We can manage accounts from $500 to $5,000 differently than accounts funded with over $5,000, but with no net effect on long-term investment performance.
When you sign up for a Wealthfront 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. This is the target allocation we try to match as closely as possible when you fund your account, add funds, receive dividends, or your portfolio experiences a significant change in the market.
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 diversified portfolio of ETFs.
To address this, Wealthfront’s Portfolio Optimizer 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.
We’ve run extensive backtests on the Portfolio Optimizer algorithm, and our research shows that these deviations make essentially zero difference in 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.
Nothing in this blog should be construed as tax advice, a solicitation or offer, or recommendation, to buy or sell any security. Financial advisory services are only provided to investors who become Wealthfront Inc. clients pursuant to a written agreement, which investors are urged to read carefully, that is available at www.wealthfront.com. All securities involve risk and may result in some loss. For more information please visit www.wealthfront.com or see our Full Disclosure. While the data Wealthfront uses from third parties is believed to be reliable, Wealthfront does not guarantee the accuracy of the information.