investing Archives - The Free Financial Advisor

Should You Care About Warren Buffet’s Stock Trades

December 7, 2020 by Tamila McDonald Leave a Comment

Warren Buffett is a bastion in the world of investment. The billionaire has a reputation for making smart choices. As a result, many investors wonder if they should mimic his moves or if keeping an eye on his trades would help them achieve better results. If you are trying to figure out if you should care about Warren Buffett’s stock trades, here’s what you need to know.

Why Investors Follow Warren Buffett’s Stock Trades

Generally speaking, when an investor spends time tracking Warren Buffett’s stock trades, their main goal is usually to snag similar results. Following the investment moves of a legend usually seems like a great idea. Many think that, by using an approach that mimics the Oracle of Omaha’s strategy, they can reach the same level of success.

However, some many also watch Warren Buffett’s stock trades for other reasons. For example, instead of attempting to follow his moves directly, they may use his trades to identify sectors that could be poised for gains or losses. At times, investors simply enjoy seeing how their strategy aligns with or differs from what others are doing, including individuals with some fame.

Changing Your Investment Approach to Match Warren Buffett

As mentioned above, some people watch Warren Buffett stock trades in hopes of following his strategy to increase their gains. In reality, that isn’t always a great idea.

One of the biggest reasons why you may not want to follow in Warren Buffett’s footsteps is that his investment goals may differ from your own. For example, he isn’t stashing cash for retirement, while that may be your main objective. As a result, his choices may not align with your preferred risk level.

Additionally, there are certain moves that he can make that are out of the reach of the vast majority of investors. For instance, he can establish massive stakes in companies that are household names, something that most investors can’t pull off.

Finally, Warren Buffett can make deals that an individual investor just can’t. For example, his $5 billion investment in Goldman Sachs in 2008 – which many considered to be a bailout – resulted in a $3+ billion gain when he unloaded it. But he didn’t purchase Goldman Sachs’s stock the way a normal investor would when that happened, putting him in a different position.

Generally, Warren Buffett’s unique position means that he can make moves that nearly everyone else can’t. Mimicking his approach is, therefore, practically impossible.

Overall, all of the points above suggest that changing your investment approach to match Warren Buffett isn’t a great idea. His strategy doesn’t rely on traditional kinds of investing, so it may not be compatible with you.

Warren Buffett’s Stock Trades: Should You Care?

Even if you shouldn’t copy Warren Buffett stock trades directly, that doesn’t mean keeping an eye on what he does is a bad idea. You may be able to use his choices to figure out options that you were previously overlooking, like an emerging sector.

The trick is to make sure that, even if you want Warren Buffett’s trade activity, you only make moves that align with your strategy, goals, and risk tolerance. That way, you’re doing what’s right for you and not just copying a billionaire whose unique position gives them different kinds of options.

Do you think investors should care about Warren Buffett’s stock trades? Why or why not? Share your thoughts in the comments below.

The Best, Low Maintenance Way to Invest 30K

December 2, 2020 by Jacob Sensiba Leave a Comment

If you’ve been building your savings to start investing and you’ve managed to put aside $30K, you may be wondering what your next step should be. How do I invest 30k? What is the best, low maintenance approach?

Here are some great ways to apply that 30K towards growing your wealth.

Pay Off Debt

First and foremost, use some of the money to pay off any debt you may have. It will save you money in the long-run. If you’re carrying a $10K credit card balance with a 15% interest fee, you’ll be paying an extra $1500/year in interest. That’s money that can be better spent on investments down the road. If you want to invest 30k, first start by getting rid of debt.

Emergency Fund

If you don’t already have one, put some of your money aside in an emergency fund so you know you’ll be able to manage if something unexpected happens. You should have 3-6 months’ worth of expenses put aside in an easily accessible account like a savings account. Just make sure it’s not linked to your debit card so you can’t spend it. The period of time you need to cover varies based on how long you think it would take you to find another job should something happen to your current job.

Earning return

What’s next has all to do with three things: risk tolerance, time horizon, and investment objectives. As a matter of fact, that’s how all of your investment decisions are made.

There are several different vehicles you can utilize, so what I’m going to do is give each vehicle its own section, explain what it is, and then give a little more detail as to when it could be used.

Certificate of Deposit (CD)

A bank product with a specified interest rate and a specified maturity. CDs are used to hold money for a specified period of time in a virtually risk-free fashion. More about CDs.

