Stocks Versus Real Estate: It Depends On Your Luck

Fortune (fu) in Mandarin

Always Lucky

I’ve written a pretty detailed post about analyzing whether it’s better to invest in stocks or real estate. Check it out if you’re wondering where to put your money. I tried to be unbiased in my analysis, but due to my experience investing in both asset classes for over a decade, I came to the conclusion that real estate was my preferred choice to building wealth.

Once acquired, real estate is pretty straightforward. Maximize rent, minimize expenses, let inflation take its course, and keep tenant turnover to a minimum. You are the King or Queen of your asset. Stocks, on the other hand, require constant re-balancing, trust in management, trust in a fund manager if you buy an active fund, and careful analysis of competitive forces that may hurt your investment. Think about how many great companies have disappeared over the years. This is why I recommend keeping most of your equity investments in low-cost index funds and focus on asset allocation instead.

One commenter pointed out the reason why I prefer real estate is because I was lucky to have bought in San Francisco in 2003. In this post, I’d like to address his beliefs and see if we can all just get lucky with our investments. After all, it’s always better to be lucky than good!

Become An Accredited Investor: Private Companies No Longer Want To IPO

Investors shut out of private investments if not accredited

Investors shut out of private investments

Do you know what the market capitalization was of Microsoft when they went public on March 13, 1986? A mere $500 million (~$1 billion in today’s dollars). If you had bought just 100 shares of Microsoft at the $21 offering and rode it all the way up to its peak in 1999, you would have cashed out for $1.4 million. Of course the stock came tumbling down and then back up. But you’d still have around $1 million bucks today. Not bad.

I remember working on the syndicate with my US colleagues during Google’s IPO back in 2004. We took the company public at a $23 billion market cap. Meanwhile, Facebook went public in 2012 at a $100 billion market cap. See a trend here? Companies are going public later and later in the game, meaning the public is getting less and less of the upside benefit!

The people who are getting rich are 1) Private institutional investors such as the hedge funds, venture capital funds, venture debt funds, and private equity funds, 2) Accredited investors who are able to invest in such private funds, and 3) The employees qualified enough to get jobs at these hot startups. Everybody else is shut out!

Seeing if we can balance the scale is one of the main reasons why I decided to consult with Sliced Investing. Sliced Investing is lowering the bar to let more investors gain access to private company deals and private investment funds that were never available to the public or regular accredited investors before. For example, I never would have imagined being able to invest as little as $20,000 into Lyft’s latest fundraising at a $2.8 billion valuation. What’s $2.8 billion when Uber raised money at a $48 billion valuation last year? Working intimately with private companies over the past couple of years has really opened my eyes.

Buying Structured Notes For Downside Investment Protection

Hedged Upside With Structured Notes

Are your investments hedged?

We could be in another financial bubble, but nobody really knows when a correction will take place. You might not even care if your investments decline by 20% or more over a year time frame if you are looking to invest over the next several decades. But alas, none of us will live forever, and nobody really likes to experience downside volatility. Sooner or later, we’ll have to deploy our capital for life, leisure, and charity. Not everybody wants to leave a financial legacy to raise spoiled kids!

One of the strategies I’ve taken to protect against downside risk is to buy various structured notes based on different indices like the S&P 500, Euro Stoxx 50, and the Russell 2000, or buy single stock structured notes of specific companies. Not only do I regularly rebalance my portfolios, I also consistently dollar cost average every month. You’ll be surprised how big a fortune you can create after just 10 years by methodically applying these two financial practices.

Structured notes are derivative products that usually provide hedged returns. In this post, I’d like to explain to you another recent structured note I bought to help illustrate how structured notes work. I buy all my structured notes through a Citi Wealth Management account. My other investment portfolios include: a Rollover IRA, a SEP IRA, a Self-Employed 401k, and a Motif Investing portfolio. 

Are We In Another Financial Bubble? Valuations Look Stretched

Stock Market and Real Estate Market Bubble PoppingOf course we are in a bubble! When you’ve got people with no professional financial experience giving investment advice, you better believe we’re in a bubble. Online investing advice by non-finance professionals is the modern day version of shoe shine boys giving stock tips prior to the crash of 1929. Always understand the background of those who give investment advice before considering their counsel.

Even after 20 years of investing and working in the finance industry, I always feel uncomfortable giving any sort of investment advice because I’ve had way too many losses partly thanks to multiple boom and bust cycles. Furthermore, everybody’s risk tolerance and money making abilities are different. The best thing we can do is have an appropriate asset allocation to ride out the waves.

The good thing about bubbles is that the greater fool game can last for much longer than expected because we humans are GREEDY, GREEDY, GREEDY!

