment of $1,000,000 or more outside of Wealthfront." In a 2011 article, John Bogle Didn't Have All the Data, CEO Andy Rachleff seemed to be setting an expectation that they would help you invest like university endowments funds did.

Then in 2012 they hired Burton Malkiel to be Chief Investment Officer, the mirroring of experts' trades was discontinued, that they were going to put you into a fairly generic and fairly Bogleheadish portfolio of low-cost ETFs, chosen in response to your answers to about ten risk-tolerance questions.

At that time, they were strongly emphasizing the idea that the firm was being run by Silicon Valley techies to serve Silicon Valley techies, or something like that. They had a kind of yearbook-picture screen of a hundred or so investors using the service, mostly techies.

Then, a couple of years ago, although Malkiel continued and continues to be Chief Investment Officer, it felt as if something had somehow changed. They began to offer "direct indexing" and started emphasizing tax-loss harvesting as being a key benefit of their service.

And then they started their own risk parity mutual fund and defaulted their clients into a 20% allocation to it.

So that's about six major changes in concept in less than a decade. Seems like a lot.
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Whakamole
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Re: Why I left Wealthfront

Post by Whakamole »

nisiprius wrote: Sat Jan 19, 2019 7:22 pm
Whakamole wrote: Sat Jan 19, 2019 12:51 pm...They've changed their business plans enough times that there's no telling what it will be next year...
This, to me, is the salient feature of Wealthfront and a good reason to avoid them.

The company began in 2008, under the name "Ka-Ching!;" NYT headline, "Site Lets Investors See and Copy Experts’ Trades."

In 2010, it had changed its name to "Wealthfront," but continued to be a way "for investors to access outstanding registered money managers who might require a minimum investment of $1,000,000 or more outside of Wealthfront." In a 2011 article, John Bogle Didn't Have All the Data, CEO Andy Rachleff seemed to be setting an expectation that they would help you invest like university endowments funds did.

Then in 2012 they hired Burton Malkiel to be Chief Investment Officer, the mirroring of experts' trades was discontinued, that they were going to put you into a fairly generic and fairly Bogleheadish portfolio of low-cost ETFs, chosen in response to your answers to about ten risk-tolerance questions.

At that time, they were strongly emphasizing the idea that the firm was being run by Silicon Valley techies to serve Silicon Valley techies, or something like that. They had a kind of yearbook-picture screen of a hundred or so investors using the service, mostly techies.

Then, a couple of years ago, although Malkiel continued and continues to be Chief Investment Officer, it felt as if something had somehow changed. They began to offer "direct indexing" and started emphasizing tax-loss harvesting as being a key benefit of their service.

And then they started their own risk parity mutual fund and defaulted their clients into a 20% allocation to it.

So that's about six major changes in concept in less than a decade. Seems like a lot.
Good thing Vanguard's concept of low-cost investing hasn't changed since the company was founded.
nasrullah
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Re: Why I left Wealthfront

Post by nasrullah »

I’ve been somewhat conflicted when it comes to Wealthfront and the other Robos. Investing is an incredibly confusing subject and the market/marketing at large does not exist to make things easier for the average person. Wealthfront is investing untold resources and marketing to introduce and educate the masses on portfolio theory, asset allocation, diversification, risk, etc... (and of course that their way is the right way). As a whole I believe what they are trying to do is good, and represents a real benefit to their customers. I’m grateful I found them, and grateful that they started me down a path of education related to investing.

Just like Charles Schwab won the market for the boomers, the Robos are all fighting it out for the next generation(s). If you believe that (and it seems that the VCs do), there are trillions of AUM on the table, and multiple billion in fees and even more in valuation. This creates the first conflict for their customers, in order to continue receiving investment dollars to keep fueling growth, they need to demonstrate continued growth and to some degree revenue. As they’ve pushed into Risk Parity and Smart Beta products it’s hard for me to believe that these are really good for the customer, and aren’t in fact way for them to generate additional fees (each Robo has it’s own criticism - Schwab with their cash drag for example).

