Who Ought to Opt for Their Own Personal Capital?
Both a comprehensive robo-advisor platform and a set of free financial management tools are included in Personal Capital ‘s product offering. The former can be found here, and the latter can be found here.
The latter option gives you access to a budgeting dashboard that has a pleasant appearance and enables you to synchronize your various financial accounts so that you can monitor your day-to-day spending and cash flow. This all-in-one solution, which garnered it the top spot in Forbes Advisor’s rating of best budgeting apps, would be beneficial to anyone who is interested in having a comprehensive insight of their own financial situation.
In the meanwhile, the robo-advisor platform provided by Personal Capital makes the most sense for a very certain category of investor. This refers to a person who:
- Already has accumulated $100,000 in savings for future investments.
- is open to paying greater fees in order to have a live conversation with a financial expert.
The first consideration eliminates a good number of candidates from consideration:
- According to studies conducted by the Federal Reserve, the typical household in the United States possesses a median of $25,000 worth of financial assets.
- Only approximately half of all households in the United States have some kind of savings set aside for retirement, and the median amount is only $65,000.
- Stocks are owned by somewhat more than half of all households, although the typical amount per household is only $40,000.
When everything is considered, a very small portion of the general population will have adequate assets to qualify for the investment services offered by Personal Capital. This is in contrast to the competitors such as Acorns, Betterment, and Wealthfront, which have low or zero minimum balance requirements.
Yet, if you are able to make the required minimum investment and desire access to financial planning professionals, this may help justify Personal Capital’s high fees; however, even these fees may be higher than what you would pay for comparable service with other robo-advisors.
For instance, clients with less than $1 million in assets under management pay 0.89% in fees at Personal Capital, but the premium service with financial adviser access offered by the competitor Betterment costs 0.40% of assets under management.
How the System of Personal Capital Operates
Think of Personal Capital as a synthesis between a high-end robo-advisor and a budgeting tool. This means that, if you’re so inclined, you can let the company based in Redwood Shores, California, manage your entire financial life.
The Free Budgeting Platform Provided by Personal Capital
If you link your financial accounts to the platform that Personal Capital provides, you will be granted access to a dashboard that is reminiscent of that provided by Mint or one of the other competing budgeting applications. You will be able to view your current and historical net worth, as well as your monthly cash flow and how your budget has evolved over the course of the last few months.
You may gain a better understanding of how much money is coming into and leaving your account on a monthly basis with the assistance of this practical tool. Personal Capital will alert you to upcoming bill payments by linking to the accounts associated with your mortgage, auto loan, and any other loan accounts that you may have.
In addition, the app’s interface is intuitive, and it can be downloaded for free on both Android and iOS devices.
The Free Investment Planning Features Available at Personal Capital
You also have the option of letting Personal Capital manage your investment accounts, which will provide you access to a complimentary investment review service.
By linking your investing accounts, you will be able to monitor how well your portfolio has done using the “You Index,” which is a term that has been patented by Personal Capital. In practice, it brings together all of your holdings, including cash, bonds, and stocks, and evaluates their performance in relation to broad indexes, such as the S&P 500 or a blended account.
This is a helpful tool that will allow you to compare the success of your portfolio in a short amount of time and will also show you where your money is placed.
A remarkable and user-friendly interactive investment planning dashboard is provided by Personal Capital. When you provide the platform with some information about yourself, such as your age, income, and savings habits, it will generate a “retirement planner” page for you.
This page will show you how much money you are likely to have and how much you can count on from Social Security, while also providing suggestions for how you can improve your situation. Even if they don’t end up becoming a paying Personal Capital user, those who are unsure about where they stand in relation to their retirement goals can use this tool.
Personal Capital has a savings planner that may help you prepare for the medium term. This planner can tell you if you are saving enough each year to fulfill your retirement objectives, how well stocked your emergency fund is, and how much progress you’ve made on paying down your debt.
The retirement fee analyzer provides you with information regarding how much money you are currently spending on annual expenses, how much money that will cost you throughout the course of your retirement, and whether or not your charge burden is larger than it should be.
The investment checkup provides a grade for your asset allocation (i.e., is your portfolio too aggressive or too conservative?) and makes a recommendation for a target allocation of stocks and bonds.
How Personal Capital Handles the Management of Your Funds
You will have access to the robo-advisor wealth management tools of Personal Capital if you have a minimum of $100,000 in assets to manage and are ready to pay higher fees.
Access to real-life financial professionals is probably going to be of the utmost importance to you. These fiduciaries provide answers to your concerns about investments and retirement, design complete financial plans for you, and assess the degree to which you are succeeding in attaining your objectives.
Those who have already hit their middle years and are concerned about their ability to put away sufficient funds for their own retirement as well as for their children’s higher education may find this to be a source of significant relief.
Regarding the investments themselves, Personal Capital makes use of a group of big hitters and strategists to assist in the creation of tax-efficient investment portfolios that will contribute to the growth of your long-term wealth.
Personal Capital counted luminaries such as Harry Markowitz, who is famous for his contributions to contemporary portfolio theory, and Shlomo Benartzi, who is a notable behavioral economist, as important contributors. On the other hand, Ellevest had Sallie Krawcheck, and Wealthfront has Burton Malkiel.