You’ll choose a CD for two reasons. The first is if you want a safe, federally insured vehicle to stash away some cash. The other reason is if you do not want to touch that money for a specified period. For example, you’re going to buy a house in three years and you don’t want to jeopardize that down payment. You buy/invest in a 3 year CD. At the end of year three, you’ll get back your principal (what you put in) and some accrued interest. Early withdrawal penalties apply.

Savings/Money Market Accounts

Typically used for your emergency fund. Easily accessible, and able to earn a little interest.

That’s pretty much it when it comes to these accounts. The interest they offer will be (not always) pretty low, but, like the CD, it offers a very safe place to store your cash until you need it. Unlike the CD, however, there are no early withdrawal penalties.

Qualified accounts

Basically any retirement account. Traditional IRA, Roth IRA, and employer-sponsored plans (401k, Simple IRA, etc.). There are contribution limits associated with these accounts.

With these accounts, as I said, contribution limits are something to pay attention to. With your Traditional and Roth IRA, there’s a $6,000 contribution limit ($7,000 if you’re 50 and older). 401ks have a limit of $19,500 (25,500 for 50 and older). Simple IRA limit is $13,500 ($16,500 for 50 and older).

This is a long term investment solution, as early withdrawal penalties apply. There are several ways to “exempt” yourself from that penalty, however, such as a first home purchase. For an extensive list of these exemptions, click here.

These accounts are also called “tax-advantaged” accounts because, as the name suggests, there are tax advantages. You either lower your taxable income with your contributions or have the ability to withdraw the funds “tax-free” (barring an early withdrawal penalty, of course).

Non-Qualified Accounts

Brokerage accounts or any investment vehicle that doesn’t have any tax benefits. Meaning, you pay taxes on any capital gains and dividends you receive. No contribution limits.

Honestly, the only advantage to these accounts is there is no contribution limit. For example, if you’ve maxed your contribution for your employer-sponsored plan and your IRA, then you can dump the rest of your money here.

Health Savings Account (HSA)

Accounts specifically designed to help you with your medical expenses. Money that you contribute to this account is “tax-free” or “tax-deductible”, which means it lowers your taxable income. Also, the funds, if used for qualified medical expenses, are tax-free.

With some, not all HSAs, you can invest what you’ve contributed. So if you have 30k to invest, I’ll point you to the below section to help with that. There are contribution limits with the HSA, however, so keep that in mind.

Asset allocation

After you’ve selected an investment vehicle (this section does not apply to CDs, savings accounts, or money market accounts), it’s time to invest your capital.

Asset allocation is my preferred method to invest, and I’ve written extensively on it here. So if you want to invest 30k, here’s what you need to ask yourself. How long until I need these funds? What is my ultimate goal for these funds? What am I willing to lose?

If your time period is less than 5 years, ignore this section and stick your money in a savings account or a CD. The risk/reward is unfavorable in this scenario.

If you have, ideally, 10+ years, then you have some options. The next question is about risk tolerance. What kind of portfolio are you comfortable with? Using the stocks/bonds/cash breakdown, are you a 60/40/0 type of person? Maybe you’re quite tolerant and prefer an 80/20/0 approach.

For those of you that are not tolerant of risk and/or you have a shorter number of years until you need to access these funds. Your portfolio should start at 50/50/0, and then adjust as you see fit. The cash portion in this breakdown should be used as investable cash for when you see a buying opportunity and/or funds you’ll need access to in the near future (unriskable capital).

Risk Tolerance

If you really want to know what your unique risk tolerance is, take our quiz!

I know I didn’t really give a concrete answer to what’s posed in the headline, but that’s the thing about investing – it’s incredibly personal. You need to do what’s best for you.

If time is on your side, max your retirement contribution, then put the rest in a savings account until next year. At that time, max it again.

If time isn’t your friend, a CD isn’t a bad idea. As I said earlier, paying down/off debt is incredibly worth it. That’s an automatic 15% return on your money if you pay off your credit card. Money that can be used more effectively going forward.

Read our articles, ask for advice, and do what’s best for you. That’ll help you answer the question: how do you invest 30k?

**Securities offered through Securities America, Inc., Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Securities America and its representatives do not provide tax or legal advice; therefore, it is important to coordinate with your tax or legal advisor regarding your specific situation. Please see website for full disclosures: www.crgfinancialservices.com

Is It Too Late to Invest In FAANG Stocks?

