Author Topic: personal capital  (Read 2186 times)

chad

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personal capital
« on: September 08, 2016, 05:15:35 PM »
I heard their sales pitch and investment advice today. They thought I should sell about half my bonds (20% allocation) and put that money into a mix of real estate and commodities. And they thought that I should replace my S&P index fund with their special mix of etfs that are supposed to improve on the S&P by being equally weighted among several different sectors.

Here's one exchange I had with the guy that didn't make sense with me. He says "yes, actively managed funds are a rip off, and indexing is the way to go." He then proceeds to argue that I should allow him and his team to actively manage my investments for .89%. I told him I was doubtful that his management would add more than .89%, for the same reason I am doubtful that actively managed funds will add more value than they cost. He seemed to have no answer for that. Am I missing something here?

Also, the "equally weighting the sectors" approach that they favor seems flawed to me. I told him that it seemed implausible to me that the sectors should on average be expected to do equally well. He said "yeah, but you cannot predict which one sector or another will enter a bubble". I thought that was pretty clearly a non-sequitur, but I let him off the hook. But my concern remains: why would you think that you could guess the correct sector weighting strategy, and, if you were going to guess, why would you guess "they'll all do equally well over time"? Seems absurd to me.

Travis

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Re: personal capital
« Reply #1 on: September 08, 2016, 05:22:10 PM »
They claim to beat the market (through backwards testing) by 1.1%.  Assuming that's true, they're really offering to beat the market by .2%. As a passive index investor I do that sometimes on accident.  When I got the sales pitch the guy said their niche was less "beating the market" than it was "reducing risk."  Chopping up sectors and giving them equal weight hedges against losses, but it can't predictably increase your gains.  In other words, their strategy is only worth the effort when the market goes down.  Their free software is great at collating your portfolio and running some basic analysis on it, but they're too new to really claim they've hit the investment strategy jackpot.

protostache

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Re: personal capital
« Reply #2 on: September 09, 2016, 05:46:06 AM »
Market cap weight makes sense for the index fund companies because it means their turnover should be relatively low. Companies entering or exiting the S&P 500, for example, is a somewhat remade event, and if one company or sector suddenly gets big the fund doesn't have to suddenly make a bunch of trades to keep it in line.

Equal weight sometimes has better raw returns because it doesn't assume giant companies are the best performers. That said, if the fund intends to stay at equal weight then they have to trade more frequently, which drives up trading fees.

Mollie

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Re: personal capital
« Reply #3 on: September 09, 2016, 06:03:54 AM »
We use PC's paid services and are currently starting to work on getting out of them (anyone who's done this, let me know how it is!).  It was a good compromise at the time since their fees are lower than investment professionals and my husband was not on board with DIY investing.  PC's fee analyzer says 0.50% is optimal which definitely negates their 0.89% paid services.

We're investor newbies and have gotten a lot out of PC by asking financial advice from them on lots of things, but I'd like to simply move to Vanguard at this point and have now gotten the husband on board.

Travis

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Re: personal capital
« Reply #4 on: September 09, 2016, 08:24:38 AM »
Market cap weight makes sense for the index fund companies because it means their turnover should be relatively low. Companies entering or exiting the S&P 500, for example, is a somewhat remade event, and if one company or sector suddenly gets big the fund doesn't have to suddenly make a bunch of trades to keep it in line.

Equal weight sometimes has better raw returns because it doesn't assume giant companies are the best performers. That said, if the fund intends to stay at equal weight then they have to trade more frequently, which drives up trading fees.

They told me during our interview that this strategy does require a fair amount of trading to keep it in line, but they embed those costs in their .86% management fee.  Regardless, even if their strategy works it's a minor increase above market performance for giving up control of your portfolio.

TheAnonOne

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Re: personal capital
« Reply #5 on: September 09, 2016, 11:41:15 AM »
Market cap weight makes sense for the index fund companies because it means their turnover should be relatively low. Companies entering or exiting the S&P 500, for example, is a somewhat remade event, and if one company or sector suddenly gets big the fund doesn't have to suddenly make a bunch of trades to keep it in line.

Equal weight sometimes has better raw returns because it doesn't assume giant companies are the best performers. That said, if the fund intends to stay at equal weight then they have to trade more frequently, which drives up trading fees.

They told me during our interview that this strategy does require a fair amount of trading to keep it in line, but they embed those costs in their .86% management fee.  Regardless, even if their strategy works it's a minor increase above market performance for giving up control of your portfolio.

