Rob Berger

A Delicious Conspiracy of Excellence

July 8, 2020 by Rob Berger

I have been reading Mastery by the late George Leonard. Half way through 2020 I’ve read about 25 books, and Mastery is a contender for the best book of the year. Leonard describes what he calls the 5 Keys to Mastery. Key #1 is instruction—hiring a coach. He explains:

“The individual teacher or coach can serve as a standard for all forms of instruction, the first and brightest beacon on the journey to mastery.” When coach and student are working in harmony, it’s a “delicious conspiracy of excellence” as Leonard describes it.

All of this reminds me of chess and kettlebells. Over the past 10 years I’ve studied chess and played in chess tournaments. I’ve also worked out three to five times a week, learning to master the kettlebell swing and Turkish get-up.

Tournament chess uses a rating system. The best in the world, Magnus Carlsen, is rated over 2800. A beginner’s rating is often well below 1000. I’m in the 1900s. Ten years ago I was in the 1900s. I’ve not improved.

Fortunately, my workouts have proven more productive. Ten years ago I woke up every morning in agonizing back and hip pain. My back would go out on me a couple times a year. When it did, I couldn’t walk for days. I weighted 230 pounds.

Today, my back isn’t perfect. But it hasn’t gone out on me in a decade. I weigh 182 pounds. At the age of 53 I can do a dozen pull-ups and hold a plank for three minutes. Kettlebells line the wall of my garage.

What’s the difference? Why have I seen no improvement in my ability to play chess, yet significant improvement in my overall fitness?

Coaching. Ten years ago I hired a trainer. His name is Justin Case, and he owns Underground Athlete in Fairfax, VA. I’ve trained there for a decade. In just under two hours I’ll be at the gym lifting with a trainer.

With chess I’ve tried to do it on my own. No coaching. No trainer.

Hiring a coach offers several benefits.

Competence: The most obvious it seems to me is the coach’s experience. Justin and the other trainers have taught me a lot about strength training, mobility, endurance and nutrition. Before working with them I viewed the sit-up as the primary way to strengthen your core. Today I never do a sit-up, at least not the kind we did in middle school. And who knew that carrying around a 24k kettlebell in one hand could strengthen your core?

Consistency: There are plenty of times when I don’t feel like working out. But I’ve made an appointment, it’s on the calendar, and they are expecting me. I show up. Showing up is 90% of the battle, and a coach can help motivate you to show up.

Camaraderie: Working with a coach and other students is fun. At least it should be. Team training is one of the most enjoyable aspects of my training. One coach and 12 students swing bells and taking names. Sure there are times when I train by myself, and I enjoy those moments of solitude. But it’s also fun to train with others.

Yesterday I hired a chess coach. Our first training session is tomorrow. I can’t wait.

Has Warren Buffett Lost the Midas Touch?

June 26, 2020 by Rob Berger

Investors and analysts have fallen out of love with Warren Buffett. At least that’s the claim by some as reported by Business Insider. The story claims that Berkshire has suffered from “chronic underperformance.” A MarketWatch piece piled on, describing what it called a “vast underperformance.” Later the same article said Buffett is “profoundly underperforming” the market.

Chronic. Vast. Profound.

Combining all three, are we to believe that Warren Buffett has fallen into an intense, persistent, and immense underperformance? We’ll answer that question in this article. The answer, as it turns out, teaches us four important lessons about investing.

Let’s start with the claim of underperformance.

Has Berkshire Hathaway Underperformed the Market?

Howard Gold of MarketWatch never seems to miss an opportunity to take a shot at Warren Buffett. His latest missive claims that “Dud stock picks, bad industry bets, vast underperformance — it’s the end of the Warren Buffett era” (Source).

Gold claims Buffett has “profoundly” underperformed the S&P 500 during the “entire 11-year bull market.” The math backs up Gold’s claim. From 2009 through 2019, Berkshire Hathaway has indeed trailed the S&P 500. By my calculations, Berkshire’s Compound Annual Growth Rate (CAGR) during this time was 12.10%. Respectable, but well below the S&P 500’s 14.69%.

To put these numbers into perspective, let’s assume we invested $10,000 at the start of the 11-year bull market. An investment in Berkshire would have grown to just over $35,100. An investment in the S&P 500, including dividends, would have grown to more than $45,000. And this brings us to lesson #1.

Lesson #1: Always question the numbers and underlying assumptions

In this case one has to ask why Gold selected the 11-year period. Yes, it represents the last bull market, but so what? Why does that make it a meaningful period to evaluate? What if we shave off a couple of years or add a couple? What happens then?

