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Bitcoin Taxes: How to Play by the IRS’ Rules

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Cryptocurrencies captivate and confuse investing enthusiasts and financial pros alike. Are they a smart investment option that will eventually show major gains or a popped bubble? Could they ever be part of a traditional investment portfolio or will they always be an outlier? And how will the Internal Revenue Service (IRS) and other financial regulatory agencies handle any monetary gains coming from Bitcoin, Litecoin, Ethereum, or other cryptocurrencies?

Are there taxes on Bitcoin or other cryptocurrencies?

In a word: Yes. Bitcoin taxes exist. But unlike some sections of the tax code, which can number in the hundreds of pages, the regulations surrounding cryptocurrency and bitcoin taxes are brief — for now. In 2014, the IRS released a notice regarding taxation when it comes to Bitcoin and other cryptocurrencies. This notice is only seven pages long, but broadly states that virtual currency is property, should be treated as such, and, depending on the transaction, may be liable to taxes based on its value on the day of receipt.

The lack of more substantial guidelines have frustrated lawmakers — the House of Representatives issued an open letter to the IRS in September 2018 asking for more clarity in the taxation of virtual currencies, and the Information Reporting Advisory Committee (IRPAC) recommended the IRS provide additional guidance regarding cryptocurrency taxation. For now, both the 2014 notice and previous tax rules applying to short- and long-term capital gains guide the taxation treatment of virtual currency.

If you purchased Bitcoin or another form of cryptocurrency and have it in a virtual wallet as the value rides the market, it is treated similarly to other types of investment vehicles for tax purposes. In short, you don’t need to pay taxes on the crypto itself. That’s because, even though “currency” is in the name, the IRS classifies cryptocurrency as property, which means that it’s treated similarly to a house, stocks or bonds. What this means: If you aren’t withdrawing, selling, or trading any funds, then there is no need to declare your cryptocurrency as part of your tax return.

However, you will need to report gains — or losses — to the IRS through a Schedule D (1040) form, if you have either:

  • “Mined” Bitcoin
  • Used it to buy goods
  • Received Bitcoin as payment
  • Traded or sold cryptocurrencies

Also, if you regularly use Bitcoin instead of cash or credit to purchase items online, it’s important to remember that once Bitcoin is converted to an asset — either cash or goods — the transaction becomes taxable.

Unlike sales of stocks or bonds, where you’re likely to receive a 1099 from your bank or brokerage, it’s up to you to report gains or losses to the IRS yourself. As per the IRS, any gains or losses with cryptocurrency are based on the value of the cryptocurrency at the time that it was bought, sold, or received as payment. Cryptocurrency values constantly fluctuate, so it’s a good idea to get in the habit of tracking values.

If you’re primarily buying or selling cryptocurrencies, you’ll likely be able to download transaction data from your wallet provider, but will need to look up the relative cost of the cryptocurrency bought, sold, or used on the day of the transaction. For example, if you paid for a product from an online vendor with Bitcoin, it’s up to you to assess how much the Bitcoin was worth at the time of sale. That purchase is considered a “taxable event” making your Bitcoin subject to taxes.

Websites like Cointracking.info and Bitcoin.tax are a few of the available online resources that can help you determine tax liabilities.

How much is Bitcoin taxed?

How cryptocurrencies are taxed depends on the length of time you’ve held the cryptocurrency. If you’ve owned the cryptocurrency for less than a year, it’s taxed as a short-term capital gain — the same as your ordinary income tax rate. If the cryptocurrency is held for longer than a year, then any gains will be taxed like long-term capital gains.

For 2018, ordinary income tax rates range from 10% to 37%, depending on your income. For most taxpayers, long-term capital gains are taxed at zero, 15%, and 20% depending on your tax rate. According to the IRS, this means if your ordinary income tax rate is below 15%, you may pay zero on long-term gains. Even if you are in a high tax bracket, you’re going to be paying far less on your long-term capital gains than you are for ordinary taxes, which means that it may be a smart idea to hold onto your cryptocurrency for as long as possible.

