After four 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, a partner, an equity shareholder, a consultant between Nov 2013 – Nov 2015, and currently an advisor.
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’s latest new features that will help you achieve your financial goals.
PERSONAL CAPITAL REVIEW
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 that will be around for the longest period of time.
It’s my belief that Personal Capital is hands down the best free financial tools you can find online to help manage your finances and achieve a much more secure retirement. With Personal Capital, you can do the following things for free:
- Automatically track your net worth
- Analyze your investment portfolios for excessive fees
- Analyze your investment portfolios for proper asset allocation
- Track and manage your income and expenses
- Run various retirement planning calculations to ensure a better financial future
If you’d like to have Personal Capital professionally manage your money and assign you a financial advisor, you can do that too for those with over $25,000 in investable assets. They charge a annual fee of 75 -89 bps of assets under management, cheaper than the likes of Merrill Lynch, Fidelity, and other traditional wealth management firms.
Personal Capital currently manages over $1.5 billion in managed client assets as of 3Q2015. This amount is a testament to their money management capabilities and product offerings. Their 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. They are a technology-assisted registered investment adviser (RIA).
Personal Capital is also superior to robo-advisors during times of market volatility because they actually have expert advisors to provide financial guidance. With a pure robo-advisor, there’s nobody to turn to if you have any questions or concerns. When the Dow is falling 1,080 points in one day like it did on August 24, 2015, it’s helpful to talk to someone to go over your long-term financial plan and answer questions like: What is my current asset allocation? Should I be buying more? What should I be buying? Is my portfolio cost optimized? Is my retirement still on track?
PERSONAL CAPITAL LONGEVITY
Personal Capital has raised over $102 million in funding from premier investors such as USAA, Corsair, BBVA, Crosslink Capital, Venrock, and BlackRock. I’ve been a member of USAA for over 20 years, and I can’t recommend a finer institution to bank with. BlackRock is also one of the largest institutional money managers in the world with trillions of dollars in assets. If these two firms are investors, it’s clear Personal Capital is here to stay.
Personal Capital currently has over 1,000,000 users with in excess of $100 billion assets being tracked on the platform (as of 3Q2015). They actively manage over $1.5 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 in time.
WHAT MAKES BILL HARRIS, CEO TICK?
I spent two hours sitting down with Bill Harris, CEO of Personal Capital in their Redwood City, CA offices to hear what makes him tick. Bill used to be the CEO of both Paypal and Intuit, and is therefore a long time veteran of the financial techology space.
What motivates Bill is his 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.” As a co-founder of a company, there’s nothing more satisfying than seeing your baby grow into something meaningful.
It’s 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.
THREE ACTION STEPS TO TAKE
Here are three things every person should do once they’ve signed up for Personal Capital:
1) Analyze your investments for excessive 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’m now going to save over $100,000 in fees during my lifetime. It is highly likely you are paying more in fees than you know
2) X-ray your investments for the proper asset allocation. 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 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.
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.
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.
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! The recommendation is free, and it’s up to you to decide whether you’d like to make the adjustments or not.
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. As you can see from the chart, my current allocation is below the curve.
The final chart shows the actual hard dollar target allocation amounts to be deployed on the Efficient Frontier curve.
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.
3) Run your financials through their Retirement Planning Calculator. Personal Capital has the best retirement calculator on the market because it uses your real data and Monte Carlo simulations to come up with the most realistic financial scenarios for your future. Other calculators simply ask you to guess input values to then come up with your financial future. The problem with this method is that we often underestimate how much we are saving and spending.
You can input different life events such as a wedding or home purchase in your cash flow statement and recalculate your financial future to see how you’ll do. Everybody should give it a try to see if they can receive an Excellent rating. Keep on adjusting your expenses and cash flow in order to achieve at least a 90% probability of achieving your goals.
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.
OTHER GREAT FEATURES
Award Winning Technology – Lauded by MacWorld as the Best Financial app on the web.
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. The more accounts you link, the more comprehensive picture you will receive of your finances. It only takes a couple minutes to sign up.
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.
MANAGE YOUR NET WORTH FOR FREE
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.
I hope after spending four years as a user of Personal Capital, highlighting various ways in which I use Personal Capital’s tools to create more wealth in this post, and spending over a thousand hours meeting with senior management, research, and their advisors that I’ve provided the most comprehensive Personal Capital review online.
If you’re looking for a great way to track your net worth, analyze your portfolio fees, manage your cash flow, assess your retirement track, and get a handle on your finances, I strongly recommend signing up for Personal Capital. It’s free and is empowering people to take control of their wealth. May this year be the year you super charge your net worth and gain a little more financial freedom!
About the Author: Sam began investing his own money ever since he opened a Charles Schwab brokerage account online in 1995. Sam loved investing so much that he decided to make a career out of investing by spending the next 13 years after college working at Goldman Sachs and Credit suisse Group as an Executive Director. During this time, Sam received his MBA from UC Berkeley with a focus on finance and real estate. In 2012, Sam was able to retire at the age of 34 largely due to his investments that now generate roughly $150,000 a year in passive income. He spends time playing tennis, hanging out with family, or traveling.
About Financial Samurai: FS began in July 2009 and is now one of the web’s largest personal finance sites with roughly 1 million organic page views a month. Financial Samurai publishes articles 100% based on experience and expertise. Only the best products are recommended after being thoroughly tested by Sam.
Updated for 2016