Well, If we look at the last decade, 2010 through 2019, the numbers are almost identical. Berkshire enjoyed a 13.09% CAGR; the S&P 500 came in at 13.57%. The S&P 500 still edged out the Oracle of Omaha, but one can hardly call that vast, chronic or profound.

And if we go back to 2007 to capture both the market collapse and bull market, Buffett comes out on top: 9.05% vs 8.82%. As it turns out, Buffett has underperformed the market, but only if you are very selective in the time period you chose to consider.

Complaints About Warren Buffett’s Investments

There have been several complaints leveled against Buffett recently. Generally speaking, they fall into one of three categories: (1) he’s made some bad investments, (2) he’s allowing Berkshire to hold too much cash, and (2) he missed out on the Coronavirus sell-off. We’ll start with the first complaint and then we’ll look at the other two together because they are related.

Bad Investments

There’s no question that several Berkshire investments have not done well.

Airlines

Berkshire invested about $7 or $8 billion in airlines, amassing sizable positions in four airlines:

Delta Air Lines (DAL): 11%
American Airlines Co (AAL): 10%
Southwest Airlines Co (LUV): 10%
United Airlines (UAL): 9%

(Source)

Following the fallout from COVID, Berkshire exited this positions.

According to Warren Buffett:

When we sell something– when we sell something, very often, it’s going to be our entire stake. I mean, we don’t trim positions or– that’s just not the way we approach it, anymore than if we buy 100% of a business we’re going to sell it down to 90% or 80%. If we like a business, we’re going to buy as much of it as we can and keep it as long as we can. But when we change our mind . . . Well, when we change our mind, we don’t take half measures or anything short. So I was amazed at how we frankly, now, we sell– we were selling them at far lower prices than we paid. But I was amazed at the volume. Now airlines always trade in large volume relatively, but– but we have sold the entire positions. (Source)

Why did Buffett sell? In addition to the complete collapse in demand for air travel, it’s likely due to the industry’s need to borrow billions of dollars to keep planes in the air. (Source) This money will be paid back out of future earnings, substantially reducing the enterprise value of each airline. Selling equity to raise capital is no better, as the new shares dilute the ownership interest of existing owners.

According to MarketWatch, Berkshire lost $5 billion. (Source).

Kraft Hines

According to a Harvard Business Review article, “Earlier this year, the company suffered a massive loss in less than 24 hours — $4.3 billion, to be precise. And over a two-year period, the fiasco cost Berkshire Hathaway $20 billion, possibly its worst loss ever.” According to MarketWatch, Berkshire has lost $2 billion on its $10 billion investment. (Source). However you do the math, the investment has not been a winner.

Occidental Petroleum

In 2019, Berkshire invested $10 billion in Occidental preferred shares to help the company in its $38 billion acquisition of Anadarko Petroleum. At the time, Buffett called the investment a long-term bet on oil prices (Source).

Oil prices then crashed, and Occidental was saddled with a debt. In April, Berkshire agreed to accept stock in lieu of a cash dividend. (Source)

Lesson #2: Make sure you get all the facts

Yes, these investments have not performed well. Still, the investments in Kraft Hines and Occidental may prove over time to do just fine. The story there is not over. More importantly, those who focus just on these investments don’t tell the whole narrative. For example, they conveniently leave out the fortune Berkshire has made on its Apple investment or the remarkable cashflow it enjoys from its wholly owned business.

The point: Be sure you get all the facts.

No Coronavirus Investments & Too Much Cash

“I am nervous that he may have missed this whole rally,” James Shanahan, an analyst at Edward Jones, told the Financial Times. “That’s frustrating.” “A lot of retail investors were plowing money into the market and doing better than professional investors,” he continued. “I think you can include Buffett in that.” (Source).

Billionaire investor Ken Fisher made a similar claim. He claimed that Buffett’s failure to take advantage of the coronavirus sell-off was due to his advanced age (Source). Buffett turns 90 in August.

Lesson #3: Don’t confuse price movement with value

While it’s a common mistake, I was surprised to see the likes of Ken Fisher make it. Just because stocks have fallen by 30% doesn’t mean they are a great buy. Yes, they are a better buy then they were before the fall. But they could still be overvalued. Indeed, the S&P 500 as measured by the P/E Ratio is still overvalued by a wide margin based on historical standards.

Furthermore, the story is not over. We aren’t through the first wave of Covid-19, never mind a second wave. Buffett buys based on his evaluation of value, not the recent price movements of a stock or index. We would do well to follow his example.

