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- Wealthfront has launched an automated, high-yield bond portfolio of personalized and diversified investments.
- It’s focused on maximizing your after-tax yield with a diverse, low-cost blend of bond ETFs.
- Bond ETFs have low volatility and are ideal for passive investors with short-term financial goals.
On June 8, 2023, Wealthfront launched its new automated, high-yield bond portfolio of personalized and diversified low-cost bond ETFs. With a focus on recommending valuable assets and maximizing after-tax earnings, this portfolio is best suited for hands-off investors seeking low-risk investments.
Bond ETFs are great tools for people interested in passive investing strategies to grow their funds with less risk (compared to investments like stocks, index funds, and crypto). Wealthfront also takes your location and financial situation into consideration to provide you with a personalized, tax-optimized blend of assets.
Here’s everything you need to know about the new Wealthfront automated bond portfolio.
0.25% annual management fee
Bond ETFs, treasury bonds, corporate bonds
Why you should consider an automated bond portfolio
Wealthfront’s automated bond portfolio pays a 5.59% yield, which is higher than Wealthfront’s own cash account that pays 4.55% to 5.05%. The 5.59% yield is the 30-day blended SEC yield after you pay any fees.
The portfolio invests in a mix of corporate bonds, floating-rate bonds, and tax-advantaged treasuries. You’ll need $500 to get started.
Wealthfront lists three main advantages of its automated bond portfolio:
- Liquidity: You can withdraw money at any time, penalty-free. It will take about three to four business days for the money to reach your account. This is a huge perk compared to individual bonds, CDs, or I bonds that often charge a penalty fee upon withdrawal.
- Diversity: Personalized to factors like your individual tax situation and risk tolerance, Wealthfront’s automated advisor is constantly investing, reinvesting dividends, and using tax-loss harvesting to rebalance your portfolio and help you reach your financial goals. A diverse investment portfolio also decreases volatility and increases your chances of earning more money.
- Easy management: Automated portfolios are ideal for hands-off investors (aka passive investors) wanting to sit back, relax, and watch their money grow. The portfolio is 100% managed and offers features like tax-loss harvesting and dividend reinvesting, which are also automatic. But keep in mind that there is a 0.25% annual management fee.
Should you invest in a bond portfolio?
Compared to other investment options like stocks or crypto, bonds are less volatile and can come with tax advantages. Investing in a portfolio of bond ETFs is a great, low-risk investing strategy for new or passive investors pursuing short-term goals. And unlike individual bonds, a portfolio of well-selected bond ETFs won’t require you to wait for a specific maturity date.
However, the lower the risk, the lower the reward. If you’re looking to earn more over a longer period of time (usually best suited for investors with larger, long-term goals), then a bond portfolio may not be right for you.
Also, the automated bond portfolio may be tax-advantaged, but there’s no guarantee that it will work. Treasury bonds are often exempt from state income tax, so Wealthfront takes into consideration an individual’s tax filing status, household income, and state of residence in order to calculate an estimated tax rate.
From there, Wealthfront aims to create a personalized portfolio of the right number of treasury bonds for the highest after-tax yield. However, this is an estimation, and it’s possible that your actual tax rate differs from the presumed one formulated by Wealthfront.
Also, your account’s success is dependent on a number of factors. On its site, Wealthfront explains that the blended 30-day SEC yield is not guaranteed as the rates of future returns are unpredictable and the overall performance of an individual’s portfolio will vary day-to-day. In the end, your investments may just not perform that well.
How Wealthfront compares to other bond portfolios
Investment platforms like Charles Schwab and Fidelity also offer bond ETF portfolios. But neither platform offers automated investing specifically for bond ETFs, so passive investors are better off with Wealthfront.
Fidelity is one of the best online brokerages for retirement savings and offers a large range of assets to invest in (such as stocks, ETFs, mutual funds, bonds, CDs, annuities, and IPOs). It also invests in a blend of commission-free bond ETFs and iShares bond ETFs.
Similarly, Charles Schwab is considered one of the best online brokerages, as well as one of the best online brokerages for beginners. Its portfolio of bond ETFs focuses on tax efficiency, portfolio diversification, and account flexibility. However, this portfolio is focused on long-term growth than short-term growth. So if you’re looking to invest for short-term goals, you’ll be better off sticking with Wealthfront.