November 16, 2020 by Tamila McDonald Leave a Comment

If you explore any information about the stock market, you’ll be hard-pressed not to trip across an article talking about a FAANG stock or two. These tech behemoths are always movers and shakers, at times for better, at times for worse. But when you see the price tags associated with these investment options, you may be wondering, “Is it too late to invest in FAANG stocks?” If you fall into that category, here’s what you need to know.

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Do Stock Splits Make Sense in 2020?

September 28, 2020 by Tamila McDonald Leave a Comment

When a company is publicly traded, it has a set number of outstanding shares. This limits the number of potential investors, as there is only so much stock to go around. Additionally, it can, at times, hinder a company’s ability to bring in money. However, businesses do have the ability to practically create more shares out of thin air. With a stock split, they can increase the total number of shares available. The move can be financially beneficial, but it also comes with risk. If you are wondering, “Do stock splits make sense in 2020?” here’s what you need to know.

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Down Payment or Investment Opportunities?

June 17, 2020 by Jacob Sensiba Leave a Comment

The current dilemma I am having is whether to stash my savings for a down payment on a house or contribute to my Roth so I have cash available for buying opportunities.

I’m pinching pennies, and I’m saving money wherever I can so that cash is accessible when I need it. I just don’t know what to do with it.

Do I put it towards a down payment or set it aside for investment opportunities. Like most things in life, the answer will lie somewhere in the middle.

Down payment

I’ve mentioned in prior reflections that I’m renting right now.

I’m renting because I got divorced and exhausted all of my savings on the down payment for my house. That house is currently being rented by another family, and my ex-wife and I still own it.

That’ll help build equity into the house so we receive more if/when we decide to sell, which is good.

I’m happy with my current living arrangements. I like the place. I like the neighborhood. My commute to work is 2 minutes, and I’m close to all of my family and friends. All good things.

The only bad part is I have no outdoor space to call my own. I have no yard.

I’m trying to frame it positively by saying that I’m not spending my time on yard work, and instead, have more time to spend with my son/work on myself when he’s not here. These are both very good things.

However, I want to give my son a space to play. A place to put a jungle gym and a sandbox. A place where he can just run around and have fun.

I want to give him that because he deserves it. I want to use my savings for a down payment on a house so we can have a place to call our own.

Investment opportunities

Here’s the second part of my dilemma. I see a lot of chances to put my money to work in the market.

I’m able to play the long game because of my investment philosophy and my training. The best investors I have long term time horizons.

What I mean to say is I can see past the present and I have an idea of what my investments can do over the long term, and the [possible] reward for investing now can’t be ignored.

That’s why I’m having a difficult time deciding what to do.

What will I do?

As a parent, you want to give your kids everything. I want to have a place we can call our own.

At the same time, I know how valuable it is to start saving and investing early so I can take advantage of compounding returns.

So here’s what I’m thinking. I’m going to develop a “savings plan”. I’ll take the dollar amount for an ideal down payment and how far in the future (in terms of years) when I’ll want to use it.

I’m thinking of $25,000 for a down payment and four years until I’ll use it. I’ll, then, divide $25k by 48 to get my monthly savings goal. Anything over that number I’ll put in my Roth.

That’ll take care of saving for a house and for retirement.

My Last Reflection:

My Experience with Life Insurance

Mistakes to Avoid in Retirement

May 27, 2020 by Jacob Sensiba Leave a Comment

In many finance websites, blogs, and articles, a lot has been said about how to prepare for retirement, but I believe there hasn’t been enough written about what to do when you get there. More specifically, there’s a lack of content about mistake, or mistakes, to avoid.

In this article, we’ll explore several mistakes to avoid when you reach this milestone.

Spend beyond your means

This seems obvious, but once the psychological barrier of spending versus savings is breached, people (not everyone) develop this mentality of “I saved for 40 years for this moment, why shouldn’t I enjoy it?”

You should enjoy it. You worked your butt off for it, right? There are strategic ways to do this, however. The mistake is going gangbusters right away.