Warning for Investors in Actively Managed Mutual Funds

Even the best investments and investment strategies will underperform from time to time. Berkshire is no exception.

In 1974 it lost 48.7% while the S&P 500 lost just 26.4%
In 1990 it lost 23.1% while the S&P 500 lost just 3.1%
In 1999 Berkshire lost 23.1% while the S&P 500 GAINED 21% thanks to the tech bubble.

The same is even true for index funds. There will be markets where actively managed funds, on the whole, outperform passive investments. And that brings us to our last lesson.

Lesson #4: Choose an investment strategy you can stick to even in bad years

It’s for this reason that I favor low cost index funds. When they are down I know it’s not because a money manager has lost his or her touch. No mistakes have been made. No bad investment decisions. It’s just the market.

As for Berkshire, I’ll keep my shares in the company, thank you very much. I view it like a low cost, extremely tax efficient large cap mutual fund. Even better, it’s not limited to publicly traded companies; it can buy whole companies.

New to investing and managing your money? Check out my book,
Retire Before Mom and Dad.

“This book is a must-have for anyone, regardless of age, to understand how to grow and protect our money over the course of our lives.” — Adrienne

Buy on Amazon

How the Bucket Strategy and 4% Rule Work Together

June 15, 2020 by Rob Berger Leave a Comment

Investing in retirement is scary for the most experienced investor. Combining the bucket strategy and 4% rule can help any retiree weather a bad market. Here’s how.

I retired (the second time) at the age of 51. Having just sold my online business, my wife and I went from earning and saving money to living off of our investments. And even though we could live comfortably on about 2% of our nest egg, I was scared to death of running out of money.

It felt like I was on a life boat in the middle of the ocean rationing what little food we had left.

So a recent article in the WSJ—Investors Approaching Retirement Face Painful Decisions (paywall)—didn’t surprise me. According to the article, nearly a third of investors age 65 or older sold ALL of their stockholdings between February and May.

The news saddened me. Having spent years studying retirement investing and spending, I know that market timing is a recipe for retirement disaster.

Fortunately, a combination of the bucket strategy and the 4% Rule can save the day.

Table Of Contents

Retirees are Long-Term Investors
The Bucket Strategy and 4% Rule

The Bucket Strategy
The 4% Rule

Putting it All Together

Retirees are Long-Term Investors

The WSJ article featured 62 year old Dr. Craig Sklar. COVID had caused a decline in his medical practice, forcing him to furlough staff and take on emergency loans. At the same time, his portfolio fell during the March Madness, as I like to call it.

So it’s understandable that he sold much of his stock investments. Understandable, but probably a mistake. He explained his decision saying, “I don’t have 10 to 15 years left to recover my losses.” Actually, he has more like 30.

Retweet if you didn't sell any of your investments during the last bear market. Click To Tweet

Retirees are long-term investors. If we assume Dr. Sklar lives to the age of 95, he still has 33 years left on this rock. That’s more than 3 decades of investing, long-term by any definition.

Of course, he will be spending some of his investments along the way. As he pointed out to the WSJ, “I’ll need my cash to live on.”

And that raises an important question—how does a retiree reconcile the current need for cash with the long-term need for market returns that only stocks can provide?

The Bucket Strategy and 4% Rule

The answer is a combination of two retirement money management frameworks—the Bucket Strategy and the 4% Rule.

The Bucket Strategy

The Bucket Strategy helps us divide our retirement money between short-term spending needs and long-term investment needs. In its simplest incarnation, we use just two buckets—Cash and Investments.

Retirement investing is a marathon, not a sprint. Click To Tweet

Cash Bucket: This bucket holds three to five years worth of living expenses in cash (checking, savings, CDs, short-term bonds). Remember to deduct from your living expenses any other types of retirement income (e.g., pension, social security) before calculating your cash bucket needs. For example, if you need $75,000 a year before taxes, and social security provides $25,000, a 5-year cash bucket would hold $250,000 (($75,000 – $25,000) x 5 years).

Investment Bucket: Here we hold the remainder of our retirement funds in a diversified portfolio of low-cost index funds. The question we have to answer, however, is exactly what asset allocation to hold in this bucket. Is it 100% stocks? A 50/50 portfolio of stocks and bonds? Something else?

To answer these questions, we turn to the 4% Rule.

The 4% Rule

The 4% Rule arose from the work of financial advisor William Bengen. In a 1994 study, he found that a retiree could spend 4% of his nest egg in year one of retirement, adjust that amount by the rate of inflation each year, and not run out of money for at least 30 years (and in most cases, 50 years or more).

