Automated portfolio managers like Wealthfront will set you up with a diversified mix of index funds and manage it for you for a small fee. I’m an investing geek, so I always lean towards keeping the small fee and manage things myself. But an important variable to this equation is tax-loss harvesting. Tax-loss harvesting tries to improve your returns by minimizing your tax bill, but it is also tedious work that is ideally suited to handing over to a computer.
If the management fee they charge is say 0.25{01de1f41f0433b1b992b12aafb3b1fe281a5c9ee7cd5232385403e933e277ce6}, as long as the benefit from tax-loss harvesting is at least 0.25{01de1f41f0433b1b992b12aafb3b1fe281a5c9ee7cd5232385403e933e277ce6}, then you’re already ahead of the game. The problem is that predicting the actual benefit of TLH is difficult. Wealthfront claims that based on past data, their tax-loss harvesting implementation could add 1{01de1f41f0433b1b992b12aafb3b1fe281a5c9ee7cd5232385403e933e277ce6} annually to your after-tax returns:
Up until recently, you also needed $100k in your portfolio. But Wealthfront has recently announced that as of April 2015, their daily tax-loss harvesting service will be available to all taxable accounts with no minimum balance requirement:
We’re proud to announce that our daily tax-loss harvesting service will be made available to all Wealthfront taxable accounts, starting in April. At Wealthfront, we believe everyone deserves sophisticated financial advice, and this brings us one step closer to that goal.
I would not have predicted this a few years ago: automated tax-loss harvesting for any account size and at such a low cost. A customer with $10,000 would be getting TLH and portfolio management for free. The minimum needed to open a Wealthfront account remains $5,000.
I would say that I am confident the benefit of TLH over the long-run will be greater than zero. However, I would not count on 1{01de1f41f0433b1b992b12aafb3b1fe281a5c9ee7cd5232385403e933e277ce6}. But even if we split the difference and assume it is 0.5{01de1f41f0433b1b992b12aafb3b1fe281a5c9ee7cd5232385403e933e277ce6}, then using such a service still has to be considered as it is greater that their management fee of 0.25{01de1f41f0433b1b992b12aafb3b1fe281a5c9ee7cd5232385403e933e277ce6}. I hate giving up control though, so while I have put a little seed money in various places, I am still 95{01de1f41f0433b1b992b12aafb3b1fe281a5c9ee7cd5232385403e933e277ce6}+ DIY and keeping a close eye on future developments.
Current sign-up promotions. Wealthfront usually allows your first $10,000 managed for free. With this special invite link, you can get your first $15,000 managed for free, forever (an additional $5k).
(Note: Competitor Betterment also has a similar tax-loss harvesting service. The post structure is similar, but I wanted to make sure any readers that may see only one post get the full context.)
Wealthfront Offers Tax Loss Harvesting With No Minimums from My Money Blog.
© MyMoneyBlog.com, 2015.
SOURCE: My Money Blog – Read entire story here.
