Many thanks for the explanations. I sent an inquiry to WealthFront regarding this, and it turns out their allocation percentages are time weighted. Here is what they sent me:
Hi Ryan,
To answer your question, the asset class returns you see on your account history chart shows the Time-Weighted Returns for each asset class from the time your account started investing in that asset class.
Time-weighted rate of return is sensitive to the timing of your initial investment, but not to the timing of any subsequent deposits or withdrawals. Money-weighted return takes into account the deposits and withdrawals you make over time. Money-weighted return is often a better measure of how you manage your contributions and withdrawals than how your investment manager performs. You've made several deposits into your account this year when the market has been relatively volatile which explains the discrepancy between the numbers.
You can read more about different returns and how to we calculate them here: How do you calculate the return displayed on my dashboard and account pages?
For more context on our approach, I'd recommend reading this blog post: Global diversification: Why you should invest in foreign and emerging markets. Please keep in mind that our portfolios are designed for long-term investing, which we define as at least five years. As our CIO often says, markets go up and markets go down. You cannot control them. What you can control is your asset allocation per your risk tolerance, your fees, your taxes and investing for the long run. That is the goal of a Wealthfront account.
I'd recommend reading these links for more information:
Advice for Investors
Invest Despite Volatility
Let us know if you have any other questions.
Indexer basically nailed it on the head with why my money weighted return is so poor (currently negative 2%). This is because my portfolio was not that big during the greatest rise of stocks in late 2017, and I have now invested a bunch of money in summer 2018 that was in stocks worth more than they are now. Since these contributions were large relative to my total portfolio, the recent downturn has erased all the previous gains in 2017.
I was a bit confused on what "active funds" were. I initially thought that mean automatic dividend reinvesting and portfolio re balancing, but that's not true. I want those features because I want to leave the money alone in a diverse portfolio, which is why I chose Wealthfront. At this point, I can't really say whether Wealthfront is limiting my returns, or that it's just lower risk.
Going off that, Wealthfront says that smaller withdraws result in less taxes because they can pick with investments.
https://support.wealthfront.com/hc/en-us/articles/211007423-How-does-Wealthfront-choose-which-investments-to-sell-when-I-withdraw-https://support.wealthfront.com/hc/en-us/articles/211007403-Will-I-have-to-pay-taxes-on-money-withdrawn-from-Wealthfront-This was the reason I said earlier that I thought it would be better to not withdraw everything at once.
Based on the information I've provided, and the current high volatility of the market, would you still recommend I transfer 100% of my Wealthfront to Vanguard VTI or something similar?
If so, are there any funds through Vanguard that diversify across US and international markets?
Since I have less than 50k, admiral funds are not an option in the near future. I'm currently educating myself on the various options.
Neil brought an interesting point about how I shouldn't expect to need any of the money in the near future. Graduate school may bring on a few additional expenses, so I'm looking into it now to see how much I plan to not touch for the next ~5 years.
Many thanks for the help.