As some of you may be aware, one of my married life resolutions has been to work on streamlining my finances. In the past, I kept a separate Mint account for me and my wife but going forward we’re going to be using just one joint Personal Capital account. It was painful adding her student loans in there but sometimes these things have to be done.
I’m now a few weeks in to my Personal Capital experiment and I have to say that I’m really liking the service so far. I think it has a lot to do with the fact that they bring that start-up mentality and disruption factor to an industry that badly needs it. There are still a lot of bad investment advisors out there (the majority actually) but PC is doing some pretty cool things when it comes to offering unbiased low cost advice targeted towards millennials. And it seems like the general trend in the industry is also moving towards low cost index investing which is a good thing for everyone.
Related Article: Getting Your Account Setup With Personal Capital
Budgeting Needs Work
I have been using Mint for years now and their budgeting and account aggregation features are pretty solid. Unfortunately, PC has a ways to go in this department. Since they are really more focused on the investment side of things (that is how they make their money after all), their budgeting and spending features are not quite where I need them to be yet.
I am going to cut them a little slack in this department though since at the end of the day, these features don’t make them any money. So from a business point of view they’re obviously going to give priority towards the investment side of things first. I’m hoping that they eventually spend more time fixing a few things though:
- Bulk edit/modify accounts: I accidentally added my Chase account twice and then had to go in and manually delete 12 duplicate accounts (I have a lot of credit cards 🙂
- Manipulating Transactions: Personal Capital does an ok job of categorizing transactions but I wish they would give Gmail like filtering options to allow me to categorize certain transactions from certain accounts the same way every time. Right now, I am having to make way too many manual changes.
- Just Copy Award Wallet: Award Wallet is a site that I use to track over 50 airline, hotel and credit card loyalty programs between my wife and I. They have account tracking and management down to a science. I really hope that PC takes a look at what Award Wallet is doing and just straight copies them. Right now, it’s impossible to view only my accounts or only my wife’s accounts (she doesn’t like me seeing what she spends here money on and neither do I since then I ask her why she went to Jack in the Box) and it would be cool if they added a feature to auto-login to your account when you clicked it. Again, look to Award Wallet.
My Free 1 Hour Portfolio Review
I think technically this was only supposed to last a half hour but my advisor was very cool about time and never seemed like he was in a rush to get off the phone. That was actually one of the things I liked most about the call, my advisor seemed very concerned about making sure that all my questions were answered as opposed to just running through the presentation and trying to get me to sign up.
The point of the phone call though is to have your advisor walk through your portfolio and highlight your current holdings, show where PC can make some improvements, explain how PC would invest your money, answer any questions you might have and then try to get you to sign up.
I was actually pretty impressed with the presentation since it seemed like some real work went into it. For a free consultation, I wasn’t expecting such thoroughness but they really did a great job. I don’t know if they’ll be able to offer this forever so I would definitely recommend that you take advantage of this free consultation while you can! You are supposed to have 100k of investable assets but it didn’t seem like a very strict requirement, I’m sure you could probably just schedule it either way and they’ll take a look at your portfolio for you.
The first slide we took a look at was a nice presentation of my current asset allocation. It looked pretty much as expected other than the fact that it was missing some of my bonds since PC was unable to categorize one of my unlisted old 401K bond funds.
A lot of big company’s offer 401K funds that are specific to that company so PC or any software for that matter won’t be able to categorize them. But if you’re not investing in anything too crazy, you should be able to find a reasonable approximation. I just forgot to do this before the call so my chart was missing some bonds. Here’s what my allocation looked like:
My allocation was actually right about on the money. A few years ago I decide on a 90/10 stocks/bonds allocation (the missing bonds would bring the bond total to about 10%) with 35% in international stocks and a tilt towards small cap stocks.
This is one of the reasons why PC is so cool since all of the charts they showed in the presentation are available in one form or another right on your dashboard. They won’t be given to you in chronological order like this handy presentation but you can really take an in-depth look at your investments and see how things like your allocation is doing.
My Advisor’s Observations & Recommendations
I was very curious to hear what my advisor had to say about my portfolio because I honestly haven’t even touched it in a year or two. I’m not even sure I’m going to re-balance my portfolio ever again (that’s a story for a future article though) since I really value simplicity when it comes to investments. I like being able to do a lot of work and upfront research to figure out an investment plan and then sticking to it for 40 years. I haven’t seen much evidence that shows tweaking your portfolio all the time adds value so I’m not going to be doing it.
One of the things my advisor brought up was that my portfolio was lacking alternative investments like real estate, gold and oil. Wait what? Since when did gold and oil become solid alternative investments? My advisor explained all about market volatility and how investors want mutually exclusive asset classes that have low correlation. Translation: you want to find things that go up when stocks go down and vice versa. But I’m not sure gold and oil are the answer, that part kind of left me scratching my head.
Heavy Sector Skews (Technology & Financials)
The other thing my advisor pointed out is that my portfolio has high sector skews towards technology and financials which obviously makes sense because I have a lot of my domestic stock allocation in an S&P 500 Index Fund. For those who don’t know, that type of fund invests in all of the biggest companies in America by market cap and it just so happens that a lot of the biggest companies in America are tech and finance. So it would make sense that my portfolio reflected that.