What doesn’t get as much attention is the asset allocation Bengen assumed in his study. His primary assumption was a portfolio of 50% stocks (tracking the S&P 500 index) and 50% intermediate term treasuries. Further, he assumed the retiree rebalanced the portfolio annually.

What they didn’t do was sell all their stocks in a bad market. And his study covered some really bad markets—1929 stock market crash, the final years in the 1930s, the stagflation of the 1970s. Through all of these difficult times, the 4% Rule survived.

Bengen did look at other asset allocations, ranging from 100% bonds to 100% stocks. What he found is that portfolios with a stock allocation between 50% and 75% lasted the longest. Add more stocks and the market volatility would hurt the unfortunate retirees who retired just before big market declines (particularly if inflation spiked). Hold less than 50% stocks and the returns were not sufficient to sustain a 30-year retirement in many cases.

So just like Goldilocks and The Three Bears, a 50% to 75% stock allocation is “just right.”

Putting it All Together

If we follow the 4% Rule, we want our overall portfolio to consist of 50% to 75% stocks. Here we combine both of our buckets (cash and investments) to determine our overall asset allocation. There are several ways to track our asset allocation across all our accounts.

The most effective tool and the one I use is Personal Capital. It’s free and it enables you to link all of your investment accounts (retirement and taxable) as well as all of your cash accounts. Once linked, you can see your asset allocation with a click of the mouse.

It’s here that the Bucket Strategy and the 4% Rule work together. The Bucket Strategy serves two critical roles. First, of course, it assures we have the cash we need for everyday expenses. Second, by having a cash bucket of three to five years, we are better positioned to handle the fear of market declines in our investment bucket.

This second objective cannot be overstated. Fear is what often drives any investor to sell during sudden market drops. It’s exactly what more than 100 years of data and experience tell us we shouldn’t do. If five years of living expenses in cash isn’t enough to calm your fears, than make it six or seven.

As you make these decisions, be sure to keep an eye on your overall asset allocation. So long as your stocks don’t drop below 50% of your portfolio, you’re still following the 4% Rule as envisioned by Bengen.

How Retirees Can Survive a Bear Market [Video]

New to investing and managing your money? Check out my book,
Retire Before Mom and Dad.

“This book is a must-have for anyone, regardless of age, to understand how to grow and protect our money over the course of our lives.” — Adrienne

Buy on Amazon

Morningstar User’s Guide

May 10, 2020 by Rob Berger Leave a Comment

Welcome to the Morningstar User’s Guide. We’re going to cover everything you need to know about using and getting the most advantage out of Morningstar. In this first article and video, we’ll cover an overview of Morningstar. We will also look at some resources you’ll need as we work through this guide.

It’s my hope that this will help you become a better, more confident investor.

Table Of Contents

Morningstar User’s Guide Video
Morningstar Overview
Issues with Morningstar’s New Website
This Morningstar User’s Guide

Part 1: The Data
Part 2: Using The Data
Part 3: Portfolio Manager
Part 4: Morningstar Tools

Morningstar Resources You Need Handy for this User’s Guide

Membership
Snapshot and Glossary
Morningstar Search Tool

Morningstar User’s Guide Video

Morningstar Overview

Morningstar was founded in 1984. Before the internet as we know it, by Joe Mansueto. The story is that he started it in his apartment in Chicago with about $80,000. I don’t know if that’s true, but regardless, he started Morningstar in 1984. Today, it’s a publicly traded company trading under the ticker MORN. It went public in 2005.

Last year, Morningstar generated about $1.2 billion in revenue. By my calculations, individual investors who pay for the premium version of Morningstar accounted for only about $22 million. Most of the revenue comes from tools designed for professional money managers and investment advisors. Some of these tools can cost tens of thousands of dollars a year.

The good news is that Morningstar made a lot of its data available for free to individual investors. And its premium version, which offers additional tools, is only $199. So that’s the good news.

Issues with Morningstar’s New Website

Now, there is some bad news. Last year Morningstar made some substantial changes to its website. They launched the new website in July 2019. The look of the new site is an improvement, sort of.

Here’s what the old site looked like:

And here’s the current website design:

The problem is that the functionality took a big hit for several reasons.

First of all, they took away a lot of the tools and data that were available in the old version of the site. For example, the removed the after-tax returns of mutual funds, which I thought was a very helpful data point. There are ways to get at that information, and we will cover that when we get to it in the series. That’s the good news, we can still get back to this old version, for now.

Second, they haven’t bothered to update the user guide. The Premium User Guide for paid members still reflects the old website design and functionality. I reached out to Morningstar support, thinking I just couldn’t find the new guide. Nope. They haven’t updated it. I guess that makes this User’s Guide all the more important!

