A Comprehensive Personal Capital Review

*** NOTE: ONLY FOR USA RESIDENTS***

Investing typically takes one of two approaches. The first one would be to follow an active investing strategy where you personally select the ETFs and stocks to invest in. The other option would be to follow a passive investing strategy where you let someone else do the selection on your behalf.

If you wanted to follow a passive investing strategy in the past, you had to work with an in-person financial advisor. You then had to schedule a meeting with them, build a suitable portfolio depending on your goals, and pay the financial advisor an asset management fee every year.

Today, things have really changed since robo-advisors have been introduced to streamline the process. Instead of meeting a financial advisor, you simply fill out a questionnaire online. The fees charged by the robo-advisors are considerably lower than those charged by traditional financial advisors. When it comes to robo-advisors, Personal Capital is one of the best.

What is Personal Capital?

Personal Capital is one of the leading robo-advisors that offers both completely free and paid financial planning tools. However, the company insists that it isn’t a pure robo-advisor since there’s still a lot of human involvement in some of the products it offers, especially the paid tools.

Personal Capital offers a wide selection of features available with the free financial planning tools. For investors with at least $100,000 to invest, the company has more advanced features. The company aims to be a one-stop-shop when it comes to managing your financial life.

The investment services offered by Personal Capital are somewhat of a mix between a robo-advisor and a traditional investment platform that involves human-guided investing. However, the company’s investing features are more geared towards higher net worth investors.

About Personal Capital

Personal Capital was established in 2009 and its headquarters are in San Carlos, California. Over 2 million people use it and most of them primarily use the free version. Still, the paid wealth management service has over 18,000 clients with over $8 billion in assets under management.

Users typically start out with the free version before upgrading to the paid wealth management services, especially those that want direct investment management of their investment portfolio. Still, users that don’t upgrade find that the free version has many investment tools that are definitely worth having.

First things first though. Once you register / open your account (all that is needed is your name, email and phone number) you need to link your accounts to enable you to begin using the management platform.

How Does Personal Capital Work?

Personal Capital has grown to become one of the leading financial management platforms currently available. It comes in two versions:

– Free Financial Dashboard

– Wealth Management Service

The Free Financial Dashboard is essentially a budgeting application, but it still offers investing tools in abundance. The Wealth Management Service is a comprehensive investment management service that functions somewhat as a robo-advisor while still offering a generous amount of live support from human financial advisors. The following is a more in-depth look into the two versions of Personal Capital:

Free Financial Dashboard

The Free Financial Dashboard is often viewed primarily as a tool for budgeting, but it is actually quite limited in that regard. The investment tools offered in this version are still extensive. Even if you might not have any intention of using Personal Capital as a budgeting tool, the free version provides valuable investment support.

The dashboard plays the primary role of a financial aggregator, where all your accounts can be included i.e. checking, savings, investments, credit cards, and loan accounts. It lets you assemble the entirety of your financial life on one platform. It is even possible to include employer-sponsored retirement plans and it is actually here that this version really shines.

Features

The Free Financial Dashboard offers the following features:

I. Budgeting

The free version of Personal Capital can be used for tracking your cash flow and spending patterns. It is even possible to analyze individual transactions and spending categories. You will receive summaries every month that help you know exactly where your money is going.

If you would like to use Personal Capital primarily for budgeting, that would not be the best decision. For instance, while it provides alerts for upcoming bills, there’s no bill payment function. You will still have to pay bills directly from your bank account.

II. Cash Flow Analyzer

The Cash Flow Analyzer is a tool that creates a budget for you. Once you have set it up, it will track your income and expenses from the various financial accounts linked to the platform. It is even possible to set financial goals, such as paying off your debts or preparing for retirement. The Cash Flow Analyzer helps you come up with effective strategies for achieving your goals.

