Do you have a personal financial adviser or a portfolio manager? We don’t have one because I have been a self directed investor since I started investing. I guess I’m a control freak because I like to know what I’m invested in. I also don’t want to pay 1% to have someone manage our portfolio. That’s not cheap and I don’t even know if they would do a good job. Do you have a portfolio manager? Do they consistently beat the market?
Being a DIY investor is good because you know exactly what you’re investing in. However, sometime we need an extra pair of eyes to check our portfolio. Luckily, it’s the 21st century and Personal Capital is available to investors for free. Personal Capital is one of my favorite finance website and they keep getting better. You can use the site to help keep track of your monthly cash flow and aggregate all your investment accounts in one place. It’s a great site for investors because you can quickly check your asset allocation and run your portfolio through their Investment Checkup software to get an idea of how you’re doing.
I know many readers already signed up so I like to update everyone periodically when they roll out a new feature. Personal Capital just revamped their Investment Checkup to make it easier for DIY investors to check on their portfolio. I tried it out and I like it better than the previous version. Check it out.
Revamped Investment Checkup
Now when you go to the Investment Checkup tab, there is an overall recommendation right on top.
Your Asset Allocation is conservative. Using your recommended Target Allocation could mean $210,000 more by retirement. A more efficient Asset Allocation could also increase expected return without increasing expected risk.
Personal Capital will calculate a recommended asset allocation based on your age, risk tolerance, and expected date of retirement. You can update this in your investment profile to get a more accurate recommendation.
Here is my current portfolio. It’s a bit of a mess right now because I’m reshuffling my investments.
Cash – We definitely have too much cash at this time, but I don’t agree with the 1% allocation. That’s not enough of an emergency fund for us. We’d probably need at least 3% in cash to deal with big bills. Actually, our cash position will drop quite a bit once we pay the property tax and contribute to my individual 401(k) this month.
Bonds – I know we have too much bonds at this time. With the QE ending, we should follow the recommendation and reduce our bonds position.
International Stocks – I just sold off our international stock index fund (VXUS) so we are underweighted here. I’ll build our international position back up in 2014.
US Stocks – I recently sold some US stocks to take the capital losses tax deduction. I’m looking to pick up some more dividend stocks so this should get inline soon.
Alternatives – REITs.
Unclassified – These are from the 529. I’m not sure why they couldn’t classify these funds. They are just index funds.
Actually we shouldn’t count the 529 in our asset allocation anyway. I removed it from the list and the unclassified section is gone.
At the end of this section, there is a risk tolerance slider. You can move it from Capital Preservation to Aggressive to see different Target Allocations. They recommended the “Growth” for me and I agree with that.
Since 1992, your Target Allocation would have grown to be larger than your Current Allocation.
This section checks your historical performance against the Target Allocation. The graph shows that we’d be better off if we follows the Target Allocation. I’ll rerun this again once our portfolio is more stable. It’s probably not valid right now because our portfolio is a bit of a mess.
Your portfolio is too conservative. At retirement, the expected value of the Target Allocation is $210,000 higher.
Personal Capital uses Monte Carlo analysis to project the potential outcomes of the Current Allocation and Target Allocation. The more conservation Current Allocation will do better in the 10% Worst Outcome, but will generally lag in a normal scenario. This is pretty cool, but I still like FIRECalc better for Monte Carlo.
Risk & Return (Efficient Frontier)
Your Asset Allocation approaches the efficient frontier, but there is opportunity to further reduce expected risk without sacrificing expected return.
There is a nice video in this section to explain Efficient Frontier. I don’t know much about Efficient Frontier, so you probably should watch this video yourself. Basically, you want to maximize the return for the level of risk you take. This can be done by adding diversification through international and appropriate alternative investments. In the graph, you want to be as close to the Efficient Frontier line (grey parabola) as possible. This is pretty interesting and I should spend some time to look into it more.
It might be time to rebalance your portfolio for better long-term results. Compared to this Target Allocation, you are most overweight in US Bonds and most underweight in International Stocks.
I’m in the process of rebalancing our portfolio and it’s nice to have a second opinion. We still have 20+ years to full retirement so our investment horizon is quite long. I’m surprise they recommend less than 12% bonds for a 40 year old guy though. Usually the bond recommendation is quite a bit higher than this.
All in all I like the new Investment Checkup interface. It’s easier to understand than the previous version. The short summary in each section is also useful. I think this is a great tool for beginners and intermediate investors and it doesn’t cost anything. You can get a complimentary financial planning session with a certified financial planner if your investible asset is over $100,000. (Read my write up of the session here.)
If you haven’t logged in lately, you should try the new Investment Checkup tool. Let me know what you think. If you haven’t tried them yet, you can sign up with Personal Capital through this link.
Disclosure: If you sign up with Personal Capital, I may receive a referral fee depending on the size of your portfolio. Personal Capital makes money by charging a wealth management fee if you sign up to have them manage your portfolio. You don’t have to sign up for the wealth management service and they don’t pressure you at all. For DIY investors, the site is a great free resource.