Andy Rachleff shares insights from co-founding Benchmark & building Wealthfront to manage $10b+ assets, announces 50% fee cut for Risk Parity, talks stock market, financial literacy & the wisdom of investing against human instinct.

Show Notes:

00:54 - Jason introduces Andy Rachleff, CEO of Wealthfront and co-founder of Benchmark. They discuss Benchmark’s success and status as one of the best firms in the world. Andy talks about how the founding team came together, their motivations, establishing equal economics for all partners to attract the best talent, more.

06:19 - Jason asks Andy if he misses being a VC. Andy says that, due to Benchmark’s structure, there was no way for him to continue in the firm’s equal economics when he couldn’t dedicate himself fully to VC work. He can still invest in the funds.

08:38 - Andy covers Wealthfront’s progress. A little over six years after founding, the automated financial advising company manages more than $10B. Andy thinks that’s the shortest time any investment vehicle has reached that milestone. Sees a rate of adoption unmatched in the investment business.

Andy says what most attracts people to Wealthfront is that everything is handled by software - more so than the fee structure. Wealthfront focuses on users under 40 with less than $1M. Those clients prefer not to regularly interact with advisors. Competitors try to marry traditional advising and planning with software.

12:24 - Jason thanks sponsor delivered tuxedo rental company The Black Tux. TWiST listeners get $20 off their first purchase.

14:59 - Jason asks Andy about Wealthfront’s take on cryptocurrency. Andy says Wealthfront’s target demographic is very interested in crypto, but Wealthfront focuses on academically proven investment strategies, not speculations. Crypto doesn’t fit in that philosophy. Those interested in crypto should limit their investment to about 10 percent of their portfolios.

18:12 - Andy discusses Wealthfront’s retirement planning, college planning, homebuyer planning. The company’s banking services include portfolio credit lines - a user can withdraw up to 30 percent of account value.

21:09 - Andy explains how Wealthfront uses data from various sources, including connected accounts, to determine the best plan for each user and to provide better financial outcomes than a traditional planner could conceive.

25:54 - Andy talks about human nature regarding investments: people want to sell when the market drops and buy when it goes up. That’s the exact opposite of what people should do. Wealthfront publishes blog posts encouraging clients to resist counterproductive urges.

28:24 - Andy covers Wealthfront’s value-added services, a suite known as Passive Plus. Includes Tax-Loss Harvesting, which enables Wealthfront to sell a losing investment and replace it with an equivalent investment, then apply the loss to income and gains to reduce tax liability.

30:54 - Jason thanks sponsor Squarespace, which powers LAUNCH’s events sites. Use offer code twist to get 10 percent off your first purchase.

33:34 - Andy continues explaining Wealthfront’s Passive Plus features: Stock-Level Tax-Loss Harvesting: If a stock drops 10 percent, Wealthfront will sell it and buy a highly correlated stock, hold it for 30 days, then sell and return to the original stock.

36:38 - Andy discusses Passive Plus feature Risk Parity, which uses leverage to increase volatility in a stock-and-bond-balanced portfolio to increase returns without increasing risk.

39:48 - Jason asks about the near-record bull market run and whether it indicates a coming crash. Andy says no one can predict the stock market, but every downdraft recovers. On average the market recovers from corrections in 89 days. So people are better off when they just maintain their investment strategy and pace without trying to predict the market.

43:26 - Jason asks about ETFs. Andy says there isn’t any academic research indicating ETFs have had negative effect on the market. People who advocate actively-managed funds spread FUD about ETFs.

45:05 - Jason asks about Trump’s corporate tax cuts, tax cuts on repatriated cash, etc. Andy says these decisions are driving the stock market, but not necessarily the economy. The question is what companies will do with the additional earnings.

48:41 - Andy notes that there are 50 percent fewer public companies than there were about 10 years ago. Andy thinks it would be healthier for the economy if there were more public companies. Jason says there is a flurry of IPO activity in Silicon Valley.

50:44 - Andy talks about how some of the biggest tech companies have reinvented themselves numerous times - usually through acquisitions. He’s worried that too many companies are staying private for too long. They wait until their growth rate slows and then it’s a hard stock to sell or take public.

Full show notes available at http:/thisweekinstartups.com