Create a budget/spending plan – Your budget in retirement will be different than your budget before retirement. Create line items for everything, and get real granular with your discretionary spending (i.e. sub line items to breakdown where the discretionary spending is actually going).
Plan for healthcare – Healthcare costs, generally speaking, will be your largest expense in retirement. Plan accordingly.
Income strategy – More than likely, you’ll have a few different income sources (social security, pension, retirement distributions, etc.). Create a line item for each source.
Senior discounts – Take advantage of every single one. There might be a psychological hesitation with this, as it forces you to come to terms with your age/where you are in life
Spoil grandkids – Every grandparent wants to spoil their grandkids to death, but it must be done within reason. Get creative and be strategic about when and how much.

Make Quick Decisions

Another mistake is making quick decisions. Don’t do it. Any decision you classify as BIG needs to be well thought out. This could be anything like moving, downsizing, vacations, or eliminating a vehicle.

I would argue that any decision about an expense that’s not in your budget/spending plan, should be thought about for several days. My rule of thumb is a week. By then, the euphoria of such a purchase has gone away, then you think more logically about it.

Investing Aggressively

Over the years, a big mistake clients make is the desire to invest more aggressively than they should. Oftentimes, this is to compensate for an inadequate savings rate during their working years or a significant market pullback that hurt their portfolio.

While capital appreciation is still an investment objective in retirement, it’s no longer the primary goal.

This primary goal should be capital preservation. Limiting losses on what you have. This has less to do with time and more to do with your decreasing ability to go out and make more money. Allocate your portfolios accordingly.

Ignoring Estate Planning

Estate planning is a key ingredient to your financial planning recipe. It mustn’t be ignored. Every debt and asset you have needs to be accounted for, listed, and given a task for when you pass.

Estate attorneys can be expensive, but I believe it’s 100% necessary to find one you trust, so your estate is well taken care of.

Isolating Yourself

Your social life is more important than ever. Countless studies show that people with strong relationships outlive those that don’t. So the mistake here is not making your social life a priority.

Join a community, volunteer, retain, and nourish friendships. Whatever flavor of social life sounds desirable, make it a priority.

Letting Yourself Go

Taking care of your mind and body is always important, but especially now. It will keep you healthy, therefore, lowering your healthcare expenditures, but it’s also another way for you to meet people.

Go for walks with neighbors and/or friends. Join a gym. Many of which have reduced rates for seniors. Additionally, many health insurance companies have “silver sneaker” programs that offer inexpensive services and programs for seniors.

Expecting it to be easy

This is a BIG life change and the transition will not be easy.

Not only will you shift from saving to spending, but those social connections you developed over your working years can reduce in frequency and strength.

Go easy on yourself and be patient.

Taking Social Security too early

Unfortunately, there are situations and scenarios where taking Social Security Income (SSI) distributions early is necessary. However, for those of you where this does not apply, speak with a trusted advisor about optimizing your SSI strategy.

Getting Swindled

Scammers adapted. They’re smart and they know how to target susceptible people. Unfortunately, elderly individuals are inherently more at risk than the general population.

Any email, phone call, or text that you receive (unsolicited, of course) should be greeted with a fair amount of skepticism. Don’t willingly give out any pertinent information (name, DOB, social security number, etc.).

Doing it alone

A BIG mistake people make is thinking they can plan by themselves. It would behoove you tremendously to consult with several experts. Estate attorneys and financial advisors should be at the top of this list.

Do your research, check online reviews, and get testimonials from trusted contacts. Having capable professionals in your corner could set you up for success and put your mind at ease.

Dealing with Market Fluctuations

May 6, 2020 by Jacob Sensiba Leave a Comment

Over the past couple of months, we’ve seen increased volatility. Put simply, volatility is periodic market fluctuations.

In a month, from the end of February to the end of March, we saw the S&P 500 drop nearly 35%. Obviously, it wasn’t a straight drop. There were several up days and a few relief rallies.

Since then, we have seen the S&P come back to the tune of 22%.

In this article, I want to give a little information about how I deal with market fluctuations, where I look for opportunities, and how retirement savers navigate these difficult times.

What I Learned

At the beginning of my career, I always dreaded experiencing a bear market. What do I do? Do I sell out of everything to avoid the decline? What do I tell my clients? How will they react?

As I gained more experience and read more, I learned what to do.

Keep in mind that I started my career in 2014, still in the middle of a long bull market, and since then I’ve read everything I could get my hands on about finances, markets, and economics. I’ve listened to podcasts and watched YouTube videos.

A lot of the people that I learned from attributed their success to when they got started. Two gentlemen really stick out.

