Gone are the days when you needed a million bucks or more to have a wealth manager like Merrill Lynch or Goldman Sachs take you on as a client. Nowadays, there is a whole breed of digital wealth advisors (robo-advisors) with much lower minimums that utilizes sophisticated algorithms based on the same modern portfolio theory to manage people’s money for a much lower fee.
The leading digital wealth advisor with both sophisticated algorithms and human advisors is Personal Capital. They are based right here in the San Francisco Bay Area and I’ve been following their company since its founding in 2011.
Personal Capital now manages over $12.5 billion in assets under management as of 2H2020. They also just raised another $40 million in funding in 2017 after raising $75 million in funding 2016. Total funding is now $215.3 million, so it’s clear they are heading in a great direction.
What’s great about Personal Capital is that you can utilize all their financial tools for free. You don’t even have to be a client to do so. I’ve been tracking my net worth with Personal Capital for free since the beginning and have been successfully able to optimize my finances to all-time highs.
Here are all the reasons why you should sign up as well.
Why You Should Use Personal Capital For Free
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 along with how the markets did, upcoming bills, latest insightful blog posts and accounts that need your attention. Below is a sample headline snapshot.
3) Tracks Your Cash Flow. Budgeting is personal finance 101. 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 above, 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. With so 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.
Now that stocks are reaching new highs, investors are probably too overweight equities and way underweight bonds once again. 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. I had no idea 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.
In order 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.
Why You Should Invest With Personal Capital
Once you’ve used Personal Capital’s free tools, schedule a conference call with a financial advisor. It is also free. If you like the plan she or he comes up for you, then it’s worth letting Personal Capital manage your money.
The fee starts at 0.89% and goes down from there, depending on your assets under management.
Having the right proper asset allocation to match your risk tolerance is what good long-term investing is all about.
Leverage Free Technology For Greater Wealth!
Get a handle on your finances by signing up with Personal Capital for free and aggregating all your accounts. It takes less than a minute to sign up, and allows you to even find a personal financial advisor if interested. I spent the past 13 years meticulously tracking my own finances to achieve financial freedom. If I discovered Personal Capital earlier, I think I would have reached freedom even sooner!
If you want to utilize Personal Capital to manage your money for retirement, you can do so by first speaking to one of their financial advisors for free. If you feel s/he can provide value, then the cost is 0.49-0.89% of your assets under management a year.
About the Author: Sam began investing his own money ever since he opened an online brokerage account 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, two of the leading financial institutions. During this time, Sam received his MBA from UC Berkeley with a focus on finance and real estate. He also became Series 7 and Series 63 registered.
About Financial Samurai: FinancialSamurai.com was started in 2009 and is one of the most trusted personal finance sites today with over 1.5 million pageviews a month. Financial Samurai has been featured in top publications such as the LA Times, The Chicago Tribune, Bloomberg and The Wall Street Journal.