Finally, many of the tools that still exist are really hard to find. In the old version they had a menu item called “Tools.” Seems simple enough. That page now no longer exists. So there’s no one page to go to to see all of the tools Morningstar offers investors.

This Morningstar User’s Guide

This guide will be divided into four parts.

Part 1: The Data

The first part is going to be simply understanding the data. It’ll be creating a number of videos that walk through all of the data about mutual funds, ETFs an stocks that Morningstar offers.

Part 2: Using The Data

Now that we have all this data from Part 1, how do we actually use it to make important investment decisions? That’s what we will cover in Part 2. First, we’ll figure out of all of the data you get from Morningstar, what pieces of it are really important. And then once we know that, we’ll cover how to use the data.

How do we use it to pick a mutual fund in our 401k? How do we compare two mutual funds? So we’ll be looking at that in part two.

Part 3: Portfolio Manager

In Part 3, we’re going to be looking at the portfolio manager in Morningstar.
We will walk through the Portfolio Manager, showing you how to set up your own portfolio, how to add new holdings, and then the different ways you can use the tool to evaluate your investments.

Part 4: Morningstar Tools

In Part 4 we will look at Morningstar Tools. These include fund and stock screeners, calculators, and the X-Ray tool.

Morningstar Resources You Need Handy for this User’s Guide

To finish out this brief overview, I want to talk about some things that that you want to keep in mind that are important as we move through the series.

Membership

The first is the Morningstar membership options. For individual investors like you and me, there’s are two options. At a minimum, you’ll want the Morningstar basic membership. It’s free, and you will need it to create and monitor your portfolio. If you want the premium version, it costs $199 per year.

Here’s what the two options cover:

Try Morningstar for Free

While I’m a Premium member, it’s not necessary for most people.

Snapshot and Glossary

Two more things briefly, that I think you should focus on, or at least have handy. The first is Morningstar Snapshot definitions.This gives you the definitions of key terms and concepts that we will encounter throughout this series.

For example, Morningstar categorizes mutual funds as a stock, bond or balanced fund. One might think that a bond mutual fund invests in bonds. Well, it does, but Morningstar categorizes a fund as a bond fund if at least 80% of its assets are on bonds. As a result, a “bond” mutual fund could also have a not insignificant amount invested in equities.

As another example, consider Morningstar’s definition of an international stock fund. According to Snapshot, it’s a stock fund that has invested 40% or more of its equity holdings in foreign stocks. So don’t assume you know Morningstar’s definition of these terms.

A similar tool is the Morningstar Glossary. It offers a wider range of investing terms.

Morningstar Search Tool

The last thing I want to show you in this overview is the search box on Morningstar. This really is the door through which you’ll find a lot of the things that you need on Morningstar. For example, you can you the search box in several ways to find key information on Morningstar:

Ticker: Search an investment by its ticker symbol
Name: Search a mutual fund or stock by name
Screener: Search the term “Screener” to find Morningstar’s stock and fund screeners
Tool: Search the term “Tool” to find Morningstar’s calculators and other investment tools

Personal Capital Review and User’s Guide

May 9, 2020 by Rob Berger Leave a Comment

Personal Capital is a financial tool that enables you to manage 100% of your finances from a single dashboard. I’ve used the app for years. In this Personal Capital review and user’s guide, I’ll walk through all of its features and how to leverage them to help you make the most of your money.

This article contains references to products from one or more of our advertisers. We may receive compensation when you click on links to those products. The opinions and views expressed, however, are our own.

Getting Started with Personal Capital

The first step is to sign up for a free account. Then you want to connect all of your financial accounts. While Personal Capital is perhaps best known for analyzing and tracking investments, I also connect all of my bank accounts, credit cards, loans, mortgage, and even my home. You can add your home and Personal Capital will pull in the value from Zillow.

Get Personal Capital for Free

Linking Your Accounts

Over the years I’ve linked may of the following types of accounts to Personal Capital:

Bank Accounts (checking, savings, CDs, money market accounts)
Retirement Accounts (401k, 403b, TSP, IRA, among others)
Non-Retirement Investment Accounts
HSA
Credit Cards
Mortgage
Student Loans
Personal Loans

You can link just about any financial account for which you have online access. You’ll need your username and password for each account. To link an account, you’ll search for the name of your financial institution in the “Link Your Account” dialog box on Personal Capital (you get to it by clicking the “+” icon near the top left of the Dashboard):

Tip: You can search by the name of your financial institution or by its website address (url). In the unlikely event you have a financial account that can’t be linked to Personal Capital, you can enter it manually.

