I’m sure by now many of you have heard of Personal Capital. If you haven’t, then good news, you are about to learn everything you ever wanted to know about them! But before we jump in and start talking in-depth about Personal Capital and why it is so great, I need to explain to you why I am even writing about them in the first place.
Searching For Answers
I’ll admit it, I’m a finance nerd. Anything related to the stock market gets my attention immediately. When I was living with my best friend, we would watch Fox News Channel on Saturday mornings because of all of the investment shows from 10am – 12pm. In fact, we called them our saturday morning cartoons.
Ever since I started investing, I wanted to track my investments. I wanted to monitor my returns and see graphs and charts showing everything imaginable. Just ask my wife and she will tell you that for our net worth statement, I have at least 3 graphs and charts showing different information. I can’t help it. It’s my drug of choice.
Back in the day, I used Microsoft Money for my budgeting and to track my investments. It was nice for what it did, but then Microsoft decided to kill it off. For years, I aimlessly wandered, looking for something to help me track my investments. Everything I came across focused on budgeting and not investments.
Even programs like Quicken, which worked well didn’t meet my needs. And with Mint you can add your investments, but you can’t track them in-depth.
I was about to give up hope. Then Personal Capital came into my life. Since it was free, I opened up an account and the rest is history.
What Is Personal Capital
Personal Capital was started by Bill Harris back in 2009. He also was CEO at PayPal and Intuit, so you know he comes from a financial tech background. Personal Capital has been awarded CNBC’s Disruptor 50 for two years in a row.
At its most basic, Personal Capital is an account aggregator and registered investment advisor. What the heck is that?
Personal Capital is two companies in one. On the one hand, you have a free service similar to Mint, except that Personal Capital works. You link your financial accounts to Personal Capital and you let it do its magic in the background.
As of this writing, Personal Capital has over 1 million users linking their accounts and over $300 billion tracked by their aggregator.
The other side of their business is an investment advisor. If you want some help with your investments, Personal Capital will help for a small fee. The advisor side of the business has over $3.5 billion in assets under management. I’ll talk a little more about this later. But for now, this post is going to show you why you need to open the free account they offer. Hint: it will help you reach your financial goals.
Here is a quick intro video to learn more about Personal Capital:
When you log into your Personal Capital account, all of your accounts are updated to the minute and you get a complete picture of your finances. The accounts you can link include:
- Banking (Checking and Savings)
- Investment Accounts
- Credit Card Accounts
- Loans (Mortgage, Auto, Student Loan, etc.)
I linked up over 25 accounts in total, including bank accounts, investment accounts, my credit card and my mortgage. It took me all of 10 minutes to complete. I was worried that I was going to get errors or face other issues but all of the accounts linked without issue.
I love the fact that I can see all of our investments – 401k, IRA, taxable accounts, which are at various brokers in one screen, in total.
No more logging into 5 websites just to see how everything is doing. It is all right on one screen. Talk about convenience!
Digging Into Personal Capital
I know at the beginning of this post I mentioned that I am a finance nerd. You might be thinking that Personal Capital is going to be “too much” for you, since you aren’t a finance nerd like me. You’re wrong.
Personal Capital isn’t just for finance nerds like me. It’s for everyone that wants to get a complete, detailed picture of their finances in one place. The analysis and tools Personal Capital offers to you are hands down, the best out there. You learn so much about your finances.
You can go as deep as you want with regards to your investments. But even if you just scratch the surface, it will tell you all about the health (or lack thereof) of your finances.
Once you link up your accounts and log on to Personal Capital, you are presented with your dashboard. You will see the following here:
- Your overall net worth: how much you are worth
- Investable cash: how much cash you have to invest
- Cash flow: a look at your income and expenses over the month
- Budgeting/Watched Categories: see if your budget is on track or keep an eye on certain categories that you track
- Portfolio balance: the current balance of your investments
- Retirement savings: a monthly look at how much you need to save to hit your annual goal
- Market movers: various stock indices and the you index
All of these give you a quick, complete picture of your financial standing at a glance. For example, when you click on the Net Worth tab, you get to see your overall net worth, but you can also break that out and only look at your investments, loans, mortgage or credit balances and see how they have changed over time.
One important note, make sure you include your home equity when looking at your net worth. Personal Capital makes this easy as it pulls data from Zillow. Of course, some people think Zillow isn’t the most accurate. No worries, you can manually enter your home equity too.
Now that you know what Personal Capital is and what you will see when you log on, let’s dive in and see how it can help you take control of your finances.
When Personal Capital first came onto the scene, it was all about investments. You could link up your bank accounts, but you couldn’t really budget. You had to use another service if you wanted to budget your money.
