Personal Capital's "Complimentary Portfolio Review" - Thoughts?

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SoDakJeff
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Personal Capital's "Complimentary Portfolio Review" - Thoughts?

Post by SoDakJeff » Sat Apr 07, 2018 7:58 am

I've learned a lot in the past year and a half, thanks to this forum and other reading I've done, but in no way would I consider myself to be well-educated in all things financial. When I retired, I learned enough to move all of our retirement savings over to index funds at Vanguard, except for my wife's 401(k) and 403(b) which are now in index funds at Principal. I also signed up for Vanguard's PAS, both for my assistance and for my wife's peace of mind should something happen to me.

I recently signed up for an account at Personal Capital, at the recommendation of many here and as an alternative to Quicken. As expected, I was contacted by an advisor who offered a "complimentary portfolio review". At first I was just going to decline, but then thought why not get another opinion? I have no intention of hiring this advisor to manage my portfolio.

If I'm understanding correctly what he was saying, he said my portfolio was generally good, but that I was exposing myself to higher risk because I have a large amount of my stocks in VTSAX. He said this was a problem because of the higher weight given to the tech sector at present, and for the fact that this index is short on small and mid cap stocks. This exposes me to risk during periods of higher volatility such as we've been seeing lately. He also said I should have more alternatives in my portfolio, of which I currently have none.

Apparently, their investment approach is to not invest in index funds, but rather to invest in individual stocks - 90-120 of them in all different sectors to create an individual index for the investor that has equal weighting among all sectors.

My current portfolio at Vanguard is at 75% stocks 25% bonds - VTSAX @ 40%, VTIAX @ 30% and the majority of bonds in VBTLX with some VTABX, VFSUX and VFIDX thrown in. Vanguard portfolio value is approx. $650k

Has anyone else had one of these complimentary reviews done for them? Is my basic understanding of their approach correct? Does he have a point about my increase risk, and should I look into (at least) adding some small- and/or mid-cap funds? And are alternatives necessary?

Thanks, and I apologize if any of the terminology I've used has been incorrect.

student
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Re: Personal Capital's "Complimentary Portfolio Review" - Thoughts?

Post by student » Sat Apr 07, 2018 8:02 am

SoDakJeff wrote:
Sat Apr 07, 2018 7:58 am
Apparently, their investment approach is to not invest in index funds, but rather to invest in individual stocks - 90-120 of them in all different sectors to create an individual index for the investor that has equal weighting among all sectors.
I will pass.
SoDakJeff wrote:
Sat Apr 07, 2018 7:58 am
My current portfolio at Vanguard is at 75% stocks 25% bonds - VTSAX @ 40%, VTIAX @ 30% and the majority of bonds in VBTLX with some VTABX, VFSUX and VFIDX thrown in. Vanguard portfolio value is approx. $650k
Assuming that your asset allocation is appropriate for it, I think this is good.

dbr
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Re: Personal Capital's "Complimentary Portfolio Review" - Thoughts?

Post by dbr » Sat Apr 07, 2018 8:15 am

You have opened the Gate to the Path to Perdition. The Perdition in question is the quest to replace a perfectly good plan with a better plan. In reality the worst enemy of a good plan is a better plan. It is up to you to cast aside the devil.

But, if you really want to take this seriously you had better consider the other 27 plans that are even better than what PC is suggesting and the 7 fatal flaws that have to be repaired in the plan you have.

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Re: Personal Capital's "Complimentary Portfolio Review" - Thoughts?

Post by MnyGrl » Sat Apr 07, 2018 8:19 am

I created an account but then deleted it shortly afterwards after learning that Fidelity will not cover any losses that occur if you give your password to a third party. That’s too high a risk for me, especially given how frequently companies are hacked into these days.

They did call me a few hours after I created the account but I told them I wasn’t interested in their services. Index funds for me.

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SoDakJeff
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Re: Personal Capital's "Complimentary Portfolio Review" - Thoughts?

Post by SoDakJeff » Sat Apr 07, 2018 8:31 am

dbr wrote:
Sat Apr 07, 2018 8:15 am
You have opened the Gate to the Path to Perdition. The Perdition in question is the quest to replace a perfectly good plan with a better plan. In reality the worst enemy of a good plan is a better plan. It is up to you to cast aside the devil.

But, if you really want to take this seriously you had better consider the other 27 plans that are even better than what PC is suggesting and the 7 fatal flaws that have to be repaired in the plan you have.
I'm actually very happy with my current portfolios - both my managed one at Vanguard and the ones I manage at Principal. I just thought the PC guy made a couple of points that might be worth considering.

MnD
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Re: Personal Capital's "Complimentary Portfolio Review" - Thoughts?

