Personal Capital is a free financial dashboard that can track every, and I mean every, aspect of your finances. I use it daily. We’ll look at how and why I use this personal finance software in this Personal Capital review.
How Personal Capital Works
Based in Redwood City, California (not far from San Francisco), now has more than 900,000 registered users and over $1.8 billion funds under management. In addition, it has $187 billion in tracked (but not managed) accounts. The difference between the two numbers is that the first represents investments actually being managed on the platform, while the second is the total amount of assets included in the financial aggregator.
Personal Capital offers two versions – the free version, and the premium. The free version gives users access to Personal Capital’s financial dashboard. For those who want Personal Capital to actually manage their investments (which is not required to use the financial dashboard), there are fees and minimums.
Let’s look at both options.
Free Financial Dashboard
The free version entitles you to use the dashboard, as well as to have a free financial consultation from a licensed financial advisor. This will provide you with a personalized analysis of your financial situation, which will include an assessment of the risks and opportunities that may be available to you. This is also where they may suggest their premium service.
The free version includes the use of many of the services on-site, including the retirement planner, the 401(k) the analyzer, the investment check-up, and the mobile app. We’ll be discussing most of these in greater detail as we go along.
Apart from those services, Personal Capital’s free version works mostly as an investment aggregator, allowing you to see all of your investments and other financial accounts on one platform.
Financial Dashboard Features
Personal Capital has numerous features that should be of interest to investors.
401(k) Fund Allocation. Personal Capital can’t manage your 401(k) plan, or any other third-party sponsored, tax-deferred savings plan. But, they can analyze the plan you have and make asset allocation suggestions based on all of the investment options available in your plan.
Retirement Planner. This tool enables you to crunch numbers to make sure that you are in fact adequately prepared for retirement. You can access it directly from the dashboard. There, you can assess the impact major life events, such as the birth of a child, saving for college, or even illness. This will enable you to make adjustments before a situation becomes a problem that may impair your retirement.
The Investment Checkup. This feature analyzes your current investment holdings as well as your goals. It provides a risk assessment of your entire portfolio, as well as a retirement plan review. It will help you to establish a workable asset allocation plan based on your personal preferences and needs.
Once you’ve connected your investment accounts to Personal Capital, it automatically evaluates your current asset allocation. This evaluation spans all of the investment accounts you choose to link to Personal Capital, including 401k, IRA, and taxable accounts. It then compares your current allocation to its suggested target allocation.
Net Worth Calculator. I’m willing to bet that most people don’t know what their actual net worth is at any given point in time. This tool will help you to overcome that. It enables you to list all of your assets, as well as your liabilities, so that you can quickly determine your net worth at any time. And, since changes in your net worth are probably the ultimate barometer of your financial health, this is a seriously important tool.
Cash Flow Analyzer. This may very well be the most underrated tool on the Personal Capital menu. It helps you to establish a budget by tracking your income and expenses from all sources. This will not only enable you to pay your bills on time, but it will also help you see where you’re spending money. Because of this, it can be very useful in helping you to get out of debt.
Mobile App. Personal Capital has its own mobile app, and it’s completely free. It can be downloaded on Apple iPhone, iPad, Apple Watch and Android. The mobile version has everything that is available on the desktop platform. Having it will enable you to get updates on your banking activities and your investment portfolio when you’re on the go.
Site Security. Personal Capital uses several layers of protection in order to protect its clients on the platform. They use bank level, military grade encryption, but also perform regular third-party security audits to test their systems. They also use device authentication so that each device you link your account must first be authenticated in order to be used.
Try it out:
Personal Capital’s Wealth Management program is a premium service in which they actively manage your portfolio (see the fee schedule below).
Like other robo advisors, Personal Capital first determines your risk tolerance as well as your personal preferences and your life’s goals. Those factors will help them to be able to incorporate a sufficient amount of growth into your investment mix to enable you to reach your goals. In fact, your portfolio can be customized to match your goals, whatever they may be.
Personal Capital uses Modern Portfolio Theory, or MPT, in managing your portfolio. MPT places primary emphasis on broad asset classes, rather than on individual securities. However, unlike most robo advisors, Personal Capital isn’t completely reliant on the use of index funds. They use index funds for the non-US equity portion of a client’s portfolio, provided the client has over $100K invested.
