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Archive for Andy Rachleff

Wealthfront’s Mission: Build A Financial System That Favors People

Andy Rachleff: mission is to build a financial system that favors people

My co-founder Dan Carroll and I chose to partner over a common desire to democratize access to sophisticated financial advice. We came upon this mission from very different experiences. As a venture capitalist, many of my former portfolio company recruits came to me for investment advice after their companies had been acquired or gone public. Unfortunately, I couldn’t recommend anything I would use because the minimums associated with a high quality financial advisor were too high. Dan’s interest in solving this problem arose from the poor financial advice his hard-working parents received from a family friend who was a financial advisor. We both knew sophisticated financial advice was too exclusive, and we were determined to change that. This mission sustained us from our founding in 2011.

Nearly a decade later, we are extremely proud of the progress we have made towards achieving our mission. We weren’t just the first company to offer a globally diversified and rebalanced portfolio of low-cost index funds that, thanks to software, could be managed automatically for less than a quarter of what an advisor charged. We were also the first to offer many other investment features that were previously only available through an advisor that required a $1 million account minimum (and sometimes as much as $10 million). These features include ETF-based tax-loss harvesting, tax-loss harvesting within an index, multi-factor smart beta, risk parity and even tax-minimized transition to a more optimized portfolio. The investment management industry took notice. Because of our success, every brokerage firm now either offers or plans to offer an automated investment service, although none have the breadth of features we do. According to Statista, automated investment services will manage over $1 trillion by the end of this year.
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Banks Are Having Their “Blockbuster Moment”


For many of us who came of age between the late 1980s and early aughts, Blockbuster Video is a pleasant memory. For roughly two decades, Blockbuster was a dominant force in the video rental industry. But despite this dominance, Blockbuster declared bankruptcy in 2010 and instead of operating 9,000 stores like it did in 2004, now it has only one. There are parallels between Blockbuster’s demise and what’s likely to happen to traditional banks. The effects of COVID-19 have only strengthened the comparison. Banks are having their “Blockbuster moment,” and it could cost them big.

Blockbuster’s heyday
Most of us probably remember going to Blockbuster Video years ago. On a Friday night, it was the place to go pick out the video you were going to watch. I have fond memories of browsing the aisles (and rushing to check out the new releases shelf) at my local Blockbuster as a teen, and you probably do, too. You could take any movie home with you for just a few dollars.

Blockbuster had 9,000 retail locations at its peak, and these stores were a key part of their business model. Blockbuster stores were seemingly everywhere, making it easy to find a convenient one to visit. Of course, these stores cost money to maintain – but Blockbuster had ways of paying for that. Late fees were a big source of revenue. While consumers hated paying them, late fees helped the company afford the large costs associated with maintaining 9,000 stores.
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What You Should Know About Bank Fees

ANDY RACHLEFF: What you should know about bank fees

You’ve probably spent a significant amount of time and effort trying to avoid paying banking fees. Unfortunately, these fees are extremely difficult to avoid and they really add up. Last year, the Los Angeles Times reported that fees alone made up more than a third of banks’ total revenue. Worse yet, these fees often far exceed any interest your bank is paying you, meaning your banking relationship is eroding your wealth – not building it. Paying $100 in banking fees annually (which is not at all outside the realm of possibility) would cost you $1,000 every decade, and that’s before you factor in the interest you could otherwise earn on that sum.

At Wealthfront, it’s no secret we don’t like fees. Fees are essentially negative earnings, and they can destroy your return. It’s important to be aware of any banking fees you’re paying, especially in combination with the interest your bank pays you on your deposits. To get the most out of your banking relationship, you’ll want a competitive interest rate and no fees. Unfortunately, most banks won’t give you that option.

Below we describe some common kinds of fees banks charge to shed some light on how banks typically operate. Some of these fees are for checking accounts, some are for savings accounts – and all of them have the potential to eat into your hard-earned cash.
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Tips for Managing Your Finances After Job Loss Or Wage Loss

Savings Strategies From Wealthfront

Over the last seven weeks, more than 33 million Americans have filed for unemployment. Many more have had their hours or their pay cut at work. Dealing with the loss of wages or your job can be incredibly stressful – I was laid off in 2008 during the financial crisis, and remember how challenging it was.