Again, bitcoin taxes are dependent on cryptocurrency converting into what the IRS views as a taxable event. In a nutshell, a taxable event is either converting the crypto to cash or using the crypto in a cash-like way.

For example, let’s say a neighbor offers to unload their old car to you for one bitcoin. In the eyes of the IRS, this would be similar to you converting the cryptocurrency to cash (even though no cash changed hands) and it’s up to you to pay taxes on the difference between what you paid for the crypto and what it was worth on the day the sale of the car is final.

Let’s say that you purchased Bitcoin in June 2013, when one bitcoin was valued at about $100. Your neighbor offers to trade her car for one Bitcoin in December 2018, when Bitcoin is valued at $4,000. Because you’ve owned the Bitcoin for over a year, this transaction is seen as a long-term capital gain and taxed at your capital gains rate, which is lower than your income tax rate.

And if you did end up recently losing money in the Bitcoin bubble, it could be possible to use your cryptocurrency transactions as a way to write off the loss on your taxes.

For example, let’s say you purchased one Bitcoin in December 2017, when one Bitcoin cost nearly $18,000. In December 2018, your neighbor offers to sell you her car for one Bitcoin — the day that the currency’s value was at nearly $4,000. Since you lost money in this transaction, you can report a short-term capital loss. But this strategy may have limitations: Even though your Bitcoin lost $14,000 in value from the day you bought the cryptocurrency to the day you transferred it to your neighbor, you’re limited in the loss you can report. The IRS caps short-term capital losses at $3,000 per year on personal tax returns, so you might have to carry that loss forward for years.

However, if you regularly use Bitcoin, it’s also important to be aware that the IRS views any gains from crypto transactions as subject to the net investment income tax if your combined investments (from rental properties, dividends, or other capital gains) is above a certain threshold ($125,000 for single filers in 2018).

If you “mine” for bitcoin, it’s also important to note that the IRS views this activity as employment, with the profits taxable as self-employment income. If your state has income tax, any losses or gains will also be subject to state tax as well.

How to stay out of trouble with the IRS

As cryptocurrency becomes more and more mainstream — and tracking tools become more adept at flagging crypto buys, sells, and trades — bitcoin gains will likely become more heavily scrutinized by the IRS. Along with the rise of cryptocurrency has come the rise of financial pros who have mastered the ins and outs of crypto and bitcoin taxes, as well as how to handle various crypto movements in the market, like “airdrops,” where new forms of cryptocurrencies are given to current investors.

The more you consider how you use crypto, the more questions you may have about how your crypto will be taxed. For example, can you donate crypto to charity? Right now, the answer is yes, with crypto being considered property — similar to gifting stock or real estate — in the eyes of the IRS. If you are planning to donate crypto to charity, it may make sense to donate the cryptocurrency directly to the charity (instead of converting the crypto to cash and donating the equivalent amount) so the charity can receive the full cash value of your crypto gift.

While you can write off the value of your crypto gift on your taxes, you will still be responsible for any capital gains taxes on the money you gave. But if you give the crypto directly to a 501(c)(3) charity while still in crypto form, the 501(c)(3) charity will be exempt from capital gains taxes when the crypto is converted to cash, maximizing the effectiveness of your gift.

Finally, if you’re donating over $500 in cryptocurrency value to a charity, it’s important to make sure to document your donation as though you were documenting any other gift of property. The IRS requires any non-cash gift to be documented with Form 8283, which also applies to crypto.

It’s important to recognize that crypto tax events are subject to worldwide income tax for US residents and citizens regardless of where the crypto originated or where in the world you purchased goods using crypto. And if you’re buying or trading cryptocurrency on a foreign exchange and own over $10,000 in assets, it may be worth speaking with a financial professional who specializes in cryptocurrency. You may need to file a Report of Foreign Bank and Financial Accounts (FBAR) form with the IRS.