As I learned more about the Boglehead way, portfolio construction, tax efficient placement, simplicity, etc... I found myself drifting more and more away from Wealthfront. As a VPAS customer it wasn’t about the 0.25% in fees, it was about buy in to the strategy and what the future held and I just didn’t buy into the Wealthfront way anymore.
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BSBHead
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Re: Why I left Wealthfront

Post by BSBHead »

nasrullah wrote: Sun Jan 20, 2019 2:30 pm I’ve been somewhat conflicted when it comes to Wealthfront and the other Robos. Investing is an incredibly confusing subject and the market/marketing at large does not exist to make things easier for the average person. Wealthfront is investing untold resources and marketing to introduce and educate the masses on portfolio theory, asset allocation, diversification, risk, etc... (and of course that their way is the right way). As a whole I believe what they are trying to do is good, and represents a real benefit to their customers. I’m grateful I found them, and grateful that they started me down a path of education related to investing.

Just like Charles Schwab won the market for the boomers, the Robos are all fighting it out for the next generation(s). If you believe that (and it seems that the VCs do), there are trillions of AUM on the table, and multiple billion in fees and even more in valuation. This creates the first conflict for their customers, in order to continue receiving investment dollars to keep fueling growth, they need to demonstrate continued growth and to some degree revenue. As they’ve pushed into Risk Parity and Smart Beta products it’s hard for me to believe that these are really good for the customer, and aren’t in fact way for them to generate additional fees (each Robo has it’s own criticism - Schwab with their cash drag for example).

As I learned more about the Boglehead way, portfolio construction, tax efficient placement, simplicity, etc... I found myself drifting more and more away from Wealthfront. As a VPAS customer it wasn’t about the 0.25% in fees, it was about buy in to the strategy and what the future held and I just didn’t buy into the Wealthfront way anymore.
I don't agree with this comment, "As a whole I believe what they are trying to do is good, and represents a real benefit to their customers." Here's why:

The fact they were opting customers into the risk parity strategy is problematic. While you have found passive to be more cost effective, I'm sure there are many who are just keeping their money in the risk parity strategy in trusting Wealthfront to do the right thing. Risk parity has been around for decades and anyone who has ever worked in the institutional investing world knows every firm has a risk parity strategy with very mixed results. I'm guessing risk parity as a strategy has underperformed a non risk parity 60/40 portfolio 95% of the time in the institutional investing world. The issue with Wealthfront is they are hiding the cost of the derivatives in the risk parity strategy and not including them in the management fees - they simply are just netting the cost of the derivatives out of the return. This is legal, but certainly not transparent.

Tax loss harvesting isn't dramatically weakened with the change in tax law and something any attentive investor can deploy on a DIY basis.

Also, I saw another poster commented on the low fees. Again, the cost of the derivatives is not accounted for, but Wealthfront (like all brokerage firms) is paying you nothing on the amount you keep in cash (usually some sort of repo)and they are also engaging in short selling to boost their own return. Vanguard does the same thing, but it helps explain the low fees.

At the end of the day, the robo's are going to make their money. Their promise of making themselves seem like the good guy is a part of their marketing game. Seems like you see that, but I wanted to be clear that the promise isn't aligned with the marketing.
H-Town
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Re: Why I left Wealthfront

Post by H-Town »

av111 wrote: Sat Jan 19, 2019 5:04 pm
livesoft wrote: Sat Jan 19, 2019 12:39 pm
av111 wrote: Sat Jan 19, 2019 12:28 pmIs this position naive?
It might be. If you have the same ticker symbols in another taxable account, then you may have created cross-account wash sales that you don't know about.
How is it proven that wash sale was triggered? Who does this analysis
You.
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nedsaid
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Re: Why I left Wealthfront

Post by nedsaid »

So, the question that comes up is this, what can a robo advisor do for you that a Target Date Retirement Fund or a Target Risk fund cannot? About the only thing I can think of is tax loss harvesting.
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Re: Why I left Wealthfront

Post by abuss368 »

Congrats on moving forward on your own path. There are many simple portfolios that you can use or perhaps an all in one Lifestrategy or Target fund with Vanguard.

Keep investing simple.
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nasrullah
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Re: Why I left Wealthfront

Post by nasrullah »

BSBHead wrote: Sun Jan 20, 2019 4:12 pm I don't agree with this comment, "As a whole I believe what they are trying to do is good, and represents a real benefit to their customers."
I've found in discussions that there is a strong belief that one can "win" at the stock market, and that there is a secret or trick to it (aka everyone who watches Cramer on TV). This person is not going to accept a target date fund as the winning secret for their investing strategy. But a Robo with all their fancy sauce does convert.

