If you are looking for a digital wealth advisor, you should compare Personal Capital versus Betterment. Both are tech-driven, user friendly, and innovative. My favorite of the two is Personal Capital, which I’ve used regularly for well over a decade. Now let’s dig into the details of Personal Capital versus Betterment and you can decide for yourself.
Overview: Personal Capital Versus Betterment
Personal Capital is the leading hybrid digital wealth manager today. They have free financial software and free financial tools that over 1.6 million people use to manage their net worth.
Personal Capital offers wealth management services using human advisors plus digital algorithms to manage over $16 billion in assets under management.
I’ve been working with San Francisco-based Personal Capital since their founding in 2011. Their fees range from 0.49% – 0.89% due to better services and human advice.
Betterment is one of the largest digital wealth managers based in NYC with ~$21B in assets under management. They do not have free financial tools like Personal Capital.
But, they do have lower fees starting at 0.25% for standard and 0.4% for Premium. Betterment is clearly one of the leaders and has institutional partnerships with firms like Goldman Sachs and Blackrock.
Here is a quick infographic comparing the two digital wealth managers, or robo-advisors as they are known today.
If you are a higher net worth investor ($100,000+ in investable assets), or enjoy managing your own money, Personal Capital has an edge.
I personally use their free financial tools to manage my own wealth and so should you at the very least. Below are some highlights of Personal Capital’s award-winning app.
Reasons To Use Personal Capital
Here are eight reasons why I prefer Personal Capital versus Betterment.
1) Simplicity And Less Stress
Before Personal Capital, I had to log into eight different financial institutions to track over 30 different financial accounts ranging from brokerage accounts, money market accounts, CD accounts, checking accounts, IRA, and my 401K.
My finances were a mess, and I’m sure your finances could use some organization as well. Now I can just log into Personal Capital to see how everything is doing in one place.
It’s important to have a holistic view of your overall financial health so you know where to allocate resources.
2) Net Worth Overview
Gone are the days where you have to use an Excel spreadsheet to manually update every single asset and liability line item to calculate your net worth.
Personal Capital updates your net worth automatically as soon as you log in because all your accounts are linked. They provide a pie chart of your assets as well as gives you a historical chart of your net worth progression.
If you cannot find an account in their database, you can simply add it yourself. Personal Capital will also conveniently e-mail you a weekly snap shot of your latest net worth.
In addition, they’ll let you know how the markets did, your upcoming bills, latest insightful blog posts and accounts that need your attention. Below is a sample headline snapshot.
3) Track Your Cash Flow
Budgeting is personal finance 101. When comparing Personal Capital versus Betterment, Personal Capital has a big advantage with all of its free tools including Cash Flow.
By tracking your income and your spending like a hawk, you will be able to save a lot more money than if you simply tried to guess everything.
Think about all the times you withdrew cash from the ATM machine and had no idea where all the money went a couple days later. Aggregating all your accounts allows you to see where all your money is going.
In the example below, this entrepreneur brought in over $38,000 in income and spent only $3,096. Now that’s great cash flow!
4) Helps You Balance Risk
When you have many accounts, it’s often hard to see exactly what’s going where. For example, so many people were too overweight stocks before the financial crash in 2009.
With Personal Capital, you can easily see where the imbalances are in your net worth so you can make smart adjustments.
The Investment Checkup tool analyzes your portfolio’s holdings based on size, style, and sector. Personal Capital excels for those who have assets in the stock market.
Personally, I like to maintain a 35%, 35%, 30% split between stocks, real estate, and CDs/bonds.
5) Helps Reduce Fees
One of my favorite tools Personal Capital provides is their Portfolio Fee Analyzer. I ran my 401K through their fee analyzer and discovered that I am paying over $1,750 a year in management fees.
It surprised me that my Fidelity Large Cap Growth fund cost $1,200 a year due to a 0.74% expense ratio compared to sub 0.3% for my Vanguard Funds.
As a result, I found a similar Large Cap index fund instead and am now saving $1,000 a year. Without Personal Capital, I would have spent over $87,000 in excessive fees over the next 20 years.
Take a look at my example below. Portfolio fees are a serious problem which will rob you of your retirement wealth if you are not careful. Don’t let ignorance rob you of your financial well being.
6) Shows Your Portfolio’s Investment Efficiency
Based on your risk tolerance and investment objectives questionnaire, Personal Capital will give you an idea of where your current allocation is on the Efficient Frontier Curve.
The Efficient Frontier Curve is the best returns for a certain level of risk. You want to be on the curve and not above or below.
7) Recommends Specific Dollar Amounts To Invest
Financial advice is useless if there is no actionable advice. Personal Capital will recommend the specific dollar amounts to invest or reinvest in each asset class to get you to an optimal asset allocation.
In this example below, the investor is too heavily weighted in cash. To get to his recommended target allocation the investor needs to increase stock holdings by roughly $200,000 and bond holdings by roughly $100,000.
The fun part is figuring out which index funds to invest in each category. All investment related charts and analysis can be found in the Investing tab.
8) The Best Retirement Planning Calculator
Personal Capital has the best retirement calculator on the market because it uses 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.
Leverage Free Technology To Create Greater Wealth
Both Betterment and Personal Capital are great digital wealth advisors. However, only Personal Capital has a free, award winning financial app that everybody can download to manage their wealth.
It takes less than a minute to sign up and you’ll be amazed at how much more clarity you’ll have with your finances.
About the Author: Sam worked in finance for 13 years. He received his undergraduate degree in Economics from The College of William & Mary and got his MBA from UC Berkeley. In 2012, Sam was able to retire at the age of 34 largely due to his investments that now generate roughly $250,000 a year in passive income. He spends time playing tennis, taking care of his family, and writing online to help others achieve financial freedom too.
Sam started Financial Samurai in 2009 and has grown it to be one of the largest independently owned personal finance sites in the world. You can sign up for his free private newsletter here.