As with any tax-related question or concern, more information is better than less information. Consulting with a tax professional, tax lawyer, or financial planner who has experience in cryptocurrency is usually a much better idea in the long run than hoping that you can figure out the right tax move on your own. Just because crypto is a new form of property doesn’t mean that new rules apply to tax evasion. Failure to pay taxes on crypto gains are subject to tax evasion penalties, including potential criminal charges of tax evasion or filing a false tax return, according to a statement from the IRS.

Bottom Line

Even if you’re not actively using crypto to sell, trade, or buy, it makes sense to become familiar with the tax rules surrounding bitcoin now — and realize things are likely to become more codified in the future. Even if you don’t currently own crypto, knowing the way crypto is viewed and how cryptocurrency can evolve from a short- to long-term gain depending on the length its held can help you consider how you might use crypto in the future — or encourage you to hang on to whatever is in your wallet now.

Understanding how the fluctuation of bitcoin prices can work in your favor — and how taxes could potentially affect any purchase or financial move made with crypto — can also help you see the full financial picture. Taking the time to report any crypto transactions now means you won’t need to refile taxes later, saving time and giving you a clear conscience, too.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Anna Davies
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Anna Davies is a writer at MagnifyMoney. You can email Anna here

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How to Invest: A Guide for Novice Investors

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

You’ve heard this line over and over again: To be smart with your money, you need to both build your savings and invest. The savings part is easy: Stash money away in a savings account — a little at a time — to pay for particular goals, like an emergency fund or a new car. Investing is a different story, and learning how to buy securities that will grow in value over time isn’t quite so simple.

Investments are made for the long term, and investing involves taking on risk. That might make you nervous, but investing is essential for your financial health. Compound interest and market gains can help your money grow a much higher rate than a savings account, helping you build long-term wealth for your retirement.

How to invest in 6 easy steps

The idea of investing might be intimidating, but don’t worry, it’s not as hard as you think. In fact, you can learn how to invest and get started in just five simple steps.

1. Start investing early

When you’re young, time is on your side. That’s especially true when it comes to investing. And the earlier you start the better, according to Brandon Renfro, a certified financial planner and an assistant professor of finance at East Texas Baptist University.

“Earnings from investments compound over time,” Renfro said. “The longer you give yourself to earn that compound return, the more money you will have when you reach a goal, such as retirement.”

Returns from your investing start slow, but compounding yields big gains over the long term. Let’s say that you start investing $200 per month at age 25 at a 7% return. After five years, you would have saved $12,000 and earned only $2,400.

However, if you keep adding $200 to your investing portfolio every month until age 70, you’ll have contributed $120,000—and earned almost $976,000, for a total portfolio value of $1.1 million.

You don’t always get a steady return on your investment, as in the example above. The market fluctuates, moving up and down, dramatically sometimes. But over the long term, the market produces regular returns. According to the financial firm Morningstar, the long-term average return from the stock market is near 10%.

Investing while you’re young allows you to ride out any short-term losses so you can take advantage of gains over the long-term. Even if the market dips over the near term, over the 20- to 30-year time frame, you’ll see reliable growth rates.

2. Decide how much to invest

When deciding how much to invest, it’s important to take your goals into consideration. If you have high-interest debt or if you don’t have an emergency fund, it may make more sense to pay down your debt and build a small savings account before you invest.

After that, think about your long-term goals, such as planning for retirement. You’ve likely heard experts recommend that you save millions of dollars, but don’t let that scare you. When you’re just starting out, it’s important to start saving whatever you can and to keep contributing consistently.

Vanguard, one of the biggest investment companies, recommends that you save 12% to 15% of your income for retirement. If that sounds impossible right now, save what you can afford, even if it’s just $25 per month. Over time, those small amounts will snowball, helping you build a sizable nest egg.

If your employer offers a 401(k) retirement plan and matches contributions, try to contribute enough to qualify for the full match. That’s free money you’d otherwise leave on the table.

