Why I’ll Date Personal Capital and Elope with VTSAX

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Why I'll Date Personal Capital But Elope With VTSAX

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“And instead of saying all of your goodbyes, let them know you realize that life goes fast, it's hard to make the good things last. You realize the sun doesn't go down, it's just an illusion caused by the world spinning 'round.”

— Wayne Coyne, Do You Realize?, The Flaming Lips, 2002

Musical Interlude … Skip if you must.

The Flaming Lips are among my all-time favorite bands. I've seen their amazing live show at least a half-dozen times over the course of their entire career, spanning the last 30 years. From fog and bubble machines on the Here It Is tours in the late 80s to the mind-blowing confetti, lights, lasers, unicorns (yes, unicorns!) and costumed characters running amok on the stage over the past 15 years, the Flaming Lips have always put on the best live show on earth. Weird things come out of Oklahoma and the Flaming Lips are the most awesome of those oddities.

OK, enough about music for today

I am super excited to launch the big fight between Personal Capital vs. VTSAX. Across the internet it was being billed as “the cage match to end all FI cage matches.” (No, it really wasn't. The rest of the internet barely knows we exist and that is just fine. They keep spending, markets keep growing, our pile of savings keeps benefiting.)

And then the wheels fell off.

One of the early Milestones of Financial Independence is that coveted Personal Capital phone call. It's a right of passage that says you're entering a new frontier in wealth accumulation. The point of the call is to convince you to let Personal Capital invest your pile of money for you. However, it turns out that in order to actually invest with Personal Capital you need at least (wait for it …) $200,000 in investable assets. What?!?

Wah wah.

While I was gun-ho to run this little test using $20,000 that I had sitting on the sidelines, I'm not about to absorb the sort of fees required to make this test a reality.

Personal Capital calls their investing approach “equal sector and style weighting.” It is compared to passively managed index funds such as VTSAX, which are market capitalization weighted. While it all sounds fine and good, and may be a way to reduce risk, to benefit from Personal Capital's process, do you realize you would have to stomach 0.89% in fees compared to the nearly nonexistent 0.04% charged by Vanguard?

To be fair to Personal Capital, you do get some other benefits for the 0.85% expense ratio difference, and it may be a way to reduce risk. You do the math and if it's right for you, go for it.

Don't get me wrong, Personal Capital. I still want to date, I'm just not ready for a long-term commitment

Don't get me wrong. That call from Personal Capital is still an awesome sign that you are kicking some serious arse and crushing this FI thing. Many in the FIRE world would agree–Personal Capital's tool is simply an amazing resource to help people like us track our assets and liabilities and achieve financial independence. If you haven't already, you really should sign-up for your very own Personal Capital account. But my advice: Date them, don't marry them!

Dating Personal Capital gives you access to all their super cool charts and graphs and shows you stuff like whether your portfolio is beating the S&P 500. Check out Physician On Fire's recent post to see all the cool things he does with it. But the fact is Personal Capital is just not so cool that it's worth running off to the court house and finding the closest Justice of the Peace. No, investing such a large chunk of money at a 0.89% expense ratio when you believe in a passively managed index approach to investing that comes with a 0.04 expense, as VTSAX does, just isn't all it's cracked up to be.

So what is CHGO FIRE to do?

We here in the FIRE community, and certainly not CHGO FIRE, will be dissuaded!

Earlier this month, I took that cash off the sidelines for a new–albeit less sexy–test. Think of this test as the undercard fight to the Mayweather vs. McGregor “boxing” match last fall. (Yeah, I don't remember it either.)

Without further ado, I give you the Three Fund Portfolio vs. VTSAX Challenge.

Admittedly not as sexy, but certainly a way to see which approach takes the cake in what has to be a more tumultuous market year than the last.

Both funds are held at Vanguard. Both funds have $12,000 each and both investments were purchased on the same day in early January.

The three-fund portfolio is comprised of:

  • VBMFX: Vanguard total US bond market fund with an expense ratio of .15 percent.
  • VGTSX: Vanguard total international stock index fund with an expense ratio of .18 percent.
  • VTSMX: Vanguard total US stock market index fund with an expense ratio of .15 percent.

I selected a traditional 60/40 spilt, so the bond fund, VBMFX, holds 40 percent of the $12,000 or $4,800. Of the remaining $7,200, the international fund, VGTSX, holds $3,000 (the minimum allowed), which equates to 25 percent of the portfolio. The remainder, $4,200, is in the investor version of VTSAX, known as VTSMX.

Admittedly these funds have a slightly higher expense ratio than VTSAX. This is due to the fact that these are investor shares and I would have had to invest quite a bit more for my three-fund portfolio to reach admiral share status for each fund. Besides, we can control for the differences in expense ratios as we go. The real beauty of this test will be to see if during a time of greater market volatility, does a portfolio that has greater balance perform better than a portfolio that is 100 percent US equities.

Time will tell.

Stay tuned for the first monthly update in early February. Also come back in February to see my first net worth statement and a breakdown of my personal asset allocation. I love it when other bloggers share their numbers, so I plan to do the same.

Until then, rock on! And seriously, queue up Do You Realize? by the Flaming Lips. You'll be happy you did.

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8 thoughts on “Why I’ll Date Personal Capital and Elope with VTSAX

  1. Maybe I missed it, but I don’t see where to go (what link) to follow up on the progress of this ‘test’.

  2. Personal Capital wasn’t able to soothe my discomfort with the equal sector weighing. What if one or more of those sectors turns out to be the “buggy whips” of our time? I’ve seen and believed the argument for overweighing small and value (relative to market cap), but not some random industry, just because it made their cut as a “sector.”

  3. I am a big fan of FI. I had never heard of personal capital. Was a mint.com fan. After reading about them here and other communities I gave them a try. Signed up and connected a few of my accounts. Surprisingly they started calling me and leaving voice mail EVERYDAY. They sent me emails EVERYDAY. After getting upset I decided to hop on a call with them. I was shocked to learn that every employee of this company can access my account without my permission. Were your guys experience the same? I am freaking out. How is this OK?

    • I got freaked out too, after signing up. I started getting the phone messages, “we had an appointment, sir.” No, we didn’t. I didn’t agree to an appointment. YOU made an appointment. When I told my wife that I had given this website all of our login and password info, she looked at me like I was crazy. I felt like she was right. I changed all my passwords and deleted my account. I’ll just continue keeping tabs on my accounts on my own again.

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