Personal Capital uses a strategy called tactical weighting by sector. So instead of investing according to market cap like a normal S&P 500 fund would do (the one that I own) they would invest your money evenly across all sectors. Now this is where the pitch starts to get a little sales-y.
Any time you hear the word tactical and you’re not buying military gear, you’re probably about to get ripped off. So when I had to Google tactical weighting by sector, I kind of already knew what I would find. The gist of this strategy is fine and it makes sense as an alternative to market cap but I don’t see it as a superior strategy. My advisor used past performance of this strategy to show how it outperformed a market cap strategy but we all know that past performance is no guarantee of future results.
I think the biggest problem with ‘tactical weighting by sector’ is that it starts to bring a lot of un-needed complexity to your portfolio. Try doing this on your own and you’ll see how much more difficult it is than just buying an S&P 500 fund. And that’s where PC will step in, they will offer to do this for you 🙂 In short, there’s no guarantee that this strategy will outperform market weighting but it does sound really cool.
I actually asked my advisor if this equal weighting strategy helps with volatility or increased returns and he told me both! Ok, now this is where I wanted to say something but I didn’t. You can’t reduce volatility and increase returns! I might have believed less volatility, same returns but there’s no evidence that shows less volatility and more returns. That is the whole point of taking higher risk, to get higher returns. Remember, risk and return will ALWAYS be correlated.
My Optimal Allocation
Here’s the optimal allocation they recommended for me:
I value simplicity in my portfolio. For newbie investors, I usually recommend a target date retirement fund and the Boglehead’s Guide to Investing. When I looked at this allocation, there is just way too much going on in the alternatives and bonds section of my portfolio. Considering alternatives makes up only 11% of the portfolio, do I really need 2.2% precious metals? That’s going to be .24% of my overall portfolio, I don’t see how that’s going to make much difference.
I still think a simple target date retirement fund or a three fund portfolio works wonders (US Stock, Int’l Stock, Total Bond + small cap/emerging market tilt if you are a little more advanced).
My Thoughts On The Presentation
At the end of the presentation, I was definitely glad that I went through with it. I didn’t necessarily agree with everything that was said but there were some things that stood out to me about my own portfolio that I will keep in mind going forward. There was a standard sales pitch at the end but I thought that was a pretty fair trade off for an hour spent analyzing my portfolio.
The only other thing I didn’t like about the presentation was that my advisor kept on emphasizing how PC can beat average returns. Wait, huh? Do you guys have some magic formula that not even the top money managers over the last century have been able to crack? I don’t think so but let’s say PC does have some magic formula and their ‘tactical sector weighting’ (see how silly that sounds) does outperform the market. Are they going to outperform it by 1% (their AUM fee)? I highly doubt that.
I thought this part of the pitch was not in line with what PC stands for and it may have been just my advisor but I’d be curious to hear what other people’s experiences have been like. I suppose it’s not good business though to tell people, “hey we’re going to do a really good job but we can only get you .89% less than the average market returns”. But that really is what they should be selling because that is what is going to happen, history doesn’t lie! And although PC isn’t quite active management, their fees are about 10x the do it yourself price.
Would I Invest With Personal Capital?
The short answer is no. I love what Personal Capital is doing and what the company stands for but at this point in my life, I don’t see much value that would warrant a .89% fee. There’s definitely something to be said about finding an advisor or a company you can trust and leaving your money with them until you need it at 65 though. That peace of mind is definitely worth something to me but it’s probably in the .3-.5% range.
With all that being said though, is PC a better option than your average financial advisor? Heck freaking yeah! These guys have very little conflicts of interest and although they work on an Assets Under Management (AUM) model, they are free to recommend low cost ETF’s and they aren’t required by management to try and sell you everything. Despite the .89% fee, they really are looking out for you and want to help you succeed and make as much money as possible. I think PC should focus on targeting all the people who have bad money managers, they are the ones who they can really help.
The Catch 22 Of A Financial Advisor
This brings us to the problem of what I like to call: “The Catch 22 of A Financial Advisor”. Most people who have financial advisors take a very minor role in their finances. They let their advisor handle all that complicated math stuff. When the market goes up, they see their balance rise and they’re happy. But since they don’t know to compare their returns to the market average, they don’t know that they’re under-performing the market by 1-2% generally. PC’s own presentation gave me a stat that says 72% of active managers have underperformed the market average over the past 10 years.
Remember, there are a lot of bad financial advisors out there but investing money on your own really isn’t that hard. It takes a little bit of time and effort and a lot of discipline. Once you’ve taken the time and effort to research the basics of investing, you’ll know exactly what to look for in a good investment advisor. And therein lies the problem: once you know what to look for in a good advisor, you’ll also realize that you can do just as well on your own.
That my friends, is the Catch 22 of a Financial Advisor.
If you haven’t signed up for Personal Capital yet, I recommend you do so now and get your free 1 hour portfolio review. Even if you don’t end up investing with them, it’s a great tool to track your investments and the portfolio review is completely free. I receive a small commission from everyone that signs up so if you end up using my link, please drop me a comment so I can personally thank you.
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-Harry @ PF Pro