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The investment strategy for Wealthfront recommended portfolios
Wealthfront offers both recommended portfolios and customized portfolios. This article describes the strategy we use to construct recommended portfolios.
Our investment management team, led by Dr. Burton Malkiel, renowned economist and author of A Random Walk Down Wall Street, designed a software-based service based on industry best practices that starts with a portfolio diversified across relatively uncorrelated asset classes, customized for your particular risk tolerance. We invest with an equity orientation seeking to maximize long-term returns. Each of our selected asset classes is primarily represented by a low cost, passive ETF. Using software, we continuously monitor and periodically rebalance your portfolio seeking to maximize your chance of investment success for the long run. Our software also attempts to minimize your taxes by analyzing the taxes likely to be generated by any given asset class, and then allocating different asset classes in taxable and non-taxable (retirement) portfolios.
We use Modern Portfolio Theory (MPT) to identify the portfolio that has the maximum expected return for your chosen level of risk. The economists who developed MPT, Harry Markowitz and William Sharpe, received the Nobel Prize in Economics in 1990 for their groundbreaking research. Today, MPT is the most widely accepted framework for managing diversified investment portfolios. MPT has its limitations, especially in the area of very low probability significant downside scenarios, but we believe it is the best framework on which to build a compelling investment management service.
As of November 2024, we also customize your portfolio based on your tax level, in addition to your chosen level of risk. Our goal is to optimize your portfolio to help maximize your after-tax expected returns.
For more details on our investment strategy please read our Investment Methodology white paper. For a description of the risks associated with our investment strategy, please see this article.
Wealthfront Advisers and its affiliates do not provide legal or tax advice and do not assume any liability for the tax consequences of any client transaction. Clients should consult with their personal tax advisors regarding the tax consequences of investing with Wealthfront Advisers and engaging in these tax strategies, based on their particular circumstances.
The information contained in this communication is provided for general informational purposes only, and should not be construed as investment or tax advice. Nothing in this communication should be construed as a solicitation, offer or recommendation to buy or sell any security. All investing involves risk, including the possible loss of money you invest, and past performance does not guarantee future performance. Please see our Full Disclosure for important details.
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