Wealthfront Socially Responsible Investing for a Better Future

Wealthfront's socially responsible investing approach is designed to help you create a better future for yourself and the world around you. With their low-cost, automated investment platform, you can align your investments with your values and make a positive impact.

Wealthfront's socially responsible investing portfolio uses a combination of ESG (Environmental, Social, and Governance) criteria and negative screening to exclude companies that don't meet their standards. This approach helps to minimize the negative impact of your investments on the environment and society.

By investing in companies that prioritize sustainability and social responsibility, you can potentially earn higher returns while doing good for the world. Wealthfront's research has shown that companies that prioritize ESG factors tend to outperform their peers over the long term.

Broaden your view: Socially Responsible Investing

Investing is a strategy that evaluates companies based on their benefit and/or detriment to society, rather than profits or intrinsic value alone. This concept is rooted in the idea of social responsibility, where individuals and corporations have an obligation to cooperate with others to benefit greater society.

There's no single definition of socially responsible investing (SRI), but investors evaluate investments in various ways. Some investors take an exclusionary approach, avoiding stocks or bonds if the underlying company is involved in activities considered detrimental to society.

Investors may choose to exclude companies from certain industries, such as fossil fuel extraction, firearms, or tobacco. They might also invest in companies whose business activities align with their values, an approach known as "impact investing."

For example, a clean energy portfolio or a portfolio of companies committed to promoting diverse leadership are types of impact investments.

If this caught your attention, see: Wealthfront Investments

ESG stands for environmental, social, and governance, three pillars of corporate social responsibility. ESG is a framework for evaluating a company's impact on the environment, society, and its own governance practices.

Environmental factors are scored on areas such as climate change, carbon emissions, air and water pollution, biodiversity, deforestation, energy efficiency, waste management, and water usage intensity. These factors help investors understand a company's commitment to reducing its environmental footprint.

Social factors take into account a company's practices regarding people and relationships, including its consideration of human rights, labor laws, and customer relationships. These measures are scored on areas such as diversity, human rights and labor standards, customer satisfaction, data privacy and protection, customer and employee relations, and community relations.

Governance factors are scored on areas such as board composition, audit committee structure, executive compensation, lobbying and political contributions, whistleblower schemes, bribery and corruption. These factors help investors understand how a company is managed and governed.

Here's a breakdown of the ESG factors:

ESG is an important consideration for investors, as it can help them make informed decisions about their investments and support companies that prioritize social and environmental responsibility. By evaluating a company's ESG factors, investors can get a better sense of its long-term sustainability and potential for growth.

Wealthfront offers a socially responsible investing option that's worth considering, especially if you care about the environmental, social, and governance (ESG) impact of your investments.

The platform uses ESG-aware Blackrock funds as the primary funds in its Socially Responsible portfolios, which track socially responsible indices defined by MSCI.

Each company in the MSCI index is scored on a weighted collection of factors within the three ESG pillars, with criteria that vary by industry.

The ESG scores for Wealthfront's Socially Responsible portfolio are significantly higher than its Classic portfolio, with an average ESG score of 7.2 versus 5.9.

This difference grows even larger for portfolios with higher risk scores, highlighting the importance of considering ESG factors in your investments.

Wealthfront's Socially Responsible portfolio is designed to retain risk and return characteristics similar to its Classic portfolio, so you can stay on track for your financial goals.

The platform screens each fund for environmental, social, and governance factors, such as carbon emissions, air and water pollution, human rights, and labor standards.

Wealthfront also considers funds that will bring favorable returns while focusing on social responsibility, ensuring that your values align with your investments.

The platform's ESG Quality Score takes into account both ESG screens and ratings, as well as the potential for returns, to help you make informed investment decisions.

Intriguing read: Wealthfront Mutual Funds

Here's a comparison of the carbon intensity scores for Wealthfront's Socially Responsible and Classic portfolios:

As you can see, Wealthfront's Socially Responsible portfolio is 32% less carbon intensive on average, and 52% less carbon intensive for IRAs.

By investing in a socially responsible portfolio with Wealthfront, you can make a positive impact on the environment and society while also working towards your financial goals.

Wealthfront offers three portfolio options to choose from: Classic, Socially Responsible, and Direct Indexing. The Classic portfolio is the original portfolio, while the Socially Responsible one is designed to match your priorities and risk tolerance with a focus on environmental, social, and governance factors.

The minimum balance to start investing with Wealthfront is $500, which is one of the most pocket-friendly minimum balances in the market. You can choose from a range of investment options, including long-term investing, retirement plans, college saving plans, and bank accounts.

Here are the three portfolio options:

The Classic vs SRI Option: Which is Right for You?

The Classic portfolio is the original portfolio on the Wealthfront platform, while the Socially Responsible (SRI) option is a newer addition that's gained popularity for its focus on environmental, social, and governance (ESG) factors.

The Classic portfolio has some of the lowest fees in the industry, making it a great option for those who want to keep costs low.

Wealthfront's Socially Responsible portfolio is designed to balance social responsibility with long-term performance, and it's a great option for those who want to invest in a way that reflects their values.