3. Understand how investment accounts work

When you’re ready to start investing, it’s important to think about what kind of account you want to open. There are three core investment account types:

  • Employer-sponsored plans: Some employers offer retirement investment accounts to their employees, such as a 401(k) or 403(b). You may even be eligible for an employer contribution match, putting more money toward your goals. There are tax benefits to contributing to these plans, helping you save money at tax time.
  • Individual retirement accounts (IRA): An IRA is a great way for you to start saving for retirement on your own, outside of an employer-sponsored plan. There are traditional IRAs and Roth IRAs, which both offer tax benefits.
  • Individual taxable accounts: Another way to save is by investing in an individual taxable account, otherwise known as a brokerage account. There are no tax benefits to these accounts, but they also don’t have limitations on contributions or withdrawals like employer-sponsored plans or IRAs do. If you’re saving for a goal beyond retirement, like buying a home, an individual investment account is the best choice.

According to Natalie Pine, a certified financial planner and managing partner of Briaud Financial Advisors, IRAs and employer-sponsored accounts are strong starting points.

“There is no wrong way to save, but when you are young, a Roth IRA, 401(k), 403(b) is a great option,” Pine said. “You pay low taxes now and have tax-free growth for the rest of your life and the lives of your beneficiaries.”

4. Understand what to invest in

Once you’ve chosen an account structure, you can think about what type of asset classes and investments you want to make. There are several different investment options:

  • Stocks: When you buy a stock, you’re purchasing a share of a company like Apple or Google. Your gains or losses are dependent on the company’s performance and trends in the stock market.
  • Bonds: Bonds are loans you make to the government or corporation in exchange for interest payments over a set time period.
  • Mutual funds: With a mutual fund, you pool your money together with other investors to purchase a mix of stocks, bonds, and other securities that would otherwise be too expensive to purchase on your own.
  • Exchange traded funds (ETFs): Like mutual funds, ETFs are pooled investment options that allow you to invest in a diversified portfolio. However, they’re traded like stocks on the stock exchange.
  • Index funds: An index fund follows the performance of a specific market benchmark, such as the S&P 500 Index. The fund’s manager will a preselected collection of hundreds or even thousands of stocks and bonds, diversifying your portfolio.
  • Options: When you invest in options, you create a contract that allows you to buy or sell a security at a fixed price within a specific period of time.
  • Cryptocurrency: Cryptocurrency is a digital representation of assets used to buy and sell goods; one of the most well-known versions is bitcoin. It’s a very risky and volatile investment option, but it’s gaining popularity.

5. Choose an investment strategy

Next, think about your investment strategy. Consider your own risk tolerance. Some people are comfortable taking on more risk, thinking it’s worth it to potentially see high returns. Others get panicky when they see the market dip, and prefer more conservative investments that offer lower, steadier returns. Choose an investment strategy that works for your comfort level.

  • Consider how long you have until your target date. For example, if you’re planning on retiring in 30 years, you can choose a more aggressive portfolio that’s more heavily invested in stocks.
  • If you have short-term goals, like buying a home within the next five years, you want to invest more conservatively. You may put your money in a high-yield savings account or invest in low-risk bonds.
  • If you’re feeling overwhelmed, consider investing with a robo-advisor. Automated investing platforms like Betterment or Wealthfront review your financial goals and risk tolerance, and comes up with a comprehensive investment plan for you. The robo-advisor will invest your portfolio in a range of ETFs, mutual funds, stocks, or bonds, and will rebalance your portfolio as you approach your investment target dates. Many robo-advisors have low fees, and have no account minimums, so you can invest even if you don’t have a lot of money.

The most important part is simply getting started. “While it is important to plan, don’t let the details overwhelm you to the point of inaction,” advised Renfro. “It’s better to get started now understanding just the basics than to keep putting it off.”

6. Automate your investments

According to Pine, consistency is key to your success as an investor.

“With regard to investing, consistency is essential to avoid emotions driving decisions that ultimately lead to poor performance,” she said. “If you stick with a system, whatever that may be, you are more likely to weather various storms than if you trade around a lot and catch investments at the wrong time.”

