The best robo-advisor for your money in the new decade is Personal Capital. The decision is based on hundreds of hours of analysis.
Personal Capital has been around since 2011 and the company is run by Silicon Valley tech and security veterans. I’ve used their free financial tools since 2012 and have seen my net worth skyrocket since.
A robo-advisor is an online wealth management service that provides automated, algorithm-based portfolio management advice without the use of human financial planners. Robo-advisors use the same software as traditional advisors based on Modern Portfolio Theory, but usually only offer portfolio management and do not get involved in more personal aspects of wealth management, such as taxes and retirement or estate planning.
The key advantages to going with a robo advisor are low cost and low minimums. With traditional wealth advisors, it typically takes a minimum of $250,000+ to have firms like Chase, Raymond James, Edward Jones, and Citibank actively manage your money.
If you want firms like Morgan Stanley, UBS, or Goldman Sachs to manage your money, you need at least $1,000,000. If you comply, they’ll usually charge you anywhere from 1% – 3% a year in fees based on your assets.
What’s great about robo advisors is they lower the barriers to entry so all investors can benefit from risk-adjusted investing based on the same investment strategies used by traditional wealth advisors. The key to building wealth is to invest regularly.
Robo advisors offer great features like setting up automatic contributions into your account every month or every paycheck, and allow their technology to automatically contribute your cash inflows to a risk-adjusted portfolio tailored to you.
Robo-advice emerged as early as 2008 in the United States but didn’t really kick off until 2011 and has since spread around the globe. Today there are over 100 robo-advisory solutions on the market and they are expected to attract a significant amount of assets over the coming years.
After seven years of research living in San Francisco, the heart of the robo-advisor movement, I’ve narrowed down the best of the best robo-advisor using the following criteria:
1) Comprehensiveness of product
2) Ease of use / interface
4) Multi-platform accessibility (laptop, mobile, tablet)
6) The people behind the product
Here’s a comprehensive review on why using Personal Capital to grow your wealth is one of the best things you can ever do for your money.
The Best Robo-Advisor: Personal Capital
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 it’s a bull market, 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.
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. The financial management tools are free, 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!
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