Personal Capital – review (my experience)

Today I will share my review of being a Personal Capital user for 3 years – the good, the bad, and the conclusion.

Overview

Personal Capital website allows you to create an account on their website and map all your investment and cash accounts to your personal capital account. You can map your IRA, Roth IRA, regular trading account, your SEP IRA, your joint trading account, and even your checking account to your Personal Capital account.

Personal Capital Benefits

  1. Asset Allocation (Holistic picture)

In today’s day and age, it is natural to have several investment accounts. In addition, you might be managing your finances at the household level and suddenly you have your spouses accounts to monitor too. As an investor, it is critical for you to know how your portfolio looks at the aggregate level.

Personal Capital - Target Asset Allocation

Personal Capital – Target Asset Allocation

At Personal Capital, you can see a complete overall picture of your accounts – for example, as we speak I have nearly 10 accounts associated with my personal capital account. They include my current 401k, my prior 401k, my IRA, my Roth IRA, my SEP IRA, and a few trading accounts.When I log into my personal capital account, I can see the total value of all my investment accounts, and more importantly my portfolio level ‘asset allocation’.

As you can see from the above image, Personal Capital tells me exactly how my current portfolio (across all accounts) look like viz-a-viz my target allocation. The image, for example, shows my current cash allocation is 1.3% while it should only be 0.5%.

Target Allocation

Personal Capital calculates target asset allocation based on your profile (age, desired retirement age, income, savings, investment strategy etc). If you really understand this stuff well, then you can even ‘lie’ on your profile – for example, I have several relatively safe investments outside what Personal Capital can understand, so I have reduced my age by several years in order for my target allocation to be highly aggressive. Do not attempt this unless you are absolutely sure of what you are doing.

Efficient Frontier

Let us first define what is an Efficient Frontier – Text book definition is “It is the set of portfolios each with the feature that no other portfolio exists with a higher expected return but with the same standard deviation of return.”

Personal Capital - Effecient Frontier

Efficient Frontier

Now, let us simplify it in simple English – higher returns imply higher risk BUT higher risk does not necessarily mean higher return. For a given level of risk, historical returns will vary depending on portfolio composition. The portfolio composition with maximum historical return for a given level of risk is a point (on the Efficient Frontier).

Similarly, for different levels of risk, different points can be determined, if you join all these points you get what is called the Efficient Frontier.

Significance – each person’s risk profile/ appetite is different. For your given risk appetite, you should strive to be at the Efficient Frontier. Anything less means – your returns are not commensurate with the risk you are taking. Anything more means you are taking more risk than you intend to take.

2. Expenses (Fee Analyzer)

Personal Capital - Annual Fee.png

Personal Capital – Portfolio Fee Analyzer

It gives you a good idea about the fees you are paying for the investments you hold. Personal capital also shows you if you are paying too much fee in comparison with it’s own benchmark fee.

As you can see from the image, my fee is not even half of the benchmark fee; what else did you expect? I am a genius 🙂

And remember – these two things (asset allocation and expenses) are what dictate your long term returns. Once you have figured out how much you will save every pay check and how soon will you start to save, only these two numbers matter – asset allocation and expense ratio.

3. Free

One more good thing about personal capital – it is actually free – there are no hidden costs. In fact, I do not even remember them asking for my credit card information at registration. They will occasionally try to upgrade you to their managed services (where they will manage your investment investments for you) – I just ignore these requests.

Personal Capital Negatives

With personal capital, there aren’t too many negative things I have to say – I never paid them a dime and I find the asset allocation (current versus target comparison very useful). Still, keep in mind the following three things:

Customer Service

Expect delayed and incomplete responses from customer service – you will have to deal with them if you try to fix the securities that are in the ‘unclassified’ bucket.To give an example of unclassified security – Everyone knows that IBM is US Large Cap so personal capital maps it to US Large Cap category. But no one knows what is OJGZ so personal capital is not able to map it anywhere (OJGZ is a Target Date Fund that is available as an investment choice in IBM 401k plan). So personal capital will have OJGZ in ‘unclassified’ category. If you would like to get it fixed, you would need to get in touch with them, tell them how to classify it. They will ultimately do it for you but easily expect this whole process to take more than a week.

Adviser

Personal capital assigns an adviser to everyone as soon as you register. You can schedule a call with him / her if you like. They will also try to send you automated emails periodically to make you sign for their managed services – that is the way they make money. My experience with the adviser was not really good. I spoke to him a couple of times about three years back so do not remember the details but I clearly remember him just trying to ‘sell’ me their managed service. I vaguely remember his knowledge of finance also not to be extra-ordinary.

Mobile app

Personal capital has a cool mobile app, but sometimes their mobile version shows inaccurate aggregate numbers – on the laptop it was showing me x72,000 (which was correct) but a few hours later I logged into the iphone app and it showed me x32,000 – I am sure the market did not move as much that day, so either the phone app was showing erroneous data or the desktop. My guess – it was the mobile app showing erroneous data, I have noticed such discrepancies at other times too.

Conclusion

Personal Capital is great. I log into Personal Capital myself often, perhaps as often as I log into my primary trading account. A typical scenario of when I would log into Personal Capital – when I receive a paycheck. I would log into my Personal Capital account and look at my Asset Allocation to see which Asset Class allocation needs to be increased. That gives me a starting point to think about where to invest my paycheck savings.

Mint (www.mint.com) is a competitor of personal capital – I have personally not used Mint but friends tell me that Mind offers better capabilities for tracking expenses and managing budgets. Since my personal needs are more centered around investment, I will continue using personal capital.

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