So why bother to connect all of your accounts? As you’ll see below, Personal Capital does a lot more than keep an eye on your investments. By connecting all of your financial accounts, you can track your net worth, budget, cash flow and even your bills. And all of this information is pulled together in a Dashboard.

Settings & Profile

Once you’ve linked your accounts, it’s critical that you complete your Settings and Profile. Both can be found by clicking on your name in the top right corner of the screen.

With Settings, you have control over email subscriptions, whether to include investment income and dividends in cash flow (I do), and any accounts to exclude from the advice Personal Capital offers (I don’t exclude any).

Settings also include important security features. It’s here that you can configure multi-factor authentication (highly recommended) and an alert anytime a login is attempted from a foreign country.

Personal Capital also shows you a list of the devices you’ve authorized to access your account and when the last sign-on from that device occurred. I’ll often delete old devices I no longer use from this list.

The Profile is where you can set information about you and your spouse, your savings, income sources, and investment objectives. These are important settings that Personal Capital uses in its planning tools.

Dashboard

Once you’ve linked all of your accounts, Personal Capital aggregates it in the Dashboard. The Dashboard gives you a snapshot of your entire financial picture. Here’s what the dashboard looks like:

As you can see, it gives you a snapshot of your net worth, your monthly budget, your cash flow, your investments, and even where you are on your retirement and emergency savings goals.

Net Worth

There’s nothing more important to your financial freedom than racking your net worth. While I’m a big believer in keeping tabs on it in a spreadsheet (which I’ve done for years), I also track it in Personal Capital. If you connect all of your financial accounts, it’s tracked automatically.

Here’s what the Net Worth screen looks like in Personal Capital:

Try Personal Capital

Personal Capital Banking

I’m surprised at how much I use the banking features of Personal Capital. The primary features that I rely on are the Cash Flow and Budgeting features. Specifically, the tool shows me how much investment income we generate each month (interest, dividends and capital gains). The budget tool shows me how much we spent and on what.

Cash Flow

Cash flow shows both your income and expenses at a transaction level. Expenses are automatically categorized. You can easily drill down into income or expenses to look at the details.

You can also select which accounts to include in the report. I use this account selection feature to look at just my business expenses (I’ve connected by business checking and credit card accounts). I also use it to look at income just from my investment accounts. This allows me to quickly see all dividends and interest earned in my portfolio.

Budgeting

The budgeting feature is not a traditional budgeting app. You can set an overall monthly spending goal, but you can’t set goals by category. If that’s what you need, I highly recommend YNAB (You Need a Budget).

What Personal Capital does well is give you visibility into how you’ve spent your money by category. It automatically imports all spending from each linked account and categorizes the spending. You can customize the categories. I’ve found Personal Capital to do a reasonably good job of getting the categories right, although I do spend about 5 minutes a month correcting some transactions.

Tip: In addition to categories, you can tag transactions, too. I use a limited number of categories, and than tag transactions as needed. For example, we have a home maintenance category. For work on our pool, I tag those transactions as “pool” so I can see how much we spend on the pool without need to create a separate categori.

Bills

The bills feature is another reason to link your credit cards, mortgage, and other loans. Personal Capital keeps track of when bills are due with your linked accounts. This helps you avoid missed or late payments, and it helps with planning throughout the month.

Try Personal Capital

Personal Capital Investing

Here’s where Personal Capital really shines. Once you’ve connected your retirement and non-retirement accounts, it tracks your investments automatically. It updates prices throughout the trading day and keeps tabs on mutual fund expenses. It also shows you your asset allocation and offers a number of tools to help you evaluate your portfolio

Holdings

You get an overview of each of your holdings. The tool shows the following for each investment you own:

The name of each investment
Its ticker
How many shares you own
The current price
The days change (in both dollars and as a percentage)
The total value

It also gives you an overview of your performance. Here’s mine in the middle of the 2020 bear market (Yikes!):

Personal Capital Portfolio performance Graph

Allocation

Personal Capital also shows you your asset allocation. It automatically evaluates your investments and reports on your stock/bond allocation. For each it breaks down asset classes further, showing U.S. and International stocks and bonds, as well as alternatives.

The tool also provides a useful interactive graphic representation of your portfolio allocation. With the click of a mouse, you can explore what investments make up each of these asset classes. One interesting item is cash. The asset allocation tool not only shows you the cash in say money market accounts, but it also sees the cash held by stock mutual funds.

