We manage Automated Investing Accounts from $500 to $5,000 differently than accounts funded with over $5,000, but with minimal net effect on long-term investment performance.
When you sign up for a Wealthfront Automated Investing Account, you answer a series of questions to arrive at a target investment mix for your risk profile which is based on an account funded with over $5,000. You can edit this target investment mix by adding or removing investments or changing the relative weights of those investments. We try to match your target allocation as closely as possible when you fund your account, add funds, receive dividends, or your portfolio experiences a significant change in value.
If you open an account with less than $5,000, there can be more deviation from your target than usual. This is primarily because there is less cash to work with when constructing your portfolio.
To address this, our software searches the universe of securities available to Wealthfront portfolios and chooses the combination with the best possible tradeoff between tracking error from your target portfolio and cash remaining in your account. Because we only buy full shares of ETFs, you may be left with a small amount of cash in your account.
We’ve run extensive backtests on our recommended portfolios, and our research shows that these deviations have minimal impact on long-term investment performance. We’ve also designed these portfolios to add additional asset classes and move closer to the investment plan as they grow from as little as $500 to much larger sizes. While accounts funded with less than $5,000 behave a little differently than our larger accounts, your long-term outlook with Wealthfront should largely be the same.
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Wealthfront offers a free software-based financial advice engine that delivers automated financial planning tools to help users achieve better outcomes. Investment management and advisory services are provided by Wealthfront Advisers LLC, an SEC registered investment adviser, and brokerage related products are provided by Wealthfront Brokerage LLC, a member of FINRA/SIPC.
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