App Review: Personal Capital

App Review: Personal Capital

Description

• Personal Capital is a personal finance software platform that offers free online tools for managing all of your financial accounts in one place.  Like other apps it monitors your account balances, updates your net worth, tracks your spending, and categorizes your expenses.  Personal Capital specializes in analysis of your investment portfolio, offering an in depth review of your investments beyond any other free financial software available.   
• There are smartphone, tablet, and desktop versions of the software that automatically sync, allowing you to manage your finances no matter what device you are using.  The interface for the tablet and desktop version are very similar, while the mobile app uses a different format, but with nearly all of the same tools and functions.  
• How can they do this for free?  I am always skeptical about free products or services and want to understand what the catch is.  Unlike other financial apps that use advertisements and affiliate links to generate revenue, Personal Capital takes a different approach.  They market their company as a combination of free online tools (the free app) and dedicated financial advisors to help you manage your money (for a fee of course).  The financial advising is optional and you can still use the free online tools without paying for any financial services (what most people do). Based on my personal experience, there are two primary ways they try to get you to sign up for this.  First, when you enter your registration information to sign up for the app, you are required to enter your phone number.  After all of your financial accounts have been linked to the program it calculates your net worth.  Based on what I have heard on podcasts and read in reviews, a company representative (financial advisor) will give you a call if your net worth is over a certain amount ($100,000 as of this writing) to try and get you to sign up for their financial advising services.  They charge an annual assets under management fee (a term I will explain in another post) for their services ranging from 0.49 to 0.89% per year.  Understanding this would happen, I personally did not respond to their phone calls.  They called several times and left messages, but I am not interested in paying a financial advisor, so I did not call back to sign up for anything.  After several attempts over a few week period, the calls ceased.  The second way they try to market their services is with intermittent notifications about a financial advisor that is available to help you if you wish.  I would estimate this pops up once every 1-2 weeks or so and you can simply close the notification and use the app.  At this point I am sure some of you may be asking yourself, “Is this worth going through to use the software.”  After having used it extensively, and coming from someone who hates being sold things, I can with confidence say YES, IT IS WORTH IT.  The online financial tools are THAT good.  But I am not the only one that thinks so.  This is the most widely used and touted program in the FI community as well.  
• Is it secure?  This is obviously important to look into before you trust your financial login information with any third party software.  I would refer you to the section on their webpage regarding their security measures.  They are robust and in line with common industry standards such as strong data encryption, fraud detection, and multi factor authentication when logging in for the first time from a new device.  As with any service, I cannot guarantee there will never be a security breach.  However, I have been using Personal Capital for nearly a year and have not had any issues or concerns with the security of my financial information.  
• All of the screenshots here were taken directly from Personal Capital’s description on the Apple App Store or from their webpage.

What I Like

• Excellent User Interface Everything is very intuitive and makes sense.  Plus, it gives you a wealth (no pun intended) of information.  When you first open the app you see an overview of your Net Worth, with the current value and a graph of how it has changed over time.  Underneath you will see the total value of all of your assets and the total value of all of your liabilities.  Then it breaks this down further listing all your accounts by type (cash, investments, credit cards, loans, and other assets) with a total for each and a graph of how that value has changed over time.  You can click on any account and look at its own graph of value over time plus any transactions under that account.  Other subsections besides Net Worth are Transactions, Cash Flow, Budgeting, Portfolio, Holdings & Allocations, Investment Checkup, and Retirement Planner.

• Automatically Updates All of your Accounts  Every time you log on, all of your accounts are automatically updated with new transactions and your total net worth is recalculated.  There is a section to review your transactions, which are listed with the newest transactions first in reverse chronological order.  I like to log in once a day and review my new transactions to make sure everything seems accurate and that each is assigned the correct category.   You can create new categories directly from the mobile app, a feature I love, instead of having to go to the desktop version.  When all of your income and expenses are properly assigned a category, it gives you an accurate picure of how money comes into your life, and how it leaves it.  For example, you will know how much you earned last month in dividends on your investements, and how much you spent on groceries.  

