Personal Capital Target Allocation Tool - should I follow it?

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ronno2018
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Personal Capital Target Allocation Tool - should I follow it?

Post by ronno2018 » Mon Sep 24, 2018 1:21 pm

I guess it all comes down to whether I believe in their international stock allocation suggestion? I know some people say an overall US stock index is exposed to international values inherently.

I chose the aggressive Personal Capital profile and am on target for all categories but international and alternative.

Their analysis says my international allocation is at 8.7% and should be at 22.8% and alternative is currently 3.9% and the recommendation is 10.5%. I would shift out of US stocks in VTI, etc.

Any good suggestions for alternative investments? I only have VNQ -- Vanguard REIT ETF as an alternative currently.

Or maybe I just do the three fund portfolio and not worry about a more complex setup?

Thanks for any thoughts! :sharebeer

MnD
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Re: Personal Capital Target Allocation Tool - should I follow it?

Post by MnD » Mon Sep 24, 2018 1:47 pm

No-one would pay Personal Capital .89% of their money annually to manage their funds in a three-fund portfolio.
So they have to suggest something different to get people's attention like 10.5% in the mysterious "alternatives" box and fundamental weighting for domestic S%P sectors versus market cap weighting. I just ignore their advice.

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CyclingDuo
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Re: Personal Capital Target Allocation Tool - should I follow it?

Post by CyclingDuo » Mon Sep 24, 2018 2:04 pm

ronno2018 wrote:
Mon Sep 24, 2018 1:21 pm
I guess it all comes down to whether I believe in their international stock allocation suggestion? I know some people say an overall US stock index is exposed to international values inherently.

I chose the aggressive Personal Capital profile and am on target for all categories but international and alternative.

Their analysis says my international allocation is at 8.7% and should be at 22.8% and alternative is currently 3.9% and the recommendation is 10.5%. I would shift out of US stocks in VTI, etc.

Any good suggestions for alternative investments? I only have VNQ -- Vanguard REIT ETF as an alternative currently.

Or maybe I just do the three fund portfolio and not worry about a more complex setup?

Thanks for any thoughts! :sharebeer
The REIT is good, although you already get a small percentage of REITS in the TSM Fund, even more if you own a small cap or mid cap value index fund.

The Core Four Portfolio is the Three Fund plus the REIT.

https://www.bogleheads.org/wiki/Lazy_portfolios

https://www.bogleheads.org/blog/core-four-portfolios/

Image

We wouldn't worry too much about what Personal Capital says with regard to the actual international percentage or alternatives percentage. Are you comfortable with your percentage in international? Do you really need all of the alternatives (commodities, long/short, arbitrage, venture capital, private equity, real estate investment trusts, precious metals, wine, art, coins, etc...)? I think the REITS are plenty if you keep in mind you already have a little exposure in the total market index funds.
"Everywhere is within walking distance if you have the time." ~ Steven Wright

3funder
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Re: Personal Capital Target Allocation Tool - should I follow it?

Post by 3funder » Mon Sep 24, 2018 2:10 pm

MnD wrote:
Mon Sep 24, 2018 1:47 pm
No-one would pay Personal Capital .89% of their money annually to manage their funds in a three-fund portfolio.
So they have to suggest something different to get people's attention like 10.5% in the mysterious "alternatives" box and fundamental weighting for domestic S%P sectors versus market cap weighting. I just ignore their advice.
+1. I use Personal Capital to keep track of where I stand; however, I ignore their target allocation rubbish. I know what I want my allocation to be, and I'm good at maintaining it (which means I'm pretty good at doing nothing most of the time).

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vineviz
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Re: Personal Capital Target Allocation Tool - should I follow it?

Post by vineviz » Mon Sep 24, 2018 2:21 pm

I happen to think their asset allocation targets are generally very sensible. The alternatives allocation is a little high imho because decent alternative funds are hard to find, but the international allocation is spot on.

You should probably bring that allocation up.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

ronno2018
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Re: Personal Capital Target Allocation Tool - should I follow it?

Post by ronno2018 » Mon Sep 24, 2018 3:39 pm

Wow, thanks, very helpful comments!

I should clarify I just use a free account and have not signed up with their paid option and never intend to. I do like their service though and if they ever end the free tier I would likely use it until I can consolidate some accounts to one bank/brokerage.

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spangineer
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Re: Personal Capital Target Allocation Tool - should I follow it?

Post by spangineer » Mon Sep 24, 2018 3:56 pm

Not only is Personal Capital's asset allocation recommendation somewhat controversial (there's a big debate over how much, if any, international exposure investors need), but their breakdowns over complicate matters.

For example, they say that 3.5% of my portfolio is in international bonds... even though I do not own a single international bond fund. They claim that small percentages of other funds (like VSCSX) hold international bonds, and that therefore I do too. Perhaps that's true.

But more likely, they are miscategorizing the assets. For example, I noticed awhile ago that they were categorizing "government-backed securities" as corporate bonds, even though most people categorize them as government bonds.

Much simpler to say "I want 5% of this REIT fund" and "I want 50% US Total Market" and be done with it.

Ron Scott
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Re: Personal Capital Target Allocation Tool - should I follow it?

Post by Ron Scott » Mon Sep 24, 2018 4:12 pm

ronno2018 wrote:
Mon Sep 24, 2018 1:21 pm
I guess it all comes down to whether I believe in their international stock allocation suggestion? I know some people say an overall US stock index is exposed to international values inherently.

I chose the aggressive Personal Capital profile and am on target for all categories but international and alternative.