But many people let Personal Capital know that they wanted to be able to budget their money too. So Personal Capital went ahead and updated this feature.
When setting up your budget, you can select the accounts you want to include in it and track a budget for the month, year, or a custom period of time, say weekly for example.
When it comes to transactions, it is a mixed bag. You cannot create custom categories, but Personal Capital has most covered. When I run through it, I rarely find that there isn’t a category for an expense. And if Personal Capital categorizes it wrong, you can edit it.
In addition, you can take a picture of a receipt to so you have it should you need it for tax purposes.
Personal Capital allows you to track upcoming bills as well. It’s nice to see what is due and when as I sometimes forget!
So I told you that the investments side is what Personal Capital does best. Let’s look at all it has to offer in regards to this. When you first look at the investing reporting of Personal Capital, you will notice a little thing called the “You Index”.
When I first saw this, I had no clue what it was. After a little research, I found that the You Index is this:
The ‘You Index’ is the performance of all of your current stock, ETF, and mutual fund holdings for which we are able to retrieve a current price on a public market, extrapolated backward. It does not include your cash, money market funds, individual bonds, options, or other alternative [investments].
In other words, it is basically how your portfolio performs against other benchmarks. The standard comparison that Personal Capital uses the S&P 500 against the You Index. The great thing though is that you can change this, along with other things as well.
- Want to see how you compare to other indexes like the Dow or 10 Year US Bond Index? You can do that!
- Want to see your 401k or IRA compared to the S&P 500 instead of all of your investments? You can do that!
- What about over various time periods like the last 30 days, last 60 days, this year or last year? You can do that too!
The Allocation tab on Personal Capital contains a wealth of information as well. The first thing you see is a nice colorful box at the top of the page. This box breaks out your allocation by percentage and dollar amount. But it gets even better.
Click on the “cash” allocation and you get a breakdown of the cash you hold. But not just the actual cash you have, you also see the cash that is in each holding you have. For example, if you are invested in the Vanguard 500 Fund, 100% of the fund isn’t invested at all times. There is a small portion of cash. Personal Capital shows you how much cash you have in that fund based on your balance!
If you click on the “US Stocks” area, Personal Capital breaks things down to large cap value, small cap growth, etc. along with your balance and percentage of that holding.
If you think that is cool, you haven’t seen anything yet.
Click on the Investment Checkup tab and wait a few seconds. You will be provided with an in-depth assessment of your investments. The assessment includes a look at your:
- Target Allocation
- Historical Performance
- Future Projections
- Risk & Return
- Allocation Comparison
Why am I so amazed at this assessment? I used to work for a high net worth investment advisor. We dealt with clients that had over $5 million to invest and we charged them a management fee to handle their investments. The assessment that Personal Capital gives you is essentially the same assessment we would provide to our clients! In other words, you are getting for FREE what investors that have millions of dollars usually pay for.
Now granted our assessment had more “meat” to it, but to get this assessment, and all of the information it provides for free is amazing to me. It shows you whether you are on track, where you will be and what changes you can make to better your situation.
Financial Sustainability Index (FSI)
The next investing tool Personal Capital provides is the Financial Sustainability Index. This is a new feature Personal Capital just introduced. Here is what it is, straight from Personal Capital.
The Financial Sustainability Index (FSI) is a personalized index that reveals your current financial reality, without relying on any assumptions or projections. Given your net worth and current market prices, the FSI measures the monthly income you can receive every month for the rest of your life starting today. This monthly payment will adjust with inflation to preserve your purchasing power and will not be affected by market fluctuations.
In other words, it is showing you how much income your current investments and cash are generating on a monthly basis. It’s a quick look to see if you can survive on the amount of money your investments are currently generating.
There are a handful of questions you can answer to help make this assessment more accurate. This is a nice way to look at things as opposed to the standard, “you need $X million in order to retire” message.
As much as I love the investment checkup, the Fee Analysis that Personal Capital provides is priceless. I would bet 99% of investors out there have no clue whatsoever when it comes to how much they are paying in fees. With 401k plans in particular, many charge fees that investors are completely unaware of. These “silent fees” are what is killing your dream of retirement. Personal Capital shows you just how much you are paying and will pay in fees and brace yourself it can be shocking.
For example, when I worked for a financial planning firm, we were targeting a small business 401k plan to bring under our management. When I was completing the analysis of the plan, I found that the average worker who invested in this plan was paying over 5% a year in fees. That is $5,000 a year on a 401k plan of $100,000. Over 20 years, that is $100,000 more you could have! Luckily you don’t have to manually figure out your plan fees. Personal Capital does it for you.