With a little brain power you could build the portfolio yourself and just re-balance it yearly or through your contributions (AKA: when buying, buy the down sectors)

MustacheAndaHalf

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Re: personal capital
« Reply #6 on: September 09, 2016, 12:09:50 PM »
They told me during our interview that this strategy does require a fair amount of trading to keep it in line, but they embed those costs in their .86% management fee.
There's a red flag lurking there: their fee will not be paying your increased taxes.  When you hold on to investments, you eventually sell at the long-term capital gains rate (typically 15%).  But under their approach, frequent sales lead to realizing gains at ordinary income tax rates (say 25% for the median $50k income).  And there's an additional hit: the money you use to pay taxes can't grow since it's paid to the IRS.

So if they made 10.2% after their fee, and then you owe 2.55% tax this year, you wind up +7.65% that year.
With indexing, you gain +10% and keep it.  You let the full 10% tax grow and compound.  Later, you owe the long-term capital gains rate (prob 15%), and pay 1.5% tax.  It's like being +8.5%, but you can keep the extra 1.5% growing.

Even assuming the big "if" of a company beating the market +1.1%, their performance could trail by -0.85% after fees and taxes.  And that's ignoring the tax-free loan you get by holding stock gains without selling.

Rocket

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Re: personal capital
« Reply #7 on: September 09, 2016, 12:27:52 PM »
I use personal capital to track all my investments and transactions but have ignored the advisors attempts to talk with me.  The free service is awesome and I'm not interested in paying .89%.  At one point I was using betterment at .15% but eventually just moved everything to a vanguard account that I manage myself.

LordSquidworth

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Re: personal capital
« Reply #8 on: September 10, 2016, 04:05:26 PM »
I heard their sales pitch and investment advice today. They thought I should sell about half my bonds (20% allocation) and put that money into a mix of real estate and commodities. And they thought that I should replace my S&P index fund with their special mix of etfs that are supposed to improve on the S&P by being equally weighted among several different sectors.

Here's one exchange I had with the guy that didn't make sense with me. He says "yes, actively managed funds are a rip off, and indexing is the way to go." He then proceeds to argue that I should allow him and his team to actively manage my investments for .89%. I told him I was doubtful that his management would add more than .89%, for the same reason I am doubtful that actively managed funds will add more value than they cost. He seemed to have no answer for that. Am I missing something here?

Also, the "equally weighting the sectors" approach that they favor seems flawed to me. I told him that it seemed implausible to me that the sectors should on average be expected to do equally well. He said "yeah, but you cannot predict which one sector or another will enter a bubble". I thought that was pretty clearly a non-sequitur, but I let him off the hook. But my concern remains: why would you think that you could guess the correct sector weighting strategy, and, if you were going to guess, why would you guess "they'll all do equally well over time"? Seems absurd to me.

It's just the West Coast Wallstreet. They take people off the street, teach them the bare minimum they need to make sales pitches, call them financial advisors, and set them loose on you. Theyre no different from the East Coast Wallstreet other than they try to use fancy computer programs to get your attention.

bestname

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Re: personal capital
« Reply #9 on: September 10, 2016, 04:25:40 PM »
I like their website and find it useful, but I found their sales pitch to be very aggressive.

Vagabond76

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Re: personal capital
« Reply #10 on: September 12, 2016, 06:07:48 PM »
I had no intention of buying PC's or anyone else's service, but I was curious what the sales pitch was.  So I listened to it about three years ago.  I thought I kept the slides but can't seem to find them now.

(1) The sales rep (aka financial advisor) was unable to discern a strategy from my holdings.  It was and is an cash flow-focused portfolio, but PC wasn't able to understand that.

(2) The pitch for holding equal weight of sectors was based on the tech bubble in 1999 and the financial/housing bubble in 2007.  Each time, the S&P 500 was dominated by those sectors, so a rotation out was, in hindsight, not as bad passively holding the index.

(3) Domestic equity holdings consist of ~85 individual stocks, with at least two similar companies for each industry.  For example, the portfolio might alternate between T and VZ or COP and XOM.  85 companies seems like a lot to keep track of, so my conclusion was PC just bounced back and forth between the pairs hoping both would go up or, if they went down, there would be some tax loss harvesting.

(4) I believe foreign holdings were in the form of an ETF or mutual fund, but I cannot remember.

(5) Bond holdings (domestic and foreign) were ETFs or mutual funds.  Again, PC bounced between funds.

I was never interested in giving PC any money, so I cannot say how successful they would have been.

pha999

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Re: personal capital
« Reply #11 on: September 19, 2016, 08:36:34 PM »
if they simply just use the equal weighted index strategy... well any one can do that as well by themselves. There are plenty of ETFs that offer equal weighted indexed ETFs and I am sure it would cost a less than .89% in management fees.