Making regular contributions will help you build long term wealth. When you’re short on cash each month, finding extra money to invest may feel impossible. However, there are different strategies you can use to invest, even if you don’t have a lot of cash:

  • Pick an investment account with a low minimum: Some discount brokers have very low account minimums. For example, Fidelity and Charles Schwab have $0 minimums, so you get started with just a few dollars.
  • Invest your spare change: Investment apps like Acorns allow you to engage in micro-investing, where you invest your extra change. The app syncs to your bank account or credit card. Every time you make a purchase, the app rounds it up to the next dollar, and deposits the difference to your investment account. For example, if you pay $2.53 for a cup of coffee, the app would deposit $0.47 into your investment account. Over time, those small amounts can add up.
  • Set up recurring contributions: If possible, set up recurring withdrawals into your investment account. Setting up automatic deposits will take out the money before you can mentally spend it, helping you stay on track.
  • Deposit windfalls: If you receive any money unexpectedly, such as a bonus at work, your tax refund, or a gift from a relative, deposit that money directly into your investment account. It’s extra cash, so you won’t need it to make ends meet, and it can help you reach your long-term goals.

Always keep learning

As a new investor, the most important thing to do is to get started as soon as possible. The earlier you invest, the more time your money has to grow.

After you’ve opened an account and made your initial investment, spend some time learning about your investment options. There’s always something new to learn, and growing your knowledge base can help you make more informed investment decisions, which can pay off over the long run. And keep reading on MagnifyMoney to learn more about investing!

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Kat Tretina
Kat Tretina |

Kat Tretina is a writer at MagnifyMoney. You can email Kat here

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Investing

Personal Capital Review 2019

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Personal Capital is a hybrid of a traditional brokerage and a robo-advisor. It offers portfolio design via algorithm—like many competing robo-advisors—and also lets you buy individual stocks, design portfolios and access human financial advisors. In fact, the company dislikes the term robo-advisor, and prefers to call itself a “digital wealth manager.”

Be advised that the minimum balance requirement is $100,000, meaning that Personal Capital is only a viable choice for investors who have already accumulated a sizable nest egg. It’s not a product for beginners, although it is a great choice for people who have sufficient funds.

Founded in 2009 by a former CEO of PayPal and Intuit, the company claims that it offers “full financial planning at no additional cost.” It charges an asset management fee of 0.89%, which is on the low side for personal financial planning, but it’s on the high side for robo-advisors, most of whom charge less than 0.50% per year. The fee drops as low as 0.49% for high-balance investors, but need a balance of more than $10 million to qualify for the lower rate.

Personal Capital
Visit Personal CapitalSecuredon Personal Capital’s secure site
The Bottom Line: Personal Capital offers automated and active investing features, as well as in-depth financial planning advice, all of which should appeal to users who can swing the minimum balance requirement of $100,000.

  • Access to financial advisors at all asset levels
  • Individual stock investing and customized portfolios
  • Useful financial dashboard tools

Who should consider Personal Capital

Personal Capital is best suited to high-balance investors looking for a less expensive and more hands-off strategy than working with a full-service investment firm. The initial phone consultation with an advisor can help users evaluate their financial position and what they need to do to hit their goals.

The minimum balance required to begin investing with Personal Capital is $100,000, and you need at least $200,000 in investable assets to unlock the ability to customize a portfolio with individual stocks. This level also earns you recommendations and support from two dedicated financial advisors.

Note that anyone can take advantage of the site’s free account aggregation and monitoring tools, which let you test retirement and savings assumptions and make sure your plan will help you achieve your goals.

If you are a socially conscious investor, Personal Capital offers an investment strategy that restricts certain businesses or industries based on their ESG rankings.