Personal Capital Planning

So far the dashboard has simply shown you your accounts and investments from various perspectives. It’s the planning tools that really take the tool to the next level.

Retirement Planner

Personal Capital’s retirement planner is both robust and easy to use. Because you’ve connected all of your investment accounts, Personal Capital can use this data to determine your retirement readiness. The screenshot below shows you want the calculator looks like once you’ve linked your accounts.

There’s a lot going on here, so let’s break it down:

Profile: In the bottom right of the above screenshot is the “Edit Profile” button. It’s here that you can set your marital status, tax filing status, you and your spouse’s name and dates of birth, how much you each earn per year, and any children you have.
Assumptions: The “Edit Assumptions” button enables you to set an estimate of your effective tax rate, inflation rate, and your life expectancy.
Income Events: You can add ongoing or one-time income events. These may include your yearly savings, a planned sale of a business or other asset, pension income you’ll receive in retirement, and even an estimate of your social security.
Spending Goals: Spending goals can include an estimate of your yearly spending in retirement as well as one-time expenses. For example, you could include the cost of a planned vacation in retirement or the cost of a future wedding for your children.
Retirement Score: Your retirement score shows a percentage representing the likelihood that your money will last through retirement. According to Personal Capital, a score of 50% to 80% “suggests you are on track, but it is important to understand and acknowledge that the portfolio does deplete in a meaningful amount of the projected scenarios.” A score above 90% means “there is relatively little to worry about and, most likely, you could afford greater spending now or it will be possible to increase spending over time.”
Graph Views: The graph above shows the portfolio based on an analysis of thousands of potential market returns. You can also view your accounts by asset location (i.e., Taxable, Tax Deferred and Tax Free.

The Retirement Planner also enables you to create multiple scenarios and then compare them. For example, one scenario may have you retiring at a traditional age, while another one has you retiring early. In one, you may include an estimate of social security, while in another one you exclude it. You could also change the assumptions on one scenario related to your effective tax rate, future inflation, or your life expectancy.

Once you’ve created a new scenario, you can then compare them side-by-side.

Savings Planner

The Savings Planner is three tools in one: Retirement Savings, Emergency Fund Savings, and Debt Paydown. Each enables you to set and track goals.

Retirement Savings Planner

Here you can set an annual retirement savings goal. The planner tracks your actual savings throughout the year, including your contributions to retirement accounts like 401k and IRAs. It will also track any savings you have in taxable accounts.

Keep in mind that this planner and your Retirement Planner are connected. If you change your savings goal in one, it automatically updates the other.

Emergency Fund Savings Planner

For the Emergency Fund, Personal Capital totals the value of all of your linked bank accounts. It then recommends an Emergency Fund of 3 to 6 months worth of expenses based on the budget amount that you set. As with the retirement planner, any changes in your monthly budgeted amount here automatically updates your Budget in the Banking section of Personal Capital.

Debt Paydown Planner

Any debts, including car loans, mortgages and personal loans, will show up in the Debt Paydown planner. Note that credit card debt will also show up in the planner if there have been at least two interest transactions within the last 90 days. In other words, your credit cards will not show up here if you pay them off in full each month, thereby avoiding interest charges.

The planner will show each debt, along with its interest rate (APR), change in balance year to date, and current balance. It also displays a graph of the changing in debt balances in the current year.

Retirement Fee Analyzer

The retirement fee analyzer is, I must confess, my favorite part of Personal Capital. It’s easy to dismiss relatively “small” investment fees as unimportant. The problem, of course, is the effect fees have on your wealth over decades of time. A 1% advisor or mutual fund fee may seem small, but over time it can literally cost you hundreds of thousands of dollars.

Personal Capital calculates a weighted average expense ratio for all of your linked accounts. Mine comes in at just 6 basis points–0.06%. That’s well below the average, and yet it will still cost me $17,865 over the next seven years according to the Fee Analyzer!

Fees matter–a lot. This tool by itself makes Personal Capital a must.

Investment Fee Checkup

The investment checkup evaluates your asset allocation and compares it to what Personal Capital recommends. Based on your investment profile, Personal Capital recommends an asset allocation. Here’s what it recommends for me, given my age, years to retirement and risk tolerance:

Personal Capital target asset allocation — Recommended Asset Allocation

My actual allocation has about 5% more bonds than what the above graphic shows. What’s interesting about this tool is that Personal Capital also shows you the historical performance of its recommended portfolio, future projections, risk & return and a comparison with your actual allocation.

If you want to follow the recommendation, Personal Capital provides a listing of those asset classes that need to increased, decreased and by how much.