One began his career in 1987 and lost his shirt on Black Monday (20% decline in one day, October 1987). This taught him about diversification and the importance of a long-term strategy.

The other got started in the early 80s but had a much different experience. He did some research and analysis and found a lot of risk in the credit market. He stuck his neck out on this trade and what he predicted came to fruition.

However, the markets didn’t react how he thought. What he learned was that fundamentals are important, yes, but what [almost] matters more is investor behavior.

Market Fluctuations

In periods of heightened market volatility, I pretty much hold my ground. I help my clients plan accordingly and coach them about what to do when stocks fall.

We put together the parachute before we jump out of the plane, not on the way down. That’s where people get into trouble. That’s why asset allocation is so important.

When building a portfolio, it’s vital to take your age (time horizon) and risk tolerance into account.

What may even be more important is the investor’s behavior. They might have a long time horizon and be fairly tolerant of risk, but if they’re going to lose sleep over a 10% correction, you need to position their portfolio accordingly.

Because my clients and I plan ahead, generally, I don’t do anything and I advise them to sit tight. What you don’t want to do is sell out of fear. At that point, you have probably experienced enough of the decline that it doesn’t make sense.

Exceptions

That said, I did some broad selling during the month of March. There were two positions that I used specifically to serve as a shock absorber during declines, and those did not perform as I’d hoped. So I sold them.

I realized they weren’t doing what I wanted them to and I cut my losses. Good traders and investors have an incredibly short leash when it comes to limiting their losses.

Opportunities

Generally speaking, I’m not a stock picker. I’m an asset allocator. Stock picking is not an efficient use of my time. However, sometimes it’s necessary and market fluctuations often create opportunities.

There are two positions, in particular, that I’ve been buying over the last month or two. I found enough of a disconnect between the price and what I thought the value would be over the long term, that I slowly invested into these two positions.

By the way, this slow investing is called averaging in, or dollar-cost averaging. Ideally, you invest at lower and lower prices, reducing your overall cost basis. My method is to take advantage of that disconnect I mentioned, but also leave enough on the side in case it goes lower so I can buy more.

How to Plan

Planning for market fluctuations isn’t something you do when you think it’s coming, it should be part of your plan all along.

Age is a big factor when determining the time horizon. The other items to consider, as I mentioned, are goals, risk tolerance, and investor behavior.

As an advisor, you have to be acutely aware and familiar with your clients, their risk appetite, and their personality. Only then are you able to plan with them, then guide them during trying times.

That’s probably one of the biggest things I’ve taken away from these market fluctuations. I’ve received two phone calls. That tells me that I’ve trained them well. That I’ve done a good job planning with them and that they are comfortable with how their portfolios are positioned.

Your Wealth: What You Shouldn’t Do

August 7, 2019 by Jacob Sensiba

Establish an emergency fund, pay down debt, save for retirement, and grow your wealth! Much of your financial life is focused on the things you should do.

However, what I think to be more important are the things you shouldn’t do!

Educational Debt

There’s been a lot of literature/news over the last few years about how much of a problem student loan debt is. As of 2018, total student loan debt was $1.47 trillion. With a T! (Source)

That said, here are some things you should avoid.

Taking on too much – Some degrees/professions require a lot of schooling, which can lead to large amounts of student loan debt. And I don’t mean to speak ill of any degrees/professions, but if your desired career requires a “basic” 4-year degree, it’s probably best to find an in-state university to cut costs. Better yet, start at a local 2-year university or tech school until your Gen. Eds. are complete, then transfer.
Not having a plan for after – I think this is a common fear for Millennials and Gen Z, but you have so much time to figure things out. Don’t just go to college to get a degree. If you need time, take time. Once you figure out what you want, determine what you need to do to get there.
Not researching options – There are SO many student loan options. Depending on what type of loan you choose (private or public), you could have a wide range of payback methodologies. I wrote about student loan options and payback options in two previous posts. Check them out!

Credit cards

There are two BIG problems with credit cards. People who use them irresponsibly and people who don’t use them at all.

Using irresponsibly – This one pretty much speaks for itself. This pertains to people who spend way more than they ought to. A good rule of thumb is to only buy something using a credit card if you have the funds readily available to pay the balance off. Don’t have the money, don’t put it on the card. Doing so will cost you in interest and can really set you back.
Not using at all – Better than the first point, but still not great. Using a credit card can help your financial situation if you use it correctly. Most of them have rewards of some sort. It’s another credit account on your report. Charging and paying off right away establishes a good payment history. All good things for your credit score.