III. Retirement Planner

To help you determine whether or not you are on course with your retirement goals, the Retirement Planner uses a series of “What If” scenarios. You can adjust for changes in your individual situation, such as a career or job change, saving for college, the birth of a child, etc. it even considers outside factors that may impact your retirement.

IV. 401(k) Analyzer

Millions of Americans are part of employer sponsored retirement plans, but only a handful know about the hidden investment fees inherent in such plans. The 401 (k) analyzer offered by Personal Capital will show you the exact amount that each fund in your plan is costing you. It then recommends alternative allocations for lowering the costs of the funds.

V. Net Worth Calculator

If you track your assets as well as liabilities, it becomes easy to determine your net worth fairly quickly. That’s an important thing to know since net worth is a key metric when determining your overall financial strength.

VI. Investment Checkup

Investment Checkup is perhaps one of the most important tools offered by Personal Capital. Once you have aggregated your investment accounts on the platform, the Investment Checkup tool helps you optimize your accounts. It may suggest that you adjust your portfolio mix to improve the overall performance of your investment.

VII. Personal Advisor

The Financial Dashboard offered by Personal Capital is free to use, but you still have the option to contact a personal advisor. While the advisor won’t give you any investment advice, they can still answer your questions regarding the service while also providing additional information regarding recommendations that Personal Capital makes.

Wealth Management Service

The Wealth Management Service that Personal Capital offers is at times grouped with robo-advisors, and that’s not completely true. While the company uses some automated investment tools, there’s still a strong element of active human engagement. That’s why the service is grouped somewhere between robo-advisors and traditional human investment advisors.

Personal Capital first determines your investment goals, risk tolerance, and time horizon, just like robo-advisors do. However, the company also considers your personal preferences when building your portfolio. The Modern Portfolio Theory (MPT) guides the management of your portfolio, which involves investing across multiple classes of assets to ensure proper diversification. The company even rebalances your portfolio periodically to ensure that target asset allocations are maintained.

Your portfolio is invested in 6 classes of assets:

– U.S. Bonds

– International Bonds

– U.S. Stocks

– International Stocks

– Cash

– Alternative Investments, which Include Gold, Energy, and Real Estate Investment Trusts

Your investor profile will determine the specific percentage of your portfolio that’s allocated to each asset class depending on your personal preferences, time horizon, investment goals, as well as risk tolerance.

To provide broad market exposure at a low expense ratio, each of the asset classes is invested in a low-cost index-based exchange traded fund (ETF). The portion allocated to U.S. equities, however, will be held in a diversified sample of not less than 70 individual stocks. That allows Personal Capital to provide tax optimization and tactical weighing.

Investment Strategies Used in Personal Capital’s Wealth Management Service

A. Tactical Weighing

It is an investment approach that improves upon traditional indexing by ensuring more evenly weighted exposure to easy style and sector. The strategy has been shown to outperform the S&P 500 by 1.5% annually, but with less volatility.

B. Smart Indexing

It incorporates Modern Portfolio Theory as well as equal size/sector weighting.

C. Tax Optimization

It is an investment strategy geared towards lowering the income tax liability that results from your investing activity. It uses several techniques:

– Using ETFs as opposed to mutual funds because they generate less capital gains

– Using individual stocks since they can be easily sold or bought to generate tax-loss harvesting

D. Automatic Rebalancing

If your portfolio passes your preferred asset allocation proportion, Personal Capital will automatically rebalance it.

E. Socially Responsible Investing

If you wish to incorporate Socially Responsible Investing into your investing activities, Personal Capital will select specific investment based on their compliance with the environmental, social, and governance. It will give you the opportunity to invest in what you believe in and avoid what you don’t.

Wealth Management Features

– Accounts Available: Taxable and joint investment accounts; Roth, Traditional, Rollover, and SEP IRAs; Trusts

– Minimum Initial Investment: $100,000 or $200,000 if you wish to enjoy regular access to financial advisors

– Advice for 401(k) and 529 Plans: While Personal Capital cannot manage these accounts directly, it will offer you advice regarding the same.