The largest criers of the word “BUBBLE!” are those who have the least amount at stake. Perhaps they sold their real estate, stocks, or businesses before 2012 and are now kicking themselves. Maybe they are still graduate students with a lot of student loans to repay. Or maybe they are retirees or early retirees who can no longer take full advantage of a heated economy. Whatever the case may be, when the largest complainers of a bubble start getting back in, you know danger is imminent.

Let’s at least all agree that we’re in the second half of a bull market and the bubble will eventually burst. Maybe we’ll only correct by 15%-20%, unlike 2009’s 50% ass-kicking. But eventually, that year or three of pain will come!

Is Buying A Stock Coincidentally Before An Acquisition Insider Trading?

Insider Trading Jail CellOn Saturday, July 16, 2014 I played in a tennis tournament with a partner that worked at Trulia, an online real estate company. He just got his job and was explaining to me how the company makes money through its ad placements for Realtors. If you’ve ever wondered why companies like Trulia and Zillow have done nothing to lower selling commission rates from 5%, it’s because real estate agents are their clients. Asking how a company makes money or plans to make money is always my number two question after understanding what the company does.

We had a really fun time playing against Berkeley Tennis Club across the bay. After getting home, I decided that I was going to buy Trulia stock because I liked their business model, the stock had corrected somewhat, I was bullish on the real estate market, and it seemed like a prime takeover target. I was set on buying $50,000 worth of the stock on Monday, July 18.

For some reason, I got too busy that Monday and didn’t execute my order before 1pm PST. Mondays and Wednesdays were my consulting days for one of my ex-clients. I forgot about buying Trulia that entire week until I saw news after the close on July 28, 2014 that Zillow was acquiring Trulia for $3.5 billion in stock at a 25% premium! Damn! I could have made $12,500 in just a couple weeks!

What a shame. Or how fortunate. Let me explain.

How To Invest And Profit In A Rising Interest Rate Environment

Rising Interest Rates, Raygun Rocketship, by Nan Palmero

Rising Rates? Photo of Raygun Rocketship by Nan Palmero

After 34+ years of declining rates, you now believe that interest rates are finally going to start increasing. After all, the Fed Funds rate is at 0.25% and the 10-year yield is at ~2%. How much lower can they go?

I’m in the camp that interest rates will stay low for years to come because of the following reasons:

* Information efficiency
* Economic slack
* Contained inflation
* Coordinated Central Banks
* The growth of China and India and their continued purchasing of US debt
* The growing perception that US dollar denominated assets are the safest assets in the world
* A 30+ year trend of declining rates that is telling us we’re more adept at managing inflation with each new cycle that passes

But let’s say I’m wrong. Let’s say rates start rising aggressively? Where should one invest? What else should one do? To answer these questions, let’s first look back at history and get smart!

Personal Capital Review – New Investment Features And A Meeting With The CEO

Bill Harris, CEO of Personal Capital

Bill Harris, CEO of Personal Capital

After 3.5 years of using Personal Capital’s free financial tools to track my net worth, manage my cash flow, and optimize my investments, it’s finally time I do a unique review of Personal Capital from the perspective of an entrepreneur, an affiliate blogger, an equity shareholder, and a consultant for the past 17 months (Nov 2013 – April 13, 2015).

I’ve highlighted in previous posts how I use Personal Capital to reduce portfolio fees and how to run various growth scenarios to better manage your 401(k) for retirement. Now I’d like to share with you some thoughts about the company after spending over 1,500 hours consulting with Personal Capital. On April 13, 2015 I officially started my new role as a special advisor to the firm.


One of my main concerns as a affiliate is the viability of the product I’m highlighting to readers. I’m inundated with product affiliate offers every day and decline 99% of them either because they are not value added, not well presented, or don’t have good usability. Your time and my time is valuable, so I only want to highlight the most useful products that will provide the most value.

The last thing I want is for the company I recommend to shutdown like Adaptu did in 2013 or Manilla in June 2014. Businesses fail all the time for many reasons, and it’s my goal to highlight long term product winners on Financial Samurai. To keep trading in and out of stocks (switching products) is a very suboptimal use of time and money.

Personal Capital recently celebrated its $1 billion in client assets under management milestone on January 20, 2015. This is a huge milestone the demonstrates Personal Capital’s legitimacy as one of the premier digital wealth advisors. The first $100 million took several years to accumulate, and the second $100 million took under one year by June 2013. As of mid-2015, the firm now has close to $1.5 billion in managed client assets.

Personal Capital offers free wealth management tools available for all of us, but only makes money when users elect to have at least $100,000 in assets managed by Personal Capital’s wealth advisors for 75 – 89 bps annual fee of assets. In a financial world dominated by big brand names such as Fidelity, Merrill Lynch, and Charles Schwab, Personal Capital’s biggest challenge is to answer a consumer’s question, “Why them?