Personal Capital fees and features

Amount minimum to open account
  • $100,000
Management fees
  • 0.89% for accounts of $100k - $1M
  • 0.79% for accounts of $1M - $3M
  • 0.69% for accounts between $3M and $5M; lower fees for accounts over $5M
Account fees (annual, transfer, inactivity)
  • $0 annual fee
  • $0 full account transfer fee
  • $0 partial account transfer fee
  • $0 inactivity fee
Account types
  • Individual taxable
  • Traditional IRA
  • Roth IRA
  • Joint taxable
  • Rollover IRA
  • Rollover Roth IRA
  • SEP IRA
  • Trust
Portfolio
  • Personal Capital offers 6 high-level asset classes.
Automatic rebalancing
Tax loss harvesting
Tax loss harvesting detailPersonal Capital's tax optimization process focuses on three key areas: tax allocation, tax loss harvesting and tax efficiency.
Offers fractional shares
Ease of use
Mobile appiOS, Android
Customer supportPhone, 24/7 live support, Email, 5 branch locations

Fee tiers and wealth management options

Personal Capital charges variable annual management fees depending on your total account balance:

  • Up to $1 million: 0.89%
  • First $3 million: 0.79%
  • Next $2 million: 0.69%
  • Next $5 million: 0.59%
  • Over $10 million: 0.49%

It offers three levels of wealth management services, depending on your total account balance:

  • Investment Service: Balances of $100,000 to $200,000 get access to a team of financial advisors and an actively managed portfolio of ETFs.
  • Wealth Management: Account balances of $200,000 to $1 million unlock access to two dedicated financial advisors, specialists in real estate and stock options and a customized portfolio with regular reviews, as well as enhanced tax optimization.
  • Private Client: When your account balance includes more than $1 million, you get two dedicated financial advisors; priority access to specialists and the firm’s investment committee; in-depth support for retirement, wealth and estate planning; and private equity investment options.

If your balance is below $200,000, you can invest in ETFs but you cannot customize your portfolio. Personal Capital will recommend a target allocation that’s based on the profile questions you answered during the sign-up process, plus other financial information you’ve provided. While you can choose from among different target allocations, you won’t be able to create a custom allocation.

That said, Personal Capital does offer an ESG-optimized portfolio for users interested in socially responsible investing. In addition to limiting exposure to fossil fuels, the company’s ESG basket filters out companies with material exposure to things like adult entertainment, gambling, tobacco, military contracting and guns.

Tax optimization is available at all portfolio levels. Personal Capital “tax optimizes” by making sure people put the right investments in the right accounts (i.e. taxable accounts versus retirement accounts) and by tax loss harvesting, which means realizing losses to offset gains. All levels of service also offer portfolio rebalancing. Accounts are reviewed daily for tax-efficient rebalancing opportunities.

All accounts above $200,000 can invest in individual stocks and customize portfolios. Certain accounts with assets over $1 million may be able to invest in individual bonds. With assets over $5 million invested with Personal Capital, users may gain access to private equity investments.

Personal Capital Cash

Personal Capital recently launched a cash management account, Personal Capital Cash. The account earns 1.55% APY for people without a Personal Capital advisory account, and 1.60% APY for customers with an advisory account. Personal Capital Cash pays slightly less than other similar high-yield savings accounts, but there’s also no minimum balance and there are no fees associated with it.

Personal Capital partners with UMB Bank, which holds deposits in Personal Capital Cash in a network of different banks and arranges FDIC insurance coverage. The account offers up to $1,500,000 in FDIC insurance, well above the standard $250,000 level available with conventional deposit accounts.

Financial dashboard tools

One of Personal Capital’s strengths is that it offers financial tools to help you understand and track your entire financial life. These tools are free and available to anyone who downloads the app. You may register and link all your financial accounts to Personal Capital, such as bank accounts, brokerage accounts, loans and credit cards. Once they are linked to the app, your personalized financial dashboard gives you a view of your:

  • Net worth: You can see your current net worth for the past 30 days, including the change in this measure over the last 30 days and today’s change.
  • Cash flow: The dashboard offers a graphic representation of your cash inflows and outflows for the past 30 days, arranged by category (paychecks and deposits on the inflow side, mortgage and other expenses on the outflow side). Click on any category to dive into the detailed transactions there, or click the whole category to compare this month’s spending to last month’s spending and see transactions by category.
  • Portfolio balances: You’ll see the value of your investment accounts for the past 30 days, along with change values over the past month and today’s value.
  • Portfolio allocation: This is a top-down view of your investments across all asset classes—although only if your assets are invested with Personal Capital. If you’ve linked outside investment accounts, their value will be included in your portfolio balance, but the site doesn’t include those assets among your allocation.
  • Gainers and losers: If you’ve got individual stocks in your portfolio — which would make you a higher-level investor—you’ll see how they’re performing versus the S&P 500.
  • Retirement savings: The dashboard recommends how much you should be saving toward retirement each year and how much you’ve saved to date this year. It can also predict whether your retirement portfolio will support your retirement spending.
  • Emergency fund: You’ll see how much cash you’ve got stashed away. If the dashboard feels you could be investing part of that for greater return, it will recommend moving some money around.

