Personal Capital is a financial tool that allows you to track your net worth… and much, much more. I first came across Personal Capital through an advertisement in a podcast. The ability to track all of my financial accounts in one place was appealing to me. But I was a bit skeptical. I had tried similar platforms in the past and had trouble linking all of my accounts. If I could only track some of my accounts, then the tool really wouldn’t make much sense for me. No such issues with Personal Capital. I’m able to track all of my accounts, be it bank accounts, brokerage accounts, or even peer to peer lending accounts.
This is only the tip of the iceberg though. There are many other capabilities of this tool that make it well worth your time to sign up and link all your accounts. And best of all, it’s free!
Features Offered by Personal Capital
1. Net Worth Tracking
Link all of your bank accounts, investment accounts, credit cards, loans, and more. This gives a real time view of your net worth as accounts are refreshed each time you log in. My favorite part is that all of my accounts were able to be linked. From my main checking account to my Lending Club account. Even my home value is tracked through Zillow and automatically updated within Personal Capital. This makes for a very efficient and hands off approach to tracking my net worth.
2. Investment Performance Tracking
Since all of my investment accounts are tracked in one place, I can get a clear picture of the overall performance of my total investment portfolio. No more logging into multiple accounts to check my investment performance! My favorite feature is the “You Index”, which provides your rate of return across all of your accounts for a specific time period. Personal Capital will also display the return for the S&P 500, DOW, Foreign Stocks, and US Bonds to compare your “You Index” to. There are handy filters that allow you to see the performance of any one account, such as just my 401k or just my taxable account. I can also filter by time period to check my returns for the past 30 days, 90 days, 6 months, year to date, or last year.
3. Retirement Planner
This is the best free tool I’ve seen for planning your retirement. The Retirement Planner is a dynamic tool that pulls in your spending and saving habits from the accounts linked on your dashboard. You can edit assumptions such as retirement age, life expectancy, and inflation rate. You can also incorporate income events such as future pension income, social security, rental income, etc. Future expenses such as the purchase of a home or college tuition can also be added in. Once you have entered in all your information, Personal Capital runs 5,000 Monte Carlo simulations to estimate the chance of reaching your retirement goals. If you’re falling short of your goals, there is a “How Can I Improve This” link that will provide suggestions such as adjusting your asset allocation or moving into lower cost funds to improve your future earnings.
This is a really fun tool to play around with and see what it would take to retire at 50, 40, or whatever you desire. Note that there are assumptions used in this tool such as your annual rate of return which is estimated based on your current asset allocation. Additionally, it uses past returns as a way to predict future returns, so it does incorporate a backward looking bias. Take this tool for what it is… a prediction, not a guarantee.
4. Fee Analyzer
Personal Capital’s Fee Analyzer shows you just how much fees are costing you. This tool gathers the expense ratio for each fund held in your linked investment accounts. It then calculates the full cost of these fees on your portfolio value at retirement. As you can see in the picture below, my fees are slightly above the 0.50% benchmark. This is partially due to my 401k through work which offers higher cost American Funds Class C funds. However, I do have some higher cost funds in my rollover IRA account that I need to move into lower cost funds.
5. Investment Checkup
This feature recommends a target asset allocation based on the profile questions you answer. It seeks to provide the greatest expected return, balanced with your risk tolerance. This incorporates the concept of the efficient frontier, which graphs a set of optimal portfolios that offer the highest expected return for a specific level of risk. If your asset allocation falls below the efficient frontier, then you’re taking on too much risk for your expected return. In the screen shot below, the blue dot represents a 100% bond portfolio. Such a portfolio provides a historical return of 5.56% with a variance, or risk, of 9.21%. However, by increasing your allocation in stocks, a higher return of 7.7% can be achieved with the same amount of risk. As you can see, my current allocation falls on the efficient frontier. Therefore my portfolio achieves the lowest amount of risk for my expected returns.
6. Expense Tracking
Personal Capital tracks your spending through your bank accounts and credit cards linked on your dashboard. This tool automatically assigns a category to each expense, which can be modified by the user. In addition, it tracks your income and cash flow, and can track upcoming bills as well. I don’t personally track my spending to this level of detail so I don’t really use this feature. However, other tools such as the Retirement Planner do pull in income and expense information from these transactions, so it is useful in that regard. If you are one who tracks spending in detail, this is a very easy way to do it.
How does Personal Capital offer all of these great features free of charge? Well, in addition to these free tools they also offer advisory services (Note: this is not required to use the free services described above). Personal Capital will provide two licensed personal advisors to work with if you sign up for their advisor services. They provide customized investing strategies, risk and return optimization, tax loss harvesting and more. The yearly fee for these services is 0.89% of managed assets up to $1 million. The fees drop to 0.49% – 0.79% on managed assets above $1 million. I do not personally use this service as I think there are better and cheaper options out there, such as Wealthfront, if you’re looking for asset allocation and tax loss harvesting services. However, if you want everything managed in one place and a human advisor to go along with the robo advisor functions, then this might be a good option for you.
Why You Should Join Personal Capital
The free tools offered by Personal Capital are the best I’ve seen around. Obtaining a better understanding of your money will give you confidence that your current saving and investing plan will meet your financial goals. One of the goals I’ve already outlined is becoming a millionaire by the age of 40. I will soon be posting about another goal of mine, which involves achieving financial independence by the age of 45. Personal Capital has already played a big role in helping me take control of my financial future. Utilizing the free tools it provides has allowed me to better understand what it will take to reach my financial goals.
Here’s a list of my top 5 reasons for joining Personal Capital today.
1. Simplicity – Track all your accounts in one place. One simple login allows you to see the complete picture of your current financial situation.
2. Plan for the future – The Retirement Planner tool alone makes it worth while to sign up with Personal Capital. Whatever your goals may be, you need a plan to get there. This toll will show you if you’re on track.
3. Investment efficiency – Determine the proper asset allocation based on your risk profile and retirement needs. No need to pay an advisor large fees to use a similar program to do the same thing.
4. Reduce fees – Quickly see which funds are costing you the most in fees and see the dollar impact over time.
5. It’s Free!! – Can’t beat that!
Readers, are you currently on track to meet your financial goals? What other financial tools are you using to help you get there?