Wealthfront ↔ asset classes

Relations (1)

cross_type 2.00 — strongly supporting 8 facts

Wealthfront manages investment portfolios by evaluating the tax impact of specific asset classes [1], utilizing index-based ETFs to represent these asset classes [2], and calculating their net-of-fee expected returns [3].

Facts (8)

Sources

Wealthfront Classic Portfolio Investment Methodology White Paper research.wealthfront.com Wealthfront 8 facts

claimWealthfront evaluates the tax impact of each asset class and adjusts allocations accordingly for taxable and non-taxable retirement accounts to reduce potential tax liabilities.

procedureThe Wealthfront investment methodology consists of five steps: (1) Identify a diverse set of asset classes, (2) Select the most appropriate ETFs to represent each asset class, (3) Apply Modern Portfolio Theory to construct asset allocations that seek to maximize the expected net-of-fee, after-tax return for each level of portfolio risk, (4) Determine your risk tolerance to select the allocation that is most appropriate for you, and (5) Monitor and periodically rebalance your portfolio, taking advantage of dividend reinvestment to correct deviations from desired weights.

procedureWealthfront uses low-cost, index-based exchange-traded funds (ETFs) to represent each asset class in their portfolios.

procedureWealthfront calculates the net-of-fee expected return of an asset class by subtracting the expense ratios of the ideal instrument representing that asset class from the gross return.

procedureWealthfront evaluates asset classes based on long-term historical behavior, risk-return relationships, expected behavior based on secular trends and the macroeconomic environment, correlation with other asset classes, resistance to inflation, ETF implementation costs (expense ratios), and tax efficiency.

procedureWealthfront's investment methodology begins by identifying a broad set of diversified, publicly accessible asset classes to serve as the building blocks for portfolios.

referenceWealthfront determines the optimal mix of asset classes using Mean-Variance Optimization, a method introduced by Harry Markowitz in 1952 that serves as the foundation of Modern Portfolio Theory.

claimWealthfront recommended portfolios utilize a diversified set of global asset classes, each represented by a low-cost, passive exchange traded fund (ETF).