No emergency fund

Establishing an emergency fund is Step 1. If you don’t have money set aside for unexpected expenses, you’ll have to charge it. This leads to the point above about irresponsible use.

Save $1,000 for emergencies, turn your attention to high-interest debt (credit cards), and then shift your focus back to your emergency fund once that debt is paid off.

Spending

Paying bills late – Not paying your bills on time, especially ones shown on your credit report is a big mistake. The #1 factor in calculating your credit score is payment history. Paying ONE bill late will knock your score down. Just one. Don’t do it.
Spending too much – (See irresponsible credit card use) This is especially harmful if you frivolously spend BEFORE taking care of important “budget items”. Things like saving, debt payments, and bills.
Being too frugal – Though frugality is helpful in building wealth, it can also hurt you. There comes a point when you are too frugal. A vital life skill is doing things in moderation. If you pinch pennies and forego rewarding yourself, you run the risk of breaking the bank on a “bender”.

Investing

Waiting – I cannot stress enough the importance of investing early. What helps you make the most of your retirement savings is compound interest. The more time you have to invest, the more compound interest works in your favor.
Panic selling – This is a timely point since the market dropped almost 5 percent in the last week. Selling out of fear is always bad. More often than not, when you “panic sell,” you’ve already experienced the majority of the drawdown. Now, this depends on your particular situation, but it behooves you to stay invested during that period.
Using generalities when setting up an investment plan – Your investment plan needs to reflect your goals, risk tolerance, time horizon, and behavior. Using generalities is good for someone who writes about this stuff, but it’s not good for YOU. Your plan has to be tailored to YOU.

Life and Wealth

Sticking with a job you hate – Sometimes money and comfort makes us do things we don’t want to do. Being unhappy at your job is not worth it. It’s important, however, to thoroughly think through this decision. Quitting is tough, but if your family counts on you for income, you need to have a plan in place before you jump ship.
Comparing yourself to others – I’m going to encourage you to develop a new mindset because society taught us that wealth looks like fancy cars and big houses. I want you to think about stealth wealth. It’s probably my most favorite phrase/term. Someone with stealth wealth lives within their means. They live in a modest home, drive a car for transportation only, but saves more than the average person. They don’t “look” wealthy, but their retirement account says otherwise.

Personal Capital Review: What’s Good and What to Watch Out For

December 20, 2018 by Susan Paige Leave a Comment

Most of us are familiar with the idea that there is no free lunch – but tech companies are very, very good at convincing us that this is not the case. If you’ve seen the news lately, you may have noticed that Facebook & Google have been in hot water because of the controversial use of their data. I don’t want to put Personal Capital in the same category, but don’t think for a second that they create and maintain all of their neat tools as a gesture of goodwill. Wondering how Personal Capital works and if it’s worth the cost? Here’s our review.

Personal Capital Review: How Does it Work?

Personal Capital’s crown jewel is an account aggregation system – a very unsexy term for something that actually does a bunch of really cool things. Essentially, you hook up all of your financial accounts – think credit cards, checking, investments, 401k from work, even your house! Personal Capital automatically crunches that data for you and lets you everything from what your total net worth is to your potential capital gains tax exposure. It’s like a financial Oracle – you after you’ve fed it your personal data, you can pretty much ask it any question you want to.

Here’s the thing – You aren’t the only one asking! Personal Capital anonymizes its data, so no one else is looking at your actual account numbers, but what they are looking at is how much you have, where you have it, and if Personal Capital can manage it. Personal Capital is actually a Registered Investment Advisor, which is a type of investment company that manages assets on a fiduciary basis (in your best interest).

This puts them ahead of traditional wealth management companies like Merrill Lynch and Morgan Stanley, but they like to sell themselves as being a FinTech company. In reality, their core business is much more similar to that of Fisher Investments, a traditional hard selling RIA firm. A lot of Personal Capital’s senior management team came from Fisher, so it should not shock you that their company culture is similar.

