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Tag Archive for Wealthfront

The Day-Trading Pandemic

WEALTHFRONT : The Day-Trading Pandemic

The coronavirus has wrought devastating harm to the health of our nation and to the vibrancy of our economy. With respect to financial markets, it has also given rise to a full-blown mania. Individuals, cooped up at home, working remotely on flexible schedules, with no social activities and no live sports to watch and bet on, have increasingly turned to day trading in the stock market. Spurred by the fintech firm Robinhood and embraced by establishment giants such as Schwab and E*Trade, zero commissions are now the rule. And day trading has now supplanted sports betting for thousands of millennials and members of Gen Z who are sheltering at home in response to COVID-19.

These new market participants have very likely contributed to the extreme volatility that has recently characterized stock prices. Professional investors, such as the legendary Howard Marks and Warren Buffett, have been extremely cautious as the economy has entered into a deep recession, and they have actually been selling equities. But legions of new day traders have poured new money into stocks without a care for the risks involved, clearly unaware of Buffett’s maxim that “It’s only when the tide goes out that you learn who’s been swimming naked.”

The day traders’ frenzied buying has been most evident in individual issues. Two of the most popular stocks on the Robinhood trading platform in recent weeks have been FANGDD Network Group, the Chinese online real estate company with a name that conjures up the popular FANG stocks, and Hertz, the bankrupt car rental company. FANGDD rose from less than $6 a share to almost $130 during one period, only to fall back to $11, where it has currently been trading. Hertz has more than doubled in recent trading sessions. Day traders appear to be unaware that bankruptcy usually results in extinguishment of the stake of the current equity holders.
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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? Everything You Need To Know

Wealthfront On Interest Ratres

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

An interest rate on a savings, checking, or high-yield account will usually either have the term APR or APY attached. APR (annual percentage rate) tells you how much interest is paid in a given year, while APY (annual percentage yield) takes into account the year’s compounding interest. What’s compounding interest, you ask? Essentially, you earn interest on your interest, unlike simple interest, which is only based on the principal balance of a loan or investment.

For example, if you put $100 into an account with 5% simple interest, you’ll have $105 in a year and $150.00 in 10 years. Meanwhile, $100 in an account with 5% interest compounded monthly will be $105.12 in a year and $164.70 in 10 years. It works the same way for loans. If you take out a $10,000 loan with 5% interest that compounds monthly, you’ll owe $16,470 in 10 years (If you don’t make any payments, that is). Most mortgage loans, credit cards, and high-yield savings accounts will have compound interest.

Why Compound Interest Matters

Albert Einstein reportedly called compound interest “the eighth wonder of the world,” adding: “He who understands it, earns it; he who doesn’t, pays it.”
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