So I agree with you and change my statement accordingly:

While I don't think the Robos are altruistic and solely focused on doing the right thing for their customer vs. making money for themselves, I do believe that the customer is better off with the Robo than Cramer and there will be people like me that want to learn more, start the journey and evolve.
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PlateVoltage
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Re: Why I left Wealthfront

Post by PlateVoltage »

nedsaid wrote: Sun Jan 20, 2019 4:55 pm So, the question that comes up is this, what can a robo advisor do for you that a Target Date Retirement Fund or a Target Risk fund cannot? About the only thing I can think of is tax loss harvesting.
Wealthfront follows different strategies for tax-advantaged and taxable. In theory, target date and risk funds could do the same, but in practice, they don't.

Not recommending Wealthfront. I'm a Wealthfront survivor myself and also came to the conclusion that I was better off managing my own money.
Scooter57
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Re: Why I left Wealthfront

Post by Scooter57 »

Whakamole wrote: Sat Jan 19, 2019 7:45 pm
Good thing Vanguard's concept of low-cost investing hasn't changed since the company was founded.
Unfortunately, as I have learned over the 30+ years I've been investing in Vanguard funds, they do change the investment thesis of their funds just enough to be painful to those of us invested in taxable accounts. My utilities income fund turned into the dividend growth fund back in 2002. More recently I dumped the Developed Markets Index fund (with a hefty tax loss after years of dissappointment) and bought into the tax managed international fund, only for them to merge it into the Developed Markets Index fund not long after. I was NOT pleased as the funds were not identical.

They change the indexes they use periodically, too. Sometimes it doesn't matter, other times, like with Emerging Markets, it does.

I am no longer buying any Vanguard funds but the Total Market and S&P500 fund because I got tired of having my funds change direction.
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Re: Why I left Wealthfront

Post by michaeljmroger »

nedsaid wrote: Sun Jan 20, 2019 4:55 pm So, the question that comes up is this, what can a robo advisor do for you that a Target Date Retirement Fund or a Target Risk fund cannot? About the only thing I can think of is tax loss harvesting.
Robo-advisors are usually much better at building a taxable portfolio.
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nedsaid
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Re: Why I left Wealthfront

Post by nedsaid »

michaeljmroger wrote: Fri Jan 25, 2019 12:53 am
nedsaid wrote: Sun Jan 20, 2019 4:55 pm So, the question that comes up is this, what can a robo advisor do for you that a Target Date Retirement Fund or a Target Risk fund cannot? About the only thing I can think of is tax loss harvesting.
Robo-advisors are usually much better at building a taxable portfolio.
Do you have personal experience with this? It would be interesting to hear about your own experiences here. Total Stock Indexes should be pretty darned tax efficient, hard to see that a robot could improve upon that tax efficiency very much.
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afan
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Re: Why I left Wealthfront

Post by afan »

Scooter57 wrote: Thu Jan 24, 2019 6:01 pm
I am no longer buying any Vanguard funds but the Total Market and S&P500 fund ...
Can't think of a reason to buy anything else for US stocks. Some would argue you don't need international stocks, so these could be all your stock investments.
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michaeljmroger
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Re: Why I left Wealthfront

Post by michaeljmroger »

nedsaid wrote: Fri Jan 25, 2019 4:16 pm
michaeljmroger wrote: Fri Jan 25, 2019 12:53 am
nedsaid wrote: Sun Jan 20, 2019 4:55 pm So, the question that comes up is this, what can a robo advisor do for you that a Target Date Retirement Fund or a Target Risk fund cannot? About the only thing I can think of is tax loss harvesting.
Robo-advisors are usually much better at building a taxable portfolio.
Do you have personal experience with this? It would be interesting to hear about your own experiences here. Total Stock Indexes should be pretty darned tax efficient, hard to see that a robot could improve upon that tax efficiency very much.
Well, just the fact that a robo-advisor like Wealthfront will use muni bonds instead of the typical Total Bond Market fund that Target Retirement uses is a significant advantage.
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Re: Why I left Wealthfront

