I've been using Personal Capital for 2+ years now. After I came across it, it took me about 6 months to decide to actually use it.
I was unsure about adding all my accounts (think credit cards, loans, bank accounts, retirements accounts,etc) to a single platform. But on the on the other hand, you'll effortlessly see how every account is doing in one place.
I had to read more about what "read only connection" meant, and then be ok with that. Not really sure why I was so skeptical, but I was. That changed when I finally started using Personal Capital.
For your benefit, a "read only connection" means that you add your accounts to Personal Capital and it will then login into them, retrieving the information and displaying it for you. You're effectively linking the accounts with Personal Capital, but again, it can only read the data, analyse it and display it to you.
You cannot make any changes to your accounts. It purely shows you the numbers and that's it. If someone was to get access to your password, they will not be able to transfer money in or out of any of your accounts.
For the record, I only use the free tools Personal Capital offers. I do not use their wealth/financial management services. Depending on your net worth and investments linked, you will get occasional reminders for a free consultation with the goal of having them manage your assets. The way they get paid is via assets under management (AUM fees). This means you'll pay a fee based on your portfolio value that they are managing.
Obviously if you were to have them do so, there are fees associated with it. I'd also like to let you know that there are affiliate links in this post.
As mentioned above, all tools in Personal Capital are free. I haven't used the management service and will not mention it again in this post. If you'd like, you can simply ignore their reminders, and continue to use it.
Lastly, in case you don't pay attention to the name on the images below, they do NOT reflect my finances.
I'm glad I got past the initial skepticism. I now use it to keep track of my finances and it probably will provide more information than you'd want. But if you want it all, it's all there for you to explore!
One of the best things is that the financial tools are completely free (other than what I mentioned above, but you don't have to go with it).
Look at some of the cool things it can do for you:
- Effortlessly track your net worth
- Weekly email report on your net worth and investment performance
- Track your cash flow and effectively helping with budgeting if you're into that
- Check investment portfolios for excessive fees and proper asset allocations
- Retirement planning calculations
- Save time by avoiding having to sign in individually to every account you have, even if you just want a quick snapshot of your financial status
They have a free mobile app you can use if you prefer. I've tried it and it is good, but I much rather check everything on my computer. Try it though!
Net worth and cash flow
Make sure to read our post on net worth if you're not familiar with what it is! Bottom line, it tells you how wealthy you are (net worth = assets minus debts).
Having a high paycheck doesn't mean you're wealthy - you could very well be spending all of it and not accumulating wealth at all.
Take a look at what the overview screen shows you:
Cash flow is crucial to keep your finances on track. Know how much is hitting your bank account, learn where the money is going (expenses), and make sure you have positive cash flow (there money left) in the end so you can build wealth. See an example below.
Both net worth and cash flow are clearly given to you, so no need to calculate anything yourself! And you don't want to login every week, you'll get an email with an overview. You can't make it simpler than this.
Check Asset allocation and investment fees
Even if you're not using their management services (which are not free), their algorithm will tell you if your asset allocation is appropriate or completely off track. Again, you cannot change anything here. You'd have to login to your investment accounts to change your allocation.
Note that you don't necessarily want to do what they recommend, especially if that includes selling assets. That might trigger a taxable event.
On top of that, their retirement fee analyzer is a life saver and will open your eyes regarding how much money you're literally losing money!
Remember that the expense ratio is the percentage of your investment that you'll pay in fees. A low expense ratio is something like <0.2%, and there are really good investment options that have expense ratios of <0.1%! .
These are much lower than the benchmark shown in Personal Capital. Regardless, this tool alone can save you thousands of dollars in the long run!
You're not going to find these low fees in actively managed funds. Which by the way, in the long run have been shown to under perform low cost index funds!
It's not uncommon to see actively managed funds with expense ratios of >1%. I don't know about you, but I really don't like throwing money away... Especially when some of those investments recommendations might have been made by your financial advisor. Check out this post: Financial advisor compensation - how do they get paid?
What if you could create multiple retirement plans and see which one works best for you?
You can easily do this - early retirement, "normal" retirement, late retirement, you name it! This tool will give a percentage of success based on the Monte Carlo simulation (actually, 5000 of them) to give you an idea of how successful your plan will be.
They've also recently added a recession simulator. It will run your portfolio and your future scenario through past recessions and will show you how you'd do. Again, you can change multiple variables and come up with different scenarios to help you plan for the future.