• The “You Index”  This is a neat little feature that shows the performance of all of your current stock, cash, exchange traded fund, and mutual fund holdings over time.  You can map this against three common indices: the S&P 500 (largest 500 publicly traded companies in the U.S.), VEU (an exchange traded fund that tracks all major developed and emerging foreign stocks outside the U.S.), and AGG (an exchange traded fund that tracks the Barclays US Aggregate Bond Market Index).  Essentially this means you can compare how the major holdings in your portfolio compare against the performance of U.S. stocks, foreign stocks, or the U.S bond market.  You can also choose the time interval you wish to use, with 90 days being the default.  It also shows you how much money each of your holdings made or lost that day.  While I don’t recommend you ever make any investment decisions based on single day fluctuations (remember, you are a long term buy and hold investor), it is very interesting to watch.  

• Asset Allocation Breakdown This is one of the most useful functions of Personal Capital.  As I will write about in future posts on investing, your asset allocation is one of the most important investment decisions you will make, and will likely change with your stage in life.  Asset allocation at the most basic level means what percentage of stocks to bonds you have in your portfolio.  100% stocks and no bonds would represent a very aggressive investing strategy with a higher level of risk, while a more a conservative portfolio might consist of 50% stocks and 50% bonds.  Within each of those asset classes, there are further decisions to make.  For example, do you choose to have all U.S. stocks, or a combination of U.S. and foreign stocks?  Do you purchase large cap stocks, mid cap stocks, or small cap stocks?  Growth stocks vs value stocks?  Do you buy federal government bonds, municipal bonds, or corporate bonds, and in what distribution?  (Don’t worry about all of this investing jargon, I will explain all of these terms in future posts) When you take all of this into consideration, determining your asset allocation over all of your retirement and non-retirement investment accounts can be quite a chore.  Personal Capital does this for you automatically allowing you to understand your true asset allocation across your entire portfolio.  

• Investment Checkup  This feature evaluates several key factors about your portfolio.  My favorite is the fee analyzer, which shows the average expense ratio you pay across all of the active and passive funds in which you are invested.  It also breaks it down by fund showing you each individual expense ratio and your annual cost based on your current holdings.  The Investment Checkup also compares your current asset allocation to a target allocation based on your investment and risk profile entered at the time of registration for the app.  This feature shows you where you might be overweight or underweight and require rebalancing in your portfolio.  It also shows historical performance by analyzing how your portfolio would have performed since 1992 compared to the recommended target allocation.  There are also future projections of your portfolio, including a 10% worst case scenario if the market performs poorly.  Finally, there is a breakdown of risk vs return based on past performance with your current asset allocation.  I’ve found these tools extremely helpful in better understanding my investments and these features are one the main reasons I use Personal Capital.  

• Retirement Planner  As the name suggests, this tool helps you better plan for retirement.  It is completely customizable, allowing you to enter annual savings goals, important events such as when you might start receiving pension payments or social security, your goal age for retirement, and your monthly or annual expected expenses in retirement.  Based on this information, it shows your projected portfolio value based on historical market performance with relatively conservative estimates.  This helps you answer certain key questions like: Will my portfolio likely cover my retirement expenses?  What is the impact of taking out social security when I am 62 vs 70?  How will my portfolio value change if I increase or decrease my savings rate?  

What I Wish Was Better

• Budgeting The budgeting function on Personal Capital is quite limited, especially when compared to other apps.  You are limited to choosing one overall budget for all of your spending in a given month.  You cannot choose individual categories to budget for, such as eating out or vacations.  I think this is a major limitation when you are trying to take control of your personal finances.  Lumping all expenses, including fixed costs like your mortgage or insurance payments, into one large budget makes it much more difficult to change behavior in a given area compared to having a specific budget for that area in which you are trying to improve, like dining out or clothes shopping.  While you are able to see how much you spent in a given category over the last month or during the current month, it seems logical that you should be able to set a budget for that individual category.  

• Financial Advisor Marketing  I am really not a fan of receiving calls and offers to try to get you to sign up for their financial advising services.  That kind of thing is really a turnoff to me.  However, I am willing to put up with it because the online tools are just that good.  Plus, after several attempts, the phone calls have stopped and it is now just a periodic notification on the app.  I understand that they need to make money to have this product available for free, I just wish it was through something else, like affiliate links to really awesome investment accounts or something more like that. 

Who Would I Recommend This For?

• Personal Capital is my personal favorite free software platform for keeping track of all your financial account balances and information in one place.  The investment analysis tools are excellent and allow you to look at key aspects of your portfolio including asset allocation, investment fees, and retirement planning.  I would highly recommend this to anyone on the path to FI, especially those who are out of debt and are now more focused on optimizing their investments.  If investing seems several steps away from where you are now, you might be happier using Mint (see my review here).