Below is a snapshot of my 401k plan. The first thing I want you to focus on is the upper right corner that shows the plan’s annual fees. As you can see, I am paying 0.08% in fees annually for the investments I am holding. This fee isn’t to a manager or anything like that. These are fees that the investments themselves charge me to invest in their funds.
Now I want you to look below that and see because of fees, I am losing 1 year of retirement income. Overall, I will pay over $16,421 in fees in my retirement account. If you don’t know how much you are paying in investment fees, you have to find out. It can be costing you your retirement.
Below the graph, you can play with how much you contribute to your 401k each year, how much your employer matches, the annual growth rate of the account and any additional fees you pay. Changing these assumptions will change the graph and will update the numbers for you.
While the 401k Fee Analyzer goes in-depth with your investment fees, you can also see the fees you pay in your other accounts as well. In these cases, Personal Capital will just show you how much you are paying in fees per holding, per year.
This feature alone is a reason why you should open up your free account with Personal Capital.
This has been a recent update to the service that Personal Capital offers. And trust me, it is incredible! When you create your free account, you have access to their retirement planning tool, which is essentially a monte carlo simulation. Did I just lose you?
A monte carlo simulation runs 1,000 or more different simulations of what the stock market can do. It then takes all of this data and your investments and goals and sees how they all end up in the future. Based on the confidence of the results, you have an expectation of what will happen.
I know that can still be a little confusing, so let me explain it this way. When I was working for a high net worth advisor we used a monte carlo simulation. I would input the client’s income, spending, investments, retirement age, and tax bracket into the tool. I would then run it and it would tell me what percent of success the client had at having a certain amount of money at a certain age.
In our case, we were looking for an 80% success rate. It would tell me at 95 years old, there is an 80% chance this client will have $500,000. This is what Personal Capital’s retirement planner is telling you.
You can play with the data – your savings rate, retirement age, etc. – and it will tell you the odds you have of not running out of money. Their simulator runs 5,000 different scenarios to help you make smart retirement planning decisions.
Here is what the output looks like:
As you can see, based on the information I entered, we have a 91% chance of success that we will be able to retire at 55, spend $60,000 a year and not run out of money. And here is where you can edit the various data points:
There are only a few things I dislike about Personal Capital:
- I wish the budgeting aspect was more customizable. As it stands now, I use Personal Capital for my investments and to watch a couple of spending categories. But for my overall budget, I still use a separate spreadsheet.
- I wish the fee analysis was more in-depth for the non 401k holdings. Seeing how much you are paying in fees is a real eye opener. But I understand it is hard to estimate as people tend to sell out of investments in taxable accounts as opposed to holding onto it long term like retirement accounts.
- I wish the fees to manage your money were lower with regards to the advisor side of the business. I’ll talk about this more below. I personally cannot justify 0.89% when I can do it myself for no cost other than my time. But the fee is competitive and if I weren’t so involved in our investments, I would consider letting them manage our investments.
Other Important Information About Personal Capital
With the formal review of the Personal Capital aggregator service complete, there are just a few loose ends to tie up. In no particular order:
Email Updates: You can choose to get daily or weekly emails that contain activity on your accounts. I chose to get the weekly email. When I receive it, right there in the subject line is how much my portfolio was up or down for the week. You can also get alerts for weekly changes in your net worth or even bill reminders.
How Much Does Personal Capital Cost: To link your accounts and see everything that I talked about above the price is $0. That’s right, Personal Capital is completely FREE. And if you sign up, you are under no obligation to invest your money with the advisor side of the business.
How Does Personal Capital Make Money: The other business of Personal Capital is a registered investment advisor (RIA). This means that they charge customers to manage their money for them. If you sign up for the account aggregation that this post is all about and have at least $100,000 in investable assets, Personal Capital will reach out to you. They are not annoying or overbearing.
When they called me, I didn’t know the number so I didn’t answer. They left a voicemail telling me who they were and why they were calling. They also sent me an email. They then called again a few days later. I politely told them I wasn’t interested and I haven’t heard from them since.
If you are curious how much Personal Capital charges, here is their current fee structure:
First $1 Million: 0.89%
First $3 Million: 0.79%
Next $2 Million: 0.69%
Next $5 Million: 0.59%
Over $10 Million: 0.49%
The fee structure is very competitive with other RIAs. However, the fee you pay Personal Capital to manage your money is the only fee you pay. With some investments advisors, you pay the annual management fee, plus commissions and other trading fees. So in reality, Personal Capital is less expensive than most RIAs.
If you are looking for help with you investments, but don’t feel like Personal Capital is the right fit, I recommend you look into Betterment. You won’t have access to a personal advisor like you do with Personal Capital, but as part of this tradeoff, you will pay a smaller management fee.
