As a Certified Financial Planner™ I’ve learned over the years a small number of principles that separate those who achieve their financial goals vs. those who don’t.

Two such principles are:

  • You must spend less than you earn and efficiently invest what’s leftover
  • You must measure and track your progress accurately (but make it enjoyable)

The first is quite obvious. The second isn’t as obvious but as important.

To manage money well, you must make good decisions. To make good decisions, you need accurate data.

The Free App That Will Make You Better With Money

Having accurate data is easier said than done. You might have a 401(k) balance of $250,000 but what exactly does that mean?

Without advanced financial planning knowledge, there’s a lot that $250,000 could represent. Is that enough to retire on? Should you be saving more? How will inflation impact your 401(k)?

These are all very hard questions to answer.

As my goal is to become financially independent by 40, I wanted to have answers for these questions for my own benefit. After hearing that Personal Capital was awarded the best financial app by Macworld and specializes in helping people solve these difficult questions — I gave it a try myself.

What Is Personal Capital?

At it’s core, with Personal Capital you’re getting one dashboard to view all your account balances. You can then view key numbers such as income, expenses, and net worth. The data is pulled automatically from your financial accounts.

Since signing up for Mint (See: Personal Capital vs. Mint) around 2009, I’ve found this dashboard/snapshot approach to managing finances quite simplifying. It’s helpful to know my monthly cash flow and see progress I’d been making growing my net worth.

But what separates Personal Capital apart from other financial tracking apps are it’s free tools. As it uses real data — Personal Capital provides many incredibly helpful free tools that allow you to instantly upgrade your money management skills.

Remember to manage your money well you need accurate data. Personal Capital provides you with that accurate data. Thus, giving you financial insights many people pay thousands of dollars for.

What Are The Benefits of Personal Capital?

Why use Personal Capital?

  • Real DataPersonal Capital’s Retirement Planner doesn’t assume. Instead, it uses real data from accounts you link to calculate how prepared you are for retirement.
  • Customizable – How will college or a new home impact your retirement? What about an expected boost in income? Personal Capital allows you to see the impact of each of these events on your goals.
  • Discover Hidden Fees – They’re called hidden fees for a reason. Personal Capital has a tool called the Portfolio Fee Analyzer that uncovers the investment fees you’re paying across all your accounts.

While these tools are very helpful, what I find most interesting is what Personal Capital can do for you in terms of asset allocation.

One of the most destructive mistakes I find people make is not investing their savings wisely.

A famous study in the 80’s titled, “Determinants of Portfolio Performance” concluded that asset allocation accounted for 95.6% of an investor’s return. In other words, it was THE FACTOR.

I find improper asset allocation quite common among all age groups. Millennials tend to be afraid of the market, and therefore, avoid investing in stocks. Those in the 30’s and 40’s typically lack a clearly defined target. Then, those closer to retirement I find are often to risky.

How Does Personal Capital Address Asset Allocation?

The tool that Personal Capital has created that helps address asset allocation is the Investment Checkup.

When I log go to the tool and after filling out some information about my goals, I see a screen that says:

Personal Capital Review Screenshot

This allows me to see what allocation would provide the greatest expected return, balanced with my needs, desire and ability to take risk.

Another feature of the Investment Checkup tool is you can see where your current allocation falls on The Efficient Frontier. This represents the set of allocations offering the highest expected return for the risk I’m willing to take:

Personal Capital Efficient Frontier

 

Their algorithms for asset allocation are good. If you knew nothing about investing and followed their recommendations you will do quite good and outperform the majority of investors.

The Investment Checkup offers a host of other tools, as well such as:

  • The exact dollar amount you’d need to rebalance your portfolio in order to optimize return and minimize risk
  • The historical performance of your recommended allocation vs. your actual allocation
  • Future projections of your current portfolio based on expected annual returns

Personal Capital Review: 401k Fee Analyzer

Another useful tool is the 401k Fee Analyzer. It’s common to have quite a few old 401(k)s floating around. Most 401(k)s have outrageous fees. Often 20X the fees of investing the account on your own!

When I login to my 401(k) fee analyzer, I’m happy to see that I’m paying only .09% in annual fees. The benchmark is .50%.

Personal Capital Fee Analyzer Tool Review

Personal Capital Review:  Retirement Planner

The final feature I find helpful is Personal Capital’s Retirement Planner. This tool allows me to project how well off I’ll be in retirement based on my current savings and spending.

Remember my goal of being financially independent by 40?

It calculates that I have a 69% chance my portfolio will support my goal:

Personal Capital Review Retirement Planner

This is incredibly helpful to know today and even more helpful to track overtime.

Personal Capital Review: Fees

If you’re a Mint user (See: Personal Capital vs. Mint), you probably understand how it makes money. Essentially, Mint receives a referral fee for recommending certain products. For example, if Mint recommends a certain credit card based on your financial situation, they earn a referral fee from the credit card company.

Personal Capital is entirely different.

The tools above are free to use. However, Personal Capital doesn’t advertise other products. Instead, Personal Capital makes money as a wealth manager.

Keep in mind, you’re under no obligation to use their wealth management service. You can still use the helpful free tools of the app without being a client.

But it’s still important to know how Personal Capital does generate revenue.

Here’s how it works:

In exchange for a fee, they will manage your assets for you.

From their website, their fees are:

We have one simple fee based on a percentage of assets managed. Wealth management, trade costs and custody are included – you do not pay trade commissions. We bill monthly, in arrears, and routinely help clients with financial planning and 401(k) allocations at no charge.

Our fee schedule is as follows:
First $1 million:0.89%

For clients who invest $1 million or more:
First $3 million:0.79%
Next $2 million:0.69%
Next $5 million:0.59%
Over $10 million:0.49%

Compared to say a Vanguard Target Date Retirement Fund which average 0.13 in fees, these fees are quite high. So, is it worth it? I’m a firm believer in low fees. My own investments are with Vanguard and Betterment for that reason.

Yet, working with clients allows me to see some of the destructive behaviors and rationalizations some have with managing investments.

Jumping in and out of the market. Investing everything in Gold because it’s safe.

These are just the few of the more common, destructive behaviors that set people back tremendously.

And it’s in NOT making stupid, irrational decisions where I feel advisers have incredible value today.

Investing on your own is a lot of responsibility. One random thought and you can literally be on your brokerage account making a trade in minutes.

For many people, having an adviser to work with is helpful for that reason. A good adviser/money manager like Personal Capital optimizes your portfolio and helps you from making self destructive behaviors. This can be well worth the .76% one would pay if they choose to use their asset management services.

Personal Capital Review Summary

While I don’t have my own money invested with Personal Capital, I still find the free tools quite helpful. They work and make tracking quite fun. I would recommend anyone sign up for Personal Capital  for this reason alone. As for the paid asset management service, I’d recommend the service to those:

  • Who in the past have made quick, irrational decisions with their investments that they have regretted
  • Or, someone not really interested in learning a lot about investing and tax strategy
  • Last, those who want a real person to bounce ideas off of for a low-fee