The Good

.89% is a low price to pay for true fiduciary wealth management
Personal Capital uses low-cost ETFs and efficient investment vehicles

The OK

The amazing set of free tools is counterbalanced by the fact that all of that info is going to Personal Capital – you are a lead in their system

The Not So Good

The advice given is highly dependant on who you talk to
The financial advisors receive compensation primarily for getting new assets onto the books, not keeping existing clients happy
If you don’t take advantage of or don’t want the financial planning aspect, you are paying .89% for no reason
Vanguard has a similar experience for only .3% at higher account balances

What You Need to Know about Personal Capital

Personal Capital currently has about $8 Billion of assets under management, which is certainly more money than you or I have, but tiny compared the other giants in the investment space. What they do have, however, is over $674 billion of tracked assets via their app – assets that they’d like to get on their own platform and charge .89% to manage. Because of this, its shiny free to use tools come with a cost. Buried in the fine print which I’m sure you didn’t read is a clause that allows Personal Capital to solicit you for advisory services.

If you have more than $100,000 in financial assets linked to the platform, you’d better expect a call from Personal Capital. You can always block their number or give them a fake phone number when you sign up, but that’s not very nice, is it? Those financial advisors from Personal Capital will be calling to try and get you invested in one of the three options below, depending on how much you have.

Personal Capital operates on a 3 tiered investment plan system – but unless you’ve got over a million dollars or more to invest, there’s no guarantee you’ll talk to a Certified Financial Planner. In a world where there are over 80,000 CFPs, there’s no reason to settle for anything less. It’s important to note that Personal Capital is not a robo advisor. While the advisors will attempt to put you in a managed asset program that may trade on certain automatic triggers, there are humans involved in all investment decisions.

In fact, once you get over $200,000, they will stop investing you in an all ETF strategy and move you into a basket of individual stocks that will act like an index – which can have several advantages. The ability to tax loss harvest at the individual stock level can increase real returns and should not be discounted. In addition, they offer full financial planning for free (which in my opinion they should position much more strongly).

Is It Worth the Fee?

The truth is that these days you can get an efficient investment allocation for pennies. If you choose the three fund portfolio, the cost for that allocation is something like .05% (the average weighted expense ratio of the funds). If you wanted to dial up the sophistication a bit, you could go to a robo advisor like Wealthfront and pay .25% (plus the expense ratio of the underlying funds) for a portfolio that trades automatically and can also tax loss harvest at the stock level – so why pay .89% for any of Personal Capital’s offerings?

Here’s the key difference – at Personal Capital you are (horror stories notwithstanding) not paying just for the investment management. Personal Capital is not a robo advisor – they even made a whole video explaining they are not a robo:

Now I tend to agree with them that one of the worst deals in finance is investing with a robo advisor. They are charging you a lot for taking a quiz once – and unlike a human advisor, no one’s there to talk you out of buying a bitcoin at $20,000 or letting you know how many years retirement you’ll postpone by if you go ahead and buy the house with the chef’s kitchen. Humans cost more than any robo (though with Vanguard’s Personal Advisor Services, not much more) but the value you get back from them is measurably higher because they serve as a wall between you and your worst impulses.

In addition to the above, a good human advisor can provide counsel to make sure that assets are correctly titled, can advise on trusts and wills, help you open a Donor Advised Fund to give to charities, review your tax return and more. Robo-advisors can only invest the money you’ve given them.

At Personal Capital they claim to offer you a ‘team’ of financial advisors at $100k, two financial advisors at $200k, and access to a Certified Financial Planner once you’ve accumulated a more than a million dollars with them. Because Personal Capital pays its financial advisors mostly for converting assets from off platform to assets under management – every minute their advisors spend talking to current clients is a minute they can’t use to convince potential new clients to join Prospect Capital. Most of these advisors are really just looking to gather up any of your assets that aren’t yet managed – providing them with additional fees and charging you more.

What About Vanguard’s Personal Advisor Services?

Most people know Vanguard as a go-to asset manager of choice for inexpensive, passively managed index ETFs and Mutual Funds. They currently have over $5 Trillion of assets under management – over $1 Trillion of which their discount brokerage account now holds.

Vanguard has taken a similar approach as Personal Capital, using this $1 trillion as a base to source clients for its own managed services program, called Vanguard Personal Advisor Services. There are a couple of key differences. Vanguard’s PAS is closer to a true robo advisor until you get to $500,000 – where you can get a CFP to do one time planning for free. At $1 million under management, you get a dedicated CFP for free.

So What Should You Do?