Other options include Schwab and Motif Investing, both of which are worth looking at.
The philosophy that Personal Capital takes with managing your investments is that since you cannot beat the market on a regular basis, you are better off investing using a passive approach and keeping your costs and taxes low.
Their target clients are those who have between $100,000 and $2 million to invest, which is a group that most traditional financial planners overlook. In order to open an investment account with Personal Capital, you need a minimum of $25,000. To learn more about Personal Capital’s investment philosophy, you can read their FAQs here.
How Safe Is Personal Capital: Personal Capital is safe. For starters, they use four processes to make sure your personal information is safe. Here it is, straight from Personal Capital.
Secure Authentication. We use two-factor authentication when you sign in to our site, (1) verifying your password and (2) identifying the computer you’re using. If someone steals your password and tried to use it from a different computer, they cannot get in. When you sign in from a different computer, we use an “out-of-band” verification to your email or your phone to make sure it’s really you.
Firewalls and Perimeter Security. Our data centers are protected with numerous perimeter and internal systems designed to prevent penetration and monitor for suspicious activity. These data centers operate under stringent financial and international security standards, including payment card industry compliance (PCI DSS Level 1) and ISO 27001 certification, placing information security under explicit management control.
Data Encryption. We encrypt your credentials and personal data with military-grade encryption algorithms – 256-bit AES, to be specific. Even if someone could penetrate the data center, your data would remain secure.
Continuous Monitoring. And not only do we persistently monitor activity, we let you do so as well. We’ll send you a daily email containing every transaction during the last 24 hours in all your linked accounts – bank, broker and credit card accounts. Every morning just take a quick peek and confirm that all the activity was yours. It’s a great way to catch any problems – like bogus credit card charges – right away.
Where Can You Use Personal Capital: You can access Personal Capital from your desktop or laptop, smartphone and tablet. Note that some features are not available on all devices. As of this writing, you need to log into your account from a desktop/laptop in order to:
Help Section: The help section on Personal Capital is very detailed. Entering what you need help with in the search box yields the result you are looking for. In the off-chance the search function doesn’t answer your questions, you can call or email them to get more help. In both cases, the representatives are very polite and are able to answer just about every question.
Personal Capital vs. Mint
I know a lot of people end up torn deciding between Personal Capital and Mint. If you are looking into Mint, here is a quick summary of why you should choose Personal Capital instead:
More Reliable: The synchronization Mint uses breaks. A lot. I would get frustrated with having to re-enter my username and passwords all of the time because my accounts would never sync. I never encounter this with Personal Capital, except when I actually change my password.
Ad Free: Mint makes their money by placing ads throughout the site/app targeted to you. With Personal Capital, there are zero ads. You log in and can see your banking and investing information without having to worry about ads.
Customer Service: With Mint, there is zero customer service. If you have a problem, your best bet is doing an online search and hoping to find an answer. Personal Capital on the other hand does have customer service and they are very good at getting back to you – usually in less than a day. When I had an issue recently, they were very helpful and responsive to me.
Budgeting: Here is one area where Mint is better as they allow you more customization with a budget. With Personal Capital you can budget, but you can’t make it your own as much as you can with Mint.
Investments: Personal Capital outshines Mint hands down here. If Personal Capital only offered the fee analysis and the retirement planner, they still would win hands down.
Security: With their more in-depth security process, Personal Capital is a much safer choice. [Update: Mint now has begun using two-factor authentication as well.]
In all, I highly recommend signing up for Personal Capital. You will learn a lot about your finances and investments and will be able to take actionable steps to put yourself in a better financial situation. You may even realize you need to find a new, low cost broker. All of this will lead to better financial health and the increased likelihood of you reaching your goals.
For me personally, I log into my account daily. I love playing with the graphs and charts. But again, I’m a finance nerd. My wife, who is the complete opposite of a finance nerd, also loves Personal Capital.
The way they lay things out and explain investing has helped her get more excited about investing and seeing the potential of our financial futures has fueled her to save more money (not that she wasn’t an amazing saver in the first place!).
She especially loves the retirement planning tool. It helps turn an abstract idea like retirement into an actual goal to strive for. And she loves seeing us make progress towards reaching it. She just looks at that summary and sees if we are on track or not.
As I mentioned above, Personal Capital is 100% free to use and when you do, you are under no obligation to have them manage your money. I’ve been using the free analysis for 3 years now and manage our investments myself. I’m sure that if you try it out, you will be hooked too.
If you would like to sign up for Personal Capital, click on this link to open your free account.
[Photo Credit: Pexels]