Personal Capital works primarily with six asset classes:
- US stocks
- US bonds
- International stocks
- International bonds
- Alternative investments (including ETFs and commodities)
In addition to index funds, stock portfolios generally contain between 70 and 100 individual securities to minimize the risk that comes with being overweight in a small number of companies. For clients with less than $100K invested, they use only index funds across asset classes.
Personal Capital’s Approach
Integrated investment approach. One factor unique to Personal Capital is that they consider all of your investments when creating your portfolio, not just those that are under the direct management of the platform. This enables Personal Capital to maintain a comprehensive view of your entire financial situation, including portfolios that they are not managing.
Personal financial advisor. Whether you use the free version or the premium wealth management service, you will have a dedicated investment advisor who you can contact and get advice as needed. Once again, you don’t need to be in the premium program in order to have the service – it’s available to everyone. Your advisor can be contacted by phone, web conference, online chat or by email.
Investment trustee. When you open an account with Personal Capital, money isn’t held by the platform itself. Instead it’s handled by Pershing Advisor Solutions, which acts as the trustee for your account. Pershing has over $1 trillion in global client assets and is one of the largest investment trustees in the world.
Personal Capital’s Private Client Group
As is the case with most investment services, the size of your portfolio brings additional privileges. Personal Capital has a special program for high net worth individuals – the Private Client Group. It will be available to you if you invest $1 million or more. One of the many benefits of this membership is that you will enjoy a progressively lower fee structure than other clients with smaller portfolios (see fee schedule below).
This program will provide you with personalized investment and wealth planning, including direct access to a certified financial planner, as well as the entire team of licensed advisors. Contact is extended to weekends in addition to weekdays. You will also have private banking services and legacy planning that can help you establish trusts for your heirs.
Through this program you will also have access to Personal Capital’s quarterly conference calls with their Investment Committee, as well as the opportunity to invest in private equity, venture capital, and angel investments that are not available to most investors.
Personal Capital, like many other robo advisors, has incorporated tax optimization into their investment strategy. Of course, it’s only available to their Wealth Management clients and not on the free version.
Personal Capital approaches tax optimization on several fronts. They do not use mutual funds, since they consider them to be tax inefficient. Instead they make use of individual stocks, since they can be more easily bought and sold for tax-loss harvesting. Tax-loss harvesting involves selling losing stocks to offset the gains on the sale of winning stocks. This strategy effectively creates a backdoor tax deferral system which enables your investments to grow with minimal negative impact from income taxes.
Tax allocation is another important strategy. Income-producing investments, like high-yield stocks and real estate investment trusts, are placed in tax-deferred accounts so that their income streams will not be taxable. Meanwhile, investments that generate capital gains – such as stocks and ETF’s – are held in taxable accounts where tax-loss harvesting can be used to minimize the impact of income taxes.
Personal Capital Fees
As noted earlier, Personal Capital’s free version is just that, completely free. Fees will only be assessed when you use the premium Wealth Management program.
For the premium service, the fee structure looks like this:
- 0.89% of the first $1 million
- 0.79% of the first $3 million
- 0.69% of the next $2 million (up to $5 million)
- 0.59% of the next $5 million (up to $10 million)
- 0.49% on balances over $10 million
These fees are all-inclusive, which is to say that there are no additional costs for trading commissions, account administration, or other investment fees.
Also, the fee is applied only to the amount funds that you have under management. Other investment accounts, such as your 401(k) or investments held with other brokerage firms, are not included in the fee calculation.
Is Personal Capital an Investment Platform You Should Consider?
Since it all depends upon individual circumstances and personal preferences, that is a tough question to answer. Regardless, Personal Capital is a compelling choice among investment platforms of all kinds.
Consider the following:
- Though they aren’t the cheapest robo advisor in regard to fees, the fee that you are quoted upfront covers everything, which is not always the case with other robo advisor services.
- The fee is quite attractive when you consider that traditional investment advisors charge anywhere from 1% to 2% of the assets under management.
- Personal Capital allows you to include all of your financial accounts in the platform, which enables you to take a holistic view of your financial situation, rather than simply at the investment portion.
- Personal Capital recognizes other investment that you have that are not included on the platform and calculates them into the investment position they create for you.
- The tax optimization feature is one that you are unlikely to get from traditional investment advisors.
Considering all that has to offer, this is an investment platform that is well worth checking out.