Post by MnD » Sat Apr 07, 2018 8:32 am

You will be "losing" 0.89% of your portfolio annually forever in PC fees and it is very difficult to unwind a position of 90-120 individual stocks.
To put that in context, that fee is over 50% of the dividend yield of the US stock market.
You are already paying Vanguard .30% for hand-holding.
The "index funds are too risky in this market" line is the new mantra for those that earn their paychecks off of your portfolio because they have pretty much lost the argument that they can provide better returns.
Last edited by MnD on Sat Apr 07, 2018 8:34 am, edited 1 time in total.
70/30 AA, Global market cap equity. Rebalance if FI <25% or >35%. Weighted ER< .10%. 5% of annual portfolio balance SWR, Proportional (to AA) withdrawals.

dbr
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Re: Personal Capital's "Complimentary Portfolio Review" - Thoughts?

Post by dbr » Sat Apr 07, 2018 8:32 am

SoDakJeff wrote:
Sat Apr 07, 2018 8:31 am
dbr wrote:
Sat Apr 07, 2018 8:15 am
You have opened the Gate to the Path to Perdition. The Perdition in question is the quest to replace a perfectly good plan with a better plan. In reality the worst enemy of a good plan is a better plan. It is up to you to cast aside the devil.

But, if you really want to take this seriously you had better consider the other 27 plans that are even better than what PC is suggesting and the 7 fatal flaws that have to be repaired in the plan you have.
I'm actually very happy with my current portfolios - both my managed one at Vanguard and the ones I manage at Principal. I just thought the PC guy made a couple of points that might be worth considering.
The points made involve discussions in investing on which you could spend an extensive amount of time reading, including on factor investing (Larry Swedroe has a book on the subject) and on fundamental weighting vs. cap weighting of portfolios. There are many threads here on those subjects as well as literature and blogs you can read. "Couple of points worth considering" does not even begin to describe the discussion available if you want to consider it.

Larry also has a book on alternative investments and you could start in on this thread: viewtopic.php?f=10&t=246267
Last edited by dbr on Sat Apr 07, 2018 8:50 am, edited 3 times in total.

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unclescrooge
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Re: Personal Capital's "Complimentary Portfolio Review" - Thoughts?

Post by unclescrooge » Sat Apr 07, 2018 8:37 am

Unwinding 100 positions will be a huge headache if you decide to come back to indexing.

I had a complimentary review and didn't think their portfolio was any better

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Re: Personal Capital's "Complimentary Portfolio Review" - Thoughts?

Post by bottlecap » Sat Apr 07, 2018 8:41 am

That's what personal capital tells you if you're a Boglehead.

I don't hate their approach, but I don't believe in it, either.

It does bother me that they use things like "recent volatility" as a scare tactic. They are pretty good at getting you to question yourself, which is not all bad. But they try to scare you and suggest your are in dire danger if you don't invest with them.

JT

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Re: Personal Capital's "Complimentary Portfolio Review" - Thoughts?

Post by deltaneutral83 » Sat Apr 07, 2018 8:50 am

It's just active management, nothing more, nothing less. Why did you go the way of indexing in the first place if you didn't want market returns and/or market proportions to sectors, cap weight, etc? Tech is of course large right now. And if it get's smaller I pay someone 4 bps to manage it passively and guaranteed market returns, not 100 actively. There are plenty of people who who subscribe to the small cap and/or value theory though.

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Re: Personal Capital's "Complimentary Portfolio Review" - Thoughts?

Post by peppers » Sat Apr 07, 2018 9:15 am

A higher weighting given to the tech sector at present? This is the market.

Back in the 1980's, 7 of the top 10 holdings were in "Big Oil".

If interested, check out the link below to see how positions change over the decades.

http://ritholtz.com/2013/02/visual-hist ... he-sp-500/
"..the cavalry ain't comin' kid, you're on your own..."

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nedsaid
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Re: Personal Capital's "Complimentary Portfolio Review" - Thoughts?

Post by nedsaid » Sat Apr 07, 2018 9:35 am

SoDakJeff wrote:
Sat Apr 07, 2018 7:58 am

I recently signed up for an account at Personal Capital, at the recommendation of many here and as an alternative to Quicken. As expected, I was contacted by an advisor who offered a "complimentary portfolio review". At first I was just going to decline, but then thought why not get another opinion? I have no intention of hiring this advisor to manage my portfolio.

If I'm understanding correctly what he was saying, he said my portfolio was generally good, but that I was exposing myself to higher risk because I have a large amount of my stocks in VTSAX. He said this was a problem because of the higher weight given to the tech sector at present, and for the fact that this index is short on small and mid cap stocks. This exposes me to risk during periods of higher volatility such as we've been seeing lately. He also said I should have more alternatives in my portfolio, of which I currently have none.

Nedsaid: There is a big grain of truth to what the advisor is saying but your portfolio is plenty well good enough. It is hard to beat the indexes. Just over 50% of the US Total Stock Market Index is in the top 100 companies by market cap. So pretty much, Total Stock Market is a Large Cap index. And yes, technology probably has too big of a weight in that index. One reason to diversify Internationally is to get better sector diversification. You could also add perhaps a good Mid-Cap and/or a good Small-Cap index to couple with Total Stock Market and that should address many of the advisors concerns. As far as alternatives, hard to know how they will act in a market crisis and if retail investors are late to the party.