If you’ve got a million dollars or more, Vanguard seems like the no-brainer option to get a Certified Financial Planner (if you are ok with a call center delivering advice). If you have less than that or want a more experienced CFP focused on building a long-term relationship, try one of the many independent RIA firms out there that will treat you as a client and not a number.

You may pay more, but having a long, lasting relationship with someone who intimately knows your situation easily pays for itself when you need to make big life-changing financial decisions. If you just want investment management from a robo-advisor and to keep the pesky humans away, Schwab and WiseBanyan both offer a 0% fee algorithmic solution (though you will pay a small fee from the ETF expense ratios) – so you might as well skip robo advisors charging any price at this point.

Personal Capital is an underwhelming choice in any of these slots, so unless you really value the tools they offer, it is generally best to take your money elsewhere.

Author Info: Michael V. Spelman is a Certified Financial Planner, and co-owner of Myrmidon Private Capital, an RIA specializing in retirement planning. He’s also president at The GUL Guy, a specialty life insurance comparison agency.

Stock Market 101: Basics of Investing

August 13, 2013 by Stan Poores 6 Comments

Sometimes I hear people tell me that the stock market is like magic. That’s not the case at all.

Making money in the stock market does not have to be an impossible or difficult feat. Perhaps the biggest obstacle when it comes to investing is making sure time is on your side. Time is maybe the most important factor in investing for two reasons:

– there is longer for your money to compound

– you can make mistakes and learn the basics through trial and error

By reading some of the tips below on how to succeed in the stock market, you should be well on your way to starting an investment portfolio in stocks.

History proves that with time on your side, you can count on the history of the market to know that your investments will pay off. It is a well-known fact that in the long term, stocks have historically outperformed all other types of investments. Over long periods of time, that stock market has averaged around 10 percent. If you’re wanting to try investing using stock trading, then looking at some investment apps uk or other countries have available can kickstart your investment portfolio.

What About Over Shorter Time Frames?

Quite to the contrary, stock performance over the short term is a much riskier. There are countless examples in history where stocks have plummeted in a single day. When it comes to stocks, timing the market or day-trading is a skill that takes a lot of time and knowledge, and still is a dangerous pursuit. All in all, stock investments should only be relied on as long term investments unless you want to risk your savings. If so, I’d still recommend a day at the casino over the stock market. You’ll probably lose all of your money there, too, but you’ll certainly have more fun!

Risk/Reward

It’s true that as you increase your risk, you have a greater chance for a nice reward at the end of the rainbow. This is certainly the case when it comes to stocks. To take more risk, focus on sectors that historically have seen more volatility, such as real estate. If you’re hoping to lower your risk while investing, do your due diligence and never invest in something that you have not researched completely. Most investors have problems when they “take a flyer” or “trust their gut.” These are horrible ways to invest.

How To Pick Long Term Winners

Nothing is a better predictor of stock price appreciation over the long term than earnings. Companies with solid earnings sometimes can outspend their profits, but usually if you focus on earnings, you’re headed toward winning companies. When it comes to valuing a stock or determining how risky it is, looking at the historical data on earnings to discover risky or potentially successful the investment will be to you. The company earns little money but shows a profit? That company is downsizing and showing profits through cutting. You can’t do that forever. One huge quarter for earnings? You should ask yourself how the company can duplicate that feat in the future. You can learn a ton from earnings.

While earnings is a great place to start as you’re getting your feet wet, it’s definitely not the only indicator. Remember the whole “Time on your side so you can learn” speech above? This is meant to point you in the right direction. People spend years perfecting their knowledge of more advanced concepts such as price to book and price to earnings ratios.

Stocks Vs. Bonds

When comparing a bad day for a stock to a bad day for a bond, the differences are significant. Bonds tend to bounce back from a bad day much more quickly than a stock would. Historical data shows that a small dip in a stock’s price versus a bond’s price can mean entirely different long term results. A bond may bounce back quickly while a stock may take more than five years to recover. While bonds will rebound (or the company will go bankrupt), you never know with a stock.

Another good indicator for both the performance of stocks and bonds comes with a look at what interest rates are doing. When interest rates go up, bond prices fall. On the other hand, when interest rates fall, bond prices go up. Similar trends occur with stocks. Knowing these patterns can help you determine when a good time to buy or sell would be. While it is never a good idea to time the market without significant experience in investing, it is wise to know what the economy is doing. In general, the success of your investments will follow the success of the economy.