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Get an Investment Checkup Before The End of The Year

by retirebyforty on December 27, 2013 · 19 comments

in investing

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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.

Sign up with Personal Capital through this link.

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.

Target Allocation

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.

investment checkup before end of year

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.

checkup investment before december

Removed 529 plan

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.

Historical Performance

Since 1992, your Target Allocation would have grown to be larger than your Current Allocation.

investment checkup asset allocation free advisor

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.

Future Projections

Your portfolio is too conservative. At retirement, the expected value of the Target Allocation is $210,000 higher.

portfolio checkup before end of year

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.

investment checkup efficient frontier

investment checkup efficient frontier risk 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.

Allocation Comparison

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.

rebalance investment checkup

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.

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{ 19 comments… read them below or add one }

[email protected] November 13, 2013 at 12:34 am

I use Personal Capital and it looks like a great new feature. I think people are often too US centric missing overseas opportunity. Although the last few years it has underperformed, I don’t think that will stay like that forever.


retirebyforty November 13, 2013 at 9:01 am

The international market had been disappointing for sure. I’m reshuffling back into it, but it’s going to take a little time. i still believe we need a diversify portfolio to weather the ups and downs of investing.


GetRichWithMe November 13, 2013 at 12:45 am

Its so important to rebalance on an annual basis
Because certain sectors perform better than others, you can eventually end up with a very distorted portfolio if you don’t rebalance
Think of it as a sort of gardening.


The Warrior November 13, 2013 at 4:59 am

I’m loving Personal Capital.

My comment isn’t meant to be an intentional advertisement for them, but PC has made it less stressful and less confusing to manage my finances.

Anyways, great rundown. I hadn’t seen the investment checkup so I’m logging in right now to check it out.

The Warrior


retirebyforty November 13, 2013 at 9:02 am

Personal Capital is a great free resource for DIY investors. I really hope they don’t start charging money at some point. I’d be really disappointed with them.


SavvyFinancialLatina November 13, 2013 at 7:10 am

This seems like a really cool tool! I’m going to make it a goal to run our accounts through this by the end of the year. I’m excited to see the results.


retirebyforty November 13, 2013 at 9:03 am

It’s really good for beginners. It will give you an idea of what you should do, but you don’t have to follow it 100%. Don’t wait too long. :)


Done by Forty November 13, 2013 at 7:40 am

With so many PF bloggers I respect recommending this service, I might have to check it out in December. Thanks for the detailed review.


retirebyforty November 13, 2013 at 9:03 am

Sign up through Retire By 40! :) Thanks!


Micro November 13, 2013 at 2:37 pm

I really like the 401k analyzer feature they have on their site. It was crazy to see just how much money I will be losing over it’s lifetime due to fees. When that day comes where I quit work to pursue a retired lifestyle, priority one will be moving that account over to some low cost index funds.


retirebyforty November 14, 2013 at 10:15 pm

I like the 401k cost analyzer too. It’s great to see that we are not paying much anymore. I rolled over my 401k after I left my old job.


Ryan Hart November 13, 2013 at 4:22 pm

Awesome breakdown of your investment performance – I love the charts and graphs. Ill have to check out Personal Capital. Thanks for the tips.


retirebyforty November 14, 2013 at 10:16 pm

It’s really useful for DIY investors. I log in a few times a week to get an overall picture of my portfolio.


Steve November 14, 2013 at 2:39 pm

I tried Personal Capital but got hung up on the requirement to give it my passwords for ALL of my savings and investment accounts. The only true exception was CapitalOne360, who have (and require use of) a third-party authorization framework. The other exceptions were unsupported accounts, e.g. equity in our house and Treasury Direct. (Treasury Direct seems to require a blood sample just to log in, i.e. they’re really quite strict with their security, so I wasn’t surprised by that.) I felt a little too uneasy providing that information to be stored in raw form (it can be not other way) on Personal Capital’s servers, when a single password is protecting as much as a six-figure account.


retirebyforty November 14, 2013 at 10:17 pm

You’re right about security. It’s always a bit risky to give our password out.
Treasury Direct is quite secure. I like it, but it is a pain to log on.


Laurent December 25, 2013 at 2:50 pm

I stumbled into this *great* blog and this posting and I have the same concern as yours, in lieu of recent various security breaches, I would be very concerned to have all my eggs in the same basket and give all my logins stored by one entity. Even with the best industry practices, bugs are a reality and those sites are probably high on the target list for any hackers.

This is one of the reason I don’t want to use aggregators, the convenience you gain with them is (to me) not worth the risk of getting of all your accounts possibly compromised at once (and all your retirement money siphoned out in the worst case…). You may be able to deal with the hassle/recover from one account being compromised, but all of them at once would be a huge nightmare.


retirebyforty December 25, 2013 at 5:03 pm

I understand you concern. They have a pretty good track record and hopefully they’ll stay ahead of the hackers. Seems like most of these leaks are human errors though. That Target hack was pretty bad.


Rose December 28, 2013 at 2:40 am

Yes, we do have a financial adviser, and after growing and managing our portfolio for so many years, I consider going with an FA another step towards true retirement for us. He makes a very good return for us net of fees, beats the market, and has taken a considerable amount of work off of my shoulders.


Ray December 28, 2013 at 5:05 am

I like your blogs but if u could talk in real numbers rather than percentages others could get a grasp of the reality of retiring early


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