– Account Protection: All accounts are protected by SIPC, for up to $500,000 in cash and securities, which includes up to $250,000 in cash. The coverage protects against broker failure and not against monetary losses caused by fluctuations in the market.

– Account Custodian: All Wealth Management portfolios are held with Pershing Advisor Solutions, which is one of the largest investment custodians and clearing agencies in the world. The company is the custodian for over $1 trillion in assets throughout the globe.

– Financial Advisors: It is a major aspect of the Wealth Management Service. You can reach the financial advisors 24/7 via email, phone, live chat, or web conference. You will have 2 dedicated financial advisors if you choose to become a client of the Wealth Management Service.

How Much Does Personal Capital Cost

The fees that Personal Capital charges for investing advice and management are outlined below. The fees cover everything including tax loss harvesting, ETF expense ratios, portfolio rebalancing, etc. The fees are higher than those charged by pure robo-advisors, but are lower than those charged by traditional investment managers.

– $1 Million or Less: 0.89 Percent Annual Fee

– $1- to 3- Million: 0.79 Percent Annual Fee

– $3- to 5- Million: 0.69 Percent Annual Fee

– $5- to $10- Million: 0.59 Percent Annual Fee

– $10 Million or Higher: 0.49 Percent Annual Fee

Personal Capital: The Pros

– Budgeting and Investment Management Offered in a Single Platform: Personal Capital offers both budgeting/personal financial management as well as investment management on one platform.

– Tax Optimization: Extensive tax optimization strategies are used in the Wealth Management service to minimize the income taxes your investments generate.

– Free Financial Dashboard: The dashboard includes many different investment tools and budgeting capabilities and is free to use.

– Socially Responsible Investing: If you think of yourself as being socially responsible you want to ensure that your investments align with your values and Personal Capital allows you to do exactly that.

– Financial Advisors: If you select the Wealth Management service, you will have 2 financial advisors that can help with the management of your financial life.

Personal Capital: The Cons

– Limited Budgeting Capabilities: The budgeting tools offered by Personal Capital are considerably more limited compared to fully dedicated budgeting apps such as Quicken or Mint.

– Upsells: If you sign up for the free version, Personal Capital will constantly try to upsell the paid Wealth Management Service. Users have found this to be irritating.

– High Minimum for Wealth Management: $100,000 is the minimum initial investment amount required for the Wealth Management Service, which effectively locks out most small and medium size investors.

– High Fees: The 0.89 percent fee that investors have to pay for Personal Capital’s Wealth Management Service is considerably higher than that of robo-advisors, such as Betterment, who charge from 0.25 to 0.40 percent.

Personal Capital Vs. Betterment

Personal Capital is obviously not the only online investment management firm available. It has its competitors and one of the most popular of these competitors is Betterment, which is best known as one of the first major robo-advisors. However, it still has a human aspect as Personal Capital does.

Either Personal Capital or Betterment can be an excellent option when it comes to your investment, but each has its own strengths and pricing model. The following is a comparison of the two to find out which one is a better fit for your unique investment needs.

How Are They Similar?

Personal Capital and Betterment are similar in the following ways:

– Accounts Offered: Personal Capital and Betterment are both robo-advisors offering taxable joint and individual accounts, as well as traditional IRA, rollover IRA, and Roth IRA and trust accounts.

– Tax Loss harvesting: Personal Capital and Betterment both have tax loss harvesting features that help you save money on any losses incurred.

– 401(k) Assistance: Personal Capital and Betterment can both help you with your employer-sponsored 401(k) plan.

– Portfolio Rebalancing: Personal Capital and Betterment both offer automatic portfolio rebalancing to ensure that your ideal asset allocation is maintained.

– Socially Responsible Investing: Personal Capital and Betterment both offer investment options that are socially conscious.