Personal Capital’s so-called Personal Strategy, which tailors an investment portfolio to your requirements and objectives over the long term, is one of the features that contribute to the company’s widespread popularity.
It employs a combination of low-cost exchange-traded funds (ETFs) and possibly some individual stocks and bonds to create a portfolio that aims to maximize your returns based on the timeline and amount of risk you say you are willing to incur in a questionnaire.
The Monte Carlo simulations are used to test the probability of you meeting your retirement needs, and the ETFs and individual stocks and bonds come from a variety of different companies.
Those who are looking for an advantage over a pure passive indexing strategy, in which they keep their money in an ETF that tracks a broad index such as the S&P 500, may appreciate Personal Capital’s “smart weighting” approach. This strategy gives you access to smaller investments that have the potential to grow at a faster rate than the investments that you would get from competing robo-advisors.
This strategy gives you an advantage over passive investing, particularly in the equity element of your portfolio, which may involve the purchase of individual equities. Because meticulously putting in individual equities involves more than a simple algorithmic approach on its part, this also helps explain why Personal Capital charges greater fees than many of its robo-advisor competitors.
If you are the type of person who is ready to pay greater fees in the hopes of getting larger returns, then the hybrid approach to robo-investing that Personal Capital takes may make sense for you.
This method involves largely passive investing and some active investing. Bear in mind, however, that these higher prices do not guarantee better results, and you face the risk of underperforming as a result of them.
Personal Capital will also assist your portfolio be tax effective by utilizing tax-loss harvesting, which is a tool that is more commonly found in robo-advisors, as well as by analyzing how your assets are allocated between your taxable and tax-advantaged retirement accounts.
This enables Personal Capital to store instruments, like bonds, that produce monthly income payments in tax-advantaged accounts, such as an individual retirement plan (IRA), so that they won’t cause an increase in your taxable income. This can make you feel more at ease about increasing the proportion of your taxable brokerage account that is allocated to equity.
Charges & Fees Relating to Personal Capital
There is a cost associated with doing all of that effort. Personal Capital provides three service tiers, each with different minimum balance requirements and associated fees:
- Services Related to Investments You will be charged an annual fee of 0.89% for a managed ETF portfolio and assistance from one financial advisor if your account balance is between $100,000 and $200,000.
- Management of One’s Wealth You will pay the same price of 0.89% for balances ranging from $200,000 to $1 million, but you will have access to two financial advisors and a portfolio that will include specific equities, when it is appropriate to do so.
- Private Clients. When your balance is more than $1 million, you will begin to witness a reduction in fees, which will continue until they reach 0.49% once your total is $10 million. This grants you access to Personal Capital’s Investment committee, as well as two financial advisors, additional support for your retirement planning, and even the opportunity to participate in private equity.
According to a spokeswoman for Personal Capital, the standard expense ratio that is charged to customers in the Investment Services tier is approximately 0.10%, while customers in the highest levels pay approximately 0.07%.
In either scenario, you will be invested in exchange-traded funds (ETFs) that are made available by various companies such as Vanguard, Schwab, and iShares.
The above-mentioned tools for budgeting, spending, and portfolio management, as well as Personal Capital Cash, the company’s bank account, do not require a minimum balance or charge any fees.
Regardless of how you feel about the products and services offered by Personal Capital, these costs are rather high. If you start with $150,000 to invest, contribute an additional $10,000 each year, and receive a ho-hum 7% return for 15 years, you will finish up spending roughly $70,000 in fees with Personal Capital, whereas with Wealthfront, you will only pay $20,000 in total fees over that time period.
Personal Capital Advantages
Personal Capital provides users with an intuitive set of tools and services, many of which can be utilized by anybody, including those who are not clients of the company, to obtain an all-encompassing perspective of their entire financial situation.
The retirement planning tools provided by Personal Capital, which do not charge a fee and enable you to link your accounts, provide you with an assessment of how well you are prepared for retirement based on what you can anticipate receiving from Social Security at a given time and how aggressively you are investing your money.
The investment platform is complex and supported by a team of industry heavyweights. It promises to use its prowess to offer better returns than you can earn with a normal index fund, all while minimizing the amount of taxes you have to pay as a result of your investments.
Talking to a dedicated financial specialist can help you understand how your money is being invested, how well you’re making progress on your goals, and what to do when the circumstances of your life change. This can be an extremely helpful step in the process of reducing confusion.
Personal Capital Disadvantages
The price is the most significant drawback of Personal Capital. The management fee of 0.89% is significantly more than the fees charged by other top-tier robo-advisors, such as Betterment and Wealthfront. Human Capital is still considered to be a robo-advisor despite the fact that it has more personal touches that make the pricing easier to accept.
After logging in, you will be asked questions and directed to join your significant financial accounts. After that, you will be placed in a portfolio that corresponds to your risk and objective profile, and more funds will be added to that portfolio for as long as you continue to invest.
Although Personal Capital allows you to include specific stocks in your portfolio once you have earned at least $200,000, many users are financially unable to participate in the platform well before this perk becomes available, if you even consider active stock choosing to be a bonus at all.
Caution should be exercised before joining up with Personal Capital; you should only do so when you are confident that dealing with a financial professional on a regular basis will be worth the potentially hundreds of dollars in higher fees and lost capital gains.