Their analysis says my international allocation is at 8.7% and should be at 22.8% and alternative is currently 3.9% and the recommendation is 10.5%. I would shift out of US stocks in VTI, etc.
My guess is the developers at Personal Capital feel they can convince you they're worth the money if they add some confusion into the mix and make recommendations for AA that somehow seem precise (It should be 3.9%, NOT 4%). They act as if they are experts in a business in which expertise is basically nonexistent. God help us...

Less is more and with investing it's more effective.

I suggest you begin the process of extricating yourself from their clutches and invest for yourself. We are here to help! (And whatever their thought process is about an international allocation for you isn't worth trying to understand.)
Retirement is a game best played by those prepared for more volatility in the future than has been seen in the past. The solution is not to predict investment losses but to prepare for them.

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vineviz
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Re: Personal Capital Target Allocation Tool - should I follow it?

Post by vineviz » Mon Sep 24, 2018 4:40 pm

spangineer wrote:
Mon Sep 24, 2018 3:56 pm
Not only is Personal Capital's asset allocation recommendation somewhat controversial (there's a big debate over how much, if any, international exposure investors need), but their breakdowns over complicate matters.
There's nothing "controversial" about their international equity allocation: it's 30% of equities, which is an extremely common recommendation among asset allocation experts.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

ronno2018
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Re: Personal Capital Target Allocation Tool - should I follow it?

Post by ronno2018 » Mon Sep 24, 2018 4:45 pm

spangineer wrote:
Mon Sep 24, 2018 3:56 pm

But more likely, they are miscategorizing the assets. For example, I noticed awhile ago that they were categorizing "government-backed securities" as corporate bonds, even though most people categorize them as government bonds.

Much simpler to say "I want 5% of this REIT fund" and "I want 50% US Total Market" and be done with it.
That is an excellent point, on one of my accounts their tool analyzed they ended up saying "we don't know the contents of the fund so manually split it up yourself." Which I attempted to do, so there are built in inaccuracies.

MnD
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Re: Personal Capital Target Allocation Tool - should I follow it?

Post by MnD » Mon Sep 24, 2018 5:08 pm

vineviz wrote:
Mon Sep 24, 2018 4:40 pm
spangineer wrote:
Mon Sep 24, 2018 3:56 pm
Not only is Personal Capital's asset allocation recommendation somewhat controversial (there's a big debate over how much, if any, international exposure investors need), but their breakdowns over complicate matters.
There's nothing "controversial" about their international equity allocation: it's 30% of equities, which is an extremely common recommendation among asset allocation experts.
And conservative actually relative to say Vanguard's 40% in international equity (as a share of equity) in their target funds.

PC's breakout of what's in your funds is also pretty good in my opinion. If I add the 3.X% of alternatives they extracted from my various diversified funds back into US and international stock at 50:50, my PC asset allocation between US stock, Int stock, bonds and cash is almost identical to two other portfolio analysis tools I use. It's mostly US and ex-US real estate and precious metals mining stocks they extract and plug into alternatives if you just have diversified funds.

Great tool but I have no use for their recommendations or paid services.

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Taylor Larimore
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The Three-Fund Portfolio

Post by Taylor Larimore » Mon Sep 24, 2018 5:22 pm

ronno2018 wrote:Or maybe I just do the three fund portfolio and not worry about a more complex setup?
Sounds like a good idea to me.

The Three-Fund Portfolio

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

ronno2018
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Re: Personal Capital Target Allocation Tool - should I follow it?

Post by ronno2018 » Mon Sep 24, 2018 10:34 pm

Thanks everyone, very actionable advice!

BuckStacker
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Re: Personal Capital Target Allocation Tool - should I follow it?

Post by BuckStacker » Tue Sep 25, 2018 1:45 am

I had a consultation with them out of curiosity when I started using the site to track my accounts. It was interesting but I was unimpressed by their explanation of the suggested allocation. Seemed overly complicated and unsubstantiated by any believable theory.

I don’t pay any attention to their suggested allocation. I basically model off of Vanguard’s target retirement funds and skip the intl bonds because they’re kind of pointless. Well diversified enough for me and very easy to manage.

If only I’d figured it out sooner, I could have saved myself a modest amount of grief and money. Thanks Bogleheads!

coupleofcents
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Re: Personal Capital Target Allocation Tool - should I follow it?

Post by coupleofcents » Tue Sep 25, 2018 8:03 am

I find the PC Target Allocation tool pretty good for US stocks, Intl Stock, and Bonds. If you are running a Boglehead 3-fund portfolio, you will likely not have enough of:

1. Alternatives
2. Int'l Bonds

Keep in mind you can manually add in accounts as "Alternatives". This could be any rental property you own, commodities, artwork, crowd funding platforms. They do calculate a small percentage of Vanguard Total Stock/Total Int'l Stock as alternative. I have Vanguard REIT fund and some small amounts in a crowfunding platform. I still don't have fully recommended percentage but I'm close.

For int'l bonds, you can just bump up your US bond fund to match the total between the 2. Or if you decide to go with a Vanguard Target Date Fund or Life Strategy fund, I believe PC will account for the percentage to Int'l Bonds.

**Also, don't forget to exclude any accounts you do not want as part of the Target Allocation. For example, I have a taxable brokerage at Vanguard that I have for a future home downpayment. You can exclude this since I only want to use the recommended target allocation for my retirement accounts.

Busdrvr
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Re: Personal Capital Target Allocation Tool - should I follow it?

Post by Busdrvr » Tue Sep 25, 2018 5:19 pm

The PC guy has set up the second annual meeting (phone patch)with me in order to get at my Rollover IRA's ansd spouses old 401k(not rolled over). Total assets are roughly 300k. Last year I said thanks, but no thanks.

Problem is, and I've told him this, that in order for us to do backdoor roths we have to convert or roll this money to begin filling the roth bucket. I bet he tells me I don't need to establish roth accounts for retirement.

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