Future of Investing

Philosophical Switch: Wealthfront introduces stock investing and plans to build investing habits for the long run

  • Stock trading by small investors is on the up and up.
  • Just in time Wealthfront has launched the option to invest into individual stocks exemplifying a philosophical switch in its robo-advisor business model.

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Philosophical Switch: Wealthfront introduces stock investing and plans to build investing habits for the long run

Remember the meme stock boom? A similar boom in stock trading is brewing right now, as retail investors rally once again and pour more money than at the height of the GameStop era.

This time though, their bets seem to be more spread out. Rather than focusing on small and out-of-favor companies, retail traders are looking favorably at big names like Tesla. Over the past month, small investors have poured in $1.51 billion to work each day during January, according to Vanda Research.

And investment companies like Wealthfront are gearing up to serve this appetite. Rather than sticking to its historical roots as a robo-advisor, the company announced the launch of the Wealthfront Stock Investing Account. Now, investors can buy individual stocks and access curated stock collections on the app. The account can be opened with just $1. These stock collections are a set of stocks designed around an investing theme. While clients are not required to invest in the entire collection but can pick and choose as they please. 

Stock trading apps dwell in a competitive space and Wealthfront’s move towards buying individual stocks represents a philosophical switch within the company away from passive, automated investing. So why the change in gears?

The move comes as part of a larger mission. “This brings us one step closer to making Wealthfront the only app young investors need to manage their money and we’re very excited about what the future holds,” said Elly Stolnitz, head of product communications at Wealthfront. Their clients can now earn 4.05% APY on their savings, as well as create an automated portfolio for general investing and retirement savings. Stock purchases are commission-free.

Looking under the hood: Stock trading with Wealthfront

For its Stock Investing Account, the company began beta testing with a sample of its clients last year. The most popular stock collections from their beta-testing phase, like “Apple’s Supply Chain”, “Inflation Thrivers”, and “Blue Chip Dividend Stocks”, contributed to the new product release this month.

But the company is not just blindly pushing trading – the emphasis is on holding the stock. Each of the curated stock collections includes industry commentary and highlights the advantages of investing in a certain stock and the potential negative impacts on clients' portfolios. Moreover, the app includes personalized suggestions on how much of a client’s portfolio should be dedicated to stock investing based on their overall investments.

Their curated stock collection was built by Wealthfront’s Investment Team with an eye on customer pain points. “They’re like using discovery playlists to find new music, but for investing. Instead of showing that you might like Lizzo because you also like Beyonce, we’re showing that because you like Tesla, you might like these other companies, too,” said Stolnitz. 

The company wants investors to build alignment in their portfolios because it improves their chances of success. “Over the past 10 years, we found that the chance of losing money when buying 1 stock is around 10%, while the chance of losing money when buying 5 stocks is well under 1%,” she added.

Wireframes showing how Wealthfront stock investing works. The screens show the curated stock collection called "apple suppliers"

Investing for the long run:

While some new brokers are still pushing gamified stock trading experiences. Wealthfront tries to avoid that noise. p. It doesn’t provide real-time price updates. According to Stolnitz, this is very intentional. Moreover, the product prevents clients from trading the same stock multiple times within a week. “We don’t want our clients focused on the market's daily or hourly gyrations, we want them focused on the long term,” said Stolnitz.

Their product intentionally builds away from constant monitoring of stocks and ticker movements, and instead focuses on cultivating a culture of structured and purposeful decisions. If you’re looking for some slot machine buzz, you won’t find any graffiti here.

This doesn’t mean that the UX is shabby. The app’s UX consistently earns good reviews from professionals, pointing to its onboarding ease and its use of descriptive headers to counteract client confusion.

Wireframs of descriptive headers in Wealthfront stock investing app.

Currently, Wealthfront has $40 billion sitting in its external brokerage accounts and manages $35 billion for over 500,00 clients with just 12 product specialists. As the appetite for stock trading continues to grow past its FAD-phase, it is likely that stock trading options that vie for long-term investing like Wealthfront will continue to come out on top. 

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