You’re probably feeling overwhelmed if you were recently laid off and don’t currently have a job. Job loss is painful, and it can be difficult to cope with the stress of a layoff while figuring out your next move. The first thing you should do if you’ve been let go is file for unemployment. You can do this by filing a claim with the unemployment insurance program in the state where you worked. Depending on the state, claims may be filed in person, online, or by phone. But if you’ve already done that, maybe you’re not sure what to do next. Navigating job and wage loss can be difficult, but having been through it myself, I have some tips to share to make this transition a bit easier.

Evaluate your cash on hand
Cash is your first lifeline as you consider your next steps after being laid off or having your pay reduced. If you have an emergency fund (which might be in the form of cash, investments, or a mix of the two depending on the factors described in this blog post), now is the time to use it. Assess how much cash you have and how long it will last if you have to use it to cover your expenses.
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Why The Elimination Of Stretch IRAs Means It’s Time To Update Your Retirement Plan


On December 20, 2019, President Donald Trump signed the Setting Every Community Up for Retirement Enhancement (SECURE) Act with overwhelmingly bipartisan support. In so doing, the most comprehensive retirement bill since the Pension Protection Act of 2006 became law. Among the SECURE Act’s many provisions comes some potentially bad news for many Wealthfront clients, and it’s important that you’re aware of it.

The law expands opportunities for individuals to participate in efficient employee retirement plans, but it also eliminates stretch individual retirement accounts (IRAs). This part of the legislation is an unwelcome change for some individual retirement savers.

Why it matters
Prior to the passage of the SECURE Act, individuals who inherited a Roth or traditional IRA were subject to required minimum distributions (RMDs) based on life expectancy. This allowed beneficiaries to continue growing the IRA in a tax-deferred manner over the course of their lives. For example, a young beneficiary would have a lower RMD and could potentially stretch the tax-free growth of the inherited IRA over decades — hence the term stretch IRA.
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How Do Interest Rates Work? Here’s Everything You Need To Know

How Do Interest Rates Work? Here’s Everything You Need To Know

Whether you *think* you completely understand what interest rates are and how they work, or you know that you definitely don’t know everything about them, this will lay out all the essential details.

While “interest” can feel like a dirty word for anyone with debt, there’s a lot more going on with these rates than the way they puff up the balance on your credit card. Since interest rates will invariably appear in nearly every aspect of your financial life, it’s incredibly important to understand the different types of interest and their implications on your financial plans. An interest rate has bearing on the size of your credit card bill, how long it takes you to pay off your mortgage or student loans — and it’s also what fuels your savings..

You probably already know a few things about interest rates, like that the principal balance of a loan is the amount you borrowed, and the interest is the money you pay on top of that every month as a fee for borrowing said money. What’s harder to determine is where interest rates come from (no, they don’t just appear out of thin air), how they work, and how they impact your money. Let’s dig into everything you need to know to speak interest rates fluently.

The different types of interest rates
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What Is The Second Generation of Behavioral Finance, And What Does It Teach Us About Market Efficiency?


Andy Rachleff Note: Meir Statman is a longtime advisor to the Wealthfront investment team and a foremost expert in the field of behavioral finance. His new book, “Behavioral Finance: The Second Generation” is published by the CFA Institute Research Foundation and can be downloaded for free at this link.

My new book, “Behavioral Finance: The Second Generation,” presents the second generation of behavioral finance. The first generation, starting in the early 1980s, largely accepted standard finance’s notion of people’s wants as “rational” wants—restricted to the utilitarian benefits of high returns and low risk. That first generation commonly described people as “irrational”—succumbing to cognitive and emotional errors and misled on their way to their rational wants.

The second generation describes people as “normal.” It acknowledges the full range of people’s normal wants and their benefits (utilitarian, expressive, and emotional), distinguishes normal wants from errors, and offers guidance on using shortcuts and avoiding errors on the way to satisfying normal wants. People’s normal wants include financial security, nurturing children and families, gaining high social status, and staying true to their values. People’s normal wants, even more than their cognitive and emotional shortcuts and errors, underlie answers to important questions in finance, including questions about saving and spending, portfolio construction, asset pricing, and market efficiency.
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