[hchenji]

> whereas Wealthfront portfolios typically have more like six or seven asset classes

Why does increasing the number of asset classes guarantee a higher overall return? Is there any proof or intuition? Will increasing the number to 10 asset classes guarantee that you will consistently outperform VOO or VTI or VUG?

[domdip]

Because to some extent the asset classes are uncorrelated. This is the basis of Modern Portfolio Theory, and the reason you don't just dump everything into the highest-return class (e.g., stocks).

For a simplified model, check out Kelly gambling

https://en.wikipedia.org/wiki/Kelly_criterion

[hchenji]

Interesting, I did not know about that.

So with that logic, shouldn't Betterment with its 12 asset classes and 0.15% fees for >$100k invested be more optimal?

[domdip]

Maybe. More asset classes shouldn't hurt, although at some point they may not help much (new ones may be highly correlated to some combination of the previous ones) and lower fees are nice. For bigger portfolios WF's single-stock approach may add enough value to compensate for these. I'm sure both companies have simulations proving they're better...

[asift]

Looking only at the number of ETFs can be deceiving. Let's say that I hold a total US stock market index. This may be one ETF, but I still hold funds within all 9 Morningstar style boxes. You could break this into 9 different ETFs, (LCV, LCC, LCG, MCV, MCC, MCG, SCV, SCC, SCG), but that doesn't mean you are any better diversified. In fact, holding more underlying ETFs can create tax inefficiencies as indices reconstitute themselves (e.g., a SCG stock may grown to be a MCG stock. A total market index doesn't necessarily need to make any trades to reflect this change, but the SCG fund will need to sell the stock and the MCG fund will need to buy it).

[U6Gf8WQP]

Wealthfront has an in-depth explanation of how they use modern portfolio theory to determine their portfolio construction (including how they select asset classes): https://research.wealthfront.com/whitepapers/investment-meth...

[maaku]

You can go to any number of retirement planning sites and use their tools to construct the same portfolio. Why not just buy the underlying funds?

[U6Gf8WQP]

I answered your original question and you responded with a completely different question.

Re. this question, it is addressed in the Wealthfront FAQ: https://pages.wealthfront.com/faq/

> What’s to keep me from investing $10,000 with you and then mimicking trades for my $250,000 portfolio at a discount broker?

> Nothing. But that kind of sounds like a pain in the neck when we only charge you an annual advisory fee of 0.25% (on assets over $10,000) to take care of all the trades in your account, as well as the periodic rebalancing and daily tax-loss harvesting. That being said, you are welcome to copy anything we do if you would rather do it yourself.