Personal Capital’s competitive advantage is that they built their company from the ground up with technology at its core. As a result, they are much more flexible in tailoring offerings to meet consumer demand. By implementing a work force of financial advisors across the country on top of its technology platform they can leverage their proprietary financial planning software to help customers and more easily convert existing customers to participate in managed services. In other words, they are a technology-assisted registered investment adviser (RIA).


Given my background in finance, I always automatically approach a company as a potential investor and not just as a financial writer. I’ve got a couple private equity investments that are doing well, and I’m always looking for more if they’ll have me. Personal Capital closed a $25 million Series C funding in the summer of 2013 led by Crosslink Capital with participation of asset management giant BlackRock and previous investors Venture Partners and Venrock.

The continued ability for a company to raise money is always a good sign. But the most bullish point from an investor’s point of view is BlackRock’s participation since they manage over $1 trillion in assets and are not just venture capitalists. I’m sure BlackRock is figuring out ways in which they, too can leverage technology to gather more assets under management. By becoming a minority investor in Personal Capital, they are more privy to their technology. Furthermore, if Personal Capital ever decides to sell their entire company, BlackRock will surely get first dibs due to their long standing relationship.

In October 2014, Personal Capital raised $50 million in a Series D round led by USAA, Corsair, and BBVA. USAA is one of the most respect financial institutions in the world and I’m very happy they’ve taken the lead. The total amount invested over the four year old company comes out to $102.3 million. Personal Capital is very well capitalized and here to stay.

Personal Capital currently has over 800,000 users with in excess of $100 billion assets being tracked on the platform (as of 2Q2015). They actively manage roughly $1.4 billion in assets under management and are growing at a 10% month over month clip. The entire wealth management market is roughly $32 trillion for individually managed investable assets in the US. The upside is huge.

In Silicon Valley, it’s all about B for Billion. Who is going to create the next billion dollar+ company? I believe Personal Capital will get there over time and I would invest in the company if I could.


Bill Harris, CEO is obviously financially independent after his time as CEO of both Paypal and Intuit. So I’m always curious to know what makes someone who doesn’t have to work still work so hard. I’ve asked myself these same questions before in posts such as, “Overcoming The One More Year Syndrome,” and “How Does It Feel To Be Financially Independent.” I still spend hours writing posts, visiting companies, and responding to comments on Financial Samurai despite the six figure passive income stream developed after 15 years of work.

What makes Bill tick is the desire to create something out of nothing and see things through until a successful outcome is achieved. Bill says, “Personal Capital is a culmination of my career.” Although Bill was CEO of Paypal and Intuit, he didn’t create Paypal or Intuit. As a co-founder of a company, there’s nothing more satisfying than seeing your baby grow into something meaningful. Perhaps the situation is analogous to being a biological father vs. a stepfather. You’re still proud of your child no matter what. But if you have adopted children (a company you lead, but did not found), then you’re always going to be curious what it’s like to have a biological child to raise as well.

It seems obvious to me that Bill’s main goal isn’t about making more money for himself, but about making Personal Capital the best online wealth management product possible. “Charles Schwab disrupted the wealth management industry 25 years ago. I think we can do the same with Personal Capital today,” says Bill. Here’s a short video from Bill describing his vision of Personal Capital.


Personal Capital has brought their online platform mobile with new app launches on iOS and Android lead by Jim Del Favero, CPO. The main feature that has saved me the most immediate money is Personal Capital’s Investing tab which analyzes your portfolios’ risk metrics, asset allocation, and fees.

I ran my 401(k) through Personal Capital’s 401(k) Fee Analyzer and it showed I was paying $1,750 in annual portfolio fees I had no idea I was paying thanks to a very expensive Fidelity fund. I ended up selling the fund and transferring assets into a Vanguard Large Cap fund which cut my annual portfolio fees down by 80%. I highly recommend everyone run their 401(k)s through the 401(k) Fee Analyzer as well to get an idea of how much fees are robbing you of your retirement years and portfolio performance.

Personal Capital is making their Investing tab more educational and interactive for users. Take a look at the screenshot below of my latest rollover IRA allocation. The first thing that should jump out at you is the enormous percentage I had in cash after I took profits on the majority of my holdings recently. My rollover IRA is my punt portfolio where I’m fortune hunting for high growth stocks. Such an extreme allocation of assets serves nicely to explain the following new investment analysis charts that Personal Capital now provides.

