Get A Free Financial Consultation With Personal Capital

Personal Capital Financial Advisor Over the years, a number of you have asked me to write a review about what exactly goes on with a free financial consultation with Personal Capital. Common questions include: Is the consultation really free? Is the consultation a high pressured sales call in disguise? Will I get something out of it even if I don’t sign up? Is it worth it?

The short answers to the questions are: Yes, the consultation really is free. There’s no high pressured sales tactics, just an understanding they’d like to work with you if you’ve found them helpful. You can continue to use their free Financial Dashboard if you don’t hire them. Yes, you will definitely get some good tailored advice and the opportunity to pick someone’s brain who sees and advises on multiple different types of financial situations for multiple different types of people. And yes, spending time getting a review of your finances for free is worth it since it gets you to review your financial situation at the very least.

I sat down with Patrick Dinan CFP®, a Personal Capital Financial Advisor over the course of 1.5 hours and two sessions, which I’ll now share with you in this post I spent about four hours putting together. The post shall provide transparency on the advisory service process as an insider.

My goals for the meeting were three fold: 1) To understand what a prospective client goes through during the call to advise on a better experience, 2) to understand Personal Capital’s value proposition for the 75-95 bps under management a year they charge and 3) learn what specific advice they could give me, a personal finance enthusiast who has been in the business for 15 years.

I’m sitting in a unique position given I’m very familiar with Personal Capital’s free financial tools as a DIY user for two years before I joined as a consultant to help build out their online content six months ago. I’ve gotten to know some of Personal Capital’s financial advisors and I’ve also sat in on various important meetings with the CEO, CPO, COO, and CMO to get a better understanding of the products and their desired messaging.

An important takeaway I’ve gotten from working more intimately with Personal Capital is that Personal Capital is a Registered Investment Advisor (RIA) who has a fiduciary duty to do what’s in your best interest. They are registered with the SEC, and are not a broker dealer. Broker deals only have a “suitability standard” for their clients, not a fiduciary standard, whereas RIAs have a much stricter fiduciary standard. For example, if you want to invest your entire $500,000 retirement portfolio in Apple after you dreamt Steve Jobs reincarnates, Personal Capital won’t let you because that violates your risk parameters and is not in your best interest.

A broker dealer, on the other hand, would probably also advise against such an aggressive move, but if push comes to shove, they could execute the transaction. The more a broker churns your portfolio and puts you into higher fee mutual funds, the more s/he gets paid so long as you don’t leave. But no matter how much your portfolio turns over with an RIA, the firm gets paid a fixed percentage of assets under management. The main way a RIA gets paid more is if you’re happy and your assets continue to grow. Interests are better aligned. 

Different Investment Strategies For Different Life Stages

Different investment strategiesA number of people have asked me to share some different investment strategies for different life stages. What I’ll do is highlight the various investment strategies I think make sense for most people, discuss a couple more alternative investment strategies, and round up what strategy I think is most appropriate by life stage.

We all know that step one to building financial wealth starts with saving. What really widens the wealth gap over the years is HOW one invests. Before investing in anything, I encourage everyone to tell themselves five things out loud.

1) I will lose money.

2) I will feel like a complete idiot when I lose money.

3) Nothing goes up forever.

4) There are plenty of exogenous variables outside of my control.

5) No risk, no reward.

Now that you’re mentally set to invest your hard-earned savings in the stock market where one change in government law, a corrupt CEO, a terrorist attack, a natural disaster, or a declaration of war could instantly wipe out half your gains, let’s begin!

What Is Considered Mass Affluent Based Off Income, Net Worth, And Investable Assets

Average Net Worth For Above Average Person

The middle class is the best social class in the world because nobody messes with the middle class. Politicians endlessly pander to the middle class in order to gain votes to stay in power. When you’re in the upper class, you become a target for hate groups who can’t stand success in the great USA. If you’re poor, well that just stinks.

But what about the mass affluent? You might have heard the term bounced around here and there on the TV, online, or on the radio. Surely including the words “mass” to signify a large population and “affluent” to signify wealth is an even better class than the middle class? As far as I can tell, the mass affluent are yet to be negatively targeted by hate groups.

In this post you’ll learn about the various financial definitions that aptly describe the mass affluent. Furthermore, we’ll discuss why being part of the mass affluent has its benefits.

How To Easily Analyze Your Investment Portfolio For Concentration Risk, Sector Exposure, And Style

Investment Checkup Of Your PortfolioRebalance your portfolio at least twice a year because your positions can change quite drastically as a percentage of your portfolio over time. If you really care about your finances, rebalancing once a quarter is probably even better. Whether you actually make some adjustments to your investment portfolio is a different matter. You might find you’re happy just the way things are based on your risk profile and leave well enough alone.

Just the fact that you’re staying on top of your investments 2-4X a year by checking your position sizes, reading your fund’s quarterly statements, and monitoring your general risk exposure is better than most people. Even if you employ a financial adviser to watch over your money, you should check in to see that your money is allocated properly. One person I knew thought she had 70% of her portfolio in the S&P 500 in 2013. When she finally opened up her year end financial statement she realized she was actually 70% in cash and 30% in bonds the entire time!

So is there an easy way to give your investment portfolio an investment checkup? I’m pleased to say there is.

One of the neat things about working at Personal Capital is getting firsthand updates of all the newest features by the people who create them. Jim Del Favero, Chief Product Officer showed me what he and his team have been up to this year with the rollout of the latest free Investment Checkup features. Here’s a quick tutorial to help you manage your investments better.