– Security: Personal Capital and Betterment both use very strong security to ensure that your account information and money are safe and secure.

How Are They Different?

Personal Capital and Betterment are different in the following aspects:

Personal Advisor

Personal Capital and Betterment both offer the services of a robo-advisor, which include automated portfolio building and management. The difference is that Personal Capital provides a personalized service to help you deal with specific situations that you may require clarification or providing portfolio customization.

Holistic Wealth Management

The wealth management approach is yet another area where Personal Capital and Betterment differ. While Betterment focuses on managing your investment account, Personal Capital offers this as well as other services that can be of additional value to you.

Investment Style

Robo-advisors such as Personal Capital and Betterment usually offer similar asset allocations. Still, there are some differences that you should consider. Personal Capital, for instance, offers equal style and sector weighting that strives to lower volatility by equalizing across sectors, style, and company size. If you are an investor that’s worried about good returns with minimal volatility, this can be a key consideration.

Minimum Deposit

If you choose Betterment, you can actually start with no minimum. You could even start with a $1 investment if you want. However, to use the Premium service, you will require a balance of at least $100,000.

Personal Capital does not require that you have a minimum investment amount to use the free tools, but you will require a minimum investment amount of $100,000 to use the paid service. Additional premium services require a $200,000 minimum and $1 million minimum.

Annual Fees

Personal Capital’s fees depend on the total assets that the service manages for you. You will pay 0.89% in annual fees for accounts with $100,000 to $1 Million. It goes down to 0.79% for accounts with $1million to $3 million. It goes even lower to 0.695 for accounts with up to $5million, 0.595 for accounts with up to $10 million, and even further lower to 0.49% for accounts with $10 million or more.

Betterment charges 0.25% annually for the Digital Plan that includes the self-service robo-advisor. If you choose the Premium Account, you will pay 0.40% in fees, which includes unlimited access to a certified financial planner as well as a financial plan for all your assets, even those that are not managed by Betterment.

Personal Capital Vs. Betterment: Which One Should You Choose?

The decision regarding which one to choose between Personal Capital and Betterment is a tough one. You have to consider several different factors. However, Personal Capital has an edge over Betterment since it offers excellent free tools and delivers better investment performance over Betterment even though both have very similar investing styles.

How to Sign Up with Personal Capital

Now that you have seen just how great Personal Capital is for investing, you should head over to the official website to sign up and start using the service. You start by providing some details about yourself such as your email address and phone number, then creating a password.

You will then be asked to provide additional details such as your name, current age, age at which you wish to retire, and the amount of money that you have saved towards retirement. Once you provide that information you can start to link your accounts.

Personal Capital can sync with over 12,000 financial institutions, or you can just enter the name of your institution and web address. The platform will then start analyzing your financial accounts going back 1 to 3 months. Once the analysis is complete, you will have access to the tools on the Free Dashboard, along with recommendations by Personal Capital regarding your investment accounts.

To sign up for the Wealth Management service, contact a financial advisor to get started with the process. You will be required to provide further information, which includes documentation to verify your identity. You will then have to link one or more financial accounts to transfer funds into the account that will be holding your investment.

You will also be required to fill out a questionnaire that determines your investment goals, risk tolerance, investment goals, and time horizon. You will also have a web conference with a financial advisor who will gather more specific information. Your portfolio will be built based on the answers provided in the questionnaire and the information you provide to the financial advisor.

Summary

If you are looking for a great online investment management platform, then Personal Capital is all you need. It is easy to understand and useful. It offers free tools that give users an in-depth look at their own personal finance health, retirement potential, and investments. Paying customers get the assistance needed too take their investments to the next level.

It might be up to paying users to determine whether or not the paid services are worth the costs, but everyone should sign up for a free Personal Capital account. The free tools are simply to helpful to ignore. Personal Capital can be an excellent tool for helping you get a stronger grip on your finances, regardless of who you are, so try it out today!