If you are looking for a one-stop-shop for all of your financial needs, from budgeting software to investment advice, look no further than Personal Capital.
This online investment and wealth management platform offers you a comprehensive program for managing every aspect of your money, whether you are just learning how to budget or you are trying to determine the best investments for your multi-million-dollar portfolio.
Here’s what you need to know about how Personal Capital works, how it makes its money, and whether it will be the best way for you to manage your monthly budget as well as your retirement portfolio:
How Personal Capital Works
The process in getting set up with Personal Capital is fairly straightforward. After signing up for an account (which takes all of 60 seconds), you’ll be able to log in and begin connecting your financial accounts, including your bank accounts, investments, mortgage, credit card, and any other accounts.
It’s in this way that I find Personal Capital to be a little different than the rest as they’ve added on a money management component to just regular personal investing.
Connecting accounts is as simple as entering your secure information and allowing the software to do the rest. As with all other web-based personal finance programs, Personal Capital uses the same security and encryption you can expect from online banking, so providing the program with your secure account information is no riskier than any other online banking or money management you do.
As you continue to add accounts, your “investible assets” number will continue to grow. Once you hit the $25,000 number, expect to hear from the Personal Capital team—which we’ll get to in a moment. First, we need to look at all the free programs you get even without investing.
Personal Capital’s Free Software
One way to describe Personal Capital’s free budgeting software is an “account aggregator.” This program allows you to track and understand every single penny in all of your financial accounts. Once you link up all of your various accounts, Personal Capital summarizes your finances and offers you basic investment guidance.
This program offers a more comprehensive (and free!) service than similar competitor Mint. The program generates graphs and charts to help you better understand your financial picture, including the following:
- Net Worth
- Account Balances
- Income Reports
- Spending Reports
- Asset Allocation
- Investment Returns
- Projected Investment Fees
Basic budgeting is a snap with this program, as the interface gives you an understanding of all of your spending and account balances, and allows you to categorize your spending by date, merchant, and type of expense. The associated mobile app for iPhone and Android allows you to keep track of your budget even when you’re not at your computer.
Personal Capital also recently released a Retirement Planner tool that can help you build, manage, and forecast your retirement savings in the same place you handle your regular budgeting. You can use the Investment Checkup feature that asks you to create a basic risk profile, pick a target retirement date, and your projected income sources, and the program will recommend a portfolio for you. Finally, there is a fee analyzer that can help you to understand the fees you are paying on your current investments.
Of course, Personal Capital’s biggest claim to fame is its investment advice—which is why you are assigned a personal advisor once your investible assets reach $25,000, which the minimum investment. If you choose to invest with Personal Capital, your money is placed in a diversified portfolio of exchange traded funds (ETFs) with expense ratios with a weighted average of 0.09%.
If you’re a high roller with more than $100,000 to invest, Personal Capital will invest your money in ETFs and individual securities through a process called Smart Indexing, which equally invests your money in all sectors rather than mimicking an index. Personal Capital claims that Smart Indexing reduces your risk and increases your returns, which is a pretty neat trick. To back up their claim, Personal Capital has done hypothetical backtests (that is, applied it to past markets) which show the strategy outperforming the S&P 500 by over 1.5% annually and offering lower volatility.
All of this, of course, is still part of the robo-advising that Personal Capital offers—but there is more to the investment side of the program than this.
Personal Capital Financial Advice
Clients who invest with Personal Capital have access to financial advisors who are available via phone, email, or video chat for questions about everything from retirement planning to mortgages to refinancing loans. If you invest less than $100,000, you will have a single dedicated advisor assigned to your account. Invest more than $100,000, and you’ll have two advisors assigned to you.
In order to help you best allocate your investments, the Personal Capital customizes your portfolio based on your age, risk tolerance, goals, and investment time frame, and it accounts for various things like paying for your children’s college education or buying a house.
Your advisor (or advisors) works to help manage your assets in conjunction with the customized program, although you have final say in any investment decision. Also, unlike other robo-advisors, Personal Capital’s financial advisors are available to help guide you through market volatility.
Technology for the Financial Win
Personal Capital believes whole-heartedly in the power of technology to keep your money managed well. In particular, the program uses automated rebalancing whenever your portfolio gets out of alignment. For example, a portfolio that has a 15% investment in technology stocks could fall out of balance if tech stocks surge suddenly, turning your 15% investment into a 25% investment. Personal Capital’s automated rebalancing monitors your portfolio on a daily basis and makes necessary changes in order to keep your portfolio within your preferred balance.
In addition, the program works to reduce your tax burden by taking advantage of both tax-efficient investments as well as tax-loss harvesting through the use of individual securities. Personal Capital also works to properly allocate investments into the most tax-efficient accounts possible.
Of course, human financial advisors do need to be paid, which means Personal Capital’s fee structure is higher than many of its competitors:
- Up to $1 million invested: 0.89%
- $1 million to $3 million invested: 0.79%
- $3 million to $5 million invested: 0.69%
- $5 million to $10 million invested: 0.59%
- Over $10 million invested: 0.49%
To put these fees in perspective, an investor with less than $1 million in assets will be paying $89 per year for every $10,000 invested—which is a little steep, particularly when compared to other robo-advisors.
Other Important Offerings
That being said, Personal Capital really does work to be the alpha and omega of your financial needs. In addition to the above offerings, the program also has the following features, many of which you are unlikely to find elsewhere:
- Stock Option Tracker – Track the value of stock options from the company where you work.
- Universal Checkbook – Deposit checks via their mobile app. Take a picture of your check and the funds are deposited.
- Investment Checkup – Are you meeting your retirement goals? This is somewhat simplistic compared to other planners, but a good starting point.
- 401(k) Fee Analyzer – Find out how much your retirement plan is costing you.
- Tax Optimization – Are your investments fully optimized for taxes?
- Fund Costs – How much in taxes and expenses does it cost you with each fund you own?
- Asset Allocation Target – Are you overweight or underweight in any of the major equity categories?
The Bottom Line
As a robo-advisor, Personal Capital is a little more expensive than its competitors, and with a $25,000 minimum investment, it has a higher barrier to entry. However, it is a program that offers a great deal to both non-investors who simply take advantage of the free tools, and the investors who want to have the peace of mind of a financial advisor along with the automated approach of a robo-advisor.
Considering the fact that investing with Personal Capital is both cheaper than most brick-and-mortar financial advisors and much more comprehensive than most robo-advisors, it is a good best-of-both-worlds option for the long-term, passive investor who wants a holistic view of their finances.
Learn more and sign up with Personal Capital here.