The new Investment Checkup features do the following:

1) Analyzes stock concentration: You can now easily see what your largest holdings are and if you have too much of any one position which might threaten your portfolio’s risk profile. Sometimes your winners can really grow in size quickly if you aren’t constantly paying attention. Conversely, many people start ignoring their portfolios when some of their picks do horribly.

2) Analyzes domestic equity sector exposure: You can see whether you are overweight or underweight in any one sector and see how well you are diversified. You can compare your portfolio to the S&P 500 as well as Personal Capital’s Tactical Weighting recommendation, which is based off equal weightings across sectors instead of market cap weightings. Tactical Weighting is also known as “Smart Indexing” according to PC.

3) Analyzes US equity style: See how your portfolio stacks up among large, mid and small cap stocks vs Personal Capital’s Smart Indexing recommendation and the S&P 500. The S&P 500 is market cap weighted while Smart Indexing is equal weighted across sectors. You might have too much or too little small cap or large cap exposure vs. the indices.

Below is a screen shot of what you should see when you log on to your Dashboard to help you access their newest features. Go to the top right and click “Investing” and then click “Investment Checkup”.

Personal Capital Investment Checkup

The Benefits Of A Backdoor Roth IRA

Backdoor Roth IRA - Horseback ridingIs A Backdoor Roth IRA A Good Move?” on Daily Capital is probably the best post on the internet that explains who should do a backdoor Roth IRA, how to do a backdoor Roth IRA, who is allowed to do a backdoor Roth IRA, the risks of a backdoor Roth IRA, and who doesn’t need to do a backdoor Roth IRA. Have a read and I’m sure you’ll agree.

Long time readers know that I’m one of the biggest detractors of the Roth IRA program. The main reality is: most people will make less in retirement than during their working years. Therefore, taxes should be lower, all things being equal. I present many more arguments as to why a Roth IRA is suboptimal.

But after spending some time editing the Daily Capital post, I’ve come around to the idea that for some people, a backdoor Roth IRA is a good move. Here are three main reasons why a backdoor Roth IRA should be considered.

Investing Your Tax Refund For A 1,000% Return

Mauna Kea, HawaiiIn the article, “How To Get Over Your Fear Of Investing” I mention how your risk tolerance decreases the more capital you accumulate. When you were rocking a $100,000 net worth as a 30-year-old, you had no problems investing 30% of your net worth in your employer’s promising stock. But now that you’re 50 and less enthusiastic about working for decades more, investing 30% of your $1 million nest egg doesn’t seem like a good idea.

The tax refund actually provides for a great opportunity to swing for the ROI fences every single year, no matter your age or net worth. Given that the average tax refund is only around $3,000, many people just blow it on material things like shoes, clothing, gadgets, and LED TVs. It’s not necessarily a bad idea to use your “bonus” money to buy something tangible: any of these things can provide solid utility until next year’s refund. Alternatively, going the traditional route of paying down debt or increasing a depleted emergency fund is also fine, just terribly unexciting.

Now if your tax refund was a whopping $100,000, I’m willing to be that your approach to spending it would be substantially different! Some would unwisely go out and spend the money instantly on a luxury automobile; most, however, would probably give considerably more thought to the question of how to deploy such a large sum. Things like paying down a mortgage, investing for retirement, buying a home, putting money away for a child’s education, or helping out a loved one all come to mind with this level of money. But most people will never receive such a large refund, so the point is moot (sorry!). The $100k refund simply provides a mental exercise that highlights how our spending habits shift when dealing with different levels of money.

Although a tax refund often feels like a nice windfall each year, it’s actually been your money all along. And how boring it is to just invest that money (now that you finally have it) in the stock market for a potential 8% historical return. Of course if you’ve got revolving credit card debt with interest rates in the teens or higher, certainly give that a whack. But as a Financial Samurai reader, I’m thinking you guys are savvier than this.

What Your Car Says About Your Investing Style And Money Making Acumen

This is a fun guest post from PK, a software engineer who writes at Don’t Quit Your Day Job…, a site which covers the intersection of personal finance, investing and economics. Follow DQYDJ if you care about the story behind the story.

Quick: what was the fastest production car that General Motors made in 1987?

The Corvette? A common answer – but the performance champion was the lesser known Buick GNX, which lives on today in the Buick Regal. (The Corvette lives on today in, of course, the Corvette)

Cars & Investing: A Universal Language!

So… why cars?

Well, first, I’ll be in fine company; this site has a history of well-reasoned articles about cars, what with the seminal 1/10th rule on car buying or its cousin, the 5% of net worth car buying rule. However, that’s not the full reason.

Like most engineers still in the workforce, I’ve spent a fair amount of time on Slashdot (tagline: “News for nerds, stuff that matters”) over the years. One of the tongue-in-cheek memes of that site (and, really, engineering-focused sites in general) is the venerable car analogy. No matter how complicated the topic, there will always be an argument as to how cars, trucks, traffic, roads, and other self-directed transportation-related items can somehow shine a (head)light on the topic. If the readers on those sites cared about investing, I’m sure you’d already have seen similar analogies put forward.

But, they don’t – and we do.

So, how would you describe the major classes of investors – passive, technical, growth and value – with car analogies? Let me take a shot first, then let’s hear your improvements in the comments!

Ferrari

In Ferris Bueller’s Day Off, Cameron’s Father’s ‘choice’ Ferrari 250GT California was just a replica… (Wikimedia)