Strengths of Personal Capital

  • Access to financial advisors. At all levels of investing, users have access to financial planners who can answer questions and offer advice on saving and investing. In fact, the company requires you to schedule a (free) chat with a financial advisor in order to set up your financial dashboard.
  • Big picture planning. Because Personal Capital advisors will professionally review your whole financial picture, you’ll receive recommendations based not only on your answers to questions about risk and goals, or what you have invested at Personal Capital, but also what you have in your 401(k) and other retirement accounts. They’ll also offer advice on college savings plans and estate planning strategies, although estate planning is only available with investable assets of $1 million or more.
  • Free financial tools. Even if you don’t invest with Personal Capital, you can still access a wealth of free financial tools that will analyze your net worth, cash flow, retirement and savings situation and make recommendations. You also get one free phone call with a Personal Capital advisor.

Drawbacks of Personal Capital

  • High minimum balance. To open an account with Personal Capital, you’ll need at least $100,000 in invested assets, which is the highest of most robo-advisors on the market. Compare this to Vanguard Personal Advisor Services, which requires a $50,000 account minimum, and to Charles Schwab Intelligent Portfolios Premium, which requires a $25,000 buy-in. And some robo-advisors, such as Wealthfront, require as little as $500.
  • High management fees. Personal Capital charges an asset management fee of 0.89% for portfolios between $100,000 and $1 million, which is also among the highest fees charged by robo-advisors. By comparison, Vanguard charges just 0.30% and Wealthfront charges 0.25%. When you top $1 million in assets, the management fee goes down, but just to 0.79% for $1 million to $3 million, and 0.69% for $3 million to $5 million, and so on. Once you get over $10 million, you’ll pay 0.49% in asset management fees, which is still higher than most competitors.
  • Non-customizable portfolios for beginners. Until you reach an asset level of $200,000 and up, you can’t alter your investment mix, and you’re limited to ETF investing only.

Is Personal Capital safe?

Most fintech users are comfortable linking their financial accounts to an investment platform, and Personal Capital’s safeguards are in line with standards. They partner with financial tech industry veteran Yodlee to facilitate account aggregation, and user bank and brokerage credentials are only stored at Yodlee.

The site uses two-factor authentication when you sign in and encrypts your credentials and personal data with military-grade encryption algorithms. The company protects its data centers with various systems designed to prevent hacking and monitor for suspicious activity, and the data centers follow stringent financial and international security standards protocol.

Personal Capital also helps you keep an eye on things by sending an (optional) daily email with every transaction that occurred during the previous 24 hours in all your linked accounts, including your bank, broker and credit cards. Keep an eye on the activity and make sure you recognize all the transactions.

As far as insurance, all investment securities are held by an SIPC member broker custodian, protecting your securities up to $500,000, and Personal Capital Cash is FDIC insured up to $1,500,000.

Final thoughts on Personal Capital

Personal Capital is worth considering if you have $100,000 or more to invest on this platform. Though lower-level users can’t customize their portfolios, asset allocation models seem to outperform comparative benchmarks much of the time.

Investors should carefully consider whether they’d like more control over their investments or whether they’re willing to pay higher-than-average fees for the services Personal Capital offers. In the meantime, the financial planning tools and initial consultation will give the average investor some insight into how they’re doing and where they’d like to go.

Open a Personal Capital accountSecured
on Personal Capital’s secure website

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Kate Ashford
Kate Ashford |

Kate Ashford is a writer at MagnifyMoney. You can email Kate here