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Personal Capital Exit

Decided this week to exit a Personal Capital managed account strategy that has been held for about 3 years. Broadly speaking the allocation was 50% US equity, 25% foreign equity, 15% bonds and 10% alternatives (gold/real estate). Decision is mostly related to trying to reduce long term fees in our portfolio, plus trying to go more self directed with our investments.

The main reasons for exiting were that fees were adding up over time and market timing


– fees quite high 0.9%, relative to other managed investments. After 3 years these have started to add up, so if strategy is not significantly outperforming more long passive term strategies, then not being paid for the extra risk. Fees are ok for a few years if the market basically goes higher, but if market is flat to down them they will really start to impact performance over the long term.

– dividend yield minus fees is 0.6%, so dividend do pay for the fees, but effectively they cancel each other out. As a comparison you can get a better risk free return of 0.9% in several us savings banks. So therefore the 0.6% offered by this portfolio is under the risk free return rate, so this implies that nearly all return has to come from stock price growth.

– 50% of allocation is in standard market etfs. For example the alternatives (gold, real estate) and international stocks (Europe, Asia) are all standard market etfs. Does not make sense to pay someone else 0.9% fees to allocate an etf portfolio. For these asset classes that were a 50% allocation in our portfolio, this simply paying a fee for relatively standard asset allocation (hard to argue that there is value add from this half of portfolio).

– 50% allocation was US stocks that were 10 individual stocks in 8 main sectors (total 80 stocks) weighted in equal amounts. This is where the tax loss harvesting strategies should outperform according to marketing material. This approach might make sense if you wanted your total allocation to be in US stocks, especially if you believe that the tax loss harvesting strategy is a better mouse trap over the long run.

Market timing

We believe market is ultimately going lower in 2016, but could have short term spike higher into April/May. But even if it doesn’t do that, would like to trade in a more self directed fashion with this capital. Instructed Personal Capital to exit on March 7th, and admittedly the market might go higher from here. However this was somewhat of a tactical exit once the spy had rebounded to 200.00 about 10% from the lows in jan 2016. It is better to exit into strength (Mar 2016), than sell on weakness (Jan 2016).

– this is a bull market strategy that will perform poorly in a bear market, as demonstrated by the swift decline into Jan 2016. However with this particular strategy allocation the declines are faster and the rebounds slower, than for example the standard SPY etf.

– the advantage of this strategy was that it was a fully managed account. This required no interaction once setup, and could run itself. The individual stock positions in the account were independent from the 30 day rule because we have no discretion over position execution. This enabled the ability to have individual stock positions in a portfolio without having to manage them around the 30 day rule. However ultimately this lack of control is only useful in a bull market. When a bear market comes this type of strategy can sell off rapidly due to correlation between risk asset classes.

Portfolio Monitoring

Will still continue to use their free consolidated financial view website. Hopefully their website still has several issues representing international assets and options.

– no way to represent FX positions such British Pounds (GBP) and Canadian Dollars (CAD) – these have to be represented as a cash position, then enter the FX rate manually. This is annoying to do every month.

– no way to represent Options, they are just bundled under “Other” for any new trades – so constantly need to update to the correct asset class with each new trade – which is not really manageable given how many options trade we do.


In summary having looked at the characteristics of the strategy, effectively this is only a capital growth strategy, with no significant dividend income. This is because most of the dividends are eaten up by fees. Effectively you can get similar exposure on the us stock allocation, simply by using 1 contract of ES future contract (approx $100k exposure per contract). Futures contracts don’t pay dividends, so this might be most efficient and cost effective alternative to paying fees. We are planning to replicate a similar risk profile with futures and selling index options to reduce cost basis, for significantly less fees.

Personal Capital Portfolio in addition to a nice user interface also offer portfolio management (ie managed money). This is aimed at the “mass affluent” segment, which for the sake of a definition would likely be people with a liquid net worth from around 250k to $5million+. They also seem to be trying to capture up and coming HENRYs (high earners not rich yet). In finance industry slang this would be somewhere in between poor people (<100k) and ultra high net worth (>$10million). They are correct that this segment is traditionally underserved by common brokerages. Typically their minimum account size is 100k (but you can negotiate for less). They do charge a 0.95% annual fee (prorated and deducted monthly) for the privilege – but please read on before going into DIY mode!
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