I'm pulling all my money out of Wealthfront today. I was always pleased with Wealthfront's simplicity and performance, and today took a close look for the first time at actual performance. I was shocked to see how poorly it's actually performed. Besides poor performance, there are other reasons I'm pulling out too. Wealthfront was marketed heavily to facebook/googlers and I took it for granted that it was a great modern product, better than what the banks offer.
Assumptions are the termites of relationships.
1. performance is abysmal. If I kept it in S&P, did nothing at all, In 5 years S&P is up from 1600 to 2800 or a whopping 75%. In the same time my Wealthfront portfolio did an abysmal 30%. I have a 10.0 risk score selected.
2. interface is terrible. the website heavily dedicates UI to encourage you to transfer all of your money to Wealthfront by drawing retirement graphs and showing how the more money you transfer the better off you'll be (hardly..). Simple things like finding your account number, tracking your performance by investments or changing your allocation are so hard to find, you have to ask google for instructions.
3. The UI is dishonest. The dashboard numbers look like big gains because the default views show you "change since you opened up your account". This means the longer your account stays open, the bigger the numbers will look, and the less you will notice actual performance change. For example in the default "performance" view, under "Diversified Portfolio", the "return column" for US stocks shows 71%. This is because it's showing returns since I opened up my account. in 2013 Tells me nothing about what's happening in 2018. In fact there is no way to view 2018 performance in this view.
4. Questionable allocations. My risk score is set to 10.0 (highest), yet, welathfront is keeping cash in my account as well as allocating 3% to municipal bonds. there should be no cash or bonds in a risk 10.0 account. I can't set risk score any higher. it's great for wealthfront that every customers is giving them cash they can use for their own investments.
5. rebalancing doesn't really work. over a year ago I changed my risk score to 10.0, and today, my "natural resources" are still at a 5.4% allocation with a "target" of 0%.
6. the margin-loan feature, highly visible on their main page, is a total ripoff. they charge 5.5% interest to borrow against your own assets. Interactive Brokers does the same type of margin loan at a 2% or lower interest rate.
7. the "tax harvesting" is a nice buzz word, but is it really needed? By constantly buying and selling stocks, they are creating their own problem of short and long term capital gains. So they mitigate with tax harvesting. If you just buy an ETF like S&P500, you won't have to deal with these short term gains and losses, no need for tax harvesting. Poof.
8. the "Risk parity" allocation. Even with a risk score of 10.0 wealthfront will take 12% of your investment and automatically opt you in for this WFRPX allocation. Read more here. In April 2018, Wealthfront automatically liquidated part of everyone';s portfolios and now has nearly billion dollars in their new fund. Search your email for "Transition to the Risk Parity strategy" if you're with wealthfront.
8. the "Risk parity" allocation. Even with a risk score of 10.0 wealthfront will take 12% of your investment and automatically opt you in for this WFRPX allocation. Read more here. In April 2018, Wealthfront automatically liquidated part of everyone';s portfolios and now has nearly billion dollars in their new fund. Search your email for "Transition to the Risk Parity strategy" if you're with wealthfront.
I am pulling all my money out. You can do it with ACATS (see instructions) I wish I had done this years ago... before I put any money into Wealthfront in the first place!
I am moving everything to interactive brokers or Vanguard. I'll have to transfer or liquidate all those assets (over 55 positions) and buy an ETF and eat the capital gains costs. It's a price to pay, but worth the cost as it will free me from Wealthfront entirely.
The year to year time weighted performance looks like this:
2018 1.25%
2017 21%
2016 7.24%
2015 -3.32%
2014 10.25%
In the same period here is what the S&P500 did:
| Dec. 31, 2018 | 2.65% |
| Dec. 31, 2017 | 21.83% |
| Dec. 31, 2016 | 11.96% |
| Dec. 31, 2015 | 1.38% |
| Dec. 31, 2014 | 13.69% |
Note that S&P and Wealthfront are positively correlated, yet another negative for Wealthfront.
This article is an excellent competitive analysis of the various robo traders and confirms that simple ETF's outperform the advanced strategies.
barrons - The Top Robo Advisors: An Exclusive Ranking
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