Personal Capital Investment Checkup Tab

What you’ll notice in the Allocation Comparison chart above are the new “Target Allocation,” “Historical Performance,” “Future Projections,” and “Risk & Return” tabs along with the target allocation and current allocation bar charts based on investor profile questions I’ve answered when I first signed up. You are always able to take the questionnaire again if your risk profile changes.

Personal Capital Historical Performance

The above Historical Performance chart basically shows how my existing cash heavy portfolio would have performed since 1992 if I kept the allocation the same. Much less volatile, but much less money! Let’s take a look at the next chart to estimate future performance.

Personal Capital Future Projections

The above Future Projections tab shows how I am projected to have $400,000 less in retirement than projections if I keep my existing portfolio allocation. What’s interesting is that the “10% Worst Outcome At Retirement” for my Current Allocation is still WORSE than a higher risk Target Allocation. The more proper point of comparison is to compare Current Allocation with Current Allocation and Target Allocation with Target Allocation. Once you do, you can see a wider volatility. The Future Projections is based off the initial recommended asset allocation based on my own risk metrics.

Risk Return Personal Capital

The above Risk & Return chart shows where I am on the Efficient Frontier Curve. The Efficient Frontier represents the best asset class mixes. Based on historical results, it is the set of allocations which offer the highest expected returns for each level of risk. The idea is to be on the curve, and not below or above the curve. The example used in the Personal Capital video discusses an umbrella store which could improve its sales returns by adding sunscreen on its shelves during the summer. As you can see from the chart, my current allocation is below the curve.

Personal Capital Recommendation Of Assets

The final chart shows the actual hard dollar target allocation amounts to be deployed on the Efficient Frontier curve. The tricky thing to figure out is which index funds to buy to achieve the best allocation for the best risk-adjusted returns over time. This is where Personal Capital’s financial advisors can hep you, or where you can do research on your own.

It’s important to realize that outputs depend on inputs. The recommended asset allocation Personal Capital spits out depends on your individual risk tolerance as determined in the initial questionnaire profile. The beauty of Personal Capital’s software is that it can make tailored recommendations for each user.

So how do you replicate the above charts for your own portfolio? Easy. All you have to do is link the portfolios you want to screen onto Personal Capital’s dashboard and then click the Investing tab in the top right and then click Investment Checkup. Personal capital will automatically produce the above charts and recommendations for you. You can also toggle between individual portfolios to do the same analysis e.g. 401(k), after-tax portfolio, etc.


Award Winning Technology – Personal Capital can be used on the computer, tablet, or smart phone – iOS and Android. I speak with the CPO, Jim Del Favero on a monthly basis because I’m a consultant and he keeps me in the loop. Next up is integration with Zillow for real estate valuation tracking, which will be great.

Easy To Use – All you’ve got to do is sign up, press the “+” to link all your desired accounts, fill in the respective user names and passwords and everything will get downloaded on the Personal Capital dashboard.

E-mail updates – Every week you’ll get an e-mail update of your net worth, the latest Personal Capital news, and a snapshot of the markets. You can also subscribe to Daily Capital, the Personal Capital blog to gain insights.

Tax Loss Harvesting – Personal Capital practices tax loss harvesting and tax location for their clients. Tax loss harvesting alone gains up to 1% in after tax return a year.

Smart Indexing – Smart Indexing aka Tactical Weighting is the practice of investing in equal weighted sectors or styles. In bull markets, one sector can grow to an outsized percentage, such as during the dot com bubble or the financial bubble. When the market corrected, people lost a lot of money. But if they practiced Smart Indexing, by constantly staying disciplined with equal weightings in the sectors, they would have outperformed.

Award Winning Content – Personal Capital also produces some of the best personal finance content on the web for all its users. I’ve been the Managing Editor of the blog since November 2013, and the goal is to entertain, educate, and boost reader’s net worth.


It’s really amazing how many free resources we have at our fingertips thanks to technology and the internet. Managing our own money has never been easier. The business model of leveraging the internet to gather assets under management makes a lot of sense due to scalability. The key for Personal Capital is hiring enough financially savvy financial advisors and continuously innovate their technology platform.

I hope after spending three years as a user of Personal Capital, highlighting various ways in which I use Personal Capital’s tools to create more wealth, and spending over a thousand hours meeting with senior management, research, and the advisors that I’ve provided the most comprehensive Personal Capital review online. There’s no other personal finance blogger who has the experience and insights to be able to write as thorough a review.

If you’re looking for a great way to track your net worth, analyze your portfolio fees, manage your cash flow, and get a handle on your finances, I recommend signing up for Personal Capital and linking your accounts. It’s free and is empowering people to take control of their wealth. May 2015 be the year that you super charge your net worth and gain a little more financial freedom!

Updated on April 28, 2015