The Robo-Advisor Experiment

Abhinav Thakur
3 min readFeb 6, 2021
Photo by Morning Brew on Unsplash

2017 was the first time I started thinking seriously about investing money. Many mistakes were made in the beginning, however, slowly after doing much research, I was able to establish a good investment strategy. There are a lot of ways to invest your money today. These include your run of the mill ETFs and index funds, REITs, good old stocks and for the hands off investor — robo-advisors.

In 2017, I heard of a robo-advisor — Wealthfront. Upon doing some research, I found out that they were based on the modern monetary theory (MMT) which had been awarded a Nobel prize. I decided to open an account with them and fund it with some money. It has been almost 4 years now and the money has grown. However, the market has grown too and I wanted to see how the gains in this account stacked up against a total stock market index fund.

Numbers plain and simple

As you can see above, I ran a quick portfolio backtest on Portfolio Visualizer for a portfolio with the same amount invested. I calculated the gain on my portfolio both total and year over year and compared it with what a simple 100% VTI holding would have given me with the same initial investment amount. The numbers are pretty self-explanatory.

With the same investment amount, Wealthfront’s total gain is at 47.3% and year over year is 13.5% (time period of 3.5 years). On the other hand, VTI has a total growth of 81.1% with a year over year growth of 23.1% for the exact same period.

There are certain things that Wealthfront does that according to their website, it would take 150 hours a year for the average investor to do. Things included are tax loss harvesting, free dividend re-investment, selecting and investing into new investments and establishing an optimum portfolio with good asset allocation based on a risk assessment questionnaire. Just so it is clear, my risk level in my Wealthfront account is set to the maximum as I am in my early 30s.

It is true, Wealthfront does tax loss harvesting every so often on this account. So I decided to find out if this truly helps and if they managed to keep losses minimized during the Covid-19 market turmoil in March 2020. To my surprise, the…