Personal Capital FAQs

Is Personal Capital safe?

Yes. Personal Capital encrypts data with AES-256 with multi-layer key management, including rotating user-specific keys and salts. Further, no individual at Personal Capital has access to your credentials.

In addition, you must authenticate each device that accesses your account. You’ll receive an automated phone call, email or text message to confirm your identity. You can learn more about Personal Capital’s security here.

Is Personal Capital really free?

Yep. It’s investment services are not, but its financial tools are completely free.

Will Personal Capital call me?

Yes. They use the financial dashboard as a marketing tool. I’ve spoken with their advisors in the past, although I’ve never used the investment services. If you don’t want them to call you, just tell them. They honored my request.

Do I have to invest with Personal Capital to use the dashboard?

No.

How much does Personal Capital cost?

If you do want to use their investment advisory services, the fees start at 0.89% for the first $1 million and go down to 0.49% for amounts over $10 million.

Try Personal Capital

11 Free Personal Finance Tools & Resources

May 9, 2020 by Rob Berger Leave a Comment

Personal finance tools can help you make the most of your money. From budgeting to investing, saving to improving your credit, the resources below will empower you to take back control of your finances.

Budgeting Tools & Resources

There is no one “best” budgeting tool. The best tool for you is one that you’ll use and that helps you spend less than you make. Here are several that I’ve used and believe are solid budgeting tools.

YNAB

YNAB, short for You Need a Budget, is the budgeting tool I use every day. It automatically downloads all of your transactions from bank accounts (checking and savings), as well as credit cards. You can categorize your expenses, run reports, and understand where your money is going.

It is a subscription model, but the cost is reasonable. I’ve found it to be the best tool to manage your money.

Mint.com

I used Mint for many years. It’s a free online money management tool. You connect your financial accounts to Mint. The app then downloads your transactions and categorizes them for you. It’s not perfect, but it’s right more often than not. You can then see where your money has gone and plan your budget going forward.

Savings Tools & Resources

Acorns

Acorns is a savings app that invests your spare change. You can link a debit or credit card to your Acorns account. As you spend money, Acorns rounds up your purchase to the nearest dollar. Once your roundups reach a total of $5, Acorns transfers the amount from your designated Spending Account (usually your checking account) to your Acorns account. From there, Acorns invests your money in one of several investment portfolios.

Stash

Stash is aimed at new investors looking to start with relatively small amounts of money. You can start with as little as $5 and invest in index ETFs or selected stocks. Stash also offers a unique debit card. It enables you to earn stock based on your purchases. While the reward rates are modest, it’s a good way to get started investing outside of a 401(k).

Qapital

Qapital is an app that helps you save money through what it calls goals and rules. Goals, as the name suggests, are savings targets you create based on your financial priorities. Qapital then enables you to create savings rules to automate the process of saving to reach these goals. Qapital also offers an investing account to help you reach your long-term goals.

Online Banks

For emergency fund and short term savings, online banks are my favorite. They pay the highest interest rates and come with virtually no fees. Online banks that I’ve used in the past include Ally, CIT, American Express Bank, Discover Bank, and Capital One.

Some investing tools, such as Wealthfront, Betterment, and Personal Capital also offer high-yield FDIC-insured savings accounts (see below).

Investing Tools & Resources

Vanguard

Vanguard is a mutual fund company that popularized index fund investing. You can set up just about any type of account, including IRAs and taxable accounts. From there, you can invest in target date retirement funds and low-cost index funds.

Fidelity

Fidelity also offers low-cost index funds and any account type you’d need. Its target date retirement funds, however, are expensive.

Personal Capital

Personal Capital offers a free financial dashboard. You can connect your bank accounts, credit cards and investment accounts. Personal Capital than provides automated analysis of your spending, asset allocation, and retirement planning.

Personal Capital also offers a high-yield cash account. It’s FDIC-insured and offers a competitive rate.

Check out my Personal Capital Review and User’s Guide for more information.

Wealthfront

Wealthfront is an automated investing service often referred to as a robo-advisor. It’s similar in theory to a target date retirement fund, however, it gives you more control over your asset allocation. It also offers excellent tools to understand your investments.

Wealthfront also offers a high-yield cash account.

Betterment

Betterment is also a robo-advisor, similar to Wealthfront. They both offer a simple way to start investing, but they both do charge a fee. While the fee is modest, we know from Retire Before Mom and Dad that every basis point in fees costs us a lot of money over our lifetimes. Still, I think robo-advisors are a reasonable choice for those who want a service that can handle your asset allocation and rebalancing.