Wealthfront loves to paint itself as the anti-Wall Street, but it exploits the same achilles heel as its Manhattan cousins: Many people don’t have an intuitive grasp of the magic of compound interest, and so they certainly haven’t internalized the tyranny of compound fees.
Then let us be clear: A 30-year old who invests $100,000 in his retirement with Wealthfront “for less than a night at the movies” will likely pay the company over $100,000 in fees by his 75th birthday.
If he sets aside additional money from his salary over that time period — say, $15,000 per year — the fees could come to half a million or more. Still less than a night at the movies, assuming you also had to produce the movie.
This is all a great deal for Wealthfront. If they hook enough young professionals early, the company gets to invest their money for the rest of their lives, skimming a larger and larger portion off the top as it compounds. Heck, I like this model enough that I consider investing in Wealthfront, Inc. at least twice a year.
Really interesting. I’m new to all of this.