The SRI portfolio uses expert-vetted ETFs that track more socially responsible indices than the Classic portfolio, and it's personalized to your risk level and investment goals.

Here are some key differences between the two options:

Ultimately, choosing between the Classic and SRI options comes down to your preferences and priorities. If you want to keep costs low and focus on long-term performance, the Classic portfolio may be the way to go. But if you want to invest in a way that reflects your values and supports socially responsible companies, the SRI portfolio is a great option.

Here's an interesting read: How Bad Do You Want Me Response?

California is unique among states due to its very high tax rates, with a top marginal rate of 13.3%, the highest in the country.

This means that California residents can benefit from municipal bonds issued in their state, which are exempt from state taxes as well as federal taxes.

The iShares California Muni Bond ETF is a low-cost option with an expense ratio of 0.08%.

We take a holistic approach to creating portfolios for California residents, using mean-variance optimization to account for the specific after-tax, after-fee expected return of California municipal bonds.

Our research shows that three representative portfolios can deliver an expected after-tax return within 0.03% of the optimal return for any combination of tax rates.

Here are the assumed tax rates for these representative portfolios, reflecting California state tax rates:

These tax rates are higher than those for non-California residents, due to California's higher state tax rates.

Wealthfront's socially responsible portfolios are managed using the same process as their Classic portfolios, including tax-loss harvesting, dividend reinvestment, and tax-efficient rebalancing and withdrawals.

Check this out: Wealthfront Classic Portfolio

The platform uses a methodology to find the optimal portfolio for each possible state and federal tax rate combination. This means that even in taxable accounts, Wealthfront clients can still benefit from tax-loss harvesting.

Wealthfront's socially responsible portfolios use expert-vetted ETFs that track more socially responsible indices than their Classic portfolio. Each fund in the portfolio is screened for environmental, social, and governance factors.

Here are the primary and secondary ETFs used for each of the five asset classes where socially responsible funds are available:

Wealthfront's socially responsible portfolios are fully customizable, allowing clients to exclude specific companies from their holdings. This can be done by logging in to the web app and selecting Settings and then Restrictions.

Expected returns are the average returns of an investment over a long period of time. In our example, the expected return of the stock portfolio is 8%.

Covariance measures the relationship between two investments. The covariance between the stock and bond portfolios is 0.05.

On a similar theme: Stock Broker Responsibilities

A positive covariance means that the investments tend to move in the same direction. In our example, the stock and bond portfolios have a positive covariance.

The correlation coefficient is a measure of the strength and direction of the relationship between two investments. The correlation coefficient between the stock and bond portfolios is 0.5.

Risk and return are closely linked. The higher the expected return, the higher the risk of the investment.

Related reading: Positive Actions

Our investment management approach takes into account the complexities of tax rates. We use a methodology to find the optimal portfolio for each possible state and federal tax rate combination.

Wealthfront clients can benefit from tax-loss harvesting, which is available for all ETFs used in our SRI portfolios, even in taxable accounts. This means that clients can still get the full benefit of our tax-loss harvesting service.

Tax rates are a crucial factor in our investment decisions, and we don't include long-term capital gains rates in our calculations because they don't impact portfolio choices.

Worth a look: Wealthfront Bond Ladder vs Bond Portfolio

You can fine-tune your portfolio even further with Wealthfront's US Direct Indexing.

This feature allows you to omit specific companies from your holdings, giving you more control over your investments.

To exclude specific stocks, log in to the web app, click your name in the top right corner, select Settings and then Restrictions, and enter in the stock ticker symbol of any stock you don’t want to own.

Wealthfront offers three portfolio options to choose from: Classic, Socially Responsible, and Direct Indexing.

The Direct Indexing portfolio is designed to generate tax savings for investors with accounts funded by over $100,000.

With US Direct Indexing, you own individual stocks for the US stocks portion of your portfolio, along with one or two ETFs to ensure broad exposure.

This means you get more opportunities to harvest tax losses and an added layer of customization.

The minimum balance to start investing with Wealthfront is $500, one of the most pocket-friendly minimum balances in the market.

You might like: Wealthfront Us Direct Indexing

Investment fees can be a major drag on your returns, but Wealthfront aims to keep costs low. They usually don't charge any account opening, closing, withdrawal, transfer, or commission fees.

The only charges you'll incur are the 0.25% annual advisory fees, charged on the total assets the platform manages for you. This fee is calculated monthly, based on your account balance.

For example, if your account maintains an average monthly balance of $100,000, your monthly advisory fee will be $20.55. This is calculated as $100,000*0.0025*(30/365).

Wealthfront also charges an expense ratio for the mutual funds and ETFs in your SRI portfolio, ranging from 0.25%. For the Wealthfront Risk Parity Mutual Fund, the expense ratio can represent up to 20% of the portfolio.

Here are the estimated monthly fees for different account balances:

Wealthfront claims to charge less than a quarter of what most other platforms in the industry charge. In fact, many platforms charge a monthly advisory fee of about 1%.