Post by nedsaid »

michaeljmroger wrote: Sat Jan 26, 2019 1:54 am
nedsaid wrote: Fri Jan 25, 2019 4:16 pm
michaeljmroger wrote: Fri Jan 25, 2019 12:53 am
nedsaid wrote: Sun Jan 20, 2019 4:55 pm So, the question that comes up is this, what can a robo advisor do for you that a Target Date Retirement Fund or a Target Risk fund cannot? About the only thing I can think of is tax loss harvesting.
Robo-advisors are usually much better at building a taxable portfolio.
Do you have personal experience with this? It would be interesting to hear about your own experiences here. Total Stock Indexes should be pretty darned tax efficient, hard to see that a robot could improve upon that tax efficiency very much.
Well, just the fact that a robo-advisor like Wealthfront will use muni bonds instead of the typical Total Bond Market fund that Target Retirement uses is a significant advantage.
One would need to know a person's marginal tax bracket, both Federal and State, to properly advise about muni-bonds in a taxable portfolio. Do the robos like Wealthfront know this about their clients?
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michaeljmroger
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Re: Why I left Wealthfront

Post by michaeljmroger »

nedsaid wrote: Sun Jan 27, 2019 2:32 pm
michaeljmroger wrote: Sat Jan 26, 2019 1:54 am
nedsaid wrote: Fri Jan 25, 2019 4:16 pm
michaeljmroger wrote: Fri Jan 25, 2019 12:53 am
nedsaid wrote: Sun Jan 20, 2019 4:55 pm So, the question that comes up is this, what can a robo advisor do for you that a Target Date Retirement Fund or a Target Risk fund cannot? About the only thing I can think of is tax loss harvesting.
Robo-advisors are usually much better at building a taxable portfolio.
Do you have personal experience with this? It would be interesting to hear about your own experiences here. Total Stock Indexes should be pretty darned tax efficient, hard to see that a robot could improve upon that tax efficiency very much.
Well, just the fact that a robo-advisor like Wealthfront will use muni bonds instead of the typical Total Bond Market fund that Target Retirement uses is a significant advantage.
One would need to know a person's marginal tax bracket, both Federal and State, to properly advise about muni-bonds in a taxable portfolio. Do the robos like Wealthfront know this about their clients?
Yeah I think they adjust their allocations based on the income you specify in your account.
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Re: Why I left Wealthfront

Post by drk »

nedsaid wrote: Sun Jan 27, 2019 2:32 pm One would need to know a person's marginal tax bracket, both Federal and State, to properly advise about muni-bonds in a taxable portfolio. Do the robos like Wealthfront know this about their clients?
michaeljmroger wrote: Sun Jan 27, 2019 5:07 pm Yeah I think they adjust their allocations based on the income you specify in your account.
Just talking about Wealthfront here: they know it, but they don't use it. Just for kicks, I used their tool for a plan for someone in the 35% bracket and one in the 22% bracket (I'm in Washington State, so no state income tax), and they suggested the same percentage in muni bond funds (VTEB/MUB/TFI) for each. They also kick in a sizable slug of dividend ETFs (VIG/DVY/SCHD). So, yeah, don't count on Wealthfront to do any tax management.
jwhitaker
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Re: Why I left Wealthfront

Post by jwhitaker »

Just wanted to add my experience, I also pulled out of wealthfront and moved to a vanguard brokerage account. It was an in-kind transfer, but my cost basis does not seem to have made it, so that creates a big pain. I was using the direct indexing which is a feature on wealthfront where they buy individual stocks from the fortune 100 to try to increase the opportunity to tax loss harvest. So what showed up in my Vanguard account (since wealthfront does not tell you your individual holdings) was 90% of my money spread across 20 or so ETFs and the other 10% in fortune 100 stocks. I'm not in all 100 stocks but its at least 30. The average number of shares of each stock is just over 1 probably. So at $7 per trade it will cost me $200 to unwind this as I do not want to own individual stocks. That wipes out a full year of "benefit" I was getting from tax loss harvesting, net of wealthfronts fee. Not to mention that I have an essentially unknown but definitely positive capital gain from unwinding. Honestly the portfolio is a mess and it will cost me to unwind but I'll be glad when it's all replaced with a simple portfolio.

But I have to say, Vanguards interface for making these trades is really annoying. It takes 3 screens and at least 10 clicks to sell a single holding. Probably the most annoying thing is when I click "sell holding" I have to manually type in how many shares I want to sell. There is no button to say "sell all". So I have to go look through a list on the other side of the screen, look up how many shares I have and then type in that number. So I would actually recommend people transfer in kind to a brokerage that focuses more on individual stock trading, as that may be what you will need to do to unwind. Plus a place that gave 25 or 50 free trades would save you a lot of money. I know in theory vanguard gives free trades, but it is charging me $7 for the stock trades, so they apparently aren't giving that to me.

edit: actually it appears the cost basis did transfer over. but god vanguards interface is horrible.
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