Financial Planning for the Masses: Personal Capital review (2024)

I know I wrote about Personal Capital quite a few times recently, but I’m really excited with their services. They are bringing financial planning to the masses through their website. I think this will help many regular people who are unsure about financial advisors to understand financial planning better. The main website and portfolio analysis tools are free which is awesome for most of us. Personal Capital generates revenue by charging a fee if you sign on with their investment management services.

Financial Planning Session

Last week, I had a financial planning session with Michelle, one of Personal Capital’s financial advisors. The call was very pleasant and she seems quite competent. Michelle gathered a snapshot of my personal and financial data over the 30-minute session.

My personal and financial data

• I’m 39, married, and have one small child.
• We went over my investment portfolio. You can read more about it in the first post I wrote about Personal Capital, My Overdue Portfolio Checkup.
• I told her that I just left my job and I’ll be a stay at home dad for a while. Mrs. RB40 plans to retire in 15 years or so and will continue to max out her 401(k) contribution. We will avoid withdrawal from retirement portfolio until we are both retired.
• Our income is enough to cover normal monthly expenses with a little left over.
• We are planning to pay for college (as much as possible), but we don’t plan to leave an estate to little RB40.
• I have a target asset allocation that I came up with and stuck with it through the down markets. Mrs. RB40 is not an aggressive investor and shedoesn’tpay close attention to the market fluctuation.
• We don’t have any plans to spend any lump sum in the next few years. We won’t need a new vehicle for a while and I don’t think we’ll buy any more properties.

My question

What kind of fee does Personal Capital charge?

They charge a graduated fee scale at around 1% of the portfolio they manage.

• $1 Million or Less — 0.89% Annual Fee
• $1 Million to $3 Million — 0.79% Annual Fee
• $3 to $5 Million — 0.69% Annual Fee
• $5 to $10 Million — 0.59% Annual Fee
• $10 Million or More — 0.49% Annual Fee

So if I transfer $100,000 to the firm and let them manage that portion, then I’ll pay $890 per year for the service. Michelle told me that she can give advice on my total portfolio as well. This means they will manage $100,000 and I manage the rest of my accounts with their advice. For many of us, the 401(k) is a big part of our saving and it has to stay with the employer’s trustee. You won’t have to pay a fee on the asset you manage.

*Personal Capital recently lowered the minimum for their investmentmanagement service to $25,000. This should make the service accessible to many more people. Check them out if you need help managing your investment.

Analysis and Recommendations

Michelle took all the info to analyze and we made a follow up appointment. This time we talked about my portfolio and what we can do to improve it for our personal situation.

Here are the feedback of my total portfolio.

• Good asset allocation overall for growth focused strategy
• Currently over-exposed to emerging markets– not enough exposure to foreign developed stocks
• No international bond exposure – these bonds provide another level of diversification
• Adding alternatives will dramatically increase the diversification and manage risk within the strategy
• Not enough in college savings account- increase to $30-40K (currently at $10K)

Pictured above is their Optimal Investment Allocation for our situation.

The main takeaway for me is the Domestic to International ratio. They recommend 2/3 domestic and 1/3 international. This seems to be the magic ratio for us. They also recommend 2/3 developed international equity and 1/3 emerging market. It’s the same for fixed income (bonds) as well.

Another big recommendation is the alternatives investments. These are gold, metals, agricultural/food, energy, domestic and foreign real estate. We have rental properties and that’s about it for alternatives. It’s probably a good idea to diversify more.

Tactical Weighting

I have been trying to inject some growth and diversity into our portfolio with small and mid cap equities (mutual funds and ETFs.) Michelle said this is better than many investors, but we can do better by diversifying though sectors. From the slide above, the SP500 is over weight in the Technology sector and is under weight in Basic Materials, Communication Services, and Utilities. I will need to run my total portfolio though Morningstar Instant X-Ray to see how it is weighted*. By keeping the sectors more equally weighted, you’ll have more diversity and should be better protected through the down turns. I think this is a good idea and will try to do this for our portfolio.

*Currently Personal Capital does not show the sector weighting of your portfolio. You can see that with Morningstar Instant X-Ray. That’s a bit disappointing, but I guess they can’t get everything right the first time out. They are a new company after all.

Good financial planning sessions

All in all, I was impressed with the free financial planning sessions. It was good to see a snapshot of our finances and have a plan for the immediate future. I learned a few things and I can take direct action with Michelle’s advice. If you are a self directed investor like me, I think you should make an appointment with Personal Capitaland see what they have to say. It’s free and Michelle didn’t pressure me to sign up with their investment management service much. For now, I’ll stick with self directed because 1% seems like a lot of money to me. Although, I could let Personal Capital manage a portion of my account and I would manage the rest. This will drive the fee down below 1%. It could be tricky to get all the accounts to work together though.

There are a few compelling reasons to hire Personal Capital. The investment management service is probably good for people who want to be more hands off with their investments. Also, as we get older, our plans and goals will change. You can’t stick with the same strategy as you age. If you are not comfortable planning your own investment strategies, then a personal financial advisor will be helpful. I plan to reassess in a few years to see if this will be a good option for me.

Sign up with Personal Capital through this link.

Disclosure: I didn’t take note so I wrote this from memory. There are details that I left out such as how Personal Capital invest their client’s investments because I don’t remember the whole thing.If you sign up with Personal Capital, I may receive a referral fee depending on the size of your portfolio.