Rethinking Personal FinanceDuncan Gilchrist, PhD

If you check the market once a year, what fraction of the time would it be down relative to when you last checked?

Reality (by time interval):

If you invested $1 in 1870, what would that be worth today?

Cyclical Behavior

Top Mistakes

1. Bad behavior (e.g., performance chasing)○ DALBAR: Cost of market timing ~ 5% / yr

2. Bad investments (e.g., high fees)○ White House: Cost of conflicted advice ~ 1% / yr

$100k growing at 6% for 30 years → $600k

$100k growing at 0% for 30 years → $100k________ $500k

Diversified portfolio grows at about 6% / yr

Tragic Consequences

Fix Behavior Problem

Fix Fee Problem

(Great) Human financial advisors

Investing on own (Vanguard, Robinhood, …)

FixBoth

Bio

Duncan Gilchrist

AB Applied Math, PhD Business Economics @ Harvard

Half a dozen journal publications● Why do people go to bad movies?● How can we improve organ donation?● How should we pay people?

Present:Data Scientist & Research Lead, Experience @ Wealthfront

Two Questions

1. How to optimize? Figuring out which option to pursue.

2. How to execute? Actually pursuing that (or any) option.

Need a model & data. Difficult to optimize when:

1. Little information is available

2. Activity is done infrequently, so limited feedback

3. Activity takes a long time to complete and/or feedback that is received is lagged

4. Significant uncertainty or high volatility in outcomes

Optimization = Cognitive + Behavioral Challenge

Execution = Optimization at Micro-scale.

Need to prioritize & be motivated. Difficult to execute when:

1. Activity is optional

2. Activity must be repeated frequently

3. Activity results are difficult to measure

4. Activity doesn’t yield immediate gratification

Optimization is Straightforward

Execution isStraightforward

Yes No

Yes

No

Seeking medical attention Career decisions

Financial planningEating well;Getting in shape

Wealthfront Mission: Everyone deserves sophisticated financial advice

Wealthfront Approach

automated advice

low cost

everyone

human advisor

high fees

wealthy clients

Make It Easy to Invest the Right Way

Financial Advice @ Wealthfront

Every $1 invested with Wealthfront is invested well.

But…

1. What about behavior at Wealthfront?

2. What about money invested elsewhere?

3. What about other financial decisions?

Good Decisions On AND Off Our Platform

Tension Between Automation & Education

Clients come to us because we do the right thing

But automation alone is insufficient:

Have to understand why something is right

(Even Subtle) Design Teaches Where to Look

Automated Nudges

Stop Focusing on the Past

Invest for the Future

Link an external investment account. We provide personalized, actionable recommendations on:

1. Fees

2. Diversification

3. Cash drag

4. Tax efficiency

Investments Elsewhere: Portfolio Review

Q + A

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