Key Takeaways
- The S&P 500 jumped 5% in the week after the U.S. presidential election, topping $6,000 for the first time.
- Robo-advisor Wealthfront saw a marked increase in new customers interested in capitalizing on the current stock market rally. It also offers a 5.00% boosted APY on cash accounts.
- Choosing a robo-advisor with a high-yield cash account can be a great way to capitalize on both high interest rates and rising stock values.
Riding a post-election rally, the S&P 500 hit at all-time highs this week. On Monday, it closed at a record $6,001.35, up 5% from a week earlier. In other words, if you’d invested $1,000 in an S&P 500 index fund on Nov. 4, the day before the U.S. election, you’d have made about $50 by now.
While the stock market doesn’t always go up in the short term, it can be a great place to grow your wealth over the long term. Over the last 10 years, the S&P 500 (which follows the largest companies on the U.S. stock exchange) has made an average annual price return of 11.3%, though returns are never guaranteed.
You Can Invest With a Robo-Advisor Like Wealthfront
If you’re new to investing, a robo-advisor may be an easy way for you to get started. Robo-advisors rely on computer algorithms and can do much of the heavy lifting, like portfolio diversification, rebalancing, and tax strategy, for a fraction of the cost of human wealth managers.
This helps explain why Wealthfront, one of the first robo-advisors, saw a 146% jump in new stock investing accounts the day after the election compared to Election Day. According to a press release from Wealthfront, the robo-advisor also saw dollar deposits into stock investing accounts increase by 286% and transfers into automated investing accounts surge by 433%.
“The recent stock market rally suggests that investors are either celebrating the outcome of the election, the reduced uncertainty that follows when elections end, or perhaps both,” Alex Michalka, vice president of investment research at Wealthfront, told Investopedia in a written statement.
“Regardless, we’re encouraged to see millennials continuing to make smart financial decisions by putting their money to work in the stock market.”
Of course, that’s not to say you should put all your money in stocks. Wealthfront’s clients hold about 52.8% of their portfolios in equities, 34.2% in cash, and 11.2% in fixed income, with the other 1.7% in commodities, cryptocurrencies, and REITs. Those allocation percentages have remained unchanged over the past couple of weeks, the company said.
Earn a High Interest Rate on Your Cash, Too
To make the most from the cash portion of your portfolio, it pays to choose a robo-advisor that offers a high-yield account.
Despite the Federal Reserve lowering its key interest rate on Nov. 7, Wealthfront’s high-yield cash account still offers a 4.50% APY for all clients and a 5.00% APY for clients who refer a friend. That means if you hedged a $2,000 investment by allocating 35% of it to cash ($700), it could make up to $35 after a year—on top of any stock market returns.
Other top robo-advisor cash management platforms to consider include Betterment, Merrill Guided Investing, and Titan. Their cash accounts offer APYs of up to 4.75%, 4.63%, and 4.71%, respectively.
Ultimately, using a robo-advisor can be a great way to capitalize on the post-election stock market rally while benefiting from today’s relatively high interest rates.
Dotdash Meredith receives cash compensation from Wealthfront Advisers LLC (“Wealthfront Advisers”) for each new client that applies for a Wealthfront Automated Investing Account through our links. This creates an incentive that results in a material conflict of interest. Dotdash Meredith is not a Wealthfront Advisers client, and this is a paid endorsement. More information is available via our links to Wealthfront Advisers.
Cash Reserve is only available to clients of Betterment LLC, which is not a bank, and cash transfers to program banks are conducted through the clients’ brokerage accounts at Betterment Securities. For Cash Reserve (“CR”), Betterment LLC only receives compensation from our program banks; Betterment LLC and Betterment Securities do not charge fees on your CR balance.
Checking accounts and the Betterment Visa Debit Card provided and issued by nbkc bank, Member FDIC. Checking is made available through Betterment Financial LLC. Neither Betterment Financial LLC nor any of its affiliates is a bank. Betterment Financial LLC reimburses ATM fees and the Visa® 1% foreign transaction fee worldwide, everywhere Visa is accepted.3