Apparently, their investment approach is to not invest in index funds, but rather to invest in individual stocks - 90-120 of them in all different sectors to create an individual index for the investor that has equal weighting among all sectors.

My current portfolio at Vanguard is at 75% stocks 25% bonds - VTSAX @ 40% (Vanguard Total Stock Market Index Admiral), VTIAX (Total International Index Admiral) @ 30% and the majority of bonds in VBTLX (Vanguard Total Bond Market Index) with some VTABX (Vanguard Total International Bond Index, VFSUX (Vanguard Short Term Investment Grade Admiral) and VFIDX (Vanguard Intermediate Term Investment Grade Admiral) thrown in. Vanguard portfolio value is approx. $650k

Nedsaid: Please don't use ticker symbols without fund name, I looked them up because I was curious what you had. This is a good portfolio as is, and if you are pleased with it, no reason to change. You have a good world-wide portfolio and it is well diversified.

Has anyone else had one of these complimentary reviews done for them? Is my basic understanding of their approach correct? Does he have a point about my increase risk, and should I look into (at least) adding some small- and/or mid-cap funds? And are alternatives necessary?

Nedsaid: If you wanted more Mid-Cap/Small-Cap, Vanguard Extended Market Index would be the first place I would look. I have owned the S&P 600 Small-Cap Index ETF for years and have been very pleased with it. Do this only if you believe in the smaller company effect.


Thanks, and I apologize if any of the terminology I've used has been incorrect.
A fool and his money are good for business.

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Taylor Larimore
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Re: Personal Capital's "Complimentary Portfolio Review" - Thoughts?

Post by Taylor Larimore » Sat Apr 07, 2018 9:36 am

Apparently, their investment approach is to not invest in index funds, but rather to invest in individual stocks - 90-120 of them in all different sectors
SoDakJeff

A "complimentary portfolio review" may be the most effective marketing technique used by the financial industry to increase their profits. Don't fall for it. Your Vanguard indexed portfolio is far, far more suitable than any portfolio of individual stocks.

What Experts Say About Individual Stocks vs. Mutual Funds

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

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Re: Personal Capital's "Complimentary Portfolio Review" - Thoughts?

Post by 02nz » Sat Apr 07, 2018 10:02 am

I went through their "portfolio review" - it honestly wasn't a lot of value. Their main lines - that I was too heavily exposed to tech and health and that I should have more in alternatives - were basically identical to what you got. I remain unconvinced that their portfolio can perform almost a whole percentage point better year after year to account for their fee.

Oh, and they called back just yesterday (a couple of months after the potfolio review) to see if I'd changed my mind "given the recent volatility." Nope.

Check other threads here for some horror stories of unwinding complex positions set up by robo-advisors.

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Re: Personal Capital's "Complimentary Portfolio Review" - Thoughts?

Post by oldcomputerguy » Sat Apr 07, 2018 10:03 am

Don't give them your phone number.
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Re: Personal Capital's "Complimentary Portfolio Review" - Thoughts?

Post by oldcomputerguy » Sat Apr 07, 2018 10:07 am

MnD wrote:
Sat Apr 07, 2018 8:32 am
The "index funds are too risky in this market" line is the new mantra for those that earn their paychecks off of your portfolio because they have pretty much lost the argument that they can provide better returns.
It strikes me as rather silly that they in effect are arguing that total market index funds (which basically are the market) are "too risky for this market". Isn't that sort of circular reasoning in a way, arguing that investing in the market itself is "too risky for this market"?
:?
"I’ve come around to this: If you’re dumb, surround yourself with smart people; and if you’re smart, surround yourself with smart people who disagree with you." (Aaron Sorkin)

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Re: Personal Capital's "Complimentary Portfolio Review" - Thoughts?

Post by whodidntante » Sat Apr 07, 2018 10:11 am

I told my PC advisor that I would charge them more than that to let them manage my portfolio. He understood I was joking but also that he didn't have a fish on the hook.

If you want to equal weight sectors you don't need to pay someone for that. You could buy low cost sector ETFs from Fidelity and rebalance once a year. Or if you like complexity, buy the top 10 stocks in each sector. But I don't know why you would do that. As far as I know equal sector weighting doesn't do anything useful.

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Re: Personal Capital's "Complimentary Portfolio Review" - Thoughts?

Post by bayview » Sat Apr 07, 2018 10:14 am

We have VTSAX and VIMAX (mid cap index.)

I’ve been happy with the combo during the recent “bunny” market. VIMAX’s hops have been a bit more restrained.

I don’t know that it will make a huge difference in the long run, but I certainly prefer it to actively-managed individual stocks. :shock:

The “advisor’s” job is supposedly to manage your investments better than you, but his real job, at least at this stage, is to make you doubt your own abilities so that he can make money off of you in the future. Looks like he did have success at planting seeds of doubt.

Dump him. :beer
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