Updated
Minimum account sizes for US Direct Indexing and Smart Beta
Any taxable Automated Index Investing Account with at least $100,000 to invest is eligible for US Direct Indexing (formerly known as Stock-level Tax-Loss Harvesting). Any taxable Automated Index Investing Account with $500,000 to invest is eligible for Smart Beta. If you have US Direct Indexing, we will automatically transition your account to Smart Beta if your balance reaches $500,000. Read more about transitioning from US Direct Indexing to Smart Beta here.
Our minimums are based on dollar amounts required to hold a reasonable collection of individual US stocks in a US Direct Indexing and Smart Beta position while continuing to track the performance of the broad US market.
That means that the US Direct Indexing and Smart Beta minimums must be met through cash deposits or assets in your Wealthfront diversified portfolio. Other assets, such as assets you’ve transferred to Wealthfront via a brokerage account transfer and which are still being sold or diversified, cannot be used to meet this minimum as those assets can not be used to purchase individual stocks until their sale is completed.
What if my account balance goes below the minimum?
If market movements cause your account balance to fall below $50,000, or if you make a withdrawal that causes your account balance to fall below $90,000, we will do the following:
- Sell the individual stocks used to implement US Direct Indexing and purchase VTI to represent US stocks.
- Maintain Tax-Loss Harvesting, as it has no minimum balance requirement.
US Direct Indexing or Smart Beta will remain active if your account balance stays above $50,000 when reductions are driven by market movements, or above $90,000 when driven by a withdrawal.
I transferred securities to Wealthfront from an outside account. Does that affect whether I qualify for US Direct Indexing or Smart Beta?
It might. If you have transferred assets to Wealthfront and we haven’t diversified them yet, we will not apply US Direct Indexing and Smart Beta strategies until your diversified portfolio value exceeds $100,000 or $500,000, respectively.
This content is for informational purposes only and is not intended as tax advice. 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 effectiveness of the tax-loss harvesting strategy to reduce the tax liability of the client will depend on the client’s entire tax and investment profile, including purchases and dispositions in a client’s (or client’s spouse’s) accounts outside of Wealthfront Advisers and type of investments (e.g., taxable or nontaxable) or holding period (e.g., short- term or long-term).
Tax-loss harvesting involves certain risks, including, among others, the risk that the new investment could have higher costs than the original investment and the strategy could introduce portfolio tracking error into your account. Tracking error is a measure of financial performance that determines the difference between the return fluctuations of an investment portfolio and the return fluctuations of a chosen benchmark. There may also be unintended tax implications.
Wealthfront Advisers’ investment strategies, including portfolio rebalancing and tax loss harvesting, can lead to high levels of trading. High levels of trading could result in (a) bid-ask spread expense; (b) trade executions that may occur at prices beyond the bid ask spread (if quantity demanded exceeds quantity available at the bid or ask); (c) trading that may adversely move prices, such that subsequent transactions occur at worse prices; (d) trading that may disqualify some dividends from qualified dividend treatment; (e) unfulfilled orders or portfolio drift, in the event that markets are disorderly or trading halts altogether; and (f) unforeseen trading errors. The performance of the new securities purchased through the tax-loss harvesting service may be better or worse than the performance of the securities that are sold for tax-loss harvesting purposes.
Tax loss harvesting may generate a higher number of trades due to attempts to capture losses. There is a chance that trading attributed to tax loss harvesting may create capital gains and wash sales and could be subject to higher transaction costs and market impacts. In addition, tax loss harvesting strategies may produce losses, which may not be offset by sufficient gains in the account and may be limited to a $3,000 deduction against income. The utilization of losses harvested through the strategy will depend upon the recognition of capital gains in the same or a future tax period, and in addition may be subject to limitations under applicable tax laws, e.g., if there are insufficient realized gains in the tax period, the use of harvested losses may be limited to a $3,000 deduction against income and distributions. Losses harvested through the strategy that are not utilized in the tax period when recognized (e.g., because of insufficient capital gains and/or significant capital loss carryforwards), generally may be carried forward to offset future capital gains, if any.
Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio.
Investment management and advisory services–which are not FDIC insured–are provided by Wealthfront Advisers LLC (“Wealthfront Advisers”), an SEC-registered investment adviser, and financial planning tools are provided by Wealthfront Software LLC (“Wealthfront”). Brokerage products and services are offered by Wealthfront Brokerage LLC, member FINRA / SIPC. 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.
Wealthfront Advisers, Wealthfront Brokerage and Wealthfront are wholly owned subsidiaries of Wealthfront Corporation.
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